Annual Report 2002

KONE Annual Report 2002 l. +358 (0)204 55 11 .O.Box 61 KONE Materials Handling Sörnäisten rantatie 23 P FIN-00501 Helsinki Finland Te Fax +358 (0)204 55 4222 el. +358 (0)204 751 .O. Box 7 KONE Elevators & Escalators Keilasatama 3 P FIN-02150 Espoo Finland T Fax +358 (0)204 4496 ce

el. +358 (0)204 751 KONE Corporation Head Offi Kartanontie 1 FIN-00330 Helsinki Finland T Fax +358 (0)204 4309 www.kone.com KONE began its international expansion in the 1960s by pursuing an aggressive acquisition strategy, combined with strong organic growth. In 2002 a major step was taken with the acquisition of the industrial engineering group Partek. KONE is a global service and industrial engineering company that specializes in moving people and goods. It comprises two strong divisions: KONE Elevators & Escalators and KONE Materials Handling (Partek). The business of KONE Elevators & Escalators is the sale, manufacture, installation, service and modernization of elevators and escalators, and the service of automatic building doors. KONE Materials Handling compris- es the four business areas Container Handling, Load Handling, Forest Machines and Tractors. The combined annual net sales total approximately EUR 5,5 billion, and KONE employs nearly 36,000 people. KONE’s fi nancial result has improved markedly in the past few years, thanks to technologically advanced elevator and escalator solutions as well as innovative service offerings. Our experience and knowledge in improving profi tability is currently being utilized in particular to KONE Materials Handling’s businesses. Strong profi tability remains our goal in the future. KONE Annual Report 2002 1

Table of Contents

KONE 2002 1 Table of Contents 2 KONE in 2002 4 Message to Shareholders 5 Message to Stakeholders

KONE Elevators & Escalators 6 KONE Elevators & Escalators Business Review 7 Elevators & Escalators Operations 9 Deepening Our Toshiba Alliance 10 Review by Market Area 10 Europe 11 North America 12 Asia-Pacifi c

KONE Materials Handling 13 KONE Materials Handling Business Review 14 Materials Handling Operations 16 Container Handling 17 Load Handling 18 Forest Machines 19 Tractors

Financial Statements 20 Board of Directors’ Report 27 Calculation of Key Figures 28 Principles of Consolidation 29 Consolidated Statement of Income 30 Consolidated Balance Sheet 32 Consolidated Statement of Cash Flows 33 Notes on the Consolidated Financial Statement 37 Parent Company Financial Statement 40 Notes on the Parent Company Financial Statement 43 Shares and Shareholders 47 Five-year Summary in Figures 1998-2002 48 Board of Directors’ Proposal to the Annual General Meeting 49 Auditors’ Report

Board of Directors and Management 50 Operating Principles 52 Corporate Governance 53 Board of Directors 54 KONE Elevators & Escalators Executive Committee 55 KONE Materials Handling Management

Information to Shareholders 56 Information to Shareholders 2 KONE Annual Report 2002

KONE in 2002

KONE Acquired Partek and Handling’s EBITA rose by 5.6 Deepened Cooperation with percent to MEUR 64.2, and the Toshiba EBITA margin improved to 4.7 KONE acquired ownership of percent from 4.4 percent. the Finnish-based industrial Net income improved by engineering company Partek 11 percent to MEUR 157.1. during the year. Partek was Earnings per share rose to EUR delisted from the Helsinki 2.54 from EUR 2.42. Return Exchanges in December. KONE on assets employed was 19.0 is now grouped in two strong percent, and return on equity divisions: KONE Elevators & was 18.4 percent. Cash fl ow Escalators and KONE Materials from operating activities before Handling – which comprises taxes and fi nancial items rose the Partek businesses. KONE by nearly 80 percent to MEUR Materials Handling’s fi gures 615.6. KONE Elevators & have been consolidated into Escalators accounted for MEUR KONE’s fi nancial statement 460.7 and KONE Materials Hand- from July 1, 2002. ling for MEUR 154.9. In December, KONE signed As a consequence of the agreements to sell Nordkalk Partek acquisition, gearing, and the holding in Paroc. The which was negative in 2001, transactions will be closed in rose to 125 percent. the fi rst quarter of 2003. KONE deepened Increase in Share Price and cooperation with Toshiba Number of Shareholders Elevator and Building Systems In May, the par value of KONE Corporation (TELC) by shares was split at a ratio of one participating in a targeted to three, and the new par value share issue. KONE owns nearly is EUR 1.00. The fi gures in the 20 percent of TELC. KONE fi nancial statements have been sold 829,580 of its previously adjusted accordingly. repurchased class B shares to KONE issued three million TELC. TELC owned nearly fi ve new shares, which the State percent of the shares in KONE of Finland subscribed at EUR at the end of the year. 35.33 per share and received as part of the payment for Partek Profi ts Improved for the Sixth shares. During the year 928,734 Straight Year class A shares were converted to KONE’s net sales totaled MEUR class B shares at a ratio of one 4,342. Elevators & Escalator’s to one. net sales rose by 5.5 percent After the split, share issue Orders Received Order Book to MEUR 2,970, and Materials and conversion, KONE’s share Handling’s sales in the second capital consists of 9,526,089 A MEUR MEUR 3,500 2,500 half of 2002 were stable at shares and 53,937,531 B shares. MEUR 1,372. The price of the B shares 3,000 2,000 Elevator & Escalators’ orders on the Helsinki Exchanges 2,500 received were stable at MEUR increased by fi ve percent while 2,129. Materials Handling’s the HEX General Index fell by 1,500 2,000 orders received rose by seven 34 percent. Annual trade in B

1,500 percent to MEUR 1,132. shares rose 163 percent to 33.8 1,000 Operating income before million shares. The number of 1,000 goodwill amortization, EBITA, KONE shareholders increased 500 500 rose by a third to MEUR 340.2 by over 70 percent to nearly which is 7.8 percent of net 8,000. 0 0 sales. Elevators & Escalators’ The Board of Directors has 98 99 00 01 02 98 99 00 01 02 EBITA rose by 12 percent to proposed raising the dividend KONE Elevators & Escalators KONE Elevators & Escalators KONE Materials Handling KONE Materials Handling MEUR 287.0, and the EBITA per class B share to EUR 1.50 margin improved to 9.7 percent from EUR 0.73. from 9.1 percent. Materials KONE Annual Report 2002 3

Highlights 2002 2001 Change % Sales MEUR 4,342 2,816 54 Orders received ” 3,261 2,100 55 Order book as of December 31 ” 2,240 1,881 19 Operating income before goodwill amortization (EBITA) ” 340 256 33 Operating income (EBIT) ” 275 218 26 Income before taxes ” 256 219 17 Net income ” 157 141 11 Total assets ” 4,160 2,107 Earnings/share * EUR 2.54 2.42 1) 5 Dividends per class B share EUR 1.50** 0.73 1) 105 Equity/share * EUR 16 13 1) Return on equity * % 18.4 20.4 Return on capital employed * % 16.4 23.4 Return on assets employed * % 19.0 30.2 Total equity/total assets * % 24.2 36.6 Gearing * % 125 neg. Number of employees as of December 31 35,864 22,949

* The principles of calculating key fi gures can be found on page 27. Capital loans are included in debt. ** Board’s prososal 1) The shares were split at a ratio of one to three on May 28, 2002; the fi gures for 2001 have been restated for comparison

Sales Operating income before goodwill Cash flow from operating activities before Employees as of 31/12 amortization (EBITA) taxes and financial items MEUR MEUR MEUR 4,500 350 700 40,000

4,000 300 600

3,500 30,000 250 500 3,000

200 2,500 400 20,000 2,000 150 300

1,500 100 200 10,000 1,000 50 100 500

0 0 0 0 98 99 00 01 02 98 99 00 01 02 98 99 00 01 02 98 99 00 01 02

KONE Elevators & Escalators KONE Elevators & Escalators KONE Elevators & Escalators KONE Elevators & Escalators KONE Materials Handling KONE Materials Handling KONE Materials Handling KONE Materials Handling 4 KONE Annual Report 2002

Message to Shareholders

The past year will be remem- believe that KONE possesses bered as a signifi cant one in the know-how and experience KONE’s history. The effi ciency to accelerate this process. of our elevator and escala- As I mentioned above, the tor operations continued to acquisition of Partek would not improve, and we achieved a have been possible without our record result. The most note- elevator and escalator opera- worthy event of 2002, how- tions’ strong result and steady ever, was the acquisition of cash fl ow. In 2002 profi tabili- Partek. The decision to make ty and growth developed most this purchase was based primar- favorably in Asia. Cooperation ily on KONE’s enduring strong with our most important alli- cash fl ow and resulting debt- ance partner, Toshiba Elevators free status, the prospects for and Building Systems Corpo- growth through the acquisition ration, continues to develop to of Partek, and naturally the op- the benefi t of both parties. portunity to purchase the shares We will continue the held by Partek’s principal share- forceful development of our holder. Through this acquisi- elevator and escalator business tion, we were able to put our operations. We will also Antti Herlin passive capital to more produc- continue our long-term pattern CEO, Board Deputy Chairman tive use. of investing vigorously in our The total purchase price for product development and Partek, including the company’s production functions as well as debt burden, was approximate- our worldwide customer service ly EUR 1.5 billion. Of course, our operations. gearing increased noticeably af- For KONE, 2002 was a year ter the transaction. The dives- of change. Growth makes it titure process was successfully possible for share value and initiated during 2002, and the earnings per share to increase. fi rst deals, involving the sale of As a long-term investment, Nordkalk and KONE’s holding in KONE stock has been one of Paroc, will be closed during the the Helsinki Exchanges’ best. fi rst quarter of 2003. The sale of It is especially gratifying that non-core businesses in conjunc- during 2002, the number of tion with both divisions’ strong KONE shareholders grew by cash fl ow will rapidly reduce more than 70 percent to nearly gearing. 8,000. Interest in our shares KONE acquired a company also signifi cantly improved their with a leading worldwide posi- liquidity, and they are now tion in each of its primary busi- among the 13 most traded on ness areas. The combination the Helsinki Exchanges. We will of KONE and Partek has given do our best to continue to be birth to the Nordic countries’ worthy of our shareholders’ largest industrial engineering confi dence in the future. and service company, which has On the whole, we can excellent potential for profi table con-sider 2002 to have been growth. a successful year. KONE’s KONE’s Partek strategy personnel have done valuable is focused on substantially work to achieve our shared improving the profi tability of goals. For this effort, I extend the acquired businesses. Partek my personal thanks. Lastly, let has grown rapidly during recent us bear in mind that the future years, mainly as a consequence should be more interesting than of acquisitions. Like KONE the past. several years earlier, Partek must now concentrate on turning January, 2003 increased sales into increased profi ts and cash fl ow. We Antti Herlin KONE Annual Report 2002 5

Message to Stakeholders

KONE had a successful year in the economy, and a head-start 2002. Our products and services towards improving its return on have earned the approval of capital employed our customers. Our elevator The new KONE is an impor- and escalator operations’ result tant employer: our personnel improved once again. total nearly 36,000 following KONE’s acquisition of the acquisition of Partek. KONE Partek presented a number has a good base for being an of opportunities. In addition, attractive global employer in it created challenges in the the future, too. I would like to second half of 2002. The take this opportunity to wel- immediate challenge was to come those people who joined maintain the momentum of us during the year and thank our highly successful elevator the hard-working employees and escalator business while who have contributed to taking on additional operations KONE’s success and our efforts with turnover almost as great to make KONE an even faster- as our existing organization’s growing and more profi table and personnel more than half as company. The dedication and numerous. Our solution was to enthusiasm of each of you will maintain KONE’s elevator and be called on in the coming year Manfred Eiden escalator business operations as we move rapidly to adjust to President and KONE Materials Handling tough competitive challenges. KONE Corporation as separate business units. Our world at the start of During 2002 we took 2003 is characterized by greater advantage of the opportunity political and economic uncer- to merge several administrative tainty than we have seen in functions and conduct a many years. KONE will continue broad survey of the potential to develop innovative technol- for joint purchasing activities. ogy in new products and pro- One goal for 2003 is to take cesses to bring exceptional advantage of KONE’s know- value to our customers. We how by fi nding ways to tap need to increase the pace of the potential for growth and value innovation in everything improved profi tability in KONE we do in order to differentiate Materials Handling’s service ourselves further from the com- operations. Today, some 60 petition and ensure our growth percent of KONE Elevator & and profi tability in a demanding Escalators’ revenue comes from economic climate. service business. An expanded service sector can provide KONE Materials Handling with a more January, 2003 stable cash fl ow, a stronger buffer against fl uctuations in Manfred Eiden 6 KONE Annual Report 2002

KONE Elevators & Escalators Business Review

KONE Elevators & Escalators’ residential complexes. We al- lators and over 180,000 build- profi tability improved in 2002 so strengthened and deepened ing doors, and established po- for the sixth straight year, as the cooperation with our alli- sition as the technological lead- we set new records for income ance partner Toshiba, including er in our industry provide a sol- and cash fl ow from operating cross-ownership and expansion id platform from which to strive activities. We also continued to of our joint efforts into China. for further growth and im- achieve organic growth in our We continued to streamline proved profi tability. The bene- elevator, escalator and building our supply chain in 2002, com- fi ts of increasingly harmonized door service operations, as well bining our new elevator and business processes and systems as growth through acquisition. new escalator business lines into will also support ongoing ef- The value of net elevator and a single organization and our forts to improve performance escalator sales was eight per- elevator and escalator service throughout our organization. cent higher than a year ago de- business lines into another. In During the past few years spite the levelling off of market addition, all major new equip- we have created a strong global growth in Europe and a signifi - ment production and supply KONE brand and set the stan- cant decline in North America. units are now integrated into dard in our industry for innova- Manfred Eiden KONE acquired numerous com- KONE’s Global Supply Lines and tion in product technology and President panies during 2002. With the service support production and installation effi ciency. We have KONE Corporation exception of Partek, these were supply facilities into the Service introduced a signifi cantly im- mostly small companies devo- Business Line’s global Supply proved usage-based approach ted to elevator and escalator or Business Unit, providing for to maintenance and around- building door service. maximum coordination and the-clock remote monitoring In the rapidly growing build- synergies among all manu- for elevator and escalator sys- ing door service sector we are facturing units. Similarly, all tems, enabling us to guaran- already the market leader in research and development units tee the availability of equip- France, Belgium and the U.K. have been brought together ment entrusted to our care. As We have been establishing a into a Global R&D organization. a consequence of these devel- Europe-wide door service net- These changes offer customers opments and our strong fi nan- work and have inaugurated op- the full, coordinated benefi t of cial performance, KONE is well erations in Australia and the U.S. KONE’s global know-how and positioned to continue to grow The growth of our building resources wherever they are and prosper in 2003. door service business reinforces needed and support delivery of KONE’s stature as a leading sup- the same KONE quality every- January, 2003 plier of comprehensive services where we operate. for building owners and man- The market penetration of Manfred Eiden agers. As we gain a clearer un- products based on KONE’s in- derstanding of their business dustry-leading technology has needs, we become better able been deepest in Europe, but we to match our strengths with have also achieved striking suc- their specifi c requirements. One cess in Asia. In China, KONE has of our primary challenges in been growing fast since open- 2003 will be to speed this pro- ing our Kunshan Factory in Oc- cess of sharpening our cus- tober, 1998. In Japan, Toshiba tomer focus and targeting our Elevator & Building Systems range of elevator, escalator and Corporation has strengthened building door offerings, to pro- its position through the sale vide greater value to our cus- of elevators based on KONE tomers and create additional MonoSpace® technology, profi table growth opportunities which now account for some for our company. 80 percent of sales. Two years ago we set out to We will have to work even increase our deliveries to major harder during 2003 to over- construction projects. Approx- come unfavorable market con- imately 40 such orders were ditions in many parts of the booked by KONE in 2002, world, as construction activ- including metros, airports, ity remains weak and invest- sports and entertainment facili- ment uncertain. Fortunately our ties, high-rise offi ce towers, strong cash fl ow, service base of shopping centers and large half a million elevators and esca- KONE Annual Report 2002 7

Elevators & Escalators Operations

KONE is a service company elevators in use worldwide, offi ce buildings, was brought to known worldwide as a 60 percent are in Europe, 10 the market. The elevator is based technology leader with the percent in North America and on the machine-room-less KONE most innovative products and 20 percent in the Asia-Pacifi c EcoDisc® technology, which has services in the elevator and region. The maintenance of given KONE a clear leadership escalator industry. KONE sells, the latest equipment is based position in the industry for the manufactures, installs, maintains on the transmission of real- past six years. and modernizes elevators time information about the The KONE Alta™ elevator and escalators, and services condition and amount of usage system, which is designed for automatic building doors. of elevators and escalators via skyscrapers and based on KONE KONE Elevators & Escalators remote monitoring systems. EcoDisc® technology, offers top- operates some 800 service This approach brings increased class comfort, service and traffi c centers in more than 40 effi ciency to maintenance capacity. Other elevators based countries. KONE delivers more operations. The maintenance on KONE EcoDisc® technology than 26,000 new elevators market is increasing by are KONE MiniSpace™, intended and escalators annually. Its approximately four percent for mid-rise offi ce buildings, and service base consists of 500,000 annually. KONE TranSys™, the world’s elevators and escalators and Modernization operations are fi rst machine-room-less freight more than 180,000 automatic increasing at a rate of between elevator. building doors. fi ve and 10 percent a year. This The worldwide escalator KONE provides designers, growth is expected to accelerate market contracted, but regional KONE is the only company that architects, builders, developers because the world’s installed differences were signifi cant. can offer elevator solutions based and building owners with base of elevators and escalators Most of the growth focused on on the same technology for all products and services that is aging. More than a third of Asia, particularly China, whereas sizes and types of buildings. increase the value and usability all existing units are more than the market in North America of their buildings. The company 20 years old. At the same time, declined. is working in close cooperation demand for improvement in The KONE ECO3000™ esca- with its customers at the the functioning and safety of lator product family was devel- design stage of buildings and buildings is increasing. oped to better meet customers’ is committed to long-term The market for the needs. The escalator, which offers collaboration with them. maintenance of automatic improved performance and envi- building doors is worth EUR ronmental advantages, is based Global Business Environment fi ve billion. The fi gure includes on a global product concept The global elevator and automatic doors covered that can be tailored to meet escalator market, which is by maintenance contracts. customers’ needs on a regional worth approximately EUR 30 Customers’ preference for basis. At the end of 2002, the billion a year, consists of the concentrating the maintenance KONE ECO3000™ escalator sale and installation of new of their buildings with fewer range was expanded to meet the equipment and the maintenance partners will open up new requirements of the public access and modernization of existing opportunities. segment of the market. systems. KONE has expanded its role of Demand for new elevators Elevators and Escalators carrying out major projects in line and escalators follows, with in Response to Customer with the targets it set two years some delay, general economic Requirements ago. Improving the effi ciency of trends and developments in New elevators and escalators delivery processes and extending the construction industry. The account for 43 percent of new product technology to the market for new elevators is hardly KONE’s net sales for 2002, most demanding buildings have growing at all in many industrial which totaled EUR 2,970 million. enhanced KONE’s position in countries, but exploiting the Orders received remained at the carrying out major projects. KONE has developed the KONE benefi ts of scale achievable previous year’s level of EUR 2,129 During the year under review ECO3000™ product family which in a rapidly growing market, (2,100) million. KONE obtained about 40 major represents the escalator industry’s such as China, offers growth The needs and wishes of projects. In Australia, KONE will most effi cient and environmentally opportunities. About half the different customer groups gave deliver the fastest elevators in its friendly technology. 240,000 new elevators installed a clearer direction to KONE’s history for the Q1 Tower, an 80- throughout the world annually operations during the year under story residential building. One are sold in Europe, 35 percent review. A new enhanced version of the big orders in China is for in the Asia-Pacifi c region and 10 of the KONE MonoSpace® elevators and escalators for the percent in North America. elevator, which is designed National Grand Theater, which Of the more than six million mainly for low-rise residential and will be built near the Tian’anmen 8 KONE Annual Report 2002

