<PAGE>


                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 20-F

           [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                                       OR
                [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                  For the Fiscal Year Ended: December 31, 1998
                                     0-28988
                            (Commission file number)

                               ANSALDO SIGNAL N.V.
             (Exact name of registrant as specified in its charter)

                                 The Netherlands
                 (Jurisdiction of incorporation or organization)

                             Schiphol Boulevard 267
                        1118 BH Schiphol, The Netherlands
                    (Address of principal executive offices)

             Securities registered or to be registered pursuant to
                           Section 12(b) of the Act:
                                      None
                                (Title of Class)

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

                               Title of each class
                Common Shares with a par value of NLG 0.01 each

                   Name of each exchange on which registered
                                     NASDAQ


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

                            ------------------------

        Indicate the number of outstanding shares of each of the issuer's
            classes of capital or common stock as of the close of the
                      period covered by the annual report.
                            20,448,750 Common Shares

Indicate by check mark whether the registrant (1) has filed all reports required
   to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
      during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been
           subject to such filing requirements for the past 90 days.
                                  Yes X No ___

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

                              Item 17 ___ Item 18 X

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TABLE OF CONTENTS

                                                                            Page
PART I
ITEM 1   Description of Business..........................................    3
         ITEM 2     Description of Property ..............................   15
         ITEM 3     Legal Proceedings.....................................   15

         ITEM 4     Control of Registrant.................................   16
         ITEM 5     Nature of Trading Market..............................   16
         ITEM 6     Exchange Controls and Other Limitations Affecting
                      Security Holders....................................   17
         ITEM 7     Taxation..............................................   17
         ITEM 8     Selected Consolidated Financial Data..................   20
         ITEM 9     Management's Discussion and Analysis of Financial
                      Condition and Results of Operations.................   20
         ITEM 9A    Quantitative and Qualitative Disclosures about
                      Market Risk.........................................   30
         ITEM 10    Directors and Officers of Registrant..................   31
         ITEM 11    Compensation of Directors and Officers................   33
         ITEM 12    Options to Purchase Securities from Registrant
                      or Subsidiaries.....................................   33
         ITEM 13    Interest of Management in Certain Transactions........   33

PART II
         ITEM 14    Description of Securities to be Registered............   36

PART III
         ITEM 15    Defaults Upon Senior Securities.......................   36
         ITEM 16    Changes in Securities and Changes in Security
                      for Registered Securities ..........................   36

PART IV
         ITEM 17    Financial Statements..................................   36
         ITEM 18    Financial Statements..................................   36
         ITEM 19    Financial Statements and Exhibits.....................   36


                                       2
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                                                                  Ansaldo Signal

                                     PART I

Item 1.  Description of Business

     General

     Ansaldo Signal N.V. ("Ansaldo Signal" or "the Company") is a worldwide
supplier of signaling, automation and control systems, related products and
services. The Company offers a variety of management functions for railroad and
mass transit operations, including:

     o    Automatic train control ("ATC") and automatic train protection ("ATP")
          systems for rail based mass transit and railroads, including high
          speed lines, to provide safe train operation;
     o    Automatic train operation ("ATO") systems for rail based mass transit
          and railroads, including high speed lines, to automate non-vital
          supplementary processes;
     o    Centralized traffic control ("CTC") systems, network management
          control systems, and other operations management systems to provide
          efficient train operations;
     o    Automatic Train Supervision ("ATS") systems for rail based mass
          transit to integrate all supervisory functions of system operation,
          including CTC, wayside signaling, automatic vehicle identification and
          voice and data communications, and to interface with existing
          supervisory control and data acquisition systems;
     o    Marshalling/classification yard control systems;
     o    Wayside and onboard instrumentation and other products that are
          essential elements of the Company's systems; and Related services such
          as engineering design, maintenance and training.

     The Company serves customers throughout the world in the railroad and rail
mass transit industries. Its systems, products and services are designed to
enhance the safety, productivity and efficiency of its customers' operations by
providing system-wide control, discrete segment control and management
information. The Company's state-of-the-art technologies incorporate software
and fail-safe design into computerized controllers, workstations and other
devices. These devices measure, monitor and manage numerous variables and
conditions to help customers achieve optimal safety and efficiency. The Company
has developed a large installed base of its systems from which it is able to
derive revenues through additional direct sales and installation, as well as the
sale of upgrades, enhancements, replacement parts and services.

     The Company operates primarily through three principal subsidiaries that
accounted for approximately 97% of the Company's revenues in 1998. The three
main subsidiaries are:
     o    Ansaldo Segnalamento Ferroviario S.p.A. ("ASF"), an Italian
          corporation with facilities in Genoa, Naples, Tito and Torino;
     o    CSEE Transport S.A. ("CSEE"), a French corporation with facilities in
          Paris and Riom; and
     o    Union Switch & Signal Inc. ("US&S"), a Delaware corporation with
          facilities in Pittsburgh, Pennsylvania and Batesburg, South Carolina.
The Company's other subsidiaries are Union Switch & Signal Pty. Ltd. ("US&S
PTY"), an Australian corporation with facilities in Brisbane, Perth and Kuala
Lumpur; AT Signal Systems AB ("ATSS"), a Swedish corporation with facilities in
Spanga; AT Signalling (Ireland) Ltd. ("ATI"), an Irish corporation with
facilities in Tralee; and Union Switch & Signal Pvt. Ltd. ("US&S PVT"), an
Indian company with facilities in Bagalore.

     Historical Overview

     The Company was incorporated on November 13, 1996. The Company's shares
began trading on the NASDAQ National Market on December 11, 1996. The Company
was formed to combine the railway signaling and automation business investments
of Ansaldo Trasporti S.p.A., an Italian corporation ("ATR"). ATR is 55.5% owned
by Finmeccanica S.p.A., an Italian corporation ("Finmeccanica"), which is in
turn 61% owned by the Italian state holding company, Istituto per la
Ricostruzione Industriale-IRI S.p.A. ("IRI"). The publicly held shares of ATR
and Finmeccanica are traded on the Italian automated stock exchange.

     The origins of the Company's signaling activities can be traced to the very
beginning of the railway signaling and automation industry. George Westinghouse
founded The Union Switch & Signal Company in 1881 to commercialize the "closed
loop" track circuit technology, which remains the basis for much of today's
railway signaling throughout the world. Since that time, the Company's primary
operating companies -- US&S, ASF and CSEE - each of which has a long history of
involvement in the signaling industry, have played key roles in the evolution of
rail signaling and control technologies, having contributed a number of "firsts"
and other significant developments to the railway signaling and control
industry, such as:

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                                                                  Ansaldo Signal

     o    Alternating Current (AC) track circuit (1903)
     o    Inductive train control (cab signaling)(1923)
     o    Remote controlled gravity hump yard (1924)
     o    Coded track circuit (1934)
     o    Coded carrier CTC (1942)
     o    Computer aided dispatching ("CAD") (1966)
     o    Signaling system for the TGV, the high speed French rail line (1981)
     o    Microprocessor based vital interlocking controller (1985)
     o    CTC/CAD consolidation (1987)
     o    Profile Cab Signaling System (1993)
     o    Digital Signaling System for the TGV (1993)
     o    Driverless metro (North America) (1995)
     o    Low Traffic Density Radio Block Signaling (1996)
     o    High Speed Train Set ATP (USA) (1997)
     o    Intermittent Plus Continuous Cab Signaling System (1998)
     o    Consolidated transit operations control center (USA) (1998)
     o    European Rail Traffic Management System ("ERTMS") Level 1
          implementation (1999)

     The Company's recent product developments include the TVM(Trademark) 430
family of products, which are the basis for automatic train control systems for
the current generation of France's high-speed TGV (Train a Grande Vitesse) as
well as other high speed lines throughout the world; the ACC/SARA(Trademark)
microprocessor based interlocking technology for large scale and complex
interlockings; and the L12,000 series discontinuous ATP systems. In addition,
the Company has combined intermittent and continuous cab signaling technologies
with balises (transponders) for cost-efficient added functionality in train
control and developed a distributed "central control" non-vital logic
architecture for increased efficiency in overall system control. In 1998, the
Company began the first up-grade to implement the ERTMS.

     Complementing the Company's systems capabilities is a broad range of
products that measure, indicate or control variables such as speed, temperature,
location and spacing. In addition, the Company offers a broad, well-established
line of ground equipment such as signals, point machines which route trains from
one track to another and track circuits that detect train presence in a given
section of track. The Company's on-board products, such as its lines of cab
signaling made for both North American and European standards, usually
incorporate software.

     Industry Overview

     The railway signaling and automation market has traditionally included all
systems, equipment and services used to monitor and manage the safe movement of
railroad and rail mass transit vehicles. In recent years, the market has
expanded to include process automation to move goods and passengers both safely
and efficiently through railroad or rail mass transit systems. Increasingly,
customers request fully integrated control, automation and business solutions
encompassing not only signaling control systems, instrumentation devices and
advanced software applications, but also other disciplines such as data
management systems. Customers are also requiring professional services, such as
those related to predictive diagnostics and system validation requirements.

     Markets. Railway signaling equipment, systems and services are used
throughout the world by freight railroads, passenger railroads (conventional and
high speed) and passenger mass transportation systems (trolley or "light" rail
and metro or "heavy" rail). Their railway signaling and automation requirements
vary widely, from a few control functions and only several trains per day to
operations which require thousands of measurement and control points, and
control thousands of train movements per day integrated in one centralized
control system. Multiple or distributed control offices may also be linked via
data communication channels. At the highest level of sophistication, certain
systems or functions may be unmanned; that is, responsibility for the operation
will rest entirely with the signaling and control system. Geographically the
principal markets addressed by the Company are North America (principally the
United States), Europe (principally Italy, France, the United Kingdom, Spain and
Sweden) and Australasia (principally China, Hong Kong and Australia).

     Systems Technologies. Traditional railway signaling systems have used the
fixed block track circuit as the basic means for detecting the presence of a
train. Once the train's presence has been detected, a variety of other devices
linked to the basic track circuit system and physically distributed throughout
the network will, through the application of predetermined logic principles,
request certain actions and issue certain commands to enforce safe operation or
maximize efficiency. The track circuit systems, as well as the associated logic,
may be implemented through vital or fail-safe relays and more recently through
microprocessor-based devices. Such track circuit systems may be linked to the
rail vehicles using continuous or discontinuous cab signaling networks, and to
supervisory centers by radio or dedicated phone-line digital communications
systems. In this

                                       4
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                                                                  Ansaldo Signal

way, the thousands of controls and the millions of bits of data generated by the
control system can be integrated on-line, on a real-time basis. This information
is typically presented to dispatchers and other supervisory personnel in
easy-to-use graphic displays that enable them to make operational and emergency
decisions as required.

     Many control decisions are now made by "smart" devises and/or systems which
have been developed over the past several years by incorporating microprocessor
technology within wayside or on-board field devices or through artificial
intelligence capabilities within supervisory control offices. These devices and
systems permit a faster response to changes in operating conditions because the
communication of certain signals to or from a particular device or a control
room is no longer required or the need for human intervention is eliminated.

     Increasingly, railroad and rail transit operators are exploring the
potential of emerging alternatives, such as communication-based signaling
systems, to traditional track circuit based signaling and automation systems.
Communication-based rail signaling and automation systems permit field devices
to be minimized but rely more heavily on high level software. In these systems,
other devices that do not use the rails as a means of train detection implement
the train location function previously provided by the track circuit. A
sophisticated form of radio transmission often provides the medium for data
communication. Two basic approaches have emerged in this trend, one that is
wayside based and one that is vehicle based.

     Component Products. Devices such as signals, controllers, switch machines,
vital relays, telemetry equipment and vital and non-vital logic emulators may be
sold as part of a complete railway signaling system or may be marketed and sold
separately as products. This equipment, both on-board and wayside, is typically
incorporated in the signaling system to provide measuring, sensing, analysis,
actuating and regulation of some part of the operation of the network and to
perform internal system control and diagnostics.

     Recent trends. An increasingly important portion of virtually every
signaling and automation system is the specialized software needed to drive all
parts of the system. As control systems become more complex and dependent on
software, they also become a more important element in assuring economic
efficiency through overall rail network automation and management. Suppliers
have begun to take advantage of the opportunity to act as their customers'
systems integrators and to provide related services and software that address
efficiency and economic benefits.

     Factors driving the demand for rail signaling and automation include
increasing congestion in urban and suburban areas throughout the world,
increasing development by less developed countries, environmental and other
limitations on expansion of highway networks and numerous other factors. To deal
with these forces, improved rail signaling and automation have emerged as the
least expensive method for increasing the capacity ("throughput") of
environmentally friendly rail systems.

     Although private funding by the freight railroads is important, the railway
and transit industry is dependent upon the availability of public funding for
infrastructure investment throughout the world: Federal and transit authority
funding in the United States; transit authorities and State-owned railroad
funding in the rest of the world. Whenever public funding declines, there is a
tendency for price competition to increase. Accordingly, a change in government
policies or an adverse economic environment (such as that which has occurred in
Southeast Asia) in any of the regions or principal countries in which the
Company does business can have an adverse effect upon the Company's business.

     Business Segment Information

     The Company operates principally in one industry: the design, engineering,
production, distribution and after-sale service of integrated rail-based
signaling, automation and control systems and related component products and
services. The Company offers its systems, technologies, products and services
worldwide to two principal customer groups: the mass transit industry and the
railroad industry. Based upon an analysis of competitors' revenues, management
estimates the size of the market in which it presently participates to be, in
the aggregate, approximately $4.8 billion annually. Ten to twelve principal
suppliers normally compete for their share of this business.

     In the railroad market, the Company has an established position in Europe
(where passenger railroads are most prevalent) through ASF and CSEE, and in the
United States, where freight railroads are the dominant factor, through US&S. In
the rail-based mass transit market, the Company has sold its equipment and
systems for mass transit networks around the world. In the United States, Italy
and France, most operators of rail-based mass transit systems are customers of
the Company's subsidiaries.

     The Company manages its business through its operating subsidiaries, each
of which is strategically located to respond to regional customers'
requirements. Each subsidiary addresses its home market and selected
international markets. The

                                       5
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                                                                  Ansaldo Signal

Company has three major operating subsidiaries: US&S in the United States, ASF
in Italy and CSEE in France. The Company's other subsidiaries are located in
Australia, Sweden, Ireland and India.

     The European markets for the company's commercial offerings are served
principally by ASF, CSEE and ATSS. The Americas' markets are principally served
by US&S. The Australasian and African markets are generally addressed by CSEE,
US&S and US&S PTY. ATI serves the limited market in Ireland.

     Relevant financial information relating to the Company's business segments
is detailed in Note 12 of the Notes to Consolidated Financial Statements.

     US&S. In the United States and Canada, the Company, through its largest
subsidiary US&S, offers a broad line of systems and products to the major
operators of heavy and light rail mass transit systems, the Class I freight
railroads and passenger rail systems.

     In the metropolitan mass transit market, in 1998 US&S reinforced its
position in the ATC market by winning contracts from the Delaware River Port
Authority, the Metropolitan Atlanta Rapid Transit Authority and the Miami-Dade
County Transit Authority. During 1998, US&S was deeply involved in work for the
New York City Transit ("NYCT") based on the $128.4 million contract it won at
the end of 1997 to provide an automatic train supervision ("ATS") system. In
addition, the Company, in partnership with Matra Transport International, signed
an agreement to design and demonstrate a communications-based train control
("CBTC") system for NYCT, which has announced that it will implement CBTC
technology on its entire system during the early part of the next century.

     US&S is a major participant in the market for products and systems
purchased by the Class I railroads. The Class I railroads account for
approximately 91% of North American rail freight revenue according to Railroad
Facts, 1998 Edition. In the passenger rail market, US&S signed a contract in
1998 to provide an ATC system for the commuter railroad lines of New Jersey
Transit that combines the Company's continuous and intermittent cab signaling
technologies. US&S is also active in Amtrak's Northeast Corridor Project,
currently providing high-speed four-quadrant gate crossings and other products.
US&S's enhanced system addressing the new United States' "Advanced Speed
Enforcement System" is being considered for application on the Northeast
Corridor after successful testing and installation on an NJT test track.

     The Company's business in the United States depends in part upon government
funding for rail infrastructure investment. The Transportation Equity Act for
the 21st Century ("TEA-21") was signed into law in June 1998. TEA-21 is the
largest infrastructure-funding bill ever enacted in the United States. TEA-21
includes $42 billion for transit projects, of which $36 billion is guaranteed.
Part of this federal funding has been earmarked for capital projects relating to
the Amtrak urban rail transit system.

     Although not government owned, the US Class I railroads are influenced by
the availability of government funding. TEA-21 provides for an increase of
approximately 55%, or $50 million, in the amount of funds dedicated annually to
installing grade crossing warning devices on freight railroad lines. In
addition, investment by the Class I Railroads has grown slightly each year over
the past several years.

     US&S also serves selected international markets, including the United
Kingdom where the national railroads have been privatized. The Company's
position as the largest non-local signaling supplier in the United Kingdom was
further solidified when US&S was named preferred bidder for network management
centers to control conventional and high speed passenger and freight traffic on
the West Coast Main Line of Railtrack PLC, an infrastructure improvement program
expected to extend over 10 years. The Company was subsequently awarded a
contract, valued at $2.75 million, for the design phase of one such center
system. US&S is also involved in a turn-key project in Copenhagen to provide a
highly sophisticated signaling system which will allow fully automated
driverless operation.

     In Asia, US&S has a $22 million contract to provide an automation and
control system (ATP/ATO) for the Shanghai metro line 2. US&S is submitting new
proposals to equip the other lines of this developing subway system with similar
technology. The Company has ATC contracts in Korea for a portion of the Seoul
metro and also markets its systems, products and services in Taiwan.

     ASF. ASF is focused on serving the needs of the Italian national railway
("FS") and the major operators of suburban and metro passenger systems within
Italy. In addition, the Company is a major supplier to the consortium that is
currently constructing the Italian high-speed rail system. In Italy, the Company
is capable of supplying a full line of locally designed and manufactured railway
signaling equipment and systems and furnishing related services.

                                       6
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                                                                  Ansaldo Signal

     ASF has been involved in a number of large turnkey projects where the
Company's majority shareholder, ATR, is the prime contractor. The contracts
require ATR to provide varied rail products and services, including signaling
and automation systems. In connection with the formation of the Company, ATR
entered into formal subcontract agreements with ASF to continue providing these
services on the contracts in process at the time the Company was formed. See
Note 10 of Notes to Consolidated Financial Statements.

     During 1998, ASF consolidated its presence in the automatic train control
market in Italy by winning ATC contracts from the FS for its new integrated
on-board system ($23 million), which will bring the FS toward compliance with
emerging ERTMS standards. Through ERTMS standards, the European Union is seeking
to harmonize the standards for all European railroads. In addition, the Company
reinforced its position as the main Italian supplier of large and small
interlockings with contracts for the Naples junction ($33.4 million) and for
local railway at Trento Male ($11.5 million). During 1998, ASF also strengthened
its presence in the CTC market, winning the fifth contract for a
state-of-the-art CTC Grande Rete project related to the Bologna-Brennero line
($21.9 million). The Naples metro also awarded to ASF an ATS contract valued at
$8.6 million.

     ASF also focused on several major ongoing contracts in 1998, including
completion of the CTC Grande Rete design phases and prototype construction, the
installation of electronic devices and initial testing for the ACC Roma Termini
project, and the manufacture of station management equipment for the Roma-Napoli
high speed line.

     Virtually all of the revenues of ASF are derived from programs that are
dependent, in whole or in part, on public sector funding by various Italian and,
to a lesser extent, European governmental authorities.

     CSEE. CSEE serves the needs of the French national railway, the Paris Metro
and other major operators of suburban and metro passenger systems within France
and the European Union as well as selected export markets, primarily in Hong
Kong and China. In addition to offering a full line of rail signaling and
automation equipment, systems and services in France and the European Union,
CSEE is the primary supplier of ATC equipment and systems for the TGV high-speed
passenger lines of France and the Channel Tunnel. In the other parts of Europe
CSEE is also active, including in Spain, in Portugal where it is supplying the
ATP/ATO system to the Lisbon metro, and in the United Kingdom where it is
involved in Railtrack's signaling replacement program.

     CSEE is active in China through its joint venture with the Beijing Railway
Signal Factory and has recently won various contracts for the provision of track
circuits which measure and control the variables that affect the safe and
efficient operation of the railroad. CSEE also reinforced its presence in Hong
Kong in 1998, winning a $19.4 million contract to provide the Mass Transit Rail
Corporation with a station management system with supervisory control
capabilities.

     Other Units. US&S PTY provides application engineering and integration
services for railway signaling and automation equipment, and in 1998 won
contracts for cab signal systems from Queensland Rail and Hamersley Iron as well
as supporting other initiatives in Asia. Also in 1998, the Company took steps to
expand in Australasia by establishing a subsidiary in India and a collaborative
relationship in Malaysia. The Company's other subsidiaries operate in Europe.
ATSS supplies intermittent ATP systems to its affiliates as well as to customers
in Scandinavia, and ATI serves both Irish Rail and the Dublin Metro.

     Principal Products and Services

     The Company derives its revenues principally from the sale of the following
systems, products and related services:

     Automatic Train Protection Products. The Company's broad line of ATP and
ATC product offerings include its ACC/SARA(TM) interlocking controller-based
system for large-scale interlockings; its TVM(TM) family of products for high
speed and urban and suburban lines; and its Microlok(R) and Microtrax(R)-based
systems for small and medium interlockings and for conventional railroad lines.
These products are designed to be fail-safe, and are used to control traffic at
stations and through crossovers and interlockings to provide positive
enforcement of braking and speed commands, to locate trains with precision and
to provide track occupancy information to other trains and to a central office.
The Company's ATP product offering consists of several important elements
including control and field interaction devices, operator interface consoles,
multi-level communications capability, engineering and configuration tools and
application solutions.

     Automatic Train Operation Systems. The Company's ATO systems offerings
provide the automatic control for those functions that occur at speeds below the
maximum safe speed, providing acceleration, deceleration, jerk-control, station
stops and door operations. The ATO subsystems perform on-board non-vital
functions such as speed regulation, programmed stopping and performance level
regulation. The ATO subsystems also report vehicle health status to the central
control offices. These functions are classified as non-vital because they are
not directly responsible for safe train movement.

                                       7
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                                                                  Ansaldo Signal

     Centralized Traffic Control, Operations Management and Marshalling Yard
Control Office Systems. These systems and related services enhance management's
ability to operate a railroad or transit system effectively and efficiently by
providing supervisory control capabilities. They are non-vital systems that are
capable of being superimposed on an underlying vital system. The most
significant of these products include centralized traffic control systems, which
control traffic along rail lines; supervisory control and data acquisition
("SCADA") systems, which monitor and control ancillary subsystems such as
ventilation, emergency services, lighting, communications, etc.; operations
management systems, which integrate CTC and SCADA with some or all of the
operator's management information database; and marshalling yard control
systems, which allow the fast, efficient, automated assembly of trains.

     Wayside and On-board Products. The Company offers a broad line of wayside
and onboard products for the measurement and control of the many variables that
affect the safe and efficient operation of a railroad or rail mass transit
system. These products are often furnished directly to railroads, rail based
mass transit operators and other suppliers of signaling and control systems for
incorporation into systems of their design. These products also may be furnished
as part of the ATC, CTC and other systems supplied by the Company. Examples of
these products include various series of track circuits, fail-safe relays, hot
box detectors, end-of-train monitors, electronic treadles, radar units,
intermittent balises, timers, logic emulators, wheel detectors and optical
signals. In addition, the Company offers various component products that enhance
the efficiency or safety of railroad and rail based transit operations, such as
gate mechanisms and point machines for use in marshalling yards and on mainline
operations.

