As filed with the Securities and Exchange Commission on June 29, 2004



UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 20-F

|o                                           | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|------------------------------------------- | ----------------------------------------------------------------------------------------------
|or                                         
|ý                                           | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934          
|For the fiscal year ended December 31, 2003
|or                                         
|o                                           | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934      

For the transition period from [] to
[]

Commission
file number: 001-15206

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SPIRENT PLC(Exact name of Registrant as specified in its charter)

England and Wales(Jurisdiction of incorporation or organization)

Spirent House
Crawley Business Quarter
Fleming Way, Crawley
West Sussex RH10 9QL
United Kingdom(Address of principal executive offices)

+44 (0)1293 767676(Registrant's telephone number, including area code)

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

|Title of each class                         |  | Name of each exchange                           
|------------------------------------------- |  | ------------------------------------------------
|American Depositary Shares
Ordinary Shares* |  | New York Stock Exchange
New York Stock Exchange*

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Securities registered or to be registered pursuant to Section 12(g) of the Act:None.

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

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: 944,031,413
Ordinary shares of 31/3p.

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

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

Item 17 o Item 18 ý



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TABLE OF CONTENTS

|                                                              |                                                                             | Page
|------------------------------------------------------------- | --------------------------------------------------------------------------- | ----
|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |                                                                             | 4   
|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE               |                                                                             | 4   
|ITEM 3. KEY INFORMATION                                       |                                                                             | 4   
|                                                              | Selected Consolidated Financial Information of Spirent                      |     
|                                                              | Exchange Rate Information                                                   |     
|                                                              | Risk Factors                                                                |     
|ITEM 4. INFORMATION ON THE COMPANY                            |                                                                             | 16  
|                                                              | Overview of Our Business                                                    |     
|                                                              | Communications Group                                                        |     
|                                                              | Network Products Group                                                      |     
|                                                              | Systems Group                                                               |     
|                                                              | Organizational Structure                                                    |     
|                                                              | Properties and Facilities                                                   |     
|                                                              | Intellectual Property                                                       |     
|                                                              | Materials                                                                   |     
|                                                              | Regulatory and Other Government Requirements                                |     
|                                                              | Enforcement of Civil Liabilities                                            |     
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS          |                                                                             | 33  
|                                                              | Overview                                                                    |     
|                                                              | Acquisitions and Disposals                                                  |     
|                                                              | Recent Developments                                                         |     
|                                                              | Results of Operations                                                       |     
|                                                              | Critical Accounting Policies                                                |     
|                                                              | Year Ended December 31, 2003 Compared with the Year Ended December 31, 2002 |     
|                                                              | Year Ended December 31, 2002 Compared with the Year Ended December 31, 2001 |     
|                                                              | Liquidity and Capital Resources                                             |     
|                                                              | Off-Balance Sheet Arrangements                                              |     
|                                                              | Contractual Obligations                                                     |     
|                                                              | Pension Fund                                                                |     
|                                                              | Foreign Exchange                                                            |     
|                                                              | Research and Development                                                    |     
|                                                              | Factors That May Affect Future Results                                      |     
|                                                              | Inflation                                                                   |     
|                                                              | Differences Between UK GAAP and US GAAP                                     |     
|                                                              | Newly Adopted Accounting Stanards                                           |     
|                                                              | Impact of Recently Issued Accounting Standards Not Yet Adopted              |     
|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES            |                                                                             | 57  
|                                                              | Directors                                                                   |     
|                                                              | Senior Management                                                           |     
|                                                              | The Board of Directors and Committees of the Board                          |     
|                                                              | United States Corporate Governance Compliance                               |     
|                                                              | Compensation of Directors and Senior Management                             |     
|                                                              | Executive Directors' Remuneration Policy                                    |     
|                                                              | Employees                                                                   |     
|                                                              | Shares Held by Directors and Senior Management                              |     
|                                                              | Share Schemes and Related Information                                       |     
|                                                              |                                                                             |     

2

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|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                             |                                                          | 73
|------------------------------------------------------------------------------------- | -------------------------------------------------------- | --
|                                                                                      | Major Shareholders                                       |   
|                                                                                      | Related Party Transactions                               |   
|ITEM 8. FINANCIAL INFORMATION                                                         |                                                          | 75
|                                                                                      | Historical Financial Information                         |   
|                                                                                      | Significant Changes                                      |   
|                                                                                      | Dividend Policy                                          |   
|ITEM 9. THE OFFER AND LISTING                                                         |                                                          | 76
|ITEM 10. ADDITIONAL INFORMATION                                                       |                                                          | 77
|                                                                                      | Memorandum and Articles of Association                   |   
|                                                                                      | Material Contracts                                       |   
|                                                                                      | Exchange Controls                                        |   
|                                                                                      | Taxation                                                 |   
|                                                                                      | Documents on Display                                     |   
|ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                   |                                                          | 85
|                                                                                      | Finance and Treasury Objectives, Policies and Strategies |   
|                                                                                      | Interest Rate Management                                 |   
|                                                                                      | Currency Management                                      |   
|                                                                                      | Interest Rate Sensitivity                                |   
|                                                                                      | Exchange Rate Sensitivity                                |   
|                                                                                      | Currency Exposure of Financial Assets and Liabilities    |   
|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                       |                                                          | 87
|ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                              |                                                          | 87
|ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |                                                          | 87
|ITEM 15. CONTROLS AND PROCEDURES                                                      |                                                          | 87
|ITEM 16. [RESERVED]                                                                   |                                                          | 87
|ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                            |                                                          | 87
|ITEM 16B. CODE OF ETHICS                                                              |                                                          | 88
|ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                      |                                                          | 88
|ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES                  |                                                          | 89
|ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS      |                                                          | 89
|ITEM 17. FINANCIAL STATEMENTS                                                         |                                                          | 89
|ITEM 18. FINANCIAL STATEMENTS                                                         |                                                          | 90
|ITEM 19. EXHIBITS                                                                     |                                                          | 91

You
should rely only on the information contained in this annual report. We have not authorized anyone to provide you with information that is different. The information
in this annual report may only be accurate on the date of this annual report.

3

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ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.    KEY INFORMATION

Selected Consolidated Financial Information of Spirent

The selected consolidated profit and loss account data for each of the three years in the period ended December 31, 2003 and balance sheet data as of
December 31, 2003 and 2002 set forth below are derived from our audited consolidated financial statements, which are included elsewhere in this annual report. The profit and loss account
data for the years ended December 31, 2000 and 1999 and the balance sheet data as of December 31, 2001, 2000 and 1999 are derived from our audited consolidated financial
statements. All of these financial statements have been audited by Ernst & Young LLP, our independent auditors. The selected consolidated financial data set forth below should be read in
conjunction with "Item 5. Operating and Financial Review and Prospects," and our consolidated financial statements and notes thereto included elsewhere in this annual report.

We
prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United Kingdom, or UK GAAP, which differ in certain respects
from those generally accepted in the United States, or US GAAP. A description of the significant differences applicable to us and reconciliations of net income, shareholders' equity and cash
flows are set forth in Note 34 of Notes to the Financial Statements.

We
evaluate performance for each reportable segment based on turnover and operating profit before goodwill amortization and exceptional items. Operating profit and return on sales are
used by the Group as key measures of operating performance and are stated before the effect of goodwill amortization and exceptional items so that period on period comparisons are not distorted. Free
cash flow, meaning cash flow before acquisitions, disposals, equity dividends and financing, is also a key measure of operating performance used by the Group. Headline earnings per share is considered
by the Group and our investors to be a key measure of overall earnings performance. The calculation is based on reported earnings adjusted for goodwill amortization and exceptional items including
tax.

4

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Consolidated Profit and Loss Account Data

|                                   |                                                                     | Year ended December 31                 |      
|---------------------------------- | ------------------------------------------------------------------- | -------------------------------------- | -----
|
|
|Amounts in accordance with UK GAAP |                                                                     |                                        |      
|                                   | Turnover                                                            |                                        | 466.2
|                                   |                                                                     |                                        |      
|Operating profit/(loss)            |                                                                     | 18.8                                   |      
|                                   |                                                                     |                                        |      
|                                   | Other Information                                                   |                                        |      
|                                   | Exceptional items                                                   |                                        |      
|                                   |                                                                     | Goodwill impairment                    |      
|                                   |                                                                     | Other                                  |      
|                                   | Goodwill amortization                                               |                                        | 9.7  
|                                   | Operating profit before goodwill amortization and exceptional items |                                        | 36.0 
|                                   |                                                                     |                                        |      
|                                   | Income from interests in                                            |                                        |      
|                                   |                                                                     | Joint ventures                         |      
|                                   |                                                                     | Associates                             |      
|                                   |                                                                     | Amortization of goodwill on associates |      
|                                   | Profit/(loss) on disposal and closure of operations                 |                                        | 3.6  
|                                   | Profit on disposal of tangible fixed assets                         |                                        |     
|                                   |                                                                     |                                        |      
|                                   | Profit/(loss) before interest                                       |                                        | 27.2 
|                                   | Net interest payable                                                |                                        | (9.3 
|                                   | Exceptional interest expense                                        |                                        | (16.1
|                                   | Other finance (expense)/income                                      |                                        | (1.5 
|                                   |                                                                     |                                        |      
|                                   | Profit/(loss) before taxation                                       |                                        | 0.3  
|                                   | Taxation                                                            |                                        | (0.6 
|                                   | Minority interestequity and joint venture                          |                                        | (0.2 
|                                   |                                                                     |                                        |      
|                                   | (Loss)/profit for the financial period                              |                                        | (0.5 
|                                   |                                                                     |                                        |      
|                                   | Basic (loss)/earnings per share (pence)                             |                                        | (0.05
|                                   |                                                                     |                                        |      
|                                   | Headline earnings per share (pence)                                 |                                        | 2.31 
|                                   |                                                                     |                                        |      
|                                   | Diluted (loss)/earnings per share (pence)                           |                                        | (0.05
|                                   |                                                                     |                                        |      
|                                   | Dividend per share (pence)                                          |                                        |     
|                                   |                                                                     |                                        |      
|                                   | Dividend per share (US cents)                                       |                                        |     
|                                   |                                                                     |                                        |      
|                                   | Dividend per ADS (pence)                                            |                                        |     
|                                   |                                                                     |                                        |      
|                                   | Dividend per ADS (US cents)                                         |                                        |     
|                                   |                                                                     |                                        |      
|                                   | Turnover by segment                                                 |                                        |      
|                                   | Continuing operations                                               |                                        |      
|                                   |                                                                     | Performance Analysis                   |      
|                                   |                                                                     | Service Assurance                      |      
|                                   |                                                                     |                                        |      
|                                   |                                                                     | Communications                         |      
|                                   |                                                                     | Network Products                       |      
|                                   |                                                                     | Systems                                |      
|                                   |                                                                     |                                        |      
|                                   |                                                                     | 466.2                                  |      
|                                   | Discontinued operations                                             |                                        |     
|                                   |                                                                     |                                        |      
|                                   |                                                                     | 466.2                                  |      
|                                   |                                                                     |                                        |      
|                                   | Operating profit before goodwill amortization and exceptional items |                                        |      
|                                   | Continuing operations                                               |                                        |      
|                                   |                                                                     | Performance Analysis                   |      
|                                   |                                                                     | Service Assurance                      |      
|                                   |                                                                     |                                        |      
|                                   |                                                                     | Communications                         |      
|                                   |                                                                     | Network Products                       |      
|                                   |                                                                     | Systems                                |      
|                                   |                                                                     |                                        |      
|                                   |                                                                     | 36.0                                   |      
|                                   | Discontinued operations                                             |                                        |     
|                                   |                                                                     |                                        |      
|                                   |                                                                     | 36.0                                   |      
|                                   |                                                                     |                                        |      

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5

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Amounts in accordance with US GAAP

|                  |                                                         | Year ended December 31  |  
|----------------- | ------------------------------------------------------- | ----------------------- | -
|
|
|Net income/(loss) |                                                         |                        |  
|                  |                                                         |                         |  
|                  | Net income/(loss) per share                             |                         |  
|                  | Basic (pence):                                          |                         |  
|                  |                                                         | Continuing operations   |  
|                  |                                                         | Discontinued operations |  
|                  |                                                         |                         |  
|                  | Net income/(loss)                                       |                         | 
|                  |                                                         |                         |  
|                  | Diluted (pence):                                        |                         |  
|                  |                                                         | Continuing operations   |  
|                  |                                                         | Discontinued operations |  
|                  |                                                         |                         |  
|                  | Net income/(loss)                                       |                         | 
|                  |                                                         |                         |  
|                  | Dividend per share (pence)                              |                         | 
|                  |                                                         |                         |  
|                  | Dividend per share (US cents)                           |                         | 
|                  |                                                         |                         |  
|                  | Net income/(loss) per American Depositary Share ("ADS") |                         |  
|                  | Basic (pence):                                          |                         |  
|                  |                                                         | Continuing operations   |  
|                  |                                                         | Discontinued operations |  
|                  |                                                         |                         |  
|                  | Net income/(loss)                                       |                         | 
|                  |                                                         |                         |  
|                  | Diluted (pence):                                        |                         |  
|                  |                                                         | Continuing operations   |  
|                  |                                                         | Discontinued operations |  
|                  |                                                         |                         |  
|                  | Net income/(loss)                                       |                         | 
|                  |                                                         |                         |  
|                  | Dividend per ADS (pence)                                |                         | 
|                  |                                                         |                         |  
|                  | Dividend per ADS (US cents)                             |                         | 
|                  |                                                         |                         |  

6

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Consolidated Cash Flow Data

|                                   |                                                 | Year ended December 31 |       
|---------------------------------- | ----------------------------------------------- | ---------------------- | ------
|
|
|Amount in accordance with UK GAAP  |                                                 |                        |       
|                                   | Net cash inflow from operating activities       |                        | 68.2  
|                                   | Acquisitions and disposals                      |                        | 60.4  
|                                   | Financing                                       |                        | (143.6
|Amounts in accordance with US GAAP |                                                 |                        |       
|                                   | Cash inflow from operating activities           |                        | 54.1  
|                                   | Cash inflow/(outflow) on investing activities   |                        | 44.6  
|                                   | Cash (outflow)/inflow from financing activities |                        | (143.6

Consolidated Balance Sheet Data

|                                   |                                                 | At December 31
|---------------------------------- | ----------------------------------------------- | --------------
|
|
|Amounts in accordance with UK GAAP |                                                 |               
|                                   | Intangible assets                               |               
|                                   | Tangible fixed assets                           |               
|                                   | Current assets                                  |               
|                                   | Total assets                                    |               
|                                   | Current liabilities                             |               
|                                   | Creditors due after more than one year          |               
|                                   | Total liabilities (including pension liability) |               
|                                   | Shareholders' funds                             |               
|                                   | Share capital                                   |               
|Amounts in accordance with US GAAP |                                                 |               
|                                   | Intangible assets                               |               
|                                   | Tangible fixed assets                           |               
|                                   | Current assets                                  |               
|                                   | Total assets                                    |               
|                                   | Current liabilities                             |               
|                                   | Creditors due after more than one year          |               
|                                   | Total liabilities                               |               
|                                   | Shareholders' funds                             |               
|                                   | Share capital                                   |               

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7

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Exchange Rate Information

We present our financial statements in pounds sterling. The financial statements of the WAGO joint venture are presented in euro. The information set forth below
with respect to pounds sterling to US dollar exchange rates is based on the noon buying rate for pounds sterling in The City of New York for cable transfers in pounds sterling as certified for customs
purposes by the Federal Reserve Bank of New York. Also set forth below is exchange rate information pertaining to the euro, being the closing middle market price against pounds sterling. These rates
are provided solely for the convenience of the reader and are not the exchange rates used by us in the preparation of our consolidated financial statements included in this annual report.

US Dollar

The noon buying rate on June 2, 2004 was $1.84 = £1.00. The following table sets forth the high and low rate for each month of the
previous six months.

High

Low(US dollars per pound sterling)May 2004

1.84

1.75April 2004

1.86

1.77March 2004

1.87

1.79February 2004

1.90

1.82January 2004

1.85

1.79December 2003

1.78

1.72


The
following table sets forth information about the noon buying rate for the last five years. The average rates for each year are calculated by using the rate on the last business day
of each month during the relevant year.

|Year ended December 31 |  | High |  | Low  |  | Average |  | End of year
|---------------------- |  | ---- |  | ---- |  | ------- |  | -----------
|
|2003                   |  | 1.78 |  | 1.55 |  | 1.64    |  | 1.78       
|2002                   |  | 1.61 |  | 1.41 |  | 1.51    |  | 1.61       
|2001                   |  | 1.50 |  | 1.37 |  | 1.44    |  | 1.45       
|2000                   |  | 1.65 |  | 1.40 |  | 1.51    |  | 1.50       
|1999                   |  | 1.68 |  | 1.55 |  | 1.61    |  | 1.62       

Fluctuations
in the exchange rate between pounds sterling and US dollars affect the US dollar equivalent of the pound sterling denominated prices of our shares and, as a result, affect
the market price of our ADSs in the United States.

Euro

The euro rate on June 2, 2004 was €1.50 = £1.00. The following table sets forth the high and low rate for each month of
the previous six months.

High

Low(euro per pound sterling)May 2004

1.50

1.47April 2004

1.52

1.48March 2004

1.51

1.47February 2004

1.50

1.46January 2004

1.46

1.42December 2003

1.44

1.41


8

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The
following table sets forth information about the euro rate for the last five years. The average rates for each year are calculated by using the rate on the last business day of each
month during the relevant year.

|Year ended December 31 |  | High |  | Low  |  | Average |  | End of year
|---------------------- |  | ---- |  | ---- |  | ------- |  | -----------
|
|2003                   |  | 1.54 |  | 1.38 |  | 1.45    |  | 1.42       
|2002                   |  | 1.64 |  | 1.53 |  | 1.59    |  | 1.53       
|2001                   |  | 1.67 |  | 1.56 |  | 1.61    |  | 1.64       
|2000                   |  | 1.74 |  | 1.56 |  | 1.64    |  | 1.60       
|1999                   |  | 1.61 |  | 1.40 |  | 1.52    |  | 1.60       

9

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Risk Factors

You should carefully consider the risks and uncertainties described below and the other information in this annual report, including the
discussions set forth in "Item 4. Information on the Company" and "Item 5. Operating and Financial Review and Prospects" as well as our consolidated financial statements and related
notes included elsewhere in this annual report.

Risks Related to Our Business

Our business, operating results and financial condition could be harmed if the economy, and particularly the telecommunications industry into which we
sell our products, fails to recover or recovers at a slower pace than anticipated.

Generally weak prevailing market conditions worldwide during 2001, 2002 and continuing through 2003 resulted in worldwide reduced purchasing and capital spending
in many of the industries and markets into which we sell our products, in particular the telecommunications industry. As a result we experienced diminished product demand. The decline in demand for
our products and services has had and may continue to have an adverse effect on the results of operations and we continue to be affected by challenging conditions in the global telecommunications
market. Another downturn in our customers' markets or in general market conditions would be likely to result in a further reduction in demand for our products and services and could further harm our
business, operating results and financial condition.

We operate in rapidly changing industries and if we do not keep up with these rapid changes, and continue significant investment in research and
development, our turnover and operating results will suffer.

We sell our products and systems in several industries that are characterized by rapid technological changes, frequent product and service introductions and
evolving industry standards. We anticipate that our current products and services will become technologically obsolete over time and technological developments may eliminate whole markets or the need
for individual products. Entire product lines may be threatened by new technologies or market trends which may reduce the value of these product lines. If we fail to keep up with changes in these
industries, our turnover and operating results will suffer.

We
believe that the continued success of our communications business is dependent on our ability to advance next-generation technologies and services, to deliver integrated,
easy-to-use, end-to-end customer solutions, to increase our presence internationally and to extend our products into web services and applications for
the enterprise sector. For instance, our Service Assurance division is extending its existing capabilities in the next-generation IP services sector, which we believe represents an important growth
opportunity. If we do not succeed in anticipating changes in technology and customer requirements and in developing and introducing new products, our business, operating results and financial
condition will suffer.

The loss of key managers and skilled employees may result in inefficiencies in managing and operating our business and our business will suffer if we
are not able to hire and retain appropriately qualified personnel.

Our success is dependent on attracting and retaining highly qualified and skilled employees. We face intense competition for personnel from other companies,
establishments and organizations and the loss of our key employees, or our failure to attract and retain other highly skilled employees, may impair our ability to run and expand our business
effectively.

In
order for us to continue to expand and develop new technologies and products we will need to attract and retain employees with the necessary skills base and to ensure that our
incentive plans are competitive.

10

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We face aggressive competition and if we fail to compete effectively our business, operating results and financial condition will suffer.

We face aggressive competition in all of our businesses. Our competitors are numerous, including highly specialized firms as well as in-house
capability within customers, and new competitors may emerge. Some of our competitors have greater name recognition, larger customer bases, and greater financial, marketing, sales and other resources.
To stay competitive we will need to introduce successful new products and also may have to adjust prices of some of our products and manage financial returns effectively. Our business, operating
results and financial condition will suffer if we do not compete effectively.

Fluctuations in exchange rates and heavy exposure to a weak US dollar could materially harm our operating results.

Since we conduct operations globally, a substantial portion of our assets, liabilities, revenues and expenses are denominated in various currencies, principally
the US dollar and pounds sterling. Because our financial statements are denominated in pounds sterling, fluctuations in exchange rates, especially if the US dollar continues to weaken
against the pound, could have a material impact on our reported results. In recent periods, the value of the US dollar has declined significantly in comparison with the pound sterling.

We
may at times engage in currency hedging in an effort to cover any transaction exposure. Under such circumstances, this currency hedging could have an adverse effect on our financial
condition.

The terms of our debt obligations may affect our ability to operate our business.

During 2003 we renegotiated our borrowing terms. The renegotiated terms increased our weighted average interest payments and placed restrictions and tests on us,
constraining our ability to make dividend payments, incur further debt, provide further security and make acquisitions and disposals. Such restrictions and tests will continue to apply until certain
financial requirements are met. We are unable to give guidance as to when we are likely to meet these financial requirements and can give no assurance that they will indeed be achieved and, therefore,
whether or when our operations will be freed from such restrictions and tests.

The risk of a breach of financial covenants remains.

The borrowing terms we renegotiated in 2003 provided us with more headroom under certain of our financial covenants (see "Liquidity and Capital Resources" in
Item 5 and "Material Contracts" in Item 10 below for a more detailed discussion of the renegotiated borrowing terms). However, we can provide you with no assurance that the covenants
will not be breached and that further renegotiation of our borrowing terms will not be needed to further increase our level of headroom if there is another downturn in our business due to industry
conditions or otherwise.

We rely on a limited number of customers in some of our businesses, and therefore any cancellation, reduction or delay in orders from them could
significantly harm our business, operating results and financial condition.

In some of our businesses we continue to rely on a limited number of customers, which makes our relationships with these customers critical to the success of our
business. We can provide you with no assurance that we will be able to retain this client base, that we will be able to increase our sales to our other existing customers or that we will be able to
attract additional customers. The loss of one or more of our largest customers, any reduction or delay in sales to these customers, or inability to successfully develop and maintain relationships with
existing and new customers could significantly harm our business, operating results and financial condition.

11

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Because of our significant international operations, we are exposed to a variety of risks, many of which are beyond our control, that could adversely
affect our business.

Our international operations are subject to a variety of potential risks arising out of the global economy, the political outlook, currency fluctuations, exchange
control restrictions, investment in capital, the ability to enforce intellectual property rights, language and certain cultural differences in countries where we have operations.

Events
such as the continued military involvement in Iraq, the tensions in the Middle East, the threat of terrorism and associated political instability and the effect of heightened
security concerns on travel and commerce may trigger unforeseen economic conditions and cause market demand to fluctuate in an unpredictable manner which could adversely affect our business, operating
results and financial condition.

The retirement of our Chief Executive Officer may disrupt the effective management of our business and create uncertainty among our employees.

On February 25, 2004 our Chief Executive Officer, Nicholas Brookes, informed us of his intention to retire as Chief Executive Officer of the Company. His
retirement is due to become effective at the end of June 2004 at which time he will step down from the Board. A formal process to find a successor is under way. Any delay in our securing the
services of a successor Chief Executive Officer may result in difficulties in the effective management of our business.

Our pension fund deficit may become a further burden on our financial resources.

The latest actuarial valuation of our UK defined benefit scheme as at April 1, 2003 identified a deficit of £50.7 million before
taxation representing a funding deficit of 39%. In order to comply with minimum funding requirements we will make annual pension contributions of £3.5 million commencing on
July 1, 2004 and have increased the rate of our employer pension contribution from 13.4% to 16% of pay with effect from January 1, 2004. While these increased contributions are intended
to reduce the funding deficit over time, it is possible that a future actuarial valuation will reveal that the increased contributions are insufficient to do so and will need to be increased. The UK
defined benefit scheme is required to have an actuarial valuation every three years. These additional funding costs, both the current increased contributions and any further increases required by
future actuarial valuations, may have an adverse effect on the financial condition of our business.

Acquisitions undertaken could be difficult to integrate, disrupt our business and harm our operating results.

Acquisitions have historically been an important part of our business strategy and we evaluate strategic opportunities from time to time and may acquire
businesses, products or technologies in the future. Acquisitions are inherently risky and no assurance can be given that our previous or future acquisitions will be successful or will not adversely
affect our business, operating results or financial condition. Currently our renegotiated borrowing terms restrict our ability to make acquisitions.

Third parties may claim we are infringing their intellectual property rights and as a result our business may be harmed.

Third parties may claim that we are infringing their intellectual property rights. While we do not believe that any of our products infringe the valid
intellectual property rights of third parties, we may be unaware of intellectual property rights of others that may cover some of our technology, products and services. We could suffer litigation or
licensing expenses, or could be prevented from selling certain products as a result of third-party infringement claims. The complexity of the technology involved and the uncertainty of intellectual
property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. Indeed, we may

12

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not
be able to obtain royalty or license agreements on terms acceptable to us, or at all. We may also be subject to significant damages or injunctions against development and sale of certain of our
products. We often rely on obtaining licenses of intellectual property. We cannot assure you that these licenses will be available in the future on favorable terms or at all.

If third parties infringe our intellectual property rights, our business may be harmed.

Our success depends in part on our proprietary technology. If we fail to maintain or enforce our intellectual property rights, or if competitors design around our
technology or develop competing technologies, our competitive position could suffer and our operating results may be harmed. We may not be able to detect infringement and our competitive position may
be harmed before we do so. Intellectual property rights may also be unavailable or limited in some foreign countries, which could make it easier for competitors to capture market share.

If our products are defective, we may be held responsible for liabilities caused by malfunctions of equipment in which our products are used or have to
bear some of the cost of recalling this equipment, which would harm our turnover and our reputation.

Some of our products are incorporated as component parts by manufacturers into sophisticated equipment and machinery or are used in critical applications or are
stand-alone solutions. If our products are defective, we may be held responsible for the personal, property and financial damages that result and the costs associated with recalling the products
themselves and products in which our defective products were incorporated. Although we carry product liability insurance customary for companies of our size, such available insurance cover may not be
sufficient to cover a catastrophic loss or the costs of recall. In addition, our reputation with customers may be damaged as a result of any
such event. Product liabilities or the costs of implementing a recall could hurt our profitability, and the damage to our reputation if one or more of our products proves defective could cause us to
lose customers.

Many of our businesses are dependent on third-party manufacturers. If we cannot obtain sufficient services or products from these manufacturers, we may
lose customers and suffer a reduction in turnover and profits.

Many of our businesses contract out certain manufacturing processes. If there were a failure of such a manufacturer because of, for example, insolvency or
catastrophic loss, the services or products to our operations might be disrupted or even terminated. It might not be possible to find an alternative manufacturer in an acceptable timeframe on the same
economic terms as the original manufacturer. If we cannot obtain sufficient quantities of these products or services at an acceptable cost, we may not be able to meet customer demands in the desired
timeframe at a commercially acceptable cost, which may result in the loss of customers and a reduction in turnover and profits.

Some of our businesses are dependent on key component suppliers. If we cannot obtain sufficient components from these suppliers, we may lose customers
and suffer a reduction in turnover and profits.

Some of our businesses, particularly in the Communications group, may be dependent on some components from suppliers who experience greater demand for their
products than they can meet. In some instances these suppliers have introduced allocation systems to divide their available stock among potential customers. We may be affected because the allocation
to our business is too small or because suppliers change the way they apportion their available stock to our disadvantage. If we cannot obtain sufficient quantities of these products at an acceptable
cost, we may not be able to meet customer demands in the desired timeframe at a commercially acceptable cost, which may result in the loss of customers and a reduction in turnover and profits.

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Prices for some of the commodity raw materials we use to manufacture our products fluctuate, and we may not be able to pass on increased costs of these
raw materials to our customers.

Prices fluctuate for some of the commodity raw materials our Network Products group uses to manufacture its products. If prices for commodities such as PVC and
Nylon 66 increase significantly and we are not able to pass on the increased prices to our customers, our profitability will be reduced and our business, operating results and financial
condition may be adversely affected.

Remaining liabilities from discontinued businesses could adversely affect our results.

We have concluded a number of divestments of our non-core businesses, but we may, despite divesting of these non-core businesses, have contingent
liabilities arising out of those businesses that could adversely affect our business, operating results and financial condition. In addition, the time periods for bringing claims in relation to
representations, warranties and indemnities that we have given on recent divestments have not yet expired.

A significant portion of our telecommunications operations are located in California where they may be subject to the risks of earthquakes and other
natural disasters.

A significant portion of our telecommunications operations are located in California which has experienced natural disasters, including earthquakes, in the past.
A significant natural disaster, such as an earthquake, could disrupt our ability to conduct our telecommunications business and could have a material adverse impact on the Group's business, operating
results and financial condition.

Events described by our forward-looking statements may not occur.

This annual report includes forward-looking statements concerning our business, operations and financial performance and condition. We have based these
forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions about us, including,
among other things, those discussed above as well as under "Item 5. Operating and Financial Review and Prospects." You can identify these statements by words such as "anticipate", "assume",
"believe", "estimate", "expect", "intend", "may", "plan", "positioned", "should", "will", "would" and other similar expressions which are predictions of or indicate future trends and future events. In
light of these risks, uncertainties and assumptions, the forward-looking events discussed in this annual report might not occur. We undertake no obligation to update publicly or revise any
forward-looking statements, whether as a result of new information, future events or otherwise. Given these considerations, readers are cautioned not to place undue reliance on such forward-looking
statements.

Risks Relating to an Investment in our Ordinary Shares and ADSs

The price of our Ordinary shares and ADSs may be volatile and may decrease significantly below your purchase price.

The market price of our Ordinary shares is significantly affected by market forces. The market prices of securities of technology companies on the London Stock
Exchange, the New York Stock Exchange and other exchanges have fluctuated significantly in the last three years. The prices for securities of companies involved in telecommunications and other
technologies, have been particularly volatile. A significant portion of our activities is based on telecommunications and thus the market price of our Ordinary shares and ADSs is likely to remain
highly volatile.

In
addition to general factors, the following specific factors may have a significant effect on the market price of our Ordinary shares and ADSs:



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As
a result, you may only be able to resell our Ordinary shares or ADSs at a price significantly below your purchase price. See "Item 9. The Offer and Listing" for historical
pricing data on our shares.

Fluctuations in the exchange rate between the pound sterling and the US dollar may affect the price at which our ADSs trade on United
States securities markets.

For any particular price in pounds sterling at which our shares are trading on the London Stock Exchange, fluctuations in the exchange rate between the pound
sterling and the US dollar may affect the price in US dollars at which our ADSs trade on the New York Stock Exchange. For example, a fall in the value of the pound sterling against the
US dollar is likely to reduce the price of our ADSs in the United States market.

The availability of sufficient purchasers and sellers for our shares, whether in the form of Ordinary shares or ADSs, cannot be guaranteed and therefore
you may not be able to purchase or sell our shares or ADSs at any particular time.

The volume of our stock traded on the London Stock Exchange can vary from day to day and is affected by events and circumstances out of our control. This also
applies to the ADSs traded on the New York Stock Exchange. You may not be able to purchase or sell our Ordinary shares or ADSs at any particular time because of the lack of sufficient purchasers or
sellers.

Your ability to bring an action and enforce judgments against us may be limited under English law.

We are a public limited company incorporated under the laws of England and Wales. The rights of holders of Ordinary shares and, therefore, many of the rights of
ADS holders, are governed by English law and by our Memorandum and Articles of Association. These rights differ from the rights of shareholders in typical United States corporations. In
particular, English law significantly limits the circumstances under which shareholders of English companies may bring actions on the company's behalf. Under English law generally, only we can bring a
claim in proceedings in respect of wrongful acts committed against us. In addition, it may be difficult for you to prevail in a claim against us under, or to enforce liabilities relying upon, United
States securities laws. See "Item 4. Information on the CompanyEnforcement of Civil Liabilities".

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ITEM 4.    INFORMATION ON THE COMPANY

Overview of Our Business

Spirent is a leading communications technology company focused on delivering innovative systems and services to meet the needs of customers worldwide. In the mid
1990s Spirent embraced a strategy focusing on high technology businesses and identified the communications test industry as a prime sector of interest. Since then we have focused our activities
through strategic acquisitions and divestments, as well as organic growth. Our operations are now organized into three operating groups: Communications, Network Products and Systems.

In
the year ended December 31, 2003, we had total turnover of £466.2 million and operating profit before goodwill amortization and exceptional items of
£36.0 million. Our Communications group remains our largest business in terms of turnover, representing 52% (2002 56%) of ongoing turnover in the year ended December 31,
2003.

Our
results for the year ended December 31, 2003 were affected by the challenging conditions in the global telecommunications market and the generally weak market conditions
worldwide. However our performance in the second half of 2003 saw an increase in both turnover and operating profit over the first half reflecting a modest increase in activity levels.

During
2003 we completed the divestment of our Aviation Information Solutions ("AIS") businesses from within the Systems group's aerospace activities for net proceeds of
£3.2 million in cash and we completed the divestment of our 51% interests in WAGO, our interconnection joint venture, to our joint venture partners for £58.8 million net
in cash.

In
2002 we acquired certain assets of the remote special services product line of Anritsu Company US for a cash consideration of $26 million and certain intellectual property rights in
relation to wireless technology from UbiNetics Limited for £6.5 million in cash. We also acquired the 85% of Caw Networks, Inc. not already owned by the Group for an initial consideration
of $49 million of which $45 million was in cash. In 2002 we sold our aerospace components businesses for proceeds of $60 million in cash, certain assets of Switching Systems International for up to
$9.1 million cash and Montitor Labs Incorporated for $24 million cash, all from within our Systems group.

In
2001 we sold our Sensing group of companies for a cash consideration of $220 million. We did not make any acquisitions in 2001.

The
main activities of our three operating groups are:





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Our
turnover for ongoing businesses by market in 2003 comprised: North America 49% (2002 57%; 2001 63%), Europe 32% (2002 27%; 2001 24%), and Asia Pacific, Rest of Americas and Africa
19% (2002 16%; 2001 13%). A breakdown of turnover by market and by source is given below and a breakdown by segment is given in "Item 3. Key Information."



|                         |                                        | Year ended December 31
|------------------------ | -------------------------------------- | ----------------------
|
|
|Continuing operations:   |                                        |                       
|                         | Europe(1)                              |                       
|                         | North America(2)                       |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       
|Discontinued operations: |                                        |                       
|                         | Europe(1)                              |                       
|                         | North America(2)                       |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        |                      
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       

---



|                         |                                        | Year ended December 31
|------------------------ | -------------------------------------- | ----------------------
|
|
|Continuing operations:   |                                        |                       
|                         | Europe(1)                              |                       
|                         | North America(2)                       |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       
|Discontinued operations: |                                        |                       
|                         | Europe(1)                              |                       
|                         | North America(2)                       |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        |                      
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       

---

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Our overall strategy is to deliver innovative systems and services to meet the needs of customers worldwide. Our strategic priorities are to:





The first of the companies which today comprise the Group was established in 1936. The Company itself was incorporated and registered in England and Wales on
July 16, 1949 under the Companies Act 1948 as a private company limited by shares with registered number 470893 with the name Bowthorpe Holdings Limited. In 1955 Bowthorpe Holdings Limited was
listed on the London Stock Exchange. The Company re-registered as a public company under the Companies Act 1948 on July 15, 1981 as Bowthorpe Holdings PLC. The Company changed its
name to Bowthorpe plc on May 20, 1992 and to Spirent plc on May 12, 2000 and now operates under the Companies Act 1985 (as amended). The Ordinary shares of the Company are traded on the
London Stock Exchange and on the New York Stock Exchange in the form of American Depositary Shares, represented by American Depositary Receipts, with one ADS representing four Ordinary shares. The
Company is also a member of techMARK, the London Stock Exchange's market for innovative technology companies. Our address is Spirent House, Crawley Business Quarter, Fleming Way, Crawley, West Sussex
RH10 9QL, United Kingdom, and our telephone number is +44 (0) 1293 767676. The website address iswww.spirent.com. Information contained on the
website and subsidiaries' websites is not intended to be, and should not be regarded as being, part of this annual report.

Communications Group

Our Communications group develops and markets specialized communications testing, monitoring and management systems for customers worldwide. Our customers include
network equipment manufacturers, mobile handset manufacturers, semiconductor vendors, independent product evaluation laboratories, network operators, network service providers, large enterprises and
government entities. Our products help customers analyze the performance, functionality and conformance to industry standards of communications network equipment and networks themselves. Our mission
is to enable our customers to develop and assure next-generation equipment and services worldwide, more economically and efficiently.

We
focus on staying at the forefront of communications industry innovation and have technical expertise in a broad range of sophisticated communications technologies and network designs.
We believe we have expert knowledge of the individual items of equipment making up a network, giving us particular strength in understanding the way connected pieces of network equipment work
together, which is a key concern for our customers.

As
anticipated, the telecommunications market remained challenging throughout 2003. During 2003 we saw further reductions in capital spending of approximately 20% by our network
equipment manufacturer ("NEM") and network service provider ("NSP") customers. Against this background we believe we have been able to maintain our overall position in our served markets by providing
customers with the products and services they need to support the development of next-generation equipment and packet-based services and by enabling them to deploy and assure these
technologies more economically and efficiently. Quarterly order intake in the Performance Analysis division has

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increased
since the first half of 2003 reflecting a modest improvement in activity levels and the normal seasonality of the business. Due to the lower levels of spending and change in ordering
patterns by the United States incumbent local exchange carriers ("US ILECs") the Service Assurance division's order book declined from $59.2 million (£36.8 million) at the
end of 2002 to $44.4 million (£25.0 million) at the end of 2003.

We
have remained committed to our investment in product development throughout the industry downturn and this year was no exception with £57.8 million or 24% of our
Communications group's turnover (2002 £66.2 million and 21%) being invested to maintain our position in important next-generation technologies. Key areas where we have
been investing include: gigabit and 10-gigabit Ethernet; Asymmetric DSL 2+ ("ADSL2+"); voice-over-IP ("VoIP"); Internet Protocol version 6 ("IPv6"); Internet infrastructure and
web security testing; and 3G Code Division Multiple Access ("CDMA") wireless technologies. Our continued investment in product development resulted in the launch during the year of a number of new
products. We received a number of awards and industry recognition of our achievements with our Avalanche and Reflector 2200 products and our 10-gigabit Ethernet
test module being amongInfoWorldmagazine readers' preferred products for 2003. Our field test products were also winners in the "Customer Delight"
category in the BT Investing in Excellence Awards 2003. In addition, our customers are increasingly demanding more consulting, training and support services due to constraints on their resources and
we have responded to this need by offering a comprehensive suite of services under the ServiceEdge name.

We
have continued to broaden our presence internationally. 2003 saw the European launch of our web applications and security testing products as well as wireless test systems for
customers who are using wideband CDMA ("W-CDMA") technology for the advancement of 3G services and networks. We continued to make progress in Asia where we are associated with some of the
leading telecommunications technology institutes and companies.

Our
Communications group consists of two divisions: Performance Analysis and Service Assurance.

The
Performance Analysis division develops solutions for testing the performance, functionality and conformance to industry standards of network equipment and networks themselves. This
is achieved by simulating voice and data traffic and large-scale networks, and by creating real-world
conditions in the laboratories of NEMs, NSPs, enterprises and government entities. Subjecting equipment and networks to impairments and stresses helps customers ensure that the equipment or services
they are about to launch or deploy will actually withstand real-world conditions thus reducing the commercial risks inherent in developing or adopting new products.

Our
customer base for this division remains broadly spread and includes some of the largest NEMs and NSPs worldwide. We have benefited from the direct sales presence we
established in China in 2002 and our increased sales and marketing efforts throughout the rest of Asia. In Europe, a continuing focus on the development and roll-out of DSL networks and
services by customers helped sales of our broadband test equipment and we saw encouraging interest in our web applications and security testing products.

While
turnover for the year reduced overall in the Performance Analysis division, we saw improvements in sales from our web applications and security testing activities and an increase
in sales to the government sector. Growth in data traffic continues to drive the need for increased broadband access and our broadband solutions continue to represent the largest part of this
division's sales. We believe we have been able to capitalize on the trend towards VoIP and have launched several new products that are aimed at this growth area. Interest in IPv6, which provides
broader address space for the next phase of the Internet, was also good this year as the technology moves closer to deployment.

In
the wireless sector, we are benefiting from our acquisition in 2002 of W-CDMA expertise and have built on our established reputation in CDMA-2000 where we are
a leader in handset testing in

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North
America and Asia. During the year we launched a W-CDMA network emulator for testing the interoperability of mobile handsets and networks and versions of our position location test
system to support GSM (Global System for Mobile communications) and W-CDMA. In the CDMA sector, the ability to test applications and services has become more of a focus and we launched
several products in 2003 aimed at testing the performance of mobile data services and enhanced voice services such as "push-to-talk".

The
Service Assurance division provides hardware and software systems that enable NSPs to test and assure remotely the digital leased line, DSL, wireless, optical and managed IP services
they provide to residential and enterprise customers. Our products include OSS software, remote test probes, network access systems and consulting and technical services. We also supply portable
systems for fault identification and testing of copper telephone lines in the field. Our systems help service providers to introduce new services faster and to reduce their operational costs by
automating and centralizing their network testing and service assurance processes, reducing the need for expensive physical intervention and mitigating against poor customer service with faster
response times to problems.

We
are a leading provider of monitoring systems to the US ILECs' continuing broadband service roll-out programs. While we continue to be a leading supplier of monitoring
systems for DSL services, systems for digital leased line services remain the largest part of our Service Assurance business, accounting for approximately half the sales in 2003. In order to
capitalize on potential engineering and customer synergies we have transferred our field test business into the Service Assurance division. At the end of the year actions were taken to extend our
existing capabilities in the IP services sector which we believe represents an important growth opportunity. We believe there is opportunity to expand the Service Assurance division's product offering
internationally and we have made encouraging progress in Asia where we are currently in trials with some of the largest NSPs in the region and have already won initial orders. We continue with our
market development efforts in Europe.

During
2003 we expanded our product range with test probes and OSS for next-generation DSL variants which allow higher speed broadband access for the residential and
enterprise markets. We also announced a development effort and strategic partnership with Alcatel under which Spirent's test technology will be incorporated into Alcatel's broadly deployed ASAM
(Advanced Services Access Manager) products in North America. A number of our existing customers have announced the introduction of next-generation IP services and we have won initial
orders in this market for gigabit Ethernet, virtual local area network and IP virtual private network services. We intend to expand our capabilities and product functionality in this area in the
future. We have also extended our product line through the launch of FieldOp, an operations management solution that integrates service assurance and workforce management capabilities
onto a single platform for use in the field.

In
order to assist customers with the integration, acceptance and operation of hardware and software sourced from various suppliers, we continue to partner with providers of other
network devices and OSS to validate the interoperability of our products.

The
technology and expertise of the Performance Analysis and Service Assurance divisions are complementary. The Performance Analysis division's presence in the development laboratories
of network equipment manufacturers gives the Service Assurance division early knowledge of which technologies are likely to be adopted for future use in networks. The Service Assurance division has
knowledge of large-scale operational issues which can be fed back into the design and testing of successive generations of network equipment and services. This helps us anticipate market requirements
and provide customers with innovative products. We believe the diversification of our business into two divisions serving distinct market segments gives us a competitive advantage by positioning us at
the forefront of new technology development and extending the potential return on our research and development investment through the entire life cycle of network technology deployment.

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The strategy of our Communications group continues to be to advance next-generation technologies and services; to deliver integrated, easy-to-use,
end-to-end customer solutions; to increase our presence internationally; and to extend our products into web services and applications testing for the enterprise sector. We
believe that by remaining at the forefront of key emerging communications technologies and by leveraging the benefits of combining our test and monitoring capabilities we should be well placed to
serve the future needs of our customers.



The market for our Communications group's performance analysis products comprises three major worldwide customer groups:



Our
performance analysis systems are targeted at the research and development facilities of equipment manufacturers where they are used to develop and test new network equipment and
technologies. Our systems are also used by network service providers and major enterprise end-users, such as large financial institutions, and government entities to evaluate networking
equipment, compare products from multiple vendors effectively, ensure performance meets the levels claimed, confirm conformance to industry standards and assess interoperability with existing network
elements.

The
service assurance market includes both network management software and test equipment hardware. Service assurance typically includes network testing, fault isolation, alarm
surveillance, and monitoring the quality and level of service provided. Spirent is a leading provider of service assurance systems and has a leading position in DSL and digital leased line service
assurance in the North American market.



Products from our Communications group's Performance Analysis division can simulate entire communications networks, generating simulated voice and/or data traffic
and analyzing network performance under normal and faulty conditions. They are used in applications including product development, design verification, quality assurance, production testing and
network installation and maintenance. This enables customers to test and analyze their equipment or service under various operating conditions, to help ensure their functionality, quality, scalability
and reliability.

The
Performance Analysis division focuses on delivering a comprehensive portfolio of products and solutions for testing next-generation network technologies including tests
for technology interfaces, services, applications, scalability and usability. Examples include:



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Our
Service Assurance division's products include OSS software, remote test probes, network access systems and consulting and technical services. We also supply portable systems for
fault identification and testing of copper telephone lines in the field. Our systems help service providers to introduce new services faster and to reduce their operational costs by automating and
centralizing their network testing and service assurance processes, reducing the need for expensive physical intervention and mitigating against poor customer service with faster response time to
problems.



The markets for performance analysis and service assurance systems are highly fragmented and competitive. Among the more significant competitors of our
Performance Analysis division are Agilent Technologies, Inc., Anritsu Corporation, Ixia, Racal Instruments and Rohde & Schwarz GmbH, as well as the internal development of communications
test equipment by network equipment manufacturers. Competitors of our Service Assurance division include Acterna Corporation, Agilent Technologies, Inc., Micromuse Inc., Telcordia
Technologies Inc., Tollgrade Communications, Inc. and Visual Networks, Inc., as well as the internal development of OSS by the information technology departments of network
services providers.

We
believe we compete effectively in our markets and that our key competitive advantages are: our close relationships with customers; our breadth of industry-leading products; our focus
on being first-to-market; the synergies between our two divisions; and our technological expertise in next-generation networking technologies.



Our Performance Analysis division's customer base includes leading network equipment manufacturers, communications and network service providers and enterprise
end-users worldwide. Orders typically have a short lead time.

Equipment
and chipset manufacturer customers include Alcatel, Cisco Systems, Inc., Foundry Networks, Inc., Lucent Technologies Inc., Motorola, Inc., Nokia
Corporation, Nortel Networks Corporation, QUALCOMM Incorporated, Samsung Telecommunications America LLP and Siemens AG. We also sell to both the evaluation laboratories and the operations departments
of service provider customers including AT&T Corp., BT Group plc, Deutsche Telekom AG, NTT Corporation, SBC Technology Resources, Inc., Sprint Communications Company and Verizon
Communications Inc. End-user customers are typically large network users and web application providers with their own product evaluation labs. This category includes civilian
organizations and defense agencies, including Airbus France, Bank of America Corporation, Bank One Corporation, BNP Paribas SA, eBay Inc., ESPN, Inc., Fidelity Investments, Forbes.com,
Microsoft Corporation, Toyota Motor Corporation and the US Department of Defense.

The
Service Assurance division's customer base is focused on the North American service providers from whom we derive the majority of revenues in this division. We have service assurance
installations in nearly every top-tier service provider in North America, including BellSouth Corporation, Qwest Communications International Inc., SBC Communications Inc.,
Sprint FON Group and Verizon Communications Inc. Each of these accounts represents a long-term multi-level customer

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relationship,
with lengthy selling cycles and long-term commitments by both parties. Wireless service providers also present important market opportunities and customers include AT&T
Wireless Services, Inc., Nextel Communications, Inc., Sprint PCS Group, T-Mobile USA and Verizon Wireless.

The
Communications group has made progress in international markets over the recent years particularly with its Performance Analysis systems. Our Service Assurance sales are largely all
within North America, but we continue to pursue opportunities in Europe and Asia.



Our Performance Analysis division has a worldwide sales force operating from offices throughout North America, Europe and Asia. In 2002 we established direct
sales and support offices in multiple locations in China. Where appropriate, we sell our products directly to customers, particularly in North America and some European and Asian countries. We also,
however, have a strong network of international distributors.

Our
Service Assurance division maintains a direct sales force operating from offices throughout North America and Europe. In early 2003 we established a sales and support services office
in Beijing to serve the important Asian region. We operate through distributors in Asia, except in China where we operate a joint venture company, Spirent DM Limited.



Our Performance Analysis division's manufacturing operation consists primarily of materials planning and procurement, warehousing, logistics, quality control,
assembly, systems integration and test. We outsource the majority of our circuit board assembly to third-party contract manufacturers. We then assemble and configure our products to customer orders at
our facilities after which the completed system is functionally tested to ensure durability and reliability before shipment to the customer. Our Service Assurance division manufactures the majority of
its products in a state-of-the-art facility in Gaithersburg, Maryland. We outsource the manufacture of certain high volume products to others.

The
Communications group, taken as a whole, currently has manufacturing facilities in California, New Jersey, Maryland, Canada and the United Kingdom comprising approximately 124,000
square feet.

Network Products Group

Our Network Products group is a developer and manufacturer of innovative solutions for fastening, identification, protection and connectivity in electrical and
communications networks marketed under the global brand HellermannTyton. Our main activity is the design and manufacture of a broad range of high-grade nylon and metal ties and
accessories, clips, fasteners and custom parts for cables and wires in electrical, communications, automotive, industrial equipment, aerospace and construction applications. We produce products with
value added identification and security features such as standard cable markers, application tailored labels, printed customized markers and tags, tamper-evident fixings, security seals and printed
ties for clinical waste. Our heatshrink insulation, convoluted tubing, duct and cable covering products provide insulation, organization and physical protection for wires and cables. We also produce a
range of products used in the installation of local area and wide area communications networks which includes structured cabling systems, patch panels, cords, outlets, jacks, fiber optic jointing
organizers and splice protection systems and raceways. We are a market leader in systems for the automated application of cable fixings and identification printing and application systems.

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We
believe our ability to work closely with customers to develop value added products allows us to maintain our competitive position, gain new customers and should enable us to benefit
from any future recovery in our markets.

The
main improvement in turnover in 2003 over 2002 came from our European automotive sales where we have increased market penetration. Sales in Japan by our associate company were strong
and our South American businesses saw a recovery in turnover and continue to be profitable.

The
automotive sector remains our most important with sales to this market accounting for 34% of the Network Products group's turnover in 2003 compared with 30% in 2002. Despite global
vehicle production declining modestly year on year, the trend to replace metal parts with plastic and the increasing complexity of electronic systems within cars has resulted in more of our products
being specified on new vehicle platforms than on their predecessors.

Our
range of automated systems, including "Autotools", continues to generate sales of the high volume consumables they require, such as cable ties and identification labels and markers.
We now have a broad installed base of these systems at cable and wire harness manufacturers worldwide.

Sales
of our local area network connectivity products were lower in the United Kingdom in 2003 compared with 2002 reflecting the continued decline in the market but we were able to
continue to increase sales in the United States. The market for our broadband products remained depressed due to continuing cuts in spending by telecommunications service providers worldwide.

We
believe our focus on customer support and service is an important aspect of our success and we have been recognized as a "Gold Supplier" for Royal Mail which we supply via an
e-procurement system.

The
mission of the Network Products group is to provide innovative solutions with customer satisfaction as our first priority. We aspire, through global leadership and quality products
that add value to electrical and communications networks, to be the customers' partner of choice. We aim to achieve world class operational excellence for the benefit of our customers, our employees
and the interaction of our business with the environment.



Our Network Products group serves customers in a broad spread of industries throughout the world. We serve five principal markets: automotive; data and voice
networks; commercial and public sector construction; electrical and electronic goods; and mass transit, aerospace and defense.



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The market addressed by our Network Products group is highly competitive. We believe we compete effectively on the basis of product quality and performance
against specification, breadth and availability of product range, pricing, global customer service and support (with global support being particularly important in the automotive industry), product
innovation, and certification, accreditation and standards compliance.

Our
principal competitors in our served markets are:





The Network Products group has a global base of several thousand customers, with many customers present in multiple geographic markets. Customers are principally
equipment and automotive manufacturers, subsystem suppliers, and systems/component suppliers, installers, wholesalers, expeditors and specialist and catalogue distributors.

No
single customer accounts for a significant portion of the Network Products group's turnover. Repeat business, however, is important to the group and established relationships play an
important role in many of the served markets.



Sales are either made directly to end-users or through third parties such as wholesalers, expeditors or distributors. We focus marketing and sales efforts on the
end-user application independent of where the eventual customer may source the products. Our sales channels depend on the nature of the products and the requirements of the customer as
well as the established practices and infrastructure in the different regional markets in which the business operates.

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Our Network Products group has major manufacturing sites in the United States, United Kingdom and Germany and a significant presence in Japan through a joint
venture operating under the HellermannTyton brand. In addition, the group has strategic manufacturing sites in a further six countries around the globe. The sites together have approximately a million
square feet of manufacturing and distribution space. Labor-intensive products are manufactured in lower-cost locations where practical. Nearly all of our sites are certified to appropriate
global automotive industry quality standards. Our Network Products group derives about 25% of its turnover from products which are manufactured by third parties.

Systems Group

Our Systems group now comprises PG Drives Technology, which develops power control systems for specialist electrical vehicles in the mobility and industrial
markets, and an aerospace business that provides ground-based logistics support software systems for the aviation market. During 2003 we divested of our AIS businesses from within this group's
aerospace activities for net proceeds of £3.2 million in cash.



PG Drives Technology is a leading supplier of power control systems for powered wheelchairs and mobility scooters and while we continue to experience pricing
pressure in the market we have been successful in mitigating this through lower-cost designs, materials cost reductions and increased volumes. Our strategy for PG Drives Technology is to
continue to develop our market leadership position in our key healthcare mobility market through our innovative design approach. We believe we have been successful in transferring our expertise to the
market for small electrically powered industrial vehicles such as floor cleaning vehicles and aerial access platforms and intend to make further investments to grow this part of the business.



Our power controls activities serve two principal customer groups. These are manufacturers of healthcare mobility equipment and equipment manufacturers making
small electrically powered industrial vehicles.



Our innovative designs for power control devices for wheelchairs and mobility scooters offer exceptional ease-of-use,
cost-effectiveness and features, making them adaptable to a wide variety of manufacturers' requirements. The continuing success of our established VSI systems for powered wheelchairs and
our S-Drive systems for mobility scooters enabled us to increase customer penetration and win new business in the mobility vehicles market during 2003.

During
2003 we also made further progress in the small industrial vehicles market, with the I-Drive and TRIO+ products being well received by customers.

We
believe that ongoing research and development focused on developing new products and enhancing existing products, involving both software and hardware, is critical to the success of
our business. Our research and development activities in this business are primarily directed towards extending product capabilities and improving the performance and
ease-of-use of our products.

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The market for power control products is highly competitive and we believe we compete effectively on the basis of important factors such as strong customer
relationships, the ability to respond to customer requirements with appropriate design and application engineering capabilities, short time to market, product quality and reliability, pricing, and an
understanding of the standards and legislative environment of served industries, particularly with respect to medical products.

In
the healthcare vehicle markets we consider our main competitors to be Dynamic Controls Limited and Curtis Instruments, Inc. We believe we are establishing ourselves in the
industrial market, where there is competition from Curtis Instruments, Inc., Tech/Ops Sevcon, Inc. and ZAPI group S.p.a.

We
also face potential competition from our customers who may choose to manufacture their own supplies and from equipment manufacturers who may choose to compete in the market.



We have a broad customer base comprised mainly of healthcare equipment manufacturers worldwide. Major customers include Pride Mobility Products Corp. and Sunrise
Medical Inc. For industrial equipment, major customers include JLG Industries, Inc.



Our products are sold through a direct sales force. We have sales support personnel based in the United States, the United Kingdom and the Far East.



Our devices are designed and manufactured in the United Kingdom.



Our aerospace business is a leading developer and supplier of ground-based logistics support and MRO software systems, brand named GOLD and
AuRa, for the civil and military aviation markets. Our systems manage aerospace customers' logistics and MRO processes by providing maintenance work flow management, inventory control,
repair order management, recording and forecasting capabilities. In 2003, sales of GOLD, a leading contractor logistics support software system to the military market, were up compared
with 2002 largely due to increased sales to leading defense manufacturers. The continued weak conditions in the civil aviation market affected sales of AuRA, our ground-based MRO software
system.



The market for our aerospace products comprises three major customer groups: commercial airlines; military aircraft operators (airforce, army and navy); and
airframe manufacturers of rotary and fixed wing aircraft.

Many
of our products are upgrade items for in-service aircraft and, accordingly, civil airlines or military aircraft operators are typically our primary customers. Airframe
manufacturers form a significant part of our maintenance software customer base. Aerospace equipment manufacturers, such as engine or avionics suppliers, frequently have considerable repair and
overhaul operations and thus also form part of our maintenance software customer base.

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Our aerospace business has developed a range of integrated solutions that allow airlines and airforces to improve their operational efficiencies. Our integrated
maintenance software, brand named GOLD and AuRA, enables the efficient management of ground based logistics and MRO processes in both military and commercial environments.



The markets for our aerospace products are highly competitive. We believe we compete effectively, particularly through our understanding of the key issues facing
aviation customers, our breadth of product offering, and our competence and reputation in the aerospace industry.

Our
MRO software activities face competition from:





Our MRO systems are principally sold to aircraft manufacturers and operators in both the civil and military markets. Our major customers include The Boeing
Company, Continental Express, Honeywell International Inc., Lockheed Martin Corporation, Northrop Grumman Corporation and the United Kingdom Ministry of Defence.



Our aerospace products are sold either through a direct sales force or through distributors, depending on the geographic region and the preferences of the markets
being served. We have sales support personnel based in the United States and the United Kingdom. The sales process for one of our larger aerospace systems typically takes six to twelve months from the
start of discussions with a prospective customer to the placing of a contract.



Our aerospace activities have facilities in San Diego in the United States and Yeovil in the United Kingdom. We use these facilities both for software development
and manufacturing.

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Organizational Structure

Spirent plc is the ultimate parent company of our Group. We conduct our operations through various subsidiaries and trading divisions. Although this is our legal
structure, this does not necessarily coincide with our organizational or management structure. The following is a list of our significant subsidiaries, trading divisions and associates as at
December 31, 2003. We have not listed below other subsidiaries that are less significant.

|                                          |                                         | Country of
Incorporation |  | Percentage held at
December 31, 2003
|----------------------------------------- | --------------------------------------- | ------------------------ |  | ------------------------------------
|Communications                            |                                         |                          |  |                                     
|Performance Analysis division             |                                         |                          |  |                                     
|Spirent Communications Inc:               |                                         | Delaware, United States  |  | 100                                 
|                                          | Calabasas, California, United States    |                          |  |                                     
|                                          | Eatontown, New Jersey, United States    |                          |  |                                     
|                                          | Honolulu, Hawaii, United States         |                          |  |                                     
|                                          | Sunnyvale, California, United States    |                          |  |                                     
|Spirent Communications of Ottawa Ltd      |                                         | Canada                   |  | 100                                 
|Spirent Communications (SW) Ltd*          |                                         | England                  |  | 100                                 
|Service Assurance division                |                                         |                          |  |                                     
|Spirent Communications of Rockville, Inc. |                                         | Delaware, United States  |  | 100                                 
|Spirent Communications (Scotland) Ltd*    |                                         | England                  |  | 100                                 
|Spirent Communications Ltd*               |                                         | England                  |  | 100                                 
|Network Products                          |                                         |                          |  |                                     
|Trading divisions of Spirent plc:         |                                         |                          |  |                                     
|                                          | HellermannTyton:                        |                          |  |                                     
|                                          | Aldridge, West Midlands, United Kingdom |                          |  |                                     
|                                          | Plymouth, Devon, United Kingdom         |                          |  |                                     
|                                          | Wythenshawe, Manchester, United Kingdom |                          |  |                                     
|HellermannTyton (Pty) Ltd                 |                                         | South Africa             |  | 90                                  
|HellermannTyton S.A.                      |                                         | France                   |  | 100                                 
|HellermannTyton AB                        |                                         | Sweden                   |  | 100                                 
|HellermannTyton GmbH                      |                                         | Austria                  |  | 100                                 
|HellermannTyton GmbH                      |                                         | Germany                  |  | 100                                 
|HellermannTyton Ltda                      |                                         | Brazil                   |  | 100                                 
|HellermannTyton Pte Ltd                   |                                         | Singapore                |  | 75                                  
|HellermannTyton Data Ltd*                 |                                         | England                  |  | 100                                 
|HellermannTyton Corporation               |                                         | Delaware, United States  |  | 97                                  
|Tyton Company of Japan Ltd* (Associate)   |                                         | Japan                    |  | 49                                  
|Systems                                   |                                         |                          |  |                                     
|PG Drives Technology Ltd                  |                                         | England                  |  | 100                                 
|PG Drives Technology Inc                  |                                         | Delaware, United States  |  | 100                                 
|Spirent Systems San Diego Inc             |                                         | Delaware, United States  |  | 100                                 
|WPDS Software Ltd*                        |                                         | England                  |  | 100                                 
|Financial                                 |                                         |                          |  |                                     
|Spirent BV                                |                                         | The Netherlands          |  | 100                                 
|Spirent GmbH                              |                                         | Germany                  |  | 100                                 
|Spirent Holdings Corporation              |                                         | Delaware, United States  |  | 100                                 

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The
above companies operate and are incorporated in the countries listed. All shareholdings in the companies are held indirectly by Spirent plc, except where indicated by an asterisk (*)
where the shareholding is held directly by Spirent plc. The percentage held reflects the proportion of shares controlled and not the beneficial interest.

