SecProbe.io

CORRESP
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corresp

August 5, 2005

BY
EDGAR

Ms. Angela Crane

Branch Chief

U.S. Securities and Exchange Commission

Division of Corporation Finance

Mail Stop 6010

Washington, D.C. 20549-0405

    Re:

    Annual Report on Form 20-F for the Fiscal Year Ended December 31, 2004 of
Metso Corporation (File No. 001-14400)

     On behalf of our client, Metso Corporation (the “Company”), we are submitting the
following letter in response to the comments of the Staff (the “Staff”) of the Securities and
Exchange Commission (the “SEC”) that were contained in the Staff’s letter to Mr. Olli
Vaartimo of the Company dated June 30, 2005 (the “Comment Letter”) with respect to the
Company’s Annual Report on Form 20-F for the fiscal year ended December 31, 2004 (the “2004
Form 20-F”).

     The responses of the Company to the Staff’s comments in the Comment Letter are set forth
below. For your ease of reference, each comment contained in the Comment Letter is printed below
in bold and italics and is followed by the Company’s response. Please note that the Company has
set forth below the text of the disclosure that the Company proposes to include in the Company’s
amendment to its Annual Report on Form 20-F for the fiscal year ended December 31, 2004 (the
“Amended 2004 Form 20-F”) that the Company proposes to file once all of the Staff’s
comments have been resolved.

Form 20-F for the year ended December 31, 2004

Item 15 – Controls and Procedures, page 75

    1.

    We note your statement that your chief executive officer and chief financial officer have
concluded that your disclosure controls and procedures are effective “except as described
below...” Given the exceptions noted, it remains unclear whether your chief executive officer
and chief financial officer have concluded that your disclosure controls and procedures are
effective. Please revise your disclosure to state, in clear and unqualified language, the
conclusions reached by your chief executive officer and your chief financial officer on the
effectiveness of your disclosure controls and procedures. For example, if true, you can state
that your disclosure controls and procedures are effective including consideration of the
identified matters, so long as you provide appropriate disclosure explaining how the
disclosure controls and procedures were determined to be effective in light of the identified
matters. Or, if true, you can state that given the identified matters, your disclosure
controls and procedures are not effective. You should not, however, state the conclusion in
your current disclosure, which appears to state that your disclosure controls and procedures
are effective except to the extent they are not effective.

The Company proposes to include the following disclosure in our Amended 2004 Form 20-F in
response to the Staff’s comment:

“Our president and chief executive officer and our executive vice president and chief
financial officer; after evaluating the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-14(c) under the Exchange Act) as of December 31, 2004,
have concluded that, as of such date, our disclosure controls and procedures cannot be
deemed to have been effective to ensure that material information relating to our company
was made known to them by others within our company, in light of the errors in our U.S. GAAP
reporting discussed below.

In connection with the preparation of our annual report on Form 20-F, we detected an error
in respect of valuation allowances related to deferred tax assets under U.S. GAAP in our
2002 and 2003 financial statements. Under Finnish GAAP, deferred tax assets are not reduced
by a valuation allowance unless it is likely that some portion or all of the deferred tax
assets will not be realized. In this regard, internal projections of future earnings are
utilized by management to assess whether the deferred tax assets will be realized. Under
U.S. GAAP, the determination of the amount of a valuation allowance is based on the weight
of all available evidence, both positive and negative. However, it does require that
generally a valuation allowance is needed when there is negative evidence, such as
cumulative losses for recent years, as is the case in our situation. Projections of future
taxable income will generally not be sufficient to overcome the negative evidence of
cumulative losses. As a result, internal projections normally would not be assigned any
significant weight in assessing the need for a valuation allowance. Consequently, we have
restated our net income under U.S. GAAP for the years ended December 31, 2002 and 2003 to
reflect the impact of the adjustments made to our deferred tax asset valuation allowances
recorded in 2002 and 2003. These adjustments

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would result in a full valuation allowance in relation to our U.S. operations for both
periods. As a result, our restated U.S. GAAP income statement under net income reflects
additional expense of €91 million (€0.67 per share) in 2002 and additional income in
2003 of €28 million (€0.20 per share).