Square in Beijing. In Taiwan, 83 maintenance contracts. On the modernization KONE MonoSpace® elevators The objective of KONE’s market KONE continued to were ordered from KONE for maintenance operations is to develop solutions that make the metro stations in Kaohsiung, shift the focus to a service that it possible to modernize an the country’s second-biggest integrates equipment mainte- elevator or escalator in stages. city. In Sweden, KONE will nance through continuous sur- KONE has been able to meet supply elevators for the highest veillance of the equipment and the considerable increase residential building in Europe, provision of the correct preventa- in the demand for solutions the 190-meter Turning Torso, tive maintenance. The popularity that completely replace old which will be built in Malmö. of the KONE Optimum™ main- equipment. On the escalator market, tenance contract, which was de- During the year several big more major projects were up veloped to achieve this objec- modernization orders were for bid than in recent years. In tive, increased during the year obtained. In Singapore, KONE Singapore, KONE will deliver 248 under review. Information about is modernizing the elevators of escalators and two autowalks the usage and functioning of the 32-story Singapore Marriott to the Land Transport Authority an elevator or escalator can be Hotel. In the U.S., one of the for 28 new Circle Line rail monitored by the KoneXion™ most notable modernization transit stations. In Spain, KONE remote monitoring system. orders during the year was for received a considerable order KONE’s local service organization the upgrading of 27 elevators for escalators from the Madrid is thus able to analyze the data in the John C. Kluczynski offi ce Regular maintenance and the Metro. In Germany, Deutsche to determine the need for, and building in Chicago, Illinois. modernization of aging equipment Bahn, the company that runs timing of, optimal service inter- to meet contemporary require- the country’s railway, ordered vention, as determined by the Growth from Automatic Door ments ensure the reliable operation escalators from KONE for the customer’s specifi c requirements. Service Business of elevators, escalators and high-speed train station at In order to provide customers The automatic building door building doors. Cologne Airport. with an extra service, the service business is KONE’s latest KONE e-Optimum™ extranet growth area. Elevators & Preventive Maintenance solution was developed. It offers Escalator’s customers can now Service activities account for customers the opportunity to enjoy diversifi ed benefi ts by 57 percent of the net sales of obtain real-time information adding automatic door mainte- KONE’s elevator and escalator about their elevators such as nance to the range of services operations. Local service contract details, history of faults, ordered from KONE. At the same organizations and more than billing information and repair time, KONE can utilize its existing 13,000 fi eld operatives ensure needs. Furthermore, KONE maintenance organization and the safe and reliable performance developed its own modular know-how to improve its com- of our customers’ equipment. maintenance process model, petitiveness. KONE’s 24-hour service centers which has been rolled out In 2002, KONE extended its are open 365 days a year. globally for the maintenance of automatic door service market The maintenance and both elevators and escalators. coverage as planned. Sales grew moder nization market in- Relations with key customers are by approximately 20 percent as creased in Asia, where the continuously being strengthened a result of organic growth and increase in sales of new eleva- and new long-term partnership acquisitions. tors fueled the demand for contracts signed. In Europe, we cover all

Sales Orders Received Operating income before and Order Book goodwill amortization (EBITA) MEUR MEUR % of sales 3,000 2,500 10.0

2,500 By including automatic building 2,000 door service, KONE provides eleva- 7.5 2,000 tor and escalator customers with 1,500 comprehensive service that ensures 1,500 5.0 the uninterrupted fl ow of people 1,000 and goods through their buildings. 1,000 2.5 500 500

0 0 0 98 99 00 01 02 98 99 00 01 02 98 99 00 01 02 Orders Received Order Book KONE Annual Report 2002 9

major markets. Thanks to the which represents 1.4 (1.4) already have substantial business Waldoor acquisition, KONE has percent of net sales. operations. Division of Sales now added a leading position in the Netherlands to those it Strategy of Growth through Growth in Personnel had already in France, the U.K, Acquisition The number of personnel in 57% 43% Belgium, Finland, Ireland and KONE Elevators & Escalators has KONE’s elevator and escalator op- Luxembourg. consistently followed a growth erations during the year under re- In North America, we opened strategy based on acquisitions, view averaged 23,133 (22,964); eight branches. Australia and purchasing more than 20 com- at the end of the year the fi gure New Zealand are now also panies with combined net sales was 23,317 (22,949). Personnel covered by our door service of approximately EUR 50 mil- were deployed by function as fol- network. lion during the past year. The lows: 58 percent in maintenance KONE performed mainte- most notable acquisitions were and modernization, 24 percent in nance and repair services on France’s CEMARI, which special- selling and installing new equip- over 250,000 units, more than izes in installing elevators in ele- ment, nine percent in designing New equipment 180,000 of which are under vatorless buildings, L.Hopmann and production on an order-by- Maintenance and modernization maintenance contract. Com- Maschinenfabrik GmbH of Ger- order basis, and nine percent in pared to the previous year, the many, which sells, produces, administration and product devel- number of units under mainte- installs and maintains elevators opment. nance contract increased by 35 mainly in the Cologne area, and By market area, the distribution percent. the Dutch Waldoor B.V., which of employees was as follows: specializes in the maintenance Europe, 63 percent; North Ameri- A Culture of Innovative of automatic building doors. In ca, 20 percent; Asia and Australia, Employees by Category Product Development the future, KONE will continue to 15 percent and elsewhere, two One of KONE’s greatest strengths carry out acquisitions, especial- percent. 9% is our commitment to aggressive ly in those countries where we 9% 58% and imaginative research and development. Global R&D teamwork is based on shared processes. Projects are carried Deepening Our Toshiba out in close cooperation with customers, suppliers, strategic Alliance allies, research centers and KONE KONE signed a strategic alliance Toshiba begins to deliver auto- units. KONE R&D centers located with Toshiba of Japan in 1998. matic elevator doors to KONE in 24% in Finland, Germany, India, Italy The agreement accorded Toshiba China. The strengthening of the and the U.S., are responsible for the right to manufacture and alliance will also promote the har- Maintenance and modernization market in Japan machine-room- monization of product families. New equipment sales and installation the development of maintenance Manufacturing and modernization solutions as less elevators based on KONE The standardization of products Administration ® well as the introduction of new MonoSpace technology. and the components and ma- In December 2001, the com- terials used in them will lead to elevator and escalator products. panies reached an agreement savings in purchases. Product development concerning cross-ownership and KONE and Toshiba will expenditure amounted to EUR an extension of Toshiba’s licence increase their cooperation in 40.2 (40.8) million in 2002, to manufacture and market ele- research and development. The vators based on KONE Mono- companies have already jointly Cash flow from operating activities ® Employees by Market before taxes and financial items Space technology for the Chi- developed an escalator for the MEUR nese market. Extending Toshi- global market. Toshiba’s inverters 500 ba’s licence to China paves the are used in KONE Alta™ high- 2%

way for increasing KONE Mono- speed elevators. 15% 63% ® 400 Space deliveries to this rapidly Toshiba Elevators and Building expanding market area. Systems Corporation, which is Japan’s third-largest elevator 300 Advantages of the Alliance and escalator company, has a New cooperation projects were four percent global market share 200 started with Toshiba during the and a signifi cant share of Japan’s 20% year under review. Good results machine-room-less elevator 100 were achieved from the reorgani- market. When the partners’ zation of production in Asia and market shares are combined,

0 joint purchasing projects. KONE the alliance is competing for Europe 98 99 00 01 02 and Toshiba will start substantial the second spot in the elevator North America Asia-Pacific cooperation on production when industry worldwide. Other 10 KONE Annual Report 2002

Review by Market Area

its market share in Germany. whom to purchase both new Order volume remained at the equipment and service. previous year’s level in Belgium KONE’s elevator and escala- and declined slightly in the tor maintenance base grew in Netherlands. Europe by 10,000 units to near- In Northern Europe, the ly 390,000. KONE Optimum™ value of orders received in Fin- contracts and related service land, Sweden, Norway and Den- solutions have resulted in in- mark all declined. Orders from creased customer satisfaction in Russia, export markets and many European countries. distributors increased. The growth of KONE’s In Greece, KONE established building door service business a company with its partner. In continued in Europe, where During the year under review, Cyprus, KONE agreed to buy a KONE is now the industry lead- KONE strengthened relationships share of a local company. The er. Among the new service con- with key customers and signed Variations in Europe’s agreement came into force on tracts signed during the year several long-term partnership National Markets 1.1.2003. under review was the agree- Modernization order intake agreements. Economic growth slowed in Eu- ment to maintain the Europe- rope, which had a negative im- increased somewhat in 2002 an Parliament’s 2,500 doors for pact on construction volumes. compared with 2001, and fi ve years. There were differences, how- greater use is being made of KONE strengthened its au- ever, from country to country in KONE EcoDisc® technology in tomatic building door service the development of construc- modernizations. In France, KONE business in Central Europe with tion markets. In many countries acquired CEMARI, a company the acquisition of Waldoor B.V. interest in investing in real estate which specializes in supplying of the Netherlands and Wal- increased as stock prices fell. elevators for existing elevator- door Nord GmbH of Germany. KONE’s order intake for new less buildings. The average age These companies added 9,000 elevators and escalators in Eu- of the installed elevator base doors to KONE’s service base. rope remained at the previous in France is comparatively ad- KONE also purchased door ser- year’s level. Market enthusiasm vanced: more than 60 percent vice companies in Cologne, for elevators based on machine- of existing units are over 20 Germany; Sweden; Finland and room-less KONE EcoDisc® tech- years old. The government has Denmark during the year un- nology remained strong. Already announced its intention, as a der review. KONE is already the over 90 percent of KONE eleva- consequence of accidents that leading building door service tor orders consist of units based occurred in the country, to en- provider in France, Belgium on this new technology. act legislation requiring elevator and the U.K. In southern Europe, the value upgrades to improve safety. It is anticipated that the of orders received remained at Competition in maintenance competitive environment will the previous year’s level in services grew tougher through- remain tight during 2003 be- France and increased in Italy out Europe during 2002. Global cause Europe’s economy is not and Spain. Investment spurred customers increasingly sought expected to pick up signifi cant- construction activity in Italy, but to select a single supplier from ly. In South Europe, markets offi ce construction decreased in France during the second half Sales, Europe of the year. Spain continued to MEUR record strong growth in orders 2,000 received throughout the year under review.

1,500 Central European markets ranged from the U.K., where order intake remained at the 1,000 previous year’s high level de- spite a weaker economic envi- ronment, to Germany, where 500 elevator and escalator order volume was clearly infl uenced Tor-Erik Sandelin Heiko Körnich 0 by slowed economic growth. 98 99 00 01 02 Nevertheless, KONE increased North Europe Central Europe KONE Annual Report 2002 11

for new elevators will decline in a record number of new prod- France and Spain while modest ucts, managed to achieve its growth will be recorded in Italy. targeted market share. In Central Europe, the German Demand for KONE Mono- market situation is especially Space® and KONE MiniSpace™ challenging. In the U.K, moder- elevator solutions which uti- nization and maintenance order lize KONE EcoDisc® technology volume is expected to grow grew during the period under somewhat. In North Europe the review. Products based on Eco- volume of residential construc- Disc® technology now account tion should remain at the 2002 for approximately 40 percent of level or even expand slightly. orders received. Offi ce construction will decline, Customers particularly appre- however, especially in Sweden. ciated the environmental friend- Products based on KONE EcoDisc® Escalator demand is expected liness of KONE products and technology now account for to remain at the 2002 level, but the economic benefi ts associ- undertake construction work approximately 40 percent of orders country-by-country variations ated with our innovative solu- that disrupts their business. received in North America. will be great. Modernization tions. The KONE ECO3000™ A trend for clients in some and automatic building door escalator was selected by market segments to post- service business will continue to Architectural Record maga- pone discretionary expendi- offer opportunities for growth zine as one of the top product ture on repairs impacted sales throughout Europe. innovations of 2002. levels. Relationships with key Demand for moderniza- customers were strengthened North American Markets tions grew in the U.S. despite in both the U.S. and Canada Declined the postponement of many in- as major real estate manage- In the U.S., fewer offi ce build- vestment decisions as a conse- ment companies and commer- ings, hotels and shopping malls quence of the uncertain eco- cial customers sought to con- were built in 2002 than during nomic situation. Modernization centrate their maintenance con- the previous year because of solutions such as KONE Renova™ tracts with single service provid- volatility in the economy. A doors and KONE Resolve™ con- ers. KONE was awarded a ma- number of construction projects trollers were well received by jor partnering agreement with that were in the pipeline were the market. In addition, the Simon Properties for the main- also postponed as well. Vacan- fi rst order was received for tenance of the elevators and es- cies in major city offi ces and a KONE ECOMOD™ escala- calators at their shopping malls apartments have increased tor modernization, which intro- in the U.S. noticeably. duces KONE’s innovative escala- During the fi nal quarter of Demand for new equipment tor technology into aging units. 2001 KONE launched its auto- followed the general econom- Property managers can now up- matic building door service op- ic trend. Compared to 2001 the grade existing escalators to ob- erations in the U.S. and Canada. market for elevators and escala- tain modern safety and per- During 2002 demand for this tors declined by around 15 per- formance standards without service grew rapidly, and a clear cent. KONE, which introduced having to remove the units or business model for North Amer-

Sales, North America

MEUR 1,000

800

600

400

200

Eric Maziol Trevor Nink Heimo Mäkinen 0 South Europe North America Asia-Pacifi c 98 99 00 01 02 12 KONE Annual Report 2002

ica has now been established. During the year under re- was fed by both organic growth Canada was less affected view several new projects were and acquisitions. than the U.S. by economic tur- undertaken involving cooper- The value of orders received bulence during the year under ation with our alliance partner in South Asia increased despite review. KONE MiniSpace™ so- Toshiba Elevator and Building a decline in construction activ- lutions have begun to penetrate Systems Corporation. Good ity. In Singapore KONE won a the market, and customers are results were obtained in joint signifi cant order to supply 248 reacting positively to their ener- purchasing as well as the pro- heavy-duty escalators and two gy-saving and environmental- duction arrangements in Asia. autowalks for stations serving ly friendly attributes. The special China’s economy continued the rail system’s new Circle Line. customer relationships embod- its powerful growth during KONE’s business operations ied in Premier Partnerships gen- 2002 with the value of orders in India developed well, and the erated good business opportu- received increasing by more previous year’s market position nities in maintenance and the than 35 percent over the pre- was maintained. installation of new equipment. vious year’s fi gures. Residen- The rapidly developing Chi- In Mexico, whose economy tial construction remains the nese market, increasing mainte- is tied closely to that of the U.S. largest market segment, but nance and modernization oper- through NAFTA, demand re- China’s membership in the ations, and KONE’s innovative mained near the previous year’s WTO and the build-up to the products provide a solid basis level, and sales were dominated 2008 Olympic Games in Bei- for continued growth in 2003. The year’s most noteworthy by products featuring KONE jing have begun to stimulate escalator order totaled 248 EcoDisc® technology. The Gov- an increase in offi ce construc- escalators and two autowalks to be ernment did not open up ex- tion. The environmental friend- installed in 28 metro stations for penditures early in the year as liness of KONE’s products has Singapore’s new Circle Line. had been anticipated. Exports been a strong contributor to to the Central America region their popularity in China. continued to reach targeted The Kunshan factory, which levels. manufactures global KONE It is anticipated that the de- products, continued the suc- cline in construction industry cessful development of its volumes in the U.S. will bot- operations. In the future, the tom out during 2003, which factory will be able to supply creates a challenging environ- products for all Asian markets ment for our new elevator and and is, therefore, one of the escalator business. It is forecast keys to KONE’s growth plans. that maintenance and modern- In the diffi cult Hong Kong ization operations will grow al- market, KONE managed to though competition is likely to maintain its market share. At increase. Thanks to organiza- the end of the year, KONE tional restructuring and tech- Taiwan received its biggest nologically advanced products, order ever, consisting of 83 KONE is expected to improve KONE MonoSpace® eleva- its position in North American tors for the metro stations for markets. Taiwan’s second largest city, Sales, Asia-Pacific Kaohsiung. MEUR Strong Growth in Asia and Strong economic growth 500 Australia continued in Australia. De- The Asia-Pacifi c area’s econo- mand for KONE products was 400 my remained buoyant despite at record high levels. Eleva- deceleration in the worldwide tors based on KONE EcoDisc® 300 economy. The strongest growth technology have made KONE was in Australia and China, the the clear technology leader on 200 latter of which has acted as an the Australian market. Mainte- engine for growth in Asia. Or- nance and modernization sales

100 der intake increased in the Asia- also increased despite tough Pacifi c area by more than 65 competition. The increase in

0 percent. building door service business 98 99 00 01 02 KONE Annual Report 2002 13

KONE Materials Handling Business Review

The year under review involved covered in Europe after the fl ow. We will see results of the major changes. The develop- summer but remained at a low completed and planned mea- ment of Partek into a focused level in North America. The sures in 2003, but their full im- engineering group was contin- market for on-road load-han- pact is expected in 2004. ued and completed during the dling equipment contracted as The year under review has year. An agreement for the sale a result of declining truck sales. been extraordinarily challeng- of Nordkalk to a group of Fin- Under these uncertain ing for the entire personnel. nish investors was signed in the market conditions, it is positive Change always entails uncer- beginning of December. Later in that order intake rose in the last tainty as well as opportunities December Partek agreed to sell three quarters, compared to the and new challenges. Let us seize its holding in Paroc to Banc of corresponding periods in 2001, the latter. America Equity Partners. These and that orders received in the I warmly thank all our per- two transactions will be closed fourth quarter were higher than sonnel, customers and our in the fi rst quarter of 2003. ever before. partners. KONE’s acquisition of Partek We have kept, and in some is refl ected in operations from cases even strengthened, our January, 2003 Carl-Gustaf Bergström May 2002. The operations of strong market positions during President KONE and Partek, especially the the year. We introduced several Carl-Gustaf Bergström KONE Materials Handling corporate functions, have quick- signifi cant products especially ly been coordinated after the during the second half of the acquisition was completed in year, which all are expected to the autumn. KONE Materials improve our market position Handling, with the four busi- and strengthen sales in 2003. ness areas Container Handling, These include the Valtra T Load Handling, Forest Machines series tractor, as well as the and Tractors, is now a division Kalmar Orion forklift and Freja within KONE. Partek’s shares reachstacker, and new models were delisted from the Helsinki of the HIAB XS cranes. Exchanges on 18 December, The fi nancial result, which 2002. was at the 2001 level, improved The markets were charac- in the second half of the year. A terized by uncertainty during provision for the reorganization the year. Demand for tractors of operations was made in the The texts and graphs on pages 13-19 was good both in Europe and last quarter. Tractors and Nord- in this report refer to the development Brazil. Investments in ports and kalk signifi cantly improved their of KONE Materials Handling during terminals were at a low level but fi nancial results. During the au- 2002. Partek has been consolidated in KONE’s annual accounts for the second showed signs of recovery in the tumn, we took steps to ensure half of 2002, and comparison fi gures fourth quarter. The market for further long-term improvement for the second half of 2001 have not forest machines clearly re- in our profi tability and cash been consolidated into KONE’s report.