     The Company's product offerings include a variety of microprocessor based
functions such as diagnostics, troubleshooting, and calibration which permit
remote control and monitoring via analog or digital communication links.

     Related Services. The Company provides two types of services:
systems-related services and product-related services. Systems-related services
include system design and application engineering, installation and start-up
assistance, ongoing maintenance, repairs and service and training.
Product-related services include product application analysis, ongoing
maintenance, repair, and calibration services. The Company offers a variety of
design and application software packages and services that assist customers in
meeting application-specific needs and demands by government regulators.

     Recent Initiatives. The Company has completed its implementation of an
initiative to redesign operating processes at the subsidiary level to reduce
rework and internal cycle times. Subsidiary-level redesign teams examined
Company processes, identified inefficiencies and assigned process action teams
to develop and implement redesign plans. US&S began this process in early 1997;
ASF began the process late in 1997. In 1998, CSEE achieved the downsizing and
refocusing of its marketing and sales structure which resulted in a reduction in
operating expenses of approximately $1.4 million compared to 1997. CSEE also put
in place a new operational organization to improve project management by
optimizing strategic key skills and resources.

     Research and Development

     The Company invests in research and development and expects to continue to
do so, with the assistance where available of government and customer funding.
The Company is focussing on research and development to upgrade its main product
groupings to "next generation" technologies. Specifically, the Company is
performing research and development relating to the ERTMS standardization
initiative, the Advanced Speed Enforcement System initiative in the United
States, and communications based signaling.

     Reflecting the growing trend of cross-migration of advanced technologies
between European and United States customers, the Company is adapting products
of US&S to comply with relevant European standards, such as the CE markings
directive and CENELEC (The European Center for Norms for Electronics). In
addition, system architecture and software are being updated for traffic
control, information processing and automatic traffic planning. The Company is
also adapting technologies developed by its European subsidiaries for
application in the North American markets. In 1998, the Company began the
introduction of its ATSS-developed ASES system into North America with its first
application at New Jersey Transit, and on Amtrak.

     To achieve "next generation" products and systems in the most efficient
manner, the Company currently is rationalizing its offerings of various systems.
The implementation of this initiative includes the design of template
architectures, based upon the Company's most advanced hardware platforms, for
the Company's various systems offered worldwide by its subsidiaries.
Consequently, the Company is undertaking research and development to improve
connectivity among its hardware platforms, to modularize them for optimal use in
disparate applications and to standardize software tools for developing those
applications. Implementation of this strategy is managed by the operating
subsidiaries, which are close to their customers and thus able to define the
needs of their local markets.

                                       8
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                                                                  Ansaldo Signal

     For the years ended December 31, 1998, 1997 and 1996, respectively, the
Company's expenditures for research and development were $7.0 million, $10.0
million and $11.8 million, representing 2.0%, 3.1%, and 3.3% of total revenues,
respectively. In addition, the Company engages in customer and government funded
research and development on a regular basis. In 1998 and 1997 the Company
incurred an additional $5.5 million, and $7.2 million, respectively, of research
and development expenditures not shown on the income statement which were funded
by government grants. Total internal and externally supported research and
development expenditures for 1998 and 1997 were $12.5 million (3.5% of revenues)
and $17.2 million (5.4% of revenues), respectively. In addition, research and
development also may be performed pursuant to contract requirements, in which
case the expenditures are considered cost of revenue.

     Sales and Marketing

     The Company markets and sells its products and services worldwide according
to its one company / one country strategy. Following this strategy, each
subsidiary is responsible for leading the Company's marketing, bidding and
project management activities in an exclusive designated territory or, in select
countries, in an exclusive market segment. The Company also maintains a network
of over 25 international sales representatives throughout the world in local
markets in which the Company does not directly operate.

     The Company's Marketing Committee coordinates the global marketing effort
by identifying market requirements for the Company's systems and products,
quantifying and prioritizing customer needs to guide the Company in its
development and marketing efforts, and facilitating information exchange between
the operating subsidiaries to optimize use of existing products in bids.

     Employees

     As of May 31, 1999, the Company had 2,373 employees worldwide.

     The Company's French and Italian work forces are compensated on the basis
established by certain national and regional agreements between various employer
associations and trade unions. In the North American and Australasian regions,
workers are not covered by any collective bargaining agreements. French workers
participate in a two-tiered Company sponsored profit-sharing plan. The first
tier is mandatory under French law; the second tier is negotiated under a
collective bargaining arrangement. Both plans provide monthly benefits
determined by the employee's length of service. As permitted under applicable
law, such plans are unfunded. Overall, the Company believes that its relations
with its workforce are satisfactory.

     Patents and Trademarks

     As of December 31, 1998, the Company owned approximately 108 U.S. patents
and 49 non-U.S. patents based thereon; 19 French patents and 172 non-French
patents based thereon; 14 U.S. patent applications pending with 13 non-U.S.
patents pending based thereon; and 2 French patent applications pending with 15
non-French patents pending based thereon. In accordance with the Company's
strategy in regard to these patent assets, many U.S. and foreign patents and
patent applications have been dropped, significantly reducing patent-related
costs such as legal fees and patent maintenance fees. The Company also relies on
a combination of copyright, trade secret and other intellectual property law,
nondisclosure agreements and other protective measures to establish and protect
its proprietary rights in certain of its products and processes. The Company
intends to continue to seek patents on selected inventions used in its products
and manufacturing processes. Although in the aggregate its patents are of
considerable importance in the operation of its business, it is the opinion of
the Company that no patent related to a particular product is of material
importance when judged from the standpoint of the Company's total business.

     The name "Union Switch & Signal" and the symbol represented by an
intertwined US&S are registered trademarks in the United States and many other
countries. The names "CSEE Transport" and "Ansaldo" are registered trademarks in
France and Italy, respectively, and in many other countries.

     The Company believes that due to the increasing pace of technological
change in the railroad and rail based mass transit signaling, control and
automation industry, the technical expertise and experience of the Company's
personnel, new product development, product performance and market recognition
will be factors as important as legal protection of its proprietary information
in determining the Company's competitive position. Without legal protection,
however, competitors may copy information that the Company regards as
proprietary to develop products competing with the Company's products. In
addition, the laws of some countries where the Company sells its products do not
protect proprietary rights in products and technology to the same extent as do
the laws of the United States. Although the Company continues to implement
protective measures and intends to defend its proprietary rights vigorously,
there can be no assurance that these efforts will be successful.

     Significant Contracts

                                       9
<PAGE>

                                                                  Ansaldo Signal

     A material part of the Company's business is its performance of large
systems contracts for both railroad and mass transit customers. The Company has
historically performed many such contracts. However, as these contracts are
fixed price, multi-year obligations and involve extensive customization, they
expose the Company to the risk of cost overruns.

     The Company is currently actively engaged in executing several such large
contracts, including notably the following:

         CTC Grande Rete (Italy). In early 1998, ASF began work on a $139
     million contract for six network management control centers making up a
     large network automation project for the FS utilizing both new and existing
     communication links.

         New York City Transit. In the first quarter of 1998, US&S began work on
     a $128.4 million contract to supply NYCT with an automated centralized
     signaling and control management system. Approximately $85 million of this
     contract has been subcontracted by US&S, including principally installation
     and software, but US&S remains liable for the timely and proper performance
     of such work.

          Copenhagen Mini-metro. In 1997, ATR subcontracted to US&S for $26.6
     million the signaling, control and automation system for driverless
     operation of the mini-metro.

     Competition

     The railroad and rail based mass transit signaling, control and automation
industry is highly competitive globally. Several companies compete with all
portions of the Company's product line. Competitors include divisions and
subsidiaries of major international companies with substantial financial
resources, whose primary activities are in other fields, including Siemens AG,
DaimlerChrysler AG (Adtranz), Alcatel SA, Alstom SA, and Invensys plc (formerly
BTR plc and Siebe plc), as well as Harmon Industries, Inc., an independent
company. The Company also competes from time to time in some specific systems
applications with specialized systems suppliers. With respect to sales of most
instrumentation and other component products, competition is fragmented and
includes both full-line and specialty suppliers.

     The Company competes principally on the basis of quality and reliability,
its experience and knowledge of its customers' requirements, applications
expertise, technological innovation, ease of system configuration, product
performance, engineering support, availability of after-sale service and
customer training, as well as price. The industry has entered into a period of
consolidation, strengthening the Company's traditional competitors, while
non-traditional competitors, particularly those with software expertise, have
entered the market for certain product lines. The Company believes that
competition in the railroad and rail based mass transit signaling, control and
automation industry will intensify in the future.

     Risk Factors Relating to the Company and Cautionary Statement Pursuant to
     Safe Harbor Provisions of the Private Securities Litigation Reform Act of
     1995

     ---------------------------------------------------------------------------

     This document contains "forward-looking" statements within the meaning of
the federal securities laws of the United States. These forward-looking
statements include, among others, statements concerning the Company's
expectation that investment by the Class I Railroads will remain stable or
continue to increase slightly in coming years, the Company's expectation that it
will continue to invest in research and development with the assistance where
available of government and customer funding, the Company's belief that
competition in the railroad and rail-based mass transit signaling control and
automation industry will intensify in the future, the Company's anticipations
regarding capital expenditures for 1999, management's expectation that it will
be able to put new credit facilities in place in 1999, management's expectations
that services, bonding and financial support currently provided by Finmeccanica
and ATR will continue in 1999 and 2000, management's belief that there is only a
remote and non-material risk that the Company will need to replace, at current
market rates, foreign currency exchange contracts due to a default by a
counterparty, the Company's expectation that short-term, floating interest rates
will not vary materially from historical patterns in 1999, the Company's
anticipated completion of a Year 2000 data conversion by the middle of 1999, the
Company's belief that the vast majority of both its IT and its non-IT systems
will be Year 2000 compliant, management's belief that conversion to the Euro
will not have a material effect on the Company's financial conditions or results
of operation and management's belief that the results of adopting SFAS No. 133
will not be material to the Company's financial position or results of
operation. Actual results and performance of the Company could differ materially
from those expressed in or implied by these forward-looking statements as a
result of a number of known and unknown risks.

     Among the important factors that could prevent the Company from achieving
its goals - and cause actual results to differ materially from those expressed
in the forward-looking statements - include, but are not limited to, the
following risk factors: (i) reliance on various financial and other support
provided by Finmeccanica and its affiliates, (ii) uncertainty of the Company's
ability to refinance payments on debt at maturity on terms as favorable as the
terms of its existing indebtedness, or

                                       10
<PAGE>

                                                                  Ansaldo Signal

at all, (iii) reliance on programs that are dependent, in whole or in part, on
public sector funding by various international, national, regional and local
governmental authorities, (iv) the unpredictability in terms of the cost and
time of software development or customization, including those errors or defects
on new or enhanced versions containing more sophisticated levels of technology,
(v) adverse economic conditions in key markets that could adversely affect sales
by companies in the railway signaling, automation and control sector, including
the company's subsidiaries, (vi) reliance on sales to national railways, (vii)
potential loss of protected markets in Italy and France as a result of various
European Union directives, (viii) the competitive nature of the industry, (ix)
uncertainty of new product development to meet changing, increasingly
sophisticated, customer needs and industry realignment, that anticipate and
respond to technological changes in the automation and control market and that
achieve market acceptance, (x) the risk of foreign exchange rate fluctuations,
(xi) changes in laws and policies affecting trade and investments, (xii)
potential difficulties in protecting shareholder rights and in enforcing civil
liabilities, (xiii) fluctuations in operating results due to the number, size
and timing of long-term contracts awarded during a particular period, (xiv)
uncertainty of protection of proprietary information in certain countries, (xv)
potential conflicts of interest between the Company and ATR, (xvi) the potential
problems associated with the Year 2000, (xvii) the potential problems associated
with introduction of the Euro, (xviii) potential downturns in general economic
conditions, (xix) timely completion within budget of long term fixed-price
contracts, especially those requiring extensive software customization, and (xx)
the instability of foreign economies and governments, particularly in Asia.

     These and other risks and uncertainties affecting the Company are also
discussed in other filings by the Company with the United States Securities and
Exchange Commission.

     Reliance upon Finmeccanica Resources. As part of the worldwide Finmeccanica
group, the Company, and historically certain of its European subsidiaries and
US&S, have benefited from various financial and other services provided by
Finmeccanica and its affiliates, including ATR. Such services have included
direct borrowings from ATR and arrangement of short-term debt financing
guaranteed or otherwise enhanced. Borrowings from ATR were $26.3 million as of
December 31, 1998. In addition, ATR and Finmeccanica each provided a comfort
letter to Cofiri SpA, a subsidiary of IRI, to provide the Company a line of
credit under which $50 million was outstanding on December 31, 1998. Such
services have also included indemnification of issuers of performance bonds and
letters of credit required under systems contracts. As of December 31, 1998,
Finmeccanica and ATR provided support for outstanding bonds and letters of
credit aggregating $290.5 million. Such arrangements have enabled the Company to
obtain the bonding and financing necessary for the conduct of its business at
the lowest available cost. Finmeccanica and ATR have agreed to provide
sufficient guarantees and financing support for the operation of the Company and
its subsidiaries until March 2000. The repayment of any present or future
indebtedness to ATR or Finmeccanica can be deferred until such date if requested
by the Company. Pursuant to a Bonding Support Agreement dated as of November 13,
1996, Finmeccanica and ATR also have agreed to continue providing bonding
support services through December 31, 1999 at which time the agreement shall be
automatically renewed for another year unless terminated upon 60 days' written
notice prior to such date. After March 2000, Finmeccanica and its affiliates
will have no obligation to continue to provide financial or other assistance to
the Company. No assurance can be given that Finmeccanica or its affiliates will
provide any financial or bonding support beyond these dates. Furthermore, no
assurance can be given that the Company will be able to satisfy its financing
and bonding requirements on terms substantially as favorable as those previously
obtained by the Company with the assistance provided by Finmeccanica and its
affiliates or at all. For a description of such transactions and the agreements
and arrangements governing the services provided by Finmeccanica and its
affiliates to the Company, see Item 13 and Note 10 in the Notes to Consolidated
Financial Statements.

     Uncertainty of Ability to Refinance Payments on Debt. The Company is
subject to the risks associated with debt refinancing, including the risk that
its existing borrowings will not be able to be refinanced at maturity on terms
as favorable as the terms of its existing indebtedness, or at all. There can be
no assurance that the Company will be able to refinance its short term
indebtedness at its maturity except with the support of Finmeccanica or ATR, or
to otherwise obtain funds by selling assets or by raising equity. There is no
assurance that ATR will continue to provide credit to the Company at current
levels or that Finmeccanica or ATR will facilitate any refinancing of the
Company's short-term indebtedness after March 2000. See Item 13 and Notes 6, 7
and 10 in the Notes to Consolidated Financial Statements.

     Reliance upon Public Funding. Virtually all of the revenues of each of the
European subsidiaries of the Company and a substantial portion of the revenues
of US&S and US&S PTY are derived from programs that are dependent, in whole or
in part, on public sector funding by various international, national, regional
and local governmental authorities. Such government funding can take the form of
national public spending programs designed to enhance public transportation
safety and efficiency through infrastructure improvements, which may be subject
to the annual approval of government budget appropriations, or specific mass
transit projects sponsored by public transit or similar authorities. To the
extent that future funding for proposed public projects is curtailed or
withdrawn altogether as a result of changes in political, economic, fiscal or

                                       11
<PAGE>

                                                                  Ansaldo Signal

other conditions (including maintaining European Monetary Union economic
targets) beyond the Company's control, such projects may be delayed or canceled,
which would result in a loss of revenue.

     Cost Overruns. The Company may experience cost overruns in connection with
its large, multi-year fixed price systems contracts. Systems requiring extensive
customization, such as those provided by the Company, require extensive software
development, time and resources, particularly when more sophisticated levels of
software are involved. The Company may encounter substantial delays and extra
costs in fulfilling a complex systems order which were not anticipated at the
time the contract was bid for such reasons, as well as for other reasons common
to all supply and, where relevant, installation contracts. In addition to the
additional cost, delays in contract execution could result in adverse customer
reactions, negative publicity regarding the Company and its products, harm to
the Company's reputation or loss of or delay in market acceptance of a new
product or system, or could require extensive changes, any of which could have a
material adverse effect upon the Company's business, operating results or
financial condition.

     Adverse Economic Conditions. Downturns in general economic conditions or
uncertainties regarding future economic prospects historically have adversely
affected sales by companies in the railway signaling, automation and control
sector, including the Company's subsidiaries. Therefore, such downturns or
uncertainties in the future could have a material adverse effect on Ansaldo
Signal's business, results of operations or financial condition. Because the
Company's subsidiaries distribute their products in various regions, a
significant decline in the general economy or in infrastructure investment in a
particular region could also have a material adverse impact on Ansaldo Signal

     Reliance on National Railways. A substantial amount of the Company's
revenues is generated by sales to national railways, principally those of Italy
and France (FS and SNCF, respectively). These two customers accounted for
approximately 18.3% in 1998, approximately 14.4% in 1997 and approximately 10.0%
(including 100% of CSEE on a pro forma basis) in 1996 of the total revenues of
the Company . Accordingly, the Company's European subsidiaries are particularly
susceptible to the financial position of FS and SNCF as well as to the economic
and political factors in Italy and France affecting FS and SNCF, which rely
entirely on state funding for their purchases of the Company's products and
services. Any change in economic or political conditions or purchasing patterns
that materially adversely affects purchases of the Company's products by such
customers could have a material adverse effect on the results of the Company.

     Loss of Protected Markets. Within Europe, national markets for railway
signaling and automation have traditionally been protected, with substantially
all of a particular country's requirements being supplied by companies
established in that country. Effective July 1, 1994, Directive 93/38/EEC of the
EU required that tenders by national railroads be open, but such tenders could
nonetheless specify traditional standards of the relevant country, thereby
effectively limiting competition. Pursuant to EU Directive 96/48/EEC, beginning
in 1999, bids for European high-speed rail lines will need to be based on
European standards established by the EU. Products certified as meeting these
standards cannot be rejected by the bidding entity for their functional aspects
(subject to interim compatibility requirements). It is also planned that common
European standards eventually will apply to conventional rail lines as well.
Accordingly, Ansaldo Signal expects increasing competition in its home EU
markets, i.e., France, Italy, Sweden and Ireland, which have traditionally
accounted for a substantial part of its sales.

     Competition. The principal factors affecting competition include product
reliability, technological proficiency, ease of system configuration,
applications expertise, engineering support and local presence, as well as
price. Many of the competitors of the Company have substantially greater
financial resources than the Company. In addition, as customers continue to move
from conventional relay-based systems to more sophisticated microprocessor-based
systems, future success in signaling will become more dependent upon the
Company's ability to develop increasingly sophisticated software-driven,
microprocessor-based technologies and product applications. In light of this
trend, the Company's competitors can be expected to continue to improve the
design and performance of their own products and to introduce new technologies.
In addition to a trend toward consolidation which strengthens the Company's
traditional competitors, new competitors, such as software companies have
entered the market.

     Uncertainty of New Product Development. The Company's future business
prospects are dependent on its ability to enhance its existing signaling,
automation and control systems and products and develop and market new offerings
that meet changing, increasingly sophisticated, customer needs and industry
realignment, that anticipate and respond to technological changes in the
signaling, automation and control market and that achieve market acceptance. The
enhancement and development of these products and systems will be subject to all
of the risks associated with new product development, including unanticipated
delays, expenses, technical problems with software or hardware or other
difficulties that could result in the abandonment or substantial change in the
commercialization of these enhancements or new offerings. In particular, the
failure of the Company to enhance its signaling, automation and control systems
and products and to keep pace with

                                       12
<PAGE>

                                                                  Ansaldo Signal

developing computer hardware and software technology could cause customers to
delay their purchase of the Company's systems and products, or decide not to
purchase such systems and products.

     Risk of Foreign Exchange Rate Fluctuations. The Company operates in many
parts of the world and competes against companies which price their products and
services in different currencies. As a result, its business can be affected by
fluctuations in exchange rates. Although the Company engages in foreign exchange
hedging activities generally designed to reduce or delay the effects of changes
in exchange rates on contractual commitments, its business and financial results
could be adversely affected by fluctuations in exchange rates, particularly if
any such exchange rate movements persist. The financial statements of Ansaldo
Signal are prepared in U.S. dollars, but a substantial portion of revenues and
costs are denominated in currencies other than U.S. dollars. Under the treaty on
the European Economic and Monetary Union (the "Treaty"), to which Italy, France
and Ireland are signatories, on January 1, 1999, a European single currency (the
"Euro") replaced some of the currencies of the member states of the European
Union (the "EU"), including the Italian Lire, French Franc and Irish Pound.

     Following introduction of the Euro, the existing sovereign currencies (the
"Legacy Currencies") of the eleven participating member countries of the EU (the
"Participating Countries") who adopted the Euro as their common legal currency
are scheduled to remain legal tender in the Participating Countries as
denominations of the Euro until January 1, 2002 (the "Transition Period"). The
Euro conversion may impact the Company's competitive position as the Company may
incur increased costs to conduct business in an additional currency during the
Transition Period. Additionally, the Participating Countries' pursuit of a
single monetary policy through the European Central Bank may affect the
economies of significant markets of the Company. The Company will also need to
maintain and in certain circumstances develop information systems software to
(i) convert Legacy Currency amounts to Euro; (ii) convert one Legacy Currency to
another; (iii) perform prescribed rounding calculations to effect currency
conversions; and (iv) permit transactions to take place in both Legacy
Currencies and the Euro during the Transition Period. Since the Company conducts
extensive business operations in, and exports its products to, several of the
Participating Countries, there can be no assurance that the conversion to the
Euro will not have a material adverse effect on the Company's business,
financial condition or results of operations. See "Liquidity and Capital
Resources" under Item 9.

     International Nature of Business. As the Company's subsidiaries distribute
their products in many countries, their business is subject to various risks
beyond their control, such as changes in laws and policies affecting trade and
investment (including patent and trademark protection) and the instability of
foreign economies and governments. Ansaldo Signal has taken applicable laws and
regulations into account in seeking to structure its business on a global basis,
including efforts to achieve tax and operational efficiencies. Changes in such
laws or regulations, could adversely affect the Company's operations and
financial results.

     Potential Difficulties in Protecting Shareholder Rights and in Enforcing
Civil Liabilities. Under Ansaldo Signal's Articles of Association, adoption of
Ansaldo Signal's annual accounts by its shareholders discharges the members of
the Management Board and the Supervisory Board from liability in respect of the
exercise of their duties during the fiscal year concerned, unless an explicit
reservation is made by such shareholders and subject to certain exceptions
provided under Dutch law, including exceptions relating to the liability of
members of management boards and supervisory boards upon bankruptcy of a company
and general principles of reasonableness and fairness. Under Dutch law, this
discharge does not extend to matters not disclosed to shareholders. Certain of
Ansaldo Signal's executive officers are located outside the United States. In
addition, the principal shareholder and certain of the members of the Management
and Supervisory Boards are residents of jurisdictions outside the United States.
A majority of Ansaldo Signal's assets are located outside the United States. As
a result, it may not be possible for investors to effect service of process
within the United States upon Ansaldo Signal, certain of its executive officers
or members of its Management or Supervisory Boards, or to enforce outside the
United States judgments obtained against such persons in U.S. courts, or to
enforce in U.S. courts judgments obtained against such persons in such courts or
in courts in jurisdictions outside the United States, in each case, in any
action, including actions predicated upon the civil liability provisions of the
U.S. securities laws. In addition, it may not be possible for investors to
enforce, in original actions brought in courts in jurisdictions located outside
the United States, rights predicated upon the U.S. securities laws.

