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SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 20-F

|  |  |                                                                                                                           | 
|- |  | ------------------------------------------------------------------------------------------------------------------------- | 
|o |  | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934                           
| 
|  |  | OR                                                                                                                       
| 
|x |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2002
| 
|  |  | OR                                                                                                                       
| 
|o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934                                 
|  |  | Commission file number 1-14400                                                                                           

METSO CORPORATION(Exact name of Registrant as specified in its charter)

The Republic of Finland
(Jurisdiction of incorporation or organization)

P.O. Box 1220
FIN-00101 Helsinki
Finland
(Address of principal executive offices)

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

|                                                                            |  |                                           
|--------------------------------------------------------------------------- |  | ------------------------------------------
|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.             

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

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

Number of shares, nominal value 1.70 each, outstanding on December 31, 2002: 136,250,545

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

|    |  |   |  |    |  |  
|--- |  | - |  | -- |  | -
|Yes |  | x |  | No |  | o

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

|        |  |   |  |         |  |  
|------- |  | - |  | ------- |  | -
|Item 17 |  | o |  | Item 18 |  | x



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TABLE OF CONTENTS

|             |  |                                                       |  |                                                         |    |      |    | 
|------------ |  | ----------------------------------------------------- |  | ------------------------------------------------------- | -- | ---- | -- | 
|             |  |                                                       |  |                                                         |    | Page
|             |  |                                                       |  |                                                         |    |     
|INTRODUCTION |  | iii                                                  
|             |  |                                                      
|PART I      
|             |  |                                                      
|Item 1.      |  | Identity of Directors, Senior Management and Advisers |  |                                                         | 1  |     
|Item 2.      |  | Offer Statistics and Expected Timetable               |  |                                                         | 1  |     
|Item 3.      |  | Key Information                                       |  |                                                         | 1  |     
|             |  |                                                       |  | Selected Financial Data                                 |    |      | 1  | 
|             |  |                                                       |  | Exchange Rates                                          |    |      | 3  | 
|             |  |                                                       |  | Risk Factors                                            |    |      | 4  | 
|             |  |                                                       | 
|Item 4.      |  | Information on the Company                            |  |                                                         | 6  |     
|             |  |                                                       | 
|             |  |                                                       |  | Organization                                            |    |      | 6  | 
|             |  |                                                       |  | History and Development of the Company                  |    |      | 6  | 
|             |  |                                                       |  | Strategy                                                |    |      | 7  | 
|             |  |                                                       |  | Corporate Structure                                     |    |      | 7  | 
|             |  |                                                       |  | Business Summary                                        |    |      | 9  | 
|             |  |                                                       |  | Discontinued Operations                                 |    |      | 23 | 
|             |  |                                                       |  | Significant Subsidiaries                                |    |      | 25 | 
|             |  |                                                       |  | Raw Materials                                           |    |      | 25 | 
|             |  |                                                       |  | Seasonality                                             |    |      | 25 | 
|             |  |                                                       |  | Dependence on Intellectual Property                     |    |      | 26 | 
|             |  |                                                       |  | Governmental Regulation and Environmental Matters       |    |      | 26 | 
|             |  |                                                       |  | Property, Plants and Equipment                          |    |      | 27 | 
|             |  |                                                      
|Item 5.      |  | Operating and Financial Review and Prospects          |  |                                                         | 30 |     
|             |  |                                                      
|             |  |                                                       |  | Business Environment                                    |    |      | 30 | 
|             |  |                                                       |  | Recent Developments                                     |    |      | 30 | 
|             |  |                                                       |  | Critical Accounting Policies                            |    |      | 32 | 
|             |  |                                                       |  | Results of Operations                                   |    |      | 35 | 
|             |  |                                                       |  | Liquidity and Capital Resources                         |    |      | 40 | 
|             |  |                                                       |  | Capital Expenditure                                     |    |      | 42 | 
|             |  |                                                       |  | Research and Development                                |    |      | 42 | 
|             |  |                                                       |  | Foreign Currency Fluctuations                           |    |      | 45 | 
|             |  |                                                       |  | Inflation                                               |    |      | 46 | 
|             |  |                                                       |  | Adoption of International Financial Reporting Standards |    |      | 46 | 
|             |  |                                                       |  | New Accounting Standards                                |    |      | 46 | 
|             |  |                                                      
|Item 6.      |  | Directors, Senior Management and Employees            |  |                                                         | 47 |     
|             |  |                                                      
|             |  |                                                       |  | Board of Directors                                      |    |      | 47 | 
|             |  |                                                       |  | Corporate Executive Board                               |    |      | 48 | 
|             |  |                                                       |  | Compensation of Directors and Officers                  |    |      | 50 | 
|             |  |                                                       |  | Audit Committee and Compensation Committee              |    |      | 50 | 
|             |  |                                                       |  | Employees                                               |    |      | 50 | 
|             |  |                                                       |  | Share Ownership                                         |    |      | 51 | 
|             |  |                                                       |  | Share Repurchases                                       |    |      | 52 | 
|             |  |                                                      
|Item 7.      |  | Major Shareholders and Related Party Transactions     |  |                                                         | 52 |     
|             |  |                                                      
|             |  |                                                       |  | Major Shareholders                                      |    |      | 52 | 
|             |  |                                                       |  | Related Party Transactions                              |    |      | 53 | 

(i)



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|         |  |                                                                              |  |                                                  |    |      |    | 
|-------- |  | ---------------------------------------------------------------------------- |  | ------------------------------------------------ | -- | ---- | -- | 
|         |  |                                                                              |  |                                                  |    | Page
|         |  |                                                                              |  |                                                  |    |     
|Item 8.  |  | Financial Information                                                        |  |                                                  | 53 |     
|         |  |                                                                             
|         |  |                                                                              |  | Consolidated Financial Statements                |    |      | 53 | 
|         |  |                                                                              |  | Export Sales                                     |    |      | 53 | 
|         |  |                                                                              |  | Legal Proceedings                                |    |      | 53 | 
|         |  |                                                                              |  | Dividend Policy                                  |    |      | 54 | 
|         |  |                                                                              |  | Significant Changes                              |    |      | 54 | 
|         |  |                                                                             
|Item 9.  |  | The Offer and Listing                                                        |  |                                                  | 55 |     
|         |  |                                                                             
|         |  |                                                                              |  | Nature of Trading Market                         |    |      | 55 | 
|         |  |                                                                              |  | Trading and Settlement on the Helsinki Exchanges |    |      | 56 | 
|         |  |                                                                              |  | Regulation of the Finnish Securities Market      |    |      | 57 | 
|         |  |                                                                              |  | The Finnish Book-Entry Securities System         |    |      | 57 | 
|         |  |                                                                              | 
|Item 10. |  | Additional Information                                                       |  |                                                  | 59 |     
|         |  |                                                                             
|         |  |                                                                              |  | Articles of Association                          |    |      | 59 | 
|         |  |                                                                              |  | Material Contracts                               |    |      | 61 | 
|         |  |                                                                              |  | Exchange Controls                                |    |      | 61 | 
|         |  |                                                                              |  | Control of Foreign Ownership                     |    |      | 61 | 
|         |  |                                                                              |  | Taxation                                         |    |      | 61 | 
|         |  |                                                                              |  | Documents on Display                             |    |      | 66 | 
|         |  |                                                                             
|Item 11. |  | Quantitative and Qualitative Disclosures about Market Risk                   |  |                                                  | 66 |     
|         |  |                                                                             
|         |  |                                                                              |  | Exchange Rates and Foreign Currency Exposure     |    |      | 66 | 
|         |  |                                                                              |  | Interest Rate Risk                               |    |      | 67 | 
|         |  |                                                                              |  | Equity Price Risk                                |    |      | 68 | 
|         |  |                                                                             
|Item 12. |  | Description of Securities Other than Equity Securities                       |  |                                                  | 68 |     
|         |  |                                                                             
|PART II 
|         |  |                                                                             
|Item 13. |  | Defaults, Dividend Arrearages and Delinquencies                              |  |                                                  | 69 |     
|Item 14. |  | Material Modifications to the Rights of Security Holders and Use of Proceeds |  |                                                  | 69 |     
|Item 15. |  | Controls and Procedures                                                      |  |                                                  | 69 |     
|Item 16. |  | [Reserved]                                                                   |  |                                                  | 69 |     
|         |  |                                                                              | 
|PART III
|         |  |                                                                              | 
|Item 17. |  | Financial Statements                                                         |  |                                                  | 69 |     
|Item 18. |  | Financial Statements                                                         |  |                                                  | 69 |     
|Item 19. |  | Exhibits                                                                     |  |                                                  | 70 |     

(ii)



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INTRODUCTION

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

CURRENCY PRESENTATION

On January 1, 1999, the 11 member states of the European Union (the EU)
initially participating in the Economic and Monetary Union (known as the EMU)
introduced a single European currency known as the euro. Following the adoption
by Greece of the euro as its national currency, the following 12 member states
participate in the EMU and have adopted the euro as their national currency:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
The Netherlands, Portugal and Spain. During a transitional period from January
1, 2002 through February 28, 2002, euro banknotes and coins entered circulation
and the national currencies of the EMU member states were phased out.
Currently, the euro is the lawful currency of the EMU member states.

In this annual report, we have presented our consolidated financial
statements in euros. The consolidated financial data for periods prior to 1999
was prepared in Finnish markkas, and have been restated into euros using the
irrevocable conversion rate of 1.00 = FIM 5.94573. The consolidated financial
statements depict the same trends as would have been presented if we had
continued to present consolidated financial statements in Finnish markkas.
However, our consolidated financial statements for periods prior to January 1,
1999 are not comparable to the financial statements of other companies that
currently report in euros and that have restated their financial statements
from a currency other than the Finnish markka.

As used in this annual report:



| |  |  | euro or  means the lawful currency of the member states of the
European Union participating in the EMU;                                                                                                                                                                                                                                                        
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | U.S. dollar, U.S.$ or USD means the lawful currency of the United
States of America;                                                                                                                                                                                                                                                                          
|
| |  |  | Finnish markka or FIM, when used with respect to any time or period
before January 1, 1999, means the lawful currency of the Republic of Finland
and, when used with respect to any time or period from January 1, 1999 through
December 31, 2001, means the sub-unit of the euro designated as such under the
applicable regulations of the European Community;
|
| |  |  | Deutsche mark or DEM, when used with respect to any time or period
before January 1, 1999, means the lawful currency of the Republic of Germany
and, when used with respect to any time or period from January 1, 1999 through
December 31, 2001, means the sub-unit of the euro designated as such under the
applicable regulations of the European Community; 
|
| |  |  | pound sterling or GBP means the lawful currency of the United
Kingdom of Great Britain and Northern Ireland;                                                                                                                                                                                                                                                    
|
| |  |  | South African rand or ZAR means the lawful currency of the Republic
of South Africa; and                                                                                                                                                                                                                                                                        
|
| |  |  | Swedish krona or SEK means the lawful currency of the Kingdom of
Sweden.                                                                                                                                                                                                                                                                                        

Unless otherwise stated, euro amounts have been translated into U.S.
dollars at the noon buying rate in New York City for cable transfer in foreign
currencies as certified for customs purposes by the Federal Reserve Bank of New
York (the noon buying rate) on December 31, 2002, which was 1.00 =
U.S.$1.0485 (U.S.$1.00 = 0.9538). On April 16, 2003, the noon buying rate for
the euro was 1.00 =
U.S.$1.087 (U.S.$1.00 =
0.920).

FINANCIAL AND OTHER INFORMATION

Our consolidated financial statements are prepared in accordance with
generally accepted accounting principles in Finland (Finnish GAAP), which
differ in certain significant respects from generally accepted

(iii)



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accounting principles in the United States (U.S. GAAP). For a discussion
of the principal differences between Finnish GAAP as currently in effect and
U.S. GAAP, see Note 31 to our audited consolidated financial statements as of
and for the years ended December 31, 2001 and 2002, and income statement data
for each of the years in the three-year period ended December 31, 2002,
included elsewhere in this annual report.

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

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

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

FORWARD-LOOKING STATEMENTS

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



| |  |  | operating factors, such as the continued success of our
manufacturing activities and the achievement of efficiencies
therein, continued success of product development, acceptance of new
products or services by our targeted customers, success of the
existing and future collaboration arrangements, changes in business
strategy or development plans or targets, changes in the degree of
protection created by our patents and other intellectual property
rights, the availability of capital on acceptable terms,
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | success of future acquisitions and restructuring and changes
in our business strategy,                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  |  | industry conditions, such as strength of product demand,
intensity of competition, prevailing and future global market prices
for our products and the pricing pressures thereto, financial
condition of the customers and competitors, the potential
introduction of competing products and technologies by our
competitors, and                                                                                                                                                                                         
|
| |  |  | general economic conditions, such as rates of economic growth
in our principal geographic markets or fluctuations in exchange and
interest rates, and various other factors both referenced and not
referenced in this annual report.                                                                                                                                                                                                                                                                                     

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

(iv)



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PART I

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

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

Selected Financial Data

Our consolidated financial statements are prepared in accordance with
Finnish GAAP, which differs, in certain significant respects from U.S. GAAP.
Reconciliation to U.S. GAAP is set forth in Note 31 to our consolidated
financial statements. Our shares are traded on the New York Stock Exchange in
the form of American Depository Shares (ADSs). Each ADS represents one of our
shares. Per share data has been translated into dollars per ADS where
appropriate.

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

All balances prior to January 1, 1999 have been restated from Finnish
markka into euros using the conversion rate as of January 1, 1999.However, our
consolidated financial statements for periods prior to January 1, 1999 are not
comparable to the financial statements of other companies that currently report
in euros and that have restated their financial statements from a currency
other than the Finnish markka.

The consolidated financial information as of and for the year ended
December 31, 1998 has been obtained by combining the audited consolidated
financial statements of Valmet Corporation and Rauma Corporation, the
predecessor companies of Metso, as of such date and for such period without
making any intercompany eliminations. Management believes that the combined
accounts would not be materially different if intercompany eliminations had
been made.

|                                         |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|---------------------------------------- |  | ------------------------------------------------- | ----- | ---- |  | ---- | ----- | ------- |  | ---- | ----- | ------- |  |  | ----- | - |  |  | ----- | - |  |  | ----- | -
|                                         |  | For the year ended December 31,                  
|                                         |  |                                                  
|                                         |  | 1998                                              |       | 1999 |  | 2000 |       | 2001(1) |  | 2002 |       | 2002(2)
|                                         |  |                                                   |       |      |  |      |       |         |  |      |       |        
|                                         |  |                                                  |       |     |  |     |       |        |  |     |       | U.S.$  
|                                         |  | (millions, except per share data and percentages)
|INCOME STATEMENT DATA                    |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|Finnish GAAP                             |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|Net sales                                |  |                                                   | 3,695 |      |  |      | 3,387 |         |  |      | 3,891 |         |  |  | 4,343 |   |  |  | 4,691 |   |  |  | 4,918 |  
|Operating profit (loss)                  |  |                                                   | 246   |      |  |      | (10   | )       |  |      | 200   |         |  |  | 246   |   |  |  | 167   |   |  |  | 175   |  
|Financial income and expenses, net       |  |                                                   | 2     |      |  |      | (19   | )       |  |      | (20   | )       |  |  | (24   | ) |  |  | (74   | ) |  |  | (78   | )
|Share of profits of associated companies |  |                                                   | 3     |      |  |      | 1     |         |  |      | 0     |         |  |  | 0     |   |  |  | 0     |   |  |  | 0     |  
|                                         |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|Income (loss) before extraordinary items |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|and income taxes                         |  |                                                   | 251   |      |  |      | (28   | )       |  |      | 180   |         |  |  | 222   |   |  |  | 93    |   |  |  | 97    |  
|                                         |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|Extraordinary income and expenses, net   |  |                                                   | (2    | )    |  |      | (59   | )       |  |      | 268   |         |  |  | (8    | ) |  |  | 0     |   |  |  | 0     |  
|                                         |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|Income (loss) before taxes               |  |                                                   | 249   |      |  |      | (87   | )       |  |      | 448   |         |  |  | 214   |   |  |  | 93    |   |  |  | 97    |  
|Income taxes                             |  |                                                   | (63   | )    |  |      | 0     |         |  |      | (59   | )       |  |  | (72   | ) |  |  | (26   | ) |  |  | (27   | )
|Minority interests                       |  |                                                   | (2    | )    |  |      | (1    | )       |  |      | 0     |         |  |  | (1    | ) |  |  | (2    | ) |  |  | (2    | )
|                                         |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|Net income (loss)                        |  |                                                   | 184   |      |  |      | (88   | )       |  |      | 389   |         |  |  | 141   |   |  |  | 65    |   |  |  | 68    |  
|                                         |  |                                                   |       |      |  |      |       |         |  |      |       |         |  |  |       |   |  |  |       |   |  |  |       |  
|Earnings (loss) per share(3)(4)          |  |                                                   | 1.37  |      |  |      | (0.22 | )       |  |      | 0.90  |         |  |  | 1.09  |   |  |  | 0.48  |   |  |  | 0.50  |  
|Operating margin (percent)(5)            |  |                                                   | 6.7   |      |  |      | (0.3  | )       |  |      | 5.1   |         |  |  | 5.7   |   |  |  | 3.6   |   |  |  | 3.6   |  

1



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|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |       |  
|--------------------------------------------------- | ----------------------- |  | ----------------------------------------- | ----- | ---- |  | ----- | ----- | ------- | --------------------------------- | ----- | ---- | ------- |  | ----- | ---- |  |  | ----- | ----- | - |  | ----- | ----- | -
|                                                    |                         |  | As of and for the year ended December 31,
|                                                    |                         |  |                                          
|                                                    |                         |  | 1998                                      |       | 1999 |  | 2000  |       | 2001(1) |                                   | 2002  |      | 2002(2)
|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |        
|                                                    |                         |  |                                          |       |     |  |      |       |        |                                   |      |      | U.S.$  
|                                                    |                         |  |                                           |       |      |  |       |       |         | (millions, except per share data) |       |      |         |  |       |      | 
|INCOME STATEMENT DATA                               |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Amounts in Accordance with U.S. GAAP                |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Income (loss) from continuing operations            |                         |  | 125                                       |       |      |  | (46   | )     |         |                                   | 75    |      |         |  | 125   |      |  |  | 123   |       |   |  | 129   |      
|Income (loss) from discontinued operations          |                         |  | (14                                       | )     |      |  | (74   | )     |         |                                   | 6     |      |         |  | 2     |      |  |  | (10   | )     |   |  | (10   | )    
|Gain on disposal of discontinued operations         |                         |  |                                          |       |      |  |      |       |         |                                   | 326   |      |         |  |      |      |  |  |      |       |   |  |      |      
|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Net income (loss)(6)                                |                         |  | 111                                       |       |      |  | (120  | )     |         |                                   | 407   |      |         |  | 127   |      |  |  | 113   |       |   |  | 119   |      
|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Basic earnings (loss) per share:                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|                                                    | Continuing operations   |  |                                           | 1.60  |      |  |       | (0.43 | )       |                                   |       | 0.56 |         |  |       | 0.91 |  |  |       | 0.90  |   |  |       | 0.94  |  
|                                                    | Discontinued operations |  |                                           | (0.18 | )    |  |       | (0.69 | )       |                                   |       | 2.45 |         |  |       | 0.02 |  |  |       | (0.07 | ) |  |       | (0.07 | )
|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|                                                    | Total                   |  |                                           | 1.42  |      |  |       | (1.12 | )       |                                   |       | 3.01 |         |  |       | 0.93 |  |  |       | 0.83  |   |  |       | 0.87  |  
|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Diluted earnings (loss) per share:                  |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|                                                    | Continuing operations   |  |                                           | 1.59  |      |  |       | (0.43 | )       |                                   |       | 0.56 |         |  |       | 0.91 |  |  |       | 0.90  |   |  |       | 0.94  |  
|                                                    | Discontinued operations |  |                                           | (0.18 | )    |  |       | (0.69 | )       |                                   |       | 2.45 |         |  |       | 0.02 |  |  |       | (0.07 | ) |  |       | (0.07 | )
|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|                                                    | Total                   |  |                                           | 1.41  |      |  |       | (1.12 | )       |                                   |       | 3.01 |         |  |       | 0.93 |  |  |       | 0.83  |   |  |       | 0.87  |  
|                                                    |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|BALANCE SHEET DATA                                  |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Amounts in Accordance with Finnish GAAP             |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Total assets                                        |                         |  | 2,798                                     |       |      |  | 3,169 |       |         |                                   | 3,564 |      |         |  | 5,042 |      |  |  | 4,399 |       |   |  | 4,612 |      
|Cash and cash equivalents                           |                         |  | 225                                       |       |      |  | 159   |       |         |                                   | 485   |      |         |  | 212   |      |  |  | 190   |       |   |  | 199   |      
|Net interest bearing liabilities                    |                         |  | 178                                       |       |      |  | 465   |       |         |                                   | (53   | )    |         |  | 1,251 |      |  |  | 1,118 |       |   |  | 1,172 |      
|Shareholders equity                                |                         |  | 1,206                                     |       |      |  | 1,085 |       |         |                                   | 1,425 |      |         |  | 1,469 |      |  |  | 1,379 |       |   |  | 1,446 |      
|U.S. GAAP                                           |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Total assets(7)                                     |                         |  |                                          |       |      |  | 3,375 |       |         |                                   | 3,799 |      |         |  | 5,249 |      |  |  | 4,587 |       |   |  | 4,809 |      
|Long-term liabilities(7)                            |                         |  |                                          |       |      |  | 718   |       |         |                                   | 656   |      |         |  | 1,527 |      |  |  | 1,308 |       |   |  | 1,371 |      
|Shareholders equity(7)                             |                         |  |                                          |       |      |  | 1,115 |       |         |                                   | 1,499 |      |         |  | 1,503 |      |  |  | 1,419 |       |   |  | 1,488 |      
|CASH FLOW DATA                                      |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Finnish GAAP                                        |                         |  |                                           |       |      |  |       |       |         |                                   |       |      |         |  |       |      |  |  |       |       |   |  |       |      
|Net cash provided by (used in) operating
activities |                         |  | 129                                       |       |      |  | (2    | )     |         |                                   | 300   |      |         |  | 235   |      |  |  | 252   |       |   |  | 264   |      
|Net cash provided by (used in) investing
activities |                         |  | (64                                       | )     |      |  | (134  | )     |         |                                   | 309   |      |         |  | (943  | )    |  |  | (14   | )     |   |  | (15   | )    
|Net cash provided by (used in) financing
activities |                         |  | (54                                       | )     |      |  | 51    |       |         |                                   | (284  | )    |         |  | 433   |      |  |  | (233  | )     |   |  | (244  | )    
|Capital expenditures on fixed assets(8)             |                         |  | 133                                       |       |      |  | 121   |       |         |                                   | 111   |      |         |  | 154   |      |  |  | 191   |       |   |  | 200   |      
|Cash dividends declared and paid per share
()      |                         |  | 0.59                                      |       |      |  | 0.40  |       |         |                                   | 0.60  |      |         |  | 0.60  |      |  |  | 0.60  |       |   |  | 0.63  |      
|Cash dividends declared and paid per share
(U.S.$)  |                         |  |                                          |       |      |  | 0.40  |       |         |                                   | 0.56  |      |         |  | 0.53  |      |  |  | 0.63  |       |   |  | 0.63  |      



---

|(1) |  | Effective September 2001, Metso acquired all of the outstanding shares of
Svedala AB for a total acquisition price of 943 million. Svedala has been
consolidated in our financial statements as of the fourth quarter of 2002.                                                                                                                                                                                                             
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Solely for the readers convenience, amounts in euros have been converted
into U.S. dollars at the noon buying rate on December 31, 2002 of 0.9538
to U.S.$1.00. On April 16, 2003, the noon buying rate was U.S.$1.00 =
0.9198.                                                                                                                                                                                                          
|   
|(3) |  | Under Finnish GAAP, earning per share calculation excludes extraordinary
items. For a discussion of the calculation of earnings (loss) per share,
see Note 11 to our consolidated financial statements. Under U.S. GAAP
these items would either be included in the earnings (loss) per share from
continuing operations or in earnings (loss) per share from discontinued
operations. See Note 31 to our consolidated financial statements.
|   
|(4) |  | The average numbers of shares used in calculating this amount were as
follows:                                                                                                                                                                                                                                                                                                                                                              

|                        |  |                  |             | 
|----------------------- |  | ---------------- | ----------- | 
|Year ended December 31, |  | Number of Shares
|                        |  |                 
|1998                    |  |                  | 135,826,010 | 
|1999                    |  |                  | 135,631,740 | 
|2000                    |  |                  | 135,363,537 | 
|2001                    |  |                  | 136,135,223 | 
|2002                    |  |                  | 136,189,704 | 



|(5) |  | Operating margin is defined as operating profit (loss) divided by net
sales. We believe that operating margin is a key indicator of operating
strength and performance of our business. However, operating margin is not
a measurement of operating performance calculated in accordance with
Finnish GAAP or U.S. GAAP, and should not be considered as a substitute
for operating income as a measure of profitability. Because all companies
may not calculate operating profit and therefore operating margin
identically, the presentation of the operating margin contained herein may
not be comparable to similarly entitled measures of other companies.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(6) |  | As of January 1, 2002, for purposes of U.S. GAAP, Metso adopted SFAS 142,
which ceased amortization of goodwill and indefinite-lived intangible
assets. Amortization expense on goodwill and indefinite-lived intangible
assets on a U.S. GAAP basis for the years ended December 31, 1998, 1999,
2000 and 2001 was 10 million, 10 million, 9 million and 12 million,
respectively.                                                                                                                                                                                                                                                                          

2



---



##### 



|(7) |  | For U.S. GAAP purposes, the balance sheet data as of December 31, 1998
reflects only the balance sheet data of Valmet Corporation, the
predecessor company to Metso for U.S. GAAP purposes. Consequently, such
balance sheet data is not presented as it is not comparable with the
corresponding balance sheet data presented as of December 31, 1999, 2000,
2001 and 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(8) |  | Excluding business acquisitions.                                                                                                                                                                                                                                                                                                                                            

Exchange Rates

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

Before January 1, 1999, there was no exchange rate between the euro and
the U.S. dollar. For any time or period before January 1, 1999, the noon buying
rates for the euro have been derived from the noon buying rates for the Finnish
markka converted into euros at the irrevocable conversion rate between the
Finnish markka and the euro. The average noon buying rates have been calculated
based on the noon buying rate for the last business day of each month or
portion of a month during the relevant period. We are providing this
information solely for the readers convenience. These are not necessarily the
rates we used in the preparation of the financial statements and we make no
representation that Finnish markkas or euros could have been converted into
U.S. dollars at the rates shown or at any other rate for such periods or at
such dates.

The following tables set forth the noon buying rate for the euro for each
of the previous five years, the period from the beginning of the year 2003 till
the latest practicable date and for each of the last six months (expressed in
euros per one U.S. dollar):

Euros per U.S. Dollar

|                        |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|----------------------- |  | ------- | ------ | ---- |  | --- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|Year                    |  | Average |        | High |  | Low |        | Period End
|                        |  |         |        |      |  |     |        |           
|1998                    |  |         | 0.8989 |      |  |     | 0.9466 |            |  |  | 0.8240 |  |  |  | 0.8518 | 
|1999                    |  |         | 0.9455 |      |  |     | 0.9984 |            |  |  | 0.8466 |  |  |  | 0.9930 | 
|2000                    |  |         | 1.0860 |      |  |     | 1.2090 |            |  |  | 0.9675 |  |  |  | 1.0650 | 
|2001                    |  |         | 1.1711 |      |  |     | 1.1947 |            |  |  | 1.0488 |  |  |  | 1.1235 | 
|2002                    |  |         | 1.0531 |      |  |     | 1.1636 |            |  |  | 0.9537 |  |  |  | 0.9537 | 
|2003 (through April 16) |  |         | 0.9315 |      |  |     | 0.9652 |            |  |  | 0.9040 |  |  |  | 0.9198 | 



|                         |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|------------------------ |  | ------- | ------ | ---- |  | --- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|Calendar Period          |  | Average |        | High |  | Low |        | Period End
|                         |  |         |        |      |  |     |        |           
|2002                     |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|October                  |  |         | 1.0169 |      |  |     | 1.0208 |            |  |  | 1.0131 |  |  |  | 1.0120 | 
|November                 |  |         | 0.9968 |      |  |     | 1.0047 |            |  |  | 0.9863 |  |  |  | 1.0068 | 
|December                 |  |         | 0.9810 |      |  |     | 1.0074 |            |  |  | 0.9537 |  |  |  | 0.9537 | 
|2003                     |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|January                  |  |         | 0.9414 |      |  |     | 0.9652 |            |  |  | 0.9207 |  |  |  | 0.9312 | 
|February                 |  |         | 0.9273 |      |  |     | 0.9339 |            |  |  | 0.9195 |  |  |  | 0.9277 | 
|March                    |  |         | 0.9263 |      |  |     | 0.9039 |            |  |  | 0.9483 |  |  |  | 0.9174 | 
|April (through April 16) |  |         | 0.9304 |      |  |     | 0.9415 |            |  |  | 0.9198 |  |  |  | 0.9198 | 

3



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##### 



The following tables set forth the noon buying rate for the U.S. dollar
for each of the previous five years, and the period from the beginning of the
year 2003 till the latest practicable date and for each of the last six months
(expressed in U.S. dollars per one euro).

U.S. Dollars per Euro

|                        |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|----------------------- |  | ------- | ------ | ---- |  | --- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|Year                    |  | Average |        | High |  | Low |        | Period End
|                        |  |         |        |      |  |     |        |           
|1998                    |  |         | 1.1125 |      |  |     | 1.2136 |            |  |  | 1.0564 |  |  |  | 1.1740 | 
|1999                    |  |         | 1.0576 |      |  |     | 1.1812 |            |  |  | 1.0016 |  |  |  | 1.0070 | 
|2000                    |  |         | 0.9207 |      |  |     | 1.0335 |            |  |  | 0.8270 |  |  |  | 0.9388 | 
|2001                    |  |         | 0.8952 |      |  |     | 0.9535 |            |  |  | 0.8370 |  |  |  | 0.8901 | 
|2002                    |  |         | 0.9492 |      |  |     | 1.0485 |            |  |  | 0.8594 |  |  |  | 1.0485 | 
|2003 (through April 16) |  |         | 1.0738 |      |  |     | 1.1062 |            |  |  | 1.0361 |  |  |  | 1.0872 | 



|                         |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|------------------------ |  | ------- | ------ | ---- |  | --- | ------ | ---------- |  |  | ------ |  |  |  | ------ | 
|Calendar Period          |  | Average |        | High |  | Low |        | Period End
|                         |  |         |        |      |  |     |        |           
|2002                     |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|October                  |  |         | 0.9812 |      |  |     | 0.9881 |            |  |  | 0.9708 |  |  |  | 0.9881 | 
|November                 |  |         | 1.0013 |      |  |     | 1.0139 |            |  |  | 0.9895 |  |  |  | 0.9932 | 
|December                 |  |         | 1.0194 |      |  |     | 1.0485 |            |  |  | 0.9927 |  |  |  | 1.0485 | 
|2003                     |  |         |        |      |  |     |        |            |  |  |        |  |  |  |        | 
|January                  |  |         | 1.0622 |      |  |     | 1.0861 |            |  |  | 1.0361 |  |  |  | 1.0739 | 
|February                 |  |         | 1.0785 |      |  |     | 1.0875 |            |  |  | 1.0708 |  |  |  | 1.0779 | 
|March                    |  |         | 1.0797 |      |  |     | 1.1062 |            |  |  | 1.0545 |  |  |  | 1.0900 | 
|April (through April 16) |  |         | 1.0749 |      |  |     | 1.0872 |            |  |  | 1.0621 |  |  |  | 1.0872 | 

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

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

Our foreign exchange risk management policy is focused on hedging foreign
currency exposures related to firm sale and purchase commitments as well as net
investments in foreign subsidiaries to the extent practicable. Our policy is
carried out using primarily foreign currency loans and receivables as well as
forward foreign exchange contracts of durations which match those of the
underlyings. For a discussion of our foreign exchange risk management policy,
see Item 11. Quantitative and Qualitative Disclosures About Market
Risk-Exchange Rates and Foreign Currency Exposure.

Risk Factors

Business Cycles Affect Demand for Our Products

We sell equipment to the paper and pulp industry, and our operations have
historically been affected by cycles in the paper and pulp industry. In 2002,
the markets for the pulp and paper industry were satisfactory and the orders
received focused on rebuilds of existing paper machines and pulping lines. At
the end of the year 2002, the order backlog was at a lower level than the
previous year. As a result of the acquisition of Svedala Industri AB
(Svedala) in September 2001, our corporate structure has become more
balanced. Our Metso Minerals business area has grown into another strong
business area equal in size to our Metso Paper business area. This has reduced
our dependence on the investment cycles of the paper and pulp industry and has
shifted it towards other industries, namely mining, construction and civil
engineering industries, where the timing of the cycles differs from those in
the paper and pulp industry. The construction and civil engineering industries
are overall less cyclical. The increased share of aftermarket business also
reduces the cyclicality of our operations. However, there can be no assurance
that business cycles, especially in the paper and pulp industry, will not

4



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##### 



continue to significantly affect demand for our products. See Item 5.
Operating and Financial Review and ProspectsBusiness Environment.

Competition

We face significant competition in product performance, service and
pricing in almost all of our products. While our major competitors compete with
us across a number of our product areas, in general, our competitors vary among
product areas. We aim to distinguish our products on the basis of technology,
know-how, quality, suitability for our customers specific application and
reliability. Current competitors or new market entrants may introduce new or
enhanced products with features that could render our products less marketable
or obsolete. While we believe that our product range will keep pace with
changing and developing technologies, there can be no assurance that products
or technologies developed by other companies will not reduce the
competitiveness of our products. See Item 4. Information on the
CompanyBusiness Summary for a description of our significant competitors in
each of our business areas.

Currency Exchange Rate Fluctuations Affect Our Results and Competitive Position

As a consequence of the global nature of our business, we are exposed to
risks associated with fluctuations in foreign currency exchange rates, which
may have an adverse effect upon our financial condition and operating results.
Currency risk exposure primarily affects our export operations to the extent
that our sales are denominated in currencies other than those in which our
manufacturing costs are incurred. A significant portion of our sales is
denominated in currencies other than the euro, consisting primarily of the U.S.
dollar and the Swedish krona. In addition, our reported results may be affected
by currency fluctuations because the revenues and profits of certain of our
foreign subsidiaries are translated into euros in our consolidated financial
statements. Exchange rate movements may also affect our competitive position
because of differences in the strength of the euro and the strength of the
functional currencies of our competitors. Although we hedge our exposure to
exchange rate fluctuations, there can be no assurance that exchange rate
fluctuations will not have a material adverse effect upon our financial
condition or results of operations. For a discussion of our foreign exchange
risk management policy, see Item 11. Quantitative and Qualitative Disclosures
About Market RiskExchange Rates and Foreign Currency Exposure.

In addition, a foreign investors base currency return on an investment in
our shares may be negatively affected by the depreciation of the euro, because
the value of dividends and other distributions paid in euros, and the value of
the shares quoted on the Helsinki Exchanges in euros would decline as a result.

Reliance on Subcontractors and External Suppliers

We purchase a number of components and procure most of the raw materials
necessary for our operations from a limited number of suppliers. Specifically,
our Metso Automation business area relies on a limited number of suppliers for
hardware, software and computer applications, and our Metso Minerals business
area obtains steel and other metals, as well as rubber and minerals from a
limited number of suppliers. We have established long-term relationships for
these critical subcomponents and raw materials with some of our suppliers to
mitigate the potential risks of shortages, lack of control over pricing and
delays in delivery. Although we believe that our current sources of supply are
adequate to meet our present operating requirements, inadequate deliveries or
any other circumstance that would require us to seek alternative sources of
supply, or to manufacture necessary subcomponents and parts internally, could
significantly delay or limit our operations, which could damage our
relationships with the current and prospective customers and harm our business.

In addition, our Metso Minerals business area requires the mineral
manganese for production of crusher wear parts. Manganese is of a limited
global supply, so political instability or labor unrest, such as a strike,
could cause a disruption in our operations, which could have a material adverse
effect on our business, and could impair our ability to satisfy customer
demand. See Item 4. Information on the CompanyRaw Materials.

Product Liability

We are from time to time involved in general and product liability claims
typical of companies in comparable industries. These claims are generally
covered by our global general and product liability insurance policy with
coverage of up to a yearly aggregate of 100 million (U.S.$105 million),
subject to applicable insurance conditions. As part of the global coverage, our
North American subsidiaries carry local general and

5



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##### 



product liability policies, which cover claims up to an annual aggregate
of 4 million (U.S.$4 million). Management does not believe that any such
claims, if adversely determined, individually or in aggregate, would have a
material adverse effect upon our financial condition or results of operations.

Environmental Regulation

We are subject to various laws and regulations relating to the protection
of the environment in each of the countries in which we operate. Although our
management is not aware of any current environmental matters that could have a
material adverse effect on our financial condition or results of operations,
there can be no assurance that continued compliance with the existing or future
environmental laws, and the costs associated therewith, will not have a
material adverse effect on our financial condition or results of operations in
the future. See Item 4. Information on the CompanyGovernmental Regulation and
Environmental Matters.

Reliance on Skilled Employees

Our success is dependent on our ability to attract and retain qualified
employees, particularly in technical areas. If a substantial number of
employees with specialized knowledge and skills were to leave unexpectedly, we
could face a loss in profitability while any successors obtain the necessary
training and experience. To date, we believe that we have been successful in
our efforts to recruit qualified employees, but there is no assurance that we
will continue to be as successful in the future.

Financial Flexibility Possibly Impaired by Ratings Downgrade

See Item 5. Operating and Financial Review and ProspectsLiquidity and
Capital Resources for a discussion of the possible impact of credit ratings
downgrades.

Major Shareholders May Exercise Their Influence to Detriment of Other Shareholders

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

Item 4. Information on the Company

Organization

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

History and Development of the Company

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

Valmet traced its origins back to the industrial plants established in the
1920s and 1930s to meet the needs of the Finnish Armed Forces. These industrial
plants were joined to form a conglomerate, which was formally incorporated as a
limited liability company in 1950, and during the 1950s began to broaden its
product range to accommodate the demands of a market economy. Valmet delivered
its first paper machine in 1953. From its establishment in 1950 until its
initial public offering in 1988, Valmet was wholly-owned by the Finnish State
and other Finnish State entities. As of April 14, 2003, the Finnish State owned
11.5 percent of the outstanding share capital of Metso Corporation.

Raumas business groups were formed from a number of companies with long
operating histories brought together as a result of a series of strategic
acquisitions by Rauma-Repola Oy. In 1990, Rauma-Repola merged with United Paper
Mills, a Finnish forest products company. The new company was called Repola Oy
and was one of the largest industrial conglomerates in Finland. Its engineering
division was organized as Rauma and its forest products division was organized
as UPM.

6



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##### 



In 1996, Repola and Kymmene Corporation, a Finnish forest products
company, merged to create a new company called UPM-Kymmene. As a result, Rauma
became a majority owned subsidiary of UPM-Kymmene. In 1997, following a
secondary offering of Rauma shares, distribution of shares as dividends, and
the redemption of shares by Rauma, UPM-Kymmenes ownership in Rauma was reduced
to 34.5 percent. As of April 14, 2003, UPM-Kymmene owned 14.6 percent of the
outstanding share capital of Metso Corporation.

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

Strategy

Our target is to be the leading knowledge-based technology company in our
core business areas and to transform from an equipment supplier to a provider
of solutions and performance. We aim to create added value for customers by
improving the productivity, quality and competitiveness of their core
processes. We constantly seek to produce new, better and more flexible
solutions to help meet our customers needs.

The following key strengths form the cornerstones of our strategy:

In-depth knowledge of our customers core processes:As a market and
technology leader in our core business areas, we possess an in-depth knowledge
of our customers core processes. By these core processes we mean the
sections of the production process that are critical to our customers
production efficiency, quality, environmental soundness and competitiveness.

Integrated and embedded automation and ICT (information and communications
technology) in our products and services:There is increased emphasis on
features that enable machines and equipment to be flexibly-modified throughout
their entire lifecycle. Most of these features are based on automation and
information and communications technology. Our automation and control
technological know-how combined with our in-depth knowledge of our customers
core processes enables us to develop and implement applications that take into
account the special needs of our customers.

Large base of installed machinery:Our large base of installed machinery
forms a strong foundation for developing know-how and aftermarket services that
cover the entire lifecycle of the processes. We have delivered over 2,000 paper
machines and 800 pulping lines, as well as over 30,000 crushers, 15,000
screening systems and 3,000 grinding mills for rock and mineral processing.

Our strategy is implemented through the Metso Future Care business
concept, which forms the basis for the development of an increased product and
service range to serve our customer processes throughout their lifecycle. We
aim to increase the share of aftermarket and maintenance services in our net
sales. The changes in our customers businesses are the basis for the Metso
Future Care business concept. Our customers are increasingly concentrating on
the needs of their own customers, which emphasize the role and responsibility
of equipment suppliers for the delivered processes throughout their entire
lifecycle.

Our goal is to improve profitability. We aim to achieve this by improving
cost-efficiency and increasing the share of aftermarket services in net sales.
Our financial targets are based on five-year averages, and include a target for
operating profit margin of over 9 percent, return on capital employed of over
20 percent, and an annual dividend distribution equivalent to at least
one-third of the average earnings per share.

Corporate Structure

We are a global engineering company headquartered in Helsinki, Finland,
and serve our customers in selected areas within the process industry. Our
business areas are global in scope with operations in over 50 countries. Our
principal production plants are located in Finland, the United States, Sweden,
the United Kingdom, Germany, France, Italy, Mexico, Canada, China, South Africa
and Brazil. At December 31, 2002, approximately 37 percent of our employees
were based in Finland.

In January 2001, we restructured our Metso Automation business area into
three divisions: Field Systems, which comprised the former Field Controls and
Jamesbury division; Paper Automation, whose operations were unaffected by the
restructuring; and Energy & Process Automation, which comprised the former

Supervisory Control and Data Acquisition division (which is called SCADA
Solutions) and the Automation Networks division. In August 2002, the Metso
Automation business area was restructured to consist

7



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of two business lines: Process Automation Systems and Field Systems. The
new business line, Process Automation Systems, combines the previous Paper
Automation and Energy & Process Automation divisions. The business line
develops and maintains process automation expertise within Metsos core
business areas as well as supplies solutions for the eco-efficient power
industry. Field Systems comprises of field systems for various industries as
well as smart, embedded measurement and control solutions, sensors and
analyzers for special applications.

In April 2001, we restructured the Metso Paper business area to comprise
of three divisions: Pulping Technology, Paper Technology and Others. Pulping
Technology was the new name for the Fiber Technology division, and the Others
division included Converting and Panelboard Technology. Panelboard Technology
comprised the panelboard operations, which were carried out through the Fiber
Technology division prior to the restructuring. In March 2002, the Panelboard
Technology was transferred from Metso Paper to the Metso Ventures business
area. Also, the Others division was renamed Converting. In November 2002, we
signed a memorandum of understanding for the sale of the Converting business to
Bobst Group SA, Switzerland. Converting is therefore now reported separately
from Metso Paper and not included in the continuing operations of Metso
Corporation.

In February 2003, Metso Papers operations were reorganized to include six
business lines: Paper, Board, Tissue, Chemical Pulping, Mechanical Pulping and
Service.

Also in January 2001, we restructured our Machinery business area to
create two separate business areas: Metso Minerals and Metso Ventures. After
the acquisition of Svedala in September 2001 it was integrated into the Metso
Minerals business area by creating four business lines: Crushing & Screening,
Minerals Processing, Compaction & Paving, and Wear Protection, Service & Parts.
In October 2002, we created a fifth business line called Recycling.

After the January 2001 Machinery business restructuring, Metso Ventures
was comprised of Metso Engineering and Valmet Automotive. In July 2002, we
restructured the Metso Ventures business area to comprise of four business
groups: Metso Panelboard, Metso Drives, Metso Powdermet and Valmet Automotive.
Metso Drives and Metso Powdermet were formerly part of the Metso Engineering
business group, as were Metso Works and Metso Hydraulics, which have now been
sold.

As a result of the restructurings described above, our operations are
currently organized into the following four business areas:



| |  |  | Metso Paperdesigns, develops and manufactures pulp and paper
machinery and equipment and complete production lines for the pulp
and paper industry. Metso Paper also provides aftermarket services.
It operates under six business lines: Paper, Board, Tissue, Chemical
Pulping, Mechanical Pulping and Service. The Metso Paper business
area operated under the name Valmet until the end of the year 2000.                                                                                                                                                                                                                                                                       
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Metso Mineralsdesigns, develops and delivers equipment and
total solutions, as well as aftermarket services for crushing,
screening, grinding, transport of rock and other minerals, paving
and drilling through its five business lines: Crushing & Screening,
Minerals Processing, Compaction & Paving, Wear Protection, Service &
Parts and Recycling.                                                                                                                                                                                                                                                                                                                            
|
| |  |  | Metso Automationdesigns, develops and supplies both
application networks and systems and field solutions for automation
and information management in the process industry through its two
business lines: Process Automation Systems and Field Systems. Metso
Automations operations cover the three principal areas of process
automation: process automation and information applications, control
and automated valves, as well as process measurements and analyzers.
All Metso Automation operations in North America and Mexico are
conducted by a separate unit. The Metso Automation business area
operated under the name Neles Automation until the end of the year
2000.
|
| |  |  | Metso Venturesis comprised of Metso Panelboard, Metso
Drives, Metso Powdermet and Valmet Automotive. Panelboard develops,
markets and sells complete production lines for the panelboard
industry. Metso Drives develops, manufactures and supplies wind
turbine gears, and paper machine drives as well as other industrial
gears. Metso Powdermet specializes in materials                                                                                                                                                                                                                                                                                                         

8



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##### 





| |  |  | technology. Valmet Automotive is an independent contract manufacturer
of specialty cars, such as Saab 9-3 Viggen and Porsche Boxster.
| |  |  | -------------------------------------------------------------------------------------------------------------------------------------

The Converting business, which designs, develops and manufactures
machinery and equipment for the packaging and converting industries is reported
as a separate segment. The chart below depicts the current structure of our
continuing operations consisting of four business areas, giving effect to the
restructurings described above:

(METSO BUSINESS AREAS FLOW CHART)

The financial information as of and for the years ended December 31, 2000
and 2001 discussed in this annual report has been restated to reflect the
changes in segment structure described above.

Business Summary

Net Sales by Geographic Area

In 2002, we had total net sales of 4,691 million (U.S.$4,918 million), of
which approximately 92 percent were accounted for by exports from Finland and
sales by international operations, and an operating profit of 167 million
(U.S.$175 million). At December 31, 2002, our total assets amounted to 4,399
million (U.S.$4,612 million), and we had 28,489 employees worldwide.

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

|                                     |  |                         |       |      |  |              |       |  |  |  |       | 
|------------------------------------ |  | ----------------------- | ----- | ---- |  | ------------ | ----- |  |  |  | ----- | 
|                                     |  | Year ended December 31,
|                                     |  |                        
|                                     |  | 2000                    |       | 2001 |  | 2002        
|                                     |  |                         |       |      |  |             
|                                     |  |                         |       |      |  | ( millions) |       |  |  | 
|Finland                              |  |                         | 375   |      |  |              | 587   |  |  |  | 382   | 
|Nordic countries (excluding Finland) |  |                         | 356   |      |  |              | 417   |  |  |  | 453   | 
|Europe (excluding Nordic Countries)  |  |                         | 1,097 |      |  |              | 1,172 |  |  |  | 1,363 | 
|North America                        |  |                         | 1,281 |      |  |              | 1,143 |  |  |  | 1,199 | 
|South America                        |  |                         | 237   |      |  |              | 360   |  |  |  | 417   | 
|Asia-Pacific                         |  |                         | 460   |      |  |              | 521   |  |  |  | 652   | 
|Rest of the World                    |  |                         | 85    |      |  |              | 143   |  |  |  | 225   | 
|                                     |  |                         |       |      |  |              |       |  |  |  |       | 
|Total                                |  |                         | 3,891 |      |  |              | 4,343 |  |  |  | 4,691 | 
|                                     |  |                         |       |      |  |              |       |  |  |  |       | 

Metso Paper

As a
result of our restructurings described under Corporate Structure
above, the Metso Paper business area no longer includes the Metso Panelboard
and Converting businesses. Metso Paper operated under the name Valmet until the
end of the year 2000.

9



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

|                         |  |                                           |       |      |  |      |       |  |  |  |       | 
|------------------------ |  | ----------------------------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                         |  | As of and for the year ended December 31,
|                         |  |                                          
|                         |  | 2000                                      |       | 2001 |  | 2002
|                         |  |                                           |       |      |  |     
|                         |  | ( millions, except personnel data)      
|Net sales(1)             |  |                                           | 1,956 |      |  |      | 2,209 |  |  |  | 1,812 | 
|Operating profit         |  |                                           | 117   |      |  |      | 168   |  |  |  | 118   | 
|Capital employed         |  |                                           | 502   |      |  |      | 562   |  |  |  | 517   | 
|Capital expenditures     |  |                                           | 233   |      |  |      | 68    |  |  |  | 73    | 
|Research and development |  |                                           | 58    |      |  |      | 72    |  |  |  | 72    | 
|Order backlog            |  |                                           | 1,443 |      |  |      | 957   |  |  |  | 742   | 
|Personnel                |  |                                           | 9,514 |      |  |      | 9,458 |  |  |  | 9,719 | 



---

|(1) |  | Includes net sales to other business areas of 8 million, 3 million and
4 million in 2000, 2001 and 2002, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

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

|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|------------------------------------ |  | ---------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                     |  | Year ended December 31,     
|                                     |  |                             
|                                     |  | 2000                         |     | 2001 |  | 2002
|                                     |  |                              |     |      |  |     
|                                     |  | (Percent of total net sales)
|Finland                              |  |                              | 11  |      |  |      | 19  |  |  |  | 11  | 
|Nordic Countries (excluding Finland) |  |                              | 9   |      |  |      | 10  |  |  |  | 11  | 
|Europe (excluding Nordic Countries)  |  |                              | 27  |      |  |      | 25  |  |  |  | 26  | 
|North America                        |  |                              | 35  |      |  |      | 26  |  |  |  | 27  | 
|South America                        |  |                              | 3   |      |  |      | 7   |  |  |  | 9   | 
|Asia-Pacific                         |  |                              | 14  |      |  |      | 12  |  |  |  | 14  | 
|Rest of the world                    |  |                              | 1   |      |  |      | 1   |  |  |  | 2   | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|Total                                |  |                              | 100 |      |  |      | 100 |  |  |  | 100 | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 

Metso Paper is one of the worlds leading suppliers of equipment and
machinery for the pulp and paper industries. Metso Paper develops systems,
manufactures equipment and designs plants for the production of chemical and
mechanical pulp and recycled fiber as well as manufactures, rebuilds and
services paper, board and tissue machines, paper finishing machines and air
systems for the paper, board and tissue industry. Metso Paper specializes in
the manufacture and major rebuilds of machines both for the production of paper
of all printing grades, including paper intended for newspapers, magazines,
catalogues, brochures and art printing purposes, and also for the production of
linerboard, folding boxboard, liquid packaging board and tissue. The business
area also provides aftermarket services for the pulp and paper industries.
Parts supply, process upgrading and components exchange are central to the
after-sales operations. Process upgrading is expected to be an increasingly
important source of revenue as pulp and paper mills modify their processes to
enhance efficiency and meet higher environmental standards. Our customer
service activities include start-up assistance, training, preventive and
predictive maintenance programs and operations support.

Products and Services

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

Board.Metso Paper produces board machines and offers machine rebuilds and
components. Metso Paper supplies machines for all board and packaging grades,
the most important grades being corrugated board,

10



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linerboard, folding boxboard and liquid packaging board. A typical board
machine costs between 30 million and 100 million and produces from 200,000 to
more than 800,000 tons of board per year.

Tissue.Metso Paper produces tissue machines and offers machine rebuilds
and components. Metso Paper produces machines for manufacturing various types
of tissue papers and continues to be a leading supplier of Thru-Air 
technology for tissue and towel. A typical tissue machine costs between 10
million and 30 million and produces from 10,000 to more than 70,000 tons of
tissue per year.

Chemical Pulping.Chemical pulping is the process of converting wood into
fibers for paper manufacturing by chemically disintegrating wood chips.
Chemical pulp is used for high quality paper products primarily due to its
strength, printability and ability to maintain brightness. Average pulping
order sizes range between
9 million and 35 million, although the aggregate price of
the largest orders may be as high as 80 million. For the chemical pulp
industry, Metso Paper supplies complete fiber processing lines as well as
equipment for each stage of the pulping process. In the cooking stage of
chemical pulping, Metso Paper is the leader in the field of batch cooking,
having developed SuperBatch, a method of batch cooking which management
believes to be the most energy-efficient cooking process currently available.
Batch cooking is an alternative to continuous cooking, another cooking process
common in the chemical pulping industry. Metso Papers complete fiber
processing lines include equipment for deknotting, screening, washing and
bleaching, as well as oxygen and ozone delignification. In the production of
pulp, where wood fibers are separated from the lignin which bonds them
together, Metso Paper offers pulp producers technology that significantly
reduces the environmental impact of their operations compared to conventional
technology.

Mechanical Pulping.Mechanical pulping is the process of converting wood
into fibers for paper manufacturing by using electrically-powered refiners with
grinding discs comprised of refiner segments to disintegrate wood chips.
Mechanical pulping requires high levels of electricity and suitable raw
materials and is therefore primarily used in countries such as Canada or the
Nordic Countries where energy costs are relatively low and where such raw
materials are readily available. Mechanical pulp is used primarily for
newsprint and magazine papers and certain grades of paperboard. Management
believes that in the mechanical pulp industry, Metso Paper is recognized as the
leading supplier in plants, processes and equipment for production of
thermomechanical, chemi-thermomechanical and chemi-mechanical pulp. Our
mechanical pulping product line includes all process equipment necessary for
complete pulping plants including refiners, washing machinery and bleaching
machinery.

Service.Metso Papers service operations provide customers a wide range
of expert and maintenance services as well as spare parts. The business is
operated through three segments: maintenance services, spare parts services and
roll services.

Markets and Customers

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

Customers are located in a number of industrialized countries, primarily
in Europe, North America and Asia. Metso Paper has major production facilities
in Finland, Sweden, the United States and Italy, as well as a production
licensing relationship with Sumitomo Heavy Industries in Japan and a joint
venture in China. Our internal production processes have been reorganized by
creating a network of plants specializing in designated product areas and
manufacturing processes in order to focus on development of technologies and
expertise specific to certain product areas.

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

11



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Marketing

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

Metso Paper spent 8.8 percent of its net sales on marketing in the year
ended December 31, 2002, compared to 7.2 percent and 7.4 percent for each of
the years ended December 31, 2001 and 2000, respectively.

Competition

Metso Papers principal competitors in the chemical pulping industry are
Kvaerner Pulping in Norway and Andritz Corporation in Austria, which both use
the continuous cooking process. Competition within the chemical pulping
industry focuses on energy efficiency and fiber quality, although certain
customers have historically had a preference for either the batch or the
continuous cooking process. In addition, environmental concerns affect
competition as principal suppliers attempt to meet the increasing demand for
environmentally-friendly totally chlorine-free pulp, although the lower yield
associated with TCF pulping may favor the use of elemental chlorine-free
pulping in areas such as the northwestern United States, where there is a
relative shortage of wood chips. The principal competitor in the mechanical
pulping industry is Andritz Corporation. As in the chemical pulping industry,
the mechanical pulping industry is affected by environmental concerns, which
have led to increased demand for recycled fibers and higher-quality mechanical
pulp. Market leaders in the area of recycled fiber pulping include Voith Paper
in Germany and Black Clawson in the United States.

In the paper machine industry, machinery is designed to meet specific
customer needs. Paper, board and tissue machines are sold on the basis of
machine technology, availability of reference machines for comparative
purposes, timing of delivery and machine price. Metso Paper competes for
machine sales based on these four factors. Management believes that, based upon
aggregate production capacity of paper machines sold, Metso Paper was the
worlds leading producer of large paper machines during the 1990s. Management
also believes that we occupy a strong position in the large paper machine
rebuild markets as a result of our advanced technologies and leading position
in the new paper machine market. Metso Papers principal competitor in large
paper machines is the other major producer, the Germany-based Voith Paper
Group. Mitsubishi in Japan is also a competitor in paper machines.

Metso Papers principal competitor in board making machine lines is Voith.
In tissue machines, the competitors include Andritz Corporation in Austria and
Voith in Germany, as well as Overmechanica, Toschi and Celli in Italy. Metso
Papers specialty paper machines produce mostly fine paper grades in smaller
quantities.

Though the major competitors in the paper finishing area are in part the
same as those in the paper machine production area, Metso Paper competes with
many additional, smaller competitors, including a number of companies based in
Germany. Management believes that paper finishing systems hold a strong
position in the markets for both new large machines and large machine rebuilds.
Paper finishing systems benefit from sales by other Metso Paper product groups,
as many new paper and board machines or major rebuilds are delivered in
conjunction with paper finishing machinery, such as coaters or calenders.

Competition in the air systems sector comes from large international
groups such as ABB and numerous smaller national producers. Air systems are
also often sold in conjunction with new paper and board machines or major
rebuilds. Management believes that Metso Papers air systems benefit from its
synergies with other Metso Paper products. Metso Paper is one of the leading
suppliers of air systems for the pulp and paper industry.

Recent Developments

In June 2003, we are scheduled to open a new service technology center in
connection with our existing facilities in Järvenpää, Finland. The center will
offer services that form part of our Metso Future Care business concept and
will have facilities for 150 employees. The center will service paper finishing
equipment, improve the development and commercialization of products, and
facilitate customer training. The service technology center will also include a
remote diagnostics center, which will provide services of condition

12



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monitoring and maintenance systems, together with production management
and process information systems. The total expenditure for this center is
anticipated to be 5.2 million.