Division of Sales Employees by Business Area Employees by Market

9%

31% 33% 5% 77% 32% 24%

9%

13% 12% 25% 30%

Container Handling Container Handling Europe Load Handling Load Handling North America Forest Machines Forest Machines Asia-Pacific Tractors Tractors Other 14 KONE Annual Report 2002

Materials Handling Operations

KONE Materials Handling is a ciency demands are increasing. intake, and both business ar- worldwide engineering group KONE Materials Handling eas are going into 2003 with that supplies products and also seeks growth by moving stronger order books than a services for professionals who closer to the customer in the year ago. In Load Handling, or- move and load goods, harvest value chain and by extending ders remained at the level of a forests and cultivate fi elds. operations to new markets. year-ago, when taking divested KONE Materials Handling Moving the focus in the value operations into consideration. comprises four business areas: chain means that service Container Handling´s order in- Container Handling, Load operations share of net sales take in the second half of the Handling, Forest Machines and increases. Similar technologies year increased in comparison Tractors. and common components with the corresponding period Leading brands, customer- increase purchasing power, in the previous year, but the oriented production, simi- benefi t product development full-year fi gure did not reach lar product technology and a and improve cost effi ciency. the previous year’s level. global network of customers The 15 meter high Kalmar straddle who operate in transport, in- Development in 2002* Sales carrier can stack containers in 4 dustry and primary production, Net sales decreased slightly stories. tie together the KONE Materials Markets to EUR 2,705 (2,740) million, Handling businesses. The container-handling equip- of which the business areas KONE Materials Handling ment business suffered from a accounted for EUR 2,320 has production plants in 14 low level of investment in ports (2,410) million. Sales in Forest countries on four continents and terminals. Machines and Tractors both and its own sales and service The market for on-road load- rose by over 10 percent. companies in 30 countries. handling equipment declined Comparable sales in Load Local representatives and as the uncertainty of the North Handling eased slightly while dealers ensure that products American and European econ- sales in Container Handling and services are available in omies weighed on construction decreased clearly due to the more than 100 countries. and truck markets, which are declining market. KONE Materials Handling’s the main business drivers. growth prospects are based on The forest machine market Profi tability customers who operate in ex- clearly recovered in Europe after The operating income before panding businesses. Globaliza- the summer, but remained at a goodwill amortization (EBITA) tion is increasing the volume low level in North America. was EUR 120.4 (125.5) million, of long and short distance Tractor demand was good in which is 4.5 (4.6) percent transportation. Container traf- both of our main markets: of net sales. The business The successful HIAB XS loader fi c is growing faster than world Europe and Brazil. areas accounted for EUR crane family is expanding. The trade. The loading, unloading 101.6 (120.7) million, which cranes are optimally tailored to the and movement of goods have Order Intake Increased represents 4.4 (5.0) percent of customer’s demand according to to be accomplished faster than Orders received during the their combined net sales. Cash application and working environ- ever before. In agriculture and year rose by seven percent to fl ow from operations before ment. forestry, environmental and effi - EUR 2,374 (2,294) million. The interest and taxes was EUR order book totaled EUR 447.7 221.2 (252.0) million. Sales Orders Received (424.8) million at the end of the and Order Book MEUR MEUR year. Order intake surpassed the Structural Improvement 3,000 3,000 previous year’s level, despite an The operating structure of both uneven development of under- Container Handling and Load 2,500 2,500 lying markets. Orders received Handling was streamlined in in the last quarter of 2002 were order to increase competitive- 2,000 2,000 higher than ever before. ness. As a result, terminal trac-

1,500 1,500 The order intake in For- tor production in Texas, U.S.A. est Machines rose sharply. Al- ended, and loader crane pro- 1,000 1,000 so, Tractors increased its order duction in Lem, Denmark will

500 500 *The texts and graphs on pages 13-19 in this report refer to the 0 0 development of KONE Materials Handling during 2002. Partek has been 98 99 00 01 02 98 99 00 01 02 consolidated in KONE’s annual accounts for the second half of 2002, Business areas Orders Received and comparison fi gures for the second half of 2001 have not been Others Order Book consolidated into KONE’s report. KONE Annual Report 2002 15

be moved to Meppel, the Neth- Container Handling im- change the program was made erlands. proved its spare parts logistics in co-operation with employee Forest machine assembly and took a step closer to its cus- representatives. in North America is being tomers in Europe with the intro- concentrated in one plant as duction of a distribution center Divestments assembly in Gladstone will for spare parts in Metz, France. In December, agreements were cease during the spring of These operations were imple- signed for the sale of the major 2003. mented in cooperation with holdings in KONE Materials Production capacity at the Load Handling, which further Handling’s Other Businesses. tractor plant in Suolahti, Finland strengthened its local service The divestment of Nordkalk was expanded twice during the network and improved effi - Corporation and the holding year, and a major extension of ciency in spare part logistics by in Paroc Group Oy Ab will be the assembly plant is underway. fully utilizing the center. closed in the fi rst quarter of Forest Machines acquired The improved on-line 2003. the majority of its Swedish parts ordering system in the The transaction price for The Valmet harvester fells, delimbs dealer SweLog, which clearly distribution channel in Load Nordkalk after reduction of and cuts trees to size for a pre-de- strengthens the service Handling and Forest Machines minority interests is EUR 270 termined purpose in less than one business. considerably raised the level of million. Nordkalk’s net sales in minute. customer service. 2002 totaled EUR 252.0 (215.9) Signifi cant Product Launches Agreement was reached on million and operating income In Container Handling, several a customer-fi nancing program was EUR 35.2 (24.1) million. Kalmar products were launched, with BNP Paribas Lease Group Nordkalk publishes its own including a new 9–18 ton range in the U.K., France and annual report. of medium capacity forklift Germany. The agreement will The debt-free price for the trucks and new reachstacker offer the business areas, deal- 38 percent holding in Paroc is models. The Australian and the ers and end-users comprehen- approximately EUR 75 million, U.K. armies became the fi rst sive fi nancing services from one including the price for the shares non-U.S. military forces to emp- source. and the repayment of loans. loy the Kalmar Rough Terrain Container Handler. The world’s Coordinated Purchasing fi rst terminal operating Kalmar’s Purchasing functions were re- unmanned straddle carrier was organized to exploit purchasing opened in Brisbane, Australia. synergies between KONE In Load Handling, six new Elevators & Escalators and models in the new generation KONE Materials Handling. Lead loader crane family, the HIAB buyers identifi ed fi rst synergies XS, were launched as well as and several teams have High-powered and versatile two new Moffett truck-mount- implemented quick savings Valtra tractors are manufactured ed forklift models and a new for both divisions based on to customer order. This is unique Multilift skiploader. benchmarking. in the industry and means that Forest Machines took the there is no stock of new tractors. Valmet combimachine, which Personnel both harvests and transports During the year, KONE Materi- wood, into serial production, als Handling employed an aver- Cash flow from operating activities Operating income before goodwill and the new Valmet 901.2 age of 12,623 (13,085) people. before taxes and financial items amortization (EBITA) harvester and Valmet 840.2 The number of employees was MEUR % of sales forwarder were well received. 12,447 in the beginning of the 300 10.0 Tractors conducted its most year and 12,547 at the end. 250 signifi cant launch ever with the The Bonshare employee 7.5 high-powered Valtra T series, incentive program was changed 200 and also introduced the F line so that the bonus for 2000 is for forest thinnings. linked to the KONE B share 150 5.0 instead of to the Partek share. Services No annual bonus for 2002 100 Revenue from services and was achieved. Bonshare 2000 2.5 spare parts amounted to EUR follows the KONE share until 50 375 (363) million, which is 16 spring, 2004 after which it will 0 0 (15) percent of net sales. be paid out. The decision to 98 99 00 01 02 98 99 00 01 02 16 KONE Annual Report 2002

Container Handling

Kalmar is the leading brand and able, and a recovery in the equip- New Products provider of heavy-duty material ment market over the medium The Container Handling business handling equipment and services term can be expected as current area continued to invest in to ports, intermodal traffi c, termi- excess capacity is utilized. pro duct development despite nals and demanding industrial The industrial market for weaker market conditions and customers. handling equipment also restructuring measures. The Container Handling weakened while the market for Kalmar launched a new 9–18 business area supplies handling services remained stable. ton range of forklift trucks. These solutions that enable customers advanced and effi cient medium to operate with a high level of Sales Decreased with the trucks replace machines that are effi ciency and reliability. Every Declining Market already market leaders within fourth container or trailer transfer Orders received were EUR 708.5 their segment. Customer re- in ports and terminals around the (758.9) million, and the order sponse was very positive. Kalmar world is handled by a Kalmar book was EUR 210.6 (235.9) also launched new ContChamp machine. million. Net sales totaled EUR and ContMaster reachstackers. Kalmar launched new ContChamp The product range includes 719.3 (858.8) million. Kalmar is The Australian and U.K. armies and ContMaster reachstackers ship-to-shore cranes, rubber tired the leader in straddle carriers, took delivery of 12 Kalmar rough in 2002. These have been gantry (RTG) cranes, rail mounted terminal tractors and reach- terrain container handlers developed in response to gantry (RMG) cranes, straddle stackers and maintained its mar- (RTCH). These were the fi rst requirements regarding the carriers, shuttle carriers, reach- ket share across all product lines. orders from other than the U.S. environment, performance, stackers, terminal tractors and Sales of container-handling army under the multi-year con- reliability and operating costs. empty container lift trucks, as well equipment to ports decreased. tract between Kalmar RT Center as forklifts and log stackers for The general uncertainty of the of Texas, U.S. and TACOM (Tank heavy industrial applications. The European economy affected sales Automotive and Armaments world’s leading producer of con- of heavy industrial forklifts. In Command) that purchases mate- tainer spreaders, Bromma Con- North America there was a clear rials for the U.S. army. In the last Sales quip, is part of Kalmar. Kalmar is upswing in terminal tractor orders two years, Kalmar has supplied MEUR shifting from being a machine after the fi rst quarter, which the U.S. army with over 160 1,000 supplier to a global solution pro- resulted in increasing sales. The rough terrain container handlers. vider with a large range of value- Asia-Pacifi c contribution to the The world’s fi rst terminal added services such as mainte- business was also on an upward 750 equipped with Kalmar’s un- nance contracts and fl eet mana- trend. manned straddle carrier was gement. Despite the tough market, opened for commercial use in Kalmar has activities in more Kalmar managed to maintain its 500 Brisbane, Australia. than 100 countries through 15 market position and implement sales companies and an key structural changes. Focus on Services 250 expanding dealer network. Service revenue was stable at EUR Manufacturing plants are situated Structural Improvement 168 (170) million. This represents in Sweden, Finland, the U.S., the In May, a streamlining of the 23 (20) percent of net sales. 0 98 99 00 01 02 Netherlands, Malaysia and operating structure was under- Several markets showed healthy Estonia. taken in order to further increase growth, but total revenue was competitiveness. Every product depressed by falling sales in the Growth in Container Traffi c will have one Product Supply U.K., Germany and France, where Sales by Market but Decrease in Equipment Center, which will be responsible the service provided industrial Market for customer-driven product de- customers was moved to dealers, 13% World container throughput velopment, marketing and pro- and in the Netherlands, which 48% increased by some seven percent duction. Production of reach- had an exceptionally high level of 12% in 2002 according to industry es- stackers was concentrated in crane repairs in 2001. timates. This is up approxi mately Lidhult, Sweden. Production of Kalmar took a step closer to its three percentage points on 2001, terminal tractors was ended in customers in Europe with the but clearly below the 12 percent Texas, and continues in Ottawa, introduction of a distribution growth level achieved in 2000. the U.S.; Tampere, Finland and center for spare parts in Metz, Demand for container-hand- Shanghai, China. These changes France. Over 12,000 spare parts 27% ling equipment decreased due to almost complete the implemen- and components in stock can be the excess capacity created tation of the Product Supply sent out overnight to reach most Europe through investments in 2000– Center concept. of Europe within a day. North America Asia-Pacific 2001. The longer-term outlook Other for container traffi c remains favor- KONE Annual Report 2002 17

Load Handling

The Load Handling business area during the year. Due to de- New Products is the global market leader in on- creasing demand there is over- Six new models in the new road load handling. Today the capacity in the sector, and this generation loader crane family, business area offers solutions that led to slight price deterioration. the HIAB XS, were launched meet virtually all customer needs during the year. Two new in on-road load-handling. Stable Order Intake Moffett truck-mounted forklift The Load Handling business Orders received totaled EUR models were marketed, and a area has a complete product of- 591.7 (614.2) million, which is new Multilift Skiploader was fering for loading and delivering approximately the same level as launched. An ambitious R&D goods, comprising loader cranes, in the previous year when taking program will result in several demountable systems, truck- divested businesses into consid- new product launches in 2003. mounted forklifts, tail lifts, hyd- eration. The year-end order book raulics, tipping gears and vehicle was EUR 87.4 (85.8) million. Net Increasing Service Revenue bodies. Coupled with a profound sales amounted to EUR 586.1 Revenue from services and spare knowledge of our customers’ (647.4) million. Despite the con- parts increased to EUR 82 (79) Six new models in the new genera- businesses and a widespread traction of the total market, the million, which is 14 (12) percent tion loader crane family, the HIAB service network, this enables us business area succeeded in of net sales. The business area XS, were launched during the to provide the customer with the achieving the 2001 sales level in further strengthened its local year. The versatile HIAB XS is used optimal solution for his needs. loader cranes and truck-mounted service network and improved in a wide range of applications Customers range from one- forklifts. Sales in tail lifts and de- effi ciency in spare parts logistics by customers in many different truck owner operators to truck mountables fell with the global by utilizing the central ware- businesses. manufacturers, fl eet operators market as the main market areas house in Metz, France. The on- and rental companies with Germany, the U.S. and the Nor- line parts ordering system in the operations in several countries. dic countries weakened notice- distribution channel was further They mainly operate in building ably. developed. The after-sales opera- materials supply, local distri- Growing sales of large cranes tions in loader cranes and de- bution and transportation of and the introduction of new mountables were reorganized. Sales industrial products. crane models boosted revenue. MEUR The business area supports its Reduced sales of truck-mounted 750 customers through the most forklifts to the home improve- comprehensive distribution and ment customer segment in the service network in the business, U.S. were partly compensated by 500 consisting of own sales com- growing sales to other segments pa n ies in 24 countries and over and customer groups. 100 independent distribution partners with more than 1,500 Enhanced Competitiveness 250 service outlets. and Cost Effi ciency The integration of the sales and Declining Market Demand service network, which was 0 Demand for load-handling initiated in 2001, proceeded as 98 99 00 01 02 equipment mainly follows the planned during 2002 and this economic growth trend and, in process will continue. The multi- particular, developments in the product approach has strength- Sales by Market construction and infrastructure ened the market position of the business. Global demand is business area. 3% estimated to have decreased by A major re-engineering of 9% 61% nearly 10 percent in 2002. The loader crane and demountable construction machinery market operations started in 2001. This 27% fell by 10 percent in Europe. three-year project aims to im- Demand also follows the sales of prove customer focus, competi- heavy trucks, which were down tiveness and cost effi ciency. One for the third consecutive year. of the key actions is the imple- The decrease was approximately mentation of a new production 10 percent both in Europe and structure for loader cranes and the U.S. demountables. As a conse-

No major changes occurred quence, loader crane production Europe North America in the competitive situation in in Lem, Denmark, will be moved Asia-Pacific the load handling industry to Meppel, the Netherlands. Other 18 KONE Annual Report 2002

Forest Machines

The Forest Machines business in North America were strength- developed and grow in popular- area is one of the world ’s lead- ened through integration of the ity. The servicing and mainte- ing manufacturers of forest ma- sales and service operations as nance agreement signed in chines and cranes and a pioneer well as through a new dealer 2001 with the forest industry in mechanized timber harvest- network. Assembly in North companies Aracruz and Veracell ing. The business area offers a America will be concentrated in in Brazil was also expanded. The broad range of machines and the plant in Wisconsin; the business area maintains the cranes for harvesting by both operations in Gladstone will be companies’ harvester heads and the cut-to-length method and limited to spare parts. forwarders and has more than the full-tree method. The cost- The leading European forest 100 servicemen stationed in four effi cient Valmet forest machines crane brands Loglift and Jon- logging regions in Eastern Brazil. are both environmentally friend- sered further strengthened their There are opportunities to ex- ly and ergonomically advanced. market positions, which are es- pand this concept to other The business area has manu- pecially strong in Northern and emerging markets in South facturing facilities in Sweden, Central Europe. America and Asia, where large The Valmet 801 Combi was Finland and the U.S. Twelve forest industry companies are developed together with Finnish sales companies provide direct Continued Product forest owners. and Swedish forestry entrepreneurs contact with customers, who Development The online spare parts order- and forest industry companies, mainly comprise forestry-ma- The Valmet 801Combi, which ing system for dealers clearly and has been very well received. chine contractors, forest compa- was launched in 2001 and can raised the level of service. nies, hauliers and transportation be seen as the most signifi cant companies. forest machine introduction in The business area develops almost two decades, was taken and manufactures central com- into serial production in the be- Sales ponents, such as harvester heads, ginning of the year. The combi- cranes and control systems. machine fells, delimbs, cuts, MEUR 350 loads and transports wood. In European Markets Recovered other words, one machine per- 300 Forest machine demand recov- forms all work phases. It has

250 ered during 2002 and stabilized been proven to be especially ef- at a good level. Demand im- fi cient in thinning operations. 200 proved especially in Europe, The new Valmet 901.2 har-

150 while demand in North America vester and Valmet 840.2 for- remained weak. warder were very well received, 100 The forest crane market de- which helped Valmet improve its creased slightly. market position for these impor- 50 tant product segments. Sales of 0 Valmet Strengthened Its the Valmet 830 forwarder, which 98 99 00 01 02 Market Position was introduced in 2001, also de- Net sales rose 13 percent to veloped favourably. 291.5 EUR (258.9) million. Or- The Loglift and Jonsered on- ders received rose sharply to EUR road forest cranes, taken into se- 302.8 (241.0) million. The order rial production in late 2001, Sales by Market book increased to EUR 33.3 were very successful.

