<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of April 1998
ANSALDO SIGNAL N.V.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Schiphol Boulevard 267
1118 BH Schiphol
The Netherlands
---------------------------------------
(Address of principal executive office)
Indicate by check mark whether the Registrant files or will file annual reports
under cover of Form 20-F or Form 40-F:
Form 20-F __X__ Form 40-F
Indicate by check mark whether the Registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934:
Yes No __X__
This document contains 63 pages. The exhibit index is located on page 2.
<PAGE> 2
EXHIBIT INDEX
<TABLE>
<CAPTION>
Description Page
----------- ----
<S> <C> <C>
1. Notice of Annual General Meeting of Shareholders of Ansaldo Signal 4
N.V. ("the Company"), dated March 13, 1998, Proxy Statement, dated
March 13, 1998, Notification Form and Form of Proxy, as mailed to the
Shareholders of the Company. All actions proposed in the Proxy
Statement were approved by the Shareholders of the Company.
2. The Company's 1997 Annual Report to Shareholders. 14
</TABLE>
2
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ANSALDO SIGNAL N.V.
Date: April 21, 1998 By /s/ JAMES N. SANDERS
-----------------------
Name: James N. Sanders
Title: Chief Executive Officer
3
<PAGE> 4
Ansaldo Signal N.V.
Strawinskylaan 3051
1077 ZX Amsterdam
The Netherlands
(Registered with the Chamber of Commerce at
Amsterdam, The Netherlands under No. 34.098.150)
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual General Meeting of Shareholders (the
"Annual Meeting") of Ansaldo Signal N.V. (the "Company") will be held on
Tuesday, April 14, 1998, at 12:00 noon at the World Trade Center, Schiphol
Boulevard 267, 1118 BH Schiphol [Amsterdam], The Netherlands.
The agenda for this Annual Meeting, including proposals made by the
Supervisory Board and the Management Board, is as follows:
1. Opening by the Chairman.
2. Management Report on the course of business of the Company in
connection with the Dutch Statutory Annual Accounts of 1997.
3. Supervisory Board Report with respect to the Dutch Statutory
Annual Accounts of 1997.
4. Approval to prepare the Dutch Statutory Annual Accounts in the
English language and adoption of the Dutch Statutory Annual
Accounts of 1997.
5. Appointment of registered accountants for 1998.
6. Extension of the authority of the Management Board to issue
Company shares until April 14, 2003.
7. Extension of the authority of the Management Board to limit or
eliminate preemptive rights until April 14, 2003
8. Extension of the authority of the Management Board to repurchase
Company stock until October 14, 1999.
9. Appointment of Mr. Rodolfo De Dominicis to the Supervisory Board
of the Company.
10. Questions.
11. Adjournment.
4
<PAGE> 5
Pursuant to the Articles of Association of the Company and Netherlands law,
copies of the Dutch Statutory Annual Accounts for the financial year 1997, the
reports of the Supervisory Board and the Management Board are open for
inspection by registered shareholders and other persons entitled to attend
meetings of shareholders at the offices of the Company at Strawinskylaan 3051,
1077 ZX Amsterdam, The Netherlands; and at ABN AMRO Trust Company Netherlands
B.V. at Hoekenrode 6-8, P.O. Box 1469, 1000 BL Amsterdam, The Netherlands; and
at the office of Letitia Radford, Vice President, SunTrust Bank, Corporate Trust
Department, P.O. Box 4625, Mail Code 008, Atlanta, Georgia 30302, U.S.A., from
the date hereof until the close of the Annual Meeting.
Registered shareholders wishing to exercise their shareholder rights,
either in person or by proxy, must notify the Company of their intention to do
so no later than April 3, 1998, using the enclosed notification form or proxy
card, as applicable. Notification should be received by 5 p.m. (New York time)
on April 3, 1998, at the office of Letitia Radford, Vice President, SunTrust
Bank, Corporate Trust Department, P.O. Box 4625, Mail Code 008, Atlanta, Georgia
30302, U.S.A. Registered shareholders may only exercise their shareholder rights
for the shares registered in their name both on April 3, 1998, and on the day of
the meeting. The holders of Type II shares (evidenced by share certificates) as
referred to in Article 5.2 of the Articles of Association, shall state the
serial numbers of their share certificates when notifying the Company.
The Company will send an admission ticket to registered shareholders that
have properly notified the Company of their intention to attend the Annual
General Meeting of Shareholders.
March 13, 1998
The Management Board
SHAREHOLDERS ARE URGED TO MARK, SIGN AND RETURN PROMPTLY THE ACCOMPANYING
NOTIFICATION FORM OR PROXY, AS APPLICABLE, IN THE ENCLOSED RETURN ENVELOPE.
5
<PAGE> 6
Ansaldo Signal N.V.
Strawinskylaan 3051
1077 ZX Amsterdam
The Netherlands
(Registered with the Chamber of Commerce at
Amsterdam, The Netherlands under No. 34.098.150)
PROXY STATEMENT
Annual General Meeting of Shareholders
to be held on April 14, 1998
This Proxy Statement is being provided to shareholders of Ansaldo Signal
N.V., a Netherlands corporation (the "Company"), in connection with the
solicitation of proxies in the form enclosed herewith for use at an Annual
General Meeting of Shareholders of the Company (the "Annual Meeting") to be held
on April 14, 1998, at the times and for the purposes set forth in the Notice of
Annual General Meeting of Shareholders or at any adjournment thereof. A copy of
the Notice of Annual General Meeting of Shareholders (which contains the Agenda
for the Annual Meeting) accompanies this Proxy Statement.
Pursuant to the Articles of Association of the Company and Netherlands law,
copies of the Dutch Statutory Annual Accounts for the financial year 1997, and
the reports of the Supervisory Board and the Management Board are open for
inspection by registered shareholders and other persons entitled to attend
meetings of shareholders at the offices of the Company at Strawinskylaan 3051,
1077 ZX Amsterdam, The Netherlands; and at the ABN AMRO Trust Company
Netherlands B.V. at Hoekenrode 6-8, P.O. Box 1469, 1000 BL Amsterdam, The
Netherlands; and at the office of Letitia Radford, Vice President, SunTrust
Bank, Corporate Trust Department, P.O. Box 4625, Mail Code 008, Atlanta, Georgia
30302, U.S.A., from the date hereof until the close of the Annual Meeting.
Because the Company is a "foreign private issuer", the solicitation of
proxies for use at the Annual Meeting is not subject to the proxy rules
contained in Regulation 14A promulgated under the United States Securities
Exchange Act of 1934, as amended.
The solicitation is made on behalf of the Company and the cost of the
solicitation will be borne by the Company. The Company will reimburse brokerage
firms, fiduciaries and custodians for their reasonable expenses in forwarding
solicitation materials to the beneficial owners. The Company will cause this
Information Statement, the notification form and the form of proxy to be mailed
to shareholders on or about March 13, 1998.
VOTING PROCEDURE
In order to attend, address and vote at the Annual General Meeting,
registered holders of Common Shares must advise the Company in writing, in
accordance with the procedures stated in the Notice of Annual General Meeting of
Shareholders, of their intention to attend the Annual
6
<PAGE> 7
Meeting. Pursuant to the Articles of Association of the Company, registered
shareholders may only exercise their shareholder rights for those Common Shares
registered in their name both on April 3, 1998 (the date by which shareholders
must notify the Company of their intention to attend the Annual Meeting) and on
the day of the Annual Meeting.
