<PAGE>   1


                               ANSALDO SIGNAL N.V.

                       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, 1997

                                     0-28988
                            (Commission file number)

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

                                   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              Name of each exchange on which registered
Common Shares with a par value of                       Nasdaq
         NLG 0.01 each                         

 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

<TABLE>
<CAPTION>
                                                                                                        Page
<S>     <C>               <C>                                                                          <C>
PART I   ............................................................................................     1
         ITEM 1            Description of Business...................................................     1
                           General...................................................................     1
                           Historical Overview.......................................................     1
                           Industry Overview.........................................................     2
                           Markets...................................................................     3
                           Principal Products and Services...........................................     4
                           Research and Development..................................................     5
                           Sales and Marketing.......................................................     5
                           Employees.................................................................     6
                           Patents and Trademarks....................................................     6
                           Competition...............................................................     6
                           Risk Factors and Cautionary Statement Pursuant to Safe Harbor
                               Provisions of the Private Securities Litigation Reform Act of 1995....     7
         ITEM 2            Description of Property ..................................................    12
         ITEM 3            Legal Proceedings.........................................................    12
                           Environmental Laws and Proceedings........................................    12
         ITEM 4            Control of Registrant.....................................................    13
         ITEM 5            Nature of Trading Market..................................................    13
         ITEM 6            Exchange Controls and Other Limitations Affecting Security Holders........    14
         ITEM 7            Taxation..................................................................    14
                           Netherlands Taxation......................................................    14
                           Dividend Withholding Tax..................................................    14
                           Taxes on Income and Capital Gains.........................................    15
                           Net Wealth Tax............................................................    15
                           Gift and Inheritance Tax..................................................    16
                           United States of America..................................................    16
         ITEM 8            Selected Consolidated Financial Data......................................    18
         ITEM 9            Management's Discussion and Analysis of Financial
                               Condition and Results of Operations...................................    19
         ITEM 9A           Quantitative and Qualitative Disclosures about Market Risk................    27
         ITEM 10           Directors and Officers of Registrant......................................    27
         ITEM 11           Compensation of Directors and Officers....................................    29
         ITEM 12           Options to Purchase Securities from Registrant or Subsidiaries............    29
         ITEM 13           Interest of Management in Certain Transactions............................    30
                           Intercompany Transactions.................................................    30
                           Option Agreement..........................................................    31
                           Preemptive Rights Agreement...............................................    31
                           Registration Rights Agreement.............................................    31
PART II  ............................................................................................    33
         ITEM 14           Description of Securities to be Registered................................    33
PART III ............................................................................................    33
         ITEM 15           Defaults upon Senior Securities...........................................    33
         ITEM 16           Changes in Securities and Changes in Security for Registered
                               Securities ...........................................................    33
PART IV  ............................................................................................    33
         ITEM 17           Financial Statements......................................................    33
         ITEM 18           Financial Statements......................................................    33
         ITEM 19           Financial Statements and Exhibits.........................................    33
</TABLE>

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                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS


     GENERAL
     Ansaldo Signal N.V. ("Ansaldo Signal," "ASNV" or "the Company"), is a
worldwide supplier of signaling, automation and control systems, related
component products, and services. The Company offers a variety of train control
and rail operations management functions, 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"), marshalling/classification yard
          control systems, and other operations management systems to provide
          efficient train operations;
     o    Wayside and onboard instrumentation and other component products that
          are essential elements of the Company's systems; and
     o    Related services (such as maintenance and training).

     The Company's systems, products and services are designed to enhance the
safety, productivity and efficiency of its customers' operations by providing
system-wide control, discrete segmented control, and management information.
Incorporating software and fail-safe design into computerized controllers,
workstations and other devices, the Company's state-of-the-art technologies
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 ATC, ATP, ATO, and CTC 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 its subsidiaries, including: Ansaldo
Segnalamento Ferroviario S.p.A. ("Ansaldo Segnalamento Ferroviario" or "ASF"),
an Italian corporation with facilities in Genoa, Naples, Tito and Torino; CSEE
Transport S.A. ("CSEE Transport" or "CSEE"), a French corporation with
facilities in Paris and Riom; Union Switch & Signal Inc. ("Union Switch &
Signal" or "US&S"), a U.S. corporation with facilities in Pittsburgh, PA and
Batesburg, SC; Union Switch & Signal Pty. Ltd. ("US&S PTY"), an Australian
corporation with facilities in Brisbane; AT Signal Systems AB ("AT Signal
Systems" or "ATSS"), a Swedish corporation with facilities in Spanga; and AT
Signalling (Ireland) Ltd. ("AT Signalling" or "ATI"), an Irish corporation with
facilities in Tralee, Ireland. The Company serves customers throughout the world
in the railroad and rail mass transit industries.


     HISTORICAL OVERVIEW
     ASNV was formed on November 13, 1996 to combine the railway signaling and
automation business investments of Ansaldo Trasporti S.p.A. ("ATR"). ATR is a
member of the group of companies controlled by Finmeccanica S.p.A.
("Finmeccanica"), which is in turn controlled by the Italian state holding
company, Istituto per la Ricostruzione Industriale-IRI S.p.A. ("IRI"). The
Company's shares began trading on the NASDAQ national market system on December
11, 1996.

     Product Evolution. The origins of the Company's signaling activities can be
traced to the very beginning of the railway signaling and automation industry
when 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 -- ASF, CSEE and US&S - 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:

     o    AC track circuit (1903)
     o    Inductive train control (cab signaling)(1923)
     o    Remote controlled gravity hump yard (1924)


                              ANSALDO SIGNAL N.V.

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     o    Coded track circuit (1934)
     o    Coded carrier CTC (1942)
     o    Computer aided dispatching (1966)
     o    Microprocessor based vital interlocking controller (1985)
     o    Video CTC displays (1986)
     o    CTC/CAD consolidation (1987)
     o    Driverless metro (North America) (1991).

     The Company's latest product developments include the TVM(TM) family of
products, which are the basis for automatic train control systems for the
various generations of France's high-speed TGV (Train a Grande Vitesse) as well
as other high speed lines; the ACC/SARA(TM) microprocessor based interlocking
technology for large scale and complex interlockings, which control traffic
through crossovers and intersections; and the L10,000 and L12,000 series
discontinuous ATP systems.
     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 also 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, which detect train
presence in a given section of track.


     INDUSTRY OVERVIEW
     Customers. 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 safely
and efficiently through railroad or rail mass transit systems. Increasingly,
rail signaling and control companies are expected to provide 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 related to predictive diagnostics and assistance
with system validation requirements.
     Railway signaling equipment, systems and services are used 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 within one 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 equipment or system without human intervention.
     Track circuits. Traditional railway signaling systems have used the 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 which are linked
to the basic track circuit system and which are physically distributed
throughout the network will, through the application of predetermined logic
principles, request certain actions and issue certain commands to enforce safe
operation and/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 the network and to supervisory centers by
digital communications. In this way, the thousands of controls and the millions
of bits of data generated by the control system can be integrated on an on-line,
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.
     Increasingly, railroad and rail transit operators are exploring the
potential of emerging alternatives to traditional track circuit based signaling
and automation systems, such as communication based signaling systems. In these
systems, the train detection function previously provided by the track circuit
is provided by a sophisticated form of radio transmission. Communication-based
rail signaling and automation systems, operated by on board equipment, permit
minimizing field devices but rely more heavily upon high level software.
     Instrumentation. Devices such as signals, controllers, point machines,
transmitters and receivers may be sold as part of a complete railway signaling
system or may be marketed and sold separately. This equipment 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.


                              ANSALDO SIGNAL N.V.

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     Many control decisions are made by "smart" instrumentation devices and/or
systems which have been developed over the past several years by incorporating
microprocessor technology within field instruments or 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.
     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 and also become a more important element of overall rail network
automation and management, suppliers have begun to take advantage of
opportunities to act as their customers' systems integrators and to provide
related services and software that meet the requirements for higher-level
functionality.
     Factors driving the demand for rail signaling and automation include
continued population growth and increasing congestion in cities 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 capacity ("throughput") for
environmentally friendly rail systems. However, the industry is dependent upon
the availability of public and private funding for infrastructure investment,
especially from transit authorities in the USA and transit authorities and State
owned railroads in the rest of the world. Furthermore, as public funding is
reduced, there is a tendency for price competition to increase. Accordingly, a
change in government policies or an adverse economic environment (such as East
Asia is experiencing) in any of the principal countries in which the Company
does business can have an adverse effect upon the Company's business.


     MARKETS
     Based upon an analysis of competitor revenues, management estimates the
portion of the transportation market in which it presently participates is
approximately a $3.6 billion industry. Ten to 12 suppliers normally compete for
their share of this market.
     The Company has significant sales of equipment and systems to customers in
each of the principal industry groups served by the Company. Two large orders
totaling $244 million were booked in the fourth quarter of 1997. One was in the
United States from the New York City Transit Authority, and the second was from
the Italian State Railroad (FS) for the Grande Rete (the "large network"
connecting the major cities of Italy). The Company's subsidiary 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 Signaling Business Unit contribution, ATR
entered into formal subcontract agreements with ASF to continue providing these
services on the incomplete contracts. See Note 10 of Notes to Consolidated
Financial Statements for details.
     In the railroad market, the Company has an established position with
railroads in the United States (where freight railroads predominate) through its
US&S subsidiary and in Europe (where passenger railroads predominate) through
its ASF and CSEE subsidiaries. In the rail based mass transit market, the
Company has sold its equipment and systems for rail based mass transit networks
around the world. In the United States, France and Italy, most operators of rail
based mass transit systems are customers of the Company's subsidiaries.
     The Company's subsidiaries operate in three strategic geographic areas:
Europe, North America, and Australasia. Their strategic location is expected to
position such subsidiaries to respond to regional customers' requirements.

     Europe. The Company serves the European markets from its operations in
France, Italy, Sweden and Ireland. 
     From its facilities in Paris and Riom, France, the Company focuses on
serving the needs of the French national railways ("SNCF"), the Paris metro, and
other major operators of suburban and metro passenger systems within France. The
Company offers a full line of rail signaling and automation equipment, systems
and services in France and is the primary supplier of the ATP equipment and
systems for the famed TGV high-speed passenger lines of France. 
     The Company's business in Italy is focused on 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.
     In addition, the Company's Swedish subsidiary serves customers in
Scandinavia; its Irish subsidiary serves Irish 


                              ANSALDO SIGNAL N.V.

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Rail and the Dublin metro ("DART"); and each company serves customers in
adjacent European countries, such as the Lisbon Metro, which recently awarded a
contract to CSEE.

     North America. The Company's business in North America is operated from its
facilities located in Pennsylvania and South Carolina, as well as its
warehousing and service facilities in Kansas and Ontario. The primary focus is
on the Class 1 railroads, which account for approximately 90% of North American
rail freight revenue (according to Railroad Facts, 1996 Edition), and the major
operators of light and heavy rail mass transit systems such as New York, Los
Angeles, Boston, Philadelphia, Chicago, Washington, D.C., Dallas, Cleveland,
Portland and Toronto.

     Australasia. The Company's business in Australasia is based in Brisbane,
Australia and focuses on the Australian, New Zealand and Southeast Asian
markets. In Australia, the Company provides application engineering and
integration services for the full line of railway signaling and automation
equipment and systems designed and manufactured by the Company outside of the
Australasian region and for equipment and systems designed and manufactured by
third parties. The Company has been taking steps to expand in the region by
establishing a subsidiary in India and a collaborative relationship in Malaysia.
Multiple subsidiaries support the markets in China, Korea, and Taiwan. In China,
the Company's subsidiary CSEE has a joint venture with the Beijing Railway
Signal Factory. The Company has experienced deferral of projects as a result of
the East Asian economic downturn.


     PRINCIPAL PRODUCTS AND SERVICES
     The Company derives its revenues principally from the sale of ATC systems
and ATP systems; ATO systems; CTC, operations management and marshalling yard
control office systems; wayside and onboard instrumentation and other component
products; and related services (such as maintenance and training).

     Automatic Train Control and Automatic Train Protection Systems. The
Company's ATC/ATP product offering includes 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; its Microlok(R) and
Microtrax(R)-based systems for small and medium interlockings and for
conventional railroad lines; and its Microcab, L10,000, and L12,000 ATP systems.
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 ATC/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 offering is
designed to regulate train speed, station stopping, door control, and train
reversal. These functions are classified as non-vital because they are not
directly responsible for safe train movement.

     Centralized Traffic Control, Operations Management and Marshalling Yard
Control Office Systems. These products 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 Onboard Instrumentation and Other Component Products. The
Company offers a broad line of wayside (field) and onboard instruments 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 instruments 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 instruments may also be furnished as part of the ATC/ATP,
CTC and other


                              ANSALDO SIGNAL N.V.

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systems supplied by the Company. Examples of these instruments include: the "AF"
series of track circuits, "UM 71" track circuits, fail-safe relays, hot box
detectors, end-of-train monitors, electronic treadles, radar units, timers,
logic emulators, wheel detectors and signals. In addition, the Company offers
various component products that enhance the efficiency and/or the safety of
railroad and rail based transit operations, such as point machines for use in
marshalling yards and on mainline operations, and gate mechanisms. 
     The Company's instrumentation product offering includes a variety of
"smart" devices which contain "on-board" microprocessor-based electronics and
which, by permitting functions and advanced calculations to be carried out in
the field, allow faster response time. "Smart" functions such as diagnostics,
troubleshooting, and calibration may be performed remotely by the device itself
or via analog or digital communication. These products are also sold both on a
stand-alone basis and as components of ATC/ATP, CTC and other systems.