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

In December 2002, we announced our plan to sell our foundry operations in
Karlstad, Sweden to a newly-established company, which will be owned by Akers
AB and Metso Paper Karlstad AB. Akers AB will initially hold 52 percent of the
shares of the new company and it will have an option to acquire the remaining
48 percent of the shares in the future. Our foundry operations 104 employees
will transfer to the new company. We expect to complete this transaction during
the second quarter of 2003.

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

Metso Minerals

Following the restructuring of our operations in January 2001 and the sale
of Timberjack in April 2000, our Machinery business area was divided into two
separate business areas: Metso Minerals and Metso Ventures. After the
acquisition of Svedala in September 2001 and its consequent integration with
Metso Minerals, the business area was divided into four business lines:
Crushing & Screening, Minerals Processing, Compaction & Paving, and Wear
Protection, Service & Parts. In October 2002, we established fifth business
line called Recycling. See Discontinued Operations
and Corporate
Structure for a further discussion of the acquisition of Svedala, the sale of
Timberjack and our corporate restructuring.

Before the acquisition of Svedala, the Metso Minerals business area,
formerly Rock and Mineral Processing, or Nordberg, was one of the worlds
leading designer and manufacturer of rock crushing systems and equipment for
the aggregates, mining and recycle crushing industries. After the acquisition
the business scope is considerably wider, including civil engineering and road
construction, bulk materials handling segments in ports, mines and cement
produces. A special emphasis is on the aftermarket area following our strategy
to become the customers lifecycle service provider instead of only machine
supplier. The products are sold either through Metso Minerals own global
Marketing, Sales and Service organization or in some product lines through
their own distributor network.

The predecessor of the Metso Minerals, the Nordberg Group, was formed as a
result of the combination of three independent crushing equipment
manufacturers: Nordberg Manufacturing Company, founded in 1886 in Milwaukee,
Wisconsin; Ateliers-Bergeaud, founded in 1895 in Macon, France; and Lokomo Oy,
founded in 1915 in Tampere, Finland. Rauma-Repola acquired Lokomo Oy in 1970,
Ateliers-Bergeaud (at the time a subsidiary of Nordberg) in 1987 and Nordberg
in 1989. After 1989, Metso Minerals has grown both organically and through
acquisitions. Today, principal production plants of Metso Minerals are located
in Finland, Sweden, the United States, Germany, South Africa, France and
Brazil.

13



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

|                         |  |                                           |       |         |  |      |        |  |  |  |        | 
|------------------------ |  | ----------------------------------------- | ----- | ------- |  | ---- | ------ |  |  |  | ------ | 
|                         |  | As of and for the year ended December 31,
|                         |  |                                          
|                         |  | 2000                                      |       | 2001(1) |  | 2002
|                         |  |                                           |       |         |  |     
|                         |  | ( millions, except personnel data)      
|Net sales(2)             |  |                                           | 561   |         |  |      | 913    |  |  |  | 1,819  | 
|Operating profit         |  |                                           | 28    |         |  |      | 15     |  |  |  | 51     | 
|Capital employed         |  |                                           | 331   |         |  |      | 1,525  |  |  |  | 1,401  | 
|Capital expenditures     |  |                                           | 22    |         |  |      | 827    |  |  |  | 50     | 
|Research and development |  |                                           | 7     |         |  |      | 11     |  |  |  | 21     | 
|Order backlog            |  |                                           | 100   |         |  |      | 499    |  |  |  | 474    | 
|Personnel                |  |                                           | 3,298 |         |  |      | 11,725 |  |  |  | 10,784 | 



---

|(1) |  | Svedalas financial data is included in Metso Minerals financial data
since the acquisition of Svedala in September 2001.
|--- |  | --------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes net sales to other business areas of 2 million, 4 million and
6 million in 2000, 2001 and 2002, respectively. 

Products and Services

Metso Minerals offers total solutions for customers in the aggregates,
mining, minerals processing, civil engineering, compaction and paving, cement,
recycle crushing, metal and waste recycling, bulk materials handling industries
as well as related after-sales services through its five business lines. The
product offering includes more than 300 products with a large number of
variations, types and models.

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

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

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

Wear
Protection, Service & Parts.This business line offers spare and
wear parts for a vast variety of Metso Minerals products such as wear and
rubber protection systems and hoses, mill linings, dust sealings, conveying
belts and components. In addition, the business line provides service and wear
protection for the equipment of the Crushing & Screening business line.

14



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##### 



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

Markets and Customers

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

|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|------------------------------------ |  | ---------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                     |  | Year ended December 31,     
|                                     |  |                             
|                                     |  | 2000                         |     | 2001 |  | 2002
|                                     |  |                              |     |      |  |     
|                                     |  | (Percent of total net sales)
|Finland                              |  |                              | 4   |      |  |      | 4   |  |  |  | 3   | 
|Nordic Countries (excluding Finland) |  |                              | 6   |      |  |      | 7   |  |  |  | 7   | 
|Europe (excluding Nordic Countries)  |  |                              | 27  |      |  |      | 28  |  |  |  | 32  | 
|North America                        |  |                              | 34  |      |  |      | 26  |  |  |  | 23  | 
|South America                        |  |                              | 11  |      |  |      | 11  |  |  |  | 12  | 
|Asia-Pacific                         |  |                              | 11  |      |  |      | 14  |  |  |  | 14  | 
|Rest of the world                    |  |                              | 7   |      |  |      | 10  |  |  |  | 9   | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|Total                                |  |                              | 100 |      |  |      | 100 |  |  |  | 100 | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 

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

Marketing

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

Competition

Competition in Metso Minerals industries is fragmented, with few global
manufacturers and numerous small, regional and local manufacturers. In the
aggregate industry, the major competitors are Sandvik, Terex, Astec, Extec and
Komatsu. In mining and minerals processing, the major competitors include
Krupp-Polysius, Outokumpu, FFE, Baker Process, Larox, Dorr-Oliver,
Heyl&Patterson, Mann-Takraf, depending on the product line and particular
industry segment. In compaction and paving, the major competitors include
Bomag, Caterpillar, Terex, Wirtgen, Ingersoll-Rand and Ammann. In the
diversified segment of wear protection products and conveyor belts and
components, the major competitors include Rubber Engineering, TipTor,
Steinhaus/Isenmann, Tyler/Polydeck, Goodyear and Bridgestone.

We believe our competitive advantages include not only Metso Minerals
global operations network, which allows us to meet the increasingly global
needs of our customers, but also our research and development activities, which
aim to enable Metso Minerals to offer our customers the most advanced
technology. See Operating and Financial Review and
ProspectResearch and
Development for a description of our research and development activities.

Recent Developments

In October 2002, we inaugurated our new enlarged crusher plant in Tianjin,
China. Additionally, we established a compaction and paving equipment factory
in Wuqing, China in late 2001. The new facilities allow Metso Minerals to serve
its customers in China with locally-made products and short lead times, which
improves our position in the growing Chinese market.

15



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##### 



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

Metso Automation

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

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

Metso Automation has production plants in Finland, the United States and
Mexico, as well as a manufacturing joint venture in China. Metso Automation
operates globally and each business line is responsible for its sales and
distribution around the world. All Metso Automations process automation and
field systems operations in North America are conducted by a separate unit.
Sales are handled through a worldwide distribution network including local
distributors and Metso Automation sales companies in 37 countries.

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

|                         |  |                                           |       |      |  |      |       |  |  |  |       | 
|------------------------ |  | ----------------------------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                         |  | As of and for the year ended December 31,
|                         |  |                                          
|                         |  | 2000                                      |       | 2001 |  | 2002
|                         |  |                                           |       |      |  |     
|                         |  | ( millions, except personnel data)      
|Net sales(1)             |  |                                           | 644   |      |  |      | 693   |  |  |  | 622   | 
|Operating profit         |  |                                           | 45    |      |  |      | 17    |  |  |  | 16    | 
|Capital employed         |  |                                           | 244   |      |  |      | 282   |  |  |  | 207   | 
|Capital expenditures     |  |                                           | 30    |      |  |      | 43    |  |  |  | 13    | 
|Research and development |  |                                           | 42    |      |  |      | 46    |  |  |  | 44    | 
|Order backlog            |  |                                           | 197   |      |  |      | 182   |  |  |  | 185   | 
|Personnel                |  |                                           | 4,551 |      |  |      | 4,532 |  |  |  | 4,150 | 



---

|(1) |  | Includes net sales to other business areas of 30 million, 68 million
and 43 million in 2000, 2001 and 2002, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

Products and Services

The name metsoDNA is one of the principal product names of Metso
Automation. It is used in the automation and information management of pulp,
paper, minerals processing and power industries. Other important product names
are Neles and Jamesbury control valves, Kajaani measurement devices and
analyzers, Valmet consistency transmitters, Sensodec systems for paper machine
runnability and condition monitoring, and the PaperIQ and PaperLab systems for
paper quality management.

Process Automation Systems

The Process Automation Systems business line develops and maintains
process automation technology for our core businesses and supplies solutions
for the eco-efficient power industry. The business lines principal product is
metsoDNA, or Dynamic Network of Applications, which integrates automation and
information operations into one system in an open application environment in
order to facilitate decision-making within organizations. metsoDNA achieves
integration by breaking down the dependencies between functionality and
hardware components. Management believes that metsoDNA represents a new
breed of process automation and

16



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##### 



information management solutions, based on free
networking standards, embedded field control applications and control
automation.

In addition, the Process Automation Systems business line supplies power
and other process industries using metsoDNA-based automation, information and
network solutions and other specialized technology solutions. The business line
also supplies automation applications to minerals processing and power
industries for all principal processes and subprocesses.

Field Systems

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

The product offering of the Field Systems business line in the area of
flow control valves covers a range of valves, including simple shut-off valves
to complex control and automated valves and valve controllers. The Field
Systems business line also supplies industrial ball valves, butterfly valves
and actuators, serving the process industries, commercial heating, ventilation
and air conditioning, and original equipment manufacturer markets. Rotary
valves accounted for more than 90 percent of the valves produced by Metso
Automation in 2002. We believe that Metso Automations operations will benefit
from the anticipated industry-wide movement from linear valves to rotary valves
as a result of our experience in the area of rotary valve technology. The Field
Systems business line also develops and manufactures positioners and actuators.
A positioner transmits information to an actuator, which in turn operates a
valve. Positioners and actuators are key components of control valves, and
Metso Automation typically sells these components with their associated valves
as a single unit. Management believes that the Field Systems business line is a
leading supplier of advanced digital technology control valves in terms of
technical performance and product reliability.

Customer Support Services

Metso Automation has customer service units in 37 countries. These units,
together with local representatives, form an extensive global service network
that is also supplemented with remote control solutions. Integration of
customers systems through communication networks with Metsos global online
service systems enables operations in accordance with the Metso Future Care
business concept. The remote diagnostics center in Tampere, Finland, which
opened in 2001, can monitor online the performance of customers pulp mills. In
addition to fast diagnosis and problem-solving, the service is designed to
improve process availability and performance, resulting in higher efficiency
and product quality. In 2002, the second remote diagnostics center was opened
in Atlanta, Georgia.

Markets and Customers

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

|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|------------------------------------ |  | ---------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                     |  | Year ended December 31,     
|                                     |  |                             
|                                     |  | 2000                         |     | 2001 |  | 2002
|                                     |  |                              |     |      |  |     
|                                     |  | (Percent of total net sales)
|Finland                              |  |                              | 17  |      |  |      | 23  |  |  |  | 20  | 
|Nordic Countries (excluding Finland) |  |                              | 5   |      |  |      | 4   |  |  |  | 4   | 
|Europe (excluding Nordic Countries)  |  |                              | 23  |      |  |      | 21  |  |  |  | 21  | 
|North America                        |  |                              | 39  |      |  |      | 37  |  |  |  | 36  | 
|South America                        |  |                              | 4   |      |  |      | 4   |  |  |  | 5   | 
|Asia-Pacific                         |  |                              | 9   |      |  |      | 8   |  |  |  | 11  | 
|Rest of the world                    |  |                              | 3   |      |  |      | 3   |  |  |  | 3   | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|Total                                |  |                              | 100 |      |  |      | 100 |  |  |  | 100 | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 

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

17



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##### 



Marketing

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

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

Competition

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

Competition in the valve industry is characterized by a large number of
participants, many of which specialize in limited niche areas. Management
believes that Metso Automation has a leading position in the supply of control
valves to the pulp and paper industry worldwide.

Recent Developments

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

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

Metso Ventures

The Metso Ventures business area was created following the restructuring
of our operations in January 2001, and was originally comprised of Metso
Engineering and Valmet Automotive. In March 2002, Metso Panelboard, formerly
part of Metso Paper, was transferred to Metso Ventures business area. Metso
Engineering was comprised of four divisions, Metso Drives, Metso Hydraulics,
Metso Works and Metso Powdermet, of which only Metso Drives and Metso Powdermet
remain after the sale of Metso Works and Metso Hydraulics. Currently, Metso
Ventures has four business lines: Metso Panelboard, Metso Drives, Metso
Powdermet and Valmet Automotive. See Corporate Structure for a further
explanation of our corporate restructuring.

Metso Panelboard

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

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

18



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##### 



|                         |  |                                           |     |      |  |      |     |   |  |  |     |  
|------------------------ |  | ----------------------------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                         |  | As of and for the year ended December 31,
|                         |  |                                          
|                         |  | 2000                                      |     | 2001 |  | 2002
|                         |  |                                           |     |      |  |     
|                         |  | ( millions, except personnel data)      
|Net sales(1)             |  |                                           | 173 |      |  |      | 144 |   |  |  | 66  |  
|Operating loss           |  |                                           | (11 | )    |  |      | (7  | ) |  |  | (21 | )
|Capital employed         |  |                                           | (3  | )    |  |      | 9   |   |  |  | 2   |  
|Capital expenditures     |  |                                           | 0   |      |  |      | 1   |   |  |  | 2   |  
|Research and Development |  |                                           | 3   |      |  |      | 6   |   |  |  | 4   |  
|Order backlog            |  |                                           | 98  |      |  |      | 14  |   |  |  | 76  |  
|Personnel                |  |                                           | 621 |      |  |      | 503 |   |  |  | 334 |  



---

|(1) |  | Includes net sales to other business areas of 14 million, 5 million and
1 million in 2000, 2001 and 2002, respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------

Competition

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

Markets & Customers

Metso Panelboard has operations in Finland, Sweden and Germany and sells
its products globally. The main markets are Europe and Asia-Pacific followed by
South America and North America. Customers are producers of wood-based panels.
Some of the main customers are Kronospan Group, Pfleiderer Group, Ikea, Finsa
Group, Sonae Group, International Paper, Georgia Pacific, Masisa Group.

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

|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|------------------------------------ |  | ---------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                     |  | Year ended December 31,     
|                                     |  |                             
|                                     |  | 2000                         |     | 2001 |  | 2002
|                                     |  |                              |     |      |  |     
|                                     |  | (Percent of total net sales)
|Finland                              |  |                              | 0   |      |  |      | 2   |  |  |  | 1   | 
|Nordic Countries (excluding Finland) |  |                              | 5   |      |  |      | 2   |  |  |  | 21  | 
|Europe (excluding Nordic Countries)  |  |                              | 19  |      |  |      | 24  |  |  |  | 24  | 
|North America                        |  |                              | 17  |      |  |      | 8   |  |  |  | 6   | 
|South America                        |  |                              | 36  |      |  |      | 43  |  |  |  | 9   | 
|Asia-Pacific                         |  |                              | 23  |      |  |      | 20  |  |  |  | 39  | 
|Rest of the world                    |  |                              | 0   |      |  |      | 1   |  |  |  | 0   | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|Total                                |  |                              | 100 |      |  |      | 100 |  |  |  | 100 | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 

Marketing

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

Recent Developments

Metso Panelboard was transferred from Metso Paper business areas Others
division to Metso Ventures business area in March 2002. Metso Panelboard has
reduced the number of its employees and closed a facility in Germany in an effort to operate
more efficiently and concentrate operations in Finland. At December 31, 2002,
Metso Panelboard had 334 employees.

Major product development has been concentrated on the new generation of
the continuous press. This new Metso Contipress was launched to wood-based
panel markets in 2002.

Metso Drives

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

19



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##### 



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

|                         |  |                                           |       |      |  |      |       |  |  |  |       | 
|------------------------ |  | ----------------------------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                         |  | As of and for the year ended December 31,
|                         |  |                                          
|                         |  | 2000                                      |       | 2001 |  | 2002
|                         |  |                                           |       |      |  |     
|                         |  | ( millions, except personnel data)      
|Net sales(1)             |  |                                           | 187   |      |  |      | 204   |  |  |  | 173   | 
|Operating profit         |  |                                           | 11    |      |  |      | 8     |  |  |  | 13    | 
|Capital employed         |  |                                           | 77    |      |  |      | 85    |  |  |  | 98    | 
|Capital expenditures     |  |                                           | 13    |      |  |      | 20    |  |  |  | 27    | 
|Research and development |  |                                           | 3     |      |  |      | 4     |  |  |  | 4     | 
|Order backlog            |  |                                           | 73    |      |  |      | 88    |  |  |  | 53    | 
|Personnel                |  |                                           | 1,472 |      |  |      | 1,511 |  |  |  | 1,019 | 



---

|(1) |  | Includes net sales to other business areas of 56 million, 55 million
and 40 million in 2000, 2001 and 2002, respectively.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------

Products and Services

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

Markets and Customers

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

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

|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|------------------------------------ |  | ---------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                     |  | Year ended December 31,     
|                                     |  |                             
|                                     |  | 2000                         |     | 2001 |  | 2002
|                                     |  |                              |     |      |  |     
|                                     |  | (Percent of total net sales)
|Finland                              |  |                              | 40  |      |  |      | 39  |  |  |  | 31  | 
|Nordic Countries (excluding Finland) |  |                              | 23  |      |  |      | 25  |  |  |  | 28  | 
|Europe (excluding Nordic Countries)  |  |                              | 19  |      |  |      | 17  |  |  |  | 21  | 
|North America                        |  |                              | 15  |      |  |      | 15  |  |  |  | 15  | 
|South America                        |  |                              | 1   |      |  |      | 1   |  |  |  | 1   | 
|Asia-Pacific                         |  |                              | 2   |      |  |      | 3   |  |  |  | 4   | 
|Rest of the world                    |  |                              | 0   |      |  |      | 0   |  |  |  | 0   | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|Total                                |  |                              | 100 |      |  |      | 100 |  |  |  | 100 | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 

Marketing

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

Competition

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

Recent Developments

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

20



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##### 



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

Metso Powdermet

Metso Powdermet develops and supplies machine parts manufactured from
powder metallurgy. It concentrates mostly on supporting our main business areas
in material development matters and has more than 30 research and development
projects. Metso Powderments current main project involves supplying powder
metallurgy parts for the particle accelerator of the European Organization for
Nuclear Research, or CERN, located in Switzerland. This project will continue
until 2005.

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

|                         |  |                                           |    |      |  |      |    |  |  |  |    |  
|------------------------ |  | ----------------------------------------- | -- | ---- |  | ---- | -- |  |  |  | -- | -
|                         |  | As of and for the year ended December 31,
|                         |  |                                          
|                         |  | 2000                                      |    | 2001 |  | 2002
|                         |  |                                           |    |      |  |     
|                         |  | ( millions, except personnel data)      
|Net sales(1)             |  |                                           | 7  |      |  |      | 7  |  |  |  | 7  |  
|Operating profit (loss)  |  |                                           | 0  |      |  |      | 0  |  |  |  | (1 | )
|Capital employed         |  |                                           | 2  |      |  |      | 1  |  |  |  | 3  |  
|Capital expenditures     |  |                                           | 0  |      |  |      | 0  |  |  |  | 0  |  
|Research and development |  |                                           | 0  |      |  |      | 1  |  |  |  | 0  |  
|Order backlog            |  |                                           | 2  |      |  |      | 9  |  |  |  | 10 |  
|Personnel                |  |                                           | 15 |      |  |      | 19 |  |  |  | 24 |  



---

|(1) |  | Includes net sales to other business areas of 1 million, 1 million and
1 million in 2000, 2001 and 2002, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------

Markets and Customers

Metso Powdermet has operations in Finland and Sweden. The principal market
area of Metso Powdermet is the Nordic countries. The principal customers are in
the process, energy production and offshore industries. Major customers also
include Metso Paper and Metso Minerals.

The following table sets forth Metso Powdermets net sales by geographic
area for the most recent three years:

|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|------------------------------------ |  | ---------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                     |  | Year ended December 31,     
|                                     |  |                             
|                                     |  | 2000                         |     | 2001 |  | 2002
|                                     |  |                              |     |      |  |     
|                                     |  | (Percent of total net sales)
|Finland                              |  |                              | 8   |      |  |      | 23  |  |  |  | 15  | 
|Nordic Countries (excluding Finland) |  |                              | 62  |      |  |      | 37  |  |  |  | 32  | 
|Europe (excluding Nordic Countries)  |  |                              | 19  |      |  |      | 35  |  |  |  | 44  | 
|North America                        |  |                              | 11  |      |  |      | 4   |  |  |  | 8   | 
|Asia-Pacific                         |  |                              | 0   |      |  |      | 1   |  |  |  | 0   | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 
|Total                                |  |                              | 100 |      |  |      | 100 |  |  |  | 100 | 
|                                     |  |                              |     |      |  |      |     |  |  |  |     | 

Marketing

Powdermet products and services are sold by its own sales people and
agents.

Competition

Metso Powdermet uses powder metallurgical methods and the competition
comes from older metal shape-giving technological companies, such as foundries
and forgers.

Valmet Automotive

Valmet Automotive is an independent contract manufacturer of high quality
specialty cars with production facilities in Uusikaupunki, Finland. The
production facilities in Uusikaupunki consist of a body shop,

21



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

Valmet Automotive is defined as a non-core business in our strategy, and
we aim to find a strategic partner for the operations. In November 2001,
ThyssenKrupp Automotive AG of Germany, one of the leading automotive systems
suppliers in the world, acquired a ten percent minority holding in Valmet
Automotive with an option to acquire the remaining 90 percent within two years.
The option runs until the end of 2003.

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

|                                         |  |                                           |        |      |  |      |        |  |  |  |        | 
|---------------------------------------- |  | ----------------------------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                         |  | As of and for the year ended December 31,
|                                         |  |                                          
|                                         |  | 2000                                      |        | 2001 |  | 2002
|                                         |  |                                           |        |      |  |     
|                                         |  | ( millions, except personnel data)      
|Net sales                                |  |                                           | 119    |      |  |      | 136    |  |  |  | 128    | 
|Operating profit                         |  |                                           | 15     |      |  |      | 27     |  |  |  | 23     | 
|Capital employed                         |  |                                           | 37     |      |  |      | 44     |  |  |  | 42     | 
|Capital expenditures                     |  |                                           | 6      |      |  |      | 12     |  |  |  | 8      | 
|Research and development                 |  |                                           | 4      |      |  |      | 3      |  |  |  | 4      | 
|Approximate number of vehicles assembled |  |                                           | 38,468 |      |  |      | 41,916 |  |  |  | 41,066 | 
|Personnel                                |  |                                           | 1,658  |      |  |      | 1,553  |  |  |  | 1,496  | 

Products and Services

Valmet Automotive focuses on producing and developing demanding specialty
cars, such as the Porsche Boxster for Porsche AG. Valmet Automotives product
development center focuses on body and interior solutions for specialty cars
and the development of roof systems for convertibles.

Commencement of production of Porsche Boxster in September 1997 followed
an investment of approximately 17 million in a production line used to
assemble the car. Pursuant to Valmet Automotives agreement with Porsche AG,
Porsche is to reimburse Valmet Automotive for all or substantially all of the
amount. On October 24, 2001, Valmet Automotive and Porsche AG signed a new
cooperation agreement covering continued car production until 2008, with an
option until 2011.

In 1997, Valmet Automotive and Saab Automobile AB entered into an
agreement under which Valmet Automotive assembles the new Saab 9-3
high-performance convertible series, including 3-D and 5-D models. The
production of the new Saab 9-3 convertible models began in early 1998,
replacing the production of the Saab 900 convertible. The production of Saab
9-3 Viggen, a special high-performance model of Saab 9-3, began in the spring
of 1999. The agreement to manufacture Saab 9-3 convertibles and the Saab Viggen
will expire in the beginning of May 2003 and will not be renewed.

Competition

Specialty cars of the type produced by Valmet Automotive are designed for
very limited customer segments and production is to an increasing extent
subcontracted to external manufacturers. Three out of every four Porsche
Boxsters are currently made in Finland, and Valmet Automotive is currently the
only Porsche manufacturer outside of Germany. Valmet Automotive is one of the
biggest manufacturers of convertibles and contract manufacturers of specialty
cars in Europe. Valmet Automotives principal competitors are Steyr-Daimler-Puch in
Austria, Karmann in Germany and Pininfarina and Bertone in
Italy. The combined production of European contract manufacturers has grown in
the last five years and currently exceeds 300,000 cars per year.

Management believes Valmet Automotives principal competitive advantages
are its high quality, cost efficient and flexible production capabilities. The
production facilities have been upgraded in recent years, and, in 1999, Valmet
Automotive became one of the first automobile plants in the world to gain
QS-9000 quality certification. In addition, the environmental management
certificate ISO14001 was granted to Valmet Automotive in early 2001.

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To maintain Valmet Automotives modern and advanced automobile production
facility, Valmet Automotive has continually invested in updating its production
technologies. In 1997, waterborne top coat paints were introduced into
production. In 1999, Valmet Automotive introduced a new assembly line designed
for the production of specialty cars, which improves quality, productivity and
ergonomics. The assembly lines capacity is 125 cars per shift. The cost of the
investment totaled approximately 9 million. In 2001, a new primer coating line
based on waterborne paints was installed. The investment totaled 10 million.
The investments during the year 2002 were 8 million, from which one-half
related to assembly of Porsche Boxsters.

Recent Developments

Due to the expiration of the agreement with Saab Automobile in May 2003,
Valmet Automotive does not have a sufficient order backlog to employ its entire
personnel after closing down of the Saab production line. In April 2003, it
adjusted the number of personnel according to the backlog of orders and the
needs of the Porsche production by temporarily laying off half of the
personnel, 759 employees in total. The temporary layoff is estimated to last
for at least one year unless Valmet Automotive enters into a new production
arrangement with another automobile manufacturer. After the layoffs a total of
762 employees will continue to work at the production facilities. They too will
be temporarily laid off for a short period of time in the summer 2003. Valmet
Automotive continuously seeks a new car model to add to its production line.

Discontinued Operations

Converting

In November 2002, we signed a memorandum of understanding with Bobst Group
SA of Switzerland on the divestment of the Converting business. The transaction
is currently under due diligence review. We expect to complete the transaction
by the end of 2003, subject to certain conditions. Based on this development,
Converting is no longer included in Metso Paper but reported as a separate
entity under Discontinued Operations. See Corporate Structure for a further
discussion of our corporate restructuring.

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

|                         |  |                                           |     |      |  |      |     |  |  |  |     |  
|------------------------ |  | ----------------------------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | -
|                         |  | As of and for the year ended December 31,
|                         |  |                                          
|                         |  | 2000                                      |     | 2001 |  | 2002
|                         |  |                                           |     |      |  |     
|                         |  | ( millions, except personnel data)      
|Net sales                |  |                                           | 176 |      |  |      | 176 |  |  |  | 160 |  
|Operating profit (loss)  |  |                                           | 0   |      |  |      | 3   |  |  |  | (9  | )
|Capital employed         |  |                                           | 77  |      |  |      | 60  |  |  |  | 55  |  
|Capital expenditures     |  |                                           | 2   |      |  |      | 3   |  |  |  | 3   |  
|Research and development |  |                                           | 1   |      |  |      | 2   |  |  |  | 2   |  
|Order backlog            |  |                                           | 75  |      |  |      | 72  |  |  |  | 102 |  
|Personnel                |  |                                           | 779 |      |  |      | 824 |  |  |  | 829 |  

Products and Services

Since 1998, Converting has operated in coordination with Italian Valmet
Rotomec (Rotomec) and Atlas Converting plc (Atlas), a U.K.-based
manufacturer of slitter rewinders, vacuum metallizing machines and sheet
cutters for the converting business, acquired in 1997. Converting offers a wide
range of machines for the packaging and printing industries and is one of the
worlds leading suppliers of converting equipment in this field. Converting
consists of four subunits, two in the United Kingdom and two in Italy.

The principal products of Converting are slitter rewinders, vacuum
metallizing equipment and rotogravure and flexo printing machines for the
packaging industry.

Rotomec specializes in packaging printing machines and special coating and
laminating machines. Rotomec produces packaging industry machines for various
materials, such as paper, board, aluminum, and plastic sheets. Rotomec also
produces printing machines for the production of wallpaper and interior
furnishing materials. Management believes that Rotomec is one of the worlds
leading suppliers of these kinds of machines.

23



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Atlas specializes in slitter rewinders and vacuum-metallizing equipment
for the treatment of paper, film and aluminum foil for the converting industry.
Atlas is one of the worlds largest slitter producers for the converting
industry. Its products are mainly used in the film and packaging industries.

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

Markets and Customers

Customers of Converting are located primarily in Europe and North America,
and include companies in the wood-based panels industry throughout the world.
Some of the major North American customers of the business include 3M Company,
ALGROUP (Lawson Mardon), AMCOR, Avery Dennison, Eastman Kodak, Reynolds Metals,
Du Pont, Exxon-Mobil and Proma Technologies. Major customers in Europe include
Hoechst (Germany), Pechiney (France), Raflatac (Finland), Felix Schoeller
(Germany), Huhtamäki van Leer (The Netherlands, Finland), Moplefan (Italy) and
Mobil Corporation.

Marketing

The products of Converting are marketed through relationships with various
contractors in its key market areas. It does not typically maintain formal
distribution contracts with its network of contractors. It currently has one
sales agent located in the United States who is responsible for the U.S.
market. In addition, Converting maintains a marketing and sales team to support
its sales and to develop marketing strategies.

Competition

Converting operates in a highly competitive marketplace. In the market for
packaging materials, some of the principle competitors include Windmöller &
Hölscher, Reifenhauser, Davis Standard, Bopst Schiavi, Comexi and Jagenberg. In
the plastic films market, the principal competitors are Bruckner, Mitsubishi,
Davis Standard, DMT, Jagenberg and Wickeltechnik. In the paper and film
converting market, the major competitors are Kroenert, Polytype, Black Clawson,
Faustel, PCMC, Jagenberg, Davis Sandard and Wickeltechnik.

Forest machines

On April 28, 2000, we sold our Forest Machines division, Timberjack, which
manufactured and sold logging equipment, to Deere & Company for an aggregate
sale price of 644 million. The divestment of Timberjack represented part of
our strategy of concentrating on our core business areas serving the process
industries. In accordance with our strategy, the proceeds from the sale of
Timberjack were used to invest in our core business areas as well as to develop
the Metso Future Care business concept.

The following table sets forth certain financial data regarding Timberjack
for the year ended December 31, 2000 to the date of the divestiture:

|                         |  |                     |       | 
|------------------------ |  | ------------------- | ----- | 
|                         |  | As of and for the  
|                         |  | period ended       
|                         |  | April 28, 2000     
|                         |  |                    
|                         |  | ( millions, except
|                         |  | personnel data)    
|Net sales                |  |                     | 179   | 
|Operating profit         |  |                     | 13    | 
|Capital employed         |  |                     | 224   | 
|Capital expenditures     |  |                     | 0     | 
|Research and development |  |                     | 5     | 
|Order backlog            |  |                     | 82    | 
|Personnel                |  |                     | 2,028 | 

Timberjack was the worlds leading manufacturer of logging equipment in
1999 and was involved with the design, assembly and sale of logging machinery
and attachments for mechanized timber harvesting and transport, as well as for
roadside log handling. It also sold service parts and provided after-sales
services. Its product range covered approximately 90 percent of the global
demand for mechanized logging systems.

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Through Timberjack, we had production plants in Canada, Finland, Sweden, the United States and New Zealand, which
operated through a worldwide marketing network, including approximately 60
independent dealers with more than 300 sales outlets.

Significant Subsidiaries

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

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

Associated Companies

We currently own 35.8 percent of Allimand S.A., which has an equity value
of approximately 5 million; 48.3 percent of Valmet-Xian Paper Machinery Co.
Ltd., which has an equity value of approximately 4 million; and 50 percent of
Shanghai Neles-Jamesbury Valve Co. Ltd., which has an equity value of
approximately 3 million.

Raw Materials

Each of our business areas procures the raw materials and subcomponents
required for its operations from a network of multiple subcontractors and
suppliers. Except with respect to certain key raw materials, we do not
typically enter into long-term supply agreements, although we have long-term
relationships with our network of suppliers. No business area is dependent on a
single supplier, and we have identified replacement suppliers in the event that
a particular supplier is unable to meet our production requirements. In
addition, we manufacture internally many key parts and subcomponents that are
required for our operations.

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

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

Seasonality

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

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Dependence on Intellectual Property

We are committed to value creation and enhancement of shareholder
interests through our ownership of intellectual property rights, which include
the Metso brand, patents, utility models, design protections, trademarks,
copyrights and domain names. We also concentrate on seeking protection for our
value-adding intellectual property rights. We have systematic intellectual
property management and harmonized, corporate-wide practices.

We seek to manage our intellectual property rights portfolios in a way
that supports both competitiveness and technological leadership in our
businesses. In 2002, Metsos patent portfolio, including 7,900 patents and
4,300 pending applications, was evaluated, screened and developed with current
and future business needs and possibilities in mind.

Our employees file approximately 800 invention disclosures annually. In
2002, protection, for example, in the form of patents was sought for
approximately 250 new inventions ranging from new business methods through
automation and whole product lines to specific component parts.

Governmental Regulation and Environmental Matters

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

Metso Minerals Industries Inc., previously Nordberg Inc., a company
belonging to the Metso Minerals business area, has been named, together with a
number of other parties, as a potentially responsible party (PRP) for the
remediation of two Wisconsin landfills (Hunt and Muskego), which have been
designated as superfund sites under CERCLA. As a PRP, Metso Minerals Industries
Inc. is jointly and severally liable for the clean-up costs of such sites. With
respect to Hunt landfill site, Metso Minerals Industries Inc., together with
the other named PRPs, has entered into a consent decree with the U.S.
government pursuant to which Metso Minerals and such other parties have agreed
to cover the clean-up costs of the Hunt site, which had been estimated to be in
the range of U.S.$13 million to U.S.$22 million. Metso Minerals Industries Inc.
has a 6.3 percent share of the clean-up costs and is also covered by an
indemnification agreement with a previous owner of Nordberg. Construction at
the Hunt site was completed in 1996 and Metso Minerals has paid a total of
approximately U.S.$400,000 for the clean-up costs. Additional work at the
Hunt site may be required at an estimated cost to Metso Minerals Industries,
Inc. of approximately U.S.$200,000. With respect to the Muskego site, there is
an administrative order in place, with a total estimate of U.S.$15 million for
design and clean-up costs, of which the share of the previous owner and Metso
Minerals is expected to be at the level of the already paid U.S.$125,000. No
activities at the Muskego site have occurred since 1996. Management estimates
that Metso Minerals maximum remaining liability with respect to the Hunt and
Muskego sites will not exceed U.S.$300,000, and that the reserves of
U.S.$267,000 for the remediation costs of the two landfill sites will be
sufficient for any remaining liability due to above reasons and the fact that
no activity on these sites has occurred for several years.

In addition to the two landfill sites mentioned above, and ordinary
environmental concerns attached to old industrial facilities (such as potential
asbestos in building materials, lead paint, and storing of oil, solvents and
paint), Metso Minerals Industries Inc. is the owner and operator of a major
industrial facility at Milwaukee, Wisconsin, at which manufacturing operations
have been carried out since early 1900s. According to Phase I level evaluations
made, the facility possesses several underground storage tanks, and had
extensive foundry operations since 1900s. To date, no known adverse
environmental impacts have been identified at the site. Metso Minerals current
plan is to continue to operate at the site. Should in the future the use of the
site change or should the facility become subject to sales process, it has been
estimated that some remedial costs may be required pursuant to Phase II level
investigation outcome. In such case, the estimated future remedial cost may
amount to a range of U.S.$100,000 to U.S.$1 million. Although considered
unlikely, should widespread impacts be found, the exposure is estimated to be
within the range of U.S.$500,000 to U.S.$5 million. As no change of use or sale
of the site is contemplated, no reserves have been made at the moment for any
future remedial costs.

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As a result of the acquisition of Svedala, Metso Minerals has two sites
with certain environmental concerns. The first is a former manufacturing site
in Mt. Olive, New Jersey, which Svedala acquired in 1992. The company acquired
by Svedala operated this site from 1955 to 1987. With the closing of
manufacturing operations in 1987, the New Jersey Industrial Site Recovery Act
triggered an environmental assessment. Both soil and groundwater contamination
were identified. The source of most of the contamination was traced back to
prior owners and operators of the property, which had been an industrial site
since the early 1900s. All known contaminated soil has been removed and the
State of New Jersey Department of Environmental Protection (NJDEP) has issued
a No Further Action letter regarding the soil. To date, only groundwater
monitoring has been performed. Originally a natural attenuation alternative was
proposed, which relies on environmental factors such as biological degradation,
dilution and dispersion to reduce the concentration of contaminants in the
groundwater to acceptable levels. An in situ groundwater treatment program to
lower the levels of contamination in the groundwater in support of the natural
attenuation alternative has now been approved by the NJDEP. A U.S.$680,000
reserve has been established to cover the in situ groundwater treatment during
2003 and continued monitoring for the next five years. The second site with
environmental concerns is a former manufacturing property in Danville,
Pennsylvania. Both soil and groundwater are contaminated with oil from the
manufacturing process. In conjunction with the state of Pennsylvania, an
approved remediation plan is being developed. Some soil remediation has already
been completed. Two additional areas of concern need to be investigated and
possibly remediated. Since the extent of the contamination is not fully known,
a U.S.$1,900,000 reserve is our best estimate of potential remediation costs at
this time.

Metso Panelboard, part of the Metso Ventures business area, has previously
owned a site with certain environmental concerns. The site, located in Belgium,
was owned by De Mets, a company divested in 2001. Pursuant to the sale
agreement, we are required to provide the purchaser with an environmental
report, certified by the Belgian authorities, to the effect that the soil at the site has not
been contaminated. Consequently, a third party is currently conducting an
environmental assessment at the site. Based on this assessment we will receive
a report, which we will then submit to Belgian authorities for certification.
If deemed necessary, we will develop and initiate a remediation plan. In
accordance with the conditions of the sale agreement, we have estimated that
our responsibility for remediation costs will be limited to 1 million, which
we recognized as a reserve in connection with the disposal.

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

In June 2000, we signed the ICCs Business Charter for sustainable
development, which compliments the environmental management principles of our
own environmental policy. We expect that our most significant production sites
will comply with ISO14001 environmental management systems in the future. In
2002, the ISO14001 certification was granted to eight Metso sites, and the sites
with the certification currently total 29. By the end of 2002, the ISO14001
systems covered 58 percent of our production activity. When systems currently
under development will be certified, 78 percent of our production activity will
be covered. We were selected for the fourth time as a component in Dow Jones
Sustainability Index World (DJSI) for the period 2002-2003. We also feature
in the new European sustainability index, DJSI STOXX. In 2002, we were also
included for the first time in the FTSE4Good corporate social responsibility
index.

We are committed to full compliance with all applicable national and
international laws, regulations and generally accepted practices. Our
environmental reporting procedure covers operating sites with significant
environmental impacts. Overall compliance with site-level permit conditions was
good in 2002. No major non-compliance situations were observed. Minor clean-up
activities on contaminated soil were carried out on two sites and on five sites
further investigations and tests are being conducted. However, we anticipate
that these cases do not result in material financial consequences for us.
Management is not aware of any other current environmental matters that could
reasonably be expected to have a material adverse effect on our financial
condition or results of operations.

Property, Plants and Equipment

Our principal executive offices are located at Fabianinkatu 9 A, Helsinki,
Finland. We own the premises.

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As of December 31, 2002, our principal manufacturing facilities included
the following:

|                                          |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|----------------------------------------- |  | -------- |  | ------------ | --------- | -------------------- |  | -------------------------------------------------------- |  |  |  | 
|                                          |  | Owned or |  |              |           |                      |  |                                                          |  | 
|Location of Facility                      |  | Leased   |  | Size (sq.ft) |           | Principal Activities
|                                          |  |          |  |              |           |                     
|Metso Paper                               |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|Sundsvall, Sweden                         |  | Owned    |  |              | 273,960   |                      |  | Pulping Machinery                                       
|Valkeakoski, Finland                      |  | Owned    |  |              | 214,511   |                      |  | Stock Preparation Equipment and Refiners                
|Hagfors, Sweden                           |  | Owned    |  |              | 53,036    |                      |  | Refiner Segments                                        
|Tokyo, Japan                              |  | Leased   |  |              | 10,206    |                      |  | Refiner Segments                                        
|Hollola, Finland                          |  | Owned    |  |              | 74,000    |                      |  | Roll Handling                                           
|Jyväskylä, Finland                        |  | Owned    |  |              | 1,375,000 |                      |  | Large-sized Paper Machines, Foundry                     
|Järvenpää, Finland                        |  | Owned    |  |              | 648,000   |                      |  | Paper Finishing Machines                                
|Kotka, Finland                            |  | Owned    |  |              | 425,000   |                      |  | Medium-sized Paper Machines, Pulp Dryers                
|Turku, Finland                            |  | Owned    |  |              | 500,000   |                      |  | Air Drying Systems                                      
|Gorizia, Italy                            |  | Owned    |  |              | 94,000    |                      |  | Air Drying Systems                                      
|Bergamo, Italy                            |  | Owned    |  |              | 79,000    |                      |  | Printing Presses                                        
|Corbeheim, France                         |  | Leased   |  |              | 29,000    |                      |  | Roll Covering                                           
|Appleton, Wisconsin, United States        |  | Owned    |  |              | 155,000   |                      |  | Finishing Products, Roll Service                        
|Biddeford, Maine, United States           |  | Owned    |  |              | 81,000    |                      |  | Air Drying Systems, Non-woven Paper Machines            
|Hudson Falls, New York, United States     |  | Owned    |  |              | 38,000    |                      |  | Service Center, Non-woven Paper Machines                
|Montreal, Canada                          |  | Owned    |  |              | 354,000   |                      |  | Service Center, Components                              
|Thunder Bay, Canada                       |  | Leased   |  |              | 46,000    |                      |  | Air Drying Systems                                      
|Laem Chabang, Thailand                    |  | Owned    |  |              | 69,000    |                      |  | Service Center                                          
|Aiken, South Carolina, United States      |  | Owned    |  |              | 124,400   |                      |  | Roll Covering                                           
|Clarks Summit, Pennsylvania,              |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|United States                             |  | Owned    |  |              | 110,000   |                      |  | Roll Covering                                           
|Columbus, Mississippi, United States      |  | Owned    |  |              | 149,079   |                      |  | Roll Covering                                           
|Federal Way, Washington, United States    |  | Owned    |  |              | 62,683    |                      |  | Roll Covering                                           
|Neenah, Wisconsin, United States          |  | Owned    |  |              | 111,360   |                      |  | Roll Covering                                           
|Sorocaba, São Paulo, Brazil               |  | Owned    |  |              | 40,742    |                      |  | Service Center                                          
|Wuxi, P.R. China                          |  | Owned    |  |              | 40,969    |                      |  | Service Center                                          
|Valmet-Xian, Xian, P.R. China            |  | Leased   |  |              | 1,162,550 |                      |  | Paper and Board Machines, Foundry, Air Drying Systems   
|Metso Minerals                            |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|Tampere, Finland                          |  | Owned    |  |              | 799,010   |                      |  | Rock Crushers, Castings                                 
|Milwaukee, Wisconsin, United States       |  | Owned    |  |              | 649,852   |                      |  | Rock Crushers                                           
|Macon, France                             |  | Owned    |  |              | 532,723   |                      |  | Rock Crushers and Vibrating Equipment                   
|Vereeniging, South Africa                 |  | Owned    |  |              | 330,386   |                      |  | Rock Crushers                                           
|Isithebe, South Africa                    |  | Leased   |  |              | 602,140   |                      |  | Manganese Spare Parts                                   
|Sorocaba, São Paulo, Brazil               |  | Owned    |  |              | 898,910   |                      |  | Rock Crushers, Vibrating Equipment, Compactors, Castings
|Dungannon, United Kingdom                 |  | Owned    |  |              | 56,000    |                      |  | Screens                                                 
|Gastonia, North Carolina, United States   |  | Owned    |  |              | 168,000   |                      |  | Vibrating Equipment                                     
|Vicálvaro, Spain                          |  | Owned    |  |              | 80,000    |                      |  | Crusher Spare Parts and Vibrating Equipment             
|Newcastle, Australia                      |  | Owned    |  |              | 132,500   |                      |  | Vibrating Equipment and Spare Parts                     
|Bawal, India                              |  | Owned    |  |              | 302,571   |                      |  | Crushers, Vibrating Equipment and Pumps                 
|Ahmedabad, India                          |  | Owned    |  |              | 350,076   |                      |  | Castings and Parts for Crushers and Pumps               
|Matamata, New Zealand                     |  | Owned    |  |              | 62,400    |                      |  | Rock Crushers and Spare Parts                           
|Tianjin, P.R. China                       |  | Owned    |  |              | 46,466    |                      |  | Rock Crushers                                           
|Düsseldorf, Germany                       |  | Owned    |  |              | 420,223   |                      |  | Metal Recycling Machines                                
|Ketsch, Germany                           |  | Owned    |  |              | 98,813    |                      |  | Vibrating Equipment                                     
|Vina del Mar, Chile                       |  | Owned    |  |              | 538,250   |                      |  | Wear Protection and Conveyors                           
|Colorado Springs, Colorado, United States |  | Owned    |  |              | 140,458   |                      |  | Pumps and Process Equipment, Castings                   

28



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|                                         |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|---------------------------------------- |  | -------- |  | ------------ | --------- | -------------------- |  | -------------------------------------------------------- |  |  |  | 
|                                         |  | Owned or |  |              |           |                      |  |                                                          |  | 
|Location of Facility                     |  | Leased   |  | Size (sq.ft) |           | Principal Activities
|                                         |  |          |  |              |           |                     
|Pittsburgh, Pennsylvania, United States  |  | Leased   |  |              | 90,000    |                      |  | Bulk Material Handling                                  
|Sala, Sweden                             |  | Owned    |  |              | 247,570   |                      |  | Slurry Pumps and Process Equipment                      
|York, Pennsylvania, United States        |  | Owned    |  |              | 131,965   |                      |  | Mill Equipment and Parts                                
|Keokuk, Iowa, United States              |  | Owned    |  |              | 98,000    |                      |  | Rubber Manufacturing                                    
|Warrenton, Missouri, United States       |  | Owned    |  |              | 150,000   |                      |  | Wire Screen Surface Manufacturing                       
|North Bay, Canada                        |  | Owned    |  |              | 55,000    |                      |  | Rubber Manufacturing                                    
|Belleville, Canada                       |  | Owned    |  |              | 58,000    |                      |  | Idler Manufacturing                                     
|Clarksdale, Mississippi, United States   |  | Leased   |  |              | 138,400   |                      |  | Conveyor Component Manufacturing                        
|Perth, Australia                         |  | Owned    |  |              | 48,438    |                      |  | Rubber Manufacturing                                    
|Ersmark, Sweden                          |  | Owned    |  |              | 131,320   |                      |  | Rubber Manufacturing                                    
|Trelleborg, Sweden                       |  | Leased   |  |              | 242,100   |                      |  | Rubber Manufacturing                                    
|Moers, Germany                           |  | Owned    |  |              | 47,361    |                      |  | Conveyor Belts                                          
|Tampere, Finland                         |  | Owned    |  |              | 96,875    |                      |  | Conveyor Belts                                          
|Kongsvinger, Norway                      |  | Leased   |  |              | 107,639   |                      |  | Conveyor Belts                                          
|Evergem, Belgium                         |  | Leased   |  |              | 46,285    |                      |  | Conveyor Belts                                          
|Karlskrona, Sweden                       |  | Owned    |  |              | 452,084   |                      |  | Rollers                                                 
|Ljungby, Sweden                          |  | Leased   |  |              | 161,460   |                      |  | Light Equipment                                         
|Wardenburg, Germany                      |  | Owned    |  |              | 129,170   |                      |  | Pavers and Planers                                      
|Lingen, Germany                          |  | Owned    |  |              | 161,460   |                      |  | Pavers                                                  
|Saint Valery-en-caux, France             |  | Owned    |  |              | 89,340    |                      |  | Concrete Equipment                                      
|Wuqing, P.R. China                       |  | Owned    |  |              | 75,350    |                      |  | Rollers and Pavers                                      
|Metso Automation                         |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|Helsinki, Finland                        |  | Leased   |  |              | 388,500   |                      |  | Valves and Accessories                                  
|Tampere, Finland                         |  | Owned    |  |              | 312,000   |                      |  | Automation Systems                                      
|Houston, Texas, United States(1)         |  | Leased   |  |              | 62,000    |                      |  | SCADA Systems                                           
|Calgary, Canada(1)                       |  | Leased   |  |              | 48,000    |                      |  | SCADA Systems                                           
|Shrewsbury, Massachusetts, United States |  | Owned    |  |              | 250,000   |                      |  | Valves and Accessories                                  
|Chihuahua, Mexico                        |  | Leased   |  |              | 186,200   |                      |  | Valves                                                  
|Lansdale, Pennsylvania, United States    |  | Leased   |  |              | 84,700    |                      |  | Control Systems                                         
|Kajaani, Finland                         |  | Leased   |  |              | 80,100    |                      |  | Specialty Analyzers                                     
|Toronto, Canada                          |  | Leased   |  |              | 65,000    |                      |  | Automation Technology Center                            
|Wittenheim, France                       |  | Leased   |  |              | 43,400    |                      |  | Valves                                                  
|Metso Ventures                           |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|Pori, Finland                            |  | Owned    |  |              | 249,000   |                      |  | Hired to an external manufacturer                       
|Parkano, Finland                         |  | Owned    |  |              | 249,946   |                      |  | Gears 50% and the rest hired to an external manufacturer
|Jyväskylä, Finland                       |  | Owned    |  |              | 183,645   |                      |  | Gear Manufacturing and Service                          
|Karkkila, Finland                        |  | Owned    |  |              | 126,000   |                      |  | Gear Manufacturing and Service                          
|Cambridge, Ontario, Canada               |  | Leased   |  |              | 35,000    |                      |  | Gears                                                   
|Wuppertal, Germany                       |  | Leased   |  |              | 65,781    |                      |  | Gears                                                   
|Uusikaupunki, Finland                    |  | Owned    |  |              | 1,216,000 |                      |  | Car Assembly                                            
|Converting                               |  |          |  |              |           |                      |  |                                                          |  |  |  | 
|Heywood, United Kingdom                  |  | Owned    |  |              | 102,000   |                      |  | Converting Machines                                     
|Casale, Italy                            |  | Owned    |  |              | 198,000   |                      |  | Laminating and Printing Presses                         
|Bedford, United Kingdom                  |  | Owned    |  |              | 96,500    |                      |  | Converting Machines                                     
|Biggleswade, United Kingdom              |  | Owned    |  |              | 72,700    |                      |  | Converting Machines                                     



---

|(1) |  | Sold in February 2003.
|--- |  | ----------------------

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

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Item 5. Operating and Financial Review and Prospects

The information in this Item 5. Operating and Financial Review and
Prospects concerning the financial condition and the results of operations of
Metso refers to the consolidated financial statements included in this annual
report, which are prepared in accordance with Finnish GAAP. Finnish GAAP
differs in certain significant respects from U.S. GAAP. A reconciliation of the
amounts of net income and shareholders equity reported under Finnish GAAP to
the amounts determined under U.S. GAAP, and a discussion of the principal
differences between Finnish and U.S. GAAP are set out in Note 31 to our
consolidated financial statements.

Business Environment

Our principal customer industries are pulp and paper, construction and
civil engineering, mining and other process and energy industry.

In 2002, uncertainty in the global economy was reflected in our market
environment and product demand throughout the year, especially in the important
U.S. and German markets. The development in the Chinese market was positive.
The demand for aftermarket services was good, and they accounted for 33 percent
of our net sales compared with 27 percent in the previous year. Our order
backlog at the end of the year was ten percent lower than at the end of 2001.
The market for Metso Paper was satisfactory. Major paper machine projects were
ongoing mainly in Canada, China and Europe. We also strengthened our market
position in tissue and pulping lines. The U.S. markets remained slow throughout
the year with rebuilds pending mainly in Europe. The demand for Metso Papers
aftermarket and maintenance services was good. The demand for Metso Minerals
products supplied to the construction and civil engineering industries was good
in Europe, except for Germany. In the U.S. markets, on the other hand, the
demand continued weak. The demand for mining industry products strengthened
slowly during the year in the southern hemisphere, but was modest elsewhere.
The demand for Metso Minerals aftermarket and maintenance services was good.
The demand for Metso Automations products was satisfactory except for the
United States, where the market was weak the entire year.

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

In 2000, favorable market conditions in the pulp and paper industries in
Europe and North America led to increased investment by market participants,
which resulted in increased demand for the products of Metso Paper and Metso
Automation in these regions, as well as in Asia and particularly in China. The
demand for Metso Minerals construction and civil engineering products
increased steadily through the first half of 2000 but slowed during the latter
half of 2000 due to uncertain economic conditions in the United States, rising
oil prices and interest rates. Investment by the mining industry improved
slightly in the second half of 2000, leading to an increased demand for Metso
Minerals mining products during the last six months of 2000.

Recent Developments

Recent Acquisitions

Acquisition of Svedala

In September 2001, our Metso Minerals business area was strengthened by
the acquisition of Svedala. In July 2000, we made a public offer to acquire all
the shares in Svedala, a global supplier of products and services for the rock
and mineral processing industry based in Sweden. The competition authorities of
the European Union and the United States examined the effects of the
acquisition and, in September 2001, gave

30



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their clearance under certain conditions. The acquisition was completed on September 14, 2001 and the
integration of the acquired businesses into the Metso Minerals was begun
immediately.

The cost of acquiring the shares of Svedala was 943 million. The
acquisition price, before deduction of Svedalas interest-bearing debt, was
1,371 million. The acquisition was financed with cash assets and a syndicated
bank loan. The amount of debt assumed for the acquisition increased our gearing
to 84.8 percent. At the end of 2002 our gearing had decreased to 80.6 percent.
Our objective is further reduce the gearing by disposing of non-core assets,
such as Converting, and by releasing Metso Minerals working capital tied up in
inventories and sales receivables.

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

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

At the beginning of the integration process, it was estimated that the
annual synergy benefits of integration would amount to 70 million and would be
realized in full in 2003. Later, the target was raised to 90 million, of which
we estimate more than one-half was realized in 2002. By the end of the year
2002, 12 production plants, mostly in the United States, had been closed down
or sold. In addition, as a result of the integration of distribution
operations, about 70 distribution and service units were closed. Metso Minerals
also divested or closed four non-core businesses; Svedala Robot B.V., Kranlyft
Ab, Interconsult i Falkenberg Ab and Oy Rolac Ab. The combined net sales of
these units totaled 79 million in 2001. The total nonrecurring
restructuring expenses arising from the acquisition were 72 million (90
million net of tax benefits of 18 million) by the end of 2002.

Other Acquisitions

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

In December 2001, we became the sole owner of Valmet-Raisio by acquiring
Raisio Chemicals minority holding. Before the acquisition, our holding was 51
percent. Valmet-Raisio was one of the worlds leading companies in the field of
water and chemical systems management, which is crucial to the development of
new paper machine solutions. In the future, we will develop water and chemical
system management in parallel with the other solutions that we have developed
in order to lower the environmental effect of our products.

Recent Divestitures

In February 2003, Metso sold its NMS companies, part of the Metso
Automation business area, to Telvent of Spain. NMS provides SCADA and
information management solutions. NMS employed over 400 persons and had annual
net sales of approximately 59 million in 2002.

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

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

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

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

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

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

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

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

Critical Accounting Policies

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

Accounts Receivable

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

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

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

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

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Pensions

In accordance with U.S. GAAP, we determine our pension benefit expense at
the end of the calendar year based on assumptions that include a weighted
average expected return on plan assets. Pension benefit expense was 42 million
for 2002 and 38 million in 2001, which is based on the expected return on plan
assets of 7.9 percent and 8.1 percent at December 31, 2002 for 2002 and 2001,
respectively.

Actual experience different than that assumed and changes in assumptions
can result in gains and losses that are not yet recognized in our consolidated
financial statements. We recognize amortization of any unrecognized gain or
loss as a component of our pension expense if, as of the beginning of the year,
such unrealized net gain or loss exceeds 10 percent of the greater of (1) the
projected benefit obligation or (2) the market-related value of the plans
assets. In such case, the amount of amortization expense we recognize is the
resulting excess divided by the average remaining service period of active
employees expected to receive benefits under this plan.

In addition, we also make an assumption related to the 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.

Allowance for Slow-Moving and Obsolete Inventory

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

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

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

Revenue Recognition

We deliver to our customers complete installations, where the moment of
signing a sales contract (firm commitment) and the final reception of a
delivery by the customer can take place in different financial periods.
In accordance with our accounting principles, we apply the percentage of
completion method (POC method) for recognition of such long-term delivery
contracts. In year 2002, approximately one-fourth of our net sales were
recognized under the POC method, either by using the so-called milestone method
(based on predetermined milestone) or the cost-to-cost method. We use the POC
method since reasonably dependable estimates of the revenue and costs
applicable to a contract can be established. A projected loss on a firm
commitment is recognized in income, when a contract becomes binding to us. The
revenue, the costs and profit, including the planned delivery schedule, of the
projects are subject to regular revisions as the contract progresses to
completion. Revisions in profit estimates are charged to income in the period
in which the facts that give rise to the revision become known. As the
reliability of cost estimates is based on our experience in manufacturing and
delivering paper machines, pulp making lines and complete crushing
installations, we do not apply the POC method for sales where we consider that
the final outcome of the project and related costs cannot be pre-established
reliably. Currently, we do not have any such projects.