It is noted that all items set forth in the Agenda were proposed by the
Management Board and approved by the Supervisory Board.
At the close of business on March 13, 1998, there were 20,448,750 Common
Shares of the Company issued and outstanding. On that date, Finmeccanica S.p.A.,
an Italian corporation ("Finmeccanica"), owned (indirectly through a subsidiary)
14,711,250 Common Shares or approximately 71.9% of the total issued and
outstanding Common Shares of the Company and Compagnie des Signaux S.A., a
French corporation ("CS"), owned 2,000,000 Common Shares or approximately 9.8%
of the total issued and outstanding Common Shares of the Company.
A registered holder of Common Shares may cast one vote per share at the
Annual General Meeting. In accordance with Articles 31.1 and 39 of the Articles
of Association of the Company, no quorum requirement applies at the Annual
General Meeting, except in the case of approval of the extension of the
Management Board's authority to limit or eliminate preemptive rights until April
9, 2003, pursuant to item 7 of the Agenda (which requires a 2/3 majority of the
votes cast at the Annual Meeting) at the Annual General Meeting, in person or by
proxy, if less than 50% of the share capital of the Company is present. Except
as specifically described in the preceding sentence, proposals made by the
Supervisory Board or the Management Board shall be validly adopted upon the
approval of an absolute majority of the votes cast at the Annual General
Meeting.
Common Shares cannot be voted at the Annual General Meeting unless the
registered holder is present in person or is represented by a written proxy. The
Company is incorporated in the Netherlands and, as required by the laws thereof
and the Company's Articles of Association, the Annual Meeting must be held in
the Netherlands. Registered shareholders can indicate on the enclosed
notification form whether they intend to attend the Annual Meeting in person.
Such shareholders will be sent an admission ticket. For those registered
shareholders who are unable to attend the Annual Meeting in person, the enclosed
proxy card naming Mr. James N. Sanders and Mr. Joseph A. Kirby as proxyholders
is a means by which such registered shareholders may authorize the voting of
Common Shares at the Annual General Meeting. If the proxy in the enclosed form
is duly executed and returned, all Common Shares represented thereby in
accordance with the procedure specified in the Notice of Annual General Meeting
will be voted, and, where specification is made by the holder of Common Shares
on the form of proxy, will be voted by the proxyholders in accordance with such
specification. If no specification is made in the proxy, the proxy will be voted
by the proxyholders FOR items 4, 5, 6, 7, 8 and 9.
7
<PAGE> 8
In the event a registered shareholder wishes to use any other form of
proxy, such proxy shall be voted in accordance with the specification given
therein, provided that (i) such shareholder has notified the Company on or prior
to April 3, 1998, of his/her intention to attend the Annual Meeting and to
exercise his/her shareholder rights, (ii) such proxy states the number of
registered Common Shares held by such shareholder, (iii) the Common Shares for
which the proxy is given are registered in the name of the shareholder both on
April 3, 1998, and on the date of the Annual Meeting, and (iv) such proxy
enables the person named therein to vote the Common Shares represented thereby
in the affirmative, the negative or to abstain from voting, as applicable. The
proxyholder shall present the duly executed proxy to obtain admission to the
Annual Meeting and exercise the shareholder rights represented by such proxy.
Any person who has executed and delivered a proxy to the Company and who
subsequently wishes to revoke such proxy may do so by delivering a subsequently
dated proxy or by giving written notice of revocation, which in each case must
be received by 5 p.m. (New York time) on April 3, 1998, at the office of Letitia
Radford, Vice President, SunTrust Bank, Corporate Trust Department, P.O. Box
4625, Mail Code 008, Atlanta, Georgia 30302, U.S.A.
ITEM FOUR:
ADOPTION OF DUTCH STATUTORY ANNUAL ACCOUNTS
AND APPROVAL TO PREPARE THE DUTCH STATUTORY
ANNUAL ACCOUNTS IN THE ENGLISH LANGUAGE
The Company's audited annual accounts for the year 1997, as expressed in
United States dollars and prepared in accordance with Dutch statutory accounting
principles (the "Dutch Statutory Annual Accounts"), are submitted to the
shareholders in the English language. Pursuant to Section 2:362, Paragraph 7, of
the Dutch Civil Code, the items in the Annual Accounts of a Dutch Company shall
be prepared in the Dutch language, unless the shareholders at the Annual Meeting
resolve to use another language. Due to the international structure of the
Company and in order to facilitate intra-company communications and external
communications about the Company, the English language has been adopted by the
Company as its standard for the preparation of financial statements and other
publications. Therefore, it is proposed that the language of the Dutch Statutory
Annual Accounts and the items thereon for the financial year 1997 and subsequent
years be the English language.
It is noted that in accordance with Article 408 of the Dutch Civil Code,
the Dutch Statutory Annual Accounts are the annual accounts of the Company and
its participation and do not represent the consolidated accounts of the Company
and all of its subsidiaries.
Copies of the Company's Dutch Statutory Annual Accounts and the reports of
the Supervisory Board and the Management Board are available for inspection by
registered shareholders and other persons entitled to attend meetings of
shareholders at the offices of the Company at Strawinskylaan 3051, 1077 ZX
Amsterdam, The Netherlands; and at the ABN AMRO Trust Company Netherlands B.V.
at Hoekenrode 6-8, P.O. Box 1469, 1000 BL Amsterdam, The Netherlands; and at the
office of Letitia Radford, Vice President, SunTrust
8
<PAGE> 9
Bank, Corporate Trust Department, P.O. Box 4625, Mail Code 008, Atlanta,
Georgia 30302, U.S.A., from the date hereof until the close of the Annual
Meeting.
During the 1997 financial year, there were no profits, and no dividend will
be paid.
Pursuant to Article 34 of the Articles of Association of the Company, the
adoption by the shareholders at the Annual Meeting of the Dutch Statutory Annual
Accounts has the effect of discharging, for purposes of Dutch law, the
Management Board and the Supervisory Board in connection with their management
and supervisory duties, respectively, for the financial year to which such
accounts relate. The discharge only applies to matters actually stated in the
Dutch Statutory Annual Accounts.
A majority of the votes cast is required for the adoption of the Company's
Dutch Statutory Annual Accounts and to approve the use of the English language
with respect to the presentation of the Dutch Statutory Annual Accounts of the
Company for 1997 and subsequent years.
THE MANAGEMENT BOARD RECOMMENDS A VOTE FOR ITEM FOUR.
ITEM FIVE:
REAPPOINTMENT OF REGISTERED ACCOUNTANTS
Price Waterhouse, Nederland BV, who have served as auditors of the Company
since its formation in 1996, have been selected by the Supervisory Board and the
Management Board as independent public accountants to audit the Dutch Statutory
Annual Accounts of the Company for the fiscal year ending December 31, 1998.
A majority of the votes cast is required for the approval of the
appointment of Price Waterhouse, Nederland BV as accountants to audit the Dutch
Statutory Annual Accounts of the Company for the fiscal year ending December 31,
1998.
THE MANAGEMENT BOARD RECOMMENDS A VOTE FOR ITEM FIVE.