     Fluctuations in Operating Results and Cash Flow. Results of operations can
be affected by the number, size and timing of long-term contracts in process
during a particular period. The Company's results of operations may be subject
to fluctuation due to these and other factors within a fiscal year or over a
more prolonged period. In addition, customer invoicing under long-term systems
contracts generally is tied to specified contract milestones rather than
contract activity. Accordingly, the amount of revenue and income recognized is
not necessarily related to the amounts invoiced and collected under such
contracts. As a result, the Company may be required to finance substantial
portions of work on systems contracts out of working capital and credit lines.

                                       13
<PAGE>

                                                                  Ansaldo Signal

     Potential Conflicts of Interest. By virtue of their extensive financial and
business relationships, conflicts of interest between Ansaldo Signal and
Finmeccanica or its affiliates will arise in certain circumstances. In
particular, such potential conflicts of interest are likely to occur in the
negotiation of the terms of any subcontracts between ATR and the Company's
subsidiaries, especially ASF and US&S, in connection with ATR's turnkey projects
to provide mass transit systems where ASF and US&S are capable of supplying the
signaling and automation components of the system being supplied by ATR. In
addition, Ansaldo Signal and Finmeccanica or its affiliates (including ATR) have
entered and may enter into certain other intercompany transactions and
agreements in the future. See Item 13 and Note 10 in the Notes to Consolidated
Financial Statements.

     Year 2000. In 1997, the Company commenced, for all of its internal systems,
a Year 2000 data conversion project to address all necessary code changes,
testing, and implementation. Project completion is planned for the middle of
1999. Although the Company expects to complete Year 2000 data conversion on a
timely basis, there can be no assurance that the Company will do so, or that the
systems of other companies on which the Company's systems rely also will be
converted in a timely fashion, or that any such failure to convert by another
company would not have an adverse effect on the Company's systems. Although the
Company's agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential warranty and product liability claims,
it is possible that the limitation of liability provisions contained in the
Company's agreements may not be effective as a result of existing or future
federal, state, or local laws or ordinances or unfavorable judicial decisions.
The sale and support of its products by the Company may entail the risk of such
claims, which could be substantial in light of the use of such products in
resource optimization and systems control applications. A successful claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results and financial condition. See "Year 2000"
under Item 9.

     The European single currency. Under the treaty on the European Economic and
Monetary Union (the "Treaty"), to which Italy, France and Ireland are
signatories, on January 1, 1999, a European single currency (the "Euro")
replaced some of the currencies of the member states of the EU, including the
Italian Lire, French Franc and Irish Pound.

     Following introduction of the Euro, the existing sovereign currencies (the
"legacy currencies") of the eleven participating member countries of the EU (the
"participating countries") who adopted the Euro as their common legal currency
are scheduled to remain legal tender in the participating countries as
denominations of the Euro until January 1, 2002 (the "transition period"). The
Euro conversion may impact the Company's competitive position as the Company may
incur increased costs to conduct business in an additional currency during the
transition period. Additionally, the participating countries' pursuit of a
single monetary policy through the European Central Bank may affect the
economies of significant markets of the Company. The Company will also need to
maintain and in certain circumstances develop information systems software to
(i) convert legacy currency amounts to Euro; (ii) convert one legacy currency to
another; (iii) perform prescribed rounding calculations to effect currency
conversions; and (iv) permit transactions to take place in both legacy
currencies and the Euro during the transition period. Since the Company conducts
extensive business operations in, and exports its products to, several of the
participating countries, there can be no assurance that the conversion to the
Euro will not have a material adverse effect on the Company's business,
financial condition or results of operations.

Item 2.  Description of Property

     The Company's corporate administration office is located in Schiphol, The
Netherlands. The Company operates through numerous facilities worldwide. The
Company's principal manufacturing, administration, support, assembly and
engineering facilities are located in the United States (Pittsburgh,
Pennsylvania and Batesburg, South Carolina), France (Paris and Riom), Italy
(Genoa, Naples, Tito and Torino) and Australia (Brisbane, Sidney and Perth). The
Company's largest manufacturing and administrative facilities include:

<TABLE>
LOCATION                           PRINCIPAL USE                               APPROXIMATE SQUARE FOOTAGE
<S>                                <C>                                         <C>
Pittsburgh, Pennsylvania, USA      Engineering, Administration                 174,000   (1)
Batesburg, South Carolina, USA     Manufacturing                               170,000   (2)
Paris, France                      Engineering, Administration                  90,000   (1)
Riom, France                       Manufacturing                                50,000   (1)
Genoa, Italy                       Engineering, Administration                  80,000   (1)
Naples, Italy                      Engineering, Administration, Wiring          86,000   (1)
Tito, Italy                        Manufacturing                                85,000   (2)
Torino, Italy                      Engineering, Manufacturing                  274,000   (2)

(1)       Leased.
(2)       Owned.
</TABLE>

                                       14
<PAGE>

                                                                  Ansaldo Signal

     In the judgment of management, the facilities used by the Company are
adequate and suitable for the purposes they serve and are anticipated to be so
for the foreseeable future.

     As of December 31, 1998, the quality control systems of all of the
Company's major subsidiaries (except US&S PTY in Australia) have been certified
as compliant with the requirements of International Standard ISO 9001 ("ISO
9001") promulgated by the International Standards Organization. Although US&S
PTY does not have a manufacturing facility, it has implemented administrative,
engineering and assembly procedures within the overall umbrella of an ISO 9001
quality assurance program. The Company has undertaken appropriate programs at
all its operating units so that ISO 9001 compliance and certification will be
maintained.

Item 3.  Legal Proceedings

     The Company is party to a number of lawsuits, investigations, disputes and
claims, including those relating to commercial transactions, government
contracts, product liability, intellectual property and employment matters.

     Environmental Laws and Proceedings

     The Company's operations are subject to environmental regulation by various
regulatory authorities having jurisdiction over its operations.

     The Company is conducting groundwater monitoring and remediation at its
Batesburg, South Carolina facility under the supervision of the South Carolina
Department of Health and Environmental Control. The Company intends to conduct a
pilot test of a different remedial technology in the near future that the
Company believes will be more effective than the current system in addressing
the groundwater contamination. In the event the pilot test confirms the
effectiveness of the new remediation system, the Company will likely replace its
current system with the new system. The Company's consultants estimate the
capital cost of the new remedial system to be in the range of $160,000 to
$190,000. Operation and maintenance costs associated with the proposed system
are not expected to be material or substantially different from the costs
associated with the current system. There is no assurance that the proposed
system will be effective in addressing the groundwater contamination.
Accordingly, the Company cannot accurately estimate what additional amounts it
may be required to pay in connection with the remediation of this site.

Item 4.  Control of Registrant

     Finmeccanica owns 55.5% of the outstanding common stock of ATR, which in
turn owns 14,711,250 common shares, NLG .01 per share ("Common Shares"), or
approximately 72% of the Company's issued and outstanding Common Shares at March
1, 1999. In addition, Compagnie des Signaux SA, which owns 2,000,000 Common
Shares (9.78% of the Company's outstanding Common Shares) has the right to
require ATR to purchase such shares at a fixed price exercisable between
December 30, 1999 and June 30, 2000. Finmeccanica is a corporation organized
under the laws of Italy which has interests and operations principally in the
following areas: aeronautics, space, helicopters, defense, transportation,
energy, service automation and industrial automation. ATR's address is Via Nuova
delle Brecce 260, 80147 Naples, Italy. Finmeccanica's address is Piazza Monte
Grappa 4, 00195 Rome, Italy.

     Finmeccanica, approximately 39% of the common shares of which are traded
through the Telematic Market (Mercato Telematico) of the Italian automatic stock
exchange, is controlled by IRI. IRI is wholly owned by the Ministry of the
Treasury of the Republic of Italy. In June 1997, IRI was given the mandate to
complete its privatization by selling or otherwise disposing of its holdings
over the period through 2001. To the extent some of the assets currently owned
by IRI have not been sold or otherwise transferred to third parties by the time
IRI is liquidated, IRI has stated that it expects that such assets would be
transferred to another entity wholly owned by the Italian Government. IRI's
address is Via Vittorio Veneto 89, 00187 Rome, Italy.

     The following table sets forth the indicated information, as reflected in
the Company's records at May 31, 1999 with respect to each person who owns 10%
or more of any class of voting securities of the Company and the total amount of
any class of voting securities of the Company owned by the directors and
executive officers of the Company as a group:

<TABLE>
     Identity of Person or Group                     Title of Class       Amount Owned         Percent of Class
<S>                                                  <C>                  <C>                  <C>
     Ansaldo Trasporti S.p.A.                        Common Shares        14,711,250           71.94%
     Compagnie des Signaux S.A.                      Common Shares         2,000,000            9.78%
     Directors & executive officers of Company       Common Shares             1,000  (1)          -

    (1)   Excludes 17,600 Shares issuable pursuant to currently exercisable
          options granted under the Company's Stock Incentive Plan.
</TABLE>

                                       15
<PAGE>

                                                                  Ansaldo Signal

Item 5.  Nature of Trading Market

     The Company's Common Shares have traded on the NASDAQ National Market
("NASDAQ") since December 11, 1996 under the symbol "ASIGF". The Company's
Common Shares are not traded on any other securities exchange.

     The following are the high and low closing prices of the Company's Common
Shares on the NASDAQ.

                                           HIGH              LOW

     1999        Second Quarter *         $4.125            $3.125
                 First Quarter            $4.250            $3.000

     1998        Fourth Quarter           $4.500            $2.313
                 Third Quarter            $4.500            $2.563
                 Second Quarter           $4.875            $3.625
                 First Quarter            $5.500            $3.125

     1997        Fourth Quarter           $5.500            $3.125
                 Third Quarter            $5.500            $3.750
                 Second Quarter           $6.750            $4.375
                 First Quarter            $7.750            $6.250

     *  through June 18, 1999

     On May 31, 1999, there were 20,448,750 Common Shares outstanding. As of
that date, there were 3,737,500 Common Shares held of record by 31 shareholders.
As of that date, Common Shares held by the principal depositary in the United
States amounted to 3,723,976 of the issued Common Shares of the Company, which
shares are held for participant's accounts in "street name." Based upon the
number of annual reports and proxy statements requested by such nominees, the
Company estimates that the total number of beneficial holders of Common Shares
at approximately 500 holders

     Except for the Common Shares held by ATR and Compagnie des Signaux S.A.,
the Company's Common Shares are believed to be mostly held by record holders and
participants in "street name" accounts in the United States.

Item 6.  Exchange Controls and Other Limitations Affecting Security Holders

     The Company does not believe that there are any restrictions imposed by
Netherlands law on the export or import of capital or which affect the
remittance of dividend or other payments to nonresident holders of Common Shares
of the Company. There are no limitations imposed by Netherlands law or the
Articles of Association of the Company on the rights of holders of Common Shares
not resident in The Netherlands to hold or vote Common Shares of the Company.

Item 7.  Taxation

     The following is a summary of certain tax consequences of the acquisition,
ownership and disposition of the Common Shares based on tax laws of The
Netherlands and the United States as in effect on the date of this Annual
Report, and is subject to changes in Netherlands or U.S. law, including changes
that could have a retroactive effect. The following summary does not take into
account or discuss the tax laws of any country other than The Netherlands and
the United States, nor does it take into account the individual circumstances of
an investor. This summary does not purport to be a complete technical analysis
or an examination of all potential tax effects relevant to a decision to
purchase the Common Shares and prospective investors in the Common Shares in all
jurisdictions are advised to consult their own tax advisers as to Netherlands,
U.S. or other tax consequences of the purchase, ownership and disposition of the
Common Shares.

     Netherlands Taxation

     The following summary of Netherlands tax considerations is based on the tax
laws of The Netherlands currently in force and in effect. Terms and expressions
as used in this section have the meaning attributed to them under Netherlands
tax law. The description is limited to the tax implications for an owner of
Common Shares who is not, or is not deemed to be, a resident of The Netherlands
for purposes of the relevant tax codes (a "non-resident Shareholder" or
"Shareholder").

     Dividend Withholding Tax

     General. Dividends distributed by the Company generally are subject to a
withholding tax imposed by The Netherlands at a rate of twenty-five percent. The
expression "dividends distributed by the Company" as used herein includes, but
is not limited to:

                                       16
<PAGE>

                                                                  Ansaldo Signal

     (i)      distributions in cash or in kind, deemed and constructive
              distributions and repayments of paid-in capital not recognized for
              Netherlands dividend withholding tax purposes;

     (ii)     liquidation proceeds, proceeds of redemption of Common Shares or,
              as a rule, consideration for the repurchase of Common Shares by
              the Company in excess of the average paid-in capital recognized
              for Netherlands dividend withholding tax purposes;

     (iii)    the par value of shares issued to a Shareholder or an increase of
              the par value of Common Shares, as the case may be, to the extent
              that it does not appear that a contribution, recognized for
              Netherlands dividend withholding tax purposes, has been made or
              will be made; and

     (iv)     partial repayment of paid-in capital, recognized for Netherlands
              dividend withholding tax purposes, if and to the extent that there
              are net profits (zuivere winst), unless the general meeting of
              shareholders of the Company has resolved in advance to make such
              repayment and provided that the par value of the Common Shares has
              been reduced by an equal amount by way of an amendment of the
              Articles of Association of the Company.

     No withholding tax applies on the sale or disposition of Common Shares to
persons other than the Company and affiliates of the Company.

     If a Shareholder is resident in a country other than The Netherlands and if
a double taxation convention is in effect between The Netherlands and such
country, such Shareholder may, depending on the terms of such double taxation
convention, be eligible for a full or partial exemption from, or refund of,
Netherlands dividend withholding tax. Under said conventions, The Netherlands
dividend withholding tax is generally reduced to 15 percent.

     Under legislation which became effective on January 1, 1995, the Company
will under certain circumstances be allowed to refrain from transferring to The
Netherlands tax authorities a certain amount of the dividend withholding tax
effectively withheld by the Company with respect to certain dividend
distributions made by the Company on the Common Shares. Such amount is in
principle 3 percent on the dividend distributions made by the Company.

     U.S. Shareholders. The Tax Convention of December 18, 1992 concluded
between The Netherlands and the United States (the "Convention") entered into
force on January 1,1994. Under the Convention, the dividend withholding tax rate
on dividends paid by the Company to a shareholder being a resident of the United
States (as defined in the Convention; hereinafter, a "U.S. Shareholder") who is
entitled to the benefits of the Convention under its Article 26 will generally
be reduced to 15 percent pursuant to Article 10 of the Convention. The reduced
dividend withholding tax rate, if any, under the Convention may be applied upon
payment by the Company of a dividend to a U.S. Shareholder provided that the
U.S. Shareholder has previously filed the appropriate Netherlands tax forms with
the Company in accordance with Netherlands regulations under the Convention.
Absent the filing of such forms, the Company generally would be required to
withhold dividend withholding tax at The Netherlands statutory rate of 25
percent.

     Consequently, U.S. Shareholders should consult their tax advisers with
respect to procedures for claiming a reduced withholding rate or for obtaining a
refund of excess withholding.

     Under the Convention, dividends paid by the Company to U.S. pension funds
and U.S. exempt organizations may be eligible for an exemption from or refund of
dividend withholding tax under Article 35 or Article 36 of the Convention.

     Taxes on Income and Capital Gains

     General. A Shareholder will not be subject to any Netherlands taxes on
income or capital gains in respect of dividends distributed by the Company or in
respect of any gain realized on the disposal of Common Shares (other than the
withholding tax described under the caption Withholding Tax above), provided
that:

     (i)  such Shareholder does not have an enterprise or an interest in an
          enterprise that is, in whole or in part, carried on through a
          permanent establishment or a permanent representative in The
          Netherlands and to which enterprise or part of an enterprise, as the
          case may be, the Common Shares are attributable; and

     (ii) such holder does not have a substantial interest or a deemed
          substantial interest in the Company or, if such holder does have such
          an interest, it forms part of the assets of an enterprise.

     Generally, a holder of Common Shares will not have a substantial interest
if he, his spouse, certain other relatives (including foster children) or
certain persons sharing his household, do not hold, alone or together, whether
directly or indirectly, the ownership of, or certain other rights over, shares
representing five percent or more of the total issued and outstanding capital
(or the issued and outstanding capital of any class of shares) of the Company,
or rights to acquire shares, whether or not already issued, that represent at
any time (and from time to time) five percent or more of the total issued and
outstanding capital (or the issued and outstanding capital of any class of
shares) of the Company or the ownership of certain

                                       17
<PAGE>

                                                                  Ansaldo Signal

profit participating certificates that relate to five per cent or more of the
annual profit of the Company and/or to five per cent or more of the liquidation
proceeds of the Company. A deemed substantial interest is present if (part of) a
substantial interest has been disposed of, or is deemed to have been disposed
of, on a non-recognition basis.

     U.S. Shareholders. Pursuant to the Convention, the gain derived by a U.S.
Shareholder who is an individual from an alienation of the Common Shares
constituting a substantial interest of the U.S. Shareholder in the Company, not
effectively connected with a permanent establishment or fixed base of the U.S.
Shareholder in The Netherlands, is not subject to Netherlands individual income
tax, provided that the gain from the alienation of the Common Shares is not
derived by an individual U.S. Shareholder who has, at any time during the
five-year period preceding such alienation, been a resident of The Netherlands
and who at the time of the alienation owns, either alone or together with close
relatives, at least 25 percent of any class of shares of the Company.

     The gain derived by a U.S. Shareholder that is not an alienation of the
Common Shares constituting a substantial interest of the U.S. Shareholder in the
Company not effectively connected with a permanent establishment or fixed base
of the Shareholder in The Netherlands is not subject to Netherlands corporate
income tax.

     Net Wealth Tax

     An individual Shareholder will not be subject to Netherlands net wealth tax
in respect of the Common Shares, provided that such holder is not an individual
or, if he is an individual, provided that the conditions mentioned under the
caption Taxes on Income and Capital Gains (i) and (ii) above are met.
Corporations are not subject to Netherlands net wealth tax.

     Gift and Inheritance Tax

     No gift, estate or inheritance taxes will arise in The Netherlands with
respect to an acquisition of Common Shares by way of a gift by, or on the death
of, a Shareholder, unless:

     (i)      such Shareholder at the time of the gift has or at the time of his
              death had an enterprise or an interest in an enterprise that was,
              in whole or in part, carried on through a permanent establishment
              or a permanent representative in The Netherlands and to which
              enterprise or part of an enterprise, as the case may be, the
              Common Shares are or were attributable; or

     (ii)     in the case of a gift of Common Shares by an individual who at the
              time of the gift was neither resident nor deemed to be resident in
              The Netherlands, such individual dies within 180 days after the
              date of the gift, while being resident or deemed to be resident in
              The Netherlands.

     For purposes of Netherlands gift, estate and inheritance tax, an individual
who holds Netherlands nationality will be deemed to be resident in The
Netherlands if he has been resident in The Netherlands at any time during the
ten years preceding the date of the gift or his death.

     For purposes of Netherlands gift tax, an individual not holding Netherlands
nationality will be deemed to be resident in The Netherlands if he has been
resident in The Netherlands at any time during the twelve months preceding the
date of the gift.

     United States of America

     The following is a summary of certain United States federal income tax
considerations arising from the acquisition, ownership and disposition of Common
Shares by a person that is a United States holder. For purposes of this summary,
the term "United States holder" means a beneficial owner of Common Shares that
(i) is an individual citizen or resident of the United States or a United States
corporation and (ii) holds the Common Shares as a capital asset, within the
meaning of Section 1221 of the United States Internal Revenue Code of 1986, as
amended (the "Code"). This summary is not a complete description of all
potential tax consequences to United States holders; in particular, this summary
does not address the United States federal income tax treatment of United States
holders that may be subject to special tax rules, such as dealers in securities
or currencies, financial institutions, life insurance companies, tax-exempt
organizations, persons that hold Common Shares as part of a straddle or
conversion transaction, persons that have a tax home outside the United States
or persons that have a functional currency other than the United States dollar.
In addition, this summary does not address the application of other United
States taxes, such as the federal estate tax, or state or local tax laws.

     This summary is based upon the current provisions of the Code, and upon
regulations, rulings and judicial decisions currently in effect, all of which
are subject to change; any such change could apply on a retroactive basis and
could affect the tax consequences described herein.

     Each holder is advised to consult its own tax advisor in determining the
specific tax consequences to such holder of the acquisition, ownership and
disposition of Common Shares, including the application to its particular
situation of the tax considerations discussed below, as well as the application
of state, local or other tax laws.

                                       18
<PAGE>

                                                                  Ansaldo Signal

     Tax on Dividends. A United States holder receiving a distribution with
respect to any Common Shares will be required to include such distribution in
gross income as a taxable dividend to the extent such distribution is paid from
the Company's current or accumulated earnings and profits (as determined under
United States federal income tax law). Taxable dividends will be includible as
of the dividend payment date. Distributions in excess of such earnings and
profits of the Company will first be treated as a nontaxable return of capital
to the extent of the United States holder's adjusted tax basis in the Common
Shares and then as gain from the sale or exchange of a capital asset. Dividends
received on the Common Shares will not be eligible for the dividends received
deduction (allowed to U.S. corporations in respect of dividends received from
U.S. corporations). Netherlands withholding tax imposed on dividends paid to a
United States holder by the Company generally will be treated as a foreign
income tax eligible, subject to certain limitations, for credit against such
United States holder's U.S. federal income tax. The amount of such Netherlands
withholding tax on dividends which a United States holder may be entitled to
claim as a credit against such United States holder`s U.S. federal income tax
generally will not exceed the reduced rate, if any, which may be applicable to
such United States holder under the Convention, even if the Company would be
required to withhold such Netherlands withholding tax on dividends at a higher
rate under applicable Netherlands law and regulations. Consequently, United
States holders should consult their tax advisers with respect to procedures for
claiming a reduced withholding rate or for obtaining a refund of excess
withholding, because any amounts withheld in excess of such reduced withholding
rate may not be available as foreign tax credits for U.S. federal income tax
purposes. See 'Netherlands Taxation --Dividend Withholding Tax --U.S.
Shareholders' for further discussion of these issues. Additionally, as a result
of certain Netherlands legislation which became effective on January 1, 1995, it
appears that certain amounts withheld by the Company in respect of payments of
certain dividends (generally not exceeding 3% of the gross amount of the
dividend distributed by the Company) may not be available as foreign tax credits
for U.S. federal income tax purposes.

     Capital Gains Tax. Gain or loss on the sale or exchange of the Common
Shares will be treated as capital gain or loss, and as long-term capital gain or
loss if the Common Shares have been held for more than one year.

Item 8.  Selected Consolidated Financial Data

     The following data has been derived from the audited consolidated financial
statements of Ansaldo Signal N.V. ("the Company" or "Ansaldo Signal"), including
those consolidated financial statements of the Company for the years ended
December 31, 1998, 1997 and 1996, which are included elsewhere herein. The
audited Consolidated Financial Statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States
("US GAAP").