     Related Services. The Company provides two types of services:
systems-related services and instrumentation-related services. Systems-related
services include system design and application engineering, installation and
start-up assistance, ongoing maintenance, repairs and service and training.
Instrumentation 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.

     Current initiatives. The Company is implementing an initiative to redesign
operating processes at the subsidiary level to reduce rework and internal cycle
times. Subsidiary-level Redesign Teams are examining company processes,
identifying inefficiencies, and assigning process action teams to develop and
implement redesign plans. US&S began this process in early 1997. ASF began the
process late in 1997. CSEE will begin the process in 1998. US&S PTY will
undertake a redesign initiative in 1999.
     The Company is also currently rationalizing its subsidiaries' systems
offering to reduce applications engineering costs. The implementation of this
initiative includes the design of template architectures, as described more
fully below under "Research and Development."


     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.
Currently, 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 European Train
Control System standardization initiative, the Advanced Civil Speed Enforcement
initiative in the United States, and communication based signaling.
     To achieve "next generation" products and systems in the most efficient
manner, the Company is currently rationalizing its subsidiaries' systems
offering. 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. 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.
     For the years ended December 31, 1995, 1996, and 1997, respectively, the
Company's expenditures for research and development were $11.8 million, $11.8
million and $10.0 million, representing 3.9%, 3.3%, and 3.1% of total revenues,
respectively. In addition, the Company engages in customer and government funded
research and development on a regular basis. In 1997 the Company incurred an
additional $7.2 million 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 1997 was therefore
$17.2 million (5.4% of revenues). In addition, the research and development that
is performed pursuant to contract requirements is considered in 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.


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


     EMPLOYEES
     As of March 31, 1998, the Company had approximately 2,368 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 the trade unions. In the North American and Australasian
regions, workers are not covered by any collective bargaining agreements. The
European workers covered by collective bargaining agreements participate in a
separate pension plan in addition to the plan that covers those employees in
their country whose employment is not subject to collective bargaining. 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, 1997, the Company owned approximately 100 U.S. patents
and approximately 140 non-U.S. patents, and had an additional 27 U.S. patent
applications and 116 non-U.S. patent applications pending. During 1997, the
Company completed an extensive engineering/marketing/sales analysis regarding
these patent assets. This analysis defined a focussed technological and business
strategy to streamline costs related to the overall patent portfolio by
dropping, over the next three years, approximately 26 U.S. patents, 97 non-U.S.
patents, 12 U.S. pending applications, and 95 non-U.S. pending applications,
thereby resulting in significant patent-related legal/maintenance fee savings
for the Company. 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. 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
its 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 many other countries.
     The Company believes that due to a more rapid 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 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.


     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 Harmon Industries,
as well as divisions and subsidiaries of major international companies with
substantial financial resources, whose primary activities are in other fields,
including Siemens AG, Adtranz, Alcatel-SEL AG, GEC Alsthom SA/Sasib S.p.A.,
Rockwell, GE-Harris and Westinghouse Signals, a unit of BTR PLC. The Company
also competes from time to time in some specific systems applications
(particularly CTC systems) with specialized system integrators such as Digital
Concepts and Syseca, a unit of the Thomson Group. With respect to sales of most
instrumentation and other component products, competition is extremely
fragmented and includes both full-line and specialty suppliers such as Pulse
Electronics, a unit of Westinghouse Air Brake Company.
     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


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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, and
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 market 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 rationalizing the
Company's subsidiaries' systems offering to reduce applications engineering
costs, that future systems requirements will be met by utilizing the most
compatible template architecture, that the One Company / One Country strategy
will focus its customer contacts and marketing coverage, that the initiative to
redesign operating processes at the subsidiary level will reduce rework and
internal cycle times, that the Company expects to continue to invest in research
and development with the assistance where available of government and customer
funding, that it is undertaking research and development to improve connectivity
among its platforms to modularize them for optimal use in disparate applications
and to standardize software tools for developing those applications, that US&S
PTY expects to obtain the certification process of International Standard ISO
9001 ("ISO 9001") as promulgated by the International Standards Organization
("ISO"), and statements concerning the Company's outlook for 1998 including its
expectation to return to profitability in 1998, the Company's anticipations
regarding capital expenditures for 1998, the Company's expectation that it will
be in compliance with the financial covenants of its private placement notes by
December 31, 1998, the new credit facilities that management expects to put in
place in 1998, management's expectations that services, bonding and financial
support currently provided by Finmeccanica and ATR will continue in 1998 and
1999, 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 1998, the Company's anticipated completion without
incremental cost of a year 2000 data conversion and Euro conversion project by
the middle of 1999, management's belief that the Company will not be exposed to
material liability for Year 2000 claims of third parties, and management's
belief that the results of adopting SFAS No. 130 will not be significant. 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 sales to national railways, (ii) reliance on
programs that are dependent, in whole or in part, on public sector funding by
various international, national, regional and local governmental authorities,
(iii) potential downturns in general economic conditions, (iv) reliance on
various financial and other support provided by Finmeccanica and its affiliates,
(v) ability to integrate effectively the Company's business operations and
eliminate overlapping expenditures, (vi) potential loss of protected markets
across Europe as a result of various European Union directives, (vii) the
competitive nature of the industry, (viii) changes in laws and policies
affecting trade and investments, (ix) the instability of foreign economies and
governments, particularly in Asia, (x) the risk of foreign exchange rate
fluctuations, (xi) timely completion within budget of long term contracts and
contracts requiring software development, (xii) fluctuations in the number, size
and timing of long-term contracts awarded during a particular period and (xiii)
uncertainty of protection of proprietary information in certain countries.
     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 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

                              ANSALDO SIGNAL N.V.

                                                                               7
<PAGE>   10

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
other conditions (including achieving and sustaining 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.

     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 1999. See Item 13.

     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 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 most
importantly included indemnification of issuers of performance bonds and letters
of credit required under systems contracts. As of December 31, 1997,
Finmeccanica and ATR provided support for outstanding bonds and letters of
credit aggregating $286.3 million. Such services have also included direct
borrowings from ATR and arrangement of short-term debt financing guaranteed or
otherwise enhanced. Borrowings from ATR were $32.4 million as of December 31,
1997. Such arrangements have also 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 such credit enhancement and
bonding support services through 1999 and to defer any repayment of the
Company's indebtedness to them, upon the Company's request, through March 1999.
After 1999, 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 would be capable of providing any
financial or bonding support in the future. 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 - Related Party Transactions in the
Notes to Consolidated Financial Statements."

     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 10.0% in 1996 and approximately 14.4% in 1997 of the total
revenues of the Company (including all of CSEE). 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 


                              ANSALDO SIGNAL N.V.

                                                                               8
<PAGE>   11



relevant country, thereby effectively limiting competition. Pursuant to EU
Directive 96/48/EEC, it is anticipated that, 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 and Sweden, which have traditionally accounted for a substantial part of
its sales.

     Competition. The railroad and rail based mass transit signaling, control
and automation industry is highly competitive globally, and the Company believes
that competition will intensify in the future. Several companies compete with
all portions of the Company's product line. Competitors include Harmon
Industries, as well as divisions and subsidiaries of major international
companies whose primary activities are in other fields, including Siemens AG,
Adtranz, Alcatel-SEL AG, GEC Alsthom SA/Sasib S.p.A., Rockwell, GE-Harris and
Westinghouse Signals, a unit of BTR PLC. The Company also competes from time to
time in some specific systems applications (particularly CTC systems) with
specialized system integrators such as Digital Concepts and Syseca, a unit of
the Thomson Group.
     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 and aerospace and defense companies
searching for new business, have entered the market.

     Uncertainty of New Product Development. The Company's future business
prospects are dependent on its ability to enhance its existing 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 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 automation and control systems and
products and to keep pace with 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.

     Uncertainty of Successful Integration and Restructuring Charges. The
Company was formed at the end of 1996. While the Company is attempting to
realize the potential synergies of its various subsidiaries, there can be no
assurance as to the ultimate outcome of the Company's integration plans, as to
the ultimate cost of such plans and the impact of such cost on the Company's
earnings or as to the timing of any benefits to the Company of the
implementation of such plans.

     Risk of Foreign Exchange Rate Fluctuations. The Company operates in many
parts of the world and competes against companies 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. In particular, a substantial percentage of
Ansaldo Signal's sales are denominated in Italian lire and French francs.
Ansaldo Signal could, therefore, experience fluctuations of both revenues and
expenses due to the translation of local currencies to U.S. dollars. Stage III
of the European Economic and Monetary Union ("Stage III") is presently
anticipated to commence on January 1, 1999 for those member states of the
European Union that satisfy the convergence criteria set forth in the Treaty


                              ANSALDO SIGNAL N.V.

                                                                               9
<PAGE>   12



on European Union. Part of Stage III is the introduction of a single currency
(the "Euro") which will be legal tender in such member states. It is anticipated
that such member states will adopt legislation providing specific rules for the
introduction of the Euro. The adoption of the Euro will affect the Company and
will leave it exposed to fluctuations in exchange rates in a way similar to
those currently experienced with fluctuations in exchange rates between U.S.
Dollars, Italian lire, French francs, and other European currencies. See Item 9
- "Liquidity and Capital Resources."

     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 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 judgements obtained against such persons in U.S. courts, or to
enforce in U.S. courts judgements 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 U.S. rights predicated upon the U.S. securities laws.

     Fluctuations in Operating Results. Results of operations can be affected by
the number, size and timing of long-term contracts awarded 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.

     Uncertainty of Protection of Proprietary Information. The Company relies on
a combination of trade secret and other intellectual property law, nondisclosure
agreements and other protective measures, as well as on patents, to establish
and protect its proprietary rights in certain of its products. Without legal
protection, competitors may copy information which the Company regards as
proprietary to develop competing products. The laws of some countries do not
protect proprietary rights in products and technology to the same extent as do
the laws of the United States. There can be no assurance that the Company's
efforts to implement protective measures and defend its proprietary rights will
continue to be successful.

     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 ASF in connection
with ATR's turnkey projects to provide mass transit systems where ASF is 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 - Related
Party Transactions in the Notes to Consolidated Financial Statements."


                              ANSALDO SIGNAL N.V.

                                                                              10
<PAGE>   13



     Software Product Errors or Defects. Products and systems which incorporate
software as complex as those offered by the Company are subject to errors or
defects, especially when first introduced or when enhanced versions containing
more sophisticated levels of technology are introduced. Despite product testing,
the Company's new systems may contain software errors and, as a result, the
Company may experience delayed revenues and additional costs during the period
required to correct any defects or errors. Any such defects or errors 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, or could require extensive product changes, any of which could have
a material adverse effect upon the Company's business, operating results or
financial condition.

     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
system management, resource optimization and overall 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.


                              ANSALDO SIGNAL N.V.

                                                                              11
<PAGE>   14

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

     (1) Leased.
     (2) Owned.

     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, 1997, 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"), as promulgated by the International Standards Organization ("ISO"). US&S
PTY is currently engaged in the certification process and expects to be
certified in the near future. 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 will incur capital expenditures in connection with certain
environmental matters and will also be required to spend additional amounts in
connection with ongoing compliance with current and future laws and regulations.
Although capital expenditures for environmental control equipment and compliance
costs in future years will depend on legislative, regulatory and technological
developments which cannot accurately be predicted at this time, the Company
anticipates that these costs are likely to increase as environmental
requirements become more stringent. There can be no assurance, however, that the
environmental costs will not exceed the estimated expenditures.
     The Company is conducting environmental investigatory and remedial
activities at its Batesburg, South Carolina facility, which is currently subject
to an agreement with the South Carolina Department of Health and Environmental
Control, under which the Company is obligated to perform groundwater monitoring
to determine the level and the position of certain hazardous substances present
at that site. Depending upon the results of the monitoring, remediation may be
required of the Company. The Company cannot estimate what additional amounts, if
any, it may be required to pay as a result of this investigation.
     Due to the nature of the historical disposal and release activities typical
of manufacturing and related operations that have occurred in the United States
and other countries, and as a result of laws and regulations which now and in
the future may impose liability for previously lawful disposal and release
activities, future remedial costs not now anticipated may arise in connection
with the Company's currently or formerly owned or operated properties and
remediation costs may exceed the estimated range. 


                              ANSALDO SIGNAL N.V.

                                                                              12
<PAGE>   15



ITEM 4. CONTROL OF REGISTRANT

     The Company is controlled by Finmeccanica SpA ("Finmeccanica"), which
owned, indirectly through its subsidiary, Ansaldo Trasporti SpA, 14,716,766
Common Shares, or 71.97% of the Company's issued and outstanding Common Shares
at June 1, 1998. 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, process
automation, service automation and industrial automation. Finmeccanica's address
is Piazza Monte Grappa 4, 00195 Rome, Italy. 
     Finmeccanica, approximately 37.9% of the common shares of which are traded
through the Telematic Market (Mercato Telematico) of the Italian Stock Exchange,
is controlled by Istituto per la Ricostruzione Industriale-IRI SpA ("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.
     The following table sets forth the indicated information, as reflected in
the Company's records at April 10, 1998 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>
<CAPTION>
     IDENTITY OF PERSON OR GROUP                            TITLE OF CLASS            AMOUNT OWNED      PERCENT OF CLASS
    <S>                                                    <C>                         <C>                     <C>
     Ansaldo Trasporti SpA                                  Common Shares               14,716,766              71.97
     Compagnie des Signaux SA                               Common Shares                2,000,000               9.8
     Directors & executive officers of Company              Common Shares                        0(1)            0.0
</TABLE>

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


ITEM 5.  NATURE OF TRADING MARKET

     The Company's Common Shares have traded on the Nasdaq Stock Market Inc.'s
National Market ("Nasdaq National Market") 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 National Market, as reported in the Wall Street Journal.

