<PAGE>   1
                                                                      Exhibit 13













                               ALLEN TELECOM INC.
                               1997 ANNUAL REPORT
<PAGE>   2

BOARD OF DIRECTORS

PHILIP WM. COLBURN
Chairman of the Board,
Allen Telecom Inc.

J. CHISHOLM LYONS
Vice Chairman of the Board,
Allen Telecom Inc.,
Counsel to Smith Lyons,
Toronto, Ontario, Canada

JILL K. CONWAY
Visiting Scholar,
Program in Science,
Technology and Society,
Massachusetts Institute
of Technology,
Cambridge, Massachusetts

ALBERT H. GORDON
Advisor and Director,
Deltec, Inc.,
New York, New York

WILLIAM O. HUNT
Chairman of the Board,
Chief Executive Officer
and Director,
Intellicall Inc.
Dallas, Texas

JOHN F. MCNIFF
Vice President - Finance
and Director,
Dover Corporation,
New York, New York

ROBERT G. PAUL
President and
Chief Executive Officer,
Allen Telecom Inc.

CHARLES W. ROBINSON
Chairman,
Robinson & Associates Inc.,
Santa Fe, New Mexico

WILLIAM M. WEAVER, JR.
Limited Partner Emeritus,
Alex, Brown & Sons
Incorporated,
New York, New York

MANAGEMENT

ROBERT G. PAUL
President and
Chief Executive Officer

ERIK H. VAN DER KAAY
Executive Vice President

ROBERT  A. YOUDELMAN
Executive Vice President and
Chief Financial Officer

MCDARA P. FOLAN, III
Vice President, Secretary
and General Counsel

JAMES L. LEPORTE, III
Vice President, Treasurer
and Controller

PETER DE VILLIERS
Vice President,
Strategic Development

ANDREA CASINI
Managing Director,
Tekmar Sistemi S.r.l.

KENTON S. DAY
President,
Signal Science, Incorporated

TERRY N. GARNER
President,
Grayson Wireless Division

F. KIM GORYANCE
President,
Antenna Specialists Division

PETER MAILANDT
President,
Decibel Products Division

JEAN-LOUIS MESPLE'-DUFOUR
Chairman,
Telia S.A.

GOFFREDO MODENA
Managing Director,
FOREM. S.r.l.

MICHAEL K. MORIN
President,
Comsearch

CHRISTOPHER H. MORTON
President,
Allen Telecom
Systems Division

KARL-HEINZ SCHMIDT
Managing Director,
Mikom G.m.b.H.

GIANPIERO VILLA
President,
Worldwide Site Products


<PAGE>   3
<TABLE>
<CAPTION>
                                                                      

THE YEAR AT A GLANCE

                                                    1997                1996
FINANCIAL HIGHLIGHTS
<S>                                            <C>                 <C>         
Sales                                          $432,508,000        $369,498,000
Income Before
   Income Taxes and
   Minority Interests                          $ 46,713,000        $ 46,526,000
Income From
   Continuing Operations                       $ 23,981,000        $ 20,556,000
Net Income                                     $ 23,349,000        $ 13,066,000
Return On Equity                                        9.4%                6.0%
--------------------------------------------------------------------------------

FINANCIAL POSITION, YEAR-END:
Stockholders' Equity                           $260,822,000        $225,951,000
Working Capital                                $111,015,000        $ 94,378,000
Shares Outstanding                               27,298,000          26,763,000
--------------------------------------------------------------------------------

PER COMMON SHARE:
Basic:
   Income From
      Continuing Operations                    $        .89        $        .78
   Net Income                                  $        .87        $        .50
Diluted:
   Income From
      Continuing Operations                    $        .88        $        .76
   Net Income                                  $        .86        $        .48
Book Value per share                           $       9.55        $       8.44
--------------------------------------------------------------------------------
</TABLE>

TABLE OF CONTENTS

The Year at a Glance                          1
Letter to Shareholders                        2
Business Review                               5
Consolidated Financial Statements            12
Notes to Consolidated Financial Statements   16
Management's Discussion and Analysis
   of  Financial Condition and
   Results of Operations                     28
Five-year Summary of Operations              32
Directors and Management   Inside front cover
Shareholder Information     Inside back cover

SAFE HARBOR CAUTIONARY STATEMENT
Statements included in this Annual Report which are not historical in nature are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking statements
regarding the Company's future performance and financial results are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those set forth in the forward-looking statements. Allen
Telecom's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q contain
certain detailed factors that could cause the Company's actual results to
materially differ from forward-looking statements made by the Company,
including, among others, the costs and timetable for new product development,
the health and economic stability of the world and national markets, the
uncertain level of purchases by current and prospective customers of the
Company's products and services, the impact of competitive products and pricing,
the potential impacts of the Company's attempts to sell its discontinued
operations in the vehicle emissions testing business, and the ultimate market
value of the Company's investments in telecommunications ventures.



<PAGE>   4
2

LETTER TO SHAREHOLDERS
The major focus of this year's annual report is on the products and services of
the Company. It describes products that have led to our success, products that
are expected to contribute to our future success, as well as when and how our
Company's products are utilized in the wireless communications industry.
Therefore, our comments in this letter will be focused on other aspects of the
Company that we feel are important to you.

We experienced another year of substantial growth in 1997. Worldwide revenues
for Allen Telecom in 1997 were $433 million, up 17% from the $369 million in
1996. The growth in Allen Telecom's total revenue is shown on the accompanying
chart. Our international growth rate was far stronger, growing from $207 to $258
million, or 25% as compared to domestic growth from $162 million to $175
million, or 8%. Since we are not always certain which of our products are
re-shipped by our domestic customers to their overseas customers, these figures
are conservative with regards to a final overseas destination of our products.
This pattern of growth is consistent with the fact that wireless
telecommunications systems outside the U.S. are being developed at a much faster
pace than in the U.S.

Income from continuing operations in 1997 was $30 million or $1.10 per common
share before the special charge related to the discontinuance of two products
($.22 per common share) and an extraordinary charge for refinancing our
long-term debt ($.02 per common share). Income from continuing operations in
1996 was $23 million ($.86 per common share) before a one time write-off of
acquired in-process research and development costs.

The special charge in 1997 covered the write-off of assets, severance pay and
expenses connected with our decision to discontinue the development and sale of
the Company's wireless PBX product and IQ. SignumTM RF planning tool, as well as
the rationalization of our domestic site management and systems businesses. In
the case of the product write-offs, we did not believe that the cost of their
continued development and support was warranted when compared to the prospects
for their future success.

The wireless system subscriber base is continuing to grow in the U.S. even
though the infrastructure is more mature than in most other parts of the world.
During 1997, approximately 10 million new subscribers (a growth rate of 23%)
were added to the U.S. subscriber base. Since we benefit most when new wireless
communications systems are built, or new infrastructure is added to provide
additional coverage, the growth of international markets is more important to us
than the adding of new subscribers in the U.S. The growth rate of international
subscribers, estimated to be 50% during 1997, is a much greater driver to Allen
Telecom's sales.


[Photo] Robert G. Paul (left)
 and Philip Wm. Colburn
<PAGE>   5
3

<TABLE>
<CAPTION>
SALES FROM
CONTINUING OPERATIONS
            amounts in millions of dollars

  93        94        95        96        97
<S>       <C>       <C>       <C>       <C>   
$183.6    $213.5    $306.6    $369.5    $432.5
</TABLE>


The growth in the international subscriber base varies from country to country,
but it is substantial. In many of the lesser developed countries, the wireless
telephone system is being used to expand significantly the total telecom
infrastructure that those countries require for their economic development. The
wireless system can often be deployed faster and at less cost in many geographic
regions as compared to laying and stringing the copper and fiber optic cable
necessary for wired telephone systems. In more developed countries, it is often
the desire for flexibility and immediate communications that fosters the growth
in wireless usage. Enhanced safety is another reason given, particularly among
U.S. consumers, for buying wireless telephones, although often it is convenience
that causes increased usage once it is purchased.

The building of Personal Communications Services (PCS) networks in the U.S. has
not had the expected impact on equipment suppliers (including Allen Telecom).
While the A and B Block licensees have built a significant portion of their
systems, they have used roaming agreements and partnerships to reduce the heavy
capital investments which would have resulted from more extensive systems of
their own. This trend, coupled with the very limited buildout thus far of the C,
D, E and F Block licensees, has meant fewer opportunities for Allen Telecom
equipment sales. Our PCS sales in 1997 increased approximately 9% from 1996.

During 1997, the Company's gross profit margins, before the special charge,
improved slightly over the prior year, despite decreasing unit prices in a
number of our product lines. To offset the price reductions, we have used
product redesigns and enhanced manufacturing efficiencies to maintain our profit
margins. The Company also was able to reduce its selling, general and
administrative expenses as a percent of sales before the special charge when
compared to 1996. These improvements, along with lower tax rates, have permitted
the Company to spend more on research and development and still increase net
income before the various charges.

Research and development and new product engineering continues to be the
lifeblood of a company like Allen Telecom. R&D spending has increased in almost
every product segment of the Company as we continue to find promising
opportunities for new products. Our R&D spending increased from $21 million and
5.7% of sales in 1996 to $30 million and 7.0% of sales in 1997, continuing a
trend as seen on the table to the right. 1997 represented our largest increase
due to the more technical nature of some of our recent products.

The project that received the largest research and development spending increase
over 1996 was the approximately $2.3 million spent during 1997 on the Company's
geolocation product. This product is being developed to meet the government
mandated requirements that by the year 2001 wireless carriers be able to
identify the specific location of a wireless user who is making an emergency
call (911). This product will make it possible to immediately and automatically
forward the location information to the emergency dispatcher network just as
happens now when a 911 call is placed on a wireline phone. At present, there is
no method to locate the cellular or wireless caller when making an emergency 911
call. In some locations, emergency networks have refused to take a 911 call from
a wireless telephone because of the confusion that can result. Our R&D efforts
on this product will increase further in 1998 as we prepare for field testing
during the year. We believe this will be a very large market, reaching $2.5
billion, and the technology we are developing should allow us to be a
participant in that market.

The Company continues to evaluate whether to develop internally or acquire those
new products and technologies which are necessary to properly service our OEM
and carrier customers. We continue to make key acquisitions to enhance our
product offerings and technologies. During 1997, the company acquired Telia
S.A., a small French based manufacturer of power amplifiers. Its technology
encompasses everything from Class A single channel power amplifiers to highly
linear, multi-channel, 

<TABLE>
<CAPTION>
RESEARCH & DEVELOPMENT AND
NEW PRODUCT ENGINEERING COSTS
amounts in millions of dollars

 93        94        95             96           97

<S>       <C>       <C>            <C>          <C>  
$7.9      $8.9      $17.0          $21.0        $30.4

</TABLE>

<TABLE>
<CAPTION>
                 as a percent of sales

 93        94        95             96           97

<S>       <C>       <C>            <C>          <C>     
4.3%      4.2%      5.5%           5.7%         7.0%    
</TABLE>

<PAGE>   6
4


power amplifiers with significant power handling capability. As with a number of
our other acquisitions, we believe that the marriage of its technology and Allen
Telecom's distribution organization can improve its revenues and image in the
international marketplace. To enhance our geolocation technology, we acquired
from Raytheon intellectual property and a small development team of engineers
who have had experience integrating geolocation with a cellular network. We also
acquired the assets and intellectual property pertaining to cable-based,
in-building, wireless communications systems. This product line, named "Cable
Star," has expanded our fiber-based, in-building coverage products to provide
for maximum flexibility in engineering solutions for our customers.

During the year, we purchased the remaining 20% of FOREM that we did not
previously own (which effectively also increased our ownership in its 62% owned
Mikom GmbH subsidiary), primarily for cash. The growth in sales and profits of
FOREM and Mikom since their acquisition in 1994, have been exceptional, and the
acquisition of this minority ownership will allow us to integrate FOREM with
other elements of Allen Telecom. We have promoted the general manager of FOREM
to be president of our Worldwide Site Products business. This will assist us in
the integration of our worldwide manufacturing, design and customer support
services, consistent with the worldwide nature of the customer base for this
product segment.

The Company's investment in RF Micro Devices (RFMD), originally made in 1992,
was enhanced significantly during 1997. The Company's total investment of
approximately $3 million has resulted in Allen Telecom owning approximately one
million shares of RFMD. RFMD went public in June of 1997 at $12 per share, and
has traded between $9 3/4 and $23 3/4 per share since the public offering.

While the economic dislocations in certain Southeast Asian countries may have
some impact on the speed of continued deployment of their wireless telephone
systems, we believe this is a short-term impact that will not alter the
longer-term trends. Allen Telecom's strategy is to continue to add both
internally and through acquisition the full range of products and services
necessary to become an essential partner with our customers, wireless
telecommunications OEMs and carriers. The obstacles that must be overcome by our
customers vary depending on whether carriers are in the deployment, expansion,
optimization or enhancement stages of their system development. It is Allen
Telecom's intent to ensure its product offering is essential to the carriers'
success at each of these different stages. The very real needs being filled by
the wireless communication industry give us every reason to believe this will
continue to be a growth industry and one in which we will maintain a vital and
successful role.

/s/ Philip Wm. Colburn
Philip Wm. Colburn
Chairman of the Board


/s/ Robert G. Paul
Robert G. Paul
President and Chief Executive Officer


<TABLE>
<CAPTION>
INCOME BEFORE TAXES AND
MINORITY INTERESTS
     amounts in millions of dollars

93        94        95        96        97
<S>       <C>       <C>       <C>       <C>  
$24.5     $31.5     $50.4     $46.5     $46.7
</TABLE>



<PAGE>   7
5

[Graphics] GRAYSON ILLUMINATOR(TM)
           FOR NETWORK DRIVE TESTING

ALLEN TELECOM'S EVOLUTIONARY ROLE:
                    A PRODUCT TIMELINE

Allen Telecom supplies a variety of equipment and services to the worldwide
wireless infrastructure market. Through its various divisions and subsidiaries,
the Company participates in every stage in the evolution of a wireless service.
By conducting early research and development of products embracing emerging
technologies and future applications, by providing components to the original
equipment manufacturers (OEMs) and equipment and services to the carriers, and
through the supply of products for network performance engineering, Allen
Telecom participates in every level of a system life. To address this global
market, we have established manufacturing facilities in seven countries on four
continents. To serve our customers, the Company has created a network of 31
sales and engineering support offices around the world.

[Graphics] RESEARCH AND DEVELOPMENT FOR
           FUTURE PRODUCT APPLICATIONS
<PAGE>   8
6

RESEARCH AND DEVELOPMENT -           [Graphics] DESIGNING NEW WIRELESS
INVESTING IN THE FUTURE                         TELECOMMUNICATIONS SYSTEMS
The provision of new wireless services begins with a vision of how new
technologies can be applied to create voice and data services for the business
enterprise and consumer marketplace of the future. Well before Allen Telecom
ships products or provides services, the process begins with the development of
new technologies, products, and software for the market. This process may take
as long as two years or more for complex systems and as little as a few months
for more simple products. Time to market has become a critical factor with
development intervals being constantly compressed.

A good illustration of this pre-deployment research and development is our
current geolocation development project. Although many new cellular and PCS
users cite personal safety as the principal driver for the purchase of a
wireless telephone, today's systems are not able to determine where a call
originates. This situation contrasts sharply with wireline services, where
public safety organizations are immediately able to determine exact address
locations through a vast computer database. The Federal Communications
Commission recently mandated that by the year 2001 all providers of wireless
phone services will have to provide the exact location where an emergency 911
call originates within the network. In late 1996, Allen Telecom purchased Signal
Science, Incorporated (SSI), and during 1997 we stepped up investment in
geolocation technology to provide carriers with the equipment and software to
locate subscribers in their system who dial 911 in emergency situations. This
project involves developing new equipment to be placed at existing cell sites to
determine the triangulation location of an incoming signal at three cell sites,
a technique originally developed for the U.S. military. This information is then
routed to the appropriate public safety answering point. Our Grayson Wireless
division and SSI anticipate participating in this significant developing market.