<TABLE>
<CAPTION>
                                                                             Year Ended December 31
                                                                 (In thousands, except share and per share data)

Income Statement Data                                     1998          1997            1996           1995         1994
<S>                                                 <C>           <C>             <C>            <C>          <C>
Revenues                                              $354,532      $318,225        $353,500       $299,347     $339,193
Cost of sales                                          277,450       263,274         296,620        236,858      265,044
                                                       -------       -------         -------        -------      -------
Gross profit                                            77,082        54,951          56,880         62,489       74,149
Selling, general and administrative expenses            47,685        50,107          47,971         38,829       43,954
Research & development expenses                          7,025         9,953          11,804         11,759        8,453
Acquired in process research & development (1)               -             -          15,144              -            -
Reorganization (2)                                           -        (1,584)         17,288              -            -
                                                        ------        -------         ------         ------       ------
Operating expenses                                      54,710        58,476          92,207         50,588       52,407
                                                        ------        ------          ------         ------       ------
Operating income (loss)                                $22,372       $(3,525)       $(35,327)       $11,901      $21,742
                                                       =======        =======        ========        ======       ======
Net income (loss)                                       $6,522      $(12,678)       $(38,895)        $6,408      $15,534
                                                        ======       ========        ========         =====       ======

Basic and diluted net income (loss) per

     common share                                        $0.32        $(0.62)         $(1.90)         $0.36        $0.86
                                                         =====        ======          ======          =====        =====
Cash dividends per share                                 $   -        $   -           $   -           $   -        $   -
                                                         =====        =====           =====           =====        =====
Weighted average number of common
     shares outstanding                             20,448,750    20,448,750      20,448,750     17,990,750   17,990,750
                                                    ==========    ==========      ==========     ==========   ==========
</TABLE>


                                       19
<PAGE>

                                                                  Ansaldo Signal

<TABLE>
<CAPTION>
                                                                                   December 31
                                                                                 (In thousands)

Balance Sheet Data                                        1998          1997            1996           1995         1994
<S>                                                   <C>            <C>            <C>             <C>         <C>
Working capital                                       $120,143       $89,804        $105,751        $98,801     $107,104
Total assets                                          $472,592      $457,166        $487,507       $378,062     $330,707
Borrowings-financial institutions (3)                 $120,024       $94,132         $71,781        $61,344      $30,598
Borrowings-related parties                             $26,282       $32,379         $30,202         $3,853       $3,425
Shareholders' equity                                  $112,374      $102,552        $125,670       $151,505     $141,213
</TABLE>

(1)  In-process research and development acquired in connection with the
     acquisition of 51% of CSEE Transport S.A. in June 1996.

(2)  See Note 17 of Notes to Consolidated Financial Statements.

(3)  Includes current maturities.

Item 9. Management's Discussion and Analysis of Financial Condition and
        Results of Operations

     The following management discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and the related
notes thereto appearing elsewhere in this 1998 Annual Report. The financial
statements have been prepared in accordance with US GAAP.

     Unless otherwise indicated, all figures for the Company set forth in this
management's discussion and analysis are stated in thousands of US dollars,
except per share amounts. All references to years 1998, 1997 and 1996 mean the
calendar years ended December 31, 1998, December 31, 1997 and December 31, 1996,
respectively.

     The Company

     Ansaldo Signal N.V. was incorporated on November 13, 1996 in Amsterdam, The
Netherlands. Its corporate headquarters are located in Schiphol, The
Netherlands. Ansaldo Trasporti S.p.A. ("ATR") is the owner of 14,711,250 common
shares, NLG .01 per share ("Common Shares"), or approximately 72% of the
outstanding Common Shares, of the Company. Finmeccanica S.p.A. ("Finmeccanica")
is the owner of approximately 56% of the outstanding shares of ATR and Istituto
per la Ricostruzione Industriale-IRI S.p.A. ("IRI"), the Italian state holding
company, is in turn the owner of approximately 61% of the outstanding shares of
Finmeccanica.

     The Company was formed by Union Switch and Signal Inc. ("US&S") to combine
the business of US&S with the other railway signaling and automation business
investments of ATR. See Note 1 of Notes to the Consolidated Financial
Statements.

     The Company is a worldwide supplier of signaling, automation and control
systems, related components and services for the global railroad and mass
transit industries.

     Overview

     The Company's operating segments are managed along geographic divisions
that correspond to the location of its principal subsidiaries: US&S is a
Delaware corporation with facilities located in Pittsburgh, Pennsylvania and
Batesburg, South Carolina; Ansaldo Segnalamento Ferroviario S.p.A. ("ASF") is an
Italian corporation with facilities located in Genoa, Naples, Tito and Torino,
Italy; and CSEE Transport S.A. ("CSEE") is a French corporation with facilities
located in Paris and Riom, France. The Company has other subsidiaries based in
Sweden (AT Signal Systems A.B.), Australia (Union Switch & Signal Pty. Ltd.),
Ireland (AT Signaling (Ireland) Ltd.) and India (Union Switch & Signal Pvt.
Ltd.). While each such subsidiary services its domestic market, it also sells to
specific international markets.

     The Company's largest operations are located in the United States, Italy
and France which, including their international sales, accounted for
approximately 97% of revenues in 1998. The Company's operations may be affected
by economic, political and regulatory conditions in the countries where the
Company does business, changes in which could, among other things, result in
currency or exchange controls or other restrictions being imposed on the
operations of the Company.

     Systems revenues for all of the Company's operating units are derived from
long-term contracts and are recognized using the percentage-of-completion method
of accounting. Product revenues for all operating units result from the sales of
component products, which are not part of a long-term contract, and are
recognized upon shipment of these products.

                                       20
<PAGE>

                                                                  Ansaldo Signal

     The Company returned to profitability in 1998 as a result of improved and
stabilized markets and greater efficiencies at the operating level. Gross
profits of the Company's two largest subsidiaries, US&S and ASF, increased
during 1998. While benefiting from its large contract entered into in 1997 with
New York City Transit ("NYCT"), US&S also reinforced its presence in the
automatic train control market, winning contracts from the Delaware River Port
Authority, the Metropolitan Atlanta Rapid Transit Authority and the Miami-Dade
County Transit Authority. In addition, US&S won contracts for its
Microlok(Registered) II interlocking control system from AMTRAK for its upgrade
of theNortheast Corridor.

     During 1998, US&S also positioned itself favorably to enter two new
markets. In partnership with Matra Transportation International, US&S signed a
demonstration agreement to design and demonstrate a communications-based train
control ("CBTC") system for the NYCT, which has announced that it will implement
CBTC technology on its entire system during the early part of the next century.
In addition, US&S was named preferred bidder for a Network Management Center
System for the West Coast Main Line of Railtrack PLC in the United Kingdom, on
which work is well underway. The system will be designed to manage and control
conventional and high speed passenger and freight traffic traveling as much as
140 miles per hour and is part of an overall infrastructure improvement program
expected to take place over 10 years.

     ASF benefited from its existing large contract with the Italian state
railway ("FS"), but also won the second part of the biggest European contract
let in 1998 for centralized traffic control from the FS to upgrade its
infrastructure with technologies to bring it toward compliance with emerging
European Traffic Management System ("ERTMS") standards. ERTMS is being developed
under the auspices of the European Union by a consortium of European signaling
system suppliers ("EUROSIG") whose goal is to achieve harmonious standards for
signaling for all European railroads. In addition to European contracts,
including its hot box detector products, CSEE continued to make sales in Hong
Kong and China in 1998 for a station management system and its UM71(Trademark)
track circuits, respectively.

     Orders

     The Company's orders for 1998 were $357,488. This was a decrease of
$213,876 (37.4%) from $571,364, received in 1997. This decrease was primarily
caused by the non-recurrence of two large orders totaling $244,000 in 1997: one
in the United States, for the NYCT and another from the FS for the first part of
Grande Rete (the "large network" connecting the major cities in Italy).

     Backlog

     The Company's backlog has increased $19,158 (2.5%) to $792,220 at December
31, 1998 from $773,062 at December 31, 1997. Included in the backlog is the
major portion of the two large 1997 orders discussed above totaling $244,000
which are expected to be completed over the next three to four years.

Results of Operations

     1998 VERSUS 1997

     Ansaldo Signal's consolidated results of operations improved in 1998
compared to 1997. Revenue in 1998 increased 11% to $354,532 on the strength of
the year-end 1997 backlog. Gross profit in 1998 increased 40% to $77,082 as a
result of higher volume and better mix of contracts. Operating expenses in 1998
were reduced by 6% to $54,710 as a result of efficiency improvements. The
consolidated net income in 1998 was $6,522 compared to a net loss of $12,678 in
1997. Items contributing to this improved performance in addition to the higher
revenue volume and strong improvement in gross profit include (i) a one-time
pretax gain of $980 from the conversion from a capital lease to an operating
lease of the lease for the Pittsburgh Engineering and Technology Facility; (ii)
the forgiveness by the French government of a pretax $1,400 repayable research
and development grant; and (iii) the net decrease in the valuation allowance of
$2,040, which has reduced the 1998 tax provision and reflects utilization of a
portion of loss carryforwards in 1998 for which a valuation allowance had
previously been established.

                                       21
<PAGE>

                                                                  Ansaldo Signal

     Revenue

     The Company's revenue is presented below by major operating unit. Revenues
shown for each unit include revenue for work outside of such unit's own country
boundaries.

                                                       Revenue
                                                  1998             1997

     US&S                                     $150,834         $122,419
     ASF                                       113,314          108,481
     CSEE                                       79,354           75,681
     Other                                      11,030           11,644
                                              --------         --------
     Total                                    $354,532         $318,225
                                              ========         ========

     Company revenues increased by $36,307 (11.4%) to $354,532 for 1998 from
$318,225 for 1997. This net increase in revenue was due to increased volumes for
all major operating units. The Company began to recognize revenues in 1998 on
significant contracts awarded in the later part of 1997. The foreign exchange
effect on revenue was not significant. US&S's and ASF's increases in revenue
were primarily due to increased systems revenue. CSEE's increase in revenue was
due to an increase in component sales partially offset by lower systems sales.

     Gross Profit

     The Company's gross profit is set forth below:

                                                   Gross Profit
                                                 1998             1997

     US&S                                     $30,786          $13,348
     ASF                                       23,992           19,564
     CSEE                                      16,440           19,821
     Other                                      5,864            2,218
                                              -------          -------
     Total                                    $77,082          $54,951
                                              =======          =======

     Gross profit increased by $22,131 (40.3%) to $77,082 (21.7% of revenues) in
1998 from $54,951 (17.3% of revenues) in 1997. US&S completed a major software
contract in 1997 that reduced gross profit in 1997 by $11.0 million, and there
were no similar negative adjustments of that magnitude necessary in 1998.
Increased revenue and a more favorable product mix accounted for the balance of
the increase in gross profit.

     Selling, General, and Administrative

     Selling, general, and administrative expenses decreased by $2,422 (4.8%) to
$47,685 (13.4% of revenue) in 1998 from $50,107 (15.7% of revenue) in 1997. This
decrease is due to lower spending levels associated with efficiency
improvements. The decrease as a percentage of revenue reflects the combination
of lower expenses and higher 1998 revenue.

     Research and Development

     Research and development expenses decreased by $2,928 (29.4%) to $7,025
(2.0% of revenue) in 1998 from $9,953 (3.1% of revenue) in 1997, due to lower
spending levels (due to planned cost reductions and completion of existing
projects). In 1998 and 1997 the Company incurred an additional $5,500 and
$7,200, respectively, of research and development expenditures not shown on the
income statement which were funded by government grants. Total internal and
external supported research and development expenditure for 1998 and 1997 was
$12,525 (3.5% of revenue) and $17,153 (5.4% of revenue), respectively. In
addition, the research and development that is performed in accordance with
contract requirements is considered in cost of revenue.

     Non-Recurring Charges

     In 1998, there were no non-recurring charges. In 1997, $1,584 of accrued
reorganization costs were reversed. See Note 17 of Notes to Consolidated
Financial Statements.

                                       22
<PAGE>

                                                                  Ansaldo Signal

     Interest Expense

     Interest expense increased by $1,515 (17.2%) to $10,349 in 1998 from $8,834
in 1997. The increase is due to higher average debt levels in 1998. The higher
average debt is mainly caused by increased working capital requirements related
to larger, more complex contracts with longer cycle time in backlog.

     Other Income

     Other income increased by $2,216 to $1,868 in 1998 from a net expense of
$348 in 1997. The increase is primarily due a one-time gain of $980 which
resulted from the conversion of the Pittsburgh Engineering and Technology
Facility lease and the forgiveness of a $1,400 research and development grant by
the French government.

     Taxes

     The Company recorded a $7,300 tax provision in 1998 compared to a $77 tax
provision for 1997. The effective rate was 52.6% in 1998 compared to (0.1%) in
1997. In 1998 the Company recorded a net decrease in the valuation allowance
related to loss carryforwards of $2,040, which has reduced the 1998 tax
provision. The decrease reflects utilization of a portion of loss carry forwards
in 1998 for which a valuation allowance had previously been established and the
Company's improved expectations about the future realizability of certain of the
remaining loss carry forwards before their expiration. The 1997 provision
includes a charge of $2,632 to reflect changes in the tax laws in Italy and a
$3,742 charge for the increase in the valuation allowance relating to loss
carryforwards. See Note 9 of Notes to Consolidated Financial Statements.

     1997 Versus 1996

     The historical information shown below reflects CSEE's revenues, gross
profit and operating expenses from June 28, 1996, the date on which the
remaining 51% of CSEE was acquired by the Company. Prior to that date, the
Company's 49% share of CSEE's results were included in other (income) expense in
the consolidated statements of income. The pro forma information includes CSEE
on a 100% consolidated basis for each period shown. The changes in amounts
between 1997 and 1996 for the information presented primarily reflect the impact
of the acquisition of the remaining interest in CSEE. Consequently, the
discussion below between 1997 and 1996 focuses on changes from the 1996 pro
forma information.

     Revenue

     The Company's revenue is presented below by major operating unit. Revenues
shown for each unit include revenue for work outside of such unit's own country
boundaries.

                                               Revenues

                   Historical       Historical      Historical        Pro Forma
                         1997             1996            1997             1996

     US&S            $122,419         $153,183        $122,419         $153,183
     ASF              108,481          128,037         108,481          128,037
     CSEE              75,681           55,213          75,681           89,747
     Other             11,644           17,067          11,644           17,067
                     --------         --------        --------         --------
     Total           $318,225         $353,500        $318,225         $388,034
                     ========         ========        ========         ========

     Historical Company revenue for 1997 was $318,225 compared to $353,500 for
1996.

     Company revenues decreased by $69,809 (18.0%) to $318,225 for 1997 from
$388,034 for pro forma 1996. This net decrease in revenue was due to decreased
volumes for all locations. In part this was due to the fact that the award of
contracts tended to happen in the later part of 1997 and could not be converted
into significant revenues for the year. This decrease includes a $24,127
decrease due to the effect of a stronger dollar that reduces the reported value
of revenue denominated in other currencies. The decrease in US&S and ASF revenue
was primarily due to delay by customers in putting new work out to bid and a
further delay in the release of high speed work in Italy. The decrease in
revenue in CSEE was due to a less favorable French market and to delay in an
Asian project.

                                       23
<PAGE>

                                                                  Ansaldo Signal

     Gross Profit

     The Company's gross profit is set forth below:

                                              Gross Profit

                   Historical       Historical       Historical        Pro Forma
                         1997             1996             1997             1996

     US&S             $13,348          $17,670          $13,348          $17,670
     ASF               19,564           20,839           19,564           20,839
     CSEE              19,821           13,450           19,821           23,822
     Other              2,218            4,921            2,218            4,921
                      -------          -------          -------          -------
     Total            $54,951          $56,880          $54,951          $67,252
                      =======          =======          =======          =======

     Historical Company gross profit for 1997 was $54,951 compared to $56,880
for 1996.

     Gross profit decreased by $12,301 (18.3%) to $54,951 (17.3% of revenues) in
1997 from $67,252 (17.3% of revenues) for pro forma 1996. This decrease includes
a $5,209 decrease due to the effect of a stronger dollar that reduces the
reported US dollar value of gross profit denominated in other currencies. US&S
completed a major software contract in 1997 that reduced gross profit in 1997
and 1996 by $11.0 million and $7.1 million, respectively. Decreased revenue and
the reactions to the currency devaluation in Asia, which impacted several of the
operations, accounted for the balance of the decrease in gross profit.

     Selling, General, and Administrative

     Historical selling, general, and administrative expenses increased by
$2,136 (4.4%) to $50,107 in 1997 from $47,971 in 1996.

     Selling, general, and administrative expenses decreased by $6,324 (11.2%)
to $50,107 (15.7% of revenue) in 1997 from $56,431 (14.5% of revenue) on a pro
forma basis in 1996. This decrease is primarily due to the effect of the
stronger dollar, which reduces the cost in US dollars of foreign currency
denominated expenditures and to lower overall spending levels. The increase as a
percentage of revenue reflects the sharp decline in 1997 revenue and the
continuation of certain marketing and other costs.

     Research and Development

     Historical research and development expense decreased by $1,851 (15.7%) to
$9,953 in 1997 from $11,804 in 1996.

     Research and development expense decreased by $4,429 (30.8%) to $9,953
(3.1% of revenue) in 1997 from $14,382 (3.7% of revenue) on a pro forma basis in
1996, due to the effect of the stronger dollar, which reduces the cost in US
dollars of foreign currency denominated expenditures) and to lower spending
levels due to planned cost reductions and completion of existing projects. In
1997 the Company incurred an additional $7,200 of research and development
expenditures not shown on the income statement which were funded by government
grants. Total internal and externally supported research and development
expenditure for 1997 was $17,153 (5.4% of revenue).

     Non-recurring Charges

     In 1996, non-recurring charges consisted of $17,288 relating to
reorganization costs and $15,144 of in process research and development costs
written off in connection with the acquisition of the remaining 51% interest in
CSEE. In 1997, $1,584 of the accrued reorganization provision was reversed. See
Note 17 of Notes to Consolidated Financial Statements included herein.

     Interest Expense

     Historical interest expense increased by $2,733 (44.8%) to $8,834 in 1997
from $6,101 in 1996.

     Interest expense increased by $2,557 (40.7%) to $8,834 in 1997 from $6,277
on a pro forma basis in 1996. The increase is due to higher debt levels in 1997
than 1996 ($3,067) offset in part by the effect of the stronger dollar, which
reduces the cost in US dollars of foreign currency denominated expenditures
($510).

                                       24
<PAGE>

                                                                  Ansaldo Signal

     Taxes

     The Company recorded a $77 tax provision in 1997 compared to a ($2,714) tax
benefit for 1996. The effective rate was (0.1%) in 1997 compared to 6.5% in
1996. The 1997 provision includes a charge of $2,632 to reflect changes in the
tax laws in Italy and a $3,742 charge for the increase in the valuation
allowance relating to realization of deferred tax assets. The 1996 provision was
impacted by loss carryovers for which no tax benefit was recognized. See Note 9
of Notes to Consolidated Financial Statements.

Liquidity And Capital Resources

     Operating Cash Flow

     The Company's operating activities used cash of $20,785 in 1998 compared to
$26,845 used in 1997. Cash was used to support increases in inventories of
$3,616, net increases in contract-related accounts totaling $29,174, and
decreases in accounts payable of $8,377. Major sources of operating cash flow
included net income of $6,522 that included non-cash provisions for depreciation
and amortization of $9,967. The increases in contract-related accounts totaling
$29,174 is due primarily to higher contract work in progress associated with the
beginning of large contracts by US&S and ASF and lower advance payments.

     The Company's operating activities used cash of $26,845 in 1997 compared to
$20,801 used in 1996. Cash was used to support increases in receivables of
$12,949, net increases in contract-related accounts totaling $21,144,
reorganization expenditures of $12,440 and a net loss of $12,678. Major sources
of operating cash flow included an increase in accounts payable of $15,245 as
well as non-cash provisions for depreciation and amortization of $11.526. The
increase in receivables of $12,949 is due to higher invoicing in December and an
increase in amounts due from ATR. The increases in contract-related accounts
totaling $21,144 is due primarily to higher contract work in progress and lower
advance payments.

     Proceeds from Sale of Fixed Assets

     In June 1998, the Company renegotiated the Pittsburgh Engineering and
Technology Facility lease. The conversion from a capital lease to an operating
lease generated cash proceeds of $12,200. See Note 5 of Notes to Consolidated
Financial Statements.

     Capital Expenditures

     The Company's capital expenditures were $3,152 in 1998, compared to $7,138
in 1997 and $5,218 in 1996. The decrease in the 1998 capital spending levels
from 1997 is due to withholding the authorization to proceed with capital
spending on certain elective projects. The Company anticipates capital
expenditures will be approximately $9,000 for 1999, and that they will be
financed by borrowing facilities.

     Borrowings

     At December 31, 1998, the Company had total borrowings of $26,282 from ATR,
$50,000 from a related financial institution and $70,024 from unrelated
financial institutions. Short-term borrowings of $75,403 consisted primarily of
a $50,000 loan from Cofiri S.p.A. ("Cofiri"), a subsidiary of IRI, and the
drawings on local lines of credit by subsidiaries to supply cash management
needs and the current portion of obligations under capital leases. Long-term
borrowings due within one year of $4,286 represents the 1999 installment due on
the Senior Notes issued by US&S in 1994 under a private placement (the "US&S
Senior Notes"). Long-term borrowings of $40,336 included $21,429 of US&S Senior
Notes, $16,950 of long-term notes at ASF, and $1,957 in long-term capital lease
obligations.

     At December 31, 1997, the Company had total borrowings of $32,379 from ATR,
$13,000 from a related financial institution and $81,132 from unrelated
financial institutions. Short-term borrowings consisted primarily of drawings on
local lines of credit by subsidiaries to supply cash management needs and the
current portion ($4,286) of long-term borrowings. Long-term borrowings included
$25,714 of US&S Senior Notes and $8,289 in capital lease obligations.

     Credit Facilities

     In 1994, US&S issued senior, unsecured promissory notes to various lenders
in the total amount of $30 million at an 8% fixed rate. The private placement
notes have a ten-year term, and principal repayments began in 1997. US&S was in
compliance with the indenture's covenants at December 31, 1998.

                                       25
<PAGE>

                                                                  Ansaldo Signal

     On December 22, 1997, the Company entered into a $30 million loan agreement
with Cofiri bearing interest at 7% per annum at December 31, 1997. The loan
agreement was increased to $50 million on April 23, 1998. As of December 31,
1998 the total outstanding borrowings amounted to $50 million bearing interest
at 6.63%. This agreement has no restrictive covenants, and borrowings are
unsecured, but with letters of comfort from ATR and Finmeccanica.

     ATR / Finmeccanica continues to provide and / or guarantee various
borrowings. At December 31, 1998 total borrowings from ATR were $26,282.

     ATR / Finmeccanica has agreed to continue to provide sufficient guarantees
and / or financing support for the operations of Ansaldo Signal N.V. and its
subsidiaries until March 2000. The repayment of any present or future
indebtedness to ATR / Finmeccanica can be deferred until such date if requested
by the Company. Management would request deferral of payment if such payment
would result in the Company violating any of its current debt covenants.

     The Company had uncommitted lines of credit available at December 31, 1998
of $127.7 million with various banks. The unused portion of the lines of credit
available at December 31, 1998 totaled $52.3 million, a substantial portion of
which related to a specific commercial arrangement with one customer and
therefore is not available for general corporate use.

     The Company had uncommitted lines of credit available at December 31, 1997
of $101.8 million with various banks. The unused portion of the lines of credit
available at December 31, 1997 totaled $35.6 million after a deduction of $11.2
million for commercial and stand-by letters of credit issued under one of the
lines.