ITEM SIX:
EXTENSION OF AUTHORITY FOR THE MANAGEMENT BOARD
TO ISSUE COMPANY SHARES UNTIL APRIL 14, 2003
Under Dutch law and the Articles of Association of the Company, the
Management Board has the power, subject in each case to the approval of the
Supervisory Board, to issue shares of the Company's share capital if and insofar
as the Management Board has been designated by the General Meeting of
Shareholders as the authorized body for this purpose. A designation of the
Management Board to issue shares may be effective for a specified period up to
five years and may be renewed on a rolling annual basis. By Shareholder
resolution adopted
9
<PAGE> 10
on November 13, 1996. The Management Board was authorized to issue shares and/or
to grant rights to subscribe shares. By Shareholder resolution adopted on April
09, 1997, this authority was extended for five years. Such five-year period
expires on November 12, 2002.
It is proposed to extend the designation of the Management Board to issue
all unissued shares of the company's authorized capital shares and/or grant
rights to subscribe shares for a five year period from the date of this Annual
Meeting until April 14, 2003.
A majority of the votes cast at the Annual Meeting is required to extend
the said designation of the Management Board to issue shares and/or grant rights
to subscribe shares for a five year period from the date of this Annual Meeting
until April 14, 2003.
THE MANAGEMENT BOARD RECOMMENDS A VOTE FOR ITEM SIX.
ITEM SEVEN:
EXTENSION OF AUTHORITY OF THE MANAGEMENT BOARD
TO LIMIT OR ELIMINATE PREEMPTIVE RIGHTS UNTIL APRIL 14, 2003
Holders of Common Shares have a pro rata preemptive right of subscription
to any Common Share issuance for cash except if it concerns shares to employees
unless such right is limited or eliminated. Holders of Common Shares have no pro
rata preemptive subscription right with respect to any Common Shares issued for
consideration other than cash. If designated for this purpose by the General
Meeting of Shareholders, the Management Board has the power, on approval by the
Supervisory Board, to limit or eliminate such rights. A designation may be
effective for up to five years and may be renewed on a rolling annual basis. By
Shareholder resolution adopted on November 13, 1996, the Management Board was
authorized for a five-year period to limit or eliminate from time to time the
preemptive rights of holders of Common Shares in the event of a share issue.
Such five-year period expires on November 12, 2001.
It is proposed to extend the authorization granted by the aforementioned
resolution by authorizing the Management Board to limit or eliminate the
preemptive rights of holders of Common Shares in the event of a share issue or
granting of rights to subscribe for shares for a new five year period from the
date of this Annual Meeting until April 14, 2003.
A majority of the votes cast at the Annual Meeting is required (provided at
least 50% of the share capital of the Company is present in person or
represented by proxy at the meeting) in order to extend the said authorization
to limit or eliminate the preemptive rights of holders of Common Shares in the
event of a share issue for a five year period from the date of this Annual
Meeting until April 14, 2003 if not 50% is present or represented a 2/3 majority
is required.
THE MANAGEMENT BOARD RECOMMENDS A VOTE FOR ITEM SEVEN.
10
<PAGE> 11
ITEM EIGHT:
EXTENSION OF AUTHORITY FOR THE MANAGEMENT BOARD
TO REPURCHASE COMPANY STOCK UNTIL OCTOBER 14, 1998
Under Dutch law and the Articles of Association of the Company, the Company
and its subsidiaries may, subject to certain Dutch statutory provisions,
repurchase up to one-tenth of the Company's issued share capital. Any such
purchases are subject to approval of the Supervisory Board and the authorization
by the Shareholders at the Annual Meeting, which authorization may not continue
for more than eighteen months. By Shareholder resolution adopted on November 13,
1996, the Management Board was authorized for eighteen months to repurchase up
to 10% of the outstanding share capital of the Company. Such eighteen-month
period expires on May 12, 1998, but may be extended for an additional
eighteen-month period if authorized by the Shareholders at the Annual Meeting.
It is proposed to extend the authorization granted by the aforementioned
resolution by authorizing the Management Board to repurchase up to 10% of the
outstanding share capital of the Company for an additional eighteen-month period
from the date of this meeting until October 14, 1999, against a repurchase price
between, at the one hand, the nominal amount of the shares concerned and, at the
other hand, an amount of 110% of the highest price officially quoted on the
Nasdaq National Market on any of five banking days preceding the date of the
repurchase.
A majority of the votes cast at the Annual Meeting is required to extend
the said authorization to repurchase up to 10% of the outstanding share capital
of the Company for an additional eighteen month period from the date of this
meeting until October 14, 1999
THE MANAGEMENT BOARD RECOMMENDS A VOTE FOR ITEM EIGHT.
ITEM NINE:
APPOINTMENT OF RODOLFO DE DOMINICIS TO THE SUPERVISORY BOARD OF THE COMPANY
Article 20, paragraph 1 of the Articles of Incorporation of the Company
stipulates that the Supervisory Board shall be comprised of not less than three
and not more than eleven members. Whereas at present there are eight members of
the Supervisory Board of the Company, and whereas Mr. Walter Alessandrini has
resigned from the Supervisory Board, the Management Board proposes the addition
of Mr. Rodolfo De Dominicis as a member of the Supervisory Board. Mr. Dominicis
currently serves as managing director and chief executive officer of Ansaldo
Trasporti, S.p.A., which is the majority owner of the Company.
THE MANAGEMENT BOARD RECOMMENDS A VOTE FOR ITEM NINE.
Please sign, date and return the accompanying notification form or proxy,
as applicable, in the enclosed envelope at your earliest convenience.
The Management Board
James N. Sanders
Managing Director and
Chief Executive Officer
March 13, 1998
11
<PAGE> 12
NOTIFICATION FORM
TO:
Letitia Radford
Vice President
SunTrust Bank
Corporate Trust Department
P.O. Box 4625, Mail Code 008
Atlanta, Georgia 30302
U.S.A.
ANSALDO SIGNAL N.V.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
APRIL 14, 1998
The undersigned, holder of ___________________ registered shares Type I
and/or _______________ registered shares Type II (with share certificate numbers
_____________) of Ansaldo Signal N.V. (the "Company"), hereby notifies the
Company that he/she/it wishes to attend the Annual General Meeting and to
exercise his/her/its shareholder rights at the Annual General Meeting of the
Company to be held at the World Trade Center, Schiphol Boulevard 267, 1118 BH
Schiphol [Amsterdam], The Netherlands, on April 14, 1998, at 12:00 noon., or any
adjournment or adjournments thereof, and requests the Company to send him/her/it
a ticket of admission.
The undersigned registered shareholder realizes that he/she/it can only
exercise his/her/its shareholder rights for the shares registered in his/her/its
name both on February 20, 1998, and on the day of the Annual General Meeting of
Shareholders.
In witness whereof the undersigned has duly executed this
notification/caused this notification to be duly executed by its authorized
officers at ______________________ this ________ day of _____________, 1998.
-------------------------------------
(Signature of registered Shareholder)
-------------------------------------
(Signature of registered Shareholder)
---------------------------------------------
(Print full name of registered Shareholder(s))
IF SHARES ARE HELD JOINTLY, EACH REGISTERED HOLDER MUST SIGN. NOTIFICATION
MUST BE RECEIVED NO LATER THAN 5 P.M. (NEW YORK TIME) ON APRIL 3, 1998 AT THE
ABOVE ADDRESS.