4% (25.2) million. 7% Forest Machines acquired the The Service and Spare Parts 73% majority of its Swedish dealer, Operations Expanded 16% SweLog, in April. The SweLog Revenue from service and spare network in Sweden, which is Eu- parts rose 19 percent to EUR 56 rope’s largest forest machine (48) million, which represents market, supports the strategy of 19 (18) percent of net sales. The being close to the end-customer aim is to grow the service and strengthening the service sector´s share of this business. business. Valmet also improved The service product Valmet its market position in the other Proact, which includes regular Europe Nordic countries, as well as in condition inspection, mainte- North America Asia-Pacific Central and Eastern Europe. nance and extended compo- Other The market position and sales nent warranties, continued to be KONE Annual Report 2002 19

Tractors

The Tractors business area, process to direct sales. The Seamless interaction of the Valtra, caters for the needs of establishment of our own sales tractor with modern work farmers, contractors and munici- companies in the U.S. and Aus- implements was of special palities. The modular design of tralia in 2001 supported the importance in the development the tractors and the great num- growth in order intake. Valtra of the T series. Cutting-edge ber of available accessories, as sold 140 high-powered tractors engine technology is utilized in well as our unique customer- in China. the largest models: the engine order system enable us to fulfi ll During the year approxi- is controlled electronically, and the specifi c requirements of dif- mately 9,700 tractors were man- fuel consumption is extra- ferent production segments and ufactured in Finland and 8,300 ordinarily low. The T series also types of contracts. in Brazil. This is record high pro- leads the way in design. It is, Valtra’s key competitive ad- duction for Finland. The plant’s despite its large size, stylish and vantage is its customer-order production capacity was raised graceful. The T series was very system, which enables produc- twice during the year due to the well received by the market. tion tailored to customer re- improving demand, and a deci- In September Valtra also Valtra’s tractor offering was broad- quirements. Consequently, the sion was made to invest almost introduced the new F line for ened in 2002 with the new T series, custom-built tractor is delivered EUR 8 million in the expansion forest thinning. When which leads the way in technology directly from the factory to the of the assembly facilities. The in- developing the F line, special and design. The Valtra T model can customer. vestment makes possible the ad- emphasis was placed on higher be used in a wider range of tasks Valtra’s tractor plants are lo- ditional production of 2,000 effi ciency in thinning operations, cated in Finland and Brazil. The tractors in 2003. especially a higher utilization than traditional tractors. main markets are Europe and Sisu Diesel broke last year’s rate made possible by new Latin America. Valtra is the mar- record sales by 13 percent with technical solutions, and on ket leader in the Nordic coun- sales of 27,200 engines. driver ergonomics. tries; in Latin America, Valtra is Sisu Diesel launched the new Sales the third most sold brand. Val- The Customer’s Closest Fortius engine series. These low- MEUR tra’s newer markets in North Partner emission engines fulfi ll the Tier 800 America, Australia and China of- Valtra sharpened the focus of its Two emission requirements in fer opportunities for growth. objectives in 2002. The main the EU and the U.S. The business area also in- goals are to clearly improve prof- 600 cludes Sisu Diesel, which special- itability, achieve faster growth Growing Service and Spare izes in the manufacture of diesel than the competition, provide Parts Operations 400 engines for tractors and con- the best customer care and im- Revenue from service and spare struction machines. prove the motivation of person- parts was EUR 69 (67) million,

nel. The Valtra Academy person- which is 9 (10) percent of net 200 Growing Markets in 2002 nel training program was re- sales. The aim is to grow this The tractor market in Europe in- newed in order to support these share by broadening customer creased moderately. The Latin objectives. care. The versatile usage possi- 0 98 99 00 01 02 American market rose sharply, Valtra globalized its organiza- bilities of Valtra tractors increase mainly due to the buoyant Bra- tional structure. Management the potential for the service and zilian market. The North Ameri- responsibilities for marketing, spare parts business as service can market also increased services, product development, requirements rise with the high- slightly. production and administration er utilization rate. The appeal of Sales by Market are global in the new structure. Valtra’s services also increases as Record Sales Growing the share of the service farming operations become in-

Valtra’s net sales and order in- business is one of the key goals creasingly professionally man- 24% 69% take in 2002 increased with its of the renewal. aged. strengthened sales network and improved demand. Net sales Signifi cant Product Launches rose 11 percent to EUR 761.7 The growing size of farms is in- 3% (685.5) million, and orders re- creasing demand for high-pow- 4% ceived amounted to EUR 810.8 ered tractors, which is the sector (719.1) million. The order book Valtra focuses on. stood at EUR 121.5 (82.6) mil- The new powerful Valtra T lion at the end of 2002. series was launched in Septem- Valtra improved its market ber. It comprises seven sixcylin- Europe North America position in Sweden and Norway der models ranging in horse- Asia-Pacific through the change of the sales power from 120 to 209. Other 20 KONE Annual Report 2002

Board of Directors’ Report*

Sales The year under review, 2002, 3,261 (2,100) million. for corporate-level restructuring. was a year of change for KONE. KONE Elevators & Escalators Net income totaled EUR MEUR 4,500 KONE acquired the Finnish- received orders valued at EUR 157.1 (141.1) million. Earnings

4,000 based engineering group Partek. 2,129 (2,100) million. In Eu- per share stood at EUR 2.54 KONE now consists of two strong rope, order intake for new ele- (2.42). 3,500 divisions, KONE Elevators & vators, escalators and modern- KONE’s cash fl ow from 3,000 Escalators and KONE Materials izations was at last year’s level. operations before interest 2,500 Handling, which comprises the Order intake in North America and taxes on the corporate

2,000 businesses of Partek. declined by about 20 percent. level was very strong, totaling

1,500 We also strengthened our In Asia-Pacifi c, order intake EUR 615.6 (343.6) million. cooperation with Toshiba. KONE again reached record levels Cash fl ow in KONE Elevators 1,000 participated in a targeted share with growth of over 65 percent. & Escalators was EUR 460.7 500 issue organized by Toshiba Order intake in KONE Ma- million, and in KONE Materials 0 Elevator and Building Systems terials Handling totaled EUR Handling EUR 154.9 million. 98 99 00 01 02 Corporation (TELC) and owns 1,132 (1,058) million. Despite Consolidated cash fl ow from KONE Elevators & Escalators KONE Materials Handling 19.9 percent of TELC. non-uniform development of operating activities was EUR Alongside these major struc- the underlying markets, total 496.9 (254.5) million. Investing tural changes, operations con- order intake surpassed the pre- activities, including strategic tinued to develop successfully. vious year’s level. acquisitions, totaled EUR The fi nancial result of the eleva- The value of orders in hand 1,494.4 (38.5) million. tor and escalator business im- at the end of 2002 totaled EUR KONE’s year-end net debt Orders Received proved yet again. KONE Mate- 2,240 (1,881) million. KONE was EUR 1,251.5 million

MEUR rials Handling also met its tar- Elevators & Escalators’ order including capital loans of EUR 3,500 gets for the second half of the book stood at EUR 1,792 102.1 million. Total equity as

3,000 year. (1,881) million and KONE a share of total assets was 24.2 Materials Handling’s order book (36.6) percent. Gearing was 2,500 Sales at EUR 447.7 (June 30, 2002: 125 percent. KONE’s consolidated net sales 424.8) million. Return on assets employed 2,000 totaled EUR 4,342 (2001: KONE Elevators & Escalators’ was 19.0 (30.2) percent, and 1,500 2,816) million. new equipment order book return on equity was 18.4 KONE Elevators & Escala- represents over one year of (20.4) percent. 1,000 tors’ net sales grew 5.5 percent deliveries. The time from order 500 to EUR 2,970 (2,816) million. In to delivery in KONE Materials Personnel Europe sales increased 12 per- Handling is on average 6–8 KONE employed 35,864 0 98 99 00 01 02 cent to EUR 1,798 million. In weeks. (22,949) people at the end of KONE Elevators & Escalators North America and Asia-Pacifi c 2002. The increase is mainly KONE Materials Handling sales were approximately at the Financial Result, Balance due to the consolidation of previous year’s level. Sheet and Cash Flow Partek. KONE Elevators & KONE Materials Handling’s KONE’s operating income be- Escalators employed 23,317 net sales were EUR 1,372 fore goodwill amortization (EBI- people and KONE Materials (1,379) million. Sales of Forest TA) totaled EUR 340.2 (256.4) Handling 12,547 people at the Machines and Tractors both million, or 7.8 (9.1) percent of end of the year. Order Book rose. Comparable sales in Load net sales.

MEUR Handling eased slightly, while KONE Elevators & Escalators’ KONE Elevators & Escalators 2,500 sales in Container Handling EBITA was EUR 287.0 (256.4) decreased due to weak order million, and KONE Materials Markets 2,000 intake in the beginning of the Handling’s EBITA was EUR 64.2 Demand for new elevators year. (60.8) million. The total EBITA and escalators follows, with

1,500 is lower than the combined some delay, general economic Orders Received and Order fi gure of the divisions as it trends and developments in

1,000 Book in cludes provisions for the KONE the construction industry. The The value of orders received option program, unallocated market situation varied from during 2002 amounted to EUR corporate costs and provisions country to country in Europe, 500 but total European demand decreased. Demand grew in 0 Asia, especially in China, while 98 99 00 01 02 *The reported fi gures cover the operations of KONE Materials KONE Elevators & Escalators Handling for the second half of 2002. Comparison fi gures for the second the North American market KONE Materials Handling half of 2001 have not been consolidated into KONE’s fi gures. declined.

KONE Annual Report 2002 21

The development of the revenue. Maintenance and market share in Europe without elevator and escalator brand on maintenance and moderniza- modernization sales accounted making concessions in price the continent. tion market was stable. Ex- for EUR 1,693 (1,634) million, levels. KONE’s factory in Kunshan, panding sales of new elevators or 57 percent of the total. The Order intake in North Amer- China, which manufactures also increased demand for proportion of new equipment ica declined by about 20 per- global products, began ex- maintenance in Asia. The and service revenue has re- cent. Market demand fell by porting to other Asian countries global modernization market mained relatively stable in about 15 percent. Elevator or- and Australia during 2002. The did not grow and might even recent years. The automatic ders in the offi ce building sec- plant will be developed into have declined. building door business of tor showed the largest de- a logistics center for the Asia- KONE remained active in approximately EUR 120 million crease. The escalator market Pacifi c area. the acquisition market and is included in the service was also under volume and purchased more than 20 revenue fi gure. price pressure. KONE man- Development of the Service companies, mainly in elevators aged to achieve its targeted Base and automatic building door Orders Received and Order market share under these diffi - In Europe, KONE had nearly service. Their annual sales total Book cult conditions. The price lev- 390,000 units in its service approximately EUR 50 million. Orders received, excluding the el was maintained, and, as a base. In North America, over value of maintenance contracts, consequence, the profi t mar- 85,000 elevators and escalators Sales totaled EUR 2,129 (2,100) mil- gin level of orders in hand was were under KONE maintenance. Net sales totaled EUR 2,970 lion. KONE Elevators & Escala- maintained. Measures to ad- Recognition of the importance (2,816) million, or 5.5 percent tors succeeded in reaching the just operations to the lower vol- of elevator and escalator more than in the previous target for the year, which was ume have already been imple- maintenance has grown in year. Europe, which is the to equal the previous year’s vol- mented. China and elsewhere in Asia, world’s largest elevator market, ume. The global escalator mar- Asia-Pacifi c order intake and contributed to the steady accounts for the major share ket was in decline as some mar- again reached record levels growth of KONE’s service base of sales. North America’s kets, including Germany, reced- with a growth of 65 percent. in the area. The year-end total percentage fell slightly. Asia still ed from the high levels of the This trend has continued for of units under maintenance represents only 10 percent of previous year. several years. The Chinese contract in Asia exceeded total revenue, but the growth In Europe, order intake market has grown strongly, and 20,000. The service business in in order intake is rapid and will for new elevators, escalators KONE has taken an increasing China will form a new growth have a visible impact on the and modernizations was share of the total market. The platform for KONE Elevators & geographical distribution of approximately at last year’s importance of the Australian Escalators in the years to come. sales in the future. level. The European market was market to KONE Elevators & Automatic building door ac- The value of new equipment stable or weakened somewhat. Escalators has been on the rise tivities have been initiated in all delivered during 2002 was Thanks to competitive products in recent years. The superiority major market areas. Automatic EUR 1,277 (1,182) million, and acquisitions carried out of KONE’s technology has won building door service grew by or 43 percent of KONE during the year, KONE was over Australian customers, approximately 20 percent, and Elevators & Escalators’ total able to maintain or increase its making KONE the leading KONE has more than 180,000

Elevators & Escalators’ Sales by Market Area

2002 2001 MEUR % MEUR % Europe 1,798 60 1,608 57 North America 851 29 866 31 Asia & Australia 292 10 291 10 Other 29 1 51 2 Total 2,970 100 2,816 100 22 KONE Annual Report 2002

Operating income before goodwill doors under service contract. ble fi xed assets were EUR 186.6 of production in Asia and amortization (EBITA) Net sales from building door (206.9) million. joint purchasing projects. % of sales 10.0 service operations totaled ap- Cash fl ow from operating A substantial deepening of proximately EUR 120 million. activities before interest and cooperation on production will This is still a small share of total taxes was strong, totaling EUR be realized when Toshiba begins 7.5 KONE Elevators & Escalators’ 460.7 (343.6) million. Return supplying automatic elevator revenue, but the growth rate is on assets employed was 35.9 doors to KONE in China. good. KONE is focusing on de- (30.2) percent. 5.0 veloping and growing these Outlook newly started activities and uti- Capital Expenditure, The market for new elevators

2.5 lizing synergies with the eleva- Product Development and and escalators in Europe is tor and escalator business. Development Programs anticipated to remain tight Capital expenditure in during 2003, as Europe’s 0 Financial Result, Assets production facilities, fi eld economy is not expected to 98 99 00 01 02 Employed and Cash Flow operations and information pick up signifi cantly. Construc- Operating income before systems totaled EUR 51.1 tion industry volumes in North goodwill amortization (EBITA) (45.7) million. Investments America are expected to bottom in KONE Elevators and Escala- are increasingly focused on out during 2003. In Asia, the tors improved 12 percent to information systems that rapidly developing Chinese EUR 287.0 (256.4) million, or support business processes. market provides a solid basis for 9.7 (9.1) percent of net sales. The harmonization continued growth in 2003.

Net income KONE Elevators & Escalators’ of information systems New equipment order intake profi tability continued to progressed. The KONE and sales in elevators and MEUR 200 improve through savings in Model, which is the set of escalators in 2003 are anti- component costs achieved global standardized policies, cipated to be at approximately through product development, processes, systems and tools the 2002 level. 150 and increased installation for defi ning the common Modernization and auto- effi ciency. During the year, the business practices used by all matic building door service new elevator and new escalator KONE Elevators & Escalators business will continue to of- 100 business lines were combined companies, was successfully fer opportunities for growth into a single organization and upgraded with the latest throughout Europe. Thanks to the elevator and escalator software. New functionalities organizational restructuring 50 service business lines into were added with the roll-out and technologically advanced another. The increased of KONE Model II. In December, products, KONE is expected to 0 penetration and market success KONE Belgium was the fi rst improve its position in North 98 99 00 01 02 of the technologically unit to implement the new American service markets. Chi- superior KONE EcoDisc® family model, and the roll-out will na will also provide growth in also contributed to improved continue in 2003. maintenance and moderniza- profi tability. At the beginning of 2002, tion operations. The increased application of KONE launched a new Internet Total maintenance and new technology to the service service in nine countries, thereby modernization revenue sector creates a platform for opening a new communication is expected to increase Cash flow from operating activities sustainable profi t levels in the channel between customers approximately fi ve percent in before taxes and financial items MEUR face of tough competition. In and KONE Elevators & Escalators’ 2003. 700 order to increase profi tability in sales and service organizations. The growth target for the challenging modernization KONE Elevators & Escalators’ automatic building door service 600 sector, KONE is increasing the product development expen- is 20 percent, when both 500 use of industrialized packaged ditures totaled EUR 40.2 (40.8) organic growth and acquisitions solutions. million, or 1.4 (1.4) percent of are included. 400 KONE Elevators & Escala- net sales. Efforts to strengthen KONE’s leading technology 300 tors aims to maintain a nega- the competitiveness of KONE’s and unequaled seven-year tive level of working capital. At new technology and new ser- experience in developing, 200 the end of 2002, working cap- vice offerings continued. installing and servicing 100 ital was negative at EUR -84.5 KONE and Toshiba started machine-room-less elevators (+38.5) million. More than EUR several joint projects during provide a solid base for 0 98 99 00 01 02 120 million of working capi- the year. Good results were exceeding an EBITA margin of

KONE Elevators & Escalators tal was freed up in 2002. Tangi- achieved from the reorganization 10 percent in the year 2003. KONE Materials Handling KONE Annual Report 2002 23

KONE Materials Handling 1,175 (1,207) million. Sales in Financial Result, Return on introduction of a distribution Forest Machines and Tractors Assets Employed and Cash center for spare parts in Metz, KONE Materials Handling con- rose. Comparable sales in Load Flow France. The logistics operations sists of four business areas – Handling eased slightly, while Operating income before have been implemented in Container Handling, Load Hand- sales in Container Handling goodwill amortization (EBITA) cooperation with Load Handling. ling, Forest Machines and decreased due to weak order was EUR 64.2 (60.8) million, Over 12,000 spare parts and Tractors – and Other Business. intake in the beginning of the which is 4.7 (4.4) percent of components in stock can be sent The reported fi gures cover the year. net sales. The business areas out overnight to reach most of operations of KONE Materials accounted for EUR 51.3 million, Europe within a day. Handling for the second Orders Received and Order which represents 4.4 (4.4) In Load Handling, Hiab’s half of 2002. Book percent of their combined loader crane business is improv- Orders received during the net sales. A provision for the ing its competitiveness by re- Markets second half of the year rose reorganization of operations newing the production of light Demand for container-handling seven percent to EUR 1,132 was made in the last quarter. cranes. The number of pro- equipment showed signs of re- (1,058) million. The year-end Working capital at the end duction plants is being de- covery in the fourth quarter of order book totaled EUR 447.7 of 2002 was EUR 410.9 (30 creased, and production of the year. (424.8) million. June 2002: 466.3) million. light cranes will be consolidat- The market for on-road Despite the non-uniform During July–December 2002, ed at the plant in Meppel, the load-handling equipment de- development of underlying EUR 55 million of working Netherlands. As a consequence, clined as the uncertainty of the markets, order intake surpassed capital was freed up. Tangible the Hiab plant in Lem, Den- North American and Europe- the 2001 level. The order fi xed assets were EUR 461.9 mark and the Denmark offi ce in an economies weighed on con- intake of the business areas (30 June 2002: 462.1) million. Humblebaek will be closed dur- struction and truck markets, in the fourth quarter was at Cash fl ow from operating ing 2003. In the future, load- which are the main business a record high level. Forest activities before interest and er cranes will be produced at drivers. Machines’ order intake and taxes was EUR 154.9 million, three locations in Europe: Hu- The forest machine market volume of orders in hand rose and return on assets employed diksvall, Sweden; Meppel, the clearly recovered in Europe sharply. Also Tractors increased was 8.7 (8.0) percent. Netherlands, and Zaragoza, after the summer, but remained its order intake, and the year- Spain. at a low level in North America. end order book exceeded the Capital Expenditure and Tractors expanded its as- Tractor demand was good previous record. Order intake Development Programs sembly plant in Suolahti, Fin- in both main markets, Europe in Container Handling rose, Capital expenditure in produc- land during 2002 and will con- and Brazil. but the order book decreased tion facilities, fi eld operations tinue the process in 2003. The slightly. In Load Handling, and information systems in the expansion is motivated by the Sales orders received and orders in business areas accounted for continuously growing interna- Net sales were at the previous hand remained at the previous EUR 24.8 million. tional demand for Valtra trac- year’s level, amounting to EUR year’s level when divested Container Handling tors. The power and versatili- 1,372 (7–12/2001:1,379) operations are taken into improved its spare part logistics ty of the tractors are increasing, million, of which the business consideration. and took a step closer to its which also infl uenced the in- areas accounted for EUR customers in Europe with the vestment decision. The invest- ment, which will already make it possible to produce an addi- Materials Handling Net Sales by Business Area tional 2,000 tractors in 2003, will amount to almost EUR 8 MEUR 7-12/2002 7-12/2001 Change % million. Container Handling 373.4 446.0 -16 Load Handling 282.6 302.4 -7 New Products Forest Machines 159.1 118.5 34 Product development expendi- Tractors 379.4 359.0 6 ture was EUR 23.1 (23.7) mil- Eliminations -20.0 -18.9 lion, which is 1.7 (1.7) percent Total 1,174.5 1,206.9 -3 of net sales. Nordkalk 132.7 111.2 19 In Container Handling, Other 64.5 61.3 several Kalmar products were Total 1,371.7 1,379.5 -1 launched, including a new 9–18 ton range of medium- capacity forklift trucks and new reachstacker models. The Australian and U.K. 24 KONE Annual Report 2002

Return on equity/ armies became the fi rst non- It is estimated that the market ended on October 11, 2002, Return on capital employed U.S. military forces to employ for on-road load-handling after which KONE had received % 25 the Kalmar Rough Terrain equipment will remain at ownership of 99.5 percent of Container Handler. The world’s approximately the 2002 level, the share capital in Partek. The

20 fi rst container terminal, operating as there are no clear signs of ownership right to the minority Kalmar’s unmanned straddle recovery in truck sales and shareholdings was transferred to carrier, was opened in Brisbane, construction activities. The KONE’s fully-owned subsidiary, 15 Australia. market for forest machines and Kone Finance, on December 18, In Load Handling, six new cranes is anticipated to grow 2002, and Partek was delisted 10 models in the new generation moderately in 2003. After a from the Helsinki Exchanges. loader crane family, the HIAB strong year in 2002 for both 5 XS, were launched. Also, two the European and Brazilian Cooperation with Toshiba new Moffett truck-mounted tractor markets, the outlook for KONE strengthened its market- 0 forklift models and a new 2003 is for somewhat weaker ing and sales cooperation with 98 99 00 01 02 Multilift skiploader were demand. Toshiba during the year. Return on equity Return on capital employed introduced. The 2003 combined order In March, KONE Forest Machines took intake and sales of the business participated in a targeted share into serial production the areas are expected to reach at issue organized by Toshiba Valmet combimachine, which least the 2002 level. Profi ts are Elevator and Building Systems both harvests and transports anticipated to exceed an EBITA Corporation (TELC), after wood. The new Valmet 901.2 margin of fi ve percent. which KONE’s holding in TELC harvester and 840.2 forwarder Key measures in raising amounted to 19.9 percent.