     Because of the planned growth of the business and the delay in collection
of some of the larger contracts, the Company expects to need to increase its
financing facilities, including committed facilities. Management expects to be
able to put new facilities in place in 1999, with the dependence on credit
enhancement from ATR / Finmeccanica. Management believes that these new
facilities, together with those already in place, will be adequate to meet its
anticipated requirements in 1999.

     Dividends

     To date the Company has not paid dividends and has no plans to pay any
future dividends.

     Bonding Arrangements

     The Company is required, in the normal course of its business, to provide
bid, performance and advance payment bonding on certain contracts. The Company
maintains a $100,000 surety bonding facility ($30,004 outstanding at December
31, 1998), in addition to a $300,000 surety-bonding facility ($107,993
outstanding at December 31, 1998) provided by Finmeccanica. US&S also had a
$2,917 letter of credit outstanding at December 31, 1998 that is supported by
ATR. ATR / Finmeccanica is also providing bid, advance payment, performance and
retention bonding of $179,632 for the European subsidiaries. Pursuant to a
Bonding Support Agreement, dated as of November 13, 1996, Finmeccanica and ATR
have agreed to continue providing these services through December 31, 1999 at
which time the agreement shall be automatically renewed for another year unless
terminated upon 60 days' written notice prior to such date.

     Foreign Exchange Risk Management

     Foreign exchange rates related to significant non-US Dollar operations of
the Company were as follows:

                                  Per US Dollar
                        French Franc                       Italian Lire
     Year        Avg.      High      Low            Avg.       High       Low
     1998       5.896     6.215     5.420          1736.7     1828.0     1589.9
     1997       5.832     6.351     4.557          1702.7     1840.0     1517.0
     1996       5.139     5.830     4.996          1542.1     1600.0     1494.0

     On January 1, 1999, certain member countries of the European Union
established fixed conversion rates between their existing currencies and the
European Union's common currency (the "Euro"). The Euro conversion rates for
Lire and French Francs were fixed at 1936.28 Lire and 6.5596 French Francs for 1
Euro. As of June 17,1999 the US Dollar exchange rate for 1 Euro was $1.034. The
Company conducts business in many of the member countries and the Company is
addressing the issues involved with the introduction of the Euro. The more
important issues facing the Company include converting information technology
systems; reassessing currency risk; and processing tax and accounting records.
See "Euro Conversion."

                                       26
<PAGE>

                                                                  Ansaldo Signal

     The Company has entered into foreign currency exchange contracts to reduce
its foreign currency exchange risk. Because these contracts are intended as, and
effective as, hedges of the underlying assets, liabilities or commitments, any
exchange gains or losses are deferred. The net unrealized gain on open contracts
at December 31, 1998 that was not recognized in the consolidated statements of
income (loss) and comprehensive income (loss) was $118. The fair value of these
contracts approximates the contract value because they are short-term in nature.
The Company's theoretical risk in these transactions is the cost of replacing,
at current market rates, foreign currency exchange contracts in the event of a
default by the counterparty. Management believes the risk of such losses is
remote, and that such losses would not be material.

     Interest Rate Risk Management

     The Company maintains debt facilities with both fixed and floating interest
rates. As of December 31, 1998, approximately $42, 664 of the Company's
borrowings were at fixed interest rates. Interest rates on the remaining portion
of the debt are generally based on LIBOR or similar short-term interest rate
indices. From time to time, the Company enters into interest rate hedging
contracts to mitigate the impact of interest rate fluctuations on operating
results. The Company does not expect that short-term, floating interest rates
will vary materially from historical patterns in 1999.

     Inflation

     Although inflation over the last three years has been at reduced levels
compared to prior years, it has nevertheless caused an increase in the Company's
costs. These increased costs are not usually fully recoverable on the Company's
fixed price, multiyear contracts. Because it is very difficult to predict the
rate of inflation in the future, management is unable to predict the effect of
inflation upon the Company's future business. Higher rates of inflation increase
the potential for adverse consequences to the business due to increased costs
and lower infrastructure spending

     Year 2000

     In 1997, the Company commenced, for all of its internal systems, a Year
2000 ("Y2K") data conversion project to address all necessary code changes,
testing, and implementation. Project completion is planned for the middle of
1999. The Company is re-deploying existing information technology resources to
minimize the risk of potential disruption from the Year 2000 problem. This
problem is a result of computer programs that were written using two digits
(rather than four) to define the applicable year. Any information technology
("IT") systems that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000, which could result in
miscalculations and system failures. The problem also extends to many "non-IT"
systems, i.e., operating and control systems that rely on embedded
microprocessors. In addition, like every other business enterprise, the Company
is at risk from Y2K failures on the part of its major business counterparts,
including suppliers and manufacturers, as well as potential failures in public
and private infrastructure services, including electricity, water, gas,
transportation and communications.

     System failures resulting from the Y2K problem could adversely affect
operations and financial results in all of the Company's business segments.
Failures may affect security, payroll operations or employee health and safety,
as well as such routine but important operations as billing and collection.

     The Company has developed an approach to resolving the Y2K issues that are
reasonably within its control. The Company's approach to solving the problem is
described below.

     In the first phase, all hardware and software (including business and
operations applications, operating systems and third-party products) that may be
at risk are identified. Once each at-risk system has been identified, the Y2K
task forces assess how critical the system is to business operations and the
potential impact of failure, in order to establish priorities for repair or
replacement. This process has been completed for all IT systems, resulting in
the identification of those business systems that are "critical" to continued
functioning. New software has been installed at the French subsidiary and a new
payroll system is being installed in the United States. ASF is relying on the
outsourced systems solutions provided by ATR.

     The next phase involves the development of appropriate remedial strategies
for both IT and non-IT systems. These strategies may include repairing, testing
and certifying, replacing or abandoning particular systems (as discussed below).
Selection of appropriate strategies is based upon such factors as the
assessments made in the risk review, the type of system, the availability of a
Y2K-compliant replacement and cost. The development of remedial strategies phase
has been completed for all IT systems. For some non-IT embedded systems,
strategy development is continuing.

     The remediation phase involves creating detailed project plans, marshalling
necessary resources and executing the strategies chosen. For IT systems, this
should be completed for critical and important systems by July 31, 1999. For
non-critical systems, most corrections are expected to be completed by December
31, 1999.

      Testing includes establishing a test environment, performing systems
testing and using third party consultants to certify the results. Testing for
non-IT systems has been initiated; however, due to the Company's reliance on
many third-party

                                       27
<PAGE>

                                                                  Ansaldo Signal

vendors for these systems, the Company cannot estimate precisely when this phase
will be completed. The Company's target for all critical and important non-IT
systems is September 1999.

     The Company has initiated written and telephonic communications with key
third-party businesses, as well as public and private providers of
infrastructure services, to ascertain and evaluate their efforts in addressing
Y2K compliance. It is anticipated that the majority of testing and certification
with these entities will occur in 1999.

     Contingency planning involves addressing any remaining open issues expected
at the close of 1999 and early 2000. As a precautionary measure, the Company is
currently developing contingency plans for all systems that are not expected to
be Y2K compliant by September 1999. A variety of automated as well as manual
plans are under consideration, including the use of electronic spreadsheets and
manual workarounds. The Company estimates that all of these plans will be
completed by December 1999.

     A significant portion of the Company's Y2K costs has not been incremental,
but rather reflect redeployment of internal resources from other activities. The
Company does not expect these redeployments to have a material adverse effect on
other ongoing business operations of the Company and its subsidiaries, although
it is possible that certain maintenance and upgrading processes will be delayed
as the result of the priority being given to Y2K remediation. All of the costs
of the Y2K project are being borne out of the Company's existing credit
facilities.

     Based upon its efforts to date, the Company believes that the vast majority
of both its IT and its non-IT systems, including all critical and important
systems, will be Y2K compliant. Accordingly, the Company does not currently
anticipate that internal systems failures will result in any material adverse
effect to its operations or financial condition. During 1999, the Company will
also continue and expand its efforts to ensure that major third-party businesses
and public and private providers of infrastructure services, such as utilities,
communications services and transportation, will also be prepared for the Year
2000, and to develop contingency plans to address any failures on their part to
become Y2K compliant. At this time, the Company believes that the most likely
"worst-case" scenario involves potential disruptions in areas in which the
Company's operations must rely on such third parties whose systems may not work
properly after January 1, 2000. In addition, the Company's international
operations may be adversely affected by failures of businesses in other parts of
the world to take adequate steps to address the Y2K problem. While such failures
could affect important operations of the Company and its subsidiaries, either
directly or indirectly, in a significant manner, the Company cannot at present
estimate either the likelihood or the potential cost of such failures.

     The nature and focus of the Company's efforts to address the Y2K problem
may be revised periodically as interim goals are achieved or new issues are
identified. In addition, it is important to note that the description of the
Company's efforts necessarily involves estimates and projections with respect to
activities required in the future. These estimates and projections are subject
to change as work continues, and such changes may be substantial.

     The Company's agreements with its customers typically contain provisions
designed to limit the Company's exposure to potential warranty and product
liability claims. The Company has also communicated with its customers as to
their concerns with the Company's products as relating to the Y2K problem. It is
possible, however, that the limitation of liability provisions contained in the
Company's agreements may not be effective as a result of existing or future
federal, state, or local laws or ordinances or unfavorable judicial decisions.
The sale and support of its products by the Company may entail the risk of such
claims, which could be substantial in light of the use of such products in
system management, resource optimization and overall systems control
applications. The Company is aware of the potential for such claims against it
and other companies for damages from products and services that were not Y2K
ready. A successful claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition. Management believes, however, that the Company will not be exposed to
material liability for Y2K claims of third parties.

     Euro Conversion

     On January 1, 1999, certain member countries of the European Union,
including Italy, France and Ireland, established fixed conversion rates between
their existing currencies and the Euro. The Company conducts business in several
European Union member countries and is in the process of addressing the issues
involved with the introduction of the Euro. The more important issues facing the
Company include converting information technology systems, reassessing currency
risk, and processing tax and accounting records.

     Based upon progress to date the Company believes that use of the Euro will
not have a significant impact on the manner in which it conducts its business
affairs and processes its business and accounting records. Accordingly,
conversion to the Euro is not expected to have a material effect on the
Company's financial condition or results of operations.

     However, there can be no assurance that the systems of other companies on
which the Company's systems rely also will be converted in a timely fashion, or
that any such failure to convert by another company would not have an adverse
effect on the Company's systems.

                                       28
<PAGE>

                                                                  Ansaldo Signal

     New Accounting Standards

     In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"), which the Company is required to adopt no later than January 1,
2000. SFAS 133 will require the Company to record all derivatives on the balance
sheet at fair value. Changes in derivative fair values will either be recognized
in earnings contemporaneously with the changes in fair value of related hedged
assets, liabilities and firm commitments or, for forecasted transactions,
recorded as a component of other comprehensive income within stockholders'
equity. The ineffective portion of a hedging derivative's change in fair value
will be immediately recognized in earnings. The Company does not believe the
effect of adopting SFAS 133 will be material to its financial position or
results of operations.

     Outlook

     The Company's backlog provides a base of business over the next several
years. The Company expects to benefit from the substantial number of contracts
to be bid in North America compared to recent prior years and from an expected
increase in high-speed train work in Europe. However, the Asian markets other
than China may continue to defer infrastructure spending in light of their
current economic condition. In addition the Company's industry has been
experiencing consolidation and thus increased competition, particularly from new
firms entering into the software sector of the business.

Item 9A.  Quantitative and Qualitative Disclosures about Market Risk
          Foreign Exchange Risk

     The operations of the Company are conducted by entities in many countries,
and accordingly, the results of operations of the Company are subject to
currency translation risk and currency transaction risk. With respect to
currency translation risk, the financial condition and results of operations of
each of these entities is measured and recorded in the relevant local currency
and then translated into US Dollars ("USD") for inclusion in the consolidated
financial statements. The entities translate the balance sheets of the
respective non-USD denominated operations into USD at the prevailing exchange
rates on the balance sheet date. Income and cash flow statements are translated
at the average exchange rate for the period.

     The Company generally attempts to hedge a portion of its currency
translation risk by financing its operations in subsidiaries through borrowings
denominated in local currencies, wherever possible. The lending entity will then
hedge the USD / local currency foreign currency exposure on the intercompany
financing using foreign exchange forward contracts.

     In addition to currency translation risk, the Company incurs currency
transaction risk whenever one of its operating subsidiaries enters into either a
sales or purchase transaction using a currency other than its functional
currency. Currency transaction risk is reduced by matching sales revenue and
costs in the same currency, which is generally the practice in the railway
industry.

     Currency hedging is generally used by businesses to protect against
contract risk. The Company incurs currency risk primarily from loans to its
subsidiaries. Given the volatility of currency exchange rates, there can be no
assurance that the Company will be able to effectively manage its currency
transaction risks or that any volatility in currency exchange rates will not
have a material adverse effect on the Company's financial conditions or results
of operations.

     The Company uses forward foreign exchange contracts to manage foreign
currency risk. The premium or discount on a forward foreign exchange contract
(or on the forward element of a foreign currency swap) is amortized to the
income statement over the life of the contract.

     The following table summarizes, by major currency, the amounts to be
received and paid under forward foreign exchange contracts and currency swaps as
of December 31, 1998 (in thousands of US dollars):

                                       29

<PAGE>

                                                                  Ansaldo Signal


                                               Receivable          Payable

     U.S. Dollar                                  $15,580           $6,286
     Australian Dollar                              4,126            4,418
     Canadian Dollar                                    -               56
     French Franc                                   6,539           12,132
     Irish Pound                                      178                -
     Italian Lire                                   1,974            5,352
     Hong Kong Dollar                               3,285            3,285
     Swedish Krona                                  3,453            3,628
     Pound Sterling                                 1,137            1,137
                                                  -------          -------
     Balance at December 31, 1998                 $36,272          $36,294
                                                  =======          =======
     INTEREST RATE RISK

     The Company maintains debt facilities with both fixed and floating interest
rates. As of December 31, 1998, approximately $42,664 of the Company's
borrowings were at fixed interest rates. Interest rates on the remaining portion
of the debt are generally based on LIBOR or similar short-term interest rate
indices. From time to time, the Company enters into interest rate hedging
contracts to mitigate the impact of interest rate fluctuations on operating
results; however, no such instruments were outstanding as of December 31, 1998.
The Company does not expect that short-term, floating interest rates will vary
materially from historical patterns in 1999.

     The following table details the fixed rate debt obligations of the Company
at December 31, 1998.

<TABLE>
<CAPTION>

                                                     Currency                December 31,1998
                                                    Payable in    Carrying Amount      Fair Value

<S>                                                 <C>           <C>                  <C>
     Ansaldo Segnalamento Ferroviario S.p.A.
     Notes (unsecured) due 2002 with a
     fixed interest rate of 4.10% (1)                     Lire            $16,949         $16,059

     Union Switch & Signal Inc.
     Senior Notes (unsecured) due 2004, with a
     fixed interest rate of 8.00% (2)                      USD            $25,715         $26,587
</TABLE>

         (1)  For determination of fair market value an interest rate of 5.875%
               was used.
         (2)  For determination of fair market value an interest rate of 6.85%
              was used.

Item 10.  Directors and Officers of Registrant

     The members of the Supervisory Board of the Company are as follows:

     Alberto Rosania, Chairman, has served as First Vice President of Strategic
Finance for Finmeccanica since 1992. Mr. Rosania also has served as a director
and Chairman of the Supervisory Board of the Company since its formation in
1996.

     Claudio Artusi has served as the Systems Business Unit Manager for ATR
since 1995. Mr. Artusi previously served from 1992 to 1995 as the Vice President
of ATR in charge of Strategies, Development and Marketing.

     Bruno Bigliardo has served as the Vice President-Taxation for Finmeccanica
since 1992. He is also a member of the Board of Directors of various
Finmeccanica subsidiaries and is Secretary to the Board of ATR.

     Luigi Liccardo has served as the Senior Vice President-Finance and
Administration for Finmeccanica since 1998. Mr. Liccardo served from 1995 to
1998 as Co-Managing Director of Coinfra S.p.A. and as the Senior Vice
President-Finance and Administration of Italimpianti S.p.A. from 1994 to 1996,
both of which are companies controlled by IRI. IRI, the Italian state holding
company, is the owner of approximately 61% of the outstanding shares of
Finmeccanica.

     Vitaliano Pappaianni has served as an officer of Finmeccanica since 1986
and currently serves as Senior Vice President-Corporate Planning and Control as
well as a director of several Finmeccanica subsidiaries.

                                       30
<PAGE>

                                                                  Ansaldo Signal

     Lawrence W. Rosenfeld currently serves as the Executive Director of Team
Adventure USA. He was the founder of Concentra Corporation ("Concentra"), a
publicly traded company listed on the Nasdaq National Market until it was
acquired by Oracle Corporation in December 1998. From 1984 to December 1998, Mr.
Rosenfeld held various positions at Concentra, including Chief Executive
Officer, President and Chairman of the Board.

     Yazid Sabeg currently serves as the Chairman of the Board of Directors of
CSEE. Since 1991, he also has served as Chief Executive Officer and a director
of Compagnie des Signaux S.A., which company owns 2,000,000 Common Shares, or
9.8% of the outstanding Common Shares, of the Company. Mr. Sabeg also has served
as director of the Company since its formation in 1996.

     Mark V. Santo is an attorney who served until 1999 as Group Vice President
and General Counsel of Elsag Bailey Process Automation N.V., a New York Stock
Exchange listed company in which Finmeccanica held a majority share ownership
until its recent sale. Mr. Santo previously served from 1990 to 1993 as the
general counsel of its predecessor, Elsag Bailey, Inc., and before that
practiced law in Pittsburgh, Pennsylvania.

     Costantino Savoia currently serves as Executive Vice President of ATR. Mr.
Savoia previously served as Executive Vice President of ILVA S.p.A. and, until
1998, as the executive responsible for the winding-up of IRITECHNA S.p.A., both
of which are companies controlled by IRI.

     Messrs. Bigliardo, Rosenfeld and Santo serve on the Audit Committee.

     The term of service for all the current members of the Supervisory Board
expires at the Annual General Meeting of Shareholders to be held in 2002.

     The Management Board of the Company.

     The Management Board of the Company is comprised of two persons:

     James N. Sanders is President and Chief Executive Officer, as well as a
Managing Director, of the Company. He has been Managing Director and Chief
Executive Officer since December 12, 1996. From 1985 to December 1996, he was
with Alcatel-SEL, most recently President, Transport Automation Products.

     Dr. Bruno Tufari is Executive Vice President and Chief Financial Officer,
as well as a Managing Director, of the Company. He was the Deputy Managing
Director and Chief Financial Officer from November 1998 until April 1999, when
he was appointed Managing Director, Executive Vice President and Chief Financial
Officer. From 1992 to 1998, he served as Chief Financial Officer for ATR.

     The Management Board is supported in its management of the Company by the
following executives:

     Paolo Bianchi is Vice President, Scandinavian Region, and has served in
this capacity since June 1998. From 1990 to 1998, he served as Chief Financial
Officer of AT Signal System AB.

     Georges Dubot is Vice President, French Region, and has served as the Chief
Executive Officer of CSEE since January 1, 1991.

     Lyle K. Jackson is Vice President, Australasian Region, and has served as
Managing Director of US&S PTY since April 1, 1995. From 1991 to 1995, he was
Managing Director of Ventura Projects, predecessor to US&S PTY.

     Sergio DeLuca is Vice President, Italian Region, and has served as Managing
Director and Chief Executive Officer of ASF since September 1998. From 1996 to
1998, he was Manager of the Sales & Operations Group of the Company. From 1994
to 1996, he served as Manager of R&D and as Technical Manager for the Signaling
Business Unit of ATR.

     John Mandelli is Vice President, North American Region, and has served in
this capacity and as President and Chief Operating Officer of US&S since his
appointment in August 1998. From 1992 to 1998, he served in various management
positions within Alcatel Canada, including service as Director of Project
Implementation in the SEL Division, General Manager of the Transport Automation
Division, Vice President of Alcatel Canada Inc., and President of Alcatel
Transport Automation (USA) Inc.

                                       31
<PAGE>

                                                                  Ansaldo Signal

     Ferdinando Camurri is Vice President, European Infrastructure Projects , in
which capacity he has served since the formation of the Company in November
1996. He previously served as Vice President, Automation and Signaling Business
Unit, of ATR from 1991 to 1996.

     Anthony A. Florence is Vice President, External and Investor Relations, in
which capacity he has served since formation of the Company in November 1996,
and is a member of the Office of the Chairman. From February 1990 to November
1996 he was the chief communications and investor relations officer for US&S.

     Peter Hovingh is Corporate Treasurer of the Company and has served in this
capacity since December 1998. From October 1997 to December 1998, he served as
the Company's European Treasury Manager. From December 1993 to October 1997, he
worked both as Cash-Manager and Treasurer for TOTAL OIL and Gas International BV
in The Netherlands, with responsibility for the international treasury and
finance activities of the holding company and its subsidiaries in Europe, Latin
America and Asia.

     Robert Pascoe is Vice President, Technology for the Company. Prior to
taking this position in 1997, he served since 1975 in a variety of positions at
US&S, most recently as Manager, Standards and as Director, Signal and Train
Control Technology.


Item 11.  Compensation of Directors and Officers

     Members of the Supervisory Board who are affiliated with Finmeccanica are
compensated by Finmeccanica. Members of the Supervisory Board who are not
affiliated with Finmeccanica, or who are not otherwise compensated by
Finmeccanica or one of its affiliates, are paid an annual remuneration of
$20,000 for their services plus reimbursement of reasonable expenses in
connection with such services.

     In 1998, the aggregate cash compensation of the Managing Directors and
executives identified above, as a group, paid or accrued by the Company and its
subsidiaries was $1,713,740. Of this amount, $294,060 was paid as bonuses under
subsidiary variable compensation programs that provided for the payment of
short-term bonuses based upon incentive targets established by the applicable
subsidiary Board of Directors.

     In addition to a tax qualified retirement savings plan (the "401K Plan"),
the Company contributes to pension, retirement or similar benefit plans for the
Managing Directors and executives identified above in accordance with the
requirements of the country of their employment and the terms of their
employment contracts. In 1998, the aggregate amount set aside by the Company,
through one or more of its subsidiaries, for this purpose for the Managing
Directors and the executives identified above was $185,841.

     The Company's 401K Plan covers all of the salaried employees of US&S and
its subsidiaries. Participating employees may elect to reduce their current
compensation on a pretax basis by up to the statutorily prescribed annual limit
($10,000 in 1998) and have the amount of such reduction contributed to the 401K
Plan. The Company makes 50% matching contributions up to 6% of each
participating employee's compensation for the year. The Company also contributes
2% of the employee's base salary for the year to the fund. In addition, the
Company in its discretion may each year make a "performance incentive
contribution" with respect to all or any group of participating employees as are
designated by the Company, which it determines on the basis of the Company's or
specific operating unit's financial performance and success in meeting its
business commitments for the year. In 1998, US&S. made matching and basic (but
no discretionary) contributions of $14,491 to the accounts of the US&S employees
who are among the executives identified above.

     The Managing Directors and executives identified above were also covered in
1998 under certain group life and medical insurance programs provided by the
particular company by which they were employed. The aggregate value of such
programs was $47,296.

ITEM 12.  OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES

     The Company has reserved 1,000,000 Common Shares for issuance of stock
options that may be granted under its 1996 Long-Term Stock Incentive Plan ("the
Stock Incentive Plan"), of which 136,500 Common Shares are subject to currently
outstanding options granted under such plan. The Company has filed a
registration statement on Form S-8 with regard to the Common Shares issuable
under its Stock Incentive Plan, by virtue of which Common Shares issued
thereunder generally will be transferable without restriction. For further
discussion concerning the grant dates, exercise prices and expiration dates of
such options, see Note 15 of Notes to Consolidated Financial Statements.