12
<PAGE> 13
Ansaldo Signal N.V.
PROXY
THIS PROXY IS SOLICITED FOR THE ANNUAL GENERAL MEETING OF SHAREHOLDERS TO BE
HELD ON APRIL 14, 1998.
The undersigned hereby appoints James N. Sanders and Joseph A. Kirby, or either
one of them with individual power of substitution, proxies to vote all shares of
Common Stock of Ansaldo Signal N.V. which the undersigned may be entitled to
vote at the Annual General Meeting of Shareholders to be held on April 14, 1998
and at all adjournments thereof, as follows:
4. ADOPTION OF DUTCH STATUTORY ANNUAL ACCOUNTS FOR THE FISCAL YEAR 1997
___ FOR ___ AGAINST ___ ABSTAIN
5. APPOINTMENT OF PRICE WATERHOUSE AS REGISTERED ACCOUNTANTS OF THE COMPANY
FOR THE FISCAL YEAR ENDING DECEMBER 31, 1998.
___ FOR ___ AGAINST ___ ABSTAIN
6. EXTENSION OF THE AUTHORITY OF THE MANAGEMENT BOARD TO ISSUE COMPANY SHARES
UNTIL APRIL 14, 2003.
___ FOR ___ AGAINST ___ ABSTAIN
7. EXTENSION OF THE AUTHORITY OF THE MANAGEMENT BOARD TO LIMIT OR ELIMINATE
PREEMPTIVE RIGHTS UNTIL APRIL 14, 2003.
___ FOR ___ AGAINST ___ ABSTAIN
8. EXTENSION OF THE AUTHORITY OF THE MANAGEMENT BOARD TO REPURCHASE COMPANY
STOCK UNTIL OCTOBER 14, 1999.
___ FOR ___ AGAINST ___ ABSTAIN
9. APPOINTMENT OF MR. RODOLFO DE DOMINICIS TO THE SUPERVISORY BOARD OF THE
COMPANY.
___ FOR ___ AGAINST ___ ABSTAIN
10. IN ACCORDANCE WITH THEIR BEST JUDGMENT UPON SUCH OTHER MATTERS AS MAY COME
BEFORE THE MEETING.
--------------------------------------
Signature of Shareholder
--------------------------------------
Signature of Shareholder
IMPORTANT: Please sign this Proxy
exactly as your name or names appear
hereon. If shares are held by more than
one owner, each must sign. Executors,
administrators, trustees, guardians, and
others signing in a representative
capacity should give their full titles.
DATE: , 1998
-------------------------
BE SURE TO DATE THIS PROXY
13
<PAGE> 14
[Cover]
Ansaldo Signal 1997 Annual Report
Global Resources. Local Response.
[Photo deleted: top left: man at control console]
[Photo deleted: middle right: planet earth]
[Photo deleted: bottom left: TGV high speed train, France]
14
<PAGE> 15
Ansaldo Signal
Ansaldo Signal is a Netherlands holding company with subsidiaries engaged
exclusively in the railway signaling, control, and automation business. With
operating companies in Australia, France, Italy, Sweden, and the United States,
and representative offices throughout the world, the Ansaldo Signal group offers
integrated signaling, control, and automation systems; on-board and wayside
control systems and products; and service and maintenance to passenger and
freight railway networks and rail-based mass transit operators in Europe, the
Americas, Australia, Asia, and Africa.
[Photo deleted: background: diffused metro station]
15
<PAGE> 16
[Photo deleted: top left: Italian State Railways, electric locomotive and front
of train from a side view]
Profile
Since December 1996, we at the newly created company of Ansaldo Signal have
quickly established ourselves as technological leaders in our markets. We have
been able to do this by forging a uniquely global group with an exceptional
technical knowledge base and strong customer relationships around the world.
With these resources, we can respond more effectively and comprehensively to the
needs of our local customers in rail-based transportation.
How have we as a group so quickly achieved a leading level of technical
competence? By integrating the resources that our operating companies have
developed collectively over the last hundred and fifty years in their markets,
resources developed over time and across continents. Global resources.
Australia: Union Switch & Signal Pty. Ltd.
France: CSEE Transport S.A.
India: Union Switch & Signal Private Ltd.
Ireland: AT Signalling Systems Ireland Ltd.
Italy: Ansaldo Segnalamento Ferroviario S.p.A.
Sweden: AT Signal System AB
United States: Union Switch & Signal Inc.
We are also in Brazil, Canada, Chile, China, Germany, Hong Kong, India, Ireland,
Malaysia, Taiwan, and Venezuela, responding locally to customers' needs.
Our group portfolio includes the most advanced capabilities in traffic
management systems, centralized traffic control, small- and large-scale
electronic interlockings, and automatic train control for high speed trains. Our
portfolio additionally is extremely competitive in the fields of
marshalling/classification yard control systems, mainline, metro, and driverless
transit automatic train control.
[Photo deleted: middle right: Roma Termini route layouts]
With our global knowledge of rail-based customer needs, we have a full systems,
products, service and maintenance offering, designed for a diverse customer
base. We are focused on bringing our core competencies in data, process and
asset management, control and automation to our rail-based customers around the
world. With the benefit of these competencies, our customers can clearly improve
the safety, enhance the capacity, and increase the efficiency of their
operations throughout the world.
[Photo deleted: bottom right: NYCT ATS System, architect's rendering of control
room showing work stations and track layout]
16
<PAGE> 17
Systems
When our customers turn to us for systems, they get unbeaten capability. Our
automatic train protection systems communicate speed limits, routes, and other
safety information to trains. Our automatic train control systems manage speed
limits, distance between trains, and other conditions of a vital nature. Our
automatic train operation systems offer our customers the capability of fully
automated train control and driverless operation, including speed regulation and
station stopping. Our automatic train supervision systems allow centralized
dispatch, monitoring, and management of operator fleets. Our small- and
large-scale interlockings control traffic over simple and complex track
configurations. And, our yard systems allow for the efficient reconfiguration of
train sets.
[Photo deleted: bottom left: Chinese Interlocking Installation, engine and
tender with people in front on a platform]
Most importantly, we gear our solutions to the level of sophistication desired
by our customers. Our solutions range from basic to advanced. They are also
modular and allow our customers to increase capability on an extended schedule.
[Photo deleted: top right: MBTA Operations Control Center, system control room
work stations and track layout]
Yard systems
Our marshalling/classification yard control systems allow efficient processing
and organization of rail-based operators' rolling stock in yards where trains
are configured. Such systems and products integrate a variety of functions
required for safe and efficient train assembly. Installed in over 50% of the
yards in the United States and Italy and in a significant portion in the growing
Chinese market, our systems are among the most sophisticated in the marketplace.
[Photo deleted: bottom right inset: train and cantilevered signal]
Large-scale electronic interlockings
For track intersections that involve many crossovers and demand a high level of
control for safe operation, we offer the most advanced large-scale interlockings
available in the global marketplace. Our ACC/SARA(TM) large-scale interlocking
technology is the most advanced technology among the offerings available in the
market. With this offering, we have introduced 32-bit technology into a segment
previously limited to 8- and 16-bit technology.