Properties and Facilities

The following facilities, all of which are leased, are individually material to the business of our Group as a whole:



Intellectual Property

We believe that our patents and applications have value. Although the patent portfolios of our Communications and Network Products groups are important to the
business of each of those groups, no single patent is in itself material to our business as a whole. If we fail to maintain or enforce our intellectual property rights, or if competitors design around
our technology or develop competing technologies, our competitive position could suffer.

Materials

Because of the diversity of our Group, we purchase raw materials and components from a wide range of suppliers. Although we outsource certain manufacturing
processes and use components from third parties, we are not dependent on any single manufacturer or supplier. Prices fluctuate for certain raw commodities used by our Network Products group,
particularly Nylon 66 and PVC. Although we believe that our relationships with our suppliers for these commodity materials are relatively secure, the prices we have to pay for these raw materials may
increase.

In
addition, certain suppliers of electronic components used by some of our businesses use a system to allocate sales of their products when demand exceeds supply. When an allocation
system is in effect, we may not be able to purchase at an acceptable cost or quantity as many components as we require to manufacture our products.

Regulatory and Other Government Requirements

No regulatory or other government requirements exist that are material to us or our business as a whole.

Enforcement of Civil Liabilities

We are a public limited company incorporated under the laws of England and Wales. The majority of our directors and executive officers are residents of countries
other than the United States. All or a

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substantial
portion of their assets and our assets are located outside the United States. As a result, it may not be possible for you:



Under
English law, our directors and officers have fiduciary duties to our company, including, generally, duties to act in the best interests of the company and to exercise appropriate
skill and care. English law, however, limits the circumstances under which shareholders of English companies may bring actions on the company's behalf for breach of these duties more significantly
than does, generally, state law in the United States.

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ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis relates to our financial condition as of December 31, 2003 and the results of operations for the years ended
December 31, 2003, 2002 and 2001. This discussion should be read in conjunction with our Selected Consolidated Financial Information and our Audited Consolidated Financial Statements
included elsewhere in this annual report. You should also read the description of our business included in "Item 4. Information on the Company."

The
following discussion and analysis by segment is based on the Consolidated Financial Statements of Spirent plc and its subsidiaries, together with its share of profits of its
joint ventures and associates, which we refer to as the Group. These Consolidated Financial Statements are prepared in accordance with UK GAAP. A summary of the main differences between
UK GAAP and US GAAP as they relate to us is set out in Note 34 of Notes to the Financial Statements.

We
evaluate performance for each reportable segment based on turnover and operating profit before goodwill amortization and exceptional items. Operating profit and return on sales are
used by the Group as key measures of operating performance and are stated before the effect of goodwill amortization and exceptional items so that period on period comparisons are not distorted. Free
cash flow, meaning cash flow before acquisitions, disposals, equity dividends and financing, is also a key measure of operating performance used by the Group. Headline earnings per share is considered
by the Group and our investors to be a key measure of overall earnings performance. The calculation is based on reported earnings adjusted for goodwill amortization and exceptional items including
tax.

Unless
otherwise stated, operating profit and return on sales are stated before goodwill amortization and exceptional items.

We
have implemented Financial Reporting Standard ("FRS") 17 "Retirement Benefits" at December 31, 2003 to bring us in line with latest UK GAAP and to move towards
the adoption of International Financial Reporting Standards in 2005. Prior year amounts have been restated to reflect the change in accounting policy.

The
Group has also implemented Urgent Issues Task Force ("UITF") Abstract 38 "Accounting for ESOP Trusts" which requires that the cost of own shares, previously reported as a
fixed asset investment, be shown as a deduction from shareholders' funds. A prior year adjustment has been made to reflect this change.

Overview

Spirent is a leading communications technology company focused on delivering innovative systems and services to meet the needs of customers worldwide. Our
Communications group is a global provider of performance analysis and service assurance solutions that enable the development and deployment of next-generation networking technologies such
as broadband services, Internet telephony, 3G wireless and web applications and security testing. Our Network Products business is a developer and manufacturer of innovative solutions for
fastening, identification, protection and connectivity in electrical and communications networks marketed under the global brand HellermannTyton. The Systems group comprises PG Drives
Technology, which develops power control systems for specialist electrical vehicles in the mobility and industrial markets, and an aerospace business that provides ground-based logistics support
software systems for the aviation market.

Our
results for the year were affected by the challenging conditions in the global telecommunications market and the generally weak market conditions worldwide with turnover of
£466.2 million and operating profit of £36.0 million down 17% and 29%, respectively, compared with 2002. However, our performance in the second half
of 2003 saw an increase in both turnover and operating profit over the first half reflecting a modest increase in activity levels.

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We
have maintained our commitment to product development, investing £66.0 million or 14% of turnover in 2003 (2002 £77.7 million and 14%).

Due
to a strong focus on cash management we generated £68.2 million of operating cash in 2003. Net debt has been significantly reduced to
£57.5 million at the year end compared with £161.8 million at the end of 2002 principally through cash generated by the businesses and the proceeds from the sale
of the WAGO joint venture.

Acquisitions and Disposals



Acquisitions and disposals are discussed in "Item 4. Information on the Company" and in Notes 32 and 33 of Notes to the Financial Statements.

We
did not make any acquisitions in 2003. In August 2002 we completed the acquisition of Caw Networks, Inc. ("Caw") for an initial cash consideration of $49 million
with a provision for deferred consideration of up to $60 million dependent on certain technical and financial milestones being met. Caw has achieved a certain level of the earn-out
targets. The Company has satisfied the deferred consideration due through the issue of 4.4 million new Spirent shares in 2004 and provided for a liability of £2.7 million in
respect of this at December 31, 2003.



On April 4, 2003 we completed the divestment of our 51% interests in WAGO, our interconnection joint venture, to the joint venture partners (the Hohorst
family) for a cash consideration, net of expenses, of £58.8 million.

On
June 30, 2003 we completed the divestment of our AIS businesses from within the Systems group's aerospace activities for a net cash consideration of
£3.2 million.

Recent Developments

On February 25, 2004 it was announced that Nicholas Brookes had informed the Board of his intention to retire as Chief Executive of the Company on
June 30, 2004. A formal process to find a successor is under way.

At
December 31, 2003 no amounts were drawn under our committed bank facility of £60 million and we held £37.6 million of cash. We determined
that this £60 million bank facility was in excess of our business requirements. Consequently, at the end of 2003 we entered into negotiations with a small group of lending
banks and agreed a £30 million, 364-day working capital facility with a six-month term-out option which became effective on February 18,
2004 to replace the £60 million facility. We have applied some of our excess cash, including the net proceeds from the disposal of AIS, to make a partial prepayment on our
senior notes ("notes") to reduce the cost of borrowing going forward. The partial prepayment of $14.4 million (£8.1 million) was made on February 18, 2004 and an
associated make-whole amount of $3.3 million (£1.8 million) has been incurred. This make-whole amount and the costs associated with this transaction were accrued
in the 2003 financial year.

At
the Annual General Meeting of shareholders held on May 11, 2004, we stated that "Spirent's overall trading performance in the first quarter of 2004 was in line with
expectations after allowing for the impact of the continuing weakness of the US dollar to sterling exchange rate. On an organic, constant currency basis Group turnover was up 9% compared with
the first quarter of last year.

"In
the Communications group we have started to see some more encouraging trends in spending by our customers. The Performance Analysis division has benefited from our broad portfolio of
products, particularly in next-generation broadband and wireless technologies, with quarterly order

34

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intake
up appreciably over the same period last year. We have also seen some signs of a return of confidence among network service providers but as previously stated we expect the Service Assurance
division's performance to lag a recovery. We continue to extend our existing capabilities in IP services and expand our product offering internationally.

"Our
Network Products group delivered a good performance in the first quarter benefiting from the introduction of new products and applications in its principal markets. As anticipated
our Systems group's exports in the first quarter of 2004 have been impacted by the weakness of the US dollar.

"The
satisfactory start to 2004 we reported in our 2003 preliminary results announcement in February has continued into April. While we have seen indications of a pick up
in spending by our customers, we continue to be cautious as to the extent of this recovery."

Results of Operations

Turnover for 2003 of £466.2 million was 17% lower than 2002. Turnover for ongoing businesses of £237.0 million for
the second half of 2003 improved by 6% over the first half reflecting modestly improved levels of activity in the latter part of the year.

Operating
profit before goodwill amortization and exceptional items was £36.0 million for the year, down 29% on 2002. Operating profit for ongoing businesses
for the second half of 2003 improved by 31% over the first half reflecting the modest increase in activity and the effect of cost savings.

Return
on sales for the year was lower at 7.7%, 1.3 percentage points below 2002. Return on sales in the second half of 2003 showed an improvement over the first half of
2.0 percentage points.

The
Communications group contributed £240.4 million of turnover (2002 £315.4 million) and £13.8 million of operating profit (2002
£30.8 million), representing 52% (2002 56%) of Group turnover and 38% (2002 61%) of Group operating profit.

As
anticipated, the telecommunications market remained challenging throughout 2003. 2003 saw further reductions in capital spending of approximately 20% by our NEM and NSP
customers. Spirent Communications' turnover was down 24% compared with 2002, but turnover for the second half of 2003 was up 5% compared with the first half due to modestly
improved levels of activity. Compared with 2002, operating profit for 2003 was down 55%, however operating profit in the second half of 2003 improved by 71% over the
first half. Return on sales for the Communications group for 2003 reduced to 5.7% from 9.8% in 2002.

Our
Network Products and Systems groups delivered improved performances over the prior year. Network Products reported growth in turnover of 6% and in operating profit
of 11% compared with 2002. The Systems group reported growth of 8% in turnover and 32% in operating profit excluding the effect of divestments. These businesses supply a
broad range of industries and therefore have provided some protection from the volatile conditions in the telecommunications market. The Network Products group contributed turnover of
£174.4 million (2002 £164.7 million), representing 37% (2002 30%) of the Group's turnover and £16.7 million (2002
£15.0 million) of operating profit being 47% (2002 30%) of the Group's operating profit. The Systems group, including divestments, contributed £51.4 million (2002
£78.8 million), representing 11% of the Group's turnover (2002 14%) and £5.5 million (2002 £4.6 million) of operating profit, representing 15%
(2002 9%) of the Group's operating profit.

The
weakness of the US dollar in the second half of the year has been offset to some extent by the strength of the euro throughout 2003. The effect of currency translation for
2003 compared with 2002 was to reduce turnover by £16.6 million and operating profit by £0.2 million. In relation to profit before taxation, goodwill amortization
and exceptional items, currency translation resulted in an

35

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increase
of £0.7 million as our interest costs are largely denominated in US dollars and a higher proportion of profits this year were denominated in euro.

Reported
profit before taxation was £0.3 million after charging exceptional items of £20.0 million compared with a loss of
£1,023.4 million in 2002 after charging exceptional items of £1,013.3 million. Reported loss per share for 2003 was 0.05 pence (2002 loss
113.90 pence).

In
2002 we took a large exceptional charge for goodwill impairment of £923.3 million which was principally in relation to the Communications group. After carrying out
the appropriate valuation exercises, no further impairment charges were required in 2003.

Spirent
continued to generate cash in all its operating groups during 2003. Operating cash flow of £68.2 million was 11% down on the previous year of
£76.9 million. Cash flow before acquisitions, disposals, equity dividends and financing, or free cash flow, before the cash cost of exceptional items, was higher at
£62.8 million compared with £44.1 million for 2002. The second half of the year was particularly strong in cash generation terms with
£39.9 million of free cash flow before exceptional items being generated.



Our revenues, which we refer to as turnover, are derived from:



Turnover
is generally recognized upon shipment of the product unless there are significant post-delivery obligations or collection is not considered probable at the time of
sale. When significant post-delivery obligations exist, turnover is deferred until such obligations are fulfilled. Turnover from service obligations is deferred and generally recognized
ratably over the period of the obligation.

During
the year ended December 31, 2003 turnover by source in Europe was 36% (2002 28%), of which the United Kingdom comprised 16% (2002 13%), and in North America 56%
(2002 66%). This reflects the reduction in turnover in North America following the deterioration seen in our Communications
group which is predominantly North American based. The proportion of turnover generated in North America is expected to remain at these levels in the near term.

No
single customer accounted for more than 10% of total turnover in any of the three years in the period ended December 31, 2003.



Cost of sales is comprised of direct costs associated with product sales including product development and all attributable overheads. Of our three operating
groups, our Communications group has historically experienced the lowest cost of sales as a percentage of turnover and has consequently earned the highest margins, however these margins have been
significantly reduced during the telecommunications downturn. Our Network Products group has typically experienced more stable returns.

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Operating expenses consist of selling and distribution expenses, administration expenses and other operating income. Selling and distribution expenses consist
primarily of salaries and related costs for sales and marketing personnel and promotional expenditures. Administration expenses include goodwill amortization, impairment expense and other operating
exceptional items. For both categories of expenses excluding goodwill amortization and exceptional items, the principal variable is headcount.



This represents our share of operating profit from the WAGO joint venture which was sold in April 2003, and our share of the costs of our Spirent
DM Limited joint venture which was established in 2003.



Interest receivable and similar income is comprised of interest from cash and cash equivalents.



Interest payable primarily comprises interest on loans and bank overdrafts, as well as finance charges on finance leases. Finance charges associated with debt
issuances are charged to the profit and loss account over the life of the instrument and included in interest expense. An exceptional interest charge, comprising the make-whole amount on the notes and
related bank fees arose in 2003.



Other finance expense or income arises in connection with the application of FRS 17 "Retirement Benefits" and represents the expected return on the
schemes' assets net of the charge for the increase during the period in the net present value of the schemes' liabilities because the benefits are one year closer to settlement.

Critical Accounting Policies

The fundamental objective of financial reporting is to provide useful information that allows a reader to comprehend the business activities of Spirent. To aid in
that understanding, management has identified Spirent's "critical accounting policies". These policies are considered "critical" because they have the potential to have a material impact on Spirent's
financial statements, and because they require judgments and estimation due to the uncertainty involved in measuring, at a specific point in time, events which are continuous in nature.



Goodwill arising on the acquisition of subsidiaries, and representing the excess of cost over the fair value of the attributable assets and liabilities acquired,
is capitalized as an intangible asset and amortized over its estimated useful economic life up to a maximum of 20 years. Goodwill is reviewed for impairment at the end of the first full
financial year following acquisition and in other periods if events or changes in circumstances indicate the carrying value may not be recoverable. US GAAP requires that goodwill is reviewed at
least annually for impairment.

The
deterioration in the telecommunications market in the second half of 2002 together with the significant fall in the Spirent share price resulted in a review of our businesses for
impairment in that year. This review resulted in impairment losses of £923.3 million being recognized during 2002. A similar impairment loss of £724.6 million was
recognized in 2001. These losses were the aggregate from the impairment reviews of each individual income generating unit and were determined in accordance

37

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with
FRS 11 "Impairment of Fixed Assets and Goodwill". The impairment loss restated the assets to value in use using estimated cash flows which included assumptions on future growth rates,
margins, product developement spend and other expenditure in these businesses. The resulting cash flows were discounted at pre-tax discount rates of between 15% and 20%, which were
considered appropriate to those businesses based on their perceived risk compared to Spirent's weighted average cost of capital.

In
addition, independent valuations were obtained for the purpose of impairment reviews in accordance with US GAAP to determine the fair value of the businesses and any necessary
impairment charges.
These valuations were based on management's estimates of the future cash flows of the businesses and have been considered in determining the fair values of the businesses.

The
appropriate valuation exercises were carried out in 2003 under UK and US GAAP, the result being that no further impairment charges were identified.

The
impairment reviews for UK and US GAAP have been performed using a number of assumptions which management considers most appropriate given the market conditions at that time.
These assumptions underpin the cash flows upon which the calculations are performed. The discount rates applied were chosen based on the perceived risk within each business. Given the significance of
the impairments identified in 2001 and 2002, varying any of these assumptions could have materially changed the impairment charges reported.

In
implementing our amortization policy various judgments and assumptions have been made in relation to the estimated useful economic lives of the goodwill and intangibles concerned and
their recoverability. Using a different useful economic life could materially affect the amortization charges under UK GAAP or US GAAP.



Spirent makes provisions against inventories, which we refer to as stocks, in excess of 12 months' usage and for doubtful debts. Spirent's policy is to
reserve against both excess and obsolete inventories. Inventory is assessed and reserved if in excess of 12 months' usage. Obsolete inventories are identified on an itemized basis. Debtors are
reserved based on exposures on specific customer accounts and reserved as soon as the exposure is identified by management through the process of regular reviews. Use of a different policy in respect
of inventory and debtors could result in materially different provisions being made.



Revenue from product sales of hardware and software is recognized at time of delivery and acceptance. Terms of acceptance are dependent upon the specific
contractual arrangement agreed with the customer. Where the sale is to a new customer and installation is to be performed, revenue recognition
is deferred until acceptance has occurred. Revenue recognition is also deferred until acceptance where a new product is supplied to an existing customer.

Revenue
from multiple element contracts is allocated based on prices charged for each individual element when sold separately. Revenue from services is recognized ratably over the period
of performance.

The
Group does not enter into a significant number of long-term sales contracts. Revenue and estimated profits on long-term contracts are recognized under the
percentage-of-completion method of accounting. When estimates of total contract revenues and costs indicate a loss, a provision for the entire amount of the contract loss is
recognized in the period in which the loss becomes evident.

The
Group does not enter into bill and hold transactions and revenue is only recognized when collectability is probable.

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We have implemented FRS 17 "Retirement Benefits" at December 31, 2003 to bring us in line with latest UK GAAP and to move towards the
adoption of International Financial Reporting Standards in 2005. Prior year amounts have been restated to reflect the change in accounting policy.

Under
FRS 17, the assets of the defined benefit plans are measured at their market value at the balance sheet date and the liabilities are measured using the projected unit
method. The discount rate used to measure the scheme liabilities is the current rate on an AA corporate bond of equivalent term and currency to the liabilities. The extent to which the schemes' assets
exceed or fall short of the schemes' liabilities is shown as a surplus or deficit in the balance sheet net of deferred tax.

The
regular service cost of providing retirement benefits to employees in defined benefit schemes is charged to the operating profit in the year together with the cost of providing
benefit improvements in respect of past service and gains or losses arising on settlements and curtailments.

A
credit for the expected return on the schemes' assets and a charge for the increase in the period in the present value of the schemes' liabilities because the benefits are one year
closer to settlement, are included in other finance income or expense in the profit and loss account. Differences arising between the actual and expected return on the schemes' assets together with
changes in the actuarial assumptions are included in the statement of recognized gains and losses.

The
funding position of the defined benefit plans reported at December 31, 2003 was a deficit of £43.4 million (2002 £41.9 million) before
taxation, representing a funding deficit of 31% (2002 32%).

The
various assumptions used in this valuation are detailed in Note 10 of Notes to the Financial Statements. Changing any one, or a combination of these assumptions will result in
a change to the deficit reported. Varying the assumptions will also have an impact on the profit and loss account and statement of total recognized gains and losses.



The reduction in activity levels and the resulting deterioration in operating profits necessitated a reassessment of the carrying value of
£19.0 million of deferred tax assets in 2002. These assets had previously been recognized on the acquisition of businesses, on prior years' exceptional items, and on timing
differences. We continue, in 2003, not to recognize deferred tax assets, other than in relation to the pension fund deficit, as there is currently insufficient evidence to support recognition
under accounting standards.

Deferred
tax assets of £18.3 million (2002 £20.1 million) arising principally on timing differences in the United States and United
Kingdom have not been recognized. In addition, the Group has tax losses arising in the United States of £70.1 million (2002 £23.1 million) and in
the United Kingdom of £24.8 million (2002 £10.2 million) that are available for offset against future taxable profits and which have not been recognized.

We
have not recognized these deferred tax assets based on current forecasts and estimates prepared by management. A change to these forecasts and estimates could result in recognition of
some of the assets currently unrecognized. Given the significance of the assets that remain unrecognized this could materially affect the deferred tax assets reported and the resulting credit to the
profit and loss or statement of unrecognized gains and losses.

39

---





Year Ended December 31, 2003 Compared with the Year Ended December 31, 2002

|                                                                    |                      |       |       |       |       | Year ended
December 31
|------------------------------------------------------------------- | -------------------- | ----- | ----- | ----- | ----- | ----------------------
|
|
|Turnover                                                            |                      |       |       |       |       |                       
|Continuing operations                                               |                      |       |       |       |       |                       
|                                                                    | Performance Analysis |       | 71.3  |       | 77.4  |                       
|                                                                    | Service Assurance    |       | 46.2  |       | 45.5  |                       
|                                                                    |                      |       |       |       |       |                       
|                                                                    | Communications       |       | 117.5 |       | 122.9 |                       
|                                                                    | Network Products     |       | 85.9  |       | 88.5  |                       
|                                                                    | Systems              |       | 25.8  |       | 25.6  |                       
|                                                                    |                      |       |       |       |       |                       
|                                                                    |                      | 229.2 |       | 237.0 |       | 466.2                 
|                                                                    |                      |       |       |       |       |                       
|Operating profit before goodwill amortization and exceptional items |                      |       |       |       |       |                       
|Continuing operations                                               |                      |       |       |       |       |                       
|                                                                    | Performance Analysis |       | 0.5   |       | 3.9   |                       
|                                                                    | Service Assurance    |       | 4.6   |       | 4.8   |                       
|                                                                    |                      |       |       |       |       |                       
|                                                                    | Communications       |       | 5.1   |       | 8.7   |                       
|                                                                    | Network Products     |       | 8.1   |       | 8.6   |                       
|                                                                    | Systems              |       | 2.2   |       | 3.3   |                       
|                                                                    |                      |       |       |       |       |                       
|                                                                    |                      | 15.4  |       | 20.6  |       | 36.0                  
|                                                                    |                      |       |       |       |       |                       

---

Turnover and operating profit

Comparisons by segment are given below for ongoing operations (excluding divestments which cannot be classified as discontinued operations). Operating profit and
return on sales are stated before goodwill amortization and exceptional items.

40

---



Communications

|                                                                    |                      | First half
2003 |      | Second half
2003 |      | 2003  |       | 2002
Restated |       | Annual
change |    
|------------------------------------------------------------------- | -------------------- | --------------- | ---- | ---------------- | ---- | ----- | ----- | ------------- | ----- | ------------- | ---
|
|Turnover                                                            |                      |                 |      |                  |      |       |       |               |       |               |    
|                                                                    | Performance Analysis |                 | 71.3 |                  | 77.4 |       | 148.7 |               | 184.0 |               | (19
|                                                                    | Service Assurance    |                 | 46.2 |                  | 45.5 |       | 91.7  |               | 131.4 |               | (30
|                                                                    |                      |                 |      |                  |      |       |       |               |       |               |    
|                                                                    |                      | 117.5           |      | 122.9            |      | 240.4 |       | 315.4         |       | (24           | )  
|                                                                    |                      |                 |      |                  |      |       |       |               |       |               |    
|Operating profit before goodwill amortization and exceptional items |                      |                 |      |                  |      |       |       |               |       |               |    
|                                                                    | Performance Analysis |                 | 0.5  |                  | 3.9  |       | 4.4   |               | 10.0  |               | (56
|                                                                    | Service Assurance    |                 | 4.6  |                  | 4.8  |       | 9.4   |               | 20.8  |               | (55
|                                                                    |                      |                 |      |                  |      |       |       |               |       |               |    
|                                                                    |                      | 5.1             |      | 8.7              |      | 13.8  |       | 30.8          |       | (55           | )  
|                                                                    |                      |                 |      |                  |      |       |       |               |       |               |    
|Return on sales before goodwill amortization and exceptional items  |                      | (%)             |      |                  |     
|                                                                    | Performance Analysis |                 | 0.7  |                  | 5.0  |       | 3.0   |               | 5.4   |               |    
|                                                                    | Service Assurance    |                 | 10.0 |                  | 10.5 |       | 10.3  |               | 15.8  |               |    
|                                                                    | Communications group |                 | 4.3  |                  | 7.1  |       | 5.7   |               | 9.8   |               |    

The
results for the Communications group for 2002 and the first half of 2003 have been restated to reflect the transfer of our field test activities from the Performance Analysis to the
Service Assurance division.

As
anticipated, the telecommunications market remained challenging throughout 2003. 2003 saw further reductions in capital spending of approximately 20% by our NEM and NSP customers.
Spirent Communications' turnover was down 24% compared with 2002, but turnover for the second half of 2003 was up 5% compared with the first half due to modestly improved levels of activity. Compared
with 2002, operating profit for 2003 was down 55%, however operating profit in the second half of 2003 improved by 71% over the first half. Return on sales for the group for 2003 reduced to 5.7% from
9.8% in 2002.

Quarterly
order intake in the Performance Analysis division has increased since the first half reflecting the modest improvement in activity levels and the normal seasonality of the
business. Due to the lower levels of spending and change in ordering patterns by the US ILECs, the Service Assurance division's order book declined from $59.2 million
(£36.8 million) at the end of 2002 to $44.4 million (£25.0 million) at the end of 2003.



Due to the drop in spending by NEMs and NSPs globally during 2003, turnover in this division fell 19% compared with 2002 to
£148.7 million. Operating profit for 2003 was down 56% compared with 2002 at £4.4 million. However our performance in the second half of 2003 showed an
improvement with turnover up 9% and operating profit up by £3.4 million due to a modest increase in activity levels in the latter part of the year. Return on sales for the second
half recovered to 5.0%, but was 3.0% for the year compared with 5.4% in 2002.

Our
customer base for this division remains broadly spread and includes some of the largest NEMs and NSPs worldwide. We have benefited from the direct sales presence we
established in China in 2002 and our increased sales and marketing efforts throughout the rest of Asia. In Europe, a continuing focus on the development and roll-out of DSL networks and
services by customers helped

41

---



sales
of our broadband test equipment and we saw encouraging interest in our web applications and security testing products.

While
turnover for the year reduced overall we saw improvements in sales from our web applications and security testing activities and an increase in sales to the government sector.
Growth in data traffic continues to drive the need for increased broadband access and our broadband solutions continue to represent the largest part of this division's sales. We believe we have been
able to capitalize on the trend towards VoIP and have launched several new products that are aimed at this growth area. Interest in IPv6, which provides broader address space for the next phase of the
Internet, was also good this year as the technology moves closer to deployment.

In
the wireless sector, we benefited from our acquisition in 2002 of W-CDMA expertise. During the year we launched a W-CDMA network emulator for testing the
interoperability of mobile handsets and networks and versions of our position location test system to support GSM and W-CDMA. In the CDMA sector, we launched several products in 2003 aimed
at testing the performance of mobile data services and enhanced voice services such as "push-to-talk".



We are a leading provider of monitoring systems to the US ILECs' continuing broadband service roll-out programs. However during the year our core
customers continued to reduce their overall capital spending and as a result sales were adversely affected with turnover for the division declining 30% to £91.7 million compared
with £131.4 million in 2002. While we continue to be a leading supplier of monitoring systems for DSL services, systems for digital leased line services remain the largest part of
our Service Assurance business, accounting for approximately half the sales in 2003. Operating profit of £9.4 million for 2003 was down 55% for the year. Return on sales for 2003
fell to 10.3% from 15.8% in 2002. In order to capitalize on potential engineering and customer synergies we have transferred our field test business into the Service Assurance division. At the end of
the year actions were taken to extend our existing capabilities in the IP services sector which we believe represents an important growth opportunity.

During
2003 we expanded our product range with test probes and OSS for next-generation DSL variants which allow higher speed broadband access for the residential and
enterprise markets. A number of our existing customers have announced the introduction of next-generation IP services and we have won initial orders in this market for gigabit Ethernet,
virtual local area network and IP virtual private network services. We intend to expand our capabilities and product functionality in this area in the future. We have also extended our product line
through the launch of FieldOp, an operations management solution that integrates service assurance and workforce management capabilities onto a single platform for use in the field.

Network Products

|                                                                       |  | First half
2003 |  | Second half
2003 |  | 2003  |  | 2002
Restated |  | Annual
change
|---------------------------------------------------------------------- |  | --------------- |  | ---------------- |  | ----- |  | ------------- |  | -------------
|
|Turnover                                                               |  | 85.9            |  | 88.5             |  | 174.4 |  | 164.7         |  | 6            
|Operating profit before goodwill amortization and exceptional items    |  | 8.1             |  | 8.6              |  | 16.7  |  | 15.0          |  | 11           
|Return on sales (%) before goodwill amortization and exceptional items |  | 9.4             |  | 9.7              |  | 9.6   |  | 9.1           |  |              

The
business delivered a sound performance in 2003 with turnover up 6% at £174.4 million and operating profit up 11% at £16.7 million compared with
2002. Turnover in the second half of 2003 was

42

---



up
3% which is a positive indicator given that the second half of the year is usually weaker than the first. Return on sales at 9.6% in 2003 was up over the previous year.

The
main improvement in turnover in 2003 over 2002 came from our European automotive sales where we have increased market penetration.

The
automotive sector remains our most important with sales to this market accounting for 34% of turnover in 2003 compared with 30% in 2002. Despite global vehicle production declining
modestly year on year, the trend to replace metal parts with plastic and the increasing complexity of electronic systems within cars has resulted in more of our products being specified on new vehicle
platforms than on their predecessors.

Our
range of automated systems, including "Autotools", continues to generate sales of the high volume consumables they require, such as cable ties and identification labels and markers.
We now have a broad installed base of these systems at cable and wire harness manufacturers worldwide.

Sales
of our local area network connectivity products were lower in the United Kingdom in 2003 compared with 2002 reflecting the continued decline in the market but we were able to
continue to increase sales in the United States. The market for our broadband products remained depressed due to continuing cuts in spending by telecommunications service providers worldwide.

Systems

|                                                                       |  | First half
2003 |  | Second half
2003 |  | 2003 |  | 2002
Restated |  | Annual
change
|---------------------------------------------------------------------- |  | --------------- |  | ---------------- |  | ---- |  | ------------- |  | -------------
|
|Turnover                                                               |  | 21.0            |  | 25.6             |  | 46.6 |  | 43.0          |  | 8            
|Operating profit before goodwill amortization and exceptional items    |  | 2.5             |  | 3.3              |  | 5.8  |  | 4.4           |  | 32           
|Return on sales (%) before goodwill amortization and exceptional items |  | 11.9            |  | 12.9             |  | 12.4 |  | 10.2          |  |              

Figures
in the above table relate to ongoing businesses only. Divested businesses contributed £4.8 million (2002 £35.8 million) of turnover and a
£0.3 million operating loss (2002 £0.2 million operating profit).

On
an ongoing business basis the Systems group saw an 8% increase in turnover to £46.6 million and a 32% increase in operating profit to
£5.8 million compared with 2002. The improvement was mainly in PG Drives Technology, our power controls business. During 2003 we completed the divestment of our AIS businesses from
within the Systems group's aerospace activities for net proceeds of £3.2 million in cash.

The
continuing success of our established VSI systems for powered wheelchairs and our S-Drive systems for mobility scooters enabled us to increase customer penetration and win new
business in the mobility vehicles market in 2003. During 2003 we also made further progress in the small industrial vehicles market, with the I-Drive and TRIO+ products being well received
by customers.

In
our aerospace business, in 2003, sales of GOLD, a leading contractor logistics support software system to the military market, were up compared with 2002 largely due to
increased sales to leading defense manufacturers. The continued weak conditions in the civil aviation market affected sales of AuRA, our ground-based MRO software system.

43

---





In 2003 we divested of our AIS businesses from within the Systems group's aerospace activities which contributed £4.8 million of turnover and
an operating loss of £0.3 million in 2003.

We
also divested the WAGO interconnection joint venture which contributed £2.9 million of income in 2003.



Cost of sales was £279.8 million for the year ended December 31, 2003 compared with £340.8 million for the year ended
December 31, 2002, a reduction of 18% and a result of reduced sales activity. Cost of sales as a percentage of turnover was slightly lower at 60% compared with 61% for 2002 however cost of
sales includes an exceptional charge of £4.4 million in 2002 in respect of inventories in excess of 12 months' usage which was caused by the deterioration in the technology
industry.

Product
development expenditure was £66.0 million compared with £77.7 million for the year ended December 31, 2002, a decrease of 15%.
Product development expenditure represented 14% of turnover in both years. Of the total product development expenditure £57.8 million was incurred by the Communications group (2002
£66.2 million).



Total operating expenses, which include goodwill amortization and exceptional items, were £167.6 million for the year ended December 31,
2003 compared with £1,188.7 million for the year ended December 31, 2002. Total operating expenses in 2002 were impacted by goodwill amortization and exceptional items as
discussed below.

Selling
and distribution expenses were £110.0 million for the year ended December 31, 2003, compared with £124.6 million for the year ended
December 31, 2002, a decrease of 12%. As a percentage of turnover selling and distributions costs were 24% compared to 22% in 2002. The absolute decrease was due to cost reduction actions taken
in 2002 and in 2003, the effect of the divestments and exchange.

Administration
expenses were £58.3 million for the year ended December 31, 2003, compared with £1,064.7 million for the year ended
December 31, 2002 which included £923.3 million of goodwill impairment. There is no impairment charge arising in 2003. Administration expenses for the year ended
December 31, 2003 included £7.5 million of exceptional costs (2002 £37.2 million) and £9.7 million of goodwill amortization (2002
£56.1 million). Excluding exceptional items and goodwill amortization, administration costs are £41.1 million and represented 9% of turnover in 2003 compared with
£48.1 million, also representing 9% of turnover, in 2002. The reduction in costs in absolute terms can be attributed to the cost reduction actions taken as well as the effect of
divestments and exchange. The significant reduction in the goodwill amortization charge to £9.7 million compared with £56.1 million in 2002 is due to the goodwill
impairment charge taken in 2002.

Operating
exceptional items of £7.5 million charged as administration costs include £2.3 million in respect of the renegotiation of our borrowing
terms and £3.8 million for the cost reduction actions within the Communications group. We were able to sublet two of our vacant locations and an amount of
£1.8 million has been released in respect of these. Further properties were vacated in 2003 that gave rise to a charge of £1.0 million, resulting in a net release
of £0.8 million for lease provisions in the year. In addition, a charge of £2.2 million has been taken for tangible fixed asset write-downs connected with the
vacated space.

The
cash cost of operating exceptional items was £10.9 million in 2003 (2002 £7.7 million).

44

---





In 2003 our share of turnover from the WAGO joint venture decreased to £22.4 million (2002 £75.6 million) and our share of
operating profit decreased to £2.9 million (2002 £7.4 million). The significant reduction is due to the disposal of the WAGO joint venture on April 4,
2003, as we are reporting our share of the result from the joint venture only up to the date of disposal. Our share of the Spirent DM Limited joint venture was a £0.2 million
operating loss for 2003.



Income from interests in associates, consisting of Tyton Company of Japan and 3M/ECC in the Netherlands amounted to £2.1 million for the year
ended December 31, 2003 compared with £1.0 million in the year ended December 31, 2002. The improvement was due to the strong sales experienced by our Japanese
associate.



The divestment of our interests in the WAGO joint venture and of AIS from within the Systems group's aerospace activities resulted in a net profit of
£3.6 million after charging £2.6 million of goodwill previously written off to reserves and now reinstated in accordance with FRS 10.



Net interest payable has reduced from £12.3 million in 2002 to £9.3 million for the year to December 31, 2003. This
reduction is principally a result of the reduction in net debt. A charge of £1.5 million arose in connection with the application of FRS 17 "Retirement Benefits".



An exceptional interest cost of £16.1 million has been charged in 2003. This charge comprises the make-whole amount and related
bank fees of £14.3 million charged in the first half of the year, together with a make-whole amount of £1.8 million accrued in respect of the
prepayment of loan notes in February 2004 and negotiated at the end of 2003.

The
cash cost of the exceptional interest expense was £13.7 million in 2003.



The Group's effective tax rate for 2003 was 7.7% compared with 18.3% in 2002 being significantly reduced by a prior year adjustment of
£6.0 million recognizing the utilization of losses and the release of provisions. Excluding this the effective tax rate was 27.7%.

The
exceptional tax credit of £1.7 million is in respect of the tax effect of the exceptional items in 2003. In 2002 we reported a net exceptional tax charge of
£18.5 million which was principally due to the re-evaluation of the recovery of deferred tax assets under FRS 19. We continue not to recognize deferred tax assets as
there is currently insufficient evidence to support recognition under accounting standards, other than in relation to the pension fund deficit in 2003.

45

---





Year Ended December 31, 2002 Compared with the Year Ended December 31, 2001

The previous year's presentation of segmental information has been restated to comply with current year presentation due to the implementation of FRS 17
"Retirement Benefits" and UITF 38 "Accounting for ESOP Trusts". In addition our field test activities within our Communications group have been transferred from our Performance Analysis
division to our Service Assurance division.

|                                                                    |                      | Year ended December 31
|------------------------------------------------------------------- | -------------------- | ----------------------
|
|
|Turnover                                                            |                      |                       
|Continuing operations                                               |                      |                       
|                                                                    | Performance Analysis |                       
|                                                                    | Service Assurance    |                       
|                                                                    |                      |                       
|                                                                    | Communications       |                       
|                                                                    | Network Products     |                       
|                                                                    | Systems              |                       
|                                                                    |                      |                       
|                                                                    |                      | 558.9                 
|Discontinued operations                                             |                      |                       
|                                                                    | Sensing Solutions    |                       
|                                                                    |                      |                       
|                                                                    |                      | 558.9                 
|                                                                    |                      |                       
|Operating profit before goodwill amortization and exceptional items |                      |                       
|Continuing operations                                               |                      |                       
|                                                                    | Performance Analysis |                       
|                                                                    | Service Assurance    |                       
|                                                                    |                      |                       
|                                                                    | Communications       |                       
|                                                                    | Network Products     |                       
|                                                                    | Systems              |                       
|                                                                    |                      |                       
|                                                                    |                      | 50.4                  
|Discontinued operations                                             |                      |                       
|                                                                    | Sensing Solutions    |                       
|                                                                    |                      |                       
|                                                                    |                      | 50.4                  
|                                                                    |                      |                       

---



Comparisons by segment are given below for ongoing operations (excluding divestments which cannot be classified as discontinued operations).

46

---



Communications

|                                                                    |                      | Year ended December 31 |       |  |      
|------------------------------------------------------------------- | -------------------- | ---------------------- | ----- |  | -----
|
|
|Turnover                                                            |                      |                        |       |  |      
|                                                                    | Performance Analysis |                        | 184.0 |  | 241.4
|                                                                    | Service Assurance    |                        | 131.4 |  | 189.2
|                                                                    |                      |                        |       |  |      
|                                                                    | Communications group |                        | 315.4 |  | 430.6
|                                                                    |                      |                        |       |  |      
|Operating profit before goodwill amortization and exceptional items |                      |                        |       |  |      
|                                                                    | Performance Analysis |                        | 10.0  |  | 38.6 
|                                                                    | Service Assurance    |                        | 20.8  |  | 44.8 
|                                                                    |                      |                        |       |  |      
|                                                                    | Communications group |                        | 30.8  |  | 83.4 
|                                                                    |                      |                        |       |  |      

|Return on sales before goodwill amortization and exceptional items |                      | (%) |      | 
|------------------------------------------------------------------ | -------------------- | --- | ---- | 
|                                                                   | Performance Analysis |     | 5.4  | 
|                                                                   | Service Assurance    |     | 15.8 | 
|                                                                   | Communications group |     | 9.8  | 

Throughout
2002 our major customers, the NEMs and NSPs, continued to restructure their operations in response to the significantly reduced overall market. This coupled with certain
regulatory issues for our customers in the United States resulted in a reduction in spending on our products, particularly in the third quarter. By taking immediate cost-saving actions in
October 2002 we were able
to return to profitability in our Communications group in the fourth quarter after delivering a small loss in the third quarter.

The
Communication group's turnover was £315.4 million for the year ended December 31, 2002, compared with £430.6 million for the year ended
December 31, 2001, a decrease of 27%. Operating profit was £30.8 million for the year ended December 31, 2002, compared with £83.4 million
for the year ended December 31, 2001, a decrease of 63%.

Return
on sales, before goodwill amortization and exceptional items, decreased to 9.8% for the year ended December 31, 2002, compared with 19.4% for the year ended
December 31, 2001. Return on sales was reduced in both divisions and the most significant reduction was seen in the Performance Analysis division where return on sales dropped to 5.4% compared
with 16.0% in 2001. The Service Assurance division's return on sales reduced to 15.8% compared with 23.7% in 2001.

During
the year we maintained investment in the development of our products. Product development expenditure in 2002 of £66.2 million (2001
£73.0 million) represented 21% of the Communications group turnover and was invested in key areas such as gigabit and 10-gigabit Ethernet in the access and metro
networks, VoIP, IPv6, Internet infrastructure and security testing, storage area networks and 3G wireless technologies. This investment resulted in numerous new products and enhancements to
existing product lines being launched during the year including the first end-to-end performance analysis and radio frequency channel emulation system for the wireless local
area network ("LAN") market, a fully automated system for testing W-CDMA mobile handsets, a system for the analysis of Internet infrastructures simultaneously from the physical layer to the
applications layer, and a test system for storage area networks.

In
the Performance Analysis division turnover fell in 2002 to £184.0 million from £241.4 million due to decreased spending by our major customers in
the United States and Europe. The return on sales declined to 5.4% due to a combination of the drop in trading levels and the timing of the

47

---



associated
cost reductions in this business. Despite the overall reduction there were areas of growth, in particular our wireless test products, which increased strongly with turnover up 57% and our
position location test products, which performed well.

In
the Service Assurance division turnover fell in the third quarter as our major customers, the US ILECs, reduced investment in their networks in response to financial constraints and
regulatory pressures. As a result of lower volume, return on sales was affected falling to 15.8% from 23.7% in 2001. Return on sales was also affected by the product mix which included a higher
hardware content (lower margin) in the second half of the year as compared with the first half which had a higher
software element (higher margin). Additionally, sales of monitoring systems for digital leased line services having a lower margin, represented a higher proportion of turnover in 2002 compared with
2001, which had a predominance of DSL business.

Network Products

|                                                                       |  | Year ended December 31 |  |       | 
|---------------------------------------------------------------------- |  | ---------------------- |  | ----- | 
|
|
|Turnover                                                               |  | 164.7                  |  | 170.4 | 
|Operating profit before goodwill amortization and exceptional items    |  | 15.0                   |  | 14.9  | 
|Return on sales (%) before goodwill amortization and exceptional items |  | 9.1                    |  | 8.7   | 

Turnover
in our Network Products group was down marginally by 3% and operating profit before goodwill amortization and exceptional items was up 1% on the prior year. In the United
States, improved sales to the heavy vehicles market and growth of our LAN "Network Sciences" product line were off-set by reduced sales to the telecommunications service providers. Our
European sales showed a small increase overall and in Japan sales were broadly flat. In South America
the recession led by the severe economic collapse in Argentina negatively affected the group. The restructuring actions taken in 2001 to consolidate and extend customer-facing activities and
reduce administrative and back office activities became fully effective in the first half of 2002 and return on sales improved to 9.1% compared to 7.3% in the second half of 2001.

Sales
to the automotive sector contributed 30% to turnover in 2002 compared with 27% in 2001. While global vehicle production was broadly flat in 2002 the trend
towards increasing electronic/electrical systems content and lighter vehicles requiring increased use of plastics provided underlying market growth. As a result we were able to increase our
penetration with vehicle manufacturers, their first tier suppliers and major vehicle harness manufacturers worldwide. Our sales in the United States heavy vehicles market recovered showing 23% growth
after the significant market downturn in 2001.

The
market for our broadband products and structured cabling products remained very weak in the United States and the United Kingdom throughout the year due to depressed conditions in
the telecommunications market and reductions in enterprise information technology spending.

Systems

|                                                                       |  | Year ended December 31 |  |     
|---------------------------------------------------------------------- |  | ---------------------- |  | ----
|
|
|Turnover                                                               |  | 53.8                   |  | 48.6
|Operating profit before goodwill amortization and exceptional items    |  | 3.3                    |  | (0.2
|Return on sales (%) before goodwill amortization and exceptional items |  | 6.1                    |  |    

48

---



Figures
in the above table relate to ongoing businesses only. Divested businesses contributed £25.0 million of turnover (2001 £75.4 million) and
£1.3 million of operating profit (2001 £5.6 million).

On
an ongoing business basis the Systems group saw an increase in revenues from £48.6 million to £53.8 million and in operating profit from a loss
of £0.2 million to a profit of £3.3 million. Return on sales improved to 6.1%. These improvements were achieved through increased customer penetration,
product launches (including the new airborne file server) and the successful entrance into new markets. The impact of cost reductions taken in the first half of 2002 in the aerospace business
coupled with increased sales resulted in improved trading in the Systems group in the second half of 2002.

The
power controls business saw good growth in turnover over 2001 mainly due to increased penetration of the mobility vehicles market. Sales to the industrial market, a new market for
the business, also contributed to the improvement.



During 2002 Spirent sold three businesses all from within the Systems group. In April, May and September, we completed the divestment of our aerospace component
businesses, Switching Systems International and Monitor Labs Incorporated, respectively. Combined revenues from these businesses were £25.0 million in 2002 with operating
profit of £1.3 million.



Cost of sales was £340.8 million for the year ended December 31, 2002 compared with £490.7 million for the year ended
December 31, 2001, a reduction of 31% as a result of reduced activity. Cost of sales as a percentage of turnover was unchanged at 61%. Cost of sales includes an exceptional charge
of £4.4 million in respect of inventories in excess of 12 months' usage (2001 £14.2 million) which was caused by the deterioration in the technology
industry.

Product
development expenditure was £77.7 million compared with £95.9 million for the year ended December 31, 2001, a decrease of 19%.
Product development expenditure represented 14% of turnover, as compared with 12% in 2001. Of the total product development expenditure £66.2 million was incurred by the
Communications group (2001 £73.0 million).



Total operating expenses were £1,188.7 million for the year ended December 31, 2002 compared with £1,045.4 million
for the year ended December 31, 2001, impacted by goodwill amortization and exceptional items as discussed below.

Selling
and distribution expenses were £124.6 million for the year ended December 31, 2002, compared with £156.0 million for the year ended
December 31, 2001, a decrease of 20%. As a percentage of turnover, selling and distribution costs were 22% compared with 19% in 2001. The absolute decrease was due to cost
reductions taken in late 2001 and in 2002 and to the effect of the divestments.

Administration
expenses were £1,064.7 million for the year ended December 31, 2002, compared with £890.6 million for the year ended
December 31, 2001. Included within administration expenses are £923.3 million of goodwill impairment (2001 £724.6 million),
£37.2 million of exceptional costs (2001 £20.7 million) and £56.1 million of goodwill amortization (2001 £86.6 million).
Excluding exceptional items and goodwill amortization, administration costs are £48.1 million and represented 9% of turnover in 2002 compared with £58.7 million
and 7% in 2001. The reduction in costs in absolute terms can be attributed
to the cost reductions taken as well as the effect of divestments. The reduction in the goodwill amortization charge to £56.1 million compared with £86.6 million
in 2001 is due to the goodwill impairment charge taken in 2001.

49

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Other operating income, consisting of non-trading income net of any specific expenses relating to that income, amounted to £0.6 million for the year ended
December 31, 2002 compared with £1.2 million for the year ended December 31, 2001.

Exceptional
items of £37.2 million other than goodwill impairment and included in administrative expenses are as follows:

Restructuring
costs of £8.6 million were charged in respect of redundancy payments and other costs incurred in the restructuring of the business. Tangible fixed assets
have been written down by £3.6 million relating to the down-sizing in our Communications group.

After
the reduction in workforce in the fourth quarter we relocated certain employees to make more efficient use of our facilities and this resulted in certain leased properties being
vacated. Provisions of £20.2 million have been recognized in the period in relation to our continuing obligations under these leases.

Acquisition
retention bonuses arising from acquisitions made in 2000 of £4.8 million were charged in 2002.

The
cash cost of these operating exceptional items was £7.7 million in 2002 (2001 £11.9 million).



In 2002 our share of turnover from the WAGO joint venture decreased by 3% to £75.6 million (2001 £78.3 million) and our
share of operating profit decreased by 23% to £7.4 million (2001 £9.6 million). The decline was due to the continuing depressed conditions WAGO experienced in
most of its geographic markets during
the year. Our share of interest payable and of taxation from WAGO were £0.7 million and £2.7 million, respectively, giving a profit after taxation of
£4.0 million.

We
announced on March 12, 2003 the divestment of our interests in WAGO to our joint venture partners. The transaction completed on April 4, 2003.



Income from interests in associates, consisting of Tyton Company of Japan, 3M/ECC in the Netherlands, and Caw in the United States, amounted to
£1.0 million for the year ended December 31, 2002 compared with £1.3 million in the year ended December 31, 2001. The majority holding of Caw was
acquired by Spirent in August 2002, from which date Caw was fully consolidated.



We continued to divest our non-core businesses and realized £37.6 million in net proceeds from the sale of our aerospace component
businesses from within our Systems group to Curtiss-Wright Corporation in April 2002. Other divestments, also within our Systems group realized a further £18.0 million.

A
net loss of £48.4 million is reported in 2002 on divestments after charging £70.8 million representing goodwill written off against reserves in
previous years and now reinstated in accordance with FRS 10.



Net interest payable was reduced from £22.8 million in 2001 to £12.3 million in 2002, as we benefited from the
reduction in interest rates, primarily on
our US dollar borrowings. Benefit was also obtained from the reduction in borrowings following receipt of the proceeds from the sale of Sensing Solutions in November 2001.

A
charge of £0.3 million arises in 2002 (2001 income £0.4 million) on the application of FRS 17 "Retirement Benefits".

50

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The tax charge amounted to £26.9 million in the year ended December 31, 2002 compared with £32.4 million in the year
ended December 31, 2001. The charge for 2002 includes an exceptional tax charge of £18.5 million arising principally through the re-evaluation of the recovery of
deferred tax assets under FRS 19. The effective tax rates after adjusting for goodwill amortization, exceptional items and the loss on disposal of operations and the exceptional tax charge were
18.3% and 29.4%, respectively, in the years ended December 31, 2002 and 2001.

Liquidity and Capital Resources

Our policy is to finance operations through a combination of retained earnings and external financing raised principally by the parent company. Debt is largely
sourced from the syndicated bank market and the United States private placement market.

In
order to provide the Group with an increase in the level of headroom available in relation to certain of the financial covenants, amendments to the terms of our notes and syndicated
bank facility were agreed in March 2003. These amendments were conditional on the divestment of our interests in the WAGO joint venture and the application of the net proceeds to partially
pre-pay our notes. On completion of the divestment of WAGO in April 2003, £47.0 million of our notes were pre-paid and an associated
make-whole amount of £12.5 million was paid. Following this prepayment $144.2 million of notes remained outstanding. These notes mature in 2006
($6.4 million) and in 2009 ($137.8 million). Further details on
our notes are contained in Note 28 of Notes to Financial Statements and in "Item 10. Material Contracts".

At
December 31, 2003 no amounts were drawn under our committed bank facility of £60 million and we held £37.6 million of cash. We determined
that this £60 million bank facility was in excess of our business requirements. Consequently at the end of 2003 we entered into negotiations with a small group of lending banks and
agreed a £30 million, 364-day working capital facility with a six-month term-out option which became effective on February 18, 2004 to
replace the £60 million facility. We have applied some of our excess cash, including the net proceeds from the disposal of AIS, to make a partial prepayment on our notes to reduce
the cost of borrowing going forward. The partial prepayment of $14.4 million (£8.1 million) was made on February 18, 2004 and an associated make-whole
amount of $3.3 million (£1.8 million) has been incurred. This make-whole amount and the costs associated with this transaction were accrued in the 2003 financial year.
Further details on the bank facility can be found in "Item 10. Material Contracts".

In
our opinion these facilities provide sufficient liquidity for our present requirements. We believe that the present requirements of our existing businesses and future investment can
be met through funds generated internally, divestment of businesses and external financing we expect to be available to us.

At
December 31, 2003 net debt reduced significantly to £57.5 million from £161.8 million at the end of 2002 due to cash generation and the
proceeds of divestments of non-core businesses. The weak US dollar benefited the net debt position on translation by £6.1 million.

At
December 31, 2003 Spirent was well within its existing borrowing covenants. Net interest cover was 3.7 times (covenant ratio: greater than or equal to 2.5 times) and net debt
to EBITDA (Earnings before interest, taxation, depreciation, amortization and exceptional items) was 0.96 times (covenant ratio: less than or equal to 2.25 times).

At
December 31, 2003, gross borrowings amounted to £95.1 million, comprising £84.2 million of US dollar borrowings and
£10.3 million of euro borrowings with the balance in a variety of other currencies.

51

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At
December 31, 2003, we held £37.6 million of cash. Cash is held in the United Kingdom or in the United States. There are no material amounts subject to
restriction on repatriation to the
parent company. Dividends are remitted through to the Company as appropriate having considered the working capital needs of the individual subsidiaries. At December 31, 2003
£18.2 million is held in US dollars, £8.9 million in sterling and the balance in other currencies.

At
December 31, 2003 the Group's borrowings were composed of 57% of fixed rate debt. This excludes $72.1 million of notes which have been swapped into floating rates
through the use of an interest rate swap, callable at the counterparties' option at six-monthly intervals.

Spirent
continued to generate cash in all its operating groups during 2003. Operating cash flow of £68.2 million was 11% down on the previous year of
£76.9 million. Cash flow before acquisitions, disposals, equity dividends and financing, or free cash flow, before the cash cost of exceptional items, was higher at
£62.8 million compared with £44.1 million for 2002. The second half of the year was particularly strong in cash generation terms with
£39.9 million of free cash flow before exceptional items being generated.

Net
interest payments of £9.5 million, excluding the exceptional interest expense, were lower by £1.3 million compared to the previous year due to
lower levels of debt.

We
received tax refunds net of tax charges of £8.9 million in 2003 compared with a net tax payment of £4.2 million in 2002. Most of these refunds
fell into the second half of the year and were due to the carry back of prior year tax losses in the United States.

We
have substantially reduced our capital expenditure over the last two financial years and in 2003 spent a net £15.8 million compared with
£25.8 million in 2002. This rate of capital spending is well below the depreciation charge of £29.3 million. We are planning to increase the rate of capital
spending in 2004 to some £30.0 million largely in respect of renewing and increasing capacity in the Network Products group.

Off-Balance Sheet Arrangements

Spirent had no off-balance sheet arrangements at December 31, 2003.

Contractual Obligations

The following table summarizes the Group's contractual cash obligations and commitments at December 31, 2003, and the effect such obligations are expected
to have on liquidity and cash flows in future periods.

|                                                    |  | Payments due by period
|--------------------------------------------------- |  | ----------------------
|
|
|Senior notes                                        |  | 121.5                 
|Bank and other loans                                |  | 5.7                   
|Finance lease obligations                           |  | 16.6                  
|Operating lease obligations                         |  | 56.0                  
|UK defined benefit plans (see "Pension Fund" below) |  | 35.0                  
|Unfunded unapproved retirement benefit              |  | 3.7                   
|Capital commitments                                 |  | 1.5                   
|                                                    |  |                       
|Total                                               |  | 240.0                 
|                                                    |  |                       

52

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Pension Fund

The valuation of the defined benefit United Kingdom pension plans at April 1, 2003 showed a funding deficit of £50.7 million. In order
to comply with the minimum funding requirements Spirent will make annual pension contributions of £3.5 million commencing on July 1, 2004 and has increased the rate of
employer pension contribution from 13.4% to 16.0% of pay with effect from January 1, 2004.

As
previously discussed we have implemented in full FRS 17 "Retirement Benefits". The funding position at December 31, 2003 under FRS 17 has improved as a result of the
performance of equity markets since the valuation date and the deficit has reduced to £43.4 million.

Spirent
has a contractual liability, as disclosed in our annual reports, to pay Nicholas Brookes an unfunded unapproved retirement benefit ("UURB") as agreed when he joined the Company
in 1995. At December 31, 2003 the provision in respect of this UURB stood at £4.5 million.
Conditionally upon him remaining in employment until June 30, 2004, Nicholas Brookes and the Company have agreed that he will commute all of his pension entitlement under the UURB in exchange
for a lump sum payment of £3.7 million in cash, payable to him on July 1, 2004.

Foreign Exchange

See "Item 11. Quantitative and Qualitative Disclosures about Market Risk" for a description of our funding and treasury policies.

Currency
exposures arise from trading transactions undertaken by subsidiaries in foreign currencies and on the translation of the operating results and net assets of our overseas
subsidiaries.

Group
treasury, by means of forward foreign exchange contracts, carries out the majority of the transactional hedging activity.

Transaction
exposures of the operating results or net assets of our overseas subsidiaries are not actively hedged since these are accounting, not cash, exposures. To provide a partial
hedge, we match, as far as possible, the currency of our borrowings with the currency profile of operating results and net assets.

Details
of the currencies of borrowings are set out in "Liquidity and Capital Resources" above.

At
the year end the balance sheet translation exposure was 61% hedged (2002 70%).

During
the year the pound sterling strengthened against the US dollar, the main currency to which we are exposed.

Research and Development

With our continued commitment to innovation, investment in product development spend for 2003 was £66.0 million (2002
£77.7 million; 2001 £95.9 million) and represents 14% of turnover (2002 14%; 2001 12%).

In
2003, our Communications group devoted 24% of its turnover to product development, which amounted to £57.8 million (2002 £66.2 million: 2001
£73.0 million). A further £4.4 million (2002 £7.9 million: 2001 £14.5 million) was invested by our Systems group and
£3.8 million (2002 £3.6 million; 2001 £3.6 million) was spent by the Network Products group. Discontinued operations accounted for the remaining
£4.8 million of product development in 2001.

53

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Factors That May Affect Future Results

We operate globally in a dynamic and rapidly changing environment that involves numerous trends, risks and uncertainties. The risks and uncertainties facing our
business are discussed more fully in the section entitled "Item 3. Key InformationRisk Factors". The following section lists some of those trends that have occurred and that we expect to
have an effect on our business, financial condition or results of operations.



Inflation

Inflation has not had a significant impact on our results of operations during any of the periods reported.

Differences Between UK GAAP and US GAAP

The accounting policies under which the consolidated financial statements of our group are prepared conform with accounting principles generally accepted in the
United Kingdom, or UK GAAP. Such principles differ from those generally accepted in the United States, or US GAAP. The principal differences applicable to us relate to the accounting treatment of
goodwill, share-based compensation, pension costs, derivative financial instruments, goodwill on businesses sold and deferred taxation. The differences are described in more detail in Note 34
of Notes to the Financial Statements included

54

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elsewhere
in this annual report. The effect of these differences on profit attributable to shareholders is summarized below:

|                                                             |                                        | Year ended December 31 |     
|------------------------------------------------------------ | -------------------------------------- | ---------------------- | ----
|
|
|Loss attributable to shareholders in accordance with UK GAAP |                                        | (0.5                   | )   
|                                                             |                                        |                        |     
|Adjustments:                                                 |                                        |                        |     
|                                                             | Goodwill and other intangible assets   |                        | (0.7
|                                                             | Stock-based compensation               |                        | (0.9
|                                                             | Pension costs                          |                        | 2.2 
|                                                             | Profit on disposal                     |                        | (1.0
|                                                             | Vacation payroll costs                 |                        |    
|                                                             | Derivative financial instruments       |                        | (1.9
|                                                             | Income from interest in joint venture  |                        |    
|                                                             | Deferred taxation on above adjustments |                        | 2.8 
|                                                             |                                        |                        |     
|Total adjustments                                            |                                        | 0.5                    |     
|                                                             |                                        |                        |     
|Net income/(loss) in accordance with US GAAP                 |                                        |                       |     
|                                                             |                                        |                        |     

Newly Adopted Accounting Standards



We have implemented FRS 17 "Retirement Benefits" at December 31, 2003 to bring us in line with latest UK GAAP and to move towards the adoption of
International Financial Reporting Standards in 2005. Prior year amounts have been restated to reflect the change in accounting policy. Under FRS 17 profit before taxation for 2003 is
£0.6 million higher than it would have been under
Statement of Standard Accounting Practice ("SSAP") 24. Under FRS 17 £1.5 million of the pension charge for 2003 has been classified as other finance expense. Actuarial
changes are recorded in the statement of total recognized gains and losses. A pension fund liability net of deferred taxes at December 31, 2003 of £35.2 million (2002
£46.2 million) is reflected in the balance sheet.