                                       32
<PAGE>

                                                                  Ansaldo Signal

     As of May 31, 1997, the Managing Directors and the executives identified
above have been granted options to purchase 136,500 Common Shares under the
Company's Stock Incentive Plan, of which options for 17,600 Common Shares became
exercisable in 1997. The remaining 118,900 will become exercisable in 1999. The
date of grant, purchase price and expiration dates of the options granted to
date are summarized in the table below:

<TABLE>
<CAPTION>

                                        Number of            Exercise              Expiration
     Date                                Options               Price                  Date
     ----                                -------               -----                  ----
<S>                                     <C>                  <C>                <C>
     Granted December 11, 1996           294,000               $7.50            December 15, 2006
     Granted July 22, 1997               20,000                $7.50            December 15, 2006
     Forfeited                          (177,500)              $7.50            December 15, 2006
                                        ---------
     Outstanding                         136,500               $7.50            December 15, 2006
</TABLE>


Item 13.  Interest of Management in Certain Transactions

     In the ordinary course of business, the Company and Finmeccanica or ATR
have from time to time entered into various business transactions and
agreements, and the Company and Finmeccanica or ATR may from time to time enter
into additional transactions and agreements in the future. See Note 10 of the
Notes to the Consolidated Financial Statements. Since December 11, 1996, the
Company has used, and plans to continue to use, certain Finmeccanica or ATR
facilities and personnel for certain administrative and financial functions, for
which the Company has reimbursed or will reimburse Finmeccanica or ATR. These
transactions, agreements and arrangements have been and are expected to be
continued on terms which in the aggregate are not materially different from
those which generally could be obtained from unrelated third parties through
negotiations on an arm's-length basis. It is possible that other potential
conflicts of interest could arise between the Company and Finmeccanica or ATR in
the future. The following is a summary of the material agreements, arrangements
and transactions between the Company and Finmeccanica or its affiliates.

     Products. Each of US&S, ASF (previously being wholly owned by and a
division of ATR), ATSS and ATI has provided certain products and related
services to ATR. Such transactions, which generally were effected on terms
comparable to those available in transactions with unaffiliated parties, have
ranged from sales of discrete component products for use by ATR in railroad and
transit applications to acting as a subcontractor for ATR on certain systems
contracts, principally in Europe. Revenue from such transactions amounted to
approximately $17.0 million and $10.5 million for ASF and US&S, respectively,
for the year ended December 31, 1998. In addition, the Company's subsidiaries
have occasionally purchased certain products from ATR and other affiliates of
Finmeccanica for use in domestic or export sales. Such purchases were
insignificant in the fiscal year ended December 31, 1998. Ansaldo Signal,
including ASF in particular, expects to engage in similar affiliated party
transactions involving products and related services in the future on generally
the same basis as it would engage in transactions with unaffiliated third
parties.

     Facilities. ASF has leased from ATR the space it currently occupies in
Naples and Genoa. Such leases are for a term expiring December 31, 1999, which
is renewable on an annual basis unless terminated by either party. The aggregate
annual rental for 1998 was ITL 1.6 billion ($1.0 million). The cost will be
subject to annual adjustment based on an Italian consumer price index to
determine the 1999 cost. The lease also provides for certain services related to
the premises, including management information services, for an annual cost of
ITL 6.5 billion ($3.9 million) for 1998. This cost will be subject to an annual
agreed adjustment (up or down) based on external factors to determine the cost
of providing these services in 1999. Management of ASF believes that the terms
of such agreements are no less favorable than those it would obtain from
unaffiliated third parties.

     Head Office Services. ASF, as a division of ATR, obtained virtually all of
its head office services, including centralized administrative staff functions,
human relations, legal, planning, accounting and central purchasing, from ATR.
ATR has agreed to provide such services on the basis of its traditional
allocations to ASF through the end of 1999, which term can be extended on an
annual basis unless terminated by either party. The annual cost for 1998 was ITL
5.9 billion ($3.6 million). The 1999 cost will be based upon the 1998 cost and
an adjustment to reflect changes in cost levels based on an Italian consumer
price. Management of ASF believes that the terms of such agreements are no less
favorable than those it would obtain from unaffiliated third parties.

     Credit Support and Credit Facilities. Finmeccanica and ATR have
historically provided certain financial support to US&S, ASF, ATSS, ATI and,
since June 28, 1996, CSEE, and, since its formation, the Company. Such services
have included arranging for certain letters of credit and short-term credit
facilities guaranteed or otherwise enhanced by Finmeccanica or ATR. For the year
ended December 31, 1998 fees for such credit enhancement were less than $0.1
million. Finmeccanica has agreed to continue such financial support through 1999
at a fee of 1.0% and 0.5% per annum of the

                                       33
<PAGE>

                                                                  Ansaldo Signal

principal amount of any borrowing and of any letter of credit facility enhanced,
respectively. The Company expects to continue to use such ATR or Finmeccanica
support through 1999. Thereafter, such financing might be on terms less
favorable to the Company than the financing previously arranged through
Finmeccanica and its affiliates. See Item 9, Management's Discussion and
Analysis of Financial Condition and Results of Operations, "Credit Facilities."

     In addition, the Company has substantial borrowings from ATR and Cofiri, a
subsidiary of IRI, whose loans were supported by a comfort letter from each of
ATR and Finmeccanica. See Note 10 of the Notes to Consolidated Financial
Statements. In 1998, the Company has paid interest to ATR (7% per annum at year
end) aggregating $ 0.5 million. Also in 1998, the Company paid interest to
Cofiri (6.6% per annum at year end) aggregating $ 2.7 million. Through March
2000, Finmeccanica and ATR have agreed to provide sufficient support for the
operations of the Company and further agreed that the repayment of any present
or future indebtedness to ATR or Finmeccanica can be deferred if requested by
the Company. Management intends to request deferral of payment if such payment
would result in the Company violating any of its current debt covenants.

     Bonding Support. Finmeccanica has agreed to continue to provide
indemnification to issuers of performance bonds or letters of credit for the
benefit of Ansaldo Signal in connection with major contracts through 1999. It
will continue to charge its current fee of 0.5% per annum of the amount of any
such bond or letter of credit. For the year ended December 31, 1998 fees for
this service were $0.6 million. In the event that Finmeccanica's support were
not available to Ansaldo Signal for its bonding requirements, Ansaldo Signal's
ability to enter into large contracts could be restricted and the Company
might be required to change its current method of doing business as a prime
contractor for most projects. As prime contractor, the Company can control
(while also assuming the responsibility for and the risk of) all aspects of an
entire project, including installation. While Ansaldo Signal anticipates that it
could provide a portion of its projected bonding requirements without the
support of Finmeccanica, it would be required to increase its use of joint
ventures and undertake more projects as a subcontractor, in each case with
parties capable of providing bonding for all or a portion of the project being
bid. Since the Company would lose flexibility in the way it can now approach
obtaining and executing major projects, no assurance can be given that any such
change would not have a material adverse effect on Ansaldo Signal's financial
position or result of operations.

     Option Agreement

     Ansaldo Signal has entered into an agreement with ATR (the "Option
Agreement") pursuant to which it has granted to ATR an option to purchase all of
the authorized Priority Shares of Ansaldo Signal for a purchase price equal to
the aggregate nominal value of such shares. Such option may be exercised in the
event that an unrelated third party acquires or announces a tender offer seeking
20% or more of the outstanding Common Shares. In the event that ATR acquires the
Priority Shares, ATR would be entitled to nominate the members of the
Supervisory Board and the Management Board. Although such nominations would not
be binding on the holders of Common Shares, a resolution appointing a different
candidate would require the approval of a majority of at least two-thirds of the
votes cast at a General Meeting of Ansaldo Signal shareholders, which majority
represents more than one-half of the issued share capital. If ATR acquires the
Priority Shares and still holds at least one-third of the outstanding Common
Shares, it would be able to make nominations of the members of the Supervisory
Board and the Management Board. ATR has agreed that, in the event that it
acquires the Priority Shares and, subsequently, its holdings of Common Shares
fall below 25% of the outstanding Common Shares, Ansaldo Signal may repurchase
the Priority Shares for no consideration.

     Preemptive Rights Agreement

     Pursuant to the terms of a Preemptive Rights Agreement (the "Preemptive
Rights Agreement") entered into between Ansaldo Signal and ATR, ATR shall be
granted the right, notwithstanding any shareholder directive to the contrary, to
purchase its pro rata share (based upon ATR's then current level of equity
ownership in Ansaldo Signal) of any issuances of Common Shares or other equity
securities, or securities convertible into or granting a right to purchase any
such equity securities, to third parties in the future. Such purchases shall be
made on the same terms and conditions as any third-party transaction that gives
rise to ATR's right to make such purchase. The Preemptive Rights Agreement will
expire at such time as ATR beneficially owns securities representing less than
30% of the combined voting power of all issued and outstanding Common Shares and
other voting securities of Ansaldo Signal. By virtue of such Agreement, ATR will
be able to maintain a controlling interest in Ansaldo Signal. ATR's rights under
the Preemptive Rights Agreement are transferable to any affiliate of ATR,
including Finmeccanica.

     Registration Rights Agreement

     Pursuant to the terms of a registration rights agreement (the "Registration
Rights Agreement") entered into between the Company and ATR, ATR will have the
right to require the Company to register for public offering and sale all or a
portion of the Company's common shares held by ATR from time to time (subject to
certain limitations) on a maximum of three occasions until such time as ATR
beneficially owns less than 5% of the issued and outstanding common shares of
the Company. In addition, during the term of the Registration Rights Agreement,
ATR will have the right to participate in any

                                       34
<PAGE>

                                                                  Ansaldo Signal

registration of common shares initiated by Ansaldo Signal, subject to certain
limitations. Ansaldo Signal will pay all out-of-pocket expenses of any such
registrations, other than fees and expenses of ATR's counsel, and will indemnify
ATR and its officers and directors against certain liabilities, including
liabilities under the federal securities laws (other than resulting from
material misstatements or omissions made in reliance on and in conformity with
information furnished by ATR or its affiliates expressly for use in connection
with such registration). ATR will pay all underwriting discounts and commissions
applicable to common shares of the Company sold pursuant to any such
registrations. The rights of ATR under the Registration Rights Agreement are
transferable to any affiliate of ATR, including Finmeccanica.

                                       35
<PAGE>

                                                                  Ansaldo Signal

                                     PART II

     Item 14.  Description of Securities to be Registered

     Not applicable.

                                    PART III

     Item 15.  Defaults Upon Senior Securities

     Reference is made to Item 9, under the heading "Borrowings," which is
incorporated herein.

     Item 16.  Changes in Securities and Changes in Security for Registered
Securities

     None.

                                     PART IV

     Item 17.  Financial Statements

     The Company has responded to Item 18 in lieu of responding to Item 17.

     Item 18.  Financial Statements

     Reference is made to Item 19(a) for a list of all financial statements
filed as part of this annual report.

     Item 19.  Financial Statements and Exhibits

     The following Consolidated Financial Statements, including the notes
thereto, which immediately follow, are included herein as referenced below.

<TABLE>
<CAPTION>

                                                                                            Page(s) in this
                                                                                             Annual Report
                                                                                              on Form 20F

<S>                                                                                         <C>
     (a)      Index of Financial Statements, Financial Statement Schedules
     Report of Independent Accountants                                                            36-38
     Consolidated Financial Statements:
              Consolidated Balance Sheets as of December 31, 1998 and 1997                        39
              Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
                  for the Years Ended December 31, 1998, 1997, and 1996                           40
              Consolidated Statements of Cash Flows for the Years Ended
                  December 31, 1998, 1997, and 1996                                               41-42
              Consolidated Statements of Changes in Shareholders' Equity for the
                  Years Ended December 31, 1998, 1997, and 1996                                   43
              Notes to Consolidated Financial Statements                                          44-59
     (b)      Index to Exhibits                                                                   60
     Exhibits 1.1, 1.2 and 2.1 through 2.9 identified on the Index to Exhibits
     (page 60 hereof) are incorporated herein by reference.
     Other Exhibits filed herewith:
              Amendments to Put-Call Option Agreement, dated October 1998 and                     E-2.10
                  February 9, 1999.
              Agreement, dated December 22, 1997, between Compagnia Finanziamenti                 E-2.11
                  e Rifinanziamenti-Cofiri SpA and Ansaldo Signal, as amended
                  April 23, 1998.
              Lease, dated as of September 14, 1993, by and between Regional                      E-2.12
                  Industrial Development Corporation of Southwestern Pennsylvania
                  and Union Switch and Signal Inc., as amended by Subordination,
                  Attornment and Lease Amendment Agreement, dated as of November 30,
                  1993 and Second Amendment of Lease,  dated as of May 31, 1998.
              Consent of Independent Auditors.                                                    E-2.13
</TABLE>

                                       36
<PAGE>

                                                                  Ansaldo Signal

                                   SIGNATURES

     Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant certifies that it meets all of the requirements for
filing on Form 20-F and has duly caused this annual report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                            Ansaldo Signal N.V.
                            (Registrant)

                            By: /s/ Bruno Tufari
                            Bruno Tufari, Managing Director,
                            Executive Vice President and Chief Financial Officer


                            By:  /s/ James Sanders
                            James N. Sanders, Managing Director,
                            President and Chief Executive Officer


<PAGE>

                                                                  Ansaldo Signal

                        Report of Independent Accountants

     To the Supervisory Board

     and Shareholders of

     Ansaldo Signal N.V.

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income (loss) and comprehensive income
(loss), of cash flows and of changes in shareholders' equity present fairly, in
all material respects, the financial position of Ansaldo Signal N.V. and its
subsidiaries (the Company), a majority-owned subsidiary of Ansaldo Trasporti
S.p.A., at December 31, 1998 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1998, in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

     PricewaterhouseCoopers LLP

     Pittsburgh, Pennsylvania

     March 5, 1999
<PAGE>

                                                                  Ansaldo Signal
                                    1998 Management Board Report to Shareholders

                               ANSALDO SIGNAL N.V.
                           CONSOLIDATED BALANCE SHEETS
                   ($ in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                                                         December 31
                                                                                                -------------------------
                                                                                                      1998          1997
<S>         <C>          <C>
Assets
Current Assets:
     Cash and cash equivalents...............................................................  $    12,913   $     4,530
     Receivables - net of allowance for doubtful accounts of $3,657 and $1,735...............      104,647        95,689
     Receivables from parent and affiliates (Note 10)........................................       10,051        15,761
     Inventory (Note 3)......................................................................       49,305        44,771
     Costs and estimated earnings in excess of billings
         on uncompleted contracts (Note 4)...................................................      182,253       157,008
     Deferred income taxes (Note 9)..........................................................        6,844         8,059
     Prepaid expenses and other current assets ..............................................       13,763        17,587
                                                                                               -----------   -----------
              Total current assets:..........................................................      379,776       343,405
Contract retentions receivable...............................................................       11,275        13,370
Property, plant and equipment - net (Note 5).................................................       33,735        54,302
Intangible assets - net (Note 16)............................................................       33,658        33,118
Deferred income taxes (Note 9)...............................................................        9,320         9,653
Other assets  ...............................................................................        4,828         3,318
                                                                                               -----------   -----------
         Total assets........................................................................  $   472,592   $   457,166
                                                                                               ===========   ===========

Liabilities and Shareholders' Equity
Current liabilities:
     Short term borrowings and current
         obligations under capital leases (Note 6)...........................................  $    75,403   $    55,843
     Accounts payable........................................................................       91,593        97,844
     Accounts payable - parent and affiliates (Note 10)......................................        4,956         4,465
     Accrued liabilities.....................................................................       27,982        24,331
     Accrued reorganization costs (Note 17)..................................................        2,276         4,160
     Billings in excess of costs and estimated earnings
         on uncompleted contracts (Note 4)...................................................       53,137        62,672
     Long-term borrowings due within one year (Note 7).......................................        4,286         4,286
                                                                                               ------------  -----------
              Total current liabilities......................................................      259,633       253,601
Employee benefit obligations (Note 8)........................................................       22,477        21,304
Deferred income taxes (Note 9)...............................................................          647           606
Other liabilities............................................................................       10,844        12,721
Long-term borrowings and obligations under capital leases (Note 7)...........................       40,335        34,003
Long-term borrowings from parent (Note 10)...................................................       26,282        32,379
                                                                                               ------------  -----------
              Total liabilities..............................................................      360,218       354,614
                                                                                               ------------  -----------

Commitments and contingencies (Note 13)......................................................            -             -

Shareholders' equity:
     Priority shares, NLG 0.01 par value, 100 shares authorized,
         no shares issued or outstanding.....................................................            -             -
     Common shares, NLG 0.01 par value, 50,000,000 shares authorized,
         20,448,750 and 20,448,750 issued and outstanding....................................          120           120
     Additional paid-in capital..............................................................      139,999       139,999
     Accumulated other comprehensive loss - foreign currency translation adjustments.........       (7,262)      (10,562)
     Accumulated deficit.....................................................................      (20,483)      (27,005)
                                                                                               ------------  ------------
              Total shareholders' equity.....................................................      112,374       102,552
                                                                                               ------------  -----------
              Total liabilities and shareholders' equity.....................................  $   472,592   $   457,166
                                                                                               ============  ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              39
<PAGE>

                                                                  Ansaldo Signal
                                    1998 Management Board Report to Shareholders

                               ANSALDO SIGNAL N.V.
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)
                         AND COMPREHENSIVE INCOME (LOSS)
                   ($ in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                             Year Ended December 31,
                                                                              ------------------------------------------
                                                                                     1998            1997           1996
<S>                                                                           <C>            <C>            <C>

Revenue ...................................................................   $   354,532    $    318,225   $    353,500
Cost of revenue ...........................................................       277,450         263,274        296,620
                                                                             ------------    ------------   ------------

         Gross profit .....................................................        77,082          54,951         56,880
                                                                             ------------    ------------   ------------

Operating expenses:

     Selling, general and administrative ..................................        47,685          50,107         47,971
     Research and development - net .......................................         7,025           9,953         11,804
     Acquired in process research and development (Note 1) ................             -               -         15,144
     Reorganization costs (Notes 1 and 17) ................................             -          (1,584)        17,288
                                                                             ------------    ------------   ------------

         Operating expenses ...............................................        54,710          58,476         92,207
                                                                             ------------    ------------   ------------

         Operating income (loss) ..........................................        22,372          (3,525)       (35,327)

Interest expense ..........................................................        10,349           8,834          6,101
Other (income) expense ....................................................        (1,868)            348             57
                                                                             ------------    ------------   ------------

         Income (loss) before income taxes and
              minority interest in subsidiaries ...........................        13,891         (12,707)       (41,485)

Provision for (benefit from) income taxes (Note 9) ........................         7,300              77         (2,714)
Minority interest in net (income) loss of subsidiaries ....................           (69)            106           (124)
                                                                             ------------    ------------   ------------

     Net income (loss).....................................................         6,522         (12,678)       (38,895)

Other comprehensive income (loss):
     Foreign currency translation adjustment ..............................         3,300         (10,350)          (362)
                                                                             ------------    ------------   ------------

     Comprehensive income (loss) ..........................................  $      9,822    $    (23,028)  $    (39,257)
                                                                             ============    ============   ============


Earnings Per Share:

     Basic and diluted net income (loss) per common share .................  $       0.32    $      (0.62)  $      (1.90)
                                                                             ============    ============   ============

     Basic and diluted weighted average number of
         common shares outstanding ........................................    20,448,750      20,448,750     20,448,750
                                                                             ============    ============   ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              40
<PAGE>

                                                                  Ansaldo Signal
                                    1998 Management Board Report to Shareholders

                               ANSALDO SIGNAL N.V
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                ($ in thousands)

<TABLE>
<CAPTION>

                                                                                                 Year Ended December 31,
                                                                                 ----------------------------------------
                                                                                        1998          1997          1996
<S>                                                                              <C>           <C>           <C>
Cash Flows From Operating Activities:
     Net income (loss)........................................................   $     6,522   $   (12,678)  $   (38,895)
     Adjustments to reconcile net income (loss) to net cash
         used in operating activities:
     Depreciation and amortization:...........................................         9,967        11,526        11,370
     Deferred income taxes....................................................         3,388         3,878        (2,310)
     Gain on sale of fixed assets.............................................          (980)            -             -
Acquired in process research and development..................................              -            -        15,144
     Changes in:
         Receivables..........................................................         1,411       (12,949)         (234)
         Inventory............................................................        (3,616)        2,943        (1,696)
         Contracts - net (a)..................................................       (29,174)      (21,144)      (13,537)
         Other assets.........................................................         1,231        (5,485)          865
         Accounts payable.....................................................        (8,377)       15,245        (8,336)
         Accrued liabilities..................................................           727         4,259           228
         Accrued reorganization costs.........................................        (1,884)      (12,440)       16,600
                                                                                 ------------  ------------  -----------

              Net cash used in operating activities...........................       (20,785)      (26,845)      (20,801)
                                                                                 ------------  ------------  ------------

Cash Flows From Investing Activities:
     Proceeds from sale of fixed assets.......................................        12,200             -             -
     Proceeds from sale of investments in affiliates..........................           506             -             -
     Capital expenditures ....................................................        (3,152)       (7,138)       (5,218)
     Acquisition of CSEE - Transport S.A. (c).................................             -             -         2,581
     Purchase of intangibles and other noncurrent assets......................        (3,501)         (344)         (578)
                                                                                 ------------  ------------  ------------

              Net cash provided by (used in) investing activities.............         6,053        (7,482)       (3,215)
                                                                                 ------------  ------------  ------------

Cash Flows From Financing Activities:
     Net proceeds from short term borrowings..................................        18,475        15,108        16,366
     Financing by parent company..............................................        17,893        19,475        26,175
     Proceeds from long term borrowings.......................................        16,117             -        12,000
     Payments on long term borrowings.........................................       (28,799)       (5,316)      (22,137)
     Payments on capital leases...............................................          (295)         (468)         (476)
                                                                                 ------------  ------------  ------------

              Net cash provided by financing activities.......................        23,391        28,799        31,928
                                                                                 ------------  ------------  -----------

Effects of exchange rate changes on cash......................................          (276)       (1,039)          (74)
                                                                                 ------------  ------------  -----------

Net increase (decrease) in cash and cash equivalents..........................         8,383        (6,567)        7,838
Cash and cash equivalents at beginning of period..............................         4,530        11,097         3,259
                                                                                 ------------  ------------  -----------

     Cash and cash equivalents at end of period...............................   $    12,913        $4,530      $ 11,097
                                                                                 ============  ============  ===========


Interest paid during period...................................................   $     9,580        $8,586      $ 4,487
                                                                                 ============  ============  ===========

Income taxes paid (refunded) during period (b)................................   $     2,831        $1,562      $(1,107)
                                                                                 ============  ============  ==========
</TABLE>

(a), (b), (c) See notes on continuation page following.

                                                                              41
<PAGE>

                                                                  Ansaldo Signal
                                    1998 Management Board Report to Shareholders

                               ANSALDO SIGNAL N.V.
                CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
                                ($ in thousands)

(a)  Includes costs and estimated earnings in excess of billings on uncompleted
     contracts, contract retentions receivable, billings in excess of costs and
     estimated earnings on uncompleted contracts and contract retentions
     payable.