When communities began objecting to new antenna towers, the PCS and cellular
carriers challenged our Decibel Products division to develop smaller, less
obtrusive, and more aesthetically pleasing antennas. In the original cellular
systems, at least two antennas separated by a physical space of about ten feet
were required to provide adequate reception of portable phone signals. The first
goal was to develop a single antenna to replace the two antennas while providing
similar performance. Through innovative engineering, Decibel Products perfected
a design that encompassed different polarizations within the same housing.

[Graphics] DECIBEL TRIPLETREE(TM) DUAL
           POLARIZED BASE STATION ANTENNA
<PAGE>   9
7


These dual polarization diversity designs were then shrunk to fit three of these
antennas within a single fixture to provide the most unobtrusive antenna
possible. It is foreseen that this product will be used in most future PCS
installations.

With the drive for smaller equipment at cellular base stations, the Worldwide
Site Products division has embarked on a development to create ever smaller
components which the OEMs use in their cell sites. The ultimate goal is to
shrink the size of a base station from the original four or five filing cabinets
to about the profile of a personal computer.

Where previously the receive and transmit paths of signals were separated and
routed by a series of discrete components which each occupy a significant amount
of space, the formidable task is to merge and miniaturize them into a single
subsystem. Today the various filters, isolators, low noise amplifiers, and
control systems are integrated and are less than 10% of the size of previous
designs.

As wireless systems evolve, we are certain that the demands of our OEM and
carrier customers will constantly challenge our ingenuity, creativity, and
resourcefulness. A new third generation of digital wireless communications,
designated by the acronym 3G, is presently under consideration which will
provide voice and Internet Protocol data access. Although its deployment is
probably three years away, we are already developing products for these future
applications.

SYSTEM DESIGN AND PLANNING
New wireless systems around the world are now allocated frequencies either
through an auction or sealed bid process. In order to prepare for this process,
an aspirant new service provider has to generate a rough system design to
determine the cost of the overall infrastructure so that this can be considered
in the bid for the license. Our Comsearch division begins to play a role in this
process. They provide consulting services to assist with determining the
appropriate system in light of the coverage required, topography, and area
demographics. Upon license award to a new carrier, the task of actually
designing and planning the system commences. Comsearch has the tools and the
experienced engineering personnel to provide the new carrier with the design and
layout of the system to be built. Their expertise includes vast experience in
all of the air interface standards, including AMPS, ETACS, GSM, TDMA, CDMA, as
well as all the established PCS formats. With attention to the projected
capacity required by the carrier, the network is laid out and ideal locations
chosen for the cell sites. This process is an extremely complex task as multiple
variables such as interference, signal propagation, terrain, handoff from cell
to cell, and equipment selection need to be factored into the layout.

[Graphics] ENGINEERING MICROWAVE
           NETWORKS WITH IQ-LINK (TM)

[Graphics] 9-1-1 GEOLOCATION TECHNOLOGY FOR
           EMERGENCY 911 SYSTEMS 
<PAGE>   10
8


[Graphics] TOWER MOUNTED AMPLIFIER
           IMPROVES SYSTEM PERFORMANCE

The microwave paths to connect cell sites to the mobile switching system also
have to be designed in consideration of the available frequencies, the distance,
and interference with other existing paths. This design phase usually runs for
approximately six months prior to the commencement of system construction, and
endures through system activation. Although infrastructure construction
intervals have recently become highly compressed, it usually takes about one
year of build out before subscribers can be activated on a new system.

CELL SITE SUBSYSTEMS
When system construction commences, the first activity is to build the cell
sites which usually contain equipment manufactured by Allen Telecom. Almost all
of the major wireless system infrastructure vendors incorporate components or
subsystems from Allen Telecom companies in their designs. Since our customers
are now truly global in their operations, we have recently created a new
Worldwide Site Products division which is the combination of FOREM in Italy and
the Allen Telecom Site Products division in the U.S. Allen Telecom's Worldwide
Site Products division is the world's largest supplier of cell site subsystems,
supplying many different customized modules which are incorporated into OEM cell
site racks.

Sophisticated filters ensure that the incoming signals are received clearly and
without interference, and that outgoing signals are transmitted without
interference to the resident or any other system. Duplexers at each cell site
transceiver allow one antenna to be used for both transmission and reception of
radio signals simultaneously to reduce the number of antennas on the tower. Low
noise amplifiers and tower mounted amplifiers are included in the receive path
to enhance the reception of weak signals, and power dividers feed each receiver
in the base station. In the transmit path, combiners connect all of the
transmitters to a single output so that each transmitter does not require an
individual antenna.

Our FOREM and Decibel Products divisions supply large quantities of auto-tune
combiners, which adjust instantly and automatically to new frequencies as the
system is modified. The specifications and requirements for these products have
become most stringent as systems have transitioned from an analogue to a digital
air interface and the world's airwaves have become more congested.

Power amplifiers at the cell sites boost the outgoing signals. Traditionally the
technology has permitted only one signal to be amplified by a single amplifier.
Recent advances in semiconductor technology now allow more sophisticated
amplifiers to boost more than one signal economically and at high power levels.
These amplifiers, usually referred to as feed forward, for the specific
interference mitigation mechanism, require complex design technology to be
efficient and reliable. Allen Telecom's recently acquired Telia S.A. subsidiary
has developed a family of feed forward amplifiers and supplies them to some of
the leadingdigital system OEMs for incorporation into their base stations.

[Graphics] DB DIRECTOR(R) ADJUSTABLE
           DOWNTILT ANTENNA
<PAGE>   11
9

[Graphics]DUAL BAND CELLULAR/PCS
          VEHICULAR ANTENNA

CELL SITE ANTENNAS
Adjacent to the equipment shelter a tower is constructed to raise the antennas
so that they can provide adequate coverage. Our Decibel Products division is the
leading North American supplier of base station antennas to the global wireless
OEMs and wireless service providers. Where an OEM is providing a turnkey system
installation, antennas are usually supplied as part of the turnkey package. As
service providers become more sophisticated in their system engineering
expertise, they take on more of the expansion responsibility themselves, and
begin to purchase antennas directly from Decibel Products.

Decibel manufactures antennas in frequency bands to cover all of the traditional
analogue cellular networks (AMPS and ETACS), as well as the newer digital
services for iDEN, CDMA, TDMA, GSM, DCS1800, and PCS. Depending on the specific
system configuration, a cell site is usually divided into three sectors of 120
degrees. Traditional systems employ one individual transmit antenna and two
separate receive antennas for each sector. With recent innovations, this number
has been condensed to either two antennas or a single highly complex array which
provides the functionality of the previous traditional implementations. Many
different antenna models are required to address the wide variety of frequency
bands, cell radii, topologies, and interference characteristics.

Aesthetics and antenna size have become important considerations, with carriers
demanding the smallest possible profile with the best possible performance. To
achieve this result, new designs have been created which today allow antennas
half the physical size of predecessor products. Market pressure has resulted in
products which contain dramatically less parts, simpler assembly techniques, and
leading edge materials. Presently under consideration is the assembly of some of
these antennas in Europe, South America, and Asia to provide local support to
our global customers. New models for the PCS market include the Decibel
TripleTreeTM, which incorporates all six of the antennas required for a three
sector cell site into a single twelve-inch diameter housing. To further address
the requirement for fewer antennas on towers, dual frequency antennas have been
developed to allow multiple carriers to use a single antenna. The Diversity
MasterTM antenna has also been introduced for cellular carriers who wish to
install fewer antennas at their existing cell sites.

Many subscribers prefer to have a phone installed in the car for safe operation
while driving. Many of these installations use mobile antennas from our Antenna
Specialists division. Recent advances include antennas which operate on both
cellular and PCS frequencies, as well as antennas for Global Positioning System
(GPS) mapping and cellular.

SYSTEM OPTIMIZATION
Once a new system has been activated, there are a multitude of system
optimization activities which are required as subscribers are added onto the
network. In today's competitive environment, where generally at least two and
sometimes as many as eight systems compete, coverage is critical. Incomplete
network coverage quickly causes subscribers to transfer to another provider.
Allen Telecom's Mikom G.m.b.H. subsidiary and the U.S.-based Systems division
provide products which provide both coverage and capacity enhancement. Repeaters
fill coverage gaps caused by obstructions such as hills, mountains, tunnels, and
buildings. 

[Graphics] PCS DUPLEXER/AMPLIFIER
           FOR DIGITAL BASE STATIONS

[Graphics] HIGH POWER FEED
           FORWARD LINEAR AMPLIFIER
<PAGE>   12
10


[Graphics] ANALYZER(TM) IMPROVES
           WIRELESS NETWORK PERFORMANCE

Their function is to take signals from an area with coverage and
retransmit into areas where no coverage exists. They can also be linked to a
base station by means of fiber optic cable.

Mikom specializes in the GSM 900/1800/1900 services, and their customers are the
definitive list of GSM carriers worldwide. They have helped carriers provide
coverage in airports, underground parking garages, exhibition complexes,
tunnels, and valleys, as well as behind mountains and down city canyons.
Repeaters in GSM systems can be low power inexpensive units or higher power
models with complex functionality. A high level of engineering implementation
and design support is required to properly implement repeaters into a network.
To provide this service, Mikom maintains a team of skilled engineers to assist
GSM carriers. In certain cases, Mikom even installs coverage augmentation
systems on a turnkey basis for carriers. An illustration of how Mikom's products
have provided increased capacity is the Hannover Trade Fair complex in Germany
consisting of more than 25 separate halls. Instead of installing a base station
in each hall, a lesser number of base stations were installed in a central
location, and each hall covered by a repeater fed with fiber optic cable. Among
recent developments are repeaters that cover more than one band such as ETACS
and GSM or GSM 900 and 1800.

The Allen Telecom Systems division focuses on providing solutions for the
analogue, CDMA and TDMA carriers in the Americas and Asia. All of the existing
cellular carriers in the Americas have chosen either TDMA or CDMA for their
digital migration path, and in Asia CDMA has been embraced along with GSM. In
Korea all of the services will be CDMA, while in Hong Kong there is a mixture of
GSM and CDMA systems. Through dedicated engineering support personnel, the
Systems division has assisted many carriers with the provision of coverage
expansion products.

Once the outdoor environment is seamlessly covered, the focus of the carriers
then turns to indoor coverage. It is considered a key competitive issue for a
wireless service to operate in restaurants, hotels, hospitals, office buildings,
stores, and shopping malls. Within Allen Telecom, a family of products has been
developed to provide carriers with solutions to this unique challenge. The
BriteCellTM from Allen Telecom's Tekmar Sistemi S.r.l. subsidiary is a fiber
optic based radio frequency distribution system designed to provide indoor

[Graphics] MIKOM SOLAR-POWERED
           GSM REPEATER

[Graphics] BRITECELL(TM) FIBEROPTIC
           INDOOR COVERAGE SYSTEM
<PAGE>   13
11


coverage where multiple services and longer distances are involved. The
Distributed Indoor Coverage Extension (DICE) system from Mikom uses coaxial
cable, fiber, or off-air as a means of distribution within buildings, and the
Cable Star product from the Allen Systems division is cable based for smaller,
lower cost installations.

NETWORK PERFORMANCE ENGINEERING
Once a wireless network is up and running, it is imperative that the carrier
knows how the system is performing, and the level of service being provided to
the subscriber base. It is also important to determine the level of service in
relation to competitor networks. Our Grayson Wireless division has developed a
range of test equipment and post processing software to do precisely this
function. Using this equipment a carrier can gather many different data
parameters from the network off the air and then process it into meaningful
statistics to determine the performance of the system from the perspective of
the subscriber. The quality of the signal from and to the portable phone can be
measured as well as the coverage of, and handoff points between, cells. Busy
cells, incomplete calls, dropped calls, and interference from adjacent cells can
be quantified. These measurements can be made for all areas within the
geographic footprint of the system so that the carrier can engineer the capacity
and coverage for optimum performance. Similar measurements can also be made on
competitor's systems to decide which network has significant advantages.

THE FUTURE
In the realm of wireless jargon the early analogue AMPS, ETACS, and NMT systems
are considered to have been first generation. ETACS has subsequently migrated
toward the European GSM standard, and AMPS has moved toward the TDMA and CDMA
based digital protocols. The International Telecommunications Union, under the
United Nations umbrella, is hoping to establish 3G (third generation) as a new
single standard for the wireless networks of the future. If successful, this
migration will herald the next generation of wireless system that all existing
systems will migrate to. As we move into an increasingly wireless world the
future looks bright, and at Allen Telecom we are only bounded by our ingenuity
and determination to succeed.


GLOSSARY

NMT
Nordic Mobile Telephone System, an analogue system developed as a Scandinavian
standard in the late 1970s.

AMPS
Advanced Mobile Phone System, an analogue standard developed by Bell Labs in the
U.S. in the late 1970s.

ETACS
Enhanced Total Access Communication System, developed in Europe based upon the
American AMPS standard.

TDMA
Time Division Multiple Access, a digital technique where a number of time slots
are allocated on the same channel to provide greater capacity.

GSM
Global System for Mobile Communications, a European standard developed to
provide compatibility throughout Europe.

CDMA
Code Division Multiple Access, a digital spread spectrum system where
information is sent with attached codes.

PCS
Personal Communication Services, a wireless service for consumers.

iDEN(R) *
Integrated Digital Enhanced Network, a digital system developed by Motorola and
used by carriers such as Nextel.


DCS1800/1900
GSM service at higher frequencies, also referred to as Personal Communication
Networks.

3G

Third Generation wireless standard, presently being discussed at the
International Telecommunications Union (ITU)



* iDEN is a registered trade-mark of Motorola, Inc.