The
Group has also implemented UITF Abstract 38 "Accounting for ESOP Trusts" which requires that the cost of own shares, previously reported as a fixed asset investment, be shown as a
deduction from shareholders' funds. A prior year adjustment has been made to reflect this change.



For purposes of the US GAAP reconciliations presented in Note 34 of Notes to the Financial Statements and above, the following new US accounting standards
have been implemented:

In
June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 143, "Accounting for Asset Retirement
Obligations" ("SFAS No. 143"). SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. SFAS No. 143 applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition,
construction, development and the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS No. 143 amends FASB Statement No. 19, "Financial
Accounting and Reporting by Oil and Gas Producing Companies", and is effective for fiscal years beginning after June 15, 2002. The adoption of the provisions of SFAS No. 143, effective
January 1, 2003, did not have a material impact on the financial position or results of operations of the Group.

55

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In
June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The adoption of the provisions of SFAS No. 146, effective for
exit or disposal activities initiated after December 31, 2002, did not have a material impact on the financial position or results of operations of the Group.

Impact of Recently Issued Accounting Standards Not Yet Adopted

UK GAAP

International Financial Reporting Standards

The Council of the European Union announced in June 2002 that listed companies would adopt International Financial Reporting Standards ("IFRS"), formerly
known as International Accounting Standards, from January 1, 2005. The adoption of IFRS will be first reflected in the Group's financial statements for the half year ending June 30, 2005
and the year ending December 31, 2005.

The
Company is in the process of assessing the impact the conversion to IFRS will have on the Group's financial statements and on its financial processes and systems.

It
is a complex task to assess the differences between current accounting policies and IFRS, not least since many of the IFRS have only recently been revised, and it is clear that a
number of accounting policies and some presentational aspects of the financial statements will continue to change. As a result it is not possible to quantify the impact at this time.

For
the Spirent Group, the main areas which the Company anticipates will be impacted by the adoption of IFRS will be the reporting and treatment of amortization and impairment of
goodwill and intangible assets, share based payments, deferred taxation and financial instruments.

US GAAP

Consolidation of Variable Interest Entities

In January 2003, the FASB issued Interpretation No. ("FIN") 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting
Research Bulletin No. 51, which requires a variable interest entity ("VIE") to be consolidated by its primary beneficiary. The primary beneficiary is the party that absorbs a majority of the
VIE's expected losses and/or receives a majority of the expected residual returns.

In
December 2003, the FASB revised FIN 46 ("FIN 46-(R)"), delaying the effective date for certain entities created before February 1, 2003 and
making other amendments to clarify the application of guidance. In anticipation of the adoption of FIN 46-(R), the Group has identified and evaluated arrangements that may be
subject to its provisions to determine whether they are VIEs.

The
Group has adopted FIN 46 for entities created subsequent to February 1, 2003 as of December 31, 2003 and will adopt FIN 46-(R) for the year
ending December 31, 2004. The adoption of FIN 46 did not result in the consolidation of any VIEs. The adoption of FIN 46-(R) is not expected to have a material impact
on amounts reported under U.S. GAAP.

56

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ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors

|Name                          |  | Date of birth |  | Position                                           
|----------------------------- |  | ------------- |  | ---------------------------------------------------
|John P. Weston CBE(2)(3)      |  | 8.16.51       |  | Chairman of the Board; Non-Executive               
|Nicholas K. Brookes(3)        |  | 5.19.47       |  | Chief Executive                                    
|My E. Chung                   |  | 8.4.52        |  | Executive Director; Group President, Communications
|Eric G. Hutchinson            |  | 5.31.55       |  | Finance Director                                   
|Marcus Beresford CBE(1)(2)(3) |  | 5.15.42       |  | Non-Executive                                      
|Frederick D'Alessio(2)(3)     |  | 1.4.49        |  | Non-Executive                                      
|Göran Ennerfelt(3)            |  | 3.6.40        |  | Non-Executive                                      
|Andrew F. Given(1)(2)(3)      |  | 11.14.47      |  | Non-Executive                                      
|Richard M. Moley(2)(3)        |  | 3.10.39       |  | Non-Executive                                      
|James A. D. Wyness(1)(2)(3)   |  | 8.27.37       |  | Non-Executive                                      

---

Non-Executive
Directors are appointed for an initial fixed three year term of office upon expiry of which the Board will consider renewal of appointment. In addition,
directors are subject to retirement by rotation at least every three years, in accordance with Spirent's Articles of Association. Executive Directors and members of senior management do not have fixed
terms of office.

John P. Weston CBEwas appointed Non-Executive Chairman of Spirent in November 2002. He is also Chairman of the
Nomination Committee and a member of the Remuneration Committee. Mr. Weston was Chief Executive of BAE SYSTEMS from 1998 to 2002. During his tenure the business grew from an organization
located mainly in the United Kingdom to an international group with multi-billion pound sales. He joined British Aircraft Corporation, later British Aerospace, in 1970 and by 1992 had been appointed
Group Managing Director of British Aerospace Defence Businesses. Mr. Weston is also Chairman of Acra Controls, a small Dublin based company,
Inbis plc, a design engineering consultancy, and Deputy Chairman of the University for Industry. Mr. Weston was awarded the CBE in 1993, is a member of the President's Committee of the CBI,
Chairman of the European Group of the CBI, a lifetime Vice President of the Royal United Services Institute, a Fellow of the Royal Academy of Engineering, a Fellow of the Royal Aeronautical Society, a
Fellow of the Royal Society for Science, Arts and Commerce, a Companion of the Institute of Management and a Freeman of the City of London. He was educated at Kings School, Worcester and has an
engineering degree from Trinity Hall, Cambridge. Mr. Weston's three year term of office will expire on November 7, 2005.

Nicholas K. Brookesjoined Spirent as Deputy Chief Executive in 1995 and was appointed Chief Executive in 1996. Mr. Brookes is a
member of the Nomination Committee. Previously, Mr. Brookes was a Vice President of Texas Instruments Inc. and President of its Materials & Controls Group, based in the United
States. He joined Texas Instruments in Spain in 1975 and in 1977 transferred to the United States and held several assignments within manufacturing, marketing and personnel. In 1980 he became Managing
Director of Texas Instruments Canada and in 1986 was appointed Group Vice President responsible for Texas Instruments' operations in Europe. He is the senior independent non-executive
director of De La Rue plc and with effect from July 22, 2004 will take over as non-executive Chairman of that company. In 1999 he was appointed a non-executive director of
Corporacion Financiera Alba S.A. Mr. Brookes is a Fellow of the Institute of Chartered Accountants in England and Wales. Mr. Brookes intends to retire as Chief Executive and as a Director of
the Company at the end of June 2004.

57

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My E. Chungjoined the Board in May 2001. He joined Spirent in July 1998 as Group President, Communications, a position he
still holds. Previously, he was Division President of Telecommunications Techniques Corporation ("TTC"). Having joined TTC in 1987 as National Sales Manager, Mr. Chung later became Director of
Sales and Vice President of US Sales. In 1992, he became Division President with responsibility for the Network Services Division focusing on products used in the installation and maintenance of
networks at customer premises. His responsibilities included product development, marketing, manufacturing and accounting. He was involved in setting TTC's strategic direction through a number of
strategic partnerships and acquisitions. Mr. Chung's earlier career was spent at Hewlett Packard, where he spent 11 years in sales and sales management. Mr. Chung was awarded a
BSEE from the New Jersey Institute of Technology in 1974.

Eric G. Hutchinsonwas appointed Finance Director on January 1, 2000. He joined Spirent in 1983 and was appointed Chief Accountant
in 1987. In 1997, Mr. Hutchinson was appointed Head of Corporate Accounting with responsibility for all financial reporting and control within Spirent. Mr. Hutchinson was appointed a
non-executive director of Trifast plc on June 21, 2004. Mr. Hutchinson gained a BA with honors from Leicester University and undertook post-graduate research in Contemporary
History at Trinity College, Oxford. He is a Fellow of the Chartered Association of Certified Accountants.

Marcus Beresford CBEwas appointed to the Board in 1999. Mr. Beresford is Chairman of the Remuneration Committee and is a member of
the Audit and Nomination Committees. He was the Chief Executive of GKN plc from 2001 to 2002 and has over 30 years' managerial experience in the automotive and electronic industries.
Mr. Beresford is also non-executive Chairman of Ricardo plc, a director of the Engineering Technology Board and a non-executive director of Cobham plc. He graduated with
a MA Mech. Sc. from St Johns College, Cambridge and is a Fellow of the Institute of Electrical Engineers. Mr. Beresford's three year term of office will expire on May 21, 2005.

Frederick D'Alessiowas appointed to the Board in January 2004. Mr. D'Alessio is a member of the Nomination and Remuneration
Committees. He has over 30 years' experience in the telecommunications industry, most recently holding the position of President of Advanced Services at Verizon Communications Inc. Since
2002 he has been a general partner and founder of Capitol Management Partners, a consultancy for early stage communications companies, and currently sits on the boards of three emerging
telecommunications companies in the United States, SS8 Networks, Inc., Aware, Inc. and Hatteras Networks, Inc. Mr. D'Alessio holds an MBA from the Rutgers University, New
Jersey, a MS in Engineering and a BS in Electrical Engineering both from the New Jersey Institute of Technology. Mr. D'Alessio's three year term of office will expire on January 26,
2007.

Göran Ennerfeltwas appointed to the Board in 2000 following completion by the Company of the acquisition of Hekimian
Laboratories Inc. Mr. Ennerfelt is a member of the Nomination Committee. Mr. Ennerfelt became President and Chief Executive Officer of Axel Johnson AB, a member of the Axel
Johnson Group (as was Hekimian Laboratories Inc. before its acquisition) in 1979 having joined the company in 1966. He is Chairman of the Swedish Federation of Trade, the Board of Trustees of
SNS (Center for Business and Policy Studies) and the Stockholm Institute of Transition Economics at the Stockholm School of Economics. He is vice Chairman of the Confederation of Swedish Enterprise.
He also holds Board memberships of Svenska Handelsbanken and the Swedish National Committee of the International Chamber of Commerce. Mr. Ennerfelt's three year term of office will expire on
December 19, 2006.

Andrew F. Givenwas appointed to the Board in October 2003 and is the current Chairman of the Audit Committee and a member of the
Nomination and Remuneration Committees. He was formerly Deputy Chief Executive of Logica plc having previously served as Group Finance Director. He has substantial experience of international high
technology markets and companies, particularly in telecommunications. He is also the senior independent non-executive director and Chairman of the

58

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Audit
Committees of both VT Group plc and Spectris plc. Mr. Given holds a Philosophy, Politics and Economics degree from Oxford University. Mr. Given's three year term of office will
expire on October 9, 2006.

Richard M. Moleywas appointed to the Board in 2000. Mr. Moley is a member of the Remuneration and Nomination Committees. He was
previously a main board director and Senior Vice President of
Cisco Systems, from where he retired in 1997. He currently serves as a non-executive director of a number of high technology companies in the United States including Linear Technologies
Corporation, Echelon Corporation, Calient Systems Inc. and Polaris Networks, Inc. Mr. Moley was a non-executive director of Netcom Systems, Inc. until we
acquired Netcom in 1999. Mr. Moley holds a BSc in Electrical Engineering from Manchester University, a MSEE from Stanford University and a MBA from Santa Clara University. Mr. Moley's
three year term of office will expire on April 1, 2006.

James A. D. Wynesswas appointed to the Board in 1979 and was appointed as the senior independent Non-Executive Director in
1999. Mr. Wyness is a member of the Audit, Remuneration and Nomination Committees and during the year retired as Chairman of the Audit Committee. Following the death of the Company's previous
Chairman, Mr. Wyness was appointed as the acting Chairman between May 2002 and November 2002. Mr. Wyness was previously Managing Partner and then Senior Partner of Linklaters, our legal
advisers in the United Kingdom, from which he retired in 1997. He is a non-executive director (formerly Chairman) of Saracens Limited. Mr. Wyness graduated MA LLB in law from
Cambridge University and is a member of The Law Society. Mr. Wyness' three year term of office will expire on January 1, 2005.

During
the year ended December 31, 2003, Mr. Paul Cheng retired as a Non-Executive Director.

Senior Management

We consider our senior management to be those persons who are members of our Operations Management Team. The names of these persons, their dates of birth and
their positions with us, are listed in the following table:

|Name                   |  | Date of birth |  | Position                                                         
|---------------------- |  | ------------- |  | -----------------------------------------------------------------
|Nicholas K. Brookes    |  | 5.19.47       |  | Chief Executive                                                  
|My E. Chung            |  | 8.4.52        |  | Executive Director; Group President, Spirent Communications      
|Paul R. Eardley        |  | 9.13.60       |  | Company Secretary and General Counsel                            
|Eric G. Hutchinson     |  | 5.31.55       |  | Finance Director                                                 
|W. Barry Phelps        |  | 3.7.47        |  | President, Performance AnalysisBroadband, Spirent Communications
|Stephen J. Salmon      |  | 8.16.49       |  | Group President, Network Products                                
|James H. Schleckser    |  | 9.16.62       |  | President, Service AssuranceBroadband, Spirent Communications   
|Geoffrey P. L. Zeidler |  | 12.23.62      |  | President, Europe, Spirent Communications                        

Biographical
information for Mr. Brookes, Mr. Chung and Mr. Hutchinson has been provided above, as they are also members of our Board. None of these individuals has
a fixed term of office.

Paul R. Eardleywas appointed Company Secretary in 2001. He joined Spirent as Company Lawyer in 1998. He was appointed General Counsel in
2001. Prior to joining Spirent, Mr. Eardley spent five years as a partner in the law firm DLA and before that six years with the law firm Linklaters. Mr. Eardley holds a LLB with honors
from the University of Manchester and is a solicitor.

W. Barry Phelpsjoined Spirent in 1999, following its acquisition of Netcom Systems, Inc. He was promoted to President, Telecom
Test Division (now known as Performance Analysis) in 2000, he

59

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became
Executive Vice President in 2002 and then President, Performance AnalysisBroadband, Spirent Communications in April 2003. Mr. Phelps is also actively involved in
corporate initiatives that enhance the development and implementation of the overall vision and strategy for Spirent Communications. Mr. Phelps has over 30 years of experience in
financial and business management for high technology companies. Prior to his position as Division President, Mr. Phelps was President and Chief Executive Officer of Netcom Systems, and
Chairman and Chief Executive Officer of MICOM Communications. Mr. Phelps holds a BSc in Mathematics from St. Lawrence University and an MBA from the University of Rochester, N.Y.

Stephen J. Salmonjoined the Group in 1973 as Special Projects Accountant. In 1985 he was promoted to Group Financial Controller and
became a Group General Manager in 1995. In 1997 he became Group President, Cable Management (now Network Products), holding responsibility for the Network Products businesses worldwide. Having
qualified as a chartered accountant at 21, Mr. Salmon joined Courtaulds in 1970, where he worked until he joined the Group.

James H. Schleckserjoined the Group in 1998, when the company he was running was acquired by Spirent. He is currently responsible for the
globalization, growth and strategic direction of the Service Assurance division of Spirent Communications. Since joining he has served as a Group Vice President of Sensing Solutions and subsequently
as Vice President of Business Development for Spirent Communications. He has nearly 20 years' experience in multiple industries with Rogers Corporation, The J.M. Ney Company and High Voltage
Engineering and now Spirent. In those companies he held roles in engineering, sales, marketing and general management. Mr. Schleckser holds a bachelors degree in chemical engineering from the
University of Delaware and a MBA from the University of Connecticut.

Geoffrey P. L. Zeidlerwas appointed President, Europe for Spirent Communications in 2000. He has strategic responsibility for developing
both the Performance Analysis and Service Assurance divisions' businesses in Europe. Mr. Zeidler joined us in 1997 in the newly created position of Director of Business Development. His primary
responsibilities were to lead and drive forward our acquisition program and to develop further our corporate and group business strategy. Previously Mr. Zeidler was a Director of Corporate
Finance at Robert Fleming & Co. leading the technology and industry specialist team. Mr. Zeidler has both a MA and a MSc in Manufacturing Engineering from Cambridge University.

The Board of Directors and Committees of the Board

The Board comprises a Non-Executive Chairman, six further Non-Executive Directors and three Executive Directors. The roles of Chairman and
Chief Executive are separate with a clear division of responsibility between them which is set out in writing and agreed by the Board.

The
Board requires that all Non-Executive Directors are independent in character and judgement and the independence of each director is reviewed at least annually. As
Göran Ennerfelt has a material notifiable interest in our share capital referred to below (see "Shares Held by Directors and Senior Management"), the Board has concluded that he is not
to be considered as independent of the management of the Company. James Wyness is the senior independent Non-Executive Director.

The
Non-Executive Directors below (each appointed for an initial three year term) have a wide range of skills and experience which helps to ensure that independent judgment
is exercised on issues such as strategy and performance and also that a proper balance of power is maintained for full and effective control. The Non-Executive Directors (in particular the
Chairman) devote sufficient time and attention as necessary in order to perform their duties. Other professional commitments of the Non-Executive Directors are provided in their
biographies (see above).

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The
size, balance and composition of the Board supports the Board's role, which is to determine the long term direction and strategy of the Group, monitor the achievement of business
objectives, ensure that good corporate governance is practised and ensure that the Group meets its responsibilities to its shareholders, customers and other stakeholders. The Board is also responsible
for ensuring that appropriate processes are in place in respect of succession planning for appointments to the Board and to senior management positions.

It
is the policy of the Board to hold at least six Board meetings a year, including a meeting to review and approve long term strategy. There were eight Board meetings in 2003. Full
attendance of the Board is expected at Board meetings and in 2003 all directors attended all meetings except Marcus Beresford and Paul Cheng (who were absent for one meeting each) and
Göran Ennerfelt (who was absent for two meetings). The reasons for the absences were due to either unavoidable changes in the Board meeting calendar at short notice or due to the
relevant director being ill. Where the director was absent, full documentation for the meeting was issued and post meeting briefings were provided as appropriate.

A
schedule of matters specifically reserved for the Board's decision has been adopted while certain other responsibilities have been delegated to four standing committees with clearly
defined terms of reference which, together with the composition of each Committee, are reviewed annually. Each Committee is provided with sufficient resources so that it may undertake its duties.
Copies of the terms of reference for the Audit, Remuneration and Nomination Committees are available upon request to the Company Secretary (who is located at the Company's Registered Office) and are
also available on the Company's website (www.spirent.com).

To
ensure good communication between the Board and each Committee, the Company Secretary is the appointed Secretary to all standing Board Committees.

All
directors receive appropriate training and induction upon appointment and subsequently as necessary. Non-executives enhance their understanding of the Group through
regular business sector presentations, the receipt of monthly reports from the Chief Executive and site visits.
The Chairman and the Executive Directors are responsible for ensuring that the Board receives accurate and clear information in a timely manner for Board meetings and on other occasions.

The
Board has established a process to evaluate the performance of the Board, its Committees and individual directors. The evaluation process includes self-assessment by the
Board together with the assistance of an external adviser. Key processes include assessments of the:



Key
outputs of the process will be used to maintain areas which are working well and to address any weaknesses.

In
addition to the evaluation process, the Chairman holds regular meetings with the other Non-Executives at which Executive Directors are not present. A process has also been
established where the senior independent Non-Executive Director will hold, at least annually, a meeting of the other Non-Executives at which the Chairman is not present to appraise the
Chairman's performance.

We
have arranged insurance cover in respect of legal action against our directors and certain other officers. The directors also have access to the advice and services of the Company
Secretary (and, if necessary, access to further independent advice, at the Company's expense), who advises the Board in

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respect
of its procedures, directors' duties and responsibilities, corporate governance and all compliance matters. The appointment and removal of the Company Secretary is a matter reserved to the
Board.

TheAcquisitions and Divestments Committeeis comprised of Mr. Brookes (Chairman), Mr. Hutchinson, Mr. Chung and any
two Non-Executive Directors. The Committee is primarily concerned with the evaluation and approval of acquisitions and divestments as delegated to it by the Board.

TheAudit Committeeis comprised of Mr. Given (Chairman), Mr. Beresford and Mr. Wyness (Chairman until
December 31, 2003). Mr. Weston and Mr. Ennerfelt retired from the Committee during 2003. Mr. Given is the Audit Committee member with recent, significant and relevant
financial experience.

During
2003, the Committee held five meetings and there was full attendance by Committee members with the exception of Marcus Beresford and Göran Ennerfelt (each of whom
was absent for one meeting). At all meetings the external auditors, the Chief Executive, the Finance Director, the Head of Internal Control and the Head of Financial Reporting are in attendance. Other
directors who are not members may attend at the invitation of the Committee Chairman. The Committee also meets with the external auditors in private for part of each meeting.

The
Committee reviews all published accounts and post audit findings before their presentation to the Board, focusing in particular on accounting policies, compliance, management
judgment and estimates. It also monitors the Group's internal control and risk management regime (including the effectiveness of the internal audit function) and financial reporting. Any significant
findings or identified weaknesses are closely examined so that appropriate action can be taken, monitored and reported to the Board.

The
Audit Committee advises the Board on the appointment of external auditors and on the scope, results and cost effectiveness of both audit and non-audit work. The Committee
has adopted a policy which prohibits certain types of non-audit work that may be performed by the Company's auditors. Other non-audit work which may be provided by the auditor
is put to tender where considered appropriate. Prior to any non-audit work being awarded to the auditors, consideration is also given to costs, quality of service and efficiency. The Audit
Committee also assesses the objectivity of the auditors' services so that an independent professional relationship is maintained. Details of the auditors' remuneration for 2003 appear in Note 5
of Notes to the Financial Statements.

The Nomination Committeeis comprised of Mr. Weston (Chairman), all the other Non-Executive Directors and
Mr. Brookes. During 2003, the Committee held two meetings at which there was full attendance by Committee members. It is responsible for reviewing the composition and structure of the Board and
for identifying and recommending candidates for executive and non-executive positions, based on the required role and capabilities which have been specified for the appointment. Executive
search consultants are used by the Committee to assist this process as appropriate.

TheRemuneration Committeeis comprised of the independent Non-Executive Directors, that is Mr. Beresford (Chairman),
Mr. D'Alessio, Mr. Given, Mr. Moley, Mr. Weston and Mr. Wyness. During 2003, the Committee held four meetings and there was full attendance by Committee members with
the exception of Mr. Beresford and Mr. Cheng (each of whom was absent for one meeting). Other directors who are not members may attend at the invitation of the Committee Chairman.

The
Committee is principally concerned with making recommendations to our Board on the framework of Executive Directors' remuneration and its cost and also with determining the specific
remuneration package of each Executive Director and members of senior management, including incentive arrangements, pension rights and compensation payments.

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In
addition to the standing committees described above, the Chief Executive chairs theOperations Management Team. This is a monthly
meeting of the senior management and, following each meeting, the Chief Executive issues a summary report to the Board. The Operations Management Team develops and oversees corporate strategy and
reviews annual business plans, budgets and operational and financial performance. It agrees and monitors policies and other matters not reserved to the Board.

United States Corporate Governance Compliance

We have our primary listing on the London Stock Exchange. As we have a secondary listing on the New York Stock Exchange ("NYSE"), we are also subject to certain
United States legislation. Following the introduction of the Sarbanes-Oxley Act 2002 in the United States, the NYSE introduced new corporate governance standards. Companies which do not have their
primary listing on the NYSE (such as Spirent) are permitted to follow home country practice (i.e. the United Kingdom Listing Rules and the Combined Code on Corporate Governance, which provide the
applicable corporate governance standards for companies with a primary listing on the London Stock Exchange) in lieu of NYSE's standards. Generally, NYSE's corporate governance standards do not vary
significantly from those
adopted in the United Kingdom, however, NYSE rules require any significant variances to be disclosed. Following a review of the NYSE corporate governance standards, the following are considered
significant variances to home country practice:



The
NYSE corporate governance rules also contain requirements on the role and composition of audit committees. Companies who do not have their primary listing on the NYSE will be
required to comply with the audit committee requirements by July 2005 and the Board is currently reviewing these requirements. See Items 16A, 16B and 16C also for further
information relating to corporate governance matters.

Compensation of Directors and Senior Management

Our administrative, supervisory and management personnel consists of the same group of people we refer to as our senior management.

The
aggregate compensation paid, including benefits in kind, by us and our subsidiaries to all 15 persons who were members of our Board and senior management during the year ended
December 31, 2003, as a group (including Mr. Cheng who retired as a director at the end of 2003), for services in all capacities for that year, totaled £2.9 million.

The
total amounts set aside or accrued by us or our subsidiaries to provide pension, retirement or similar benefits to the members of our Board and senior management were
£0.6 million.

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The following table sets forth the total compensation for 2003 of each of our directors holding office during the year.

|                        |  | Remuneration
and fees |  | Benefits |  | Bonus |  | Total
|----------------------- |  | --------------------- |  | -------- |  | ----- |  | -----
|
|Executive Directors     |  |                       |  |          |  |       |  |      
|N. Brookes              |  | 500.5                 |  | 44.2     |  | 200.0 |  | 744.7
|M. Chung(1)             |  | 213.9                 |  | 18.7     |  | 42.7  |  | 275.3
|E. Hutchinson           |  | 250.5                 |  | 23.2     |  | 125.0 |  | 398.7
|Non-Executive Directors |  |                       |  |          |  |       |  |      
|M. Beresford            |  | 37.0                  |  |         |  |      |  | 37.0 
|P. Cheng                |  | 35.0                  |  |         |  |      |  | 35.0 
|G. Ennerfelt            |  | 30.0                  |  |         |  |      |  | 30.0 
|A. Given(2)             |  | 8.5                   |  |         |  |      |  | 8.5  
|R. Moley                |  | 35.0                  |  |         |  |      |  | 35.0 
|J. Weston               |  | 150.0                 |  |         |  |      |  | 150.0
|J. Wyness               |  | 37.0                  |  |         |  |      |  | 37.0 

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Executive Directors' Remuneration Policy

The Company's remuneration policy, which has not changed during 2003 and will apply for 2004, is to:



The
Remuneration Committee has developed remuneration packages which fit this policy on an integrated and total reward basis. This is achieved by providing base salary plus benefits,
pension entitlements, an annual short term incentive bonus and discretionary awards under the Company's share incentive plans, the latter two elements of which are performance-related. In normal
circumstances, it is the Remuneration Committee's policy that at least 50% of an executive director's target total annual remuneration package is based on performance-related elements. The Company's
recent history of share price volatility and its consequent impact on the "value" of the long-term incentive component of the total remuneration package means in practice that the actual
balance of performance versus non-performance elements can vary from year to year. In designing the performance-related elements of remuneration, the Remuneration Committee has followed
the provisions set out in Schedule A to the Combined Code on Corporate Governance (the applicable corporate governance standard for companies such as Spirent with a primary listing on the
London Stock Exchange).

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In
subsequent years, the Remuneration Committee will continue to monitor and review the level and constituent elements of remuneration packages and will consult with its major
institutional shareholders as appropriate with regards to any proposed changes.

Executive Directors' Base Salary and Benefits

The level of base salary is reviewed and established annually by reference to both the performance and responsibilities of the individual and prevailing market
rates for executives of similar status in comparable companies. When reviewing salaries, the Remuneration Committee is mindful of and sensitive to the wider scene, especially regarding employees' pay
and employment conditions elsewhere in the Group. No increase in salary was awarded to the executive directors during 2003.

Pension
and other benefits have regard to competitor practice in the home country of each executive. Benefits include a company car or car allowance, healthcare, disability and life
insurance coverage.

Executive Directors' Annual Incentive Bonus Scheme

The Remuneration Committee reviews annual incentive bonus scheme targets and performance conditions each year to incentivize the executive to meet the
short-term strategic objectives of the Company.

In
respect of 2003, Mr. Brookes and Mr. Hutchinson participated in an annual scheme which, consistent with United Kingdom market practice and levels, was structured around a
formula providing for an on-target performance bonus of 50% of base salary with a maximum of 100% of base salary for exceptional performance. Performance was measured against targets in
the Company's headline earnings per share ("EPS") and other financial objectives (accounting for 80% of any bonus) and also against the achievement of certain personal and strategic objectives
determined by the Remuneration Committee (accounting for 20% of any bonus). During the year, Mr. Brookes and Mr. Hutchinson earned annual bonuses equivalent to 40% of salary and 50% of
salary, respectively.

My
Chung (who is based in the United States) also participates in a similar annual incentive bonus scheme. Consistent with United States market practice and levels, for 2003, he had a
target bonus opportunity of 50% with a maximum opportunity of 200% of salary for exceptional performance. Performance was measured against profit targets for the Communications group, subject to
separate threshold performance in respect of other appropriate financial measures (accounting for 90% of any bonus) and also against other personal and strategic objectives as determined by the
Remuneration Committee (accounting for 10% of any bonus). During the year, Mr. Chung earned an annual bonus equivalent to 20% of salary.

Executive Directors' Pensions

All three executive directors participate in Group pension plans as described below.

The
executives in the United Kingdom participate in the non-contributory funded senior executive level of the Spirent Group Staff Pension and Life Assurance Plan (the "Staff
Plan"). This defined benefit arrangement will provide them at normal retirement age of 60, and dependent on length of service, with a pension of up to two-thirds of salary, subject to
Inland Revenue limits and other statutory conditions. It also provides for dependants' pensions and a cash lump sum on death. Pensionable salary is the director's base salary only.

The
Company undertook to Nicholas Brookes, whose salary for approved pension purposes under the Staff Plan is capped by the provisions of the Finance Act 1989 (£99,000 and
£97,200 for the tax years 2003/2004 and 2002/2003, respectively), that his benefit entitlements shall be as if the "cap" did

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not
apply. As Eric Hutchinson was a member of the pension plan prior to 1989, his pension entitlements are not subject to the capping provisions of the Finance Act 1989.

Nicholas
Brookes has informed the Board that he intends to retire as Chief Executive and as a director of the Company as at the end of June 2004. The Company has a contractual
liability disclosed in previous annual reports, to pay Mr. Brookes an unfunded unapproved retirement benefit ("UURB") as agreed when he joined the Company in 1995. At December 31, 2003
the provision in respect of this UURB stood at £4.5 million. Conditionally upon him remaining in employment until June 30, 2004, Mr. Brookes and the Company have
agreed that he will commute all of his pension entitlement under the UURB in exchange for a lump sum of £3.7 million in cash, payable to him on July 1, 2004.

The
pensions earned by the United Kingdom executives during the year under the Staff Plan are given in Note 10 of Notes to the Financial Statements.

My
Chung participates in the Spirent International Inc Retirement and Profit Share Plan, a defined contribution plan approved under section 401(k) of the United States Internal
Revenue Code (the "Code"). The Company makes matching contributions of up to 2% and is permitted to make discretionary profit sharing contributions of up to 8% of the maximum compensation permitted
for
these purposes under the Code. Under the IR Code, the maximum annual amount of an employee's compensation that can be taken into account in determining the employer's contribution is $200,000 in
respect of 2003. The normal retirement age under this plan is 65 and, consistent with local practice, bonuses are pensionable for all participating employees in the United States, including My Chung.

Executive Directors' Medium and Long Term Incentive Plans

The Remuneration Committee approves the grant of all options under the Executive Share Option Scheme ("ESOS") and the SSOP in which Executive Directors
participate (see below). All grants are subject to prior satisfactory individual performance and grant amounts vary with the individual's potential impact on longer term business results.

The
executives are also eligible to participate in the Company's all employee share plans either in the United Kingdom or in the United States, as appropriate. Further details are
provided in Note 31 of Notes to the Financial Statements.

Executive Share Option Scheme

All ESOS grants made after May 11, 2000 to Executive Directors are subject to enhanced performance conditions on exercise which the Remuneration Committee
believes represent challenging criteria that align the interests of executives to that of shareholders. The performance conditions require the Company's EPS to increase over a period of three
consecutive financial years within a range of 9% (minimum performance for 25% option vesting) and 15% (for 100% option vesting), with a sliding scale between these points. In addition, performance
testing over the ten-year option term is measured from a base point fixed at the date of grant. Performance will be tested on the third anniversary of grant and, if the target conditions
at that time have not yet been met in full, performance will be tested again on the fourth and fifth anniversaries of grant only, with the performance hurdle being increased in proportion to the
extended period. The Remuneration Committee's current grant policy is to provide each Executive Director with the opportunity to receive options up to an annual limit of 3 times base salary, however
the size of grant each year will have due regard to prevailing relevant circumstances.

ESOS
grants made before May 11, 2000 to Executive Directors are subject to a performance condition which was in line with prevailing market practice at that time. The performance
condition on exercise is that over a period of three consecutive financial years, there has been an increase in the Company's EPS which is at least 6% more than the increase in the Retail Price Index
over the same

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period.
The same performance condition is tested on the third anniversary of grant and, if the performance condition has not been met at that time, at each subsequent anniversary of grant until the
expiry of the option (on the tenth anniversary of grant).

Spirent Stock Option Plan

The SSOP was approved by shareholders in May 2000 for Communications group employees (including My Chung, an Executive Director) and authority to
continue granting options expired following the conclusion of the Company's Annual General Meeting in May 2004. The Company held an Extraordinary General Meeting on June 23, 2004 at
which proposals were approved to renew and amend the SSOP so that future awards can be granted as Stock Appreciation Rights.

In
addition to participating in the ESOS, with due regard to the competitive recruitment and retention practices in the United States to which the Company is exposed, the Committee has
concluded that My Chung should also continue to participate in the SSOP. This plan is not open to current United Kingdom Executive Directors. Options normally vest over four years, with 25%
exercisable on the first anniversary of the date of grant, and thereafter in equal proportions on a monthly basis. In line with prevailing market practice and as previously approved by shareholders,
no pre-exercise performance conditions attach to options granted under the original SSOP. Under the renewed and amended SSOP, however, the exercise of further grants awarded to Executive
Directors and Communications group employees who are members of the Operations Management Team will be subject to the prior achievement of certain growth targets in the Company's earnings per share.

In
normal circumstances, Mr. Chung will have the opportunity to receive an annual grant of up to 4.5 times base salary under the SSOP (subject to prevailing relevant circumstances), in
addition to any ESOS award. The Remuneration Committee reviews the most appropriate balance of awards between ESOS and SSOP options for Mr. Chung prior to any grant.

Long Term Share Purchase Plan ("LTSPP")

During 2003, the Executive Directors had participated in the LTSPP, however, all remaining performance units under the LTSPP lapsed without value on
December 31, 2003. The LTSPP was introduced in 1999 and only Executive Directors and members of the Operations Management Team were eligible to participate. All grants under the LTSPP were
required to meet the minimum performance conditions of (i) a real (i.e. above inflation) growth in the Spirent share price of at least 5% per annum, and (ii) a total shareholder return
(i.e. capital appreciation, dividends paid, plus any other issues or distributions) performance ranked above the 60th percentile against a comparator group.

Further
information on the ESOS, SSOP and LTSPP is provided in Note 31 of Notes to the Financial Statements.

The
Remuneration Committee believes that the grant structure, performance conditions and grant levels under the ESOS and SSOP represent the most appropriate medium to
long-term incentive arrangements which will enable Spirent to compete for, motivate and retain the highest caliber executives which it needs to drive the business forward and increase
shareholder value. In order to assist further in aligning the interests of executives and shareholders, shareholding guidelines exist which encourage Executive Directors and certain senior managers to
build up a meaningful level of shareholding of up to two years' salary over a period of five years.

Executive Directors' Service Contracts

The Remuneration Committee's policy is to offer service contracts which provide for no more than 12 months' notice from the Company in normal
circumstances.

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Nicholas
Brookes entered into a service contract on May 5, 1995 (which was amended on January 1, 2003) which currently has an unexpired term of 34 months and is
terminable at any time by either party on 12 months' notice. However, as previously reported, Mr. Brookes intends to retire as Chief Executive and as a director of the Company at the end
of June 2004. Eric Hutchinson entered into a service contract on December 13, 1999 which currently has an unexpired term of 131 months and is terminable at any time by either
party on 12 months' notice. My Chung entered into a service contract on May 9, 2001 which currently has an unexpired term of 157 months and is terminable at any time by the
Company on 12 months' notice and by Mr. Chung on six months' notice. All contracts contain provisions
for the Company to make payment in lieu of notice and for removal of the director for poor performance or misconduct without compensation. The Company will seek to apply practical mitigation measures
to any payment of compensation on termination, taking into account all relevant circumstances. Save as otherwise disclosed, there are no other benefits or compensation payable to a director upon
termination of employment.

Executive Directors' External Appointments

Spirent recognizes the mutual benefit for Executive Directors to serve as non-executives of companies in other industries outside the Group. Such
appointments are subject to prior Board approval and, with effect from January 1, 2003, any related fee entitlements are for the account of the executive concerned. Mr. Brookes serves as
a non-executive director of De La Rue plc and Corporacion Financiera Alba S.A. and during 2003 received annual fees arising from these appointments of £31,000 and
€30,050 (approximately £20,720), respectively.

Non-executive Directors' Remuneration

The remuneration of Non-Executive Directors is determined by the Board following a recommendation by the Chief Executive and after consultation with
independent external advisers concerning competitive market practice. The Company's remuneration policy (which has not changed during 2003 and will apply for 2004) with regards to
Non-Executive Directors is to pay fees which are in line with market practice. No fee increase was awarded during 2003.

Non-Executive
Directors are not eligible to participate in bonus or share incentive arrangements and their service does not qualify for pension purposes or other benefits. No
element of their fees is performance-related. Non-Executive Directors do not have service contracts and are normally appointed, subject to the Company's Articles of Association, for an
initial three year term. Any subsequent extension to the term by the Board is not automatic and is subject to prior recommendation of the Nomination Committee.

Further
information on Non-Executive Directors' fees is provided in Note 10 of Notes to the Financial Statements.

Employees

As of December 31, 2003, we employed 4,498 employees, including 2,768 employees in manufacturing and product development, 1,310 selling and distribution
employees and 420 administrative employees. As of the same date, 1,114 of our employees were located in the United Kingdom and 2,071 were located in North America. The remainder were based in other
locations in continental Europe, South America, Asia, Africa and Australasia. We are predominantly non-unionized with good labor relations and have no history of significant disputes. As
at December 31, 2002 we employed 4,500 employees. As at December 31, 2001 we employed 5,443 employees.

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Shares Held by Directors and Senior Management

The following table sets forth, as of June 1, 2004, the beneficial and non-beneficial interests held in respect of the number of our shares by
persons who were members of our Board of Directors and senior management. Other than Mr. Ennerfelt (see below), no director or other member of our senior management has an interest in more than
1% of our shares.

|                                                  |  | Beneficial
interests |  | Non-beneficial
interests |  | Options and
rights to
acquire
Ordinary shares |  | Rights
under the
Stock
Appreciation
Rights Plan
|------------------------------------------------- |  | -------------------- |  | ------------------------ |  | --------------------------------------------- |  | -----------------------------------------------
|Executive Directors                               |  |                      |  |                          |  |                                               |  |                                                
|N. Brookes                                        |  | 2,973,398            |  |                         |  | 3,602,135                                     |  |                                               
|M. Chung(1)                                       |  | 75,721               |  |                         |  | 3,127,348                                     |  | 42,740                                         
|E. Hutchinson                                     |  | 738,381              |  |                         |  | 2,154,447                                     |  |                                               
|Non-Executive Directors                           |  |                      |  |                          |  |                                               |  |                                                
|M. Beresford                                      |  | 65,225               |  |                         |  |                                              |  |                                               
|F. D'Alessio                                      |  | 28,000               |  |                         |  |                                              |  |                                               
|G. Ennerfelt(2)                                   |  | 119,000,000          |  |                         |  |                                              |  |                                               
|A. Given                                          |  |                     |  |                         |  |                                              |  |                                               
|R. Moley                                          |  | 1,010,000            |  |                         |  |                                              |  |                                               
|J. Weston                                         |  | 1,600,000            |  |                         |  |                                              |  |                                               
|J. Wyness                                         |  | 346,037              |  |                         |  |                                              |  |                                               
|Senior management as a group(1)                   |  | 4,700,095            |  | 14,303                   |  | 14,533,993                                    |  | 42,740                                         
|All directors and senior management as a group(1) |  | 126,749,357          |  | 14,303                   |  | 14,533,993                                    |  | 42,740                                         

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Share Schemes and Related Information

We have five different share incentive plans under which employees currently may be granted share options, purchase rights or stock appreciation rights. There are
also six additional share plans with options, performance units or rights which remain outstanding but are now closed to new grants to employees, including three plans that were assumed or adopted in
connection with the acquisitions of Netcom, Zarak and Caw, respectively.

The
Company held an Extraordinary General Meeting on June 23, 2004 at which proposals were approved to renew and amend the Spirent Stock Option Plan so that future awards can be
granted as Stock Appreciation Rights.

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At
June 1, 2004 the following options and purchase rights over Ordinary shares had been granted and remained outstanding under our various employee share schemes. Figures for the
options outstanding and the exercise price per Ordinary share have each been adjusted, where relevant, for the 3:1 share split in 2000 and for the rights issues effected in 1993 and 2000:

|Option Scheme                                         |  | Option/purchase
right exercise dates |  | Exercise price
per share (pence) |  | Number of
outstanding options/
purchase rights
(millions)
|----------------------------------------------------- |  | ------------------------------------ |  | -------------------------------- |  | ---------------------------------------------------------
|Discretionary Schemes:                                |  |                                      |  |                                  |  |                                                          
|1985 Executive Share Option Scheme                    |  | 04.27.9804.26.05                    |  | 108                              |  | 0.1                                                      
|1995 Executive Share Option Scheme                    |  | 04.29.9903.24.13                    |  | 16598                           |  | 21.8                                                     
|International Executive Share Option Scheme           |  | 04.11.9804.10.05                    |  | 104                              |  | 0.1                                                      
|Spirent Stock Option Plan(1)                          |  | 05.11.0105.05.11                    |  | 6617                            |  | 62.2                                                     
|Acquisition Related Schemes:                          |  |                                      |  |                                  |  |                                                          
|Netcom Amended and Restated Stock Option Plan         |  | 07.23.9907.19.09                    |  | 15151                           |  | 10.9                                                     
|Zarak Amended and Restated Stock Option Plan          |  | 11.14.0011.12.10                    |  | 127572                          |  | 0.7                                                      
|Caw Amended and Restated Stock Plan(2)                |  | 08.15.0206.25.12                    |  | 1520(2)                         |  | 0.5                                                      
|All Employee Share Save Schemes:                      |  |                                      |  |                                  |  |                                                          
|United Kingdom Savings Related Share Option Scheme(3) |  | 01.01.0305.31.11                    |  | 38583                           |  | 6.4                                                      
|United States Employee Stock Purchase Plan(4)         |  | 01.01.05                             |  | 50                               |  | 3.0                                                      
|Global All Employee Share Purchase Plan(4)            |  | 01.01.05                             |  | 50                               |  | 0.3                                                      
|                                                      |  |                                      |  |                                  |  |                                                          
|Total                                                 |  |                                      |  |                                  |  | 106.0                                                    
|                                                      |  |                                      |  |                                  |  |                                                          

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We
also operated the Stock Appreciation Rights Plan and the Long Term Share Purchase Plan during 2003, both of which have utilized shares purchased in the market and have not involved
the issue of new shares. No awards were made under either plan in 2003. Following a review of the Long Term Share Purchase Plan's performance conditions in 2003, it was determined that the initial
performance conditions for the remaining performance units under the Plan had not been met and therefore, all remaining performance units lapsed unexercised on December 31, 2003. As at
June 1, 2004 the following rights were outstanding under the Stock Appreciation Rights Plan:

|Rights exercise dates |  | Rights price
(pence) |  | Number of
rights outstanding
(millions)
|--------------------- |  | -------------------- |  | ---------------------------------------
|9.10.0006.29.10      |  | 182416              |  | 2.9                                    

At
June 1, 2004 the Employee Share Ownership Trust held 10.9 million Ordinary shares to satisfy awards under our various share based incentive schemes. Further information on our
share incentive plans are provided in Note 31 of Notes to the Financial Statements.

The
following tables provide further summary information in respect of options and other rights to purchase our Ordinary shares for each of our directors as at June 1, 2004. Other
than as set forth below, none of our directors holds any options or other rights to purchase our shares. Each option or right was granted without monetary consideration. Information relating to
ownership of share options or other rights by employees, other than executive directors, is not required to be, and has not been, disclosed by us in the United Kingdom. Our directors and senior
management as a group held options and rights to purchase 14.5 million shares as of June 1, 2004.

Options to Acquire SharesDirectors

|           |  | Plan type(1) |     | Options over
/rights to
acquire Ordinary
shares |  | Date of grant |  | Exercise
price
(pence) |  | Date first
exercisable |  | Expiry date
|---------- |  | ------------ | --- | ----------------------------------------------- |  | ------------- |  | ---------------------- |  | ---------------------- |  | -----------
|N. Brookes |  | ESOS         |     | 221,068                                         |  | 09.30.96      |  | 136                    |  | 09.30.99               |  | 09.29.06   
|           |  | ESOS         |     | 30,410                                          |  | 04.23.97      |  | 118                    |  | 04.23.00               |  | 04.22.07   
|           |  | ESOS         |     | 43,922                                          |  | 04.27.98      |  | 152                    |  | 04.27.01               |  | 04.26.08   
|           |  | ESOS         |     | 149,590                                         |  | 05.11.00      |  | 334                    |  | 05.11.03               |  | 05.10.10   
|           |  | ESOS         |     | 205,000                                         |  | 04.09.01      |  | 305                    |  | 04.09.04               |  | 04.08.11   
|           |  | SRSOS        |     | 18,145                                          |  | 10.05.01      |  | 93                     |  | 12.01.06               |  | 05.03.07   
|           |  | ESOS         |     | 468,000                                         |  | 04.02.02      |  | 134                    |  | 04.02.05               |  | 04.01.12   
|           |  | ESOS         |     | 774,000                                         |  | 05.02.02      |  | 113                    |  | 05.02.05               |  | 05.01.12   
|           |  | ESOS         |     | 1,692,000                                       |  | 03.25.03      |  | 16                     |  | 03.25.06               |  | 03.24.13   
|M. Chung   |  | ESOS         |     | 93,482                                          |  | 07.16.98      |  | 163                    |  | 07.16.01               |  | 07.15.08   
|           |  | ESOS         |     | 112,734                                         |  | 04.01.99      |  | 133                    |  | 04.01.02               |  | 03.31.09   
|           |  | SSOP         |     | 341,921                                         |  | 05.11.00      |  | 334                    |  | 05.11.01               |  | 05.10.07   
|           |  | ESOS         |     | 65,819                                          |  | 05.11.00      |  | 334                    |  | 05.11.03               |  | 05.10.10   
|           |  | SARP         |     | 42,740                                          |  | 05.12.00      |  | 335                    |  | 05.12.01               |  | 05.11.10   
|           |  | SSOP         |     | 250,000                                         |  | 12.08.00      |  | 613                    |  | 12.08.01               |  | 12.07.07   
|           |  | SSOP         |     | 195,000                                         |  | 04.09.01      |  | 305                    |  | 04.09.02               |  | 04.08.08   
|           |  | ESOS         |     | 80,000                                          |  | 04.09.01      |  | 305                    |  | 04.09.04               |  | 04.08.11   
|           |  | SSOP         |     | 750,000                                         |  | 04.02.02      |  | 134                    |  | 04.02.03               |  | 04.01.09   
|           |  | ESPP         | (2) | 13,392                                          |  | 01.01.04      |  | 50                     |  | 01.01.05               |  | 01.01.05   
|           |  | ESOS         |     | 225,000                                         |  | 03.25.03      |  | 16                     |  | 03.25.06               |  | 03.24.13   
|           |  | SSOP         |     | 1,000,000                                       |  | 03.25.03      |  | 16                     |  | 03.25.04               |  | 03.24.10   
|           |  |              |     |                                                 |  |               |  |                        |  |                        |  |            

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|E. Hutchinson |  | ESOS  |  | 17,652    |  | 04.27.95 |  | 108 |  | 04.27.98 |  | 04.26.05
|------------- |  | ----- |  | --------- |  | -------- |  | --- |  | -------- |  | --------
|              |  | ESOS  |  | 42,928    |  | 04.29.96 |  | 140 |  | 04.29.99 |  | 04.28.06
|              |  | ESOS  |  | 33,786    |  | 04.23.97 |  | 118 |  | 04.23.00 |  | 04.22.07
|              |  | ESOS  |  | 29,586    |  | 04.27.98 |  | 152 |  | 04.27.01 |  | 04.26.08
|              |  | SRSOS |  | 12,363    |  | 10.22.98 |  | 83  |  | 01.01.06 |  | 06.30.06
|              |  | ESOS  |  | 75,156    |  | 04.01.99 |  | 133 |  | 04.01.02 |  | 03.31.09
|              |  | ESOS  |  | 55,562    |  | 05.11.00 |  | 334 |  | 05.11.03 |  | 05.10.10
|              |  | ESOS  |  | 105,000   |  | 04.09.01 |  | 305 |  | 04.09.04 |  | 04.08.11
|              |  | SRSOS |  | 8,693     |  | 10.05.01 |  | 93  |  | 12.01.08 |  | 05.31.09
|              |  | ESOS  |  | 234,000   |  | 04.02.02 |  | 134 |  | 04.02.05 |  | 04.01.12
|              |  | ESOS  |  | 387,000   |  | 05.02.02 |  | 113 |  | 05.02.05 |  | 05.01.12
|              |  | ESOS  |  | 1,128,000 |  | 03.25.03 |  | 16  |  | 03.25.06 |  | 03.24.13
|              |  | SRSOS |  | 24,721    |  | 09.26.03 |  | 38  |  | 12.01.10 |  | 05.31.11

---



Rights under the Stock Appreciation Rights PlanDirectors

|                                |  | Number of
rights |  | Rights price
(pence) |  | Date of
grant |  | Date first
exercisable |  | Expiry
date
|------------------------------- |  | ---------------- |  | -------------------- |  | ------------- |  | ---------------------- |  | -----------
|N. Brookes                      |  |                 |  |                     |  |              |  |                       |  |           
|E. Hutchinson                   |  |                 |  |                     |  |              |  |                       |  |           
|M. Chung                        |  | 42,740           |  | 335                  |  | 5.15.00       |  | 5.15.01                |  | 5.14.10    
|                                |  |                  |  |                      |  |               |  |                        |  |            
|Total Rights held by Directors: |  | 42,740           |  |                      |  |               |  |                        |  |            
|                                |  |                  |  |                      |  |               |  |                        |  |            

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ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders

The table below sets forth certain information regarding notifiable interests in our shares as of June 1, 2004 (being the last practicable date prior to
the publication of this report) for each person notified to us who owns more than 3% of our shares.

|Name of substantial shareholder |  | Number of
shares held |  | Percentage
held
|------------------------------- |  | --------------------- |  | ---------------
|
|Lexa BV                         |  | 119.0                 |  | 12.49          
|Barclays plc                    |  | 106.0                 |  | 11.12          
|Legal & General plc             |  | 30.5                  |  | 3.20           

To
our knowledge, as of June 1, 2004, no other shareholder held more than 3% of our issued shares.

The
acquisitions made during 2000 were each funded in part through the issue of new Ordinary shares, which resulted in the dilution of the relative holdings of shareholders existing
prior to these transactions and Lexa BV as a new significant shareholder. In addition, the ongoing exercise of stock options and purchase rights under various employee stock plans and the allotment of
4.3 million Ordinary shares in March 2004 as deferred consideration for the acquisition of Caw Networks, Inc further diluted the relative holding of significant shareholders.

At
March 12, 2003 Lexa BV was our largest shareholder with 13.89% of our issued share capital and FMR Corporation and Fidelity International Ltd,
Prudential plc, Morgan Stanley Securities Ltd and Legal & General plc were our second, third and fourth largest shareholders, holding 8.69%, 4.96%, 3.77 and 3.01% of
our issued share capital respectively. At February 20, 2002, Lexa BV was our largest shareholder with 11.61% of our issued share capital and Prudential plc, Halifax plc and
Legal & General plc were our second, third and fourth largest shareholders, holding 4.93%, 3.59%, and 3.01% of our issued share capital respectively. At February 28, 2001,
Lexa BV was our largest shareholder with 11.7% of our issued share capital, and Prudential plc was our second largest shareholder with 5.03% of our issued share capital. At
March 2, 2000, Prudential was our largest shareholder, holding 10.96% of our issued share capital, and Halifax was our second largest shareholder, with 4.94% of our issued share capital.

Under
Sections 198201 of the Companies Act 1985 shareholders have a duty to give notice to a company when their beneficially held interest first reaches 3% of the issued
share capital, when it falls below that level and when the beneficially held interest changes by at least one percentage point. If a shareholder holds beneficial and non-beneficial
interests of 10% or more of the issued share capital, he must notify the company when the aggregate holding falls below that level and when aggregate holdings change by at least one percentage
point. Once a shareholder has beneficial and non-beneficial interests representing less than 10% of the issued capital, only the beneficially held element of the shareholding needs
be disclosed. As a result of these differing reporting and notification requirements, the figures given in the paragraph above may show a volatility in the holdings of our larger investors.

The
shareholders listed in the above table do not have voting rights different from those of our other shareholders.

As
at June 1, 2004, 6,273,986 of our Ordinary shares were held by shareholders who had an address in the United States on the share register. There were 255 record holders of our
Ordinary shares in the United States. As at June 1, 2004, 14,888,684 Ordinary shares represented by ADSs were held in the United States, of which 14,865,960 are registered to the Depository
Trust Company. As the share register does not hold records of trusts or complete details of nominees holdings, it is possible

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that
there are greater numbers of beneficial shareholdings held by residents in the United States. We believe approximately 8.5% of our Ordinary issued share capital is held by investors in the United
States either directly, through the ADS facility or through nominee accounts.

To
our knowledge, we are not directly or indirectly owned or controlled by another corporation or other corporations, by any foreign government or by any other natural or legal person or
persons severally or jointly.

To
our knowledge, there are no arrangements the operation of which may at a subsequent date result in a change of our control.

Related Party Transactions

Except for the disposal of our interests in the WAGO joint venture (as further described in "Liquidity and Capital Resources" in Item 5 above and in
"Material Contracts" in Item 10 below), we have not engaged in any related party transactions since January 1, 2003, other than any such transactions between us and our subsidiaries or
among our subsidiaries.

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ITEM 8.    FINANCIAL INFORMATION

Historical Financial Information

Our audited consolidated financial statements as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003
are set out elsewhere in this annual report.

Earnings
and dividends per share for prior periods have been restated to reflect the 3:1 share split approved by our shareholders on May 11, 2000.

Significant Changes

Other than as described in "Recent Developments" in Item 5 above no significant change has occurred to our financial position since December 31,
2003, the date of the most recent financial statements included in this annual report.

Dividend Policy

Under English law, payment of dividends is subject to the Companies Act, which requires that all dividends be approved by our board of directors and, in some
cases, our shareholders. Moreover, under English law, we may pay dividends on our shares only out of profits available for distribution
determined in accordance with the Companies Act and UK GAAP, which differ in some respects from US GAAP. If we declare dividends, holders of our ADSs will be entitled to receive payments in
US dollars in respect of dividends on the underlying Ordinary shares in accordance with the deposit agreement.

No
dividend will be paid in respect of the year ended December 31, 2003. This compares to an interim dividend paid of 1.35 pence and no final dividend in respect of the year ended
December 31, 2002. Future dividend policy will be kept under review by the Board and will depend on the trading outlook and the availability of cash and distributable reserves. Our borrowing
terms prohibit us from paying a dividend until certain financial requirements are satisfied (see "Liquidity and Capital Resources" in Item 5 above).

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ITEM 9.    THE OFFER AND LISTING

Our ADSs are listed on the New York Stock Exchange under the symbol SPM. Each ADS represents four Ordinary shares. ADSs are evidenced by American Depositary
Receipts ("ADRs"). Our Ordinary shares have a nominal value of 31/3 pence each.

Our
shares are listed on the United Kingdom Listing Authority's Official List and traded on the London Stock Exchange. Until May 15, 2000, our shares traded on the London Stock
Exchange under the ticker symbol BWTH and, since May 15, 2000, they have traded under the ticker symbol SPT. We established a "sponsored" ADR facility in 1999 to facilitate
over-the-counter trading in our shares by investors in the United States, but there was no regular public market for our shares in the United States. In order to list our ADSs
on the New York Stock Exchange, we filed a registration statement on Form 20-F in June 2001 and became subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended. See "Item 10 Additional InformationDocuments on Display".

The
following table shows, for the periods indicated, the high and low closing price of a Spirent share as reported in the Daily Official List of the United Kingdom Listing Authority, as
adjusted for the 3:1 share split which took effect in May 2000 and the bonus element of the 5:24 rights issue completed in December 2000 and the high and low closing price of our ADSs on
the New York Stock Exchange since we listed on July 10, 2001.

|                                                           |                                       | Spirent Shares |      | Spirent ADSs
|---------------------------------------------------------- | ------------------------------------- | -------------- | ---- | ------------
|
|
|Most recent six months                                     |                                       |                |      |             
|                                                           | May 2004                              |                | 0.67 |             
|                                                           | April 2004                            |                | 0.80 |             
|                                                           | March 2004                            |                | 0.90 |             
|                                                           | February 2004                         |                | 0.89 |             
|                                                           | January 2004                          |                | 0.85 |             
|                                                           | December 2003                         |                | 0.70 |             
|Two most recent full financial years and subsequent period |                                       |                |      |             
|2004                                                       |                                       |                |      |             
|                                                           | Second quarter (through June 1, 2004) |                | 0.80 |             
|                                                           | First quarter                         |                | 0.90 |             
|2003                                                       |                                       |                |      |             
|                                                           | Fourth Quarter                        |                | 0.73 |             
|                                                           | Third Quarter                         |                | 0.61 |             
|                                                           | Second Quarter                        |                | 0.38 |             
|                                                           | First Quarter                         |                | 0.23 |             
|2002                                                       |                                       |                |      |             
|                                                           | Fourth Quarter                        |                | 0.37 |             
|                                                           | Third Quarter                         |                | 0.87 |             
|                                                           | Second Quarter                        |                | 1.34 |             
|                                                           | First Quarter                         |                | 1.92 |             
|Five most recent full financial years                      |                                       |                |      |             
|2003                                                       |                                       | 0.73           |      | 0.10        
|2002                                                       |                                       | 1.92           |      | 0.06        
|2001                                                       |                                       | 6.10           |      | 0.72        
|2000                                                       |                                       | 6.88           |      | 2.78        
|1999                                                       |                                       | 3.35           |      | 1.06        

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ITEM 10.    ADDITIONAL INFORMATION

Memorandum and Articles of Association

Our registration statement on Form 20-F which we filed with the Securities and Exchange Commission ("SEC") on June 27, 2001, contains a
full description of our Memorandum and Articles of Association under "Item 10. Additional Information," which is incorporated herein by reference.

Material Contracts

Following is a summary of the contracts entered into by any member of our group during the last two years which are material to our group as a whole:



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Exchange Controls

There are currently no United Kingdom foreign exchange control restrictions on the conduct of our operations or the remittance of dividends. Any dividends we pay
to holders of the shares or ADSs may be subject to United Kingdom or other taxation. See "Taxation" below, for a more detailed discussion of the tax consequences of investing in the shares or ADSs.
There are no restrictions under our Memorandum and Articles of Association or under English law that limit the right of non-resident or foreign holders to hold or vote our shares.

Taxation

The following discussion summarizes the material US federal income tax and United Kingdom tax consequences of the acquisition, ownership and disposition of our
Ordinary shares, including shares represented by ADSs evidenced by ADRs. This summary applies to you only if you are a beneficial owner of Ordinary shares or ADSs and the dividends on them and you
are:



This
summary applies only to holders who will hold our Ordinary shares or ADSs as capital assets. This summary is based:



The
following summary is of a general nature and does not address all of the tax consequences that may be relevant to you in light of your particular situation. For example, this summary
does not apply to United States expatriates, insurance companies, regulated investment companies, tax-exempt organizations, financial institutions, persons subject to the alternative
minimum tax, securities broker-dealers, investors that use a mark-to-market accounting method, holders who hold ADSs or Ordinary shares as part of hedging, straddling, or
conversion transactions or holders who own directly, indirectly or by attribution, 10% or more of the voting power of our issued share capital and holders whose functional currency for United States
tax purposes is not the US dollar. In addition (and without

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limitation),
the following summary of United Kingdom tax considerations does not, except where indicated otherwise, apply to you if:



You
should consult your own tax advisers as to the particular tax consequence to you under United Kingdom, United States federal, state and local and other foreign laws, of the
acquisition, ownership and disposition of ADSs or Ordinary shares. For US federal income tax purposes, holders of ADSs will be treated as owners of the underlying Ordinary shares attributable thereto
and the discussion of US federal income tax consequences to holders of ADSs applies as well to holders of Ordinary shares except as otherwise indicated.



The following discussion of material United Kingdom tax consequences is the opinion of Linklaters, our United Kingdom tax counsel.



Under current United Kingdom taxation legislation, no tax will be withheld from cash dividend payments by us.

United
States holders of Ordinary Shares or ADSs will not be entitled to receive any payment from the United Kingdom Inland Revenue in respect of any tax credit on dividends paid by us.