<TABLE>
<CAPTION>
                                                 HIGH               LOW
    <S>             <C>                       <C>               <C>
     1998             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

     1996             Fourth Quarter           $7.625            $7.250
</TABLE>

     As of June 1, 1998, there were 20,448,750 Common Shares outstanding. As of
that date, there were approximately 3,737,500 Common Shares held of record by 43
shareholders. 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 in the United States.


                              ANSALDO SIGNAL N.V.

                                                                              13
<PAGE>   16



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 per cent.
The expression "dividends distributed by the Company" as used herein includes,
but is not limited to:
     (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 


                              ANSALDO SIGNAL N.V.

                                                                              14
<PAGE>   17


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 per cent 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 per cent 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 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


                              ANSALDO SIGNAL N.V.

                                                                              15
<PAGE>   18



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 to 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.

     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 


                              ANSALDO SIGNAL N.V.

                                                                              16
<PAGE>   19



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. With certain exceptions, gain or loss on the sale or
exchange of the Common Shares will be treated as capital gain or loss. Under
certain circumstances, capital gains derived by individuals are taxed at
preferential rates. Generally, under recently enacted legislation, individuals
will be taxed on (i) net capital gains on assets held for more than one year,
but not more than 18 months, at a maximum rate of 28 percent and (ii) net
capital gains on assets held for more than 18 months at a maximum rate of 20
percent. Subject to certain limited exceptions, capital losses cannot be applied
to offset ordinary income for United States federal income tax purposes.

     Non-U.S. Investors. For purposes of this discussion, a Non-U.S. Investor is
any corporation, individual, partnership, estate or trust that is, as to the
United States, a foreign corporation, a non-resident alien individual, a foreign
partnership, or a non-resident fiduciary of a foreign estate or trust.
     An investment in the Common Shares by entities or individuals which are
Non-U.S. Investors will not give rise to any U.S. federal income tax
consequences, unless the dividends received or any gain recognized on the sale
or disposition of the Common Shares by such investors are treated as effectively
connected with the conduct of a trade or business in the United States, or, in
the case of gains derived by an individual, such individual is present in the
United States for 183 days or more during the taxable year of the disposition of
the Common Shares and certain other requirements are met.


                              ANSALDO SIGNAL N.V.

                                                                              17
<PAGE>   20



ITEM 8.  SELECTED CONSOLIDATED FINANCIAL DATA

     The following data has been derived from the audited consolidated financial
statements of the Company, including those consolidated financial statements of
the Company for the years ended December 31, 1997, 1996, 1995 and 1994, which
are included elsewhere herein. The audited Consolidated Financial Statements of
the Company have been prepared in accordance with USGAAP.

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31
                                                                      (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
INCOME STATEMENT DATA                                                   1997            1996           1995         1994
<S>                                                                <C>             <C>            <C>          <C>     
Revenues                                                            $318,225        $353,500       $299,347     $339,193
Cost of sales                                                        263,274         296,620        236,858      265,044
                                                                    --------        --------       --------     --------
Gross profit                                                          54,951          56,880         62,489       74,149
Selling, general and administrative expenses                          50,107          47,971         38,829       43,954
Research & development expenses                                        9,953          11,804         11,759        8,453
Acquired in process research & development (Note 1)                       --          15,144             --           --
Reorganization (Note 2)                                               (1,584)         17,288             --           --
                                                                    --------        --------       --------     --------
Operating expenses                                                    58,476          92,207         50,588       52,407
                                                                    --------        --------       --------     --------
Operating income (loss)                                              $(3,525)       $(35,327)       $11,901      $21,742
                                                                     =======        ========        =======      =======
Net income (loss)                                                   $(12,678)       $(38,895)        $6,408      $15,534
                                                                    ========        ========         ======      =======

Basic and dilutive net income (loss) per common share                 $(0.62)         $(1.90)         $0.36        $0.86
                                                                      ======          ======          =====        =====
Cash dividends per share declared                                      $0.00           $0.00          $0.00        $0.00
                                                                       =====           =====          =====        =====
Weighted average number of common shares outstanding              20,488,750      20,488,750     17,990,750   17,990,750
                                                                  ==========      ==========     ==========   ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
BALANCE SHEET DATA                                                      1997            1996           1995         1994
<S>                                                                <C>             <C>            <C>          <C>
Working capital                                                      $89,804        $105,751        $98,801     $107,104
Total assets                                                        $457,166        $487,507       $378,062     $330,707
Borrowings-financial institutions
         (including current maturities)                              $94,132         $71,781        $61,344      $30,598
Borrowings-related parties                                           $32,379         $30,202         $3,853       $3,425
Shareholders' equity                                                $102,552        $125,670       $151,505     $141,213
</TABLE>

1. See Note 1 of Notes to Consolidated Financial Statements.
2. See Note 17 of Notes to Consolidated Financial Statements.

<TABLE>
<CAPTION>
                                                                 PER U.S. DOLLAR
                                         FRENCH FRANC                                        ITALIAN LIRA
     YEAR              YEAR END        AVG.        HIGH         LOW          YEAR END        AVG.        HIGH         LOW
     <S>                 <C>         <C>         <C>         <C>            <C>         <C>         <C>         <C>
     1998*........          n/a         n/a       6.194       5.954               n/a         n/a    1822.000    1753.000
     1997.........        5.987       5.832       6.351       4.557          1758.000    1702.725    1840.000    1517.000
     1996.........        5.191       5.139       5.830       4.996          1518.000    1542.100    1600.000    1494.000
     1995 ........        4.900       4.960       5.390       4.790          1584.000    1629.000    1736.000    1569.000
     1994.........        5.340       5.510       5.970       5.110          1622.000    1605.000    1707.000    1511.000
</TABLE>
     * through March 31, 1998.


                              ANSALDO SIGNAL N.V.

                                                                              18
<PAGE>   21



     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 1997 Annual Report. The financial
statements have been prepared in accordance with U.S. 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 1997, 1996 and 1995 mean the
calendar years ended December 31, 1997, December 31, 1996 and December 31, 1995,
respectively.

     OVERVIEW
     Ansaldo Signal N.V. ("the Company," "ASNV," or "Ansaldo Signal") was
incorporated on November 13, 1996 in Amsterdam, The Netherlands. Its corporate
headquarters are in Schiphol, The Netherlands. It is majority-owned by 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.
     ASNV was formed upon the merger of Union Switch & Signal Inc. ("US&S") (a
majority-owned subsidiary of ATR) with a direct wholly-owned subsidiary of ASNV.
As a result of the merger, US&S ceased to exist as a separate legal entity and
each outstanding share of US&S common stock (9,737,500) was converted into one
ASNV common share. Immediately after such merger, ATR contributed the
outstanding capital stock of its other railway signaling and automation
businesses to ASNV in exchange for 10,711,250 ASNV common shares.
     The foregoing transactions have been treated as a reorganization of
companies under common control and, accordingly, have been reflected in the
consolidated financial statements in a manner similar to a pooling of interests.
ASNV's historical results therefore include (i) the combined operating results
of US&S (100%), Ansaldo Segnalamento Ferroviario S.p.A. ("ASF") (100%), CS
Transport S.A. ("CSEE") (49%), AT Signal Systems AB ("ATSS") (75%) and Ansaldo
Trasporti Signaling (Ireland) Ltd. ("ATI") (100%) for the year 1995 and the
first six months of 1996, and (ii) the combined operating results of US&S
(100%), ASF (100%), CSEE (100%), ATSS (75%) and ATI (100%) for the second half
of 1996 and the year 1997.
     The Company markets its products and services to customers in the
international rail and mass transit transportation 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 principal systems products
are automatic train protection ("ATP") systems that communicate speed limits,
routes, and other safety information to trains; automatic train control ("ATC")
systems that manage speed limits, distance between trains, and other conditions
of a vital nature; automatic train operation ("ATO") systems that offer
customers the capability of fully automatic train control and driverless
operation, including speed regulation and station stopping; automatic train
supervision ("ATS") systems that allow centralized dispatch, monitoring and
management of operator fleets; small- and large-scale interlockings that control
traffic over simple and complex track configurations; marshalling/classification
yard control systems that allow efficient processing and organization of rail
based operators' rolling stock in yards where trains are configured; centralized
traffic control ("CTC") systems that can integrate varying degrees of
capability, according to the needs of the customer; wayside and onboard
instrumentation, end-of-train and other component products; and related services
(such as maintenance and training). The Company markets its products worldwide
primarily through wholly owned operating subsidiaries. It has component product
manufacturing facilities in the United States, France, and Italy and engineering
production facilities in various countries. Management estimates the portion of
the transportation market in which it presently participates is approximately a
$3.6 billion industry. There are normally 10 to 12 suppliers who compete for
their share of this market. The industry has entered into a period of
consolidation and non-traditional competitors have also entered the market for
certain product lines. As a result, management expects that competition for
certain of its products will increase and contract and product margins may be
affected.


                              ANSALDO SIGNAL N.V.

                                                                              19
<PAGE>   22



     ORDERS
     The Company's orders have increased $282,923 (98.1%) to $571,364 for 1997
from $288,441 for 1996. This increase is primarily due to two large orders
totaling $244,000 in the fourth quarter of 1997. One was in the United States
from the New York City Transit Authority and the second was from the Italian
State Railroad (FS) for the Grande Rete (the "large network" connecting the
major cities in Italy). 59.6% of all of the orders received in 1997 were
received in the fourth quarter. Management believes that even taking into
account these two large orders, its overall improvement in orders reflects an
increase in bid opportunities, particularly in the United States and Europe,
resulting from an increase in infrastructure spending and a release of
previously delayed projects.

     BACKLOG
     The Company's backlog has increased $240,102 (45.0%) to $773,062 for 1997
from $532,960 for 1996. Included in the backlog are the two major orders
discussed above for $244,000 which are expected to be completed over 4 to 5
years, and one order in Korea for $57,000 which has been delayed for at least
one year.


     RESULTS OF OPERATIONS

     The historical information shown below reflects CSEE's revenues, gross
profit and operating expenses from June 28, 1996, the date on which CSEE was
deemed to be acquired on a 100% basis. Prior to that date, CSEE results were
included in equity income. The pro forma information includes CSEE on a 100%
basis for each period shown. The changes in amounts between 1997, 1996 and 1995
for the information presented primarily reflect the impact of the acquisition of
the remaining interest in CSEE. Consequently, the discussion below is focused on
changes in the pro forma information for the periods presented.


     1997 VERSUS 1996

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

<TABLE>
<CAPTION>
                                                                                REVENUES
                                                                HISTORICAL                         PRO FORMA
                                                          1997              1996             1997              1996
<S>                                                  <C>               <C>              <C>               <C>
US&S                                                  $132,371          $159,620         $132,371          $159,620
ASF                                                    108,480           128,037          108,480           128,037
CSEE                                                    75,681            55,215           75,681            89,749
OTHER                                                    8,027            16,273            8,027            16,273
ELIMINATIONS                                            (6,334)           (5,645)          (6,334)           (5,645)
                                                      --------          --------         --------          --------
TOTAL                                                 $318,225          $353,500         $318,225          $388,034
                                                      ========          ========         ========          ========
</TABLE>

     Historical Company revenue for 1997 was $318,225 compared to $353,500 for
1996. 
     Pro forma Company revenues decreased by $69,809 (18.0%) to $318,225 for
1997 from $388,034 for 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 revenue denominated
in other currencies when translated into US dollars. 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.


                              ANSALDO SIGNAL N.V.

                                                                              20
<PAGE>   23



     GROSS PROFIT
     The Company's gross profit is set forth below:

<TABLE>
<CAPTION>
                                                                        GROSS PROFIT
                                              HISTORICAL                                              PRO FORMA
                                           1997           1996                                   1997            1996
    <S>                                <C>            <C>                                    <C>             <C>
     US&S                               $13,794        $19,301                                $13,794         $19,301
     ASF                                 19,563         20,839                                 19,563          20,839
     CSEE                                19,821         13,451                                 19,821          23,823
     OTHER                                1,773          3,289                                  1,773           3,289
                                        -------        -------                                -------         -------
     TOTAL                              $54,951        $56,880                                $54,951         $67,252
                                        =======        =======                                =======         =======
</TABLE>

     Historical Company gross profit for 1997 was $54,951 compared to $56,880
for 1996.
     Pro forma gross profit decreased by $12,301 (18.3%) to $54,951 (17.3% of
revenues) in 1997 from $67,252 (17.3% of revenues) in 1996. This decrease
includes a $5,209 decrease due to the effect of a stronger dollar that reduces
gross profit denominated in other currencies when translated into US dollars.
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 expenditures increased by
$2,136 (4.4%) to $50,107 in 1997 from $47,971 in 1996.
     Pro forma selling, general, and administrative expenditures decreased by
$6,324 (11.2%) to $50,107 (15.8% of revenue) in 1997 from $56,431 (14.5% of
revenue) in 1996. This pro forma decrease is primarily due to the effect of the
stronger dollar, which reduces the cost in US dollars of foreign currency
denominated expenditures ($4,016) and to the lower spending levels ($2,309). 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 EXPENDITURE
     Historical research and development expenditure decreased by $1,851 (15.7%)
to $9,953 in 1997 from $11,804 in 1996.
     Pro forma research and development expenditure decreased by $4,429 (30.8%)
to $9,953 (3.1% of revenue) in 1997 from $14,382 (3.7% of revenue) in 1996, due
to the effect of the stronger dollar, which reduces the cost in US dollars of
foreign currency denominated expenditures ($811) and to the lower spending
levels ($3,618) 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 external supported research and
development expenditure for 1997 was $17,153 (5.4% of revenue). In addition, the
research and development that is performed in accordance with contract
requirements is considered in cost 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 was reversed. See notes 1
and 17 of the financial statements included herein.