(b)  The line item "Income taxes paid (refunded)" for 1996 includes an estimate
     of taxes that have been paid by the ATR signaling business unit; these
     payments were allocated to ASF as if it were a separate taxpayer. (See
     Notes 9 and 10).

(c) Supplemental cash flow information regarding acquisition of CSEE-Transport
S.A.

              Fair value of net assets acquired..................  $    77,644
              Fair value of stock issued.........................      (18,912)
              Reduction in parent receivables....................      (58,732)
                                                                   ------------

              Cash paid..........................................  $         -
                                                                   ===========

              Cash acquired......................................  $     2,581
                                                                   ===========



The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              42
<PAGE>

                                                                  Ansaldo Signal
                                    1998 Management Board Report to Shareholders

                               ANSALDO SIGNAL N.V.
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                ($ in thousands)

<TABLE>
<CAPTION>

                                                                          Accumulated
                                                       Additional                other                        Total
                                           Share          paid-in        comprehensive       Retained      shareholders
                                         Capital          capital        income/(loss)       earnings            equity
                                         -------          -------        -------------       --------            ------

<S>                                 <C>                <C>               <C>               <C>              <C>
Balance, January 1, 1996............$        108         $ 126,589       $        150      $  24,658        $  151,505
Net loss............................           -                 -                  -        (38,895)          (38,895)
CSEE acquisition....................          12            18,900                  -              -            18,912
Other (1)...........................           -            (5,490)                 -              -            (5,490)
Foreign currency translation........           -                 -               (362)             -              (362)
                                    ------------         ---------       ------------      ---------        ----------

Balance, December 31, 1996..........         120           139,999               (212)       (14,237)          125,670

Net loss............................           -                 -                  -        (12,678)          (12,678)
Foreign currency translation........           -                 -            (10,350)           (90)          (10,440)
                                    ------------         ---------       ------------      ---------        ----------

Balance, December 31, 1997..........         120           139,999            (10,562)       (27,005)          102,552

Net income..........................           -                 -                  -          6,522             6,522
Foreign currency translation........           -                 -              3,300              -             3,300
                                    ------------         ---------       ------------      ---------        ----------

Balance, December 31, 1998..........$        120         $ 139,999       $     (7,262)     $ (20,483)       $  112,374
                                    ============         =========       ============      =========        ==========
</TABLE>


(1)  Relates to the contribution of the Signaling Business Unit of Ansaldo
     Trasporti S.p.A (SBU) discussed at Note 1. The adjustment represents net
     assets at September 30, 1996 that were not ceded to SBU by ATR on October
     1, 1996.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              43
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

1.   Description of the Business and Capitalization

     Ansaldo Signal N.V. ("the Company," "the Company," or "Ansaldo Signal") was
incorporated on November 13, 1996, in Amsterdam, The Netherlands and is a
majority-owned subsidiary of Ansaldo Trasporti S.p.A. ("ATR"). ATR is a member
of a group of companies controlled by Finmeccanica S.p.A., which is in turn
controlled by the Italian state holding company, Istituto per la Ricostruzione
Industriale-IRI S.p.A.

     The Company was formed upon the merger of Union Switch & Signal Inc.
("US&S") (at the time, a majority owned subsidiary of ATR) with a direct
wholly-owned subsidiary of the Company. As a result of the merger, US&S ceased
to exist as a separate publicly traded entity and each outstanding share of US&S
common stock (9,737,500 shares) was exchanged on a one-for-one basis for common
shares of the Company. Immediately after the merger described above, ATR
contributed the outstanding capital stock of its other railway signaling and
automation businesses to the Company in exchange for 10,711,250 common shares of
the Company.

     The transactions noted above have been treated as a reorganization of
companies under common control and, accordingly, have been reflected within the
consolidated financial statements as a pooling of interests. As required under
the pooling of interests method of accounting, the Company's historical results
reflect the historical results of the companies merged with and contributed to
the Company. The Company's results of operations for the first six-months of
1996 reflect the combined operating results of: (i) 100% of US&S; (ii) 100% of
Ansaldo Segnalamento Ferroviario S.p.A. ("ASF") - an Italian corporation; (iii)
49% of CSEE - Transport S.A. ("CSEE") - a French corporation; (iv) 75% of AT
Signal Systems AB ("ATSS") - a Swedish corporation and (v) 100% of Ansaldo
Trasporti Signaling (Ireland) Ltd. ("ATI") - an Irish limited liability company.
Results of operations for the remaining six months of 1996 and for the years
ended December 31, 1997 and December 31, 1998 reflect 100% of CSEE, as the
remaining 51% was acquired by the Company on June 28, 1996.

     The Company markets its products and services to customers in the
international rail transportation and mass transit industry. The Company is
primarily engaged in the design, engineering, production, distribution and
after-sale service of integrated railway signaling, automation and control
systems and related component products. The Company's headquarters are in
Schiphol, The Netherlands.

     Signaling Business Unit Contribution

     On October 1, 1996, ATR contributed all of its wholly owned signaling
business unit ("SBU") to ASF with the exception of certain contracts and
liabilities, thus consolidating all of ATR's railway signaling business and
assets in Italy. Under the terms of the contribution, ASF received substantially
all of the assets and liabilities under the supervision of SBU at the date of
the contribution.

     The consolidated statements of income (loss) and comprehensive income
(loss) for 1996 include all revenues and costs directly attributed to SBU
including costs for facilities, functions and services used by the business at
shared sites and costs for certain functions and services performed by ATR that
were directly charged to SBU based upon usage.

     Acquisition of CSEE - Transport S.A.

     Prior to June 28, 1996, ATR owned 49% of CSEE and accounted for its
investment under the equity method. On June 28, 1996, pursuant to an agreement
between ATR and Compagnie des Signaux S.A. ("CS"), CSEE repurchased 604,340
shares of its outstanding shares from CS for $58.7 million As a result of this
transaction, ATR increased its interest in CSEE to approximately 80% and,
contemporaneously with this transaction, CS placed in escrow its remaining
shares (201,460 shares) in anticipation of exchanging such shares for a certain
number of shares in the Company. These shares were exchanged for 2,000,000 the
Company common shares in December 1996. The CSEE shares which were held in
escrow were considered to be under the control of ATR. The June 28 transactions
were accounted for as a purchase. Accordingly, 100% of the results of operations
of CSEE have been included in the combined results of the Company since June 28,
1996.

                                                                              44
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

     The total cost of the transaction to acquire the remaining 51% interest in
CSEE was valued at approximately $77.6 million. The net tangible assets acquired
from CSEE had a fair value at the time of acquisition of $28.8 million, as well
as goodwill and identified intangibles of $48.8 million, of which $15.1 million
represents acquired in process research and development. Immediately following
the acquisition, the Company wrote-off the acquired in process research and
development. The residual goodwill and intangibles are being amortized over 20
years.

2.   Summary of Significant Accounting Policies

     Basis of Accounting

     The consolidated financial statements are expressed in US dollars and have
been prepared in accordance with United States Generally Accepted Accounting
Principles (US GAAP).

     Consolidation

     The Company's majority-owned subsidiaries are consolidated. All significant
intercompany transactions and balances have been eliminated in the consolidated
financial statements. Investments representing a 20% to 50% interest in the
voting shares of affiliated companies in which the Company exercises significant
influence over operating and financial policies are accounted for using the
equity method.

     Foreign Currencies

     Transactions in foreign currencies are translated into each entity's
functional currency at the exchange rate in effect on the transaction dates.
Exchange differences arising from translating foreign currency receivables or
payables at year-end exchange rates are charged or credited to current period
net income.

     The Company's results of operations and financial position are reported in
US dollars. When translating local currency financial statements to US dollars,
assets and liabilities are translated at the year-end rate, while income and
expenses are translated using the average rate for the year. Translation
differences are included as a component of shareholders' equity.

     Use of Estimates

     The preparation of consolidated financial statements in conformity with US
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingencies at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates. The use of estimates is an integral part of applying
percentage-of-completion accounting for long-term contracts.

     Revenue Recognition - Contracts

     Revenue and costs of revenue on long-term contracts are recognized using
the percentage-of-completion method of accounting. Under this method, income is
recognized as work progresses on the contracts based on the relationship between
total contract revenues and total estimated contract costs. The percentage of
work completed is determined principally by comparing the accumulated costs
incurred to date with management's current estimate of total costs to be
incurred at contract completion. Revenue is recognized on the basis of actual
costs incurred plus the portion of income earned.

     Contract costs include all direct material, subcontractor costs, and labor
costs and those indirect costs related to contract performance. Revisions in
profit estimates during the period of a contract are reflected in the accounting
period in which the revised estimates are made on the basis of the stage of
completion at that time. If estimated total costs on a contract indicate a loss,
the entire amount of the estimated loss is provided for currently.

                                                                              45
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

     Revenue related to unsigned change orders is recognized when it is
determined that collection under the change order is probable. Revenue related
to claims is recognized only to the extent of costs incurred when recovery under
the claims is considered probable.

     Contracts are considered complete upon completion of all essential contract
work, including support to integrated testing and customer acceptance.

     Costs and estimated earnings in excess of billings on uncompleted contracts
represent revenue recognized in excess of amounts billed to customers. These
amounts are not yet billable under the terms of the contracts and are
recoverable from customers upon various measures of performance.

     Billings in excess of costs and estimated earnings on uncompleted contracts
represents billings to customers in excess of earned revenue and advances on
contracts.

     Revenue Recognition - Components

     Sales of component parts, which are not part of a long-term contract, are
recognized upon shipment of products.

     Inventory

     Inventory is stated at the lower of cost or market, with cost being
determined using standard costs, which approximate weighted average actual
costs.

     Property, Plant and Equipment

     Property, plant and equipment are recorded at cost. Depreciation is
provided based on estimated useful asset lives and is computed on a
straight-line method for financial reporting purposes. Maintenance and repairs
are charged to expense as incurred. At the time property, plant and equipment is
retired or otherwise disposed of, the cost and related accumulated depreciation
are adjusted and any profit or loss on dispositions is included in the
consolidated statement of income (loss).

     Intangible Assets

     Intangible assets represent goodwill, purchased research and development
and proprietary technology, which comprises patents, drawings and other
proprietary information. Intangible assets other than goodwill are being
amortized over the economic lives of the assets, generally 8 to 20 years.
Goodwill, which represents the excess of purchase price over the fair value of
the net identifiable tangible and intangible assets purchased, is being
amortized over 10 to 20 years.

     Earnings Per Share

     Earnings per share is calculated in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 128 - "Earnings per
Share". Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Diluted
earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding during the year plus common equivalent
shares outstanding if the common equivalent shares are dilutive. Common
equivalent shares include dilutive stock options as if the options were
exercised and the proceeds used by the Company to acquire common stock (i.e.,
the treasury stock method).

     Basic and diluted earnings per share for the years ended December 31, 1998
and December 31, 1997 are based upon 20,448,750 common shares outstanding. Basic
and diluted earnings per share for the year ended December 31, 1996, are based
upon 20,448,750 common shares outstanding which reflects the one-for-one
exchange of 9,737,500 shares with US&S shareholders and the issuance of
10,711,250 additional shares, in exchange for 100% of ASF, CSEE, ATI and 75% of
ATSS.

                                                                              46
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

     Cash and Cash Equivalents

     Cash and cash equivalents represent funds held in interest-bearing money
market accounts with original maturities of 3 months or less.

     Credit Risks

     Financial instruments that potentially subject the Company to
concentrations of credit risks consist primarily of billed and unbilled
receivables. Concentrations of credit risk with respect to billed and unbilled
accounts receivable are limited due to the Company's credit evaluation process
and obtaining letters of credit to ensure payment from international customers.
Historically, the Company has not incurred any significant credit-related
losses.

     Financial Instruments

     In managing interest rate exposure, the Company at times enters into
interest rate swap agreements. Net receipts or payments under the agreements are
recognized as an adjustment to interest expense. In order to hedge exposures
from firm commitments in foreign currencies, the Company at times enters into
forward foreign exchange contracts primarily related to long-term contracts
which are settled in currencies other than the currency in which the costs are
incurred. Gains and losses resulting from these instruments are recognized in
the same period as the underlying hedged transaction. The fair values of the
Company's financial instruments are estimated based on quoted market prices for
the same or similar issues.

     Research and Development

     Research and development expense is presented net of government grant
reimbursements. Research and development efforts that are performed in
accordance with contract requirements are included in cost of revenue. Certain
government research grants which are repayable in the event that the related
research project proves to be successful are recognized in the income statement
when the research project has been determined to be unsuccessful and all other
conditions for non-repayment of the grants have been met.

     Income Taxes

     The Company accounts for certain income and expense items differently for
financial reporting and income tax purposes. In accordance with SFAS No. 109,
"Accounting for Income Taxes," deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax
return bases of assets and liabilities applying enacted statutory tax rates in
effect for the year in which the differences are expected to reverse.

     Reclassifications

     Certain amounts from prior periods have been reclassified for comparative
purposes.

                                                                              47
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

3.   Inventory
<TABLE>
<CAPTION>

                                                                                                        December 31,
                                                                                         ---------------------------
                                                                                             1998               1997

<S>                                                                                       <C>                <C>
     Raw materials................................................................        $27,435            $25,005
     Work-in-process..............................................................         13,893             14,028
     Finished components..........................................................          7,977              5,738
                                                                                          -------            -------
                                                                                          $49,305            $44,771
                                                                                          =======            =======
<CAPTION>

4.   Long-term Contract Balances

                                                                                                        December 31,
                                                                                       -----------------------------
                                                                                             1998               1997

<S>                                                                                    <C>                <C>
     Costs incurred on uncompleted contracts......................................    $ 1,382,798         $1,206,219
     Estimated earnings...........................................................        239,552            190,081
                                                                                      ------------       -----------
                                                                                        1,622,350          1,396,300
     Less billings-to-date and advances on contracts..............................     (1,493,234)        (1,301,964)
                                                                                      -----------         ----------
                                                                                      $   129,116         $   94,336
                                                                                      ===========         ==========
<CAPTION>

     The net amount in the preceding table is included in the consolidated
balance sheet under the following captions:

                                                                                                        December 31,
                                                                                      ------------------------------
                                                                                             1998               1997
<S>                                                                                      <C>                <C>
     Costs and estimated earnings in excess of billings
         on uncompleted contracts.................................................       $182,253          $157,008
     Billings in excess of costs and estimated earnings
         on uncompleted contracts.................................................        (53,137)          (62,672)
                                                                                         --------          --------
                                                                                         $129,116          $ 94,336
                                                                                         ========          =========
</TABLE>


     At December 31, 1998, there were $2,800 of claims and unsigned change
orders that are included in costs and estimated earnings in excess of billings
on uncompleted contracts. At December 31, 1997, there were $15,554 of claims and
unsigned change orders that are included in costs and estimated earnings in
excess of billings on uncompleted contracts.

     All amounts included in unbilled costs and estimated earnings on
uncompleted contracts at December 31, 1998, are expected to be collected within
one year.

     Contract retentions receivable and payable arise from the performance of
long-term contracts. Approximately $6,476 of retentions receivable and $1,173 of
retentions payable are estimated to be collected or paid, respectively, in 1999.

5.   Property, Plant and Equipment

                                                                  December 31,
                                                     -------------------------
                                                           1998           1997

              Land.................................   $   2,467      $   3,350
              Buildings............................      24,276         44,829
              Machinery and equipment..............      81,014         64,628
              Construction-in-progress.............       3,331         11,495
                                                      ---------      ---------
                                                       $111,088      $ 124,302
              Less accumulated depreciation........     (77,353)       (70,000)
                                                      ---------      ---------
                                                      $  33,735      $  54,302
                                                      =========      =========

                                                                              48
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

     Depreciation expense for the years ended December 31, 1998, 1997, and 1996,
was $6,641, $8,446, and $6,819, respectively. Depreciable lives average 39 years
for building, and range between3 and 7 years for machinery and equipment.

     In June 1998 the Company renegotiated the Pittsburgh Engineering and
Technology Facility lease. The conversion from a capital lease to an operating
lease generated a nonrecurring gain of $980. Land and buildings having a net
book value of approximately $18,090 were removed from the balance sheet. Net
cash proceeds received at the time of closing were $12,200.

6.   Short-term Borrowings and Capital Lease Obligations

<TABLE>
<CAPTION>

                                                                                 Currency                 December 31,
                                                                                 Payable in         1998               1997
<S>                                                                              <C>               <C>               <C>

     Borrowings (unsecured but with letters of comfort from ATR and
     Finmeccanica), by Ansaldo Signal from Cofiri S.p.A., a related party (see
     Note 10). The interest rate in effect on December 31, 1998 was
     6.63% (1997: 7.00%).                                                           USD            $50,000           $13,000

     Borrowings (unsecured) under various lines of credit expiring within one
     year with interest payable at least quarterly. The interest rate in effect
     on December 31, 1997 was between 7.88% and 8.375%                              USD                  -            21,987

     Borrowings (unsecured), in Italy by ASF under various agreements with
     several banks, expiring within one year. The interest rate in effect at
     December 31,1998 was between 6.88% and 7.88% (1997: 8.01%).                    Lira            14,713             8,945

     Borrowings (unsecured) under various lines of credit expiring within one
     year with interest payable at least quarterly. The interest rate in effect
     on December 31, 1998 was between 3.56% and 5.30% (1997: between 3.88% and
     5.91%).                                                                       Various          10,534            11,433

     Current portion of obligations under capital leases                                               156               478
                                                                                                  --------         ---------

     Total short-term borrowings and current
     portion of obligations under capital leases                                                   $75,403           $55,843
                                                                                                   =======           =======
</TABLE>

     The Company had committed and uncommitted lines of credit available at
December 31, 1998, of $127.7 million with various banks. The unused portion of
the committed and uncommitted lines of credit available at

                                                                              49
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

December 31, 1998, totaled $52.3 million. US&S also has a $2,917 letter of
credit line available and fully utilized from a bank at December 31, 1998.

Certain of these lines are guaranteed by ATR.

7.   Long Term Borrowings and Capital Leases

     The carrying value of the Company's long-term debt approximates fair value
based on the borrowing rates currently available to the Company for loans with
similar terms and maturities.

<TABLE>
<CAPTION>

                                                                                                        December 31,
                                                                                          --------------------------
                                                                                             1998               1997

<S>                                                                                     <C>                <C>
     Ansaldo Segnalamento Ferroviario S.p.A.
         Notes (unsecured) due 2002 with a
         fixed interest rate of 4.10%.............................................      $   16,949         $       -
     Union Switch & Signal
         Senior Notes (unsecured) due 2004, with a
         fixed interest rate of 8.00%.............................................          25,715            30,000
         Long term obligations under capital leases...............................           1,957             8,289
                                                                                        ----------         ---------
              Subtotal ...........................................................          44,621            38,289
         Less current portion of senior notes.....................................           4,286             4,286
                                                                                        ----------         ---------
              Total long term borrowings and obligations
              under capital leases................................................      $   40,335         $  34,003
                                                                                        ==========         =========
</TABLE>

     The aggregate principal maturities of debt under the present credit
arrangements for the periods subsequent to December 31, 1998:

     1999     .......................................................$  4,286
     2000     ........................................................  6,102
     2001     ........................................................ 11,550
     2002     ........................................................ 12,155
     2003     ........................................................  4,286
     Thereafter.......................................................  4,285
                                                                        -----
                                                                     $ 42,664

     Future minimum lease payments under, non-cancelable operating leases and
capital leases, as of December 31, 1998, are primarily for buildings machinery
and equipment as follows:

<TABLE>
<CAPTION>

                                                                                     OPERATING    CAPITAL

<S>                                                                                 <C>         <C>
     1999.........................................................................  $    4,623  $     391
     2000.........................................................................       3,533        392
     2001.........................................................................       3,200        391
     2002.........................................................................       3,055        392
     2003.........................................................................       2,787        393
     Thereafter...................................................................      34,759      1,099
                                                                                    ----------  ---------
     Total minimum lease payments.................................................  $   51,957      3,058
                                                                                    ==========
     Amount representing imputed interest.........................................                   (945)
                                                                                                ---------
     Present value of future minimum lease payments...............................                  2,113
     Less current portion.........................................................                   (156)
                                                                                                ---------
                                                                                                $   1,957
                                                                                                =========
</TABLE>

                                                                              50
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

     In 1994, US&S issued senior, unsecured promissory notes to various lenders
in the total amount of $30,000 at a fixed rate of 8 percent. The private
placement notes have a ten-year term; principal repayments began in 1998. Under
this agreement, the Company is subject to certain financial covenants. US&S is
in compliance with the financial covenants included in the note agreement as of
December 31, 1998.

     ATR and Finmeccanica have agreed to continue to provide sufficient
guarantees and/or financing support for the operations of Ansaldo Signal NV and
its subsidiaries until March 2000. The repayment of any present or future
indebtedness to ATR and/or Finmeccanica will not be required if the Company
requests deferral of repayment. Management intends to request deferral of
repayment if such repayment would result in the Company violating any of its
current debt covenants.

     US&S maintains a $100 million surety bonding facility ($30.0 million
outstanding at December 31, 1998) in addition to a $300 million surety bonding
facility provided by Finmeccanica (see Note 10).

8.   Employee Benefit Obligations

     Retirement benefits

     Substantially all employees are covered by Government sponsored retirement
plans or Company sponsored defined contribution retirement plans which are
provided for through charges to income by the Company during the employees'
working careers. In some cases, employees may also contribute to the cost of the
plan. The Company has no significant obligations for pension or similar
postretirement income benefits.

     Other postemployment benefits

     The following other postemployment and postretirement benefits other than
pension are included in the consolidated financial statements:

<TABLE>
<CAPTION>

                                                                                                         DECEMBER 31,
                                                                                        -----------------------------
                                                                                              1998               1997

<S>                                                                                     <C>                <C>
     Severance....................................................................      $   16,644         $   15,299
     Profit Sharing...............................................................           3,074              3,366
     Other........................................................................           2,759              2,639
                                                                                        ----------         ----------
                                                                                        $   22,477         $   21,304
                                                                                        ==========         ==========
</TABLE>

     The following is a description of the more significant post-employment
benefit plans:

     Severance

     ASF has an unfunded severance plan in accordance with Italian government
regulations. The Italian government requires the employer to provide severance
pay (Trattamento di fine rapporto - TFR) in amounts equal to annual
contributions of 7-8% of a worker's annual salary. The amounts accrued become
payable upon termination of the individual employee, for any reason, e.g.,
retirement, dismissal or reduction in work force. Employees are fully vested in
TFR benefits after their first year of service.

                                                                              51
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

     Profit Sharing

     CSEE operates a two-tier employee profit sharing plan. The first tier of
the plan is mandatory under French law and CSEE is required to make an annual
provision of a certain amount of profit after tax based upon a formula. A
discretionary second tier to the profit-sharing plan is negotiated under a
collective bargaining arrangement.

     Other

     The Company's other unfunded plans, include CSEE's pension plan and the
US&S postretirement benefit plan which pays a fixed amount toward the cost of
medical insurance and provides life insurance benefits. The liabilities and
costs related to these plans are determined on an actuarial basis appropriate to
the circumstances.

     The approximate cost of providing all of the above benefits for the years
ended December 31, 1998, 1997 and 1996 was $2,515, $4,000 and $4,079,
respectively.

9.   Provision for Income Taxes

     Generally, each subsidiary of the Company is a tax paying entity within its
own country. The tax returns of ASF, pre-contribution of SBU to ASF on October
1, 1996, were filed on a separate basis with the government of Italy; however,
SBU as a unit of ATR did not have separate income tax returns filed on its
behalf, and an estimated provision was calculated based upon the operating
results of SBU.