Subject to the provisions set out in the next paragraph in relation to temporary non-residents, as a United States holder that is not resident or ordinarily
resident in the United Kingdom, you will not ordinarily be liable for United Kingdom tax on capital gains realized on the sale or other disposal of Ordinary shares or ADSs, unless at the time of
disposal, if you are a corporate holder, you carry on a trade in the United Kingdom through a United Kingdom permanent establishment or, if you are an individual, you carry on a trade, profession or
vocation in the United Kingdom through a United Kingdom branch or agency and such Ordinary shares or ADSs are or have been used, held or acquired for the purposes of a trade, profession or vocation
carried on in the United Kingdom through such permanent establishment, branch or agency, in which case you may, depending on the circumstances, be liable to United Kingdom tax on a gain realized on
disposal of your ADSs or Ordinary shares.

A
holder of Ordinary shares or ADSs who is an individual and who has on or after March 17, 1998 ceased to be resident or ordinarily resident for tax purposes in the United Kingdom
but who again becomes resident or ordinarily resident in the United Kingdom within a period of, broadly, less than five years and who disposes of Ordinary shares or ADSs during that period may also be
subject to United Kingdom tax on capital gains (subject to any available exemption or relief), notwithstanding that he is not resident or ordinarily resident in the United Kingdom at the time of the
disposal.



The Ordinary shares and ADSs are assets situated in the United Kingdom for the purposes of United Kingdom inheritance tax. A gift of such assets by, or the death
of, an individual holder of such

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assets
may (subject to certain exemptions and reliefs) give rise to a liability to United Kingdom inheritance tax even if the holder is neither domiciled in the United Kingdom nor deemed to be
domiciled there under special rules relating to long residence or previous domicile. For United Kingdom inheritance tax purposes, a transfer of assets at less than full market value may be treated as
a gift and particular rules apply to gifts where the donor reserves or retains some benefit. Special rules also apply to close companies and to trustees of settlements holding Ordinary shares or ADSs,
bringing them within the charge to inheritance tax.

An
Ordinary share or ADS held by an individual whose domicile is determined to be the United States for the purposes of the Estate Tax Treaty, and who is not a national of the United
Kingdom for the purposes of that treaty generally, will not be subject to United Kingdom inheritance tax on the individual's death or on a gift of the Ordinary share or ADS during the individual's
lifetime provided that any applicable US federal gift or estate tax liability is paid except where the Ordinary share or ADS:



In
the exceptional case where the Ordinary shares or ADSs are subject to both United Kingdom inheritance tax and United States federal gift or estate tax, the Estate Tax Treaty generally
provides for the tax paid in the United Kingdom to be credited against federal income tax in the United States or for federal tax paid in the United States to be credited against tax payable in the
United Kingdom based on priority rules set out in the Estate Tax Treaty.



United Kingdom stamp duty (rounded up to the nearest £5) or SDRT will (subject to specific exceptions) be payable at the higher rate of 1.5% of the
amount or value of the consideration or, in the case of an issue, price of the Ordinary shares when issued or, in some circumstances, the value of shares in registered form on a transfer or issue:



This
would include transfers and issues of Ordinary shares in registered form to the Custodian for deposit under the ADR deposit agreement. No SDRT will be payable if stamp duty equal to
the SDRT liability is paid. In circumstances where stamp duty is not payable on the transfer of Ordinary shares in registered form to the Custodian at the rate of 1.5%, such as where there is no
chargeable instrument, SDRT will be payable to bring the charge up to 1.5% in total. In accordance with the terms of the ADR deposit agreement, any tax or duty payable by the Custodian on any such
transfers of Ordinary shares in registered form will be charged by the Custodian to the party to whom ADRs are delivered against such transfers.

Clearance
services may opt, with the United Kingdom Inland Revenue's approval, under certain conditions for the normal rate of stamp duty and SDRT (0.5%) to apply to a transfer of shares
into, and to transactions within, the service instead of (i) the higher rate applying to a transfer of shares into the clearance service and (ii) the exemption for dealings in the
Ordinary shares while in the system.

No
United Kingdom stamp duty will be payable on the acquisition of any ADS or on any subsequent transfer of an ADS, provided that the transfer and any subsequent instrument of transfer

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remain
at all times outside the United Kingdom and that the instrument of transfer is not executed in or brought into the United Kingdom. An agreement to transfer an ADS will not give rise to SDRT.

Subject
to some exceptions, a conveyance or transfer on sale of Ordinary shares in registered form will attract ad valorem United Kingdom stamp duty at the rate of 0.5% (rounded up to
the nearest £5) of the dutiable amount, usually the amount or value of the consideration for the transfer. Generally, ad valorem stamp duty applies neither to gifts nor on a transfer from
a nominee to the beneficial owner, although in cases of transfers where no ad valorem stamp duty arises, a fixed United Kingdom stamp duty of £5 may be payable. SDRT at a rate of 0.5% of
the amount or value of the consideration for the transfer will normally be payable on an agreement to transfer Ordinary shares. If, within six years of the date on which such agreement was made (or,
if such agreement was conditional, the date on which the condition is satisfied), an instrument transferring the Ordinary shares is executed and stamped, any SDRT paid may be repaid or, if it has not
been paid, the liability to pay such tax, but not necessarily interest and penalties, would be canceled. Stamp duty and SDRT are chargeable whether the agreement is made or effected in the United
Kingdom or elsewhere and whether or not any party is resident or situated in any part of the United Kingdom.



The following discussion of material United States federal income tax consequences is the opinion of Debevoise & Plimpton, our United States tax counsel.



The gross amount of a distribution paid on an Ordinary share or ADS will be a dividend for United States federal income tax purposes to the extent paid out of our
current or accumulated earnings and profits (as determined for United States federal income tax purposes). To the extent that a distribution exceeds our earnings and profits, it will be treated as a
nontaxable return of capital to the extent of your basis in such shares and thereafter as a capital gain. Dividends paid by us generally will be treated as foreign source income and will not be
eligible for the dividends received deduction allowed to corporate shareholders under the United States federal income tax law.

Recently
enacted legislation reduces to 15% the maximum tax rate for certain dividends received by individuals through taxable years beginning on or before December 31, 2008, so
long as certain holding period requirements are met. Unless we are classified as a passive foreign investment company (see below), dividends paid with respect to our ADSs will qualify for the 15%
maximum rate (assuming the holding period requirements are met). We believe that dividends paid to direct holders of our Ordinary shares will likewise qualify for the 15% maximum rate, but no
assurance in this regard can be given until the United States Treasury Department issues further guidance. Special rules apply for purposes of determining a recipient's investment income (which limits
deductions for investment interest) and
foreign income (which may affect the amount of foreign tax credit) and to certain extraordinary dividends. We urge each United States holder who is an individual to consult his or her own tax adviser
regarding the possible applicability of the reduced rate under the new legislation and the related restrictions and special rules.

The
amount of any distribution will equal the fair market value in US dollars of the pounds sterling or other property received on the date received by you in the case of Ordinary
shares, or by The Bank of New York, as depositary, in the case of ADSs, based on the spot exchange rate on such date. You will have a basis in any pounds sterling distributed, equal to the US dollar
value of pounds sterling on the date received by you, in the case of Ordinary shares, or by The Bank of New York in the case of ADSs. Any gain or loss recognized upon a subsequent disposition of
pounds sterling will generally be United States source ordinary income or loss.

82

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Upon the sale or exchange of an Ordinary share or ADS, you will recognize a gain or a loss for United States federal income tax purposes in an amount equal to the
difference between the amount realized and your adjusted tax basis in the Ordinary share or ADS. Subject to the discussion below under ``Passive Foreign Investment Company Considerations," such gain
or loss will be a capital gain or loss and will be a long-term capital gain if you have held the Ordinary share or ADS for more than one year. Gain or loss will generally be treated as
United States source gain or loss. Recently enacted legislation generally reduces to 15% the maximum tax rate for long-term capital gains of individuals from the sale of shares in taxable
years beginning on or before December 31, 2008.

The
surrender of ADSs in exchange for Ordinary shares and the surrender of Ordinary shares in exchange for ADSs will not be a taxable event for United States federal income tax purposes.
Accordingly, you will not recognize any gain or loss upon such surrender.



We believe that we will not be treated as a passive foreign investment company ("PFIC") for United States federal income tax purposes for our current taxable
year, or for future taxable years. However, an actual determination of PFIC status is factual in nature and generally cannot be made until the close of the applicable taxable year. We will be a PFIC
if either:



If
we were classified as a PFIC, you would be subject to certain adverse United States tax consequences, including the possible characterization of gain with respect to the Ordinary
shares or ADSs as ordinary, the possible imposition of an interest charge on taxes you would be deemed to have deferred and the unavailability of the reduced 15% tax rate on dividends.

You
are urged to consult your own tax adviser concerning the potential application of the PFIC rules to your ownership and disposition of Ordinary shares or ADSs.



Under recently promulgated United States Treasury Department regulations, you must attach to your United States federal income tax return a disclosure statement
on Form 8886 if you participate in a "reportable transaction." You should consult your own tax adviser as to the possible obligation to file Form 8886 with respect to the purchase,
ownership or disposition of Ordinary shares or ADSs, or any related transaction, including the disposition of any pounds sterling received as a dividend or as proceeds from the sale of Ordinary shares
or ADSs.



Dividend payments with respect to Ordinary shares or ADSs and proceeds from the sale, exchange or redemption of Ordinary shares or ADSs may be subject to
information reporting to the IRS and possible United States backup withholding. Backup withholding will not apply to you, however, if you furnish a correct taxpayer identification number or
certificate of foreign status and make any other required certification or if you are otherwise exempt from backup withholding. If you are required to establish your exempt status you generally must
provide such certification on IRS Form W-9 in the case of United States persons and on IRS Form W-8 in the case of non-United States persons.

83

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Amounts
withheld as backup withholding may be credited against your United States federal income tax liability, and you may obtain a refund of any excess amounts withheld under the
backup withholding rules, by filing the appropriate claim for refund with the IRS and furnishing any required information.

Documents on Display

We are subject to the reporting requirements of the Exchange Act, as applicable to foreign private issuers. In accordance with the requirements, we will file
annual reports on Form 20-F with, and furnish other information under cover of Form 6-K to, the SEC. We furnish copies of these reports to the depositary promptly
after they have been filed with or furnished to the SEC. Our consolidated financial statements included in such annual reports are prepared in accordance with UK GAAP, with a reconciliation of net
income and shareholders' equity to US GAAP. These financial statements are presented in pounds sterling. These reports and other information may be inspected and copied at the public reference
facility maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549.

Copies
of this material may be obtained from the Public Reference Room of the SEC at 450 Fifth Street, N.W. Washington, D.C. 20549 at prescribed rates. Information on the operation of
the Public Reference Room may be obtained by calling the SEC at (800) 732-0330. The material may also be accessed electronically by means of the SEC's home page on the Internet at
http://www.sec.gov. This Internet site contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

84

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ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Finance and Treasury Objectives, Policies and Strategies

Treasury management encompasses the funding, interest and foreign exchange activities of our Group.

The
major treasury activities involve raising finance and managing the Group's interest rate and currency exposures. Financial instruments are used to manage these exposures when deemed
appropriate. A framework of policies and guidelines has been laid down by the Board and are subject to regular review. Speculative treasury transactions are expressly forbidden.

Our
policy is to finance our operations through a combination of retained earnings and external financing. Spirent raises the majority of the funding for the Group. Debt is principally
sourced from the syndicated bank market and the US private placement market.

Interest rate management

Through an optimum mix of fixed and floating debt and the use of interest rate swaps, our aim is to reduce the volatility of the interest charge. At
December 31, 2003, the Group's borrowings were composed of 57% of fixed rate debt. This excludes $72.1 million of our notes which have been swapped into floating rates through the use of
an interest rate swap which terminates on November 23, 2009. The swap is callable at the counterparties' option at six-monthly intervals.

We
use derivative instruments, as approved by our Board, to manage our interest rate exposures on our debt and cash positions as appropriate.

Currency management

Currency exposures arise from trading transactions undertaken by our subsidiaries in foreign currencies and on translation of the operating results and net assets
of our overseas subsidiaries.

During
the year sterling strengthened against the US dollar, the main currency to which we are exposed.

Subsidiaries
are required to hedge material transactional exposures against their local currency, using forward contracts. The Group Treasury, by means of forward foreign exchange
contracts, carries out the majority of this hedging activity.

We
do not hedge exposures on translation of the operating results or net assets of our overseas subsidiaries since these are accounting, not cash, exposures. Where possible we aim to
match as far as possible the currency of our borrowings with the currency profile of operating results and net assets. This provides a partial hedge against these translation exposures.

Details
of the currencies of financial assets and liabilities are illustrated in Note 29 of Notes to the Financial Statements. At December 31, 2003 our balance sheet was
61% hedged against translation exposure.

Interest Rate Sensitivity

The tables below provide information about our financial instruments excluding finance lease obligations that are sensitive to changes in interest rates. For
long-term debt obligations (excluding debt due entirely within one year), the table presents notional amounts and weighted average interest rates by expected maturity dates. Weighted
average variable rates are based on rates set at the balance sheet date. The information is presented in pounds sterling, which is our reporting currency. The actual currencies of the instruments are
indicated in parentheses.

85

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|                              |  | Expected to Mature Before December 31
|----------------------------- |  | -------------------------------------
|
|
|Long-term Debt:               |  |                                      
|Fixed rate (US$)              |  | 0.2                                  
|Average interest rate         |  | 7.0                                  
|Fixed rate (other currencies) |  | 0.2                                  
|Average interest rate         |  | 10.2                                 
|Variable rate (US$)           |  |                                     
|Average interest rate         |  |                                     

Exchange Rate Sensitivity

The following information provides details of our derivative and other financial instruments by currency presented in pound sterling equivalents. The tables above
provide details of non-sterling denominated long-term debt obligations which are subject to foreign currency exchange rate movements while the table below presents amounts and
weighted average contractual exchange rates of foreign currency forward exchange contracts held as at December 31, 2003. All forward exchange agreements mature within one year.



|Currency   |  | Pay for £
Contract
Amount |  | Average
Contractual
Exchange Rate
|---------- |  | ------------------------- |  | ---------------------------------
|
|US dollars |  | 12.9                      |  | 1.73                             
|Others     |  |                          |  |                                  
|           |  |                           |  |                                  
|Total      |  | 12.9                      |  |                                  
|           |  |                           |  |                                  
|Deal value |  | 13.3                      |  |                                  
|           |  |                           |  |                                  

Currency Exposure of Financial Assets and Liabilities

The table shows the net unhedged monetary assets and liabilities of our Group companies as at December 31, 2003 that are not denominated in their
functional currency and therefore give rise to exchange gains and losses in the profit and loss account.



|                                       |  | Sterling |   | US dollar |   | Euro |   | Other |  | Total |  
|-------------------------------------- |  | -------- | - | --------- | - | ---- | - | ----- |  | ----- | -
|
|Functional currency of Group operation |  |          |   |           |   |      |   |       |  |       |  
|Sterling                               |  |         |   | (1.0      | ) | 0.6  |   |      |  | (0.4  | )
|US dollar                              |  | (0.3     | ) |          |   | (0.1 | ) |      |  | (0.4  | )
|Euro                                   |  | (0.8     | ) | (1.5      | ) |     |   | 0.2   |  | (2.1  | )
|Other                                  |  | (1.9     | ) | 1.7       |   | (0.9 | ) | 0.6   |  | (0.5  | )
|                                       |  |          |   |           |   |      |   |       |  |       |  
|                                       |  | (3.0     | ) | (0.8      | ) | (0.4 | ) | 0.8   |  | (3.4  | )
|                                       |  |          |   |           |   |      |   |       |  |       |  

86

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ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

ITEM 15.    CONTROLS AND PROCEDURES

As of December 31, 2003, an evaluation was performed under the supervision, and with the participation, of the Company's management, including the Chief
Executive and Finance Director, of the effectiveness of the design and operation of Spirent's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)). Based on that evaluation, Spirent's management, including the Chief Executive and Finance Director, concluded that Spirent's disclosure controls and procedures were effective
in all material regards to ensure that information required to be disclosed in the reports Spirent files and submits under the Exchange Act are recorded, processed, summarized and reported within the
time periods specified in the rules and procedures of the SEC. There has been no change in Spirent's internal control over financial reporting
that occurred during the year ended December 31, 2003 that has materially affected, or is reasonably likely materially to affect, Spirent's internal control over financial reporting.

ITEM 16.

[RESERVED]

ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT

The Audit Committee is comprised of Mr. Given (Chairman), Mr. Beresford and Mr. Wyness, each of whom are independent
non-executive directors within the meaning of the Combined Code on Corporate Governance (which is the relevant corporate governance standard applicable to United Kingdom companies with a
primary listing on the London Stock Exchange) and the New York Stock Exchange Listed Company Manual. The New York Stock Exchange Listed Company Manual requires that the Audit Committee includes at
least one member who has significant and relevant financial experience and following evaluation the Board has determined that the addition of Mr. Given, who is the appointed financial expert,
brings such additional experience. The Board has also determined that Mr. Given qualifies as an "audit committee financial expert", as defined in the Instructions to Item 16A. of
Form 20-F. The Combined Code on Corporate Governance also has similar requirements in respect of an appointed financial expert.

Further
information on the role and responsibilities of the Audit Committee is provided in "Item 6. Directors, Senior Management and Employees" and in "Item 16C. Principal
Accountant Fees and Services" below.

87

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ITEM 16B.    CODE OF ETHICS

We maintain an ethics policy applicable to all directors and employees of the Group including Senior Financial Officers, who are defined as our Chief Executive,
the Finance Director, the Head of Financial Reporting and the Head of Internal Control. The Senior Financial Officers are subject to additional policies to ensure full, fair and timely disclosure in
our periodic reports filed with the SEC. We have filed our Ethics Policy and our Ethics Policy for Senior Financial Officers as Exhibits 11.1 and 11.2 to this Form 20-F. In
addition we have made our Ethics Policy and our Ethics Policy for Senior Financial Officers available on our website athttp://www.spirent.com/company/ethics.htmland the Code is also available, without
charge, upon request from the Company Secretary who is located at our Registered Office.

Through
our ethics policies, the Audit Committee also has a whistleblowing procedure so that employees may report, anonymously and in confidence, any suspected wrongdoings regarding
violations of laws, Company policies, bribery, fraud, accounting or internal control irregularities or other related matters.

ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our external auditors are Ernst & Young LLP. The following sets out the fees we paid to Ernst & Young for the fiscal years ended December 31,
2003 and December 31, 2002:

|                      |  | 2003 |  | 2002
|--------------------- |  | ---- |  | ----
|
|Audit fees            |  | 1.2  |  | 1.2 
|Audit-related fees(1) |  | 0.1  |  | 0.3 
|Tax fees(2)           |  | 0.6  |  | 1.2 
|All other fees        |  |     |  |    
|                      |  |      |  |     
|Total                 |  | 1.9  |  | 2.7 
|                      |  |      |  |     

---

The
Audit Committee adopted a policy in 2003 in respect of all fees paid to Ernst & Young LLP. Therefore, 100% of audit-related fees and tax fees in 2003 were approved
by the Audit Committee. As the policy was not in place in 2002, none of the audit-related fees and tax fees for that year were approved by the Audit Committee.

Our
Audit Committee advises the Board on the annual appointment of external auditors and on the scope, results, cost and cost effectiveness of both audit and non-audit work.
In 2003 the Audit Committee adopted a policy, to be reviewed annually, which specifies the scope and fees in respect of all audit and all non-audit work that may be performed by the
auditors. The policy also prohibits the auditors from performing certain types of non-audit work. The policy states that certain non-audit work which may be performed by the
auditors is put to tender. Prior to any non-audit work being awarded to the auditors, consideration is also given to costs, quality of service and efficiency. The Audit Committee assesses
the overall objectivity of the services provided by the auditors so that an independent professional relationship is maintained.

Under
the policy, the Audit Committee operates pre-approved limits for audit fees, audit related fees, tax fees and other fees which may be paid to Ernst & Young
during the fiscal year. If we wish to engage Ernst & Young to provide a service which is not included in the policy, or before we exceed any pre-approved limit, we must obtain prior
approval from the Audit Committee.

88

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ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

None.

ITEM 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

ITEM 17.    FINANCIAL STATEMENTS

Not applicable.

89

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ITEM 18.    FINANCIAL STATEMENTS

The following audited financial statements, together with the related auditors' reports and financial statement schedule of Spirent are filed as part of this
annual report:

Financial Statements

|Spirent plc                                                         |                                                                                                                           | Page 
|------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------- | -----
|Report of Independent Auditors                                      |                                                                                                                           | F-1  
|Consent of Independent Auditors                                     |                                                                                                                           | F-2  
|Audited Financial Statements                                        |                                                                                                                           |      
|                                                                    | Consolidated Profit and Loss Account for the year ended December 31, 2003                                                 |      
|                                                                    | Consolidated Profit and Loss Account for the year ended December 31, 2002                                                 |      
|                                                                    | Consolidated Profit and Loss Account for the year ended December 31, 2001                                                 |      
|                                                                    | Consolidated Statement of Total Recognized Gains and Losses for the years ended December 31, 2003, 2002 and 2001          |      
|                                                                    | Consolidated Balance Sheets at December 31, 2003 and 2002                                                                 |      
|                                                                    | Consolidated Cash Flow Statements for the years ended December 31, 2003, 2002 and 2001                                    |      
|                                                                    | Consolidated Statements of Movement in Shareholders' Funds for the years ended December 31, 2003, 2002 and 2001           |      
|                                                                    | Notes to the Financial Statements                                                                                         |      
|WAGO Kontakttechnik GmbH and WAGO Contact S.A. and Affiliates       |                                                                                                                           |      
|Report and Consent of Independent Auditors                          |                                                                                                                           | F-110
|Audited Financial Statements                                        |                                                                                                                           |      
|                                                                    | Combined Balance Sheets at December 31, 2002 and 2001                                                                     |      
|                                                                    | Combined Statements of Operations for the period ended April 4, 2003 and years ended December 31, 2002, and 2001          |      
|                                                                    | Combined Statements of Shareowners' Equity for the period ended April 4, 2003 and years ended December 31, 2002, and 2001 |      
|                                                                    | Combined Statements of Cash Flows for the years ended December 31, 2002 and 2001                                          |      
|                                                                    | Notes to Combined Financial Statements                                                                                    |      
|Tyton Company of Japan                                              |                                                                                                                           |      
|Report and Consent of Independent Registered Public Accounting Firm |                                                                                                                           | F-131
|Financial Statements                                                |                                                                                                                           |      
|                                                                    | Balance Sheets at March 31, 2004 (audited) and 2003 (unaudited)                                                           |      
|                                                                    | Statements of Income for the years ended March 31, 2004 (audited) 2003 and 2002 (unaudited)                               |      
|                                                                    | Statements of Shareholders' Equity                                                                                        |      
|                                                                    | Notes to Financial Statements                                                                                             |      
|Financial Statement Schedule of Spirent plc                         |                                                                                                                           |      
|                                                                    | Schedule IIValuation and Qualifying Accounts for the years ended December 31, 2003, 2002 and 2001                        |      

90

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ITEM 19.    EXHIBITS

All exhibits except those marked * (which are exhibits to this Annual Report) were filed as exhibits to our Registration Statement on Form 20-F
filed with the SEC on June 27, 2001 or our Annual Reports on Form 20-F for the years ended December 31, 2002 or December 31, 2001 filed with the SEC and are
incorporated herein by reference.

|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                        
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1.1         |  | Memorandum and Articles of Association of Spirent plc                                                                                                                                                                                                                                                                                                                                                                              
|2.1         |  | Form of Deposit Agreement as amended and restated as of May 5, 2000, as further amended and restated as of March 23, 2001, as further amended and restated as of July 10, 2001, among Spirent plc, the Bank of New York as Depositary and all Owners and
holders from time to time of American Depositary Receipts issued thereunder (incorporated by reference to Spirent plc's annual report on Form F-6, filed on June 27, 2001)
|4.1*        |  | Revolving Credit Facility, dated February 4, 2004, for a loan facility of £30 million between Spirent plc arranged by CommerzBank AG, HSBC Bank plc, Lloyds TSB Bank plc and The Royal Bank of Scotland plc                                                                                                                                                                                                                        
|4.2         |  | Credit Facility Agreement, dated June 14, 1999, for loan facilities of £440 million for Bowthorpe plc arranged by Deutsche Bank AG London and HSBC Investment Bank plc                                                                                                                                                                                                                                                             
|4.3         |  | Supplemental agreement dated November 15, 2000 between Spirent plc and HSBC Investment Bank plc                                                                                                                                                                                                                                                                                                                                    
|4.4         |  | Supplemental Agreement, dated March 6, 2002 between Spirent plc and HSBC Investment Bank plc as agent                                                                                                                                                                                                                                                                                                                              
|4.5         |  | Supplemental Agreement dated March 11, 2003 between HSBC and Spirent plc                                                                                                                                                                                                                                                                                                                                                           
|4.6         |  | Stock Purchase Agreement, dated November 16, 2000, between Lexa BV, Antonia Ax:son Johnson, Spirent plc and Spirent Holdings Corporation                                                                                                                                                                                                                                                                                           
|4.7         |  | Stock Purchase Agreement dated October 16, 2001 between Caw Networks, Inc. and Spirent Holdings Corporation and Merger Agreement dated July 21, 2002 between the shareholders of Caw Networks, Inc. and Spirent Holdings Corporation                                                                                                                                                                                               
|4.8         |  | Stock and Asset Purchase Agreement dated February 19, 2002 between Spirent International Inc, Autronics Corporation, Penny & Giles International plc, Spirent GmbH, Spirent plc and Curtiss-Wright Flight Systems Inc.                                                                                                                                                                                                             
|4.9         |  | Amended and Restated Note Purchase Agreement dated March 11, 2003 between US Noteholders and Spirent plc                                                                                                                                                                                                                                                                                                                           
|4.10*       |  | Amendment and Consent Agreement, dated December 31, 2003 between US Noteholders and Spirent plc                                                                                                                                                                                                                                                                                                                                    
|4.11        |  | Share Sale and Purchase Agreement dated March 11, 2003 between Spirent GmbH, Hohorst Familien Holding (Minden) Beteiligungs GmbH and Hohorst Familien Holding (Schweiz) Beteiligungs GmbH                                                                                                                                                                                                                                          
|4.12        |  | Share Sale and Purchase Agreement dated March 11, 2003 between Spirent GmbH and Sven Michael Hohorst                                                                                                                                                                                                                                                                                                                               
|4.13        |  | Share Sale and Purchase Agreement dated March 11, 2003 between Spirent BV, Hohorst Familien Holdings (Schweiz) Beteiligungs GmbH and Hohorst Familien Holding (Minden) Beteiligungs GmbH                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    

91

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|4.14  |  | Share Sale and Purchase Agreement dated March 11, 2003 between Spirent GmbH and Gesellschaft burgerlichen Rechts Wolfgang und Sven Michael Hohorst                                                        
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|8.1*  |  | List of subsidiaries of Spirent plc, their jurisdiction of incorporation and the names under which they do business                                                                                       
|11.1* |  | Ethics Policy                                                                                                                                                                                             
|11.2* |  | Ethics Policy for Senior Financial Officers                                                                                                                                                               
|12.1* |  | Certification of Chief Executive Officer of Spirent plc filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                   
|12.2* |  | Certification of Chief Financial Officer of Spirent plc filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                   
|13.1* |  | Certification of Chief Executive Officer and Chief Financial Officer of Spirent plc furnished pursuant to 18 United States Code §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|15.1  |  | Consent of Ernst & Young LLP (included on page F-2)                                                                                                                                                       
|15.2  |  | Consent of Allrevision Dornhof Kloss und Partner GmbH (included on page F-110)                                                                                                                            
|15.3  |  | Consent of Ernst & Young ShinNihon & Co. (included on page F-131)                                                                                                                                         

92

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SPIRENT plc
REPORT OF INDEPENDENT AUDITORS

We
have audited the accompanying consolidated balance sheets of Spirent plc at December 31, 2003 and 2002, and the related consolidated profit and loss accounts and statements of
total recognized gains and losses, cash flows and movements in shareholders' funds for each of the three years in the period ended December 31, 2003. Our audits also included the financial
statement schedule listed in the Index at Item 18. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on
these financial statements and schedule based on our audits. We did not audit the financial statements of WAGO-Kontakttechnik GmbH and WAGO Contact SA ("WAGO"), in which the Company
had 51% interests and included within the consolidated profit before taxation of £0.3 million, consolidated loss before taxation of £1,023.4 million and
consolidated loss before taxation of £731.4 million for the years ended December 31, 2003, 2002 and 2001, respectively, are combined profits before taxation of WAGO of
£2.7 million, £6.7 million and £8.8 million, respectively. Those financial statements, presented in accordance with accounting principles
generally accepted in the United States, were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts utilized by the Company's
management (before conversion to accounting principles generally accepted in the United Kingdom) so as to include WAGO in the consolidated financial statements of Spirent plc, is based solely
on the reports of the other auditors.

We
conducted our audits in accordance with United Kingdom auditing standards and the standards of the Public Company Accounting Oversight Board (United States). 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 (including the Company's conversion of the financial statements of WAGO to accounting principles generally accepted in the United Kingdom) 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 and the reports of other auditors provide a reasonable basis for our opinion.

In
our opinion, based on our audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of
Spirent plc at December 31, 2003 and 2002, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted in the United Kingdom which differ in certain respects from those generally accepted in the United States (see
Note 34 of Notes to the Consolidated Financial Statements). Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set forth therein.

|                                  |  | ERNST & YOUNG LLP
|--------------------------------- |  | -----------------
|London, England
February 25, 2004 |  |                  

F-1

---



CONSENT OF INDEPENDENT AUDITORS

We
consent to the incorporation by reference in the Registration Statement (Form S-8 No 333-98607) pertaining to the Spirent plc employee benefit plans listed on
the facing sheet thereof of our report dated February 25, 2004, with respect to the consolidated financial
statements and schedule of Spirent plc included in the Annual Report (Form 20-F) for the year ended December 31, 2003.

|                              |  | ERNST & YOUNG LLP
|----------------------------- |  | -----------------
|London, England
June 28, 2004 |  |                  

F-2

---





SPIRENT plc        CONSOLIDATED PROFIT AND LOSS ACCOUNT

|                                                                    |       |       |   | Year ended December 31, 2003 |  
|------------------------------------------------------------------- | ----- | ----- | - | ---------------------------- | -
|
|
|Turnover: Group and share of joint venture                          |       |       |   | 488.6                        |  
|Less: share of joint venture's turnover                             |       |       |   | (22.4                        | )
|                                                                    |       |       |   |                              |  
|Group Turnover                                                      |       | 2,3   |   | 466.2                        |  
|Cost of sales                                                       |       |       |   | (279.8                       | )
|                                                                    |       |       |   |                              |  
|Manufacturing Margin                                                |       |       |   | 186.4                        |  
|Operating expenses                                                  |       | 4     |   | (160.1                       | )
|                                                                    |       |       |   |                              |  
|Operating Profit                                                    |       | 2,3,5 |   | 26.3                         |  
|Operating Exceptional Items                                         |       |       |   |                              |  
|                                                                    | Other |       | 6 |                              | 
|Goodwill Amortization                                               |       |       |   | 9.7                          |  
|Operating Profit before Goodwill Amortization and Exceptional Items |       |       |   | 36.0                         |  
|Income from interests in joint ventures                             |       |       |   | 2.7                          |  
|Income from interests in associates                                 |       |       |   | 2.1                          |  
|                                                                    |       |       |   |                              |  
|Operating Profit of the Group, Joint Ventures and Associates        |       |       |   | 31.1                         |  
|Non-operating Exceptional Items                                     |       |       |   |                              |  
|Profit on the disposal and closure of operations                    |       | 33    |   |                             |  
|                                                                    |       |       |   |                              |  
|Profit before Interest                                              |       |       |   | 31.1                         |  
|Net interest payable                                                |       | 9     |   | (9.3                         | )
|Other finance expense                                               |       | 10    |   | (1.5                         | )
|                                                                    |       |       |   |                              |  
|Profit before Taxation                                              |       | 2     |   | 20.3                         |  
|Taxation                                                            |       | 11    |   | (2.3                         | )
|                                                                    |       |       |   |                              |  
|Loss after Taxation                                                 |       |       |   | 18.0                         |  
|                                                                    |       |       |   |                              |  
|Minority shareholders' interest  equity                            |       |       |   |                              |  
|                                                                    |       |       |   |                              |  
|Loss Attributable to Shareholders(1)                                |       |       |   |                              |  
|                                                                    |       |       |   |                              |  
|Basic Loss per Share                                                |       | 12    |   |                              |  
|Headline Earnings per Share(1)                                      |       | 12    |   |                              |  
|Diluted Loss per Share                                              |       | 12    |   |                              |  

---

|(1) | Headline earnings                                                                                                                                                                                                                                                                                              |  |      |  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -
|    | Basic loss attributable to shareholders                                                                                                                                                                                                                                                                        |  | (0.5 | )
|    | Operating exceptional items:                                                                                                                                                                                                                                                                                   |  |      |  
|    | Other                                                                                                                                                                                                                                                                                                          |  | 7.5  |  
|    | Goodwill amortization                                                                                                                                                                                                                                                                                          |  | 9.7  |  
|    | Exceptional itemprofit on disposal and closure of operations                                                                                                                                                                                                                                                  |  | (3.6 | )
|    | Exceptional interest charge                                                                                                                                                                                                                                                                                    |  | 16.1 |  
|    | Prior year tax credit                                                                                                                                                                                                                                                                                          |  | (6.0 | )
|    | Attributable taxation on exceptional items                                                                                                                                                                                                                                                                     |  | (1.7 | )
|    |                                                                                                                                                                                                                                                                                                                |  |      |  
|    | Headline earnings attributable to shareholders                                                                                                                                                                                                                                                                 |  | 21.5 |  
|    |                                                                                                                                                                                                                                                                                                                |  |      |  
|(2) | A summary of the significant adjustments to loss attributable to shareholders (net loss) that would be required if United States generally accepted accounting principles were applied instead of those generally accepted in
the United Kingdom is set forth in Note 34 of Notes to the Financial Statements. | 

The
Notes to the Financial Statements form part of these Financial Statements.

F-3

---





|                                                                    |                     |       |   | Year ended December 31, 2002 restated |  
|------------------------------------------------------------------- | ------------------- | ----- | - | ------------------------------------- | -
|
|
|Turnover: Group and share of joint venture                          |                     |       |   | 634.5                                 |  
|Less: share of joint venture's turnover                             |                     |       |   | (75.6                                 | )
|                                                                    |                     |       |   |                                       |  
|Group Turnover                                                      |                     | 2,3   |   | 558.9                                 |  
|Cost of sales                                                       |                     |       |   | (336.4                                | )
|                                                                    |                     |       |   |                                       |  
|Manufacturing Margin                                                |                     |       |   | 222.5                                 |  
|Operating expenses                                                  |                     | 4     |   | (228.2                                | )
|                                                                    |                     |       |   |                                       |  
|Operating Loss                                                      |                     | 2,3,5 |   | (5.7                                  | )
|                                                                    |                     |       |   |                                       |  
|Operating Exceptional Items                                         |                     |       |   |                                       |  
|                                                                    | Goodwill impairment |       | 7 |                                       | 
|                                                                    | Other               |       | 6 |                                       | 
|Goodwill Amortization                                               |                     |       |   | 56.1                                  |  
|Operating Profit before Goodwill Amortization and Exceptional Items |                     |       |   | 50.4                                  |  
|                                                                    |                     |       |   |                                       |  
|Income from interest in joint venture                               |                     |       |   | 7.4                                   |  
|Income from interests in associates                                 |                     |       |   | 1.0                                   |  
|Amortization of goodwill on associate                               |                     |       |   | (0.2                                  | )
|                                                                    |                     |       |   |                                       |  
|Operating Loss of the Group, Joint Venture and Associates           |                     |       |   | 2.5                                   |  
|Non-operating Exceptional Items                                     |                     |       |   |                                       |  
|Loss on the disposal and closure of operations                      |                     | 33    |   |                                      |  
|                                                                    |                     |       |   |                                       |  
|Loss before Interest                                                |                     |       |   | 2.5                                   |  
|Net interest payable                                                |                     | 9     |   | (12.3                                 | )
|Other finance expense                                               |                     | 10    |   | (0.3                                  | )
|                                                                    |                     |       |   |                                       |  
|Loss before Taxation                                                |                     | 2     |   | (10.1                                 | )
|Taxation                                                            |                     | 11    |   | (8.4                                  | )
|                                                                    |                     |       |   |                                       |  
|Loss after Taxation                                                 |                     |       |   | (18.5                                 | )
|                                                                    |                     |       |   |                                       |  
|Minority shareholders' interestequity                              |                     |       |   |                                       |  
|Minority shareholders' interestjoint venture                       |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Loss Attributable to Shareholders(1)                                |                     |       |   |                                       |  
|Dividends:                                                          |                     |       |   |                                       |  
|Interim 1.35 pence                                                  |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Retained Loss                                                       |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Basic Loss per Share                                                |                     | 12    |   |                                       |  
|Headline Earnings per Share(1)                                      |                     | 12    |   |                                       |  
|Diluted Loss per Share                                              |                     | 12    |   |                                       |  

---

|(1) | Headline earnings                                                                                                                                                                                                                                                                                              |  |          |  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -
|    | Basic loss attributable to shareholders                                                                                                                                                                                                                                                                        |  | (1,050.7 | )
|    | Operating exceptional items:                                                                                                                                                                                                                                                                                   |  |          |  
|    | Other                                                                                                                                                                                                                                                                                                          |  | 41.6     |  
|    | Goodwill impairment                                                                                                                                                                                                                                                                                            |  | 923.3    |  
|    | Goodwill amortization                                                                                                                                                                                                                                                                                          |  | 56.1     |  
|    | Exceptional itemloss on disposal and closure of operations                                                                                                                                                                                                                                                    |  | 48.4     |  
|    | Prior year tax credit                                                                                                                                                                                                                                                                                          |  | (6.2     | )
|    | Attributable taxation on exceptional items                                                                                                                                                                                                                                                                     |  | (3.5     | )
|    | Attributable taxation on the disposal of operations                                                                                                                                                                                                                                                            |  | 3.0      |  
|    | Reversal of deferred tax assets                                                                                                                                                                                                                                                                                |  | 19.0     |  
|    |                                                                                                                                                                                                                                                                                                                |  |          |  
|    | Headline earnings attributable to shareholders                                                                                                                                                                                                                                                                 |  | 31.0     |  
|    |                                                                                                                                                                                                                                                                                                                |  |          |  
|(2) | A summary of the significant adjustments to loss attributable to shareholders (net loss) that would be required if United States generally accepted accounting principles were applied instead of those generally accepted in
the United Kingdom is set forth in Note 34 of Notes to the Financial Statements. | 

The Notes to the Financial Statements form part of these Financial Statements.

F-4

---





|                                                                    |                     |       |   | Year ended December 31, 2001 restated |  
|------------------------------------------------------------------- | ------------------- | ----- | - | ------------------------------------- | -
|
|
|
|Turnover: Group and share of joint venture                          |                     |       |   | 803.3                                 |  
|Less: share of joint venture's turnover                             |                     |       |   | (78.3                                 | )
|                                                                    |                     |       |   |                                       |  
|Group Turnover                                                      |                     | 2,3   |   | 725.0                                 |  
|Cost of sales                                                       |                     |       |   | (425.3                                | )
|                                                                    |                     |       |   |                                       |  
|Manufacturing Margin                                                |                     |       |   | 299.7                                 |  
|Operating expenses                                                  |                     | 4     |   | (281.4                                | )
|                                                                    |                     |       |   |                                       |  
|Operating Loss                                                      |                     | 2,3,5 |   | 18.3                                  |  
|                                                                    |                     |       |   |                                       |  
|Operating Exceptional Items                                         |                     |       |   |                                       |  
|                                                                    | Goodwill impairment |       | 7 |                                       | 
|                                                                    | Other               |       | 6 |                                       | 
|Goodwill Amortization                                               |                     |       |   | 85.4                                  |  
|Operating Profit before Goodwill
Amortization and Exceptional Items |                     |       |   | 103.7                                 |  
|                                                                    |                     |       |   |                                       |  
|Income from interest in joint venture                               |                     |       |   | 9.6                                   |  
|Income from interests in associates                                 |                     |       |   | 1.3                                   |  
|Amortization of goodwill on associate                               |                     |       |   | (0.1                                  | )
|                                                                    |                     |       |   |                                       |  
|Operating Loss of the Group, Joint Venture and Associates           |                     |       |   | 29.1                                  |  
|Non-operating Exceptional Items                                     |                     |       |   |                                       |  
|Profit on the disposal and closure of operations                    |                     | 33    |   |                                      |  
|                                                                    |                     |       |   |                                       |  
|Loss before Interest                                                |                     |       |   | 29.1                                  |  
|                                                                    |                     |       |   |                                       |  
|Net interest payable                                                |                     | 9     |   |                                       |  
|Other finance income                                                |                     | 10    |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Loss before Taxation                                                |                     | 2     |   |                                       |  
|Taxation                                                            |                     | 11    |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Loss after Taxation                                                 |                     |       |   |                                       |  
|Minority shareholders' interestequity                              |                     |       |   |                                       |  
|Minority shareholders' interestjoint venture                       |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Loss Attributable to Shareholders(1)                                |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Dividends:                                                          |                     |       |   |                                       |  
|Interim 1.35 pence                                                  |                     |       |   |                                       |  
|Proposed final 3.00 pence                                           |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Dividends                                                           |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Retained loss                                                       |                     |       |   |                                       |  
|                                                                    |                     |       |   |                                       |  
|Basic Loss per Share                                                |                     | 12    |   |                                       |  
|Headline Earnings per Share(1)                                      |                     | 12    |   |                                       |  
|Diluted Loss per Share                                              |                     | 12    |   |                                       |  

---

|(1) | Headline earnings                                                                                                                                                                                                                                                                                              |  |        |  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------ | -
|    | Basic loss attributable to shareholders                                                                                                                                                                                                                                                                        |  | (764.0 | )
|    | Operating exceptional items:                                                                                                                                                                                                                                                                                   |  |        |  
|    | Other                                                                                                                                                                                                                                                                                                          |  | 34.9   |  
|    | Goodwill impairment                                                                                                                                                                                                                                                                                            |  | 724.6  |  
|    | Goodwill amortization                                                                                                                                                                                                                                                                                          |  | 86.6   |  
|    | Exceptional itemprofit on disposal and closure of operations                                                                                                                                                                                                                                                  |  | (14.5  | )
|    | Attributable taxation on exceptional items                                                                                                                                                                                                                                                                     |  | (10.3  | )
|    | Attributable taxation on the disposal of operations                                                                                                                                                                                                                                                            |  | 13.2   |  
|    |                                                                                                                                                                                                                                                                                                                |  |        |  
|    | Headline earnings attributable to shareholders                                                                                                                                                                                                                                                                 |  | 70.5   |  
|    |                                                                                                                                                                                                                                                                                                                |  |        |  
|(2) | A summary of the significant adjustments to loss attributable to shareholders (net loss) that would be required if United States generally accepted accounting principles were applied instead of those generally accepted in
the United Kingdom is set forth in Note 34 of Notes to the Financial Statements. | 

The Notes to the Financial Statements form part of these Financial Statements.

F-5

---





SPIRENT plc    CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES

|                                                                    |  | Year ended December 31 |  
|------------------------------------------------------------------- |  | ---------------------- | -
|
|
|Loss Attributable to Shareholders                                   |  | (0.5                   | )
|Gain on lapsed options                                              |  | 1.2                    |  
|Exchange adjustment on subsidiaries, joint ventures and associates  |  | 6.1                    |  
|UK current taxation on exchange adjustment                          |  |                       |  
|Overseas taxation on exchange adjustment                            |  | (0.2                   | )
|Reinstatement/(reversal) of deferred tax asset on pension liability |  | 12.6                   |  
|Actuarial gain/(loss) recognized on pension schemes                 |  | 0.3                    |  
|Taxation on actuarial gain or loss                                  |  | (0.1                   | )
|                                                                    |  |                        |  
|Total Recognized Gains and Losses                                   |  | 19.4                   |  
|Prior year adjustment                                               |  |                        |  
|Implementation of UITF 38                                           |  | (32.2                  | )
|Implementation of FRS 17                                            |  | (41.9                  | )
|                                                                    |  |                        |  
|Total Recognized Gains and Losses since last Annual Report          |  | (54.7                  | )
|                                                                    |  |                        |  

---

The
statement of comprehensive income/(loss) required under United States generally accepted accounting principles is set forth in Note 34 of Notes to the Financial Statements.

The
Notes to the Financial Statements form part of these Financial Statements.

F-6

---



SPIRENT plc

CONSOLIDATED BALANCE SHEET

|                                                      |                             |                            |    | At December 31 |     
|----------------------------------------------------- | --------------------------- | -------------------------- | -- | -------------- | ----
|
|
|Fixed Assets                                          |                             |                            |    |                |     
|Intangible assets                                     |                             | 13                         |    |                |     
|Tangible assets                                       |                             | 14                         |    |                |     
|Investments                                           |                             |                            |    |                |     
|                                                      | Investment in joint venture |                            | 16 |                |     
|                                                      |                             | Share of gross assets      |    |                |     
|                                                      |                             | Share of gross liabilities |    |                |     
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    | 0.3            |     
|                                                      | Investment in associates    |                            | 17 |                | 14.6
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    |                |     
|Current Assets                                        |                             |                            |    |                |     
|Stocks                                                |                             | 18                         |    | 55.0           |     
|Debtors                                               |                             | 19                         |    | 86.9           |     
|Investments                                           |                             | 22                         |    |               |     
|Cash at bank and in hand                              |                             | 21                         |    | 37.6           |     
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    | 179.5          |     
|                                                      |                             |                            |    |                |     
|Current Liabilities                                   |                             |                            |    |                |     
|Creditors due within one year                         |                             | 23                         |    | (111.3         | )   
|Loans and overdrafts                                  |                             | 24                         |    | (1.8           | )   
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    | (113.1         | )   
|                                                      |                             |                            |    |                |     
|Net Current Assets                                    |                             |                            |    |                |     
|                                                      |                             |                            |    |                |     
|Assets less Current Liabilities                       |                             |                            |    |                |     
|Long-term Liabilities                                 |                             |                            |    |                |     
|Creditors due after more than one year                |                             | 25                         |    |                |     
|Provisions for Liabilities and Charges                |                             | 26                         |    |                |     
|Deferred taxation                                     |                             |                            |    | (2.3           | )   
|Other provisions                                      |                             |                            |    | (17.9          | )   
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    |                |     
|                                                      |                             |                            |    |                |     
|Assets less Liabilities (excluding Pension Liability) |                             |                            |    |                |     
|Pension Liability                                     |                             | 10                         |    |                |     
|                                                      |                             |                            |    |                |     
|Assets less Liabilities (including Pension Liability) |                             |                            |    |                |     
|                                                      |                             |                            |    |                |     

The
Notes to the Financial Statements form part of these Financial Statements.

F-7

---



|                              |  | At December 31
|----------------------------- |  | --------------
|
|
|Capital and Reserves          |  |               
|Called up share capital       |  | 31.5          
|Share premium account         |  | 697.5         
|Capital reserve               |  | 17.7          
|Capital redemption reserve    |  | 0.7           
|Investment in own shares      |  | (2.6          
|Profit and loss account       |  | (624.9        
|                              |  |               
|Shareholders' FundsEquity(1) |  |               
|Minority InterestsEquity     |  |               
|                              |  |               
|                              |  |               
|                              |  |               

---

The
Notes to the Financial Statements form part of these Financial Statements.

F-8

---





SPIRENT plc        CONSOLIDATED CASH FLOW STATEMENT

|                                                |               |    |  | Year ended December 31 |    
|----------------------------------------------- | ------------- | -- |  | ---------------------- | ---
|
|
|Net Cash Inflow from Operating Activities       |               | 8  |  | 68.2                   |    
|Dividends received from:                        |               |    |  |                        |    
|                                                | Joint venture |    |  |                        |   
|                                                | Associates    |    |  |                        | 0.1
|Returns on investments and servicing of finance |               | 20 |  | (23.2                  | )  
|Taxation                                        |               | 20 |  | 8.9                    |    
|Capital expenditure and financial investment    |               | 20 |  | (15.8                  | )  
|Acquisitions and disposals                      |               | 20 |  | 60.4                   |    
|Equity dividends paid                           |               |    |  |                       |    
|Management of liquid resources                  |               | 20 |  | 0.1                    |    
|Financing                                       |               | 20 |  | (143.6                 | )  
|                                                |               |    |  |                        |    
|Net Cash (Outflow)/Inflow(1)                    |               |    |  | (44.9                  | )  
|                                                |               |    |  |                        |    

Reconciliation of net cash flow to movement in net debt

|                                                                          |  |       |  | Year ended December 31 |  
|------------------------------------------------------------------------- |  | ----- |  | ---------------------- | -
|
|
|Net Cash (Outflow)/Inflow                                                 |  |       |  | (44.9                  | )
|Cash outflow/(inflow) arising from the change in debt and lease financing |  |       |  | 144.3                  |  
|Cash inflow arising from the change in liquid resources                   |  |       |  | (0.1                   | )
|                                                                          |  |       |  |                        |  
|Movement arising from Cash Flows                                          |  | 21    |  | 99.3                   |  
|Debt issue costs                                                          |  | 21    |  | (0.8                   | )
|Loans and finance leases acquired with subsidiary                         |  | 21,32 |  |                       |  
|New finance leases                                                        |  | 21    |  | (0.3                   | )
|Exchange adjustment                                                       |  | 21    |  | 6.1                    |  
|                                                                          |  |       |  |                        |  
|Movement in Net Debt                                                      |  |       |  | 104.3                  |  
|Net debt at January 1                                                     |  | 21    |  | (161.8                 | )
|                                                                          |  |       |  |                        |  
|Net Debt at December 31                                                   |  | 21    |  | (57.5                  | )
|                                                                          |  |       |  |                        |  

---

The
Notes to the Financial Statements form part of these Financial Statements.

F-9

---





SPIRENT plc        CONSOLIDATED STATEMENT OF MOVEMENT IN SHAREHOLDERS' FUNDS

Share Capital

|                                                    |  | Ordinary shares of 31/3 pence each
|--------------------------------------------------- |  | ----------------------------------
|
|
|At January 1, 2001                                  |  | 1,100.0                           
|Share options exercised                             |  |                                  
|Zarak deferred shares(1)                            |  |                                  
|                                                    |  |                                   
|At December 31, 2001                                |  | 1,100.0                           
|Increase in authorized share capital May 2, 2002(2) |  | 150.0                             
|Share options exercised                             |  |                                  
|Issued on acquisition of Caw Networks Inc.(3)       |  |                                  
|                                                    |  |                                   
|At December 31, 2002                                |  | 1,250.0                           
|Share options exercised                             |  |                                  
|                                                    |  |                                   
|At December 31, 2003                                |  | 1,250.0                           
|                                                    |  |                                   

---

The
Notes to the Financial Statements form part of these Financial Statements.

F-10

---





Share Capital and Reserves

|                                                                  |                           | Called up
share
capital |   | Share
premium
account(1) |   | Capital
reserve(1) |   | Merger
reserve(1) |   | Capital
redemption
reserve(1) |   | Profit
and loss
account |      | Investment
in own
shares(7) |       | Total    |      
|----------------------------------------------------------------- | ------------------------- | ----------------------- | - | ------------------------ | - | ------------------ | - | ----------------- | - | ----------------------------- | - | ----------------------- | ---- | --------------------------- | ----- | -------- | -----
|
|At January 1, 2001                                                |                           | 30.9                    |   | 713.6                    |   | 41.7               |   | 985.3             |   | 0.7                           |   | 62.5                    |      |                            |       | 1,834.7  |      
|Prior year adjustment                                             |                           |                         |   |                          |   |                    |   |                   |   |                               |   |                         |      |                             |       |          |      
|                                                                  | Implementation of UITF 38 |                         |  |                          |  |                    |  |                   |  |                               |  |                         |     |                             | (33.4 | )        | (33.4
|                                                                  | Implementation of FRS 17  |                         |  |                          |  |                    |  |                   |  |                               |  |                         | (1.7 | )                           |      |          | (1.7 
|                                                                  |                           |                         |   |                          |   |                    |   |                   |   |                               |   |                         |      |                             |       |          |      
|At January 1, 2001 restated                                       |                           | 30.9                    |   | 713.6                    |   | 41.7               |   | 985.3             |   | 0.7                           |   | 60.8                    |      | (33.4                       | )     | 1,799.6  |      
|Exchange adjustment on subsidiaries, joint venture and associates |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (0.2                    | )    |                            |       | (0.2     | )    
|Taxation on exchange effect                                       |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (2.6                    | )    |                            |       | (2.6     | )    
|Share issue                                                       |                           | 0.2                     |   | 14.4                     |   | (10.1              | ) |                  |   |                              |   |                        |      |                            |       | 4.5      |      
|Share issue acquisition retention bonuses                         |                           |                        |   |                         |   | (0.5               | ) | 2.0               |   |                              |   |                        |      |                            |       | 1.5      |      
|Contingent shares Net-HOPPER                                      |                           |                        |   | 0.7                      |   |                   |   | (5.8              | ) |                              |   |                        |      |                            |       | (5.1     | )    
|Shares transferred to ESOT                                        |                           |                        |   |                         |   |                   |   |                  |   |                              |   |                        |      | (0.7                        | )     | (0.7     | )    
|Loss for the year                                                 |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (804.0                  | )    |                            |       | (804.0   | )    
|Goodwill on disposal of subsidiaries acquired before 1998         |                           |                        |   |                         |   |                   |   |                  |   |                              |   | 65.1                    |      |                            |       | 65.1     |      
|Lapsed acquisition related options                                |                           |                        |   |                         |   | (3.3               | ) |                  |   |                              |   | 3.3                     |      |                            |       |         |      
|Actuarial loss recognised on pension schemes                      |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (14.8                   | )    |                            |       | (14.8    | )    
|Taxation on actuarial loss                                        |                           |                        |   |                         |   |                   |   |                  |   |                              |   | 4.5                     |      |                            |       | 4.5      |      
|Transfer from merger reserve                                      |                           |                        |   |                         |   |                   |   | (717.1            | ) |                              |   | 717.1                   |      |                            |       |         |      
|                                                                  |                           |                         |   |                          |   |                    |   |                   |   |                               |   |                         |      |                             |       |          |      
|At December 31, 2001 restated(2)(3)(4)                            |                           | 31.1                    |   | 728.7                    |   | 27.8               |   | 264.4             |   | 0.7                           |   | 29.2                    |      | (34.1                       | )     | 1,047.8  |      
|Exchange adjustment on subsidiaries, joint venture and associates |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (23.0                   | )    |                            |       | (23.0    | )    
|Taxation on exchange effect                                       |                           |                        |   |                         |   |                   |   |                  |   |                              |   | 0.1                     |      |                            |       | 0.1      |      
|Share issue                                                       |                           | 0.1                     |   | 5.7                      |   | (4.3               | ) |                  |   |                              |   |                        |      |                            |       | 1.5      |      
|Share issue restricted stock(5)                                   |                           | 0.1                     |   | 1.8                      |   |                   |   |                  |   |                              |   |                        |      |                            |       | 1.9      |      
|Obligation to issue share capital, stock compensation             |                           |                        |   |                         |   | 0.2                |   |                  |   |                              |   |                        |      |                            |       | 0.2      |      
|Obligation to issue share capital, acquisition expense            |                           |                        |   |                         |   | 0.1                |   |                  |   |                              |   |                        |      |                            |       | 0.1      |      
|Shares transferred to/(from) ESOT                                 |                           |                        |   |                         |   | (1.0               | ) |                  |   |                              |   |                        |      | 1.9                         |       | 0.9      |      
|Write down of shares in ESOT                                      |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (30.1                   | )    | 30.1                        |       |         |      
|Loss for the year                                                 |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (1,063.2                | )    |                            |       | (1,063.2 | )    
|Goodwill on disposal of subsidiaries acquired before 1998         |                           |                        |   |                         |   |                   |   |                  |   |                              |   | 157.8                   |      |                            |       | 157.8    |      
|Lapsed acquisition related options                                |                           |                        |   |                         |   | (5.2               | ) |                  |   |                              |   | 5.2                     |      |                            |       |         |      
|Reclassified to merger reserve                                    |                           |                        |   | (40.1                    | ) |                   |   | 40.1              |   |                              |   |                        |      |                            |       |         |      
|Actuarial loss recognised on pension schemes                      |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (23.6                   | )    |                            |       | (23.6    | )    
|Reversal of deferred tax asset on pension schemes                 |                           |                        |   |                         |   |                   |   |                  |   |                              |   | (5.4                    | )    |                            |       | (5.4     | )    
|Transfer on disposal and impairment                               |                           |                        |   |                         |   |                   |   | (304.5            | ) |                              |   | 304.5                   |      |                            |       |         |      
|                                                                  |                           |                         |   |                          |   |                    |   |                   |   |                               |   |                         |      |                             |       |          |      
|At December 31, 2002 restated(2)(3)(4)                            |                           | 31.3                    |   | 696.1                    |   | 17.6               |   |                  |   | 0.7                           |   | (648.5                  | )    | (2.1                        | )     | 95.1     |      
|                                                                  |                           |                         |   |                          |   |                    |   |                   |   |                               |   |                         |      |                             |       |          |      

F-11

---



|At December 31, 2002 restated(2)(3)(4) restated                   |  | 31.3 |  | 696.1 |  | 17.6 |   |  |  | 0.7 |  | (648.5 | ) | (2.1 | ) | 95.1  |  
|----------------------------------------------------------------- |  | ---- |  | ----- |  | ---- | - | - |  | --- |  | ------ | - | ---- | - | ----- | -
|Exchange adjustment on subsidiaries, joint venture and associates |  |     |  |      |  |     |   |  |  |    |  | 6.1    |   |     |   | 6.1   |  
|Taxation on exchange effect                                       |  |     |  |      |  |     |   |  |  |    |  | (0.2   | ) |     |   | (0.2  | )
|Share issue                                                       |  | 0.2  |  | 1.4   |  | (0.9 | ) |  |  |    |  |       |   |     |   | 0.7   |  
|Obligation to issue share capital, stock compensation             |  |     |  |      |  | 0.6  |   |  |  |    |  |       |   |     |   | 0.6   |  
|Obligation to issue share capital, acquisition expense(6)         |  |     |  |      |  | 2.7  |   |  |  |    |  |       |   |     |   | 2.7   |  
|Transfer of shares to ESOT                                        |  |     |  |      |  | 0.5  |   |  |  |    |  |       |   | (0.5 | ) |      |  
|Loss for the year                                                 |  |     |  |      |  |     |   |  |  |    |  | (0.5   | ) |     |   | (0.5  | )
|Goodwill on disposal of subsidiaries acquired before 1998         |  |     |  |      |  |     |   |  |  |    |  | 2.6    |   |     |   | 2.6   |  
|Lapsed acquisition related options                                |  |     |  |      |  | (1.2 | ) |  |  |    |  | 1.2    |   |     |   |      |  
|Actuarial gain recognised on pension schemes                      |  |     |  |      |  |     |   |  |  |    |  | 0.3    |   |     |   | 0.3   |  
|Taxation on actuarial gain                                        |  |     |  |      |  |     |   |  |  |    |  | (0.1   | ) |     |   | (0.1  | )
|Reinstatement of deferred tax asset on pension liability          |  |     |  |      |  |     |   |  |  |    |  | 12.6   |   |     |   | 12.6  |  
|Transfer                                                          |  |     |  |      |  | (1.6 | ) |  |  |    |  | 1.6    |   |     |   |      |  
|                                                                  |  |      |  |       |  |      |   |   |  |     |  |        |   |      |   |       |  
|At December 31, 2003(2)(3)(4)                                     |  | 31.5 |  | 697.5 |  | 17.7 |   |  |  | 0.7 |  | (624.9 | ) | (2.6 | ) | 119.9 |  
|                                                                  |  |      |  |       |  |      |   |   |  |     |  |        |   |      |   |       |  

---

The
market value of own shares held in trust at December 31, 2003 was £7.6 million (2002 £2.1 million).

The Notes to the Financial Statements form part of these Financial Statements.

F-12

---





SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS

1.     Accounting Policies

Basis of Accounting

The financial statements have been prepared under the historical cost convention and in accordance with applicable United Kingdom accounting standards.

In
preparing the financial statements for 2003 the Group has adopted Financial Reporting Standard ("FRS") 17 "Retirement Benefits". The adoption of the standard is a change in
accounting policy and the prior years results have been restated accordingly. Details of the effect of adopting FRS 17 are set out below.

The
Group has also implemented Urgent Issues Task Force ("UITF") Abstract 38 "Accounting for ESOP Trusts" which requires that the cost of own shares, previously reported as a fixed asset
investment, be shown as a deduction from shareholders' funds. A prior year adjustment has been made to reflect this change. Details of the effect of adopting UITF 38 are set out below.

Prior Year Adjustment

Prior year adjustment and restatement of prior years

The adoption of FRS 17 "Retirement Benefits" and UITF 38 "Accounting for ESOP Trusts" has required a change to the accounting treatment for defined benefit pension schemes
and for the investment in own shares. Prior year results have been restated accordingly.