In addition, in 2004, in conjunction with our transition to IFRS, we undertook a complete
review of our defined pension benefit liability under IAS 19. In the course of this review,
we detected weaknesses in our controls in our application of actuarial pension data that
caused us to omit from our U.S. GAAP adjustment related to pensions certain liabilities in
connection with our acquisition of Svedala in 2001. Specifically, in connection with the
calculation of the purchase accounting adjustment of pension liabilities under U.S. GAAP
arising from our acquisition of Svedala, we made an error in comparing the relevant pension
liability amount under U.S. GAAP to the corresponding pension liability under Finnish GAAP.
Because we did not compare the relevant pension liability amount under U.S. GAAP to the
correct amount under Finnish GAAP, we understated our pension liability by €26 million,
net of tax effect of €10 million, under U.S. GAAP. Accordingly, our 2001, 2002 and 2003
financial statements, in accordance with U.S. GAAP, were required to be restated to reflect
the impact of adjustments made to our pension liabilities combined with the increase in
goodwill from the Svedala acquisition in 2001. After consideration of the additional
goodwill, our impairment charge in 2003, under U.S. GAAP, would have been increased. As a
result, our restated U.S. GAAP income statement reflects an additional impairment loss of
€18 million in 2003 (€0.13 additional loss per share).

While we still need to improve our understanding of U.S. GAAP, we had previously begun to
implement procedures to review our controls related to our reporting of U.S. GAAP
information, including the accounting for valuation allowances related to deferred tax
assets and pension benefits. Our management, at the direction of our board of directors,
continues to actively work to improve the control environment and to implement specific
controls and procedures to improve our understanding of U.S. GAAP and to ensure the
integrity of our reporting in relation to U.S. GAAP. To address these control issues, we
have begun to expand our control procedures to include additional analysis and other
post-closing procedures to ensure that our disclosure controls and procedures are adequate
in relation to the preparation of our financial statements. In this regard, we now prepare a
full U.S. GAAP balance sheet as part of our reconciliation process from our Finnish GAAP
balance sheet to U.S. GAAP. We believe that the preparation of a balance sheet under U.S.
GAAP on an annual basis will assist in remedying the errors that we have made in performing
the required U.S. GAAP reconciliation. In addition, we have begun implementing training
relating to enhancing and improving the level of knowledge of U.S. GAAP at each of our
significant operating subsidiaries as well as at our corporate office. Although we continue
to improve these controls by implementing new processes related to our U.S. GAAP reporting,
we believe that we still need to improve our understanding of U.S. GAAP and its
applications. We believe that our understanding of U.S. GAAP will improve as part of our
transition process from Finnish GAAP to IFRS, which will be completed in 2005. In addition,
we continue to analyze our internal controls in order to improve our process of reporting in
accordance with U.S. GAAP.

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There are inherent limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or overriding of
such controls and procedures. Accordingly, even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their controls objectives.
Acknowledging this, we have designed our disclosure controls and procedures to provide such
reasonable assurance.

Other than as discussed above, there were no changes in the Company’s internal control over
financial reporting that occurred during the fiscal year ended December 31, 2004 that have
materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.”

    2.

    Tell us and revise future filings to describe in more detail the nature of the pension
liability error and how it was corrected. You refer to “certain weaknesses in [y]our
controls...” instead of explaining the nature of the error and the specific actions you have
taken to correct the error.

In connection with the calculation of the purchase accounting adjustments of pension
liabilities under U.S. GAAP arising from its acquisition of Svedala in 2001, the Company
made an error in comparing the relevant pension liability amount under U.S. GAAP to the
corresponding pension liability under Finnish GAAP. Because it did not compare the relevant
pension liability amount under U.S. GAAP to the correct amount under Finnish GAAP, the
Company understated its pension liability by €26 million, net of tax effect of €10
million, under U.S. GAAP, and its 2001, 2002 and 2003 financial statements, in accordance
with U.S. GAAP, were required to be restated. The Company detected this error in December
2004 as part of its review of its defined pension benefit liability under IAS 19 undertaken
in conjunction with its transition to IFRS.