17
<PAGE> 18
Our interlocking control equipment also leads the market using double and triple
modular redundant hardware architectures for vital operational capability. Our
top-level diagnostic systems can remotely detect electronic faults and forecast
electro-mechanical maintenance needs, thus minimizing medium time to repair. Our
parametrizing tools allow the operator to modify the line configuration easily
without having to revalidate software packages.
Truly large-scale, one system can control up to several thousand field devices
or objects (signals, point machines, track circuits, etc.) with response times
of less than 200 milliseconds. This technology has been proven in conventional
and high-speed environments, including the Beijing-Hong Kong line in China, the
Napoli Metro, the Roma-Napoli high speed line, and the Roma Termini Station, one
of the largest in Europe.
Small-scale electronic interlockings
Small-scale interlockings involve fewer track crossovers, but still depend on a
high level of control for safe operation. With our Microlok(R) II small-scale
interlocking system, we have again led the market with 32-bit technology; in
this offering, we introduce to our customers the unique ability to program the
interlocking vital logic. We also have developed simple low-cost computer-based
interlockings for small stations using commercial PC boards. In 1997, we won a
contract to provide an integrated interlocking and automatic train protection
solution for the high-speed Mediterranean TGV in France. Our interlocking
offering is also in service on conventional lines throughout the Americas,
Europe, and Asia.
[Photo deleted: top center: Metro Lyon, computer work stations]
Centralized traffic control systems (CTC)
Our CTC systems offering can integrate varying degrees of capability, according
to the needs of the customer. Our CTC capabilities include traffic management,
electrical power management, management of station equipment (supervisory
control and data acquisition, or SCADA), telecommunications management, and
management of passenger information.
Ansaldo Signal operating companies won the two most complex and demanding
contracts in CTC to be awarded in the world in 1997. In Italy, we will supply
six operations control centers to the Italian State Railways. In the United
States, we will supply New York City Transit - the world's largest system - with
an Automatic Train Supervision system. Both projects incorporate
state-of-the-art CTC technology, without peer in their demands.
In winning these contracts, we were able to point to a global knowledge base for
a wide range of projects and clients, including the Boden Traffic Control Center
in Sweden, the Copenhagen Metro, CSX Transportation's K.C. Dufford Control
Center, the Genoa Metro, the complex Hamersley Iron rail works in Australia, the
Hong Kong Mass Transit Railways and metro (MTRC), the Lyon Subway System, the
Massachusetts Bay Transportation Authority Operations Control Center, the Mexico
City Metro, the Napoli Metro, the Paris Metro (RATP), Tri-Met in Portland,
Oregon, the Roma-Napoli high speed line, and the initial Union Pacific Harriman
Center.
[Photo deleted: bottom right: Orbassano Marshalling Yard]
18
<PAGE> 19
We are also capable of fulfilling the needs of our customers for smaller-scale
CTC systems for less complex applications, similar to our CTC installation for
the Malaysian Railways (KTMB), which we completed in 1997.
[Photo deleted: center left: Hamersley Iron, diesel powered ore train crossing a
bridge]
Train-borne control systems
Our train-borne control systems are designed to operate in a wide variety of
conditions, from low to high traffic density, rail or mass transit system
applications, freight or high speed passenger and even driverless applications,
as well as to comply with different operating rules for each network. With our
high speed offering, our customers have achieved performance records for speed
and for traffic capacity. Automatic train control systems display signaling
instructions to the driver in the cab and check that they have been followed.
For example, a train's speed may be continuously monitored, and, in the event of
overspeed, a command to activate the braking system is automatically issued.
[Photo deleted: top center inset: Dallas Area Rapid Transit vehicle]
Our train-borne control systems follow a modular approach that eases upward
expansion into greater automation and capability. Modular architecture also
allows our systems to fit easily into existing infrastructure, heterogeneous
traffic, and high traffic requirements. For example, our TVM(TM) system enables
two high-speed trains at 300 km/h to run at three minute headways between trains
and suburban trains at two minute headways. These train-borne control systems
fully meet the requirements of railway networks wishing to modernize their
signaling systems to increase safety, to improve performance, to reduce
maintenance requirements, and to implement flexible systems to which capability
can be added over time.
[Photo deleted: center right: Channel Tunnel, train exiting the tunnel]
Our train-borne offering has been proven in the North American conventional and
high-speed passenger markets, in the Korean metro and high-speed passenger
markets, and in the French metro, conventional, and high-speed passenger
markets. We have completed or are completing projects for the Beijing-Jingjiu
conventional rail line, the Belgian High Speed Line, the Birmingham Midland
Metro (UK), the Channel Tunnel, the Genoa Light Rail, Hamersley Iron in Western
Australia, the Lisboa Metro, the LKAB Iron company in Kiruna, Sweden in a
driverless application, KTMB in Malaysia, the Milano Metro, the Napoli Metro,
the Oresund link between Denmark and Sweden, and the Roma Metro. We also
recently won a contract from New Jersey Transit to supply an Advanced Speed
Enforcement System based on our train-borne and wayside technologies.
In the European sector, we are a major supplier of advanced train control
systems which meet
19
<PAGE> 20
European Train Control Systems and European Rail Traffic Management Systems
specifications, including high performance discontinuous systems with Eurobalise
(Level 1), fixed block radio-signaling systems managing equipped and
non-equipped trains (Level 2), and pure moving block radio signaling systems
(Level 3).
[Photo deleted: top: Dallas Area Rapid Transit, light rail transit train at a
station]
Wayside control systems
[Photo deleted: bottom left: Napoli Metro, double track line with wayside
equipment]
Our comprehensive wayside control systems offering is also designed to address
our customers' needs for operational safety, reliable performance, and low
maintenance. Our capabilities in this field include the control and indication
of wayside equipment, train-to-wayside communications, and communications
interfaces with an operator's central control facility. In this segment, our
offering ranges from the basic solution to the sophisticated, high-tech
solution, depending upon our customers' needs.
[Photo deleted: bottom right TVM/SACEM, train cab with driver, gauges and
controls]
Our wayside control systems have been installed on the Class I freight railroads
in North America, on the Baltimore MTA, on the Dallas Area Rapid Transit light
rail system (DART), on the Genoa Light Rail system, for Metra-Wisconsin-Central,
in Malaysia, on the Napoli Metro, for New Jersey Transit, on the Portland
Tri-Met in Oregon, on the Seoul Metro (Lines 5, 7 and 8), and for WMATA in
Washington, DC. Our work for the Los Angeles Green Line included driverless
capability. In 1997, we were chosen to design and implement a wayside control
system for Railtrack Plc between Peterborough and Nuneaton. We also were chosen
to supply automatic train control systems for the Italian State Railways
Bologna-Firenze line, the Copenhagen Metro, the Massachusetts Bay Transportation
Authority, New York City Transit, and Line 2 of the Shanghai Metro.
20
<PAGE> 21
Products
[Photo deleted: top left: Microlok(R) II, engineer at computer performing test
on equipment rack]
[Photo deleted: top left inset: highway crossing sign]
To help increase safety, efficiency, and capacity, our systems incorporate our
full line of products, which can also be offered separately. Like our systems,
our products range from the most sophisticated microprocessor-based products to
more traditional electro-mechanical products. Designed for a global variety of
environments, our product offering allows us to respond to our local customers'
needs. Our products fulfill a wide variety of functions, from track circuitry to
traditional and radio-controlled level/highway grade crossings to switching to
passenger access control systems to data transmission. With our products, our
customers can achieve their operational goals.