(a)
Profit and loss account

|                              |  | Operating
costs |   | Other
finance
(expense)/ income |   | Provision
against
investment in
own shares |   | Loss for
the year
attributable to
shareholders |  
|----------------------------- |  | --------------- | - | ------------------------------- | - | ------------------------------------------ | - | ---------------------------------------------- | -
|
|2002                          |  |                 |   |                                 |   |                                            |   |                                                |  
|As previously reported        |  | (1,188.6        | ) |                                |   | (30.1                                      | ) | (1,080.4                                       | )
|Adoption of UITF 38           |  |                |   |                                |   | 30.1                                       |   | 30.1                                           |  
|Adoption of FRS 17            |  | (0.1            | ) | (0.3                            | ) |                                           |   | (0.4                                           | )
|                              |  |                 |   |                                 |   |                                            |   |                                                |  
|December 31, 2002 as restated |  | (1,188.7        | ) | (0.3                            | ) |                                           |   | (1,050.7                                       | )
|                              |  |                 |   |                                 |   |                                            |   |                                                |  

|                              |  | Operating
costs |   | Other
finance
(expense)/ income |  | Taxation |   | Loss for
the year
attributable to
shareholders |  
|----------------------------- |  | --------------- | - | ------------------------------- |  | -------- | - | ---------------------------------------------- | -
|
|2001                          |  |                 |   |                                 |  |          |   |                                                |  
|As previously reported        |  | (1,044.3        | ) |                                |  | (32.6    | ) | (763.5                                         | )
|Adoption of FRS 17            |  | (1.1            | ) | 0.4                             |  | 0.2      |   | (0.5                                           | )
|                              |  |                 |   |                                 |  |          |   |                                                |  
|December 31, 2001 as restated |  | (1,045.4        | ) | 0.4                             |  | (32.4    | ) | (764.0                                         | )
|                              |  |                 |   |                                 |  |          |   |                                                |  

The
profit and loss charge under the previous standard SSAP 24 comprised a regular pension cost with the surplus or deficit spread over the remaining service lives of the employees. Under
FRS 17, three new items are included in the profit and loss account.

F-13

---



The
full regular service cost of providing benefits to employees in defined benefit schemes is included as an operating cost in the year together with the cost of providing benefit improvements
in respect of past service and gains or losses arising on settlements or curtailments. A credit for the expected return on the schemes' assets and a charge for the increase durung the year of the
present value of the schemes' liabilities because the benefits are one year closer to settlement, is included as other finance expense or income in the profit and loss account. Differences
arising between the actual and expected returns on the schemes' assets together with changes to the actuarial assumptions are included in the statement of total recognized gains and losses.

(b)
Consolidated balance sheet

|                              |  | Fixed asset
investments
other investments |   | Creditors due
after one
year
pension |   | Pension
liability |   | Reserves
investment
in own
shares |   | Profit
and loss
account |  
|----------------------------- |  | ------------------------------------------ | - | ------------------------------------- | - | ----------------- | - | ---------------------------------- | - | ----------------------- | -
|
|2002                          |  |                                            |   |                                       |   |                   |   |                                    |   |                         |  
|As previously reported        |  | 2.1                                        |   | (4.8                                  | ) |                  |   |                                   |   | (606.6                  | )
|Adoption of UITF 38           |  | (2.1                                       | ) |                                      |   |                  |   | (2.1                               | ) |                        |  
|Adoption of FRS 17            |  |                                           |   | 4.3                                   |   | (46.2             | ) |                                   |   | (41.9                   | )
|                              |  |                                            |   |                                       |   |                   |   |                                    |   |                         |  
|December 31, 2002 as restated |  |                                           |   | (0.5                                  | ) | (46.2             | ) | (2.1                               | ) | (648.5                  | )
|                              |  |                                            |   |                                       |   |                   |   |                                    |   |                         |  

Under
FRS 17 the assets of the defined benefit schemes are measured at market value at the balance sheet date and the liabilities of the schemes are measured using the projected unit method. The
discount rate used to measure the schemes' liabilities is the current rate of return on an AA corporate bond of equivalent term and currency to the liabilities. The extent to which the
schemes' assets exceed or fall short of the schemes' liabilities is shown as a surplus or deficit on the balance sheet net of deferred tax. Deferred tax assets were not recognized in 2002 as
there was insufficient evidence at that time to support recognition under FRS 19 "Deferred Tax". The unfunded pension obligation, previously provided for and disclosed as a creditor due after one
year, is included in the pension fund liability.

Basis of Consolidation

The consolidated profit and loss account and balance sheet incorporate the audited accounts of the Company and all its subsidiaries made up to the balance sheet date.

Results
of subsidiaries acquired in the year are consolidated from the date of acquisition. The consolidated financial statements include the Group's share of profits of its joint ventures and
associates.

Associates
are entities in which the Group has a continuing participating interest, other than subsidiaries, and exercises significant influence over their operating and financial policies.
Results are based on management accounts to December 31.

Entities
in which the Group holds an interest on a long-term basis and which are jointly controlled by the Group and other parties are treated as joint ventures. Joint ventures are
accounted for using the gross equity method. Results are based on management accounts to December 31.

F-14

---



Foreign Currencies

Transactions in foreign currencies are recorded at the rate ruling at the date of transaction. The results of overseas subsidiaries, joint ventures and associates are
translated into sterling using average rates.

Monetary
assets and liabilities denominated in foreign currencies are translated at the rates ruling at the balance sheet date. Profits and losses arising from the retranslation of opening net
assets of overseas subsidiaries, treating long-term intra-group loans as part of the equity investment, and exchange adjustments arising from the translation of the results of
overseas subsidiaries, joint ventures and associates, are dealt with through reserves.

All
other profits and losses on exchange are taken to the profit and loss account, with the exception of differences on foreign currency borrowings used to finance or provide a hedge against
Group equity investments in overseas subsidiaries, which are taken directly to reserves together with the exchange differences on the carrying amount of the related investments.

Key
exchange rates used are as follows:

|          |  | Average Rates
Year ended
December 31 |  | Year-end
Rates
December 31
|--------- |  | ------------------------------------ |  | --------------------------
|
|US dollar |  | 1.64                                 |  | 1.51                      
|Euro      |  | 1.45                                 |  | 1.59                      

Financial Instruments

The Group uses derivative financial instruments to hedge its exposures to fluctuations in interest and foreign exchange rates. The Group's policy is not to undertake any
trading activity in financial instruments. Financial instruments will be accounted for as hedges when designated as hedges at the inception of the contract.

Forward
exchange contracts are used to hedge foreign exchange exposures arising on forecast receipts and payments in foreign currencies. The rates under these contracts are used to record the
hedged item, and as such gains and losses on foreign currency contracts are off-set against the foreign exchange gains and losses on the related financial assets and liabilities.
Where the contract is a hedge against future transactions, gains and losses are deferred until the transaction occurs.

Interest
rate swaps are occasionally used to hedge the Group's exposure to movements in interest rates. Receipts and payments on interest rate instruments are recognized on an accruals basis,
over the life of the underlying financial instrument. Interest rate swaps are not revalued to fair value or shown in the Group balance sheet at the year end but are disclosed in the fair value
table in note 29.

Gains
or losses arising on hedging instruments, which are canceled due to termination of the underlying exposure, are taken to the profit and loss account immediately.

Finance
costs associated with debt issuances are charged to the profit and loss account over the life of the instruments.

F-15

---



The
aggregate fair values at the balance sheet date of the hedging instruments described above are disclosed in note 29.

Liquid
resources include short-term deposits, government securities and similar securities, which are readily convertible into known amounts of cash.

Short-term
debtors and creditors that meet the definition of a financial asset or liability, respectively, have been excluded from all analyses prepared under FRS 13 "Derivatives and
Other Financial Instruments: Disclosures", including numerical disclosures except for the analysis of net currency exposure, as permitted by the Standard.

Turnover

Represents the amounts invoiced to customers for goods and services during the year, excluding tax and intra-group transactions.

Revenue Recognition

Revenue from product sales of hardware and software is recognized at time of delivery and acceptance.

Terms
of acceptance are dependent upon the specific contractual arrangement agreed with the customer. Where the sale is to a new customer and installation is to be performed, revenue recognition
is deferred until acceptance has occurred. Revenue recognition is also deferred until acceptance where a new product is supplied to an existing customer.

Revenue
from multiple element contracts is allocated based on prices charged for each individual element when sold separately.

Revenue
from services is recognized ratably over the period of performance.

The
Group does not enter into a significant number of long-term contracts. Revenue and estimated profits on long-term contracts are recognized under the
percentage-of-completion method of accounting. When estimates of total contract revenues and costs indicate a loss, a provision for the entire amount of the contract loss
is recognized in the period in which the loss becomes evident.

The
Group does not enter into bill and hold transactions.

In
addition, revenue is only recognized when collectibility is probable.

Product Development

Expenditure is charged to the profit and loss account in the year in which it is incurred.

Pension Contributions

In the United Kingdom the Group operates two defined pension schemes for the benefit of employees. These schemes require contributions to be made to separately
administered funds, based on triennial actuarial valuations. Other schemes are defined contribution in nature.

F-16

---



The
Group has fully adopted FRS 17 "Retirement Benefits" in the financial statements for the year to December 31, 2003. This is a change in accounting policy and results in a restatement
to the previous year's accounts as described above. The assets of the defined benefit schemes are measured at their market value at the balance sheet date and the liabilities of the schemes are
measured using the projected unit method. The discount rate used to measure the schemes' liabilities is the current rate of return on an AA corporate bond of equivalent term and currency to the
liabilities. The extent to which the schemes' assets exceed or fall short of the schemes' liabilities is shown as a surplus or deficit in the balance sheet net of deferred tax.

The
regular service cost of providing retirement benefits to employees in defined benefit schemes is charged to operating profit in the year together with the cost of providing benefit
improvements in respect of past service and gains or losses arising on settlements and curtailments.

A
credit for the expected return on the schemes' assets and a charge for the increase during the period in the present value of the schemes' liabilities because the benefits are one year closer
to settlement, are included in other finance expense or income in the profit and loss account. Differences arising between the actual and expected returns on the schemes' assets together with
changes in the actuarial assumptions are included in the statement of total recognized gains and losses.

Contributions
payable to the other overseas defined contribution plans are charged to the profit and loss account in the year for which they are due.

Deferred Taxation

Deferred taxation is provided on an undiscounted basis on all timing differences that have originated but not reversed at the balance sheet date except as referred to
below. Amounts provided are calculated with reference to tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws
that have been enacted or substantively enacted by the balance sheet date.

Provision
is made for tax that would arise on the remittance of the retained earnings of overseas subsidiaries, associates and joint ventures, only to the extent that, at the balance sheet date,
the dividends have been accrued as receivable.

Deferred
tax assets are recognized only to the extent that it is considered more likely than not that there will be suitable taxable profits from which the future reversal of the underlying
timing differences can be deducted.

Deferred
tax is not provided on gains on fair value adjustments to fixed assets arising at acquisition, or gains on disposal of fixed assets that have been rolled over into replacement assets,
unless there is a binding agreement to dispose of the assets concerned. Provision will not be made where it is considered more likely than not that the taxable gain will be rolled over into
replacement assets and charged to tax only when the replacement assets are sold.

Goodwill

Goodwill arising on the acquisition of subsidiaries and representing the excess of cost over the fair value of the attributable assets and liabilities acquired, is
capitalized as an intangible asset and

F-17

---



amortized over its estimated useful economic life up to a maximum of 20 years. Goodwill is reviewed for impairment at the end of the first full financial year following acquisition and in
other
periods if events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill arising prior to 1998 and previously written off against reserves has not been
reinstated but, in accordance with FRS 10 "Goodwill and Intangible Assets" would be charged to the profit and loss account on the subsequent disposal of the business to which it related. Where
impairment has been identified in accordance with FRS 11 "Impairment of Fixed Assets and Goodwill", goodwill arising prior to 1998 has also been reviewed for impairment.

Other Intangible Assets

Other separately identifiable intangible assets such as patent fees, license fees and trade marks are capitalized in the balance sheet only when the intangible asset is
purchased in the acquisition of a business and the value can be measured reliably or the intangible asset is purchased separately. Such intangible assets are amortized over their useful economic
lives up to a maximum of 20 years. The carrying values of intangible assets are reviewed for impairment at the end of the first full year following acquisition and in other periods if
events or changes in circumstances indicate the carrying value may not be recoverable.

Tangible Assets

Depreciation is not provided on freehold land. Depreciation is provided to write off all other assets over their estimated useful lives at rates which take into account
commercial conditions at their location. Usual asset lives are as follows:

|Freehold buildings                |                           | 50 years                        
|--------------------------------- | ------------------------- | --------------------------------
|Leasehold properties              |                           | 50 years or lease period if less
|Plant and machinery               |                           | 3 to 8 years                    
|Fixtures, fittings and equipment: |                           |                                 
|                                  | Building installations    |                                 
|                                  | Fittings and equipment    |                                 
|                                  | Motor vehicles            |                                 
|                                  | Business systems software |                                 

The
carrying values of tangible fixed assets are reviewed for impairment in periods if events or changes in circumstances indicate the carrying value may not be recoverable.

Capital
grants are treated as deferred income and are released to the profit and loss account over the estimated useful lives of the assets to which they relate.

Assets
obtained under finance leases and hire purchase contracts are capitalized in the balance sheet and are depreciated over their estimated useful lives. The interest elements of the rental
obligations are charged to the profit and loss account over the periods of the leases and hire purchase contracts in proportion to the balance of capital repayments outstanding.

F-18

---



Operating
lease rentals are charged to the profit and loss account over the period of the lease.

Stocks

Stocks are valued at the lower of cost and estimated net realizable value. Cost includes all costs in bringing each product to its present location and condition, being
the full manufacturing cost on a first-in-first-out basis, including all attributable overheads based on a normal level of activity. Net realizable value
represents selling price less further costs to be incurred to completion and on sale.

Shipping and Handling Costs

Shipping and handling costs are included within selling and distribution costs.

Trade Debtors

Trade debtors are stated at cost less a provision for doubtful accounts. Trade debtors are provided for based on exposures on specific customer accounts as soon as that
exposure is identified by management through the process of regular reviews.

Advertising Costs

Advertising costs are expensed as incurred.

Research and Development Costs

Research and development expenditure is charged to the profit and loss account in the year in which it is incurred.

Development
costs related to software products are expensed as incurred until the technological feasibility of the product has been established. Technological feasibility in Spirent's
circumstances occurs when a working model is completed. After technological feasibility is established, additional costs are capitalized. Spirent believes its process for developing software is
essentially completed with the establishment of technological feasibility, and, accordingly, no software development costs have been capitalized to date.

Repairs and Maintenance Costs

Repairs and maintenance costs are expensed as incurred.

Use of Estimates

The preparation of financial statements requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet date, and the reported amount of revenues and expenses for the reporting period. Actual results could differ from those estimates.

F-19

---



2.     Segmental Analysis

Spirent is a leading communications technology company focused on delivering innovative systems and services to meet the needs of customers worldwide.

Our
operations are organized into three operating groups: Communications, Network Products and Systems.

The
Company evaluates performance for each reportable segment based on turnover and operating profit for ongoing operations before goodwill amortization and exceptional items. Under UK
GAAP, the disposal of Sensing Solutions in the year ended December 31, 2001 qualifies to be treated as a discontinued operation.

The
reportable segments are:

Communications Group

Our Communications group is a global provider of integrated performance analysis and service assurance solutions that enable the development and deployment of
next-generation networking technologies.

a) Performance Analysis division

The Performance Analysis division was built through acquisition and continued development of the Adtech, CAW, the Digital Subscriber line testing division of
Consultronics, Global Simulation Systems, Netcom Systems, Telecom Analysis Systems and Zarak product lines. This division develops testing solutions for a broad range of communications
technologies critical to the deployment of next-generation networks. Our systems test wireless and wireline networks and equipment, including core terabit routers, broadband access
devices, third generation wireless handsets, Internet infrastructure, web applications and security and Internet telephony. Our systems enable customers to emulate large-scale networks, introduce
impairments and stress test equipment to ensure maximum performance and conformance to industry standards.

b) Service Assurance division

The Service Assurance division was formed at the end of 2000 with the acquisitions of Hekimian and Net-HOPPER. Our field test activities were transferred from
Performance Analysis to our Service Assurance division in 2003. Prior years have been restated to reflect this. The Service Assurance division provides network monitoring and management systems
for service providers to assure the quality of their high bandwidth services. Our systems enable efficient delivery and maintenance of leased line voice and data, digital subscriber line,
wireless, optical and IP networks. The division provides operations support systems, remote test probes, network test access systems and the expertise to implement solutions over a national or
global scale.

Network Products group

The Network Products group provides innovative solutions for fastening, identifying, insulating, organizing, routing and connectivity that add value to electrical and
communication networks in a wide range of applications.

F-20

---



Systems group

Our Systems group now comprises PG Drives Technology, which develops power control systems for specialist electrical vehicles in the mobility and industrial markets, and
an aerospace business that provides ground-based logistics support systems for the aviation market.

Sensing Solutions group

The Sensing Solutions group provided products and subsystems for sensing temperature, humidity, pressure and gas. This group was sold in November 2001.

Turnover

|                        |                      | Year ended December 31
|----------------------- | -------------------- | ----------------------
|
|
|Continuing operations   |                      |                       
|                        | Performance Analysis |                       
|                        | Service Assurance    |                       
|                        |                      |                       
|                        | Communications       |                       
|                        | Network Products     |                       
|                        | Systems              |                       
|                        |                      |                       
|                        |                      | 466.2                 
|Discontinued operations |                      |                       
|                        | Sensing Solutions    |                       
|                        |                      |                       
|                        |                      | 466.2                 
|                        |                      |                       

Major customers

There were no customers which individually exceeded 10% of total turnover in any of the three years in the period ended December 31, 2003.

F-21

---





SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS

2.     Segmental Analysis (Continued)

Inter-segmental Transactions

|                        |                      | Year ended December 31
|----------------------- | -------------------- | ----------------------
|
|
|
|
|Turnover                |                      |                       
|Continuing operations   |                      |                       
|                        | Performance Analysis |                       
|                        | Service Assurance    |                       
|                        |                      |                       
|                        | Communications       |                       
|                        | Network Products     |                       
|                        | Systems              |                       
|                        |                      |                       
|                        |                      | 466.2                 
|Discontinued operations |                      |                       
|                        | Sensing Solutions    |                       
|                        |                      |                       
|                        |                      | 466.2                 
|                        |                      |                       

Corporate Charge Allocation

Corporate charges, which are not significant, are allocated among segments in line with operating results.

F-22

---



Profit/(Loss) before Taxation

|                                                                     |                      | Year ended December 31 |     
|-------------------------------------------------------------------- | -------------------- | ---------------------- | ----
|
|
|Operating profit before goodwill amortization and exceptional items: |                      |                        |     
|Continuing operations                                                |                      |                        |     
|                                                                     | Performance Analysis |                        | 4.4 
|                                                                     | Service Assurance    |                        | 9.4 
|                                                                     |                      |                        |     
|                                                                     | Communications       |                        | 13.8
|                                                                     | Network Products     |                        | 16.7
|                                                                     | Systems              |                        | 5.5 
|                                                                     |                      |                        |     
|                                                                     |                      | 36.0                   |     
|Discontinued operations                                              |                      |                        |     
|                                                                     | Sensing Solutions    |                        |    
|                                                                     |                      |                        |     
|                                                                     |                      | 36.0                   |     
|                                                                     |                      |                        |     
|Operating exceptional item, goodwill impairment:                     |                      |                        |     
|Continuing operations                                                |                      |                        |     
|                                                                     | Performance Analysis |                        |    
|                                                                     | Service Assurance    |                        |    
|                                                                     |                      |                        |     
|                                                                     | Communications       |                        |    
|                                                                     | Network Products     |                        |    
|                                                                     | Systems              |                        |    
|                                                                     |                      |                        |     
|                                                                     |                      |                       |     
|                                                                     |                      |                        |     
|Operating exceptional items, other:                                  |                      |                        |     
|Continuing operations                                                |                      |                        |     
|                                                                     | Performance Analysis |                        | (5.1
|                                                                     | Service Assurance    |                        | (0.1
|                                                                     |                      |                        |     
|                                                                     | Communications       |                        | (5.2
|                                                                     | Network Products     |                        |    
|                                                                     | Systems              |                        |    
|                                                                     | Non-segmental        |                        | (2.3
|                                                                     |                      |                        |     
|                                                                     |                      | (7.5                   | )   
|                                                                     |                      |                        |     

F-23

---



|                                                        |                      | Year ended December 31 |     
|------------------------------------------------------- | -------------------- | ---------------------- | ----
|
|
|Goodwill amortization:                                  |                      |                        |     
|Continuing operations                                   |                      |                        |     
|                                                        | Performance Analysis |                        | (3.9
|                                                        | Service Assurance    |                        | (5.5
|                                                        |                      |                        |     
|                                                        | Communications       |                        | (9.4
|                                                        | Network Products     |                        | (0.3
|                                                        | Systems              |                        |    
|                                                        |                      |                        |     
|                                                        |                      | (9.7                   | )   
|Discontinued operations                                 |                      |                        |     
|                                                        | Sensing Solutions    |                        |    
|                                                        |                      |                        |     
|                                                        |                      | (9.7                   | )   
|                                                        |                      |                        |     
|Operating Profit/(Loss)                                 |                      | 18.8                   |     
|Income from interests in joint ventures                 |                      | 2.7                    |     
|Income from interests in associates                     |                      | 2.1                    |     
|Amortization of goodwill on associate                   |                      |                       |     
|Net interest expense                                    |                      | (9.3                   | )   
|Exceptional interest expense                            |                      | (16.1                  | )   
|Profit/(loss) on the disposal and closure of operations |                      | 3.6                    |     
|Other finance (expense)/income                          |                      | (1.5                   | )   
|                                                        |                      |                        |     
|Profit/(Loss) before Taxation                           |                      | 0.3                    |     
|                                                        |                      |                        |     

F-24

---



Depreciation

|                        |                      | Year ended December 31
|----------------------- | -------------------- | ----------------------
|
|
|Continuing operations   |                      |                       
|                        | Performance Analysis |                       
|                        | Service Assurance    |                       
|                        |                      |                       
|                        | Communications       |                       
|                        | Network Products     |                       
|                        | Systems              |                       
|                        |                      |                       
|                        |                      | 29.3                  
|Discontinued operations |                      |                       
|                        | Sensing Solutions    |                       
|                        |                      |                       
|                        |                      | 29.3                  
|                        |                      |                       

Product Development

|                        |                      | Year ended December 31
|----------------------- | -------------------- | ----------------------
|
|
|Continuing operations   |                      |                       
|                        | Performance Analysis |                       
|                        | Service Assurance    |                       
|                        |                      |                       
|                        | Communications       |                       
|                        | Network Products     |                       
|                        | Systems              |                       
|                        |                      |                       
|                        |                      | 66.0                  
|Discontinued operations |                      |                       
|                        | Sensing Solutions    |                       
|                        |                      |                       
|                        |                      | 66.0                  
|                        |                      |                       

F-25

---



Operating Assets

|                                                      |                      | At December 31 |      
|----------------------------------------------------- | -------------------- | -------------- | -----
|
|
|Continuing operations                                 |                      |                |      
|                                                      | Performance Analysis |                | 85.6 
|                                                      | Service Assurance    |                | 60.5 
|                                                      |                      |                |      
|                                                      | Communications       |                | 146.1
|                                                      | Network Products     |                | 93.7 
|                                                      | Systems              |                | 5.0  
|                                                      |                      |                |      
|Segmental operating assets                            |                      | 244.8          |      
|Investment in joint venture                           |                      | 0.3            |      
|Investment in associates                              |                      | 14.6           |      
|Corporation tax payable                               |                      | (24.7          | )    
|Proposed dividend                                     |                      |               |      
|                                                      |                      |                |      
|Operating Assets                                      |                      | 235.0          |      
|Net borrowings                                        |                      | (57.5          | )    
|Provisions for liabilities and charges                |                      | (20.2          | )    
|Deferred tax asset                                    |                      |               |      
|                                                      |                      |                |      
|Assets less Liabilities (excluding Pension Liability) |                      | 157.3          |      
|Pension liability (note 10)                           |                      | (35.2          | )    
|                                                      |                      |                |      
|Assets less Liabilities (including Pension Liability) |                      | 122.1          |      
|                                                      |                      |                |      

Long-lived Assets

|                      |                      | At December 31
|--------------------- | -------------------- | --------------
|
|
|Continuing operations |                      |               
|                      | Performance Analysis |               
|                      | Service Assurance    |               
|                      |                      |               
|                      | Communications       |               
|                      | Network Products     |               
|                      | Systems              |               
|                      |                      |               
|                      |                      | 90.2          
|                      |                      |               

F-26

---



Total Assets

|                            |                      | At December 31
|--------------------------- | -------------------- | --------------
|
|
|Continuing operations       |                      |               
|                            | Performance Analysis |               
|                            | Service Assurance    |               
|                            |                      |               
|                            | Communications       |               
|                            | Network Products     |               
|                            | Systems              |               
|                            |                      |               
|Segmental total assets      |                      | 371.3         
|Investment in joint venture |                      | 0.3           
|Investment in associates    |                      | 14.6          
|Deferred tax asset          |                      |              
|                            |                      |               
|                            |                      | 386.2         
|                            |                      |               

Capital Expenditure

|                        |                      | Year ended December 31
|----------------------- | -------------------- | ----------------------
|
|
|Continuing operations   |                      |                       
|                        | Performance Analysis |                       
|                        | Service Assurance    |                       
|                        |                      |                       
|                        | Communications       |                       
|                        | Network Products     |                       
|                        | Systems              |                       
|                        |                      |                       
|                        |                      | 17.0                  
|Discontinued operations |                      |                       
|                        | Sensing Solutions    |                       
|                        |                      |                       
|                        |                      | 17.0                  
|                        |                      |                       

F-27

---



3.     Geographical Analysis

Turnover by Market

|                         |                                        | Year ended December 31
|------------------------ | -------------------------------------- | ----------------------
|
|
|Continuing operations:   |                                        |                       
|                         | Europe                                 |                       
|                         | North America*                         |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       
|Discontinued operations: |                                        |                       
|                         | Europe                                 |                       
|                         | North America*                         |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        |                      
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       

---



F-28

---





SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS (Continued)

3.     Geographical Analysis (Continued)

Turnover by Source

|                         |                                        | Year ended December 31
|------------------------ | -------------------------------------- | ----------------------
|
|
|Continuing operations:   |                                        |                       
|                         | Europe                                 |                       
|                         | North America*                         |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       
|Discontinued operations: |                                        |                       
|                         | Europe                                 |                       
|                         | North America*                         |                       
|                         | Asia Pacific, Rest of Americas, Africa |                       
|                         |                                        |                       
|                         |                                        |                      
|                         |                                        |                       
|                         |                                        | 466.2                 
|                         |                                        |                       

---

* North
America as referred to above, consists almost entirely of the United States.

United
Kingdom turnover was £75.1 million (2002 £71.6 million; 2001 £107.5 million) and in respect of discontinued operations nil (2002
nil; 2001 £13.3 million). Exports from the United Kingdom were £33.6 million (2002 £32.4 million; 2001 £46.3 million),
representing 7.2% of total sales (2002 5.8%; 2001 5.8%).

F-29

---



Operating Profit/(Loss)

|                                                                     |                                        | Year ended December 31 |     
|-------------------------------------------------------------------- | -------------------------------------- | ---------------------- | ----
|
|
|Operating profit before goodwill amortization and exceptional items: |                                        |                        |     
|Continuing operations:                                               |                                        |                        |     
|                                                                     | Europe                                 |                        | 21.7
|                                                                     | North America*                         |                        | 13.0
|                                                                     | Asia Pacific, Rest of Americas, Africa |                        | 1.3 
|                                                                     |                                        |                        |     
|                                                                     |                                        | 36.0                   |     
|                                                                     |                                        |                        |     
|Discontinued operations:                                             |                                        |                        |     
|                                                                     | Europe                                 |                        |    
|                                                                     | North America*                         |                        |    
|                                                                     | Asia Pacific, Rest of Americas, Africa |                        |    
|                                                                     |                                        |                        |     
|                                                                     |                                        |                       |     
|                                                                     |                                        |                        |     
|                                                                     |                                        | 36.0                   |     
|                                                                     |                                        |                        |     
|Operating exceptional items, goodwill impairment:                    |                                        |                        |     
|Continuing operations:                                               |                                        |                        |     
|                                                                     | Europe                                 |                        |    
|                                                                     | North America*                         |                        |    
|                                                                     | Asia Pacific, Rest of Americas, Africa |                        |    
|                                                                     |                                        |                        |     
|                                                                     |                                        |                       |     
|                                                                     |                                        |                        |     
|Operating exceptional items, other:                                  |                                        |                        |     
|Continuing operations:                                               |                                        |                        |     
|                                                                     | Europe                                 |                        | (2.3
|                                                                     | North America*                         |                        | (5.2
|                                                                     | Asia Pacific, Rest of Americas, Africa |                        |    
|                                                                     |                                        |                        |     
|                                                                     |                                        | (7.5                   | )   
|                                                                     |                                        |                        |     

F-30

---



|                         |                                        | Year ended December 31 |     
|------------------------ | -------------------------------------- | ---------------------- | ----
|
|
|Goodwill amortization:   |                                        |                        |     
|Continuing operations:   |                                        |                        |     
|                         | Europe                                 |                        | (1.5
|                         | North America*                         |                        | (8.2
|                         | Asia Pacific, Rest of Americas, Africa |                        |    
|                         |                                        |                        |     
|                         |                                        | (9.7                   | )   
|                         |                                        |                        |     
|Discontinued operations: |                                        |                        |     
|                         | Europe                                 |                        |    
|                         | North America*                         |                        |    
|                         | Asia Pacific, Rest of Americas, Africa |                        |    
|                         |                                        |                        |     
|                         |                                        |                       |     
|                         |                                        |                        |     
|                         |                                        | (9.7                   | )   
|                         |                                        |                        |     
|Operating Profit/(Loss)  |                                        | 18.8                   |     
|                         |                                        |                        |     

---

United
Kingdom operating profit was £8.4 million (2002 £9.3 million loss; 2001 £11.8 million profit) and in respect of discontinued
operations nil (2002 nil; 2001 £1.8 million).

United
Kingdom operating exceptional items were £2.3 million (2002 £2.1 million; 2001 £2.5 million).

United
Kingdom goodwill impairment was nil (2002 £19.5 million; 2001 nil).

United
Kingdom goodwill amortization was £1.4 million (2002 £1.6 million; 2001 £1.4 million). United Kingdom goodwill amortization in
respect of discontinued operations was nil (2002 nil; 2001 £0.1 million).

|                                       |  | At December 31
|-------------------------------------- |  | --------------
|
|
|Operating Assets                       |  |               
|Europe                                 |  | 74.0          
|North America*                         |  | 158.8         
|Asia Pacific, Rest of Americas, Africa |  | 12.0          
|                                       |  |               
|Segmental operating assets             |  | 244.8         
|                                       |  |               

---

* North
America as referred to above consists almost entirely of the United States.

F-31

---



United
Kingdom operating assets were £34.1 million (2002 £30.2 million; 2001 £52.3 million) and in respect of discontinued operations nil
(2002 nil; 2001 nil).

Long-lived Assets

|                                       |  | At December 31
|-------------------------------------- |  | --------------
|
|
|Europe                                 |  | 43.5          
|North America*                         |  | 38.5          
|Asia Pacific, Rest of Americas, Africa |  | 8.2           
|                                       |  |               
|                                       |  | 90.2          
|                                       |  |               

---

* North
America as referred to above consists almost entirely of the United States.

United
Kingdom long-lived assets were £18.9 million (2002 £21.0 million; 2001 £29.1 million) and in respect of discontinued
operations nil (2002 nil; 2001 nil).

4.     Net Operating Expenses

|                                                                          |                     | Year ended December 31 |    
|------------------------------------------------------------------------- | ------------------- | ---------------------- | ---
|
|
|
|Selling and distribution                                                  |                     | 110.0                  |    
|Administration                                                            |                     | 58.3                   |    
|Other operating income                                                    |                     | (0.7                   | )  
|                                                                          |                     |                        |    
|Net operating expenses                                                    |                     | 167.6                  |    
|                                                                          |                     |                        |    
|Included within administration costs above:                               |                     |                        |    
|Operating exceptional items                                               |                     |                        |    
|                                                                          | Goodwill impairment |                        |   
|                                                                          | Other               |                        | 7.5
|Goodwill amortization                                                     |                     | 9.7                    |    
|                                                                          |                     |                        |    
|Net operating expenses before goodwill amortization and exceptional items |                     | 150.4                  |    
|                                                                          |                     |                        |    

F-32

---



5.     Operating Profit/(Loss)

Operating profit/(loss) is arrived at after charging:

|                                                             |                                   | Year ended December 31
|------------------------------------------------------------ | --------------------------------- | ----------------------
|
|
|Goodwill amortization                                        |                                   | 9.7                   
|Goodwill impairment (note 7)                                 |                                   |                      
|Exceptional items (note 6)                                   |                                   | 7.5                   
|Depreciationowned assets                                    |                                   | 29.0                  
|finance leased assets                                       |                                   | 0.3                   
|Operating lease costsplant and equipment                    |                                   | 0.4                   
|land and
buildings                                          |                                   | 11.3                  
|Advertising costs                                            |                                   | 6.0                   
|Product development costs                                    |                                   | 66.0                  
|Impact of exchange rate movements on profit before taxation: |                                   |                       
|                                                             | Benefit/(cost)                    |                       
|Disclosure of fees paid to auditors                          |                                   |                       
|Audit services                                               |                                   |                       
|Audit feesErnst & Young LLP                                 |                                   | 1.2                   
|                                                             |                                   |                       
|Other fees paid to Ernst & Young                             |                                   |                       
|                                                             | Further assurance services        |                       
|                                                             | Tax services                      |                       
|                                                             |                                   |                       
|                                                             |                                   | 0.7                   
|                                                             |                                   |                       
|Other fees were paid to                                      |                                   |                       
|                                                             | Ernst & Young LLP, United Kingdom |                       
|                                                             | Ernst & Young overseas            |                       
|                                                             |                                   |                       
|                                                             |                                   | 0.7                   
|                                                             |                                   |                       

6.     Operating Exceptional ItemsOther

|                                 |  | Year ended December 31
|-------------------------------- |  | ----------------------
|
|
|Finance renegotiation costs      |  | 2.3                   
|Restructuring costs              |  | 3.8                   
|Tangible fixed asset write-downs |  | 2.2                   
|Lease provisions                 |  | (0.8                  
|Stock provisions                 |  |                      
|Receivables provisions           |  |                      
|Acquisition retention bonuses    |  |                      
|                                 |  |                       
|                                 |  | 7.5                   
|                                 |  |                       

Restructuring
costs include the costs of redundancy resulting from the actions taken by the Group in response to the deterioration in trading and are primarily within the Communications Group.
Lease provisions for vacated properties have been credited amounting to £0.8 million (2002 £20.2 million charged), these are primarily within the
Communications Group.

F-33

---



7.     Goodwill Impairment

In accordance with FRS 10 "Goodwill and Intangible Assets", goodwill is reviewed for impairment at the end of the first full financial year following acquisition and in
other periods if events or changes in circumstances indicate the carrying value may not be recoverable.

At
December 31, 2003, after carrying out the appropriate valuation exercises no impairment charges were required.

The
deterioration in trading in the second half of 2002 in the telecommunications market together with the significant fall in the Spirent share price did necessitate an impairment review of our
businesses at that time. This review resulted in impairment losses totaling £923.3 million being recognized in 2002. A similar impairment loss of
£724.6 million was recognized during 2001. The losses charged in 2002 and 2001 are the aggregate from the impairment reviews of each individual income-generating unit and
determined in accordance with FRS 11 "Impairment of Fixed Assets and Goodwill". The impairment loss restates the assets to value in use and has been measured using pre-tax discount
rates of between 15 to 20%, that take account of the particular risks of the income-generating unit.

In
calculating the impairment losses the directors, in line with best practice, also reviewed pre-1998 goodwill previously written off to reserves for those businesses in which an
impairment loss had been identified. In 2002 an amount of £87.0 million was consequently reinstated and included in the total impairment charge of
£923.3 million in that year.

8.     Reconciliation of Operating Profit/(Loss) to Net Cash Inflow from Operating Activities

|                                                   |  | Year ended December 31 |  
|-------------------------------------------------- |  | ---------------------- | -
|
|
|
|Operating profit/(loss)                            |  | 18.8                   |  
|Depreciation                                       |  | 29.3                   |  
|(Profit)/loss on disposal of tangible fixed assets |  | (0.1                   | )
|Tangible fixed asset write-downs                   |  | 2.2                    |  
|Goodwill impairment                                |  |                       |  
|Amortization of goodwill                           |  | 9.7                    |  
|Stock compensation expense                         |  | 0.6                    |  
|Deferred income received/(released)                |  | 0.2                    |  
|Decrease in debtors                                |  | 3.8                    |  
|Decrease in stocks                                 |  | 3.1                    |  
|Increase/(decrease) in creditors                   |  | 5.7                    |  
|Non-cash movement on pension fund liability        |  | 0.8                    |  
|(Decrease)/increase in provisions                  |  | (5.9                   | )
|                                                   |  |                        |  
|Net cash inflow from operating activities          |  | 68.2                   |  
|                                                   |  |                        |  

F-34

---





SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS

9.     Net Interest Payable

|                                       |                                    | Year ended December 31 |      
|-------------------------------------- | ---------------------------------- | ---------------------- | -----
|
|
|Interest receivable and similar income |                                    | 3.1                    |      
|Interest payable                       |                                    |                        |      
|                                       | Senior unsecured loan notes        |                        | (8.8 
|                                       | Bank loans and overdrafts          |                        | (2.6 
|                                       | Other loans                        |                        | (0.3 
|                                       | Interest on finance leases         |                        | (0.5 
|                                       | Exceptional interest expense       |                        | (16.1
|                                       |                                    |                        |      
|                                       |                                    | (25.2                  | )    
|                                       | Discount on deferred consideration |                        |     
|                                       | Share of joint venture's interest  |                        | (0.2 
|                                       |                                    |                        |      
|                                       |                                    | (25.4                  | )    
|                                       |                                    |                        |      

On
prepayment of the senior unsecured loan notes a make-whole amount becomes due. These amounts, together with fees in relation to certain amendments to the terms of the loan notes
and bank facility, are included above in the exceptional interest expense of £16.1 million in 2003.

10.   Employees

The average number of people employed by the Group during the year was:

|                         |  | Year ended December 31
|------------------------ |  | ----------------------
|
|
|Manufacturing            |  | 2,768                 
|Selling and distribution |  | 1,310                 
|Administration           |  | 420                   
|                         |  |                       
|                         |  | 4,498                 
|                         |  |                       

Payroll
costs were:

|                      |  | Year ended December 31
|--------------------- |  | ----------------------
|
|
|Remuneration          |  | 154.5                 
|Social security costs |  | 17.3                  
|Other pension costs   |  | 6.4                   
|                      |  |                       
|                      |  | 178.2                 
|                      |  |                       

F-35

---



(i) Directors' Remuneration

(a) Individual and total remuneration of the directors holding office during 2003

|                        |  | Salary |  | Fees(1) |  | Taxable
benefits(2) |  | Bonus(3) |  | Total
2003(4) |  | Total
2002(4) |  | Total
2001(4)
|----------------------- |  | ------ |  | ------- |  | ------------------- |  | -------- |  | ------------- |  | ------------- |  | -------------
|
|Executive Directors     |  |        |  |         |  |                     |  |          |  |               |  |               |  |              
|N. Brookes(5)           |  | 500.0  |  | 0.5     |  | 44.2                |  | 200.0    |  | 744.7         |  | 545.3         |  | 533.9        
|M. Chung(6)             |  | 213.4  |  | 0.5     |  | 18.7                |  | 42.7     |  | 275.3         |  | 251.2         |  | 168.1        
|E. Hutchinson           |  | 250.0  |  | 0.5     |  | 23.2                |  | 125.0    |  | 398.7         |  | 272.9         |  | 268.9        
|Non-executive Directors |  |        |  |         |  |                     |  |          |  |               |  |               |  |              
|M. Beresford            |  |       |  | 37.0    |  |                    |  |         |  | 37.0          |  | 37.0          |  | 37.0         
|P. Cheng                |  |       |  | 35.0    |  |                    |  |         |  | 35.0          |  | 35.0          |  | 35.0         
|G. Ennerfelt            |  |       |  | 30.0    |  |                    |  |         |  | 30.0          |  | 30.0          |  | 30.0         
|A. Given                |  |       |  | 8.5     |  |                    |  |         |  | 8.5           |  |              |  |             
|R. Moley                |  |       |  | 35.0    |  |                    |  |         |  | 35.0          |  | 35.0          |  | 35.0         
|J. Weston               |  |       |  | 150.0   |  |                    |  |         |  | 150.0         |  | 22.5          |  |             
|J. Wyness               |  |       |  | 37.0    |  |                    |  |         |  | 37.0          |  | 89.3          |  | 37.0         
|G. Sarney               |  |       |  |        |  |                    |  |         |  |              |  | 68.1          |  | 203.3        
|                        |  |        |  |         |  |                     |  |          |  |               |  |               |  |              
|Total 2003              |  | 963.4  |  | 334.0   |  | 86.1                |  | 367.7    |  | 1,751.2       |  | 1,386.3       |  | 1,348.2      
|                        |  |        |  |         |  |                     |  |          |  |               |  |               |  |              
|Total 2002              |  | 981.8  |  | 317.0   |  | 87.5                |  |         |  | 1,386.3       |  |               |  |              
|                        |  |        |  |         |  |                     |  |          |  |               |  |               |  |              
|Total 2001              |  | 907.2  |  | 375.3   |  | 65.7                |  |         |  | 1,348.2       |  |               |  |              
|                        |  |        |  |         |  |                     |  |          |  |               |  |               |  |              

---



F-36

---





Frederick
D'Alessio was appointed to the Board as a Non-Executive Director on January 26, 2004. Mr. D'Alessio will receive a basic annual fee of £30,000 per
annum plus an additional £5,000 per annum in recognition of the extensive international travelling commitment required to perform his duties.

(b) Directors' Pensions

The pensions earned from the non-contributory defined benefit arrangements in place for the executives in the United Kingdom during 2003 were as follows:

|              |  |    |  |    |  |      |  |      |  | Accumulated total accrued
pension
|------------- |  | -- |  | -- |  | ---- |  | ---- |  | ---------------------------------
|
|
|
|N. Brookes(2) |  | 56 |  | 16 |  | 16.7 |  | 10.1 |  | 277.8                            
|E. Hutchinson |  | 48 |  | 20 |  | 4.2  |  | 0.1  |  | 166.7                            

|              |  |       |  |       |  |       |  |       |  |       |  | Increase, before inflation, in total transfer value of pension during the year
|------------- |  | ----- |  | ----- |  | ----- |  | ----- |  | ----- |  | ------------------------------------------------------------------------------
|
|
|
|
|N. Brookes    |  | 287.9 |  | 172.0 |  | 4,876 |  | 4,425 |  | 451.8 |  | 340.0                                                                         
|E. Hutchinson |  | 45.3  |  | 0.7   |  | 1,811 |  | 1,703 |  | 108.5 |  | 65.5                                                                          

---

F-37

---



(c)    Directors' Remuneration and Payments to Former DirectorsSummary

|                                                                   |  | Year ended December 31
|------------------------------------------------------------------ |  | ----------------------
|
|
|Total emoluments for all directors                                 |  | 1,751                 
|Gains made on exercise of share options(1)                         |  | 1                     
|Company contribution to 401(k) Retirement and Profit Share Plan(2) |  | 12                    
|Pension and fees of the Life President(3)                          |  |                      
|Emoluments and ex gratia pension to former directors(4)            |  | 5                     
|Consultancy payments and fee payments to former directors(5)       |  |                      
|                                                                   |  |                       
|                                                                   |  | 1,769                 
|                                                                   |  |                       

---

F-38

---





SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS

10.   Employees (Continued)

(ii)    Directors' Interests

The beneficial and non-beneficial interests of the directors (and their immediate families and any connected persons) in the Ordinary share capital of the
Company at the beginning and end of the year are set out below. The Company's statutory register of directors' interests contains full details of directors' shareholdings, options and rights over
shares and is available for inspection at the registered office during normal business hours on any business day.

|                        |  |             |  |        |     |           |  |   |  | January 1, 2003(1)
|----------------------- |  | ----------- |  | ------ | --- | --------- |  | - |  | ------------------
|
|
|
|Executive Directors(4)  |  |             |  |        |     |           |  |   |  |                   
|N. Brookes              |  | 2,947,083   |  | 26,315 | (5) | 3,602,135 |  |  |  | 2,947,083         
|M. Chung                |  | 31,377      |  | 39,620 | (6) | 3,174,349 |  |  |  | 8,977             
|E. Hutchinson           |  | 726,210     |  | 12,171 | (5) | 2,154,447 |  |  |  | 726,210           
|Non-Executive Directors |  |             |  |        |     |           |  |   |  |                   
|M. Beresford            |  | 65,225      |  |       |     |          |  |  |  | 15,225            
|P. Cheng                |  | 7,250       |  |       |     |          |  |  |  | 7,250             
|G. Ennerfelt(7)         |  | 119,000,000 |  |       |     |          |  |  |  | 128,398,257       
|A. Given                |  |            |  |       |     |          |  |  |  |                  
|R. Moley                |  | 1,010,000   |  |       |     |          |  |  |  | 1,010,000         
|J. Weston               |  | 1,600,000   |  |       |     |          |  |  |  | 1,600,000         
|J. Wyness               |  | 346,037     |  |       |     |          |  |  |  | 346,037           

---

F-39

---





F-40

---





(b) Options and rights to acquire Ordinary shares

|             |  | Plan
type(1) |  | At
December 31,
2003 |  | Exercised (E)/
lapsed (L)
during the
year |  | Granted
during
the
year |  | At
January 1,
2003 |  | Date of grant |  | Exercise
price
(pence) |  | Date first
exercisable |  | Expiry
date
|------------ |  | ------------ |  | -------------------- |  | ----------------------------------------- |  | ----------------------- |  | ------------------ |  | ------------- |  | ---------------------- |  | ---------------------- |  | -----------
|N Brookes    |  | ESOS         |  | 221,068              |  |                                          |  |                        |  | 221,068            |  | 09.30.96      |  | 136                    |  | 09.30.99               |  | 09.29.06   
|             |  | ESOS         |  | 30,410               |  |                                          |  |                        |  | 30,410             |  | 04.23.97      |  | 118                    |  | 04.23.00               |  | 04.22.07   
|             |  | ESOS         |  | 43,922               |  |                                          |  |                        |  | 43,922             |  | 04.27.98      |  | 152                    |  | 04.27.01               |  | 04.26.08   
|             |  | ESOS         |  | 149,590              |  |                                          |  |                        |  | 149,590            |  | 05.11.00      |  | 334                    |  | 05.11.03               |  | 05.10.10   
|             |  | ESOS         |  | 205,000              |  |                                          |  |                        |  | 205,000            |  | 04.09.01      |  | 305                    |  | 04.09.04               |  | 04.08.11   
|             |  | SRSOS        |  | 18,145               |  |                                          |  |                        |  | 18,145             |  | 10.05.01      |  | 93                     |  | 12.01.06               |  | 05.31.07   
|             |  | ESOS         |  | 468,000              |  |                                          |  |                        |  | 468,000            |  | 04.02.02      |  | 134                    |  | 04.02.05               |  | 04.01.12   
|             |  | ESOS         |  | 774,000              |  |                                          |  |                        |  | 774,000            |  | 05.02.02      |  | 113                    |  | 05.02.05               |  | 05.01.12   
|             |  | ESOS         |  | 1,692,000            |  |                                          |  | 1,692,000               |  |                   |  | 03.25.03      |  | 16                     |  | 03.25.06               |  | 03.24.13   
|M Chung      |  | ESOS         |  | 93,482               |  |                                          |  |                        |  | 93,482             |  | 07.16.98      |  | 163                    |  | 07.16.01               |  | 07.15.08   
|             |  | ESOS         |  | 112,734              |  |                                          |  |                        |  | 112,734            |  | 04.01.99      |  | 133                    |  | 04.01.02               |  | 03.31.09   
|             |  | SSOP         |  | 341,921              |  |                                          |  |                        |  | 341,921            |  | 05.11.00      |  | 334                    |  | 05.11.01               |  | 05.10.07   
|             |  | ESOS         |  | 65,819               |  |                                          |  |                        |  | 65,819             |  | 05.11.00      |  | 334                    |  | 05.11.03               |  | 05.10.10   
|             |  | SARP         |  | 42,740               |  |                                          |  |                        |  | 42,740             |  | 05.12.00      |  | 335                    |  | 05.12.01               |  | 05.11.10   
|             |  | SSOP         |  | 250,000              |  |                                          |  |                        |  | 250,000            |  | 12.08.00      |  | 613                    |  | 12.08.01               |  | 12.07.07   
|             |  | SSOP         |  | 195,000              |  |                                          |  |                        |  | 195,000            |  | 04.09.01      |  | 305                    |  | 04.09.02               |  | 04.08.08   
|             |  | ESOS         |  | 80,000               |  |                                          |  |                        |  | 80,000             |  | 04.09.01      |  | 305                    |  | 04.09.04               |  | 04.08.11   
|             |  | ESPP(2)      |  |                     |  | (E) 22,400                                |  |                        |  | 6,122              |  | 01.01.02      |  | 14                     |  | 01.01.03               |  | 01.01.03   
|             |  | SSOP         |  | 750,000              |  |                                          |  |                        |  | 750,000            |  | 04.02.02      |  | 134                    |  | 04.02.03               |  | 04.01.09   
|             |  | ESPP(3)      |  | 17,653               |  |                                          |  | 17,653                  |  |                   |  | 01.01.03      |  | 14                     |  | 01.01.04               |  | 01.01.04   
|             |  | ESOS         |  | 225,000              |  |                                          |  | 225,000                 |  |                   |  | 03.25.03      |  | 16                     |  | 03.25.06               |  | 03.24.13   
|             |  | SSOP         |  | 1,000,000            |  |                                          |  | 1,000,000               |  |                   |  | 03.25.03      |  | 16                     |  | 03.25.04               |  | 03.24.10   
|E Hutchinson |  | ESOS         |  | 17,652               |  |                                          |  |                        |  | 17,652             |  | 04.27.95      |  | 108                    |  | 04.27.98               |  | 04.26.05   
|             |  | SRSOS        |  |                     |  | (L) 1,464                                 |  |                        |  | 1,464              |  | 10.31.95      |  | 106                    |  | 12.01.02               |  | 05.31.03   
|             |  | ESOS         |  | 42,928               |  |                                          |  |                        |  | 42,928             |  | 04.29.96      |  | 140                    |  | 04.29.99               |  | 04.28.06   
|             |  | ESOS         |  | 33,786               |  |                                          |  |                        |  | 33,786             |  | 04.23.97      |  | 118                    |  | 04.23.00               |  | 04.22.07   
|             |  | ESOS         |  | 29,586               |  |                                          |  |                        |  | 29,586             |  | 04.27.98      |  | 152                    |  | 04.27.01               |  | 04.26.08   
|             |  | SRSOS        |  | 12,363               |  |                                          |  |                        |  | 12,363             |  | 10.22.98      |  | 83                     |  | 01.01.06               |  | 06.30.06   
|             |  | ESOS         |  | 75,156               |  |                                          |  |                        |  | 75,156             |  | 04.01.99      |  | 133                    |  | 04.01.02               |  | 03.31.09   
|             |  | ESOS         |  | 55,562               |  |                                          |  |                        |  | 55,562             |  | 05.11.00      |  | 334                    |  | 05.11.03               |  | 05.10.10   
|             |  | ESOS         |  | 105,000              |  |                                          |  |                        |  | 105,000            |  | 04.09.01      |  | 305                    |  | 04.09.04               |  | 04.08.11   
|             |  | SRSOS        |  | 8,693                |  |                                          |  |                        |  | 8,693              |  | 10.05.01      |  | 93                     |  | 12.01.08               |  | 05.31.09   
|             |  | ESOS         |  | 234,000              |  |                                          |  |                        |  | 234,000            |  | 04.02.02      |  | 134                    |  | 04.02.05               |  | 04.01.12   
|             |  | ESOS         |  | 387,000              |  |                                          |  |                        |  | 387,000            |  | 05.02.02      |  | 113                    |  | 05.02.05               |  | 05.01.12   
|             |  | ESOS         |  | 1,128,000            |  |                                          |  | 1,128,000               |  |                   |  | 03.25.03      |  | 16                     |  | 03.25.06               |  | 03.24.13   
|             |  | SRSOS        |  | 24,721               |  |                                          |  | 24,721                  |  |                   |  | 09.26.03      |  | 38                     |  | 12.01.10               |  | 05.31.11   

---

F-41

---



The
middle market price of a Spirent Ordinary share on January 2, 2003 (the London Stock Exchange having been closed for trading on January 1, 2003) and December 31, 2003 was
17.5 pence and 58.25 pence, respectively, and during that period ranged between a high of 72.75 pence and a low of 10 pence per share.

Save
as disclosed, there have been no changes between the year end and February 25, 2004 (the date on which these Accounts have been signed) in the Ordinary or loan capital of the Company
or any subsidiary.

(iii)    Pension Costs

Defined Benefit Schemes

The Group has adopted FRS 17 "Retirement Benefits" in these financial statements

The
only significant defined benefit plans under FRS17 are in the United Kingdom and comprise the Staff Pension Plan and Retirement Cash Plan. These plans have been combined for the purposes of
the following disclosures.

The
most recent actuarial valuation at April 1, 2003 has been used and updated by our independent actuaries.

F-42

---



|                                                           |  | UK defined benefit plans at December 31
|---------------------------------------------------------- |  | ---------------------------------------
|
|
|Valuation method                                           |  | projected unit                         
|Inflation                                                  |  | 2.8                                    
|Rate of increase in salaries                               |  | 3.5                                    
|Rate of increase for pensions in payment pre 2001 service  |  | 3.0                                    
|Rate of increase for pensions in payment post 2001 service |  | 2.7                                    
|Rate of increase in deferred pensions                      |  | 2.8                                    
|Rate used to discount scheme liabilities                   |  | 5.4                                    
|                                                           |  |                                        

|                                              |  | 2003
Long-term
rate of
return
expected |  | At
December 31,
2003 |   | 2002
Long-term
rate of
return
expected |  | At
December 31,
2002 |   | 2001
Long-term
rate of
return
expected |  | At
December 31,
2001 |  
|--------------------------------------------- |  | -------------------------------------- |  | -------------------- | - | -------------------------------------- |  | -------------------- | - | -------------------------------------- |  | -------------------- | -
|
|Equities                                      |  | 7.8                                    |  | 61.3                 |   | 7.5                                    |  | 52.5                 |   | 7.5                                    |  | 76.2                 |  
|Gilts                                         |  | 4.8                                    |  | 15.3                 |   | 4.5                                    |  | 15.7                 |   | 5.0                                    |  | 12.1                 |  
|Bonds                                         |  | 5.1                                    |  | 9.6                  |   | 5.0                                    |  | 7.4                  |   | 6.0                                    |  | 1.3                  |  
|Cash                                          |  | 4.3                                    |  | 4.5                  |   | 4.0                                    |  | 2.3                  |   | 3.5                                    |  | 4.7                  |  
|Property                                      |  | 6.8                                    |  | 1.8                  |   | 6.5                                    |  | 4.3                  |   | 6.0                                    |  | 3.8                  |  
|Other                                         |  | 5.6                                    |  | 6.3                  |   | 5.5                                    |  | 6.8                  |   | 6.5                                    |  | 7.3                  |  
|                                              |  |                                        |  |                      |   |                                        |  |                      |   |                                        |  |                      |  
|Total market value of assets                  |  |                                        |  | 98.8                 |   |                                        |  | 89.0                 |   |                                        |  | 105.4                |  
|Actuarial value of liabilities                |  |                                        |  | (142.2               | ) |                                        |  | (130.9               | ) |                                        |  | (123.3               | )
|                                              |  |                                        |  |                      |   |                                        |  |                      |   |                                        |  |                      |  
|Net deficit in the schemes                    |  |                                        |  | (43.4                | ) |                                        |  | (41.9                | ) |                                        |  | (17.9                | )
|Related deferred tax asset                    |  |                                        |  | 13.0                 |   |                                        |  |                     |   |                                        |  | 5.4                  |  
|                                              |  |                                        |  |                      |   |                                        |  |                      |   |                                        |  |                      |  
|Deficit in the schemes, net of tax            |  |                                        |  | (30.4                | ) |                                        |  | (41.9                | ) |                                        |  | (12.5                | )
|                                              |  |                                        |  |                      |   |                                        |  |                      |   |                                        |  |                      |  
|Actuarial value of unfunded pension liability |  |                                        |  | (4.8                 | ) |                                        |  | (4.3                 | ) |                                        |  | (4.5                 | )
|Related deferred tax asset                    |  |                                        |  |                     |   |                                        |  |                     |   |                                        |  | 1.4                  |  
|                                              |  |                                        |  |                      |   |                                        |  |                      |   |                                        |  |                      |  
|Net pension liability                         |  |                                        |  | (35.2                | ) |                                        |  | (46.2                | ) |                                        |  | (15.6                | )
|                                              |  |                                        |  |                      |   |                                        |  |                      |   |                                        |  |                      |  

F-43

---





|                                                                                       |                                | Year ended December 31 |     
|-------------------------------------------------------------------------------------- | ------------------------------ | ---------------------- | ----
|
|
|Analysis of amount charged to operating costs:                                         |                                |                        |     
|Current service cost                                                                   |                                | 2.2                    |     
|                                                                                       |                                |                        |     
|Analysis of amount charged to other finance (expense)/income:                          |                                |                        |     
|Expected return on pension scheme assets                                               |                                | 5.7                    |     
|Interest on pension scheme liabilities                                                 |                                | (7.2                   | )   
|                                                                                       |                                |                        |     
|Other finance (expense)/income                                                         |                                | (1.5                   | )   
|                                                                                       |                                |                        |     
|Net profit and loss charge                                                             |                                | 3.7                    |     
|                                                                                       |                                |                        |     
|Analysis of amount recognized in statement of total recognized gains and losses:       |                                |                        |     
|Actual return less expected return on pension schemes' assets                          |                                | 5.5                    |     
|Experience gains/(losses) arising on the schemes' liabilities                          |                                | 6.8                    |     
|Changes in assumptions underlying the present value of the schemes' liabilities        |                                | (12.0                  | )   
|                                                                                       |                                |                        |     
|Actuarial gain/(loss) recognized in the statement of total recognized gains and losses |                                | 0.3                    |     
|                                                                                       |                                |                        |     
|Movement in deficit in the year:                                                       |                                |                        |     
|Net deficit in the schemes at January 1                                                |                                | (41.9                  | )   
|                                                                                       | Current service cost           |                        | (2.2
|                                                                                       | Employer contributions paid    |                        | 1.9 
|                                                                                       | Other finance (expense)/income |                        | (1.5
|                                                                                       | Actuarial gain/(loss)          |                        | 0.3 
|                                                                                       |                                |                        |     
|Net deficit in the schemes at December 31                                              |                                | (43.4                  | )   
|                                                                                       |                                |                        |     
|(d)    History of experience gains and losses                                          |                                |                        |     
|Difference between the expected and actual return on scheme assets                     |                                |                        |     
|Amount                                                                                 |                                | 5.5                    |     
|Percentage of scheme assets (%)                                                        |                                | 5.6                    |     
|Experience gains and losses on scheme liabilities                                      |                                |                        |     
|Amount                                                                                 |                                | 6.8                    |     
|Percentage of the present value of scheme liabilities (%)                              |                                | 4.8                    |     
|Total amount recognized in the statement of total recognized gains and losses          |                                |                        |     
|Amount                                                                                 |                                | 0.3                    |     
|Percentage of the present value of scheme liabilities (%)                              |                                | 0.2                    |     

F-44

---



The
Group will be making additional annual pension contributions of £3.5 million commencing on July 1, 2004, in order to comply with the Minimum Funding Requirements for the
UK defined benefit plans.

The
above plans are funded and have full United Kingdom Inland Revenue tax-exempt approval by which benefits are limited due to the statutory earnings cap (an Inland Revenue limit on the
amount of earnings that can be made pensionable under the plans for members who joined after May 1989). Certain members whose salaries are in excess of this cap, have had their benefits
increased through unapproved, unfunded arrangements, to the level that would otherwise have applied in respect of the basic salary only. The Company has contractually agreed to pay the additional
retirement benefits itself and a provision at December 31, 2003 of £4.8 million (2002 £4.3 million; 2001 £4.5 million) is included in
the net pension liability above. This represents the actuarial value as confirmed by the Company's pension advisers, of the unapproved benefit entitlements accrued at that date. The value is assessed
and reviewed on a Market Value basis, in line with the Main Plan Valuation and adjusted each year by the charge for the year (equivalent to a contribution to a funded plan) of £0.2 million
(2002 £0.1 million; 2001 £1.0 million) and interest on the unfunded liability of £0.3 million (2002 £0.3 million; 2001
£0.2 million). Of this liability, £4.5 million (2002 £4.1 million) is in respect of Nicholas Brookes and is discussed below. The additional
death-in-service benefits over the statutory cap are separately insured by the Company under an unapproved scheme.

Spirent
has a contractual liability to pay Mr. Brookes an unfunded unapproved retirement benefit (UURB) as agreed when he joined the Company in 1995. At December 31, 2003, the provision in
respect of this UURB stood at £4.5 million. Conditionally upon him remaining in employment until June 30, 2004, Mr. Brookes and the Company have agreed that he will commute
all of his pension entitlement under the UURB in exchange for a lump sum payment of £3.7 million in cash, payable to him on July 1, 2004.