[Graphics] TWO CHANNEL EAC-850(TM)
           CDMA REPEATER




<PAGE>   14
12

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF INCOME
            allen telecom inc. - (amounts in thousands, except per share data)

For the years ended December 31, 1997, 1996 & 1995                       1997         1996         1995

<S>                                                                  <C>          <C>          <C>      
SALES                                                                $ 432,508    $ 369,498    $ 306,556
Costs and Expenses:
   Cost of sales                                                       281,591      238,401      189,103
   Selling, general and administrative expenses                         70,786       58,101       47,908
   Research and development and product engineering costs               30,367       21,023       17,006
   Write-off of acquired in-process research and development costs          --        2,662           --
Interest and Financing Expenses:
   Interest expense                                                     (4,505)      (3,773)      (3,505)
   Interest income                                                       1,454          988        1,407
---------------------------------------------------------------------------------------------------------
Income Before Taxes and Minority Interests                              46,713       46,526       50,441
Provision for Income Taxes                                             (17,723)     (19,665)     (20,138)
---------------------------------------------------------------------------------------------------------
Income Before Minority Interests                                        28,990       26,861       30,303
Minority Interests                                                      (5,009)      (6,305)      (3,027)
---------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS                                       23,981       20,556       27,276
=========================================================================================================
Discontinued Operations:
   Income (loss) from discontinued operations:
      Automotive and truck products business                                --           --        7,119
      Emissions testing business                                            --       (3,766)      (1,756)
   Loss for disposal of emissions testing business                          --       (3,724)          --
---------------------------------------------------------------------------------------------------------
Income Before Extraordinary Item                                        23,981       13,066       32,639
Extraordinary Item - Extinguishment of Debt                               (632)          --           --
=========================================================================================================
NET INCOME                                                           $  23,349    $  13,066    $  32,639
=========================================================================================================
EARNINGS PER COMMON SHARE
Basic:  Income from continuing operations                            $     .89    $     .78    $    1.05
        Discontinued Operations:
           Income (loss) from discontinued operations:
              Automotive and truck products business                        --           --          .27
              Emissions testing business                                    --         (.14)        (.07)
           Loss for disposal of emissions testing business                  --         (.14)          --
        Extraordinary item - extinguishment of debt                       (.02)          --           --
---------------------------------------------------------------------------------------------------------
        Net Income                                                   $     .87    $     .50    $    1.25
=========================================================================================================
Diluted:Income from continuing operations                            $     .88    $     .76    $    1.02
        Discontinued Operations:
           Income (loss) from discontinued operations:
              Automotive and truck products business                        --           --          .27
              Emissions testing business                                    --         (.14)        (.07)
           Loss for disposal of emissions testing business                  --         (.14)          --
        Extraordinary item - extinguishment of debt                       (.02)          --           --
---------------------------------------------------------------------------------------------------------
         Net Income                                                  $     .86    $     .48    $    1.22
=========================================================================================================
Weighted average common shares outstanding:
   Basic                                                                26,920       26,470       26,170
---------------------------------------------------------------------------------------------------------
   Diluted                                                              27,340       27,060       27,040
---------------------------------------------------------------------------------------------------------
</TABLE>

THE NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>   15
13

<TABLE>
<CAPTION>

CONSOLIDATED BALANCE SHEETS
             allen telecom inc. - (amounts in thousands)

For the years ended December 31, 1997 & 1996                                                               1997         1996

ASSETS
   Current Assets:
      <S>                                                                                               <C>          <C>      
      Cash and cash equivalents                                                                       $  30,775    $  23,879
      Accounts receivable, less allowance for doubtful accounts 1997, $1,934,000; 1996, $1,610,000      105,714       93,409
      Inventories                                                                                        93,768       71,304
      Current assets of discontinued emissions testing business                                           1,034        3,332
      Other current assets                                                                               10,745        7,256
----------------------------------------------------------------------------------------------------------------------------
   Total Current Assets                                                                                 242,036      199,180
----------------------------------------------------------------------------------------------------------------------------
   Property, Plant and Equipment, at cost, less accumulated depreciation and amortization                60,543       51,942
   Other Assets:
      Excess of cost over net assets of businesses acquired                                             126,923       75,502
      Assets of discontinued emissions testing business                                                  32,329       42,031
      Other                                                                                              52,602       41,857
----------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS                                                                                          $ 514,433    $ 410,512
============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
   Current Liabilities:
      Notes payable and current maturities of long-term obligations                                   $   6,119    $   5,998
      Accounts payable                                                                                   75,195       36,639
      Accrued expenses (including accrued wages and commissions -
         1997, $13,980,000; 1996, $14,663,000)                                                           35,261       37,991
      Income taxes payable                                                                               13,197       19,830
      Deferred income taxes                                                                               1,249        4,344
----------------------------------------------------------------------------------------------------------------------------
   Total Current Liabilities                                                                            131,021      104,802
----------------------------------------------------------------------------------------------------------------------------
   Long-Term Debt                                                                                        97,915       49,957
   Deferred Income Taxes                                                                                  6,818        8,872
   Other Liabilities                                                                                     17,857       20,930
----------------------------------------------------------------------------------------------------------------------------
   Total Liabilities                                                                                    253,611      184,561
============================================================================================================================
   Commitments and Contingencies (Note 5)                                                                    --           --
----------------------------------------------------------------------------------------------------------------------------
   Stockholders' Equity:
      Common Stock, par value $1.00; authorized - 50,000,000 shares; issued -
         1997, 29,746,000; 1996, 29,614,000; outstanding - 1997, 27,298,000; 1996, 26,763,000            29,746       29,614
      Paid-in capital                                                                                   180,538      170,945
      Retained earnings                                                                                  70,091       46,742
      Translation adjustments                                                                            (5,354)        (304)
      Unrealized appreciation on investment securities                                                    5,561           --
      Less: Treasury stock - common shares, at cost, 1997, 2,448,000 shares; 1996, 2,851,000 shares     (16,992)     (17,932)
           Unearned compensation                                                                         (2,768)      (2,908)
           Minimum pension liability adjustment                                                              --         (206)
----------------------------------------------------------------------------------------------------------------------------
   Total Stockholders' Equity                                                                           260,822      225,951
----------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                                            $ 514,433    $ 410,512
============================================================================================================================
</TABLE>

THE NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.

<PAGE>   16
14

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS
             allen telecom inc. - (amounts in thousands)

For the years ended December 31, 1997, 1996 & 1995                                   1997              1996             1995

CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                                               <C>               <C>              <C>    
Income from continuing operations                                                 $23,981           $20,556          $27,276
Extraordinary item - extinguishment of debt                                          (632)                -                -
----------------------------------------------------------------------------------------------------------------------------
                                                                                   23,349            20,556           27,276
Adjustments to reconcile income to net cash flow:
   Depreciation                                                                    12,808            11,666            8,280
   Amortization of goodwill                                                         3,404             2,432            2,088
   Amortization of capitalized software                                             2,950             2,383            2,659
   Other amortization                                                                 571             2,006            1,015
   Deferred income taxes                                                           (8,157)           (2,849)           6,338
   Non-cash charge for acquired in-process research and development                     -             2,662                -
   Non-cash loss on write-off of capital assets                                     6,337                 -                -
   Gain on sale of investment                                                      (1,696)                -                -
Changes in operating assets and liabilities:
   Receivables                                                                    (14,309)          (13,362)         (21,996)
   Inventories                                                                    (23,954)              (85)         (13,653)
   Accounts payable and accrued expenses                                           16,627             7,879            1,016
   Income taxes payable                                                            (1,712)           17,095           (2,812)
   Other, net                                                                       1,814             3,229           (3,341)
-----------------------------------------------------------------------------------------------------------------------------
Cash provided by operating activities                                              18,032            53,612            6,870
=============================================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures                                                              (22,247)          (17,457)         (16,829)
Capitalized software product costs                                                 (5,307)           (4,745)          (4,386)
Sales and retirements of fixed assets                                                 845                62              170
Investments in telecommunications companies                                       (44,426)          (16,909)          (1,748)
-----------------------------------------------------------------------------------------------------------------------------
Cash used by investing activities                                                 (71,135)          (39,049)         (22,793)
=============================================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term borrowings                                                 65,381            (2,129)          (4,882)
Repayment of long-term notes                                                      (15,000)                -               -
Dividends paid                                                                          -                 -           (3,942)
Exercise of stock options                                                           1,428               239              566
Treasury stock sold to employee benefit plans                                       1,651             1,572            1,435
Cash reclassified to assets held for spin-off distribution                              -                 -           (4,002)
-----------------------------------------------------------------------------------------------------------------------------
Cash provided (used) by financing activities                                       53,460              (318)         (10,825)
=============================================================================================================================
Net cash provided (used) by discontinued operations                                 7,808            (6,072)         (12,786)
=============================================================================================================================
NET CASH PROVIDED (USED)                                                            8,165             8,173          (39,534)
Effect of exchange rate changes on cash                                            (1,269)                -               -
Cash and cash equivalents at beginning of year                                     23,879            15,706           55,240
-----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year                                          $30,775           $23,879          $15,706
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>   17
15

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
          allen telecom, inc. - (amounts in thousands)
                                                                                                                    Unrealized   
                                                                                                                  Appreciation   
                                                             Common    Paid-In      Retained    Translation      on Investment   
For the years ended December 31, 1997, 1996 & 1995            Stock     Capital      Earnings   Adjustments         Securities   
------------------------------------------------------------------------------------------------------------------------------

<S>                                                     <C>          <C>          <C>          <C>          <C>             
BALANCE DECEMBER 31, 1994                                 $  29,146    $ 161,644    $  56,902    $      23    $      --       
Net income                                                       --           --       32,639           --           --       
Cash dividends                                                   --           --       (3,942)          --           --       
Net assets distributed in TransPro spin-off                      --           --      (50,651)          --           --       
Exercise of stock options                                        72          463           --           --           --       
Conversion of convertible debentures                            355        4,623           --           --           --       
Treasury stock reissued, 61,781 common shares, at cost           --          998           --           --           -- 
Restricted shares issued, net                                    22          324           --           --           --       
Remeasurement of restricted shares                               --           18           --           --           --       
Amortization of unearned compensation                            --           --           --           --           --       
Stock option tax benefits                                        --          562           --           --           --       
Minimum pension liability adjustment                             --           --           --           --           --       
Adjustment from translating foreign
   financial statements into U.S. dollars                        --           --           --           79           --       


==============================================================================================================================
Balance December 31, 1995                                    29,595      168,632       34,948          102           --         
Net income                                                       --           --       13,066           --           --       
Exercise of stock options                                        36          293           --           --           --       
Treasury stock reissued, 94,339 common shares, at cost           --          883           --           --           -- 
Restricted shares cancelled                                     (17)        (270)          --           --           --       
Amortization of unearned compensation                            --           --           --           --           --       
Stock option tax benefits                                        --           82           --           --           --       
Stock issued in acquisitions                                     --        1,325           --           --           --       
TransPro dividend adjustment                                     --           --       (1,272)          --           --       
Minimum pension liability adjustment                             --           --           --           --           --       
Adjustment from translating foreign
   financial statements into U.S. dollars                        --           --           --         (406)          --       
Other                                                            --           --           --           --           --       
==============================================================================================================================
BALANCE DECEMBER 31, 1996                                    29,614      170,945       46,742         (304)          --         
Net income                                                       --           --       23,349           --           --       
Exercise of stock options                                       110        1,889           --           --           --       
Treasury stock reissued, 92,268 common shares, at cost           --          969           --           --           --  
Restricted shares issued, net                                    22          393           --           --           --       
Amortization of unearned compensation                            --           --           --           --           --       
Stock option tax benefits                                        --          653           --           --           --       
Stock issued in acquisitions                                     --        5,716           --           --           --       
Minimum pension liability adjustment                             --           --           --           --           --       
Adjustment from translating foreign
   financial statements into U.S. dollars                        --           --           --       (5,050)          --       
Unrealized appreciation on investment securities                 --           --           --           --        5,561       
Other                                                            --          (27)          --           --           --       
------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1997                                 $  29,746    $ 180,538    $  70,091    ($  5,354)   $   5,561       
==============================================================================================================================
</TABLE>

              The Notes are an integral part of these statements.

<TABLE>
<CAPTION>

 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY                                                           
              allen telecom inc. - (amounts in thousands)                               Minimum  
                                                                                        Pension  
                                                           Treasury        Unearned   Liability 
For the years ended December 31, 1997, 1996 & 1995            Stock    Compensation  Adjustment  
-----------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1994                                                                                
<S>                                                       <C>             <C>        <C>    
Net income                                                ($ 17,479)     ($4,310)     ($1,745)
Cash dividends                                                   --           --           --
Net assets distributed in TransPro spin-off                      --           --           --
Exercise of stock options                                        31           --          822
Conversion of convertible debentures                             --           --           --
Treasury stock reissued, 61,781 common shares, at cost          437           --           --
Restricted shares issued, net                                    --           --             
Remeasurement of restricted shares                           (1,735)        (346)          --
Amortization of unearned compensation                            --          (18)          --
Stock option tax benefits                                        --          880           --
Minimum pension liability adjustment                             --           --           --
Adjustment from translating foreign                              --           --          563
   financial statements into U.S. dollars                                                    
                                                                 --           --           --
                                                                                             
===============================================================================================
Balance December 31, 1995                                 (18,746)       (3,794)          (360) 
Net income                                                     --           --             --  
Exercise of stock options                                     (90)          --             --  
Treasury stock reissued, 94,339 common shares, at cost        689           --             --                 
Restricted shares cancelled                                    --          271             --  
Amortization of unearned compensation                          --          615             --  
Stock option tax benefits                                      --           --             --  
Stock issued in acquisitions                                  265           --             --  
TransPro dividend adjustment                                   --           --             --  
Minimum pension liability adjustment                           --           --            154  
Adjustment from translating foreign                                                            
   financial statements into U.S. dollars                      --           --             --  
Other                                                         (50)          --             --  
===============================================================================================
BALANCE DECEMBER 31, 1996                                 (17,932)       (2,908)         (206) 
Net income                                                     --           --             --  
Exercise of stock options                                    (571)          --             --  
Treasury stock reissued, 92,268 common shares, at cost        682           --             --    
Restricted shares issued, net                                  --         (541)            --  
Amortization of unearned compensation                          --          681             --  
Stock option tax benefits                                      --           --             --  
Stock issued in acquisitions                                  798           --             --  
Minimum pension liability adjustment                           --           --            206  
Adjustment from translating foreign                                                            
   financial statements into U.S. dollars                      --           --             --  
Unrealized appreciation on investment securities               --           --             --  
Other                                                          31           --             --  
-----------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997                                ($16,992)     ($2,768)      $     --  
===============================================================================================
</TABLE>


              The Notes are an integral part of these statements.
<PAGE>   18
16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      allen telecom inc.

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting policies followed by the Company that materially affect the
determination of financial position and results of operations are described
below.

Accounting Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Basis of Consolidation: The Company's consolidated financial statements include
the accounts of all wholly owned and majority owned subsidiaries. Other
investments (all of which are less than 20% owned) are accounted for using the
cost method. Intercompany accounts and transactions have been eliminated. To
facilitate preparation of financial statements, the Company's principal European
operations are included in the consolidated financial statements on a two-month
delayed basis.

Revenue Recognition: Revenues are recorded at the time products are shipped or
services are performed. Revenues from software licenses for the Company's
Frequency Planning, Systems Design and Related Services business are recognized
upon delivery of the software if vendor obligations are insignificant and if
collectibility is probable. Revenues from post-contract support that are
significant and/or unbundled with regards to the initial licensing fee are
recognized ratably over the post-contract period.

Cash and Cash Equivalents: Cash equivalents consist of temporary bank deposits
and money market instruments with an original maturity of three months or less
at the date of purchase. The Company invests its excess cash in bank deposits,
money market, and tax-exempt securities, which are afforded one of the two
highest ratings by nationally recognized ratings firms.

Valuation of Inventories: The Company values inventories including materials,
labor and overhead at the lower of cost (first-in, first-out) or market.
Inventories consisted of the following at December 31, 1997 and 1996 (amounts in
thousands):
<TABLE>
<CAPTION>

                            1997        1996
<S>                      <C>         <C>    
Raw material             $49,583     $36,869
Work-in-process           24,505      19,256
Finished goods            19,680      15,179
--------------------------------------------
                         $93,768     $71,304
</TABLE>

Certain of these inventories pertain to the production of sophisticated
equipment that could be subject to technological obsolescence. The Company
maintains and periodically revises reserves for excess inventory based on the
most current information available of anticipated usage requirements.

Investments: The Company owns common stock and warrants in RF Micro Devices,
Inc. ("RFMD"), which completed an initial public offering of its common stock on
June 3, 1997. The Company accounts for this investment using Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires certain debt and equity instruments
be adjusted to fair value at the end of each accounting period. Accordingly, at
December 31, 1997, the investment is carried at fair value of $12,668,000
(included in "Other assets") as determined by RFMD's published NASDAQ closing
price of $12.625. The Company's investment is currently subject to certain
trading restrictions. The Company has 954,278 common shares and 36,412 warrants
classified as available-for-sale. These common shares and warrants have an
aggregate fair value of $12,366,000 and a cost basis of $2,778,000, resulting in
an unrealized holding gain of $9,588,000. Unrealized appreciation in the amount
of $5,561,000, after related income tax effect, is included in Stockholders'
Equity as "Unrealized appreciation on investment securities" as it is the
Company's intent to treat the securities as a long-term investment.