Accounting for Income Taxes

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

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valuation allowance. To the extent we establish a
valuation allowance or increase this allowance, we include an expense in the
tax reserve in the income statement.

Significant management judgment is required in determining our provision
for income taxes, our deferred tax assets and liabilities and any valuation
allowance recorded against our net deferred tax assets. We have recorded a
valuation allowance of 110 million as of December 31, 2002, due to
uncertainties related to our ability to utilize some of our deferred tax
assets, primarily consisting of operating losses carried forward for certain
foreign subsidiaries before expiration and the final outcome of tax audits in
some subsidiaries. The valuation allowance is based on our estimates of taxable
income by country in which we operate and the period over which our deferred
tax assets will be recoverable. In the event that actual results differ from
these estimates or we adjust these estimates in future periods, we may need to
establish an additional valuation allowance, which we do not expect to have a
material impact our financial condition and results of operations.

The net deferred tax asset as of December 31, 2002 was 73 million, net of
a valuation allowance of 110 million.

Allocation of Excess Purchase Price to Acquired Assets

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

Valuation of Long-Lived Assets and Intangible Assets and Goodwill

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



| |  |  | material permanent deterioration in the economic or political
environment of our customers or our own activity; 
| | - |  | ----------------------------------------------------------------------------------------------------------------
|
| |  |  | significant under-performance relative to expected historical
or projected future performance; and              
|
| |  |  | significant changes in our strategic orientations affecting
the business plans and previous investment policies.

Our accounting policy related to the annual impairment test for goodwill
and other indefinite-lived intangibles is based on numerous estimates. We have
a significant amount of goodwill related to acquisitions in prior years that is
no longer amortized in accordance with U.S. GAAP. We believe that the
accounting estimates related to the recoverability of the carrying value of
goodwill and intangible assets are critical accounting estimates because:

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

(2)  The value of the benefit that we expect to realize as a result of the
Svedala acquisitions are inherently subjective;

(3)  In accordance with U.S. GAAP, we determine the fair value of the
reporting units using a weighted average cost of capital as the rate to
discount estimated future cash flows. This rate may not be indicative of actual
rates obtained in the market, if incremental borrowings are necessary; and

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

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

Reserve for Warranty Costs

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

Results of Operations

In January 2001, we restructured our internal organization in a manner
that caused the components of our reportable segments to change. As a result of
this restructuring, our reportable segments are currently Metso Paper, Metso
Minerals, Metso Automation and Metso Ventures. In March 2002, Metso Panelboard,
comprising our panelboard operations, which were carried out through Metso
Paper, was transferred to Metso Ventures. In November 2002, we signed a
memorandum of understanding on the sale of Converting, previously part of Metso
Paper. Consequently, Converting is now reported separately under Discontinued
Operations. The financial information discussed below reflects our January
2001, March 2002 and November 2002 restructurings. See Item 4. Information on
the CompanyCorporate Structure for a description of our corporate
restructuring.

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

|                        |                      |  |                         |     |      |  |              |     |  |  |       |     | 
|----------------------- | -------------------- |  | ----------------------- | --- | ---- |  | ------------ | --- |  |  | ----- | --- | 
|                        |                      |  | Year ended December 31,
|                        |                      |  |                        
|                        |                      |  | 2000                    |     | 2001 |  | 2002        
|                        |                      |  |                         |     |      |  |             
|                        |                      |  |                         |     |      |  | ( millions) |     |  |  |      
|Metso Paper             |                      |  | 1,956                   |     |      |  | 2,209        |     |  |  | 1,812 |    
|Metso Minerals          |                      |  | 561                     |     |      |  | 913          |     |  |  | 1,819 |    
|Metso Automation        |                      |  | 644                     |     |      |  | 693          |     |  |  | 622   |    
|Metso Ventures          |                      |  | 482                     |     |      |  | 489          |     |  |  | 374   |    
|Intra Metso Net Sales   |                      |  | (107                    | )   |      |  | (137         | )   |  |  | (96   | )  
|                        |                      |  |                         |     |      |  |              |     |  |  |       |    
|Continuing Operations   |                      |  | 3,536                   |     |      |  | 4,167        |     |  |  | 4,531 |    
|Discontinued Operations |                      |  |                         |     |      |  |              |     |  |  |       |    
|                        | Forest Machines      |  |                         | 179 |      |  |              |    |  |  |       |    | 
|                        | Converting Equipment |  |                         | 176 |      |  |              | 176 |  |  |       | 160 | 
|                        |                      |  |                         |     |      |  |              |     |  |  |       |    
|Metso Total             |                      |  | 3,891                   |     |      |  | 4,343        |     |  |  | 4,691 |    
|                        |                      |  |                         |     |      |  |              |     |  |  |       |    

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

|                                 |                      |  |                         |      |      |  |              |     |  |  |       |      |  
|-------------------------------- | -------------------- |  | ----------------------- | ---- | ---- |  | ------------ | --- |  |  | ----- | ---- | -
|                                 |                      |  | Year ended December 31,
|                                 |                      |  |                        
|                                 |                      |  | 2000                    |      | 2001 |  | 2002        
|                                 |                      |  |                         |      |      |  |             
|                                 |                      |  |                         |      |      |  | ( millions) |     |  |  |      
|Metso Paper                      |                      |  | 117.2                   |      |      |  | 167.6        |     |  |  | 118.2 |     
|Metso Minerals                   |                      |  | 27.7                    |      |      |  | 14.7         |     |  |  | 51.4  |     
|Metso Automation                 |                      |  | 45.0                    |      |      |  | 17.3         |     |  |  | 16.3  |     
|Metso Ventures                   |                      |  | 15.5                    |      |      |  | 28.2         |     |  |  | 14.9  |     
|Corporate Headquarters and other |                      |  | (18.6                   | )    |      |  | 15.5         |     |  |  | (24.9 | )   
|                                 |                      |  |                         |      |      |  |              |     |  |  |       |     
|Continuing Operations            |                      |  | 186.8                   |      |      |  | 243.3        |     |  |  | 175.9 |     
|Discontinued Operations          |                      |  |                         |      |      |  |              |     |  |  |       |     
|                                 | Forest Machines      |  |                         | 13.3 |      |  |              |    |  |  |       |     |  
|                                 | Converting Equipment |  |                         | 0.0  |      |  |              | 3.0 |  |  |       | (8.9 | )
|                                 |                      |  |                         |      |      |  |              |     |  |  |       |     
|Total                            |                      |  | 200.1                   |      |      |  | 246.3        |     |  |  | 167.0 |     
|                                 |                      |  |                         |      |      |  |              |     |  |  |       |     

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

Net Sales

The Group.In 2002, our total consolidated net sales were 4,691 million,
compared to net sales of 4,343 million in 2001, representing an increase of
348 million, or 8.0 percent. The increase was due to the Svedala acquisition.
Excluding the effect of the Svedala acquisition, our total consolidated net
sales in 2002 were lower than in 2001. Metso Paper accounted for 38 percent,
Metso Minerals 38 percent, Metso Automation 13 percent and Metso Ventures 8
percent of our net sales. Converting accounted for 3 percent of net sales. In
2002, 92 percent of our net sales or 4,320 million were derived from exports
and international operations, compared to 87 percent or 3,764 million in 2001.
Our order intake in 2002 amounted to 4,646 million, representing an increase
of 868 million, or 23.0 percent, over 3,778 million in 2001. Our order
backlog at December 31, 2002 was 1,589 million, representing a decrease of 183
million, or 10.3 percent, from 1,772 million at December 31, 2001.

Metso Paper.In 2002, net sales of Metso Paper were 1,812 million,

compared to net sales of 2,209 million in 2001, representing a decrease of
397 million, or 18.0 percent. The decrease was due to the fewer deliveries of
large paper making lines in 2002. Pulping technology deliveries increased
slightly in 2002. Aftermarket and maintenance services accounted for 28 percent
of Metso Papers net sales compared to 26 percent in 2001. The majority of the
decreased net sales were from Finland and North America. In 2002, the demand
was mainly for rebuilds, tissue and pulping lines. Metso Papers order intake
in 2002 amounted to 1,642 million, representing a decrease of 95 million, or
5.5 percent, from 1,737 million in 2001. Metso Papers order backlog at
December 31, 2002 amounted to 742 million, representing a decrease of 215
million, or 22.5 percent, from 957 million at December 31, 2001.

Metso Minerals.In 2002, net sales of Metso Minerals were 1,819 million,
compared to net sales of 913 million in 2001, representing an increase of 906
million, or 99.2 percent. The increase was due to the Svedala acquisition in
September 2001. Excluding the effect of the Svedala acquisition, Metso
Minerals net sales were lower in 2002 than in 2001. Sales of spare and wear
parts were strong throughout 2001 and 2002. Metso Minerals order intake in
2002 amounted to 1,860 million, representing an increase of 987 million, or
113.1 percent, over 873 million in 2001. Metso Minerals order backlog at
December 31, 2002 amounted to 474 million, representing a decrease of 25
million, or 5.0 percent, from 499 million at December 31, 2001.

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

Metso Ventures.In 2002, net sales of Metso Ventures were 374 million,
compared to net sales of 489 million in 2001, representing a decrease of 115
million, or 23.5 percent. The decrease was due to the decline in panelboard
technology and gear deliveries. Metso Ventures order intake in 2002 amounted
to 411 million, representing a decrease of 29 million, or 6.6 percent, from
440 million in 2001. Metso Ventures order backlog amounted to 139 million at
December 31, 2001, representing an increase of 28 million, or 25.2 percent,
over 111 million at December 31, 2001. The increase was due to the strength of
Metso Panelboard orders received in the second half of the year.

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

Operating Profit/(Loss)

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

Metso Paper.In 2002, the operating profit of Metso Paper was 118
million, compared to an operating profit of 168 million in 2001, representing
a decrease of 50 million, or 29.8 percent. The decrease was primarily due to
lower net sales and underutilization of production capacity. Metso Papers
operating margin decreased to 6.5 percent in 2002 from 7.6 percent in 2001.

Metso Minerals.In 2002, the operating profit of Metso Minerals was 51
million, compared to an operating profit of 15 million in 2001, representing
an increase of 36 million. The increase was due to the Svedala acquisition,
offset by the effects of extensive integration carried out in Metso Minerals
following the Svedala acquisition. Metso Minerals operating margin increased
to 2.8 percent in 2002 from 1.6 percent in 2001.

Metso Automation.In 2002, the operating profit of Metso Automation was
16 million, compared to an operating profit of 17 million in 2001,
representing a decrease of 1 million, or 5.9 percent. Metso Automations
operating margin increased to 2.6 percent in 2002 from 2.5 percent in 2001.
Profitability was weakened due to lower net sales and underutilization of
production capacity.

Metso Ventures.In 2002, the operating profit of Metso Ventures was 15
million, compared to an operating profit of 28 million in 2001, representing a
decrease of 13 million, or 46.4 percent. The decrease was primarily due to
lower net sales of Metso Panelboard and also reflected nonrecurring expenses of
8 million due to the restructuring of Metso Panelboard. Metso Ventures
operating margin decreased to 4.0 percent in 2002 from 5.8 percent in 2001.

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

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Income (Loss) before Extraordinary Items and Income Taxes

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

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

Our net interest bearing liabilities decreased to 1,118 million in 2002,
compared to 1,251 million in 2001.

Extraordinary Items

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

Net Income and Earnings per Share

Income Taxes.Income taxes amounted to 26 million in 2002, compared to
income taxes of
72 million in
2001. In 2002, our effective tax rate was 28 percent.

Net Income.In 2002, we had net income of 65 million, compared to a net
income of 141 million in 2001. In 2002, we had earnings per share of 0.48,
compared to earnings per share of 1.09 in 2001.

Results of Operations for the Year Ended December 31, 2001, compared to the Year Ended December 31, 2000

Net Sales

The Group.In 2001, our total consolidated net sales were 4,343 million,
compared to 3,891 million in 2000, representing an increase of 452 million,
or 11.6 percent. Excluding the impact of the Svedala acquisition and related
dispositions, total consolidated net sales were 3,954 million. Sales increased
in all business areas due to the acquisition of Svedala and increased
deliveries. Metso Paper accounted for 49 percent, Metso Minerals 20 percent,
Metso Automation 16 percent and Metso Ventures 11 percent of our net sales.
Converting accounted for 4 percent of net sales. In 2001, 87 percent of our net
sales or 3,764 million were derived from exports and international operations,
compared to 91 percent or 3,530 million in 2000. Our order intake in 2001
amounted to 3,778 million, representing a decrease of 490 million, or 11.5
percent, from 4,268 million in 2000. Our order backlog at December 31, 2001
was
1,772 million, representing a decrease of 135 million, or 7.1 percent, from
1,907 million at December 31, 2000.

Metso Paper.In 2001, net sales of Metso Paper were 2,209 million,
compared to net sales of 1,956 million in 2000, representing an increase of
253 million, or 12.9 percent. The increase was the result of large project
deliveries and higher sales in service operations. The majority of the
increased net sales were from Europe, South America and China. Metso Papers
order intake in 2001 amounted to 1,737 million, representing a decrease of
550 million, or 24.0 percent, from 2,287 million in 2000. Metso Papers order
backlog at December 31, 2001 amounted to 957 million, representing a decrease
of 486 million, or 33.7 percent, from 1,443 million at December 31, 2000.

Metso Minerals.In 2001, net sales of Metso Minerals were 913 million,
compared to net sales of 561 million in 2000, representing an increase of 352
million, or 62.8 percent. The increase was mainly due to the Svedala
acquisition in September 2001. The deliveries to the European civil engineering
industry continued to be strong. Sales of spare and wear parts were strong
throughout 2001. Metso Minerals order intake in 2001 amounted to 873 million,
representing an increase of 313 million, or 55.9 percent, over 560 million in
2000. Metso Minerals order backlog at December 31, 2001 amounted to 499
million, representing an increase of 399 million, or 400.0 percent, over 100
million at December 31, 2000. The order backlog increased significantly due to
the acquisition of Svedala.

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Metso Automation.In 2001, net sales of Metso Automation were 693
million, compared to net sales of 644 million in 2000, representing an
increase of 49 million, or 7.6 percent. Acquisitions and cooperation
agreements and the increased demand for field equipment and systems and
information management applications for the pulp and paper industry attributed
to the increase in net sales. Metso Automation products retained their good
position in the principal markets of Europe and North America and increased in
Brazil and China. Metso Automations order intake in 2001 amounted to 676
million, representing an increase of 25 million, or 3.8 percent, over 651
million in 2000. The increase was primarily due to the increased demand for
automation systems for the pulp and paper industry. Metso Automations order
backlog at December 31, 2001 amounted to 182 million, representing a decrease
of 15 million, or 7.6 percent, from 197 million at December 31, 2000.

Metso Ventures.In 2001, net sales of Metso Ventures were 489 million,
compared to net sales of 482 million in 2000, representing an increase of 7
million, or 1.5 percent. Metso Ventures order intake amounted to 440 million
in 2001, representing a decrease of 89 million, or 16.8 percent, from 529
million in 2000. Metso Ventures order backlog at December 31, 2001 amounted to
111 million, a decrease of 61 million, or 35.5 percent, from 172 million at
December 31, 2000. The decrease was due mainly to the low order backlog in
Metso Panelboard.

Converting.In 2001, net sales of Converting were 176 million, which was
unchanged from net sales of 176 million in 2000. Convertings order intake
amounted to 169 million in 2001, representing a decrease of 23 million, or
12.0 percent, from 192 million in 2000. The decrease in new orders was
primarily attributable to the weak market conditions. Convertings order
backlog at December 31, 2001 amounted to 72 million, representing a decrease
of 3 million, or 4.0 percent, from 75 million at December 31, 2000.

Operating Profit/(Loss)

The Group.In 2001, our consolidated operating profit was 246 million,
compared to an operating profit of 200 million in 2000, representing an
increase of 46 million, or 23.0 percent. Synergy benefits from the merger of
Valmet and Rauma that created Metso, together with increased after-sales
service, led to the improved profitability. In 2001, profitability improved
significantly in our Metso Paper and Metso Ventures business areas while it
decreased in our Metso Minerals and Metso Automation business areas. Cost of
goods sold increased to 3,200 million in 2001 from 2,901 million in 2000 as a
result of increased net sales, and decreased as a percentage of net sales to
73.7 percent in 2001 from 74.6 percent in 2000. Our operating margin increased
to 5.7 percent in 2001 from 5.1 percent in 2000.

Metso Paper.In 2001, the operating profit of Metso Paper was 168
million, compared to an operating profit of 117 million in 2000, representing
an increase of 51 million, or 43.6 percent. The increase was primarily due to
higher capacity utilization rate and the synergy benefits achieved as a result
of the merger creating Metso Paper. Metso Papers operating margin increased to
7.6 percent in 2001 from 6.0 percent in 2000.

Metso Minerals.In 2001, the operating profit of Metso Minerals was 15
million, compared to an operating profit of 28 million in 2000, representing a
decrease of 13 million, or 46.4 percent. The decrease in operating profit was
primarily due to the general market condition, the Svedala acquisition process
and the nonrecurring costs arising from the post-merger integration process
that more than offset the impact of higher net sales. Metso Minerals operating
margin decreased to 1.6 percent in 2001 from 4.9 percent in 2000.

Metso Automation.In 2001, the operating profit of Metso Automation was
17 million, compared to an operating profit of 45 million in 2000,
representing a decrease of 28 million, or 62.2 percent. Profitability was
weakened by the nonrecurring expenses of reorganization of Metso Automation
mainly in North America and the business disturbances caused by this
reorganization, as well as weak demand in the North American market. Metso
Automations operating margin decreased to 2.5 percent in 2001 from 7.0 percent
in 2000.

Metso Ventures.In 2001, the operating profit of Metso Ventures was 28
million, compared to an operating profit of 15 million in 2000, representing
an increase of 13 million, or 86.7 percent. The increase was primarily due to
the growth in production volume at Valmet Automotive. Metso Ventures operating
margin increased to 5.8 percent in 2001 from 3.2 percent in 2000.

Converting.In 2001, the operating profit of Converting was 3 million,
compared to the operating profit of 0 million in 2000. The increase was mainly
due to the positive impact of restructuring measures. Convertings operating
margin increased to 1.7 percent in 2001 from 0.0 percent in 2000.

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Income before Extraordinary Items and Income Taxes

In 2001, our income before extraordinary items and income taxes was 222
million, compared to an income before extraordinary items and income taxes of
180 million in 2000.

Financial income for 2001 was 41 million, compared to 35 million for
2000, representing an increase of 6 million. Financial expense for 2001 was
65 million compared to 55 million in 2000, representing an increase of 10
million.

Our net interest-bearing liabilities increased to a positive 1,251
million in 2001 from a negative 53 million in 2000. The increase was primarily
due to the new loans assumed or increased in connection with the acquisition of
Svedala.

Extraordinary Items

Income and expenses arising from significant transactions considered
outside the normal course of business and the effects of changes in the
accounting principles were entered in extraordinary items. In 2001,
extraordinary expense included inventory adjustment in Metso Engineerings
German operations and restructuring adjustments in Metso Automations U.S.
operations. In 2000, after-tax profit of 275 million from the sale of
Timberjack was entered under extraordinary income. After-tax expenses of 7
million, arising from the delay in the acquisition of Svedala, was entered
under extraordinary expenses in 2000.

Net Income and Earnings per Share

Income Taxes.Income taxes amounted to 72 million in 2001, compared to
income taxes of
59 million in
2000. In 2001 and 2000, our effective tax rate was 32 percent.

Net Income (Loss).In 2001, we had net income of 141 million, compared to
a net income of 389 million in 2000. In 2001, we had earnings per share of
1.09, compared to earnings per share of 0.90 in 2000.

Liquidity and Capital Resources

In 2002, net cash provided by operating activities amounted to 252
million, compared to the net cash provided by operating activities of 235
million and 300 million in 2001 and 2000, respectively.

Net cash used in investing activities amounted to 14 million in 2002,
compared to 943 million in 2001 and net cash provided by investing activities
of 309 million in 2000. The net cash used in investing activities in 2002
consisted of a capital expenditure of 194 million offset by proceeds from the
sale of assets amounting to 181 million (primarily divested shares and
divested businesses). The cash used in investing activities in 2001 was mostly
attributable to the acquisition of Svedala, while the net cash provided by
investing activities in 2000 was primarily attributable to the sale of
Timberjack.

Net cash used in financing activities amounted to 233 million in 2002,
compared to net cash provided by financing activities of 433 million in 2001
and net cash used in financing activities of 284 million in 2000. Our net
interest-bearing liabilities (interest-bearing liabilities less cash and cash
equivalents, interest-bearing loans receivable and interest-bearing accounts
receivable) amounted to 1,118 million as in 2002, compared to 1,251 million
in 2001 and negative 53 million in 2000. In 2000, the reduction in our net
interest-bearing liabilities was largely due to proceeds from the sale of
Timberjack and improved operating results. In 2001, the increase in our net
interest-bearing liabilities resulted mainly from the acquisition of Svedala,
and in 2002 the decrease was due to cash released through asset sales and cash
provided by operations.

Our liquid assets (cash and cash equivalents) amounted to 190 million in
2002, compared to liquid assets of 212 million in 2001and liquid assets of
485 million in 2000.

Our long-term debt, consisting primarily of bonds and loans from financial
and pension institutions, amounted to 1,020 million, 1,179 million and 428
million as of December 31, 2002, 2001 and 2000, respectively. The bonds
consisted principally of two bond loans with the principal amounts of U.S.$200
million (191 million) and 500 million. The U.S. dollar denominated bond was
issued in the United States in December 1997 and registered with the U.S.
Securities and Exchange Commission (SEC). It matures in 2007 and bears a
fixed annual interest rate of 6.875 percent. The euro denominated bond was
issued in December

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2001. It matures in 2006 and carries a fixed annual interest rate of 6.25
percent. The bond is part of the Euro Medium Term Note Program of 1 billion,
which we established in December 2000, and where the total amount outstanding
was 520 million at December 31, 2002.

Our loans from financial institutions consist of international bank
borrowings with either fixed or variable interest rates. A major share of the
loans are either U.S. dollar or euro denominated. The interest rates vary from
1.9 percent to 14.0 percent, and the loans have maturities ranging from 2003 to
2011. In July 1998, we entered into a syndicated seven-year revolving credit
facility with a group of international banks for 230 million. At December 31,
2002, the facility was undrawn, as it had been at the end of December 31, 2001.

In August 2000, we obtained loan facilities of 1.2 billion from a
syndicate of fifteen international banks to finance the acquisition of Svedala.
The short-term portion of the facilities expired in February 2002, and the
long-term revolving credit portion of 400 million expires in 2005. Of the
facility, 98 million was utilized at December 31, 2002 and 334 million at
December 31, 2001.

At December 31, 2002, the undrawn committed long-term credit facilities of
Metso totaled 532 million and the undrawn committed short-term credit
facilities amounted to 100 million.

We have
a short-term euro commercial paper program of 150 million and a
domestic commercial paper program amounting to 300 million with a group of
Finnish and international banks in each case. As at December 31,
2002, we had
not drawn any funds under the euro commercial paper program. The total amount
undrawn under the domestic commercial paper program was 100 million.

The Companys financial situation after the Svedala acquisition is stable.
Management believes that we have adequate long-term and short-term financing
reserves and facilities for our current scope of operations. Cash in bank and
lines of credit are sufficient to cover fluctuations in the cash flows of the
businesses.

The ratio of our net interest-bearing liabilities to equity was 80.6
percent at December 31, 2002, compared to 84.8 percent and negative 3.7 percent
at December 31, 2001 and 2000, respectively. The increased gearing ratio
resulted from the acquisition of Svedala in September 2001. Initially, our
target was to have a gearing ratio of below 50 percent by the end of first
quarter of 2003 through increasing operating cash flow, releasing working
capital tied up in inventories and accounts receivable, and from disposing
non-core businesses. However, the current market situation does not allow us to
achieve our target according to the initial timetable. Nonetheless, we are
attempting to actively reduce our gearing through the above stated measures.

At December 31, 2002, the shareholders equity, distributable funds and
total assets of the parent company, Metso Corporation, amounted to 1,234
million, 697 million and 2,959 million, respectively. At December 31, 2002,
the shareholders equity, distributable funds and total assets of Metso
Corporation and its consolidated subsidiaries amounted to 1,379 million, 861
million and 4,399 million, respectively.

On November 26, 2002, Standard & Poors Rating Service, or S&P, lowered
our long-term loan rating to BBB from its former rating of BBB+. At the same
time, S&P confirmed our short-term loan rating of A-2. The S&P also gave us a
stable outlook. On December 4, 2002, Moodys Investor Service, or Moodys,
confirmed our long-term rating of Baa2. At the same time, Moodys changed our
outlook from stable to negative. These downgrades may increase the cost of
capital associated with refinancing existing debt and interest payments on any
new debt we may incur. There are no prepayment covenants in our financial
contracts that would be triggered by changes in our credit ratings.

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Disclosure about Contractual Obligations and Commercial Commitments

The table below sets forth aggregated information about our contractual
obligations and commercial commitments as of December 31, 2002.

|                                   |  |                        |       |        |  |           |    |           |  |         |     |  |  |  |     |       |  |  |     | 
|---------------------------------- |  | ---------------------- | ----- | ------ |  | --------- | -- | --------- |  | ------- | --- |  |  |  | --- | ----- |  |  | --- | 
|                                   |  | Payments Due by Period
|                                   |  |                       
|                                   |  |                        |       |        |  | Less than |    |           |  |         |     |  |  |  |     | After
|                                   |  | Total                  |       | 1 year |  | 1-3 years |    | 4-5 years |  | 5 years
|                                   |  |                        |       |        |  |           |    |           |  |        
|                                   |  | ( millions)          
|Contractual Obligations            |  |                        |       |        |  |           |    |           |  |         |     |  |  |  |     |       |  |  |     | 
|Long-term debt                     |  |                        | 1,070 |        |  |           | 50 |           |  |         | 137 |  |  |  | 746 |       |  |  | 137 | 
|Capital lease obligations          |  |                        | 6     |        |  |           | 2  |           |  |         | 2   |  |  |  | 2   |       |  |  | 0   | 
|Operating leases                   |  |                        | 175   |        |  |           | 43 |           |  |         | 64  |  |  |  | 37  |       |  |  | 31  | 
|                                   |  |                        |       |        |  |           |    |           |  |         |     |  |  |  |     |       |  |  |     | 
|Total contractual cash obligations |  |                        | 1,251 |        |  |           | 95 |           |  |         | 203 |  |  |  | 785 |       |  |  | 168 | 
|                                   |  |                        |       |        |  |           |    |           |  |         |     |  |  |  |     |       |  |  |     | 



|                               |  |                      |       |           |  |           |       |           |  |         |    |  |  |      |   |  |  |  |   | 
|------------------------------ |  | -------------------- | ----- | --------- |  | --------- | ----- | --------- |  | ------- | -- |  |  | ---- | - |  |  |  | - | 
|                               |  | Amount of Commitment
|                               |  |                     
|                               |  | Total                |       |           |  |           |       |           |  |         |    |  |  |      |   |  |  | 
|                               |  | amounts              |       | Less than |  |           |       |           |  |         |    |  |  | Over
|                               |  | committed            |       | 1 year    |  | 1-3 years |       | 4-5 years |  | 5 years
|                               |  |                      |       |           |  |           |       |           |  |        
|                               |  | ( millions)        
|Other Commercial Commitments   |  |                      |       |           |  |           |       |           |  |         |    |  |  |      |   |  |  |  |   | 
|Guarantees                     |  |                      | 2     |           |  |           | 1     |           |  |         | 1  |  |  |      |  |  |  |  |  | 
|Standby repurchase obligations |  |                      | 8     |           |  |           | 3     |           |  |         | 4  |  |  |      | 1 |  |  |  |  | 
|Order backlog                  |  |                      | 1,589 |           |  |           | 1,518 |           |  |         | 71 |  |  |      | 0 |  |  |  |  | 
|Other commitments              |  |                      | 17    |           |  |           | 16    |           |  |         | 0  |  |  |      | 0 |  |  |  | 1 | 
|                               |  |                      |       |           |  |           |       |           |  |         |    |  |  |      |   |  |  |  |   | 
|Total commercial commitments   |  |                      | 1,616 |           |  |           | 1,538 |           |  |         | 76 |  |  |      | 1 |  |  |  | 1 | 
|                               |  |                      |       |           |  |           |       |           |  |         |    |  |  |      |   |  |  |  |   | 

Capital Expenditure

Our capital expenditures, excluding acquisitions, amounted to 193 million
in 2002, compared to 154 million and 127 million in 2001 and 2000,
respectively. For the preceding three years, our capital expenditures have
consisted principally of maintenance, development and expansion of existing
production capacity as well as information technology. In 2003, our net capital
expenditures are projected to be approximately 140 million, which we expect to
finance with cash flow from operations. Our largest project in 2003 is expected
to be the service center in Järvenpää, Finland.

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

|                                    |  |                         |     |      |  |              |     |  |  |  |     | 
|----------------------------------- |  | ----------------------- | --- | ---- |  | ------------ | --- |  |  |  | --- | 
|                                    |  | Year ended December 31,
|                                    |  |                        
|                                    |  | 2000                    |     | 2001 |  | 2002        
|                                    |  |                         |     |      |  |             
|                                    |  |                         |     |      |  | (
millions) |     |  |  | 
|Finland                             |  |                         | 72  |      |  |              | 81  |  |  |  | 119 | 
|Other Nordic Countries              |  |                         | 20  |      |  |              | 18  |  |  |  | 23  | 
|Europe (excluding Nordic Countries) |  |                         | 9   |      |  |              | 17  |  |  |  | 23  | 
|North America                       |  |                         | 19  |      |  |              | 19  |  |  |  | 14  | 
|South America                       |  |                         | 1   |      |  |              | 4   |  |  |  | 5   | 
|Asia-Pacific                        |  |                         | 4   |      |  |              | 14  |  |  |  | 8   | 
|Rest of the World                   |  |                         | 2   |      |  |              | 1   |  |  |  | 1   | 
|                                    |  |                         |     |      |  |              |     |  |  |  |     | 
|Total                               |  |                         | 127 |      |  |              | 154 |  |  |  | 193 | 
|                                    |  |                         |     |      |  |              |     |  |  |  |     | 

Our principal capital expenditures for 2002 were Metso Papers service
centers in Finland and Brazil and Metso Drives efforts to raise the capacity
of its gears production and service center.

Research and Development

Our research and technology development is focused, in line with our
strategy, on process know-how, automation and control technology. Rather than
just buying machines and equipment, customers are

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increasingly investing in competitiveness based on processes that function optimally in each situation.
The products and services being developed for the process industry benefit to a
large extent from the latest information technology and automation solutions.

We give high priority to research and development and have made
investments in research and development totaling 156 million in 2002 (3.3
percent of 2002 net sales), compared to 150 million (3.5 percent of 2001 net
sales) and 127 million in 2000 (3.3 percent of 2000 net sales). At the end of
2002, we had a total of 1,350 employees working in the area of research and
development, representing a decrease of two percent from the end of 2001. Of
those employees, 44 percent, 16 percent, 31 percent, and 8 percent worked in
Metso Paper, Metso Minerals, Metso Automation and Metso Ventures, respectively.
Geographically, our research and development activities are concentrated in
Finland and Sweden, although we operate significant research and development
units in North America and Central Europe as well.

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

Metso Paper

Metso Paper develops full scope mill concepts and traditional machine and
production lines. Metso Papers goal is to increase customer process
profitability, reduce environmental impacts and improve the quality of end
products. Metso Paper has 15 research and product development centers, the
largest of which are located in Finland and Sweden.

Metso Papers internal synergies between its competence in wood fiber and
paper technology has created new markets, in particular for short fiber paper
making. This is an important development, especially in the Chinese market.
Metso Paper has also placed emphasis on the collection of recycled fibers
recovered from industrial waste. In addition to developing new machines and
lines, Metso Paper is targeting its resources on developing rebuild solutions
and services to existing bases. Emphasis has also been placed on developing
technology solutions for proactive life-cycle services in accordance with the
Metso Future Care business concept.

Metso Paper has three pulp technology centers in Finland and one in
Sweden. The pulp technology centers are equipped with a number of pilot plants
and full-scale testing and laboratory facilities for new products, processes
and customer test runs. The current focus of Metso Papers research and
development activities in pulping is on more environmentally-friendly chemical
pulping systems, including a completely new approach to chemical fibers, energy
conservation in mechanical pulping, recycled fiber and fiber recovery. For
chemical pulping, Metso Paper has introduced its Way concepts, which are
designed to also meet the needs of future mega-size mills.

Metso Paper has ten paper technology centers specializing in different
areas of operation: six in Finland, one in Sweden, two in the United States and
one in Italy. The most significant research and development investments in 2002
were targeted for developing mill wide concepts and online concepts for all
major paper grades.

Further development of new processes and products implementing the
OptiConcept process concept has continued. The concept encompasses
optimization of the entire production line for specific paper or board grade
from fiber to shipping with optimized run ability and quality control systems.
Based on the best available technique and modularity, it can be used in
developing solutions for the customers different fiber, paper and board
production needs. OptiConcept processes combine high technology with a human
perspective. Ergonomics and safety are integral to their distinctive industrial
design.

For the consumer part of the paper industry, Metso Paper continues to
develop technologies servicing the growing demand for Premium Quality grades.
Metso is the leading supplier for ThruAir Drying technology.

In October 2002, Metso Paper and the Dow Chemical Company signed a
cooperation agreement to develop and bring to market a new paper- and
board-coating process. According to the agreement, Dow will
develop the coating chemicals and colors, while Metso Paper will develop
the coating station technology, including supply systems, drying and process
automation. The process is based on multi-layer curtain coating application.
This technology enables improvement of coated paper and board quality and
production efficiency.

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Metso Paper spent approximately 72 million on research and development in
2002, compared to 72 million in 2001 and 58 million in 2000.

Metso Minerals

Integration
of Svedala and Metso Minerals and finalizing the divestments required
by the
remedy package agreed upon with the relevant competition authorities
were the most significant events of 2002. As a result
of the integration, Metso Minerals is able provide a full range of goods and
services to the rock and minerals processing industry. Most important supplies
are aggregate plants, mobile contracting crushing units, mining and minerals
processing systems, compaction and paving machinery and metals recycling. In
addition to full-scope process technology supplies, Metso Minerals provides
related components, wear and spare parts, and services.

Cooperation with Metso Automation strengthened in the year 2002 after
Metso Automation established the Minerals Automation Systems business line.
Development of embedded automation and remote service technologies to rock and
minerals processing continued. Metso Minerals worldwide installed base of some
30,000 crushers allows for the development of aftermarket technology and
service concepts.

In 2002, Metso Mineral established shared technology management and
development activities. Metso Minerals competence in simulation models was
strengthened with the asset acquisition of the granular mechanics division from
Conveyor Dynamics Inc. in June 2002. Simulation models are used as a tool in,
for example, optimizing production processes and choosing the best possible
wear parts for different application environments. Assets from the acquisition
included advanced physics based software, computer hardware and software
development applications specialists. Implementation of shared processes and
utilization of Metso wide best practices continues.

Metso Minerals spent approximately 21 million on research and development
in 2002, compared to 11 million in 2001 and 7 million in 2000.

Metso Automation

Metso Automations business lines focus on application and product
development as an early adapter in emerging technologies. The goal is to offer
products and services for focused customer industries. Process Automation
Systems focuses on industry specific process automation in pulp and paper and
in rock and minerals processing. Field Systems focuses on technology specific
areas: control and automated on-off valves, emergency valves, analyzers and
transmitters.

Metso Automation shares common research and development strategies with
other Metso business areas to support the Metso Future Care business concept.
Metso Automation works closely with Metso Paper and Metso Minerals to produce
shared solutions in many technology areas.

Information technologies are the backbone of Metso Automations open
technology solutions and services. They enable the integration of enterprise
level information systems with production level automation into seamless
networks.

Metso Automation is a pioneer in web-based communication and fieldbuses in
process automation. Digital communication from field devices to process
automation enables advanced diagnostics to improve performance.

Investments in research and development are principally concentrated in
process automation solutions and smart field solutions. In 2002, research and
development expenditures amounted to 7.1 percent of net sales compared to 6.6
percent in 2001 and 6.5 percent in 2000. The research and development
investment efforts have enabled Metso Automation to launch several new products
and applications in 2002. New applications in metsoDNA, Dynamic Network of
Applications, enable advanced functionality in process management. Several
smart field devices or systems with fieldbus capability were launched 2002.

Metso Automation spent approximately 44 million on research and
development in 2002, compared to 46 million in 2001 and 42 million in 2000.

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Metso Ventures

Metso Ventures includes businesses that have synergies with Metsos three
core business areas, along with new businesses and businesses under strategic
development. Metso Drives research and development is focused on creating
mechanical drive solutions that are reliable, cost efficient and
environmentally friendly. Metso Drives investment in wind turbine gear testing
and service was completed and implemented in 2002.

Metso Panelboards research and development is focused on the machinery
and systems for wood-based panel industries: medium-density fiberboard,
particleboard and oriented-strand board. The goal is to improve customers
processes by providing competitive and eco-efficient solutions with increased
production capacity, reduced production costs and improved panel quality.

Metso Powdermet focuses on materials technology. It continues to develop,
produce and supply hot isostatic processed powder metallurgy components. Main
development areas are functionally tailored wear parts and consumables with
enhanced wear life, multimaterial structure composite materials, advanced
component manufacturing and joining methods.

Valmet Automotive is an independent contract manufacturer of high quality
specialty cars with production facilities in Uusikaupunki, Finland. In the area
of specialty vehicles, the concept development of open-top vehicles with their
top solutions, body structures, interior and package was intensively continued
in 2002.

Converting

As part of building the Converting technology research and development
operations, a new converting technology center was opened in May 2002 in Italy.
Another converting technology center is located in Great Britain. In November
2002, we signed a memorandum of understanding with Bobst Group SA of
Switzerland on the divestment of the Converting business. The divestment
includes sale of Covertings technology activities. See Discontinued
OperationsConverting for more information on Converting.

Foreign Currency Fluctuations

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

Both our production and sales activities are distributed throughout
numerous geographic regions creating exposure to various currency risks. The
principal currencies that we are exposed to are the U.S. dollar, the euro and
the Swedish krona. A high proportion of our North American sales have been
supplied by our North American production facilities, which reduces the direct
impact of euro-dollar fluctuations on our profitability in that market. See
Item 3. Key InformationExchange Rates.

We hedge our currency risks with forward exchange contracts and options.
Foreign exchange gains and losses resulted in 2002 in a net loss of 6 million,
compared to a net gain of 3 million and 2 million in 2001 and 2000,
respectively. Of the above foreign exchange gains and losses in total a portion
included in the operating profit or loss amounted to a net loss of 3 million
in 2002, and to a net gain of 1 million and 9 million in 2001 and 2000,
respectively. The rest of the foreign exchange gains and losses have been
included in the financial items. In addition, in 2000 a part of the foreign
exchange gain was included in the extraordinary items.

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

The income statement data is also affected by the translation of the
revenues, costs and profit or loss of our foreign subsidiaries into euros on
our consolidated financial statements. Exchange rate movements also

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impact on our assets and liabilities denominated in currencies other than
the euro. In addition, the impact of the foreign exchange rate movements on our
debt and equity ratios is affected by the fact that shareholders equity is
predominantly denominated in euros while our assets and other liabilities are
denominated to a large extent in other currencies.

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

Inflation

Inflation in Finland as measured by the change in the consumer price index
was 1.6 percent in 2002, 2.6 percent in 2001 and 3.4 percent in 2000. Inflation
in Finland did not have a significant impact on our operating results. However,
the major portion of our operations, sales and production is performed in
countries with rates of inflation higher or lower of that in Finland. Other
than Brazil, where we have limited operations, none of these countries is
presently experiencing hyperinflation. Changes in exchanges rates may or may
not reflect differences in inflation rates. Quantifying the individual or
combined effects of these factors on our reported income is therefore not
possible.

Adoption of International Financial Reporting Standards

In compliance with regulations adopted by the European Commission in June
2002, our consolidated financial statements will be prepared in accordance with
international financial reporting standards (IFRS), including international
accounting standards and interpretations issued by the international accounting
standards board, from the beginning of 2005 at the latest. Finnish GAAP differs
in certain significant respects from IFRS. We have started preparations for
adopting IFRS and conforming our accounting principles and practices
accordingly. We are currently in the process of assessing the impact of the
adoption of IFRS. We are not yet in a position to determine its impact on our
consolidated financial statements as we are awaiting adoption of final
standards.

New Accounting Standards

SFAS No. 146

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS), No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred and can be measured at fair value.
The provisions of this statement are effective prospectively for exit or
disposal activities initiated after December 31, 2002. We are currently
assessing the impact of this statement on our results of operations and
financial condition.

FIN 45

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 expands on the accounting
guidance of SFAS 5, Accounting for Contingencies, SFAS 57, Related Party
Disclosures, and SFAS 107, Disclosures about Fair Value of Financial
Instruments, and incorporates without change the provisions of FIN 34,
Disclosure of Indirect Guarantees of Indebtedness of Others, an interpretation
of SFAS 5, which is being superseded. FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees, such as
standby letters of credit. It also clarifies that at the time a company issues
a guarantee, the company must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee and
must disclose that information in its interim and annual financial statements.
FIN 45 will be effective for the Group on a prospective basis for guarantees
issued or modified after December 31, 2002. The disclosure requirements in FIN
45 are effective for financial statements for periods ending after December 15,
2002. We are currently evaluating the impact of this statement on our results
of operations or financial position.

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FIN 46

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities (FIN 46). Under that interpretation, certain
entities known as Variable Interest Entities (VIEs) must be consolidated
by the primary beneficiary of the entity. The primary beneficiary is
generally defined as having the majority of the risks and rewards arising from
the VIE. For VIEs in which a significant (but not majority) variable interest
is held, certain disclosures are required. The measurement principles of this
interpretation will be applicable to the financial statements for the fiscal
year ending December 31, 2003. The disclosure requirements in FIN 46 are
effective for financial statements for periods ending after December 15, 2002.
We have completed the assessment of our relationships with potential VIEs in
accordance with paragraph 26 of FIN 46. We have not identified any
relationships that would have a material impact on the disclosures or on our
results of operations or financial position.

SFAS No. 148

In December 2002, the FASB issued SFAS 148, accounting for Stock-Based
Compensation  Transition and Disclosure  An amendment of FASB Statement No.
123. SFAS 148, which is applicable to financial periods ending after December
15, 2002, amends SFAS 123, Accounting for Stock-Based Compensation to provide
alternative methods for transition to SFAS 123 fair value method of accounting
for stock-based employee compensation. This statement also amends the
disclosure provisions to require prominent disclosure about the method of
accounting used for stock-based employee compensation and the effect of the
method used on reported results. We have elected to retain to apply APB Opinion
No. 25 Accounting for Stock Issued to Employees.

Item 6. Directors, Senior Management and Employees

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

Our board of directors is responsible for our management and for the
proper organization of our activities. Our board of directors establishes the
principles of our strategy, organization, accounting and financial control, as
well as appoints the president and chief executive officer. Corporate actions
outside the ordinary course of business may be taken by the president and chief
executive officer only if approved by the board of directors, unless the time
required to obtain its approval would cause us to suffer a substantial
disadvantage, in which case the board of directors must be informed as soon as
practicable thereafter.

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

Board of Directors

Our board of directors is composed of at least five and no more than eight
members. Our board of directors currently consists of seven members, each of
whom has been elected by the shareholders at the annual general meeting of
shareholders on April 15, 2003, for a term ending at the following annual
general meeting of shareholders, which is approximately one year in duration.
Board members may be appointed or removed only by a shareholders resolution at
a general meeting.

The following table lists the names of the members of our board of
directors, their principal occupation or employment and their year of birth:
47

|                   |  |                                                             |  |               |      |  |  | 
|------------------ |  | ----------------------------------------------------------- |  | ------------- | ---- |  |  | 
|Name               |  | Position                                                    |  | Year of Birth
|                   |  |                                                             |  |              
|Matti Kavetvuo     |  | Chairman of the board                                       |  |               | 1944 | 
|Mikko Kivimäki     |  | Vice chairman of the board                                  |  |               | 1939 | 
|Maija-Liisa Friman |  | Director; chief executive officer of Vattenfall Oy          |  |               | 1952 | 
|Heikki Hakala      |  | Director; previous president and chief executive officer,   |  |               | 1941 | 
|                   |  | Metso Corporation                                           |  |               |      | 
|Juhani Kuusi       |  | Director; senior vice president, technology strategy, Nokia |  |               | 1938 | 
|                   |  | Corporation                                                 |  |               |      | 
|Pentti Mäkinen     |  | Director; labor representative                              |  |               | 1952 | 
|Jaakko Rauramo     |  | Director; chairman of the board, SanomaWSOY Corporation     |  |               | 1941 | 

Matti Kavetvuois chairman of our board of directors having previously
served as president and chief executive officer of Pohjola Group plc. Mr.
Kavetvuo is also chairman of the board of directors of Suominen Corporation and
a member of the board of directors of Alma-Media Corporation, Finland Post
Corporation, KCI Konecranes plc, Kesko Corporation, Marimekko
Corporation and Perlos Corporation. Mr. Kavetvuo holds a Master of Science
degree in Engineering and a Bachelor of Science degree in Economics.

Mikko Kivimäkiis vice chairman of our board of directors. Mr. Kivimäki
serves also as president and chief executive officer of Rautaruukki Oyj and is
a member of the board of directors of Varma-Sampo Mutual Pension Insurance
Company and YIT Corporation. Mr. Kivimäki holds a Master of Arts degree in Law.

Maija-Liisa Frimanis a member of our board of directors. Ms. Friman
serves also as chief executive officer of Vattenfall Oy, and is a member of the
board of directors of Rautaruukki Corporation and Sponda Corporation. Ms.
Friman holds a Master of Science degree in Engineering.

Heikki Hakalais a member of our board of directors, having previously
served as president and chief executive officer of Metso and as president and
chief executive officer of Rauma and its predecessor companies. Mr. Hakala is
also chairman of the board of directors of Kuusakoski Group and a member of the
board of directors of Altia Corporation, Lassila & Tikanoja plc, Orion
Corporation and Pohjola Corporation. Mr. Hakala holds a Master of Science
degree in Economics and Business Administration and a Doctoral degree in
Technology.

Juhani Kuusiis a member of our board of directors. Mr. Kuusi serves also
as senior vice president, technology strategy at Nokia Corporation, and is a
member of the board of directors of Instrumentarium Corporation. Mr. Kuusi
served as the head of Nokia Research Center from 1995 to 2002. Prior to joining
Nokia in 1995, Mr. Kuusi was director general of the Technology Development
Center for 12 years. Mr. Kuusi holds a Doctorate degree in Technology.

Pentti Mäkinenis a member of our board of directors, serving in the
capacity of a labor representative. Mr. Mäkinen is the chief shop steward of
Metso Paper Inc.

Jaakko Rauramois a member of our board of directors. Mr. Rauramo is also
chairman of the board of SanomaWSOY Corporation and a member of the board of
directors of European Publishers Council, Scandinavian International Management
Institute Foundation, Jane and Aatos Erkko Foundation and Foundation Svenska Dagbladet AB. He is a trustee of
Reuters Founders Share Company Limited. Mr. Rauramo holds a Master of Science
degree in Engineering.

Corporate Executive Board

The corporate executive board is comprised of our executive officers,
including product group executives and certain other members of senior
management. Our corporate executive board prepares proposals for strategic and
operational issues for the board of directors and assists our president and
chief executive officer in day-to-day management.

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

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|                 |  |                                                                                                                                                       |  |               |      |  |  | 
|---------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---- |  |  | 
|Name             |  | Position                                                                                                                                              |  | Year of Birth
|                 |  |                                                                                                                                                       |  |              
|Tor Bergman      |  | Chairman of the corporate executive board, president and chief executive officer                                                                      |  |               | 1948 | 
|Sakari Tamminen  |  | Vice chairman of the
corporate executive board, executive vice president and chief
financial officer, deputy to president and chief executive
officer |  |               | 1953 | 
|Olli Vaartimo    |  | President, Metso Minerals                                                                                                                             |  |               | 1950 | 
|Juhani Pakkala   |  | Member of the board                                                                                                                                   |  |               | 1945 | 
|Bertel Karlstedt |  | President, Metso Paper                                                                                                                                |  |               | 1962 | 
|Arto Aaltonen    |  | Executive vice president, Metso Paper                                                                                                                 |  |               | 1947 | 
|Matti Kähkönen   |  | President, Metso Automation                                                                                                                           |  |               | 1956 | 
|Harri Luoto      |  | Senior vice president, general counsel                                                                                                                |  |               | 1946 | 

Tor Bergmanwas appointed the president and chief executive officer, and
chairman of our corporate executive board on January 1, 2001. From 1999 until
he joined Metso, Mr. Bergman was chief executive officer of the Raisio Group.
Prior to that, he held several management positions in the international
chemical, pulp, paper and engineering industries. Mr. Bergman holds a Master of
Science degree in Engineering.

Sakari Tamminenis vice chairman of our corporate executive board,
executive vice president, chief financial officer, and deputy to the president
and chief executive officer, having joined Rauma in 1986 and having previously
served as Raumas executive vice president and chief financial officer. Mr.
Tamminen has a Master of Science degree in Economics and Business
Administration.

Olli Vaartimois president of Metso Minerals. Mr. Vaartimo joined Rauma in
1974, and served as executive vice president of both Rauma and the Nordberg
Group prior to the merger of Valmet and Rauma. Mr. Vaartimo holds a Master of
Science degree in Economics and Business Administration.

Juhani Pakkalais a member of Metsos Executive Board until the end of
July 2003, after which he will retire. Mr. Pakkala has previously served as
president of Metso Paper, Valmet Inc. as well as Valmet Canada Inc., after
having joined Valmet in 1970. Mr. Pakkala holds a Master of Science degree in
Engineering.

Bertel Karlstedtis president of Metso Paper, having previously served as
President of Metso Paper Papermaking lines. Mr. Karlstedt joined the Company in
1988. Mr. Karlstedt holds a Master of Science degree in Engineering.

Arto Aaltonenis executive vice president of Metso Paper, having
previously served as president and chief executive officer of Metso Automation
and Raumas Neles Controls group. Mr. Aaltonen joined Sunds Defibrator in 1987.
Mr. Aaltonen holds a Master of Science degree in Engineering.

Matti Kähkönenis president of Metso Automation, having previously worked
for Metso Automation as president of the Field Systems division. Mr. Kähkönen
joined the Company in 1980. Mr. Kähkönen holds a Master of Science degree in
Engineering.

Harri Luotois senior vice president and general counsel, having
previously served as Valmets general counsel since 1985. Mr. Luoto joined the
Company in 1982. Mr. Luoto holds a Master of Laws degree.

Olli Vaartimo, currently president of Metso Minerals, will become our
executive vice president and chief financial officer on April 22,
2003 when the current executive vice president and chief financial officer,
Sakari Tamminen, will leave the Company to join Rautaruukki Corporation. Our
board of directors has appointed Bertel Langenskiöld as the president of Metso
Minerals. He will also become a member of the executive board. Bertel
Langenskiöld is currently the president and chief executive officer of Fiskars
Corporation. Mr. Langenskiöld will start in this position
on April 28, 2003. Mr. Langenskiöld was born in 1950 and holds a Master of
Science degree in Engineering.

49



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##### 



Compensation of Directors and Officers

For the year ended December 31, 2002, the aggregate compensation of all
members of our board of directors and our corporate executive board, as a group
(a total of 14 persons), was approximately 2.4 million (approximately U.S.$2.5
million). Approximately 16.1 percent of the aggregate compensation was paid in
the form of annual bonuses, with the remainder paid in the form of monthly
salaries or, in the case of non-executive members of our board of directors,
monthly fees. Bonuses are determined using our performance-based executive
incentive scheme, which provides executive officers and certain key employees
with annual incentive payments based upon the financial results of their
particular business areas for the most recent fiscal year in comparison to past
performance and budgeted performance targets. In 2002, members of our board of
directors and our corporate executive board received a total of 90,000 options
issued under the 2001 option program. As of December 31, 2002, there were no
loans outstanding to any members of our board of directors or our corporate
executive board.

We also pay premiums to a pension insurance company to provide for a
supplemental group pension insurance covering our corporate executive board and
some senior executives, which enables a retirement age of 60. In 2002, the
amount of such pension insurance premium payments totaled approximately 1.0
million.

Audit Committee and Compensation Committee

Audit Committee.The board of directors serves as our audit committee,
which meets twice a year under the chairman of the board of directors. The
auditors elected at the annual general meeting are invited to these meetings.

The audit committee reviews our systems of internal control, management and
reporting of financial risks and manages both the internal and external audit
process.

Compensation Committee.Pertti Voutilainen and Mikko Kivimäki, chairman
and vice chairman of our board of directors until the annual general meeting of
the shareholders held on April 15, 2003, served as the members of our
compensation committee in 2002 and until April 15, 2003. The new board of
directors elected by the shareholders on April 15, 2003 will elect the
two members of the compensation committee in its first meeting in the end of
April 2003. The compensation committee provides proposals to our board of
directors concerning the compensation of our executive management and
personnel. Pursuant to the Finnish Companies Act, the shareholders determine
the amount of compensation for the board of directors at the annual general
meeting.

Employees

Metsos employees numbered 28,489 at year-end 2002, as compared to 30,242
at year-end 2001, and 22,024 at year-end 2000. We believe that we have good
relations with our employees.

The number of employees for each of our business areas and by region at
December 31, 2000, 2001 and 2002 was as follows:

|                                             |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 
|-------------------------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ | ------------- |  |  | ------ |  |  |  | --- | 
|                                             |  | As of December 31,
|                                             |  |                   
|                                             |  |                    |        |      |  |      |        | Percentage of
|                                             |  | 2000               |        | 2001 |  | 2002 |        | Group        
|                                             |  |                    |        |      |  |      |        |              
|Employees by business area                   |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 
|Metso Paper                                  |  |                    | 9,514  |      |  |      | 9,458  |               |  |  | 9,719  |  |  |  | 34  | 
|Metso Minerals                               |  |                    | 3,298  |      |  |      | 11,725 |               |  |  | 10,784 |  |  |  | 38  | 
|Metso Automation                             |  |                    | 4,551  |      |  |      | 4,532  |               |  |  | 4,150  |  |  |  | 15  | 
|Metso Ventures                               |  |                    | 3,766  |      |  |      | 3,586  |               |  |  | 2,873  |  |  |  | 10  | 
|Corporate Headquarters and Other             |  |                    | 116    |      |  |      | 117    |               |  |  | 134    |  |  |  | 0   | 
|                                             |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 
|Continuing Operations                        |  |                    | 21,245 |      |  |      | 29,418 |               |  |  | 27,660 |  |  |  | 97  | 
|Discontinued Operations
Converting Equipment |  |                    | 779    |      |  |      | 824    |               |  |  | 829    |  |  |  | 3   | 
|                                             |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 
|Metso Total                                  |  |                    | 22,024 |      |  |      | 30,242 |               |  |  | 28,489 |  |  |  | 100 | 
|                                             |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 

50



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##### 



|                             |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 
|---------------------------- |  | ------------------ | ------ | ---- |  | ---- | ------ | ------------- |  |  | ------ |  |  |  | --- | 
|                             |  | As of December 31,
|                             |  |                   
|                             |  |                    |        |      |  |      |        | Percentage of
|                             |  | 2000               |        | 2001 |  | 2002 |        | Group        
|                             |  |                    |        |      |  |      |        |              
|Employees by geographic area |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 
|Finland                      |  |                    | 10,961 |      |  |      | 11,268 |               |  |  | 10,566 |  |  |  | 37  | 
|Other Nordic countries       |  |                    | 1,879  |      |  |      | 3,566  |               |  |  | 3,610  |  |  |  | 13  | 
|Other European countries     |  |                    | 2,832  |      |  |      | 5,150  |               |  |  | 4,802  |  |  |  | 17  | 
|North America                |  |                    | 4,152  |      |  |      | 5,628  |               |  |  | 4,794  |  |  |  | 17  | 
|South America                |  |                    | 550    |      |  |      | 1,852  |               |  |  | 1,883  |  |  |  | 6   | 
|Asia-Pacific                 |  |                    | 565    |      |  |      | 1,298  |               |  |  | 1,341  |  |  |  | 5   | 
|Rest of the world            |  |                    | 1,085  |      |  |      | 1,480  |               |  |  | 1,493  |  |  |  | 5   | 
|                             |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 
|Total                        |  |                    | 22,024 |      |  |      | 30,242 |               |  |  | 28,489 |  |  |  | 100 | 
|                             |  |                    |        |      |  |      |        |               |  |  |        |  |  |  |     | 

Share Ownership

As of April 14, 2003, the members of our board of directors and our
corporate executive board held in the aggregate a total of 26,125
shares for which they held sole voting or investment power,
representing less than one percent of our total issued and outstanding share
capital. As of April 14, 2003, members of our board of directors and executive
board collectively held in the aggregate 1,027,000 options of the Company.