                              ANSALDO SIGNAL N.V.

                                                                              21
<PAGE>   24



     INTEREST EXPENSE
     Historical interest expense increased by $2,733 (44.8%) to $8,834 in 1997
     from $6,101 in 1996. Pro forma interest expense increased by $2,557 (40.7%)
     to $8,834 in 1997 from $6,277 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).

     EQUITY IN AFFILIATE EARNINGS (LOSS)
     Historical equity in net (losses) of affiliates decreased by $283 to ($325)
in 1997 from ($608) in 1996. The 1996 amount includes the net loss of CSEE for
the last six months of 1996.
     Pro forma equity in net (losses) of affiliates decreased by $282 to ($325)
in 1997 from ($607) in 1996.

     TAXES
     The Company recorded a $77 tax provision in 1997 compared to a ($2,714) tax
benefit for 1996. The effective rate was less than 1% in 1997 compared to (6.6%)
in 1996. The 1997 provision includes a charge of $3,738 to reflect changes in
the tax laws in Italy and a $2,902 charge for the change in the valuation
allowance relating to realization of deferred tax assets. The 1996 provision was
impacted by nondeductible non-recurring items for in process research and
development and reorganization costs and for loss carryovers with no tax
benefit. See note 9 to the consolidated financial statements for discussion of
the matters.

     NET INCOME
     As a result of the above, historical net (loss) decreased by $26,217 to
($12,678) in 1997 from ($38,895) in 1996, and pro forma net (loss) decreased by
$27,884 to ($12,678) in 1997 from ($40,562) in 1996.


     1996 VERSUS 1995

     REVENUES
     The Company's revenues are presented below by major operating unit.

<TABLE>
<CAPTION>
                                                                                REVENUES
                                                                HISTORICAL                         PRO FORMA
                                                          1996              1995             1996              1995
<S>                                                  <C>               <C>              <C>               <C>
US&S                                                  $159,620          $172,467         $159,620          $172,467
ASF                                                    128,037           113,499          128,037           113,499
CSEE                                                    55,215                --           89,749            94,109
OTHER                                                   16,273            13,381           16,273            13,381
ELIMINATIONS                                            (5,645)               --           (5,645)               --
                                                      --------          --------         --------          --------
TOTAL                                                 $353,500          $299,347         $388,034          $393,456
                                                      ========          ========         ========          ========
</TABLE>

     Historical Company revenue for 1996 was $353,500 compared to $299,347 for
1995. 
     Pro forma Company revenues decreased by $5,422 (1.4%) to $388,034 for 1996
from $393,456 for 1995. This net decrease was due to decreased revenues for US&S
and CSEE, which were offset in part by the increased revenues for ASF. The
decrease in US&S revenue was due to lower revenues in both systems and
components equipment resulting from lower orders and resultant lower shippable
backlog. The decrease in revenue in CSEE is due to the more restricted financial
capacity of the government and the French national railroad to finance
additional orders due to the losses by the railroad and to the deferral of
investment in anticipation of the adoption of European standards for high speed
trains. The increase in revenue for ASF is due to the higher production levels
in 1996.


                              ANSALDO SIGNAL N.V.

                                                                              22
<PAGE>   25



     GROSS PROFIT
     The Company's gross profit is set forth below:

<TABLE>
<CAPTION>
                                                                        GROSS PROFIT
                                              HISTORICAL                                              PRO FORMA
                                           1996           1995                                   1996            1995
    <S>                                <C>            <C>                                    <C>             <C>
     US&S                               $19,301        $38,273                                $19,301         $38,273
     ASF                                 20,839         20,742                                 20,839          20,742
     CSEE                                13,451             --                                 23,823          26,317
     OTHER                                3,289          3,474                                  3,289           3,474
                                        -------        -------                                -------         -------
     TOTAL                              $56,880        $62,489                                $67,252         $88,806
                                        =======        =======                                =======         =======
</TABLE>

     Historical Company gross profit for 1996 was $56,880 compared to $62,489
for 1995.
     Pro forma gross profit decreased by $21,554 (24.3%) to $67,252 (17.3% of
revenues) in 1996 from $88,806 (22.5% of revenues) in 1995. US&S was responsible
for $18,972 of the decrease as a result of certain systems contracts that
involved a major level of software development not originally contemplated and
due to an unfavorable product mix. CSEE was responsible for $2,494 of decrease
primarily as a result of a decrease in revenues.

     SELLING, GENERAL, AND ADMINISTRATIVE
     Historical selling, general, and administrative expenditures increased by
$9,142 (23.5%) to $47,971 in 1996 from $38,829 in 1995.
     Pro forma selling, general, and administrative expenditures decreased by
$228 (0.4%) to $56,431 (14.5% of revenue) in 1996 from $56,659 (14.4% of
revenue) in 1995.

     RESEARCH AND DEVELOPMENT EXPENDITURE
     Historical research and development expenditure increased by $45 (0.4%) to
$11,804 in 1996 from $11,759 in 1995.
     Pro forma research and development expenditure decreased by $2,342 (14.0%)
to $14,382 (3.7% of revenue) in 1996 from $16,724 (4.3% of revenue) in 1995, due
to planned cost reductions and completion of existing projects.

     NON-RECURRING CHARGES
     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. See notes
1 and 17 of the financial statements included herein.

     INTEREST EXPENSE
     Historical interest expense increased by $1,539 (33.7%) to $6,101 in 1996
from $4,562 in 1995.
     Pro forma interest expense increased by $1,453 (30.1%) to $6,277 in 1996
from $4,824 in 1995. The increase is due to higher debt levels in 1996 than
1995.

     EQUITY IN AFFILIATE EARNINGS (LOSS)
     Historical equity in net earnings (losses) of affiliates decreased by
$3,525 to ($608) in 1996 from $2,917 in 1995.
     Pro forma equity in net earnings (losses) of affiliates decreased by $183
to ($607) in 1996 from ($424) in 1995, primarily as a result of the elimination
of equity accounting for CSEE.

     TAXES
     The Company experienced an actual (benefit from) taxes rate of 6.6% in 1996
compared to a provision for taxes rate of 50.1% in 1995. The change in tax rate
is due primarily to the following nondeductible items


                              ANSALDO SIGNAL N.V.

                                                                              23
<PAGE>   26



in 1996: in process research and development, loss carryovers with no tax
benefit and nondeductible reorganization costs.

     NET INCOME
     As a result of the above, historical net income (loss) decreased by $45,303
to ($38,895) in 1996 from $6,408 in 1995, and pro-forma net income (loss)
decreased by $45,771 to ($40,562) in 1996 from $5,209 in 1995.


     LIQUIDITY AND CAPITAL RESOURCES

     OPERATING CASH FLOW
     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, decreases
in accrued reorganization payable of $12,440 (due to incurring the accrued
reorganization cost) 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
items of provisions for depreciation of $8,446 and amortization of $3,080. 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.
     The Company's operating activities used cash of $20,801 in 1996 compared to
$1,075 used in 1995. Cash was used to support decreases in accounts payable of
$8,336, net increases in contract-related accounts totaling $13,537, and net
loss of $38,895. Major sources of operating cash flow included non-cash items
including provisions for depreciation and amortization of $11,370,
reorganization charges of $16,600, and the write-off of $15,144 for acquired in
process research and development.

     CAPITAL EXPENDITURES
     The Company's capital expenditures were $7,138 in 1997, compared to $5,218
in 1996 and $20,285 in 1995. The decrease from 1995 levels was the result of one
time expenditures incurred in 1995 related to purchases of furniture and
equipment and the partial prepayment of construction loans for the new
Pittsburgh Systems and Research Center in Pittsburgh, PA (USA). The Company
anticipates capital expenditures will be approximately $11,000 for 1998, and
that they will be financed from operating income and from borrowings.

     BORROWINGS
     At December 31, 1997, the Company had total borrowings of $32,379 from
related parties and $94,132 from 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 the long-term
borrowings. Long-term borrowings included $25,714 in the form of Senior Notes
issued in 1994 under a private placement for US&S 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 $30,000 at an 8 percent fixed rate. The private placement
notes have a ten-year term with principal repayments beginning in 1998. US&S is
in default on one of the financial covenants included in the related note
agreement. A waiver of default has been obtained as of December 31, 1997 for the
period through September 30, 1998. The Company expects to be in compliance with
the covenants by December 31, 1998, the next determination date for such
default.
     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
$11,232 for commercial and stand-by letters of credit issued under one of the
lines.


                              ANSALDO SIGNAL N.V.

                                                                              24
<PAGE>   27



     ATR/Finmeccanica continues to provide and/or guarantee various
borrowings. At December 31, 1997 total borrowings from ATR were $32,379.
     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 1999. The repayment of any present or future
indebtedness to ATR/Finmeccanica can be deferred 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.
     Because of the planned growth of the business and the delay in collection
of some Asian 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 1998, and as a result reduce its dependence on
borrowings from ATR/Finmeccanica. Management believes that these new
facilities, together with those already in place, will be adequate to meet its
anticipated requirements in 1998. The Company has no current 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. US&S
maintains a $100,000 surety bonding facility ($29,300 outstanding at December
31, 1997), in addition to a $300,000 surety-bonding facility ($119,411
outstanding at December 31, 1997) provided by Finmeccanica. US&S also has a
$1,707 letter of credit outstanding at December 31, 1997 that is supported by
ATR. ATR/Finmeccanica is also providing bid, advance payment, performance and
retention bonding of $165,177 for the European subsidiaries. Management expects
ATR/Finmeccanica to continue to provide these services through 1999.

     FOREIGN EXCHANGE RISK MANAGEMENT
     Foreign exchange rates related to significant Company operations were as
follows:

<TABLE>
<CAPTION>
                                                                PER U.S. DOLLAR
                                         FRENCH FRANC                                       ITALIAN LIRA
     YEAR                      AVG.           HIGH            LOW                 AVG.           HIGH             LOW
    <S>                      <C>            <C>            <C>               <C>            <C>             <C>
     1997................     5.832          6.351          4.557             1702.725       1840.000        1517.000
     1996................     5.139          5.830          4.996             1542.100       1600.000        1494.000
     1995 ...............     4.960          5.390          4.790             1629.000       1736.000        1569.000
</TABLE>

     The Company has entered into foreign currency exchange contracts to reduce
its foreign currency exchange risk. Because these contracts are intended as
hedges of the underlying assets, liabilities or commitments, any exchange gains
or losses are deferred. There were no deferred gains or losses related to
foreign currency exchange contracts at December 31, 1997. 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, 1997, approximately $30,000 of the Company's
borrowings was 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, though no such instruments were outstanding as of December 31, 1997.
The Company does not expect that short-term, floating interest rates will vary
materially from historical patterns in 1998.


                              ANSALDO SIGNAL N.V.

                                                                              25
<PAGE>   28



     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 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 data conversion project to address all necessary code changes, testing, and
implementation. Project completion is planned for the middle of 1999. These
costs will not be incremental costs to the Company, but rather will represent
the redeployment of existing information technology resources. The Company
expects its year 2000 data conversion to be completed on a timely basis.
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.
     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, 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 Year 2000 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 Year 2000 claims of
third parties.

     EURO CONVERSION
     In 1997, the Company began to review its internal reporting systems
regarding Euro conversion requirements to address all necessary changes,
testing, and implementation. The Company expects its Euro conversion to be
completed on a timely basis. The costs are associated with the Company's
European subsidiaries and are not expected to be material. 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.

     NEW ACCOUNTING STANDARDS
     In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 established standards for reporting and
display of comprehensive income and its components. The Company is required to
adopt the provisions of SFAS No. 130 beginning with its consolidated financial
statements for the three months ending March 31, 1998. SFAS No. 131 requires
certain disclosures about segment information in interim and annual financial
statements and related information about products and services, geographic areas
and major customers. The Company must adopt the provisions of SFAS No. 131 for
its consolidated financial statements for the year ending December 31, 1998.
     The Company is currently studying the impact of applying the provisions of
SFAS No. 131. While SFAS No. 131 will not have any effect on financial position,
results of operations or cash flows, it may, depending on a number of factors,
require disclosure of certain segment information in notes to the consolidated
financial statements. The Company does not expect results of adopting SFAS No.
130 to be significant.


                              ANSALDO SIGNAL N.V.

                                                                              26
<PAGE>   29


     OUTLOOK
     The Company's backlog provides a solid base of business over the next
several years, not only in the number of contracts but also in improved margin
in backlog. The Company expects to go forward into 1998 with continued strong
orders based upon the number of contracts to be bid in North America and an
increase in the high-speed train work in Europe. Operating results are not
expected to be impacted in 1998 by software contracts, unlike 1997 when the
company completed a software contract which had experienced major cost overruns.
However, the Asian markets outside of China may defer infrastructure spending,
awaiting a settling of the economic uncertainties. 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.
Overall, the Company expects to return to profitability in 1998.