Property, Plant and Equipment: Property, plant and equipment is recorded at
cost, less accumulated depreciation and amortization. Land improvements,
buildings and machinery and equipment are depreciated over their estimated
useful lives under the straight-line method. The provision for amortization of
leasehold improvements is based on the term of the related lease or the
estimated useful lives, whichever is shorter. Property, plant and equipment
consisted of the following at December 31, 1997 and 1996 (amounts in thousands):
<TABLE>
<CAPTION>

                            1997        1996
<S>                      <C>          <C>   
Land and improvements    $ 2,702      $2,315
Buildings                 26,658      22,843
Machinery and equipment   73,000      52,039
Leasehold improvements     4,904       4,465
---------------------------------------------
                         107,264      81,662
Less accumulated depreciation
  and amortization       (46,721)    (29,720)
---------------------------------------------
                         $60,543     $51,942
</TABLE>

Computer Software Costs: The Company's policy is to capitalize costs incurred in
creating computer software products once technological feasibility is
established and to amortize such costs over periods ranging from two to ten
years. The Company also capitalizes costs incurred in the development of
computerized databases, which are amortized over periods of ten to twenty years.
The Company reviews the amounts capitalized for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets may
not be recoverable. In 1997, 1996 and 1995, approximately $5,307,000,
$4,745,000, and $4,386,000, respectively, of these costs were capitalized and
approximately $ 2,950,000, $2,383,000, and $2,659,000, respectively, were
amortized (excluding impairment writedown in 1997 of $5,955,000).

Excess of Cost Over Net Assets of Businesses Acquired (Goodwill): The excess of
investments in consolidated subsidiaries over the net asset value at acquisition
is being amortized on a straight-line basis over periods not exceeding forty
years. The Company's policy is to evaluate goodwill for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss, if required, would be recorded in the period
such determination is made based on the fair value of the related businesses.
<PAGE>   19
17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      
Foreign Currency Translation: Assets and liabilities of the Company's foreign
subsidiaries are translated into U.S. dollars at the current rate of exchange,
while revenues and expenses are translated at the average exchange rate during
the year. Adjustments from translating foreign subsidiaries' financial
statements are excluded from the results of operations and are reported as a
separate component of stockholders' equity.

Research and Development Costs: Expenditures relating to the development of new
products and processes, including significant improvements to existing products,
are expensed as incurred. Research and development expenses were $26,137,000,
$18,059,000, and $13,453,000 in 1997, 1996, and 1995, respectively. In addition,
the Company incurred other engineering expenses relating to new product
development (that do not meet the accounting definition of "Research and
Development") in the amount of $4,230,000, $2,964,000, and $3,553,000 in 1997,
1996, and 1995, respectively.

Stock Based Compensation: The Company accounts for stock based compensation
awards pursuant to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and its related interpretations which prescribe the
use of the intrinsic value based method. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. However, the Company has
adopted the disclosure requirements of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock Based Compensation." See Note 4 for
additional information.

Income Taxes: The Company accounts for income taxes in accordance with the
provisions of Statement of Financial Accounting Standards No. 109 ("SFAS 109"),
"Accounting for Income Taxes." Under SFAS 109, deferred income taxes are
recorded to reflect the tax consequences on future years of differences between
the tax bases of assets and liabilities and their financial reporting amounts at
each year-end.

Earnings Per Common Share: In the fourth quarter of 1997, the Company adopted
the provisions of Statement of Financial Accounting Standards No. 128 ("SFAS
128"), "Earnings per Share," which specifies the computation, presentation, and
disclosure requirements of earnings per common share. Basic earnings per share
are based on the weighted average number of common shares outstanding during the
period. Diluted earnings per common share are based on the weighted average
number of common shares outstanding during the period plus, if dilutive, the
incremental number of common shares issuable on a pro forma basis upon the
exercise of employee stock options, assuming the proceeds are used to repurchase
outstanding shares at the average market price during the year. The 1996 and
1995 computations and presentation of earnings per common share have been
restated to conform to the provisions of this statement. A reconciliation of the
Basic and Diluted per share computations are provided below (in thousands):
<TABLE>
<CAPTION>

                                           1997     1996    1995
Common Shares:
Weighted average common
         shares outstanding
<S>                                      <C>      <C>      <C>   
                  - Basic                26,920   26,470   26,170
Additional common shares
  issuable for stock options                420      590      870
-----------------------------------------------------------------
Common shares - Diluted                  27,340   27,060   27,040
</TABLE>

<TABLE>
<CAPTION>

NOTE 2: FINANCING
Long-term obligations consisted of the following (amounts in thousands):

                                     1997        1996
<S>                             <C>         <C>      
Credit agreement borrowings     $   7,081   $   7,120
Floating rate industrial revenue
  bonds due 2012 - 2025            15,500      15,500
Senior notes payable
  due 2001 - 2007                  65,000           -
8.13% fixed rate note payable
  to insurance company                  -      15,000
Capital lease obligation           13,934      15,502
Other                                 564         223
Unamortized debt expense           (1,137)       (645)
------------------------------------------------------
                                  100,942      52,700
Less current maturities            (3,027)     (2,743)
------------------------------------------------------
                                $  97,915   $  49,957
</TABLE>

In 1997, the Company issued $65,000,000 of unsecured notes in a private
placement transaction. These notes have a weighted average life of 7 1/2 years
and a weighted average interest rate of 6.65%. The notes rank equally with the
Company's other unsecured indebtedness. A portion of the proceeds was used to
prepay the $15,000,000 note payable to an insurance company. As a result of such
prepayment, the difference between the call premium and costs of reacquisition
and the net carrying amount of the debt in the amount of $996,000, or $.02 per
share after related tax benefit, has been reported as an "Extraordinary Item" in
the Consolidated Statements of Income.

The Company maintains a domestic revolving credit agreement in the aggregate
amount of $100,000,000 expiring December 18, 1999. Of this total, $17,500,000
has been utilized for the issuance of letters of credit relating principally to
the Company's industrial revenue bonds. The balance of funds available under the
revolving credit agreement may be utilized for borrowings or other letters of
credit; however, a maximum of $20,000,000 may be allocated to such letters of
credit. At December 31, 1997, $82,500,000 was available under this agreement.
Interest may be determined on a LIBOR or prime rate basis at the Company's
option. The Company has agreed to pay a commitment fee varying from 1/8 - 1/2 of
1% per annum on the unused portion of the commitment.

The Company also has short-term credit lines utilized by its European
subsidiaries. At year-end, direct borrowings under these agreements totaled
$3,092,000; an additional $22,708,000 remained unused. These credit lines bear
interest based on LIBOR. Foreign long-term debt includes long-term arrangements
at fixed and variable rates with the Industry Ministry of Italy totaling
$1,618,000 (due 1998 - 2008), and variable rate borrowings with various
international banks of $5,463,000 (due 1998 - 2004). Further, two of the
aforementioned arrangements are mortgage notes, under which the Company has
pledged the respective land and buildings as collateral. These facilities had an
aggregate net book value of $6,870,000 at year-end 1997. During 1997, the
average interest rate for all foreign credit arrangements approximated 6.89%.
<PAGE>   20

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      allen telecom inc.

The floating rate industrial revenue bonds bear interest at rates based upon a
short-term tax exempt bond index, as defined in the bonds, which approximated
3.72% at December 31, 1997. The average interest rate for all industrial revenue
borrowings approximated 3.90% during 1997.

In connection with one of its discontinued emissions testing business programs,
the Company has a lease agreement under which it leases the land and inspection
facilities for an initial lease term equal to the program life expiring on
December 31, 2005. The lease agreement contains an extension provision such that
if the inspection program is extended, the lease is automatically extended to
run concurrently with the program life. For financial reporting purposes the
lease has been classified as a capital lease; accordingly, an obligation and
related asset of approximately $15,283,000 is recorded at December 31, 1997.

The aggregate maturities of long-term obligations for the years 1998 through
2002 are as follows (amounts in thousands):



<TABLE>
<CAPTION>
<S>     <C>     <C>      <C>     <C>
1998     1999    2000     2001    2002
----------------------------------------
$3,027  $2,409  $2,739   $5,020  $14,473
</TABLE>


The Company's borrowing agreements include various restrictive covenants as to
the amount and type of indebtedness, investments and guarantees, maintenance of
net worth, the purchase or redemption of the Company's shares and the
disposition of assets of the Company not in the ordinary course of business.
<TABLE>
<CAPTION>

NOTE 3: OTHER ASSETS AND LIABILITIES
Other assets consisted of the following (amounts in thousands):

                                     1997        1996
Capitalized computer software
<S>                                <C>         <C>    
  and database files               $10,949     $14,550
Investments in telecommunication
  companies                         23,337       7,827
Investment in specialty rubber
  products business                  4,344       4,344
Assets held for sale                 2,710       3,217
Prepaid pension costs                2,299       3,070
Other                                8,963       8,849
------------------------------------------------------
                                   $52,602     $41,857
</TABLE>

<TABLE>
<CAPTION>

Other liabilities consisted of the following (amounts in thousands):

                                       1997        1996
<S>                                  <C>          <C>    
Minority interests                   $ 7,253     $10,633
Long-term pension liabilities          4,891       4,382
Accrued post-retirement benefits       1,576       1,609
Other                                  4,137       4,306
--------------------------------------------------------
                                     $17,857     $20,930
</TABLE>


NOTE 4: CAPITAL STOCK AND STOCK COMPENSATION PLANS
The Company is authorized to issue up to 50,000,000 shares of common stock,
$1.00 par value, and 3,000,000 shares of preferred stock, without par value, in
one or more series. In addition, the Company can fix the powers, designations,
preferences and rights of each of the preferred stock series.

The Company has adopted the "disclosure-only" provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation", ("SFAS No. 123") but applies Accounting Principles Board Opinion
No. 25 ("APB 25") and related interpretations for the accounting of its Stock
Plans. The Company has two active plans, the 1992 Stock Plan and the 1994
Non-Employee Directors Stock Option Plan. The 1982 Stock Plan, under which
options still remain outstanding, was terminated in 1992.

The Company's 1992 Stock Plan provides for the granting of options (and
restricted shares as discussed below) to key employees as determined by the
Management Compensation Committee of the Board of Directors. The total number of
options for which the Company may grant options and award restricted shares of
common stock under the 1992 Stock Plan cannot exceed 2,228,221 shares, subject
to certain adjustments. Options are awarded at a price not less than the fair
market value on the date the option is granted, have a ten-year term whereby 50%
of the option shares vest after two years and an additional 25% in each of years
three and four. Options may contain stock appreciation rights under which the
Company, upon request of the optionee, may, at its discretion, purchase the
exercisable portion of an option for cash and/or shares at a price equal to the
difference between the option price and the market price of the shares covered
by such portion of the option in lieu of issuing shares upon exercise. There
were no exercises of stock appreciation rights in 1997, 1996 and 1995.

Pursuant to the 1994 Non-Employee Directors Stock Option Plan, the total number
of shares to be issued may not exceed 278,528 shares. From 1994 through 1997,
each Non-Employee Director who previously had not been employed by the Company
automatically received an option to purchase 1,000 shares of common stock
("Formula Awards"). At its meeting held February 17, 1998, the Board of
Directors amended the plan to increase the number of options granted under the
Formula Awards to 3,000 per year. No Non-Employee Director who previously has
been employed by the Company is eligible to receive Formula Awards. Shares
granted under the 1994 Plan have a ten-year term and vest in the same manner as
the 1992 Stock Plan, subject to certain accelerated vesting upon the cessation
of service. Non-Employee Directors who have been previously employed by the
Company are eligible to receive discretionary awards of options to purchase
shares of common stock.



<PAGE>   21
19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the status of outstanding stock options as of
December 31, 1997:

<TABLE>
<CAPTION>
              
                          STOCK OPTIONS OUTSTANDING
                      -------------------------------------
                                        WEIGHTED AVERAGE            STOCK OPTION EXERCISABLE
                                     ----------------------      --------------------------------
   RANGE OF                          CONTRACTUAL   EXERCISE                      WEIGHTED AVERAGE
EXERCISE PRICES        SHARES           LIFE        PRICE        SHARES           EXERCISE PRICE

 <S>       <C>       <C>              <C>          <C>           <C>                 <C>   
 $ 4.18 to $10.77      496,808        2.5 years    $ 5.47        496,808             $ 5.47
 $11.28 to $19.97      838,139        7.8 years    $16.01        329,230             $14.99
 $20.00 to $28.00      633,756        8.1 years    $21.39        107,936             $22.05
------------------------------------------------------------------------------------------------
 $ 4.18 to $28.00    1,968,703        6.6 years    $15.08        933,974             $10.72
</TABLE>

Stock option activity for the three years ended December 31, 1997 is summarized
as follows:
<TABLE>
<CAPTION>

                                            Weighted
                                             Average
                                            Exercise
                                 Shares        Price

<S>                             <C>         <C>       
Balance, December 31, 1994    1,222,505   $     9.95
  Granted (weighted average
   fair value $11.10)           331,762   $    21.58
  Exercised                     (85,766)  $     6.66
  Terminated and canceled       (80,575)  $    18.36
----------------------------------------------------
Balance, December 31, 1995    1,387,926   $    12.44
  Granted (weighted average
   fair value $10.15)           391,400   $    20.39
  Exercised                     (37,545)  $     8.84
  Terminated and canceled       (32,317)  $    20.21
----------------------------------------------------
Balance, December 31, 1996    1,709,464   $    14.19
  Granted (weighted average
   fair value $9.97)            498,500   $    18.11
  Exercised                    (146,872)  $    12.07
  Terminated and cancelled      (92,389)  $    19.61
----------------------------------------------------
Balance, December 31, 1997    1,968,703   $    15.08

</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for stock option grants: expected volatility of 47% and 40%,
risk free interest rates of 6.38% and 6.42%, and expected lives of 6.2 years and
6.1 years for 1997 and 1996, respectively. The calculations assume no future
dividend payments for grants in both 1997 and 1996.

Restricted stock awards made to date under the 1992 Stock Plan were issued at no
cash cost to the recipients; however, such employees generally agreed to forego
salary increases and new stock option grants for a period of two years, other
than for exceptional promotions. The restricted shares generally vest in 25%
increments in the seventh, eight, ninth and tenth year from the year of award.
An accelerated vesting schedule may be triggered if certain performance targets
are achieved. Specifically, the vesting of 50% of such shares may be accelerated
(but not sooner than three years from the award year) based upon the average
sale price of the Company's stock price during a period of 91 consecutive
calendar days exceeding specified target levels. The remaining 50% of such
shares may be accelerated based on average earnings per common share over three
consecutive fiscal years exceeding specified target levels beginning with the
award year. Restricted shares are subject to forfeiture in certain circumstances
as defined in the 1992 Stock Plan.

Restricted stock activity for the three years ended December 31, 1997 is
summarized as follows:
<TABLE>
<CAPTION>



                                       Shares

<S>                                  <C>   
Balance, December 31, 1994            557,869
  Granted (weighted average
   fair value $25.00)                  35,783
  Vested                             (211,794)
  Terminated and canceled             (61,253)
----------------------------------------------
Balance, December 31, 1995            320,605
  Granted                                   -
  Vested                              (28,347)
  Terminated and canceled             (17,328)
----------------------------------------------
Balance, December 31, 1996            274,930
  Granted (weighted average
   fair value $18.94)                  40,000
  Vested                              (11,848)


  Terminated and cancelled            (17,626)
----------------------------------------------
Balance, December 31, 1997            285,456

</TABLE>

Unearned compensation with respect to restricted shares, representing the fair
value of the restricted shares at date of award, is charged to income over a
ten-year period or over the period of actual vesting whichever is shorter.
Compensation expense with respect to restricted shares amounted to $424,000 in
1997, $382,000 in 1996, and $391,000 in 1995.

At December 31, 1997 and 1996, 2,962,027 and 2,996,262 common shares,
respectively, were reserved for outstanding stock options and for future grants
of stock options and restricted shares under all Stock Plans. In addition,
500,000 shares of Series C Junior Participating Preferred Stock are authorized
for issuance under the Company's Stockholder Rights Plan at January 20, 1998.