Defined Contribution Schemes

United Kingdom

The Group maintains defined contribution schemes for employees in the United Kingdom. These plans are known as "Cash Builder" or "Pension Builder" and employer contributions
into these schemes for 2003 were £0.1 million (2002 nil; 2001 nil).

United States

The Group maintains defined contribution pension benefit plans for employees of its US subsidiaries. These plans, also known as 401(k) Plans, allows employees to defer a
percentage of their salary for retirement. There are five different 401(k) Plans within the US group and each of these plans has different features regarding company contributions, maximum deferral
percentages and investment choices. The investment choices offered are among a selection of diversified mutual funds offering a broad mix of investment return potential with varying levels of risk. In
aggregate the company contributions to the various US plans totaled $4.4 million for 2003 (2002 $4.8 million; 2001 $5.6 million). Total assets in the defined contribution plans at
the end of 2003 were $103.1 million (2002 $88.0 million; 2001 $153.2 million). There were no defined benefit plans in the United States in 2003.

F-45

---



Other Jurisdictions

Outside the United Kingdom and the United States employees are provided with pension arrangements determined in accordance with approved local practice and regulations and are
defined contribution schemes.

Total
contributions in respect of these schemes amounted to £0.2 million (2002 £0.1 million; 2001 £0.2 million).

Total
company contributions to defined contribution schemes were £3.0 million (2002 £3.6 million; 2001 £5.5 million).

11.   Taxation

|                                                           |                                                | Year ended December 31 |     
|---------------------------------------------------------- | ---------------------------------------------- | ---------------------- | ----
|
|
|
|(a) Analysis of charge based on profit/(loss) for the year |                                                |                        |     
|Current tax                                                |                                                |                        |     
|                                                           | Corporation tax                                |                        |    
|                                                           | Overseas taxation                              |                        | 4.9 
|                                                           | Tax arising on disposalsoverseas taxation     |                        |    
|                                                           | Under/(over) provision in prior yearsUK tax   |                        | 1.1 
|                                                           | Overseas taxation                             |                        | (7.1
|                                                           |                                                |                        |     
|                                                           |                                                |                        | (1.1
|                                                           | Share of joint venture's taxation              |                        | 1.1 
|                                                           | Share of associates' taxation                  |                        | 0.9 
|                                                           |                                                |                        |     
|Total current tax charge                                   |                                                | 0.9                    |     
|                                                           |                                                |                        |     
|Deferred tax                                               |                                                |                        |     
|                                                           | Origination and reversal of timing differences |                        | (0.3
|                                                           | Reversal of deferred tax assets                |                        |    
|                                                           |                                                |                        |     
|Total deferred tax (credit)/charge                         |                                                | (0.3                   | )   
|                                                           |                                                |                        |     
|Total charge for the year                                  |                                                | 0.6                    |     
|                                                           |                                                |                        |     

F-46

---



Analyzed
by continuing and discontinued operations:

|                          |  | Year ended December 31
|------------------------- |  | ----------------------
|
|
|
|Continuing operations     |  | 0.6                   
|Discontinued operations   |  |                      
|                          |  |                       
|Total charge for the year |  | 0.6                   
|                          |  |                       

The
tax effect of the operating exceptional items was a tax credit of £1.7 million (2002 £3.5 million; 2001 £10.3 million). In respect of
the non-operating exceptional items no charge arises (2002 £3.0 million; 2001 £13.2 million).

An
exceptional deferred tax charge of £19.0 million arose in the period to December 31, 2002, as previously recognized tax assets were reversed due to insufficient
evidence to support recognition of a deferred tax asset under FRS 19 "Deferred Tax."

In
2003 £12.6 million of deferred tax assets have been recognized on the pension fund deficit and credited to the statement of total recognized gains and losses. In 2002 a
charge of £5.4 million arises in the restated statement of total recognized gains and losses as the deferred tax asset, which would have previously been recognized on the
pension fund deficit had FRS 17 "Retirement Benefits" been implemented, has been written off due to the reasons discussed above.

A
charge of £0.1 million (2002 nil; 2001 £4.5 million credit) arises on the actuarial gain or loss and this has been included in the statement of total
recognized gains and losses.

Profit/(loss)
before taxation is analyzed as follows:

|               |  | Year ended December 31 |  
|-------------- |  | ---------------------- | -
|
|
|
|United Kingdom |  | (21.1                  | )
|Overseas       |  | 21.4                   |  
|               |  |                        |  
|               |  | 0.3                    |  
|               |  |                        |  

F-47

---



|                                                                                 |  | Year ended December 31 |  
|-------------------------------------------------------------------------------- |  | ---------------------- | -
|
|
|
|Profit/(loss) before tax                                                         |  | 0.3                    |  
|                                                                                 |  |                        |  
|Profit/(loss) before tax multiplied by standard rate of corporation tax          |  | 0.1                    |  
|Expenses not deductible for tax (primarily goodwill impairment and amortization) |  | 7.3                    |  
|Tax arising on disposals                                                         |  |                       |  
|Different tax rates on overseas earnings and other adjustments                   |  | (0.8                   | )
|Tax over provided in previous years                                              |  | (6.0                   | )
|Movements in timing differences                                                  |  | 0.3                    |  
|                                                                                 |  |                        |  
|Total current tax charge                                                         |  | 0.9                    |  
|                                                                                 |  |                        |  

A
reconciliation of the profit/(loss) before tax at the UK statutory rate of corporation tax to the tax charge for the year is as follows:

|                                                             |  | Year ended December 31 |  
|------------------------------------------------------------ |  | ---------------------- | -
|
|
|
|Profit/(loss) before tax at the UK statutory rate            |  | 0.1                    |  
|Adjusted for:                                                |  |                        |  
|Permanent differences arising on amortization and impairment |  | 2.9                    |  
|Tax over provided in previous years                          |  | (6.0                   | )
|Taxation arising on disposals                                |  |                       |  
|Other permanent adjustments                                  |  | 4.3                    |  
|Overseas rate differences                                    |  | (0.7                   | )
|Reversal of deferred tax assets                              |  |                       |  
|Timing differences on exceptional items                      |  |                       |  
|                                                             |  |                        |  
|Tax charge for the year                                      |  | 0.6                    |  
|                                                             |  |                        |  

Deferred
tax assets of £18.3 million (2002 £20.1 million; 2001 nil) arising principally on timing differences in the United States and United Kingdom have
not been recognized. These assets can only be realized when they reverse against suitable taxable profits. Although the directors ultimately expect to realize these assets, there is currently
insufficient evidence under FRS 19 "Deferred Tax" to recognize a deferred tax asset in respect of these timing differences.

F-48

---



The
Group has tax losses arising in the United States of £70.1 million (2002 £23.1 million; 2001 £19.9 million) and in the United Kingdom
of £24.8 million (2002 £10.2 million; 2001 nil) that are available for offset against future taxable profits. A deferred tax asset has not been recognized in
respect of these losses as their future recovery is uncertain.

In
total, deferred tax assets amounting to £50.3 million (2002 £31.2 million; 2001 £7.0 million) have not been recognized on unutilized
losses and timing differences.

No
deferred tax is recognized on the unremitted earnings of overseas subsidiaries, associates and the joint venture. No deferred tax asset has been recognized in respect of the tax deduction
which may be available on the future exercise of stock options.

F-49

---



12.   Loss per Share

Loss per share is calculated by reference to the loss for the year and the number of Ordinary shares in issue during the year as follows:

|                                                                         |                     | Year ended December 31 |    
|------------------------------------------------------------------------ | ------------------- | ---------------------- | ---
|
|
|
|Basic loss attributable to shareholders                                  |                     | (0.5                   | )  
|Operating exceptional items:                                             |                     |                        |    
|                                                                         | Other               |                        | 7.5
|                                                                         | Goodwill impairment |                        |   
|Goodwill amortization                                                    |                     | 9.7                    |    
|Exceptional item(profit)/loss on disposal and closure of operations     |                     | (3.6                   | )  
|Exceptional interest charge                                              |                     | 16.1                   |    
|Prior year tax credit                                                    |                     | (6.0                   | )  
|Attributable taxation on exceptional items                               |                     | (1.7                   | )  
|Attributable taxation on the loss on disposal of operations              |                     |                       |    
|Reversal of deferred tax assets                                          |                     |                       |    
|                                                                         |                     |                        |    
|Headline earnings attributable to shareholders                           |                     | 21.5                   |    
|                                                                         |                     |                        |    
|                                                                         |                     | (Number)               |    
|Weighted average number of shares in issue (millions)basic and headline |                     | 929.3                  |    
|Dilutive potential of employee share options                             |                     |                       |    
|                                                                         |                     |                        |    
|Weighted average number of shares in issue (millions)diluted            |                     | 929.3                  |    
|                                                                         |                     |                        |    
|                                                                         |                     | (pence)                |    
|Basic loss per share                                                     |                     | (0.05                  | )  
|                                                                         |                     |                        |    
|Headline earnings per share                                              |                     | 2.31                   |    
|                                                                         |                     |                        |    
|Diluted loss per share                                                   |                     | (0.05                  | )  
|                                                                         |                     |                        |    

The
shares in issue used to calculate basic and headline (loss)/earnings per share exclude the shares held by the Spirent Qualifying Employee Share Ownership Trust (QUEST), and by the Spirent
Share Ownership Trust (ESOT) in accordance with FRS 14 "Earnings per Share".

F-50

---



13.   Intangible Assets

Goodwill

|                                    |  | (£ millions) |  
|----------------------------------- |  | ------------ | -
|Cost:                               |  |              |  
|At January 1, 2002                  |  | 1,831.0      |  
|Increase during the year (note 32)  |  | 51.0         |  
|Disposal of operations (note 33)    |  | (8.1         | )
|Exchange adjustment                 |  | (31.0        | )
|                                    |  |              |  
|At December 31, 2002                |  | 1,842.9      |  
|Increase during the year (note 32)  |  | 2.7          |  
|Disposal of operations (note 33)    |  | (4.1         | )
|Exchange adjustment                 |  | (56.0        | )
|                                    |  |              |  
|At December 31, 2003                |  | 1,785.5      |  
|                                    |  |              |  
|Amortization:                       |  |              |  
|At January 1, 2002                  |  | 843.3        |  
|Provided during the year            |  | 56.1         |  
|Goodwill impairment                 |  | 836.3        |  
|Disposal of operations (note 33)    |  | (1.6         | )
|Exchange adjustment                 |  | (4.8         | )
|                                    |  |              |  
|At December 31, 2002                |  | 1,729.3      |  
|Provided during the year            |  | 9.7          |  
|Disposal of operations (note 33)    |  | (3.5         | )
|Exchange adjustment                 |  | (51.6        | )
|                                    |  |              |  
|At December 31, 2003                |  | 1,683.9      |  
|                                    |  |              |  
|Net book value at December 31, 2003 |  | 101.6        |  
|                                    |  |              |  
|Net book value at December 31, 2002 |  | 113.6        |  
|                                    |  |              |  

Goodwill
is amortized principally over 20 years.

F-51

---



SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14.   Tangible Assets

|                                    |  | Land and buildings |   |      |   |      |   |       |  
|----------------------------------- |  | ------------------ | - | ---- | - | ---- | - | ----- | -
|
|
|Cost:                               |  |                    |   |      |   |      |   |       |  
|At January 1, 2002                  |  | 18.2               |   | 14.5 |   | 25.0 |   | 128.4 |  
|Exchange adjustment                 |  | (1.9               | ) | (0.1 | ) | (0.9 | ) | (8.6  | )
|Additions by acquisition (note 32)  |  |                   |   |     |   |     |   |      |  
|Additionsowned assets              |  | 3.2                |   | 0.2  |   | 0.9  |   | 12.8  |  
|leased assets                      |  |                   |   |     |   |     |   |      |  
|Inter-class transfers               |  | (1.5               | ) |     |   |     |   | 0.9   |  
|Disposals                           |  | (1.1               | ) | (0.1 | ) | (0.7 | ) | (2.6  | )
|Disposal of operations (note 33)    |  |                   |   | (3.6 | ) | (0.2 | ) | (12.9 | )
|                                    |  |                    |   |      |   |      |   |       |  
|At December 31, 2002                |  | 16.9               |   | 10.9 |   | 24.1 |   | 118.0 |  
|Exchange adjustment                 |  | (0.8               | ) | 0.1  |   | (0.9 | ) | (4.1  | )
|Additionsowned assets              |  | 0.3                |   |     |   | 0.2  |   | 11.6  |  
|leased assets                      |  |                   |   |     |   |     |   |      |  
|Disposals                           |  |                   |   |     |   | (0.4 | ) | (4.0  | )
|Disposal of operations (note 33)    |  |                   |   |     |   | (0.6 | ) | (0.8  | )
|                                    |  |                    |   |      |   |      |   |       |  
|At December 31, 2003                |  | 16.4               |   | 11.0 |   | 22.4 |   | 120.7 |  
|                                    |  |                    |   |      |   |      |   |       |  
|Depreciation:                       |  |                    |   |      |   |      |   |       |  
|At January 1, 2002                  |  | 2.7                |   | 1.7  |   | 2.9  |   | 82.7  |  
|Exchange adjustment                 |  | (0.3               | ) |     |   | (0.3 | ) | (4.9  | )
|Provided during the year            |  | 0.4                |   | 0.6  |   | 1.9  |   | 14.4  |  
|Disposals                           |  | (0.1               | ) | (0.1 | ) | (0.2 | ) | (1.2  | )
|Disposal of operations (note 33)    |  |                   |   | (0.7 | ) |     |   | (10.0 | )
|                                    |  |                    |   |      |   |      |   |       |  
|At December 31, 2002                |  | 2.7                |   | 1.5  |   | 4.3  |   | 81.0  |  
|Exchange adjustment                 |  | (0.2               | ) |     |   | (0.6 | ) | (2.8  | )
|Provided during the year            |  | 0.4                |   | 0.3  |   | 2.0  |   | 14.6  |  
|Fixed asset write down              |  |                   |   |     |   | 3.2  |   |      |  
|Disposals                           |  |                   |   |     |   | (0.2 | ) | (3.6  | )
|Disposal of operations (note 33)    |  |                   |   |     |   | (0.2 | ) | (0.7  | )
|                                    |  |                    |   |      |   |      |   |       |  
|At December 31, 2003                |  | 2.9                |   | 1.8  |   | 8.5  |   | 88.5  |  
|                                    |  |                    |   |      |   |      |   |       |  
|Net book value at December 31, 2003 |  | 13.5               |   | 9.2  |   | 13.9 |   | 32.2  |  
|                                    |  |                    |   |      |   |      |   |       |  
|Net book value at December 31, 2002 |  | 14.2               |   | 9.4  |   | 19.8 |   | 37.0  |  
|                                    |  |                    |   |      |   |      |   |       |  

F-52

---



Tangible
assets include the following amounts in respect of finance leased assets:

|                                      |  | Plant and
machinery |  | Fixtures,
fittings and
equipment |  | Total
|------------------------------------- |  | ------------------- |  | -------------------------------- |  | -----
|
|Net book value at January 1, 2002     |  | 0.6                 |  | 0.5                              |  | 1.1  
|Depreciation provided during the year |  | 0.1                 |  | 0.3                              |  | 0.4  
|Net book value at December 31, 2002   |  | 0.4                 |  | 0.7                              |  | 1.1  
|Depreciation provided during the year |  |                    |  | 0.3                              |  | 0.3  
|Net book value at December 31, 2003   |  | 0.4                 |  | 0.6                              |  | 1.0  

15.   Capital Commitments and contingent liabilities

|                                 |                             | At December 31
|-------------------------------- | --------------------------- | --------------
|
|
|Capital expenditure commitments: |                             |               
|                                 | Contracted but not provided |               

16.   Investment in Joint Venture

|                         |  | (£ millions) |  
|------------------------ |  | ------------ | -
|At January 1, 2002       |  | 44.3         |  
|Share of retained profit |  | 3.5          |  
|Exchange adjustment      |  | 2.3          |  
|                         |  |              |  
|At December 31, 2002     |  | 50.1         |  
|Share of retained profit |  | 1.4          |  
|Additions                |  | 0.5          |  
|Disposal (note 33)       |  | (54.3        | )
|Exchange adjustment      |  | 2.6          |  
|                         |  |              |  
|At December 31, 2003     |  | 0.3          |  
|                         |  |              |  

The
joint venture company at December 31, 2003 was:

|                   |  | % holding |  | Nature of business
|------------------ |  | --------- |  | ------------------
|Spirent DM Limited |  | 40        |  | Communications    

The
joint venture companies as at December 31, 2002 were as follows:

|                         |  | % holding |  | Nature of business      
|------------------------ |  | --------- |  | ------------------------
|Wago Kontakttechnik GmbH |  | 51        |  | Interconnection products
|Wago Contact SA          |  | 51        |  | Interconnection products

On
April 4, 2003, Spirent divested of its 51% interests in WAGO.

F-53

---



Additional
disclosures in respect of the joint ventures are as follows:

|                        |  | Year ended December 31 |  
|----------------------- |  | ---------------------- | -
|
|
|Profit and loss account |  |                        |  
|Turnover                |  | 22.4                   |  
|                        |  |                        |  
|Profit before tax       |  | 2.5                    |  
|Taxation                |  | (1.1                   | )
|                        |  |                        |  
|Profit after tax        |  | 1.4                    |  
|                        |  |                        |  

|                                         |  | At December 31
|---------------------------------------- |  | --------------
|
|
|Balance sheet                            |  |               
|Fixed assets                             |  | 0.3           
|Current assets                           |  |              
|                                         |  |               
|Share of gross assets                    |  | 0.3           
|                                         |  |               
|Liabilities due within one year          |  |              
|Liabilities due after more than one year |  |              
|Minority interests                       |  |              
|                                         |  |               
|Share of gross liabilities               |  |              
|                                         |  |               
|Share of net assets                      |  | 0.3           
|                                         |  |               

17.   Investment in Associates

|                         |  | Goodwill |   | Share of
retained profit
and reserves |  | Total |  
|------------------------ |  | -------- | - | ------------------------------------- |  | ----- | -
|
|At January 1, 2002       |  | 6.5      |   | 11.8                                  |  | 18.3  |  
|Share of retained profit |  |         |   | 0.3                                   |  | 0.3   |  
|Goodwill                 |  | (5.8     | ) | 0.6                                   |  | (5.2  | )
|Amortization of goodwill |  | (0.2     | ) |                                      |  | (0.2  | )
|Exchange adjustment      |  | (0.5     | ) | 0.6                                   |  | 0.1   |  
|                         |  |          |   |                                       |  |       |  
|At December 31, 2002     |  |         |   | 13.3                                  |  | 13.3  |  
|Share of retained profit |  |         |   | 1.1                                   |  | 1.1   |  
|Exchange adjustment      |  |         |   | 0.2                                   |  | 0.2   |  
|                         |  |          |   |                                       |  |       |  
|At December 31, 2003     |  |         |   | 14.6                                  |  | 14.6  |  
|                         |  |          |   |                                       |  |       |  

F-54

---



At
December 31, 2001 the Group held a 16% interest in Caw Networks, Inc acquired on October 16, 2001 at a cost of £6.4 million including expenses. On
August 15, 2002 the remaining, then, 85% of Caw was acquired by the Group.

The
associated companies at December 31, 2002 and 2003 were as follows:

|                       |  | % holding |  | Nature of business       
|---------------------- |  | --------- |  | -------------------------
|Tyton Company of Japan |  | 49        |  | Cable management products
|3M/ECC                 |  | 20        |  | Cable management products

18.   Stocks

|                 |  | At December 31
|---------------- |  | --------------
|
|
|Raw materials    |  | 12.6          
|Work in progress |  | 5.0           
|Finished goods   |  | 37.4          
|                 |  |               
|                 |  | 55.0          
|                 |  |               

19.   Debtors

|                               |  | At December 31
|------------------------------ |  | --------------
|
|
|Due within one year:           |  |               
|Trade debtors                  |  | 69.5          
|Owed by associates             |  | 0.2           
|Other debtors                  |  | 8.2           
|Prepayments and accrued income |  | 7.3           
|                               |  |               
|                               |  | 85.2          
|                               |  |               
|Due after one year:            |  |               
|Other debtors                  |  | 0.2           
|Prepayments                    |  | 1.5           
|                               |  |               
|                               |  | 1.7           
|                               |  |               
|Total debtors                  |  | 86.9          
|                               |  |               

Trade
debtors at December 31, 2003 are stated after deducting provisions for bad and doubtful debts of £1.6 million (2002 £7.1 million).

F-55

---



20.   Notes to the Cash Flow Statement

|                                                                     |  | Year ended December 31 |  
|-------------------------------------------------------------------- |  | ---------------------- | -
|
|
|Returns on Investments and Servicing of Finance                      |  |                        |  
|Interest received                                                    |  | 3.6                    |  
|Interest paid                                                        |  | (12.6                  | )
|Interest element of finance lease rental payments                    |  | (0.5                   | )
|Exceptional interest paid                                            |  | (13.7                  | )
|                                                                     |  |                        |  
|Net cash outflow for returns on investments and servicing of finance |  | (23.2                  | )
|                                                                     |  |                        |  
|Taxation                                                             |  |                        |  
|Corporation tax paid                                                 |  | (3.3                   | )
|Overseas tax received/(paid)                                         |  | 12.2                   |  
|                                                                     |  |                        |  
|Tax received/(paid)                                                  |  | 8.9                    |  
|                                                                     |  |                        |  
|Capital Expenditure and Financial Investment                         |  |                        |  
|Capital expenditure                                                  |  | (16.7                  | )
|Receipts from sales of tangible assets                               |  | 0.9                    |  
|Sale of own shares                                                   |  |                       |  
|                                                                     |  |                        |  
|Net cash outflow for capital expenditure and financial investment    |  | (15.8                  | )
|                                                                     |  |                        |  
|Acquisitions and Disposals                                           |  |                        |  
|Acquisition of subsidiaries (note 32)                                |  | (1.1                   | )
|Acquisition of joint venture                                         |  | (0.5                   | )
|Acquisition of associates                                            |  |                       |  
|Disposal of operations (note 33)                                     |  | 62.0                   |  
|                                                                     |  |                        |  
|Net cash inflow for acquisitions and disposals                       |  | 60.4                   |  
|                                                                     |  |                        |  
|Management of Liquid Resources                                       |  |                        |  
|Sale of investments                                                  |  | 0.1                    |  
|                                                                     |  |                        |  
|Financing                                                            |  |                        |  
|Issue of share capital                                               |  | 0.7                    |  
|New loans                                                            |  | 9.4                    |  
|Repayment of loans                                                   |  | (152.9                 | )
|Repayment of capital element of finance lease rentals                |  | (0.8                   | )
|                                                                     |  |                        |  
|Net cash (outflow)/inflow from financing                             |  | (143.6                 | )
|                                                                     |  |                        |  

F-56

---



21.   Analysis of Changes in Net Debt

|                                                              |  | January 1,
2001 |   | Cash
flow |   | Non cash
changes |   | Exchange
adjustment |   | December 31,
2001 |  
|------------------------------------------------------------- |  | --------------- | - | --------- | - | ---------------- | - | ------------------- | - | ----------------- | -
|
|Cash at bank and in hand                                      |  | 28.6            |   | (0.7      | ) |                 |   | (0.3                | ) | 27.6              |  
|Overdrafts                                                    |  | (2.2            | ) | 1.7       |   |                 |   | 0.1                 |   | (0.4              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net cash                                                      |  | 26.4            |   | 1.0       |   |                 |   | (0.2                | ) | 27.2              |  
|Current asset investments                                     |  | 3.9             |   | (3.6      | ) |                 |   |                    |   | 0.3               |  
|Bank loans due within one year                                |  | (16.7           | ) | 6.9       |   |                 |   | (0.2                | ) | (10.0             | )
|Other loans and finance lease obligations due within one year |  | (0.9            | ) | 0.1       |   |                 |   |                    |   | (0.8              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net liquid funds                                              |  | 12.7            |   | 4.4       |   |                 |   | (0.4                | ) | 16.7              |  
|Senior unsecured loan notes due after one year                |  | (145.8          | ) | (0.1      | ) |                 |   | (3.0                | ) | (148.9            | )
|Bank loans due after one year                                 |  | (170.1          | ) | 149.8     |   |                 |   | (3.9                | ) | (24.2             | )
|Other loans and finance lease obligations due after one year  |  | (23.2           | ) | 1.0       |   | (0.8             | ) | 0.3                 |   | (22.7             | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net debt                                                      |  | (326.4          | ) | 155.1     |   | (0.8             | ) | (7.0                | ) | (179.1            | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  

|                                                              |  | January 1,
2002 |   | Cash
flow |   | Non cash
changes |   | Exchange
adjustment |   | December 31,
2002 |  
|------------------------------------------------------------- |  | --------------- | - | --------- | - | ---------------- | - | ------------------- | - | ----------------- | -
|
|Cash at bank and in hand                                      |  | 27.6            |   | 56.8      |   |                 |   | (0.9                | ) | 83.5              |  
|Overdrafts                                                    |  | (0.4            | ) | (0.2      | ) |                 |   |                    |   | (0.6              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net cash                                                      |  | 27.2            |   | 56.6      |   |                 |   | (0.9                | ) | 82.9              |  
|Current asset investments                                     |  | 0.3             |   | (0.2      | ) |                 |   |                    |   | 0.1               |  
|Bank loans due within one year                                |  | (10.0           | ) | 9.6       |   |                 |   |                    |   | (0.4              | )
|Other loans and finance lease obligations due within one year |  | (0.8            | ) | 0.2       |   | (0.2             | ) |                    |   | (0.8              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net liquid funds                                              |  | 16.7            |   | 66.2      |   | (0.2             | ) | (0.9                | ) | 81.8              |  
|Senior unsecured loan notes due after one year                |  | (148.9          | ) |          |   |                 |   | 13.9                |   | (135.0            | )
|Bank loans due after one year                                 |  | (24.2           | ) | (75.5     | ) |                 |   | 0.3                 |   | (99.4             | )
|Other loans and finance lease obligations due after one year  |  | (22.7           | ) | 14.3      |   | (0.2             | ) | (0.6                | ) | (9.2              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net debt                                                      |  | (179.1          | ) | 5.0       |   | (0.4             | ) | 12.7                |   | (161.8            | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  

F-57

---



|                                                              |  | January 1,
2003 |   | Cash
Flow |   | Non cash
changes |   | Exchange
adjustment |   | December 31,
2003 |  
|------------------------------------------------------------- |  | --------------- | - | --------- | - | ---------------- | - | ------------------- | - | ----------------- | -
|
|Cash at bank and in hand                                      |  | 83.5            |   | (44.8     | ) |                 |   | (1.1                | ) | 37.6              |  
|Overdrafts                                                    |  | (0.6            | ) | (0.1      | ) |                 |   |                    |   | (0.7              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net cash                                                      |  | 82.9            |   | (44.9     | ) |                 |   | (1.1                | ) | 36.9              |  
|Current asset investments                                     |  | 0.1             |   | (0.1      | ) |                 |   |                    |   |                  |  
|Bank loans due within one year                                |  | (0.4            | ) |          |   |                 |   |                    |   | (0.4              | )
|Other loans and finance lease obligations due within one year |  | (0.8            | ) | 0.1       |   |                 |   |                    |   | (0.7              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net liquid funds                                              |  | 81.8            |   | (44.9     | ) |                 |   | (1.1                | ) | 35.8              |  
|Senior unsecured loan notes due after one year                |  | (135.0          | ) | 47.0      |   | (0.2             | ) | 7.4                 |   | (80.8             | )
|Bank loans due after one year                                 |  | (99.4           | ) | 96.6      |   | (0.6             | ) | 0.1                 |   | (3.3              | )
|Other loans and finance lease obligations due after one year  |  | (9.2            | ) | 0.6       |   | (0.3             | ) | (0.3                | ) | (9.2              | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  
|Net debt                                                      |  | (161.8          | ) | 99.3      |   | (1.1             | ) | 6.1                 |   | (57.5             | )
|                                                              |  |                 |   |           |   |                  |   |                     |   |                   |  

22.   Current Asset Investments

|                               |  | December 31
|------------------------------ |  | -----------
|
|
|Listed                         |  |           
|                               |  |            
|Market value listed securities |  |           
|                               |  |            

23.   Creditors Due within One Year

|                                      |  | At December 31
|------------------------------------- |  | --------------
|
|
|Trade creditors                       |  | 27.6          
|Payments received on account          |  |              
|Owed to joint venture                 |  |              
|Owed to associates                    |  | 0.8           
|Other creditors                       |  | 10.0          
|Accruals and deferred income          |  | 42.9          
|Corporation taxUK and overseas       |  | 24.7          
|Other taxes and social security costs |  | 5.3           
|                                      |  |               
|                                      |  | 111.3         
|                                      |  |               

F-58

---





24.   Loans and Overdrafts

|                                                                        |           | At December 31
|----------------------------------------------------------------------- | --------- | --------------
|
|
|Bank overdrafts:                                                        |           |               
|                                                                        | Secured   |               
|                                                                        | Unsecured |               
|Bank loans due within one year (note 27)                                |           | 0.4           
|Other loans and finance lease obligations due within one year (note 27) |           | 0.7           
|                                                                        |           |               
|                                                                        |           | 1.8           
|                                                                        |           |               

Where
applicable, overdrafts are secured either by mortgages on the freehold properties or by floating charges on the assets of the borrowing subsidiaries. The weighted average interest rate
payable on the bank overdrafts is 3.6% (2002 4.1%).

25.   Creditors Due After More Than One Year

|                                                    |  | At December 31
|--------------------------------------------------- |  | --------------
|
|
|Senior unsecured loan notes (note 28)               |  | 80.8          
|Bank loans (note 27)                                |  | 3.3           
|Other loans and finance lease obligations (note 27) |  | 9.2           
|Other creditors                                     |  | 1.3           
|Deferred income                                     |  | 0.4           
|Pension                                             |  | 0.6           
|                                                    |  |               
|                                                    |  | 95.6          
|                                                    |  |               

26.   Provisions for Liabilities and Charges

|                                             |  | Year ended December 31 |  
|-------------------------------------------- |  | ---------------------- | -
|
|
|Deferred Taxation                            |  |                        |  
|At January 1                                 |  | 2.4                    |  
|Exchange adjustment                          |  | (0.3                   | )
|Transfer to pension liability                |  | 0.5                    |  
|Disposal of subsidiaries (note 33)           |  |                       |  
|(Credited)/charged during the year (note 11) |  | (0.3                   | )
|                                             |  |                        |  
|At December 31                               |  | 2.3                    |  
|                                             |  |                        |  

F-59

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|                                                                            |  | At December 31
|--------------------------------------------------------------------------- |  | --------------
|
|
|Deferred taxation provided:                                                 |  |               
|Capital allowances in advance of the corresponding charges for depreciation |  | 1.4           
|Other short-term timing differences                                         |  | 0.9           
|                                                                            |  |               
|                                                                            |  | 2.3           
|                                                                            |  |               

In
accordance with FRS 19, deferred tax assets have not been recognized in respect of total tax losses of £94.9 million (2002 £33.3 million). In addition,
deferred tax assets of £18.3 million (2002 £20.1 million), arising principally in respect of timing differences, have not been recognized (see
note 11).

|                         |  | Year ended
December 31 |  
|------------------------ |  | ---------------------- | -
|
|
|Other provisions         |  |                        |  
|Lease provisions         |  |                        |  
|At January 1             |  | 26.0                   |  
|Charged during the year  |  | 1.0                    |  
|Released during the year |  | (1.8                   | )
|Transfers (out)/in       |  | (1.0                   | )
|Utilized during the year |  | (5.1                   | )
|Exchange adjustment      |  | (1.2                   | )
|                         |  |                        |  
|                         |  | 17.9                   |  
|                         |  |                        |  

The
lease provisions are for the continuing obligations under leases in respect of properties which have been vacated by the Group.

F-60

---



27.   Loans and Finance Lease Obligations

|                                                                   |  | At December 31 | 
|------------------------------------------------------------------ |  | -------------- | 
|
|
|Secured:                                                           |  |                | 
|Bank loans not wholly repayable within five years                  |  |               | 
|Bank loans wholly repayable within five years                      |  | 3.7            | 
|Other loans not wholly repayable within five years                 |  | 0.7            | 
|Finance lease obligations                                          |  | 9.2            | 
|                                                                   |  |                | 
|                                                                   |  | 13.6           | 
|                                                                   |  |                | 
|Unsecured:                                                         |  |                | 
|Bank loans wholly repayable within five years                      |  |               | 
|Other loans wholly repayable within five years                     |  |               | 
|                                                                   |  |                | 
|                                                                   |  |               | 
|                                                                   |  |                | 
|Less debt issuance costs                                           |  |               | 
|                                                                   |  |                | 
|                                                                   |  | 13.6           | 
|                                                                   |  |                | 
|Repayment schedules for amounts due at December 31 are as follows: |  |                | 
|Bank loans:                                                        |  |                | 
|After five years                                                   |  |               | 
|Between two and five years                                         |  | 2.8            | 
|Between one and two years                                          |  | 0.5            | 
|                                                                   |  |                | 
|Due after more than one year                                       |  | 3.3            | 
|Less debt issuance costs                                           |  |               | 
|                                                                   |  |                | 
|Due after more than one year (note 25)                             |  | 3.3            | 
|Due within one year                                                |  | 0.4            | 
|                                                                   |  |                | 
|Total bank loans                                                   |  | 3.7            | 
|                                                                   |  |                | 
|Other loans and finance leases:                                    |  |                | 
|After five years                                                   |  | 7.0            | 
|Between two and five years                                         |  | 1.5            | 
|Between one and two years                                          |  | 0.7            | 
|                                                                   |  |                | 
|Due after more than one year (note 25)                             |  | 9.2            | 
|Due within one year (note 24)                                      |  | 0.7            | 
|                                                                   |  |                | 
|Total other loans and finance leases                               |  | 9.9            | 
|                                                                   |  |                | 
|                                                                   |  | 13.6           | 
|                                                                   |  |                | 

Where
applicable loans are secured either by mortgages on the freehold properties or by floating charges on the assets of the borrowing subsidiaries. The long-term secured loans are
repayable in 2017 and bear interest at an average rate of 4.0%.

F-61

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Repayment
schedules for loans and finance leases at December 31, 2003 are as follows:

|                             |  |     |  |     |  | Finance Leases
|---------------------------- |  | --- |  | --- |  | --------------
|
|
|
|Due within one year          |  | 0.4 |  |    |  | 0.7           
|Between one and two years    |  | 0.5 |  |    |  | 0.7           
|Between two and three years  |  | 0.5 |  |    |  | 0.5           
|Between three and four years |  | 0.3 |  |    |  | 0.5           
|Between four and five years  |  | 2.0 |  |    |  | 0.5           
|After five years             |  |    |  | 0.7 |  | 6.3           
|                             |  |     |  |     |  |               
|                             |  | 3.7 |  | 0.7 |  | 9.2           
|                             |  |     |  |     |  |               

28.   Senior Unsecured Loan Notes

|                                       |  | At December 31 |  
|-------------------------------------- |  | -------------- | -
|
|
|Due after more than one year           |  |                |  
|Senior unsecured loan notes 2006       |  | 3.6            |  
|Senior unsecured loan notes 2009       |  | 77.4           |  
|                                       |  |                |  
|                                       |  | 81.0           |  
|Less debt issuance costs               |  | (0.2           | )
|                                       |  |                |  
|Due after more than one year (note 25) |  | 80.8           |  
|                                       |  |                |  

At
December 31, 2003 the following loan notes were in issue:

Loan
notes are repayable:

29.   Financial Risk Management

The primary objective of the treasury function is to reduce financial risk and to ensure that sufficient liquidity is available to the Group. It operates within a
framework of policies and guidelines laid down by the Board that are subject to regular review.

F-62

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Objectives, Policies and Strategies

The major treasury activities encompass raising finance and managing the Group's interest rate and currency exposures. Financial instruments including derivatives are used
to manage these exposures when deemed appropriate. Speculative treasury transactions are expressly forbidden.

Financing

The Group's policy is to finance its operations through a combination of retained earnings and external financing raised principally by the parent company. Debt is largely
sourced from the syndicated bank market and the US private placement market.

At
December 31, 2003, the amount of private placement debt was $144.2 million, equivalent to £81.0 million at December 31, 2003 exchange rates. These notes
have maturity dates in 2006 and 2009.

Committed
bank facilities amounted to £60 million at December 31, 2003 of which there were no amounts drawn. These facilities were due to mature in July 2004 but
in February 2004 were replaced with a 364-day bank facility of £30 million. This facility has a six-month term-out option.

Further
details on the sources of funding are set out below.

Interest Rate Management

The objective of our interest rate management policy is to reduce the volatility of the interest charge. Interest rate exposure is managed through an optimum mix of fixed
and floating rate debt and the use of interest rate swaps.

At
December 31, 2003 the Group's borrowings were composed of 57% of fixed rate debt. This excludes $72.1 million of private placement notes which have been swapped into floating
rates through the use of an interest rate swap which terminates on November 23, 2009. The swap is callable at the counterparties' option at six-monthly intervals.

The
interest profile of Spirent's cash and borrowings at the year end is detailed below.

The
normal interest charge was £9.3 million (2002 £12.3 million; 2001 £22.8 million). A one percentage point movement in
short-term dollar interest rates based on the year-end position would impact profit before tax by approximately £0.2 million.

The
fair value of borrowings and cash at the year end are compared to book value below.

Currency Management

Currency exposures arise from trading transactions undertaken by subsidiaries in foreign currencies and on the translation of the operating results and net assets of our
overseas subsidiaries.

Group
Treasury, by means of forward foreign exchange contracts, carries out the majority of this hedging activity.

Translation
exposures of the operating results or net assets of our overseas subsidiaries are not actively hedged since these are an accounting, not a cash, exposure. To provide a partial hedge
we

F-63

---



match, as far as possible, the currency of our borrowings with the currency profile of profits and net assets.

Details
of the currencies of borrowings are set out in the table below.

At
the year end the balance sheet translation exposure was 61% hedged (2002 70%).

During
the year, sterling strengthened against the US dollar, the main currency to which the Group is exposed.

(a)    Interest Rate Risk

The interest rate profile of the Group's financial assets and liabilities at December 31, after taking into account interest rate swaps was as follows:

|           |  | At December 31, 2003
|---------- |  | --------------------
|
|
|Sterling   |  | 8.5                 
|US dollars |  | 17.2                
|Euro       |  | 4.0                 
|Other      |  | 4.3                 
|           |  |                     
|           |  | 34.0                
|           |  |                     

|           |  | At December 31, 2002
|---------- |  | --------------------
|
|
|Sterling   |  | 61.1                
|US dollars |  | 10.1                
|Euro       |  | 5.6                 
|Other      |  | 3.5                 
|           |  |                     
|           |  | 80.3                
|           |  |                     

The
financial assets of the Group comprise:

|                                                                       |  | At December 31
|---------------------------------------------------------------------- |  | --------------
|
|
|Debtors due after more than one year (excluding prepayments) (note 19) |  | 0.2           
|Current asset investments (note 22)                                    |  |              
|Cash at bank and in hand (note 21)                                     |  | 37.6          
|                                                                       |  |               
|                                                                       |  | 37.8          
|                                                                       |  |               

Floating
rate financial assets comprised cash deposits at call, seven-day and monthly rates.

F-64

---



The
weighted average period to maturity for financial assets on which no interest is paid is less than one year.

|           |  | At December 31, 2003
|---------- |  | --------------------
|
|
|US dollars |  | 43.7                
|Euro       |  | 10.0                
|Other      |  | 0.2                 
|           |  |                     
|           |  | 53.9                
|           |  |                     

|           |  | At December 31, 2002
|---------- |  | --------------------
|
|
|Sterling   |  |                    
|US dollars |  | 37.8                
|Euro       |  | 10.1                
|Other      |  | 0.2                 
|           |  |                     
|           |  | 48.1                
|           |  |                     

|           |  | At December 31, 2003 |  | At December 31, 2002
|---------- |  | -------------------- |  | --------------------
|
|
|Sterling   |  | 11.5                 |  | 2.3                 
|US dollars |  | 9.2                  |  | 5.6                 
|Euro       |  | 5.7                  |  | 12.8                
|Other      |  | 11.2                 |  | 2.1                 
|Group      |  | 8.6                  |  | 6.9                 

F-65

---



The
financial liabilities of the Group comprise:

|                                                                                      |  | At December 31
|------------------------------------------------------------------------------------- |  | --------------
|
|
|Bank overdrafts, current installment of loans and finance lease obligations
(note 24) |  | 1.8           
|Senior unsecured loan notes due after more than one year (note 25)                    |  | 80.8          
|Bank loans due after more than one year (note 25)                                     |  | 3.3           
|Other loans and finance lease obligations due after more than one year (note 25)      |  | 9.2           
|Other creditors falling due after more than one year (note 25)                        |  | 1.3           
|                                                                                      |  |               
|                                                                                      |  | 96.4          
|                                                                                      |  |               

The
floating rate liabilities at December 31, 2003 comprise primarily $72.1 million (2002 $163.4 million) of the senior unsecured loan notes for which an interest rate swap
is in place. Other floating rate liabilities bear interest at various rates set with reference to the prevailing LIBOR or equivalent for the time period and country.

(b)    Maturity of Financial Liabilities

The maturity profile of the Group's financial liabilities is as follows:

|                                                           |  | At December 31
|---------------------------------------------------------- |  | --------------
|
|
|In one year or less, or on demand                          |  | 1.8           
|In more than one year but not more than two years          |  | 1.2           
|In more than two years but not more than five years        |  | 7.8           
|In more than five years                                    |  | 85.6          
|                                                           |  |               
|                                                           |  | 96.4          
|                                                           |  |               
|Undrawn Committed Borrowing Facilities:                    |  |               
|Expiring in one year or less                               |  | 61.5          
|Expiring in more than one year but not more than two years |  |              
|                                                           |  |               
|                                                           |  | 61.5          
|                                                           |  |               

The
committed borrowing facilities are comprised primarily of a £60 million multi-currency revolving credit facility.

At
December 31, 2003 the commitment fees payable on the unutilized portion of the loan facilities are 0.75% on the undrawn, uncanceled amount.

The
Group put in place a £30 million 364-day working capital facility effective from February 18, 2004 with a six month term-out option to
replace this £60 million facility. The commitment fee on this facility is 0.65% per annum on the undrawn, uncanceled amount.

F-66

---





SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS (Continued)

29.   Financial Risk Management (Continued)

(c)    Currency Exposure of Financial Assets and Liabilities

The tables show the net unhedged monetary assets and liabilities of Group companies at December 31. These monetary assets and liabilities are not denominated in
their functional currency and therefore give rise to exchange gains and losses in the profit and loss account.

At
December 31, 2003 these exposures were as follows:

|                                       |  | Net foreign currency monetary
assets/(liabilities) |  
|-------------------------------------- |  | -------------------------------------------------- | -
|
|
|Functional currency of Group operation |  |                                                    |  
|Sterling                               |  |                                                   |  
|US dollar                              |  | (0.3                                               | )
|Euro                                   |  | (0.8                                               | )
|Other                                  |  | (1.9                                               | )
|                                       |  |                                                    |  
|                                       |  | (3.0                                               | )
|                                       |  |                                                    |  

At
December 31, 2002 these exposures were as follows:

|                                       |  | Net foreign currency monetary
assets/(liabilities) |  
|-------------------------------------- |  | -------------------------------------------------- | -
|
|
|Functional currency of Group operation |  |                                                    |  
|Sterling                               |  |                                                   |  
|US dollar                              |  | (0.3                                               | )
|Euro                                   |  | 0.3                                                |  
|Other                                  |  | (0.4                                               | )
|                                       |  |                                                    |  
|                                       |  | (0.4                                               | )
|                                       |  |                                                    |  

F-67

---



|                                                                                        |  | As at December 31 |  
|--------------------------------------------------------------------------------------- |  | ----------------- | -
|
|
|
|Primary financial instruments held or issued to finance the Group's operations:         |  |                   |  
|Short-term borrowings and current portion of long-term borrowings                       |  | (1.8              | )
|Long-term senior unsecured loan notes                                                   |  | (80.8             | )
|Other long-term borrowings                                                              |  | (12.5             | )
|Cash and other liquid funds                                                             |  | 37.6              |  
|Current asset investments                                                               |  |                  |  
|Other financial assets                                                                  |  | 0.2               |  
|Other financial liabilities                                                             |  | (1.3              | )
|                                                                                        |  |                   |  
|                                                                                        |  | (58.6             | )
|Derivative financial instruments held to manage the interest rate and currency profile: |  |                   |  
|Interest rate swaps                                                                     |  |                  |  
|Forward foreign exchange contracts                                                      |  |                  |  
|                                                                                        |  |                   |  
|                                                                                        |  | (58.6             | )
|                                                                                        |  |                   |  

The
derivative financial instruments are as follows:

The
Group's policy is to hedge a proportion of its transactional currency exchange exposures using forward foreign currency contracts and its interest rate exposures by using interest rate swaps.

Gains
and losses on instruments used for hedging are not recognized until the exposure that is being hedged itself is recognized.

F-68

---



Unrecognized
gains and losses on instruments used for hedging are as follows:

|                                                                             |  | Year ended December 31 | 
|---------------------------------------------------------------------------- |  | ---------------------- | 
|
|
|
|Unrecognized gains/(losses) at January 1                                     |  | 1.1                    | 
|Gains/(losses) arising in previous years recognized in the year              |  | 1.1                    | 
|                                                                             |  |                        | 
|Gains/(losses) arising before January 1 that were not recognized in the year |  |                       | 
|Gains/(losses) arising in the year that were not recognized                  |  | 0.4                    | 
|                                                                             |  |                        | 
|Unrecognized gains/(losses) on hedges at December 31                         |  | 0.4                    | 
|                                                                             |  |                        | 
|Expected to be recognized:                                                   |  |                        | 
|In one year or less                                                          |  | 0.4                    | 
|In later years                                                               |  |                       | 
|                                                                             |  |                        | 
|                                                                             |  | 0.4                    | 
|                                                                             |  |                        | 

30.   Operating Lease Commitments

Annual commitments which expire:

|                                                                     |  | At December 31
|-------------------------------------------------------------------- |  | --------------
|
|
|In respect of land and buildings (subject to periodic rent reviews): |  |               
|Within one year                                                      |  | 0.3           
|In the second to fifth years                                         |  | 5.2           
|Over five years                                                      |  | 4.4           
|                                                                     |  |               
|                                                                     |  | 9.9           
|                                                                     |  |               
|In respect of plant and equipment:                                   |  |               
|Within one year                                                      |  | 0.4           
|In the second to fifth years                                         |  | 0.1           
|                                                                     |  |               
|                                                                     |  | 0.5           
|                                                                     |  |               

F-69

---



The
aggregate payments, for which there are commitments under operating leases at December 31, 2003 fall due as follows:

|                             |  | Land and
Buildings |  | Plant and
Equipment |  | Total
|---------------------------- |  | ------------------ |  | ------------------- |  | -----
|
|Due within one year          |  | 9.9                |  | 0.5                 |  | 10.4 
|Between one and two years    |  | 9.1                |  | 0.3                 |  | 9.4  
|Between two and three years  |  | 7.7                |  | 0.3                 |  | 8.0  
|Between three and four years |  | 6.5                |  | 0.1                 |  | 6.6  
|Between four and five years  |  | 4.7                |  | 0.1                 |  | 4.8  
|After five years             |  | 16.7               |  | 0.1                 |  | 16.8 
|                             |  |                    |  |                     |  |      
|                             |  | 54.6               |  | 1.4                 |  | 56.0 
|                             |  |                    |  |                     |  |      

31.   Share Options

The Group has the following share option schemes and share incentive arrangements.

The
Inland Revenue approved 1995 ESOS was introduced on the expiry of the 1985 ESOS and incorporates the guidelines issued by the Association of British Insurers (ABI) at that time. It was
subsequently amended by the Board to facilitate the award of unapproved share options both in the United Kingdom and overseas. There are currently 593 participating executives in the ESOS.

Awards
under the 1995 ESOS, normally determined annually, are at the sole discretion of the Remuneration Committee after considering recommendations made to it by the Chief Executive. No price is
payable on the grant of an option and no options have been, or can be, granted at a discount to the market price.

The
normal exercise period for options granted under the 1985 and 1995 ESOS is between the third and tenth anniversary of the date of grant. Options awarded under the 1995 ESOS are subject to the
achievement of an earnings per share (EPS) performance condition before they can be exercised. The condition is that over a period of three consecutive financial years, there has been an increase
in EPS which is at least 6% more than the increase in the Retail Price Index over the same period.

All
ESOS grants made after May 11, 2000 to the Executive Directors and senior management (principally members of the Company's Operations Management Team) are subject to enhanced
performance conditions on exercise.

The
Remuneration Committee may in future impose different performance targets which they consider to be no less demanding. Options granted under the 1985 ESOS are exercisable unconditionally.

F-70

---



Certain
executives in the United States have previously been granted unapproved options under the IESOS with participation and awards being at the discretion of the Remuneration Committee.
Options are exercisable unconditionally and normally between the third and tenth anniversary of the date of grant. Again, no options have been granted at a discount to the market price. The IESOS
is closed and has been replaced by the unapproved arrangements to the 1995 ESOS referred to in (a) above.

The
SSOP was introduced following shareholder approval at the Company's 2000 Annual General Meeting (AGM). This discretionary plan is primarily targeted at selected employees in the
Communications group with grants normally determined annually by reference to the seniority and contribution of the individual, together with the performance of the relevant business and
prevailing local market practice. Under the SSOP, grants are also permitted to selected newly hired and promoted employees on a monthly basis.

Options
normally vest over four years, provided that the employee remains in employment. The options become 25% exercisable on the first anniversary of the date of grant, and thereafter in equal
proportions on a monthly basis. Any options not exercised will lapse on the seventh anniversary of grant. No pre-exercise performance conditions attach to options granted under the
SSOP.

Following
an Extraordinary General Meeting (EGM) held in July 2003, shareholder approval was received for an Option Exchange Program under which existing qualifying SSOP options with an
exercise price of 140 pence per share or greater (Underwater Options) were exchanged for a reduced number of newly-issued options (Replacement Options). On September 18, 2003, the Company
accepted for exchange 27.5 million Underwater Options for a grant of 4.9 million Replacement Options. In accordance with the EGM authority, the exercise price per Ordinary share of
a Replacement Option was 67.5 pence, being the fair market value of an Ordinary share on the date of grant plus 20% of that market value.

In
December 2003, the Remuneration Committee approved an annual grant of approximately 12 million options under the SSOP. In accordance with the terms of the EGM circular, the
exercise of options under this grant will be partially satisfied by using 6.1 million Ordinary shares which were previously market-purchased and are currently held as unallocated by the
Company's Employee Share Ownership Trust (ESOT). The remainder of the options will be satisfied by
new-issued shares utilizing a combination of existing share capital headroom and a limited use of headroom released through the Option Exchange Program.

No
further grants may be made under the SSOP after the 2004 AGM. However, the Remuneration Committee is currently reviewing long term incentive arrangements, particularly for employees within the
Communications group and these proposed arrangements will require shareholder approval.

No
price is payable on the grant of an option and no options have been, or can be, granted at a discount to the market price.

F-71

---



Spirent
completed the acquisition of Netcom Systems Inc. (Netcom) in July 1999. $44.5 million of the total consideration was satisfied through the rollover of outstanding
vested and unvested options over Netcom shares, primarily held by Netcom employees, into options over approximately 23.8 million new Spirent shares (as adjusted) on substantially similar
terms as previously existed under the NARSOP. The outstanding unvested options vest monthly from the date of acquisition during the remaining term of each individual grant and are not subject to
any pre-exercise performance condition. All remaining outstanding options under the NARSOP became fully vested and exercisable from July 2003 onwards until they expire.

Out
of a total consideration of approximately 44.9 million Ordinary shares issued for the acquisition of Zarak Systems Corporation (Zarak) in November 2000, approximately
3.8 million shares arose in connection with the rollover of outstanding options over Zarak shares into options over Spirent Ordinary shares which will vest over a period expiring in 2004
on substantially similar terms as previously existed under the ZARSOP. These options are primarily held by Zarak employees and have either a five or ten year life from the original date of grant.

Unvested
rolled over options are capable of immediate exercise (i.e. prior to their respective vesting date) and any shares arising from such an event are held in trust until the relevant vesting
date. The option holder is entitled to the beneficial (but not legal) interest in the shares whilst they are held in trust but they remain subject to forfeiture (with the original option exercise
prices being refunded to the participant) if the participant's employment is terminated prior to the vesting date.

Out
of a total initial consideration for the acquisition of Caw Networks, Inc. (Caw) in August 2002 of $49 million, approximately $4 million was in respect of Spirent
Ordinary shares and options which arose on the rollover of outstanding options and shares under the previous Caw employee stock plan. The options and shares will vest over a period expiring in
2006 on substantially similar terms as previously existed under the CARSP. The options are held by Caw employees and have a ten year life from the original date of grant. Pursuant to the terms of
the Merger Agreement for Caw, an additional cash payment of 78.8 cents is payable as each share vests or upon the vesting of an exercised option.

Pursuant
to individual agreements signed by participating Caw employees, any Ordinary shares issued under the CARSP are restricted until they have vested or are not at risk from forfeiture under
the plan rules. Unvested rolled over options are capable of immediate exercise (i.e. prior to their respective vesting date) and any shares arising from such an event are held in trust until the
relevant vesting date. The option holder is entitled to the beneficial (but not legal) interest in the shares whilst they are held in trust but they remain subject to forfeiture (with the
original option exercise prices being refunded to the participant) if the participant's employment is terminated prior to the vesting date.

In
accordance with the rules of the ESOS noted in (a) above, the Ordinary shares subject to rolled over options for the acquisition of Netcom, Zarak and Caw, or granted under the SSOP, do
not

F-72

---



count toward ABI scheme limits. The plans mentioned in (d) to (f) above are now closed to new entrants and no further awards of options can be made under them.

The
SRSOS is an Inland Revenue approved scheme and is open to all employees in the United Kingdom, subject to a qualifying service period. The employee enters into a
Save-As-You-Earn contract with the Company's
savings carrier to save a regular sum of between £5 and £250 per month for a fixed period of either three or five years.

No
price is payable on the grant of an option. The option exercise price is calculated by reference to the middle market price of a Spirent Ordinary share on the business day prior to the
beginning of the Invitation Period, discounted by up to 20% at the Board's discretion. Options are normally exercisable within six months of the third, fifth or seventh anniversary of the
contract commencement date, as elected by the option holder at the start of the contract.

The
Company has established an employee share ownership trust (QUEST) to honor the contractual commitment to deliver Ordinary shares against the valid exercise of outstanding options under the
SRSOS. Spirent QUEST Limited, a wholly-owned subsidiary of Spirent plc, acts as sole trustee to the QUEST. During 2003 no shares were transferred to participants. Spirent QUEST Limited has waived
all rights to receive dividends payable on its registered shareholding except for 0.01 pence per annum in aggregate and accordingly such shareholding is not included in the Company's EPS
calculation as referred to in note 12.

The
ESPP operates on a broadly similar basis to the SRSOS. It enables the Company to grant to eligible employees in the United States the right to acquire Spirent American Depositary Shares using
proceeds of a savings contract. When joining the ESPP, participants enter into a contract to save up to 15% of basic salary (gross), subject to an individual maximum of $1,000 (net) per month,
over a contract period of 12 months by way of regular payroll deductions.

No
price is payable on the grant of a purchase right. The purchase price will be the market value of an Ordinary share either on the first day of the Offering Period or on the last day of the
Offering Period, whichever is lower, less a 15% discount or, where shares are to be subscribed, their nominal value (if greater).

The
GAESPP was approved by shareholders in 2001 and offers employees in countries other than the United Kingdom or United States an opportunity to share in the Company's performance through share
ownership. The GAESPP was implemented in Canada in January 2002 and operates
on similar terms to the ESPP above, with participants entering into a 12 month contract to save up to 15% of basic salary (gross), subject to an individual maximum of Cdn $1,000 (net) per
month.

The
Company also operated the following incentive schemes during 2003, both of which utilized Ordinary shares purchased in the market (i.e. they have not involved the issue of new shares). No
awards were made under either plan in the year to December 31, 2003.

F-73

---



The
SARP was introduced in September 1999 as an interim incentive arrangement for the employees of Netcom following the closure of the NARSOP described in (d) and subsequently for
certain other employees in the Communications group. Under the SARP, recruitment, promotion and recognition awards over Ordinary shares have been made in line with historic and local competitive
market practice on a quarterly basis at the discretion of a committee of senior executives. The operation of the SARP reflects as far as practicable the now closed NARSOP. Accordingly, rights
under the SARP vest over four years, 25% vesting one year after the date of grant and the remainder vesting on a monthly basis over a further 36 months. Rights granted are not subject to
the fulfillment of any pre-exercise performance conditions.

The
SARP will deliver the appreciation value (i.e. the aggregated increase in the market value of an Ordinary share over the rights price) in the form of existing Ordinary shares which have been
purchased in the market by the Company's ESOT. The maximum number of shares over which SARP awards can be made is 5.25 million.

At
December 31, 2003, the following rights were outstanding under the SARP:

|Rights exercise dates |  | Rights price (p) |  | Number of rights outstanding
|--------------------- |  | ---------------- |  | ----------------------------
|
|09.10.0006.29.10     |  | 182416          |  | 3.0                         

At
an Extraordinary General Meeting of the Company held on May 2, 2002, shareholders approved the future closure of the LTSPP and the substitution of further annual awards with a
supplemental grant of options of equivalent value under the ESOS (see (a) above). Following a review of the LTSPP performance conditions (see below), it was determined that the initial
performance conditions for the remaining performance units had not been met and all remaining LTSPP performance units lapsed on December 31, 2003.

Grants
under the LTSPP had a six year performance period comprising two periods of three years each. Performance units, equivalent to shadow options, granted at the outset could only vest (in the
form of an award split between Ordinary shares and cash) at the end of the first performance period. This was provided that the challenging performance criteria of both total shareholder return
(TSR), as measured against a comparator group of companies (or other relevant index), and real share price growth (i.e. after taking inflation into account) had been met. One-third of
the award had to be retained in the form of shares until the end of the second performance period. These shares would have been matched on a ratio of two shares for every one share retained. In
order to encourage superior performance and to strengthen further the alignment of interest of participants with those of shareholders, participants may have chosen to invest some or all of their
remaining cash award (i.e. up to two-thirds of the award) in shares and these would have been matched on a higher ratio of up to four shares for each one retained. No reward under the
LTSPP could have been be made at the end of either performance period unless the Company's real share price growth was at least 5% per annum and also its TSR performance is ranked above the 60th
percentile against the comparator group.

F-74

---



The
Company established an ESOT as one method through which it could deliver Ordinary shares committed under the LTSPP with shares being held in trust prior to any vesting of awards.

No
price was payable on the grant of a LTSPP performance unit and no performance units were granted at a discount to the market price.

At
December 31, 2003, no performance units were outstanding under the LTSPP and the plan has now closed.

Spirent Employee Share Ownership Trust (ESOT)

At December 31, 2003 the ESOT held 11.2 million Ordinary shares to satisfy awards under various share based incentive schemes as described above. Of this
number, 1.3 million Ordinary shares were unconditionally vested at December 31, 2003.