Return on assets employed were well received. profi tability include: increasing The value of the investment Tractors conducted its most the service business, exploiting was EUR 158 million. At the % signifi cant launch ever with the opportunities in purchasing same time, KONE Corporation 30 high-powered Valtra T series, on a wide scale, increasing sold 829,580 of its previously

25 and also introduced the F line outsourcing to improve repurchased class B shares to for forest thinnings. fl exibility, devoting special TELC for a total price of EUR 20 attention to underperforming 86.3 million. The profi t from Services units, and developing lean and this sale has been entered di- 15 Revenue from services and capital-effective processes. rectly into the balance sheet as spare parts amounted to EUR The longer-term profi tability shareholders’ equity instead of 10 185 million, which is approx- target in KONE Materials Hand- into the statement of income. imately 16 percent of net sales. ling is an eight percent EBITA The President and CEO of TELC, 5 The further developed on- margin. This target will be Hiroshi Nishioka, was elected

0 line parts ordering system, reached as longer-term syner- to the KONE Board at the 2002 98 99 00 01 02 serving the distribution chan- gies are realized. general meeting. nels for Load Handling and At the end of 2002, TELC’s Forest Machines, considerably Acquisition of Partek holding in KONE amounted to improved customer service. In June, KONE acquired the nearly fi ve percent. Agreement was reached on State of Finland’s 30.2 percent a customer-fi nancing program shareholding in Partek Corpo- Divestments with BNP Paribas Lease Group ration. The deal was fi nanced In December, agreements were for the U.K., France and by a EUR 106 million target- signed for the sale of the major Germany. The arrangement ed share offering to the State of holdings in KONE Materials will offer the business areas, Finland and a EUR 119 million Handling’s Other Businesses. dealers and end-customers cash payment. Later in June, The divestment of Nordkalk comprehensive fi nancing KONE launched a public of- Corporation and the holding services from one source. fer to purchase all outstanding in Paroc Group Oy Ab will be Partek shares for EUR 15.30 per closed in the fi rst quarter of Outlook share. More than 90 percent of 2003. Container traffi c is expected Partek’s shares were transferred The transaction price for to increase annually by approx- to KONE in the public offer. Nordkalk, after reduction of mi- imately 6–7 percent over the After the offer expired, nority interests, is EUR 270 mil- next two years, leading to a a redemption claim was lion. Nordkalk’s EUR 100 million slight increase in the market for launched for the remaining listed bond and the company’s container-handling equipment. shares. The redemption period interest-bearing net debt will KONE Annual Report 2002 25

be deducted from this price. approved a three-way split in paid on March 5 , 2003. If the Equity ratio The fi nal price for the shares is KONE shares. The share par annual general meeting of % estimated at EUR 140 million. value was decreased from EUR February 21, 2003 approves 50 The debt-free price for the 3.00 to EUR 1.00. the board of directors’ proposal

38 percent holding in Paroc A second extraordinary on profi t distribution, the 40 is approximately EUR 75 mil- shareholders’ meeting on dividends will total EUR 93.8 lion, including the price for the June 14, 2002 approved a (42.3) million. 30 shares and the repayment of transaction between KONE The board of directors loans. and the State of Finland. This also proposes that the annual 20 involved an increase in KONE general meeting extend the Shares and Shareholder share capital by EUR 3,000,000, board of directors’ authority to Meetings through the issuance of use funds available for profi t 10 KONE’s annual general meeting 3,000,000 new class B shares distribution to repurchase in February ratifi ed the fi nancial to be offered for subscription KONE shares with the provision 0 98 99 00 01 02 statements for 2001, approved to the State of Finland at EUR that repurchased shares the board of director’s proposal 35.33 per share, representing a shall not exceed fi ve percent for the distribution of profi t, total price of EUR 105,990,000. of the corporation’s total and discharged the responsible The State of Finland paid number of shares and votes. parties for liability for the the subscription price with According to the proposal, the 2001 fi nancial year. Pekka 6,927,451 Partek shares at a acquired shares are to be used Herlin was re-elected chairman value of EUR 15.30 per share. as compensation in possible of the Board for the 2002 In accordance with a deci- company acquisitions and/or fi nancial year, and Antti Herlin, sion of the Board of Directors other arrangements, as well Gerhard Wendt, Iiro Viinanen on December 22, 2000, holders as to improve KONE’s capital Gearing and Jean-Pierre Chauvarie of unlisted class A shares have structure. This authorization % were re-elected as full board the right to exchange them is valid for one year, including 140 members. Furthermore, Toshiba for class B shares at a ratio of the day of the annual general 120

Elevator and Building Systems one to one. The offer is valid meeting’s decision. 100 Corporation’s President and until December 31, 2003. 80 CEO Hiroshi Nishioka was On December 20, 2002 the Outlook elected to the board for a term chairman of the KONE Board At the time of writing this 60 beginning April 1, 2002. of Directors, Pekka Herlin, report, both economic and 40 In addition, the annual requested the conversion of political uncertainty has in- 20 general meeting approved the 928,734 class A shares to class creased, which makes pre- board of directors’ proposal B shares, and KONE’s board of dicting market development 0 -10 to authorize the reacquisition directors approved the request. extraordinarily diffi cult. 98 99 00 01 02 of a maximum of 1,007,726 Estimating KONE’s future KONE shares, consisting of a Annual General Meeting and sales and profi ts is also more maximum of 174,247 class Distribution of Profi ts challenging than it was prior A shares and 833,479 class B KONE’s distributable equity to the acquisition of Partek, shares, while respecting the stands at EUR 661.2 million. due to the different nature of provisions of the Companies The parent company’s non- the businesses. Act regarding the maximum restricted equity from previous In 2003, KONE Elevators number of own shares to be years totaled EUR 819.0 million, & Escalators’ new equipment held by the company. During and net income from the year order intake and sales are the year under review, 833,479 under review was EUR 35.6 anticipated to remain at class B shares - the maximum million. The board of directors approximately the level of authorized by the AGM – were proposes to the annual general 2002. Maintenance and mod- repurchased at a total price of meeting that a dividend of EUR ernization revenue is expected EUR 26.3 million, or EUR 31.56 1.48 (0.71) be paid for each to increase approx imately fi ve per share. The repurchased class A share and EUR 1.50 percent in 2003. Our service shares represent 1.3 percent (0.73) for each outstanding base, combined with the year- of the share capital and 0.6 class B share from retained end order book fi gures, support percent of the voting rights in earnings. The date of record these assumptions. KONE. for dividend distribution is We are confi dent that we A May 24, 2002 extraordi- February 26, 2003, and it is will reach KONE Elevators and nary shareholders’ meeting proposed that dividends be Escalators’ target of exceeding 26 KONE Annual Report 2002

an EBITA margin of 10 percent EBITA margin of fi ve percent. and through improved tax profi tability during the year. as our products and processes The impact of completed and planning and coordinated The expected strong cash continue to improve. initiated actions to improve fi nancial management, we will fl ow of both divisions, coupled The combined order intake profi tability and cash fl ow achieve savings in both the with divestments, will con- and sales of KONE Materials support the view that this divisions and in the corporation siderably strengthen KONE’s Handling’s business areas in profi tability level will be as a whole. These savings will balance sheet in 2003. 2003 are expected to reach reached. already largely be achieved at least the 2002 level. Profi ts By integrating headquarters in 2003 and provide a solid are anticipated to exceed an functions of KONE and Partek, base for improving KONE’s KONE Annual Report 2002 27

Calculation of Key Figures

Average Number of Employees = the average number of employees from the beginning to the end of the period under review

income before taxes - taxes Return on Equity (%) = 100 x equity *) + minority shares (average of the fi gures for the fi nancial year)

income before taxes + interest + other fi nancing costs Return on Capital Employed (%) = 100 x total assets - non-interest-bearing-debt - repurchased own shares (average of the fi gures for the fi nancial year)

income before taxes + fi nancing income and expenses (net) Return on Assets Employed (%) = 100 x assets employed **) (average of the fi gures for the fi nancial year)

shareholders’ equity *) + minority shares Total Equity/Total Assets (%) = 100 x total assets - repurchased own shares

interest-bearing-debt *** ) - liquid assets - loans receivable Gearing (%) = 100 x shareholders’ equity *) + minority shares

income before taxes - taxes - minority share Earnings/Share = issue and conversion adjusted weighted average number of shares - repurchased own shares

shareholders’ equity *) Equity/Share = number of shares (issue adjusted) - repurchased own shares

payable dividend for the accounting period Dividend/Share = issue and conversion adjusted weighted average number of shares - repurchased own shares

dividend/share Dividend/Earnings (%) = 100 x earnings/share

dividend/share Effective Dividend Yield (%) = 100 x price of class B shares as of 31/12

price of class B shares as of 31/12 Price/Earnings = earnings/share

total EUR value of all class B shares traded Average Price = average number of class B shares traded during the accounting period

Market Value of All = the number of shares (A + B) at the end of the accounting period Outstanding Shares times the price of class B shares as of 31/12

Shares Traded = number of class B shares traded during the accounting period

number of class B shares traded Shares Traded (%) = 100 x average weighted number of class B shares

*) Equity without capital loans and repurchased own shares **) Fixed assets and other long-term investments (without repurchased own shares) and working capital ***) Capital loans included 28 KONE Annual Report 2002

Principles of Consolidation

The consolidated accounts in- to untaxed reserves. These alloca- Revenue Recognition Principle ings can be stated at revalued clude the parent company and tions are not subject to taxation The sale of products is recognized amounts. These values are those companies in which the par- on condition that the correspond- at the time they have been hand- regularly reviewed. A predeter- ent company held directly or in- ing deductions have also been ed over to the customer and the mined plan is used in carrying directly more than 50 percent of made in the accounts. sale of services when they have out depreciation of fi xed assets. the voting power at the end of the In the consolidated fi nancial been carried out. Depreciation is based on the year. Subsidiaries acquired during statements, the yearly allocations estimated useful economic life of the fi nancial year have been in- – reserves as well as the difference Research and Development various assets as follows: cluded in the consolidated fi nan- between the depreciation accord- Costs cial statements from the date of ing to plan and depreciation ac- Research and development costs - Buildings 5–40 years acquisition. Holdings in housing cepted by tax laws – have been are charged to income during the - Machinery and and real estate companies whose added to net income, excluding year in which they are incurred. equipment 4–10 years consolidation is not relevant to the change in the calculative de- - Goodwill 5–20 years providing a true and fair view of ferred tax liability. The deferred Pension Settlements and Costs - Other long-term KONE’s net income and fi nancial tax liability is determined from the Pensions are generally handled for expenses 4–5 years position have not been included accumulation of untaxed reserves. KONE companies by outside pen- in the consolidated fi nancial state- The accumulation of untaxed re- sion insurance companies. Pen- Depreciation of goodwill is ments. serves, excluding the calculative sion costs and changes in defi cits generally carried out over fi ve Investments in associated com- deferred tax liability, is included are charged to the Statement of years. When considerable good- panies have been accounted for in the shareholders’ equity in the Income taken into consideration will is created by the acquisition in the consolidated fi nancial state- Consolidated Balance Sheet. local legislation in different coun- of a subsidiary or creation of an ments under the equity method. Minority shares are shown as a tries and prudent accounting. associated company which results An associated company is a com- separate item in the Consolidated in KONE’s acquiring signifi cant pany in which the group holds 20- Statement of Income and Balance Leasing market share, the depreciation 50 percent of the voting power Sheet. The minority share in the Leasing charges are entered as period can be greater than fi ve and has a participating interest of Statement of Income is calculated rental costs in the Statement of In- but no more than twenty years. at least 20 percent. from the income before allocation come. Remaining leasing contract Investments in other compa- to untaxed reserves but after tax- charges are entered in section 18 Inventories nies are stated at cost. The book es, adjusted by the change in the of Notes on the Consolidated Fi- Inventories are valued at no more value of investments has been re- calculative deferred tax liability. nancial Statements under “Con- than the likely sales price accor- duced, where necessary, to esti- The minority share in the Balance tingent Liabilities and Pledged As- ding to FIFO principles. Raw mated net realizable value. Sheet is calculated from the sum sets”. Leasing contract conditions mate rials and supplies, however, Intracorporate transactions of shareholders’ equity and accu- do not differ from normal condi- are valued at standard costs. have been eliminated in the con- mulation of untaxed reserves, of tions. Semi-fi nished goods have been solidated fi nancial statements. which the calculative deferred tax valued at variable production Intracorporate shareholdings liability has been deducted. Extraordinary Items costs. Work in progress includes have been eliminated by deduct- The income statements of One-time items of signifi cance direct labor and material costs ing the amount of each subsid- foreign subsidiaries are translated that arise from other than ordi- as of 31 December, as well as a iary’s equity at the time of acqui- at the average exchange rate for nary activities are shown under proportion of indirect costs related sition from the acquisition cost of the accounting period and the “Extraordinary Items”. to production and installation its shares. The difference between balance sheets at the closing rate of orders included in work in a subsidiary’s acquisition cost and on the balance sheet date. Taxes progress. its equity at the time of acquisi- The provision for income taxes tion has been entered as goodwill. Foreign Currency Items includes current income taxes Provision for Liabilities and The value of elevator and escalator Foreign exchange items and de- payable according to local tax Charges maintenance contracts acquired is rivatives made to cover foreign regulations as well as changes in Future expenses to which com pa- also included as goodwill. exchange and interest rate risks deferred taxes using current tax nies have committed themselves KONE’s share of the profi t or have been valued at the 31 De- rates. and which will pro duce no future loss of an associated company is cember rates. The changes in All potential deferred tax income are charged against shown in the Consolidated State- value of foreign currency items liabilities are reported, but as in come as a provision for liabilities ment of Income as a separate have been included in the State- a prudent measure only those and charges. The same concerns item. KONE’s share of the associ- ment of Income as interest or ex- deferred tax assets which seem those future losses which seem ated companies’ shareholders’ eq- change rate differences according certain to be realized are stated. certain to be realized. uity at the date of acquisition, ad- to the periodizing of the hedged Taxes also include dividend- justed by changes in the associ- item. Exchange rate differences related taxes and taxes from ated companies’ equity after the resulting from derivatives and previous years. date of acquisition, is shown in the loans intended as hedges on Balance Sheet under “Shares and assets and liabilities in foreign Valuation and Depreciation of Participating Interests”. subsidiaries have been entered Fixed Assets In certain countries, tax legisla- as translation differences under Fixed assets are stated at cost. In tion allows allocations to be made shareholders’ equity. addition, certain land and build- KONE Annual Report 2002 29

Consolidated Statement of Income

MEUR 2002 % 2001 %

Sales Note 1 4,341.8 2,816.3 Costs and expenses Note 2 (3,926.0) (2,516.1) Depreciation Note 3 (140.6) (82.4)

Operating Income Note 1 275.2 6.3 217.8 7.7 Share of associated companies’ net income 5.9 1.3 Financing income and expenses Note 4 (24.9) (0.4)

Income before Taxes 256.2 5.9 218.7 7.8 Taxes Note 5 (95.5) (76.5) Minority share (3.6) (1.1)

Net Income 157.1 3.6 141.1 5.0

30 KONE Annual Report 2002

Consolidated Balance Sheet

Assets MEUR 31/12/2002 31/12/2001

Fixed Assets and Other Long-term Investments Intangible assets Goodwill Note 6 1,063.1 417.3 Other long-term expenditures Note 7 57.1 25.6 1,120.2 442.9 Tangible assets Land Note 8 101.4 12.2 Buildings Note 9 240.7 107.4 Machinery and equipment Note 10 284.5 83.6 Advance payments 22.1 3.7 648.7 206.9 Investments Shares and participating interests Note 11 207.7 14.0 Own shares 26.3 57.3 234.0 71.3

Total Fixed Assets and Other Long-term Investments 2,002.9 721.1

Current Assets Inventories Raw materials, supplies and fi nished goods 476.9 85.7 Work in progress 454.3 498.9 Advance payments 5.3 3.8 Advance payments received (406.1) (476.4) 530.4 112.0 Receivables Accounts receivable 842.9 611.9 Loans receivable 60.8 4.1 Other receivables 7.6 10.6 Deferred assets 295.9 194.4 Note 12 1,207.2 821.0

Current investments Note 13 293.8 384.3 Cash and bank 125.9 68.9 419.7 453.2

Total Current Assets 2,157.3 1,386.2

Total Assets 4,160.2 2,107.3 KONE Annual Report 2002 31

Shareholders’ Equity and Liabilities MEUR 31/12/2002 31/12/2001

Shareholders’ Equity Share capital 63.5 60.5 Share premium account 219.6 95.9 Reserve for own shares 26.3 57.3 Translation differences 20.9 61.0 Retained earnings 519.8 390.0 Net income 157.1 141.1 Capital loans 102.1 0.0

Total Shareholders’ Equity Notes 14,15 1,109.3 805.8

Minority Shares 20.1 1.4

Provision for Liabilities and Charges Note 16 247.0 220.5

Debt Deferred tax liability Note 17 49.6 25.9

Long-term debt Loans Note 18 975.8 350.3

Current liabilities Loans 596.2 7.3 Accounts payable 385.7 151.8 Accruals 718.6 492.2 Other current liabilities 57.9 52.1 Note 19 1,758.4 703.4

Total Debt 2,783.8 1,079.6

Total Shareholders’ Equity and Liabilities 4,160.2 2,107.3

32 KONE Annual Report 2002

Consolidated Statement of Cash Flows

MEUR 2002 2001

Cash receipt from customers 4,363.0 2 892.2 Cash paid to suppliers and employees (3,747.4) (2 548.6) Cash fl ow from fi nancial items (21.5) 1.3 Cash fl ow from taxes and other items (97.2) (90.4)

Cash Flow from Operating Activities 496.9 254.5

Capital expenditure (225.3) (46.7) Proceeds from sales of fi xed assets 10.5 41.9 Fixed assets of new subsidiaries (1,279.6) (37.0) Fixed assets of sold subsidiaries 0.0 3.3

Cash Flow from Investing Activities (1,494.4) (38.5)

Cash Flow after Investing Activities (997.5) 216.0

Change in current creditors, net 1,793.3 (170.4) Change in long-term debt, net 757.7 278.6 Purchase of own shares (26.3) (25.6) Sales of own shares 77.9 0.0 Share issue 106.0 0.0 Dividends paid (42.3) (29.0) Other fi nancing activities (1,637.3) (248.3)

Cash Flow from Financing Activities 1,029.0 (194.7)