If the Company had elected to recognize compensation cost for its stock based
compensation plans based on the fair value at the grant dates for awards under
those plans in accordance with SFAS 123, net income and earnings per common
share would have been reduced to the pro forma amounts below (amounts in
thousands, except per share data):
<TABLE>
<CAPTION>

                                   1997      1996      1995
<S>                             <C>       <C>       <C>    
Net income:
   As reported                  $23,349   $13,066   $32,639
   Pro forma                    $21,562   $11,794   $31,726
Earnings per common share, 
   Basic:                          $.87      $.50     $1.25
   Pro forma                       $.80      $.45     $1.21
  Diluted:
   As reported                     $.86      $.48     $1.22
   Pro forma                       $.80      $.44     $1.19
</TABLE>
<PAGE>   22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      allen telecom inc.

NOTE 5: COMMITMENTS AND CONTINGENCIES
The Company's leases consist primarily of facilities and equipment and expire
principally between 1998 and 2005. A number of leases require that the Company
pay certain executory costs (taxes, insurance and maintenance) and contain
renewal and purchase options. Annual rental expense for operating leases
included in results from continuing operations approximated $4,600,000 in 1997,
$3,900,000 in 1996, and $4,200,000 in 1995. Future minimum payments under
noncancelable leases as of December 31, 1997 were as follows (amounts in
thousands):
<TABLE>
<CAPTION>

                   Operating  Capitalized
                      Leases        Lease
<S>                  <C>         <C>   
1998                  $4,190       $2,246
1999                   3,460        2,450
2000                   3,150        2,450
2001                   2,850        2,450
2002                   2,110        2,450
Thereafter             3,100        7,350
-----------------------------------------
  Total minimum
   lease payments    $18,860       19,396
-----------------------------------------
  Less: amount
   representing interest          (5,462)
-----------------------------------------
Present value of future
  minimum lease payments
  including current maturities
  of $1,274                      $13,934
</TABLE>

The Company is self-insured for health care and workers compensation up to
predetermined amounts above which third party insurance applies. For years 1996
and 1997, the Company is fully insured through third party insurance for general
liability and product liability and was, in 1995, self-insured up to
predetermined amounts above which third party insurance applies. The Company is
contingently liable to insurance carriers under its workers compensation and
liability policies and has provided a letter of credit in favor of these
carriers in the amount of $1,591,000.

In 1996, the Company entered into an agreement to make an equity investment of
$5,000,000 in Nextwave Telecom Inc. ("Nextwave"), and whereby Nextwave agreed to
purchase $50,000,000 of equipment and services over a five-year period from the
Company. In connection with this agreement, subject to certain preconditions
that have not yet occurred, the Company has agreed to provide secured product
financing in addition to its investment. At December 31, 1997, the Company had
outstanding approximately $2,000,000 of receivables with Nextwave. In early
1997, the U.S. Government suspended interest payments on license fees due from
certain companies, such as Nextwave, who were awarded telecommunications
licenses under a competitive auction bid process. Subsequently, the Federal
Communications Commission ("FCC") provided alternatives for these capital
constrained C Block licensees, which may enable these carriers to obtain the
financing needed to build out their systems or to return some, or all, of their
licenses to the FCC for re-auction. While it is not clear which alternative, or
alternatives, will be chosen by Nextwave, a decision is anticipated in 1998. At
this time, the Company believes that there has been no impairment in the
carrying value of its investment in and receivable from Nextwave.

Various legal actions are pending against or involve the Company and its
subsidiaries with respect to such matters as product liability and casualty
claims. In the opinion of management, after review and consultation with
counsel, the aggregate liability, if any, that ultimately may be incurred in
excess of amounts already provided should not have a material adverse effect on
the consolidated financial position, results of operations or cash flow of the
Company.

In connection with the sale of its former specialty rubber products operations
and spin-off of its Truck Products business, the Company remains as guarantor or
remains contingently liable under certain long-term leases or other obligations
assigned to the purchasing/spun-off company.

As more fully described in Note 9, "Acquisitions and Dispositions," the
Company's MARTA Technologies, Inc. subsidiary which operates its discontinued
centralized automotive emissions testing programs, is engaged in litigation with
the States of Ohio and Kentucky in connection with emissions testing programs.

The Company is subject to federal, state and local laws designed to protect the
environment and believes that, as a general matter, its policies, practices, and
procedures are properly designed to reasonably prevent risk of environmental
damage and financial liability to the Company. The Company has identified
potential environmental damage at one formerly occupied manufacturing facility.
In this regard, the Company has engaged a contractor to evaluate the site and
determine the cost, if any, to resolve environmental damage at this site. While
the ultimate cost cannot yet be specifically determined, the Company currently
believes the costs of remediation will not exceed $100,000. In addition, the
Company had been named as a potentially responsible party under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
("CERCLA") with respect to alleged environmental conditions at one industrial
site. This action was settled in 1997 for approximately $3,000. The Company also
believes it is reasonably possible that environmental related liabilities may
exist with respect to one industrial site formerly occupied by the Company.
Based upon environmental site assessments, the Company believes that the cost of
any potential remediation, for which the Company may ultimately be responsible,
will not have a material adverse effect on the consolidated financial position,
results of operations or liquidity of the Company.
<PAGE>   23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6: PENSION AND EMPLOYEE BENEFIT PLANS
The Company has noncontributory pension plans covering the majority of its
full-time domestic employees. Plans covering salaried employees provide benefits
that are based on years of service and compensation during the ten-year period
prior to retirement, while the plan covering hourly employees typically provides
benefits based on specified amounts for each year of service. Domestic pension
costs are funded in compliance with the requirements of the Employee Retirement
Income Security Act of 1974, as amended, as employees become eligible to
participate, generally upon employment.

Net periodic pension cost of continuing operations for the Company's plans
included the following components (amounts in thousands):
<TABLE>
<CAPTION>

                                     1997           1996       1995
Service cost benefits
<S>                                <C>            <C>       <C>    
  earned during the year           $1,204         $1,165    $   926
Interest cost on the
  projected benefit
  obligation                        2,051          2,143      2,487
Actual income on
  plan assets                      (5,602)        (3,474)    (5,781)
Net settlement gain                     --            --     (2,135)
Net amortization
  and deferral                      3,576          1,509      3,193
--------------------------------------------------------------------
Net periodic pension
  cost (benefit)                  $ 1,229         $1,343    ($1,310)
</TABLE>


In 1995, the Company experienced a settlement gain in the amount of
approximately $2,208,000 ($1,325,000 after related deferred income taxes); this
net gain was credited to retained earnings in connection with a spin-off (see
Note 9).

Plan assets consist principally of equity securities (including 92,000 common
shares of the Company). The following tables set forth the plans' combined
funded status, at December 31, 1997 and 1996 (amounts in thousands):
<TABLE>
<CAPTION>

                                    Assets       Benefits
                                    Exceed         Exceed
                                  Benefits         Assets
<S>                               <C>             <C>   
1997:
Actuarial present value of 
 benefit obligations:
   Vested benefits                $ 20,654        $ 6,951
   Nonvested benefits                1,099            260
----------------------------------------------------------
   Accumulated benefit
     obligations                    21,753          7,211
   Effect of projected future
     compensation levels             1,942            435
----------------------------------------------------------
   Projected benefit obligations    23,695          7,646
Plan assets at fair market value    25,331          2,755
----------------------------------------------------------
   Projected benefit obligations
     less than (in excess of)
     plan assets                     1,636         (4,891)
Gain due to actual experience
  varying from actuarial
  assumptions                          (73)          (941)
Prior service cost not yet
  recognized in pension cost          (125)         1,992
Transition liability (asset)
  on adoption of new accounting
  standard to be recognized
  in the future                       (194)             5
Adjustment required to recognize
  minimum liability                     -            (621)
----------------------------------------------------------
Prepaid (accrued) pension cost     $ 1,244        ($4,456)

1996:
Actuarial present value of 
 benefit obligations:
   Vested benefits                 $17,972         $7,301
   Nonvested benefits                  894            408
----------------------------------------------------------
   Accumulated benefit
     obligations                    18,866          7,709
   Effect of projected future
     compensation levels             1,590          1,047
----------------------------------------------------------
   Projected benefit obligations    20,456          8,756
Plan assets at fair market value    20,948          3,022
----------------------------------------------------------
 Projected benefit obligations
   less than (in excess of)
   plan assets                         492         (5,734)
Loss due to actual experience
  varying from actuarial
  assumptions                        1,595            252
Prior service cost not yet
  recognized in pension cost          (133)         2,140
Transition liability (asset)
  on adoption of new accounting
  standard to be recognized
  in the future                       (252)            10
Adjustment required to recognize
  minimum liability                      -         (1,355)
----------------------------------------------------------
Prepaid (accrued) pension cost    $  1,702        ($4,687)
</TABLE>

<TABLE>
<CAPTION>
Assumptions used in determining pension cost for the plan are:

                                     1997        1996
<S>                                <C>         <C>
Discount rate                      7 1/4%      7 1/2%
Expected rate of increase
  in compensation                      5%      5 1/2%
Expected long-term rate of
  return on plan assets            9 3/4%          9%
</TABLE>


The Company provides health care and life insurance benefits for certain retired
employees who reach retirement age while working for the Company. The components
of the expense for postretirement health care and life insurance benefits from
continuing operations are as follows (amounts in thousands):
<TABLE>
<CAPTION>

                              1997           1996           1995
<S>                         <C>             <C>            <C>  
Net periodic cost:
Service cost benefits
  attributed to service
  during period             $    6          $  15          $  12
Interest cost on accumulated
  post-retirement benefit
  obligation                   110            110            108
Amortization of gain            (3)            (2)            (7)
-----------------------------------------------------------------
Net postretirement
  health care cost         $   113         $  123          $ 113

</TABLE>
<TABLE>
<CAPTION>

The components of the accumulated postretirement benefit obligations (all of
which are unfunded) are as follows (in thousands):

                           1997         1996      1995
<S>                      <C>          <C>       <C>   
Retirees                 $1,319       $1,103    $1,173
Fully eligible active
  plan participants          96          102        78
Other active plan
  participants               87          141       302
Unrecognized net gain        74          263        46
-------------------------------------------------------
Accumulated postretirement
  benefit obligations    $1,576       $1,609    $1,599
</TABLE>

The actuarial calculation assumed a health care cost trend rate of 9.6% for 1997
(13.2% in 1996 and 13.7% in 1995). In 1997, the assumed trend rate was reduced
based on the most current data. The assumed rate decreases approximately .4% per
year through the year 2010 to 5.0% and remains constant beyond that point. The
health care cost trend rate has a significant effect on the amounts reported.
For example, a one percentage point increase in the health care cost trend rate
would increase the accumulated postretirement benefit obligation by $54,000 and
increase net periodic cost by $5,400. The weighted average discount rate used in
determining the accumulated postretirement benefit obligations was 7.25% in
1997, 7.50% in 1996, and 7.25% in 1995, respectively.
<PAGE>   24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      allen telecom inc.
<TABLE>
<CAPTION>

NOTE 7: INCOME TAXES
Information with respect to income taxes 
in continuing operations is as follows
(amounts in thousands):

                                            1997        1996        1995

<S>                                     <C>         <C>         <C>     
Income before taxes 
and minority interests: 
   Domestic                             $  5,351    $  9,472    $ 35,636
   Foreign                                41,362      37,054      14,805
------------------------------------------------------------------------
                                        $ 46,713    $ 46,526    $ 50,441
Provision (Benefit) for income taxes:
  Current:
   Federal                              $  2,247    $  2,764    $  5,550
   Foreign                                22,867      19,170       7,323
   State and local                           766         580         927
------------------------------------------------------------------------
                                          25,880      22,514      13,800
------------------------------------------------------------------------
  Deferred:
   Federal                                (5,275)     (2,054)      5,173
   Foreign                                  (542)        108         868
   State and local                        (2,340)       (903)        297
------------------------------------------------------------------------
                                          (8,157)     (2,849)      6,338
------------------------------------------------------------------------
                                        $ 17,723    $ 19,665    $ 20,138

</TABLE>

A reconciliation of the provision for income taxes at the U.S. Federal statutory
rate of 35% to the reported tax provisions is as follows (amounts in thousands):

<TABLE>
<CAPTION>
                                  1997        1996        1995

<S>                           <C>         <C>         <C>     
Provision computed
  at the U.S. Federal
  statutory rate              $ 16,350    $ 16,284    $ 17,654
State and local income
  taxes, net of Federal
  income tax effect             (1,023)       (210)        796
Net higher tax rates
  on foreign income              7,016       6,082       3,304
Benefit of foreign sales
  corporation and other
  tax credits                   (2,115)     (2,055)     (1,881)
Tax effect of write-off of
  non-deductible acquired
  in-process research
  and development cost              --         932          --
Other, net                      (2,505)     (1,368)        265
--------------------------------------------------------------
                              $ 17,723    $ 19,665    $ 20,138
</TABLE>

<TABLE>
<CAPTION>

The following table summarizes the Company's total provision (benefit) for
income taxes (amounts in thousands):

                                  1997        1996        1995
<S>                           <C>         <C>         <C>     
Continuing operations         $ 17,723    $ 19,665    $ 20,138
Discontinued operations             --      (3,780)      3,672
Extraordinary item                (364)         --          --
Tax benefit of carryforward
  allocated to goodwill          6,085          --          --
Allocated to equity:
  Unrealized appreciation
   on investment securities      4,027          --          --
  Stock options                   (653)        (82)       (509)
  Pension gain (loss) from
   business disposition and
   other pension items             149         112       1,164
--------------------------------------------------------------
                              $ 26,967    $ 15,915    $ 24,465
</TABLE>

<TABLE>
<CAPTION>

The components of deferred tax assets (liabilities) are comprised of the
following as of December 31, 1997 and 1996 (amounts in thousands):

                                         1997        1996

<S>                                  <C>         <C>     
Gross deferred tax assets:
  Inventory                          $  4,854    $  3,599
  Pensions and deferred
   compensation                         2,419       2,000
  Tax credit carryforwards              1,575       1,480
  Product warranty claims               1,735       1,108
  Net operating loss carryforwards      3,116          --
  Other                                 3,875       2,005
---------------------------------------------------------
                                       17,574      10,192
---------------------------------------------------------
                                             
Gross deferred tax liabilities:
  Intangible assets                    (3,455)     (8,497)
  Depreciation                         (2,686)     (1,205)
  Unremitted foreign earnings              --      (1,500)
  Unrealized appreciation on
   investment securities               (4,027)         --
  Deferred start-up costs              (2,309)     (2,924)
  Other                                (5,920)     (8,350)
----------------------------------------------------------
                                      (18,397)    (22,476)
----------------------------------------------------------
Net deferred tax liabilities         ($   823)   ($12,284)
</TABLE>

<TABLE>
<CAPTION>

Deferred tax assets (liabilities) are recorded in the consolidated balance
sheets as follows (amounts in thousands):

                              1997        1996
<S>                       <C>         <C>     
Other current assets      $  7,244    $    932
Current liabilities -
  deferred income taxes     (1,249)     (4,344)
Long-term deferred
  income taxes              (6,818)     (8,872)
-----------------------------------------------
                          ($   823)   ($12,284)

</TABLE>


During 1997, 1996, and 1995, general business tax credits of approximately
$700,000, $470,000, and $359,000 generated in the respective year were used to
reduce the provision for income taxes. At December 31, 1997, the Company has
available alternative minimum tax credits in the amount of $405,000 available to
reduce future Federal income tax liabilities.

United States income taxes are not provided on undistributed earnings of the
Company's foreign subsidiaries because of the intent to reinvest these earnings.
The amount of undistributed earnings which are considered to be indefinitely
reinvested is approximately $35,000,000 at December 31, 1997. While the amount
of federal income taxes, if such earnings are distributed in the future, cannot
now be determined, such taxes may be reduced by tax credits and other
deductions.