ITEM 9A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Not applicable.


ITEM 10.  DIRECTORS AND OFFICERS OF REGISTRANT

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

     Alberto Rosania, Chairman, is currently First Vice President, Strategic
Finance, of Finmeccanica and was previously First Vice President, Corporate
Development of Finmeccanica since February 1995. From July 1989 to February
1995, he was First Vice President, Planning and Control of Finmeccanica. He has
been a director of the Company since November 13, 1996.

     Eugenio Angeli has been a director of Ansaldo Trasporti Spa since 1995. He
has also been Chairman of Gruppo Italiano Trazione since 1995. From 1992 to 1995
he served as General Manager of Ansaldo. He has been a director of the Company
since November 13, 1996.

     Giuseppe Bono has been Senior Vice President of Finmeccanica since 1993.
From 1987 to 1991, he was Managing Director of Aviofer S.p.A. From 1991 to 1993,
he was General Manager of EFIM. He has been a director of the Company since
December 11, 1996.

     Luciano Cravarolo has been President of Ansaldo Trasporti since February
1998. From March 1995 to February 1998, he served as Vice President and Managing
Director of ATR. From January 1991 to February 1995, he was General Manager of
Ansaldo responsible for industrial planning. He has been a director of the
Company since December 11, 1996.

     Rodolfo De Domenicis has been Vice President of Ansaldo Trasporti S.p.A.
since May 1998. From January to May 1998, he was Managing Director and Chief
Executive Officer of ATR. Since 1983, he has served as Professor of
"Quantitative Methods for Company Organization and Management" on the Business
Studies Faculty of the University of Pisa. Over recent years, he has acted as
strategy consultant for various hi-tech companies world-wide. He was elected a
director at the Company's last annual meeting.

     Francesco Festa has been Chief Counsel of Ansaldo, a division of
Finmeccanica, since 1991. He has been a director of the Company since November
13, 1996.

     Edward Riddett was President, Chief Executive Officer and Chairman of the
Board of Transcontrol Corporation from September 1983 to August 1992. From
October 1989 to October 1990, he was Chairman of the Board of Union Switch &
Signal Inc. He has been a director of the Company since December 11, 1996.

     Yazid Sabeg has been the Chief Executive Officer and a director of
Compagnie des Signaux SA since 1991. He has also served as a Chairman of the
Board of Directors of CSEE. He has been a director of the Company since December
11, 1996.


                              ANSALDO SIGNAL N.V.

                                                                              27
<PAGE>   30



     Joel A. Smith, III has been President, Nations Bank Carolinas and its
predecessors, NationsBank N.A. (Carolinas), NationsBank of North Carolina, N.A.
and NationsBank of South Carolina, N.A. since 1987. He has been a director of
the Company since December 11, 1996.

     Messrs. Angeli, Riddett and Smith serve on the Audit Committee, which was
established on March 10, 1997.

     The sole member of the Board of Management is as follows:

     James N. Sanders is the Managing Director and Chief Executive Officer of
the Company. He has been the 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.

     The Board of Management is supported in its management of the Company by an
Executive Committee consisting of the following:

     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.

     Joseph A. Kirby is Vice President and Chief Financial Officer and has
served in this capacity since formation of the Company in November 1996. From
June 1992 to December 1996 he was Vice President and Chief Financial Officer of
US&S.

     Marco Mantero is Vice President, Italian Region, and has served as Managing
Director and Chief Executive Officer of ASF since April 3, 1997. From March 1996
to April 1997, he was the General Manager of Ansaldo Trasporti's signaling
business unit, the predecessor to ASF. From October 1991 to March 1996, he was
an Export Marketing Vice President, European Activities Vice President and
Project Financing Vice President of Impregilo, a construction company of the
Fiat Group.

     Gary Ryker is Vice President, North American Region, and has served in this
capacity and as President and Chief Executive Officer of US&S since his
appointment in September 1997. Ryker previously served as executive vice
president-marketing, sales and service for Harmon Industries of Missouri from
1992 to 1997.

     Other group staff include the following:

     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, Corporate and Investor Relations, in
which capacity he has served since formation of the Company in November 1996,
and is a Member, Office of the Chairman. He is responsible for the Company's
strategic planning, corporate marketing, investor relations and external
relations. From February 1990 to December 1996 he was the chief communications
and investor relations officer for US&S.

     Richard D. Moss is Treasurer of the Company and has served in this capacity
since its formation in November 1996. From September 1992 to the present Mr.
Moss has also served as the Treasurer of US&S.

     Robert D. Pascoe is Vice President, Products and Technology Processes, in
which capacity he has served since April 1997. He previously served since 1991
as Director, Signal & Train Control Technology for US&S.


                              ANSALDO SIGNAL N.V.

                                                                              28
<PAGE>   31



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
$10,000 for their services plus reimbursement of reasonable expenses in
connection with such services.
     In 1997, the aggregate cash compensation of the Managing Director, members
of the Executive Committee and the other group staff identified above, as a
group, paid or accrued by the Company and its subsidiaries was $1,818,444. Of
this amount, $180,845 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 Director and the members of the Executive Committee in accordance with
the requirements of the country of their employment and the terms of their
employment contracts. In 1997, the aggregate amount set aside by the Company,
through one or more of its subsidiaries, for the Managing Director and the
Executive Committee members identified above was $153,434.
     The Company's 401K Plan covers all of the salaried employees of Union
Switch & Signal Inc. and its subsidiaries. Participating employees may elect to
reduce their current compensation on a pretax basis by up to the statutorily
prescribed annual limit ($9,500 in 1997) 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 1997, Union Switch & Signal
Inc. made matching and basic (but no discretionary) contributions of $30,500 to
the accounts of the Union Switch & Signal Inc. employees who are members of
group staff identified above.
     The Managing Director, the members of the Executive Committee and the other
group staff identified above were also covered in 1997 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 $67,187.


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 168,500 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.
     As of May 31, 1997, the Managing Director, the members of the Executive
Committee and the other group staff identified above have been granted options
to purchase 168,500 Common Shares under the Company's Stock Incentive Plan, of
which options for 17,600 Common Shares became exercisable in 1997. The remaining
150,900 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
     GRANT DATE                          OPTIONS               PRICE                  DATE
     <S>                                <C>                   <C>              <C>
     December 11, 1996                   148,500               $7.50            December 15, 2006
     July 22, 1997                       20,000                $7.50            December 15, 2006
</TABLE>


                              ANSALDO SIGNAL N.V.

                                                                              29
<PAGE>   32



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, 1997, 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.

     INTERCOMPANY TRANSACTIONS
     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 and other Finmeccanica affiliates. 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 million for the year ended December
31, 1997. 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, 1997. 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, 1998, which
is renewable on an annual basis unless terminated by either party. The aggregate
annual rental for 1997 was Lit 2.1 billion ($1.2 million). The 1997 cost will be
subject to annual adjustment based on an Italian consumer price index to
determine the 1998 cost. The lease also provides for certain services related to
the premises, including management information services, for an annual cost of
Lit. 9.5 billion ($5.4 million). The 1997 cost will be subject to an annual
agreed adjustment (up or down) based on external factors affecting the cost of
providing such services in 1998. 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 1998, which term can be extended on an
annual basis unless terminated by either party. The annual cost for 1997 was
Lit. 6.4 billion ($3.6 million). The 1997 cost will be subject to adjustment
based on an Italian consumer price index to determine the 1998 cost. 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, 1997 fees for such credit enhancement were $11,000.
Finmeccanica has agreed to continue such financial support through 1999 at a fee
of 1.0% and 0.5% per annum of the principal amount of any borrowing and of any
letter of credit facility enhanced, respectively. The Company expects to
continue to use such ATR / 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. See Note 10
of the Notes to Consolidated Financial Statement. The Company has paid interest
to ATR at rates between zero and 12% per annum,


                              ANSALDO SIGNAL N.V.

                                                                              30
<PAGE>   33



aggregating $3.2 million in 1997. Through March 1999, 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/Finmeccanica can be deferred if requested by the Company. Management has
stated that it would 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 and
currently intends to continue to provide such support for so long as
Finmeccanica or its affiliates own a controlling interest in Ansaldo Signal and
such support is needed. 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, 1997 fees for this service were $193,000. Although it is
Finmeccanica's current intention that it will continue to provide such financial
support to Ansaldo Signal after 1999, Finmeccanica is not under any legal
obligation to do so and no assurance can be given that Finmeccanica will be
capable of providing such financial support indefinitely. 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 export 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 Board of Management. 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


                              ANSALDO SIGNAL N.V.

                                                                              31
<PAGE>   34



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 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.


                              ANSALDO SIGNAL N.V.

                                                                              32
<PAGE>   35



                                     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
     Reports of Independent Accountants                                                                 35-36
     Consolidated Financial Statements:
              Consolidated Balance Sheet as of December 31, 1997 and 1996                                37
              Consolidated Statement of Operations for the Years Ended
                  December 31, 1997, 1996, and 1995                                                      38
              Consolidated Statement of Cash Flows for the Years Ended
                  December 31, 1997, 1996, and 1995                                                     39-40
              Consolidated Statement of Changes in Shareholders' Equity for the
                  Years Ended December 31, 1997, 1996, and 1995                                          41
              Notes to Consolidated Financial Statements                                                42-57
     (b) Index to Exhibits                                                                               58 
     The exhibits identified on the Index to Exhibits (page 58 hereof) are incorporated herein by reference.
</TABLE>


                              ANSALDO SIGNAL N.V.

                                                                              33
<PAGE>   36



                                   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/ James Sanders
                               ------------------
                            James N. Sanders
                            President and Chief Executive Officer


                              ANSALDO SIGNAL N.V.

                                                                              34

<PAGE>   37



REPORT OF INDEPENDENT ACCOUNTANTS



To the Supervisory Board
and Shareholders of
Ansaldo Signal N.V.

Dear Sirs,

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, 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 consolidated subsidiaries (the Company),
a majority-owned subsidiary of Ansaldo Trasporti S.p.A., at December 31, 1997
and 1996, and the results of their operations and their cash flows for the years
then ended 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 generally accepted auditing standards, 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.




PRICE WATERHOUSE  LLP

Pittsburgh, Pennsylvania
March 2, 1998


                              ANSALDO SIGNAL N.V.

                                                                              35
<PAGE>   38



REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Shareholders
of Ansaldo Signal N.V.


Dear Sirs,

In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, 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 consolidated subsidiaries (the Company)
at December 31, 1995 and the results of their operations and their cash flows
for the year in conformity with generally accepted accounting principles in the
United States of America. 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 audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards within the
United States of America 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
audit provides a reasonable basis for the opinion expressed above.





PRICE WATERHOUSE  S.p.A.

Rome, Italy
October 1, 1996


                              ANSALDO SIGNAL N.V.

                                                                              36
<PAGE>   39



                           CONSOLIDATED BALANCE SHEET
                     ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                                 DECEMBER 31
         ASSETS                                                                              1997          1996
<S>                                                                                          <C>         <C>
Current Assets:
     Cash and cash equivalents...............................................................  $  4,530   $ 11,097
     Receivables - net allowance for doubtful accounts of $1,735 and $2,339..................    95,689     99,683
     Receivables from parent and affiliates..................................................    15,761     10,471
     Inventory (Note 3)......................................................................    44,771     50,419
     Costs and estimated earnings in excess of billings
         on uncompleted contracts (Note 4)...................................................   157,008    160,921
     Prepaid expenses and other current assets...............................................    25,646     21,475
                                                                                               --------   --------
              Total current assets:..........................................................   343,405    354,066
Contract receivables - retentions............................................................    13,370     13,553
Property, plant and equipment - net..........................................................    54,302     59,250
Intangible assets - net (Note 16)............................................................    33,118     42,377
Deferred tax assets..........................................................................     9,653     17,141
Other assets  ...............................................................................     3,318      1,120
                                                                                               --------   --------
              Total assets...................................................................  $457,166   $487,507
                                                                                               ========   ========

         LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES:
     Short term borrowings and current
         obligations under capital leases (Note 6)...........................................  $ 60,129   $ 27,681
     Accounts payable........................................................................    97,844     91,739
     Accounts payable - parent and affiliates................................................     4,465      8,654
     Accrued liabilities.....................................................................    24,331     25,284
     Reorganization costs accrued (Note 17)..................................................     4,160     16,600
     Billings in excess of costs and estimated earnings
         on uncompleted contracts (Note 4)...................................................    62,672     78,357
                                                                                               --------   --------
              Total current liabilities......................................................   253,601    248,315
Employee benefits obligations................................................................    21,304     23,937
Other liabilities............................................................................    13,327     15,283
Long-term borrowings and obligations under capital leases (Note 7)...........................    34,003     44,100
Payable to parent............................................................................    32,379     30,202
                                                                                               --------   --------
              Total liabilities..............................................................   354,614    361,837
                                                                                               --------   --------
Shareholders' equity:
     Priority shares, NLG 0.01 par value authorized 100
         shares, no shares issued and outstanding............................................        --         --
     Common shares, NLG 0.01 par value, authorized 50,000,000
         shares, issued and outstanding 20,448,750 and 20,448,750............................       120        120
     Additional paid-in capital..............................................................   139,999    139,999
     Foreign currency translation adjustments................................................   (10,562)      (212)
     Accumulated earnings (deficit)..........................................................   (27,005)   (14,237)
                                                                                               --------   --------
              Total shareholders' equity.....................................................   102,552    125,670
Commitments and contingencies................................................................        --         --
                                                                                               --------   --------
              Total liabilities and shareholders' equity.....................................  $457,166   $487,507
                                                                                               ========   ========
</TABLE>

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


                              ANSALDO SIGNAL N.V.