Change in Net Cash 31.5 21.3

Cash and banks as of 31 December 125.9 68.9 Exchange difference 7.8 (0,2) Cash and banks as of 1 January 102.2 47.4

Change in Net Cash 31.5 21.3

Reconciliation of Net Income to Cash Flow from Operating Activities

Net Income 157.1 141.1 Depreciation 140.6 82.4 Minority interest 3.6 1.1

Income before Change in Working Capital 301.3 224.6

Change in receivables 69.9 (30.7) Change in payables 98.2 15.7 Change in inventories 27.5 44.9

Cash Flow from Operating Activities 496.9 254.5

In drawing up the Cash-fl ow Statement, the impact of variations in exchange rates has been eliminated by adjusting the beginning balance to refl ect the exchange rate prevailing at the time of the closing of the books for the period under review. KONE Annual Report 2002 33

Notes on the Consolidated Financial Statement

Consolidated Statement of Income MEUR 5. Taxes 2002 2001 1. Notes by Division Revenue based taxes 99.8 82.2 Change in deferred tax Sales 2002 2001 liabilities and assets 0.8 (2.6) Elevators & Escalators 2,970.1 2,816.3 Tax credit on dividends and Materials Handling: previous year taxes (5.1) (3.1) Business areas 1,174.5 Total 95.5 76.5 Nordkalk 132.7 Others 64.5 Consolidated Balance Sheet MEUR Materials Handling total 1,371.7 6. Goodwill Total sales 4,341.8 2,816.3 2002 2001 Acquisition cost as of January 1 758.5 748.8 Operating income 2002 % 2001 % Increase 734.9 33.8 Operating income before goodwill amortization: Accumulated depreciation (430.3) (365.3) Elevators & Escalators 287.0 9.7 256.4 9.1 Total as of December 31 1,063.1 417.3 Materials Handling: Business areas 51.3 4.4 7. Other Long-term Expenditures Nordkalk 20.8 15.7 2002 2001 Others and eliminations (7.9) Acquisition cost as of January 1 83.0 68.5 Materials Handling total 64.2 4.7 Increase 34.0 7.0 Decrease (0.1) 0.0 Unallocated corporate expenses (11.0) Accumulated depreciation (59.8) (49.9) Goodwill amortization (65.0) (38.6) Total as of December 31 57.1 25.6 Total operating income 275.2 6.3 217.8 7.7 8. Land 2. Cost and Expenses 2002 2001 2002 2001 Acquisition cost as of January 1 11.1 14.6 Change of work in progress 93.6 (44.2) Accumulated revaluation 0.8 0.8 Materials and supplies 1,385.2 824.1 Increase 94.3 0.3 External services 134.7 107.4 Decrease (4.8) (3.5) Salaries of boards of directors and Total as of December 31 101.4 12.2 managing directors 18.5 11.5 Wages and other salaries 941.8 792.0 9. Buildings Pension costs 158.6 118.5 2002 2001 Other personnel expenses 319.3 241.5 Acquisition cost as of January 1 179.6 187.0 Other expenses 909.0 503.9 Accumulated revaluation 12.7 12.7 Other business income (34.7) (38.6) Increase 157.2 5.3 Total 3,926.0 2,516.1 Decrease (2.0) (3.9) Accumulated depreciation (106.8) (93.7) 3. Depreciation Total as of December 31 240.7 107.4 2002 2001 Goodwill 65.0 38.6 10. Machinery and Equipment Other long-term expenditures 9.9 5.4 2002 2001 Buildings 13.1 6.8 Acquisition cost as of January 1 428.3 406.4 Machinery and equipment 52.6 31.6 Increase 266.7 33.1 Total 140.6 82.4 Decrease (3.7) (1.7) Accumulated depreciation (406.8) (354.2) 4. Financing Income and Expenses Total as of December 31 284.5 83.6 2002 2001 Dividends received 0.4 0.4 Interest received 35.1 25.5 Other fi nancing income 3.5 4.1 Interest paid (60.2) (28.3) Other fi nancing expenses (3.7) (2.1) Total (24.9) (0.4) 34 KONE Annual Report 2002

11. Shares and Participating Interests 15. Capital Loans 2002 2001 2002 2001 Total as of January 1 13.6 11.7 Convertible subordinated bond Change in the share in Partek Corporation 1.6 0.0 associated companies 5.1 2.3 Convertible capital loan Increase 196.6 0.0 Partek Corporation 0.5 0.0 Decrease (7.6) 0.0 Convertible capital loan Total as of December 31 207.7 14.0 Nordkalk Corporation 100.0 0.0 Total 102.1 0.0 12. Receivables Receivables falling due after one year: 2002 2001 16. Provision for Liabilities and Charges Accounts receivable 3.7 3.2 2002 2001 Loans receivable 27.4 2.2 Provision for guarantees 23.5 23.7 Total 31.1 5.4 Provision for general and product liability claims 39.3 69.1 Receivables from associated companies: 2002 2001 Provision for business reorganizing 38.2 15.4 Accounts receivable 4.6 0.6 Provision for loss contracts 23.9 21.2 Deferred assets 4.5 0.0 Other provisions 122.1 91.1 Loans receivable 43.3 2.0 Total 247.0 220.5 Total 52.4 2.6 17. Deferred Tax Assets and Liabilities Deferred assets: 2002 2001 Income taxes and VAT 51.0 27.6 Deferred tax assets 2002 2001 Deferred tax assets 108.5 85.7 Consolidation adjustments 15.4 15.9 Other 136.4 81.1 Timing differences 93.1 69.8 Total 295.9 194.4 Deferred tax assets, total 108.5 85.7

13. Current Investments Deferred tax liabilities 2002 2001 2002 2001 Consolidation adjustments 4.0 6.2 Deposits* 293.8 296.6 Timing differences 45.6 19.7 Bonds 0.0 26.3 Total deferred tax liabilities 49.6 25.9 Other 0.0 61.4 Total 293.8 384.3 In the Consolidated Balance Sheet deferred tax liabilities have been presented as a separate category and deferred tax assets *Including deposits which are fi nanced by Euro Medium Term included in deferred assets. Note program.

14. Shareholders’ Equity and Its Changes

Share Share Reserves Translation Retained Net income Capital Total capital premium for own diffenrences earnings for the loans equity account shares year As of 1 January 60.5 95.9 57.3 61.0 531.1 805.8 Issue of shares 3.0 103.0 106.0 Purchase of own shares 26.3 (26.3) 0.0 Sales of own shares 20.6 (57.3) 57.3 20.6 Translation differences (40.1) (40.1) Dividend (42.3) (42.3) Net income for the year 157.1 157.1 Capital loans 102.1 102.1 As of 31 December 63.5 219.6 26.3 20.9 519.8 157.1 102.1 1,109.3

The accumalation of untaxed reserves, excluding the calculative deferred tax liability, is included in retained earnings totaled EUR 16.2 million (EUR 15.6 million). Accumulated untaxed reserves are not distributable equity. KONE Annual Report 2002 35

18. Long-term Debt 19. Current Liabilities

Long-term debt falls due as follows: Liabilities owed to associated companies 2002 2001 MEUR % Accounts payable 1.0 2.2 2004 154.4 15.8 Other current liabilities 1.3 1.2 2005 173.2 17.8 Total 2.3 3.4 2006 356.4 36.5 2007 181.2 18.6 Deferred liabilities 2002 2001 Later 110.6 11.3 Accrued income taxes and VAT 103.9 81.1 Total 975.8 100.0 Accrued salaries, wages and employment costs 251.1 204.0 Other deferred liabilities 363.6 207.1 Total 718.6 492.2

20. Contingent Liabilities and Pledged Assets Group Parent company 2002 2001 2002 2001 Assets pledged to secure loans Group and parent company 26.4 1.4 16.7 0.8 Pledged assets Group and parent company 22.7 21.6 0.0 0.0 Guarantees Subsidiaries 0.0 0.0 1,199.4 1,203.5 Associated companies 4.1 2.9 1.9 2.9 Others 1) 19.6 2.4 0.9 1.5 Leasing liabilities Falling due in the next year 50.4 34.1 2.9 2.4 Falling due after one year 127.8 83.2 2.7 2.8 Other contingent liabilities 1) 111.4 0.0 0.0 0.0 Total 362.4 145.6 1,224.5 1,213.9

Value of guaranteed debt 83.7 46.3 77.5 43.5

Book value of assets pledged 30.1 15.5 16.7 0.8

1) Guarantees for others include EUR 10.3 million customer fi nance arrangements where the sold machines form security and other contingent liabilities include repurchase commitments for sold products to a value of EUR 71.7 million.

21. Derivatives

The value of contingent liability derivatives made to cover currency and interest risks was as follows:

Book value Market value Book value Market value 2002 2002 2001 2001 Forward contracts 983.9 24.7 225.4 (1.2) Currency options 83.2 0.4 192.8 0.9 Currency swaps 153.8 1.1 0.0 0.0 Interest rate swaps 276.6 (8.8) 0.0 0.0 Total 1,497.5 17.4 418.2 (0.3) 36 KONE Annual Report 2002

22. Financial Risk risk) and net equity in foreign combinations of fi xed and interest-bearing debt (including Management subsidiaries (translation risk). fl oating interest in the debt repayment of loans within one As a rule, net currency fl ows portfolio and various interest- year), adjusted for committed KONE’s business activities are are hedged so that exchange rate derivatives. long-term facilities, was 24 exposed to fi nancial risks such rate fl uctuations affect the result Open interest-rate derivative percent. The long-term loan as currency risks, interest rate with an average lag of roughly contracts at the end of 2002 are repayment schedule can be risks, refi nancing and liquidity seven to nine months. shown in note 21. found in note 18. risks, and counterpart risks. The policy regarding transla- At year-end, unused long- KONE‘s treasury function tion risk is to hedge the balance Refi nancing and Liquidity term committed credit facilities manages fi nancial risks centrally sheet structure in such a way Risks totaled EUR 166 million. KONE according to limits set in the that changes in exchange In minimizing funding and also has substantial unused fi nance policy approved by the rates have a neutral impact on liquidity risks, KONE ensures short-term committed and Treasury Committee, which are KONE’s gearing. Exceptions to that short-term debt does uncommitted credit facilities. based on the main principles for this rule occur where hedging not exceed a defi ned level in In addition to a strong cash risk management determined costs are deemed to be too high relation to total interest-bearing fl ow from operations, the by the Board. because of non-functioning debt and that liquid assets and divestment of Nordkalk and The value of open derivative markets and/or a too great an existing credit facilities cover the shareholding in Paroc will contracts at year-end appears in interest-rate differential. estimated fi nancing needs. reduce net debt during 2003. note 21. Due to the acquisition of Interest-rate Risks Partek, interest-bearing net Counterpart Risks Currency Risks Changes in interest rates on debt rose to EUR 1,252 million. KONE only approves counter- KONE operates internationally interest-bearing receivables and Capital loans are included parts with high creditworthiness and is, thus, exposed to debts in different currencies in interest-bearing net debt. when investing liquid assets. currency risks arising from create interest-rate risks. These Total interest-bearing debt Derivative contracts are made exchange rate fl uctuations risks are managed by adjusting excluding convertible capital exclusively with leading banks related to currency fl ows from the duration of debt to the loans amounted to EUR 1,630 and credit institutions. sales and purchases (transaction targeted level through different million, of which short-term KONE Annual Report 2002 37

Parent Company: Statement of Income

MEUR 2002 % 2001 %

Sales Note 1 414.5 353.8

Change of work in progresss (14.4) (0.8) Cost and expenses Note 2 (338.2) (315.4) Depreciation Note 3 (3.7) (7.4)

Operating Income 58.2 14.0 30.2 8.5

Financing income and expenses Note 4 43.5 65.3

Income After Financial Items 101.7 24.5 95.5 27.0

Extraordinary items Note 5 (54.5) 13.7

Income Before Taxes and Allocations 47.2 11.4 109.2 30.9

Depreciation difference Note 6 0.9 0.7 Taxes (12.5) (27.3)

Net Income 35.6 8.6 82.6 23.3 38 KONE Annual Report 2002

Parent Company: Balance Sheet

Assets MEUR 31/12/2002 31/12/2001 Shareholders’ Equity and Liabilities MEUR 31/12/2002 31/12/2001 Fixed Assets and Other Long-term Investments Intangible assets Shareholders’ Equity Other long-term Share capital 63.5 60.5 expenditures Note 7 0.8 1.7 Share premium account 219.6 95.9 Advances paid - 0.4 Reserve for own shares 26.3 57.3 0.8 2.1 Retained earnings 818.9 747.7 Tangible assets Net income 35.6 82.6 Land Note 8 1.4 1.5 Total Shareholders’ Buildings Note 9 18.2 18.2 Equity Note 16 1,163.9 1,044.0 Machinery and equipment Note 10 6.7 9.4 26.3 29.1 Untaxed Investments Reserves Note 17 1.8 2.7 Shares in subsidiaries Note 11 417.9 421.2 Other stocks and shares Note 12, Provision for 21 4.5 3.4 Liabilities and Charges Note 18 11.3 11.8 Own shares Note 13 26.3 57.3 448.7 481.9 Liabilities Note 19 Long-term debt Note 20 Total Fixed Assets and Other Loans from fi nancial Long-term Investments 475.8 513.1 institutions 366.3 37.6

Current Assets Current liabilities Inventories Loans from fi nancial institutions 36.1 5.9 Raw materials and supplies 16.2 15.9 Advances received 27.0 26.0 Work in progress 22.0 36.4 Accounts payable 28.6 26.5 38.2 52.3 Other current liabilities 1,180.0 433.2 Receivables Note 14 Accruals 89.4 40.4 Accounts receivable 56.2 49.6 1,361.1 532.0 Loans receivable 1,965.0 565.6 Deferred assets 115.9 70.2 Total Debt 1,727.4 569.6 2,137.1 685.4

Current Investments Note 15 250.7 370.8 Cash and bank 2.6 6.5 253.3 377.3

Total Current Assets 2,428.6 1,115.0 Total shareholders’ Total Assets 2,904.4 1,628.1 Equity and Liabilities 2,904.4 1,628.1 KONE Annual Report 2002 39

Parent Company: Statement of Cash Flows

MEUR 2002 2001

Cash receipt from customers 416.5 354.1 Cash paid to suppliers and employees (332.2) (301.1) Cash fl ow from fi nancial items 27.1 48.9 Cash fl ow from taxes and other items (57.0) (23.1) Cash Flow from Operating Activities 54.4 78.8

Capital expenditure (3.9) (6.0) Proceeds from sale of fi xed assets 3.0 21.4 Purchase of shares in subsidiaries (120.0) 0.0 Proceeds from sale of shares in subsidiaries 123.3 0.0 Cash Flow from Investing Activities 2.4 15.4

Cash Flow After Investing Activities 56.8 94.2

Purchase of own shares (26.3) (25.6) Proceeds from sale of own shares 77.9 0.0 Share issue 106.0 0.0 Change in current creditors (net) 777.0 255.7 Change in long-term debt (net) 328.6 (5.5) Dividends paid (42.3) (29.0) Other fi nancing activities (1,281.6) (284.0)

Cash Flow from Financing Activities (60.7) (88.4)

Change in Net Cash (3.9) 5.8

Cash and bank as of 31 December 2.6 6.5 Cash and bank as of 1 January 6.5 0.7

Change in Net Cash (3.9) 5.8

Reconciliation of Net Income to Cash Flow from Operating Activities Net Income 35.6 82.6 Depreciation 3.7 7.4 Other adjustments (0.6) 2.8 Income Before Change in Working Capital 38.7 92.8

Change in receivables (55.0) (13.7) Change in payables 56.7 (0.3) Change in inventories 14.0 -

Cash Flow from Operating Activities 54.4 78.8 40 KONE Annual Report 2002

Notes on the Parent Company Financial Statement

Statement of Income MEUR Balance Sheet MEUR

1. Sales 7. Other Long-term Expenditures 2002 2001 Sales to subsidiaries totaled EUR 247.2 million (2001: EUR 195.4 Acquisition cost as of January 1 4.0 3.5 million) corresponding to a share of about 60% (2001: 55%) of Increase 0.1 1.0 net sales. Decrease (1.4) - Accumulated depreciation (1.9) (2.8) 2. Costs and Expenses Total as of December 31 0.8 1.7 Cost and expenses were spread as follows 2002 2001 Materials and supplies 139.3 116.1 8. Land External services 57.2 51.1 2002 2001 Salaries of boards of directors and Acquisition cost as of January 1 0.6 0.7 managing director 0.5 1.3 Accumulated revaluation 0.8 0.8 Wages and other salaries 50.8 46.8 Total as of December 31 1.4 1.5 Pension expenses 11.5 8.9 Other personnel expenses 9. Buildings including vacation pay 15.6 15.5 2002 2001 Other expenses 75.7 82.2 Acquisition cost as of January 1 14.1 14.2 Other business income (12.4) (6.5) Accumulated revaluation 11.7 11.7 Total 338.2 315.4 Increase 0.4 0.8 Accumulated depreciation (8.0) (8.5) The average number of employees was 1,508 (2001: 1,494). Total as of December 31 18.2 18.2

3. Depreciation 10. Machinery and Equipment 2002 2001 2002 2001 Intangible assets - 2.6 Acquisition cost as of January 1 43.1 50.5 Other long-term expenditures 0.6 0.6 Increase 2.5 3.7 Buildings 0.4 0.5 Decrease (2.6) (0.3) Machinery and equipment 2.7 3.7 Accumulated depreciation (36.3) (44.5) Total 3.7 7.4 Total as of December 31 6.7 9.4

4. Financing Income and Expenses 11. Shares in Subsidiaries 2002 2001 2002 2001 Dividends received from subsidiaries 3.2 27.4 Total as of January 1 421.2 424.5 Other interest received 0.4 5.0 Increase 14.0 - Interest paid to subsidiaries 44.5 29.8 Decrease (17.3) (3.3) Other interest received 23.6 16.9 Total as of December 31 417.9 421.2 Interest paid to subsidiaries (16.4) (12.8) Other interest paid (14.1) (4.9) 12. Other Stocks and Shares Other fi nancing income and expenses 2.3 3.9 2002 2001 Total 43.5 65.3 Total as of January 1 3.4 4.1 Increase 1.1 0.0 5. Extraordinary Items Decrease - (0.7) 2002 2001 Total as of December 31 4.5 3.4 Group contributions received 0.4 13.7 Group contributions granted (54.9) - Total (54.5) 13.7

6. Depreciation Difference 2002 2001 Intangible assets - (2.7) Other long-term expenditures 0.2 (0.1) Buildings 0.1 0.2 Machinery and equipment 0.6 3.3 Total 0.9 0.7

KONE Annual Report 2002 41

13. Own shares 17. Untaxed Reserves During 2002, KONE repurchased 833,479 class B shares for EUR Cumulative depreciation differences: 2002 2001 26.3 million (average price per share of EUR 31.56). A complete Other long-term expenditures 0.3 0.5 list of daily acquisitions can be found in the KONE Corporation Buildings 1.4 1.5 balance sheet book as of December 31, 2002. Machinery and equipment 0.1 0.7 Total 1.8 2.7 14. Receivables Receivables falling due after one year: 2002 2001 18. Provision for Liabilities and Charges Loans receivable 1.6 1.7 2002 2001 Provision for quarantees 1.9 2.0 Receivables from group companies: 2002 2001 Other provisions 9.4 9.8 Accounts receivable 36.0 29.5 Total 11.3 11.8 Loans receivable 1,963.3 562.7 Deferred assets 16.7 25.8 19. Liabilities Owed to Group and Associated Companies Total 2,016.0 618.0 Liabilities owed to group companies: 2002 2001 Other long-term debt 892.1 424.5 Receivables from associated companies: 2002 2001 Advances received 4.2 0.8 Accounts receivable 2.1 2.2 Accounts payable 9.7 7.8 Loans receivable 1.5 1.6 Accruals 60.4 0.6 Total 3.6 3.8 Total 966.4 433.7