Track circuits
Our track circuits can detect the presence or absence of a train on a given
stretch of track, for non-electrified and electrified track (ac or dc current).
Track circuit data can be used for train spacing functions, route control, and
point and interlocking control. Our varied line of track circuits includes
AF-900(TM) and ATIS(TM) audio frequency track circuits, the Microtrax(R) coded
track circuits with supplementary modular functionality, and the UM(TM) 71 line
of jointless track circuits. Our track circuits have been installed for a
diverse customer base in the Americas, Europe, North Africa, and Asia.
Switch/point machines
[Photo deleted: bottom right: Digitair(R) End-of-Train Unit, workman installing
a unit on the end of the train]
Our line of switch/point machines offers optimal capabilities for diverse
operating environments, including turnouts and single slips,
marshalling/classification yards, passenger metropolitan and high-speed lines.
Our switch/point machines can be tropicalized, equipped for sand protection or
drainage, or customized to a variety of operating environments.
[Photo deleted: center right: Hot Box Detector, installation on a double
track line]
Hot box/hot wheel detectors
Our hot box and hot wheel wayside monitoring products, designed to detect
overheated axle boxes and brakes before they cause derailment,
21
<PAGE> 22
help our customers respond to emerging operating trends, such as increased train
speeds, reduction of wayside personnel, and increased rail transport of
hazardous materials. Our product range targets various operating conditions,
from slow-moving freight to high speed passenger trains.
[Photo deleted: top: Signaling and Point Machines in the Field, night-time
exposure of track layout and overhead signals with other lights]
End-of-train products
Our end-of-train products enhance safety for our freight customers by monitoring
conditions and allowing emergency brake application at the rear of the train,
thus reducing the risk of derailment. Wayside communications units can transmit
track condition information to passing trains via end-of-train systems. Our
Digitair(R) end-of-train products have been installed on freight railroads in
North America, South America, Australia, and Southeast Asia.
Communications/control products
Our non-vital communications/control products allow effective and efficient
office-field communications and local control at hundreds of railroad and mass
transit installations around the world. Our product lines include the Genisys(R)
Series 2000 customer-programmable line. We also offer customized solutions for
non-vital track-to-train communication for a variety of needs, including
maintenance.
22
<PAGE> 23
Maintenance and Service
To fulfill our customers' need for broad supplier capability, we offer service
and maintenance programs, not only to support our own systems and products but
also to support systems and products designed by our competitors.
We offer our customers refurbishment and remanufacturing capabilities from our
service shops in Batesburg, the United States; Kingston, Canada; Riom, France;
and Genoa and Torino, Italy. Our service shop in Kansas City, the United States,
offers warehousing, distribution, and emergency technical support. We supplement
these capabilities with on-site field service, both during and after warranty
periods. We also offer our customers lines of diagnostic tools, as well as
government-mandated and manufacturer-recommended equipment inspection services.
[Photo deleted: bottom left: Hong Kong Metro, view from cab of train passing
another train]
[Photo deleted: top right: CSX Transportation's K.C. Dufford Control Center,
system control work stations and track layout map]
[Top right inset: signal light]
Many of our customers have chosen us for our long-term maintenance capability.
We provide maintenance to the Caracas Metro in Venezuela, the Cervignano Yard in
Italy, CSX Transportation's K.C. Dufford Control Center in the United States,
the Hong Kong Metro, Semaly in Lyon, the Swedish and Norwegian Railways, and
numerous other installations in the Americas and Europe, including the Paris
Metro, which we have serviced since 1903.
[Photo deleted: bottom right: Caracas Metro, technician inspecting/maintaining
equipment rack]
Ansaldo Signal's global resource base, full portfolio of systems and products,
and our experience with service and maintenance allow us to be a world leader in
responding efficiently, effectively and locally to our customers' needs -
throughout the world.
23
<PAGE> 24
Union Switch & Signal Pty. Ltd.
Brisbane, Australia
+61 7 3856-1101
CSEE Transport S.A.
Paris, France
+33 1 69 29 65 65
Union Switch & Signal Private Ltd.
Bangalore, India
+91 80 225-9010
AT Signalling Ireland Ltd.
Tralee, Ireland
+353 66-24411
Ansaldo Segnalamento Ferroviario S.p.A.
Genova, Italy
+39 10 655-1
AT Signal System AB
Spanga, Sweden
+46 8 621 9500
Union Switch & Signal Inc.
Pittsburgh, United States
+1 412-688-2400
[Photo deleted: background: diffused metro station]
24
<PAGE> 25
Ansaldo Signal N.V.
1997 Financial Review
Table of Contents
Letter from the Chairman 26
Letter from the President 27
Financial Highlights 28
Management's Discussion and Analysis 29
Report of Independent Accountants 38
Consolidated Balance Sheet 40
Consolidated Statement of Operations 41
Consolidated Statement of Cash Flows 42
Consolidated Statement of Changes in Shareholder's Equity 44
Notes to Consolidated Financial Statements 45
25
<PAGE> 26
Letter from the Chairman
Dear Shareholders:
Ansaldo Signal was formed by Finmeccanica/Ansaldo to bring together a
global group of companies in the business of signaling, control and automation
systems for the railroad and rail-based mass transit industries. The major
companies of the group include Ansaldo Segnalamento Ferroviario S.p.A. in Italy,
AT Signal Systems in Sweden, CSEE Transport S.A. in France, Union Switch &
Signal Inc. in the United States, and Union Switch & Signal Pty. Ltd. in
Australia. These companies have developed strong positions in their domestic
markets and selected export markets. The new group also has a presence in
Brazil, Canada, Chile, China, Germany, Hong Kong, India, Ireland, Malaysia,
Taiwan and Venezuela. With its wide geographic and market presence, Ansaldo
Signal has emerged as the first truly global signaling company.
Although for many years the companies had worked together, the first year
of the company was not an easy one. Negative profitability in 1997 reflects the
difficult market conditions that the operating companies faced in 1995 and 1996,
as well as operating and project management issues throughout 1997 which have
been addressed. Nevertheless, the activities of our first full year suggest that
bringing the companies together really is the way forward into the emerging
global market.
This emerging global market is characterized by significant consolidation
among the Class I freight customers in North America. We also see
standardization programs beginning to take effect in the European Community,
where many national markets are being replaced by a single community market. All
over the world, customers are demanding greater capability and quality, as well
as increased service levels. In response, we see many of our competitors
consolidating and standardizing their offering. This is the environment in which
Ansaldo Signal was formed.
Ansaldo Signal began 1997 under the new and vigorous leadership of James N.
Sanders as president and chief executive officer. Mr. Sanders has several
decades of management experience in a multi-national environment. He has brought
to the company an open and constructive management style, an experienced and
insightful understanding of the global signaling industry, and a clear approach
to maximizing our opportunities in signaling and automation control. His efforts
are already appearing to bear fruit as reflected in this year's huge increase in
backlog.
Combining the Ansaldo Signal operating companies under one corporate
umbrella and the daily leadership of a new president has allowed us to make and
implement decisions which benefit the group, but which may have been too
difficult to make at the individual operating subsidiary level. For example,
achieving a competitive position in the new global market has necessitated
eliminating overlaps in the group marketing effort among subsidiaries while
re-deploying group resources to penetrate each regional market more deeply.