                                                                              37
<PAGE>   40



                      CONSOLIDATED STATEMENT OF OPERATIONS
                     ($ IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                                        1997          1996          1995
<S>                                                                             <C>            <C>           <C>
Revenue                                                                             $318,225      $353,500      $299,347
Cost of revenue                                                                      263,274       296,620       236,858
                                                                                    --------      --------      --------
         Gross profit                                                                 54,951        56,880        62,489
Operating expenses:
     Selling, general and administrative                                              50,107        47,971        38,829
     Research and development - net                                                    9,953        11,804        11,759
     Acquired in process research and development (Note 1)                                --        15,144            --
     Reorganization (Note 17)                                                         (1,584)       17,288            --
                                                                                    --------      --------      --------
         Operating expenses                                                           58,476        92,207        50,588
                                                                                    --------      --------      --------
         Operating income (loss)                                                      (3,525)      (35,327)       11,901
Interest expense                                                                       8,834         6,101         4,562
Other (income) expenses                                                                  (83)         (427)          340
                                                                                    --------      --------      --------
         Income (loss) before income taxes and equity in net
              earnings (losses) of affiliates                                        (12,276)      (41,001)        6,999
Provision for (benefit from) income taxes                                                 77        (2,714)        3,508
                                                                                    --------      --------      --------
         Income (loss) before equity in net
              earnings (losses) of affiliates                                        (12,353)      (38,287)        3,491
Equity in net earnings (losses) of affiliates (Note 18)                                 (325)         (608)        2,917
                                                                                    --------      --------      --------
         Net income (loss)                                                          $(12,678)     $(38,895)     $  6,408
                                                                                    ========      ========      ========
         Basic and dilutive net income (loss)
              per common share                                                        $(0.62)       $(1.90)        $0.36
                                                                                      ======        ======         =====

     Basic weighted average number
         common shares outstanding                                                20,488,750    20,488,750    17,990,750
                                                                                  ==========    ==========    ==========
     Dilutive weighted average number
         common shares outstanding                                                20,488,750    20,488,750    17,990,750
                                                                                  ==========    ==========    ==========
</TABLE>

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


                              ANSALDO SIGNAL N.V.

                                                                              38
<PAGE>   41



                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                ($ IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                                             YEAR ENDED DECEMBER 31,
                                                                                        1997          1996          1995
<S>                                                                             <C>           <C>           <C>        
Increase (decrease) in cash and cash equivalents: 
     CASH FLOWS FROM OPERATING ACTIVITIES:
         Net income (loss)....................................................      $(12,678)     $(38,895)     $  6,408
         Adjustments to reconcile net income to net cash
              provided by (used in) operating activities:
              Depreciation and amortization:..................................        11,526        11,370        10,553
              Deferred income taxes...........................................         3,878        (2,310)         (995)
              Equity in net losses (earnings) of affiliates...................           219           608        (2,917)
              Acquired in process research and development....................                      15,144             0
         Changes in:
              Receivables.....................................................       (12,949)         (234)        6,631
              Inventory.......................................................         2,943        (1,696)       (2,097)
              Other assets....................................................        (5,704)          257       (10,847)
              Accounts payable................................................        15,245        (8,336)          293
              Accrued liabilities.............................................         4,259           228        (3,506)
              Reorganization (Note 1).........................................       (12,440)       16,600             0
              Contracts - net (a).............................................       (21,144)      (13,537)       (4,598)
                                                                                    --------      --------      --------
                  Net cash (used in) provided by operating activities.........       (26,845)      (20,801)       (1,075)
     CASH FLOWS FROM INVESTING ACTIVITIES:
         Capital expenditures (b).............................................        (7,138)       (5,218)      (20,285)
         Acquisition of CSEE (d)..............................................             -         2,581             0
         Net assets purchased.................................................          (344)         (578)         (916)
                                                                                    --------      --------      --------
                  Net cash used in investing activities.......................        (7,482)       (3,215)      (21,201)
     CASH FLOWS FROM FINANCING ACTIVITIES:
         Net proceeds from short term borrowings..............................        15,108        16,366         7,052
         Financing by parent company..........................................        19,475        26,175        (4,005)
         Proceeds from long term borrowings...................................             0        12,000        15,000
         Payments on long term borrowings.....................................        (5,316)      (22,137)       (1,145)
         Proceeds from (payments on) capital leases...........................          (468)         (476)         (224)
                                                                                    --------      --------      --------
                  Net cash provided by financing activities...................        28,799        31,928        16,678
Effects of exchange rate changes on cash......................................        (1,039)          (74)          (18)
                                                                                    --------      --------      --------
Net increase (decrease) in cash and cash equivalents..........................        (6,567)        7,838        (5,616)
Cash and cash equivalents at beginning of period..............................        11,097         3,259         8,875
                                                                                    --------      --------      --------
Cash and cash equivalents at end of period....................................      $  4,530      $ 11,097      $  3,259
                                                                                    ========      ========      ========
Interest paid during period...................................................      $  8,586      $  4,487      $  4,197
                                                                                    ========      ========      ========
Income taxes paid (refund received) during period (c).........................      $  1,562      $ (1,107)     $  8,393
                                                                                    ========      ========      ========
</TABLE>


                              ANSALDO SIGNAL N.V.

                                                                              39
<PAGE>   42



                CONSOLIDATED STATEMENT OF CASH FLOWS (continued)
                                ($ IN THOUSANDS)

(a)  Contract accounting includes costs and estimated earnings in excess of
     billings, contract receivables - retentions, billings in excess of costs
     and estimated earnings on uncompleted contracts and accounts payable -
     retentions.
(b)  Not included in capital expenditures in 1995 is $7,536, which is the value
     of a capital lease.
(c)  The line item "Income taxes paid" 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 Note 10).
(d)  Supplemental cash flow information

           Acquisition of CSEE
               Fair value of net assets acquired..............         $ 77,632
               Stock issued...................................          (18,900)
               Reduction in parent receivables................          (58,732)
                                                                       --------
               Cash paid......................................         $     --
                                                                       ========
               Cash acquired..................................         $  2,581
                                                                       ========

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


                              ANSALDO SIGNAL N.V.

                                                                              40
<PAGE>   43


            CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
                                ($ IN THOUSANDS)
<TABLE>
<CAPTION>
                                                                           Foreign
                                                      Additional          currency
                                                         paid-in       translation         Retained
                                        Capital          capital       adjustments         earnings             Total
<S>                                       <C>          <C>               <C>              <C>               <C>
January 1, 1995                            $108         $126,589          $    (75)        $ 18,250          $144,872
Net income (loss)                                                                             6,408             6,408
Translation adjustments                      --               --               225               --               225
                                           ----         --------          --------         --------          --------
December 31, 1995                           108          126,589               150           24,658           151,505
Net income (loss)                                                                           (38,895)          (38,895)
CSEE acquisition                             12           18,900                                               18,912
Other (1)                                                 (5,490)                                              (5,490)
Translation adjustments                      --               --              (362)              --              (362)
                                           ----         --------          --------         --------          --------
December 31, 1996                           120          139,999              (212)         (14,237)          125,670
Net income (loss)                                                                           (12,678)          (12,678)
Translation adjustments                      --               --           (10,350)             (90)          (10,440)
                                           ----         --------          --------         --------          --------
December 31, 1997                          $120         $139,999          $(10,562)        $(27,005)         $102,552
                                           ====         ========          ========         ========          ========
</TABLE>

(1)  The adjustment relates to the SBU contribution 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.


                              ANSALDO SIGNAL N.V.

                                                                              41
<PAGE>   44



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           DECEMBER 31, 1997 AND 1996
                   ($ IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1.   DESCRIPTION OF THE BUSINESS AND CAPITALIZATION

     Ansaldo Signal N.V. ("the Company," "ASNV," 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.
     ASNV was formed upon the merger of Union Switch & Signal Inc. ("US&S") (a
majority owned subsidiary of ATR) with a direct wholly-owned subsidiary of ASNV.
As a result of the merger, US&S ceased to exist as a separate legal entity and
each outstanding share of US&S common stock (9,737,500) was converted into one
common share of ASNV. Immediately after the merger described above, ATR
contributed the outstanding capital stock of its other railway signaling and
automation businesses to ASNV in exchange for 10,711,250 common shares of ASNV.
     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, ASNV's historical results reflect
the historical results of the companies merged with and contributed to ASNV. The
Company's results of operations for the year ended December 31, 1995 and 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 CS 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 year ended December 31, 1997 reflect 100% of CSEE.
     The Company markets its products and services to customers in the
international rail and mass transit transportation industry segments. 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.

     BUSINESS COMBINATIONS
     Separate revenue and net income amounts of the merged entities are
presented in the following table. Note that the amounts relating to certain
reorganization expenses and the elimination of intercompany sales have been
allocated to Corporate.

<TABLE>
<CAPTION>
                                                                   REVENUE                           NET INCOME
                                                             1996            1995               1996            1995
<S>                                                     <C>             <C>                 <C>              <C>
USS...............................................       $159,620        $172,467           $ (8,469)         $3,624
ATI...............................................          1,470           1,356               (518)             14
ATSS..............................................         14,803          12,025                494           1,075
ASF...............................................        128,037         113,499             (7,399)          1,695
CSEE..............................................         55,215              --            (15,810)             --
Corporate.........................................         (5,645)             --             (7,193)             --
                                                         --------        --------           --------          ------
                                                         $353,500        $299,347           $(38,895)   (a)   $6,408
                                                         ========        ========           =========         ======
</TABLE>

     (a) See footnote 12 for 1996 non-recurring charges of $32,432 for
         reorganization costs and the write-off of in process research and
         development costs.

     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


                              ANSALDO SIGNAL N.V.

                                                                              42
<PAGE>   45



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 statement of operations includes 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
     Prior to June 28, 1996, Ansaldo Signal N.V. 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) in anticipation of exchanging such shares for a certain number
of shares in ASNV. These shares were exchanged for 2,000,000 ASNV 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 ASNV since June 28, 1996.
     The total cost of the transaction to acquire the remaining 51% interest in
CSEE was valued at approximately $77.6 million. The net 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 wholly-owned subsidiaries are consolidated. All significant
intercompany transactions have been eliminated in the consolidated financial
statements. Investments in subsidiaries of 20-50% in which the Company exercises
significant influence over operating and financial policies are accounted for
using the equity method.

     TRANSLATION OF FINANCIAL STATEMENTS
     The Company's financial results have been reported in US dollars. When
translating local currency based 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 financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, revenues, expenses, and disclosures
of contingencies 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 contracts.


                              ANSALDO SIGNAL N.V.

                                                                              43
<PAGE>   46



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     CONTRACT REVENUE AND COST RECOGNITION
     Revenue and expenses of long-term systems contracts are recognized using
the percentage-of-completion method of accounting. Under this method, income is
recognized as work progresses on the contracts. 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 from contracts accounted for under the
percentage-of-completion method 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. The Company
recognizes revenue in amounts equal to costs for certain installation services
on the basis of contract segmentation. Selling, general and administrative costs
are charged to expense as incurred. Revisions in profit estimates during the
period of a contract are reflected in the accounting period in which the revised
estimates are made. If estimated total costs on a contract indicate a loss, the
entire amount of the estimated loss is provided for currently.
     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.

     UNSIGNED CHANGE ORDERS
     The Company records revenue related to unsigned change orders when it is
determined that their collection is probable.

     CONTRACT RETENTIONS - RECEIVABLES AND PAYABLES
     Contract retentions - receivables and payables - arise from the performance
of long-term contracts. Approximately $4.7 million of retentions receivable and
$1.0 million of retentions payable are estimated to be collected or paid,
respectively, in 1998.

     COMPONENTS REVENUE RECOGNITION
     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. Maintenance and repairs are
charged to expense as incurred.

     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 8-20 years. Goodwill,
which represents the excess of purchase price over the fair value assigned to
the net assets purchased, is being amortized over 10-20 years.


                              ANSALDO SIGNAL N.V.

                                                                              44
<PAGE>   47



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     EARNINGS PER SHARE OF COMMON STOCK
     Earnings per share is calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 - "Earnings per Share" (SFAS
No. 128). Basic earnings per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the year. Dilutive
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 to acquire common stock.
     Basic/dilutive earnings per share for the year ended December 31, 1997,
are based upon 20,448,750 common shares outstanding. Basic/dilutive 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 with US&S
shareholders (9,737,500) and the issuance of 10,711,250 additional shares, in
exchange for 100% of ASF, CSEE, ATI and 75% of ATSS. Basic/dilutive earnings
per share for the year ended December 31, 1995, are based upon 17,990,750 common
shares outstanding which reflects the one-for-one exchange with US&S
shareholders (9,737,500) and the issuance of 8,253,250 common shares to ATR in
exchange for all the outstanding shares of ASF and ATI, as well as 75% and 49%
of the outstanding shares of ATSS and CSEE, respectively.