The following table sets forth the total number of shares and options
beneficially held by each of our directors and members of our corporate
executive board as of April 14, 2003:

|                          |  |             |        |              |  |             |           |             |  |  |         |  |  |  |        | 
|------------------------- |  | ----------- | ------ | ------------ |  | ----------- | --------- | ----------- |  |  | ------- |  |  |  | ------ | 
|                          |  | Sole Voting |        | Beneficially |  | Number of   |           | Number of  
|                          |  | or          |        | Shared       |  | Series 2000 |           | Series 2001
|                          |  | Investment  |        | Voting       |  | A and B     |           | A and B    
|                          |  | Power       |        | Power        |  | options     |           | options    
|                          |  |             |        |              |  |             |           |            
|Directors                 |  |             |        |              |  |             |           |             |  |  |         |  |  |  |        | 
|Matti Kavetvuo            |  |             |       |              |  |             |          |             |  |  |        |  |  |  |       | 
|Mikko Kivimäki(1)         |  |             | 1,850  |              |  |             | 3,127,069 |             |  |  |        |  |  |  |       | 
|Heikki Hakala(2)          |  |             | 10,262 |              |  |             | 860,000   |             |  |  | 150,000 |  |  |  |       | 
|Juhani Kuusi(3)           |  |             | 6,000  |              |  |             | 875,000   |             |  |  |        |  |  |  |       | 
|Pentti Mäkinen            |  |             |       |              |  |             |          |             |  |  |        |  |  |  |       | 
|Jaakko Rauramo            |  |             | 4,205  |              |  |             |          |             |  |  |        |  |  |  |       | 
|Maija-Liisa Friman        |  |             |       |              |  |             |          |             |  |  |        |  |  |  |       | 
|Corporate Executive Board |  |             |        |              |  |             |           |             |  |  |         |  |  |  |        | 
|Tor Bergman(4)            |  |             |       |              |  |             | 3,399,047 |             |  |  | 160,000 |  |  |  | 60,000 | 
|Sakari
Tamminen(5)        |  |             | 1,380  |              |  |             | 60        |             |  |  | 120,000 |  |  |  | 30,000 | 
|Olli Vaartimo             |  |             | 1,144  |              |  |             |          |             |  |  | 100,000 |  |  |  |       | 
|Juhani Pakkala            |  |             |       |              |  |             |          |             |  |  | 100,000 |  |  |  |       | 
|Bertel Karlstedt          |  |             | 120    |              |  |             |          |             |  |  | 72,000  |  |  |  |       | 
|Arto Aaltonen             |  |             | 600    |              |  |             |          |             |  |  | 100,000 |  |  |  |       | 
|Matti Kähkönen            |  |             |       |              |  |             |          |             |  |  | 90,000  |  |  |  |       | 
|Harri Luoto(6)            |  |             | 564    |              |  |             | 110       |             |  |  | 45,000  |  |  |  |       | 



---

|(1) |  | Varma-Sampo Mutual Pension Insurance Company beneficially owns 3,217,069
shares. Mr. Kivimäki is member of the board of directors of Varma-Sampo
Mutual Pension Insurance Company, and as a result may be deemed to share
voting power with respect to the shares beneficially owned by Varma-Sampo
Mutual Pension Insurance Company within the meaning of Rule 13d-3 under
the Exchange Act. Mr. Kivimäki does not believe that he has the power to
direct the voting of shares held by Varma-Sampo Mutual Pension Insurance
Company and disclaims beneficial ownership of these shares.                                                                                                                                                                    
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Pohjola Corporation beneficially owns 860,000 shares. Mr. Hakala is vice
chairman of the board of directors of Pohjola Corporation, and as a result
may be deemed to share voting power with respect to the shares
beneficially owned by Pohjola Corporation within the meaning of Rule 13d-3
under the Exchange Act. Mr. Hakala does not believe that he has the power
to direct the voting of shares held by Pohjola Corporation and disclaims
beneficial ownership of these shares.                                                                                                                                                                                                                                                                       
|   
|(3) |  | Nokia Corporation beneficially owns 875,000 shares. Mr. Kuusi is senior
vice president, technology strategy at Nokia Corporation, and as a result
may be deemed to share voting power with respect to the shares
beneficially owned by Nokia Corporation within the meaning of Rule 13d-3
under the Exchange Act. Mr. Kuusi does not believe that he has the power
to direct the voting of shares held by Nokia Corporation and disclaims
beneficial ownership of these shares.                                                                                                                                                                                                                                                                              
|   
|(4) |  | Ilmarinen Mutual Pension Insurance Company beneficially owns 2,749,278
shares. The Federation of Finnish Metal beneficially owns 649,796 shares.
Mr. Bergman is member of the board of directors of Ilmarinen Mutual
Pension Insurance Company and the Federation of Finnish Metal, and as a
result may be deemed to share voting power with respect to the shares
beneficially owned by Ilmarinen Mutual Pension Insurance Company and the
Federation of Finnish Metal within the meaning of Rule 13d-3 under the
Exchange Act. Mr. Bergman does not believe that he has the power to direct
the voting of shares held by Ilmarinen Mutual Pension Insurance Company
and the Federation of Finnish Metal and disclaims beneficial ownership of
these shares.
|   
|(5) |  | Includes 60 shares held by
Mr. Tamminens spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(6) |  | Includes 110 shares held by Mr. Luotos spouse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

We launched two option programs in 2000 and 2001 as part of the incentive
system for key personnel. The programs give the right to subscribe for a
maximum of 6,000,000 shares, and included 226 persons at the end of 2002. The
2000 options program includes 5,000,000 options, which entitle their holders to
subscribe for a maximum of 5,000,000 shares. 2,500,000 of the options are
marked with the letter A, and 2,500,000 with the letter B. The share strike
price was 14.40 on December 31, 2002. Annually paid dividends are deducted
from the strike price. Share subscriptions based on A options began on April 1,
2001, while those based on B options began on April 1, 2003. The subscription
period for all share options expires on April 30, 2005. The 2001 options
program includes 1,000,000 options, which entitle their holders to subscribe
for a maximum of 1,000,000 shares. 500,000 of the options are marked with the
letter A, and 500,000 with the letter B. The share strike price was 14.40
on December 31, 2002. Annually paid dividends are deducted from the strike
price. Share subscriptions based on A options began on April 1, 2001, while
those based on B options began on April 1, 2003. The subscription period for
all options expires on April 30, 2005. In the shareholders meeting held on
April 15, 2003, the shareholders authorized the establishment of a new options
program that gives the right to subscribe to a maximum of 7,800,000 shares. For
further information on this new options program, see Note 32 to our audited
consolidated financial statements.

51



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##### 



Share Repurchases

Shareholders at the annual general meeting of shareholders held on April
15, 2003 authorized our board of directors to decide on the acquisition and
disposal of our own shares within one year of the shareholders meeting. We may
acquire our own shares to the extent that the combined par value of the shares
acquired corresponds to no more than five percent of our total share capital at
the moment of acquisition. The board of directors was authorized to use our own
shares in connection with business acquisitions or financing investments.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

UPM-Kymmene Corporation currently owns 14.6 percent of our shares. In
addition, the Finnish State currently owns 11.5 percent of our outstanding
share capital. On March 25, 2003, Harris Associates L.P. announced that certain
funds under its management held 5.07 percent of our total shares and total
votes. On June 12, 2002, Franklin Resources Group announced that certain of its
funds held 5.17 percent of our total shares and, in addition, Franklin
Resources Inc. had voting authority representing 1.14 percent of our total
shares. On April 24, 2002, The Capital Group Companies, Inc. announced that
certain funds under its management held 6.29 percent of our total shares and
4.97 percent of our total votes. Neither UPM-Kymmene Corporation, the Finnish
State, Franklin Resources Group, The Capital Group Companies, Harris
Associates L.P. nor any other
shareholder has any special voting rights. However, UPM-Kymmene Corporation,
the Finnish State, Franklin Resources Group, The Capital Group Companies
and Harris Associates L.P. may, through their share ownership, continue to have substantial influence in
deciding matters submitted for a vote of shareholders: such as approval of the
annual financial statements, declarations of annual reserves and dividends,
capital increases, amendments to our articles of association and the election
and removal of members of our board of directors. In addition, one member of
our board of directors is a civil servant representing the Finnish Ministry of
Trade and Industry, the ministry assigned with the primary responsibility for
companies with significant ownership interest by the Finnish State. See Item
6. Directors, Senior Management and Employees  Board of Directors and Item 4.
Information on the Company  History and Development of the Company.

The following table lists, as of April 14, 2003, the total number of our
shares owned by UPM-Kymmene Corporation, the Finnish State, Franklin Resources
Group, The Capital Group Companies and Harris Associates L.P., the only persons or entities known to be
the beneficial owner of more than five percent of our shares, as well as shares
owned by members of our board of directors:

|                      |  |                                              |  |                  |            |         |  |  |      |  |  | 
|--------------------- |  | -------------------------------------------- |  | ---------------- | ---------- | ------- |  |  | ---- |  |  | 
|Title of Class        |  | Identity of Person or Group                  |  | Number of Shares |            | Percent
|                      |  |                                              |  |                  |            |        
|Shares, nominal value |  | UPM-Kymmene Corporation                      |  |                  | 19,922,115 |         |  |  | 14.6 | 
|1.70 each            |  |                                              |  |                  |            |         |  |  |      |  |  | 
|Shares, nominal value |  | The Finnish State                            |  |                  | 15,695,287 |         |  |  | 11.5 | 
|1.70 each            |  |                                              |  |                  |            |         |  |  |      |  |  | 
|Shares, nominal value |  | Funds managed by The
Capital Group Companies |  |                  | 8,570,159  |         |  |  | 6.29 | 
|1.70 each            |  |                                              |  |                  |            |         |  |  |      | 
|Shares, nominal value |  | Funds managed by
Franklin Resources Group    |  |                  | 7,040,337  |         |  |  | 5.17 | 
|1.70 each            |  |                                              |  |                  |            |         |  |  |      | 
|Shares, nominal value |  | Funds managed by
Harris Associates L.P.      |  |                  | 6,904,600  |         |  |  | 5.07 | 
|1.70 each            |  |                                              |  |                  |            |         |  |  |      | 
|Shares, nominal value |  | Members of our Board of Directors            |  |                  | 22,317     |         |  |  | 0.02 | 
|1.70 each            |  |                                              |  |                  |            |         |  |  |      |  |  | 

Our shareholders decided at the annual general meeting held on March 29,
2000 to amend Sections 3, 4 and 6 of our articles of association to restate the
minimum and maximum share capital amounts in euros and to amend the par value
of our shares to 1.70. The amendment to our articles of association was
registered in the Finnish Trade Register on April 25, 2000.

52



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##### 



Ownership of Our Securities in the United States

As of April 11, 2003, the most recently available practical date,
approximately 1,355,450 shares, or 1.0 percent of the total number of our
issued and outstanding shares were held by approximately 41 record holders with
addresses in the United States.

Related Party Transactions

There have been no material transactions during the last fiscal year to
which any director or executive officer or any ten percent shareholder or any
relative or spouse thereof was a party. There is no significant outstanding
indebtedness owed to Metso by any director or executive officer or ten percent
shareholder.

Item 8. Financial Information

Consolidated Financial Statements

See Item 18. Financial Statements.

Export Sales

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

|                                    |  |                         |       |      |  |              |       |  |  |  |       | 
|----------------------------------- |  | ----------------------- | ----- | ---- |  | ------------ | ----- |  |  |  | ----- | 
|                                    |  | Year ended December 31,
|                                    |  |                        
|                                    |  | 2000                    |       | 2001 |  | 2002        
|                                    |  |                         |       |      |  |             
|                                    |  |                         |       |      |  | ( millions) |       |  |  | 
|Other Nordic Countries              |  |                         | 377   |      |  |              | 365   |  |  |  | 297   | 
|Europe (excluding Nordic Countries) |  |                         | 556   |      |  |              | 592   |  |  |  | 567   | 
|North America                       |  |                         | 276   |      |  |              | 200   |  |  |  | 183   | 
|South America                       |  |                         | 47    |      |  |              | 85    |  |  |  | 137   | 
|Asia-Pacific                        |  |                         | 253   |      |  |              | 269   |  |  |  | 248   | 
|Rest of the World                   |  |                         | 14    |      |  |              | 20    |  |  |  | 21    | 
|                                    |  |                         |       |      |  |              |       |  |  |  |       | 
|Total                               |  |                         | 1,523 |      |  |              | 1,531 |  |  |  | 1,453 | 
|                                    |  |                         |       |      |  |              |       |  |  |  |       | 

In 2002, without elimination of intra-Group sales, the value of goods
exported from Finland, Sweden, other European countries and the United States
totaled approximately 1,453 million or 21 percent of Metsos total sales, 682
million or 10 percent of Metsos total sales, 335 million or 5 percent of
Metsos total sales, 223 million or 3 percent of Metsos total sales,
respectively.

Legal Proceedings

We have extensive worldwide operations and are both a plaintiff and a
defendant in a number of legal proceedings incidental to our operations.

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

The results of a survey conducted by us on legal implications resulting
from potential health hazards caused by exposure to asbestos indicate that we
have no material asbestos related claims in the United States. As of March 31,
2003, the survey, however, identified the following: a total of 265 claims have
been brought against our U.S. subsidiary, Neles-Jamesbury Inc., part of the
Metso Automation business area, relating to valves previously manufactured by
Neles-Jamesbury. In addition, our U.S. subsidiary, Metso Automation SCADA
Solutions Inc., has been named co-defendant in two of these claims, Metso
Minerals Industries Inc. (formerly, Svedala Industries Inc.) in one of these
claims, and Metso Paper USA, Inc. in one of these claims. Out of the total
of 265 claims, 77 claims have been dismissed in the relevant court and 51
claims have been settled for an average compensation of U.S.$551 per person.
The total proceeds paid on such settlements amount

53



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##### 



to approximately U.S.$28,100. The remaining 137 claims are still pending
but their outcome is not expected to materially deviate from the outcome of the
previous claims. In the remaining claims, we are one of numerous defendants.
Two claims have been brought against Metso Minerals Industries Inc. One of the
claims has been dismissed. In the remaining claim, we are one of 22 defendants,
and the claim is not expected to have a material adverse economic effect on us.

Dividend Policy

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

For companies domiciled in Finland and incorporated under the Finnish law,
dividends on shares are generally only paid annually after shareholder approval
of both the Companys financial results and of the amount of dividend proposed
by the board of directors. Under the Finnish law, the amount of any dividend is
limited to the amount of profits and other distributable equity available at
the end of the preceding fiscal year on a consolidated or unconsolidated basis,
whichever is lower. Subject to certain exceptions relating to the right of the
minority shareholders to request otherwise, the dividend may not exceed an
amount recommended by the board of directors. As of December 31, 2002, our
parent companys distributable equity was 697 million (U.S.$731 million) and
our consolidated distributable equity was 861 million (U.S.$903 million). The
difference between our parent companys distributable equity of 697 million
and our distributable equity including our consolidated subsidiaries of 861
million is caused by earnings related to our parent companys subsidiaries that
are reflected in our consolidated accounts but not in the accounts of our
parent company.

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

At the annual general meeting of our shareholders held on April 15, 2003,
our shareholders declared a dividend 0.60 per share for the fiscal year ended
December 31, 2002. The dividend will be paid on April 29, 2003 to shareholders
entered in the register of shareholders on April 22, 2003. We have paid a
dividend of 0.60, 0.60 and 0.40 per share for the fiscal years ended
December 31, 2001, 2000 and 1999, respectively. Valmet, one of the predecessor
companies of Metso, paid dividends of 0.59, 0.59 and 0.50 per share for the
fiscal years ended December 31, 1998, 1997 and 1996, respectively, as adjusted
to reflect a two-for-one share split effected in 1996. Rauma, the other
predecessor company of Metso, paid dividends of 0.64, 0.55 and 0.46 per
share for the fiscal years ended December 31, 1998, 1997 and 1996,
respectively. Dividend amounts paid by Valmet and Rauma have been translated
from Finnish markkas into euros at the irrevocable conversion rate between the
Finnish markka and the euro.

Significant Changes

Other than as described herein, no significant change has occurred since
the date of the annual financial statements included in this annual report.

54



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Item 9. The Offer and Listing

Nature of Trading Market

The principal trading market for our shares is the Helsinki Exchanges. The
table below sets forth, for the periods indicated, the reported high and low
middle market quotations for our shares on the Helsinki Exchanges based on its
Daily Official List and the approximate number of shares traded:

|                                  |  |                 |       |     |  |  |       | 
|--------------------------------- |  | --------------- | ----- | --- |  |  | ----- | 
|                                  |  | Price Per Share
|                                  |  |                
|                                  |  | High            |       | Low
|                                  |  |                 |       |    
|                                  |  | ()            
|Annual                            |  |                 |       |     |  |  |       | 
|1999
(from July 1)(1)             |  |                 | 13.70 |     |  |  | 9.65  | 
|2000                              |  |                 | 16.20 |     |  |  | 7.81  | 
|2001                              |  |                 | 14.10 |     |  |  | 7.81  | 
|2002                              |  |                 | 15.15 |     |  |  | 7.73  | 
|2003 (through April 16)           |  |                 | 16.41 |     |  |  | 8.70  | 
|Quarterly                         |  |                 |       |     |  |  |       | 
|2001                              |  |                 |       |     |  |  |       | 
|First Quarter                     |  |                 | 12.15 |     |  |  | 10.00 | 
|Second Quarter                    |  |                 | 13.45 |     |  |  | 9.35  | 
|Third Quarter                     |  |                 | 14.10 |     |  |  | 7.81  | 
|Fourth Quarter                    |  |                 | 12.25 |     |  |  | 8.80  | 
|2002                              |  |                 |       |     |  |  |       | 
|First Quarter                     |  |                 | 14.79 |     |  |  | 11.75 | 
|Second Quarter                    |  |                 | 15.15 |     |  |  | 12.50 | 
|Third Quarter                     |  |                 | 13.50 |     |  |  | 8.45  | 
|Fourth Quarter                    |  |                 | 12.00 |     |  |  | 7.73  | 
|2003                              |  |                 |       |     |  |  |       | 
|First Quarter                     |  |                 | 11.41 |     |  |  | 8.70  | 
|Second Quarter (through April 16) |  |                 | 10.10 |     |  |  | 9.10  | 
|Monthly                           |  |                 |       |     |  |  |       | 
|2002                              |  |                 |       |     |  |  |       | 
|October                           |  |                 | 9.60  |     |  |  | 7.73  | 
|November                          |  |                 | 10.52 |     |  |  | 8.57  | 
|December                          |  |                 | 12.00 |     |  |  | 9.68  | 
|2003                              |  |                 |       |     |  |  |       | 
|January                           |  |                 | 11.41 |     |  |  | 9.30  | 
|February                          |  |                 | 10.29 |     |  |  | 9.23  | 
|March                             |  |                 | 11.20 |     |  |  | 8.70  | 
|April (through April 16)          |  |                 | 10.10 |     |  |  | 9.10  | 



---

|(1) |  | The merger of Valmet and Rauma became effective on July 1, 1999.
|--- |  | ----------------------------------------------------------------

Since July 1, 1999, our shares have been traded in the United States on
the New York Stock Exchange under the symbol MX in the form of ADSs. Each ADS
represents one share. The depositary for the ADSs is the Bank of New York.

55



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##### 



The table below sets forth the high and low sales prices for our ADSs as
reported in the New York Stock Exchange  Composite Transactions:

|                                  |  |               |       |     |  |  |       | 
|--------------------------------- |  | ------------- | ----- | --- |  |  | ----- | 
|                                  |  | Price per ADS
|                                  |  |              
|                                  |  | High          |       | Low
|                                  |  |               |       |    
|                                  |  | (U.S.$)      
|Annual                            |  |               |       |     |  |  |       | 
|1999
(from July 1)(1)             |  |               | 13.13 |     |  |  | 10.13 | 
|2000                              |  |               | 16.25 |     |  |  | 7.75  | 
|2001                              |  |               | 11.30 |     |  |  | 7.68  | 
|2002                              |  |               | 14.26 |     |  |  | 7.81  | 
|2003 (through April 16)           |  |               | 12.02 |     |  |  | 9.75  | 
|Quarterly                         |  |               |       |     |  |  |       | 
|2001                              |  |               |       |     |  |  |       | 
|First Quarter                     |  |               | 11.25 |     |  |  | 9.00  | 
|Second Quarter                    |  |               | 11.19 |     |  |  | 8.25  | 
|Third Quarter                     |  |               | 11.30 |     |  |  | 7.68  | 
|Fourth Quarter                    |  |               | 11.00 |     |  |  | 8.20  | 
|2002                              |  |               |       |     |  |  |       | 
|First Quarter                     |  |               | 12.89 |     |  |  | 10.55 | 
|Second Quarter                    |  |               | 14.26 |     |  |  | 11.80 | 
|Third Quarter                     |  |               | 13.30 |     |  |  | 8.45  | 
|Fourth Quarter                    |  |               | 11.13 |     |  |  | 7.81  | 
|2003                              |  |               |       |     |  |  |       | 
|First Quarter                     |  |               | 12.02 |     |  |  | 9.75  | 
|Second Quarter (through April 16) |  |               | 11.15 |     |  |  | 10.10 | 
|Monthly                           |  |               |       |     |  |  |       | 
|2002                              |  |               |       |     |  |  |       | 
|October                           |  |               | 9.39  |     |  |  | 7.81  | 
|November                          |  |               | 10.30 |     |  |  | 8.60  | 
|December                          |  |               | 11.13 |     |  |  | 9.86  | 
|2003                              |  |               |       |     |  |  |       | 
|January                           |  |               | 12.02 |     |  |  | 10.11 | 
|February                          |  |               | 10.70 |     |  |  | 10.10 | 
|March                             |  |               | 11.40 |     |  |  | 9.75  | 
|April (through April 16)          |  |               | 11.15 |     |  |  | 10.10 | 



---

|(1) |  | The merger of Valmet and Rauma became effective on July 1, 1999, and
Metsos ADSs began trading on that day.
|--- |  | ------------------------------------------------------------------------------------------------------------

Trading and Settlement on the Helsinki Exchanges

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

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

Official share trading takes place from 10:00 a.m. to 6:00 p.m. and
evening trading, as of April 1, 2003, from 6:03 p.m. to 7:30 p.m. Helsinki time
on each trading day. The official closing prices are confirmed at the end of
the official share trading at 6:00 p.m. Offers may be placed in the system
beginning at 9:00 a.m. during a pretrading period. Offers are matched from 9:40
to 10:00 a.m. to determine the opening quotations of the day. Contract
transactions may continue to be registered during aftermarket trading from 6:03
to 6:30 p.m. and from

56



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8:30 to 9:00 a.m. the following morning within the price limits arrived at
during the official share trading and the evening trading.

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

Regulation of the Finnish Securities Market

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

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

A shareholder is required, without undue delay, to notify a Finnish listed
company and the Finnish Financial Supervision Authority when its voting
participation in, or its percentage ownership of, the issued share capital of
such Finnish listed company reaches, exceeds or falls below five percent, ten
percent, 15 percent, 20 percent, 25 percent, 33 1/3 percent, 50 percent or 66
2/3 percent, calculated in accordance with the Finnish Securities Market Act,
or when it enters into an agreement or other arrangement that, when effective,
has such consequence. If a Finnish listed company receives information
indicating that a voting interest or ownership interest has reached, exceeded
or fallen below these thresholds, it must disclose such information to the
public and to the Helsinki Exchanges.

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

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

The Finnish Book-Entry Securities System

General

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

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

57



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

Registration

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

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

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

Custody of the Shares and Nominees

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

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

58



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

Item 10. Additional Information

Articles of Association

Organization and Register

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

Purpose and Object

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

Share Capital and Shares

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

Corporate Governance

Our corporate governance is based on the Finnish Companies Act and on our
Articles of Association. Section 6 of our articles of association states that
we shall have a board of directors, a president and one or several executive
vice presidents, if required. Our articles of association specify that our
board of directors shall have no less than five and no more than eight members.
The term of office of a member of our board of directors ends at the end of the
first annual general meeting of shareholders following the election. The
general meeting of shareholders elects the chairman, vice chairman and other
members of our board of directors. Our board of directors elects our president
and one or more executive vice presidents, if required. Our board of directors
meets when a meeting is convened by the chairman or, if he or she is prevented,
the vice chairman. A quorum is present when more than one-half of the members
of our board of directors is present, and one of them is the chairman or the
vice chairman. The decision of the board of directors shall be that opinion
which is supported by more than one-half of the members present or, if the
votes are equal, the opinion with which the chairman of the meeting agrees.

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

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

Preemptive Rights

Under Finnish law, existing shareholders of Finnish companies have
preferential rights to subscribe, in proportion to their shareholdings, in new
shares of such companies as well as for issues of subscription warrants

59



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or debt instruments convertible into shares or carrying warrants to
subscribe for shares, unless the corporate resolution approving such issue
provides otherwise. Under the Finnish Companies Act, a resolution waiving
preemptive rights must be approved by at least two-thirds of all votes cast and
all shares represented at the general meeting of shareholders.

General Meeting of Shareholders

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

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

Inasmuch as the shares have been transferred to the Finnish Book-Entry
Securities System, in order to have the right to attend and vote at a general
meeting, a shareholder must be registered not later than ten days prior to the
relevant general meeting in the register of shareholders kept by the Finnish
Central Securities Depository in accordance with the Finnish Companies Act and
the Finnish Act on the Book-Entry Securities System. See Item 9. The Offer and
Listing  The Finnish Book-Entry Securities System  Registration. Voting rights
may not be exercised by a shareholder if such shareholders shares are
registered in the name of a nominee. A beneficial owner wishing to exercise
such rights should seek a temporary registration in the register of
shareholders not later than ten days prior to the relevant general meeting.
There are no quorum requirements for general meetings in the Finnish Companies
Act or our articles of association. Hence, it is possible that, depending on
the attendance at any particular shareholders meeting, a relatively limited
number of shareholders may approve resolutions put forward at such meetings.

Voting

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

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

Liquidation

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

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Purchase Obligations

Our articles of association contain a clause according to which a
shareholder or a group of related shareholders who or which has acquired either
33 1/3 percent or 50 percent of the total ordinary shares or of the total voting
power of the Company, at the minimum, is obligated to purchase the shares of
all other shareholders who request such purchase. Our articles of association
specify that the purchase price of such shares shall be the higher of the
following:



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



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

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

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

Material Contracts

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

Exchange Controls

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

Control of Foreign Ownership

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

Taxation

The following description is based on tax laws of Finland and the United
States as in effect on the date of this annual report and is subject to changes
in the Finnish and U.S. law, including changes that could have retroactive
effect. Prospective investors should consult their professional advisors as to
the tax consequences of

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the purchase, ownership and disposition of shares or ADSs, including, in
particular, the effect of tax laws of any other jurisdiction.

Finnish Taxation

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

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

Companies

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

Finland applies an imputation or avoir fiscalsystem for profits
distributed as dividends in order to eliminate double taxation of companies and
their shareholders. Under the avoir fiscalsystem, there is a minimum tax
payable to the Finnish tax authorities by a Finnish company depending on the
amount of profit distributed as dividends. For the tax years 2001 and 2000, the
applicable minimum tax was 29/71 of the dividends distributed to the
shareholders. For the year 2002, the applicable minimum tax was also 29/71. To
the extent that this minimum tax exceeds or is less than the corporate tax
charge payable to the Finnish taxation authorities calculated on taxable
income, a tax surplus will be established or a supplementary tax liability will
be imposed (as appropriate). Any tax surplus generated may be used, for a
period of ten years, to offset any supplementary tax which may become payable
in subsequent years. As further discussed below, Finland is considering
amending or possibly abolishing the avoir fiscalsystem.

Shareholders and Holders of ADSs

Tax Credit on Dividends

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

In June 2001, the Finnish Ministry of Finance appointed a committee to
evaluate, among other things, the acceptability of the avoir fiscalsystem in
light of Finnish and EU legislation. The committee presented its report in
November 2002. The committee was of the opinion that Finland should abolish the
avoir fiscalsystem and, as a result, dividends would be taxable. In addition,
the Finnish Supreme Administrative Court has requested a preliminary ruling
from the European Court of Justice in relation to the Finnish imputation system
on September 10, 2002. As a result of the ruling, Finland may be forced to
amend or even abolish the current avoir fiscalsystem. In March 2003, Finland
held Parliamentary elections that resulted in the formation of a new
government. This new Finnish government, which will assume office in April
2003, has publicly announced its

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intention to abolish the avoir
fiscalsystem. At this time, no further details are available as
to the intended changes to the Finnish dividend taxation system.

Withholding Tax on Dividends

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

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

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

Finnish Transfer Tax

There is no transfer tax payable in Finland on share transfers made on the
Helsinki Exchanges. If the transfer is not made on the Helsinki Exchanges, a
transfer tax at the rate of 1.6 percent of the relevant sales price is payable
by the buyer. However, if the buyer is neither a resident of Finland nor a
Finnish branch of a foreign credit institution nor a Finnish branch of a
foreign brokerage firm, the seller must collect the tax from the buyer. If
neither the buyer nor the seller is a resident of Finland or a Finnish branch
of a foreign credit institution or a Finnish branch of a foreign brokerage firm
and it is not a question of transfer of shares in a housing or real estate
company, the transfer of shares will be exempt from Finnish transfer tax. No
transfer tax is payable in connection with newly issued shares.

Finnish Capital Gains and Other Taxes

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

U.S. Federal Income Taxation

General

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

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company. This summary does not address any state, local or foreign tax
consequences of the acquisition, ownership and disposition of shares or ADSs.

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

The U.S. Treasury Department has expressed concern that depositaries for
American Depositary Receipts, or other intermediaries between the holders of
shares of an issuer and the issuer, may be taking actions that are inconsistent
with the claiming of U.S. foreign tax credits by U.S. holders of such receipts
or shares. Accordingly, the analysis regarding the availability of a U.S.
foreign tax credit for Finnish taxes and sourcing rules described below could
be affected by future actions that may be taken by the U.S. Treasury
Department.

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

Ownership of ADSs in General

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

Distributions

The gross amount of any distribution by the Company of cash or property
(other than certain distributions, if any, of shares or ADSs distributed pro
ratato all shareholders of the Company including holders of ADSs) with respect
to shares or ADSs, before reduction for any Finnish taxes withheld there from,
will be includible in income by a U.S. Holder as dividend income to the extent
such distributions are paid out of the current or accumulated earnings and
profits of the Company as determined under U.S. federal income tax principles.
Such dividends will not be eligible for the dividends received deduction
generally allowed to corporate U.S. Holders. To the extent, if any, that the
amount of any distribution by the Company exceeds the Companys current and
accumulated earnings and profits as determined under U.S. federal income tax
principles, it will be treated first as a tax-free return of the U.S. Holders
adjusted tax basis in the shares or ADSs and thereafter as capital gain. The
Company does not maintain calculations of its earnings and profits under U.S.
federal income tax principles.

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

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

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by the Company generally will constitute passive income, or, in the case
of certain U.S. Holders, financial services income.

Subject to the discussion below under Backup Withholding Tax and
Information Reporting Requirements, a Non-U.S. Holder of shares or ADSs
generally will not be subject to U.S. federal income or withholding tax on
dividends received on shares or ADSs, unless such income is effectively
connected with the conduct by such Non-U.S. Holder of a trade or business in
the United States.

Sale or Exchange of Shares or ADSs

A U.S. Holder generally will recognize gain or loss on the sale or
exchange of shares or ADSs equal to the difference between the amount realized
on such sale or exchange and the U.S. Holders adjusted tax basis in the shares
or ADSs. Such gain or loss will be capital gain or loss. In the case of a
noncorporate U.S. Holder, the maximum marginal U.S. federal income tax rate
applicable to such gain will be lower than the maximum marginal U.S. federal
income tax rate applicable to ordinary income if such U.S. Holders holding
period for such shares or ADSs exceeds one year and in the case of shares or
ADSs acquired on or after January 1, 2001, will be further reduced if such
holding period exceeds five years. Gain or loss, if any, recognized by a U.S.
Holder generally will be treated as United States source income or loss for
U.S. foreign tax credit purposes. The deductibility of capital losses is
subject to limitations.

The initial tax basis of shares or ADSs to a U.S. Holder will be the U.S.
dollar value of the euro denominated purchase price determined on the date of
purchase. If the shares or ADSs are treated on an established securities
market, a cash basis U.S. Holder (or, if it elects, an accrual basis U.S.
Holder) will determine the dollar value of the cost of such shares or ADSs by
translating the amount paid at the spot rate of exchange on the settlement date
of the purchase. The conversion of U.S. dollars to euros and the immediate use
of that currency to purchase shares or ADSs generally will not result in
taxable gain or loss for a U.S. Holder.

With respect to the sale or exchange of shares or ADSs, the amount
realized generally will be the U.S. dollar value of the payment received
determined on (i) the date of receipt of payment in the case of a cash basis
U.S. Holder and (ii) the date of disposition in the case of an accrual basis
U.S. Holder. If the shares or ADSs are treated as traded on an established
securities market, a cash basis taxpayer (or, if it elects, an accrual basis
taxpayer) will determine the U.S. dollar value of the amount realized by
translating the amount received at the spot rate on the settlement date of the
sale.

Subject to the discussion below under Backup Withholding Tax and
Information Reporting Requirements, a Non-U.S. Holder of shares or ADSs
generally will not be subject to U.S. federal income or withholding tax on any
gain realized on the sale or exchange of such shares or ADSs unless (i) such
gain is effectively connected with the conduct by such Non-U.S. Holder of a
trade or business in the United States or (ii) in the case of any gain realized
by an individual Non-U.S. Holder, such holder is present in the United States
for 183 days or more in the taxable year of such sale or exchange and certain
other conditions are met.

Backup Withholding Tax and Information Reporting Requirements

U.S. backup withholding tax and information reporting requirements
generally apply to certain payments to certain noncorporate holders of stock.
Information reporting generally will apply to payments of dividends on, and to
proceeds from the sale or redemption of, shares or ADSs made within the United
States to a holder of shares or ADSs (other than an exempt recipient,
including a corporation, a payee that is not a U.S. person that provides an
appropriate certification and certain other persons). A payor will be required
to withhold on any payments of dividends on, or the proceeds from the sale or,
redemption of, shares or ADSs within the United States to a holder (other than
an exempt recipient) if such holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with, or establish an
exemption from, such backup withholding tax requirements. The backup
withholding rate is 30 percent for years 2002 and 2003, 29 percent for years
2004 and 2005, and 28 percent for years 2006 through 2010.

In the case of such payments made within the United States to a foreign
simple trust, foreign grantor trust or foreign partnership (other than a
payment to a foreign simple trust, foreign grantor trust or foreign partnership
that qualifies as a withholding foreign trust or a withholding foreign
partnership within the meaning of the applicable U.S. Treasury Regulations and
a payment to a foreign simple trust, foreign grantor trust or foreign
partnership that is effectively connected with the conduct of a trade or
business in the United States), the beneficiaries of the foreign simple trust,
the persons treated as the owners of the foreign grantor trust or the partners
of the foreign partnership, as the case may be, will be required to provide the
certification

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discussed above in order to establish an exemption from backup withholding
tax and information reporting requirements. Moreover, a payor may rely on a
certification provided by a payee that is not a U.S. person only if such payor
does not have actual knowledge or a reason to know that any information or
certification stated in such certificate is incorrect.

The above description is not intended to constitute a complete analysis of
all tax consequences relating to acquisition, ownership and disposition of
shares or ADSs. You should consult your own tax advisor concerning the tax
consequences of your particular situation.

Documents on Display

We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended. In accordance with these requirements, we
file reports and other information with the SEC. These materials, including
this annual report and the exhibits thereto, may be inspected and copied at the
Commissions Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. The public may obtain information on the operation of the Commissions
Public Reference Room by calling the Commission in the United States at
1-800-SEC-0330. The Commission also maintains a web site at http://www.sec.gov
that contains any reports, statements and other information that have been
filed electronically with the Commission. We have made electronic filings with
the Commission since October 30, 2002. In addition, material submitted by us
may be inspected at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

The objective of our financial functions is to identify, evaluate and
hedge financial risks related to market conditions, which affect our
consolidated cash flows, assets and liabilities. Market risk refers to the risk
of loss arising from adverse changes in foreign exchange rates, interest rates,
and other relevant market prices, such as equity prices. In order to manage our
exposures to market risk, we continually assess our market exposures and
attempt to hedge such risks through financial operations to minimize the
adverse effects on our profitability.

Our financial operations are conducted to support business purposes and
within the framework of corporate operating policies and guidelines.Our
financial function identifies the financial risks connected with the business
operations and minimizes their impact on our financial results. To minimize
financial risks, we use different derivative instruments, such as forward
contracts, currency and interest rate swaps, and options. Derivatives are used
only to support the underlying businesses (i.e., for hedging purposes only).
Currently, we do not hold derivatives for trading (speculative) purposes and we
do not use high risk derivative instruments such as written options on a sole
basis or leveraged instruments. For additional information on the derivative
financial instruments we use, see Note 27 to our audited consolidated financial
statements.

We do not anticipate any material adverse effect on our consolidated
financial condition, results of operations or cash flows, resulting from the
use of derivative financial instruments. We cannot guarantee, however, that our
hedging strategies will be effective, or that translation losses can be
minimized or forecasted accurately.

We use sensitivity analysis techniques to measure foreign exchange,
interest rate and equity price risk. The estimated amounts generated from the
sensitivity analysis are forward-looking statements of market risk, assuming
certain adverse market conditions occur. Actual results in the future may
differ materially from the projected results. The method expresses the
potential change in future earnings, cash flows or fair values for a specified
period resulting from selected hypothetical variations in foreign currency
exchange rates, interest rates, or equity prices.

Exchange Rates and Foreign Currency Exposure

Our foreign currency exposures arising from the Finnish operations and
from the main part of foreign operations are hedged centrally through our
corporate treasury department, which transacts and coordinates with third
parties, principally banks. Future foreign currency cash receipts, arising
primarily on long-term contracts, net of any matching foreign currency payments
and short-term component and machine sales, are hedged principally through the
forward foreign exchange market. We generally hedge our future net cash flows
over a period typically not exceeding two years. In accordance with this
policy, the majority of our future net cash flows related to our order backlog
at any given time is hedged. Our foreign subsidiaries generally transact

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business in their local currencies, and where there are exposures to
foreign exchange fluctuations primarily through export hedging is undertaken by
such local subsidiaries through forward exchange contracts with or in
cooperation with our corporate treasury department. Our treasury policy hedging
principles are monitored regularly by our corporate treasury department.

We have partly hedged our foreign currency denominated net assets of
foreign subsidiaries through borrowings, receivables, and to some extent
through currency derivatives.

Apart from forward foreign exchange contracts, options and currency swaps,
as of December 31, 2002, we were not a party to any other derivative foreign
currency instruments. Our risk management policy is that operating units should
not carry unhedged foreign currency risk exposure.

We have hedged approximately 88 percent of our future foreign currency
cash receipts for 2003, arising primarily on long-term contracts, net of any
expected matching foreign currency payments. In addition, as of December 31,
2002, we have hedged 83 percent of our Swedish krona and 95 percent of our U.S.
dollar denominated net investments in subsidiaries by receivables, borrowings
and forward exchange contracts.

Our net gains and losses sustained from foreign currency fluctuations were
approximately a net loss of 6 million for the year ended December 31, 2002,
and a net gain of 3 million and 2 million for the years ended December 31,
2001 and 2000, respectively.

The basis for the sensitivity analysis to measure foreign exchange risk is
an aggregate corporate-level currency exposure, which is composed of future
cash flows in foreign currencies. Our functional and reporting currency has
since January 1, 1999 been the euro. The aggregate foreign exchange transaction
exposure is composed of all assets and liabilities that are denominated in
foreign currencies, excluding those items which have been used to hedge net
investments, projected cash flows from firm commitments of both short- and
long-term sales and purchase contracts and derivative financial instruments
hedging the above items and anticipated cash flows.

The sensitivity analysis assumes an instantaneous ten percent change in
foreign currency rates against the euro from their level as of December 31,
2002, with all other variables held constant. If the euro appreciates or
depreciates ten percent against all other currencies, the impact on our cash
flows is a corresponding decrease or increase of approximately less than 1
million during future years, compared to approximately 3 million at December
31, 2001.

These above assumptions are hypothetical and the actual results may differ
substantially from the projected figures.

Interest Rate Risk

We are exposed to variations in interest rates, which may cause changes in
the values of interest-bearing liabilities and assets, which are already in the
balance sheet (price risk) and also affect the amounts of future interest
income or expenses (reinvestment risk or cash flow risk). To manage interest
rate risk, our interest-bearing assets and liabilities have diversified
maturities containing instruments with floating and fixed interest rates. We
also use financial derivatives, such as interest rate swaps, to hedge our
interest rate exposure.

We use sensitivity analysis techniques to measure and assess our interest
rate risk. The basis for the sensitivity analysis is an aggregate corporate
level interest rate exposure, composed of interest-bearing investments,
interest-bearing debts and financial derivatives, such as interest rate swaps,
which are used to hedge the above items.

The sensitivity analysis assumes a one percent (100 basis points) parallel
move in interest rates for all maturities from their levels as of December 31,
2002 with all other variables held constant. A one percent move upwards or
downwards in all interest rates would lead to a corresponding increase or
decrease of approximately 31 million on fair values of interest-bearing
financial instruments that are outstanding as of December 31, 2002, in
comparison to 36 million at the end of 2001.

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Equity Price Risk

The market value of the shares in publicly traded companies, of which are
listed on the Helsinki Exchanges, owned by us at December 31, 2002, was 14
million. If the prices of the shares had decreased by ten percent, the market
value of the investments would have declined by 1 million in comparison to 7
million at the end of 2001. We have not used any derivative instruments to
hedge our equity investments.

Item 12. Description of Securities Other than Equity Securities

Not applicable.

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PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

Our president and chief executive officer and our executive vice president
and chief financial officer, after evaluating the effectiveness of the Groups
disclosure controls and procedures (as defined in Rules 13a-14(c) of the
Securities and Exchange Act of 1934) within 90 days prior to the date of this
annual report on Form 20-F, have concluded that, as of such date, the Groups
disclosure controls and procedures were effective to ensure that material
information relating to the Group was made known to them by others within the
Group particularly during the period in which this annual report on Form 20-F
was being prepared. There were no significant changes in the Groups internal
controls or in other factors that could significantly affect these controls
subsequent to the date our president and chief executive officer and our
executive vice president and chief financial officer completed their
evaluation, nor were there any significant deficiencies or material weaknesses
in the Groups internal controls requiring corrective actions.

Item 16. [Reserved]

PART III

Item 17. Financial Statements.

Not applicable.

Item 18. Financial Statements.

See financial statements beginning on page F-1.

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Item 19. Exhibits

Documents filed as exhibits to this annual report:



|1.1  |  | Articles of Association of Metso, as amended to date (English translation).                                              
|---- |  | -------------------------------------------------------------------------------------------------------------------------
|    
|2.1  |  | Not applicable.*                                                                                                         
|    
|8.1  |  | List of Subsidiaries.                                                                                                    
|    
|10.1 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.**
|    
|10.2 |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.**



---

|*  |  | 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.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | This document is being furnished in accordance with SEC Release Nos.
33-8212 and 34-47551.                                                                         

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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for
filing on Form 20-F and that it has duly caused and authorized the undersigned
to sign this annual report on its behalf.

|                     |  |                   |  |                     |  |                                                     
|-------------------- |  | ----------------- |  | ------------------- |  | ----------------------------------------------------
|Date: April 17, 2003 |  | METSO CORPORATION
|                    
|                    
|                     |  | By:               |  | /s/ TOR BERGMAN    
|                     |  |                   |  |                    
|                     |  |                   |  | Name:               |  | Tor Bergman                                         
|                     |  |                   |  | Title:              |  | President and Chief Executive Officer               
|                    
|                    
|                     |  | By:               |  | /s/ SAKARI TAMMINEN
|                     |  |                   |  |                    
|                     |  |                   |  | Name:               |  | Sakari Tamminen                                     
|                     |  |                   |  | Title:              |  | Executive Vice President and
Chief Financial Officer

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CERTIFICATIONS

I, Tor Bergman, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Metso
Corporation;                                                                                                                                                                                                                                                   
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                   



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: April 17, 2003




/s/ TOR BERGMAN




Tor Bergman
President and Chief
Executive Officer


72



---



##### 



I, Sakari Tamminen, certify that:



| | 1. |  | I have reviewed this annual report on Form 20-F of Metso
Corporation;                                                                                                                                                                                                                                                   
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this annual report;                   
|
| | 4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                   



| | a. |  | designed such disclosure controls and procedures to
ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in
which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the Evaluation
Date); and                                                                                                  
|
| | c. |  | presented in this annual report our conclusions about
the effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;                                                                                                                        



| | 5. |  | The registrants other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrants auditors and
the audit committee of registrants board of directors (or persons
performing the equivalent function):
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a. |  | all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrants ability to record, process, summarize and report
financial data and have identified for the registrants auditors
any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b. |  | any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



| | 6. |  | The registrants other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: April 17, 2003




/s/ SAKARI TAMMINEN




Sakari Tamminen
Executive Vice President andChief Financial Officer


73



---



##### 



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF METSO CORPORATION

|                                                                                                   |  |      |      | 
|-------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                   |  | Page
|                                                                                                   |  |     
|Report of Independent Accountants                                                                  |  |      | F-2  | 
|Consolidated Statements of Income for each of the years ended
December 31, 2000, 2001 and 2002     |  |      | F-3  | 
|Consolidated Balance Sheets as at December 31, 2001 and 2002                                       |  |      | F-4  | 
|Consolidated Statements of Cash Flows for each of the years ended
December 31, 2000, 2001 and 2002 |  |      | F-7  | 
|Consolidated Statements of Changes in Shareholders Equity as at
December 31, 2000, 2001 and 2002  |  |      | F-9  | 
|Notes to the Consolidated Financial Statements                                                     |  |      | F-10 | 

F-1



---



##### 



METSO

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Metso Corporation

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, statements of cash flows and statements of
changes in shareholders equity, present fairly, in all material respects, the
financial position of Metso Corporation and its subsidiaries (Metso) at
December 31, 2001 and 2002, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in Finland. These
financial statements are the responsibility of Metsos management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America and in
Finland, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

Accounting principles generally accepted in Finland vary in certain important
respects from accounting principles generally accepted in the United States of
America. The application of the latter would have affected the determination
of consolidated net income for each of the three years in the period ended
December 31, 2002 and the determination of consolidated shareholders equity at
December 31, 2002 and 2001 to the extent summarized in Note 31 to the
consolidated financial statements.

Helsinki, Finland

February 12, 2003, except for Notes 31 and 32,
as to which the date is April 15, 2003

PricewaterhouseCoopers Oy
Authorized Public Accountants
F-2

METSO

Consolidated Statements of Income
(in millions, except for per share amounts)

|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|-------------------------------------------------- |  | ---- | ----- | ---- |  | ----------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | - |  |  | ------ | -
|                                                   |  |      |       |      |  | Year ended December 31,
|                                                   |  |      |       |      |  |                        
|                                                   |  | Note |       | 2000 |  | 2001                    |        | 2002 |  | 2002
|                                                   |  |      |       |      |  |                         |        |      |  |     
|                                                   |  |      |       |     |  |                        |        |     |  | USD 
|Net sales                                          |  |      |       |      |  |                         | 3,891  |      |  |      | 4,343  |   |  |  | 4,691  |   |  |  | 4,918  |  
|Cost of goods sold                                 |  |      | 3,5   |      |  |                         | (2,901 | )    |  |      | (3,200 | ) |  |  | (3,425 | ) |  |  | (3,591 | )
|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|Gross profit                                       |  |      |       |      |  |                         | 990    |      |  |      | 1,143  |   |  |  | 1,266  |   |  |  | 1,327  |  
|Selling, general and administrative expenses       |  |      | 2,3,5 |      |  |                         | (793   | )    |  |      | (873   | ) |  |  | (1,015 | ) |  |  | (1,064 | )
|Nonrecurring operating income and expenses, net    |  |      | 4     |      |  |                         | 18     |      |  |      | 4      |   |  |  | (27    | ) |  |  | (28    | )
|Amortization of goodwill                           |  |      | 5     |      |  |                         | (15    | )    |  |      | (28    | ) |  |  | (57    | ) |  |  | (60    | )
|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|Operating profit                                   |  |      |       |      |  |                         | 200    |      |  |      | 246    |   |  |  | 167    |   |  |  | 175    |  
|Financial income and expenses, net                 |  |      | 6     |      |  |                         | (20    | )    |  |      | (24    | ) |  |  | (74    | ) |  |  | (78    | )
|Share of profits of associated companies           |  |      | 7     |      |  |                         | 0      |      |  |      | 0      |   |  |  | 0      |   |  |  | 0      |  
|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|Income before extraordinary items and income taxes |  |      |       |      |  |                         | 180    |      |  |      | 222    |   |  |  | 93     |   |  |  | 97     |  
|Extraordinary income and expenses, net             |  |      | 8     |      |  |                         | 268    |      |  |      | (8     | ) |  |  |       |   |  |  |       |  
|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|Income before income taxes                         |  |      |       |      |  |                         | 448    |      |  |      | 214    |   |  |  | 93     |   |  |  | 97     |  
|Income taxes                                       |  |      | 9     |      |  |                         | (59    | )    |  |      | (72    | ) |  |  | (26    | ) |  |  | (27    | )
|Minority interests                                 |  |      |       |      |  |                         | 0      |      |  |      | (1     | ) |  |  | (2     | ) |  |  | (2     | )
|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|Net income                                         |  |      |       |      |  |                         | 389    |      |  |      | 141    |   |  |  | 65     |   |  |  | 68     |  
|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  
|Earnings per share                                 |  |      | 10    |      |  |                         | 0.90   |      |  |      | 1.09   |   |  |  | 0.48   |   |  |  | 0.50   |  
|                                                   |  |      |       |      |  |                         |        |      |  |      |        |   |  |  |        |   |  |  |        |  

The accompanying Notes form an integral part of these consolidated financial statements.

F-3



---



##### 



METSO

Consolidated Balance Sheets
(in millions)

|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|----------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ------------------ | ----- | ---- |  | --- | ----- |  |  |  | ----- | 
|                                                                        |  |      |       |      |  | As at December 31,
|                                                                        |  |      |       |      |  |                   
|                                                                        |  | Note |       | 2001 |  | 2002               |       | 2002
|                                                                        |  |      |       |      |  |                    |       |     
|                                                                        |  |      |       |      |  |                   |       |     |  | USD
|ASSETS                                                                  |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Fixed
assets and financial assets                                       |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Intangible assets                                                       |  |      | 11    |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Goodwill                                                                |  |      |       |      |  |                    | 1,037 |      |  |     | 895   |  |  |  | 938   | 
|Other intangible assets                                                 |  |      |       |      |  |                    | 57    |      |  |     | 116   |  |  |  | 122   | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|                                                                        |  |      |       |      |  |                    | 1,094 |      |  |     | 1,011 |  |  |  | 1,060 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Tangible assets                                                         |  |      | 11,12 |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Land and water areas                                                    |  |      |       |      |  |                    | 68    |      |  |     | 85    |  |  |  | 89    | 
|Buildings                                                               |  |      |       |      |  |                    | 340   |      |  |     | 350   |  |  |  | 367   | 
|Machinery and equipment                                                 |  |      |       |      |  |                    | 387   |      |  |     | 343   |  |  |  | 360   | 
|Other tangible assets                                                   |  |      |       |      |  |                    | 32    |      |  |     | 31    |  |  |  | 33    | 
|Assets under construction                                               |  |      |       |      |  |                    | 59    |      |  |     | 82    |  |  |  | 86    | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|                                                                        |  |      |       |      |  |                    | 886   |      |  |     | 891   |  |  |  | 935   | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Financial assets                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Shareholdings and other securities                                      |  |      | 14    |      |  |                    | 114   |      |  |     | 51    |  |  |  | 53    | 
|Own shares                                                              |  |      | 14    |      |  |                    | 1     |      |  |     | 1     |  |  |  | 1     | 
|Loans receivable                                                        |  |      | 17    |      |  |                    | 17    |      |  |     | 20    |  |  |  | 21    | 
|Accounts receivable                                                     |  |      | 17    |      |  |                    | 10    |      |  |     | 5     |  |  |  | 5     | 
|Other long-term investments                                             |  |      | 15,17 |      |  |                    | 73    |      |  |     | 26    |  |  |  | 27    | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|                                                                        |  |      |       |      |  |                    | 215   |      |  |     | 103   |  |  |  | 107   | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Total fixed and financial assets                                        |  |      |       |      |  |                    | 2,195 |      |  |     | 2,005 |  |  |  | 2,102 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Current assets                                                          |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Inventories                                                             |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Materials and supplies                                                  |  |      |       |      |  |                    | 225   |      |  |     | 186   |  |  |  | 195   | 
|Work in process                                                         |  |      |       |      |  |                    | 320   |      |  |     | 281   |  |  |  | 295   | 
|Finished products                                                       |  |      |       |      |  |                    | 404   |      |  |     | 352   |  |  |  | 369   | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|                                                                        |  |      |       |      |  |                    | 949   |      |  |     | 819   |  |  |  | 859   | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Receivables                                                             |  |      | 17    |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Accounts receivable                                                     |  |      |       |      |  |                    | 1,106 |      |  |     | 836   |  |  |  | 876   | 
|Costs and earnings of projects
under construction in excess of
billings |  |      | 16    |      |  |                    | 133   |      |  |     | 174   |  |  |  | 182   | 
|Loans receivable                                                        |  |      |       |      |  |                    | 16    |      |  |     | 5     |  |  |  | 5     | 
|Accrued income and prepaid expenses                                     |  |      |       |      |  |                    | 146   |      |  |     | 201   |  |  |  | 211   | 
|Deferred tax asset                                                      |  |      | 9     |      |  |                    | 176   |      |  |     | 98    |  |  |  | 103   | 
|Other receivables                                                       |  |      |       |      |  |                    | 100   |      |  |     | 60    |  |  |  | 63    | 
|Other short-term investments                                            |  |      |       |      |  |                    | 9     |      |  |     | 11    |  |  |  | 12    | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|                                                                        |  |      |       |      |  |                    | 1,686 |      |  |     | 1,385 |  |  |  | 1,452 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Cash and cash equivalents                                               |  |      |       |      |  |                    | 212   |      |  |     | 190   |  |  |  | 199   | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Total current assets                                                    |  |      |       |      |  |                    | 2,847 |      |  |     | 2,394 |  |  |  | 2,510 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Total assets                                                            |  |      |       |      |  |                    | 5,042 |      |  |     | 4,399 |  |  |  | 4,612 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 

The accompanying Notes form an integral part of these consolidated financial statements.

F-4



---



##### 



METSO

Consolidated Balance Sheets - Continued
(in millions)

|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|------------------------------------ |  | ---- | ----- | ---- |  | ------------------ | ----- | ---- |  | --- | ----- | - |  |  | ----- | -
|                                     |  |      |       |      |  | As at December 31,
|                                     |  |      |       |      |  |                   
|                                     |  | Note |       | 2001 |  | 2002               |       | 2002
|                                     |  |      |       |      |  |                    |       |     
|                                     |  |      |       |      |  |                   |       |     |  | USD
|SHAREHOLDERS EQUITY AND LIABILITIES |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Shareholders
equity                 |  |      | 18    |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Share capital                        |  |      |       |      |  |                    | 232   |      |  |     | 232   |   |  |  | 243   |  
|Share premium account                |  |      |       |      |  |                    | 14    |      |  |     | 14    |   |  |  | 15    |  
|Legal reserve                        |  |      |       |      |  |                    | 221   |      |  |     | 227   |   |  |  | 238   |  
|Cumulative translation differences   |  |      |       |      |  |                    | 25    |      |  |     | (60   | ) |  |  | (63   | )
|Reserve for own shares               |  |      |       |      |  |                    | 1     |      |  |     | 1     |   |  |  | 1     |  
|Other reserves                       |  |      |       |      |  |                    | 202   |      |  |     | 202   |   |  |  | 212   |  
|Retained earnings                    |  |      |       |      |  |                    | 633   |      |  |     | 698   |   |  |  | 732   |  
|Net income for the financial year    |  |      |       |      |  |                    | 141   |      |  |     | 65    |   |  |  | 68    |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Total shareholders equity           |  |      |       |      |  |                    | 1,469 |      |  |     | 1,379 |   |  |  | 1,446 |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Minority
interests                   |  |      |       |      |  |                    | 7     |      |  |     | 10    |   |  |  | 0     |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Mortgages
and contingent liabilities |  |      | 24    |      |  |                    |      |      |  |     |      |   |  |  |      |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Liabilities                          |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Long-term
debt                       |  |      | 19    |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Bonds                                |  |      |       |      |  |                    | 730   |      |  |     | 713   |   |  |  | 748   |  
|Loans from financial institutions    |  |      |       |      |  |                    | 373   |      |  |     | 233   |   |  |  | 244   |  
|Pension loans                        |  |      |       |      |  |                    | 47    |      |  |     | 38    |   |  |  | 40    |  
|Other long-term debt                 |  |      |       |      |  |                    | 29    |      |  |     | 36    |   |  |  | 38    |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|                                     |  |      |       |      |  |                    | 1,179 |      |  |     | 1,020 |   |  |  | 1,070 |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Other long-term liabilities          |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|Accrued expenses                     |  |      | 20,23 |      |  |                    | 148   |      |  |     | 126   |   |  |  | 132   |  
|Deferred tax liability               |  |      | 9     |      |  |                    | 34    |      |  |     | 25    |   |  |  | 26    |  
|Other long-term loans                |  |      |       |      |  |                    | 1     |      |  |     | 1     |   |  |  | 1     |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  
|                                     |  |      |       |      |  |                    | 183   |      |  |     | 152   |   |  |  | 159   |  
|                                     |  |      |       |      |  |                    |       |      |  |     |       |   |  |  |       |  

The accompanying Notes form an integral part of these consolidated financial statements.

F-5



---



##### 



METSO

Consolidated Balance Sheets  Continued
(in millions)

|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|----------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ------------------ | ----- | ---- |  | --- | ----- |  |  |  | ----- | 
|                                                                        |  |      |       |      |  | As at December 31,
|                                                                        |  |      |       |      |  |                   
|                                                                        |  | Note |       | 2001 |  | 2002               |       | 2002
|                                                                        |  |      |       |      |  |                    |       |     
|                                                                        |  |      |       |      |  |                   |       |     |  | USD
|Current liabilities                                                     |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Current portion of long-term debt                                       |  |      |       |      |  |                    | 46    |      |  |     | 50    |  |  |  | 52    | 
|Other interest bearing short-term debt                                  |  |      | 21    |      |  |                    | 343   |      |  |     | 283   |  |  |  | 297   | 
|Advances received                                                       |  |      |       |      |  |                    | 183   |      |  |     | 141   |  |  |  | 148   | 
|Accounts payable                                                        |  |      |       |      |  |                    | 390   |      |  |     | 321   |  |  |  | 337   | 
|Billings in excess of costs and earnings
of projects under construction |  |      | 16    |      |  |                    | 114   |      |  |     | 84    |  |  |  | 88    | 
|Accrued expenses and deferred income                                    |  |      | 22,23 |      |  |                    | 1,040 |      |  |     | 873   |  |  |  | 915   | 
|Other current liabilities                                               |  |      |       |      |  |                    | 88    |      |  |     | 86    |  |  |  | 90    | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|                                                                        |  |      |       |      |  |                    | 2,204 |      |  |     | 1,838 |  |  |  | 1,927 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Total liabilities                                                       |  |      |       |      |  |                    | 3,566 |      |  |     | 3,010 |  |  |  | 3,156 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 
|Total shareholders equity and liabilities                              |  |      |       |      |  |                    | 5,042 |      |  |     | 4,399 |  |  |  | 4,612 | 
|                                                                        |  |      |       |      |  |                    |       |      |  |     |       |  |  |  |       | 

The accompanying Notes form an integral part of these consolidated financial statements.