Similarly, achieving higher levels of technology standardization within the
group necessitates eliminating technology overlap among the competing offerings
of the various operating companies, while respecting and fulfilling the market
demands of each individual company.
Bringing the technologies and marketing initiatives of the various
signaling companies under one umbrella also provides an opportunity for greater
synergism among the operating companies. As Ansaldo Signal ensures the
coordination of the development of new technologies and the group marketing
activities, I fully expect we will be able to compete more consistently and more
effectively, allowing for increased market success and greater regional
application of group capabilities in every part of the globe.
Through these and additional strategies, I expect Ansaldo Signal to compete
more effectively in its markets and increase its regional and global market
share in the years ahead. As management drives the implementation of these
strategies, it is steadfastly focused on increasing its global market share,
improving its operating efficiencies, and increasing its profitability. As
chairman of the Board of Supervisors, I remain committed to guiding Ansaldo
Signal in its quest for improved value to shareholders, employees, and customers
alike.
/s/ ALBERTO ROSANIA
- ---------------------------
Alberto Rosania, Chairman
[Photo deleted: Alberto Rosania]
ANSALDO SIGNAL N.V.
F-26
<PAGE> 27
Letter from the President
Dear Shareholders:
This is my first letter to you as president and chief executive officer of
Ansaldo Signal, and while I am not yet able to present you a company that is
profitable, I am pleased to tell you that we have made considerable progress in
all the areas required to achieve this goal in 1998.
When I started at the company I spent the first weeks of 1997 taking a hard
look at our people, our operating processes, the competitiveness of our
technological base, our market coverage and our ability to satisfy customer
requirements. It was quickly clear that we needed to increase efficiency in all
operating processes, reduce overlaps in markets and technologies, streamline the
management organization, and focus on improving our order performance while
generating sustained profitability. Initiatives necessary to effect these
changes were started immediately.
We began with a redesign program at Union Switch & Signal Inc. Over 15% of
Union Switch's workforce joined teams to eliminate obsolete or timeworn
processes, and in their place create a responsive organization with efficient
new processes to generate value throughout the company. As of today, over half
the teams have submitted plans and over a third are implementing these plans.
Ansaldo Segnalamento Ferroviario, now only two months into its own redesign
process, has developed plans which will reduce rework activities, direct costs,
and penalties for delay in delivery. Shortly, CSEE Transport and the other
operating subsidiaries of Ansaldo Signal will begin their process improvement
actions. These redesign and other cost-cutting initiatives reduced our operating
expenses in 1997. We expect to continue that improvement rate in 1998.
In terms of our technological base, Ansaldo Signal's operating companies
have developed state-of-the-art systems and products for their traditional
markets. To be able to exploit this potential as a cohesive force, we began to
combine technologies, eliminate product overlap, and proliferate product
portfolio knowledge within the group. We initiated group development of new
technologies, products, and systems in order to make our offering globally
applicable. Through this technology initiative, spearheaded by an Architecture
Group comprised of members from each operating company, we now have a fuller
portfolio of products and systems available throughout the globe.
As our portfolio has become available throughout the world, we have been
able to weed out internal competition and address gaps in our global marketing
coverage. Now, each operating company is solely responsible for bidding, winning
and managing projects in their assigned territories. Coordinated by a Marketing
Group, which I head, and comprised of members from each operating company, we
are thus transforming ourselves into a constellation of harmonious local,
globally capable companies.
We have worked aggressively for process, technology, and marketing
efficiency in order to position ourselves for profitability. These actions
support our strategy of global development, regional customization, and local
maintenance and service -- to guarantee that our customers gain the full
benefits of our global experience and capabilities, as well as improved service
and support from our expanded market presence.
In 1997, we also experienced a series of significant contract victories
that have put an end to the backlog attrition experienced over the past two
years. From CSEE Transport's GBP 13 million contract to supply Railtrack Plc
with a new signaling system, to Union Switch & Signal's US $127 million contract
to supply New York City Transit with an Automatic Train Supervision system, to
Ansaldo Segnalamento Ferroviario's 250 billion Italian lire contract to supply
the Italian State Railways with six operations control centers. These and
numerous other contracts won across the globe by our subsidiaries put our
backlog at a level 45% higher than year-end 1996.
Our dramatic backlog growth coupled with internal efficiency improvements
will unquestionably enhance our ability to improve our future results. Clearly,
however, there will be challenges to overcome. The industry is consolidating at
a rapid pace, global competition is increasingly aggressive, and the troubled
financial conditions in some Asian countries will have a definite impact on our
business over the next few years. At the same time, we must continue our drive
to increase the number and profitability of newly won orders. We remain
confident that these issues can be addressed, and that we can increase our
position in the industry.
At Ansaldo Signal, we are building processes that will create value and
that will turn value into profit. We are bringing our full technological
capabilities within reach of all of our customers. We are achieving significant
order success with state-of-the-art products and systems. And we are reaching
into major markets throughout the world. In the years to come, we expect our
products and services to contribute demonstrably to increasing our customers'
competitive edge, and as a result, increasingly bring greater value and return
to you.
/s/ JAMES SANDERS
- -----------------------
James Sanders, President & Chief Executive Officer
[Photo deleted: James N. Sanders]
ANSALDO SIGNAL N.V.
F-27
<PAGE> 28
Ansaldo Signal
1997 Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31
1997 1996 1995 1994
Income Statement Data (in thousands, except share and per share data)
<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 -- 15,144 -- --
Reorganization (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
============ ============ =========== ===========
Weighted average number of
common shares outstanding 20,488,750 20,488,750 17,990,750 17,990,750
============ ============ =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year Ended 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>
[Graphic deleted: 1997 Revenue by Geographic Area: Europe: 58.4%; North America:
38.5%; Asia/Pacific: 3.1%]
[Graphic deleted: Orders: 1995: $243.7; 1996: $288.4; 1997: $571.4]
[Graphic deleted: Backlog: 1995: $623.9; 1996: $533.0; 1997: $773.1]
ANSALDO SIGNAL N.V.
F-28
<PAGE> 29
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 Ferroviaro S.p.A. ("ASF") (100%), CS
Transport S.A. ("CSEE") (49%), AT Signal Systems A.B. ("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.
F-29
<PAGE> 30
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.
F-30
<PAGE> 31
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.
F-31
<PAGE> 32
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.
F-32
<PAGE> 33
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.
F-33
<PAGE> 34
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.
F-34
<PAGE> 35
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.
F-35
<PAGE> 36
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.
F-36
<PAGE> 37
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.
Cautionary Statement Pursuant to Safe Harbor Provisions of the private
Securities Litigation Reform Act of 1995 - Certain Risk Factors
This document contains "forward-looking" statements within the meaning of
the federal securities laws of the United States. These forward-looking
statements include, among others, statements concerning the Company's 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 discussed
in greater detail in the Company's Report on Form 20-F and in other filings by
the Company with the United States Securities and Exchange Commission.
ANSALDO SIGNAL N.V.
F-37
<PAGE> 38
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.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
Pittsburgh, Pennsylvania
March 2, 1998
ANSALDO SIGNAL N.V.
F-38
<PAGE> 39
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.