     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 foreign
currency exposure firm commitments, 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 - NET
     Research and development expense is 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 the receipt have
been met.


                              ANSALDO SIGNAL N.V.

                                                                              45
<PAGE>   48



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.   INVENTORY
<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                             1997               1996
             <S>                                                                        <C>                <C>
              Raw materials.......................................................        $25,005            $32,410
              Work-in-process.....................................................         14,028             11,625
              Finished components.................................................          5,738              6,384
                                                                                          -------            -------
              Net Inventory.......................................................        $44,771            $50,419
                                                                                          =======            =======
</TABLE>


4.   COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                             1997               1996
            <S>                                                                       <C>                <C>
              Costs incurred on uncompleted contracts.............................    $ 1,206,219        $ 1,135,827
              Estimated earnings..................................................        190,081            193,896
                                                                                      -----------        -----------
                                                                                        1,396,300          1,329,723
              Less billings-to-date and advances on contracts.....................     (1,301,964)        (1,247,159)
                                                                                      -----------        -----------
                                                                                      $    94,336        $    82,564
                                                                                      ===========        ===========
</TABLE>

     The net amount above is included in the consolidated balance sheet under
the following captions:
<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                             1997               1996
            <S>                                                                         <C>                <C>     
              Costs and estimated earnings in excess of billings
                  on uncompleted contracts........................................       $157,008           $160,921
              Billings in excess of costs and estimated earnings
                  on uncompleted contracts........................................        (62,672)           (78,357)
                                                                                         --------           --------
                                                                                         $ 94,336           $ 82,564
                                                                                         ========           ========
</TABLE>

     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.
     Approximately $13,092 of amounts included in unbilled costs and estimated
earnings on uncompleted contracts at December 31, 1997 will be collected after
one year.


5.   PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                             1997               1996
             <S>                                                                        <C>                <C>
              Land................................................................       $  3,350           $  3,218
              Buildings...........................................................         44,829             44,339
              Machinery and equipment.............................................         64,628             76,135
              Construction-in-progress............................................         11,495              5,967
                                                                                         --------           --------
                                                                                         $124,302           $129,659
              Less accumulated depreciation.......................................        (70,000)           (70,409)
                                                                                         --------           --------
                                                                                         $ 54,302           $ 59,250
                                                                                         ========           ========
</TABLE>

     Depreciation expense for the years ended December 31, 1997, 1996, and 1995
was $8,446, $6,635, and $6,090 respectively. Depreciable lives range from 3 to
39 years.


                              ANSALDO SIGNAL N.V.

                                                                              46
<PAGE>   49



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
6.   SHORT TERM BORROWINGS AND CAPITAL LEASES

                                                               CURRENCY                            DECEMBER 31,
                                                             PAYABLE IN                       1997               1996
<S>                                                              <C>                      <C>                <C>
Borrowings (unsecured but with letters
of comfort from ATR and Finmeccanica),
by Ansaldo Signal. The interest rate in
effect on December 31, 1997 was 7.00%.......................       US $                    $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%................................       US $                     21,987             11,054

Borrowings (unsecured), in Australia by 
Union Switch & Signal Pty. LTD under a
revolving credit facility expiring May 31,
1996, with interest payable quarterly. The
interest rate in effect at December 31, 1996 
was 8.01%...................................................        A $                         --              3,796

Borrowings (unsecured), in Italy by ASF 
under various agreements with several Banks,
expiring within one year. The interest rate
in effect at December 31,1997 was between
8.63% and 11.50%............................................       Lira                      8,945              7,864

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 3.88% and 5.91%.................................    Various                     11,433              4,498

Current portion of obligations under
     capital leases.........................................                                   478                469

Current portion of senior notes becoming
     due in 1998............................................                                 4,286                 --
                                                                                           -------            -------
     Total short-term borrowings and current
         portion of obligations under capital leases
         and senior notes...................................                               $60,129            $27,681
                                                                                           =======            =======
</TABLE>

     The Company had committed and uncommitted lines of credit available at
December 31, 1997, of $101.8 million with various banks. The unused portion of
the committed and uncommitted lines of credit available at December 31, 1997,
totaled $35.6 million after a deduction of $11,232 for commercial and stand-by
letters of credit issued under one of the lines. US&S also has a $1,707 letter
of credit line available and fully utilized from a bank at December 31, 1997.
Certain of these lines are guaranteed by ATR.


                              ANSALDO SIGNAL N.V.

                                                                              47
<PAGE>   50



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.   LONG TERM BORROWINGS AND CAPITAL LEASES

     The carrying value of the Company's long-term debt is considered to
approximate fair value based on the borrowing rates currently available to the
Company for loans with similar terms and maturities.
<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
         Union Switch & Signal                                                                1997              1996
        <S>                                                                               <C>               <C>
              Borrowings (unsecured) under revolving credit
              facility terminated as of September 1997............................         $     -           $ 5,000

              Senior Notes (unsecured) due 2004, with a
              fixed interest rate of 8%...........................................          30,000            30,000

              Long term obligations under capital leases..........................           8,289             9,100
                                                                                           -------           -------

                  Subtotal .......................................................         $38,289           $44,100

              Less current portion of senior notes................................           4,286                 -
                                                                                           -------           -------

                  Total long term borrowings and obligations
                  under capital leases............................................         $34,003           $44,100
                                                                                           =======           =======
</TABLE>

     Future minimum lease payments under non-cancelable operating leases and
capital leases as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
                                                                                         OPERATING           CAPITAL
             <S>                                                                          <C>             <C>
              1998................................................................         $ 2,883           $   863
              1999................................................................           2,145               856
              2000................................................................           1,776               856
              2001................................................................           1,579               856
              2002................................................................           1,585               856
              Thereafter..........................................................           3,602             6,929
                                                                                           -------           -------
              Total Minimum Lease Payments........................................         $13,570           $11,216
                                                                                           =======
              Amount Representing Imputed Interest................................                            (2,449)
                                                                                                             -------
              Present Value of Future Minimum Lease Payments......................                           $ 8,767
              Less Current........................................................                              (478)
                                                                                                             -------
                                                                                                             $ 8,289
                                                                                                             =======
</TABLE>

     In 1994, US&S issued senior, unsecured promissory notes to various lenders
in the total amount of $30,000 at an 8 percent fixed rate. The private placement
notes have a ten-year term with principal repayments beginning in 1998. US&S is
in default on one of the financial covenants included in the note agreement. A
waiver of default has been obtained as of December 31, 1997 and remains valid
through the quarter ending September 30, 1998. Management expects to be in
compliance with the covenants by December 31, 1998.
     The above debt has been classified as long term because ATR and/or
Finmeccanica have agreed to continue to provide sufficient guarantees and/or
financing support including refinancing of present debt for the operations of
Ansaldo Signal N. V. and its subsidiaries until March 1999. The repayment of any
present or future indebtedness to ATR and/or Finmeccanica will not occur if
deferral of payment is 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.


                              ANSALDO SIGNAL N.V.

                                                                              48
<PAGE>   51



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     US&S maintains a $100 million surety bonding facility ($29.3 million
outstanding at December 31, 1997) in addition to a $300 million surety bonding
facility provided by Finmeccanica (see Note 11).
     The aggregate principal maturities of debt under the present credit
arrangements for the periods subsequent to December 31, 1997:

<TABLE>
        <S>                                                                      <C>
         1998 ....................................................................$ 4,286
         1999 ....................................................................  4,286
         2000 ....................................................................  4,286
         2001 ....................................................................  4,286
         2002 ....................................................................  4,286
         Thereafter...............................................................  8,570
                                                                                  -------
                                                                                  $30,000
                                                                                  =======
</TABLE>


8.   EMPLOYEE BENEFIT OBLIGATIONS

     Substantially all employees are covered by Government or Company sponsored
retirement plans which are funded through payments made by the Company during
the employees working career. In some cases, the employee may also contribute to
the cost of the plan. However, the Company has no significant post-retirement
obligations.

<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                              1997               1996
        <S>                                                                               <C>                <C>
         Severance Plan (ASF).....................................................         $15,299            $16,392
         Profit Sharing Plan (CSEE)...............................................           3,366              3,564
         Other (US&S).............................................................           2,639              3,981
                                                                                           -------            -------
                                                                                           $21,304            $23,937
                                                                                           =======            =======
</TABLE>

     The following is a description of the more significant plans:

     SEVERANCE PLAN
     ASF has an unfunded 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 workers 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 the Company
contribution after their first year of service.

     PROFIT SHARING PLAN AND OTHER
     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 contribute an
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.
     US&S has a defined contribution retirement plan (the Plan) under Internal
Revenue Code (IRC) Section 401(k) for all full-time employees. Contributions
into the Plan are made by employee pre-tax contributions and employer basic and
matching contributions.
     The Company has other unfunded plans, including CSEE's pension plan and the
US&S post-retirement benefit plan which pays a fixed amount toward medical
benefits and provides life insurance benefits. The liabilities and costs related
to these plans are not significant.
     The approximate cost of providing all of the above benefits for the years
ended December 31, 1997, 1996 and 1995 was $4,000, $4,079 and $4,592
respectively.


                              ANSALDO SIGNAL N.V.

                                                                              49
<PAGE>   52



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 1995 and the nine month period ended September 30, 1996, tax expense
has been allocated to SBU by applying the liability approach set forth in SFAS
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 unless it is more likely
than not that such future tax benefit would not be realized if SBU were a
separate taxpayer, in which case a tax benefit is recognized only for the amount
that is more likely than not to be realized.
     The components of the provision (benefit) for income taxes were as follows:
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                             1997            1996               1995
<S>                                                                      <C>               <C>               <C>
Current:
         Netherlands                                                      $    --         $    --            $    --
         Other                                                             (3,801)           (404)             4,503
                                                                          -------         -------            -------
                                                                           (3,801)           (404)             4,503
                                                                          -------         -------            -------
Deferred:
         Netherlands                                                           --              --                 --
         Other                                                              3,878          (2,310)              (995)
                                                                          -------         -------            -------
                                                                            3,878          (2,310)              (995)
                                                                          -------         -------            -------
              Total provision                                             $    77         $(2,714)           $ 3,508
                                                                          =======         =======            =======
</TABLE>

     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,
                                                                              1997            1996               1995
        <S>                                                              <C>             <C>             <C>            
         Expected tax at the statutory rate......................         $(4,448)       $(14,346)            $2,575
         Earnings of subsidiaries at rates over 35%..............             121             191                399
         In process research and development.....................              --           5,178                 --
         Loss carryover with no tax benefit......................             206           3,834               (598)
         Non-deductible goodwill.................................           1,614           1,301                810
         Non-deductible reorganization costs.....................             431           2,520                 --
         Change in tax rates.....................................           3,738              --                 --
         Change in valuation reserve.............................           2,902              --                 --
         Change in bad debt reserve..............................            (681)             --                 --
         Grant release...........................................          (1,730)             --                 --
         Other...................................................          (2,076)         (1,392)               322
                                                                          -------        --------             ------
              Total income tax...................................         $    77        $ (2,714)            $3,508
                                                                          =======        ========             ======
</TABLE>


                              ANSALDO SIGNAL N.V.

                                                                              50
<PAGE>   53



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

     Components of deferred taxes were comprised of the following:

<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
Deferred tax assets                                                                           1997               1996
<S>                                                                                 <C>                     <C>
         Contracts................................................................        $ 1,797            $ 4,320
         Pension and profit sharing...............................................          2,335              1,800
         Accrued expenses and reserves............................................          3,867              4,886
         Goodwill ................................................................          4,647              4,097
         Property, plant and equipment............................................             --              1,338
         Research and development.................................................          2,936              5,460
         Revaluation of assets....................................................          2,206              8,176
         NOL carryforward.........................................................          6,639              2,225
         Tax credits..............................................................            780                 --
         Other    ................................................................            431                524
                                                                                          -------            -------
              Deferred tax assets.................................................         25,638             32,826
         Valuation allowance......................................................         (3,625)              (723)
                                                                                          -------            -------
                                                                                          $22,013            $32,103
                                                                                          =======            =======

Deferred tax liabilities
         Property, plant and equipment............................................        $(2,924)           $(2,340)
         Government grants........................................................             --             (3,524)
         Leveraged lease..........................................................           (714)              (675)
         Intangibles..............................................................           (295)              (218)
         Other....................................................................           (962)            (1,181)
                                                                                          -------            -------
              Total deferred tax liabilities......................................        $(4,895)           $(7,938)
                                                                                          -------            -------
              Net deferred tax asset and liabilities..............................        $17,118            $24,165
                                                                                          =======            =======
</TABLE>

     The Company has recorded an adjustment to reduce the net deferred tax
balance at December 31, 1997 by $3,738 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.
     The Company has recorded a net increase in the valuation allowance of
$2,902, which has been charged to the 1997 tax provision. The increase reflects
the Company's expectations about the utilization of certain of its 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, 1997 will be
realized.
     During 1997, 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 $8,008. For income tax
reporting purposes, the Company has net operating loss carryforwards that
aggregate $18,570 at December 31, 1997. NOL carryforward periods vary from five
years to indefinite, and the first NOL carryforwards begin to expire in 2002.
     Estimated provisions for foreign withholding tax have been accrued on
unremitted earnings of international subsidiaries at December 31, 1997.


                              ANSALDO SIGNAL N.V.