F-6



---



##### 



METSO

Consolidated Statements of Cash Flows
(in millions)

|                                                                                  |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|--------------------------------------------------------------------------------- |  | ----------------------- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                                  |  | Year ended December 31,
|                                                                                  |  |                        
|                                                                                  |  | 2000                    |      | 2001 |  | 2002 |      | 2002
|                                                                                  |  |                         |      |      |  |      |      |     
|                                                                                  |  |                        |      |     |  |     |      | USD 
|Cash flows from operating activities:                                             |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Net income                                                                        |  |                         | 389  |      |  |      | 141  |      |  |  | 65   |   |  |  | 68   |  
|Adjustments to reconcile net income to net cash provided
by operating activities: |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Depreciation and amortization                                                     |  |                         | 128  |      |  |      | 149  |      |  |  | 197  |   |  |  | 206  |  
|Gain on sale of fixed assets                                                      |  |                         | (3   | )    |  |      | (4   | )    |  |  | (7   | ) |  |  | (7   | )
|Gain on sale of Timberjack, net of taxes                                          |  |                         | (275 | )    |  |      |     |      |  |  |     |   |  |  |     |  
|(Gain) loss on sale of other subsidiaries and associated
companies                |  |                         | 2    |      |  |      | (11  | )    |  |  | (1   | ) |  |  | (1   | )
|Gain on marketable securities                                                     |  |                         | (12  | )    |  |      | (37  | )    |  |  | (7   | ) |  |  | (7   | )
|Share of profits and losses of associated companies                               |  |                         | 0    |      |  |      | 0    |      |  |  | (1   | ) |  |  | (1   | )
|Other non-cash items                                                              |  |                         | 43   |      |  |      | 10   |      |  |  | 28   |   |  |  | 29   |  
|Change in net working capital, net of effect from
business acquisitions           |  |                         | 28   |      |  |      | (13  | )    |  |  | (22  | ) |  |  | (23  | )
|                                                                                  |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash provided by operating activities                                         |  |                         | 300  |      |  |      | 235  |      |  |  | 252  |   |  |  | 264  |  
|Cash flows from investing activities:                                             |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Capital expenditures on fixed assets                                              |  |                         | (111 | )    |  |      | (154 | )    |  |  | (191 | ) |  |  | (200 | )
|Proceeds from sale of fixed assets                                                |  |                         | 41   |      |  |      | 18   |      |  |  | 33   |   |  |  | 34   |  
|Acquisition of Svedala, net of cash acquired                                      |  |                         |     |      |  |      | (804 | )    |  |  |     |   |  |  |     |  
|Other business acquisitions, net of cash acquired                                 |  |                         | (186 | )    |  |      | (24  | )    |  |  | (1   | ) |  |  | (1   | )
|Investments in associated companies                                               |  |                         | (1   | )    |  |      |     |      |  |  | (1   | ) |  |  | (1   | )
|Proceeds from sale of subsidiaries and associated companies                       |  |                         | 7    |      |  |      | 17   |      |  |  | 38   |   |  |  | 40   |  
|Proceeds from sale of Timberjack, net of taxes                                    |  |                         | 506  |      |  |      |     |      |  |  |     |   |  |  |     |  
|Taxes payable (taxes paid) on gain of Timberjack sale                             |  |                         | 85   |      |  |      | (85  | )    |  |  |     |   |  |  |     |  
|Proceeds from sale of shares and marketable securities                            |  |                         | 15   |      |  |      | 90   |      |  |  | 110  |   |  |  | 115  |  
|Investments in shares and marketable securities                                   |  |                         | (47  | )    |  |      | (1   | )    |  |  | (2   | ) |  |  | (2   | )
|                                                                                  |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Net cash provided by (used in) investing activities                               |  |                         | 309  |      |  |      | (943 | )    |  |  | (14  | ) |  |  | (15  | )
|Cash flows from financing activities:                                             |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Dividends paid                                                                    |  |                         | (54  | )    |  |      | (81  | )    |  |  | (82  | ) |  |  | (86  | )
|Hedging of net investment in foreign subsidiaries                                 |  |                         | (34  | )    |  |      | 0    |      |  |  |     |   |  |  |     |  
|Net borrowings (payments) on short-term debt                                      |  |                         | (183 | )    |  |      | 114  |      |  |  | (50  | ) |  |  | (53  | )
|Proceeds from issuance of long-term debt                                          |  |                         | 16   |      |  |      | 798  |      |  |  | 200  |   |  |  | 210  |  
|Principal payments of long-term debt                                              |  |                         | (73  | )    |  |      | (466 | )    |  |  | (311 | ) |  |  | (326 | )
|Notes receivable issued                                                           |  |                         | (6   | )    |  |      | (7   | )    |  |  | (4   | ) |  |  | (4   | )
|Proceeds from payments on notes receivable                                        |  |                         | 25   |      |  |      | 68   |      |  |  | 14   |   |  |  | 15   |  
|Proceeds from Timberjack installment credit
receivables                           |  |                         | 35   |      |  |      |     |      |  |  |     |   |  |  |     |  
|Other                                                                             |  |                         | (10  | )    |  |      | 7    |      |  |  | 0    |   |  |  | 0    |  
|                                                                                  |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Net
cash provided by (used in) financing activities                               |  |                         | (284 | )    |  |      | 433  |      |  |  | (233 | ) |  |  | (244 | )
|Effect of changes in exchange rates on cash and cash
equivalents                  |  |                         | 1    |      |  |      | 2    |      |  |  | (27  | ) |  |  | (28  | )
|Net increase (decrease) in cash and cash equivalents                              |  |                         | 326  |      |  |      | (273 | )    |  |  | (22  | ) |  |  | (23  | )
|Cash and cash equivalents at beginning of year                                    |  |                         | 159  |      |  |      | 485  |      |  |  | 212  |   |  |  | 222  |  
|                                                                                  |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  
|Cash
and cash equivalents at end of year                                          |  |                         | 485  |      |  |      | 212  |      |  |  | 190  |   |  |  | 199  |  
|                                                                                  |  |                         |      |      |  |      |      |      |  |  |      |   |  |  |      |  

The
accompanying Notes form an integral part of these consolidated
financial statements.

F-7



---



##### 



METSO

Consolidated Statements of Cash Flows  Continued
(in millions)

|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|------------------------------------------------------------------------ |  | ----------------------- | ---- | ---- |  | ---- | ------ | ---- |  |  | ---- | - |  |  | ---- | -
|                                                                         |  | Year ended December 31,
|                                                                         |  |                        
|                                                                         |  | 2000                    |      | 2001 |  | 2002 |        | 2002
|                                                                         |  |                         |      |      |  |      |        |     
|                                                                         |  |                        |      |     |  |     |        | USD 
|Change in net working capital, net of effect
from business acquisitions: |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|(Increase) decrease in assets and increase
(decrease) in liabilities:    |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Inventory                                                                |  |                         | (156 | )    |  |      | 57     |      |  |  | 24   |   |  |  | 25   |  
|Receivables                                                              |  |                         | (49  | )    |  |      | (40    | )    |  |  | 183  |   |  |  | 192  |  
|Other assets                                                             |  |                         | 12   |      |  |      | (34    | )    |  |  | 35   |   |  |  | 37   |  
|Percentage of completion: recognized assets and
liabilities, net         |  |                         | 77   |      |  |      | (74    | )    |  |  | (71  | ) |  |  | (75  | )
|Accounts payable                                                         |  |                         | 51   |      |  |      | 8      |      |  |  | (46  | ) |  |  | (48  | )
|Accrued liabilities                                                      |  |                         | 65   |      |  |      | 79     |      |  |  | (119 | ) |  |  | (125 | )
|Other liabilities                                                        |  |                         | 28   |      |  |      | (9     | )    |  |  | (28  | ) |  |  | (29  | )
|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Total                                                                    |  |                         | 28   |      |  |      | (13    | )    |  |  | (22  | ) |  |  | (23  | )
|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Supplemental cash flow information:                                      |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Acquisition of businesses:                                               |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Intangible assets                                                        |  |                         | 18   |      |  |      | 11     |      |  |  | 0    |   |  |  | 0    |  
|Tangible assets                                                          |  |                         | 64   |      |  |      | 197    |      |  |  | 1    |   |  |  | 1    |  
|Goodwill                                                                 |  |                         | 102  |      |  |      | 836    |      |  |  | 4    |   |  |  | 4    |  
|Current assets, other than cash                                          |  |                         | 36   |      |  |      | 909    |      |  |  | 2    |   |  |  | 2    |  
|Minority interests                                                       |  |                         |     |      |  |      | 10     |      |  |  | 0    |   |  |  | 0    |  
|Liabilities assumed                                                      |  |                         | (34  | )    |  |      | (1,135 | )    |  |  | (6   | ) |  |  | (6   | )
|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Acquisition of businesses, net cash used                                 |  |                         | 186  |      |  |      | 828    |      |  |  | 1    |   |  |  | 1    |  
|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Disposal of Timberjack:                                                  |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Non-current assets                                                       |  |                         | 138  |      |  |      |       |      |  |  |     |   |  |  |     |  
|Current assets                                                           |  |                         | 224  |      |  |      |       |      |  |  |     |   |  |  |     |  
|Liabilities and costs to dispose of activity                             |  |                         | (96  | )    |  |      |       |      |  |  |     |   |  |  |     |  
|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Net assets disposed of                                                   |  |                         | 266  |      |  |      |       |      |  |  |     |   |  |  |     |  
|Capital gain, net of taxes                                               |  |                         | 275  |      |  |      |       |      |  |  |     |   |  |  |     |  
|Taxes on capital gain                                                    |  |                         | 103  |      |  |      |       |      |  |  |     |   |  |  |     |  
|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Total proceeds                                                           |  |                         | 644  |      |  |      |       |      |  |  |     |   |  |  |     |  
|Installment credit receivables                                           |  |                         | (35  | )    |  |      |       |      |  |  |     |   |  |  |     |  
|Capital gain taxes paid                                                  |  |                         | (18  | )    |  |      |       |      |  |  |     |   |  |  |     |  
|Balance of capital gain taxes payable at year end                        |  |                         | (85  | )    |  |      |       |      |  |  |     |   |  |  |     |  
|                                                                         |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Proceeds from sale of Timberjack, net of taxes                           |  |                         | 506  |      |  |      |       |      |  |  |     |   |  |  |     |  
|Cash paid during the year for                                            |  |                         |      |      |  |      |        |      |  |  |      |   |  |  |      |  
|Interest                                                                 |  |                         | 45   |      |  |      | 47     |      |  |  | 83   |   |  |  | 87   |  
|Income taxes                                                             |  |                         | 55   |      |  |      | 113    |      |  |  | 57   |   |  |  | 60   |  

The accompanying Notes form an integral part of these consolidated financial statements.

F-8



---



##### 



METSO

Consolidated Statements of Changes in Shareholders Equity
(in millions, unless otherwise indicated)

|                                    |  |                  |         |                  |  |               |     |         |  |             |    |         |  |            |     |          |  |       |     |   |  |  |    |   |  |  |     |  |  |  |     |   |  |  |       |  
|----------------------------------- |  | ---------------- | ------- | ---------------- |  | ------------- | --- | ------- |  | ----------- | -- | ------- |  | ---------- | --- | -------- |  | ----- | --- | - |  |  | -- | - |  |  | --- |  |  |  | --- | - |  |  | ----- | -
|                                    |  |                  |         |                  |  | Share capital |     | Share   |  |             |    |         |  | Cumulative |     | Reserve  |  |       |     |   |  |  |    |   |  |  |     | 
|                                    |  | Number of shares |         | (par value 1.70 |  | premium       |     | Legal   |  | translation |    | for own |  | Other      |     | Retained |  |      
|                                    |  | (thousands)      |         | per share)       |  | reserve       |     | reserve |  | differences |    | shares  |  | reserves   |     | earnings |  | Total
|                                    |  |                  |         |                  |  |               |     |         |  |             |    |         |  |            |     |          |  |      
|                                    |  |                  |         |                 |  |              |     |        |  |            |    |        |  |           |     |         |  |     
|Balance at December 31,
1999        |  |                  | 135,817 |                  |  |               | 228 |         |  |             | 7  |         |  |            | 221 |          |  |       | (2  | ) |  |  | 6  |   |  |  | 202 |  |  |  | 423 |   |  |  | 1,085 |  
|Dividends                           |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | (54 | ) |  |  | (54   | )
|Transfer from share premium reserve |  |                  |        |                  |  |               | 3   |         |  |             | (3 | )       |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  |    |   |  |  | 0     |  
|Cancellation of own shares          |  |                  | (500    | )                |  |               | (1  | )       |  |             | 1  |         |  |            |    |          |  |       |    |   |  |  | (5 | ) |  |  |    |  |  |  |    |   |  |  | (5    | )
|Translation differences             |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       | 23  |   |  |  |   |   |  |  |    |  |  |  |    |   |  |  | 23    |  
|Transfer of translation differences |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       | 25  |   |  |  |   |   |  |  |    |  |  |  | (25 | ) |  |  | 0     |  
|Other                               |  |                  | 245     |                  |  |               |    |         |  |             | 3  |         |  |            | (1  | )        |  |       |    |   |  |  |   |   |  |  |    |  |  |  | (15 | ) |  |  | (13   | )
|Net income                          |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | 389 |   |  |  | 389   |  
|Balance at December 31,
2000        |  |                  | 135,562 |                  |  |               | 230 |         |  |             | 8  |         |  |            | 220 |          |  |       | 46  |   |  |  | 1  |   |  |  | 202 |  |  |  | 718 |   |  |  | 1,425 |  
|Dividends                           |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | (81 | ) |  |  | (81   | )
|Share issue (option rights)         |  |                  | 689     |                  |  |               | 2   |         |  |             | 6  |         |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  |    |   |  |  | 8     |  
|Translation differences             |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       | (21 | ) |  |  |   |   |  |  |    |  |  |  |    |   |  |  | (21   | )
|Other                               |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            | 1   |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | (4  | ) |  |  | (3    | )
|Net income                          |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | 141 |   |  |  | 141   |  
|Balance at December 31,
2001        |  |                  | 136,251 |                  |  |               | 232 |         |  |             | 14 |         |  |            | 221 |          |  |       | 25  |   |  |  | 1  |   |  |  | 202 |  |  |  | 774 |   |  |  | 1,469 |  
|Dividends                           |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | (82 | ) |  |  | (82   | )
|Translation differences             |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       | (85 | ) |  |  |   |   |  |  |    |  |  |  |    |   |  |  | (85   | )
|Other                               |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            | 6   |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | 6   |   |  |  | 12    |  
|Net income                          |  |                  |        |                  |  |               |    |         |  |             |   |         |  |            |    |          |  |       |    |   |  |  |   |   |  |  |    |  |  |  | 65  |   |  |  | 65    |  
|Balance at December 31,
2002        |  |                  | 136,251 |                  |  |               | 232 |         |  |             | 14 |         |  |            | 227 |          |  |       | (60 | ) |  |  | 1  |   |  |  | 202 |  |  |  | 763 |   |  |  | 1,379 |  

The accompanying Notes form an integral part of these consolidated financial statements.

F-9



---



##### 



METSO

Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

Note 1. Accounting Principles

Description of businesses

Metso is a multinational engineering company, which designs, develops and
produces systems, automation solutions, machinery and equipment for process
industries. The main customer industries are the pulp and paper, mining,
construction and civil engineering as well as energy and chemical industries.
Metsos operations are divided into four business areas: Metso Paper, Metso
Minerals, Metso Automation and Metso Ventures. Metso Ventures is comprised of
Metso Panelboard, Metso Drives, Metso Powdermet and Valmet Automotive. As of
March 2002, Metso Panelboard has been transferred from Metso Paper to be
reported under Metso Ventures. In November 2002, Metso announced its plan to
dispose of Converting Equipment, which has been part of Metso Paper.
Accordingly Converting Equipment is reported separate of Metso Paper.

Basis of presentation

The consolidated financial statements, prepared in accordance with Finnish
generally accepted accounting principles (Finnish GAAP), include the
financial statements of Metso Corporation (the Parent Company) and its
subsidiaries (together, Metso). Metso Corporation was formed in 1999 as a
result of the merger of Rauma Corporation (Rauma) and Valmet Corporation
(Valmet). The merger was consummated on July 1, 1999 and is accounted for by
the pooling of interest method.

The financial statements are presented in millions of euros (), except
for share and per share amounts.

Solely for the convenience of the reader, the consolidated financial
statements as of and for the year ended December 31, 2002, have been translated
into U.S. dollars (USD) using the December 31, 2002 Noon Buying Rate of the
Federal Reserve Bank of New York of 1.00 = USD 1.0485 (USD 1.00 = 0.9538).
The translation should not be construed as a representation that the amounts
shown could be converted into USD at that rate.

Use of estimates

The preparation of financial statements, in conformity with Finnish GAAP,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

Accounting convention

The financial statements are prepared under the historical cost
convention.

Principles of consolidation

The consolidated financial statements include the accounts of the Parent
Company and each of those companies in which it owns, directly or indirectly
through subsidiaries, over 50 percent of the voting rights. The companies
acquired during the financial period have been consolidated from the date the
responsibility for their operations was transferred to Metso. Subsidiaries sold
have been included up to their date of sale.

All intercompany transactions are eliminated as part of the consolidation
process. Minority interests are presented separately before net income. They
are also shown separately from shareholders equity and liabilities on the
consolidated balance sheets.

F-10



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Acquisitions of companies are accounted for by using the purchase method.
Goodwill represents the excess of the purchase cost over the fair value of the
net assets of the acquired companies. The excess of purchase price is allocated
to fixed assets, which are depreciated over their useful lives. Goodwill
arising from acquisitions is amortized over a period not to exceed twenty
years. Deferred credit (negative goodwill) represents the excess of net assets
of acquired companies over the purchase cost. Deferred credit arising from
acquisitions is allocated to reduce the acquired fixed assets.

The equity method of accounting is used for investments in associated
companies in which the investment provides Metso with the ability to exercise
significant influence over operating and financial policies of the investee
company. Such influence is presumed to exist for investments in companies in
which Metsos direct or indirect ownership is between 20 and 50 percent. Under
the equity method, the share of profits and losses of associated companies is
included in the consolidated statements of income. The share of result of the
associated companies, the activity of which is closely connected with the
business areas of Metso, is recorded in other income and expenses, net. Metsos
share of post-acquisition retained profits and losses of associated companies
is reported as part of investments in associated companies in the consolidated
balance sheets.

Other shareholdings and securities (voting rights less than 20 percent)
are stated at cost and dividends received are included in the statements of
income; a write down is made where it is deemed necessary to reduce the cost to
estimated net realizable value.

Foreign currency translation

Transactions in foreign currencies are recorded at the rates of exchange
prevailing at the date of the transactions. At the end of the accounting
period, unsettled foreign currency transaction balances are valued at the rates
of exchange prevailing at the balance sheet date. Trade flow related foreign
currency exchange gains and losses are treated as adjustments to sales and
purchases. Foreign exchange gains and losses associated with financing are
entered as a net amount under financial income and expenses.

The statements of income of foreign subsidiaries (i.e., outside the Euro
area) are translated into euro at the average exchange rates for the financial
year and the balance sheets are translated at the exchange rate of the balance
sheet date. The resulting translation differences are recorded directly to
equity. When Metso hedges the equity of its foreign subsidiaries with foreign
currency loans and financial derivatives, the translation difference is
adjusted by the currency effect of hedging instruments and recorded in equity,
net of taxes.

Derivative financial instruments

Metso uses a variety of derivative financial instruments, mainly forward
exchange contracts, and a limited number of interest rate, currency and
cross-currency swaps as well as currency options, as part of an overall risk
management policy. These instruments are used to reduce the foreign currency
and interest rate risks relating to existing assets, liabilities and firm
commitments. In some cases, derivative financial instruments may be used to
mitigate foreign currency denominated cash flow risks arising from business
acquisitions.

Metso does not hold nor issue derivative financial instruments for trading
purposes.

Metso uses principally forward exchange contracts to hedge the currency
risk on certain commercial assets (receivables), liabilities (payables) and
firm commitments (orders). The derivatives are designated at inception as a
hedge with respect to the hedged item or group of items with similar
characteristics. If a derivative has been contracted to close or reduce net
exposure to a certain currency or group of currencies, it is fair valued
quarterly and the arising variation in fair values is recognized in the
consolidated statements of income.

Metso hedges its net foreign investments in certain currencies to reduce
the effect of exchange rate fluctuations. The hedging instruments are mainly
foreign currency loans and forward exchange contracts, and to some extent
cross-currency swaps. Both realized and unrealized exchange gains and losses
measured on these instruments are recorded, net of taxes, in a separate
component of equity against the translation differences arising from
consolidation.

F-11



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Currency and cross-currency swaps are used to hedge foreign currency
denominated loans. The translation differences arising from the derivative
instruments are recorded concurrently with the translation difference of the
underlying loans.

When derivative instruments have been used to mitigate the foreign
currency fluctuation arising from business acquisitions, the instruments are
fair valued and the respective change is charged to income.

Metsos exposure to interest rate risk, arising from interest bearing
receivables and loans, is managed through interest rate swaps and interest rate
futures. The net of interest payable and receivable on the swaps is accrued and
recorded in interest and other financial expenses to match the interest
income/expense on the related underlying hedged items. Realized gains and
losses occurring from early termination of contracts are recorded in income
over the remaining period of the original swap agreement.

If the interest leg of a cross-currency swap or an interest swap has not
been designated as a hedge of an underlying item at its inception, the interest
portion of the swaps is fair valued quarterly. Interest rate futures are fair
valued quarterly and the change in fair value is recognized in financial income
and expenses, net.

Other long-term investments

Marketable debt securities, e.g. bonds, commercial papers and time
deposits are included in other long-term investments when their maturity, at
the time of their inception, exceeds one year. The unrealized gains on
marketable securities are deferred and recognized in income only at disposal or
at maturity.

Revenue recognition

Completed contract  method: Revenues from goods and services sold are
recognized, net of sales taxes, discounts and foreign exchange differences,
when substantially all the risks and rewards of ownership are transferred to
the buyer or when legal title of the goods and responsibility for shipment has
transferred to the buyer. The transfer of risk takes place either when the
goods are shipped or made available to the buyer for shipment, depending on the
delivery clause of the contract. The credit worthiness of the buyer is verified
before engaging into a sale. However, should a risk of non-payment arise after
revenue recognition an adequate provision for non-collectibility is
established.

Percentage of completion  method: Sales and anticipated profits under
significant long-term engineering and construction contracts are recorded on a
percentage-of-completion basis, using either units of delivery (based on
predetermined milestones) or cost-to-cost method of accounting as the
measurement basis. Estimated contract profits are recorded in earnings in
proportion to recorded sales. In cost-to-cost method, sales and profits are
recorded after considering the ratio of accumulated costs to estimated total
costs to complete each contract. In certain cases, subcontractor materials,
labor and equipment are included in sales and costs of goods sold when
management believes that Metso is responsible for the ultimate acceptability of
the project. Changes to total estimated contract costs and losses, if any, are
recognized in the period in which they are determined.

Trade-ins: Sales, against which trade-ins are accepted, are recorded at
contract price. The difference between the trade-in allowance and the recorded
value of the inventory received is recognized in cost of goods sold.

Research and development

Research and development costs are expensed as incurred.

Maintenance, repair and renewals

Maintenance, repairs and renewals are generally charged to expense as
incurred. However, major betterments are capitalized and depreciated over their
expected useful lives.

Pensions and coverage of pension liabilities

The pension coverage of personnel working for Metso in Finland is mainly
insured by payments made

F-12



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)

to pension insurance companies and, to some extent, by an internal Pension
Fund. The Fund has been closed to new employees since 1987. On December 29,
2000, the accumulated pension liability of the Fund was transferred to an
external insurance company and the Fund was wound up during the year 2001.

The companies within Metso have various pension schemes in accordance with
the local conditions and practices in the countries in which they operate. The
schemes are generally funded through payments to insurance companies or to
trustee-administered funds as determined by periodic actuarial calculations.
Metso has met minimum funding requirements for the countries in which it
maintains pension schemes. Metsos contributions to defined contribution
plans and to multi-employer and insured plans are charged to the income
statement concurrently with the payment obligations.

Fixed assets and long-term investments

Intangible and tangible assets are stated at cost, less accumulated
depreciation. Land and water areas are not depreciated.

Depreciation and amortization is calculated on a straight-line basis over
the expected useful lives of the assets as follows:

|                                                 |  |             |  | 
|------------------------------------------------ |  | ----------- |  | 
|Buildings                                        |  | 15-40 years
|Machinery and equipment                          |  | 3-20 years 
|Other tangible assets                            |  | 5-20 years 
|Intangibles, other than goodwill and trade names |  | 3-12 years 
|Trade names                                      |  | 20 years   
|Goodwill                                         |  | 5-20 years 

Impairments on fixed assets and capital gains and losses on the disposal
are included in operating profit (loss) or in extraordinary items depending on
the nature of the event. Goodwill arising from strategic business acquisitions
with far reaching benefits to the core businesses is amortized in 20 years.

Metso reviews long-lived assets and certain intangibles to be held and
used by the company for impairment whenever events and changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When such
events or changes in circumstances indicate that an asset may not be
recoverable, Metso estimates the future cash flows expected to result from the
use of the asset and its eventual disposal. If the sum of such expected future
cash flows (undiscounted and without interest charge) is less than the carrying
amount of the asset, an impairment loss is recognized in an amount by which the
assets net book value exceeds its fair market value. For purposes of assessing
impairment, assets are to be grouped at the lowest level for which there are
separately identifiable cash flows.

The carrying value of goodwill for each business area is reviewed annually
or, more frequently, if the facts and circumstances, such as declines in sales,
operating profit or cash flows or material adverse changes in the business
climate, suggest that its carrying value may not be recoverable. Metso uses
discounted future cash flow analysis to assess whether the carrying value of
goodwill exceeds its fair value.

Capitalization of interest expenses

The interest expenses of self-constructed investments are capitalized in
Metsos financial statements. The capitalized interest expense is amortized
over the estimated useful life of the underlying asset.

Revaluation of fixed assets

Fixed assets are stated at historical acquisition price reduced by annual
depreciation, their revaluation is not allowed.

Leasing

Rental expenses for operational leases are expensed as incurred.
Acquisitions of property and

F-13



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

equipment under capital leasing are recorded in fixed assets and
depreciated over their expected useful lives.

Own shares (treasury stock)

The own shares held by Metso are valued at reacquisition price in a
separate caption under financial assets. The own shares have been deducted from
the number of shares outstanding and the share capital for the calculation of
per share and other performance related indicators.

Cash and cash equivalents

Cash and cash equivalents consist of cash in banks and other liquid
investments with original maturity of ninety days or less.

Inventories

Inventories are stated at the lower of historical cost calculated on an
average cost basis or net realizable value. Historical costs include purchase
costs as well as transportation and processing costs. The costs of finished
goods include direct materials, wages and salaries plus social costs,
subcontracting and other direct costs. In addition, production costs include an
allocable portion of production and project administration overheads. Net
realizable value is the estimated amount that can be realized from the sale of
the asset in the normal course of business after allowing for the costs of
realization.

Inventories are shown net of a reserve for obsolete and slow-moving
inventories. A reserve is established and a corresponding charge is taken to
income in the period in which the loss occurs based upon an assessment of
technological obsolescence, turnover and related factors.

Trade-in equipment received is recorded as inventory at the lower of cost
or net realizable value reduced by a reasonable sales margin.

Nonrecurring operating income and expenses

Nonrecurring operating income and expenses include significant
restructuring and reorganizing costs related to ongoing businesses and other
major one-time operating income and expenses.

Extraordinary items

Extraordinary items, net of taxes, include significant income and expenses
not resulting from ordinary course of business operations.

Equity share of untaxed reserves

In Finland and certain other countries, companies are permitted to reduce
or increase taxable income adjustments to untaxed reserve accounts, provided
that such amounts are reflected in the companys financial statements. Such
amounts are included, net of taxes, in other shareholders equity in the
consolidated accounts.

Warranty

An accrual is made for expected warranty costs. The adequacy of this
accrual is reviewed periodically based on historical analysis.

Income taxes

Income taxes presented in the income statement consist of current and
deferred taxes. Current taxes include estimated taxes corresponding to the
results for the financial year of the companies and, adjustments of taxes for
previous years.

A deferred tax liability or asset has been determined for all temporary
differences between the tax bases of assets and liabilities and their amounts
in financial reporting, using the enacted tax rates effective for

F-14



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)

the future years. The deferred tax liabilities are recognized in the
balance sheet in full, and the deferred tax assets at their estimated
realizable amounts. Deferred tax assets are reduced by a valuation allowance
if, based on the weight of available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be realized

No deferred tax liability has been recognized for undistributed earnings
of domestic subsidiaries (i.e., Finnish) since such earnings can be transferred
to the Parent Company without tax consequences. Metso does not provide deferred
income taxes on undistributed earnings of foreign subsidiaries, except in
situations where Metso has elected to distribute earnings of foreign
subsidiaries.

Earnings per share

Earnings per share is based on income before extraordinary items and
income taxes adjusted for minority interests and taxes related to normal
business operations. The amount is divided by the weighted average number of
shares outstanding during each period. The average number of own shares has
been deducted from the number of outstanding shares.

The diluted earnings per share have been computed by applying the
treasury stock method, under which earnings per share data is computed as if
the warrants and options were exercised at the beginning of the period, or on
the issuance of if later, and as if the funds obtained thereby were used to
purchase common stock at the average market price during the period. In
addition to the weighted average number of shares outstanding, the denominator
includes the incremental shares obtained through the assumed exercise of the
warrants and options.

The assumption of exercise is not reflected in earnings per share
calculation when the exercise price of the warrants and options exceeds the
average market price of the common stock during the period. The warrants and
options have a dilutive effect only when the average market price of the common
stock during the period exceeds the exercise price of the warrants and options.

F-15



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Note 2. Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of the following:

|                                  |  |                         |     |      |  |      |     |   |  |  |       |  
|--------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | ----- | -
|                                  |  | Year ended December 31,
|                                  |  |                        
|                                  |  | 2000                    |     | 2001 |  | 2002
|                                  |  |                         |     |      |  |     
|                                  |  |                        |     |     |  |    
|Marketing and selling expenses    |  |                         | 381 |      |  |      | 425 |   |  |  | 548   |  
|Research and development expenses |  |                         | 123 |      |  |      | 137 |   |  |  | 146   |  
|Administrative expenses           |  |                         | 289 |      |  |      | 315 |   |  |  | 341   |  
|Other income                      |  |                         | (15 | )    |  |      | (15 | ) |  |  | (26   | )
|Other expenses                    |  |                         | 15  |      |  |      | 11  |   |  |  | 6     |  
|                                  |  |                         |     |      |  |      |     |   |  |  |       |  
|Total                             |  |                         | 793 |      |  |      | 873 |   |  |  | 1,015 |  
|                                  |  |                         |     |      |  |      |     |   |  |  |       |  

Note 3. Personnel Expenses and Number of Personnel

Information regarding personnel expenses and number of personnel is as
follows:

|                                                                                         |  |                         |       |      |  |      |       |  |  |  |       | 
|---------------------------------------------------------------------------------------- |  | ----------------------- | ----- | ---- |  | ---- | ----- |  |  |  | ----- | 
|                                                                                         |  | Year ended December 31,
|                                                                                         |  |                        
|                                                                                         |  | 2000                    |       | 2001 |  | 2002
|                                                                                         |  |                         |       |      |  |     
|                                                                                         |  |                        |       |     |  |    
|Salaries to the members of Boards of
Directors and managing directors of
group companies |  |                         | 12    |      |  |      | 12    |  |  |  | 14    | 
|Other wages and salaries                                                                 |  |                         | 825   |      |  |      | 924   |  |  |  | 1,062 | 
|Pension costs                                                                            |  |                         | 81    |      |  |      | 99    |  |  |  | 112   | 
|Other indirect employee costs                                                            |  |                         | 135   |      |  |      | 156   |  |  |  | 183   | 
|                                                                                         |  |                         |       |      |  |      |       |  |  |  |       | 
|Total                                                                                    |  |                         | 1,053 |      |  |      | 1,191 |  |  |  | 1,371 | 
|                                                                                         |  |                         |       |      |  |      |       |  |  |  |       | 

|                          |  |                         |        |      |  |      |        |  |  |  |        | 
|------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                          |  | Year ended December 31,
|                          |  |                        
|                          |  | 2000                    |        | 2001 |  | 2002
|                          |  |                         |        |      |  |     
|Number of personnel:      |  |                         |        |      |  |      |        |  |  |  |        | 
|Personnel, average        |  |                         | 22,372 |      |  |      | 25,613 |  |  |  | 29,258 | 
|Personnel, at end of year |  |                         | 22,024 |      |  |      | 30,242 |  |  |  | 28,489 | 

Note 4. Nonrecurring Operating Income and Expenses

Nonrecurring operating income and expenses consist of the following:

F-16



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)



|                                                |                        |  |                         |    |      |  |      |     |   |  |     |     |  
|----------------------------------------------- | ---------------------- |  | ----------------------- | -- | ---- |  | ---- | --- | - |  | --- | --- | -
|                                                |                        |  | Year ended December 31,
|                                                |                        |  |                        
|                                                |                        |  | 2000                    |    | 2001 |  | 2002
|                                                |                        |  |                         |    |      |  |     
|                                                |                        |  |                        |    |     |  |    
|Pension refunds of Swedish subsidiaries         |                        |  |                         |    |      |  |      |     |   |  |     |    
|                                                | Metso Paper            |  |                         | 11 |      |  |      |    |   |  |     |    |  
|                                                | Metso Minerals         |  |                         | 0  |      |  |      |    |   |  |     |    |  
|                                                | Metso Automation       |  |                         | 1  |      |  |      |    |   |  |     |    |  
|                                                | Metso Ventures         |  |                         | 2  |      |  |      |    |   |  |     |    |  
|Gain on sale of listed and other shares         |                        |  |                         |    |      |  |      |     |   |  |     |    
|                                                | Metso Ventures         |  |                         |   |      |  |      |    |   |  |     | 1   |  
|                                                | Headquarters and other |  |                         | 11 |      |  |      | 47  |   |  |     | 7   |  
|                                                |                        |  |                         |    |      |  |      |     |   |  |     |    
|Nonrecurring operating income                   |                        |  | 25                      |    |      |  | 47   |     |   |  | 8   |    
|Restructuring expenses                          |                        |  |                         |    |      |  |      |     |   |  |     |    
|                                                | Metso Paper            |  |                         |   |      |  |      | (15 | ) |  |     | (6  | )
|                                                | Metso Minerals         |  |                         |   |      |  |      | (13 | ) |  |     | (10 | )
|                                                | Metso Automation       |  |                         |   |      |  |      | (8  | ) |  |     | (3  | )
|                                                | Metso Ventures         |  |                         | (7 | )    |  |      |    |   |  |     | (8  | )
|                                                | Converting Equipment   |  |                         |   |      |  |      |    |   |  |     | (1  | )
|Other expenses                                  |                        |  |                         |    |      |  |      |     |   |  |     |    
|                                                | Metso Minerals         |  |                         |   |      |  |      | (3  | ) |  |     | (3  | )
|                                                | Headquarters and other |  |                         |   |      |  |      | (4  | ) |  |     |    |  
|                                                | Converting Equipment   |  |                         |   |      |  |      |    |   |  |     | (4  | )
|                                                |                        |  |                         |    |      |  |      |     |   |  |     |    
|Nonrecurring operating expenses                 |                        |  | (7                      | )  |      |  | (43  | )   |   |  | (35 | )  
|Nonrecurring operating income and expenses, net |                        |  | 18                      |    |      |  | 4    |     |   |  | (27 | )  
|                                                |                        |  |                         |    |      |  |      |     |   |  |     |    

Gain on sale of listed and other shares included gain on disposal of
listed companies of 11, 37 and 7 for the years ended December 31, 2000,
December 31, 2001, and December 31, 2002, respectively.

Restructuring expenses consist of both paid and accrued expenses related
to the restructuring of business operations. For the year ended December 31,
2000, restructuring expenses of 7 consisted of reorganizing Metso Ventures
Panelboard Technology operations in Germany.

For the year ended December 31, 2001, Metso Papers expenses of 15
consisted of reorganizing operations in the United States and in Sweden. Metso
Automations expenses amounted to 8 and related to reorganizing operations in
the United States. Metso Minerals expenses, 13, consisted of Metso Minerals
restructuring and integration measures worldwide and included 7 of
restructuring expenses related to the acquisition of Svedala.

For the year ended December 31, 2002, the restructuring expenses comprised
10, of which 4 related to Svedala acquisition, of employee and exit costs of
Metso Minerals operations in Europe and in North and South America. The target
has been to reduce the excess production capacity and to close down duplicate
sales structures. The streamlining of Metso Papers North American and Swedish
operations continued in the year ended December 31, 2002, with exit costs
amounting to 6. Concurrently with Metso Papers reorganization, Converting
Equipment recognized 1 of exit costs in North America. Restructuring costs of
3 recognized by Metso Automation relate to restructuring of operations to
enhance the refocused business strategy. The Panelboard Technology recognized
8 of costs resulting from transfer of operations in Germany to Finland. In the
year ended December 31, 2002, the total number of personnel concerned by the
restructuring measures was 588 of which 253 worked for the acquired Svedala
companies. The terminated personnel groups have included both blue and white
collar employees. The restructuring costs related to acquired Svedala companies
have been recognized in the acquisition balance sheet.

For the years ended December 31, 2001 and 2002, respectively, other
expenses comprised of 4 for extending the use of the Metso name to business
operations and of additional one-time inventory write-off of 4

F-17



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)



in Converting Equipment. For the years ended December 31, 2001 and 2002,
respectively, the caption includes, in both financial years, costs of 3 in
Metso Minerals for integration projects, initiated before the acquisition of
Svedala, and which continued through out the year 2002.

Note 5. Depreciation and Amortization

Depreciation and amortization expenses consist of the following:

|                  |                         |  |                         |     |      |  |      |     |  |  |  |     | 
|----------------- | ----------------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                  |                         |  | Year ended December 31,
|                  |                         |  |                        
|                  |                         |  | 2000                    |     | 2001 |  | 2002
|                  |                         |  |                         |     |      |  |     
|                  |                         |  |                        |     |     |  |    
|Intangible assets |                         |  |                         |     |      |  |      |     |  |  |  |    
|                  | Goodwill                |  |                         | 15  |      |  |      | 28  |  |  |  | 57  | 
|                  | Other intangible assets |  |                         | 10  |      |  |      | 16  |  |  |  | 19  | 
|Tangible assets   |                         |  |                         |     |      |  |      |     |  |  |  |    
|                  | Buildings               |  |                         | 19  |      |  |      | 22  |  |  |  | 26  | 
|                  | Machinery and equipment |  |                         | 79  |      |  |      | 77  |  |  |  | 87  | 
|                  | Other tangible assets   |  |                         | 5   |      |  |      | 6   |  |  |  | 8   | 
|                  |                         |  |                         |     |      |  |      |     |  |  |  |    
|                  | Total                   |  |                         | 128 |      |  |      | 149 |  |  |  | 197 | 
|                  |                         |  |                         |     |      |  |      |     |  |  |  |    

Depreciation and amortization charged against operations by activity are
as follows:

|                                               |                          |  |                         |     |      |  |      |     |  |  |    |     | 
|---------------------------------------------- | ------------------------ |  | ----------------------- | --- | ---- |  | ---- | --- |  |  | -- | --- | 
|                                               |                          |  | Year ended December 31,
|                                               |                          |  |                        
|                                               |                          |  | 2000                    |     | 2001 |  | 2002
|                                               |                          |  |                         |     |      |  |     
|                                               |                          |  |                        |     |     |  |    
|Cost of goods sold                             |                          |  | 73                      |     |      |  | 77   |     |  |  | 83 |    
|Marketing, selling and administrative expenses |                          |  |                         |     |      |  |      |     |  |  |    |    
|                                               | Marketing and selling    |  |                         | 8   |      |  |      | 7   |  |  |    | 12  | 
|                                               | Research and development |  |                         | 13  |      |  |      | 9   |  |  |    | 11  | 
|                                               | Administrative           |  |                         | 19  |      |  |      | 28  |  |  |    | 34  | 
|Goodwill                                       |                          |  | 15                      |     |      |  | 28   |     |  |  | 57 |    
|                                               |                          |  |                         |     |      |  |      |     |  |  |    |    
|                                               | Total                    |  |                         | 128 |      |  |      | 149 |  |  |    | 197 | 
|                                               |                          |  |                         |     |      |  |      |     |  |  |    |    

Note 6. Financial Income and Expenses, net

The following table provides a summary of financial income and expenses:

|                                      |  |                         |     |      |  |      |     |   |  |  |     |  
|------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                      |  | Year ended December 31,
|                                      |  |                        
|                                      |  | 2000                    |     | 2001 |  | 2002
|                                      |  |                         |     |      |  |     
|                                      |  |                        |     |     |  |    
|Financial income                      |  |                         |     |      |  |      |     |   |  |  |     |  
|Dividends received                    |  |                         | 12  |      |  |      | 12  |   |  |  | 7   |  
|Interest income                       |  |                         | 21  |      |  |      | 24  |   |  |  | 11  |  
|Other financial income                |  |                         | 2   |      |  |      | 3   |   |  |  | 3   |  
|Net gain (loss) from foreign exchange |  |                         | 0   |      |  |      | 2   |   |  |  | (4  | )
|                                      |  |                         |     |      |  |      |     |   |  |  |     |  
|Financial income total                |  |                         | 35  |      |  |      | 41  |   |  |  | 17  |  
|Financial expenses                   
|Interest expenses                     |  |                         | (47 | )    |  |      | (53 | ) |  |  | (87 | )
|Other financial expenses              |  |                         | (8  | )    |  |      | (12 | ) |  |  | (4  | )
|                                      |  |                         |     |      |  |      |     |   |  |  |     |  
|Financial expenses total              |  |                         | (55 | )    |  |      | (65 | ) |  |  | (91 | )
|                                      |  |                         |     |      |  |      |     |   |  |  |     |  
|Financial income and expenses, net    |  |                         | (20 | )    |  |      | (24 | ) |  |  | (74 | )
|                                      |  |                         |     |      |  |      |     |   |  |  |     |  

As at December 31, 2001, other financial expenses include 5 in expenses
related to the temporary

F-18



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)

financing of the Svedala acquisition.

Note 7. Investments in Associated Companies

In addition to information provided below for investments in associated
companies, see also note 14.

|                                                    |  |                         |    |      |  |      |    |  |  |  |    | 
|--------------------------------------------------- |  | ----------------------- | -- | ---- |  | ---- | -- |  |  |  | -- | 
|                                                    |  | Year ended December 31,
|                                                    |  |                        
|                                                    |  | 2000                    |    | 2001 |  | 2002
|                                                    |  |                         |    |      |  |     
|                                                    |  |                        |    |     |  |    
|Dividends received                                  |  |                         | 0  |      |  |      | 0  |  |  |  | 0  | 
|Share of profits or losses in associated companies  |  |                         | 0  |      |  |      | 0  |  |  |  | 1  | 
|Equity value of investments in associated companies |  |                         | 14 |      |  |      | 14 |  |  |  | 14 | 

Note 8. Extraordinary Income and Expenses

The following extraordinary income and expenses include significant
transactions considered outside the normal course of business and the effects
of changes in the accounting principles:

|                                                                         |                                                                                                    |  |                         |     |      |  |      |    |   |  |   |   | 
|------------------------------------------------------------------------ | -------------------------------------------------------------------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | -- | - |  | - | - | 
|                                                                         |                                                                                                    |  | Year ended December 31,
|                                                                         |                                                                                                    |  |                        
|                                                                         |                                                                                                    |  | 2000                    |     | 2001 |  | 2002
|                                                                         |                                                                                                    |  |                         |     |      |  |     
|                                                                         |                                                                                                    |  |                        |     |     |  |    
|Extraordinary income, net of taxes                                       |                                                                                                    |  |                         |     |      |  |      |    |   |  |   |  
|                                                                         | Capital gain on disposal of Timberjack                                                             |  |                         | 275 |      |  |      |   |   |  |   |  | 
|                                                                         |                                                                                                    |  |                         |     |      |  |      |    |   |  |   |  
|Extraordinary income, net of tax expense of 103                         |                                                                                                    |  | 275                     |     |      |  |     |    |   |  |  |  
|Extraordinary expenses, net of taxes                                     |                                                                                                    |  |                         |     |      |  |      |    |   |  |   |  
|                                                                         | Realized losses on currency derivatives caused by
a delay in the acquisition ofSvedala Industri AB |  |                         | (7  | )    |  |      |   |   |  |   |  | 
|                                                                         | Inventory adjustment in Metso Drives German operations                                            |  |                         |    |      |  |      | (3 | ) |  |   |  | 
|                                                                         | Accounting adjustments in Metso Automations US operations                                         |  |                         |    |      |  |      | (5 | ) |  |   |  | 
|                                                                         |                                                                                                    |  |                         |     |      |  |      |    |   |  |   |  
|Extraordinary expenses, net of tax benefit of 3 and of 3,
respectively |                                                                                                    |  | (7                      | )   |      |  | (8   | )  |   |  |  |  
|Extraordinary income and expenses, net of taxes                          |                                                                                                    |  | 268                     |     |      |  | (8   | )  |   |  |  |  
|                                                                         |                                                                                                    |  |                         |     |      |  |      |    |   |  |   |  

Note 9. Income Taxes

The domestic and foreign components of income (loss) before extraordinary
items and income taxes are as follows:

|                |  |                         |     |      |  |      |     |  |  |  |     |  
|--------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  |  | --- | -
|                |  | Year ended December 31,
|                |  |                        
|                |  | 2000                    |     | 2001 |  | 2002
|                |  |                         |     |      |  |     
|                |  |                        |     |     |  |    
|Finland         |  |                         | 92  |      |  |      | 208 |  |  |  | 103 |  
|Other countries |  |                         | 88  |      |  |      | 14  |  |  |  | (10 | )
|                |  |                         |     |      |  |      |     |  |  |  |     |  
|Total           |  |                         | 180 |      |  |      | 222 |  |  |  | 93  |  
|                |  |                         |     |      |  |      |     |  |  |  |     |  

F-19



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

The components of income taxes are as follows:

|                                  |  |                         |     |      |  |      |     |   |  |  |     |  
|--------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|                                  |  | Year ended December 31,
|                                  |  |                        
|                                  |  | 2000                    |     | 2001 |  | 2002
|                                  |  |                         |     |      |  |     
|                                  |  |                        |     |     |  |    
|Current taxes                     |  |                         |     |      |  |      |     |   |  |  |     |  
|Finland                           |  |                         | 28  |      |  |      | 50  |   |  |  | (18 | )
|Other countries                   |  |                         | 13  |      |  |      | 23  |   |  |  | 17  |  
|                                  |  |                         |     |      |  |      |     |   |  |  |     |  
|                                  |  |                         | 41  |      |  |      | 73  |   |  |  | (1  | )
|Deferred taxes                    |  |                         |     |      |  |      |     |   |  |  |     |  
|Finland                           |  |                         | 3   |      |  |      | 10  |   |  |  | 22  |  
|Other countries                   |  |                         | 15  |      |  |      | (11 | ) |  |  | 5   |  
|                                  |  |                         |     |      |  |      |     |   |  |  |     |  
|                                  |  |                         | 18  |      |  |      | (1  | ) |  |  | 27  |  
|Current and deferred taxes        |  |                         | 59  |      |  |      | 72  |   |  |  | 26  |  
|Tax effect of extraordinary items |  |                         | 100 |      |  |      | (3  | ) |  |  |    |  
|                                  |  |                         |     |      |  |      |     |   |  |  |     |  
|Income taxes, total               |  |                         | 159 |      |  |      | 69  |   |  |  | 26  |  
|                                  |  |                         |     |      |  |      |     |   |  |  |     |  

The differences between income tax expense (benefit) computed at Finnish
statutory rate (29 percent) and income tax expense (benefit) provided on
earnings are as follows:

|                                                                                               |  |                         |     |      |  |      |    |   |  |  |     |  
|---------------------------------------------------------------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | -- | - |  |  | --- | -
|                                                                                               |  | Year ended December 31,
|                                                                                               |  |                        
|                                                                                               |  | 2000                    |     | 2001 |  | 2002
|                                                                                               |  |                         |     |      |  |     
|                                                                                               |  |                        |     |     |  |    
|Income tax expense (benefit) at Finnish statutory rate                                         |  |                         | 52  |      |  |      | 64 |   |  |  | 27  |  
|Income tax for prior years                                                                     |  |                         | (1  | )    |  |      | (7 | ) |  |  | (9  | )
|Write-down of subsidiary shares(1)                                                             |  |                         |    |      |  |      |   |   |  |  | (29 | )
|Temporary differences for which no deferred tax has been
provided                              |  |                         | 3   |      |  |      | (1 | ) |  |  | 2   |  
|Benefit of operating loss carryforwards                                                        |  |                         | (1  | )    |  |      | (3 | ) |  |  | (3  | )
|Amortization of goodwill                                                                       |  |                         | 2   |      |  |      | 4  |   |  |  | 16  |  
|Nontaxable income                                                                              |  |                         | (1  | )    |  |      | 0  |   |  |  | 0   |  
|Nondeductible expenses                                                                         |  |                         | 1   |      |  |      | 1  |   |  |  | 1   |  
|Taxes on foreign subsidiaries net income in excess of
income taxes at Finnish statutory rates |  |                         | 4   |      |  |      | 3  |   |  |  | 4   |  
|Operating losses with no current tax benefit(2)                                                |  |                         | 13  |      |  |      | 9  |   |  |  | 16  |  
|Effect of extraordinary items                                                                  |  |                         | 100 |      |  |      | (3 | ) |  |  |    |  
|Other                                                                                          |  |                         | (13 | )    |  |      | 2  |   |  |  | 1   |  
|                                                                                               |  |                         |     |      |  |      |    |   |  |  |     |  
|Income tax expense (benefit)                                                                   |  |                         | 159 |      |  |      | 69 |   |  |  | 26  |  
|                                                                                               |  |                         |     |      |  |      |    |   |  |  |     |  



---

|(1) |  | Write-down of subsidiary shares includes the impact of realized tax
benefit of 16 related to a write-down of subsidiary shares recorded in
1999 with a full valuation allowance. In addition, the amount includes
13 of tax benefit that relates to write-down of subsidiary shares
recorded in 2002.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Operating losses with no current tax benefit relates to current year
losses for which no deferred tax asset has been recognized.                                                                                                                                                                       

F-20



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

The components of net deferred tax asset (liability) consist of the
following:

|                                                    |  |                    |      |      |  |  |      |  
|--------------------------------------------------- |  | ------------------ | ---- | ---- |  |  | ---- | -
|                                                    |  | As at December 31,
|                                                    |  |                   
|                                                    |  | 2001               |      | 2002
|                                                    |  |                    |      |     
|                                                    |  |                   |      |    
|Non-current assets                                  |  |                    |      |      |  |  |      |  
|Tax losses carried forward                          |  |                    | 157  |      |  |  | 186  |  
|Provisions                                          |  |                    | 34   |      |  |  | 29   |  
|Other                                               |  |                    | 16   |      |  |  | 0    |  
|Valuation allowance                                 |  |                    | (104 | )    |  |  | (110 | )
|                                                    |  |                    |      |      |  |  |      |  
|                                                    |  |                    | 103  |      |  |  | 105  |  
|Current assets                                      |  |                    |      |      |  |  |      |  
|Intercompany profit in inventory                    |  |                    | 11   |      |  |  | 10   |  
|Provisions                                          |  |                    | 126  |      |  |  | 84   |  
|Valuation allowance                                 |  |                    | (1   | )    |  |  | 0    |  
|                                                    |  |                    |      |      |  |  |      |  
|                                                    |  |                    | 136  |      |  |  | 94   |  
|Current liabilities                                 |  |                    |      |      |  |  |      |  
|Inventories and other                               |  |                    | (24  | )    |  |  | (8   | )
|                                                    |  |                    |      |      |  |  |      |  
|Non-current liabilities                             |  |                    |      |      |  |  |      |  
|Accelerated depreciation and other untaxed reserves |  |                    | (34  | )    |  |  | (25  | )
|Other                                               |  |                    | (39  | )    |  |  | (93  | )
|                                                    |  |                    |      |      |  |  |      |  
|                                                    |  |                    | (73  | )    |  |  | (118 | )
|Deferred tax asset (liability), net                 |  |                    | 142  |      |  |  | 73   |  
|                                                    |  |                    |      |      |  |  |      |  

The change in the deferred tax asset includes 31 of deferred tax
liability as at December 31, 2002, which arises from allocation of the excess
of purchase consideration to fair values in the opening balance of Svedala
companies.

As at December 31, 2002, Metso had 548 of losses carried forward,
primarily attributable to foreign subsidiaries. New losses for the year ended
December 31, 2002, amounting to 262, increased the deferred tax asset on loss
carryforward by 38. Approximately 40 percent of the accumulated loss
carryforwards at December 31, 2002 have no expiration date, 10 percent expires
between years 2003 and 2011 and the remaining 50 percent between years 2012 and
2017.