/s/ PRICE WATERHOUSE S.p.A.
- ------------------------------
PRICE WATERHOUSE S.p.A.
Rome, Italy
October 1, 1996
ANSALDO SIGNAL N.V.
F-39
<PAGE> 40
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.
F-40
<PAGE> 41
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.
F-41
<PAGE> 42
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.
F-42
<PAGE> 43
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
<TABLE>
<CAPTION>
<S> <C>
Fair value of net assets acquired.............. $ 77,632
Stock issued................................... (18,900)
Reduction in parent receivables................ (58,732)
---------
Cash paid...................................... $ --
========
Cash acquired.................................. $ 2,581
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
ANSALDO SIGNAL N.V.
F-43
<PAGE> 44
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.
F-44
<PAGE> 45
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.
F-45
<PAGE> 46
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.
F-46
<PAGE> 47
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.
F-47
<PAGE> 48
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.
F-48
<PAGE> 49
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 $6,090 respectively. Depreciable lives range from 3 to
39 years.
ANSALDO SIGNAL N.V.
F-49
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Short term Borrowings and Capital Leases
<TABLE>
<CAPTION>
Currency December 31,
Payable in 1997 1996
<S> <C> <C> <C>
Borrowings (unsecured but with letters of comfort from ATR
and Finmeccanica), by Ansaldo Signal. The interest rate in
effect on December 31, 1997 was 7.00%....................... US$ $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.
F-50
<PAGE> 51
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,
1997 1996
<S> <C> <C>
Union Switch & Signal
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.
F-51
<PAGE> 52
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.
F-52
<PAGE> 53
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.
F-53
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Components of deferred taxes were comprised of the following:
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
Deferred tax assets 1997 1996
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.
F-54
<PAGE> 55
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.
F-55
<PAGE> 56
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
======= ======= =======
Year Ended December 31,
Income (loss) from operations 1997 1996 1995
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
======= ======== ======
Year Ended December 31,
Identifiable assets 1997 1996 1995
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.
F-56
<PAGE> 57
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.
F-57
<PAGE> 58
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 $5,609 to
effect the combination accounted for by the pooling of interests method.
18. Pro Forma Statement of Operations (unaudited)
The following pro forma statements of operations give effect to the
acquisition by Ansaldo Signal of 100% of CSEE as if such acquisition occurred on
January 1, 1995.
ANSALDO SIGNAL N.V.
F-58
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PRO FORMA STATEMENT OF OPERATIONS
($ IN THOUSANDS)
Year Ended December 31, 1995
<TABLE>
<CAPTION>
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
===== ===== ======= =====
Year Ended December 31, 1996
Pro Forma
Combined (A) Combined
Ansaldo CSEE ASNV
Combined Statement of Operations: Signal Transport Adjustments Unaudited
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)
======== ===== ======= ========
(A) First six months of 1996.
</TABLE>
ANSALDO SIGNAL N.V.
F-59
<PAGE> 60
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.
World Trade Center
Schiphol Boulevard 267
1118 BH Schiphol
The Netherlands
+31 20 3012326
ANSALDO SIGNAL N.V.
F-60
<PAGE> 61
<TABLE>
<CAPTION>
Board of Directors Officers
<S> <C>
Alberto Rosania, Chairman James N. Sanders(2)
First Vice President, Strategic Finance, Managing Director & Chief Executive Officer
Finmeccanica S.p.A.
Ferdinando Camurri
Eugenio Angeli(1) Vice President, European Infrastructure Projects
Director, Ansaldo Trasporti S.p.A.
Georges Dubot
Giuseppe Bono Vice President, French Region
Senior Vice President, Finmeccanica S.p.A. Managing Director, CSEE Transport S.A.
Luciano Cravarolo Anthony A. Florence
President, Ansaldo Trasporti S.p.A. Vice President, Corporate & Investor Relations
Francesco Festa Lyle K. Jackson
Chief Counsel, Ansaldo Vice President, Australasian Region
Managing Director, Union Switch & Signal Pty. Ltd.
Edward Riddett(1)
Retired President, Joseph A. Kirby
Chief Executive Officer & Chairman, Vice President & Chief Financial Officer
Transcontrol Corporation
Marco Mantero
Yazid Sabeg Vice President, Italian Region
Chief Executive Officer and Director, Managing Director & Chief Executive Officer,
Compagnie des Signaux S.A. Ansaldo Segnalamento Ferroviario S.p.A.
Joel A. Smith, III(1) Richard D. Moss
President, NationsBank Carolinas Treasurer
(1)Audit Committee Robert D. Pascoe
(2)Management Board Vice President, Products & Technology Processes
Gary Ryker
Vice President, North American Region
President & Chief Executive Officer,
Union Switch & Signal Inc.
</TABLE>
ANSALDO SIGNAL N.V.
F-61
<PAGE> 62
Shareholder Information
Annual General Meeting
The Annual General Meeting of Shareholders will be held on Tuesday, April 14,
1998 at noon at:
World Trade Center
Schiphol Boulevard 267
1118 BH Schiphol
The Netherlands
Stock Data
Ansaldo Signal N.V. common stock trades on the NASDAQ National Market System
under the symbol: ASIGF.
The Company's common stock began trading on December 11, 1996. As of February
20, 1998, there were approximately 2,300 shareholders of record of the Company's
common stock.
The Company has never paid a cash dividend with respect to its common stock and
does not intend to pay cash dividends in the foreseeable future.
The following table sets forth the range of high and low closing sales prices
for the Company's common stock for each of the periods indicated:
Fiscal Year Ended December 31, 1997:
High Low
First Quarter $7.750 $6.250
Second Quarter $6.750 $4.375
Third Quarter $5.500 $3.750
Fourth Quarter $5.500 $3.125
Investor Information
Security analysts and investors seeking information about the company may write
or call:
Anthony A. Florence
Ansaldo Signal N.V.
c/o Union Switch & Signal Inc.
1000 Technology Drive
Pittsburgh, Pennsylvania 15219
United States
+1 412-688-2102
Shareholder and Proxy Information
Shareholders should vote, sign and return their proxies promptly to ensure their
shares are represented at the Annual Meeting. Proxy materials have already been
mailed to shareholders of record. Shareholders with questions about their
accounts should write to the transfer agent at the address below.
Transfer Agent
SunTrust Bank, Atlanta
P.O. Box 4625
Mail Code 008
Atlanta, Georgia 30302
United States
+1 800-568-3476
or
ABN Amro Bank
Strawinskylaan 3105
7th Floor
P.O. Box 1469
1000 BL Amsterdam
The Netherlands
Attn: Theo Spijkerman
+31 20 4064424
Financial Publications
For copies of financial publications, write or call:
David Knight
Ansaldo Signal N.V.
c/o Union Switch & Signal Inc.
1000 Technology Drive
Pittsburgh, Pennsylvania 15219
United States
+1 412-688-2439
Corporate Headquarters
Effective April 1998, the company maintains its headquarters at:
World Trade Center
Schiphol Boulevard 267
1118 BH Schiphol
The Netherlands
+31 20 3012326
ANSALDO SIGNAL N.V.
F-62
<PAGE> 63
Ansaldo Signal
A Finmeccanica/Ansaldo Affiliated Company
ANSALDO SIGNAL N.V.
F-63