NOTE 8: INDUSTRY SEGMENT AND GEOGRAPHIC DATA
The distribution of the Company's geographic operations is as follows (amounts
in thousands):
<TABLE>
<CAPTION>

                                   1997         1996         1995
Sales:
<S>                           <C>          <C>          <C>      
United States                 $ 272,346    $ 249,084    $ 251,322
Italy                           117,607       92,284       37,806
Germany                          48,622       43,013       21,702
Other                            69,309       45,119       15,754
Less inter-
  geographic sales              (75,376)     (60,002)     (20,028)
-----------------------------------------------------------------
                              $ 432,508   $  369,498   $  306,556
Operating Income:
  United States$                  5,319   $   11,850   $   37,291
  Italy                          19,823       17,163        8,651
  Germany                        14,636       14,405        6,218
  Other                           9,986        5,893          379
-----------------------------------------------------------------
                                 49,764       49,311       52,539
  Financing costs                (3,051)      (2,785)      (2,098)
-----------------------------------------------------------------
                              $  46,713    $  46,526    $  50,441
Assets:
  United States               $ 305,740    $ 293,191    $ 282,439
  Italy                         143,618       72,794       52,718
  Germany                        31,291       24,163       14,458
  Other                          33,784       20,364       13,950
------------------------------------------------------------------
                              $ 514,433    $ 410,512    $ 363,565
</TABLE>


<PAGE>   25

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               allen telecom inc.

U.S. export sales of continuing operations were $103,855,000, $86,542,000, and
$98,205,000 in 1997, 1996, and 1995, respectively.

The aggregate net currency transaction and translation amounts in income from
continuing operations included gains of $126,000, $126,000, and $34,000 in 1997,
1996, and 1995, respectively.

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Statement redefines the way publicly
held companies report information about segments and is effective for the fiscal
year ending December 31, 1998.

Based on the Company's initial assessment of this new accounting pronouncement
it has determined that it will likely have two segments - Wireless
Telecommunications Equipment (comprising its Systems, Site Management and Other
Non-antenna Products and Mobile and Base Antennas product lines) and Wireless
Telecommunications Engineering Services (comprising its Frequency Planning,
Systems Design and Related Services product line). However, the Wireless
Telecommunications Engineering Services segment is not expected to be a
"Reportable Segment" since the operating results and assets are anticipated to
be less than 10% of the total Company. The Company therefore does not believe
that the changes in disclosure as a result of this new Statement will
significantly change its financial statement disclosure presentation.


NOTE 9: ACQUISITIONS AND DISPOSITIONS

In June 1997, the Company acquired the remaining 20% minority interest in
FOR.E.M. S.p.A. ("FOREM"), and now owns 100% of FOREM. FOREM is a leading
manufacturer of filters, combiners, and tower mounted amplifiers for GSM
cellular and DCS 1800 wireless communications systems. This acquisition also
increased the effective ownership of FOREM's 62% owned subsidiary, Mikom
G.m.b.H. In a series of transactions to acquire this 20% minority interest, the
Company has paid $31,297,000 in cash through December 31, 1997 and 261,014
shares of the Company's common stock with an aggregate value of approximately
$6,000,000. The final purchase price was contingent upon the net income of
FOREM's 1997 fiscal year. At December 31, 1997, the Company has recorded the
estimated liability (included in accounts payable) for this final cash payment
in the amount of approximately $26,400,000 paid in 1998.

In April 1997, the Company acquired 62% of the stock of Telia S.A., ("Telia")
for a purchase price comprised of approximately $3,000,000 in cash and shares of
the Company's stock. This transaction was recorded under the purchase method of
accounting. Telia, located in France, is a manufacturer of highly linear power
amplifiers for the wireless communications industry with sales of approximately
$5,000,000. The final purchase price is contingent upon the net income of
Telia's 1997 fiscal year. At December 31, 1997, the Company has recorded the
estimated liability (included in accounts payable) for this final payment in the
amount of approximately $830,000. The remaining shares of Telia, which are held
by senior Telia management, are subject to put and call options, which provide
for a purchase price based upon future operating results.

In September 1996, the Company acquired, in exchange for 83,964 shares of its
common stock, 100% of Signal Science, Incorporated ("SSI"). In addition, the
selling shareholders may receive further contingent cash consideration based on
sales over an eight-year period (none of which has been earned). The Company
accounted for the acquisition under the purchase method. In addition, the
Company incurred a one-time non-cash charge relating to the write-off of
purchased in-process research and development costs of $2,662,000. SSI's primary
business is research and development projects involving special purpose radio
signal equipment for telecommunications applications.

In May 1996, the Company acquired a 64.3% interest in Tekmar Sistemi S.r.l.
("Tekmar"), an Italian company that produces fiber optic modules used
predominately in the wireless telecommunications and cable television markets
for cash and 9,783 shares of common stock. Senior management of Tekmar owns the
remaining 35.7% ownership interest. The Company has the right, pursuant to
certain put and call options, to acquire the remaining minority interest of
Tekmar over a five-year period.

Further, in May 1996, the Company acquired the remaining 20% minority interest
of its Grayson Wireless subsidiary for cash.

Pro forma results of operations for these acquisitions have not been presented
because the impact is not significant to results of operations.

Pro forma combined sales from continuing operations of the Company and FOREM for
1995 (assuming the acquisition was effected prior to 1995) would have been
approximately $330,000,000. Pro forma combined income from continuing operations
for 1995 would have been approximately $26,100,000 ($1.04 per share). However,
in management's opinion, the pro forma financial information is not necessarily
indicative of the results of operations that would have occurred had the
acquisition of FOREM taken place on an earlier date.
<PAGE>   26

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               allen telecom inc.


In 1996, the Company decided to exit the centralized automotive emissions
testing business operated by its MARTA Technologies, Inc. ("Marta") subsidiary.
The Company previously had entered into an agreement for sale of Marta's
centralized emissions testing program in Cincinnati, Ohio. However, in 1997, due
to the uncertainty of legislative and administrative actions in defining the
future direction of the program and other contractual matters the parties were
unable to reach agreement on the financial and other terms and jointly decided
to terminate the agreement. The Company will continue to endeavor to sell
Marta's operating programs, or operate them until termination of the respective
contracts, and will not bid upon, or seek new emissions testing programs.

The State of Maryland program currently runs through April 30, 1999, and the
State has an option for a one-year extension. The contract for the Jacksonville,
Florida program runs through March 31, 2000. Marta will continue to operate
these programs pursuant to its contractual commitments pending any disposal. In
1997, Marta settled its claims with the State of Texas for the terminated El
Paso, Texas program. As a result of the settlement and subsequent disposal of
the related equipment and facilities Marta no longer has any interest in the
Texas program.

As a result of the termination of the agreement for sale, Marta moved forward
with and reopened the Cincinnati, Ohio program for testing in early 1998. The
initial term of the Ohio program runs through December 31, 2005. In connection
with the initial suspension of the contract by the Ohio Environmental Protection
Agency ("Ohio EPA") and its Director, Marta was granted a preliminary injunction
on September 23, 1996 and a permanent injunction on November 19, 1997 against
Ohio EPA and its Director enjoining them from, (i) conducting a hearing
regarding termination of the contract (ii) terminating the Ohio contract and
(iii) prohibiting Marta from performing its obligations under the Ohio contract.
On December 31, 1997, Marta filed a lawsuit against Ohio EPA and its Director in
an amount not less than $40,000,000 claiming damages for Ohio EPA's unilateral
and illegal suspension of the program and numerous other actions which will, in
the future, increase costs to operate the program and/or reduce the amount of
revenues the State was contractually obligated to provide. Subsequent thereto,
the State counterclaimed, denied Marta's allegations and demanded $10,000,000 in
liquidated damages, contract damages and/or civil penalties as a result of
Marta's alleged failure to meet the terms of the contract. In the opinion of
management, based on the advice of counsel, it cannot predict the outcome of
these lawsuits, and the Company has not recorded any asset or liability with
respect thereto.

Marta is also in litigation with the State of Kentucky in connection with the
effective cancellation of a contract to operate the centralized automotive
testing program in Northern Kentucky. The recorded carrying amount of the
investment in the Kentucky program is approximately $900,000.

The Company has presented the centralized automotive emissions testing business
as a discontinued operation in the Consolidated Financial Statements. A summary
of the non-current assets of the business is as follows (amounts in thousands):
<TABLE>
<CAPTION>

                                                         1997              1996
<S>                                                     <C>              <C>    
Cincinnati, Ohio program:
  Land and buildings
   under capital lease                                  $15,283          $15,283
  Testing equipment and
   other assets                                          14,188           14,100
Carrying value of El Paso,
  Texas assets                                             --              7,892
Other, net                                                2,858            4,756
--------------------------------------------------------------------------------
                                                        $32,329          $42,031
</TABLE>


Discontinued operations include management's best estimate of the loss for the
ultimate disposal of the emissions testing business. Actual results could differ
from these estimates and are dependent upon the continuing efforts to sell or
operate existing programs, and resolution of claims and litigation with the
States of Ohio and Kentucky.

In September 1995, the Company spun off 100% of the common shares of a newly
formed wholly owned subsidiary, TransPro, Inc. ("TransPro") to the Company's
common shareholders (the "Spin-off"). TransPro comprised the Company's Truck
Products Business. Following the distribution, TransPro became an independent,
publicly traded corporation. In connection with the Spin-off, the Company has
presented the Truck Products Business as a discontinued operation in the
Consolidated Financial Statements.

<PAGE>   27
25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summarized income statement information relating to the results of discontinued
operations is as follows (amounts in thousands, except per share data):
<TABLE>
<CAPTION>

                                           Years Ended December 31,
                                        1996              1995
                                                  ---------------------
                                        Marta        Marta     TransPro
<S>                                   <C>         <C>         <C>     
          Sales                       $ 14,914    $  8,821    $ 92,933
          Operating Income
            (loss)                      (5,627)     (2,624)      9,726
          Equity in earnings
            of joint venture              --          --         2,219
          Net income (loss)             (3,766)     (1,756)      7,852
          Earnings (loss) per
            common share
            (Basic and Diluted)           (.14)       (.07)        .30
</TABLE>


In 1997, the residual operations of Marta were not material in relation to the
continuing operations of the Company. The fiscal year 1995 results of operations
for TransPro are for the nine-month period ended September 30, 1995 and excludes
transaction costs of $733,000 (after related income taxes of $467,000). Further,
results of operations for TransPro are net of allocated interest of $205,000 and
$402,000 in 1996 and 1995, respectively. Results of operations for Marta are net
of allocated interest (income) of $1,243,000, and $(277,000) in 1996 and 1995,
respectively.

NOTE 10: FAIR VALUES OF FINANCIAL INSTRUMENTS

Financial Accounting Standards Board ("FASB") Statements No. 107, "Disclosure
about Fair Value of Financial Instruments," and No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments," are
part of a continuing process by the FASB to improve information regarding
financial instruments. The following methods and assumptions were used by the
Company in estimating its fair value disclosures for such financial instruments
as defined by the Statements.

Cash and Short-Term Investments: The carrying amount reported in the balance
sheet for cash and cash equivalents approximates its fair value.

Long-Term Investments: One of the Company's investments in telecommunications
companies is carried at fair market value, based on its quoted stock price at
December 31, 1997. It is not practicable to estimate the fair value of the
Company's 8% investment in the common stock of its former specialty rubber
products business or its other investments in telecommunications companies
because of the lack of quoted market prices and the inability to estimate fair
value without incurring excessive costs. However, management believes that the
carrying amounts recorded at December 31, 1997 were not impaired and reflect the
corresponding fair values.

Long-Term Debt: The fair values of the Company's long-term debt either
approximate fair value or are estimated using discounted cash flow analyses
based on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.

Off-balance-sheet instruments: The Company utilizes letters of credit to back
certain financing instruments and insurance policies. The letters of credit
reflect fair value as a condition of their underlying purpose and are subject to
fees competitively determined in the market place. The Company enters into
foreign currency contracts to offset the impact of currency rate changes against
certain assets related to accounts receivable. The fair value of such contracts
are based on quoted market prices of comparable contracts. The carrying amounts
and fair values of the Company's financial instruments at December 31, 1997 and
1996 are as follows (amounts in thousands):

                                                        Carrying         Fair
                                                         Amount          Value
1997
Cash and cash equivalents                              $ 30,775         $ 30,775
Non-current investments                                  34,700           34,700
Long-term debt                                          105,171          106,732
Off balance sheet financial
  instruments:
   Letters of credit                                      1,591            1,591
   Foreign currency net
     sales contracts                                      6,889            6,909

1996
Cash and cash equivalents                              $ 23,879         $ 23,879
Non-current investments                                  12,171           14,054
Long-term debt                                           53,345           54,294
Off balance sheet financial
  instruments:
   Letters of credit                                      1,881            1,881
   Foreign currency net
     sales contracts                                     15,682           15,798


<PAGE>   28
26
                                          
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                              allen telecom inc.

NOTE 11: UNAUDITED QUARTERLY FINANCIAL DATA

In the fourth quarter of 1997, the Company recorded a special pre-tax charge in
the amount of $9,650,000, or $.22 per common share after related tax effects.
This charge relates to the discontinuance of product development and marketing
efforts on two products (wireless PBX equipment and RF cell site planning tool),
including the write-off of related assets, and the cost of employee severance
related to a reduction in its Cleveland based workforce.

Quarterly financial data are summarized as follows (amounts in thousands, except
per share amounts):
<TABLE>
<CAPTION>

                                                    March 31          June 30          Sept. 30           Dec. 31
1997
<S>                                               <C>               <C>               <C>               <C>      
Sales                                             $ 102,503         $ 108,859         $ 111,389         $ 109,757
-----------------------------------------------------------------------------------------------------------------
Gross profit                                         36,541            38,182            40,533            35,661
-----------------------------------------------------------------------------------------------------------------
Income from continuing operations                     7,026             6,734             7,930             2,291
-----------------------------------------------------------------------------------------------------------------
Extraordinary item -
  extinguishment of debt                               --                --                --                (632)
-----------------------------------------------------------------------------------------------------------------
Net income                                            7,026             6,734             7,930             1,659
-----------------------------------------------------------------------------------------------------------------
Earnings per common share Basic and Diluted:
   Continuing operations                                .26               .25               .29               .08
-----------------------------------------------------------------------------------------------------------------
   Extraordinary item -
     extinguishment of debt                            --                --                --                (.02)
-----------------------------------------------------------------------------------------------------------------
   Net income                                           .26               .25               .29               .06
-----------------------------------------------------------------------------------------------------------------
1996
Sales                                             $  84,469         $  88,459         $  95,010         $ 101,560
-----------------------------------------------------------------------------------------------------------------
Gross profit                                         28,928            31,559            32,206            38,404
-----------------------------------------------------------------------------------------------------------------
Income from continuing operations                     4,682             5,702             3,497             6,675
-----------------------------------------------------------------------------------------------------------------
Loss from discontinued operations                      (437)             (565)           (6,488)             --
-----------------------------------------------------------------------------------------------------------------
Net income (loss)                                     4,245             5,137            (2,991)            6,675
-----------------------------------------------------------------------------------------------------------------
Earnings per common share 
  Basic and Diluted:
   Continuing operations                                .18               .21               .13               .25
-----------------------------------------------------------------------------------------------------------------
   Discontinued operations                             (.02)             (.02)             (.24)             --
-----------------------------------------------------------------------------------------------------------------
   Net income                                           .16               .19              (.11)              .25
-----------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 12: SUPPLEMENTAL CASH FLOW DISCLOSURE

During 1997, the following non-cash transactions were effected and are not
reflected in the Consolidated Statement of Cash Flows:

As described in Note 9, in 1997 the Company acquired 62% of Telia and the
remaining 20% minority interest in FOREM, in exchange for, in part, 289,389
shares of its common stock.