The Company has implemented additional internal controls that are designed to reduce the
likelihood of making errors in its pension accounting under U.S. GAAP in the future.
Specifically, since December 2004, the Company now prepares a full U.S. GAAP balance sheet
as part of the reconciliation process from its primary GAAP balance sheet to U.S. GAAP,
instead of performing the reconciliation of only the specific balance sheet line items that
are required to be reported in its Annual Report on Form 20-F. The Company believes that
the preparation of a balance sheet under U.S. GAAP on an annual basis will remedy the errors
that it has made in performing the required U.S. GAAP reconciliation. In addition, the
Company has begun implementing training relating to enhancing and improving the level of
knowledge of U.S. GAAP and pension accounting under U.S. GAAP at each of its significant
operating subsidiaries as well as at its corporate office.

In response to your request that the Company revise its future filings to provide a more
detailed description of the pension liability error and the steps it has taken to remedy the
error, please note that the Company has included additional disclosure in its proposed
amendment to the 2004 Form 20-F set forth in the response to the Staff’s Comment 1 above.
The Company intends to continue to disclose in future filings any future changes to internal
controls that were implemented during the period covered by the relevant

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Annual Report on Form 20-F that materially affected, or that are reasonably likely to
materially affect, its internal controls.

Note 30 – Differences between Generally Accepted Accounting Principles in Finland and the United
States, page F-48

    3.

    We note that your 2002 and 2003 financial statements presented in accordance with U.S. GAAP
have been restated. Tell us and revise future filings to disclose the nature and effect of
each of the accounting errors you discovered during 2004. You should also revise future
filings to show investors how the errors impacted your original financial statements by
providing a reconciliation of your net income as originally reported to your net income as
restated for all periods.

In response to the Staff’s comment, the Company proposes to replace in their entirety
paragraphs (d) “Impairment of goodwill” and (q) “Valuation allowances for deferred tax
assets” of Note 30 as they currently stand in the 2004 Form 20-F in the manner set forth
below under the heading “Proposed Disclosure to be Included in the Amended 2004 Form 20-F”
below. This revised disclosure would be included in the Amended 2004 Form 20-F.

In response to your request to provide this information in future filings, the Company notes
that, pursuant to FAS 154 paragraph 26, this level of disclosure in future filings is not
required in accordance with the above guidance. Accordingly and respectfully, it would be
the Company’s intention to not include this level of information in its future filings other
than its Amended 2004 Form 20-F for these restatement items.

Proposed Disclosure to be Included in the Amended 2004 Form 20-F

“d) Impairment of goodwill

Under U.S. GAAP, as a result of the adoption of SFAS 141 and SFAS 142, goodwill and certain
intangible assets having indefinite lives are no longer subject to amortization. Their book
values are tested annually for impairment, or more frequently, if facts and circumstances
indicate the need. Fair value measurement techniques, such as the discounted cash flow
methodology, are utilized to assess potential impairments. The testing is performed on the
reporting unit level, which can be either a reportable segment or one level below reportable
segment. In the discounted cash flow method, Metso discounts forecasted performance plans to
their present value. The discount rate utilized is the weighted average cost of capital for
the reporting unit, calculated as the opportunity cost to all capital providers weighted by
their relative contribution to the reporting unit’s total capital and the risk associated
with the cash flows and the timing of the cash flows. Comparison methods (e.g., peer
comparables) and other estimation techniques are used to verify the reasonableness of the
fair values derived from the discounted cash flow assessments.

Upon adoption of SFAS 142 as of January 1, 2002, Metso completed the transitional impairment
test and concluded that there was no impairment of goodwill or identifiable

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intangibles with indefinite lives. Metso also completed this annual impairment test as of
September 30, 2002 and no impairment in the carrying value was recorded as a result of those
tests. In 2003, as a result of tightened competition, reduced demand in certain market areas
and the development of exchange rates, especially the impact of the weakened U.S. dollar,
the operating profits of Metso Minerals operations were lower than expected. As of September
30, 2003, upon completion of the first step of the annual impairment assessment, based on
updated forecasted plans approved by the Board of Directors, it was determined that a
potential risk of impairment existed, since the carrying values exceeded the fair values of
certain Metso Minerals’ reporting units. The second step of the impairment test compared the
implied fair value of these reporting units goodwill to the corresponding carrying value of
goodwill. The outcome of the second step was that the carrying value of goodwill of such
reporting units exceeded the implied fair value of the goodwill by €224 million (as
restated