The valuation allowance for the deferred tax asset has been as follows:

|                       |  |            |     |           |  |          |     |         |  |  |    |            |  |  |     | 
|---------------------- |  | ---------- | --- | --------- |  | -------- | --- | ------- |  |  | -- | ---------- |  |  | --- | 
|                       |  | Balance at |     |           |  |          |     |         |  |  |    | Balance at
|                       |  | Beginning  |     |           |  |          |     |         |  |  |    | End       
|                       |  | of Year    |     | Deduction |  | Increase |     | of Year
|                       |  |            |     |           |  |          |     |        
|                       |  |           |     |          |  |         |     |       
|2001                   |  |            |     |           |  |          |     |         |  |  |    |            |  |  |     | 
|Losses carried forward |  |            | 27  |           |  |          | (1  | )       |  |  | 62 |            |  |  | 88  | 
|Other                  |  |            | 16  |           |  |          | 0   |         |  |  | 1  |            |  |  | 17  | 
|                       |  |            |     |           |  |          |     |         |  |  |    |            |  |  |     | 
|Total                  |  |            | 43  |           |  |          | (1  | )       |  |  | 63 |            |  |  | 105 | 
|2002                   |  |            |     |           |  |          |     |         |  |  |    |            |  |  |     | 
|Losses carried forward |  |            | 88  |           |  |          | (34 | )       |  |  | 56 |            |  |  | 110 | 
|Other(1)               |  |            | 17  |           |  |          | (17 | )       |  |  | 0  |            |  |  | 0   | 
|                       |  |            |     |           |  |          |     |         |  |  |    |            |  |  |     | 
|Total                  |  |            | 105 |           |  |          | (51 | )       |  |  | 56 |            |  |  | 110 | 



---

|(1) |  | The deduction in the valuation allowance for 2002 includes 16, which
relates to a write-down on subsidiary shares that became tax deductible in
the 2002 taxation. The deferred tax asset was recorded in 1999 with a
full valuation allowance.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-21



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)

Note 10. Earnings per Share

Earnings per share is calculated as follows:

|                                                                                |  |                         |         |      |  |      |         |   |  |  |         |  
|------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  |  | ------- | -
|                                                                                |  | Year ended December 31,
|                                                                                |  |                        
|                                                                                |  | 2000                    |         | 2001 |  | 2002
|                                                                                |  |                         |         |      |  |     
|                                                                                |  |                        |         |     |  |    
|Income before extraordinary items and income taxes                              |  |                         | 180     |      |  |      | 222     |   |  |  | 93      |  
|Minority interests                                                              |  |                         | 0       |      |  |      | (1      | ) |  |  | (2      | )
|Taxes on ordinary business operations                                           |  |                         | (59     | )    |  |      | (72     | ) |  |  | (26     | )
|                                                                                |  |                         |         |      |  |      |         |   |  |  |         |  
|                                                                                |  |                         | 121     |      |  |      | 149     |   |  |  | 65      |  
|                                                                                |  |                         |         |      |  |      |         |   |  |  |         |  
|Weighted average number of shares issued and outstanding
(in thousands)         |  |                         | 135,364 |      |  |      | 136,135 |   |  |  | 136,190 |  
|Earnings per share                                                              |  |                         | 0.90    |      |  |      | 1.09    |   |  |  | 0.48    |  
|                                                                                |  |                         |         |      |  |      |         |   |  |  |         |  
|Weighted average number of diluted shares issued and outstanding
(in thousands) |  |                         | 135,518 |      |  |      | 136,135 |   |  |  | 136,190 |  
|Diluted earnings per share                                                      |  |                         | 0.90    |      |  |      | 1.09    |   |  |  | 0.48    |  
|                                                                                |  |                         |         |      |  |      |         |   |  |  |         |  

Note 11. Intangible and Tangible Assets

Intangible and tangible assets consist of the following:

|                                        |  |                         |       |      |  |  |       |  
|--------------------------------------- |  | ----------------------- | ----- | ---- |  |  | ----- | -
|                                        |  | Year ended December 31,
|                                        |  |                        
|                                        |  | 2001                    |       | 2002
|                                        |  |                         |       |     
|                                        |  |                        |       |    
|Goodwill                                |  |                         |       |      |  |  |       |  
|Acquisition cost at beginning of year   |  |                         | 380   |      |  |  | 1,252 |  
|Increases                               |  |                         | 895   |      |  |  | 21    |  
|Decreases                               |  |                         | (31   | )    |  |  | (101  | )
|Translation differences                 |  |                         | 8     |      |  |  | (35   | )
|Accumulated depreciation at end of year |  |                         | (215  | )    |  |  | (242  | )
|                                        |  |                         |       |      |  |  |       |  
|Net book value at end of year           |  |                         | 1,037 |      |  |  | 895   |  
|                                        |  |                         |       |      |  |  |       |  
|Other intangible assets                 |  |                         |       |      |  |  |       |  
|Acquisition cost at beginning of year   |  |                         | 101   |      |  |  | 130   |  
|Increases                               |  |                         | 36    |      |  |  | 81    |  
|Decreases                               |  |                         | (7    | )    |  |  | (6    | )
|Translation differences                 |  |                         | 0     |      |  |  | (3    | )
|Accumulated depreciation at end of year |  |                         | (73   | )    |  |  | (86   | )
|                                        |  |                         |       |      |  |  |       |  
|Net book value at end of year           |  |                         | 57    |      |  |  | 116   |  
|                                        |  |                         |       |      |  |  |       |  
|Land and water areas                    |  |                         |       |      |  |  |       |  
|Acquisition cost at beginning of year   |  |                         | 55    |      |  |  | 68    |  
|Increases                               |  |                         | 14    |      |  |  | 23    |  
|Decreases                               |  |                         | (1    | )    |  |  | (3    | )
|Translation differences                 |  |                         | 0     |      |  |  | (3    | )
|                                        |  |                         |       |      |  |  |       |  
|Net book value at end of year           |  |                         | 68    |      |  |  | 85    |  
|                                        |  |                         |       |      |  |  |       |  

F-22



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)

|                                        |  |                         |       |      |  |  |       |  
|--------------------------------------- |  | ----------------------- | ----- | ---- |  |  | ----- | -
|                                        |  | Year ended December 31,
|                                        |  |                        
|                                        |  | 2001                    |       | 2002
|                                        |  |                         |       |     
|                                        |  |                        |       |    
|Buildings                               |  |                         |       |      |  |  |       |  
|Acquisition cost at beginning of year   |  |                         | 425   |      |  |  | 576   |  
|Increases                               |  |                         | 164   |      |  |  | 82    |  
|Decreases                               |  |                         | (16   | )    |  |  | (30   | )
|Translation differences                 |  |                         | 3     |      |  |  | (29   | )
|Accumulated depreciation at end of year |  |                         | (236  | )    |  |  | (249  | )
|                                        |  |                         |       |      |  |  |       |  
|Net book value at end of year           |  |                         | 340   |      |  |  | 350   |  
|                                        |  |                         |       |      |  |  |       |  
|Machinery and equipment                 |  |                         |       |      |  |  |       |  
|Acquisition cost at beginning of year   |  |                         | 1,013 |      |  |  | 1,383 |  
|Increases                               |  |                         | 439   |      |  |  | 85    |  
|Decreases                               |  |                         | (70   | )    |  |  | (113  | )
|Translation differences                 |  |                         | 1     |      |  |  | (62   | )
|Accumulated depreciation at end of year |  |                         | (996  | )    |  |  | (950  | )
|                                        |  |                         |       |      |  |  |       |  
|Net book value at end of year           |  |                         | 387   |      |  |  | 343   |  
|                                        |  |                         |       |      |  |  |       |  
|Other tangible assets                   |  |                         |       |      |  |  |       |  
|Acquisition cost at beginning of year   |  |                         | 77    |      |  |  | 88    |  
|Increases                               |  |                         | 25    |      |  |  | 16    |  
|Decreases                               |  |                         | (15   | )    |  |  | (6    | )
|Translation differences                 |  |                         | 1     |      |  |  | (5    | )
|Accumulated depreciation at end of year |  |                         | (56   | )    |  |  | (62   | )
|                                        |  |                         |       |      |  |  |       |  
|Net book value at end of year           |  |                         | 32    |      |  |  | 31    |  
|                                        |  |                         |       |      |  |  |       |  
|Assets under construction               |  |                         |       |      |  |  |       |  
|Acquisition cost at beginning of year   |  |                         | 55    |      |  |  | 59    |  
|Increases                               |  |                         | 39    |      |  |  | 54    |  
|Decreases                               |  |                         | (35   | )    |  |  | (30   | )
|Translation differences                 |  |                         | (0    | )    |  |  | (1    | )
|                                        |  |                         |       |      |  |  |       |  
|Net book value at end of year           |  |                         | 59    |      |  |  | 82    |  
|                                        |  |                         |       |      |  |  |       |  

Note 12. Capitalization of Interest Expenses

The capitalized interest expenses consist of the following:

|                                             |  |                         |    |      |  |  |    |  
|-------------------------------------------- |  | ----------------------- | -- | ---- |  |  | -- | -
|                                             |  | Year ended December 31,
|                                             |  |                        
|                                             |  | 2001                    |    | 2002
|                                             |  |                         |    |     
|                                             |  |                        |    |    
|Net capitalized interest, beginning of year  |  |                         | 5  |      |  |  | 4  |  
|Amortization of capitalized interest expense |  |                         | (1 | )    |  |  | (1 | )
|                                             |  |                         |    |      |  |  |    |  
|Net capitalized interest, end of year        |  |                         | 4  |      |  |  | 3  |  
|                                             |  |                         |    |      |  |  |    |  

Note 13. Purchase accounting: acquisition of Svedala

The goodwill arising from the acquisition of Svedala consists of the
following:

F-23



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

|                                                                                   |  |   |     |  
|---------------------------------------------------------------------------------- |  | - | --- | -
|                                                                                   |  | 
|                                                                                   |  |  
|Purchase price of the shares                                                       |  |   | 943 |  
|Net assets of Svedala including capitalized costs in acquisition balance sheet     |  |   | (95 | )
|                                                                                   |  |   |     |  
|Excess of purchase consideration over the book value of net assets acquired        |  |   | 848 |  
|Allocation of fair values exceeding book values net of deferred tax expense of 33 |  |   | (81 | )
|                                                                                   |  |   |     |  
|Final goodwill at acquisition                                                      |  |   | 767 |  
|                                                                                   |  |   |     |  

Allocation of fair values

The fair values exceeding book values of the acquisition balance sheet
were allocated to fixed assets as follows:

|                  |                         |  |        |    |        |  |        |     |   |  |    |    | 
|----------------- | ----------------------- |  | ------ | -- | ------ |  | ------ | --- | - |  | -- | -- | 
|                  |                         |  | Gross  |    | Tax    |  | Net   
|                  |                         |  | amount |    | effect |  | amount
|                  |                         |  |        |    |        |  |       
|                  |                         |  |       |    |       |  |      
|Intangible assets |                         |  |        |    |        |  |        |     |   |  |    |   
|                  | Trademarks              |  |        | 58 |        |  |        | (17 | ) |  |    | 41 | 
|                  | Patents                 |  |        | 7  |        |  |        | (2  | ) |  |    | 5  | 
|Tangible assets   |                         |  |        |    |        |  |        |     |   |  |    |   
|                  | Land areas              |  |        | 13 |        |  |        | (4  | ) |  |    | 9  | 
|                  | Buildings               |  |        | 21 |        |  |        | (6  | ) |  |    | 15 | 
|                  | Machinery and Equipment |  |        | 15 |        |  |        | (4  | ) |  |    | 11 | 
|                  |                         |  |        |    |        |  |        |     |   |  |    |   
|Total             |                         |  | 114    |    |        |  | (33    | )   |   |  | 81 |   
|                  |                         |  |        |    |        |  |        |     |   |  |    |   

Total nonrecurring expenses resulting from the Svedala acquisition as of
December 31, 2002:

|                                                                                 |  |        |    |        |  |        |     |   |  |  |    | 
|-------------------------------------------------------------------------------- |  | ------ | -- | ------ |  | ------ | --- | - |  |  | -- | 
|                                                                                 |  | Gross  |    | Tax    |  | Net   
|                                                                                 |  | amount |    | effect |  | amount
|                                                                                 |  |        |    |        |  |       
|                                                                                 |  |       |    |       |  |      
|Capitalized in the acquisition balance sheet                                     |  |        | 79 |        |  |        | (15 | ) |  |  | 64 | 
|Recognized in the income statement in the
years ended December 31, 2001 and 2002 |  |        | 11 |        |  |        | (3  | ) |  |  | 8  | 
|                                                                                 |  |        |    |        |  |        |     |   |  |  |    | 
|Total                                                                            |  |        | 90 |        |  |        | (18 | ) |  |  | 72 | 
|                                                                                 |  |        |    |        |  |        |     |   |  |  |    | 

The capitalized nonrecurring expenses include termination benefits, lease
termination and exit costs, preacquisition liabilities and contingencies.

Note 14. Shareholdings and Other Securities

Investments in shareholdings and other securities consist of the
following:

|                              |  |                         |           |           |  |            |      |       |  |           |    |           |  |            |    |       |  |  |         |      |  |   |      |   |  |  |    |  |  |  |    | 
|----------------------------- |  | ----------------------- | --------- | --------- |  | ---------- | ---- | ----- |  | --------- | -- | --------- |  | ---------- | -- | ----- |  |  | ------- | ---- |  | - | ---- | - |  |  | -- |  |  |  | -- | 
|                              |  | Year ended December 31,
|                              |  |                        
|                              |  | 2001                    |           | 2002     
|                              |  |                         |           |          
|                              |  | Number                  |           | %         |  |            |      |       |  | Fair      |    | Number    |  | %          |    |       |  |  |         | Fair
|                              |  | of shares               |           | ownership |  | Book value |      | value |  | of shares |    | ownership |  | Book value |    | value
|                              |  |                         |           |           |  |            |      |       |  |           |    |           |  |            |    |      
|                              |  |                         |           |           |  |            |      |       |  |          |    |          |  |            |    |       |  |  |         |      |  |  |      | 
|Tamfelt Corporation, Finland  |  |                         | 242,100   |           |  |            | 2.7  |       |  |           | 4  |           |  |            | 6  |       |  |  | 242,100 |      |  |   | 2.7  |   |  |  | 4  |  |  |  | 7  | 
|Sampo Plc, Finland            |  |                         | 327,540   |           |  |            | 0.1  |       |  |           | 1  |           |  |            | 3  |       |  |  | 327,540 |      |  |   | 0.1  |   |  |  | 1  |  |  |  | 2  | 
|Sato Corporation Plc, Finland |  |                         | 239,555   |           |  |            | 10.9 |       |  |           | 12 |           |  |            | 12 |       |  |  | 239,555 |      |  |   | 10.9 |   |  |  | 12 |  |  |  | 12 | 
|Partek Corporation, Finland   |  |                         | 4,126,039 |           |  |            | 8.5  |       |  |           | 57 |           |  |            | 38 |       |  |  |        |      |  |   |     |   |  |  |   |  |  |  |   | 
|Exel Plc, Finland             |  |                         | 550,000   |           |  |            | 10.5 |       |  |           | 5  |           |  |            | 5  |       |  |  | 650,000 |      |  |   | 12.3 |   |  |  | 5  |  |  |  | 4  | 

F-24



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

|                                                 |  |  |  |  |  |  |  |  |  |  |     |  |  |  |    |  |  |  |  |  |  |  |  |  |  |  |    |  |  |  |    | 
|------------------------------------------------ |  |  |  |  |  |  |  |  |  |  | --- |  |  |  | -- |  |  |  |  |  |  |  |  |  |  |  | -- |  |  |  | -- | 
|Other shares and securities                      |  |  |  |  |  |  |  |  |  |  | 21  |  |  |  | 21 |  |  |  |  |  |  |  |  |  |  |  | 15 |  |  |  | 15 | 
|                                                 |  |  |  |  |  |  |  |  |  |  |     |  |  |  |    |  |  |  |  |  |  |  |  |  |  |  |    |  |  |  |    | 
|Total investments in shares and other
securities |  |  |  |  |  |  |  |  |  |  | 100 |  |  |  | 85 |  |  |  |  |  |  |  |  |  |  |  | 37 |  |  |  | 40 | 
|                                                 |  |  |  |  |  |  |  |  |  |  |     |  |  |  |    |  |  |  |  |  |  |  |  |  |  |  |    |  |  |  |    | 

Investments in associated companies as follows:

|                                          |  |                         |      |            |  |             |     |            |  |  |      |   |  |  |    | 
|----------------------------------------- |  | ----------------------- | ---- | ---------- |  | ----------- | --- | ---------- |  |  | ---- | - |  |  | -- | 
|                                          |  | Year ended December 31,
|                                          |  |                        
|                                          |  | 2001                    |      | 2002      
|                                          |  |                         |      |           
|                                          |  | % ownership             |      | Book value |  | % ownership |     | Book value
|                                          |  |                         |      |            |  |             |     |           
|                                          |  |                         |      |            |  |            |     |            |  |  |      | 
|Allimand S.A.                             |  |                         | 35.8 |            |  |             | 5   |            |  |  | 35.8 |   |  |  | 5  | 
|Valmet-Xian Paper Machinery Co. Ltd.      |  |                         | 48.3 |            |  |             | 3   |            |  |  | 48.3 |   |  |  | 4  | 
|Shanghai Neles-Jamesbury Valve Co. Ltd.   |  |                         | 50.0 |            |  |             | 3   |            |  |  | 50.0 |   |  |  | 3  | 
|Others                                    |  |                         |      |            |  |             | 3   |            |  |  |      |   |  |  | 2  | 
|                                          |  |                         |      |            |  |             |     |            |  |  |      |   |  |  |    | 
|Total investments in associated companies |  |                         |      |            |  |             | 14  |            |  |  |      |   |  |  | 14 | 
|                                          |  |                         |      |            |  |             |     |            |  |  |      |   |  |  |    | 
|Total shareholdings and other
Securities  |  |                         |      |            |  |             | 114 |            |  |  |      |   |  |  | 51 | 
|                                          |  |                         |      |            |  |             |     |            |  |  |      |   |  |  |    | 

Investments in own shares as follows:

|                                     |  |                         |        |           |  |            |     |       |  |           |   |           |  |            |   |       |  |  |        |  |  |   |     |   |  |  |   |  |  |  |   | 
|------------------------------------ |  | ----------------------- | ------ | --------- |  | ---------- | --- | ----- |  | --------- | - | --------- |  | ---------- | - | ----- |  |  | ------ |  |  | - | --- | - |  |  | - |  |  |  | - | 
|                                     |  | Year ended December 31,
|                                     |  |                        
|                                     |  | 2001                    |        | 2002     
|                                     |  |                         |        |          
|                                     |  | Number of               |        | %         |  |            |     | Fair  |  | Number    |   | %         |  |            |   | Fair 
|                                     |  | shares                  |        | ownership |  | Book value |     | value |  | of shares |   | ownership |  | Book value |   | value
|                                     |  |                         |        |           |  |            |     |       |  |           |   |           |  |            |   |      
|                                     |  |                         |        |           |  |            |     |       |  |          |   |          |  |            |   |       |  |  |        |  |  |  |     | 
|Own shares held by
Metso Corporation |  |                         | 60,841 |           |  |            | 0.0 |       |  |           | 1 |           |  |            | 1 |       |  |  | 60,841 |  |  |   | 0.0 |   |  |  | 1 |  |  |  | 1 | 

Note 15. Other Long-term Investments

Other long-term investments consist of certificates of deposits, bonds and
other securities with a maturity exceeding one year at the time of acquisition.
They amounted to 73 and 26 at December 31, 2001 and 2002, respectively. Other
long-term investments are recorded at the lower of cost or market value.

Information regarding other long-term investments is as follows:

|                         |  |                    |    |       |  |            |   |            |  |      |   |       |  |        |    |            |  |            |    |      |  |  |   |  |  |  |   |  |  |  |    | 
|------------------------ |  | ------------------ | -- | ----- |  | ---------- | - | ---------- |  | ---- | - | ----- |  | ------ | -- | ---------- |  | ---------- | -- | ---- |  |  | - |  |  |  | - |  |  |  | -- | 
|                         |  | As at December 31,
|                         |  |                   
|                         |  | 2001               |    | 2002 
|                         |  |                    |    |      
|                         |  |                    |    |       |  | Unrealized |   | Unrealized |  | Fair |   |       |  |        |    | Unrealized |  | Unrealized |    | Fair
|                         |  | Cost               |    | gains |  | losses     |   | value      |  | Cost |   | gains |  | losses |    | value     
|                         |  |                    |    |       |  |            |   |            |  |      |   |       |  |        |    |           
|                         |  |                   |    |      |  |           |   |           |  |     |   |      |  |       |    |          
|Debt Securities          |  |                    |    |       |  |            |   |            |  |      |   |       |  |        |    |            |  |            |    |      |  |  |   |  |  |  |   |  |  |  |    | 
|Bonds and Treasury bills |  |                    | 24 |       |  |            | 0 |            |  |      |  |       |  |        | 24 |            |  |            | 8  |      |  |  | 0 |  |  |  |  |  |  |  | 8  | 
|Other securities         |  |                    | 49 |       |  |            | 0 |            |  |      |  |       |  |        | 49 |            |  |            | 18 |      |  |  | 0 |  |  |  |  |  |  |  | 18 | 
|                         |  |                    |    |       |  |            |   |            |  |      |   |       |  |        |    |            |  |            |    |      |  |  |   |  |  |  |   |  |  |  |    | 
|Total                    |  |                    | 73 |       |  |            | 0 |            |  |      |  |       |  |        | 73 |            |  |            | 26 |      |  |  | 0 |  |  |  |  |  |  |  | 26 | 
|                         |  |                    |    |       |  |            |   |            |  |      |   |       |  |        |    |            |  |            |    |      |  |  |   |  |  |  |   |  |  |  |    | 

Additional information regarding other long-term investments is as
follows:

F-25



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

|                                             |  |                         |    |      |  |      |    |  |  |  |    |  
|-------------------------------------------- |  | ----------------------- | -- | ---- |  | ---- | -- |  |  |  | -- | -
|                                             |  | Year ended December 31,
|                                             |  |                        
|                                             |  | 2000                    |    | 2001 |  | 2002
|                                             |  |                         |    |      |  |      |    |  |  |  |   
|                                             |  |                        |    |     |  |    
|Purchases                                    |  |                         | 11 |      |  |      |   |  |  |  | 6  |  
|Transferred through Svedala acquisition      |  |                         |   |      |  |      | 25 |  |  |  |   |  
|Reclassified in other short-term investments |  |                         | 5  |      |  |      | 5  |  |  |  | 35 |  
|Proceeds from sales                          |  |                         | 2  |      |  |      | 1  |  |  |  | 18 |  
|Proceeds from maturities                     |  |                         | 1  |      |  |      | 3  |  |  |  |   |  
|Realized gains                               |  |                         |   |      |  |      |   |  |  |  |   |  
|Realized losses                              |  |                         |   |      |  |      |   |  |  |  | (1 | )

Realized gains and losses on the sale of securities are determined by
reference to the carrying value of the specific security sold.

As at December 31, 2002, the maturities of long-term investments in debt
and other securities are as follows:

|                     |  |                   |    | 
|-------------------- |  | ----------------- | -- | 
|                     |  | Year ended       
|                     |  | December 31, 2002
|                     |  |                  
|                     |  |                 
|Less than five years |  |                   | 13 | 
|Five to ten years    |  |                   |   | 
|More than ten years  |  |                   | 13 | 
|                     |  |                   |    | 
|Total                |  |                   | 26 | 
|                     |  |                   |    | 

Note 16. Costs and Earnings of Projects under Construction in Excess of Billings/Billings in Excess of Costs and Earnings of Projects under Construction

Information on balance sheet items of uncompleted contracts at December
31, 2002 is as follows:

|                                                  |  |                    |     |             |  |     |     |  |  |  |     | 
|------------------------------------------------- |  | ------------------ | --- | ----------- |  | --- | --- |  |  |  | --- | 
|                                                  |  | Costs and earnings |     |             |  |     |     |  |  | 
|                                                  |  | of uncompleted     |     | Billings of |  |     |     | 
|                                                  |  | projects           |     | Projects    |  | Net
|                                                  |  |                    |     |             |  |    
|                                                  |  |                   |     |            |  |   
|Projects where costs and earnings exceed billings |  |                    | 538 |             |  |     | 364 |  |  |  | 174 | 
|Projects where billings exceed costs and earnings |  |                    | 161 |             |  |     | 245 |  |  |  | 84  | 

Note 17. Interest bearing and Non-interest bearing Assets

Interest bearing and non-interest bearing assets are as follows:

F-26



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

|                                                                        |  |                    |    |          |  |       |       |          |  |          |       |       |  |  |    |      |  |  |       |  |  |  |       | 
|----------------------------------------------------------------------- |  | ------------------ | -- | -------- |  | ----- | ----- | -------- |  | -------- | ----- | ----- |  |  | -- | ---- |  |  | ----- |  |  |  | ----- | 
|                                                                        |  | As at December 31,
|                                                                        |  |                   
|                                                                        |  | 2001               |    | 2002    
|                                                                        |  |                    |    |         
|                                                                        |  |                    |    |          |  | Non-  |       |          |  |          |       |       |  |  |    | Non- |  |  |       | 
|                                                                        |  | Interest           |    | Interest |  |       |       | Interest |  | Interest |       |      
|                                                                        |  | bearing            |    | bearing  |  | Total |       | bearing  |  | bearing  |       | Total
|                                                                        |  |                    |    |          |  |       |       |          |  |          |       |      
|                                                                        |  |                   |    |         |  |      |       |         |  |         |       |     
|Financial assets                                                        |  |                    |    |          |  |       |       |          |  |          |       |       |  |  |    |      |  |  |       |  |  |  |       | 
|Loans receivable                                                        |  |                    | 1  |          |  |       | 16    |          |  |          | 17    |       |  |  | 2  |      |  |  | 18    |  |  |  | 20    | 
|Accounts receivable                                                     |  |                    | 6  |          |  |       | 4     |          |  |          | 10    |       |  |  | 1  |      |  |  | 4     |  |  |  | 5     | 
|Other long-term investments                                             |  |                    | 73 |          |  |       |      |          |  |          | 73    |       |  |  | 26 |      |  |  |      |  |  |  | 26    | 
|                                                                        |  |                    |    |          |  |       |       |          |  |          |       |       |  |  |    |      |  |  |       |  |  |  |       | 
|Total                                                                   |  |                    | 80 |          |  |       | 20    |          |  |          | 100   |       |  |  | 29 |      |  |  | 22    |  |  |  | 51    | 
|                                                                        |  |                    |    |          |  |       |       |          |  |          |       |       |  |  |    |      |  |  |       |  |  |  |       | 
|Receivables                                                             |  |                    |    |          |  |       |       |          |  |          |       |       |  |  |    |      |  |  |       |  |  |  |       | 
|Accounts receivable                                                     |  |                    | 5  |          |  |       | 1,101 |          |  |          | 1,106 |       |  |  | 2  |      |  |  | 834   |  |  |  | 836   | 
|Costs and earnings of projects
under construction in excess of
billings |  |                    |   |          |  |       | 133   |          |  |          | 133   |       |  |  |   |      |  |  | 174   |  |  |  | 174   | 
|Loans receivable                                                        |  |                    | 11 |          |  |       | 5     |          |  |          | 16    |       |  |  | 2  |      |  |  | 3     |  |  |  | 5     | 
|Prepaid expenses and accrued income                                     |  |                    |   |          |  |       | 146   |          |  |          | 146   |       |  |  |   |      |  |  | 201   |  |  |  | 201   | 
|Other receivables                                                       |  |                    |   |          |  |       | 276   |          |  |          | 276   |       |  |  |   |      |  |  | 158   |  |  |  | 158   | 
|Other short-term investments                                            |  |                    | 9  |          |  |       |      |          |  |          | 9     |       |  |  | 11 |      |  |  |      |  |  |  | 11    | 
|                                                                        |  |                    |    |          |  |       |       |          |  |          |       |       |  |  |    |      |  |  |       |  |  |  |       | 
|Total                                                                   |  |                    | 25 |          |  |       | 1,661 |          |  |          | 1,686 |       |  |  | 15 |      |  |  | 1,370 |  |  |  | 1,385 | 
|                                                                        |  |                    |    |          |  |       |       |          |  |          |       |       |  |  |    |      |  |  |       |  |  |  |       | 

Note 18. Shareholders Equity

At December 31, 2002, Metso had 136,250,545 issued shares with a par value
of 1.70, the share capital being 232. Under its Articles of Association Metso
Corporations authorized share capital may not be less than 170 nor more than
680.

At December 31, 2002, Metso held 60,841 of its own shares. The
reacquisition price of 1 has been recorded in the reserve of own shares at
cost. In the shareholders meeting held on April 15, 2003, the shareholders of
Metso renewed the authorization for the Board of Directors to reacquire
treasury stock in the limit of five percent of the nominal value of outstanding
shares at the time of purchase. Treasury stock can be utilized for business
acquisitions, for major investments and for incentive plans of key personnel.

Calculation of distributable funds is as follows:

|                                                                    |  |                    |     |  
|------------------------------------------------------------------- |  | ------------------ | --- | -
|                                                                    |  | As at December 31,
|                                                                    |  | 2002              
|                                                                    |  |                   
|                                                                    |  |                  
|Other reserves                                                      |  |                    | 202 |  
|Retained earnings                                                   |  |                    | 698 |  
|Result for the financial year                                       |  |                    | 65  |  
|Equity share of accelerated depreciation and other untaxed reserves |  |                    | (44 | )
|Translation differences                                             |  |                    | (60 | )
|                                                                    |  |                    |     |  
|Total distributable funds                                           |  |                    | 861 |  
|                                                                    |  |                    |     |  

The Parent Companys distributable funds at December 31, 2002 were 697.
The distribution of dividends to shareholders is limited to the lower of
consolidated distributable funds or distributable funds held by the Parent
Company.

Foreign currency translation included in the shareholders equity consists
of the following:

F-27



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

|                                                          |  |                         |     |      |  |  |      |  
|--------------------------------------------------------- |  | ----------------------- | --- | ---- |  |  | ---- | -
|                                                          |  | Year ended December 31,
|                                                          |  |                        
|                                                          |  | 2001                    |     | 2002
|                                                          |  |                         |     |     
|                                                          |  |                        |     |    
|Cumulative translation adjustment at beginning of year    |  |                         | 46  |      |  |  | 25   |  
|Change in foreign currency translation                    |  |                         | (17 | )    |  |  | (127 | )
|Hedging of net investment denominated in foreign currency |  |                         | (6  | )    |  |  | 59   |  
|Tax effect                                                |  |                         | 2   |      |  |  | (17  | )
|                                                          |  |                         |     |      |  |  |      |  
|Cumulative translation adjustment end of year             |  |                         | 25  |      |  |  | (60  | )
|                                                          |  |                         |     |      |  |  |      |  

Note 19. Long-term Debt

Long-term debt consists of the following:

|                                  |  |                    |       |      |  |  |       | 
|--------------------------------- |  | ------------------ | ----- | ---- |  |  | ----- | 
|                                  |  | As at December 31,
|                                  |  |                   
|                                  |  | 2001               |       | 2002
|                                  |  |                    |       |     
|                                  |  |                   |       |    
|Bonds                             |  |                    | 754   |      |  |  | 713   | 
|Loans from financial institutions |  |                    | 378   |      |  |  | 270   | 
|Loans from pension institutions   |  |                    | 56    |      |  |  | 48    | 
|Other long-term debt              |  |                    | 37    |      |  |  | 39    | 
|                                  |  |                    |       |      |  |  |       | 
|                                  |  |                    | 1,225 |      |  |  | 1,070 | 
|Less current maturities           |  |                    | 46    |      |  |  | 50    | 
|                                  |  |                    |       |      |  |  |       | 
|Total                             |  |                    | 1,179 |      |  |  | 1,020 | 
|                                  |  |                    |       |      |  |  |       | 

Bonds

The bonds consist principally of two loans: a USD 200 (191) bond and a
500 bond. The USD denominated bond was issued in the United States in December
1997 and registered with the Securities Exchange Commission (SEC). It matures
in 2007 and bears a fixed annual interest rate of 6.875 percent. A portion of
the bond has been converted through a currency swap agreement of GBP 45 (69)
into British pound sterling with a fixed annual rate of 7.51 percent. The
currency swap agreement matures concurrently with the bond.

The 500 million bond was issued in December 2001 under the Euro Medium
Term Note Program of 1 billion, which Metso established in December 2000. The
bond matures in 2006 and carries a fixed interest of 6.25 percent.

Loans from financial institutions

Loans from financial institutions consist of international bank borrowings
with either fixed or variable interest rates. A major share of loans is either
USD or EUR denominated. The interest rates vary from 1.9 percent (USD) to 14.0
percent (ZAR). The loans are payable from year 2003 to 2011.

In July 1998 Metso entered into a syndicated seven-year revolving credit
facility with a group of international banks for 230. At December 31, 2001 and
2002 the facility was undrawn.

In August 2000, Metso signed loan facilities of 1.2 billion with a
syndicate of fifteen international banks for financing the acquisition of
Svedala. The short-term portion of the facilities expired in February 2002, and
the long term revolving credit portion of 400 expires in 2005. Of the facility
334 was utilized at December 31, 2001 and 98 at December 31, 2002.

As at December 31, 2002 the undrawn committed facilities of Metso totaled
532.

F-28



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Loans from pension institutions

Pension loans consist of Finnish pension insurance re-borrowing loans
amounting to 42 and of 6 foreign pension loans.

Other long-term debt

Other long-term debt consist principally of pension liabilities amounting
to 37 at December 31, 2001 and 39 at December 31, 2002.

Maturities of long-term debt as at December 31, 2002 are as follows:

|               |  |       |     |              |  |              |     |            |  |           |    |  |  |  |    |  |  |  |       | 
|-------------- |  | ----- | --- | ------------ |  | ------------ | --- | ---------- |  | --------- | -- |  |  |  | -- |  |  |  | ----- | 
|               |  |       |     |              |  | Loans from   |     | Loans from |  | Other     |    |  |  | 
|               |  |       |     |              |  | financial    |     | Pension    |  | long-term |    |  |  | 
|Year           |  | Bonds |     | institutions |  | Institutions |     | debt       |  | Total    
|               |  |       |     |              |  |              |     |            |  |          
|               |  |      |     |             |  |             |     |           |  |         
|2003           |  |       |    |              |  |              | 37  |            |  |           | 10 |  |  |  | 3  |  |  |  | 50    | 
|2004           |  |       |    |              |  |              | 10  |            |  |           | 9  |  |  |  | 2  |  |  |  | 21    | 
|2005           |  |       |    |              |  |              | 105 |            |  |           | 10 |  |  |  | 1  |  |  |  | 116   | 
|2006           |  |       | 500 |              |  |              | 50  |            |  |           | 1  |  |  |  | 1  |  |  |  | 552   | 
|2007           |  |       | 191 |              |  |              | 1   |            |  |           | 1  |  |  |  | 1  |  |  |  | 194   | 
|2008 and after |  |       | 22  |              |  |              | 67  |            |  |           | 17 |  |  |  | 31 |  |  |  | 137   | 
|               |  |       |     |              |  |              |     |            |  |           |    |  |  |  |    |  |  |  |       | 
|Total          |  |       | 713 |              |  |              | 270 |            |  |           | 48 |  |  |  | 39 |  |  |  | 1,070 | 
|               |  |       |     |              |  |              |     |            |  |           |    |  |  |  |    |  |  |  |       | 

Note 20. Other Long-term Liabilities  Accrued Expenses

Long-term accrued liabilities consist of the following:

|                                             |  |                    |     |      |  |  |     | 
|-------------------------------------------- |  | ------------------ | --- | ---- |  |  | --- | 
|                                             |  | As at December 31,
|                                             |  |                   
|                                             |  | 2001               |     | 2002
|                                             |  |                    |     |     
|                                             |  |                   |     |    
|Pension liabilities                          |  |                    | 44  |      |  |  | 49  | 
|Pension liabilities for terminated personnel |  |                    | 6   |      |  |  | 6   | 
|Accrued post-retirement benefits             |  |                    | 52  |      |  |  | 43  | 
|Warranty and guarantee liabilities           |  |                    | 12  |      |  |  | 11  | 
|Accrued restructuring costs                  |  |                    | 7   |      |  |  | 0   | 
|Other long-term provisions and accruals      |  |                    | 27  |      |  |  | 17  | 
|                                             |  |                    |     |      |  |  |     | 
|Total                                        |  |                    | 148 |      |  |  | 126 | 
|                                             |  |                    |     |      |  |  |     | 

Note 21. Other Interest Bearing Short-term Debt

Other interest bearing short-term debt consists of the following:

|                                    |  |                    |     |      |  |  |     | 
|----------------------------------- |  | ------------------ | --- | ---- |  |  | --- | 
|                                    |  | As at December 31,
|                                    |  |                   
|                                    |  | 2001               |     | 2002
|                                    |  |                    |     |     
|                                    |  |                   |     |    
|Loans from financial institutions   |  |                    | 214 |      |  |  | 67  | 
|Domestic commercial paper financing |  |                    | 116 |      |  |  | 200 | 
|Euro Commercial Paper financing     |  |                    |    |      |  |  |    | 
|Other                               |  |                    | 13  |      |  |  | 16  | 
|                                    |  |                    |     |      |  |  |     | 
|Total                               |  |                    | 343 |      |  |  | 283 | 
|                                    |  |                    |     |      |  |  |     | 

F-29



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

The weighted average interest rate applicable to short-term borrowing at
December 31, 2001 and 2002 was 4.6 percent and 3.4 percent, respectively.

Metso had undrawn committed short-term credit facilities with banks
totalling 100 at December 31, 2002.

The Company has established a short-term Euro Commercial Paper Program of
150 and a domestic commercial paper program amounting to 300.

Note 22. Accrued Expenses and Deferred Income

Accrued expenses and deferred income consist of the following:

|                                                  |  |                    |       |      |  |  |     | 
|------------------------------------------------- |  | ------------------ | ----- | ---- |  |  | --- | 
|                                                  |  | As at December 31,
|                                                  |  |                   
|                                                  |  | 2001               |       | 2002
|                                                  |  |                    |       |     
|                                                  |  |                   |       |    
|Accrued expenses for restructuring and exit costs |  |                    | 107   | (1)  |  |  | 53  | 
|Accrued interest expenses                         |  |                    | 9     |      |  |  | 8   | 
|Accrued personnel expenses                        |  |                    | 203   |      |  |  | 156 | 
|Accrued project costs                             |  |                    | 304   |      |  |  | 334 | 
|Environmental and product liabilities             |  |                    | 5     |      |  |  | 4   | 
|Taxes currently payable                           |  |                    | 76    |      |  |  | 47  | 
|Warranty and guarantee liabilities                |  |                    | 152   |      |  |  | 147 | 
|Other                                             |  |                    | 184   |      |  |  | 124 | 
|                                                  |  |                    |       |      |  |  |     | 
|Total                                             |  |                    | 1,040 |      |  |  | 873 | 
|                                                  |  |                    |       |      |  |  |     | 



---

|(1) |  | Included 13 of accrued restructuring costs recognized by Svedala prior
to the acquisition.
|--- |  | -------------------------------------------------------------------------------------------

Note 23. Changes in cost accruals

The cost accruals, including both long- and short-term portions, have
changed as follows during the financial year:

|                                                       |  |            |     |           |  |              |     |            |  |      |     |        |  |            |      |   |  |  |     | 
|------------------------------------------------------ |  | ---------- | --- | --------- |  | ------------ | --- | ---------- |  | ---- | --- | ------ |  | ---------- | ---- | - |  |  | --- | 
|                                                       |  | Balance at |     | Impact of |  |              |     |            |  |      |     |        |  | Balance at
|                                                       |  | beginning  |     | exchange  |  | Additions to |     |            |  |      |     | end of
|                                                       |  | of year    |     | rates     |  | reserve      |     | Deductions |  | year
|                                                       |  |            |     |           |  |              |     |            |  |     
|                                                       |  |           |     |          |  |             |     |           |  |    
|Allowance for doubtful notes and
receivables           |  |            | 56  |           |  |              | (8  | )          |  |      | 13  |        |  |            | (16  | ) |  |  | 45  | 
|Allowance for inventory accounts                       |  |            | 80  |           |  |              | (7  | )          |  |      | 12  |        |  |            | (13  | ) |  |  | 72  | 
|Warranty and guarantee liabilities                     |  |            | 164 |           |  |              | (6  | )          |  |      | 42  |        |  |            | (42  | ) |  |  | 158 | 
|Environmental and product
liabilities(1)               |  |            | 5   |           |  |              | (1  | )          |  |      | 0   |        |  |            | 0    |   |  |  | 4   | 
|Liabilities for restructuring and
plant reorganization |  |            | 67  |           |  |              | (7  | )          |  |      | 23  | (2)    |  |            | (55  | ) |  |  | 28  | 
|Liabilities for employee
termination and exit costs    |  |            | 53  |           |  |              | (5  | )          |  |      | 13  | (3)    |  |            | (36  | ) |  |  | 25  | 
|                                                       |  |            |     |           |  |              |     |            |  |      |     |        |  |            |      |   |  |  |     | 
|Total                                                  |  |            | 425 |           |  |              | (34 | )          |  |      | 103 |        |  |            | (162 | ) |  |  | 332 | 
|                                                       |  |            |     |           |  |              |     |            |  |      |     |        |  |            |      |   |  |  |     | 



---

|(1) |  | Environmental and product liabilities include cost accruals of 4 for
cleaning up water and soil contamination at former manufacturing sites in
North America and in Europe.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 16 of restructuring reserves for Svedala acquisition.                                                                                                             
|   
|(3) |  | Includes 1 of restructuring reserves for Svedala acquisition.                                                                                                              

F-30



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

The number of employees subject to employee termination plans and early
retirement arrangements has been as follows during the financial year:

|                    |  |                   |       |          |  |            |     |             |  |  |        |   |  |  |     | 
|------------------- |  | ----------------- | ----- | -------- |  | ---------- | --- | ----------- |  |  | ------ | - |  |  | --- | 
|                    |  | Beginning of year |       | Increase |  | Departures |     | End of year
|                    |  |                   |       |          |  |            |     |            
|Number of employees |  |                   | 1,365 |          |  |            | 588 |             |  |  | (1,766 | ) |  |  | 187 | 

Metso issues various types of contractual product warranties under which
it generally guarantees the performance levels agreed in the sales contract,
the performance of products delivered during the agreed warranty period and
services rendered for a certain period or term. The warranty liability is based
on historical realized warranty costs for deliveries of standard products and
services. The usual warranty is 12 months from the date of customer acceptance
of the delivered equipment. For larger projects, the average warranty period is
two years. For more complex contracts, including long-term projects sold by
Metso Paper and Metso Minerals, the warranty reserve is calculated contract by
contract and updated regularly to take into consideration any changes in the
potential warranty liability.

Metso is subject to potential liability under certain government
regulations and various claims and legal actions that are pending or may be
asserted against Metso concerning environmental matters. The maximum potential
future obligation related to certain environmental guarantees cannot be
estimated due to numerous uncertainties, including the enactment of new laws
and regulations, the development and application of new technologies, the
identification of new sites for which Metso may have remediation responsibility
and the apportionment and collectibility of remediation costs when other
parties are involved.

When circumstances indicate that a payment obligation becomes probable, a
liability is recognized in the consolidated balance sheet with an offsetting
amount recorded as an expense.

Note 24. Mortgages and contingent liabilities

Mortgages and contingent liabilities consist of the following:

|                                                       |                |  |                    |   |      |  |    |   | 
|------------------------------------------------------ | -------------- |  | ------------------ | - | ---- |  | -- | - | 
|                                                       |                |  | As at December 31,
|                                                       |                |  |                   
|                                                       |                |  | 2001               |   | 2002
|                                                       |                |  |                    |   |     
|                                                       |                |  |                   |   |    
|Mortgages on corporate debt                            |                |  | 2                  |   |      |  | 1  |  
|Other pledges and contingencies                        |                |  |                    |   |      |  |    |  
|                                                       | Mortgages      |  |                    | 2 |      |  |    | 2 | 
|                                                       | Pledged assets |  |                    | 1 |      |  |    | 0 | 
|Guarantees on behalf of associated company obligations |                |  | 1                  |   |      |  | 0  |  
|Other guarantees                                       |                |  | 4                  |   |      |  | 4  |  
|                                                       |                |  |                    |   |      |  |    |  
|                                                       |                |  | 8                  |   |      |  | 6  |  
|Repurchase and other commitments                       |                |  | 30                 |   |      |  | 25 |  

The mortgage amount on corporate debt has been calculated as the amount of
corresponding loans. The nominal value of the mortgages at December 31, 2002
was 1 higher than the amount of the corresponding loans.

The repurchase commitments represent engagements whereby Metso guarantees
specified trade-in values for products sold to customers and third parties. The
amounts in above schedule comprise the agreed value in full of each repurchase
commitment.

F-31



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)

Note 25. Lawsuits and Claims

Several product liability suits against Metso Corporation are pending in
the United States. Management does not believe that the outcome of these
actions, individually or in aggregate, will have a material adverse effect on
Metsos business, liquidity, results of operations or financial position. The
normal risks of legal disputes concerning deliveries cannot be regarded as
material in terms of Metsos total business activities.

Amounts
included in this footnote have not been presented in millions of
U.S. dollars.

Pending asbestos litigation

The results of a survey on legal implications resulting from potential
health hazards caused by exposure to asbestos indicate that Metso has no
material asbestos related claims in the United States. As of March 31, 2003,
the survey, however, identified the following: a total of 265 claims have been
brought against Metsos U.S. subsidiary, Neles-Jamesbury Inc., part of the
Metso Automation business area, relating to valves previously manufactured by
Neles-Jamesbury. In addition, Metsos U.S. subsidiary, Metso Automation SCADA
Solutions Inc., has been named co-defendant in two of these claims, Metso
Minerals Industries Inc. (formerly, Svedala Industries Inc.) in one of these
claims, and Metso Paper USA, Inc. in another of these claims. Out of the total
of 265 claims, 77 claims have been dismissed in the relevant court and 51
claims have been settled for an average compensation of U.S.$551 per person.
The total proceeds paid on such settlements amount to approximately
U.S.$28,100. The remaining 137 claims are still pending but their outcome is
not expected to materially deviate from the outcome of the previous claims. In
the remaining claims, Metso is one of numerous defendants. Two claims have been
brought against Metso Minerals Industries Inc. One of the claims has been
dismissed. In the remaining claim, Metso is one of 22 defendants, and the claim
is not expected to have a material adverse economic effect on Metso.

Pending environmental litigation

Metso is subject to various United States federal, state and local
environmental laws and regulations. Metso Minerals Industries Inc., previously
Nordberg Inc., a company belonging to the Metso Minerals business area, has
been named, together with a number of other parties, as a potentially
responsible party (PRP) for the remediation of two Wisconsin landfills (Hunt
and Muskego), which have been designated as superfund sites under CERCLA. As a
PRP, Metso Minerals Industries Inc. is jointly and severally liable for the
clean-up costs of such sites. With respect to Hunt landfill site, Metso
Minerals Industries Inc., together with the other named PRPs, has entered into
a consent decree with the U.S. government pursuant to which Metso Minerals and
such other parties have agreed to cover the clean-up costs of the Hunt site,
which had been estimated to be in the range of U.S.$13 million to U.S.$22
million. Metso Minerals Industries Inc. has a 6.3 percent share of the clean-up
costs and is also covered by an indemnification agreement with a previous owner
of Nordberg. Construction at the Hunt site was completed in 1996 and Metso
Minerals has paid a total of approximately U.S.$400,000 for the clean-up costs.
Additional work at the Hunt site may be required at an estimated cost to Metso
Minerals Industries, Inc. of approximately U.S.$200,000. With respect to the
Muskego site, there is an administrative order in place, with a total estimate
of U.S.$15 million for design and clean-up costs, of which the share of the
previous owner and Metso Minerals is expected to be at the level of the already
paid U.S.$125,000. No activities at the Muskego site have occurred since 1996.
Management estimates that Metso Minerals maximum remaining liability with
respect to the Hunt and Muskego sites will not exceed U.S.$300,000, and that
the reserves of U.S.$267,000 for the remediation costs of the two landfill
sites will be sufficient for any remaining liability due to above reasons and
the fact that no activity on these sites has occurred for several years.

As a result of the acquisition of Svedala, Metso Minerals has two sites
with certain environmental concerns. The first is a former manufacturing site
in Mt. Olive, New Jersey, which Svedala acquired in 1992. The company acquired
by Svedala operated this site from 1955 to 1987. With the closing of
manufacturing operations in 1987, the New Jersey Industrial Site Recovery Act
triggered an environmental assessment. Both soil and groundwater contamination
were identified. The source of most of the contamination was traced back to
prior owners and operators of the property, which had been an industrial site
since the early 1900s. All known contaminated soil has been removed and the
State of New Jersey Department of Environmental Protection (NJDEP) has issued
a No Further Action letter regarding the soil. To date, only groundwater
monitoring has been performed. Originally a natural attenuation alternative was
proposed, which relies on environmental factors such as biological degradation,
dilution and dispersion to reduce the concentration of contaminants in the

F-32



---



##### 



METSO



Notes to Consolidated Financial
Statements
(in millions, except for per share amounts)



groundwater to acceptable levels. An in situ groundwater treatment program
to lower the levels of contamination in the groundwater in support of the
natural attenuation alternative has now been approved by the NJDEP. A
U.S.$680,000 reserve has been established to cover the in situ groundwater
treatment during 2003 and continued monitoring for the next five years. The
second site with environmental concerns is a former manufacturing property in
Danville, Pennsylvania. Both soil and groundwater are contaminated with oil
from the manufacturing process. In conjunction with the state of Pennsylvania,
an approved remediation plan is being developed. Some soil remediation has
already been completed. Two additional areas of concern need to be investigated
and possibly remediated. Since the extent of the contamination is not fully
known, a U.S.$1,900,000 reserve is the best estimate of potential remediation
costs.

Note 26. Lease Contracts

Metso leases offices, manufacturing and warehouse space under various
non-cancelable leases. Certain contracts contain renewal options for various
periods of time.

Minimum annual rentals for operating and capital leases in effect at
December 31, 2002 are as follows:

|                             |  |                  |     |                |  |  |   | 
|---------------------------- |  | ---------------- | --- | -------------- |  |  | - | 
|                             |  | Operating leases |     | Capital leases
|                             |  |                  |     |               
|                             |  |                 |     |              
|Fiscal year                  |  |                  |     |                |  |  |   | 
|2003                         |  |                  | 43  |                |  |  | 2 | 
|2004                         |  |                  | 36  |                |  |  | 1 | 
|2005                         |  |                  | 28  |                |  |  | 1 | 
|2006                         |  |                  | 20  |                |  |  | 1 | 
|2007                         |  |                  | 17  |                |  |  | 1 | 
|2008 and later               |  |                  | 31  |                |  |  | 0 | 
|                             |  |                  |     |                |  |  |   | 
|Total minimum lease payments |  |                  | 175 |                |  |  | 6 | 
|                             |  |                  |     |                |  |  |   | 

Total rental expense amounted to 38, 46 and 41 in the years ended
December 31, 2000, 2001 and 2002, respectively.

Future lease payments for empty premises

Due to reorganization of production and sales activities, Metso has from
time to time empty leased premises with non-cancelable rental engagements. A
cost reserve for the remaining lease period is made when it is probable that
economically realistic sub-lease or early termination arrangements cannot be
negotiated. The cost accrual is based on discounted future lease payments. In
connection with the Svedala acquisition, Metso recognized an accrual for
duplicate lease costs, as of December 31, 2002, the remaining reserve amounted
to 7.

Note 27. Financial Instruments

Foreign currency risk management

Both the production and sales activities of Metso are geographically
widely spread creating exposure to various currency risks, the main currencies
being USD, EUR, SEK and GBP. Due to the number of Swedish based operations of
acquired Svedala companies the SEK exposure against other currencies has
increased since September 2001.

Foreign exchange gains and losses, reported in the operating profit
resulted in a net gain of 9 in 2000, 1 in 2001, respectively, and a net loss
of 3 in 2002.

Trade flow related derivatives

The trade flow related currency exposures are hedged with forward exchange
contracts. The corporate treasury department monitors the global currency risk
and enters into forwards with third parties to reverse the currency exposures
created through internal derivative transactions with the subsidiaries.
External forwards

F-33



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

contracted by the corporate treasury department are fair valued quarterly.
External currency forwards entered into directly by the subsidiaries are
designed at inception as hedges of an underlying transaction. The currency leg
of such forwards is fair valued and the interest component is recognized
up-front concurrently with the respective underlying.

Foreign currency denominated equity

Metso hedges its USD and SEK denominated net investments to reduce the
effect of exchange rate fluctuations. As of December 31, 2002, the hedging
instruments were foreign currency loans, receivables and forward exchange
contracts. Both realized and unrealized exchange gains and losses measured on
these instruments are recorded, net of taxes, in a separate component of equity
against the translation differences arising from consolidation. The forwards
are designated as hedges of net investments at inception and their
effectiveness is measured quarterly. The interest component on forwards is fair
valued and the change in fair value is recognized in the income statement.

Foreign currency denominated loans

Metso has made medium-term, mainly USD and GBP denominated, loans to its
foreign subsidiaries. The resulting currency risk has been hedged with
cross-currency swaps and forward exchange contracts.

Short-term funding and liquidity management

Forward exchange contracts are used to mitigate foreign currency risk
arising from short-term borrowing and liquidity management. Such forwards are
fair valued quarterly. Metso also enters into call and put options to allow
more flexible control of the net currency exposures. The options have
maturities not exceeding twelve months and they are fair valued quarterly.

Metso measures and monitors foreign currency risk using sensitivity
analysis. The consolidated net exposures in different currencies are
continuously controlled and the risk is mitigated through different financial
instruments, including derivatives, as required by the corporate treasury
policy. The financial derivatives for other than trade flow related
currency risks are all entered into by the corporate treasury department.

Interest rate management

Metso uses both interest rate and cross-currency swaps and interest rate
futures contracts to mitigate the risks arising from interest bearing
receivables and debt. The notional amount of interest rate swaps outstanding at
December 31, 2001 and 2002 was 22 and 60, respectively. As of December 31,
2002, the notional amount of interest rate futures contracts amounted to 15.
The interest rate risk is measured using sensitivity analysis and controlled by
the corporate treasury department.

The utilization of financial derivatives (expressed as notional amounts)
is divided as follows:

|                                                |                                 |  |                 |     |      |  |       |     | 
|----------------------------------------------- | ------------------------------- |  | --------------- | --- | ---- |  | ----- | --- | 
|                                                |                                 |  | At December 31,
|                                                |                                 |  |                
|                                                |                                 |  | 2001            |     | 2002
|                                                |                                 |  |                 |     |     
|                                                |                                 |  |                |     |    
|Trade flow related currency derivatives         |                                 |  |                 |     |      |  |       |    
|                                                | Fair valued derivatives         |  |                 | 770 |      |  |       | 778 | 
|                                                | Ear-marked with underlying item |  |                 | 74  |      |  |       | 5   | 
|Foreign currency denominated equity             |                                 |  |                |     |      |  | 102   |    
|Foreign currency denominated loans              |                                 |  | 136             |     |      |  | 104   |    
|Short-term funding and liquidity management     |                                 |  | 211             |     |      |  | 533   |    
|Long-term funding and other arrangements        |                                 |  | 22              |     |      |  | 38    |    
|Currency risk management                        |                                 |  | 594             |     |      |  | 184   |    
|Interest risk management                        |                                 |  | 22              |     |      |  | 75    |    
|                                                |                                 |  |                 |     |      |  |       |    
|Total notional amount of derivative instruments |                                 |  | 1,829           |     |      |  | 1,819 |    
|                                                |                                 |  |                 |     |      |  |       |    

F-34



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

The following table presents the notional amounts, carrying amounts and
fair values of derivative financial instruments:

|                                |        |  |                 |     |          |  |       |    |          |  |          |    |       |  |       |    |  |  |    |   |  |  |    |   | 
|------------------------------- | ------ |  | --------------- | --- | -------- |  | ----- | -- | -------- |  | -------- | -- | ----- |  | ----- | -- |  |  | -- | - |  |  | -- | - | 
|                                |        |  | At December 31,
|                                |        |  |                
|                                |        |  | 2001            |     | 2002    
|                                |        |  |                 |     |         
|                                |        |  | Notional        |     | Carrying |  | Fair  |    | Notional |  | Carrying |    | Fair 
|                                |        |  | Amount          |     | Amount   |  | Value |    | Amount   |  | Amount   |    | Value
|                                |        |  |                 |     |          |  |       |    |          |  |          |    |      
|                                |        |  |                |     |         |  |      |    |         |  |         |    |     
|Forward exchange contracts      |        |  | 1,421           |     |          |  | (23   | )  |          |  | (29      | )  |       |  | 1,617 |    |  |  | 38 |   |  |  | 65 |  
|Cross-currency swaps            |        |  | 37              |     |          |  | (7    | )  |          |  | (8       | )  |       |  | 4     |    |  |  | 0  |   |  |  | (1 | )
|Currency swaps                  |        |  | 121             |     |          |  | (1    | )  |          |  | (3       | )  |       |  | 100   |    |  |  | 2  |   |  |  | 1  |  
|Interest rate swaps             |        |  | 22              |     |          |  | 0     |    |          |  | 0        |    |       |  | 60    |    |  |  | 0  |   |  |  | 2  |  
|Interest rate futures contracts |        |  |                |     |          |  |      |    |          |  |         |    |       |  | 15    |    |  |  | 0  |   |  |  | 0  |  
|Option agreements               |        |  |                 |     |          |  |       |    |          |  |          |    |       |  |       |    |  |  |    |   |  |  |    |  
|                                | Bought |  |                 | 112 |          |  |       | 1  |          |  |          | 1  |       |  |       | 9  |  |  |    | 1 |  |  |    | 1 | 
|                                | Sold   |  |                 | 116 |          |  |       | (1 | )        |  |          | (1 | )     |  |       | 14 |  |  |    | 0 |  |  |    | 0 | 

Carrying amounts noted in the table above are included in the balance
sheet. The notional amounts indicate the volumes in the use of derivatives,
they do not indicate the exposure to risk. The fair value reflects the
estimated amounts, that Metso would receive or pay to terminate the contracts
at the reporting date, thereby taking into account the current unrealized gains
or losses of open contracts.

At December 31, 2002, the maturities of the financial derivatives are as
follows (expressed as notional amounts):

|                                |        |  |       |    |      |  |      |   |      |  |           |   |  |  |    |   |  |  |      |   | 
|------------------------------- | ------ |  | ----- | -- | ---- |  | ---- | - | ---- |  | --------- | - |  |  | -- | - |  |  | ---- | - | 
|                                |        |  |       |    |      |  |      |   |      |  |           |   |  |  |    |   |  |  | 2007
|                                |        |  | 2003  |    | 2004 |  | 2005 |   | 2006 |  | and after
|                                |        |  |       |    |      |  |      |   |      |  |          
|                                |        |  |      |    |     |  |     |   |     |  |         
|Forward exchange contracts      |        |  | 1,615 |    |      |  | 2    |   |      |  |          |   |  |  |   |   |  |  |     |  
|Cross-currency swaps            |        |  |      |    |      |  |     |   |      |  |          |   |  |  |   |   |  |  | 4    |  
|Currency swaps                  |        |  |      |    |      |  |     |   |      |  | 28        |   |  |  |   |   |  |  | 72   |  
|Interest rate swaps             |        |  |      |    |      |  |     |   |      |  |          |   |  |  | 40 |   |  |  | 20   |  
|Interest rate futures contracts |        |  | 15    |    |      |  |     |   |      |  |          |   |  |  |   |   |  |  |     |  
|Option agreements               |        |  |       |    |      |  |      |   |      |  |           |   |  |  |    |   |  |  |      |  
|                                | Bought |  |       | 9  |      |  |      |  |      |  |           |  |  |  |    |  |  |  |      |  | 
|                                | Sold   |  |       | 14 |      |  |      |  |      |  |           |  |  |  |    |  |  |  |      |  | 

Fair value of financial instruments

U.S. FASB Statement No. 107, Disclosures about Fair Values of Financial
Instruments, requires the disclosure of estimated fair values for all
financial instruments, both on- and off-balance-sheet, for which it is
practicable to estimate fair value. Metso has used a variety of methods and
assumptions, which were based on market conditions and risks existing at the
time to estimate the fair value of the Groups financial instruments at
December 31, 2001 and 2002. For certain instruments, including cash and cash
equivalents, accounts payable, accruals and short-term debt, it was assumed
that the carrying amount approximated fair value due to the short maturity of
those instruments. Quoted market prices or dealer quotes for the same or
similar financial instruments were used to estimate the fair value for
marketable securities and long-term investments. Other techniques, such as
estimated discounted cash flows or replacement cost have been used to determine
fair value for the remaining financial instruments.