As described in Note 1, the Company owns common stock and warrants in RF Micro
Devices, Inc., which completed an initial public offering of its common stock on
June 3, 1997. In accordance with the provisions of SFAS 115, the Company has
increased its investment value to reflect its current trading value on December
31, 1997 of $12,668,000. Unrealized appreciation in the pretax amount of
$9,588,000 ($5,561,000 after related income tax effect) is included in
Stockholders' Equity as "Unrealized appreciation on investment securities."

During 1996, the following non-cash transactions were effected and are not
reflected in the Consolidated Statement of Cash Flows:

As described in Note 9, in 1996 the Company acquired 100% of Signal Science,
Incorporated and 64.3% of Tekmar Sistemi S.r.l in exchange for, in part, 93,747
shares of its common stock.

During 1995, the following non-cash transactions were effected and are not
reflected in the Consolidated Statement of Cash Flows:

The Company recorded fixed assets and a related capital lease obligation in the
amount of $16,375,000 in connection with leasing land and facilities for one of
its now discontinued emissions testing programs.

On September 29, 1995, the Company completed the largely non-cash spin-off
distribution of 100% of the common shares of TransPro.

In May, 1995, the Company called for redemption the outstanding $4,917,000 of
its Convertible Subordinated Debentures issued in 1992 in connection with the
acquisition of Alliance Telecommunications Corporation. Subsequent thereto,
holders of these debentures converted such debentures into 351,834 shares of the
Company's common stock.

Information with respect to cash paid during the year for interest and taxes is
as follows:
<TABLE>
<CAPTION>

                                        1997              1996            1995

<S>                                <C>              <C>              <C>        
Interest Paid                      $ 4,097,000      $ 4,907,000      $ 3,840,000
Interest Capitalized                   220,000             --            440,000
Income taxes
     paid, net                      27,514,000        1,778,000       18,890,000
</TABLE>




<PAGE>   29
REPORT OF INDEPENDENT ACCOUNTANTS

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ALLEN TELECOM INC.

We have audited the accompanying consolidated balance sheets of Allen Telecom
Inc. as of December 31, 1997 and 1996, and the related consolidated statements
of income, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Allen Telecom Inc.
as of December 31, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997 in conformity with generally accepted accounting principles.


/s/ Coopers & Lybrand L.L.P.


Cleveland, Ohio,
February 13, 1998

REPORT OF MANAGEMENT

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ALLEN TELECOM INC.

The Company maintains accounting and related internal control systems which are
intended to provide reasonable assurance that assets are safeguarded from loss
or unauthorized use and to produce records necessary for the preparation of
financial information. There are limits inherent in all systems of internal
control, and the cost of the systems should not exceed the expected benefits.
Through the use of a program of internal audits and discussions with and
recommendations from its independent accountants, the Company periodically
reviews these systems and controls and compliance therewith.

The Audit Committee of the Board of Directors, comprised entirely of
non-employee directors, meets regularly with management, the internal auditors
and the independent accountants to review the results of their work and to
satisfy itself that their responsibilities are being properly discharged. The
internal auditors and independent accountants have full and free access to the
Audit Committee and may have discussions regarding appropriate matters, with and
without the presence of management.

The primary responsibility for the integrity of financial information rests with
management. Certain valuations contained herein result, of necessity, from
estimates and judgments of management, actual results could differ from these
estimates. The accompanying consolidated financial statements, notes thereto and
other related information were prepared in conformity with generally accepted
accounting principles.

/s/ Robert G. Paul

Robert G. Paul
President and Chief Executive Officer



/s/ Robert A. Youdelman

Robert A. Youdelman
Executive Vice President and
Chief Financial Officer



/s/ James L. LePorte

James L. LePorte, III
Vice President, Treasurer & Controller, Chief Accounting Officer




<PAGE>   30
28


management's discussion and analysis
     of financial condition and results of operation

RESULTS OF OPERATIONS

OVERVIEW
<TABLE>
<CAPTION>

($ millions)                 1997     1996     1995
<S>                <C>        <C>       <C>   
Sales                       $432.5   $369.5   $306.6
Operating income
  (before special charges
  discussed below)            59.4     52.0     52.5
Income before taxes and
  minority interests 46.7     46.5     50.4
Income from continuing
  operations                  24.0     20.6     27.3
Net income                    23.3     13.1     32.6
Total assets                 514.4    410.5    363.6
Capital expenditures          22.2     17.5     16.8

Depreciation                  12.8     11.7      8.3
</TABLE>

The increase in sales in 1997 to $432.5 million, or 17% over 1996, was due
primarily to continued growth of international sales which increased
approximately $51 million, or 25%. The Site Management and Systems product lines
benefited particularly from this growth. The 21% increase in sales in 1996 to
$369.5 million was also due to the growth of international sales, increasing $54
million, or 35% compared to 1995. The balance was due primarily to domestic
sales.

Operating income, representing income before financing costs and special charges
(as discussed below) increased $7.4 million, or 14% over 1996. This is
attributable principally to the growth of the Site Management Products and Base
Station Antenna businesses, improved product margins and the spreading of fixed
costs on higher sales. In the fourth quarter of 1997, the Company recorded
special charges of $9.6 million ($6.0 million after related income taxes or $.22
per common share) relating to the discontinuance of product development and
marketing efforts on two products, wireless PBX equipment and an RF planning
tool, including the write-off of assets and the cost of employee severance.
Operating income in 1996, excludes the one-time non-cash charge for acquired
in-process research and development incurred in connection with an acquisition
in the amount of $2.7 million or $.10 per common share. The decline in operating
income of $.5 million from 1995 is due in large part to the cessation of royalty
payments made under a noncompetition agreement which expired in June 1996.

Income from continuing operations increased $3.4 million in 1997, as compared
with 1996; however, both 1997 and 1996 results included the aforementioned
special write-offs. Excluding these special charges, income from continuing
operations increased $6.7 million in 1997, and earnings per common share
increased from $.86 to $1.10 per share. These earnings increased due to the
higher margins noted above. In addition, the Company's tax provision was $1.9
million lower in 1997 versus 1996.

Net income increased from $13.1 million in 1996 to $23.3 million in 1997. This
increase is due primarily to the elimination of the $7.5 million of after tax
losses recorded in 1996 for the discontinued emissions testing business.

Income from continuing operations declined $6.7 million in 1996, as compared
with 1995, due to the aforementioned write-off of acquired in-process research
and development costs of $2.7 million and a $3.3 million increase in minority
interest expense relating to the then outstanding 20% minority interest in FOREM
and its 38% minority interest in Mikom G.m.b.H. Income from continuing
operations was also adversely affected in 1996 by a higher effective tax rate.
The decline in net income from $32.6 million in 1995 to $13.1 million in 1996
reflects both the $7.5 million of after tax losses for the discontinued
emissions testing business and the impact of the elimination of the spun off
automotive and truck products business, which earned $7.1 million in profits in
1995 through the September 29, 1995 spin-off date.

Sales

Sales of Systems Products (which generally are comprised of booster and repeater
products for cellular and PCS systems, test and measurement products, as well as
indoor coverage products) increased 18% in 1997 to $111.0 million, as compared
with $94.1 million in 1996. Sales were impacted primarily by higher shipments of
test and measurement products to domestic PCS and international markets. The
Systems business also continued to be successful with its non-frequency
translating repeaters in Europe and other international markets. The most
successful of these repeater products utilize GSM technology, which has gained
worldwide acceptance as a cellular standard. In addition, the Company was
positively affected by the April 1997 acquisition of Telia, S.A., a manufacturer
of highly linear power amplifiers which contributed $5.1 million in sales.
Offsetting these increases, in part, was a decrease in domestic Systems sales,
due to lower shipments of its Extend-A-Cell(R) frequency translating repeater
and microcell products.

Sales of Systems Products were down slightly at $94.1 million in 1996 compared
with $95.1 million in 1995. Sales were impacted primarily by significantly lower
shipments of the Company's Extend-A-Cell(R), principally in domestic markets.
Offsetting this decline, in part, was the success of non-frequency translating
repeaters in Europe and other international markets. In addition, sales of
system test and measurement products 


<TABLE>
<CAPTION>
SALES OF SYSTEM PRODUCTS
($ millions)
<S>       <C>
93        $ 62.4
94        $ 76.1
95        $ 95.1
96        $ 94.1
97        $111.0
</TABLE>
<TABLE>
<CAPTION>
SALES OF SITE MANAGEMENT AND OTHER NON-ANTENNA PRODUCTS
($ millions)
<S>       <C>
93        $ 49.1
94        $ 53.0
95        $112.9
96        $159.3
97        $197.3
</TABLE>
<TABLE>
<CAPTION>
SALES OF MOBILE AND BASE ANTENNAS
($ millions)
<S>       <C>
93        $ 57.2
94        $ 68.2
95        $ 73.8
96        $ 80.6
97        $ 88.5
</TABLE>

<TABLE>
<CAPTION>
SALES OF FREQUENCY PLANNING, SYSTEMS DESIGN AND RELATED SERVICES
($ millions)
<C>  <S>  
93   $14.9
94   $15.7
95   $24.8
96   $35.5
97   $35.7
</TABLE>


<PAGE>   31
29

management's discussion and analysis
     of financial condition and results of operation

increased significantly in 1996 over 1995 as they obtained higher market share
with domestic PCS carriers.

Sales of Site Management and Other Non-antenna products (which include tower
mounted amplifiers, filters, combiners and duplexers) increased to $197.3
million, or 24% over 1996 sales of $159.3 million. This increase follows the
1996 sales increase of $46.4 million, or 41% over 1995. The continued large
increases in sales reflect strong market presence in Europe and the worldwide
acceptance of GSM technology, where the Company has a strong market share with
original equipment manufacturers ("OEMs").

Sales of Mobile and Base Antennas increased to $88.5 million in 1997, a 10%
increase over 1996. The increase resulted from sales of base station antennas.
However, this increase was partially offset by a decline in mobile antenna
sales, as consumers continue to shift purchases from mobile cellular telephones,
where the Company has significant market share, to portable cellular phones. The
Company does not manufacture portable antennas. Sales increased to $80.6 million
in 1996, or 9.2%, over 1995. The increase resulted from sales of base station
antennas in new PCS markets. However, as in 1997, this sales increase was
partially offset by a decline in mobile antenna sales.

Sales of the Frequency Planning, Systems Design and Related Services product
line increased only 1% in 1997 to $35.7 million, as compared with $35.5 million
in 1996 due to declining sales of engineering services for PCS systems. This
business provides engineering and consulting services with nearly all major PCS
operators. In 1996, sales increased to $35.5 million, or 43%, over 1995, due to
strong demand for engineering services to domestic PCS carriers.

In 1997, international sales constituted approximately 60% of total sales,
compared with 56% in 1996, and 50% in 1995. Export sales from the U.S. are
primarily to major wireless telephony companies, and are typically payable in
U.S. dollars. European sales are primarily to major OEMs and wireless operators
in European currencies. The Company sees no significantly greater risk in the
operation of its business as a result of this proportion of international
business.

In 1997, approximately 11% of direct sales were to Asian markets. However, only
about 3% of direct sales were to countries significantly affected by the recent
economic and currency rate crisis in certain Asian countries, notably Indonesia,
Korea, Thailand and the Philippines. In addition, to date, sales do not appear
to have been significantly affected in these Asian countries, although the
Company is aware of certain orders that have been deferred by prospective
customers. While direct sales of products to these countries is not significant,
it is difficult to discern how much of OEM sales ultimately end up in these
countries. Accordingly, it is difficult to assess the near term impact, although
the Company does expect its rate of sales growth to slow in 1998 due to the
ripple effect of the recent Asian fiscal problems.

At December 31, 1997, the Company had an order backlog of approximately $115
million, up from approximately $109 million at December 31, 1996.
<TABLE>
<CAPTION>
Operations

($ millions)                  1997    1996     1995
<S>                          <C>      <C>      <C>  
Gross profit margin, as a
  percent of sales           34.9%    35.5%    38.3%
Operating expenses, as a
  percent of sales           15.6%    15.1%    14.9%
Research and development
  and new product
  engineering costs:
   Amount                   $30.4    $21.0    $17.0
   As a percent of sales      7.0%     5.7%     5.5%
Amortization of goodwill      3.4      2.4      2.1
Minority interests            5.0      6.3      3.0
</TABLE>


Gross profit margins declined in 1997 as compared with 1996. However, excluding
the aforementioned special charges for the discontinuance of product development
efforts on two products, gross profit margin would have been 35.8%, a small
increase over 1996. This was due to slightly improved margins in the Base
Station Antenna and Systems businesses, offset by continuing pricing pressures,
particularly in the Frequency Planning and Site Management product lines. The
gross profit margin decrease in 1996 versus 1995 was due primarily to changes in
product mix and pricing pressure.

Operating expenses (which consist of selling, general and administrative
expenses, but exclude amortization of goodwill) increased in 1997, due primarily
to the aforementioned special charges. In addition, the Company realized a
before tax gain on the sale of a partial ownership interest in Columbia Spectrum
Management, L.P., in the amount of $1.6 million, or $.03 per common share after
related income tax effects. This gain is included in selling, general and
administrative expenses. Excluding the above-mentioned special charges and gain
on investment, operating expenses would have been 14.6% and are within normal
operating ranges. The decline in percentage of such expenses in 1997 represents
the spreading of fixed costs on higher sales. 

The increase in operating expense percentage in 1996, as compared with 1995, is
due primarily to the cessation of royalty payments made under a prior
noncompetition agreement. 

In the past few years, the Company has significantly increased its research and
development and new product engineering costs in order to keep pace with the
technological advances in the industry. The Company anticipates that this trend
will continue as PCS and cellular systems are implemented and expanded and the
Company strives to develop ancillary products, including software products, for
the wireless telephony industry.

The increase in amortization of goodwill, and corresponding decrease in minority
interest expense, as compared with 1996, is a result of the acquisition of the
remaining 20% minority interest in FOREM in May 1997 (see Note 9 of the Notes to
Consolidated Financial Statements and Liquidity and Capital Resources below).
Future results of operations will no longer include minority interest expense
relating to FOREM. However, the Company will continue to record minority
interest expense with respect to FOREM's 62% owned subsidiary, Mikom G.m.b.H.,
and other minority owned subsidiaries. In 1996, the increase in minority
interest expense related directly to the strong performance of the Company's
European subsidiaries.



<PAGE>   32
30

management's discussion and analysis
     of financial condition and results of operations

FINANCING COSTS
<TABLE>
<CAPTION>
($ millions)            1997   1996     1995
Financing expenses:
<S>                   <C>     <C>     <C>    
  Interest expense    $ (4.5) $ (3.8) $ (3.5)
Interest income          1.5     1.0     1.4
</TABLE>


The increase in interest expense in 1997 over 1996 is primarily related to
increased credit line borrowings as a result of significant investments made by
the Company (see Liquidity and Capital Resources). The increase in interest
expense in 1996, as compared with 1995, was due primarily to the acquisition and
inclusion of FOREM. Lower interest income in 1996, when compared with 1995,
reflects lower domestic investment income as a result of lower average cash
levels.
<TABLE>
<CAPTION>
INCOME TAXES
($ millions)                    1997    1996    1995
<S>                          <C>       <C>     <C>  
Provision for income taxes   $  17.7   $19.7   $20.1
Effective tax rate              37.9%   42.3%   39.9%
</TABLE>

The lower effective tax rate in 1997, as compared with 1996, is due to a higher
proportion of tax benefits attributable to the Company's foreign sales
corporation, which has reduced U.S. income taxes payable through favorable tax
treatment accorded certain export sales, and business tax and other credits
available to reduce U.S. income taxes payable. These benefits were offset, in
part, by higher tax rates on European source income.