     For the nine-month period ended September 30, 1996, tax expense has been
allocated to SBU by applying the liability approach set forth in SFAS No. 109 as
if it were a separate taxpayer. Under this approach, a tax benefit for income
taxes currently refundable is recognized only if a refund could have been
realized by SBU had SBU been a separate taxpayer. A tax benefit for future
deductible amounts and carry forwards is recognized when it is more likely than
not that such future tax benefit would be realized if SBU were a separate
taxpayer.

     The components of the provision for (benefit from) income taxes were as
follows:

<TABLE>
<CAPTION>

                                                                               Year Ended December 31,
                                                                      --------------------------------
                                                                         1998         1997       1996
<S>                                                                  <C>        <C>          <C>
     Current:
     Netherlands................................................     $     -    $       -    $      -
     Other......................................................       3,912       (3,801)       (404)
                                                                     -------    ----------   ---------
         Total current provision (benefit)......................       3,912       (3,801)       (404)
                                                                     -------    ----------   ---------

     Deferred:

         Netherlands............................................           -            -           -
         Other..................................................       3,388        3,878      (2,310)
                                                                     -------    ---------    ---------
              Total deferred provision (benefit)................       3,388        3,878      (2,310)
                                                                     -------    ---------    ---------
              Total provision (benefit).........................     $ 7,300    $      77    $ (2,714)
                                                                     =======    =========    =========
</TABLE>

                                                                              52
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements


     The provision for (benefit from) income taxes differs from the amount of
income tax determined by applying the applicable Netherlands statutory rate to
pretax income as a result of the following differences:

<TABLE>
<CAPTION>

                                                                                              Year Ended December 31,
                                                                      -----------------------------------------------
                                                                              1998            1997               1996
<S>                  <C>      <C>     <C>
     Expected tax at the statutory rate of 35%...................    $      4,860    $     (4,448)   $       (14,346)
     Earnings of subsidiaries at rates over 35%..................             367             121                191
     Other foreign taxes.........................................           1,605               -                  -
     In process research and development.........................               -               -              5,178
     Loss carryover with no tax benefit..........................              21             206              3,834
     Non-deductible goodwill.....................................             730           1,614              1,301
     Non-deductible reorganization costs.........................             588             431              2,520
     Change in tax rates.........................................               -           2,632                  -
     Change in valuation reserve.................................          (2,040)          3,742                  -
     Other.......................................................           1,169          (4,221)            (1,392)
                                                                     -------------   -------------   ----------------
         Total income tax........................................    $      7,300    $         77    $        (2,714)
                                                                     =============   =============   ================

<CAPTION>

     Deferred taxes were comprised of the following:

                                                                                                  December 31,
                                                                                    --------------------------
                                                                                              1998        1997
<S>                                                                                       <C>        <C>
     Deferred tax assets:
     Reserves for contract losses.................................................        $  1,019   $   1,797
     Employee benefit obligations.................................................           2,030       2,335
     Accrued expenses and reserves................................................           4,265       3,867
     Goodwill.....................................................................           4,087       4,647
     Research and development.....................................................           1,663       2,936
     Revaluation of assets........................................................           2,237       2,206
     Net operating loss carryforwards.............................................           3,340       6,639
     Tax credit carryforwards.....................................................           1,063         780
     Other........................................................................             646         419
                                                                                            ------      ------
         Deferred tax assets......................................................          20,350      25,626
     Valuation allowance..........................................................          (1,707)     (3,625)
                                                                                            -------     -------
                                                                                            18,643      22,001
                                                                                            ------      ------

     Deferred tax liabilities:

     Property, plant and equipment................................................            (990)     (2,924)
     Leveraged lease..............................................................            (903)       (714)
     Intangibles  ................................................................            (235)       (295)
     Other........................................................................            (998)       (962)
                                                                                            -------       -----
         Total deferred tax liabilities...........................................          (3,126)     (4,895)
                                                                                            -------     -------
         Net deferred tax asset...................................................        $ 15,517    $ 17,106
                                                                                            =======     ======
</TABLE>

     During 1998, the Company released into taxable income certain government
grants whose recognition had been previously deferred. The recognition of income
had the effect of reducing the NOL carryforward by $732. For income tax
reporting purposes, the Company has net operating loss carryforwards that
aggregate $9,800 at

                                                                              53
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

December 31, 1998. NOL carryforward periods vary from five years to indefinite,
and the first NOL carryforwards begin to expire in 2002.

     Also during 1998 the Company recorded a net decrease in the valuation
allowance of $2,040, which has reduced the 1998 tax provision. The decrease
reflects utilization of a portion of NOL carryforwards in 1998 for which a
valuation allowance had previously been established and the Company's improved
expectations about the future realizability of certain of the remaining NOL
carryforwards before their expiration. Management believes that it will have
sufficient taxable income in the future to make it more likely than not that the
deferred assets net of the valuation allowance at December 31, 1998 will be
realized.

     During 1997, the Company recorded an adjustment to reduce the net deferred
tax balance at December 31, 1997 by $2,632 based principally on changes in the
tax laws of Italy. These changes reduced the expected tax benefit to be received
in the future relating to net deductions already reported for financial
statement purposes but not yet taken for tax purposes.

     Also during 1997 the Company recorded a net increase in the valuation
allowance of $3,742, which was charged to the 1997 tax provision which reflected
the Company's expectations about the utilization of certain of its NOL
carryforwards before their expiration.

10.  RELATED-PARTY TRANSACTIONS

     The Company's borrowings from its controlling shareholder (ATR) are as
follows:

<TABLE>
<CAPTION>

                                                                                          December 31,
                                                                                     -----------------
                                                                                       1998       1997

<S>                                                                                 <C>       <C>
     Borrowings by the Company (unsecured); interest rate in
         effect at December 31, 1998 was 7.00%....................................  $ 17,893  $      -
     Borrowings by ASF (unsecured); interest rate in
         effect at December 31, 1998 was 6.375% (1997:  12%)......................     5,245    29,154
     Borrowings by ATSS (subordinated); non-interest bearing......................     1,911     1,960
     Borrowings by ATSS; floating interest rate tied to
         official discount rate in Sweden.........................................     1,233     1,265
                                                                                    --------  --------
     Total borrowings from parent Company.........................................  $ 26,282  $ 32,379
                                                                                    ========  ========
</TABLE>


     The Company's borrowings from Cofiri, a related financial institution
majority-owned by IRI, were $50 million at December 31, 1998 (interest at 6.63%)
and $13 million at December 31, 1997 (interest at 7.00%). See Note 6.

     Borrowings by ASF and by the Company from ATR are for an indefinite period
of time.

     The subordinated ATSS loan from the parent company is interest free and is
classified in the Swedish statutory financial statements as a conditional
Shareholders Contribution to be repaid upon demand from future available
earnings. According to statutory legislation, this loan can be repaid to the
parent company under certain conditions after a decision at the Annual General
Meeting of Shareholders. For US GAAP purposes, this amount is considered
subordinated debt.

     US&S, as well as the other subsidiaries of the Company, relies on ATR /
Finmeccanica for certain financial and management services. Such services for
US&S include guaranteeing a $300,000 performance bonding facility (of which
$107,993 was utilized at December 31, 1998). US&S pays fees to ATR /
Finmeccanica for these services. The fees paid are calculated on the basis of
the value of credit enhancement. The fee equals 1.0

                                                                              54
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

percent per annum of the aggregate principal amount of credit enhanced by
Finmeccanica and 0.50 percent per annum of any bond or letter of credit for
which Finmeccanica provides an indemnity. For the years ended December 31, 1998,
1997 and 1996, fees were $593, $204 and $271, respectively.

     ATR / Finmeccanica has provided bid, advance payment, performance and
retentions bonding of $179,632 for all subsidiaries of the Company.

     Management expects ATR / Finmeccanica to continue to provide these
services, to the extent required, at least through March 2000.

     SBU, as a division of ATR, obtained virtually all of its head office
services, including centralized administrative staff functions, human relations,
legal, planning, accounting and central purchasing, from ATR through September
30, 1996. Effective October 1, 1996, ASF entered into agreements with ATR to
continue to provide these services as well as to lease space at ATR's facilities
through 1998, which term is extended on an annual basis unless terminated by
either party. The cost of these services during the three month period ended
December 31, 1996, and the years ended December 31, 1997 and 1998, was $3,200,
$9,989 and $8,463, respectively.

     All of the allocations and estimates in the consolidated statement of
operations are based on assumptions that management believes are reasonable
under the circumstances. These allocations and estimates are not necessarily
indicative of the costs and expenses that would have resulted if ASF had been
operated as a separate entity; however, management believes the differences, if
any, would not be material.

     ASF has been involved in a number of large turnkey projects with ATR. ATR
acted as a prime contractor on such projects. The contracts require ATR to
provide varied rail products and services, including signaling and automation of
the signaling systems. In connection with the SBU contribution, ATR entered into
formal subcontract agreements with ASF to continue providing these services on
the incomplete contracts. For the years ended December 31, 1998 and 1997, ASF
received revenues on these contracts of some $17,047 and $17,125, respectively.

     US&S has been a subcontractor to ATR. ATR is the prime contractor on such
projects and has agreements with US&S for US&S to provide goods and services on
these contracts. For the years ended December 31, 1998, 1997 and 1996 US&S's
revenue included $10,492, $3,425 and $1,556, respectively, on these contracts.

     In addition, pursuant to an agreement effective as of November 1, 1995
through December 10, 1997, US&S provided management consulting services to ATR.
For said services, US&S received a fee of $643 plus reimbursement of expenses.

11.  Financial Instruments and Risk Management

     The Company has entered into foreign currency exchange contracts to reduce
its foreign currency exchange risk. Because these contracts are intended as, and
effective as, hedges of the underlying assets, liabilities or commitments, any
exchange gains or losses are deferred. The net unrealized gain on open contracts
at December 31, 1998, not recognized in the income statement, amounts to $118.
The fair value of these contracts approximates the contract value because they
are short-term in nature. The Company's theoretical risk in these transactions
is the cost of replacing, at current market rates, these foreign currency
exchange contracts in the event of a default by the counterparty. Management
believes the risk of such losses is remote and that such losses would not be
material.

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
standard requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge which permits, in some cases, deferral of the effects of gains and losses
on current net income. If the conditions for hedging are not met, changes in
value will be recognized in current net income. Regardless of whether the
derivative qualifies as a hedge, all changes in value will be recognized in
comprehensive income. The Company is required to adopt

                                                                              55
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

this standard in 2000. Management does not expect the adoption of this standard
to have a material impact on the Company's results of operations or financial
position.

12.  Segment Information

     The Company operates principally in one industry: the design, engineering,
production, distribution and after-sale service of integrated railway signaling,
automation and control systems and related component products.

     The Company's operating segments are managed along geographic divisions
which correspond to the locations of its subsidiaries. ASF is in Italy. CSEE is
in France. US&S is in the United States. Other subsidiaries are located in
Sweden, Australia, Ireland and India.

     Disclosures of operating segment information as of December 31, 1998 and
1997 and for each of the three years in the period ended December 31, 1998 is
provided in the following table.

<TABLE>
<CAPTION>

                                                                          As of and for the year ended December 31, 1998
                                                           ASF          CSEE            US&S          Other        Total
<S>                                                   <C>            <C>            <C>             <C>         <C>
Income Statement Data:
     Revenues......................................   $113,314       $79,354        $150,834        $11,030     $354,532
     Gross profit..................................     23,992        16,440          30,786          5,864       77,082
     Depreciation .................................      1,409         1,794           3,376             62        6,641
     Amortization..................................        268         1,941             218            899        3,326
     Operating expenses............................     14,941        14,606          20,638          4,525       54,710
     Operating income..............................      9,051         1,834          10,148          1,339       22,372

Balance Sheet Data:
     Total current assets..........................   $162,975       $64,930        $135,621        $16,250     $379,776
     Property, plant and equipment - net...........     11,994         5,252          15,632            857       33,735
     Intangible assets - net.......................        299        30,794             351          2,214       33,658
     Total assets..................................    192,657       102,923         161,164         15,848      472,592

Other Data:
     Capital expenditures..........................       $535          $590          $1,844           $183       $3,152

<CAPTION>

                                                                          As of and for the year ended December 31, 1997
                                                           ASF          CSEE            US&S          Other        Total
<S>                                                   <C>            <C>            <C>             <C>         <C>
Income Statement Data:
     Revenues......................................   $108,481       $75,681        $122,419        $11,644     $318,225
     Gross profit..................................     19,564        19,821          13,348          2,218       54,951
     Depreciation .................................      2,556         1,715           3,974            201        8,446
     Amortization..................................         -          2,003             116            961        3,080
     Operating expenses............................     15,160        18,522          20,404          4,390       58,476
     Operating income..............................      4,403         1,299          (7,056)        (2,171)      (3,525)

Balance Sheet Data:
     Total current assets..........................   $157,417       $65,122        $103,627        $17,239     $343,405
     Property, plant and equipment - net...........     12,038         6,058          35,492            714       54,302
     Intangible assets - net.......................        478        29,414             219          3,007       33,118
     Total assets..................................    188,324       102,656         151,259         14,927      457,166

Other Data:
     Capital expenditures..........................     $3,039        $1,585          $2,299           $215       $7,138
</TABLE>

                                                                              56
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                          As of and for the year ended December 31, 1996
                                                           ASF          CSEE            US&S          Other        Total
<S>                                                   <C>            <C>            <C>             <C>         <C>
Income Statement Data:
     Revenues......................................   $128,037       $55,213        $153,183        $17,067     $353,500
     Gross profit..................................     20,839        13,450          17,670          4,921       56,880
     Depreciation .................................      1,381         1,156           3,934            348        6,819
     Amortization..................................      1,429         1,271             836          1,015        4,551
     Operating expenses............................     20,552        12,017          27,810         31,828       92,207
     Operating income..............................        287         1,433         (10,139)       (26,908)     (35,327)
</TABLE>

     In 1996, operating income included nonrecurring charges of $32,432 related
to reorganization costs ($17,288) and the write off of in process research and
development costs ($15,144).

13.  Commitments and Contingencies

     In the normal course of business, the Company is a party to claims related
to work performed for certain transit authorities and railroads. In the opinion
of management, ultimate settlement of these claims will not have a material
adverse effect on the results of operations or the financial position of the
Company.

14.  Priority Shares and Option Agreement

     The Company and ATR have entered into an Option Agreement (the "Option
Agreement") pursuant to which the Company has granted ATR an option to purchase
all of the authorized Priority Shares of the Company for a price equal to the
aggregate par value of such shares. The option granted to ATR pursuant to the
Option Agreement may only be exercised in the event that an unrelated party
acquires or announces a tender offer for 20% or more of the Company's
outstanding common shares.

     In the event that ATR acquires the Priority Shares, ATR would be entitled
under the Company's Articles of Association to nominate the members of the
Supervisory Board and the Management Board. Such nominations would bind the
holders of common shares unless the holders of two-thirds or more of the common
shares voted to make nominations non-binding. If ATR acquires the Priority
Shares and still holds at least one-third of the outstanding common shares, it
will be able to make a binding nomination of the members of the Supervisory
Board and the Management Board. Pursuant to the Option Agreement ATR has agreed
that in the event it acquires the Priority Shares and subsequently its holdings
of common shares fall below 25% of the outstanding common shares, the Company
may repurchase the Priority Shares for no consideration.

15.  Stock Option Plan

     In 1996, the Management and Supervisory Boards of the Company approved a
Long-Term Stock Incentive Plan (the Incentive Plan). The Incentive Plan is
intended to (i) provide incentives and rewards to selected employees of the
Company; (ii) assist the Company in attracting, retaining and motivating
employees with experience and ability; and (iii) make the Company's compensation
program competitive with those of other employers. An aggregate of 1,000,000
common shares has been reserved for issuance under the Incentive Plan.

                                                                              57
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements


     The following table summarizes all stock option activity in 1998, 1997, and
1996.

<TABLE>
<CAPTION>

                                                            1998                        1997                        1996
                                          ----------------------  --------------------------   -------------------------
                                                        Weighted                    Weighted                    Weighted
                                                         Average                     Average                     Average
                                                        Exercise                    Exercise                    Exercise
                                            Shares         Price        Shares         Price        Shares         Price

<S>                                        <C>             <C>         <C>             <C>        <C>             <C>
Outstanding at beginning of year.......    168,500         $7.50       294,000         $7.50             -             -
Granted   .............................          -             -        20,000         $7.50       294,000         $7.50
Forfeited .............................    (32,000)        $7.50      (145,500)        $7.50             -             -
                                         ---------                   ---------                   ---------
Outstanding at end of year.............    136,500         $7.50       168,500         $7.50       294,000         $7.50
                                         ==========                  ==========                  ==========
Options exercisable at year end........     17,600         $7.50        17,600         $7.50             -            -
                                         ==========                  ==========                  ==========
Weighted-average fair value of each
     option granted during the year....                 $      -                       $0.95                       $3.92
                                                        =========                      =====                       =====
</TABLE>

     Of these options, 17,600 became exercisable in 1997 and 118,900 will become
exercisable in 1999.

     In 1997, the Company adopted SFAS No. 123,"Accounting for Stock-Based
Compensation", and elected to account for compensation expense related to stock
options under the recognition and measurement provisions of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees", (APB
25). Therefore, no compensation expense has been recognized for these options
since the options' exercise prices are greater than or equal to the market price
of the shares on the dates of grant. Had the Company elected to account for
stock-based compensation under the provisions of SFAS 123, net income would have
been a reduced by $178, $194 and $21 for the years ended December 31, 1998, 1997
and 1996, respectively. The corresponding effect on basic earnings per share and
diluted earnings per share would have been a reduction of $0.01, $0.01 and $0.00
for the years ended December 31, 1998, 1997 and 1996, respectively.

16.  Goodwill, Technology And Other Intangible Assets

     Goodwill, technology and other intangibles net of accumulated amortization
consisted of the following:

                                                               December 31,
                                                    -----------------------
                                                          1998         1997

     Goodwill.....................................   $  30,297   $  28,785
     Technology...................................      12,487      11,675
     Other........................................       5,407       3,424
                                                    ----------   ---------
                                                        48,191      43,884
         Less Accumulated amortization............     (14,533)    (10,766)
                                                    ----------   ---------
                                                    $   33,658   $  33,118
                                                    ==========   =========

     The amortization expense for the years ended December 31, 1998, 1997 and
1996 was $3,326, $3,080 and $4,551, respectively.

                                                                              58
<PAGE>

                                                             Ansaldo Signal N.V.
                                      Notes to Consolidated Financial Statements

17.  Reorganization Costs

     The Company recorded restructuring charges of $10,095 in December, 1996
related to the rationalization of certain of the operations of the individual
companies to take advantage of the Company's new world-wide organization. As of
December 31, 1998, $2,276 of this reserve remains for specific expenditures
which will occur in the first half of 1999. The original charge related
primarily to involuntary separation and severance benefits for displaced
employees. The involuntary separation and severance benefits principally related
to (i) US&S's management employees whose positions were eliminated and / or
chose not to relocate from US&S's former headquarters in Columbia, South
Carolina to Pittsburgh, Pennsylvania; and (ii) employees of ASF working at the
Company's facilities in Italy. Also included in the charge were costs related to
the elimination of redundant product lines.

     Costs of $7,193 accrued and incurred in 1996 to effect a combination
accounted for by the pooling of interests method are also included as
reorganization charges. (See Note 1). During 1997 costs of $1,584 were reversed,
related to estimated costs which never materialized or were overestimated, (no
such costs remained as of December 31, 1997) which resulted in net cost of
$5,609 to effect the combination accounted for by the pooling of interests
method.

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                                                                  Ansaldo Signal

<TABLE>
<CAPTION>

      Exhibit



<S>               <C>
     1.1*         Articles of Association of Ansaldo Signal, incorporated by reference to
                  Exhibit 3 of the Registrant's Registration No. 333-6034 on Form F4.
     1.2*         Specimen Common Share Certificate of Ansaldo Signal, incorporated by
                  reference to Exhibit 4 of the Registrant's Registration No. 333-6034 on Form F4.
     2.1*         Agreement and Plan of Merger, dated as of November 13, 1996, among Ansaldo
                  Signal, US&S, US&S Merger Sub and ATR (included as Annex A to the Proxy
                  Statement/Prospectus), incorporated by reference to Exhibit 2.1 of the
                  Registrant's Registration No. 333-6034 on Form F4. (Schedules to the
                  Agreement and Plan of Merger have been omitted in accordance with
                  Item 601(b)(2) of Regulation S-K and a summary of such schedules provided in
                  lieu thereof. The registrant undertakes to furnish supplementally to the
                  Commission, copies of any omitted schedule on the request of the Commission)
     2.2*         Escrow Agreement between CS, ATR and Paribas dated June 28, 1996 (English
                  translation), incorporated by reference to Exhibit 2.2 of the Registrant's
                  Registration No. 333-6034 on Form F4.
     2.3*         Put-Call Option Agreement between CS and ATR, incorporated by reference
                  to Exhibit 2.3 of the Registrant's Registration No. 333-6034 on Form F4.
     2.4*         Registration Rights Agreement, dated as of November 13, 1996, between
                  Ansaldo Signal and ATR, incorporated by reference to Exhibit 10.1 of the
                  Registrant's Registration No. 333-6034 on Form F4.
     2.5*         Preemptive Rights Agreement, dated as of November 13, 1996, between
                  Ansaldo Signal and ATR, incorporated by reference to Exhibit 10.2 of the
                  Registrant's Registration No. 333-6034 on Form F4.
     2.6*         Option Agreement, dated as of November 13, 1996, between Ansaldo Signal
                  and ATR, incorporated by reference to Exhibit 10.3 of the Registrant's
                  Registration No. 333-6034 on Form F4.
     2.7*         Services Agreement, dated as of October 1, 1996, between ATR and ASF
                  (English translation), incorporated by reference to Exhibit 10.4 of the
                  Registrant's Registration No. 333-6034 on Form F4.
     2.8*         Bonding Support Agreement, dated as of November 13, 1996, among
                  Finmeccanica, ATR and Ansaldo Signal, incorporated by reference to
                  Exhibit 10.5 of the Registrant's Registration No. 333-6034 on Form F4.
     2.9*         Credit Support Agreement, dated as of November 13, 1996, among
                  Finmeccanica, ATR and Ansaldo Signal, incorporated by reference to
                  Exhibit 10.6 of the Registrant's Registration No. 333-6034 on Form F4.
     2.10         Amendments to Put-Call Option Agreement included as Exhibit 2.3 above
                  dated October 1998 and February 9, 1999.
     2.11         Agreement, dated December 22, 1997, between Compagnia Finanziamenti e
                  Rifinanziamenti--Cofiri SpA and Ansaldo Signal, as amended April 23, 1998.
     2.12         Lease, dated as of September 14, 1993, by and between Regional Industrial
                  Development Corporation of Southwestern Pennsylvania and Union
                  Switch & Signal Inc., as amended by Subordination, Attornment and Lease
                  Amendment Agreement, dated as of November 30, 1993 and Second Amendment of
                  Lease, dated as of May 31, 1998.
     2.13         Consent of PricewaterhouseCoopers LLP.
     3.0          The Registrant agrees to furnish a list of its subsidiaries including, as to
                  each subsidiary, its country or other jurisdiction of
                  incorporation or organization, its relationship to the Company
                  and the percentage of voting securities owned or other basis
                  of control by its immediate parent, if any, to the Securities
                  and Exchange Commission.
</TABLE>

* Previously filed, incorporated herein by reference.

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