Movements
in the options outstanding under the option schemes for the three years in the period ended December 31, 2003 and the related weighted average option prices are shown in the two
tables below.

|                                         |  |      |   |     |  |     |  |     |  |       |   |     |  |      |   |    |  | Netcom Amended
and Restated
Stock Option Plan(2)
|---------------------------------------- |  | ---- | - | --- |  | --- |  | --- |  | ----- | - | --- |  | ---- | - | -- |  | ------------------------------------------------
|
|
|
|
|Options outstanding at January 1, 2001   |  | 11.5 |   | 186 |  | 0.2 |  | 104 |  | 13.2  |   | 431 |  |     |   |   |  | 16.3                                            
|Granted/transferred into plan            |  | 4.3  |   | 243 |  |    |  |    |  | 39.4  |   | 306 |  |     |   |   |  |                                                
|Exercised                                |  | (0.7 | ) | 142 |  |    |  |    |  |      |   |    |  |     |   |   |  | (1.1                                            
|Lapsed or canceled                       |  | (0.3 | ) | 204 |  |    |  |    |  | (4.4  | ) | 418 |  |     |   |   |  | (0.1                                            
|                                         |  |      |   |     |  |     |  |     |  |       |   |     |  |      |   |    |  |                                                 
|Options outstanding at December 31, 2001 |  | 14.8 |   | 204 |  | 0.2 |  | 104 |  | 48.2  |   | 330 |  |     |   |   |  | 15.1                                            
|Granted/transferred into plan            |  | 5.4  |   | 128 |  |    |  |    |  | 42.1  |   | 99  |  | 1.2  |   | 12 |  |                                                
|Exercised                                |  | (0.1 | ) | 109 |  |    |  |    |  |      |   |    |  |     |   |   |  | (2.0                                            
|Lapsed or canceled                       |  | (2.2 | ) | 213 |  |    |  |    |  | (10.7 | ) | 274 |  | (0.1 | ) | 12 |  | (0.2                                            
|                                         |  |      |   |     |  |     |  |     |  |       |   |     |  |      |   |    |  |                                                 
|Options outstanding at December 31, 2002 |  | 17.9 |   | 181 |  | 0.2 |  | 104 |  | 79.6  |   | 215 |  | 1.1  |   | 12 |  | 12.9                                            
|Granted/transferred into plan            |  | 7.6  |   | 16  |  |    |  |    |  | 21.1  |   | 57  |  |     |   |   |  |                                                
|Exercised                                |  |     |   |    |  |    |  |    |  | (0.4  | ) | 16  |  | (0.2 | ) | 11 |  | (0.7                                            
|Lapsed or canceled                       |  | (3.0 | ) | 183 |  |    |  |    |  | (37.6 | ) | 307 |  | (0.2 | ) | 10 |  | (1.0                                            
|                                         |  |      |   |     |  |     |  |     |  |       |   |     |  |      |   |    |  |                                                 
|Options outstanding at December 31, 2003 |  | 22.5 |   | 125 |  | 0.2 |  | 104 |  | 62.7  |   | 108 |  | 0.7  |   | 11 |  | 11.2                                            
|                                         |  |      |   |     |  |     |  |     |  |       |   |     |  |      |   |    |  |                                                 
|Options exercisable                      |  |      |   |     |  |     |  |     |  |       |   |     |  |      |   |    |  |                                                 
|At December 31, 2003                     |  | 5.4  |   | 147 |  | 0.2 |  | 104 |  | 25.4  |   | 142 |  | 0.7  |   | 11 |  | 11.2                                            
|At December 31, 2002                     |  | 7.5  |   | 150 |  | 0.2 |  | 104 |  | 21.0  |   | 320 |  | 1.1  |   | 12 |  | 12.7                                            
|At December 31, 2001                     |  | 4.3  |   | 138 |  | 0.2 |  | 104 |  | 4.4   |   | 410 |  |     |   |   |  | 13.9                                            

---

F-75

---



|                                         |  | Net-HOPPER Amended and Restated Plan(1) |   | Zarak Amended and Restated Stock Option
Plan(2) |  | Savings Related Share Option Scheme |   | Employee Stock Purchase Plan(3) |  | Global All Employee Share Purchase Plan(3)
|---------------------------------------- |  | --------------------------------------- | - | ----------------------------------------------- |  | ----------------------------------- | - | ------------------------------- |  | ------------------------------------------
|
|
|Options outstanding at January 1, 2001   |  | 1.1                                     |   | 65                                              |  | 3.8                                 |   | 164                             |  | 4.9                                       
|Granted/transferred into plan            |  |                                        |   |                                                |  |                                    |   |                                |  | 4.4                                       
|Exercised                                |  | (0.9                                    | ) | 58                                              |  | (0.8                                | ) | 84                              |  | (0.6                                      
|Lapsed or canceled                       |  |                                        |   |                                                |  | (1.0                                | ) | 188                             |  | (2.0                                      
|                                         |  |                                         |   |                                                 |  |                                     |   |                                 |  |                                           
|Options outstanding at December 31, 2001 |  | 0.2                                     |   | 58                                              |  | 2.0                                 |   | 185                             |  | 6.7                                       
|Granted/transferred into plan            |  |                                        |   |                                                |  |                                    |   |                                |  | 4.0                                       
|Exercised                                |  | (0.2                                    | ) | 58                                              |  | (0.1                                | ) | 69                              |  | (0.8                                      
|Lapsed or canceled                       |  |                                        |   |                                                |  | (0.8                                | ) | 159                             |  | (4.6                                      
|                                         |  |                                         |   |                                                 |  |                                     |   |                                 |  |                                           
|Options outstanding at December 31, 2002 |  |                                        |   |                                                |  | 1.1                                 |   | 220                             |  | 5.3                                       
|Granted/transferred into plan            |  |                                        |   |                                                |  |                                    |   |                                |  | 3.4                                       
|Exercised                                |  |                                        |   |                                                |  |                                    |   |                                |  |                                          
|Lapsed or canceled                       |  |                                        |   |                                                |  | (0.3                                | ) | 167                             |  | (1.6                                      
|                                         |  |                                         |   |                                                 |  |                                     |   |                                 |  |                                           
|Options outstanding at December 31, 2003 |  |                                        |   |                                                |  | 0.8                                 |   | 237                             |  | 7.1                                       
|                                         |  |                                         |   |                                                 |  |                                     |   |                                 |  |                                           
|Options exercisable                      |  |                                         |   |                                                 |  |                                     |   |                                 |  |                                           
|At December 31, 2003                     |  |                                        |   |                                                |  | 0.8                                 |   | 237                             |  |                                          
|At December 31, 2002                     |  |                                        |   |                                                |  | 1.0                                 |   | 220                             |  | 0.1                                       
|At December 31, 2001                     |  | 0.2                                     |   | 58                                              |  | 2.0                                 |   | 186                             |  | 0.5                                       
|                                         |  |                                         |   |                                                 |  |                                     |   |                                 |  |                                           

---

F-76

---





Under
Statement of Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock Based Compensation" ("SFAS 123") the fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:

|                        |  | Year ended December 31
|----------------------- |  | ----------------------
|
|Dividend yield          |  | 0.9%                  
|Expected volatility     |  | 109.0%                
|Risk free interest rate |  | 2.5%                  
|Expected life           |  | 4.1 years             

The
weighted average fair values of options granted are as follows:

|                                                                           |  | Year ended December 31
|-------------------------------------------------------------------------- |  | ----------------------
|
|Options granted at market value of the underlying shares                   |  | 31p                   
|Options granted at a discount to the market value of the underlying shares |  | 23p                   

Summarized
information about options outstanding under the share option schemes at December 31, 2003 is as follows:

|                                            |            | Options outstanding |      | Options exercisable
|------------------------------------------- | ---------- | ------------------- | ---- | -------------------
|
|
|1985 Executive Share Option Scheme          |            |                     |      |                    
|                                            | 102 to 108 |                     | 0.1  |                    
|                                            |            |                     |      |                    
|1995 Executive Share Option Scheme          |            |                     |      |                    
|                                            | 16         |                     | 7.6  |                    
|                                            | 72         |                     | 0.9  |                    
|                                            | 118 to 163 |                     | 9.9  |                    
|                                            | 305 to 334 |                     | 4.0  |                    
|                                            |            |                     |      |                    
|International Executive Share Option Scheme |            |                     |      |                    
|                                            | 104        |                     | 0.2  |                    
|                                            |            |                     |      |                    
|Spirent Stock Option Plan                   |            |                     |      |                    
|                                            | 6          |                     | 0.3  |                    
|                                            | 13 to 18   |                     | 13.5 |                    
|                                            | 22         |                     | 0.1  |                    
|                                            | 38 to 56   |                     | 1.8  |                    
|                                            | 61 to 78   |                     | 27.0 |                    
|                                            | 94 to 140  |                     | 2.5  |                    
|                                            | 141 to 197 |                     | 11.4 |                    
|                                            | 270 to 400 |                     | 3.0  |                    
|                                            | 488 to 617 |                     | 3.1  |                    
|                                            |            |                     |      |                    

F-77

---



|Caw Amended and Restated Plan(1)              |            |  |     |  |       |  |     |  |     | 
|--------------------------------------------- | ---------- |  | --- |  | ----- |  | --- |  | --- | 
|                                              | 10 to 13   |  | 0.7 |  | 7.9   |  | 11  |  | 0.7 | 
|                                              |            |  |     |  |       |  |     |  |     | 
|Netcom Amended and Restated Stock Option Plan |            |  |     |  |       |  |     |  |     | 
|                                              | 15 to 18   |  | 4.0 |  | 3.3   |  | 18  |  | 4.0 | 
|                                              | 24 to 36   |  | 3.1 |  | 3.9   |  | 24  |  | 3.1 | 
|                                              | 54         |  | 0.2 |  | 4.2   |  | 54  |  | 0.2 | 
|                                              | 90 to 121  |  | 3.4 |  | 5     |  | 97  |  | 3.4 | 
|                                              | 151        |  | 0.5 |  | 5.5   |  | 151 |  | 0.5 | 
|                                              |            |  |     |  |       |  |     |  |     | 
|Zarak Amended and Restated Stock Option Plan  |            |  |     |  |       |  |     |  |     | 
|                                              | 127        |  | 0.6 |  | 5.6   |  | 127 |  | 0.6 | 
|                                              | 572        |  | 0.2 |  | 5.8   |  | 572 |  | 0.2 | 
|                                              |            |  |     |  |       |  |     |  |     | 
|Savings Related Share Option Scheme           |            |  |     |  |       |  |     |  |     | 
|                                              | 38 to 41   |  | 6.2 |  | 4.1   |  | 39  |  |    | 
|                                              | 83 to 109  |  | 0.8 |  | 1.5   |  | 89  |  |    | 
|                                              | 142 to 160 |  | 0.1 |  | 1.7   |  | 142 |  |    | 
|                                              |            |  |     |  |       |  |     |  |     | 
|Employee Stock Purchase Plan(2)               |            |  |     |  |       |  |     |  |     | 
|                                              | 50         |  | 3.0 |  | 0.003 |  | 50  |  |    | 
|                                              |            |  |     |  |       |  |     |  |     | 
|Global All Employee Share Purchase Plan(2)    |            |  |     |  |       |  |     |  |     | 
|                                              | 50         |  | 0.3 |  | 0.003 |  | 50  |  |    | 
|                                              |            |  |     |  |       |  |     |  |     | 

---

F-78

---



In
accordance with the rules of the following share option schemes, options were exercised during the three years in the period ended December 31, 2003 which resulted in new shares being
allotted as shown below:

|                                              |  | Number of Ordinary shares
year ended December 31 |  | Total consideration received
year ended
December 31
|--------------------------------------------- |  | ------------------------------------------------ |  | ---------------------------------------------------
|
|
|Discretionary Schemes                         |  | 0.4                                              |  | 0.1                                                
|Netcom Amended and Restated Stock Option Plan |  | 0.7                                              |  | 2.1                                                
|All Employee Share Schemes                    |  | 3.3                                              |  | 1.8                                                
|Net-HOPPER Amended and Restated Plan          |  |                                                 |  | 0.2                                                
|Zarak Amended and Restated Stock Option Plan  |  |                                                 |  | 0.1                                                
|Caw Amended and Restated Stock Plan(1)        |  | 0.2                                              |  |                                                   
|                                              |  |                                                  |  |                                                    
|                                              |  | 4.6                                              |  | 4.3                                                
|                                              |  |                                                  |  |                                                    

---

During
the year no shares were transferred from Spirent QUEST Limited to option holders against the valid exercise of share options under the Company's Savings Related Share Option Scheme.

On
January 1, 2004, 3.3 million Ordinary shares were allotted following the automatic exercise of purchase rights under the Company's United States Employee Stock Purchase Plan and the
Global All Employee Share Purchase Plan. Between January 1, 2004 and February 25, 2004 approximately 1.1 million Ordinary shares were allotted following exercises under other
option schemes.

At
December 31, 2003 the following options and purchase rights over Ordinary shares have been granted and remained outstanding under the Company's various employee share schemes. Figures for
the options outstanding and the exercise price per Ordinary share have each been adjusted,

F-79

---



where relevant, for the 3:1 subdivision of share capital in 2000 and for the rights issues effected in 1993 and 2000.

|Option Scheme                       |                                                    | Option exercise
dates |                   | Exercise
price
per share |           | Number of
outstanding options
|----------------------------------- | -------------------------------------------------- | --------------------- | ----------------- | ------------------------ | --------- | -----------------------------
|
|Discretionary Schemes:              |                                                    |                       |                   |                          |           |                              
|                                    | 1985 Executive Share Option Scheme                 |                       | 04.22.97-04.26.05 |                          | 102-108   |                              
|                                    | 1995 Executive Share Option Scheme                 |                       | 04.29.99-03.24.13 |                          | 16-598    |                              
|                                    | International Executive Share Option Scheme        |                       | 04.11.98-04.10.05 |                          | 104       |                              
|                                    | Spirent Stock Option Plan (1)                      |                       | 05.11.01-12.11.10 |                          | 6-617     |                              
|Acquisition Related Schemes:        |                                                    |                       |                   |                          |           |                              
|                                    | Netcom Amended and Restated Stock Option Plan      |                       | 07.23.99-07.19.09 |                          | 15-151    |                              
|                                    | Zarak Amended and Restated Stock Option Plan       |                       | 11.14.00-11.12.10 |                          | 79-572    |                              
|                                    | Caw Amended and Restated Stock Plan                |                       | 08.15.02-06.25.12 |                          | 17.7-23.6 | (2)                          
|All Employee Share Save Schemes:(3) |                                                    |                       |                   |                          |           |                              
|                                    | United Kingdom Savings Related Share Option Scheme |                       | 12.01.02-05.31.11 |                          | 38-583    |                              
|                                    | United States Employee Stock Purchase Plan(4)      |                       | 01.01.05          |                          | 50        |                              
|                                    | Global All Employee Share Purchase Plan(4)         |                       | 01.01.05          |                          | 50        |                              
|                                    |                                                    |                       |                   |                          |           |                              
|Total                               |                                                    |                       |                   |                          |           | 108.5                        
|                                    |                                                    |                       |                   |                          |           |                              

---

F-80

---



32.   Acquisition of Subsidiaries

All acquisitions have been accounted for under the purchase method of accounting. The results of the acquired businesses have been included in the consolidated financial
statements since the respective acquisition date.

For
accounting purposes an allocation of the purchase price has been made using estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition.

Year ended December 31, 2003

No acquisitions occurred in the year ended December 31, 2003. The movements relate to prior year acquisitions

An
obligation to issue Ordinary shares arises in relation to the deferred consideration pursuant to the acquisition agreement of Caw Networks, Inc. made in August 2002, where a
certain level of the earn-out targets have been achieved. The amount of deferred consideration due is $10.0 million which the Company has elected to satisfy by the issue of new
Ordinary shares. These shares will be issued in 2004 with reference to an Ordinary share price of 120 pence in accordance with the terms of the agreement and with reference to the then prevailing
US dollar to sterling exchange rate.

|                                                                          |  | Total |  
|------------------------------------------------------------------------- |  | ----- | -
|
|Goodwill                                                                  |  | 2.7   |  
|                                                                          |  |       |  
|Purchase consideration comprised the following:                           |  |       |  
|Obligation to issue Ordinary sharesCaw Networks, Inc.                    |  | 2.7   |  
|                                                                          |  |       |  
|The cash flows in respect of the purchase of subsidiaries are as follows: |  |       |  
|Cash (accrued in prior years)                                             |  | (1.1  | )
|                                                                          |  |       |  
|Net cash outflow on acquisitions                                          |  | (1.1  | )
|                                                                          |  |       |  

Year ended December 31, 2002

For the year ended December 31, 2002 the most significant acquisitions, which all occurred in the Communications Group, were the following:

F-81

---



There
were no fair value or accounting policy adjustments being made to the book value of the assets acquired in 2002.

|                                                                          |  | Total |  
|------------------------------------------------------------------------- |  | ----- | -
|
|Assets and liabilities acquired were:                                     |  |       |  
|Tangible assets                                                           |  | 0.8   |  
|Stocks                                                                    |  | 0.6   |  
|Debtors                                                                   |  | 3.6   |  
|Creditors                                                                 |  | (1.5  | )
|Cash                                                                      |  | 3.2   |  
|Loans and finance leases                                                  |  | (0.2  | )
|Minority interest                                                         |  | 0.4   |  
|                                                                          |  |       |  
|Net assets                                                                |  | 6.9   |  
|Less: Previously included as an associate                                 |  | (5.2  | )
|Goodwill                                                                  |  | 51.0  |  
|                                                                          |  |       |  
|                                                                          |  | 52.7  |  
|                                                                          |  |       |  
|Purchase consideration comprised the following:                           |  |       |  
|Restricted stock                                                          |  | 1.2   |  
|Options to acquire shares                                                 |  | 0.1   |  
|Cash (including expenses)                                                 |  | 53.4  |  
|Accrued                                                                   |  | (0.9  | )
|Consideration to be charged as compensation expenses                      |  | (1.1  | )
|                                                                          |  |       |  
|                                                                          |  | 52.7  |  
|                                                                          |  |       |  
|The cash flows in respect of the purchase of subsidiaries are as follows: |  |       |  
|Cash (including expenses)                                                 |  | (53.4 | )
|Cash (accrued in prior years)                                             |  | 1.0   |  
|Cash and overdrafts acquired                                              |  | 3.2   |  
|                                                                          |  |       |  
|Net cash outflow on acquisitions                                          |  | (49.2 | )
|                                                                          |  |       |  

F-82

---



Year ended December 31, 2001

No acquisitions occurred in the year ended December 31, 2001. The following movements relate to prior year acquisitions.

|                                                                         |  | Total |  
|------------------------------------------------------------------------ |  | ----- | -
|
|Assets and liabilities acquired were:                                    |  |       |  
|Goodwill                                                                 |  | (0.8  | )
|                                                                         |  |       |  
|Purchase consideration comprised the following:                          |  |       |  
|Cash (including expenses)                                                |  | 1.2   |  
|Accrued                                                                  |  | (2.0  | )
|                                                                         |  |       |  
|                                                                         |  | (0.8  | )
|                                                                         |  |       |  
|The cash flows in respect of the purchase of subsidiaries is as follows: |  |       |  
|Cash (including expenses)                                                |  | (1.2  | )
|Cash (accrued in prior years)                                            |  | 8.4   |  
|                                                                         |  |       |  
|Net cash inflow on acquisitions                                          |  | 7.2   |  
|                                                                         |  |       |  

Net
cash flow on acquisitions related to cash consideration and expenses paid of £15.1 million in respect of the previous years' acquisitions and cash received of
£22.3 million again in respect of the previous years' acquisitions.

33.   Disposal of operations

Year ended December 31, 2003

On April 4, 2003 the Group completed the sale of its 51% interests in the WAGO joint venture to the joint venture partners (the Hohorst family) for a cash
consideration of £58.8 million, net of expenses.

On
June 30, 2003 the Group sold its Aviation Information Solutions business from within its Systems group to Teledyne Technologies Incorporated for a cash consideration, net of expenses,
of £3.2 million.

The
businesses sold during the year contributed £0.7 million to the Group's operating cash flows, contributed nil in respect of net returns on investments and servicing of
finance, paid no taxation and utilized £0.1 million for capital expenditure.

Year ended December 31, 2002

On April 1, 2002 the Group completed the sale of its non-core aerospace component businesses from within its Systems group to Curtiss-Wright Corporation
for a cash consideration of $60 million.

On
May 1, 2002 the Group completed the disposal of certain assets of Switching Systems International, a business within its Systems group, for up to $9.1 million in cash.

F-83

---



On
September 30, 2002, the Group completed the disposal of Monitor Labs Incorporated a business within its Systems group, to Teledyne Technologies Incorporated for a cash consideration of
$24 million.

The
businesses sold during the year contributed £0.3 million to the Group's operating cash flows, contributed nil in respect of net returns on investments and servicing of
finance, paid £0.4 million of taxation and utilized £0.4 million for capital expenditure.

Year ended December 31, 2001

On November 9, 2001, the Group completed the disposal of the equity and assets of its Sensing Group of companies in the United Kingdom, the United States, Europe
and Asia to a company formed by GE Industrial Systems, a division of General Electric Company of the United States for a cash consideration of $220 million (approximately
£152 million).

During
the year, the Group completed the disposal of several non-core businesses for cash proceeds, net of expenses of £1.5 million.

The
businesses sold during the year contributed £7.8 million to the Group's operating cash flows, paid £0.7 million in respect of net returns on investments
and
servicing of finance, paid £1.4 million of taxation and utilized £3.1 million for capital expenditure.

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Net
assets disposed of were as follows:

|                                                                      |                   | Year ended December 31 |    
|--------------------------------------------------------------------- | ----------------- | ---------------------- | ---
|
|
|Fixed assets                                                          |                   |                        |    
|                                                                      | Tangible assets   |                        | 0.7
|                                                                      | Intangible assets |                        | 0.6
|Stocks                                                                |                   | 2.3                    |    
|Debtors                                                               |                   | 2.4                    |    
|Creditors                                                             |                   | (4.5                   | )  
|Taxation                                                              |                   |                       |    
|Cash                                                                  |                   |                       |    
|Overdrafts                                                            |                   |                       |    
|Deferred taxation                                                     |                   |                       |    
|Minority                                                              |                   |                       |    
|Investment in joint venture                                           |                   | 54.3                   |    
|                                                                      |                   |                        |    
|Net assets                                                            |                   | 55.8                   |    
|Goodwill charged to profit and loss account                           |                   | 2.6                    |    
|                                                                      |                   |                        |    
|                                                                      |                   | 58.4                   |    
|Net profit/(loss) on disposal of operations                           |                   | 3.6                    |    
|                                                                      |                   |                        |    
|                                                                      |                   | 62.0                   |    
|                                                                      |                   |                        |    
|Satisfied by:                                                         |                   |                        |    
|Cash (less expenses)                                                  |                   | 62.0                   |    
|Cash accrued                                                          |                   |                       |    
|                                                                      |                   |                        |    
|                                                                      |                   | 62.0                   |    
|                                                                      |                   |                        |    
|The cash flows in respect of the sale of subsidiaries are as follows: |                   |                        |    
|Cash received net of expenses                                         |                   | 62.0                   |    
|Cash less overdrafts included within net assets disposed of           |                   |                       |    
|                                                                      |                   |                        |    
|Net cash inflow from disposals                                        |                   | 62.0                   |    
|                                                                      |                   |                        |    

34.   Differences between United Kingdom and United States Generally Accepted Accounting Principles

The accounting policies under which the consolidated financial statements of the Group are prepared conform with accounting principles generally accepted in the United
Kingdom ("UK GAAP"). The Group's revenue recognition policies described in note 1 comply with generally accepted accounting principles in the United States ("US GAAP"), particularly as
regards SEC Staff Accounting Bulletin No. 104 "Revenue Recognition in Financial Statements" ("SAB 104") and AICPA Statement of Position 97-2 "Software Revenue Recognition"
("SOP 97-2"). Accordingly, no differences arise between UK GAAP and US GAAP related to revenue recognition. However, UK GAAP differ from US GAAP as regards the Group in the following
significant respects:

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a)    Goodwill and Other Intangible Assets

(i)    Capitalization

Under UK GAAP, goodwill arising on acquisitions prior to 1998 was written off to retained earnings on acquisition and at December 31, 2003 amounted to
£41.3 million (2002 £43.9 million). In accordance with FRS 10 "Goodwill and Intangible Assets", goodwill arising on acquisitions subsequent to January 1,
1998 is capitalized and amortized over its estimated useful economic life.

In
reconciling to US GAAP, amounts written off to retained earnings under UK GAAP have been capitalized and amortized over their estimated useful economic lives of 20 years, until
January 1, 2002. Under US GAAP, with the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142"), effective January 1, 2002, goodwill is no longer
amortized but is subject to periodic review for impairment.

(ii)    Contingent Consideration

Under UK GAAP, where the consideration paid for an acquisition includes a contingent payment and in the absence of a link to continued employment, the best estimate of the
amount likely to be payable in respect of such consideration is accrued and is included in goodwill at the date of acquisition. Under US GAAP, the contingent payment is not recognized until the
contingency has been resolved.

Under
the acquisition agreements for Zarak and Caw, the Company was required to make an additional payment in the form of Ordinary shares if the acquired companies meet certain earnings targets and
certain employees of the acquired companies remain in employment through a specified date. These additional stock payments related to the Zarak and Caw acquisitions have been accounted for as
compensation expense, which is the same accounting treatment required under US GAAP. The compensation expense is estimated based on the Company's share price at the balance sheet date and is
recognized on a straight-line basis over the required employment term of the employees. The contingent shares related to the Zarak and Caw acquisitions will be excluded from the
basic earnings per share calculation under US GAAP until such time that the shares become fully vested. Additionally, the contingent shares are excluded from the diluted earnings per share calculation
under US GAAP, as they are anti-dilutive.

(iii)    Impairment of Goodwill and Long-lived assets

Under UK GAAP, FRS 10 requires goodwill to be reviewed for impairment at the end of the first full financial year following acquisition and in other periods if events or
changes in circumstances indicate the carrying value may not be recoverable.

At
December 31, 2003, there were no indicators that the carrying value of goodwill may not be recoverable and no impairment charge has been recognized for 2003.

The
deterioration in trading in the second half of 2002 in the telecommunications market together with a significant fall in the Spirent share price did necessitate an impairment review of our
business at that time. This review resulted in impairment losses totalling £923.3 million being

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recognized under UK GAAP during 2002. A similar impairment loss of £724.6 million was recognized during 2001.

Impairment
losses in 2002 of £330.7 million related to the Performance Analysis division, £530.4 million in respect of the Service Assurance division,
£21.7 million for Network Products and £40.5 million for the Systems group.

In
calculating the impairment losses for 2002, the directors, in line with best practice, also reviewed pre-1998 goodwill previously written off to reserves for those businesses in which
an impairment loss had been identified. An amount of £87.0 million was consequently reinstated and included in the total impairment charge of £923.3 million.

Under
UK GAAP, an impairment loss is recognized when the estimated cash flows on a discounted basis, expected to result from the use of the asset including its disposition, are less than the carrying
value of the asset. On this basis the impairment losses of £923.3 million for 2002 were the aggregate from the impairment reviews of each individual income generating unit
determined in accordance with FRS 11 "Impairment of Fixed Assets and Goodwill". The impairment loss restated the assets to value in use and was measured using pre-tax discount rates of
between 15% to 20%. The discount rate was based on the Company's weighted average cost of capital and considered the particular risks associated with each income-generating unit.

Under
US GAAP, regarding goodwill or intangible assets with an indefinite life, SFAS 142 became effective January 1, 2002, superseding SFAS No. 121 "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to Be Disposed of". The Group was required to perform a transitional goodwill impairment test based on the carrying amount of
goodwill as at that date. This indicated that the fair values of the Group's reporting units equalled or exceeded their carrying values and therefore the transitional goodwill impairment test did not
result in any impairment being recorded.

Under
SFAS 142, goodwill is no longer amortized but is subject to periodic review for impairment on a reporting unit basis. Having identified its reporting units the Group obtained independent
valuations for SFAS 142 purposes at November 30, 2002 and November 30, 2003 for Service Assurance, Performance Analysis and Network Products.

SFAS 142
specifies that the test for goodwill impairment is a two-step approach. Step 1 is a comparison of the fair value of a reporting unit to its carrying value. If the fair
value of the reporting unit is less than its carrying amount, the amount of the impairment loss must be measured. Step 2 states that the amount of the impairment loss, if any, is measured by comparing
the implied fair value of goodwill to its carrying amount. Fair values were determined by applying a discounted cash flow method using post-tax discount rates of between 10% and 15%,
depending on the weighted average cost of capital for a comparable set of companies to each respective reporting unit.

Step
1 results did not indicate impairment in any of the Group's reporting units at November 30, 2003, but did indicate impairment of goodwill in Service Assurance and Performance Analysis at
November 30, 2002. After considering the fair values of the other intangible assets the implied fair values of goodwill were determined under Step 2 and compared to carrying values. On this
basis, US GAAP goodwill impairment of £480.5 million in Service Assurance and £226.4 million in

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Performance Analysis was recognized during 2002. A further £0.5 million of goodwill impairment arose within Systems during 2002. In addition, £57.4 million of
impairment arose during 2002 on other definite lived intangibles in Service Assurance under SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS 144") as outlined below.

Under
US GAAP, effective for Spirent on January 1, 2002, SFAS 144 supersedes SFAS 121. SFAS 144 requires long-lived assets to be tested for impairment if events
or changes in circumstances indicate the carrying value may not be recoverable. SFAS 144 does not apply to goodwill or intangible assets with an indefinite life. The Group did not consider the
criteria necessitating an impairment review to have been met at November 30, 2003, but did at November 30, 2002 and obtained independent valuations as at that date for SFAS 144
purposes for other intangible assets within Performance Analysis division and Service Assurance division.

SFAS 144
requires long-lived assets to be written down to their fair value if the long-lived assets carrying amount is greater than the sum of undiscounted cash flows
over the period of the long-lived assets useful life. The impairment amount is the difference between the long-lived assets carrying value and its fair value. Fair values are
determined using the present values of future cash flows expected to be generated by the long-lived assets. Testing takes place at the lowest level for which identifiable cash flows
generated by individual long-lived assets or groups thereof are largely independent of the cash flows of other groups of assets and liabilities.

The
results of the independent valuations at November 30, 2002 indicated that other intangible assets within Service Assurance division were impaired by £57.4 million. Other
intangible assets within the Performance Analysis division were not impaired.

The
total impairment loses of £923.3 million under UK GAAP and £764.8 million under US GAAP for 2002 had the effect of restating the assets to the same
fair values.

During
2001, the rapid deterioration in the telecommunications market led to a recognition of impairment losses for Hekimian Laboratories, Net-HOPPER and Zarak Systems, all acquired in the
second half of 2000, under both UK GAAP and US GAAP. Zarak Systems is within Performance Analysis division; Hekimian Laboratories and Net-HOPPER comprised Service Assurance division.

The
US GAAP impairment losses recognized in 2001 were calculated in accordance with SFAS 121, under which an impairment loss is recognized if the estimated undiscounted cash flows expected to
result from the use of the assets and any related goodwill are less than the carrying value of the asset. In each case the asset would be written down to its fair value measured using a discounted
future cash flow technique with a post-tax discount rate consistent with the UK GAAP impairment calculations. For the purposes of assessing and measuring impairment, assets are grouped at
the lowest level possible for which independent cash flows can be identified. On this basis, US GAAP impairment losses in 2001 totaled £691.1 million, comprising
£682.4 million for goodwill and £8.7 million for identified intangibles.

In
addition, as a result of the trading environment within the aerospace software industry, an impairment charge of £16.5 million for goodwill and other intangible assets in
relation to the investment in WPDS Inc., was made under US GAAP at December 31, 2001. As the original

F-88

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business was acquired prior to January 1, 1998, under UK GAAP the goodwill arising was written off to reserves.

Essentially,
the UK GAAP to US GAAP adjustment arises from the use of shorter amortization lives under US GAAP for intangibles, and goodwill until January 1, 2002, which results in a lower
asset carrying value subject to the impairment tests under US GAAP.

Under
UK GAAP, impairment charges on goodwill and other intangible assets are recorded as an increase to accumulated amortization. Under US GAAP, impairment charges are recorded as a reduction of
cost. Classification differences related to this issue have been reflected in the presentation of goodwill and other intangible asset balances within the reconciliation of shareholders' funds.

(iv)    Other purchase accounting differences

Other differences between UK GAAP and US GAAP arise with respect to the adoption of SFAS 142 and the determination of the cost of investment, the fair values of assets
acquired, the treatment of identifiable intangible assets and the amortization periods of goodwill as described in more detail below.

Under
US GAAP, acquisitions subsequent to June 30, 2001 are subject to the provisions of SFAS 142 and therefore, goodwill arising on acquisitions subsequent to that date is not
amortized. In the year ended December 31, 2001, amortization arising under UK GAAP on acquisitions subsequent to June 30, 2001 was reversed for the purposes of the reconciliation below
and all goodwill amortization charged under UK GAAP from January 1, 2002 has been reversed in reconciling UK GAAP to US GAAP in the years to December 31, 2002 and 2003.

In
addition, under US GAAP, SFAS 141 "Business Combinations", effective January 1, 2002, clarifies the criteria to recognize identified intangible assets separately from goodwill.
Consequently, an unamortized balance of £8.4 million was transferred from identified intangibles to goodwill on January 1, 2002, representing workforce in place which does
not meet these new criteria.

(v)    Additional disclosures

SFAS 142 requires disclosure of what reported income before extraordinary items and net income would have been in all periods presented excluding amortization expense
(including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized, any deferred credit related to an excess over cost, equity
method goodwill, and changes

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in amortization periods for intangible assets that will continue to be amortized (including any related tax effects).

|                                              |  | Year ended December 31 | 
|--------------------------------------------- |  | ---------------------- | 
|
|
|Net income/(loss) according to US GAAP        |  |                        | 
|Reported net income/(loss)                    |  |                       | 
|Add back goodwill amortization                |  |                       | 
|                                              |  |                        | 
|Adjusted net income/(loss)                    |  |                       | 
|                                              |  |                        | 
|                                              |  |                        | 
|Basic and diluted earnings per share          |  |                        | 
|Reported net income/(loss)                    |  |                       | 
|Add back goodwill amortization                |  |                       | 
|                                              |  |                        | 
|Adjusted basic and diluted earnings per share |  |                       | 
|                                              |  |                        | 

The
changes during 2003 in the carrying value of goodwill per segment are presented in the table below:

|                                                   |  | Performance
Analysis |  | Service
Assurance |   | Network
Products |  | Systems |   | Total |  
|-------------------------------------------------- |  | -------------------- |  | ----------------- | - | ---------------- |  | ------- | - | ----- | -
|
|Balance as of January 1, 2003                      |  |                     |  | 13.4              |   | 27.9             |  | 4.2     |   | 45.5  |  
|Increase in goodwill during the year               |  | 2.3                  |  | 0.1               |   | 0.2              |  |        |   | 2.6   |  
|Goodwill written off related to sale of businesses |  |                     |  |                  |   |                 |  | (3.0    | ) | (3.0  | )
|Currency translation adjustment                    |  |                     |  | (1.2              | ) |                 |  |        |   | (1.2  | )
|                                                   |  |                      |  |                   |   |                  |  |         |   |       |  
|Balance as of December 31, 2003                    |  | 2.3                  |  | 12.3              |   | 28.1             |  | 1.2     |   | 43.9  |  
|                                                   |  |                      |  |                   |   |                  |  |         |   |       |  

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Intangible
assets subject to amortization by major class, which constitute more than 5% of total assets, are as follows:

|                         |  | Developed
Technology |   | Other |   | Total |  
|------------------------ |  | -------------------- | - | ----- | - | ----- | -
|
|As at December 31, 2002  |  |                      |   |       |   |       |  
|Gross carrying amount    |  | 67.0                 |   | 29.8  |   | 96.8  |  
|Accumulated amortization |  | (32.6                | ) | (15.3 | ) | (47.9 | )
|                         |  |                      |   |       |   |       |  
|Carrying amount          |  | 34.4                 |   | 14.5  |   | 48.9  |  
|                         |  |                      |   |       |   |       |  
|As at December 31, 2003  |  |                      |   |       |   |       |  
|Gross carrying amount    |  | 56.7                 |   | 27.5  |   | 84.2  |  
|Accumulated amortization |  | (32.1                | ) | (17.0 | ) | (49.1 | )
|                         |  |                      |   |       |   |       |  
|Carrying amount          |  | 24.6                 |   | 10.5  |   | 35.1  |  
|                         |  |                      |   |       |   |       |  

The
amortization expense for the year ended December 31, 2003 is £10.4 million (2002 £19.9 million). Amortization expense for intangible assets is expected
to be £8.9 million in 2004, £8.5 million in 2005, £8.1 million in 2006, £7.3 million in 2007 and
£2.3 million in 2008.

b)    Stock-based Compensation

UK corporate governance recommends the inclusion of performance criteria in UK discretionary or executive stock plans. The Company's UK ESOS includes certain performance
criteria, which result in variable accounting under US GAAP. Notwithstanding these performance criteria, under UK GAAP no compensation expense arises under the ESOS.

For
the purposes of the reconciliations below, the Group has elected to use the intrinsic value basis as set forth in Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" ("APB 25") in determining any compensation expense under US GAAP. The compensation expense arising in respect of variable plans under US GAAP is determined by reference to the market price
of the Company's shares at each period end compared with the option price and is charged to income over the vesting period.

Under
US GAAP, the following accounting results for each stock option plan:

(i)    1985 and 1995 Executive Share Option Schemes

The presence of earnings per share performance criteria in the vesting terms results in no measurement date arising until the conditions are resolved. Accordingly, under APB
25, the plan is deemed to be a variable plan.

(ii)    International Executive Share Option Scheme

This plan is accounted for as a fixed plan under APB 25 as a measurement date arises on the date of grant and no performance criteria exist.

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(iii)    Savings Related Share Option Schemes

These plans are accounted for as fixed plans; however, in accordance with Financial Accounting Standards Board Interpretation No. 44 "Accounting for Certain Transactions
Involving Stock CompensationAn Interpretation of APB Opinion No. 25" ("FIN 44") a compensation charge arises under the Group's Save-As-You-Earn
schemes as the discount of 20% exceeds the maximum discount permitted of 15%.

(iv)    Netcom Amended and Restated Share Option Plan

This plan is accounted for as a fixed plan under APB 25 as a measurement date arises at the date of grant and no performance criteria exist. As of December 31, 2003, all
options were vested and no further grants have been made under this plan.

(v)    Zarak Amended and Restated Stock Option Plan

This plan qualifies as a fixed plan under APB 25; however, in accordance with FIN 44, a portion of the intrinsic value of the unvested awards at the date of acquisition is
allocated to unearned compensation and recognized by the Company as compensation cost over the remaining future vesting period. The amount allocated to unearned compensation cost is based on the
portion of the intrinsic value at the consummation date related to the future vesting period. This amount is calculated as the intrinsic value of the replacement awards at the consummation date
multiplied by the fraction that is the remaining future vesting period divided by the total vesting period.

(vi)    CAW Amended and Restated Stock Plan

This plan is accounted for in the same way as the Zarak Amended and Restated Stock Option Plan as set out above.

(vii)    Spirent Stock Option Plan

This plan is accounted for as a fixed plan under APB 25 as a measurement date arises on the date of grant and no performance criteria exist.

For
those options subject to the option exchange program completed in September 2003 variable plan accounting has been adopted.

(viii)    US Employee Stock Purchase Plan

This plan is accounted for as a fixed plan under APB 25. No compensation expense arises under this plan as the discount of 15% is within the permitted range under US GAAP.

(ix)    Global All Employee Share Purchase Plan

This plan operates on similar terms to the US Employee Stock Purchase Plan above and is accounted for in the same way.

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(x)    Stock Appreciation Rights Plan

This plan provides stock appreciation rights and, accordingly, is accounted for as a variable plan under APB 25.

(xi)    Long Term Share Purchase Plan

At the date of grant no measurement date arises due to the extensive performance criteria related to each award. Accordingly, the LTSPP is considered a variable plan under APB
25.

The
awards are subject to a six-year performance period comprising two periods of three years each. After the first performance period, the holder of the award has a reinvestment decision
between cash and shares which impacts the matching criteria for the second three-year performance period. The basis of compensation expense recognition is to assume that after the first
three-year performance period the minimum amount is reinvested in shares. Expense has been recognized based on performance to date. At December 31, 2003, no performance units were
outstanding under the LTSPP and the plan has now closed.

The
compensation expense/(credit) arising under US GAAP for the above plans is summarized as follows:

|                                            |  | Year ended December 31 | 
|------------------------------------------- |  | ---------------------- | 
|
|
|
|1985 and 1995 Executive Share Option Scheme |  | 0.8                    | 
|Stock Appreciation Rights Plan              |  |                       | 
|CAW Amended and Restated Stock Plan         |  | 0.6                    | 
|Other                                       |  | 0.1                    | 
|                                            |  |                        | 
|                                            |  | 1.5                    | 
|                                            |  |                        | 

c)    Pensions

Under UK GAAP, the Group has fully adopted FRS 17 "Retirement Benefits" for the year ended December 31, 2003. This is a change in accounting policy and has resulted in a
restatement of the prior years' figures. The assets of the Group's significant defined benefit schemes are measured at their market value at the balance sheet date and the liabilities of the schemes
measured using the projected unit method. The extent to which the schemes' assets exceed/fall short of the schemes' liabilities is shown as a surplus/deficit on the balance sheet net of deferred tax.

The
regular service cost of providing retirement benefits to employees in defined benefit schemes is charged to operating profit in the year together with the cost of providing benefit improvements in
respect of past service and gains or losses arising on settlements and curtailments. A credit for the expected return on the schemes' assets and a charge for the increase during the period in the
present value of the schemes' liabilities are included in other finance expense or income in the profit and loss account. Differences arising between the actual and expected return on the

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schemes' assets together with changes in the actuarial assumptions are included in the statement of total recognized gains and losses.

Under
US GAAP, the projected benefit obligation (pension liability) is matched against the fair value of the pension plan's assets and adjusted to reflect any unrecognized obligations or assets in
determining the pension cost or credit for the year. Recognition of an additional minimum liability is
required if an unfunded accumulated benefit obligation exists (i.e. the accumulated benefit obligation exceeds the fair value of plan assets), and an asset has been recognized as prepaid pension cost.
The excess of any additional liability over any unrecognized prior service cost is reported as a separate component within other comprehensive income, net of tax benefits from timing differences.

For
the purposes of the reconciliations, the Group adopted the provisions of SFAS No. 87 "Employers Accounting for Pensions" ("SFAS 87") with respect to its UK defined benefit plan from
January 1, 1997. The Company has not implemented SFAS 87 as of its effective date for non-US plans (fiscal years beginning after December 15, 1988) due to the unavailability
of actuarial data. Accordingly, a portion of the transition asset at January 1, 1997 has been allocated to shareholders' equity based on a ratio of 8:15, being the number of years elapsed
between the effective date of SFAS 87 (the Group's fiscal year beginning January 1, 1989) and January 1, 1997, over the 15-year period being used to amortize the transition
asset.

In
calculating the 2002 net periodic pension cost under US GAAP, a credit of £4.6 million arises in accordance with SFAS No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and Termination Benefits" ("SFAS 88"). Of this credit, £2.6 million represents the recognition of prior service credit relating to the
future working life curtailed as a result of the disposals which took place during 2002. The balance of £2.0 million is included as a component in calculating the US GAAP net
periodic pension cost.

d)    Profit on Disposal

The different treatment of goodwill arising on acquisitions prior to January 1, 1998 under UK GAAP and US GAAP, together with the use of different goodwill amortization
periods and the adoption of SFAS 142, result in adjustments to profit or losses on disposal of businesses, as the determination of the profit or loss on disposal takes into account the
unamortized balance of goodwill released. In addition, differences between UK GAAP and US GAAP as described in this note (including stock-based compensation and derivative financial instruments) may
also affect the carrying value of the disposed of subsidiary, resulting in a different profit or loss on disposal. Under US GAAP, the profit or loss on disposal is also stated net of any related
cumulative currency translation differences and the effect of the disposal on the Projected Pension Liability (curtailment gain or loss) under SFAS 88.

Under
UK GAAP, the profit or loss on disposal of operations is shown separately on the face of the profit and loss account after operating profit. Under US GAAP, these profits or losses would be
reported as other operating income or expense.

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e)    Vacation Accrual

An accrual is made under UK GAAP in respect of certain subsidiaries for vacation earned but not taken at the year end. Under US GAAP, this accrual must be calculated to include
all subsidiaries within the Group.

f)    Derivative Financial Instruments

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") the
requirements of which have been adopted by the Group for the purposes of its reconciliations to US GAAP from January 1, 2001.

At
December 31, 2003, the Group has in place an interest rate swap for $72.1 million which terminates on November 23, 2009. The swap is callable at the bank's option at six
monthly intervals. The fair value of this financial instrument at December 31, 2003 has been determined as £1.3 million liability. In addition, the Group has forward foreign
exchange contracts in place at December 31, 2003, with a fair value of £0.4 million.

Under
UK GAAP, net amounts paid and received related to hedging transactions on interest rate swaps are recognized on an accruals basis over the life of the underlying financial instrument and gains
and losses on contracts to hedge future foreign currency exposure are deferred until the transaction occurs. The fair value of these items is required to be disclosed, but not recorded under UK GAAP.

Under
US GAAP, in accordance with SFAS 133, the fair values of derivative instruments are required to be recorded on the balance sheet, and any changes in such fair values which do not meet the
criteria for hedge accounting under SFAS 133 are required to be recorded in the profit and loss account. Therefore, differences between UK GAAP and US GAAP arise which are recorded in net
income/(loss) for US GAAP. On adoption of SFAS 133, the one-time cumulative accounting effect did not impact the Group's results of operations or comprehensive income under US GAAP
because the fair value of the Group's derivative financial instruments approximated their carrying value. For the year ended December 31, 2003 the Group has recorded a
£1.9 million loss (2002 £2.1 million gain) related to the changes in the fair value of derivative instruments, which do not meet the requirements of hedge
accounting.

g)    Accounting for the Group's Joint Venture and Associates

Under UK GAAP, the Group's interests in its WAGO joint venture at December 31, 2002 and 2001 were accounted for using the gross equity method. Under this method of
accounting, the Group's share of turnover, operating profit, interest expense, taxation, minority interests, gross assets and gross liabilities of the joint venture were reflected in the Company's
consolidated financial statements. Similarly, the Group's share of its associates' operating profit, interest and taxation were also reflected in the Company's consolidated financial statements.

In
accordance with US GAAP, as set forth in Accounting Principles Board Opinion No. 18 "The Equity Method of Accounting for Investments in Common Stock" the Company's 51% interests in the WAGO
joint venture were accounted for under the equity method. The equity method was

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required because the management agreement between Spirent and the joint venture parties established joint control. Spirent and the joint venture partners each could appoint two directors. A corporate
resolution of the joint venture needed to have been approved by a super-majority of the shareholders; thus, no one joint venture partner had the ability to unilaterally control the joint venture.
Accordingly, the Group's share of the after tax profits of the joint venture and associates would be reflected in the income statement as a single line item after minority interests and its net
investment in the joint venture would also be included as a single line item in the balance sheet with the investment in the Group's other associated companies.

For
the years ended December 31, 2002 and 2001, the only differences arising related to stock-based compensation and the adoption of SFAS 133 in the joint venture's US GAAP basis
financial statements. These differences together decreased the Group's net loss and increased shareholders' equity by £0.2 million (2001 £0.3 million) and
£0.8 million (2001 £0.5 million), respectively.

The
Group disposed of its interests in WAGO during 2003.

h)    Deferred Taxation

Under UK GAAP, deferred taxation is provided for in accordance with FRS 19 on all timing differences with the exception of gains on revaluations of fixed assets or where
potentially taxable amounts have been rolled over and there is no commitment to dispose of the relevant asset. Deferred
tax assets are recognized where it is considered more likely than not that there will be suitable taxable profits from which to off-set the timing differences. Under US GAAP, deferred
taxation is provided on a full liability basis on all temporary differences between the book and tax bases of the Group's assets and liabilities.

Under
UK GAAP, a deferred tax asset arises in respect of the pension fund deficit calculated in accordance with FRS 17. Similarly, under US GAAP, a deferred tax asset has been recognized in respect of
the additional minimum liability, which arises under SFAS 87. However, under UK GAAP, the pension fund deficit is shown net of the deferred tax asset on the balance sheet, whereas under US GAAP, the
deferred tax asset is shown separately to the additional minimum liability. The presentation of the pension and deferred tax adjustments within the reconciliation of shareholders' equity reflects this
classification difference.

i)    Unamortized Debt Issue Costs

Under UK GAAP, debt issue costs are shown as a reduction in the associated capital proceeds and amortized over the life of the related debt. Under US GAAP, these costs are
disclosed as a separate asset and similarly amortized. Accordingly, a reclassification has been made to show these costs in other debtors for US GAAP disclosure purposes.

j)    Discontinued Operations

Disposals in the years ended December 31, 2002 and 2003, did not qualify to be treated as discontinued operations under either UK GAAP or US GAAP.

Under
UK GAAP, sales and operating profits of Sensing Solutions, disposed of in 2001, have been reported as arising from discontinued operations.

F-96

---





SPIRENT plc

NOTES TO THE FINANCIAL STATEMENTS (Continued)

34.   Differences between United Kingdom and United States Generally Accepted Accounting
Principles (Continued)

The Group adopted SFAS 144, which superseded the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" ("APB 30") for purposes of its
December 31, 2001 US GAAP reconciliation.

Under
SFAS 144, reporting of discontinued operations is extended to include disposals qualifying as a "component of an entity". Disposals recorded as discontinued operations for UK GAAP in
2001 meet the definition of a "component" under SFAS 144 and have been treated as discontinued operations for US GAAP.

Net Income/(Loss) under US GAAP

The following is a summary of the adjustments to loss attributable to shareholders which would be required if US GAAP were to be applied instead of the UK GAAP:

|                                                             |                       | Year ended December 31                      |  
|------------------------------------------------------------ | --------------------- | ------------------------------------------- | -
|
|
|Loss attributable to shareholders in accordance with UK GAAP |                       | (0.5                                        | )
|                                                             |                       |                                             |  
|Adjustments:                                                 |                       |                                             |  
|a)    Goodwill and other intangible assets:                  |                       |                                             |  
|                                                             |                       | (i)    Capitalization                       |  
|                                                             |                       | (ii)   Contingent consideration             |  
|                                                             |                       | (iii)  Impairment                           |  
|                                                             |                       | (iv)  Other purchase accounting adjustments |  
|                                                             |                       |                                             |  
|                                                             |                       | (0.7                                        | )
|b)    Stock-based compensation                               |                       | (0.9                                        | )
|c)     Pension costs                                         |                       | 2.2                                         |  
|d)    Profit on disposal                                     |                       | (1.0                                        | )
|e)    Vacation payroll costs                                 |                       |                                            |  
|f)     Derivative financial instruments                      |                       | (1.9                                        | )
|g)     Income from interests in joint ventures               |                       |                                            |  
|h)    Deferred taxation on above adjustments                 |                       | 2.8                                         |  
|                                                             |                       |                                             |  
|Total adjustments                                            |                       | 0.5                                         |  
|                                                             |                       |                                             |  
|Net income/(loss) as adjusted to accord with US GAAP         |                       |                                            |  
|                                                             |                       |                                             |  
|Arising from                                                 |                       |                                             |  
|Continuing operations                                        |                       |                                            |  
|Discontinued operations                                      |                       |                                             |  
|                                                             | Result for the period |                                             | 
|                                                             | Surplus on disposal   |                                             | 
|                                                             |                       |                                             |  
|Net income/(loss)                                            |                       |                                            |  
|                                                             |                       |                                             |  

F-97

---



Consolidated Statement of Income Under US GAAP

|                                                             |  | Year ended December 31 |  
|------------------------------------------------------------ |  | ---------------------- | -
|
|
|Net sales                                                    |  | 466.2                  |  
|Cost of goods sold                                           |  | (279.8                 | )
|                                                             |  |                        |  
|Gross profit                                                 |  | 186.4                  |  
|Other operating income                                       |  | 0.7                    |  
|Selling, general and administrative expenses                 |  | (169.3                 | )
|Share of income from associated companies and joint ventures |  | 4.8                    |  
|Gain/(loss) on disposal and closure of operations            |  | 2.6                    |  
|                                                             |  |                        |  
|Operating income/(loss)                                      |  | 25.2                   |  
|Interest expense                                             |  | (27.2                  | )
|                                                             |  |                        |  
|Loss before taxes and minority interest                      |  | (2.0                   | )
|Taxes                                                        |  | 2.2                    |  
|Minority interest                                            |  | (0.2                   | )
|                                                             |  |                        |  
|Income/(loss) from continuing operations                     |  |                       |  
|                                                             |  |                        |  
|Income from discontinued operations (net of tax)             |  |                       |  
|Gain on disposal of discontinued operations (net of tax)     |  |                       |  
|                                                             |  |                        |  
|Income from discontinued operations                          |  |                       |  
|                                                             |  |                        |  
|Net income/(loss)                                            |  |                       |  
|                                                             |  |                        |  

|                  |                         | (pence) |  
|----------------- | ----------------------- | ------- | -
|Per share:        |                         |         |  
|Basic and diluted |                         |         |  
|                  | Continuing operations   |         | 
|                  | Discontinued operations |         | 
|                  |                         |         |  
|Net income/(loss) |                         |        |  
|                  |                         |         |  

F-98

---



Statement of Comprehensive Income/(Loss)

|                                                                                            |  | Year ended December 31 | 
|------------------------------------------------------------------------------------------- |  | ---------------------- | 
|
|
|Net income/(loss) as adjusted to accord with US GAAP                                        |  |                       | 
|Other comprehensive income:                                                                 |  |                        | 
|Minimum pension liability adjustment net of £12.9 million tax (2002 nil; 2001 £4.8 million) |  | 10.5                   | 
|Currency translation differences                                                            |  | 5.7                    | 
|                                                                                            |  |                        | 
|Comprehensive income/(loss) in accordance with US GAAP                                      |  | 16.2                   | 
|                                                                                            |  |                        | 

Movements
in other comprehensive loss amounts are as follows:

|                     |  | Currency
translation
differences |   | Minimum pension
liability
adjustment |  
|-------------------- |  | -------------------------------- | - | ------------------------------------ | -
|
|At January 1, 2001   |  | (45.8                            | ) |                                     |  
|Movement in the year |  | 32.6                             |   | (11.1                                | )
|                     |  |                                  |   |                                      |  
|At December 31, 2001 |  | (13.2                            | ) | (11.1                                | )
|Movement in the year |  | (53.0                            | ) | (37.4                                | )
|                     |  |                                  |   |                                      |  
|At December 31, 2002 |  | (66.2                            | ) | (48.5                                | )
|Movement in the year |  | 5.7                              |   | 10.5                                 |  
|                     |  |                                  |   |                                      |  
|At December 31, 2003 |  | (60.5                            | ) | (38.0                                | )
|                     |  |                                  |   |                                      |  

The
amount of cumulative translation adjustment transferred in respect of disposals was a loss of £0.3 million (2002 £0.9 million gain; 2001
£4.5 million gain).

F-99

---



Shareholders' Equity under US GAAP

The following is a summary of the adjustments to shareholders' funds, which would be required if US GAAP were to be applied instead of UK GAAP:

|                                                        |                                              | At December 31 |         
|------------------------------------------------------- | -------------------------------------------- | -------------- | --------
|
|
|Shareholders' funds in accordance with UK GAAP          |                                              | 119.9          |         
|                                                        |                                              |                |         
|Adjustments:                                            |                                              |                |         
|Intangible assets                                       |                                              |                |         
|                                                        | a)    Goodwill                               |                |         
|                                                        | Cost                                         |                | (1,741.6
|                                                        | Amortization                                 |                | 1,683.9 
|                                                        |                                              |                |         
|                                                        |                                              | (57.7          | )       
|                                                        | a)    Other intangible assets                |                |         
|                                                        | Cost                                         |                | 84.2    
|                                                        | Amortization                                 |                | (49.1   
|                                                        |                                              |                |         
|                                                        |                                              | 35.1           |         
|Fixed asset investments                                 |                                              |                |         
|                                                        | g)     Investment in joint venture           |                |        
|Current assets                                          |                                              |                |         
|                                                        | i)     Other debtors                         |                | 0.2     
|Current liabilities                                     |                                              |                |         
|                                                        | a)    Accrualscontingent consideration      |                |        
|                                                        | e)    Accrualsvacation pay                  |                | (1.0    
|                                                        | f)     Derivative financial instruments      |                | (0.9    
|                                                        |                                              |                |         
|                                                        |                                              | (1.9           | )       
|Long-term liabilities                                   |                                              |                |         
|                                                        | c)     Accrued pension liability             |                | (12.7   
|                                                        | i)     Borrowings                            |                | (0.2    
|                                                        |                                              |                |         
|                                                        |                                              | (12.9          | )       
|Provision for liabilities and charges                   |                                              |                |         
|                                                        | h)    Deferred taxation on above adjustments |                | 1.2     
|                                                        |                                              |                |         
|Total adjustments                                       |                                              | (36.0          | )       
|                                                        |                                              |                |         
|Shareholders' equity as adjusted to accord with US GAAP |                                              | 83.9           |         
|                                                        |                                              |                |         

F-100

---



Cash Flow Statement under US GAAP

Under US GAAP, cash and cash equivalents include short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near
their maturity that they present insignificant risk of changes in value because of changes in interest rates. However, they do not include bank overdrafts. Generally, investments with original
maturities of three months or less qualify under the definition of cash equivalents. This differs from UK GAAP, which adopt a narrower definition of cash and cash equivalents and excludes such
short-term investments.

In
addition, there are a number of presentational differences for a cash flow statement prepared in accordance with US GAAP. Under UK GAAP, there are separate headings for operating activities,
dividends received from associates, returns on investments and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid and
management of liquid resources, whereas under US GAAP there are only three categories:
operating, investing and financing. The main differences in classification under US GAAP are as follows:



The
categories of cash flow activity under US GAAP are summarized below:

|                                                             |  | Year ended December 31 |  
|------------------------------------------------------------ |  | ---------------------- | -
|
|
|Cash inflow from operating activities                        |  | 54.1                   |  
|Cash inflow/(outflow) on investing activities                |  | 44.6                   |  
|Cash (outflow)/inflow from financing activities              |  | (143.6                 | )
|                                                             |  |                        |  
|(Decrease)/increase in cash and cash equivalents             |  | (44.9                  | )
|Effect of exchange rate changes on cash and cash equivalents |  | (1.1                   | )
|Cash and cash equivalents at beginning of year               |  | 83.6                   |  
|                                                             |  |                        |  
|Cash and cash equivalents at end of year                     |  | 37.6                   |  
|                                                             |  |                        |  

F-101

---



Additional information required by US GAAP in respect of earnings per share

The numerators and denominators used in the computation of basic and diluted earnings per share are as follows:

|                                                                                                          |  | Year ended December 31 | 
|--------------------------------------------------------------------------------------------------------- |  | ---------------------- | 
|
|
|Earnings                                                                                                  |  |                        | 
|Net income/(loss) as adjusted to accord with US GAAP used to compute basic and diluted earnings per share |  |                       | 
|                                                                                                          |  |                        | 
|Weighted average number of shares in issue (millions)                                                     |  |                        | 
|Basic                                                                                                     |  | 929.3                  | 
|Dilutive potential of employee share options                                                              |  |                       | 
|                                                                                                          |  |                        | 
|Diluted                                                                                                   |  | 929.3                  | 
|                                                                                                          |  |                        | 

Additional information required in respect of business combinations

There were no acquisitions in the year ended December 31, 2003.

Three
acquisitions were made in the year ended December 31, 2002 for a total cash cost of £49.2 million.

In
July 2002 £16.4 million was invested in the acquisition of certain assets of the remote special services test product line of Anritsu Company US.

In
August 2002 Spirent acquired the remaining, then, 85% not already owned by the Group, of Caw for an initial consideration including expenses of £26.7 million in cash
and the rollover of outstanding options and shares under the previous Caw employee stock plan. Deferred consideration of up to $60 million in value was payable dependant on certain
performance criteria being achieved by Caw for the year ended December 31, 2003. A certain level of the earn-out targets has been achieved and the amount of deferred
consideration due is $10.0 million, which the Company has elected to satisfy by the issue of new Ordinary shares. These shares will be issued in 2004 with reference to an Ordinary share
price of 120 pence in accordance with the terms of the acquisition agreement and with reference to the then prevailing US dollar to sterling exchange rate. At December 31, 2003 the value
of this contingent payment was estimated to be £2.7 million and the cost of the acquisition has been increased accordingly.

In
September 2002 Spirent acquired a product line and certain intellectual property rights from UbiNetics for a cash consideration of £6.1 million including expenses.

Total
goodwill of £41.4 million, including deferred consideration of £2.7 million in respect of Caw, arose as a result of the above acquisitions.

Intangible
assets subject to amortization totaling £17.0 million were added during the year to December 31, 2002 in respect of acquisitions. Of this amount
£11.3 million related to developed technology. The weighted-average amortization period for total intangible assets subject to

F-102

---



amortization acquired in the year to December 31, 2002 was 5.6 years and for developed technology only it was 5.2 years.

There
were no acquisitions in 2001 except for the acquisition of an initial 16% interest in Caw in October, for cash consideration of £6.4 million including expenses. Caw was
reported as an associate company.

Additional information required by US GAAP in respect of pensions

The cost of the Group's defined benefit pension plans computed in accordance with US GAAP is summarized as follows:

|                                      |  | Year ended December 31 |  
|------------------------------------- |  | ---------------------- | -
|
|
|Service cost                          |  | 2.2                    |  
|Interest cost                         |  | 6.8                    |  
|Expected return on plan assets        |  | (7.6                   | )
|Amortization of transition asset      |  | (0.7                   | )
|Amortization of unrecognized net loss |  | 0.8                    |  
|Curtailment gain                      |  |                       |  
|                                      |  |                        |  
|Net periodic pension cost             |  | 1.5                    |  
|                                      |  |                        |  

The
curtailment gain of £2.0 million recognized in 2002 as part of the net periodic pension cost was a consequence of the disposal of the Sensing Solutions division which
occurred during 2001. On June 30, 2002 the employees of the divested companies ceased to be active members of the Spirent Staff Plan which had the effect of reducing the projected benefit
obligation by £2.0 million.

The
major assumptions used in computing the net periodic pension cost are:

|                                                 |  | Year ended
December 31
|------------------------------------------------ |  | ----------------------
|
|
|Assumed discount rate                            |  | 5.40                  
|Rate of compensation increase                    |  | 3.50                  
|Expected long-term rate of return on plan assets |  | 6.90                  

F-103

---



The
funding of the Company's defined benefit pension plans is as follows:

|                                                      |  | At
December 31 |  
|----------------------------------------------------- |  | -------------- | -
|
|Fair value of plan assets                             |  | 98.8           |  
|Projected benefit obligation                          |  | (142.2         | )
|                                                      |  |                |  
|Projected benefit obligation in excess of plan assets |  | (43.4          | )
|Unrecognized transitional asset, net of amortization  |  |               |  
|Unrecognized net loss                                 |  | 51.2           |  
|Recognition of additional minimum liability           |  | (50.9          | )
|                                                      |  |                |  
|Net amount recognized in the balance sheet            |  | (43.1          | )
|                                                      |  |                |  

The
measurement date is December 31.

The
projected benefit obligation, the accumulated benefit obligation (ABO) and fair value of plan assets for pension plans with ABOs in excess of plan assets for Spirent at December 31,
2003 were £142.2 million (2002 £130.9 million), £141.9 million (2002 £128.9 million) and
£98.8 million (2002 £89.0 million), respectively.