Deferred assets: 2002 2001 Liabilities owed to associated companies: 2002 2001 Interest receivable 25.6 13.3 Advances received 0.4 0.1 Receivables from subsidiaries 16.7 25.8 Accounts payable 0.8 3.3 Exchange rate gains 62.9 13.3 Total 1.2 3.4 Other deferred assets 10.7 17.8 Total 115.9 70.2 Accruals: 2002 2001 Accrued income taxes 0.1 6.0 15. Current Investments Accrued salaries, wages and 2002 2001 employment costs 15.3 15.6 Deposits 1) 250.7 284.7 Accruals to subsidiaries 60.4 0.6 Other investments - 86.1 Other accruals 13.6 18.2 Total 250.7 370.8 Total 89.4 40.4

1) Including deposits, which are fi nanced by Euro Medium Term 20. Long-term Debt Note program. Long-term debt falling due after fi ve years: 2002 2001 Loans from fi nancial institutions 63.5 14.3

16. Shareholders’ Equity and Its Changes Share Share Reserve Retained Net income Total capital premium for own earnings for the equity account shares year As of 1 January 60.5 95.9 57.3 830.3 1,044.0 Issue of shares 3.0 103.0 106.0 Dividend (42.3) (42.3) Purchases of own shares 26.3 (26.3) 0.0 Sales of own shares 20.6 (57.3) 57.3 20.6 Net income for the year 35.6 35.6 As of 31 December 63.5 219.6 26.3 818.9 35.6 1,163.9 42 KONE Annual Report 2002

21. Group Shares and Participations as of 31 December, 2002

Subsidiaries

KONE Elevators & Escalators Shareholding (%) Company Country Parent company Group

KONE Finance Oy Finland 100 100 KONE Inc. U.S. 100 Société Française des Ascenseurs KONÉ S.A. France 99.97 KONE S.p.A. Italy 100 KONE plc UK 100 KONE GmbH Germany 100 KONE B.V. Liften en Roltrappen Netherlands 100 KONE Elevators Pty Ltd Australia 30 100 KONE Elevators Co. Ltd China 95 KONE Hissar AB Sweden 100 Other subsidiaries (154 companies)

KONE Materials Handling Shareholding (%) Company Country Parent company Group

Partek Corporation Finland 100 Valtra Inc. Finland 100 Kalmar Industries Sverige AB Sweden 100 Kalmar Industries Oy Ab Finland 100 Valtra do Brasil S.A. Brazil 100 Sisu Diesel Oy Finland 100 Nordkalk Corporation Finland 100 Kalmar Industries Corp. U.S. 100 Partek Forest AB Sweden 100 Oy Sisu Auto Ab Finland 100 Hiab AB Sweden 100 Other subsidiaries (171 companies)

Associated Companies

KONE Elevators & Escalators Shareholding (%) Company Country Parent company Group

Ternitz Druckguss GmbH Germany 20 Shan On Engineering Company Limited China 30 Konette Design Center Oy Finland 40 40 Industrial Logistics Limited Ireland 20 Marryat & Scott Egypt - S.A.E. Egypt 49 49 Other associated companies (7 companies)

KONE Materials Handling Shareholding (%) Company Country Parent company Group

Consolis Oy Ab Finland 26 Paroc Group Oy Ab Finland 38 Valtra Traktor AB Sweden 40 Sisu Akselit Oy Finland 32 Cervuctum Oy Finland 25 Other associated companies (15 companies)

Other Stocks and Shares Shareholding (%) Company Country Parent company Group

Toshiba Elevator and Building Systems Corporation Japan 19.9 Arabian Elevator & Escalator Co. Ltd Saudi-Arabia 10 10 Thai Lift Industries Public Co. Limited Thailand 8 Others

A list of shares and participation can be found in the fi nancial statements of KONE Corporation.

KONE Annual Report 2002 43

Shares and Shareholders

Market Value Trading codes: KONE Corporation’s share capital consists of the following: An extraordinary shareholders’ meeting held on May 24, 2002 Helsinki Exchanges KONBS Number of shares Par Value (EUR) approved a three-way split in Reuters KONBS.HE Class A 9,526,089 9,526,089 the par value of KONE shares Bloomberg KONBS Class B 53,937,531 53,937,531 from EUR 3.00 to EUR 1.00. ISIN code FI0009000566 Total 63,463,620 63,463,620 The split was registered on May 28, 2002, and public Trading lot 20 Authority to Raise Share Number of class B shares traded trading of split shares com- Par value, EUR 1.00 Capital ’000 menced on May 29, 2002. Taxation value At the end of the fi nancial 35,000 The price of the KONE (in Finland) EUR 20.23 year, the Board of Directors of class B share rose 5.3 percent KONE Corporation had no valid 30,000 authority to increase the share during 2002 from (split Shares and Share Capital 25,000 adjusted) EUR 27.39 to EUR KONE Corporation’s Articles of capital or to issue convertible 28.85. During the same pe- Association state that the mini- or warrant loans, nor were any 20,000 riod the Helsinki Exchanges mum share capital is EUR 54 convertible or warrant loans 15,000 HEX General Index fell 34.4 million and the maximum share issued during 2002. percent and the HEX Portfolio capital EUR 216 million. At the 10,000 Index fell 16.7 percent. The end of 2002 the share capital Authority to Purchase and 5,000 Metal and Engineering Sector was EUR 63.5 million. The share Surrender Own Shares Index fell by 4.1 percent. The capital can be raised or reduced In February, 2002 the Annual 0 98 99 00 01 02 highest KONE class B share within these limits without an General Meeting authorized the price during the year was EUR amendment to the Articles of Board of Directors to purchase 37.00 and the lowest EUR Association. the company’s own shares, 24.18. The company’s market Each class A share is assigned using funds available for capitalization, in which the one vote, as is each block of 10 profi t distribution. The shares Market capitalization unlisted class A shares are class B shares, with the proviso were to be acquired for use MEUR valued at the closing price that each shareholder is entitled as compensation in possible 2,000 of the class B shares on the to at least one vote. At the end company acquisitions or last trading day of the year, of 2002 the total number of other arrangements as well was EUR 1,792 (end-2001: votes was 14,919,049. as for the development of the 1,500 1,604) million. During 2002, In accordance with a decision company’s capital structure. In KONE purchased 833,479 made by the Board of Directors addition, the Annual General 1,000 (split adjusted) own shares at a on December 22, 2000, holders Meeting authorized the Board total cost of EUR 26.3 million, of class A shares have the right of Directors to decide to whom representing an average share to exchange the class A shares and in what order the shares 500 price of EUR 31.56. Shares they own into class B shares at a were to be surrendered. in the company’s possession ratio of one to one. This offer is The total amount of the KONE shares to be acquired 0 represent 1.3 percent of the valid until December 31, 2003. 98 99 00 01 02 total. The shares have been During 2002, 928,734 class A were to be at most fi ve percent entered as investments in the shares were converted to class B of the company’s total number corporation’s balance sheet and shares. of shares and votes, namely are not included in the market 174,247 class A shares and capitalization fi gure. Dividend 833,479 class B shares. During During the year under In accordance with the Articles 2002 the company purchased review 33,784,550 (split- of Association, class B shares 833,479 class B shares. The adjusted 2001: 12,839,325) are preferred for a dividend, shares in the company’s KONE Corporation class B which is at least two percent possession represent 1.3 percent shares were traded on the and no more than fi ve percent of the total number of shares Helsinki Exchanges, which higher than the dividend paid and 0.6 percent of the total represents an increase of 163 to the holders of class A shares, number of votes attached to the percent. The value of shares calculated from the par value of shares. The Board of Directors traded was EUR 1,034 (327) the share. The Board of Directors has proposed to the 2003 million. The average daily proposes that dividends for Annual General Meeting that turnover was 135,681 shares 2002 be EUR 1.48 (split adjusted the authorization be extended. and the relative turnover 65 0.71) per each class A share and percent. EUR 1.50 (0.73 split adjusted) Increase in Share Capital per each class B share. An extraordinary shareholders’ 44 KONE Annual Report 2002

Earnings and Dividend/Share meeting on 14 June, 2002 entitling the holders to tion period will fall between approved a transaction subscribe for a maximum January 2 and November 30 on EUR 3.0 between KONE and the State of 1,050,000 KONE class B dates to be determined by the of Finland involving an increase shares to the price EUR 24.67 company. 2.5 in KONE share capital by EUR per share. The number of 3,000,000 through the issuance option rights is based on Shareholders 2.0 of 3,000,000 new class B shares KONE’s cumulative net income At the end of 2002 KONE had to be offered for subscription (after taxes) as shown in the 7,969 (4,570) shareholders. A 1.5 to the State of Finland at EUR Consolidated Statement breakdown of shareholders is

1.0 35.33 per share, representing a of Income over the three- given in the enclosed table. total price of EUR 105,990,000. year period 2001-2003. The At the end of 2002 the 0.5 The State of Finland paid maximum increase in the share ownership of approximately the subscription price with capital of the company as a 33.8 percent of KONE shares 0.0 6,927,451 Partek Corporation result of subscriptions shall be was in non-Finnish hands, 98 99 00 01 02

Earnings/share shares at a value of EUR 15.30 EUR 1,050,000 corresponding corresponding to around 12 Dividend/share per share. to 1,050,000 new shares when percent of the votes in the the cumulative result exceeds company. Foreign-owned Option Program EUR 470 million. This represents shares can be registered in the In 2000 an option incentive 1.65 percent of the shares of name of Finnish nominees. program tied to the the company and 0.70 percent Only shares registered in achievement of global earnings of the voting rights. shareholders’ own names targets was introduced to The option rights are divided entitle the holder to a vote in

Equity/Share approximately 250 key in A and B option rights. Each A shareholders’ meetings. There employees. This option plan is option right entitles the holder were 18,196,236 (16,357,938) EUR 20 part of a long-range incentive to a separate cash bonus of 40 foreign-owned shares – repre- system, which motivates euros when the income targets senting 28.7 percent of the key employees to commit have been reached. The cash shares – registered in the name 15 themselves to attaining KONE’s bonus will be made in April of Finnish nominees at the end global growth and profi tability 2004. A provision was made for of 2002. goals. An extraordinary for the cash bonus in the 2002 10 shareholders’ meeting held on accounts. Shareholdings of the 24 May, 2002 approved the Holders of A option rights President and Members of change in the option program can subscribe for KONE B the Board of Directors 5 due to the share split so that shares starting on April 1, KONE Corporation’s president the number of shares to be 2004 and ending on March and members of the Board

0 subscribed was tripled and the 31, 2008. Holders of B option of Directors directly owned 98 99 00 01 02 subsciption price was divided rights can subscribe for KONE B a total of 1,269,245 class B by three. shares starting on April 1, 2005 shares on December 31, 2002, KONE will issue a maximum and ending on March 31, representing 2.0 percent of of 1,050,000 option rights 2009. The annual subscrip- shares and 0.9 percent of votes.

Class A shares Class B shares

7.4% 8.9% Price/Earnings 5.1% 35.6%

20 10.0%

15 6.5%

10 92.6%

33.8%

5 Companies Companies Non-profit organizations Foreign shareholders * Financial institutions and insurance companies Individuals 0 Non-profit organizations 98 99 00 01 02 Public institutions

*) Includes foreign-owned shares registered by Finnish nominees. KONE Annual Report 2002 45

Minimum accumulated net Cumulative number of option Cumulative separate cash income level for exercising the rights in use (A and B options) bonus to A option holders option rights and bonuses

EUR 330 million 210,000 EUR 1,440,000 EUR 350 million 420,000 EUR 2,880,000 EUR 380 million 630,000 EUR 4,320,000 EUR 420 million 840,000 EUR 5,760,000 EUR 470 million 1,050,000 EUR 7,200,000

Shareholdings in KONE Corporation on 31 December 2002 By number of shares

Shares Number of Percentage Number Percentage owners of owners of shares of shares

1 - 10 107 1.34 852 0.00 11 - 100 2,308 28.96 145,588 0.23 101 - 1,000 4,347 54.55 1,630,221 2.57 1,001 - 10,000 1,043 13.09 2,985,152 4.70 10,001 - 100,000 131 1.64 3,739,849 5.89 100,001 - 33 0.41 54,955,667 86.59 Total 7,969 100.00 63,457,329 99.99 Shares which have not been transferred to the paperless book entry system 6,291 0.01 Total 63,463,620 100.00

KONE Class B Share Price Development 1998-2002

EUR 40

35

30

25

20

15

10

5

0 98 99 00 01 02

KONE Class B share

HEX Metal & Engineering index

HEX Portfolio index 46 KONE Annual Report 2002

Largest Shareholders on 31 December 2002

Number of Number of Total number % % Class A shares Class B shares of shares of shares of votes

1. Ownership of Antti and Pekka Herlin Holding Manutas* 6,785,574 145,890 6,931,464 10.92 45.58 Security Trading** 2,034,627 11,262,659 13,297,286 20.95 21.19 The KONE Foundation 705,888 1,232,454 1,938,342 3.05 5.56 Pekka Herlin 1,170,111 1,170,111 1.84 0.78 Antti Herlin 67,434 67,434 0.11 0.05 Total 9,526,089 13,878,548 23,404,637 36.87 73.16 2. Toshiba Elevator and Building Systems Corporation 3,023,340 3,023,340 4.76 2.03 3. The State of Finland 3,000,000 3,000,000 4.73 2.01 4. Suomi Mutual Suomi Mutual Life Assurance Company 930,000 930,000 1.47 0.62 Insurance Company Suomi 90,000 90,000 0.01 0.06 Total 1,020,000 1,020,000 1.61 0.68 5. Pohjola Group Pohjola Group Insurance Corporation 552,000 552,000 0.87 0.37 Pohjola Non-Life Insurance Company Ltd 435,000 435,000 0.69 0.29 Total 987,000 987,000 1.55 0.66 6. Ilmarinen Mutual Pension Insurance Company 860,960 860,960 1.36 0.58 7. KONE Corporation*** 833,479 833,479 1.31 0.56 8. Federation of Finnish Metal Engineering and Electrotechnical Industries MET 550,200 550,200 0.87 0.37 9. Finnish State Pension Fund 370,000 370,000 0.58 0.25 10. Henki-Sampo Insurance Company 252,182 252,182 0.40 0.17 10 major shareholders total 9,526,089 24,775,709 34,301,798 55.78 81.21 Nominee registered**** 18,196,236 18,196,236 28.67 12.18 Other shareholders 10,965,586 10,965,586 15.55 6.61 Total 9,526,089 53,937,531 63,463,620 100.00 100.00

*Antti and Pekka Herlin’s ownership in Holding Manutas Oy represents 56% of shares and 91% of voting rights. **Antti ja Pekka Herlin’s ownership in Security Trading Oy represents 21% of shares and 54% of voting rights. ***According to the Companies Act of Finland, shares owned by KONE Corporation do not carry voting rights. ****The American investment fund company Tweedy Browne Company LLC notifi ed KONE Corporation on 1 April, 1999 that its holdings of KONE Corporation was over 5% of the shares. KONE Annual Report 2002 47

Five–year Summary in Figures 1998-2002

Consolidated Statement of Income 2002 2001 2000 1999 1998 Sales, MEUR 4,342 2,816 2,602 2,412 2,082 - sales outside Finland, MEUR 3,959 2,725 2,509 2,324 2,019 Depreciation, MEUR 141 82 81 78 78 Operating income before goodwill amortization, MEUR 340 256 224 152 121 - as percentage of sales, % 7.8 9.1 8.6 6.3 5.8 Operating income, MEUR 275 218 186 118 83 - as percentage of sales, % 6.3 7.7 7.2 4.9 4.0 Income before taxes, MEUR 256 219 183 111 72 - as percentage of sales, % 5.9 7.8 7.0 4.6 3.5 Net income, MEUR 157 141 106 58 36

Consolidated Balance Sheet 2002 2001 2000 1999 1998 Fixed assets, MEUR 2,003 721 699 600 596 Inventories, MEUR 530 112 154 160 156 Receivables, cash and cash equivalents, MEUR 1,627 1,274 976 820 701 Shareholders’ equity + minority shares, MEUR 1,129 807 677 591 519 Long-term debt, MEUR 976 350 70 102 78 Provisions and tax liability, MEUR 297 246 212 218 191 Current liabilities, MEUR 1,758 703 870 669 665 Total assets, MEUR 4,160 2,107 1,829 1,580 1,453 Assets employed, MEUR 2,252 703 746 679 648

Other Data 2002 2001 2000 1999 1998 Orders received, MEUR 3,261 2,100 1,854 1,723 1,483 Order book, MEUR 2,240 1,881 1,656 1,492 1,325 Capital expenditure, MEUR 93 46 46 55 54 - as percentage of sales, % 2.1 1.6 1.8 2.3 2.6 Expenditure for research and development, MEUR 63 41 37 36 30 - as percentage of sales, % 1.5 1.4 1.4 1.5 1.5 Average number of employees 29,407 22,964 22,804 22,661 22,596 Number of employees as of 31 December 35,864 22,949 22,978 22,630 22,692

Key Ratios 2002 2001 2000 1999 1998 Return on equity, % 18.4 20.4 17.2 9.7 6.0 Return on capital employed, % 16.4 23.4 23.5 14.9 11.5 Return on assets employed, % 19.0 30.2 26.3 18.0 12.9 Total equity/total assets, % 24.2 36.6 35.9 37.4 35.7 Gearing, % 125 neg. 15 8 25

Key Figures per Share** 2002 2001 2000 1999 1998 Earnings per share, EUR 2.54 2.42 1.77 0.95 0.60 Equity per share, EUR 15.66 12.91 10.91 9.74 8.48 Dividend per class B share, EUR 1.50* 0.73 0.50 0.33 0.21 Dividend per class A share, EUR 1.48* 0.71 0.48 0.31 0.19 Dividend per earnings, class B share, % 59.0* 30.4 28.2 35.0 34.1 Dividend per earnings, class A share, % 58.2* 29.5 27.1 32.9 31.0 Effective dividend yield, class B share, % 5.2* 2.7 2.0 2.0 1.9 Price per earnings, class B share 11 11 14 17 18 Market value of class B share, average, EUR 31 25 21 13 13 - high, EUR 37 31 26 16 16 - low, EUR 24 22 16 10 9 - as of 31/12, EUR 29 28 25 16 11 Market capitalization as of 31/12, MEUR 1,792 1,604 1,466 986 667 Number of class B shares traded, ‘000 33,785 12,840 11,991 9,873 10,011 Class B share traded, % 65.4 26.4 24.0 19.7 20.0 Weighted average number of class A shares, ‘000 10,442 10,455 10,455 10,455 10,455 Number of class A shares as of 31/12, ‘000 9,526 10,455 10,455 10,455 10,455 Weighted average number of class B shares, ‘000 51,665 50,009 50,009 50,009 50,009 Number of class B shares as of 31/12, ‘000 53,938 50,009 50,009 50,009 50,009 Weighted average number of shares ***, ‘000 61,809 58,406 60,464 60,464 60,464

* Board’s proposal ** On 28 May 2002 the shares were split at a ratio of one to three *** Adjusted for share issue and option dilution, and reduced with the number of own shares held by the company.

48 KONE Annual Report 2002

Board of Directors’ Proposal to the Annual General Meeting

KONE’s distributable equity as of December 31, 2002 is EUR 661.2 million. The parent company’s distributable equity on December 31, 2002 is EUR 854,592,518.82 of which net profi t from the accounting period under review is EUR 35,610,766.65. The Board of Directors proposes to the Annual General Meet- ing that a dividend of EUR 1.48 be paid on the 9,526,089 class A shares and EUR 1.50 on the outstanding 53,104,052 class B shares, for a total of EUR 93,754,689.72. The Board of Directors further proposes that the rest, EUR 760,837,829.10 be retained and carried forward.