The higher effective tax rate in 1996, as compared with 1995 is due to the
higher proportion of such European earnings, which carried a higher tax burden
than the U.S. statutory rate of 35%. These higher tax rates were offset, in
part, by the tax benefits attributable to the foreign sales corporation.

With the continued success of the European operations, which carry the higher
tax burden, it is possible that the effective tax rate in 1998 could exceed that
of 1997.

DISCONTINUED OPERATIONS

As more fully discussed in Note 9 of the Notes to Consolidated Financial
Statements, the Company decided in 1996 to exit the emissions testing business
operated by its MARTA Technologies, Inc. ("Marta") subsidiary. The Company
determined that this decision would allow it to fully devote management and
financial resources to its expanding wireless telecommunications product lines.

The Company previously had entered into an agreement for the sale of Marta's
centralized emissions testing program in Cincinnati, Ohio. However, in 1997, the
parties were unable to reach agreement on the terms and jointly decided to
terminate the agreement (including the possible sale of the Jacksonville,
Florida program). The Company will continue to endeavor to sell Marta's
programs, or operate them until termination of the respective contracts, and
will not bid upon, or seek new emissions testing programs.

In 1997, Marta settled its claims with the State of Texas for the terminated El
Paso, Texas program. As a result, Marta received $12.4 million from the
settlement and subsequent sale and disposal of the equipment and facilities.
This is the reason for the reduction in "Assets of discontinued emissions
testing business" on the Consolidated Balance Sheet.

On December 31, 1997, Marta filed a lawsuit against the Ohio Environmental
Protection Agency ("Ohio EPA") and its Director in an amount not less than $40
million claiming damages for Ohio EPA's suspension of the Cincinnati, Ohio
program in August 1996 and numerous other actions which will, in the future,
impact costs and revenues. On January 30, 1998, the State counterclaimed, denied
Marta's allegations and demanded $10 million in liquidated damages, contract
damages and/or civil penalties as a result of Marta's alleged failure to meet
the terms of the contract. In the opinion of management, based on the advice of
counsel, it is too early to predict the outcome of these lawsuits, and the
Company has not recorded any asset or liability with respect thereto.

Discontinued operations include management's best estimate of the loss from the
disposal of the Marta business. Actual results could differ from these estimates
and are dependent on, among other things, the continuing efforts to sell or
operate existing programs. In addition, it is not possible to predict the
outcome of the aforementioned Ohio litigation or litigation with the State of
Kentucky for the effective cancellation of Marta's contract in Northern
Kentucky.

IMPACT OF THE "YEAR 2000 ISSUE"

The "Year 2000 Issue" is the result of computer systems that were programmed in
prior years using a two-digit representation for the year. Consequently, in the
year 2000, date-sensitive computer programs may interpret the date "00" as 1900
rather than 2000. The Company's operating units have completed an initial
assessment of the systems affected by the Year 2000 Issue, and have formulated
action plans to correct or replace these programs by December 31, 1998.

The Company will be required to modify or replace several internally developed
software programs, along with purchased software packages used internally and in
some of its products. The Company has communicated with its significant
customers, and has determined that it has limited exposure for products it has
sold. The Company will use both internal and external resources to modify
programs, and will upgrade where necessary packaged programs. Estimates of the
total remaining cost of the year 2000 project have not yet been finalized, but
are not expected to have a material adverse effect on future operating results
or cash flows.

INFLATION

The overall impact of the low rate of inflation in recent years has had no
significant impact on the Company

ENVIRONMENTAL

The Company is subject to federal, state and local laws designed to protect the
environment and believes that, as a general matter, its policies, practices and
procedures are properly designed to prevent unreasonable risk of environmental
damage and financial liability. (See also Note 5 of Notes to Consolidated
Financial Statements.)


<PAGE>   33
31

management's discussion and analysis
   of financial condition and results of operations

LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
($ millions)                   1997     1996    1995
<S>                         <C>      <C>      <C>     
Cash flow from operations   $   18.0 $   53.6 $    6.9
Total debt                     104.0     56.0     55.8
Stockholders' equity           260.8    226.0    210.4
Debt to equity ratio            .4:1     .2:1     .3:1
</TABLE>


The significant decrease in cash flow from operations in 1997, as compared with
1996, is due primarily to an increased investment in working capital of
approximately $16.1 million and $24 million in tax payments made principally by
the Company's European subsidiaries.

In 1996, the Company generated cash of $53.6 million from continuing operations
as compared with $6.9 million in 1995. The significant increase during 1996, as
compared with 1995, despite lower income from continuing operations, was due in
large measure to a $29 million lower level of investment in working capital in
1996 (despite significantly higher sales) than experienced in 1995. In addition,
the Company received a refund of certain income taxes paid in 1995 in the amount
of $8.0 million.

The Company continued to make significant investments in the wireless
telecommunications industry both in capital improvements ($27.6, $22.2 and $21.2
million in 1997, 1996, and 1995, respectively) and investments in
telecommunications companies ($44.4, $16.9, and $1.7 million in 1997, 1996, and
1995, respectively). The large increase in investments in 1997, over the prior
two years, represents principally the purchase of the outstanding 20% minority
interest in FOREM and the acquisition of 62% of Telia. These purchases are also
the principal reason for the increase in "Excess of cost over net assets of
businesses acquired" in the Consolidated Balance Sheet.

In 1997, the Company borrowed $65.0 million in a private placement transaction.
These notes bear interest at a weighted average interest rate of approximately
6.65% and have an average outstanding life of 7.5 years. The Company believes
this longer term financing strategy is consistent with its investing activities
and also afforded it an opportunity to take advantage of lower interest rates.
In this connection, the Company decided to prepay certain borrowings with a
portion of the proceeds, in the amount of $15.0 million, which bore interest at
the rate of 8.13%. This resulted in a prepayment premium of $1.0 million, or
$.02 per common share after related income tax effects, and has been reported as
an "Extraordinary item" in the Consolidated Statement of Income.

The Company continues to maintain a $100 million domestic credit line. At
December 31, 1997, no amounts were borrowed under this agreement and, after
exclusion for amounts designated for letters of credit, approximately $82.5
million was available for use. This agreement expires in December 1999.

In 1996, the Company entered into an agreement to make an equity investment of
$5 million in Nextwave Telecom Inc. ("Nextwave"), and whereby Nextwave agreed to
purchase $50 million of equipment and services over a five-year period from the
Company. In connection with this agreement, subject to certain preconditions
that have not yet occurred, the Company has agreed to provide secured product
financing in addition to its $5.0 million investment. At December 31, 1997, the
Company had outstanding approximately $2.0 million of receivables with Nextwave.
In early 1997, the U.S. Government suspended interest payments on license fees
due from certain companies, such as Nextwave, who were awarded
telecommunications licenses under a competitive auction bid process.
Subsequently, the Federal Communications Commission ("FCC") provided
alternatives for these capital constrained C Block licensees, which may enable
these carriers to obtain the financing needed to build out their systems or to
return some, or all, of their licenses to the FCC for re-auction. While it is
not clear which alternative, or alternatives, will be chosen by Nextwave, a
decision is anticipated in 1998. At this time, the Company believes that there
has been no impairment in the aggregate carrying value of its investment in
Nextwave. The increase in other assets in the Consolidated Balance Sheet is due
primarily to common shares and warrants of RF Micro Devices, Inc. ("RFMD"). RFMD
completed an initial public offering of its common stock in 1997. At December
31, 1997, the value of these assets has been adjusted to reflect current market
value of approximately $12.4 million. Likewise, the unrealized appreciation in
the amount of $9.6 million ($5.6 million, after related income tax effect,) is
included in Stockholders' Equity as "Unrealized appreciation on investment
securities," as it is the Company's intent to treat the securities as a
long-term investment. The Company's investment is currently subject to certain
trading restrictions.

In 1997, the Company generated cash from its discontinued Marta operations in
the amount of $7.8 million as compared with cash usages of $6.1 and $12.8
million in 1996 and 1995, respectively. The cash generation in 1997 was due to
the settlement of claims with the State of Texas and subsequent sale and
disposal of the related assets, which generated $12.4 million in cash. The
Company anticipates future net cash usages from these operations subject to
disposal of programs or the settlement of outstanding litigation.

Future capital needs will be directed toward continued penetration and expansion
in the wireless communications industry, both internally and through strategic
alliances and acquisitions. In early 1998, the Company made a payment in
connection with the last 20% acquisition of FOREM in the amount of $26.4 million
(included in accounts payable in the Consolidated Balance Sheet which accounts
for the significant increase in that item over 1996). The cash needs of this
payment were met by utilization of available cash investments and lines of
credit. Capital expenditures in 1998 are estimated at $24 million, of which $1.4
million was committed at December 31, 1997. These proposed capital expenditures
reflect the increase in productive capacity necessitated by the increase in
sales volume, both domestically and in Europe.

The Company believes that continued profitability and available unused credit
lines provide sufficient liquidity to fund future growth, expansion, and
acquisitions.


<PAGE>   34
32

five year summary of operations
     allen telecom inc.-(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
          
Five years ended December 31, 1997                         1997           1996           1995         1994            1993

OPERATING RESULTS

<S>                                                       <C>           <C>            <C>           <C>            <C>     
Sales                                                     $432,508      $369,498       $306,556      $213,517       $183,638
Cost of sales                                              281,591       238,401        189,103       127,160        109,040
Selling, general and administrative expenses                70,786        58,101         47,908        44,252         40,452
Research & development and new product engineering          30,367        21,023         17,006         8,865          7,886
Write-off of in-process research and development                 -         2,662              -             -              -
Net interest and financing expense                           3,051         2,785          2,098         1,785          1,805
-----------------------------------------------------------------------------------------------------------------------------
Income before taxes and minority interests                  46,713        46,526         50,441        31,455         24,455
Provision for income taxes                                  17,723        19,665         20,138        11,191            671
-----------------------------------------------------------------------------------------------------------------------------
Income before minority interest                             28,990        26,861         30,303        20,264         23,784
Minority interests                                          (5,009)       (6,305)        (3,027)         (523)          (518)
-----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations                           23,981        20,556         27,276        19,741         23,266
Discontinued operations:
   Income (loss) from discontinued operations                    -        (3,766)         5,363         9,453          1,695
   Loss for disposal                                             -        (3,724)             -             -         (2,936)
Cumulative effect of accounting change                           -             -              -             -          2,102
Extraordinary item - extinguishment of debt                   (632)            -              -             -              -

-----------------------------------------------------------------------------------------------------------------------------
Net income                                               $  23,349     $  13,066      $  32,639     $  29,194      $  24,127
-----------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock                    $  23,349     $  13,066      $  32,639     $  29,194      $  21,947
=============================================================================================================================
Earnings Per Common Share:

Basic:  Income from continuing operations                    $ .89        $  .78          $1.05       $   .77         $  .94
        Discontinued operations:
           Income (loss) from discontinued operations            -          (.14)           .20           .37            .08
           Loss for disposal of discontinued businesses          -          (.14)             -             -           (.13)
        Cumulative effect of accounting change                   -             -              -             -            .09
        Extraordinary item - extinguishment of debt           (.02)            -              -             -              -

-----------------------------------------------------------------------------------------------------------------------------
        Earnings per Common Share - Basic                    $ .87        $  .50          $1.25         $1.14         $  .98
=============================================================================================================================
Diluted:   Income from continuing operations                 $ .88        $  .76          $1.02        $  .76         $  .91
                                                                                                                         
        Discontinued operations:
           Income (loss) from discontinued operations            -          (.14)           .20           .36            .06
           Loss for disposal of discontinued businesses          -          (.14)             -             -           (.11)
        Cumulative effect of accounting change                   -             -              -             -            .08
        Extraordinary item - extinguishment of debt           (.02)            -              -             -              -

-----------------------------------------------------------------------------------------------------------------------------
        Earnings per Common Share - Diluted                  $ .86        $  .48          $1.22         $1.12         $  .94
=============================================================================================================================
FINANCIAL CONDITION
Total assets                                              $514,433      $410,512       $363,565      $357,716       $324,638
Working capital                                            111,015        94,378         93,371       107,940         71,808
Current ratio                                                 1.85          1.90           2.11          2.54           2.22
Total debt                                                 104,034        55,955         55,799        45,064         52,597
Stockholders' equity                                       260,822       225,951        210,377       224,181        195,161
Debt to equity ratio                                           .40           .25            .27           .20            .27
Book value per common share                                   9.55          8.44           7.92          8.59           7.52
Shares outstanding at year end                              27,298        26,763         26,570        26,107         25,964
Return on stockholders' equity                                9.4%          6.0%          14.7%         14.1%          12.6%
Capital expenditures                                        22,247        20,992         24,498        14,833         11,360
Depreciation                                                12,808        12,231          8,896         7,477          6,611
Number of employees                                          3,300         2,900          2,800         2,700          2,500

</TABLE>

All per share data have been restated to reflect stock dividends and
stock spilts.



<PAGE>   35
Shareholder information

EXCHANGE LISTINGS
Common Stock (Ticker Symbol - ALN) New York Stock Exchange Pacific Exchange.

TRANSFER AGENT AND REGISTRAR

Harris Trust Company of New York
600 Superior Avenue
East, Suite 600
Cleveland, OH
44114-2650
(800)942-5909

AUDITORS
Coopers & Lybrand L.L.P.
Cleveland, Ohio

FORM 10-K OR ADDITIONAL INFORMATION ABOUT THE COMPANY

Stockholders and others interested in obtaining additional information about the
Company may do so by writing or calling Allen Telecom Inc., 25101 Chagrin Blvd.,
Beachwood, Ohio, 44122-5619, (216) 765-5822. The Form 10-K Annual Report,
including financial statements and schedules, will be furnished without charge.
Information concerning the Company can also be found on the Internet at
http://www.allentelecom.com.

AFFIRMATIVE ACTION POLICY

It is the policy of Allen Telecom Inc. that all employee will be judged on the  
basis of qualifications and ability, without regard to age, sex, race, creed,
color or national origin, in all personnel actions. No employee or applicant
for employment will receive discriminatory treatment because of physical or
mental handicap in regard to any position for which the employee or applicant
for employment is qualified.

STOCKHOLDERS

As of March 4, 1998, Allen Telecom Inc. had outstanding 27,291,743 shares of
Common Stock owned by 1765 holders of record.

ANNUAL STOCKHOLDER'S MEETING

The Annual Meeting of Stockholders will be held at the Cleveland Marriott at Key
Center, 127 Public Square, Cleveland, Ohio on Friday, May 1, 1998 at 9:30 a.m.


<TABLE>
<CAPTION>
            Stock Price Range
           (dollars per share)
  93        94      95      96       97
<S>      <C>     <C>     <C>      <C>
$12.94   $13.50  $21.25  $14.00   $16.00
$29.19   $25.63  $39.38  $28.75   $30.00
</TABLE>




MARKET PRICE RANGE OF COMMON STOCK  (dollars per share)
<TABLE>
<CAPTION>

                   1997                  1996                  1995
               High     Low          High     Low          High     Low
-----------------------------------------------------------------------
<C>            <C>    <C>          <C>       <C>          <C>     <C>
1st Quarter    26 3/8   16           23 1/4   16 7/8       25 1/2   21 1/4

2nd Quarter    24 1/8   16 1/2       28 3/4   18 7/8       29 5/8   22

3rd Quarter    29 1/8   18 3/4       22 1/2   14           39 3/8   29 1/8

4th Quarter    30       16           23 3/4   14 3/4       35       21 7/8
</TABLE>

<TABLE>
<CAPTION>
DIVIDENDS DECLARED ON COMMON STOCK

                 1997         1996        1995         1994         1993
--------------------------------------------------------------------------
<C>           <C>          <C>          <C>          <C>           <C>
1st Quarter        -            -          $.05         $.04         $.03

2nd Quarter        -            -          $.05         $.04         $.03

3rd Quarter        -            -          $.05         $.04         $.03

4th Quarter        -            -             -         $.04         $.03
</TABLE>