F-35



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

|                                                                              |  |                         |       |       |  |          |       |       |  |  |     |  |  |  |     | 
|----------------------------------------------------------------------------- |  | ----------------------- | ----- | ----- |  | -------- | ----- | ----- |  |  | --- |  |  |  | --- | 
|                                                                              |  | Year ended December 31,
|                                                                              |  |                        
|                                                                              |  | 2001                    |       | 2002 
|                                                                              |  |                         |       |      
|                                                                              |  | Carrying                |       | Fair  |  | Carrying |       | Fair 
|                                                                              |  | Value                   |       | Value |  | Value    |       | Value
|                                                                              |  |                         |       |       |  |          |       |      
|                                                                              |  |                        |       |      |  |         |       |     
|Assets                                                                        |  |                         |       |       |  |          |       |       |  |  |     |  |  |  |     | 
|Shareholdings and other securities (excluding
Shares in associated companies) |  |                         | 100   |       |  |          | 85    |       |  |  | 37  |  |  |  | 40  | 
|Own shares                                                                    |  |                         | 1     |       |  |          | 1     |       |  |  | 1   |  |  |  | 1   | 
|Loans receivable, long-term                                                   |  |                         | 17    |       |  |          | 17    |       |  |  | 20  |  |  |  | 20  | 
|Accounts receivable, long-term                                                |  |                         | 10    |       |  |          | 10    |       |  |  | 5   |  |  |  | 5   | 
|Other interest-bearing long-term investments                                  |  |                         | 73    |       |  |          | 73    |       |  |  | 26  |  |  |  | 26  | 
|Accounts receivable, short-term                                               |  |                         | 1,106 |       |  |          | 1,106 |       |  |  | 836 |  |  |  | 836 | 
|Loans receivable, short-term                                                  |  |                         | 16    |       |  |          | 16    |       |  |  | 5   |  |  |  | 5   | 
|Short-term investments                                                        |  |                         | 9     |       |  |          | 9     |       |  |  | 11  |  |  |  | 11  | 
|Cash and cash equivalents                                                     |  |                         | 212   |       |  |          | 212   |       |  |  | 190 |  |  |  | 190 | 
|Liabilities                                                                   |  |                         |       |       |  |          |       |       |  |  |     |  |  |  |     | 
|Bonds                                                                         |  |                         | 730   |       |  |          | 721   |       |  |  | 713 |  |  |  | 757 | 
|Loans from financial institutions                                             |  |                         | 373   |       |  |          | 377   |       |  |  | 233 |  |  |  | 240 | 
|Loans from pension institutions                                               |  |                         | 47    |       |  |          | 47    |       |  |  | 38  |  |  |  | 38  | 
|Other long-term debt                                                          |  |                         | 29    |       |  |          | 29    |       |  |  | 36  |  |  |  | 36  | 
|Current portion of long-term loans                                            |  |                         | 46    |       |  |          | 46    |       |  |  | 50  |  |  |  | 50  | 
|Other interest-bearing short-term debt                                        |  |                         | 343   |       |  |          | 343   |       |  |  | 283 |  |  |  | 283 | 

Note 28. Concentrations of Credit Risk

Metso is exposed to credit risk primarily in relation to project
deliveries, trade receivables, and the use of financial instruments. The
companies within Metso conduct diverse business activities with a large number
of customers and suppliers. The receivables are well diversified and, where
appropriate, secured by various trade finance instruments such as letters of
credit, export guarantees or by withheld security interest in products sold
under extended credit terms. In the use of financial instruments, Metso
minimizes credit and counterparty risk by dealing only with major local or
international banks and financial institutions or companies with investment
grade credit ratings.

Management believes that no significant unmanaged concentration of credit
risk with any individual customer, counterparty or geographical region exists
for Metso.

F-36



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Note 29. Principal Subsidiaries

Listed below are the principal subsidiaries of Metso Corporation:

|                 |                                |  |               |  |              |       |            |  | 
|---------------- | ------------------------------ |  | ------------- |  | ------------ | ----- | ---------- |  | 
|                 |                                |  |               |  |              |       | Percentage
|                 |                                |  | Country       |  | of Ownership
|                 |                                |  |               |  |             
|Metso Paper      |                                |  |               |  |              |       |            | 
|                 | Metso Paper Oy                 |  | Finland       |  |              | 100.0 |           
|                 | Metso Paper USA Inc.           |  | United States |  |              | 100.0 |           
|                 | Metso Paper Karlstad AB        |  | Sweden        |  |              | 100.0 |           
|                 | Metso Paper Ltd.               |  | Canada        |  |              | 100.0 |           
|                 | Metso Paper Sundsvall AB       |  | Sweden        |  |              | 100.0 |           
|                 | Metso Chemical Pulping Oy      |  | Finland       |  |              | 100.0 |           
|                 | Metso Paper Valkeakoski Oy     |  | Finland       |  |              | 100.0 |           
|Metso Minerals   |                                |  |               |  |              |       |            | 
|                 | Metso Minerals Industries Inc. |  | United States |  |              | 100.0 |           
|                 | Metso Dynapac AB               |  | Sweden        |  |              | 100.0 |           
|                 | Metso Minerals (Tampere) Oy    |  | Finland       |  |              | 100.0 |           
|                 | Metso Dynapac GmbH             |  | Germany       |  |              | 100.0 |           
|                 | Metso Minerals (Australia) Ltd |  | Australia     |  |              | 100.0 |           
|                 | Svedala Ltda.                  |  | Brazil        |  |              | 100.0 |           
|Metso Automation |                                |  |               |  |              |       |            | 
|                 | Metso Automation USA Inc.      |  | United States |  |              | 100.0 |           
|                 | Metso Field Systems Oy         |  | Finland       |  |              | 100.0 |           
|                 | Metso Paper Automation Oy      |  | Finland       |  |              | 100.0 |           
|Metso Ventures   |                                |  |               |  |              |       |            | 
|                 | Valmet Automotive Oy           |  | Finland       |  |              | 90.0  |           
|                 | Metso Drives Oy                |  | Finland       |  |              | 100.0 |           

F-37



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Note 30. Business and Geographic Information

Metsos reportable segments are comprised of strategic business areas that
offer different products and services. They are further divided into
subsegments or business groups. Each business area is managed separately
because each segment requires different technology and marketing strategies. In
the year ended December 31, 2002, the main reportable segments are Metso Paper,
Metso Minerals, Metso Automation and Metso Ventures.

Metso Paper.Paper develops, designs and manufactures pulp and paper
industry machinery and equipment, complete production lines for pulp and
papermaking, and machinery and equipment for the packing and converting
industries. In November 2002 Metso announced a formal plan to dispose of its
Converting equipment business. Negotiations with the buyer, Swiss Bobst Group
SA, are expected to be completed in 2003. In following segment schedules
Converting equipment is presented separate from Metso Paper under discontinued
operations.

Metso Minerals.In the beginning of 2001, Metso Minerals, which had
earlier belonged to the Machinery segment, became a separate business area.
Metso Minerals covers the production and marketing of rock and mineral
processing solutions for quarries, mines and civil engineering contractors. In
September 2001, through the acquisition of Svedala group, which was included as
a whole in Metso Minerals, the activity of the segment was extended to cover
compaction and paving and metal recycling equipment.

Metso Automation.Automation develops, designs and supplies application
networks and systems and field solutions for automation and information
management in the process industry.

Metso Ventures.In the beginning of 2002, Metso Panelboard was transferred
from Metso Paper to Metso Ventures and all prior year data has been restated to
conform to the new structure. The other subsegments of Metso Ventures are Metso
Drives, Metso Powdermet and Valmet Automotive. Ventures covers gears and
hydraulic motors for industries, machinery and equipment for manufacturing
panelboards, and assembly of specialty cars.

The presentation below is prepared according to the current structure to
assess the performance of the various business segments. Forest machines, which
manufactured and marketed logging equipment, has been reported separately as
discontinued operations. The activity was sold on April 28, 2000.

The accounting policies of the reportable segments and their subsegments
are the same as those described in Note 1 to the Consolidated Financial
Statements. All intersegment sales are market based. Metso evaluates the
performance of its operating segments and allocates resources to them based on
the operating profit (loss). No single customer represents more than ten
percent of Metsos net sales.

Information about Metsos reportable segments as at and for the years
ended December 31, 2000, 2001 and 2002 is shown in the tables below.

F-38



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Net sales by business area

Net sales by business area for the three years ended December 31, 2000,
2001 and 2002 are as follows:

|                      |                       |  |                         |       |      |  |       |       |  |  |       |       | 
|--------------------- | --------------------- |  | ----------------------- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                      |                       |  | Year ended December 31,
|                      |                       |  |                        
|                      |                       |  | 2000                    |       | 2001 |  | 2002 
|                      |                       |  |                         |       |      |  |      
|                      |                       |  |                        |       |     |  |     
|Metso Paper           |                       |  | 1,956                   |       |      |  | 2,209 |       |  |  | 1,812 |      
|Metso Minerals(1)     |                       |  | 561                     |       |      |  | 913   |       |  |  | 1,819 |      
|Metso Automation      |                       |  | 644                     |       |      |  | 693   |       |  |  | 622   |      
|Metso Ventures        |                       |  | 482                     |       |      |  | 489   |       |  |  | 374   |      
|Intra Metso net sales |                       |  | (107                    | )     |      |  | (137  | )     |  |  | (96   | )    
|                      |                       |  |                         |       |      |  |       |       |  |  |       |      
|                      | Continuing operations |  |                         | 3,536 |      |  |       | 4,167 |  |  |       | 4,531 | 
|Forest Machines(2)    |                       |  | 179                     |       |      |  |      |       |  |  |      |      
|Converting Equipment  |                       |  | 176                     |       |      |  | 176   |       |  |  | 160   |      
|                      |                       |  |                         |       |      |  |       |       |  |  |       |      
|                      | Metso total           |  |                         | 3,891 |      |  |       | 4,343 |  |  |       | 4,691 | 
|                      |                       |  |                         |       |      |  |       |       |  |  |       |      



---

|(1) |  | Includes Svedala acquisition from September 14, 2001 onwards.       
|--- |  | --------------------------------------------------------------------
|   
|(2) |  | The Forest Machines, Timberjack, were disposed of on April 28, 2000.

Operating profit, nonrecurring items and amortization of goodwill by business area

Operating profit (loss) before nonrecurring operating items and
amortization of goodwill by business area and as a percentage of net sales for
the three years ended December 31, 2000, 2001 and 2002 are as follows:

|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |     | 
|-------------------------------- | --------------------- |  | ----------------------- | ----- | ----- |  | -------- | --- | ----- |  | ----- | ----- | -------- |  | --- | --- |  |  | -------- | ----- |  |  | ---- | --- | 
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                        
|                                 |                       |  |                         |       |       |  | % of net |     |       |  |       |       | % of net |  |     |     |  |  | % of net
|                                 |                       |  | 2000                    |       | sales |  | 2001     |     | sales |  | 2002  |       | sales   
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |         
|                                 |                       |  |                        |       |       |  |          |     |      |  |       |       |          |  |    |     |  |  |         
|Metso Paper                      |                       |  | 113.1                   |       |       |  | 5.8      |     |       |  | 190.7 |       |          |  | 8.6 |     |  |  | 132.3    |       |  |  | 7.3  |    
|Metso Minerals(1)                |                       |  | 30.2                    |       |       |  | 5.4      |     |       |  | 44.6  |       |          |  | 4.9 |     |  |  | 107.9    |       |  |  | 5.9  |    
|Metso Automation                 |                       |  | 45.5                    |       |       |  | 7.1      |     |       |  | 28.7  |       |          |  | 4.1 |     |  |  | 21.9     |       |  |  | 3.5  |    
|Metso Ventures                   |                       |  | 21.9                    |       |       |  | 4.5      |     |       |  | 29.8  |       |          |  | 6.1 |     |  |  | 23.4     |       |  |  | 6.3  |    
|Corporate Headquarters and other |                       |  | (29.0                   | )     |       |  |         |     |       |  | (27.6 | )     |          |  |    |     |  |  | (31.8    | )     |  |  |     |    
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |    
|                                 | Continuing operations |  |                         | 181.7 |       |  |          | 5.1 |       |  |       | 266.2 |          |  |     | 6.4 |  |  |          | 253.7 |  |  |      | 5.6 | 
|Forest Machines(2)               |                       |  | 14.4                    |       |       |  | 8.0      |     |       |  |      |       |          |  |    |     |  |  |         |       |  |  |     |    
|Converting Equipment             |                       |  | 1.5                     |       |       |  | 0.9      |     |       |  | 4.3   |       |          |  | 2.4 |     |  |  | (3.1     | )     |  |  | (1.9 | )  
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |    
|                                 | Metso total           |  |                         | 197.6 |       |  |          | 5.1 |       |  |       | 270.5 |          |  |     | 6.2 |  |  |          | 250.6 |  |  |      | 5.3 | 
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |    



---

|(1) |  | Includes Svedala acquisition from September 14, 2001 onwards.       
|--- |  | --------------------------------------------------------------------
|   
|(2) |  | The Forest Machines, Timberjack, were disposed of on April 28, 2000.

F-39



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Nonrecurring operating items by business area for the three years ended
December 31, 2000, 2001 and 2002 are as follows:

|                                 |                       |  |                         |      |      |  |       |     |  |  |       |       |  
|-------------------------------- | --------------------- |  | ----------------------- | ---- | ---- |  | ----- | --- |  |  | ----- | ----- | -
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                        
|                                 |                       |  | 2000                    |      | 2001 |  | 2002 
|                                 |                       |  |                         |      |      |  |      
|                                 |                       |  |                        |      |     |  |     
|Metso Paper                      |                       |  | 11.0                    |      |      |  | (14.9 | )   |  |  | (5.9  | )    
|Metso Minerals                   |                       |  | 0.2                     |      |      |  | (16.0 | )   |  |  | (13.3 | )    
|Metso Automation                 |                       |  | 1.0                     |      |      |  | (8.5  | )   |  |  | (2.6  | )    
|Metso Ventures                   |                       |  | (5.0                    | )    |      |  |      |     |  |  | (7.1  | )    
|Corporate Headquarters and other |                       |  | 10.4                    |      |      |  | 43.1  |     |  |  | 6.9   |      
|                                 |                       |  |                         |      |      |  |       |     |  |  |       |      
|                                 | Continuing operations |  |                         | 17.6 |      |  |       | 3.7 |  |  |       | (22.0 | )
|Converting Equipment             |                       |  |                        |      |      |  |      |     |  |  | (4.5  | )    
|                                 |                       |  |                         |      |      |  |       |     |  |  |       |      
|                                 | Metso total           |  |                         | 17.6 |      |  |       | 3.7 |  |  |       | (26.5 | )
|                                 |                       |  |                         |      |      |  |       |     |  |  |       |      

Amortization of goodwill by business area for the three years ended
December 31, 2000, 2001 and 2002 is as follows:

|                                 |                       |  |                         |       |      |  |       |       |   |  |       |       |  
|-------------------------------- | --------------------- |  | ----------------------- | ----- | ---- |  | ----- | ----- | - |  | ----- | ----- | -
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                        
|                                 |                       |  | 2000                    |       | 2001 |  | 2002 
|                                 |                       |  |                         |       |      |  |      
|                                 |                       |  |                        |       |     |  |     
|Metso Paper                      |                       |  | (6.9                    | )     |      |  | (8.2  | )     |   |  | (8.2  | )    
|Metso Minerals                   |                       |  | (2.7                    | )     |      |  | (13.9 | )     |   |  | (43.2 | )    
|Metso Automation                 |                       |  | (1.5                    | )     |      |  | (2.9  | )     |   |  | (3.0  | )    
|Metso Ventures                   |                       |  | (1.4                    | )     |      |  | (1.6  | )     |   |  | (1.4  | )    
|Corporate Headquarters and other |                       |  |                        |       |      |  |      |       |   |  |      |      
|                                 |                       |  |                         |       |      |  |       |       |   |  |       |      
|                                 | Continuing operations |  |                         | (12.5 | )    |  |       | (26.6 | ) |  |       | (55.8 | )
|Forest Machines(1)               |                       |  | (1.1                    | )     |      |  |      |       |   |  |      |      
|Converting Equipment             |                       |  | (1.5                    | )     |      |  | (1.3  | )     |   |  | (1.3  | )    
|                                 |                       |  |                         |       |      |  |       |       |   |  |       |      
|                                 | Metso total           |  |                         | (15.1 | )    |  |       | (27.9 | ) |  |       | (57.1 | )
|                                 |                       |  |                         |       |      |  |       |       |   |  |       |      



---

|(1) |  | The Forest Machines, Timberjack, were disposed of on April 28, 2000.
|--- |  | --------------------------------------------------------------------

Operating profit (loss) by business area and as a percentage of net sales
for the three years ended December 31, 2000, 2001 and 2002 are as follows:

|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |     | 
|-------------------------------- | --------------------- |  | ----------------------- | ----- | ----- |  | -------- | --- | ----- |  | ----- | ----- | -------- |  | --- | --- |  |  | -------- | ----- |  |  | ---- | --- | 
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                        
|                                 |                       |  |                         |       |       |  | % of net |     |       |  |       |       | % of net |  |     |     |  |  | % of net
|                                 |                       |  | 2000                    |       | sales |  | 2001     |     | sales |  | 2002  |       | sales   
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |         
|                                 |                       |  |                        |       |       |  |          |     |      |  |       |       |          |  |    |     |  |  |         
|Metso Paper                      |                       |  | 117.2                   |       |       |  | 6.0      |     |       |  | 167.6 |       |          |  | 7.6 |     |  |  | 118.2    |       |  |  | 6.5  |    
|Metso Minerals(1)                |                       |  | 27.7                    |       |       |  | 4.9      |     |       |  | 14.7  |       |          |  | 1.6 |     |  |  | 51.4     |       |  |  | 2.8  |    
|Metso Automation                 |                       |  | 45.0                    |       |       |  | 7.0      |     |       |  | 17.3  |       |          |  | 2.5 |     |  |  | 16.3     |       |  |  | 2.6  |    
|Metso Ventures                   |                       |  | 15.5                    |       |       |  | 3.2      |     |       |  | 28.2  |       |          |  | 5.8 |     |  |  | 14.9     |       |  |  | 4.0  |    
|Corporate Headquarters and other |                       |  | (18.6                   | )     |       |  |         |     |       |  | 15.5  |       |          |  |    |     |  |  | (24.9    | )     |  |  |     |    
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |    
|                                 | Continuing operations |  |                         | 186.8 |       |  |          | 5.3 |       |  |       | 243.3 |          |  |     | 5.8 |  |  |          | 175.9 |  |  |      | 3.9 | 
|Forest Machines(2)               |                       |  | 13.3                    |       |       |  | 7.4      |     |       |  |      |       |          |  |    |     |  |  |         |       |  |  |     |    
|Converting Equipment             |                       |  | 0.0                     |       |       |  | 0.0      |     |       |  | 3.0   |       |          |  | 1.7 |     |  |  | (8.9     | )     |  |  | (5.6 | )  
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |    
|                                 | Metso total           |  |                         | 200.1 |       |  |          | 5.1 |       |  |       | 246.3 |          |  |     | 5.7 |  |  |          | 167.0 |  |  |      | 3.6 | 
|                                 |                       |  |                         |       |       |  |          |     |       |  |       |       |          |  |     |     |  |  |          |       |  |  |      |    



---

|(1) |  | Includes Svedala acquisition from September 14, 2001 onwards.       
|--- |  | --------------------------------------------------------------------
|   
|(2) |  | The Forest Machines, Timberjack, were disposed of on April 28, 2000.

F-40



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Capital employed by business area

Capital employed by business area for the three years ended December 31,
2000, 2001 and 2002 is as follows:

|                                 |                       |  |                         |       |      |  |       |       |  |  |       |       | 
|-------------------------------- | --------------------- |  | ----------------------- | ----- | ---- |  | ----- | ----- |  |  | ----- | ----- | 
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                        
|                                 |                       |  | 2000                    |       | 2001 |  | 2002 
|                                 |                       |  |                         |       |      |  |      
|                                 |                       |  |                        |       |     |  |     
|Metso Paper                      |                       |  | 502                     |       |      |  | 562   |       |  |  | 517   |      
|Metso Minerals(1)                |                       |  | 331                     |       |      |  | 1,525 |       |  |  | 1,401 |      
|Metso Automation                 |                       |  | 244                     |       |      |  | 282   |       |  |  | 207   |      
|Metso Ventures                   |                       |  | 113                     |       |      |  | 139   |       |  |  | 145   |      
|Corporate Headquarters and other |                       |  | 714                     |       |      |  | 476   |       |  |  | 417   |      
|                                 |                       |  |                         |       |      |  |       |       |  |  |       |      
|                                 | Continuing operations |  |                         | 1,904 |      |  |       | 2,984 |  |  |       | 2,687 | 
|Converting Equipment             |                       |  | 77                      |       |      |  | 60    |       |  |  | 55    |      
|                                 |                       |  |                         |       |      |  |       |       |  |  |       |      
|                                 | Metso total           |  |                         | 1,981 |      |  |       | 3,044 |  |  |       | 2,742 | 
|                                 |                       |  |                         |       |      |  |       |       |  |  |       |      



---

|(1) |  | Impacted by Svedala acquisition as of September 14, 2001.
|--- |  | ---------------------------------------------------------

Goodwill by business area

Goodwill by business area for the three years ended December 31, 2000,
2001 and 2002 is as follows:

|                                 |                       |  |                         |     |      |  |      |       |  |  |     |     | 
|-------------------------------- | --------------------- |  | ----------------------- | --- | ---- |  | ---- | ----- |  |  | --- | --- | 
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                         |    
|                                 |                       |  | 2000                    |     | 2001 |  | 2002
|                                 |                       |  |                         |     |      |  |     
|                                 |                       |  |                        |     |     |  |    
|Metso Paper                      |                       |  | 115                     |     |      |  | 117  |       |  |  | 96  |    
|Metso Minerals(1)                |                       |  | 40                      |     |      |  | 858  |       |  |  | 746 |    
|Metso Automation                 |                       |  | 19                      |     |      |  | 30   |       |  |  | 25  |    
|Metso Ventures                   |                       |  | 20                      |     |      |  | 19   |       |  |  | 16  |    
|Corporate Headquarters and other |                       |  |                        |     |      |  | 0    |       |  |  | 0   |    
|                                 |                       |  |                         |     |      |  |      |       |  |  |     |    
|                                 | Continuing operations |  |                         | 194 |      |  |      | 1,024 |  |  |     | 883 | 
|Converting Equipment             |                       |  | 14                      |     |      |  | 13   |       |  |  | 12  |    
|                                 |                       |  |                         |     |      |  |      |       |  |  |     |    
|                                 | Metso total           |  |                         | 208 |      |  |      | 1,037 |  |  |     | 895 | 
|                                 |                       |  |                         |     |      |  |      |       |  |  |     |    



---

|(1) |  | Includes goodwill arising from the acquisition of Svedala as of September
14, 2001.
|--- |  | -----------------------------------------------------------------------------------

F-41



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Capital expenditure by business area

Capital expenditure (including business acquisitions) by business area for
the three years ended December 31, 2000, 2001 and 2002 are as follows:

|                                 |                       |  |                         |     |      |  |      |     |  |  |    |     | 
|-------------------------------- | --------------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  | -- | --- | 
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                         |    
|                                 |                       |  | 2000                    |     | 2001 |  | 2002
|                                 |                       |  |                         |     |      |  |     
|                                 |                       |  |                        |     |     |  |    
|Metso Paper                      |                       |  | 233                     | (1) |      |  | 68   |     |  |  | 73 |    
|Metso Minerals                   |                       |  | 22                      |     |      |  | 827  | (2) |  |  | 50 |    
|Metso Automation                 |                       |  | 30                      |     |      |  | 43   |     |  |  | 13 |    
|Metso Ventures                   |                       |  | 19                      |     |      |  | 33   |     |  |  | 37 |    
|Corporate Headquarters and other |                       |  | 7                       |     |      |  | 8    |     |  |  | 18 |    
|                                 |                       |  |                         |     |      |  |      |     |  |  |    |    
|                                 | Continuing operations |  |                         | 311 |      |  |      | 979 |  |  |    | 191 | 
|Forest
Machines(3)               |                       |  | 0                       |     |      |  |     |     |  |  |   |    
|Converting Equipment             |                       |  | 2                       |     |      |  | 3    |     |  |  | 3  |    
|                                 |                       |  |                         |     |      |  |      |     |  |  |    |    
|                                 | Metso total           |  |                         | 313 |      |  |      | 982 |  |  |    | 194 | 
|                                 |                       |  |                         |     |      |  |      |     |  |  |    |    



---

|(1) |  | 172 relates to the acquisition of Beloit activity in May 2000.     
|--- |  | --------------------------------------------------------------------
|   
|(2) |  | Includes the acquisition of Svedala.                                
|   
|(3) |  | The Forest Machines, Timberjack, were disposed of on April 28, 2000.

Depreciation and amortization by business area

Depreciation and amortization by business area for the three years ended
December 31, 2000, 2001 and 2002 are as follows:

|                                 |                       |  |                         |     |      |  |      |     |  |  |    |     | 
|-------------------------------- | --------------------- |  | ----------------------- | --- | ---- |  | ---- | --- |  |  | -- | --- | 
|                                 |                       |  | Year ended December 31,
|                                 |                       |  |                        
|                                 |                       |  | 2000                    |     | 2001 |  | 2002
|                                 |                       |  |                         |     |      |  |     
|                                 |                       |  |                        |     |     |  |    
|Metso Paper                      |                       |  | 65                      |     |      |  | 66   |     |  |  | 63 |    
|Metso
Minerals(1)                |                       |  | 16                      |     |      |  | 37   |     |  |  | 90 |    
|Metso Automation                 |                       |  | 17                      |     |      |  | 19   |     |  |  | 18 |    
|Metso Ventures                   |                       |  | 21                      |     |      |  | 21   |     |  |  | 20 |    
|Corporate Headquarters and other |                       |  | 2                       |     |      |  | 2    |     |  |  | 3  |    
|                                 |                       |  |                         |     |      |  |      |     |  |  |    |    
|                                 | Continuing operations |  |                         | 121 |      |  |      | 145 |  |  |    | 194 | 
|Forest Machines(2)               |                       |  | 3                       |     |      |  |     |     |  |  |   |    
|Converting Equipment             |                       |  | 4                       |     |      |  | 4    |     |  |  | 3  |    
|                                 |                       |  |                         |     |      |  |      |     |  |  |    |    
|                                 | Metso total           |  |                         | 128 |      |  |      | 149 |  |  |    | 197 | 
|                                 |                       |  |                         |     |      |  |      |     |  |  |    |    



---

|(1) |  | Includes Svedala acquisition from September 14, 2001 onwards.       
|--- |  | --------------------------------------------------------------------
|   
|(2) |  | The Forest Machines, Timberjack, were disposed of on April 28, 2000.

Information about Metsos operations in different geographic areas as at
and for the years ended December 31, 2000, 2001 and 2002 is as follows:

F-42



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

Net sales to unaffiliated customers by destination

|     |  |         |     |           |  |           |     |          |  |         |       |         |  |       |       |         |  |        |     |       |  |      |     |  |  |  |     |  |  |  |   |  |  |  |       | 
|---- |  | ------- | --- | --------- |  | --------- | --- | -------- |  | ------- | ----- | ------- |  | ----- | ----- | ------- |  | ------ | --- | ----- |  | ---- | --- |  |  |  | --- |  |  |  | - |  |  |  | ----- | 
|     |  |         |     |           |  | Other     |     | Other    |  |         |       |         |  |       |       |         |  |        |     |       |  | Rest |     |  |  |  |     |  |  | 
|     |  |         |     |           |  | Nordic    |     | European |  | North   |       | South   |  | Asia- |       | of the  |  | Elimi- |     | Metso
|Year |  | Finland |     | Countries |  | Countries |     | America  |  | America |       | Pacific |  | World |       | nations |  | Total 
|     |  |         |     |           |  |           |     |          |  |         |       |         |  |       |       |         |  |       
|     |  |        |     |          |  |          |     |         |  |        |       |        |  |      |       |        |  |      
|2000 |  |         | 375 |           |  |           | 356 |          |  |         | 1,097 |         |  |       | 1,281 |         |  |        | 237 |       |  |      | 460 |  |  |  | 85  |  |  |  |  |  |  |  | 3,891 | 
|2001 |  |         | 587 |           |  |           | 417 |          |  |         | 1,172 |         |  |       | 1,143 |         |  |        | 360 |       |  |      | 521 |  |  |  | 143 |  |  |  |  |  |  |  | 4,343 | 
|2002 |  |         | 382 |           |  |           | 453 |          |  |         | 1,363 |         |  |       | 1,199 |         |  |        | 417 |       |  |      | 652 |  |  |  | 225 |  |  |  |  |  |  |  | 4,691 | 

In year 2002, 24 percent of net sales was recognized under the percentage
of completion method. The percentage was highest in the Metso Paper business
area, where it accounted for 45 percent of net sales.

Metsos exports, including sales to unaffiliated customers and intragroup
sales from Finland, by destination for the years ended December 31, 2000, 2001
and 2002 are as follows:

|     |  |           |       |           |  |         |       |         |  |         |     |        |  |       |     |  |  |  |     |  |  |      |    |  |  |  |       | 
|---- |  | --------- | ----- | --------- |  | ------- | ----- | ------- |  | ------- | --- | ------ |  | ----- | --- |  |  |  | --- |  |  | ---- | -- |  |  |  | ----- | 
|     |  |           | Other |           |  |         | Other |         |  |         |     |        |  |       |     |  |  |  |     |  |  | Rest |    |  |  | 
|     |  | Nordic    |       | European  |  | North   |       | South   |  | Asia-   |     | of the |  |       |     | 
|Year |  | Countries |       | Countries |  | America |       | America |  | Pacific |     | World  |  | Total
|     |  |           |       |           |  |         |       |         |  |         |     |        |  |      
|     |  |          |       |          |  |        |       |        |  |        |     |       |  |     
|2000 |  |           | 377   |           |  |         | 556   |         |  |         | 276 |        |  |       | 47  |  |  |  | 253 |  |  |      | 14 |  |  |  | 1,523 | 
|2001 |  |           | 365   |           |  |         | 592   |         |  |         | 200 |        |  |       | 85  |  |  |  | 269 |  |  |      | 20 |  |  |  | 1,531 | 
|2002 |  |           | 297   |           |  |         | 567   |         |  |         | 183 |        |  |       | 137 |  |  |  | 248 |  |  |      | 21 |  |  |  | 1,453 | 

Fixed assets and financial assets by location for the years ended December
31, 2000, 2001 and 2002 are as follows:

|     |  |         |     |           |  |           |     |          |  |         |     |         |  |       |     |         |  |        |    |       |  |      |    |  |  |  |    |  |  |  |   |  |  |  |       | 
|---- |  | ------- | --- | --------- |  | --------- | --- | -------- |  | ------- | --- | ------- |  | ----- | --- | ------- |  | ------ | -- | ----- |  | ---- | -- |  |  |  | -- |  |  |  | - |  |  |  | ----- | 
|     |  |         |     |           |  | Other     |     | Other    |  |         |     |         |  |       |     |         |  |        |    |       |  | Rest |    |  |  |  |    |  |  | 
|     |  |         |     |           |  | Nordic    |     | European |  | North   |     | South   |  | Asia- |     | of the  |  | Elimi- |    | Metso
|Year |  | Finland |     | Countries |  | Countries |     | America  |  | America |     | Pacific |  | World |     | nations |  | Total 
|     |  |         |     |           |  |           |     |          |  |         |     |         |  |       |     |         |  |       
|     |  |        |     |          |  |          |     |         |  |        |     |        |  |      |     |        |  |      
|2000 |  |         | 560 |           |  |           | 108 |          |  |         | 157 |         |  |       | 311 |         |  |        | 4  |       |  |      | 23 |  |  |  | 7  |  |  |  |  |  |  |  | 1,170 | 
|2001 |  |         | 530 |           |  |           | 949 |          |  |         | 158 |         |  |       | 457 |         |  |        | 28 |       |  |      | 64 |  |  |  | 9  |  |  |  |  |  |  |  | 2,195 | 
|2002 |  |         | 514 |           |  |           | 935 |          |  |         | 108 |         |  |       | 357 |         |  |        | 24 |       |  |      | 57 |  |  |  | 10 |  |  |  |  |  |  |  | 2,005 | 

Note 31. Differences between Generally Accepted Accounting Principles in Finland and the United States

Metsos consolidated financial statements are prepared in accordance with
Finnish GAAP, which differ in certain respects from the accounting principles
generally accepted in the United States (U.S. GAAP). The principal
differences between Finnish GAAP and U.S. GAAP are presented and described
below, together with explanations of the adjustments that affect consolidated
net income and total shareholders equity as at and for the periods indicated.
As detailed further below, the significant business combination of Valmet and
Rauma is accounted for as the pooling of interests under Finnish GAAP, but is
accounted for using the purchase method under U.S. GAAP. This difference
impacts the valuation of a number of financial statement accounts at the date
of the combination. For presentation purposes in the following reconciliation,
the Business combination, net item includes solely the impact of differences
that arose using the purchase method under U.S. GAAP. The other items reflect
the post-combination differences between Finnish GAAP and U.S. GAAP.

F-43



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

|                                                                                    |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |         |  
|----------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | ---- | ------- |  |  | ---- | ------- | -
|                                                                                    |                                                                                                      |  | As at December 31,
|                                                                                    |                                                                                                      |  |                   
|                                                                                    |                                                                                                      |  | 2000               |         | 2001 |  | 2002
|                                                                                    |                                                                                                      |  |                    |         |      |  |     
|                                                                                    |                                                                                                      |  |                   |         |     |  |    
|Reconciliation of net income                                                        |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|Net income in accordance with Finnish GAAP                                          |                                                                                                      |  | 389                |         |      |  | 141  |         |  |  | 65   |        
|U.S. GAAP adjustments:                                                              |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|a) Business combination, net                                                        |                                                                                                      |  | (4                 | )       |      |  | (5   | )       |  |  | (8   | )      
|b) Purchase accounting, net                                                         |                                                                                                      |  |                   |         |      |  | (3   | )       |  |  | 19   |        
|c) Amortization of goodwill                                                         |                                                                                                      |  |                   |         |      |  | (0   | )       |  |  | 12   |        
|d) Fair value of financial derivatives                                              |                                                                                                      |  |                   |         |      |  | (8   | )       |  |  | 35   |        
|e) Pension surplus refund                                                           |                                                                                                      |  | (6                 | )       |      |  | 3    |         |  |  | 2    |        
|f) Employee benefit plans                                                           |                                                                                                      |  | (30                | )       |      |  | (8   | )       |  |  | (4   | )      
|g) Restructuring costs                                                              |                                                                                                      |  | (5                 | )       |      |  | 5    |         |  |  | (5   | )      
|k) Net investment hedge                                                             |                                                                                                      |  |                   |         |      |  |     |         |  |  | 7    |        
|l) Discontinued operations                                                          |                                                                                                      |  | 51                 |         |      |  |     |         |  |  |     |        
|Deferred tax effect of U.S. GAAP adjustments                                        |                                                                                                      |  | 12                 |         |      |  | 2    |         |  |  | (10  | )      
|                                                                                    |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|Net income in accordance with U.S. GAAP                                             |                                                                                                      |  | 407                |         |      |  | 127  |         |  |  | 113  |        
|                                                                                    |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|Income from continuing operations                                                   |                                                                                                      |  | 75                 |         |      |  | 125  |         |  |  | 123  |        
|Discontinued operations:                                                            |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|                                                                                    | Income (loss) from discontinued operations,
net of income tax expense of 3,
1 and 1, respectively |  |                    | 6       |      |  |      | 2       |  |  |      | (10     | )
|                                                                                    | Gain on disposal of discontinued operations,
net of income tax expense of 103                       |  |                    | 326     |      |  |      |        |  |  |      |        |  
|                                                                                    |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|Net income in accordance with U.S. GAAP                                             |                                                                                                      |  | 407                |         |      |  | 127  |         |  |  | 113  |        
|                                                                                    |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|Basic earnings (loss) per share:                                                    |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|                                                                                    | Continuing operations                                                                                |  |                    | 0.56    |      |  |      | 0.91    |  |  |      | 0.90    |  
|                                                                                    | Discontinued operations                                                                              |  |                    | 2.45    |      |  |      | 0.02    |  |  |      | (0.07   | )
|Total basic earnings per share                                                      |                                                                                                      |  | 3.01               |         |      |  | 0.93 |         |  |  | 0.83 |        
|Diluted earnings (loss) per share:                                                  |                                                                                                      |  |                    |         |      |  |      |         |  |  |      |        
|                                                                                    | Continuing operations                                                                                |  |                    | 0.56    |      |  |      | 0.91    |  |  |      | 0.90    |  
|                                                                                    | Discontinued operations                                                                              |  |                    | 2.45    |      |  |      | 0.02    |  |  |      | (0.07   | )
|Total diluted earnings per share                                                    |                                                                                                      |  | 3.01               |         |      |  | 0.93 |         |  |  | 0.83 |        
|Weighted average number of common shares
outstanding under U.S. GAAP (in thousands)
|                                                                                    | Basic                                                                                                |  |                    | 135,364 |      |  |      | 136,135 |  |  |      | 136,190 |  
|                                                                                    | Diluted                                                                                              |  |                    | 135,518 |      |  |      | 136,135 |  |  |      | 136,190 |  

|                                                     |  |                    |       |      |  |  |       |  
|---------------------------------------------------- |  | ------------------ | ----- | ---- |  |  | ----- | -
|                                                     |  | As at December 31,
|                                                     |  |                   
|                                                     |  | 2001               |       | 2002
|                                                     |  |                    |       |     
|                                                     |  |                   |       |    
|Reconciliation of shareholders equity               |  |                    |       |      |  |  |       |  
|Shareholders equity in accordance with Finnish GAAP |  |                    | 1,469 |      |  |  | 1,379 |  
|U.S. GAAP adjustments:                               |  |                    |       |      |  |  |       |  
|a) Business combination, net                         |  |                    | 89    |      |  |  | 81    |  
|b) Purchase accounting, net                          |  |                    | (3    | )    |  |  | 16    |  
|c) Amortization of goodwill                          |  |                    | (0    | )    |  |  | 12    |  
|d) Fair value of financial derivatives               |  |                    | (8    | )    |  |  | 27    |  
|e) Pension surplus refund                            |  |                    | (3    | )    |  |  | (1    | )
|f) Employee benefit plans                            |  |                    | (51   | )    |  |  | (59   | )
|g) Restructuring costs                               |  |                    | 5     |      |  |  |      |  
|h) Investments                                       |  |                    | (15   | )    |  |  | 3     |  
|i) Treasury stock                                    |  |                    | (1    | )    |  |  | (1    | )
|j) Translation difference                            |  |                    |      |      |  |  | (47   | )
|Deferred tax effect of U.S. GAAP adjustments         |  |                    | 21    |      |  |  | 9     |  
|                                                     |  |                    |       |      |  |  |       |  
|Shareholders equity in accordance with U.S. GAAP    |  |                    | 1,503 |      |  |  | 1,419 |  
|                                                     |  |                    |       |      |  |  |       |  

F-44



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

a) Business combination

The merger of Rauma and Valmet, which, under Finnish GAAP, was accounted
for by the pooling of interests method, was consummated on July 1, 1999. The
net income and shareholders equity of Rauma, existing prior to the
consummation date, was pooled with the shareholders equity of Valmet.

Under U.S. GAAP, the merger was accounted for as a purchase, with Valmet
as the accounting acquirer. The total purchase consideration of Rauma was
determined on the basis of the fair value of the transaction when the
combination was announced on November 17, 1998. The fair value of the
outstanding Rauma warrants at November 17, 1998, were included in the purchase
consideration, since such warrant holders were entitled to Metso warrants
determined using the share-exchange ratio. In addition, the direct costs of the
merger consisting of finders fees and professional and legal fees, amounting
to 3, net of taxes, were included in the total purchase consideration. The
fair value allocation of the purchase consideration was as follows:

|                                    |  |               |       |             |  |                   |     |               |  |  |      |   |  |  |       | 
|----------------------------------- |  | ------------- | ----- | ----------- |  | ----------------- | --- | ------------- |  |  | ---- | - |  |  | ----- | 
|                                    |  | Finnish GAAP  |       |             |  | U.S. GAAP         |     | U.S. GAAP    
|                                    |  | pooling       |       | Historical  |  | purchase          |     | purchase     
|                                    |  | balance sheet |       | U.S. GAAP   |  | accounting fair   |     | balance      
|                                    |  | June 30, 1999 |       | adjustments |  | value adjustments |     | June 30, 1999
|                                    |  |               |       |             |  |                   |     |              
|                                    |  |              |       |            |  |                  |     |             
|Assets                              |  |               |       |             |  |                   |     |               |  |  |      |   |  |  |       | 
|Intangible assets                   |  |               | 132   |             |  |                   |    |               |  |  | (113 | ) |  |  | 19    | 
|Tangible assets                     |  |               | 240   |             |  |                   | (2  | )             |  |  | 272  |   |  |  | 510   | 
|Financial assets                    |  |               | 35    |             |  |                   |    |               |  |  |     |   |  |  | 35    | 
|Current                             |  |               | 845   |             |  |                   | 15  |               |  |  | 42   |   |  |  | 902   | 
|                                    |  |               |       |             |  |                   |     |               |  |  |      |   |  |  |       | 
|Total                               |  |               | 1,252 |             |  |                   | 13  |               |  |  | 201  |   |  |  | 1,466 | 
|                                   
|Liabilities                         |  |               |       |             |  |                   |     |               |  |  |      |   |  |  |       | 
|Minority interests                  |  |               | 0     |             |  |                   |    |               |  |  |     |   |  |  | 0     | 
|Long-term liabilities               |  |               | 139   |             |  |                   | 34  |               |  |  | 10   |   |  |  | 183   | 
|Short-term liabilities              |  |               | 610   |             |  |                   | 13  |               |  |  | 85   |   |  |  | 708   | 
|                                    |  |               |       |             |  |                   |     |               |  |  |      |   |  |  |       | 
|Total                               |  |               | 749   |             |  |                   | 47  |               |  |  | 95   |   |  |  | 891   | 
|                                   
|Shareholders equity/Purchase price |  |               | 503   |             |  |                   | (34 | )             |  |  | 106  |   |  |  | 575   | 
|                                    |  |               |       |             |  |                   |     |               |  |  |      |   |  |  |       | 

In connection with the merger, Metso incurred and recognized restructuring
costs and liabilities as a result of combining the two operations. Under
Finnish GAAP, these costs were expensed. Under U.S. GAAP, certain qualifying
liabilities established in connection with a purchase business combination
amounting to 13 were recorded to the acquisition balance sheet as liabilities
assumed.

The impact of the above adjustments on the reconciliation of net income
and of the shareholders equity is as follows:

|           |                                          |  |                         |     |      |  |      |     |   |  |  |     |  
|---------- | ---------------------------------------- |  | ----------------------- | --- | ---- |  | ---- | --- | - |  |  | --- | -
|           |                                          |  | Year ended December 31,
|           |                                          |  |                         |    
|           |                                          |  | 2000                    |     | 2001 |  | 2002
|           |                                          |  |                         |     |      |  |     
|           |                                          |  |                        |     |     |  |    
|Net income |                                          |  |                         |     |      |  |      |     |   |  |  |    
|           | Amortization of goodwill                 |  |                         | 6   |      |  |      | 5   |   |  |  | 5   |  
|           | Depreciation of buildings and structures |  |                         | (3  | )    |  |      | (3  | ) |  |  | (3  | )
|           | Depreciation of other tangible assets    |  |                         | (11 | )    |  |      | (11 | ) |  |  | (10 | )
|           | Disposal of fixed assets                 |  |                         | (1  | )    |  |      | 0   |   |  |  | (5  | )
|           | Deferred taxes                           |  |                         | 5   |      |  |      | 4   |   |  |  | 5   |  
|           |                                          |  |                         |     |      |  |      |     |   |  |  |    
|           | Total                                    |  |                         | (4  | )    |  |      | (5  | ) |  |  | (8  | )
|           |                                          |  |                         |     |      |  |      |     |   |  |  |    

F-45



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

|                     |                           |  |                    |     |      |  |    |     |  
|-------------------- | ------------------------- |  | ------------------ | --- | ---- |  | -- | --- | -
|                     |                           |  | As at December 31,
|                     |                           |  |                   
|                     |                           |  | 2001               |     | 2002
|                     |                           |  |                    |     |     
|                     |                           |  |                   |     |    
|Shareholders equity |                           |  |                    |     |      |  |    |    
|                     | Rauma historical goodwill |  |                    | (39 | )    |  |    | (34 | )
|                     | Land and water areas      |  |                    | 2   |      |  |    | 2   |  
|                     | Buildings and structures  |  |                    | 89  |      |  |    | 86  |  
|                     | Machinery and equipment   |  |                    | 132 |      |  |    | 117 |  
|                     | Employee benefits         |  |                    | (33 | )    |  |    | (33 | )
|                     | Current liabilities       |  |                    | (12 | )    |  |    | (12 | )
|                     | Deferred taxes            |  |                    | (50 | )    |  |    | (45 | )
|                     |                           |  |                    |     |      |  |    |    
|Total                |                           |  | 89                 |     |      |  | 81 |    
|                     |                           |  |                    |     |      |  |    |    

The following table presents the change in U.S. GAAP purchase accounting
adjustments from the acquisition balance sheet to the balance sheet as of
December 31, 2002.

|                        |  |                 |     |           |  |              |     |                 |  |             |     |   |  |  |     | 
|----------------------- |  | --------------- | --- | --------- |  | ------------ | --- | --------------- |  | ----------- | --- | - |  |  | --- | 
|                        |  |                 |     |           |  |              |     |                 |  | Accumulated |     |   |  | 
|                        |  | Opening balance |     | Disposals |  | amortization |     | Closing balance
|                        |  |                 |     |           |  |              |     |                
|                        |  |                |     |          |  |             |     |               
|Land and water areas    |  |                 | 1   |           |  |              | 1   |                 |  |             |    |   |  |  | 2   | 
|Buildings               |  |                 | 104 |           |  |              | (7  | )               |  |             | (11 | ) |  |  | 86  | 
|Machinery and equipment |  |                 | 167 |           |  |              | (12 | )               |  |             | (38 | ) |  |  | 117 | 
|                        |  |                 |     |           |  |              |     |                 |  |             |     |   |  |  |     | 
|Total                   |  |                 | 272 |           |  |              | (18 | )               |  |             | (49 | ) |  |  | 205 | 
|                        |  |                 |     |           |  |              |     |                 |  |             |     |   |  |  |     | 

b) Purchase accounting, net

In the year ended December 31, 2001, Metso acquired Svedala Industri AB, a
Swedish industrial group. In July 2000, Metso had made a public offer to
acquire all the shares in Svedala, a global supplier of products and services
for the rock and mineral processing industry. The competition authorities of
the European Union and the United States examined the effects of the
acquisition, and in January and in September 2001, respectively, gave their
clearance on certain conditions. The acquisition was completed on September 14,
2001.

The objective of the acquisition was to strengthen the market position, to
enlarge the product range and to improve the competitiveness of Metso Minerals,
which became a separate segment of Metso in January 2001. The acquisition
reduces the sensitivity of Metso to investment cycles of the paper and fiber
industry, which is serviced by Metso Paper.

The following tables reflect the reconciliation of the total consideration
for Svedala, the allocation of the excess of purchase consideration over the
net assets and the U.S. GAAP purchase accounting adjustments:

|                                                                               |  |   |      |  
|------------------------------------------------------------------------------ |  | - | ---- | -
|                                                                               |  | 
|                                                                               |  |  
|Cash paid                                                                      |  |   | 924  |  
|Direct acquisition costs                                                       |  |   | 19   |  
|Liabilities recognized pursuant to EITF 95-3, net of income tax
benefit of 10 |  |   | 50   |  
|                                                                               |  |   |      |  
|Total consideration                                                            |  |   | 993  |  
|Net assets acquired                                                            |  |   | (145 | )
|                                                                               |  |   |      |  
|Excess of purchase consideration over the net assets acquired                  |  |   | 848  |  
|                                                                               |  |   |      |  

F-46



---



##### 



METSO
 
Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

U.S. GAAP purchase accounting adjustments:

|                                                              |  |   |     |  
|------------------------------------------------------------- |  | - | --- | -
|                                                              |  | 
|                                                              |  |  
|Goodwill                                                      |  |   | 685 |  
|Land and buildings                                            |  |   | 34  |  
|Other tangible assets                                         |  |   | 15  |  
|Patents                                                       |  |   | 7   |  
|Trademarks                                                    |  |   | 58  |  
|Customer value                                                |  |   | 67  |  
|Order backlog                                                 |  |   | 30  |  
|Inventories                                                   |  |   | 10  |  
|Liability for pensions under FAS87 and FAS106                 |  |   | 8   |  
|Deferred taxation on the above adjustments                    |  |   | (66 | )
|                                                              |  |   |     |  
|Excess of purchase consideration over the net assets acquired |  |   | 848 |  
|                                                              |  |   |     |  

Direct acquisition costs of 19, which have been capitalized to the
purchase price, consisted of professional and legal fees.

The restructuring costs of 50, net of taxes, which have been included in
the acquisition cost, consist of the following:

|                                                                        |  |   |    | 
|----------------------------------------------------------------------- |  | - | -- | 
|                                                                        |  | 
|                                                                        |  |  
|Termination benefits, net of income tax benefit of 6                   |  |   | 32 | 
|Lease termination and other exit costs, net of income tax benefit of 2 |  |   | 11 | 
|Other closure costs, net of income tax benefit of 2                    |  |   | 7  | 
|                                                                        |  |   |    | 
|Total, net of income tax benefit of 10                                 |  |   | 50 | 
|                                                                        |  |   |    | 

The major actions that have been taken by the Company include reducing
excess production capacity in the U.S. and in the United Kingdom, closing down
unprofitable manufacturing entities in the U.S., Mexico and Germany and
combining local sales structures in different countries.

The following table presents the change in U.S. GAAP purchase accounting
adjustments from the acquisition balance sheet to the balance sheet as of
December 31, 2002:

|                                               |  |                     |     |            |  |              |     |             |  |                   |     |   |  |  |     |                     |  |  |     |  
|---------------------------------------------- |  | ------------------- | --- | ---------- |  | ------------ | --- | ----------- |  | ----------------- | --- | - |  |  | --- | ------------------- |  |  | --- | -
|                                               |  | Purchase accounting |     |            |  |              |     |             |  |                   |     |   |  |  |     | Purchase accounting
|                                               |  | adjustments at the  |     | Decreases/ |  | Accumulated  |     | Translation |  | adjustments at   
|                                               |  | acquisition date    |     | Increases  |  | amortization |     | differences |  | December 31, 2002
|                                               |  |                     |     |            |  |              |     |             |  |                  
|                                               |  |                    |     |           |  |             |     |            |  |                 
|Goodwill                                       |  |                     | 685 |            |  |              |    |             |  |                   |    |   |  |  | (39 | )                   |  |  | 646 |  
|Brand
names(1)                                 |  |                     | 58  |            |  |              |    |             |  |                   |    |   |  |  | (4  | )                   |  |  | 54  |  
|Customer value                                 |  |                     | 67  |            |  |              |    |             |  |                   | (14 | ) |  |  | (3  | )                   |  |  | 50  |  
|Patents(1)                                     |  |                     | 7   |            |  |              |    |             |  |                   | (1  | ) |  |  | (1  | )                   |  |  | 5   |  
|Land and water areas(1)                        |  |                     | 13  |            |  |              |    |             |  |                   |    |   |  |  | (1  | )                   |  |  | 12  |  
|Buildings(1)                                   |  |                     | 21  |            |  |              |    |             |  |                   | (1  | ) |  |  | (1  | )                   |  |  | 19  |  
|Other tangible assets(1)                       |  |                     | 15  |            |  |              |    |             |  |                   | (3  | ) |  |  | (1  | )                   |  |  | 11  |  
|Order backlog                                  |  |                     | 30  |            |  |              |     |             |  |                   | (30 | ) |  |  |    |                     |  |  |    |  
|Inventory                                      |  |                     | 10  |            |  |              | (10 | )           |  |                   |    |   |  |  |    |                     |  |  |    |  
|Liability for pensions
under FAS87 and FAS 106 |  |                     | 8   |            |  |              |    |             |  |                   |    |   |  |  |    |                     |  |  | 8   |  
|Deferred taxes                                 |  |                     | (66 | )          |  |              | 3   |             |  |                   | 14  |   |  |  | 3   |                     |  |  | (46 | )
|                                               |  |                     |     |            |  |              |     |             |  |                   |     |   |  |  |     |                     |  |  |     |  
|Total                                          |  |                     | 848 |            |  |              | (7  | )           |  |                   | (35 | ) |  |  | (47 | )                   |  |  | 759 |  
|                                               |  |                     |     |            |  |              |     |             |  |                   |     |   |  |  |     |                     |  |  |     |  

---

|(1) |  | The following purchase accounting adjustments have also been recorded
under Finnish GAAP: 58 for brands, 7 for patents, 13 for land and water
areas, 21 for buildings and 15 for other tangible assets. Accordingly,
under Finnish GAAP the accumulated amortization and depreciation at
December 31, 2002 amounted to 4 for brands, 1 for
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-47



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)



| |  | patents, 1 for buildings, 2 for other tangible assets with related
deferred tax amounting to (2).
| |  | ----------------------------------------------------------------------------------------------------

The amortization periods of assets assigned from the excess of purchase
consideration are:

|                            |  |                                                                     |  | 
|--------------------------- |  | ------------------------------------------------------------------- |  | 
|Buildings                   |  | 20 years                                                           
|Other tangible assets       |  | 8 years                                                            
|Patents                     |  | Average of 9 years and 5 months                                    
|Customer value              |  | From 40 months to 80
months depending on the type of customer group
|Order backlog and inventory |  | Average of 15 months                                               

The impact of these adjustments on the reconciliation of net income and
shareholders equity, excluding impact of translation difference, between
Finnish GAAP and U.S. GAAP for the Svedala acquisition are as follows:

|                                                                     |                                                                                                 |  |                         |     |      |  |    |     |  
|-------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- |  | ----------------------- | --- | ---- |  | -- | --- | -
|                                                                     |                                                                                                 |  | Year ended December 31,
|                                                                     |                                                                                                 |  |                        
|                                                                     |                                                                                                 |  | 2001                    |     | 2002
|                                                                     |                                                                                                 |  |                         |     |     
|                                                                     |                                                                                                 |  |                        |     |    
|Difference between net income under Finnish GAAP and U.S. GAAP       |                                                                                                 |  |                         |     |      |  |    |    
|                                                                     | Reversal of goodwill amortization                                                               |  |                         | 11  |      |  |    | 40  |  
|                                                                     | Reversal of amortization of brand names                                                         |  |                         |    |      |  |    | 4   |  
|                                                                     | Amortization of customer value under U.S. GAAP                                                  |  |                         | (3  | )    |  |    | (11 | )
|                                                                     | Difference between amortization of other intangible assets                                      |  |                         | (0  | )    |  |    | 0   |  
|                                                                     | Difference between depreciation of tangible assets                                              |  |                         | (1  | )    |  |    | 1   |  
|                                                                     | Amortization of order backlog under U.S. GAAP                                                   |  |                         | (14 | )    |  |    | (16 | )
|                                                                     | Inventory: amortization of difference between the fair value and net
book value under U.S. GAAP |  |                         | (2  | )    |  |    | (8  | )
|                                                                     | Deferred taxes                                                                                  |  |                         | 6   |      |  |    | 9   |  
|                                                                     |                                                                                                 |  |                         |     |      |  |    |    
|Total difference between net income under Finnish GAAP and
U.S. GAAP |                                                                                                 |  | (3                      | )   |      |  | 19 |    
|                                                                     |                                                                                                 |  |                         |     |      |  |    |    
|                                                                     | Difference of cumulative effect on shareholders equity between
Finnish GAAP and U.S. GAAP      |  |                         | (3  | )    |  |    | 16  |  
|                                                                     |                                                                                                 |  |                         |     |      |  |    |    

Following are Metsos unaudited pro forma results for 2000 and 2001
assuming the acquisition had occurred on January 1, 2000:

|                                                           |                            |  |                         |         |      |  |       |         | 
|---------------------------------------------------------- | -------------------------- |  | ----------------------- | ------- | ---- |  | ----- | ------- | 
|                                                           |                            |  | Year ended December 31,
|                                                           |                            |  |                        
|                                                           |                            |  | 2000                    |         | 2001
|                                                           |                            |  |                         |         |     
|                                                           |                            |  |                        |         |    
|                                                           |                            |  | (unaudited)            
|Net sales                                                  |                            |  | 5,517                   |         |      |  | 5,451 |        
|Net income                                                 |                            |  | 370                     |         |      |  | 107   |        
|Earnings per share:                                        |                            |  |                         |         |      |  |       |        
|                                                           | Basic earnings per share   |  |                         | 2.73    |      |  |       | 0.78    | 
|                                                           | Diluted earnings per share |  |                         | 2.73    |      |  |       | 0.78    | 
|Weighted average number of shares outstanding (thousands): |                            |  |                         |         |      |  |       |        
|                                                           | Basic                      |  |                         | 135,364 |      |  |       | 136,135 | 
|                                                           | Diluted                    |  |                         | 135,518 |      |  |       | 136,135 | 

These unaudited pro forma results have been prepared for comparative
purposes only, and do not purport to be indicative of the results of
operations, which actually would have resulted had the merger taken

F-48



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

place on January 1, 2000.

c) Amortization of goodwill

Under Finnish GAAP, goodwill is amortized over its estimated useful life.
Under U.S. GAAP, prior to July 1, 2001, goodwill was amortized over its
estimated useful life consistent with Finnish GAAP. Metso adopted the
transition provisions of SFAS 141, Business Combinations, with effect from July
1, 2001. Metso also adopted the provisions of SFAS 142, Goodwill and Other
Intangible Assets, on January 1, 2002. As a result of the adoption of SFAS 141
and SFAS 142, goodwill and certain intangible assets having indefinite lives
are no longer subject to amortization under U.S. GAAP subsequent to the date of
adoption. Their book values are tested for impairment annually, or more
frequently, if circumstances indicate that the book value could be impaired.

For the year ended December 31, 2001, the reconciliation difference on
goodwill amortization between net income reported under Finnish GAAP and U.S.
GAAP amounted to less than 0.3 on acquisitions other than Svedala, which is
reconciled under note b). Total amount of goodwill arising from acquisitions,
other than Svedala, initiated subsequent to the adoption SFAS 141 amounted to
10 and 4 for the years ended December 31, 2001 and 2002,
respectively.

Goodwill and identifiable intangible assets that have indefinite lives are
assessed annually for impairment. Additionally, upon adoption of SFAS 142 as
of January 1, 2002, the Company completed the transitional impairment test and
concluded that there was no impairment of goodwill or identifiable intangibles
with indefinite lives. The Company also completed this annual impairment test
as of September 30, 2002 and no impairment in the carrying value was recorded
as a result of those tests.