The Board proposes that the dividends be payable from March 5, 2003.

Helsinki, January 30, 2003

Pekka Herlin Antti Herlin

Gerhard Wendt Iiro Viinanen

Jean-Pierre Chauvarie Hiroshi Nishioka

Manfred Eiden President KONE Annual Report 2002 49

Auditors’ Report

To the shareholders of KONE Corporation In our opinion the fi nancial statements have been prepared We have audited the accounting, the fi nancial statements and in accordance with the Accounting Act and other rules and the corporate governance of KONE Corporation for the fi nan- regulations relevant to the preparation of fi nancial statements. cial year 2002. The fi nancial statements prepared by the Board The fi nancial statements give a true and fair view, as defi ned in of Directors and the Managing Director include, both for the the Accounting Act, of both the consolidated and the parent group and the parent company, a report on operations, an in- company’s result of operations as well as of the fi nancial posi- come statement, a balance sheet and notes to the fi nancial state- tion. The fi nancial statements with the consolidated fi nancial ments. Based on our audit we express an opinion on these fi nan- statements can be adopted and the members of the Board of cial statements and on corporate governance. Directors and the Managing Director of the parent company We have conducted the audit in accordance with Finnish can be discharged from liability for the fi nancial year audited by Standards on Auditing. Those standards require that we perform us. The proposal by the Board of Directors regarding the distri- the audit to obtain reasonable assurance about whether the butable profi ts is in compliance with the Companies’ Act. fi nancial statements are free of material misstatement. An audit includes examining on a test basis evidence supporting the Helsinki, January 30, 2003 amounts and disclosures in the fi nancial statements, assessing the accounting principles used and signifi cant estimates made PricewaterhouseCoopers Oy by the management as well as evaluating the overall fi nancial Authorized Public Accountants statement presentation. The purpose of our audit of corporate governance is to examine that the members of the Board of Jukka Ala-Mello Mauno Tervo Directors and the Managing Director have legally complied with Authorized Public Accountant Authorized Public Accountant the rules of the Companies’ Act. 50 KONE Annual Report 2002

Operating Principles

ropean Management Schools used, not when they are pro- network, which consists of 17 duced. Design plays a central top European business schools role in reducing their environ- and universities and more than mental impact. Through de- 50 major companies. sign, for example, it is possi- ble to affect more than 80 per- Improvement in Quality and cent of the energy consump- Environmental Systems tion that will occur during the Innovations such as the KONE life cycle of elevators and es- EcoDisco® hoisting machine, calators. the machine-room-less KONE Most of the environmen- MonoSpace® elevator and the tal impact caused by KONE KONE ECO3000™ escalator Materials Handling products have made KONE a technolog- come from their use of fuel and ical leader in its fi eld and at the oil, working in fi elds and for- same time an environmentally ests, engine emissions, and the KONE’s approach to corporate ing and job rotation. An inter- friendly supplier. noise they make. It has been social responsibility is based national operating environ- Five KONE Elevators & Esca- possible to reduce these effects on four principles. The starting ment and participation in orga- lators units have been awarded considerably through product point for responsible operations nization-wide projects offer di- ISO14001 environmental man- development. Often a prod- is a profi table business base. verse career opportunities. The agement system certifi cation. uct that is environmentally ad- Next, we believe in the impor- aim of our systematic succes- Environmentally friendly eleva- vanced is also more economi- tance of developing the know- sion planning for key employ- tor technology has strength- cal for the customer. how and capabilities of our em- ees is to ensure appropriate re- ened KONE’s position in China’s The recyclability of KONE’s ployees. Third, we strive to op- sourcing for our organization in rapidly expanding elevator and products is extremely good. erate in ways that are as friend- the future. escalator market. Between 90 and 95 percent of ly as possible to the environ- Employee know-how is de- ISO quality certifi cation cov- the raw materials in our eleva- ment. In addition, we provide veloped according to each per- ers about 90 percent of KONE tors and escalators are easily our employees and custom- son’s needs. Various learning Materials Handling’s business recycled metals. The degree of ers with a safe working environ- paths and programs help par- operations, measured in terms recyclability in most of KONE ment and the end-users of our ticipants meet present and fu- of net sales. Fourteen units, ac- Materials Handling’s products equipment with safe products ture development require- counting for about 50 percent is also extremely high because and services. ments. In addition to global of the division’s turnover, also of the big proportion of steel. Continuous development training programs, local train- have environmental certifi ca- Pre-Machines are often resold, is a goal of KONE’s operat- ing opportunities based on the tion. The environmental certi- which prolongs their working ing units. KONE Elevators & needs of business units are also fi cation process is underway in career. Escalators has launched a so- available. most of the remaining units. cial responsibility project that is KONE’s Technical Training All of the tractor business area’s Safety a Priority aimed at organizing the work Centers around the world pro- production units have environ- KONE provides a safe working done so far into a coherent ap- vide technical training for el- mental certifi cation. environment as well as reliable proach. KONE Material Hand- evator and escalator custom- and safe products and services. ling’s operations have been er service personnel. Manage- Responsibility for Products’ The commitment to safety based for a long time on quali- ment training programs are de- Entire Life Cycle has made elevators and esca- ty, environmental, occupation- veloped in association with the KONE’s aim is to develop prod- lators one of the safest forms al health and safety systems in world’s leading universities and ucts, production processes and of travel. They are subjected to addition to policies and codes educational establishments operating methods in a way numerous tests as well as in- of practice. such as the London Business that takes into consideration spections by independent ex- School and the Columbia Busi- the environmental impact of perts before being considered Employee Know-how: a ness School. the products during their en- ready for market. The safety Decisive Competitive Edge The development of fresh tire life cycle. KONE’s products of the escalators and elevators KONE’s success is based on talent is also supported. An in- have the advantage of being that are already in use is also its employees’ know-how, en- ternational training program long-lasting, and their main- monitored regularly. thusiasm and commitment to offers placement of business tainability is good. KONE actively cooperates achieving collective goals. Peo- and technical students in KONE During the life cycle of with many organizations ple are given the opportunity to units all over the world. KONE KONE products, most of the responsible for elevator and learn and develop in both their is also one of the partner com- environmental consequences escalator safety regulations daily work and through train- panies in the Community of Eu- appear when the products are such as the European Elevator KONE Annual Report 2002 51

Association and the National escalators and automatic doors, Elevator Industry in the U.S. as which facilitate unimpeded well as CEN, ASME and ISO, movement, will increase as where KONE participates in the population ages. About preparing elevator and escalator 15 percent of the multi-story standards. buildings in the European Much of the equipment pro- Union region are still without duced by KONE Materials Han- elevators. With the aging of dling is large and heavy, which the population, authorities makes operating it safely a chal- have stressed the importance lenge. The risks to safety in han- of improving people’s living dling big machines and loads environment and enabling have been reduced through them to live longer in their product development. KONE own homes by subsidizing Materials Handling also coop- the installation of elevators erates with many high-level in buildings that do not have research institutes. A design them. project for environmentally The European Union has friendly work machines is also declared 2003 the Year of underway with the Finland’s People with Disabilities. The Local service organizations and National Technology Agency European Lift Association, which more than 13,000 fi eld operatives and Tech nical Research Center. operates within the European ensure the reliable performance of Safe working procedures are Union, has designed a program elevators, escalators and automatic a fundamental part of a safe called “Create a Momentum for building doors. working environment. Since a Better Life Environment” to 1998 KONE has been running make movement easier for the an occupational safety program physically handicapped. The aimed at reducing the num- program’s aim is to move away ber of occupational accidents from thinking in terms of charity to zero. Thanks to resolute ac- and instead give the physically tion, the number of work-relat- handicapped the right to access. ed accidents has been reduced KONE’s products and services by half during the past six years. will play a crucial role in the In KONE Materials Handling practical implementation of units, systematic work-place risk these objectives. assessment has been carried out in order to create the sys- tem required for OHSAS 18001 occupational health and safe- ty certifi cation and earn the certifi cate.

Unimpeded Movement is an Important Goal Modern urban planning encourages optimal land use Safe work procedures are an and high-rise construction. essential part of a safe working Elevators and escalators make environment. buildings functional and unite them with their surroundings. KONE enables the effi cient fl ow of goods and people in tall buildings and metros as well as other places where access would be diffi cult without reliable internal transportation systems. The importance of elevators, 52 KONE Annual Report 2002

Corporate Governance

Duties and Responsibilities of Election of Members of the dit Committee and Executive Re- of the Board of Directors, the the Board of Directors Board of Directors sources Committee. President and the auditors The Board of Directors’ duties The Annual General Meeting The Audit Committee directs belong to KONE’s permanent and responsibilities are laid elects four to seven members of and supervises KONE’s internal insiders. In addition to these down in accordance with the KONE Corporation’s Board of auditing. Director of Internal Au- individuals, KONE’s extended company’s Articles of Associa- Directors for one year at a time. diting Urpo Paasovaara reports list of permanent insiders tion and the Companies Act of The Annual General Meeting al- on audit results to the commit- includes the Board Secretary, Finland. All matters of far- so elects the Chairman of the tee. The members of the com- the members of the Corporate reaching importance in terms Board of Directors. Of the Board mittee are Committee Chairman Executive Committee, the of the group’s operations are of Directors’ current fi ve mem- Antti Herlin, Committee Secretary Chief Financial Offi cer, the SVP handled by the company’s bers, Antti Herlin is employed by Tapio Hakakari and KONE Corpo- Communications & Investor Board of Directors. These in- the group. ration’s auditor, Mauno Tervo. Relations and the Investor clude, among other things, The Executive Resources Relations Manager, President the approval and confi rma- Remuneration of Members of Committee’s responsibilities in- and Vice President of KONE tion of strategic guidelines, rati- the Board clude making decisions about se- Materials Handling. The fi cation of budgets and action Membership remuneration is nior management appointments shareholdings of the permanent plans, decisions about the cor- paid to those members of the and remuneration. The members insiders are disclosed in the porate structure, and signif- Board of Directors who are not of the committee are Committee enclosed table. The company icant company acquisitions employed by the group, such Chairman Antti Herlin, Commit- maintains its insider register in and investments. The Board of that the chairman receives EUR tee Secretary Tapio Hakakari and the Sire system of the Finnish Directors appoints the compa- 3,000 and other members EUR Jean-Pierre Chauvarie. Central Securities Depository. ny’s President and decides on 1,500 per month. KONE Corporation has not his/her terms of employment. Insider Rules granted loans to the members The Board convenes regular- Permanent Committees KONE Corporation has enforced of the Board or to members of ly six times a year and when ne- The Board of Directors has cre- the insider guidelines approved the executive committees, nor cessary. The Board of Directors ated two permanent commit- by the Helsinki Exchanges as of has it given guarantees on their held ten meetings during 2002. tees to assist its work, the Au- January 1, 2000. The members behalf.

Shareholdings of KONE Corporation’s Permanent Insiders as of December 30, 2002

Insider Position in KONE Corporation A shares B shares

Herlin Pekka* Chairman of the Board 1,170,111 Herlin Antti* Deputy Chairman of the Board 67,434 Chauvarie Jean-Pierre Member of the Board 31,700 Hakakari Tapio Secretary to the Board 65,000 Cawén Klaus Member of the Executive Committee 2,000 Kemppainen Pekka Juhani Member of the Executive Committee 1,170 Mäkinen Heimo Member of the Executive Committee 10,080 Heinistö Kari Senior Executive Vice President, KONE Materials Handling 2,000

*Indirect holdings of Pekka and Antti Herlin can be found on page 46 in the table Largest Shareholders. The other insiders do not own shares in KONE Corporation. KONE Annual Report 2002 53

Board of Directors

Pekka Herlin b. 1932 D.Sc (Econ) H.C. Chairman, July 1996- Chairman & CEO of KONE, Antti Herlin 1987-June 1996 b. 1956 President & CEO of KONE, Deputy Chairman and CEO 1964-1986 of KONE, July 1996- Member of the Board, 1954- Member of the Board, 1991-

Gerhard Wendt b. 1934 Iiro Viinanen Ph.D. b. 1944 President of KONE, 1989-1994 M.Sc. (Tech) Member of the Board, 1979 - Member of the Board, 1997-

Hiroshi Nishioka Jean-Pierre Chauvarie b. 1941 b. 1935 President & Chief Executive President of KONE, 1999- Offi cer, August 2001 Toshiba Elevator and Building Member of the Board, 2000- Systems Corporation Deputy Member of the Board, Member of the Board 1999-2000 as of April 1, 2002

Auditors

Mauno Tervo, Authorized Public Accountant PricewaterhouseCoopers Oy, Authorized Public Accountants

Tapio Hakakari Deputies b. 1953 Niina Raninen, LL.M. Authorized Public Accountant Secretary to the Board of Barbro Löfqvist, Directors, 1998- Authorized Public Accountant 54 KONE Annual Report 2002

KONE Elevators & Escalators Executive Committee

Klaus Cawén b. 1957 Manfred Eiden LL.M. b. 1951 Executive Vice President, M.Sc. (Econ.) General Counsel, President of KONE Corporation Acquisitions & Toshiba Alliance Employed by KONE since 1976 Employed by KONE since 1983

Michel Chartron b. 1949 Pekka Kemppainen M.Sc. (Eng.), MBA b. 1954 Executive Vice President, Licentiate in Technology Automatic Building Executive Vice President, New Door Business Elevator & Escalator Business Employed by KONE since 1983 Employed by KONE since 1984

Heimo Mäkinen William Orchard b. 1944 b. 1947 M.Sc. (Eng.) B.Sc. (Production Engineering) Executive Vice President, Executive Vice President, Technology & Purchasing Service Business Employed by KONE since 1968 Employed by KONE since 1988

Aimo Rajahalme b. 1949 Kerttu Tuomas M.Sc. (Econ.) b. 1957 Executive Vice President, B. Sc. (Econ.) Finance and Information Executive Vice President, Systems Human Resources Employed by KONE since 1973 Employed by KONE since 2002 KONE Annual Report 2002 55

KONE Materials Handling Management

Carl-Gustaf Bergström Kari Heinistö b. 1945 b. 1958 M.Sc. (Econ.) M.Sc. (Econ.) President Senior Executive Vice President Employed by Partek since 1970 Employed by Partek since 1983

Olof Elenius Christer Granskog b. 1951 b. 1947 M.Sc. (Econ.) M.Sc. (Eng.) President, President, Kalmar Industries AB Partek Cargotec Oy Ab Employed at Partek since 1997 Employed at Partek since 1983

Hans Eliasson b. 1945 Ilkka Hakala Engineer b. 1955 President, Partek Forest AB Lic.Sc. (Eng.) Employed at Partek Forest President, Valtra Inc. since 1991 Employed at Valtra since 2002

Lauri Björklund b. 1953 Pekka Sihvola M.Sc. (Eng.) b. 1959 Senior Vice President, M.Sc. (Econ.), LL.M. Production Chief Financial Offi cer Employed at KONE since 1977 Employed at KONE since 1993

Partek Corporation (KONE Materials Handling) Board of Directors Harri Hytönen b. 1965 B.Sc., MBA Antti Herlin, Chairman of the board, Senior Vice President, Carl-Gustaf Bergström, Klaus Cawén, Global Sourcing Jean-Pierre Chauvarie, Manfred Eiden, Employed by Partek since 1989 Tapio Hakakari and Aimo Rajahalme 56 KONE Annual Report 2002

Information to Shareholders

Annual General Meeting Financial Reporting The Annual General Meeting of KONE Corporation will be KONE Corporation will publish the following fi nancial reports held at the Kalastajatorppa Hotel: Kalastajatorpantie 2-4, during 2003: 00330 Helsinki, on Friday, February 21, 2003 at 11:00 a.m. – Financial Statement 2002 on Friday, January 31, 2003 Shareholders wishing to attend the meeting must have their – Annual Report 2002 in February, 2003 KONE shareholdings registered on the KONE shareholder – Interim Report, covering the period January-March, 2003, list at the Finnish Central Securities Depository no later than on Wednesday, April 23, 2003 Tuesday, February 11, 2003, and must notify the company’s – Interim Report, covering the period January-June, 2003, head offi ce by mail (KONE Corporation, P.O. Box 8, FIN- on Tuesday, July 22, 2003 0033l Helsinki), by telefax (+358 (0)204 75 4309), by e-mail – Interim Report, covering the period January-September, 2003, ([email protected]) or by telephone (+358 (0)204 75 on Tuesday, October 21, 2003 4332) no later than Monday, February 17, 2003. Possible proxies must be notifi ed at the same time. KONE Corporation publishes fi nancial reports and Stock Ex- change releases in Finnish and English. All material is available on Payment of Dividends the Internet at www.kone.com from the date of publication. The Board of Directors’ proposal for distribution of profi ts can Annual reports are mailed to all shareholders and those who be found on page 48. Only those who have been registered are on the company’s mailing list. The company sends interim as shareholders at the Finnish Central Securities Depository by reports in paper form only to those who have requested them. Wednesday, February 26, 2003, the date of record of dividend Shareholders are requested to inform the bank that holds their distribution, are entitled to dividends. The date proposed by the book-entry account of any change of address. Changes of ad- Board of Directors for payment of dividends is Wednesday, dress relating to the company’s mailing list should be sent to the March 5, 2003. company.

Announcements to Shareholders Financial reports may be ordered from In accordance with the decision of the Board of Directors, an- KONE Corporation, Corporate Communications, P.O. Box 7, nouncements to shareholders are published in the following dai- FIN-02151 Espoo, Finland ly Helsinki newspapers: Helsingin Sanomat, Kauppalehti and Internet: www.kone.com Hufvudstadsbladet. E-mail: [email protected] Fax: +358 (0)204 75 4515 Telephone: +358 (0)204 751 KONE Annual Report is printed on environmentally friendly paper. Design and layout GREY PRO Oy, printing Frenckell. Design and layout GREY PRO Oy, KONE Annual Report is printed on environmentally friendly paper. Elevators Escalators KONE provides its customers Escalators and autowalks with innovative elevator solutions transport hundreds of millions of for buildings of all sizes, from people on a daily basis through low-rise housing to the world’s shopping centers, airports and tallest skyscrapers. The machine- metros. The KONE ECO3000™ room-less KONE MonoSpace® escalator product family is based elevator and other products on the industry’s most effi cient based on KONE’s EcoDisc® and environmentally friendly technology have made KONE the technology. industry’s technological leader.

Maintenance and Automatic Building Doors Modernization KONE has extended its service Maintenance and modernization know-how to cover automatic represent more than half of building doors. The existing ser- KONE Elevators & Escalators’ vice organization and long-term revenue. KONE Optimum™ customer relationships create the maintenance contracts, KONE foundation for the success of the Remote Monitoring Services, 24- building door service. hour service centers and modular modernization solutions all utilize advanced technology to create added value for customers.

Container Handling Load Handling Kalmar is the leading supplier Load Handling offers solutions of heavy-duty material handling that meet virtually all customer equipment and services to ports, needs in on-road load handling. intermodal traffi c, terminals and HIAB loader cranes are designed demanding industrial customers. to lift and move the heaviest Every fourth container or trailer of loads safely with extreme transfer in ports and terminals precision. around the world is handled by a Kalmar machine.

Forest Machines Tractors Forest Machines offers a broad Valtra is Europe’s fastest growing range of machines and cranes for tractor brand and third largest harvesting by both the cut-to- supplier in Latin America. The length method and the full-tree customer-order system, which is method. The cost-effi cient unique in the industry, enables Valmet forest machines are both customization of the tractor to environmentally friendly and take the specifi c need of the cus- ergonomic issues into consider- tomer. ation.