                                                                              51
<PAGE>   54



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.  RELATED-PARTY TRANSACTIONS

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

<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                              1997               1996
<S>                                                                                      <C>                <C>
         Borrowings by ASF (unsecured); interest rate in
              effect at December 31, 1997 was 12%.................................         $29,154            $26,501

         Borrowings by ATSS (subordinated); non-interest bearing..................           1,960              2,250

         Borrowings by ATSS; floating interest rate tied to
              official discount rate in Sweden....................................           1,265              1,451
                                                                                           -------            -------

         Total borrowings from parent Company.....................................         $32,379            $30,202
                                                                                           =======            =======
</TABLE>

     Borrowings by ASF from the Company's parent (ATR) are for an indefinite
period of time.
     The subordinated ATSS loan from the parent company is interest free and is
classified in the 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 decision at the Annual General Meeting of Shareholders.
     US&S relies on ATR/Finmeccanica for certain financial and management
services. Such services include guaranteeing a $300,000 performance bonding
facility (of which $119,411 was utilized at December 31, 1997). The Company 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 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, 1997, 1996 and 1995,
fees were $204, $271 and $406, respectively.
     ATR/Finmeccanica has provided bid, advance payment, performance and
retentions bonding of $165,177 for all subsidiaries of ASNV.
     Management expects ATR/Finmeccanica to continue to be provide these
services, to the extent required, at least through 1999.
     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 1997, 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 year ended December 31, 1997 was $3,200 and $9,989
respectively. The Company anticipates the annual cost of these services to
approximate $11,800.
     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, 1997 and 1996, ASF
incurred costs on these contracts of some $12,623 and $22,851, respectively, and
received revenues on these contracts of some $17,125 and $29,177, respectively.
     In addition, pursuant to an agreement effective as of November 1, 1995
through December 10, 1996, US&S provided management consulting services to ATR.
For said services, US&S received a fee of $643 plus reimbursement of expenses.


                              ANSALDO SIGNAL N.V.

                                                                              52
<PAGE>   55



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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
hedges of the underlying assets, liabilities or commitments, any exchange gains
or losses are deferred. There were no gains or losses deferred related to
foreign currency exchange contracts at December 31, 1997. 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.


12.  GEOGRAPHIC SEGMENTS

     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
operations can be broken down geographically as follows:

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
REVENUE                                                                      1997            1996               1995
<S>                                                                     <C>             <C>                <C>     
         North America...........................................        $122,419        $150,325           $162,769
         Europe (a)..............................................         185,854         193,880            126,880
         Asia/Pacific............................................           9,952           9,295              9,698
                                                                         --------        --------           --------
         Consolidated............................................        $318,225        $353,500           $299,347
                                                                         ========        ========           ========
</TABLE>

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
INCOME (LOSS) FROM OPERATIONS                                                1997            1996               1995
<S>                                                                      <C>            <C>                 <C>    
         North America...........................................         $(7,056)       $ (9,935)           $ 9,477
         Europe (a)..............................................           5,413         (18,465)             2,195
         Asia/Pacific............................................          (1,896)            266                229
         Corporate...............................................              14          (7,193)                 0
                                                                          -------        --------            -------
         Consolidated............................................         $(3,525)       $(35,327)           $11,901
                                                                          ========       ========            =======
</TABLE>

<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
IDENTIFIABLE ASSETS                                                          1997            1996               1995
        <S>                                                               <C>           <C>                <C>
         North America...........................................        $151,259        $149,088           $160,996
         Europe (a)..............................................         296,703         328,355            207,701
         Asia/Pacific............................................           9,204          10,064              9,365
                                                                         --------        --------           --------
         Consolidated............................................        $457,166        $487,507           $378,062
                                                                         ========        ========           ========
</TABLE>

     (a) See footnote 1 regarding the acquisition of CSEE.

     In 1996, operating income included non recurring charges of $32,432 related
to reorganization costs and the write off of in process research and development
costs. These amounts are included in the following geographic areas:

<TABLE>
<CAPTION>
                                                              REORGANIZATION COSTS           IN PROCESS R&D WRITE-OFF
        <S>                                                               <C>                                <C>
         North America...........................................          $ 4,327                            $    --
         Europe..................................................            5,768                             15,144
         Corporate...............................................            7,193                                 --
                                                                           -------                            -------
         Consolidated............................................          $17,288                            $15,144
                                                                           =======                            =======
</TABLE>


                              ANSALDO SIGNAL N.V.

                                                                              53
<PAGE>   56



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  COMMITMENTS AND CONTINGENCIES

     The Company is a party to certain claims on work performed for certain
transit authorities and railroads, and 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.
     The following table summarizes all stock option activity in 1997 and 1996.

<TABLE>
<CAPTION>
                                                         1996                                           1997

                                                                 WEIGHTED                                       WEIGHTED
                                                                  AVERAGE                                        AVERAGE
                                                                 EXERCISE                                       EXERCISE
                                                SHARES              PRICE                     SHARES               PRICE
<S>                                           <C>                  <C>                       <C>                  <C>
Outstanding at beginning of year                    --                                       294,000               $7.50
Granted                                        294,000              $7.50                     20,000               $7.50
Forfeited                                           --              $7.50                   (145,500)              $7.50
                                               -------                                      --------
Outstanding at end of year                     294,000              $7.50                    168,500               $7.50
                                               =======                                       =======
Options exercisable at year end                     --                                        17,600               $7.50
                                               =======                                        ======
Weighted-average fair value of
         options granted during the year                  Less than $7.50                                Less than $7.50


</TABLE>

     Of these options, 17,600 became exercisable in 1997 and 150,900 become
exercisable in 1999.
     In 1996, the Company adopted SFAS No. 123, Accounting for Stock -Based
Compensation, and elected to continue to account for such compensation under the
provisions of APB 25. Therefore, no compensation


                              ANSALDO SIGNAL N.V.

                                                                              54
<PAGE>   57



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

costs have been recognized for the stock. Had the Company elected to account for
stock-based compensation under the provisions of SFAS 123, the effect on net
income and basic/dilutive earnings per share would not have been material;
accordingly, pro forma disclosures have not been included.


16.  GOODWILL, TECHNOLOGY AND OTHER INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                                                                                                  DECEMBER 31,
                                                                                             1997               1996
        <S>                                                                             <C>                <C>
         Goodwill................................................                        $ 28,785           $ 40,698
         Technology..............................................                          11,675             13,465
         Other...................................................                           3,424              7,177
                                                                                         --------           --------
                                                                                         $ 43,884           $ 61,340
         Less Accumulated amortization...........................                         (10,767)           (18,963)
                                                                                         --------           --------
                                                                                         $ 33,117           $ 42,377
                                                                                         ========           ========
</TABLE>

     The amortization expense for the years ended December 31, 1997, 1996 and
1995 was $3,080, $4,551 and $3,867 respectively.


17.  REORGANIZATION CHARGES

     The Company recorded restructuring charges of $10,095 in 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,
1997, $4,160 of this reserve has not yet been spent. The charge relates
primarily to involuntary separation and severance benefits related to displaced
employees. The involuntary separation and severance benefits relate primarily to
US&S's management employees whose positions have been eliminated and/or did
not relocate from US&S's headquarters in Columbia, South Carolina to Pittsburgh,
Pennsylvania and to employees of ASF working at the Company's facilities in
Italy, as well as the elimination of redundant product lines.
     Costs of $7,193 incurred and accrued 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
costs remain 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.


18.  PRO FORMA STATEMENT OF OPERATIONS (UNAUDITED)

     The following pro forma statements of operations give effect to the
acquisition by Ansaldo Signal of 100% of CSEE as if such acquisition occurred on
January 1, 1995.

                              ANSALDO SIGNAL N.V.

                                                                              55
<PAGE>   58



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                        PRO FORMA STATEMENT OF OPERATIONS
                                ($ IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                            YEAR ENDED DECEMBER 31, 1995
                                                                                                           PRO FORMA
                                                                           COMBINED                         COMBINED
                                                           ANSALDO             CSEE                             ASNV
COMBINED STATEMENT OF OPERATIONS:                           SIGNAL        TRANSPORT     ADJUSTMENTS        UNAUDITED
<S>                                                      <C>               <C>             <C>             <C>
Revenue............................................       $299,347          $94,109         $    --         $393,456
Cost of revenue....................................        236,858           67,792              --          304,650
                                                          --------          -------         -------         --------
              Gross profit.........................         62,489           26,317              --           88,806
                                                          --------          -------         -------         --------
Operating expenses:
         Selling, general and administrative.......         38,829           16,146           1,684 (1)       56,659
         Research and development-- net............         11,759            4,965              --           16,724
                                                          --------          -------         -------         --------
              Operating expenses...................         50,588           21,111           1,684           73,383
                                                          --------          -------         -------         --------
              Operating income (loss)..............         11,901            5,206          (1,684)          15,423
Interest expense...................................          4,562              262                            4,824
Other (income) expenses............................            340           (4,460)          3,697 (2)         (423)
                                                          --------          -------         -------         --------
              Income (loss) before income taxes
                  and equity in net earnings (losses)
                  of affiliates....................          6,999            9,404          (5,381)          11,022
Provision for (benefit from) income taxes..........          3,508            3,027          (1,146)           5,389
                                                          --------          -------         -------         --------
              Income (loss) before equity in net
                  earnings (losses) of affiliates..          3,491            6,377          (4,235)           5,633
Equity in net earnings (losses) of affiliates......          2,917             (424)         (2,917)(3)         (424)
                                                          --------          -------         -------         --------
              Net income (loss)....................       $  6,408          $ 5,953         $(7,152)        $  5,209
                                                          ========          =======         =======         ========
</TABLE>

                          YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
                                                                                                        PRO FORMA
                                                          COMBINED              (A)                      COMBINED
                                                           ANSALDO             CSEE                          ASNV
COMBINED STATEMENT OF OPERATIONS:                           SIGNAL        TRANSPORT     ADJUSTMENTS     UNAUDITED
<S>                                                      <C>               <C>             <C>          <C>
Revenue............................................       $353,500          $34,534         $    --      $388,034
Cost of revenue....................................        296,620           24,162              --       320,782
                                                          --------          -------         -------      --------
         Gross profit..............................         56,880           10,372              --        67,252
                                                          --------          -------         -------      --------
Operating expenses:
         Selling, general and administrative.......         47,971            7,618             842 (1)    56,431
         Research and development-- net............         11,804            2,578                        14,382
         Acquired in process research
              and development......................         15,144                                         15,144
         Reorganization............................         17,288               --              --        17,288
                                                          --------          -------         -------      --------
              Operating expenses...................         92,207           10,196             842       103,245
                                                          --------          -------         -------      --------
              Operating income (loss)..............        (35,327)             176            (842)      (35,993)
Interest expense...................................          6,101              176                         6,277
Other (income) expenses............................           (427)          (1,211)          1,111 (2)      (527)
                                                          --------          -------         -------      --------
              Income (loss) before income taxes
                  and equity in net earnings (losses)
                  of affiliates....................        (41,001)           1,211          (1,953)      (41,743)
Provision for (benefit from) income taxes..........         (2,714)           1,270            (344)       (1,788)
                                                          --------          -------         -------      --------
              Income (loss) before equity in net
                  earnings (losses) of affiliates..        (38,287)             (59)         (1,609)      (39,955)
Equity in net earnings (losses) of affiliates......           (608)             (58)             59 (3)      (607)
                                                          --------          -------         -------      --------
              Net income (loss)....................       $(38,895)         $  (117)        $(1,550)     $(40,562)
                                                          ========          =======         =======      ========
</TABLE>

(A) First six months of 1996.


                              ANSALDO SIGNAL N.V.

                                                                              56
<PAGE>   59



                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   Recognition of goodwill expense on goodwill recognized and amortization
     expense on technology acquired in the purchase of CSEE. 
     The transactions to increase the value of the Company's holdings in CSEE
     from 49% to 100% are considered under US GAAP to qualify as a step purchase
     transaction. As such, the excess of the purchase price over the fair market
     value of the assets acquired of $20,115 is accounted for as goodwill and is
     being amortized over 20 years. Additionally, the technology acquired in the
     transaction of $13,560 is being amortized over 20 years.

2.   Elimination of interest income derived from CSEE investments.
     The statement of operations includes $3,697 and $1,111 of interest income
     derived from CSEE investments held throughout the first six months of 1996
     and all of 1995. If the transaction had occurred as of January 1, 1995,
     these investments would have been liquidated to allow CSEE to repurchase
     the outstanding shares of CS. The interest income, calculated at the
     average rate received by CSEE in the respective periods, and the related
     tax expense, calculated at the average rate for CSEE, have been eliminated.

3.   Elimination of investment in CSEE and related equity in net income of CSEE.
     Prior to the merger, the Company's financial statements included 49% of
     CSEE net income within the statement of operations. The pro forma statement
     of operations eliminates the amount of equity income of CSEE to allow
     consideration of 100% of CSEE net income and assets and liabilities within
     the pro forma combined financial statements of Ansaldo Signal.


                              ANSALDO SIGNAL N.V.

                                                                              57
<PAGE>   60



<TABLE>
<CAPTION>
      EXHIBIT                                                                                          PAGE(S) IN THIS
                                                                                                        ANNUAL REPORT
                                                                                                         ON FORM 20F
      NUMBER                                                                                             DESCRIPTION
    <S>          <C>                                                                                        <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         Consent of Price Waterhouse LLP                                                            59
     2.11         Consent of Price Waterhouse S.p.A.                                                         60 
     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.

                              ANSALDO SIGNAL N.V.

                                                                              58