An analysis of goodwill by reporting segment under U.S. GAAP is given
below:

|                               |  |       |     |            |  |          |    |          |  |              |     |       |  |  |    |   |  |  |    |  |  |  |     |  
|------------------------------ |  | ----- | --- | ---------- |  | -------- | -- | -------- |  | ------------ | --- | ----- |  |  | -- | - |  |  | -- |  |  |  | --- | -
|                               |  | Paper |     | Automation |  | Minerals |    | Ventures |  | Discontinued |     | Total
|                               |  |       |     |            |  |          |    |          |  |              |     |      
|                               |  |      |     |           |  |         |    |         |  |             |     |     
|As at January 1, 2002          |  |       | 97  |            |  |          | 27 |          |  |              | 692 |       |  |  | 17 |   |  |  | 13 |  |  |  | 846 |  
|Translation difference, net(1) |  |       | (14 | )          |  |          | (2 | )        |  |              | (47 | )     |  |  | (1 | ) |  |  |   |  |  |  | (64 | )
|Increases / (Decreases)        |  |       | 1   |            |  |          |   |          |  |              | 20  | (2)   |  |  |   |   |  |  |   |  |  |  | 21  |  
|As at December 31, 2002        |  |       | 84  |            |  |          | 25 |          |  |              | 665 |       |  |  | 16 |   |  |  | 13 |  |  |  | 803 |  



---

|(1) |  | Includes 10 of translation difference related to cumulative amortization expense recognized
as of December 31, 2001.
|--- |  | ---------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Includes 17 of purchase accounting adjustments related to the
acquisition of Svedala.                               

An analysis of identifiable intangible assets under U.S. GAAP is given
below:

|                        |  |       |    |             |  |          |    |         |  |       |     |   |  |  |     |   |  |  |     |  
|----------------------- |  | ----- | -- | ----------- |  | -------- | -- | ------- |  | ----- | --- | - |  |  | --- | - |  |  | --- | -
|                        |  | Brand |    | Patents and |  | Customer |    | Order   |  |      
|                        |  | Names |    | Licenses    |  | Value    |    | Backlog |  | Total
|                        |  |       |    |             |  |          |    |         |  |      
|                        |  |      |    |            |  |         |    |        |  |     
|As at January 1, 2002   |  |       | 58 |             |  |          | 32 |         |  |       | 64  |   |  |  | 16  |   |  |  | 170 |  
|Translation difference  |  |       | (4 | )           |  |          | (1 | )       |  |       | (3  | ) |  |  |    |   |  |  | (8  | )
|Amortization expense    |  |       |   |             |  |          | (4 | )       |  |       | (11 | ) |  |  | (16 | ) |  |  | (31 | )
|Capital expenditure     |  |       |   |             |  |          | 8  |         |  |       |    |   |  |  |    |   |  |  | 8   |  
|As at December 31, 2002 |  |       | 54 |             |  |          | 35 |         |  |       | 50  |   |  |  |    |   |  |  | 139 |  

Brand names have been designated as intangible assets with an indefinite
life and as such, have not been amortized. The amortization expense of the
other identifiable assets subject to amortization and recorded in books at
December 31, 2002, is expected to be 18, 18, 17, 17 and 17 for each of the
next five years, respectively.

Had the Company accounted for its goodwill and identifiable intangible
assets that have indefinite lives under SFAS 142 for the years ending December
31, 2000 and 2001, the impact on reported results would have

F-49



---



##### 



METSO
 
Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

been as follows:

|                                                           |                            |  |                         |         |      |  |     |         | 
|---------------------------------------------------------- | -------------------------- |  | ----------------------- | ------- | ---- |  | --- | ------- | 
|                                                           |                            |  | Year ended December 31,
|                                                           |                            |  |                        
|                                                           |                            |  | 2000                    |         | 2001
|                                                           |                            |  |                         |         |     
|                                                           |                            |  |                        |         |    
|                                                           |                            |  | (unaudited)            
|Net income under U.S. GAAP as reported                     |                            |  | 407                     |         |      |  | 127 |        
|Amortization:                                              |                            |  |                         |         |      |  |     |        
|                                                           | Goodwill                   |  |                         | 9       |      |  |     | 12      | 
|                                                           | Intangibles, net of taxes  |  |                         |        |      |  |     |        | 
|                                                           |                            |  |                         |         |      |  |     |        
|Adjusted net income under U.S. GAAP                        |                            |  | 416                     |         |      |  | 139 |        
|Earnings per share:                                        |                            |  |                         |         |      |  |     |        
|                                                           | Basic earnings per share   |  |                         | 3.07    |      |  |     | 1.02    | 
|                                                           | Diluted earnings per share |  |                         | 3.07    |      |  |     | 1.02    | 
|Weighted average number of shares outstanding (thousands): |                            |  |                         |         |      |  |     |        
|                                                           | Basic                      |  |                         | 135,364 |      |  |     | 136,135 | 
|                                                           | Diluted                    |  |                         | 135,518 |      |  |     | 136,135 | 

For the year ended December 31, 2002, the impact on net income between
Finnish and U.S. GAAP is as follows:

|                                                                                                              |  |   |     |  
|------------------------------------------------------------------------------------------------------------- |  | - | --- | -
|                                                                                                              |  | 
|                                                                                                              |  |  
|Difference between net income under Finnish GAAP and U.S. GAAP                                                |  |   |     |  
|Goodwill amortization under Finnish GAAP                                                                      |  |   | 57  |  
|Excluding amortization of goodwill existing in Rauma prior to the
merger of Valmet and Rauma in 1999, note a) |  |   | (5  | )
|Excluding amortization of goodwill arising from the Svedala
acquisition, note b)                              |  |   | (40 | )
|                                                                                                              |  |   |     |  
|Remaining net income adjustment                                                                               |  |   | 12  |  
|                                                                                                              |  |   |     |  

d) Fair value of financial derivatives

Under U.S. GAAP, all derivative financial instruments are recognized on
the balance sheet at fair values with changes in fair values recognized through
earnings unless strict hedge accounting criteria for cash flow hedges or hedges
of net investments have been met. In addition, SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities requires the Company to
bifurcate certain hybrid contracts (i.e. contracts with embedded derivatives)
and fair value the derivative component through earnings.

Metso enters into forward exchange contracts to manage its foreign
exchange exposure related to firm commitments and anticipated revenues net of
expenses denominated in foreign currencies other than the functional
currencies. As permitted under Finnish GAAP, Metso has deferred the unrealized
gains and losses (balance sheet date fair values) on such hedges
until the underlying transaction has been recorded in the financial statements. Under
U.S. GAAP as Metso has not met the SFAS No. 133 hedge accounting criteria, such
unrealized gains and losses must be included in the determination of net income
resulting in an U.S. GAAP income adjustment of (7) and 33 for the years ended
December 31, 2001 and 2002, respectively.

The Group has entered into long-term swap contracts to hedge its interest
rate exposure. Under Finnish GAAP, the Company accounts for the swap contracts
using the accrual method. Under U.S. GAAP, all swap contracts are fair valued
and changes in fair values must be included in the determination of net income
resulting in an U.S. GAAP income adjustment of (2) and 3 for the years ended
December 31, 2001 and 2002,

F-50



---



##### 



METSO
 
Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

respectively.

Under Finnish GAAP, the Company is not required to bifurcate and fair
value foreign currency embedded derivatives included in firm commitments. Under
U.S. GAAP, firm commitments, in which the currency is not the functional
currency of either counterparty, must be fair valued on the balance sheet with
changes in fair values recorded through earnings. The effect to record embedded
derivatives at fair values in Metsos U.S. GAAP net income amounted to 1 and
(1) for the years ended December 31, 2001 and 2002, respectively.

The combined effect of these adjustments in Metsos U.S. GAAP net income
and shareholders equity for the years ended December 31, 2001 and 2002,
respectively, is as follows:

|                                                                                                               |  |                    |    |      |  |  |    |  
|-------------------------------------------------------------------------------------------------------------- |  | ------------------ | -- | ---- |  |  | -- | -
|                                                                                                               |  | As at December 31,
|                                                                                                               |  |                   
|                                                                                                               |  | 2001               |    | 2002
|                                                                                                               |  |                    |    |     
|                                                                                                               |  |                   |    |    
|Balance sheet difference as at January 1, net of deferred
tax benefit (expense) of   and 2, respectively    |  |                    |   |      |  |  | (6 | )
|Changes in fair values recognized through U.S. GAAP earnings                                                   |  |                    | (8 | )    |  |  | 35 |  
|Balance sheet difference as at December 31, net of deferred
tax benefit (expense) of 2 and (8), respectively |  |                    | (6 | )    |  |  | 27 |  

Under Finnish GAAP Metso applies hedge accounting and records the realized
gains and losses on hedging instruments to the same income statement line item
as the underlying hedge transaction is recorded. Under U.S. GAAP, the following
adjustments would be made to the income statement line items for the years
ended December 31, 2001 and 2002, respectively:

|                              |  |                         |    |      |  |  |     |  
|----------------------------- |  | ----------------------- | -- | ---- |  |  | --- | -
|                              |  | Year ended December 31,
|                              |  |                        
|                              |  | 2001                    |    | 2002
|                              |  |                         |    |     
|                              |  |                        |    |    
|Operating profit              |  |                         |   |      |  |  | (74 | )
|Financial income and expenses |  |                         | (8 | )    |  |  | 109 |  
|Income taxes                  |  |                         | 2  |      |  |  | (10 | )
|                              |  |                         |    |      |  |  |     |  
|Net income                    |  |                         | (6 | )    |  |  | 25  |  
|                              |  |                         |    |      |  |  |     |  

e) Pension surplus refund

During 2000, Metso received a surplus refund amounting to 14
before taxes from the Swedish pension insurer Alecta (SPP). The refund was
received partly in cash with the remaining portion of the total amount mainly
utilizable against future pension premiums. Under Finnish GAAP, the total
surplus refund was recognized in income.

Under U.S. GAAP only the portion reimbursed in cash, which amounted to 8, 3 and 2 before taxes for the years ended December
31 2000, 2001 and 2002, respectively, can be recognized in income, resulting in
an income statement difference of (6), 3 and 2 for
the years ended December 31, 2000, 2001 and 2002, respectively.

f) Employee benefit plans

Pensions and other postretirement benefits

Metso generally records pension expense in accordance with local
accounting practices in the countries in which employees are provided with such
benefits.

Under U.S. GAAP, pension expense is recorded on a full accrual basis and
reflected in the income statement over the working lives of the employees
provided with such benefits. The economic and demographic assumptions used in
calculating pension expense are to be reviewed and updated periodically to the
extent that

F-51



---



##### 



METSO
 
Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

local market economic conditions and demographics change.

The companies within Metso have various pension schemes in accordance with
the local conditions and practices of the countries in which they operate. Most
of these programs are defined benefit pension schemes with retirement,
disability, death and termination income benefits. The retirement income
benefits are generally a function of years of employment and the final salary
with Metso, and are usually coordinated with local national pensions. The
schemes are generally funded through payments to insurance companies or to
trustee-administered funds as determined by periodic actuarial calculations.
Metso also maintains some multiemployer pension arrangements and defined
contribution pension arrangements.

In the year ended December 31, 2000, one of Metsos pension plans in
Finland was settled through a transfer of the said plan to an external
insurance company. In accordance with U.S. GAAP, SFAS No. 88 on the settlement
of a pension plan, the recognized additional minimum liability from prior years
has been reversed from the shareholders equity, and together with the
settlement cost, charged to income in the year ended December 31, 2000. In the
tables below the transfer is presented as a SFAS No. 88 event of pension
benefits, domestic.

In the year ended December 31, 2001, Metso acquired Svedala, an
international group with employees benefiting from defined contribution pension
and postretirement benefit plans mainly in the U.S., Canada, Brazil, the United
Kingdom, Germany and Sweden. The accumulated benefit liability under purchase
accounting has been reported in the schedule below under the purchase
accounting adjustment. The amounts, recognized as purchase accounting
adjustments for the year ended December 31, 1999, refer to the merger of former
Rauma to Valmet to form Metso.

Metso provides certain health care and life insurance benefits for retired
employees. Substantially all the U.S. and Canadian employees are provided these
benefits. Under U.S. GAAP, SFAS No. 106 Employers Accounting for
Postretirement Benefits Other than Pensions requires Metso to accrue the
estimated cost of postretirement benefit payments during the years the employee
provides services.

For its noninsured, employer-sponsored defined benefit pension schemes,
net periodic cost included in Metsos net profit for the years ended December
31, 2000, 2001 and 2002, calculated in accordance with U.S. GAAP, includes the
following components for companies subject to SFAS No. 87 and 106
recalculation:

|                                      |  |                            |    |                   |  |      |    |      |  |      |    |      |  |                             |     |   |  |  |     |   |  |  |     |  
|------------------------------------- |  | -------------------------- | -- | ----------------- |  | ---- | -- | ---- |  | ---- | -- | ---- |  | --------------------------- | --- | - |  |  | --- | - |  |  | --- | -
|                                      |  |                            |    |                   |  |      |    |      |  |      |    |      |  | Pension and post-retirement
|                                      |  | Pension benefits, domestic |    | benefits, foreign
|                                      |  |                            |    |                  
|                                      |  | 2000                       |    | 2001              |  | 2002 |    | 2000 |  | 2001 |    | 2002
|                                      |  |                            |    |                   |  |      |    |      |  |      |    |     
|                                      |  |                           |    |                  |  |     |    |     |  |     |    |    
|Service cost                          |  |                            | 16 |                   |  |      | 16 |      |  |      | 16 |      |  |                             | 7   |   |  |  | 8   |   |  |  | 10  |  
|Interest cost                         |  |                            | 9  |                   |  |      | 7  |      |  |      | 6  |      |  |                             | 12  |   |  |  | 14  |   |  |  | 22  |  
|Expected return on plan assets        |  |                            | (4 | )                 |  |      |   |      |  |      |   |      |  |                             | (10 | ) |  |  | (11 | ) |  |  | (15 | )
|Net amortization                      |  |                            | 5  |                   |  |      | 4  |      |  |      | 2  |      |  |                             | (0  | ) |  |  | 0   |   |  |  | 1   |  
|Employee contributions                |  |                            |   |                   |  |      |   |      |  |      |   |      |  |                             |    |   |  |  |    |   |  |  |    |  
|                                      |  |                            |    |                   |  |      |    |      |  |      |    |      |  |                             |     |   |  |  |     |   |  |  |     |  
|Net periodic benefit cost             |  |                            | 26 |                   |  |      | 27 |      |  |      | 24 |      |  |                             | 9   |   |  |  | 11  |   |  |  | 18  |  
|                                      |  |                            |    |                   |  |      |    |      |  |      |    |      |  |                             |     |   |  |  |     |   |  |  |     |  
|Special adjustments:                  |  |                            |    |                   |  |      |    |      |  |      |    |      |  |                             |     |   |  |  |     |   |  |  |     |  
|SFAS No. 88 events                    |  |                            | 23 |                   |  |      |   |      |  |      |   |      |  |                             | (1  | ) |  |  | (1  | ) |  |  |    |  
|Purchase accounting adjustment        |  |                            |   |                   |  |      |   |      |  |      |   |      |  |                             |    |   |  |  | 86  |   |  |  |    |  
|Other adjustment                      |  |                            |   |                   |  |      |   |      |  |      |   |      |  |                             |    |   |  |  |    |   |  |  | 1   |  
|                                      |  |                            |    |                   |  |      |    |      |  |      |    |      |  |                             |     |   |  |  |     |   |  |  |     |  
|Grand total net periodic benefit cost |  |                            | 49 |                   |  |      | 27 |      |  |      | 24 |      |  |                             | 8   |   |  |  | 96  |   |  |  | 19  |  
|                                      |  |                            |    |                   |  |      |    |      |  |      |    |      |  |                             |     |   |  |  |     |   |  |  |     |  

F-52



---



##### 



METSO
 
Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

The following tables set forth the change in benefit obligation and the
amounts, which would be recognized in Metsos consolidated balance sheet in
accordance with U.S. GAAP for the years ended December 31, 2001 and 2002:

|                                               |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|---------------------------------------------- |  | -------------------------- | ---- | ----------------- |  | ---- | ---- | ---- |  | --------------------------- | ---- | - |  |  | ---- | -
|                                               |  |                            |      |                   |  |      |      |      |  | Pension and post-retirement
|                                               |  | Pension benefits, domestic |      | benefits, foreign
|                                               |  |                            |      |                  
|                                               |  | 2001                       |      | 2002              |  | 2001 |      | 2002
|                                               |  |                            |      |                   |  |      |      |     
|                                               |  |                           |      |                  |  |     |      |    
|Change in benefit obligation                   |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|Benefit obligation at beginning of year        |  |                            | 129  |                   |  |      | 115  |      |  |                             | 171  |   |  |  | 364  |  
|Service cost                                   |  |                            | 16   |                   |  |      | 16   |      |  |                             | 8    |   |  |  | 10   |  
|Interest cost                                  |  |                            | 7    |                   |  |      | 6    |      |  |                             | 14   |   |  |  | 22   |  
|Acquisition of Svedala                         |  |                            |     |                   |  |      |     |      |  |                             | 166  |   |  |  |     |  
|SFAS No. 88 events                             |  |                            |     |                   |  |      |     |      |  |                             | (1   | ) |  |  |     |  
|Amendments                                     |  |                            |     |                   |  |      |     |      |  |                             | 4    |   |  |  |     |  
|Other adjustment                               |  |                            |     |                   |  |      |     |      |  |                             |     |   |  |  | 5    |  
|Actuarial loss (gain)                          |  |                            | (24  | )                 |  |      | (19  | )    |  |                             | 10   |   |  |  | (4   | )
|Benefits paid                                  |  |                            | (13  | )                 |  |      | (16  | )    |  |                             | (14  | ) |  |  | (19  | )
|Currency effect                                |  |                            |     |                   |  |      |     |      |  |                             | 6    |   |  |  | (44  | )
|                                               |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|Benefit obligation at end of year              |  |                            | 115  |                   |  |      | 102  |      |  |                             | 364  |   |  |  | 334  |  
|                                               |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|                                              
|                                              
|                                               |  |                            |      |                   |  |      |      |      |  | Pension and post-retirement
|                                               |  | Pension benefits, domestic |      | benefits, foreign
|                                               |  |                            |      |                  
|                                               |  | 2001                       |      | 2002              |  | 2001 |      | 2002
|                                               |  |                            |      |                   |  |      |      |     
|                                               |  |                           |      |                  |  |     |      |    
|Change in plan assets                          |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|Fair value of plan assets at beginning
of year |  |                            |     |                   |  |      |     |      |  |                             | 125  |   |  |  | 199  |  
|Actuarial return on plan assets                |  |                            |     |                   |  |      |     |      |  |                             | (3   | ) |  |  | (9   | )
|Company contribution                           |  |                            | 13   |                   |  |      | 16   |      |  |                             | 6    |   |  |  | 20   |  
|FAS 88 events                                  |  |                            |     |                   |  |      |     |      |  |                             | (1   | ) |  |  |     |  
|Acquisition of Svedala                         |  |                            |     |                   |  |      |     |      |  |                             | 80   |   |  |  |     |  
|Other adjustment                               |  |                            |     |                   |  |      |     |      |  |                             |     |   |  |  | 4    |  
|Benefits paid                                  |  |                            | (13  | )                 |  |      | (16  | )    |  |                             | (14  | ) |  |  | (19  | )
|Currency effect                                |  |                            |     |                   |  |      |     |      |  |                             | 6    |   |  |  | (28  | )
|                                               |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|Fair value of plan assets at end of year       |  |                            | 0    |                   |  |      | 0    |      |  |                             | 199  |   |  |  | 167  |  
|                                               |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|Funded status reconciliation                   |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|Funded status                                  |  |                            | (115 | )                 |  |      | (102 | )    |  |                             | (165 | ) |  |  | (167 | )
|Unrecognized transitional obligations
(asset)  |  |                            |     |                   |  |      |     |      |  |                             | 0    |   |  |  | 0    |  
|Unrecognized actuarial (gain) loss             |  |                            | 41   |                   |  |      | 20   |      |  |                             | 20   |   |  |  | 34   |  
|Unrecognized prior service cost                |  |                            | (7   | )                 |  |      | (7   | )    |  |                             | 5    |   |  |  | 4    |  
|                                               |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|Prepaid (accrued) benefit cost                 |  |                            | (81  | )                 |  |      | (89  | )    |  |                             | (140 | ) |  |  | (129 | )
|                                               |  |                            |      |                   |  |      |      |      |  |                             |      |   |  |  |      |  

Under U.S. GAAP an additional minimum liability is recognized and a charge
made to other comprehensive income when the accumulated benefit obligation
exceeds the fair value of plan assets to the extent this amount is not covered
by the net liability recognized in the balance sheet. In 2002, an additional
minimum liability of 23 was recognized.

F-53



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

Amounts recognized in the statement of financial position consist of:

|                                       |  |                            |     |                   |  |      |     |      |  |                             |      |   |  |  |      |  
|-------------------------------------- |  | -------------------------- | --- | ----------------- |  | ---- | --- | ---- |  | --------------------------- | ---- | - |  |  | ---- | -
|                                       |  |                            |     |                   |  |      |     |      |  | Pension and post-retirement
|                                       |  | Pension benefits, domestic |     | benefits, foreign
|                                       |  |                            |     |                  
|                                       |  | 2001                       |     | 2002              |  | 2001 |     | 2002
|                                       |  |                            |     |                   |  |      |     |     
|                                       |  |                           |     |                  |  |     |     |    
|Accrued employee benefit liability     |  |                            | (81 | )                 |  |      | (89 | )    |  |                             | (150 | ) |  |  | (160 | )
|Prepaid benefit cost                   |  |                            |    |                   |  |      |    |      |  |                             | 1    |   |  |  | 8    |  
|Intangible asset                       |  |                            |    |                   |  |      |    |      |  |                             | 2    |   |  |  | 3    |  
|Accumulated other comprehensive income |  |                            |    |                   |  |      |    |      |  |                             | 7    |   |  |  | 20   |  
|                                       |  |                            |     |                   |  |      |     |      |  |                             |      |   |  |  |      |  
|Net amount recognized                  |  |                            | (81 | )                 |  |      | (89 | )    |  |                             | (140 | ) |  |  | (129 | )
|                                       |  |                            |     |                   |  |      |     |      |  |                             |      |   |  |  |      |  
|For plans where ABO exceeds assets:    |  |                            |     |                   |  |      |     |      |  |                             |      |   |  |  |      |  
|ABO                                    |  |                            | 77  |                   |  |      | 66  |      |  |                             | 250  |   |  |  | 185  |  
|PBO                                    |  |                            | 115 |                   |  |      | 102 |      |  |                             | 273  |   |  |  | 204  |  
|Fair value of assets                   |  |                            |    |                   |  |      |    |      |  |                             | 165  |   |  |  | 85   |  

Weighted average assumptions used in the calculation of pension and
postretirement benefit obligations as of December 31, 2001 and 2002 are as
follows:

|                               |  |                            |     |                   |  |      |      |      |  |                             |      |   |  |  |      |  
|------------------------------ |  | -------------------------- | --- | ----------------- |  | ---- | ---- | ---- |  | --------------------------- | ---- | - |  |  | ---- | -
|                               |  |                            |     |                   |  |      |      |      |  | Pension and post-retirement
|                               |  | Pension benefits, domestic |     | benefits, foreign
|                               |  |                            |     |                  
|                               |  | 2001                       |     | 2002              |  | 2001 |      | 2002
|                               |  |                            |     |                   |  |      |      |     
|Discount rate                  |  |                            | 5.8 | %                 |  |      | 5.5  | %    |  |                             | 6.86 | % |  |  | 6.45 | %
|Expected return on plan assets |  | NA                         |     | NA                |  |      | 8.00 | %    |  |                             | 7.89 | %
|Rate of compensation increase  |  |                            | 3.0 | %                 |  |      | 3.0  | %    |  |                             | 3.80 | % |  |  | 3.69 | %

An increase of one percentage point in the assumed health care cost trend
would increase the accumulated postretirement benefit obligation by 0.04 at
December 31, 2002. It would increase the sum of the service and interest cost
by 0.4 for 2002. A decrease of one percentage point in the assumed health care
cost trend would decrease the accumulated postretirement benefit obligation by
0.06 at December 31, 2002. It would decrease the sum of the service and
interest cost by 0.4 for 2002.

g) Restructuring costs

Timing difference in recognition of restructuring costs under Finnish GAAP
and U.S. GAAP in the year ended December 31, 2000

Under Finnish GAAP, downsizing and restructuring costs, arising to 58, were recognized in income in 1999 as nonrecurring expenses. Under U.S.
GAAP, certain portion of the restructuring and integration costs, amounting to
5, did not qualify for accrual and expense recognition in the year
ended December 31, 1999. As the total amount was realized in the year ended
December 31, 2000, the difference between income under Finnish and U.S. GAAP
was reversed in 2000.

Timing difference in recognition of restructuring costs under Finnish GAAP
and U.S. GAAP in the years ended December 31, 2001 and December 31, 2002

Under Finnish GAAP, Metso recognized downsizing and restructuring costs of
36 and 28, for the years ended December 31, 2001 and 2002,
respectively, as nonrecurring expenses (see Note 4). The severance and early
retirement measures, included in the restructuring costs, have concerned 457
and 335 employees of Metso in the years ended December 31, 2001 and 2002,
respectively. In addition, 1,318 persons, employed by the acquired Svedala
group, were included in the involuntary termination and early retirement plans.
The costs have been recognized as part of the restructuring costs of 50, net
of taxes, which have been capitalized in the acquisition balance of Svedala.

F-54



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

The personnel categories included both factory and administrative
personnel mainly in Metso Minerals.

Under U.S. GAAP, certain portion of the restructuring and integration
costs, amounting to 5, did not qualify for accrual and expense recognition in
the year ended December 31, 2001. As the total amount was realized in the year
ended December 31, 2002, the difference between income under Finnish and U.S.
GAAP was reversed in 2002.

The table below illustrates the activity in the restructuring reserves for
the year:

|                                     |  |                    |     |      |  |  |     |  
|------------------------------------ |  | ------------------ | --- | ---- |  |  | --- | -
|                                     |  | As at December 31,
|                                     |  |                   
|                                     |  | 2001               |     | 2002
|                                     |  |                    |     |     
|                                     |  |                   |     |    
|Balance as at January 1              |  |                    | 22  |      |  |  | 74  |  
|Additions to current year reserves   |  |                    | 73  |      |  |  | 36  |  
|Adjustments to prior year reserves   |  |                    |    |      |  |  | (10 | )
|Amounts paid/ charged to the reserve |  |                    | (21 | )    |  |  | (47 | )
|                                     |  |                    |     |      |  |  |     |  
|Balance as at December 31            |  |                    | 74  |      |  |  | 53  |  
|                                     |  |                    |     |      |  |  |     |  

Included in the balances above are amounts related to lease contracts and
post-employment pension amounting to 15 and 12 at December 31, 2001 and 2002
respectively, which have been included in long-term liabilities as the payout
of these obligations will not be completed within one year.

h) Investments

Under Finnish GAAP, Metso records short-term investments at market value
and changes in the market value are recorded as part of financial income and
expense in the Consolidated Statement of Income. Under Finnish GAAP, Metso
records other long-term investments, other than equity securities, at lower of
cost or market value. Shares are recorded at lower of cost or market value,
when the market value can be considered to reflect a permanent impairment of
the investment. For U.S. GAAP purposes, all of Metsos short-term and other
long-term investments in debt securities and equity securities with a readily
determinable market value are classified as available-for-sale and recorded
at fair value with changes in unrealized appreciation recorded directly to
shareholders equity, net of applicable deferred income taxes.

Available-for-sale securities in accordance with U.S. GAAP are summarized
as follows:

|                  |  |           |     |                  |  |                  |   |        |  |  |     |   |  |  |     | 
|----------------- |  | --------- | --- | ---------------- |  | ---------------- | - | ------ |  |  | --- | - |  |  | --- | 
|                  |  | U.S. GAAP |     | Gross unrealized |  | Gross unrealized |   | Market
|                  |  | Cost (*)  |     | holding gains    |  | holding losses   |   | Value 
|                  |  |           |     |                  |  |                  |   |       
|                  |  |          |     |                 |  |                 |   |      
|December 31, 2001 |  |           | 187 |                  |  |                  | 5 |        |  |  | (20 | ) |  |  | 172 | 
|December 31, 2002 |  |           | 45  |                  |  |                  | 4 |        |  |  | (1  | ) |  |  | 48  | 



---

|(*)  U.S. GAAP cost is comprised of the historical acquisition price. |  | 
|--------------------------------------------------------------------- |  | 

The gain realized on disposal of available-for-sale securities was 7 and
37 for the years ended December 31, 2002 and 2001, respectively.

i) Treasury stock

Under Finnish GAAP, treasury stock is presented within financial assets.
Under U.S. GAAP, treasury stock is to be shown as a deduction of the
consolidated shareholders equity and, consequently, 1 at December 31, 2001
and 2002, respectively, has been deducted from the shareholders equity under
U.S. GAAP.

F-55



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

j) Translation difference

Under Finnish GAAP, the Company records certain purchase accounting
adjustments related to foreign subsidiaries in euro, which is the functional
currency of the Parent Company.

Under U.S. GAAP, purchase accounting adjustments are recorded in the
functional currency of the subsidiary to which they relate. As a result,
currency translation differences have been recognized with respect to such
purchase accounting adjustments.

k) Net investment hedge

Under Finnish GAAP, Metso has designated an intercompany foreign currency
denominated loan as a hedge of a net investment and as a result records the
exchange rate difference against the translation difference arising from the
hedge of the net investment at consolidation.

Under U.S. GAAP, hedge accounting may be applied in consolidation only if
the intercompany loan designated as a hedging instrument is offset by a
third-party loan.

l) Discontinued operations

Metso developed a formal plan of disposition of its Forest Machines
division (Timberjack) in September 1999. On April 28, 2000, the activity was
sold to Deere & Company for an aggregate price of 644 resulting in a capital
gain, net of taxes, of 275. In accordance with Finnish GAAP, the operating
result of a discontinued line of business in determining net income and the
related capital gain (loss), net of taxes, is presented under extraordinary
income (expense).

At the time of developing the plan, the disposal met the criteria APB 30,
Reporting the Results of Operations  Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions. Therefore, income from continuing and discontinued
operations was presented separately and all prior period information was
restated to reflect such presentation.

On November 22, 2002, Metso announced it signed a memorandum of
understanding with a Swiss buyer Bobst Group SA to dispose of the Converting
Equipment group, which manufactures equipment for the packaging industry. The
sale is expected to become effective in 2003. The value of the transaction is
approximately 90. In accordance with Finnish GAAP, the net loss of a
discontinued activity is included in the consolidated net income.

Under U.S. GAAP, the Converting Equipment group meets the criteria of a
component entity classified as held for sale of FAS 144, Accounting for the
Impairment or Disposal of Long-lived Assets, and accordingly, income from
continuing and discontinued operations has been presented separately and all
prior period information have been restated to reflect such presentation.

Certain income statement line items for the discontinued operations are
presented in the following table:

|                 |  |                   |     |                   |  |                   |     |  |  |  |     |  
|---------------- |  | ----------------- | --- | ----------------- |  | ----------------- | --- |  |  |  | --- | -
|                 |  |                   |     |                   |  | For years ended   |     |  |  | 
|                 |  |                  
|                 |  | December 31, 2000 |     | December 31, 2001 |  | December 31, 2002
|                 |  |                   |     |                   |  |                  
|                 |  |                  |     |                  |  |                 
|Net sales        |  |                   | 355 |                   |  |                   | 176 |  |  |  | 160 |  
|Operating profit |  |                   | 14  |                   |  |                   | 3   |  |  |  | (8  | )
|Net income       |  |                   | 6   |                   |  |                   | 2   |  |  |  | (10 | )

In accordance with U.S. GAAP, the capital gain on the disposal of Forest
Machines Group recognized

F-56



---



##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

in 2000 comprised the following:

|                                                                                                                          |  |   |     |  
|------------------------------------------------------------------------------------------------------------------------- |  | - | --- | -
|                                                                                                                          |  | 
|                                                                                                                          |  |  
|Capital gain, net of tax expense of 103, under Finnish GAAP                                                              |  |   | 275 |  
|Cancellation of historical goodwill under pooling of
Interest method                                                      |  |   | 57  |  
|Employee benefits, including the opening balance of benefit
Liability under purchase accounting, net of tax benefit of 3 |  |   | 8   |  
|Allocation of excess price on fixed assets under purchase accounting,
net of tax expense of 4                            |  |   | (14 | )
|                                                                                                                          |  |   |     |  
|Capital gain, net of taxes of 102 under U.S. GAAP                                                                        |  |   | 326 |  
|                                                                                                                          |  |   |     |  

n) Consolidated Statement of Comprehensive Income

The Company has adopted Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income,which establishes standards for the
reporting and presentation of comprehensive income and its components. The
Company has chosen to present comprehensive income in accordance with Finnish
GAAP and components of comprehensive income consist of the following:

Components of comprehensive income consist of the following:

|                              |                                                                                                            |  |     |                         |  |      |     |      |   |  |     |      |   | 
|----------------------------- | ---------------------------------------------------------------------------------------------------------- |  | --- | ----------------------- |  | ---- | --- | ---- | - |  | --- | ---- | - | 
|                              |                                                                                                            |  |     | Year ended December 31,
|                              |                                                                                                            |  |     |                        
|                              |                                                                                                            |  |     | 2000                    |  | 2001 |     | 2002
|                              |                                                                                                            |  |     |                         |  |      |     |     
|                              |                                                                                                            |  |     |                        |  |     |     |    
|Comprehensive income          |                                                                                                            |  |     |                         |  |      |     |      |   |  |     |     
|Net income under Finnish GAAP |                                                                                                            |  | 389 |                         |  |      | 141 |      |   |  | 65  |     
|Other comprehensive income    |                                                                                                            |  |     |                         |  |      |     |      |   |  |     |     
|                              | Foreign currency translation adjustments                                                                   |  |     | 18                      |  |      |     | (17  | ) |  |     | (127 | )
|                              | Hedging of net investment denominated in foreign
currency, net of taxes of(2), 2 and (17),
respectively |  |     | 5                       |  |      |     | (4   | ) |  |     | 42   |  
|                              | Additional minimum liability, net of tax benefit of 3                                                     |  |     |                        |  |      |     |     |   |  |     | (5   | )
|                              |                                                                                                            |  |     |                         |  |      |     |      |   |  |     |     
|Other comprehensive income    |                                                                                                            |  | 23  |                         |  |      | (21 | )    |   |  | (90 | )   
|                              |                                                                                                            |  |     |                         |  |      |     |      |   |  |     |     
|Comprehensive income          |                                                                                                            |  | 412 |                         |  |      | 120 |      |   |  | (25 | )   
|                              |                                                                                                            |  |     |                         |  |      |     |      |   |  |     |     

o) Earnings per share

Earnings per share for Finnish GAAP purposes is based on income before
extraordinary items and income taxes, adjusted for minority interest and taxes
related for normal business operations (see Note 1 Accounting Principles for
detailed discussion). Under U.S. GAAP basic earnings per share is calculated by
dividing net income by the average number of common shares outstanding during
the year. Diluted earnings per share is calculated by adjusting outstanding
shares, assuming conversion of all potentially dilutive stock options.

p) Stock compensation

Amounts
included in this footnote are presented in actual amounts.

Pursuant to SFAS No. 123 Accounting for Stock-Based Compensation, the
Company has elected to account for its stock option plan under the intrinsic
value method of APB Opinion 25 Accounting for Stock Issued to Employees and
adopt only the disclosure provisions of SFAS No. 123. As of December 31, 2002,
no compensation expense is recognized under APB 25 related to the Companys
employee stock options as the exercise prices of the Companys employee stock
options, which are adjusted by subsequent dividend payments, equal or exceed
the market price of the underlying stock on the date of grant. Under SFAS No.
123, stock options are valued at grant date using the Black-Scholes valuation
model and compensation costs are recognized ratably over the vesting period.
Had compensation costs been determined as prescribed by SFAS No. 123, the
Companys net income and earnings per share would have been reduced to pro
forma amounts indicated below:

F-57



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##### 



METSO Notes to Consolidated Financial Statements
(in millions, except for per share amounts)

|                                     |             |  |                         |      |      |  |      |      |  |  |  |      | 
|------------------------------------ | ----------- |  | ----------------------- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                     |             |  | Year ended December 31,
|                                     |             |  |                        
|                                     |             |  | 2000                    |      | 2001 |  | 2002
|                                     |             |  |                         |      |      |  |     
|                                     |             |  |                        |      |     |  |    
|Net income                           |             |  |                         |      |      |  |      |      |  |  |  |     
|                                     | as reported |  |                         | 407  |      |  |      | 127  |  |  |  | 113  | 
|                                     | Pro forma   |  |                         | 398  |      |  |      | 122  |  |  |  | 110  | 
|Basic and diluted earnings per share |             |  |                         |      |      |  |      |      |  |  |  |     
|                                     | as reported |  |                         | 3.01 |      |  |      | 0.93 |  |  |  | 0.83 | 
|                                     | Pro forma   |  |                         | 2.94 |      |  |      | 0.90 |  |  |  | 0.80 | 

The Company currently has two option programs, the 2000 stock option plan
and the 2001 stock option plan.

The 2001 Annual General Meeting approved of an issue of two series of
warrants (the 2001 Plan), named A and B, to persons belonging to the
management and to certain other key persons with following conditions:

|                           |  |                                                                                                         |  |                                |  |  |  | 
|-------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | ------------------------------ |  |  |  | 
|                           |  | A warrants                                                                                              |  | B warrants                    
|                           |  |                                                                                                         |  |                               
|Number of warrants         |  | 500,000                                                                                                 |  | 500,000                       
|                           | 
|Exercise period            |  | April 1, 2001  April 30, 2005                                                                          |  | April 1, 2003  April 30, 2005
|                           | 
|Exercise price per warrant |  | 15.60 adjusted by dividends payable after March 1, 2001. The
exercise price cannot be below par value.
|                           | 
|Subscription               |  | One warrant gives the right to subscribe one share.                                                    

The 2000 Annual General Meeting approved a plan (the 2000 Plan) in order
to standardize the incentive programs of the Group in such a manner that the
warrant holders of Valmet Corporation and Rauma Corporation were offered a
possibility to convert their warrants in the aforementioned companies to the
warrants being issued. As a result of the 2000 plan 3,500,000 outstanding
Valmet and Rauma warrants were converted to the plan. Under the 2000 plan, two
series of warrants, named A and B, are issued to persons belonging to the
management and certain other key persons with following conditions:

|                           |  |                                                                                                      |  |                                |  |  |  | 
|-------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | ------------------------------ |  |  |  | 
|                           |  | A warrants                                                                                           |  | B warrants                    
|                           |  |                                                                                                      |  |                               
|Number of warrants         |  | 2,500,000                                                                                            |  | 2,500,000                     
|                           | 
|Exercise period            |  | April 1, 2001  April 30, 2005                                                                       |  | April 1, 2003  April 30, 2005
|                           | 
|Exercise price per warrant |  | 16 adjusted by dividends payable after March 1, 2000. The exercise
price cannot be below par value.
|                           | 
|Subscription               |  | One warrant gives the right to subscribe one share.                                                 

To the extent the subscription rights of warrants are not used by the
persons included in the 2000 or 2001 Plan, they can be subscribed by Metsos
subsidiary, Metso Capital Oy. The Board of Directors of Metso is authorized to
transfer such warrants in future to persons becoming eligible to its incentive
plan.

If a subscriber of the warrants under the 2000 or 2001 Plan ceases to be
employed by or in the service of the Metso Group for any other reason than
retirement or death, then such person is obligated without delay to offer to
the Company free of charge the warrants for which the share subscription period
had not begun at the last day of such persons employment.

F-58



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

The following table summarizes information about stock options outstanding
at December 31, 2002:

|                                 |  |                     |           |                  |  |  |      | 
|-------------------------------- |  | ------------------- | --------- | ---------------- |  |  | ---- | 
|                                 |  | Number of Shares to |           | Weighted Average
|                                 |  | be subscribed       |           | Fair Value      
|                                 |  |                     |           |                 
|2000 Plan                        |  |                     |           |                  |  |  |      | 
|Outstanding at January 1, 2000   |  |                     |          |                  |  |  |      | 
|Granted                          |  |                     | 4,902,500 |                  |  |  | 2.82 | 
|Forfeited                        |  |                     | 35,000    |                  |  |  |      | 
|Outstanding at December 31, 2000 |  |                     | 4,867,500 |                  |  |  |      | 
|Granted                          |  |                     | 295,000   |                  |  |  | 0.68 | 
|Forfeited                        |  |                     | 227,500   |                  |  |  |      | 
|Exercised                        |  |                     |          |                  |  |  |     | 
|Outstanding at December 31, 2001 |  |                     | 4,935,000 |                  |  |  |      | 
|Granted                          |  |                     |          |                  |  |  |      | 
|Forfeited                        |  |                     | 61,000    |                  |  |  |      | 
|Exercised                        |  |                     |          |                  |  |  |     | 
|Outstanding at December 31, 2002 |  |                     | 4,874,000 |                  |  |  |      | 
|2001 Plan                        |  |                     |           |                  |  |  |      | 
|Outstanding at January 1, 2001   |  |                     |          |                  |  |  |      | 
|Granted                          |  |                     | 675,000   |                  |  |  | 1.11 | 
|Forfeited                        |  |                     |          |                  |  |  |      | 
|Exercised                        |  |                     |          |                  |  |  |      | 
|Outstanding at December 31, 2001 |  |                     | 675,000   |                  |  |  |      | 
|Granted                          |  |                     | 120,000   |                  |  |  | 1.62 | 
|Forfeited                        |  |                     |          |                  |  |  |      | 
|Exercised                        |  |                     |          |                  |  |  |      | 
|Outstanding at December 31, 2002 |  |                     | 795,000   |                  |  |  |      | 

The fair value of the options is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:

|                        |  |                         |      |      |  |      |       |   |  |  |       |  
|----------------------- |  | ----------------------- | ---- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                        |  | Year ended December 31,
|                        |  |                        
|                        |  | 2000                    |      | 2001 |  | 2002
|                        |  |                         |      |      |  |     
|                        |  |                        |      |     |  |    
|2000 Plan               |  |                         |      |      |  |      |       |   |  |  |       |  
|Expected volatility     |  |                         | 42.7 | %    |  |      | 41.04 | % |  |  |      |  
|Risk-free interest rate |  |                         | 4.97 | %    |  |      | 4.09  | % |  |  |      |  
|Dividend yield          |  |                         | 3.76 | %    |  |      | 5.08  | % |  |  |      |  
|Expected life (years)   |  |                         | 3.2  |      |  |      | 2.3   |   |  |  |      |  
|2001 Plan               |  |                         |      |      |  |      |       |   |  |  |       |  
|Expected volatility     |  |                         |     |      |  |      | 41.16 | % |  |  | 46.45 | %
|Risk-free interest rate |  |                         |     |      |  |      | 4.05  | % |  |  | 3.80  | %
|Dividend yield          |  |                         |     |      |  |      | 4,59  | % |  |  | 5.55  | %
|Expected life (years)   |  |                         |     |      |  |      | 2.2   |   |  |  | 1.7   |  

Valmet

The 1998 Annual General Meeting approved an issue of two series of
warrants to persons belonging to the management of the Company and to certain
other key persons (the 1998 I plan). The warrants entitle the

F-59



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

holders to subscribe to an aggregate of 2,000,000 shares in the Company
(1,000,000 shares in each series). The subscription period for the new shares
commenced on April 1, 2001 for the first series, entitling holders to subscribe
for new shares of Valmet at a price of 18.16 per share, and on April 1, 2003
for the second series, entitling the holders to subscribe new shares of Valmet
at a price of 19 per share. The subscription period for both series will close
on March 31, 2005. The share subscription price for both series will be
adjusted by dividends distributed after May 1, 1998 and before the date of the
subscription. As of December 31, 2002, no shares had been subscribed for under
the 1998 I plan.

Consequent to the approval of the 2000 plan of Metso, all the holders
utilized the possibility to convert their warrants of the 1998 I Plan to
warrants under the 2000 Plan. Consequently, there are no remaining warrants
under the 1998 I Plan.

Rauma

During 1996 Rauma issued a five-year bond loan with warrants (A and B
warrants) to certain of its senior management employees. Under this plan
approved by the shareholders in April 1996 (the 1996 plan), the A warrants
entitle the holders to subscribe to 450,000 shares of Rauma during the period
from April 2, 2000 to January 31, 2002. The B warrants entitle the holders to
subscribe to 450,000 shares of the Company during the period from April 2, 2001
to January 31, 2002. The original subscription price was 16.82 per share. The
merger between Valmet and Rauma adjusted the subscription price to 15.44 per
share for both warrants based on the exchange ratio.

A total of 50,000 options issued under the 1996 Plan and transferred from
Rauma Corporation had not been exercised by December 31, 2001 nor at the end of
the subscription period on January 31, 2002. Of these, 25,000 entitled
subscription for 25,000 Metso Corporation shares at a subscription price of
15.44 between April 2, 2000 and January 31, 2002, and likewise 25,000 entitled
subscription for 25,000 Metso Corporation shares at a subscription price of
15.44 between April 2, 2001 and January 31, 2002. No share entitlements
provided by options transferred from Rauma Corporation were subscribed for in
2002 and the program has now ended.

In February 1998, the shareholders approved a plan (the 1998 II plan) to
issue warrants (A, B and C warrants) to certain senior management employees of
Rauma. The aggregate amount of warrants issued was 1,100,000. Each warrant
entitles its holder to subscribe for one share of the Company. The A warrants
entitle the holders to subscribe to 330,000 shares of Rauma during the period
from April 17, 2001 to April 17, 2005. The B warrants entitle the holders to
subscribe to 330,000 shares of Rauma during the period from April 17, 2002 to
April 17, 2005. The C warrants entitle the holders to subscribe to 440,000
shares of Rauma during the period from April 17, 2003 to April 17, 2005. The
original subscription price was 20.35 per share, adjusted by the dividends
distributed after May 1, 1998 and before the date of subscription. The merger
between Valmet and Rauma adjusted the subscription price to 18.68 per share
for both warrants based on the exchange ratio. The expiration date for all
warrants is April 17, 2005. No share entitlements provided by options
transferred from Rauma Corporation were subscribed for in 2001 or in 2002.

In connection with the approval of Metsos merger plan, the Raumas Board
of Directors determined that warrant and option holders would be eligible to
subscribe for the Metso Corporation shares during the period from April 1,
1999, to May 31, 1999 in accordance with the original terms of the warrants and
options adjusted for the conversion ratio of Rauma shares to Metso Corporation
shares of 1.08917.

Consequent to the approval of the 2000 plan of Metso Corporation, the
holders utilized the possibility to convert their warrants of the 1998 II Plan
to warrants under the 2000 Plan. Consequently, there are no remaining warrants
under the 1998 II Plan.

No other bonds with warrants or convertible bonds were outstanding during
2002.

F-60



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

q) Classification differences

Extraordinary items

Under the Finnish GAAP, certain items that are considered to have incurred
outside of the ordinary course of business are classified as extraordinary
and are shown in a separate caption after income from operations.

Under the U.S. GAAP, extraordinary items are those that are considered
both unusual in nature and infrequent in occurrence; in practice, such
extraordinary items are rarely recorded. Accordingly, net extraordinary items
for the years ended December 31, 2000, 2001 and 2002 would not be classified as
extraordinary items under the U.S. GAAP.

The disposition of the extraordinary items under the Finnish GAAP is as
follows:

|                                                                                                                     |                                                                               |  |                         |   |      |  |      |    |   |  |   |   | 
|-------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- |  | ----------------------- | - | ---- |  | ---- | -- | - |  | - | - | 
|                                                                                                                     |                                                                               |  | Year ended December 31,
|                                                                                                                     |                                                                               |  |                        
|                                                                                                                     |                                                                               |  | 2000                    |   | 2001 |  | 2002
|                                                                                                                     |                                                                               |  |                         |   |      |  |     
|                                                                                                                     |                                                                               |  |                        |   |     |  |    
|Extraordinary income:                                                                                                |                                                                               |  |                         |   |      |  |      |    |   |  |   |  
|Capital gain on sale of Timberjack                                                                                   |                                                                               |  | 275                     |   |      |  |     |    |   |  |  |  
|Extraordinary expenses:                                                                                              |                                                                               |  |                         |   |      |  |      |    |   |  |   |  
|                                                                                                                     | Inventory adjustment in Metso Engineerings German operations                 |  |                         |  |      |  |      | (3 | ) |  |   |  | 
|                                                                                                                     | Accounting adjustments in Metso Automations US operations,
net of income tax |  |                         |  |      |  |      | (5 | ) |  |   |  | 
|Realized losses on currency derivatives caused by delay in
the acquisition of Svedala Industri AB, net of income tax |                                                                               |  | (7                      | ) |      |  |     |    |   |  |  |  
|                                                                                                                     |                                                                               |  |                         |   |      |  |      |    |   |  |   |  
|Total                                                                                                                |                                                                               |  | 268                     |   |      |  | (8   | )  |   |  |  |  
|                                                                                                                     |                                                                               |  |                         |   |      |  |      |    |   |  |   |  

Disposition under U.S. GAAP: Apart from the capital gain of 275 on the
sale of Timberjack, recognized in the year ended December 31, 2000, the entire
amounts would be classified as components of operating profit (loss). The
realized currency losses arising from derivatives contracted in view of the
planned acquisition of Svedala Industri AB would have affected the operating
profit of Metso Minerals in the year ended December 31, 2000. The inventory
adjustment of 3, recognized in the year ended December 31, 2001, would have
impacted the operating profit of Metso Engineering and the accounting
adjustment of 5, net of deferred income tax, would have affected the operating
profit of Metso Automation.

Under U.S. GAAP, the capital gain of 275 on the sale of Timberjack would
be classified as discontinued operations.

r) Valuation and Qualifying Accounts

Allowance for doubtful accounts for the three years ended December 31,
2000, 2001 and 2002 is set forth below:

|     |  |            |    |            |  |            |    |          |  |         |     |   |  |            |    |   |  |  |    | 
|---- |  | ---------- | -- | ---------- |  | ---------- | -- | -------- |  | ------- | --- | - |  | ---------- | -- | - |  |  | -- | 
|     |  | Balance at |    | Charged to |  |            |    |          |  |         |     |   |  | Balance at
|     |  | Beginning  |    | Cost and   |  |            |    |          |  |         |     |   |  | End       
|     |  | of Year    |    | Expenses   |  | Deductions |    | Other(1) |  | of Year
|     |  |            |    |            |  |            |    |          |  |        
|     |  |           |    |           |  |           |    |         |  |       
|2000 |  |            | 21 |            |  |            | 8  |          |  |         | 3   |   |  |            | (3 | ) |  |  | 29 | 
|2001 |  |            | 29 |            |  |            | 11 |          |  |         | (11 | ) |  |            | 27 |   |  |  | 56 | 
|2002 |  |            | 56 |            |  |            | 13 |          |  |         | (16 | ) |  |            | (8 | ) |  |  | 45 | 



---

|(1) |  | Foreign currency translation effects and the acquisition balance sheet of
Svedala Group in 2001.
|--- |  | ------------------------------------------------------------------------------------------------

F-61



---



##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

Allowances for inventory accounts for the three years ended December 2000,
2001 and 2002 is set forth below:

|     |  |            |    |              |  |            |    |          |  |         |     |   |  |  |    |            |  |  |    | 
|---- |  | ---------- | -- | ------------ |  | ---------- | -- | -------- |  | ------- | --- | - |  |  | -- | ---------- |  |  | -- | 
|     |  | Balance at |    |              |  |            |    |          |  |         |     |   |  |  |    | Balance at
|     |  | Beginning  |    |              |  |            |    |          |  |         |     |   |  |  |    | End       
|     |  | of Year    |    | Additions(1) |  | Deductions |    | Other(2) |  | of Year
|     |  |            |    |              |  |            |    |          |  |        
|     |  |           |    |             |  |           |    |         |  |       
|2000 |  |            | 19 |              |  |            | 6  |          |  |         | (4  | ) |  |  | 0  |            |  |  | 21 | 
|2001 |  |            | 21 |              |  |            | 10 |          |  |         | (9  | ) |  |  | 58 |            |  |  | 80 | 
|2002 |  |            | 80 |              |  |            | 12 |          |  |         | (13 | ) |  |  | (7 | )          |  |  | 72 | 



---

|(1) |  | Excluded amounts recorded as direct write-off of inventories of 8, 8
and 7 for the years ended December 31, 2000, 2001 and 2002, respectively.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Foreign currency translation effects and the opening balance of Svedala
Group in 2001.                                                           

s) New Accounting Standards

SFAS No. 146

In June 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS), No. 146, Accounting for
Costs Associated with Exit or Disposal Activities. SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). This statement requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred and can be measured at fair value.
The provisions of this statement are effective prospectively for exit or
disposal activities initiated after December 31, 2002. We are currently
assessing the impact of this statement on our results of operations and
financial condition.

FIN 45

In November 2002, the FASB issued Interpretation No. 45 (FIN 45),
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. FIN 45 expands on the accounting
guidance of SFAS 5, Accounting for Contingencies, SFAS 57, Related Party
Disclosures, and SFAS 107, Disclosures about Fair Value of Financial
Instruments, and incorporates without change the provisions of FIN 34,
Disclosure of Indirect Guarantees of Indebtedness of Others, an interpretation
of SFAS 5, which is being superseded. FIN 45 elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees, such as
standby letters of credit. It also clarifies that at the time a company issues
a guarantee, the company must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee and
must disclose that information in its interim and annual financial statements.
FIN 45 will be effective for the Group on a prospective basis for guarantees
issued or modified after December 31, 2002. The disclosure requirements in FIN
45 are effective for financial statements for periods ending after December 15,
2002. We are currently evaluating the impact of this statement on our results
of operations or financial position.

FIN 46

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN 46). Under that interpretation, certain
entities known as Variable Interest Entities (VIEs) must be consolidated
by the primary beneficiary of the entity. The primary beneficiary is
generally defined as having the majority of the risks and rewards arising from
the VIE. For VIEs in which a significant (but not majority) variable interest
is held, certain disclosures are required. The measurement principles of this
interpretation will be applicable to the financial statements for the fiscal
year ending December 31, 2003. The disclosure requirements in FIN 46 are
effective for financial statements for periods ending after December 15, 2002.
We have completed the assessment of our relationships with potential VIEs in
accordance with paragraph 26 of FIN 46. We have not identified any
relationships that would have a material impact on the disclosures or on our

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METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

results of operations or financial position.

SFAS No. 148

In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123. SFAS 148, which is effective for financial periods ending after December
15, 2002, amends SFAS 123, Accounting for Stock-Based Compensationto provide
alternative methods for transition to SFAS 123 fair value method of accounting
for stock-based employee compensation. This statement also amends the
disclosure provisions to require prominent disclosure about the method of
accounting used for stock-based employee compensation and the effect of the
method used on reported results. We have elected to retain to apply APB Opinion
No. 25 Accounting for Stock Issued to Employees.

Note 32. Subsequent Events

Amounts
included in this footnote are presented in actual amounts.

Shareholders decisions

On April 15, 2003, the Annual General Meeting authorized the Board of
Directors to repurchase own shares (treasury stock) for an amount not exceeding
five percent of the nominal value of outstanding shares at the time of
purchase. The own shares (treasury stock) at Metsos possession can be issued
on Boards decision for acquisition of businesses, financing of investments,
using as part of incentive programs to the key personnel, to be disposed in
other ways or to be cancelled. The authorization to reacquire shares and to
dispose of them was given for one year calculated from the date of the General
Annual Meeting of April 15, 2003.

The Annual General Meeting of April 15, 2003 approved a new stock option
program to be issued to the key personnel of Metso Corporation and its
subsidiaries (Metso Group) and to its wholly owned subsidiary, Metso Capital.
The number of stock options issued will be 7,800,000. Of the stock options,
2,600,000 will be marked with the symbol 2003A, 2,600,000 will be marked with
the symbol 2003B and 2,600,000 will be marked with the symbol 2003C. The stock
options entitle the subscription of a maximum of 7,800,000 shares in Metso
Corporation. Upon issue all stock options shall be distributed to Metso
Capital. Metso Capital shall distribute stock options to key personnel employed
by or to be recruited by the Metso Group by resolution of the board of
directors of Metso Corporation. The total number of 2003A, 2003B and 2003C
stock options distributed to the key personnel by the board of directors
cannot, however, exceed 5,600,000 stock options.

The share subscription price for stock option 2003A shall be the trade
volume weighted average quotation of the Metso share on the Helsinki Exchanges
between January 1 and March 31, 2004; for stock option 2003B the trade volume
weighted average quotation of the Metso share on the Helsinki Exchanges between
January 1 and March 31, 2005; and for stock option 2003C the trade volume
weighted average quotation of the Metso share on the Helsinki Exchanges between
January 1 and March 31, 2006.

From the share subscription price of stock options, as per the dividend
record date, shall be deducted the amount of the dividend decided after the
beginning of the period for determination of the subscription price but before
the date of the share subscription.

The share subscription period shall be



| |  | for stock option 2003A April 1, 2006 to April 30, 2009,   
|- |  | ----------------------------------------------------------
| 
| |  | for stock option 2003B April 1, 2007 to April 30, 2010 and
| 
| |  | for stock option 2003C April 1, 2008 to April 30, 2011.   

As a result of the subscriptions with the 2003 stock options, the share
capital of Metso may be increased by a maximum of
13,260,000, and the number of
shares by a maximum of 7,800,000 new shares.

In the same Annual General Meeting the Board was authorized to resolve on
increasing the share capital by issuing new shares, convertible bonds, and/or
stock options in one or more issues. The increase of the share capital through
issuance of new shares, subscription of shares pursuant to conversion of
convertible bonds into shares and/or subscription of shares pursuant to stock
options may amount to an aggregate maximum of

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##### 



METSO

Notes to Consolidated Financial
Statements
(in millions, except for per
share amounts)

12,500,000 new shares with a par value of 1.7 each and to a maximum
aggregate increase of share capital of 21,250,000.

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