In
2003 the amount recognized in the balance sheet for accrued benefit liability and accumulated other comprehensive income is £50.9 million.

The
disposal of P&G Controls Ltd and P&G Aerospace Ltd in March 2002 reduced the projected benefit obligation by £2.6 million as the employees ceased to be
active members of the Spirent Staff Plan. This curtailment gain has been included in the profit on disposal calculation in accordance with SFAS 88.

The
assets of the Group's UK defined benefit pension plans mostly comprise UK and other listed equities, property investments, bank deposits, UK Government index-linked stocks and insurance
policies.

The
following table sets out the asset allocation for the Spirent Staff Plan, together with the target allocation for 2004:

|         |  | Target
allocation |  | Percentage of plan assets at
December 31
|-------- |  | ----------------- |  | ----------------------------------------
|
|
|Equities |  | 67                |  | 66                                      
|Gilts    |  | 15                |  | 17                                      
|Bonds    |  | 13                |  | 10                                      
|Cash     |  |                  |  | 5                                       
|Property |  | 5                 |  | 2                                       
|         |  |                   |  |                                         
|         |  | 100               |  | 100                                     
|         |  |                   |  |                                         

F-104

---



The
Retirement Cash Plan assets of £6.3 million (2002 £6.8 million) are held with unitized managed funds whose underlying asset allocations are not
disclosed.

The
expected long-term rate of return on assets has been set reflecting the price inflation expectation, the expected real return on each major asset class and the long-term asset allocation
strategy adopted for the plans. The expected real returns on specific asset classes reflect historical returns, investment yields on the measurement date and general future return expectations,
and have been set after taking advice from the plans' actuary.

The
long-term investment strategy for the plans is to maintain the current asset allocation.

The
plans are not permitted to have a direct shareholding in Spirent plc.

Movements
in the fair value of the plans' assets and projected benefit obligations are as follows:

|                                           |  | Year ended
December 31 |  
|------------------------------------------ |  | ---------------------- | -
|
|
|Movements in Fair Value of Plan Assets     |  |                        |  
|At January 1                               |  | 89.0                   |  
|Employer contributions                     |  | 1.9                    |  
|Employee contributions                     |  | 0.6                    |  
|Transfer of benefits into the plan         |  |                       |  
|Benefit payments                           |  | (4.9                   | )
|Actual return on assets                    |  | 12.2                   |  
|                                           |  |                        |  
|At December 31                             |  | 98.8                   |  
|                                           |  |                        |  
|Movements in Projected Benefit Obligations |  |                        |  
|At January 1                               |  | 130.9                  |  
|Service cost                               |  | 2.2                    |  
|Employee contributions                     |  | 0.6                    |  
|Transfer of benefits into the plan         |  |                       |  
|Interest cost                              |  | 6.8                    |  
|Benefit payments                           |  | (4.9                   | )
|Actuarial loss                             |  | 6.6                    |  
|                                           |  |                        |  
|At December 31                             |  | 142.2                  |  
|                                           |  |                        |  

Cash Flows

Contributions

Spirent expects to contribute £2.1 million to its UK defined benefit plans in 2004. In addition, in order to comply with the minimum funding
requirements Spirent will make annual pension contributions of £3.5 million commencing on July 1, 2004.

F-105

---



The
following pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

|          |  | (£ millions)
|--------- |  | ------------
|2004      |  | 4.2         
|2005      |  | 4.3         
|2006      |  | 4.5         
|2007      |  | 4.6         
|2008      |  | 4.8         
|20092013 |  | 26.1        

Additional pro forma information required by US GAAP in respect of stock-based compensation

If compensation expense had been determined under the fair value methodology of SFAS 123, net loss and the related per Ordinary share amounts adjusted to accord
with US GAAP would have been as follows:

|                                                                                                              |  | Year ended December 31 |  
|------------------------------------------------------------------------------------------------------------- |  | ---------------------- | -
|
|
|Net income/(loss) as reported under US GAAP                                                                   |  |                       |  
|Stock-based employee compensation expense/(credit) included in reported net income, net of tax                |  | 1.5                    |  
|Stock-based employee compensation expense determined under fair value based method for all awards, net of tax |  | (10.0                  | )
|                                                                                                              |  |                        |  
|Pro forma net loss as adjusted to accord with US GAAP                                                         |  | (8.5                   | )
|                                                                                                              |  |                        |  
|
|Per Ordinary share:                                                                                           |  |                        |  
|Basic and diluted                                                                                             |  | (0.92                  | )
|                                                                                                              |  |                        |  

F-106

---



Additional information required by US GAAP in respect of deferred taxation

The analysis of the US GAAP deferred taxation liability is as follows:

|                              |                                                      | At
December 31
|----------------------------- | ---------------------------------------------------- | --------------
|
|
|Deferred taxation liabilities |                                                      |               
|                              | Liability arising on acquired identified intangibles |               
|                              | Capital allowances in excess of depreciation         |               
|                              | Short-term timing differences                        |               
|                              |                                                      |               
|                              |                                                      | 14.0          
|Deferred taxation assets      |                                                      |               
|                              | Pension liability                                    |               
|                              |                                                      |               
|Net deferred tax liability    |                                                      | 1.1           
|                              |                                                      |               
|Of which:                     |                                                      |               
|Current                       |                                                      | 0.9           
|Noncurrent                    |                                                      | 0.2           
|                              |                                                      |               
|                              |                                                      | 1.1           
|                              |                                                      |               

At
December 31, 2003, the Group had US federal net operating loss carryforwards (``NOLs") of approximately $124.8 million (2002 $40.4 million). These arose primarily in one
US subsidiary and resulted from the poor trading performance of that company. Under US income tax laws the company can realize the NOLs over a maximum period of 15 years.

Deferred
tax assets of £18.3 million (2002 £20.1 million) have not been recognized.

Spirent
does not provide deferred tax for potential taxes which could become payable on the distribution of retained earnings from its non-UK subsidiaries or joint venture or on the
disposition of such interests where there is no intention to dispose of such interests.

F-107

---



Additional information required by US GAAP in respect of Associated Companies

The following information relates to our associated company Tyton Company of Japan, Limited and is prepared in accordance with accounting principles generally accepted in
Japan:

|                                               |  | Year ended March 31
|---------------------------------------------- |  | -------------------
|
|
|Statements of income                           |  |                    
|Net sales                                      |  | 5,059              
|                                               |  |                    
|Cost of sales                                  |  | 1,990              
|                                               |  |                    
|Income before income taxes                     |  | 874                
|                                               |  |                    
|Balance Sheets                                 |  |                    
|Property, plant and equipment and other assets |  | 3,177              
|Current assets                                 |  | 3,817              
|                                               |  |                    
|Total assets                                   |  | 6,994              
|                                               |  |                    
|Current liabilities                            |  | 714                
|Other liabilities                              |  | 520                
|                                               |  |                    
|Total liabilities                              |  | 1,234              
|                                               |  |                    
|Total shareholders' equity                     |  | 5,760              
|                                               |  |                    

Concentration of credit risk

Potential concentration of credit risk consists of cash, investments, and accounts receivable. The company is exposed to credit-related losses in the event of
non-performance by counterparties to certain financial instruments. The Group does not generally seek collateral or other security from counter-parties. At December 31, 2003,
the Group did not consider there to be any significant concentration of credit risk.

Impact of Recently Issued Accounting Standards not yet Adopted

UK GAAP

International Financial Reporting Standards

The Council of the European Union announced in June 2002 that listed companies would adopt International Financial Reporting Standards ("IFRS"), formerly known as
International Accounting Standards, from January 1, 2005. The adoption of IFRS will be first reflected in the Group's financial statements for the half-year ending
June 30, 2005 and the year ending December 31, 2005.

The
Company is in the process of assessing the impact the conversion to IFRS will have on the Group's financial statements and on its financial processes and systems.

F-108

---



It
is a complex task to assess the differences between current accounting policies and IFRS, not least since many of the IFRS have only recently been revised, and it is clear that a number of
accounting policies and some presentational aspects of the financial statements will continue to change. As a result it is not possible to quantify the impact at this time.

For
the Spirent Group, the main areas which the Company anticipates will be impacted by the adoption of IFRS will be the reporting and treatment of amortization and impairment of goodwill and
intangible assets, share based payments, deferred taxation and financial instruments.

US GAAP

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, which
requires a variable interest entity ("VIE") to be consolidated by its primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE's expected losses and/or
receives a majority of the expected residual returns.

In
December 2003, the FASB revised FIN 46 ("FIN 46-(R)"), delaying the effective date for certain entities created before February 1, 2003 and making other
amendments to clarify the application of guidance. In anticipation of the adoption of FIN 46-(R), the Group has identified and evaluated arrangements that may be subject to its
provisions to determine whether they are VIEs.

The
Group has adopted FIN 46 for entities created subsequent to February 1, 2003 as of December 31, 2003 and will adopt FIN 46-(R) for the year ending
December 31, 2004. The adoption of FIN 46 did not result in the consolidation of any VIEs. The adoption of FIN 46-(R) is not expected to have a material impact on
the amounts reported under US GAAP.

F-109

---





REPORT OF INDEPENDENT AUDITORS

The
Board of Directors
WAGO Kontakttechnik GmbH,
WAGO Contact S.A. and Affiliates
Minden, Germany

We
have audited the accompanying combined balance sheets of WAGO Kontakttechnik GmbH, WAGO Contact S.A. and their affiliates (the "Company") as of December 31, 2002 and 2001 and the related
combined statements of operations, shareowners' equity, and cash flows for the years then ended. In addition we have audited the combined statement of operations for the short period from
January 1, 2003 through April 4, 2003. 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 the standards of the Public Company Accounting Oversight Board (United States). 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 combined financial statements referred to above present fairly, in all material respects, the combined financial position of WAGO Kontakttechnik GmbH, WAGO Contact S.A. and their
affiliates as of December 31, 2002 and 2001, the combined results of their operations and their cash flows for the years then ended, and the combined result of their operations for the short
period ended April 4, 2003 in conformity with accounting principles generally accepted in the United States of America.

Hamburg,
Germany
February 25, 2004

Allrevision
Dornhof Kloss und Partner GmbH
Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft

INDEPENDENT AUDITORS' CONSENT

We
consent to the incorporation by reference in the registration statement on Form S-8 No. 333-98607 (Spirent Stock Option Plan, U.S. Stock Purchase Plan, et al) of Spirent plc of our report
dated February 25, 2004, relating to the combined financial statements of WAGO Kontakttechnik GmbH and WAGO
Contact S.A. and affiliates as of and for the years ended December 31, 2002 and 2001, and the combined result of their operations for the period January 1, 2003 through April 4,
2003 which report appears in the December 31, 2003 annual report on Form 20-F of Spirent plc.

Allrevision
Dornhof Kloss und Partner GmbH
Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft
Hamburg, Germany
June 29, 2004

F-110

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WAGO KONTAKTTECHNIK GmbH, WAGO CONTACT S.A. AND AFFILIATES        Combined Balance Sheets

|                                    |                                                | As at
December 31                                          
|----------------------------------- | ---------------------------------------------- | -----------------------------------------------------------
|
|
|Assets                              |                                                |                                                            
|Current assets                      |                                                |                                                            
|                                    | Cash and cash equivalents                      |                                                            
|                                    | Accounts receivable, net of allowance          |                                                            
|                                    | Accounts receivablerelated parties            |                                                            
|                                    | Inventory                                      |                                                            
|                                    | Prepaid expenses                               |                                                            
|                                    | Other current assets                           |                                                            
|                                    | Deferred income taxes                          |                                                            
|                                    |                                                |                                                            
|                                    |                                                | Total current assets                                       
|                                    |                                                |                                                            
|Property and equipment, net         |                                                | 100,342                                                    
|Other assets                        |                                                |                                                            
|                                    | Goodwill                                       |                                                            
|                                    | Other assets                                   |                                                            
|                                    | Unrealized gains of foreign exchange contracts |                                                            
|                                    |                                                |                                                            
|                                    |                                                | 6,661                                                      
|                                    |                                                |                                                            
|                                    |                                                | 222,669                                                    
|                                    |                                                |                                                            
|Liabilities and Shareowners' Equity |                                                |                                                            
|Current liabilities                 |                                                |                                                            
|                                    | Accounts payable                               |                                                            
|                                    | Accrued expenses and other current liabilities |                                                            
|                                    | Income taxes and other taxes payable           |                                                            
|                                    | Current portion of long-term debt              |                                                            
|                                    |                                                |                                                            
|                                    |                                                | Total current liabilities                                  
|                                    |                                                |                                                            
|Long-term debt                      |                                                | 23,170                                                     
|Deferred income taxes               |                                                | 2,358                                                      
|Other liabilities                   |                                                | 10,344                                                     
|Minority interest                   |                                                | 5,008                                                      
|Commitments and contingencies       |                                                |                                                            
|Shareowners' equity                 |                                                |                                                            
|                                    | Share capital                                  |                                                            
|                                    | Retained earnings                              |                                                            
|                                    | Accumulated other comprehensive income:        |                                                            
|                                    |                                                | Foreign currency translation adjustment                    
|                                    |                                                | Unrealized gains on foreign exchange contracts net of taxes
|                                    |                                                |                                                            
|                                    |                                                |                                                            
|                                    |                                                |                                                            
|                                    |                                                | 222,669                                                    
|                                    |                                                |                                                            

See
notes to combined financial statements.

F-111

---





WAGO KONTAKTTECHNIK GmbH, WAGO CONTACT S.A. AND AFFILIATES        Combined Statements of Operations

|                                                 |                                     | Period
ended April 4 |        | Year ended December 31 |       
|------------------------------------------------ | ----------------------------------- | -------------------- | ------ | ---------------------- | ------
|
|
|Net sales                                        |                                     | 63,526               |        | 238,528                |       
|Cost of goods sold                               |                                     | (34,172              | )      | (126,657               | )     
|                                                 |                                     |                      |        |                        |       
|Gross profit                                     |                                     | 29,354               |        | 111,871                |       
|Operating expenses                               |                                     |                      |        |                        |       
|                                                 | Selling, general and administrative |                      | 18,484 |                        | 78,907
|                                                 | Research and development            |                      | 3,161  |                        | 11,258
|                                                 |                                     |                      |        |                        |       
|                                                 |                                     | (21,645              | )      | (90,165                | )     
|                                                 |                                     |                      |        |                        |       
|Income from operations                           |                                     | 7,709                |        | 21,706                 |       
|                                                 |                                     |                      |        |                        |       
|Other income (expense)                           |                                     |                      |        |                        |       
|                                                 | Interest income                     |                      | 93     |                        | 317   
|                                                 | Interest expense                    |                      | (521   | )                      | (2,511
|                                                 | Other                               |                      | 210    |                        | 1,794 
|                                                 |                                     |                      |        |                        |       
|                                                 |                                     | (218                 | )      | (400                   | )     
|                                                 |                                     |                      |        |                        |       
|Income before income taxes and minority interest |                                     | 7,491                |        | 21,306                 |       
|Provision for income taxes                       |                                     | (2,559               | )      | (8,495                 | )     
|                                                 |                                     |                      |        |                        |       
|Income before minority interest                  |                                     | 4,932                |        | 12,811                 |       
|Minority interest                                |                                     | (207                 | )      | (929                   | )     
|                                                 |                                     |                      |        |                        |       
|Net income                                       |                                     | 4,725                |        | 11,882                 |       
|                                                 |                                     |                      |        |                        |       

See
notes to combined financial statements.

F-112

---





WAGO KONTAKTTECHNIK GmbH, WAGO CONTACT S.A. AND AFFILIATES    Combined Statements of Shareowners' Equity

|                                                                         |                                                                                                                                          | Share
Capital |   | Retained
Earnings |        | Accumulated
Other
Comprehensive
Income |        | Total
Shareowners'
Equity |       
|------------------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------- | ------------- | - | ----------------- | ------ | -------------------------------------- | ------ | ------------------------- | ------
|
|Balance, December 31, 2000                                               |                                                                                                                                          | 11,860        |   | 110,032           |        | 5,003                                  |        | 126,895                   |       
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|Comprehensive income:                                                    |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|                                                                         | Net income                                                                                                                               |               |  |                   | 18,913 |                                        |       |                           | 18,913
|                                                                         | Foreign currency translation adjustment                                                                                                  |               |  |                   |       |                                        | 1,760  |                           | 1,760 
|                                                                         | Unrealized gains on foreign exchange contracts arising during the period, net of taxes of €463 thousand                                  |               |  |                   |       |                                        | 746    |                           | 746   
|                                                                         | less reclassification and adjustment for gains included in net income, net of taxes of €302 thousand                                     |               |  |                   |       |                                        | (486   | )                         | (486  
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|Total comprehensive income before cumulative effect of accounting change |                                                                                                                                          |               |   |                   |        |                                        |        | 20,933                    |       
|                                                                         | Cumulative effect of a change in accounting principles for unrealized gains on foreign exchange contracts, net of taxes of €762 thousand |               |  |                   |       |                                        | 1,223  |                           | 1,223 
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|Total comprehensive income                                               |                                                                                                                                          |               |   |                   |        |                                        |        | 22,156                    |       
|Effect of share-based compensation                                       |                                                                                                                                          | (587          | ) |                  |        |                                       |        | (587                      | )     
|Distributions                                                            |                                                                                                                                          |              |   | (5,069            | )      |                                       |        | (5,069                    | )     
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|Balance, December 31, 2001                                               |                                                                                                                                          | 11,273        |   | 123,876           |        | 8,246                                  |        | 143,395                   |       
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|Comprehensive income:                                                    |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|                                                                         | Net income                                                                                                                               |               |  |                   | 11,882 |                                        |       |                           | 11,882
|                                                                         | Foreign currency translation adjustment                                                                                                  |               |  |                   |       |                                        | (2,494 | )                         | (2,494
|                                                                         | Unrealized gains on foreign exchange contracts arising during the period, net of taxes of €773 thousand                                  |               |  |                   |       |                                        | 1,241  |                           | 1,241 
|                                                                         | less reclassification and adjustment for gains included in net income, net of taxes of €567 thousand                                     |               |   |                   |        |                                        | (909   | )                         | (909  
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|Total comprehensive income                                               |                                                                                                                                          |               |   |                   |        |                                        |        | 9,720                     |       
|Effect of share-based compensation                                       |                                                                                                                                          | (221          | ) |                  |        |                                       |        | (221                      | )     
|Distributions                                                            |                                                                                                                                          |              |   | (641              | )      |                                       |        | (641                      | )     
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       
|Balance, December 31, 2002                                               |                                                                                                                                          | 11,052        |   | 135,117           |        | 6,084                                  |        | 152,253                   |       
|                                                                         |                                                                                                                                          |               |   |                   |        |                                        |        |                           |       

See
notes to combined financial statements.

F-113

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WAGO KONTAKTTECHNIK GmbH, WAGO CONTACT S.A. AND AFFILIATES        Combined Statements of Cash Flows

|                                                    |                                                                                  | Years ended December 31                                                         |                                               
|--------------------------------------------------- | -------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------
|
|
|Cash flow from operating activities                 |                                                                                  |                                                                                 |                                               
|                                                    | Net income                                                                       |                                                                                 | 11,882                                        
|                                                    | Adjustments to reconcile net income to net cash provided by operating activities |                                                                                 |                                               
|                                                    |                                                                                  | Minority interest                                                               |                                               
|                                                    |                                                                                  | Depreciation and amortization                                                   |                                               
|                                                    |                                                                                  | Unrealized gains on foreign exchange contracts net of taxes                     |                                               
|                                                    |                                                                                  | Deferred income tax provision                                                   |                                               
|                                                    |                                                                                  | Share-based compensation                                                        |                                               
|                                                    |                                                                                  | Loss/(gain) on disposal of property and equipment                               |                                               
|                                                    |                                                                                  | Change in operating assets and liabilities, net of foreign currency adjustments |                                               
|                                                    |                                                                                  |                                                                                 | Accounts receivabletrade and related parties 
|                                                    |                                                                                  |                                                                                 | Inventory                                     
|                                                    |                                                                                  |                                                                                 | Prepaid expenses                              
|                                                    |                                                                                  |                                                                                 | Other assets, current and noncurrent          
|                                                    |                                                                                  |                                                                                 | Accounts payable                              
|                                                    |                                                                                  |                                                                                 | Accrued expenses and other current liabilities
|                                                    |                                                                                  |                                                                                 | Income taxes and other taxes payable          
|                                                    |                                                                                  |                                                                                 | Other liabilities                             
|                                                    |                                                                                  |                                                                                 |                                               
|Net cash provided by operating activities           |                                                                                  | 43,515                                                                          |                                               
|                                                    |                                                                                  |                                                                                 |                                               
|Cash flows from investing activities                |                                                                                  |                                                                                 |                                               
|                                                    | Purchases of property and equipment                                              |                                                                                 | (17,688                                       
|                                                    | Proceeds from disposal of property and equipment                                 |                                                                                 | 1,242                                         
|                                                    | Acquisition of minority interests in subsidiary                                  |                                                                                 | (2,056                                        
|                                                    |                                                                                  |                                                                                 |                                               
|Net cash used in investing activities               |                                                                                  | (18,502                                                                         | )                                             
|                                                    |                                                                                  |                                                                                 |                                               
|Cash flows from financing activities                |                                                                                  |                                                                                 |                                               
|                                                    | Proceeds from issuance of long-term debt                                         |                                                                                 | 15                                            
|                                                    | Payments on long-term debt                                                       |                                                                                 | (10,799                                       
|                                                    | Distributions to shareowners                                                     |                                                                                 | (641                                          
|                                                    | Distributions to minority interests                                              |                                                                                 | (118                                          
|                                                    |                                                                                  |                                                                                 |                                               
|Net cash provided by (used in) financing activities |                                                                                  | (11,543                                                                         | )                                             
|                                                    |                                                                                  |                                                                                 |                                               
|Effect of exchange rate changes on cash             |                                                                                  | (1,929                                                                          | )                                             
|                                                    |                                                                                  |                                                                                 |                                               
|Net increase in cash and cash equivalents           |                                                                                  | 11,541                                                                          |                                               
|Cash and cash equivalents                           |                                                                                  |                                                                                 |                                               
|                                                    | Beginning of year                                                                |                                                                                 | 12,098                                        
|                                                    |                                                                                  |                                                                                 |                                               
|                                                    | End of year                                                                      |                                                                                 | 23,639                                        
|                                                    |                                                                                  |                                                                                 |                                               
|Supplemental cash flow information:                 |                                                                                  |                                                                                 |                                               
|Amounts paid for interest                           |                                                                                  | 2,296                                                                           |                                               
|                                                    |                                                                                  |                                                                                 |                                               
|Amounts paid for income taxes                       |                                                                                  | 4,696                                                                           |                                               
|                                                    |                                                                                  |                                                                                 |                                               

See
notes to combined financial statements.

F-114

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WAGO KONTAKTTECHNIK GmbH, WAGO CONTACT S.A. AND AFFILIATES

Notes to Combined Financial Statements

April 4, 2003

Note 1Nature of operations

The WAGO Group ("Group") comprises the combination of WAGO Kontakttechnik GmbH and WAGO Contact S.A. These operations are legally independent, but have a common
ownership structure.

WAGO
Kontakttechnik GmbH, ("WAGOGermany"), is a limited liability company, organized under the laws of the Federal Republic of Germany, and was incorporated in 1951.

WAGO
Contact S.A., ("WAGOSwitzerland"), is a joint stock corporation, incorporated in 1977, and organized under the laws of the Federal Republic of Switzerland.

Both
Companies are engaged in the production of an extensive range of wiring products and electric modules for the distributed control of automated processes. The products are marketed
globally under the WAGO brand name. The Companies' world-wide headquarters are located in Minden, Germany. Principal manufacturing sites are located in Minden, Germany; Sondershausen,
Germany; and Domdidier, Switzerland.

Affiliated companies

The subsidiaries, owned directly or indirectly, by WAGOGermany or WAGOSwitzerland are:

|                                        |  | Ownership Percentage
|--------------------------------------- |  | --------------------
|
|
|WAGO Contact S.A., France               |  | 85                  
|WAGO Kontakttechnik Ges. mbH, Austria   |  | 100                 
|WAGO Corporation, USA                   |  | 97                  
|WAGO Limited, Great Britain             |  | 100                 
|WAGO Company of Japan Ltd., Japan       |  | 51                  
|WAGO Elektro spol.s.r.o. Czech Republic |  | 100                 
|WAGO & Controls (India) Ltd., India     |  | 51                  
|WAGO Electronic Pte. Ltd., Singapore    |  | 100                 
|WAGO Elwag Sp. z.o.o., Poland           |  | 98                  
|WAGO Electric (Tianjin) Ltd., China     |  | 100                 
|WAGO Elettronica SRL, Italy             |  | 100                 
|WAGO Elektro spol.s.r.o., Slovakia      |  | 90                  

Major shareowners

Share ownership of WAGO Germany and WAGO Switzerland until April 4, 2003 was as follows:

|Spirent plc                   |  | 51 | %
|----------------------------- |  | -- | -
|Members of the Hohorst family |  | 49 | %

However,
the management contracts between the Hohorst family and Spirent plc have the effect of establishing joint rather than sole control.

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Effective
April 4, 2003 Spirent sold its 51% interests in WAGO Germany and WAGO Switzerland to entities controlled by the Hohorst family.

Note 2Summary of significant accounting policies

Basis of accounting

The combined financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States
(US-GAAP).

Principles of combination

The accompanying financial statements present the financial position of WAGO Kontakttechnik, GmbH and its majority- and wholly-owned subsidiaries, and WAGO
Contact S.A.

WAGO
Kontakttechnik, GmbH and WAGO Contact S.A. are related through common ownership. Significant intercompany transactions and balances have been eliminated in combination.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain
estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities in the financial statements. Actual results could differ from
those estimates.

Cash and cash equivalents

The Group considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

Accounts receivable

Accounts receivable consist of trade accounts receivable and are stated at cost less an allowance for doubtful accounts. Credit is extended to customers after an
evaluation of the customer's financial condition, and generally collateral is not required. Management's determination of the allowance for doubtful accounts is based on an evaluation of the accounts
receivable, past experience, current economic conditions, and other risks inherent in the accounts receivable portfolio.

Inventory

Inventory is stated at the lower cost or market, with cost determined on the first-in, first-out (FIFO) basis. The Company records a
provision for excess or obsolete inventory as required.

Property and equipment

Property and equipment are stated at cost. Alterations and major overhauls which increase the capacity of assets are capitalized. Repairs and maintenance are
expensed as incurred.

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Depreciation
of owned assets and amortization of assets under capital leases are provided on the straight-line method over the useful lives of the related assets, or the
lease term for assets under capital leases, as follows:

|Buildings               |  | 25 to 40 years
|----------------------- |  | --------------
|Machinery and equipment |  | 3 to 5 years  
|Fixtures and fittings   |  | 3 to 20 years 

Goodwill

In June 2001, the Financial Accounting Standards Board issued two Statements of Financial Accounting Standards, No. 141, Business
Combinations(SFAS No. 141), and No. 142,Goodwill and Other Intangible Assets(SFAS No. 142). SFAS No. 141 addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16,Business
Combinations, and FASB Statement No. 38,Accounting for Pre-acquisition Contingencies of Purchased
Enterprises.All business combinations in the scope of SFAS No. 141 are to be accounted for using one method, the purchase method. The provisions of SFAS No. 141
apply to all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method for those business combinations is prohibited. The provisions of SFAS No. 141 also apply to all business combinations accounted
for by the purchase method for which the date of acquisition is July 1, 2001, or later. During 2002 the Company acquired additional interests from the minority shareholder of WAGO Contact S.A.,
France; the purchase of those interests were accounted for in accordance with the provisions of SFAS No. 141.

SFAS
No. 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It addresses how intangible assets
that are acquired individually or with a group of other assets (but not those acquired in a
business combination) should be accounted for in financial statements upon their acquisition. SFAS No. 142 also addresses how goodwill and other intangible assets should be accounted for after
they have been initially recognized in the financial statements. Under SFAS No. 142, goodwill and intangible assets that have indefinite useful lives are not amortized but rather tested at
least annually for impairment. Intangible assets that have finite useful lives will continue to be amortized over their useful lives, but without the constraint of the 40-year maximum life
required by APBO No. 17. The Company adopted the provisions of SFAS No. 142 effective January 1, 2002. See Note 5.

Long-lived assets

Long-lived assets held and used by the Group are reviewed for impairment whenever changes in circumstances indicate that the carrying value of an
asset may not be recoverable.

Revenue recognition

Revenue is recognized when products are shipped, net of estimated allowances for product returns.

F-117

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Foreign currency translation

The assets and liabilities of WAGO Kontakttechnik GmbH's foreign subsidiaries and affiliates are translated to EURO at exchange rates existing at the
balance-sheet date, and revenues and expenses are translated at average exchange rates for the year. Resulting translation adjustments are reflected as a component of other comprehensive income.

Transaction
gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of
operations as incurred, except those that operate as a hedge of an identifiable foreign currency commitment.

Derivatives and hedging activities

In June 1998 the Financial Accounting Standards Board issued Statement No. 133,Accounting for Derivative Instruments and
Hedging Activities, and related Statements 137, 138, and 149 in June 1999, June 2000, and April 2003, respectively. The Statement requires the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of derivatives are either set off against the change in fair value of assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings.

The
ineffective portions of a derivative's change in fair value will be immediately recognized in earnings. The adoption of Statement No. 133, as amended, on January 01, 2001,
resulted in the cumulative effect of an accounting change of €1,233 thousand, net of taxes of €762 thousand, being recognized as other comprehensive
income.

Forward
exchange contracts are used to hedge foreign exchange exposures arising from anticipated receipts and payments in foreign countries. Gains and losses on foreign currency
contracts are offset against the foreign exchange gains and losses on the related financial assets and liabilities. Prior to the adoption of SFAS No. 133, where the contract was a hedge against
anticipated transactions, gains and losses were deferred until the transaction occurs. In 2001 such gains and losses are recognized in the balance sheet net of taxes. The cumulative effect of the
change in the accounting principles for Derivatives and Hedging Activities is recognized separately within the Combined Statement of Shareowners' Equity.

Warranty

The Group provides for the estimated cost to fulfill customer warranty claims based upon the recognition of the related revenue. Such reserves are determined
based upon actual warranty cost experience and management's industry experience.

Income taxes

The provision for income taxes is determined in accordance with SFAS No. 109Accounting for Income Taxes("SFAS No. 109"), which requires the use of the asset and liability approach. Under this approach, deferred taxes represent the expected future tax consequences of temporary differences

F-118

---



between
the carrying amounts and tax bases of assets and liabilities using the enacted tax rates in effect in the years in which differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in the period that the rate change is enacted.

Concentration of credit risk

The Group performs ongoing credit evaluations of its customers and generally does not require collateral from its customers. The Group maintains an allowance for
potential losses when identified.

Advertising costs

It is the Company's policy to expense all advertising costs as incurred. Advertising expense incurred until April 4, 2003 and during 2002 and 2001 amounted
to €1,925 thousand, €8,984 thousand and €10,797 thousand, respectively.

Research and development costs

The cost of research, development and product improvement costs are charged to expense as they are incurred.

Recently issued accounting pronouncements

In August 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 144,Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets.
This Statement supersedes SFAS No. 121,Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, and the accounting and reporting provisions of APB Opinion No. 30,Reporting the Results of OperationsReporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business (as previously
defined in that Opinion). SFAS No. 144 also amends ARB No. 51,Consolidated Financial Statements, to eliminate the exception to
consolidation for a subsidiary for which control is likely to be temporary. The adoption of the provisions of SFAS No. 144, effective January 1, 2002, had no effect on the combined
financial statements.

In
June 2001, the FASB issued SFAS No. 143,Accounting for Asset Retirement Obligations. SFAS No. 143
addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. SFAS No. 143
applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS No. 143 amends FASB Statement No. 19,Financial Accounting and Reporting by Oil and
Gas Producing Companies, and is effective for fiscal years beginning after June 15, 2002. The adoption of the provisions of SFAS No. 143, effective
January 1, 2003, did not have a material impact on the financial position or results of operations of the Company.

In
June 2002, the FASB issued SFAS No. 146,Accounting for Costs Associated with Exit or Disposal Activities. SFAS
No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability

F-119

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Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The adoption of the provisions of SFAS No. 146,
effective for exit or disposal activities initiated after December 31, 2002, did not not have a material impact on the financial position or results of operations of the Company.

In
2002, the FASB issued Interpretation No. 45,Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of this Interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002,
irrespective of the guarantor's fiscal year-end. The disclosure requirements in this Interpretation are effective for financial statements of interim or annual periods ending after
December 15, 2002. The adoption of the provisions of FIN 45 did not have a material impact on the financial position or results of operations of the Company.

In
January 2003, the FASB issued Interpretation No. 46,Consolidation of Variable Interest Entities(FIN 46) and in
December 2003, issued Interpretation No. 46 (R), which revised FIN 46. FIN 46 (R) is an interpretation of ARB No. 51,Consolidated Financial
Statements, and addresses consolidation by business enterprises of variable interest entities, as defined in that interpretation. As of April 4, 2003, the Group had not
completed its evaluation of arrangements that may be subject to the provisions of FIN 46 or FIN 46 (R). The Group leases facilities from entities that may be considered variable interest entities
under the provisions of the Interpretations, and upon completion of the analysis, the Group may be determined to be the primary beneficiary under one or more of the arrangements. However, the leases
with the entities have been accounted for as capital leases, and the application of FIN 46 (R) to these arrangements is not expected to have a significant impact on the financial position or
results of operations.

In
May 2003, the FASB issued SFAS No. 150,Accounting for Certain Financial Instruments with Characteristics of both Liabilities and
Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.
Certain provisions of SFAS No. 150 are to be applied effective at the beginning of the first interim period beginning after June 15, 2003. The company believes it currently has no
financial instruments within the scope of SFAS No. 150, and, accordingly, does not expect the adoption of the provisions to have a material impact on the financial position or results of
operations of the company.

There
were no other recently issued accounting pronouncements with delayed effective dates that would as of April 4, 2003 have a material impact on the Company's consolidated
financial position and results of operations.

F-120

---



Note 3Inventory

Inventory is comprised of the following:

|                |  | December 31
|--------------- |  | -----------
|
|
|Raw materials   |  | 14,581     
|Work in process |  | 10,821     
|Finished goods  |  | 23,582     
|                |  |            
|                |  | 48,984     
|                |  |            

Note 4Property and equipment

A summary of property and equipment follows:

|                                          |  | December 31 |  
|----------------------------------------- |  | ----------- | -
|
|
|Land and buildings                        |  | 59,726      |  
|Machinery and equipment                   |  | 164,186     |  
|Furniture, fixtures, and office equipment |  | 47,507      |  
|Construction in progress                  |  | 5,440       |  
|                                          |  |             |  
|                                          |  | 276,859     |  
|Less accumulated depreciation             |  | (176,517    | )
|                                          |  |             |  
|                                          |  | 100,342     |  
|                                          |  |             |  

Depreciation
expense amounted to €5,604 thousand, €24,260 thousand and €24,123 thousand through April 4, 2003
and in 2002 and 2001, respectively.

Note 5Goodwill

During 2002, the Company acquired an additional 25% interest in WAGO Contact S.A., France from the non-controlling shareholder. In accordance with
SFAS No. 141, the acquisition was accounted for using the purchase method. The purchase price was €2,056 thousand, and the excess of purchase price over the proportionate
share of the fair value of net assets acquired of €823 thousand was recorded as goodwill.

The
Company also has goodwill recorded in connection with the acquisition of two of its subsidiaries, WAGO Elektro spol.s.r.o. Czech Republic, and WAGO Elwag Sp. Z.o.o., Poland. Goodwill
is evaluated for impairment for each subsidiary as of the beginning of the fiscal year. For the year ended December 31, 2002, and the period ended April 4, 2003, the results of the
evaluations indicated no impairment of goodwill. The increase in the balance of goodwill for the year ended December 31, 2002 of €823 thousand was a result of the
acquisition of minority interests described in the preceding parapraph.

F-121

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The
following table summarizes the effects of the adoption, as of January 1, 2002, of the provisions of SFAS No. 142.

|                               |  | Year ended
December 31
|------------------------------ |  | ----------------------
|
|
|Reported net income            |  | 11,882                
|Add back goodwill amortization |  |                      
|                               |  |                       
|Adjusted net income            |  | 11,882                
|                               |  |                       

F-122

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Note 6Long-term debt

A summary of the Company's notes and capital lease obligations follow. The obligations are denominated in EURO unless otherwise indicated:

|                                                                                                                                                                                                                                                     |  | December 31 |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------- | -
|
|
|Financial institution installment loans, bearing interest at annual rates from 0.83% to 0.08%, in 2002, denominated in Japanese Yen                                                                                                                  |  | 1,312       |  
|Financial institution installment loan, bearing interest between 5.4% and 7.79% annually, quarterly payments of €93 thousand plus interest, maturity date March 2004, issued by a subsidiary, of which
€426 thousand are guaranteed by WAGO Germany. |  | 429         |  
|Financial institution installment loan, bearing interest between 2.25% and 4.0% annually, maturities 2003 and 2004, collateralized by certain real estate, denominated in Swiss Francs                                                               |  | 6,887       |  
|Financial institution installment loan, bearing interest at 5.1% annually, repayable quarterly with €48 thousand plus interest, collateralized by certain real estate, denominated in French Francs                                                  |  | 1,517       |  
|Financial institution loans, bearing interest at 14.25% annually, repayable 2000-2004, secured by certain real property, denominated in Indian Rupees.                                                                                               |  | 73          |  
|Financial institution installment loans, bearing interest between 4.96% and 5.25% annually, quarterly payment of €141 thousand plus interest, maturity in 2008, collateralized by certain real estate                                                |  | 3,377       |  
|Line of credit agreements, maximum available of €20,217 thousand at December 31, 2002, bearing interest between 6.5% and 8.0% annually.                                                                                                              |  |            |  
|Short-term borrowings from financial institutions, bearing interest between 3.53% and 4.62% annually.                                                                                                                                                |  |            |  
|Employee's welfare funds loan, bearing interest of min. 5.5%, unsecured, maturity unlimited                                                                                                                                                          |  | 325         |  
|Capital lease obligations, bearing interest between 7.05% to 11.74% annually, maturities 2002 through 2019                                                                                                                                           |  | 17,709      |  
|                                                                                                                                                                                                                                                     |  |             |  
|                                                                                                                                                                                                                                                     |  | 31,629      |  
|Less current portion                                                                                                                                                                                                                                 |  | (8,459      | )
|                                                                                                                                                                                                                                                     |  |             |  
|Long-term portion                                                                                                                                                                                                                                    |  | 23,170      |  
|                                                                                                                                                                                                                                                     |  |             |  

Future
maturities of long-term debt are as follows:

|           |  | (€ thousands)
|---------- |  | -------------
|2004       |  | 4,046        
|2005       |  | 1,831        
|2006       |  | 1,873        
|2007       |  | 1,595        
|Thereafter |  | 13,825       
|           |  |              
|           |  | 23,170       
|           |  |              

F-123

---



Note 7Retirement plan

The Company has a defined benefit pension plan that covers substantially all of its employees. The plan calls for benefits to be paid to eligible employees at
retirement based primarily upon years of service with the Company. The plan is funded on a pay-as-you-go basis. The Company consults with an actuary for determining
any estimates.

The
following sets forth the status of the Plan and amounts recognized in the accompanying combined financial statements.

|                                       |  | 2002   |   | 2001   |  
|-------------------------------------- |  | ------ | - | ------ | -
|
|Change in benefit obligation           |  |        |   |        |  
|Benefit obligation, beginning of year  |  | 4,462  |   | 4,987  |  
|Service cost                           |  | 184    |   | 357    |  
|Interest cost                          |  | 238    |   | 322    |  
|Actuarial (gain)/loss                  |  | (379   | ) | (1,130 | )
|Benefits paid                          |  | (62    | ) | (74    | )
|                                       |  |        |   |        |  
|Benefit obligation, end of year        |  | 4,443  |   | 4,462  |  
|                                       |  |        |   |        |  
|Funded status                          |  | (4,443 | ) | (4,462 | )
|Unrecognized net transition obligation |  | 58     |   | 117    |  
|Unrecognized actuarial gains           |  | (58    | ) | (117   | )
|                                       |  |        |   |        |  
|Accrued pension cost                   |  | (4,443 | ) | (4,462 | )
|                                       |  |        |   |        |  

|                              |  | April 4,
2003 |   | 2002 |   | 2001 |  
|----------------------------- |  | ------------- | - | ---- | - | ---- | -
|Assumptions as of December 31 |  |               |   |      |   |      |  
|Discount rate                 |  | 5.5           | % | 5.5  | % | 5.5  | %
|Pension increase rate         |  | 2.5           | % | 2.5  | % | 2.5  | %

|                                        |  |     |   | Year ended
December 31 |  
|--------------------------------------- |  | --- | - | ---------------------- | -
|
|
|
|Components of net periodic pension cost |  |     |   |                        |  
|Service cost                            |  | 63  |   | 184                    |  
|Interest cost                           |  | 61  |   | 238                    |  
|Actuarial gains                         |  | (20 | ) | (379                   | )
|                                        |  |     |   |                        |  
|Net periodic pension cost               |  | 104 |   | 43                     |  
|                                        |  |     |   |                        |  

Note 8Share-based compensation

Certain Group executives have been granted options to purchase Spirent plc Ordinary shares by Spirent plc. The Group does not incur any liability to Spirent plc
in connection with the stock option awards.

F-124

---



Historically
under US GAAP, Spirent plc had elected to apply the recognition and measurement principles of APB 25,Accounting for Stock Issued to
Employeesto these stock option awards. Due to
the performance criteria in the plans under which the stock options were granted, these plans were deemed to be variable plans under US GAAP.

Following
the introduction of FASB Interpretation No. 44,Accounting for Certain Transactions Involving Stock Compensation, which
is effective from July 1, 2000, Spirent plc has accounted for unvested stock option awards granted after December 15, 1998, and any awards subsequent to July 1, 2000 under the
fair value method of SFAS No. 123Accounting for Stock-Based Compensation. The Group follows the same accounting for options as Spirent plc. As
the Group does not incur any liability with respect to the options, amounts recognized as expense are reflected as contributed capital.

Compensation
expense/(benefit) recognized in the Group's financial statements for the period ended April 4, 2003 and the years ended December 31, 2002 and 2001 for stock
option awards to WAGO employees were €2 thousand, €(221) thousand and €(587) thousand, respectively.

If
compensation cost for stock options had been determined based on fair value at the date of grant, net income for the periods ended April 4, 2003 and December 31, 2002
and 2001 would have been €4,725 thousand, €11,873 thousand and €18,412 thousand, respectively.

The
normal exercise period for stock options is between the third and tenth anniversary of the date of grant, subject to certain performance targets.

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 for grants issued in
2001 and 2000, respectively, no options were granted in 2002 or 2003; dividend yields of 1.6% and 2.5%, expected volatility of 68% and 49%, risk-free interest rates of 4.5% and 5.2%; and
expected lives of 3.4 and 5.6 years. The weighted average fair value per share of options granted was (Great Britain pence) 142.0p, and 138.0p.

A
summary of stock option activity follows (as restated to reflect Spirent plc share dividend and rights offering):

|                                   |  | Period ended April 4, 2003 |   | Year ended December 31, 2002 |   | Year ended December 31, 2001 |  
|---------------------------------- |  | -------------------------- | - | ---------------------------- | - | ---------------------------- | -
|
|
|Outstanding at beginning of period |  | 587,510                    |   | 183.34                       |   | 587,510                      |  
|Granted                            |  |                            |   |                              |   |                              |  
|Exercised                          |  | (                         | ) | (                           | ) | (                           | )
|Forfeited/Expired                  |  | (                         | ) | (                           | ) | (                           | )
|                                   |  |                            |   |                              |   |                              |  
|Outstanding at end of period       |  | 587,510                    |   | 183.34                       |   | 587,510                      |  
|                                   |  |                            |   |                              |   |                              |  

F-125

---



The
following table summarizes information about stock options at December 31, 2002:

|                 |  | Outstanding stock options |  | Exercisable stock options
|---------------- |  | ------------------------- |  | -------------------------
|
|
|104.14 to 152.08 |  | 415,070                   |  | 4.58                     
|305.00 to 334.11 |  | 172,440                   |  | 7.89                     

In
accordance with the terms of the option agreements, the option holders have one year from the date of the disposal by Spirent of its interest in the Group to exercise any options.
Accordingly, all unexercised options will expire on April 4, 2004.

Note 9Financial instruments

Forward exchange contracts are used to hedge a portion of foreign exchange exposures arising from anticipated receipts and payments in foreign countries occurring
within the following 59 months. At December 31, 2002 and 2001 the Group held foreign exchange forward contracts for Japanese yen equating to €12,550 thousand and
€8,200 thousand, respectively.

The
Group also enters into zero-cost option contracts to exchange Yen for EURO as part of its foreign currency exposure risk management activities. Contracts having the same
terms and notional amounts for the purchased call component and the written put component have no net written premium and are accounted for as cash flow hedges. Certain contracts have notional amounts
of the written put option component in excess of the notional amount of the purchased call component, resulting in a beneficial exchange rate, and are accounted for at fair value with changes in fair
value recognized currently in earnings. The Group had open zero-cost options contracts designated as cash flow hedges for €11,100 thousand and
€13,300 thousand at December 31, 2002 and 2001, respectively. The Group had open option contracts with the written put option component exceeding the purchased call
option component for €8,000 thousand (written put) and €4,000 thousand (purchased call) at both December 31, 2002 and 2001. Unrealized gains and
losses on foreign exchange forward contracts used to hedge anticipated transactions at December 31, 2002 and 2001 were approximately €4,152 thousand and
€2,883 thousand, respectively before taxes.

The
Group also has entered into a cross-currency interest rate swap to hedge the currency and interest rate risk of certain of its debt agreements. The notional amount of the swap was
€1,923 thousand at December 31, 2002, respectively €1,985 thousand at December 31, 2001.

The
following methods and assumptions were used by the Group in estimating its fair value disclosures for financial instruments. Fair value approximates carrying value for the following
financial instruments due to their short-term nature: cash and cash equivalents and accounts receivable and payable. The fair value of long-term debt is estimated by
discounting future cash flows using interest

F-126

---



rates
available to the Group with similar terms and maturities. Foreign currency agreements are valued based on quoted market prices of comparable instruments.

|                            |  | December 31, 2002 |   | December 31, 2001 |  
|--------------------------- |  | ----------------- | - | ----------------- | -
|
|
|Long-term debt              |  | 31,629            |   | 36,230            |  
|Foreign currency agreements |  | 4,152             |   | 4,152             |  
|Interest rate swap          |  | (272              | ) | (272              | )

Note 10Income taxes

The provision for income taxes follows.

|                   |  |       |   | Year ended
December 31, |  
|------------------ |  | ----- | - | ----------------------- | -
|
|
|
|Current provision  |  |       |   |                         |  
|Germany            |  | 1,791 |   | 5,062                   |  
|Foreign            |  | 894   |   | 3,429                   |  
|                   |  |       |   |                         |  
|                   |  | 2,685 |   | 8,491                   |  
|                   |  |       |   |                         |  
|Deferred provision |  |       |   |                         |  
|Germany            |  | (75   | ) | (312                    | )
|Foreign            |  | (51   | ) | 316                     |  
|                   |  |       |   |                         |  
|                   |  | (126  | ) | 4                       |  
|                   |  |       |   |                         |  
|                   |  | 2,559 |   | 8,495                   |  
|                   |  |       |   |                         |  

Deferred
income taxes were provided for temporary differences in basis of assets and liabilities for financial statement and income tax purposes. These temporary differences consist
principally of the recognition of bad debts, the recognition of obsolete inventory, the calculation of depreciation expense, the elimination of intercompany profits in inventory, the recognition of
certain production expenses, the determination of pension expense, and unrealized gains and losses on foreign exchange contracts.

F-127

---



The
tax effects of temporary differences that give rise to deferred tax assets and liabilities include the following:

|                                                 |  | December 31 |  
|------------------------------------------------ |  | ----------- | -
|
|
|Current deferred tax assets (liabilities)        |  |             |  
|Elimination of intercompany profits in inventory |  | 1,110       |  
|Other                                            |  | (492        | )
|                                                 |  |             |  
|                                                 |  | 618         |  
|                                                 |  |             |  
|Noncurrent deferred tax assets (liabilities)     |  |             |  
|Depreciable basis of property and equipment      |  | (1,616      | )
|Pension accruals                                 |  | 187         |  
|Unrealized gains on foreign exchange contracts   |  | (1,488      | )
|Other                                            |  | 559         |  
|                                                 |  |             |  
|                                                 |  | (2,358      | )
|                                                 |  |             |  

Gross
deferred tax assets were €1,966 thousand and €2,058 thousand at December 31, 2002 and 2001, respectively.

Gross
deferred tax liabilities were €3,707 thousand and €3,527 thousand at December 31, 2002 and 2001, respectively.

Management
believes that the Company will fully realize deferred tax assets based on future reversal of existing taxable temporary differences and current levels of operating income.

Income
tax returns not barred by the statute of limitations are subject to examination by taxing authorities.

Note 11Other balance sheet information

Valuation and qualifying accounts are deducted from the related balance sheet account, and consisted of the following at each year end.

|                                                |  | December 31
|----------------------------------------------- |  | -----------
|
|
|Allowance for uncollectible accounts receivable |  | 1,622      
|Reserve for obsolete inventory                  |  | 1,681      
|                                                |  |            
|                                                |  | 3,303      
|                                                |  |            

F-128

---



The
components of other liabilities at each year end were as follows:

|                          |  | December 31
|------------------------- |  | -----------
|
|
|Accrued pension liability |  | 4,443      
|Other                     |  | 5,901      
|                          |  |            
|                          |  | 10,344     
|                          |  |            

Note 12Related party transactions

In the customary course of business, the Company leases certain land and buildings from shareowners and related interests. All of these properties are located in
Minden, Germany. These lease agreements will expire on December 31, 2006 at which time certain lease extension provisions may be exercised. These lease agreements contain monthly lease charges
amounting to €20 thousand.
Lease expense recognized under these related party leases amounted to €60 thousand through April 4, 2003 and €239 thousand for 2002 and 2001,
respectively.

Group
sales to Spirent plc were made in the ordinary course of business and amounted to €815 thousand through April 4, 2003 and
€2,738 thousand and €2,717 thousand for 2002 and 2001, respectively.

In
the customary course of business, the Company grants credit to Spirent plc and certain of its subsidiaries. Amounts outstanding at December 31, 2002 and 2001 were
€653 and €646, respectively.

Note 13Commitments and contingencies

A summary of the various commitments which the Company has entered into in the ordinary course of business follows:

Operating leases

Total expense under operating leases expense of €1,267 thousand, €5,027 thousand and
€4,426 thousand was incurred through April 4, 2003 and during 2002 and 2001, respectively.

F-129

---



Under
the terms of the Group's operating and capital lease agreements, future minimum lease payments for leases with terms greater than one year are as follows:

|Year ended December 31,      |  | Operating |  | Capital |  
|---------------------------- |  | --------- |  | ------- | -
|
|2003                         |  | 2,928     |  | 1,837   |  
|2004                         |  | 2,338     |  | 1,837   |  
|2005                         |  | 1,601     |  | 1,837   |  
|2006                         |  | 1,176     |  | 1,529   |  
|2007                         |  | 759       |  | 1,529   |  
|2008 and thereafter          |  | 959       |  | 19,747  |  
|                             |  |           |  |         |  
|                             |  | 9,761     |  | 28,316  |  
|                             |  |           |  |         |  
|Amount representing interest |  |           |  | (10,607 | )
|                             |  |           |  |         |  
|                             |  |           |  | 17,709  |  
|                             |  |           |  |         |  

The
Company acquired certain operating facilities under the provisions of long-term leases. The economic substance of the leases are to finance the acquisition of the
facilities. Accordingly, these leases have been accounted for as capital leases. During 2002 the company acquired one of the facilities formerly leased. The present value of minimum lease rentals for
properties under capital lease of €19,910 thousand at December 31, 2002 and €22,114 thousand at December 31, 2001 have been capitalized in
connection with the leases. Accumulated depreciation recognized on these facilities amounted to €2,886 thousand and €3,377 thousand at December 31,
2002 and 2001.

Other commitments

The Company has entered into various contracts to construct both buildings and machinery and equipment. At December 31, 2002, expected future payments
under these contracts are not anticipated to exceed €5,967 thousand.

For
investments in machinery, tools, equipment and buildings to be done in Sondershausen, Germany, the Company has a taxable government grant available of
€6,785 thousand which covers investments of €30,156 thousand from December 12, 2001 until August 31, 2004. As of December 31, 2002
grants available of €5,910 thousand related to future investments of €26,266 thousand remained.

Note 14Change in control

On April 4, 2003 Spirent plc sold its 51% interests in WAGO Germany and WAGO Switzerland to entities controlled by the Hohorst family.

F-130

---





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The
Board of Directors and Shareholders
Tyton Company of Japan, Limited

We
have audited the accompanying balance sheet of Tyton Company of Japan, Limited as at March 31, 2004, and the related statements of income and shareholders' equity for the year then ended.
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We
conducted our audit in accordance with Japanese auditing standards and the standards of the Public Company Accounting Oversight Board (United States). 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 audit provides a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Tyton Company of Japan, Limited at March 31, 2004, and the results
of its operations for the year then ended, in conformity with accounting principles generally accepted in Japan which differ in certain respects from those generally accepted in the United States of
America (see Note 10 of the Notes to the Financial Statements).

|                          |  | /S/ ERNST & YOUNG SHINNIHON
|------------------------- |  | ---------------------------
|Tokyo, Japan
May 28, 2004 |  |                            

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT

We
consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-98607) pertaining to the Spirent Stock Option Plan, U.S. Stock
Purchase Plan,et alof our report dated May 28, 2004, with respect to the financial statements of Tyton Company of Japan, Limited included in
the Annual Report (Form 20-F) of Spirent plc for the year ended December 31, 2003.

|                           |  | /S/ ERNST & YOUNG SHINNIHON
|-------------------------- |  | ---------------------------
|Tokyo, Japan
June 28, 2004 |  |                            

F-131

---



TYTON COMPANY OF JAPAN, LIMITED

BALANCE SHEETS

|                               |                                                                          | March 31,                           |          
|------------------------------ | ------------------------------------------------------------------------ | ----------------------------------- | ---------
|
|
|
|Assets                         |                                                                          |                                     |          
|Current assets:                |                                                                          |                                     |          
|                               | Cash and cash equivalents                                                |                                     | ¥        
|                               | Notes and accounts receivable:                                           |                                     |          
|                               |                                                                          | Trade and otheraffiliates (Note 3) |          
|                               |                                                                          | Trade                               |          
|                               |                                                                          | Allowance for doubtful accounts     |          
|                               |                                                                          |                                     |          
|                               |                                                                          |                                     | 1,938,603
|                               | Inventories                                                              |                                     |          
|                               | Deferred income taxes (Note 6)                                           |                                     |          
|                               | Other current assets                                                     |                                     |          
|                               |                                                                          |                                     |          
|Total current assets           |                                                                          |                                     | 3,817,317
|Property, plant and equipment: |                                                                          |                                     |          
|                               | Land                                                                     |                                     |          
|                               | Buildings and improvements                                               |                                     |          
|                               | Machinery and equipment                                                  |                                     |          
|                               | Motor and vehicles                                                       |                                     |          
|                               | Construction in progress                                                 |                                     |          
|                               |                                                                          |                                     |          
|                               |                                                                          |                                     | 5,732,953
|                               | Accumulated depreciation                                                 |                                     |          
|                               |                                                                          |                                     |          
|                               |                                                                          |                                     | 1,790,233
|Other assets:                  |                                                                          |                                     |          
|                               | Software                                                                 |                                     |          
|                               | Deferred income taxes (Note 6)                                           |                                     |          
|                               | Loans to employees and directors, with interest rate at 3.875% per annum |                                     |          
|                               | Investments in affiliated companies (Note 2)                             |                                     |          
|                               | Marketable equity securities (Note 4)                                    |                                     |          
|                               | Lease deposits and other assets                                          |                                     |          
|                               |                                                                          |                                     |          
|                               |                                                                          |                                     | 1,386,277
|                               |                                                                          |                                     |          
|Total assets                   |                                                                          | ¥                                   | 6,993,827
|                               |                                                                          |                                     |          

See
accompanying notes to financial statements.

F-132

---



|                                           |                                                 | March 31,                           
|------------------------------------------ | ----------------------------------------------- | ------------------------------------
|
|
|
|Liabilities and shareholders' equity       |                                                 |                                     
|Current liabilities:                       |                                                 |                                     
|                                           | Notes and accounts payable:                     |                                     
|                                           |                                                 | Affiliates(Note 3)                  
|                                           |                                                 | Trade and other                     
|                                           |                                                 |                                     
|                                           |                                                 |                                     
|                                           | Accrued income taxes                            |                                     
|                                           | Accrued consumption tax                         |                                     
|                                           | Other accrued liabilities                       |                                     
|                                           |                                                 |                                     
|Total current liabilities                  |                                                 |                                     
|Severance and retirement benefits(Note 5)  |                                                 |                                     
|Deposit received                           |                                                 |                                     
|                                           |                                                 |                                     
|Total liabilities                          |                                                 |                                     
|Shareholders' equity:                      |                                                 |                                     
|                                           | Common stock, without par value:                |                                     
|                                           |                                                 | Authorized: 6,400 shares            
|                                           |                                                 | Issued and outstanding: 4,000 shares
|                                           | Legal reserve (Note 9)                          |                                     
|                                           | Retained earnings (Note 9)                      |                                     
|                                           | Unrealized holding gains on securities (Note 4) |                                     
|                                           |                                                 |                                     
|Total shareholders' equity                 |                                                 |                                     
|                                           |                                                 |                                     
|Total liabilities and shareholders' equity |                                                 | ¥                                   
|                                           |                                                 |                                     

See
accompanying notes to financial statements.

F-133

---



TYTON COMPANY OF JAPAN, LIMITED

STATEMENTS OF INCOME

|                             |                                                              | Year ended March 31, |          
|---------------------------- | ------------------------------------------------------------ | -------------------- | ---------
|
|
|
|Net sales (Note 3)           |                                                              | ¥                    | 5,059,470
|Costs and expenses (Note 5): |                                                              |                      |          
|                             | Cost of sales (Note 3)                                       |                      |          
|                             | Selling, general and administrative expenses (Notes 7 and 8) |                      |          
|                             |                                                              |                      |          
|                             |                                                              |                      | 4,233,397
|                             |                                                              |                      |          
|Operating income             |                                                              |                      | 826,073  
|Other income (expense):      |                                                              |                      |          
|                             | Interest income                                              |                      |          
|                             | Interest expense                                             |                      |          
|                             | Other, net                                                   |                      |          
|                             |                                                              |                      |          
|                             |                                                              |                      | 48,320   
|                             |                                                              |                      |          
|Income before income taxes   |                                                              |                      | 874,393  
|Income taxes (Note 6):       |                                                              |                      |          
|                             | Current                                                      |                      |          
|                             | Deferred                                                     |                      |          
|                             |                                                              |                      |          
|                             |                                                              |                      | 366,000  
|                             |                                                              |                      |          
|Net income                   |                                                              | ¥                    | 508,393  
|                             |                                                              |                      |          

See
accompanying notes to financial statements.

F-134

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TYTON COMPANY OF JAPAN, LIMITED

STATEMENTS OF SHAREHOLDERS' EQUITY

|                                      |                                                                                              | Total |           | Common stock |   | Legal Reserve |  | Retained
earnings |        | Unrealized
holding
gains on
securities
|------------------------------------- | -------------------------------------------------------------------------------------------- | ----- | --------- | ------------ | - | ------------- |  | ----------------- | ------ | --------------------------------------
|
|Balance at April 1, 2001 (unaudited)  |                                                                                              | ¥     | 4,788,894 |              | ¥ | 200,000       |  | ¥                 | 50,000 |                                       
|                                      | Net income                                                                                   |       |           | 234,245      |   |               |  |                   |        |                                       
|                                      | Change in fair value of available-for-sale securities (net of income tax of ¥384 thousand)   |       |           | 544          |   |               |  |                   |        |                                       
|                                      | Bonuses to directors and statutory auditors                                                  |       |           | (25,000      | ) |               |  |                   |        |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|                                      | Total comprehensive income                                                                   |       |           | 209,789      |   |               |  |                   |        |                                       
|                                      | Dividends¥15,000 per share                                                                  |       |           | (60,000      | ) |               |  |                   |        |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|Balance at March 31, 2002 (unaudited) |                                                                                              |       | 4,938,683 |              |   | 200,000       |  |                   | 50,000 |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|                                      | Net income                                                                                   |       |           | 459,519      |   |               |  |                   |        |                                       
|                                      | Change in fair value of available-for-sale securities (net of income tax of ¥273 thousand)   |       |           | 388          |   |               |  |                   |        |                                       
|                                      | Bonuses to directors and statutory auditors                                                  |       |           | (10,000      | ) |               |  |                   |        |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|                                      | Total comprehensive income                                                                   |       |           | 449,907      |   |               |  |                   |        |                                       
|                                      | Dividends¥15,000 per share                                                                  |       |           | (60,000      | ) |               |  |                   |        |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|Balance at March 31, 2003 (unaudited) |                                                                                              |       | 5,328,590 |              |   | 200,000       |  |                   | 50,000 |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|                                      | Net income                                                                                   |       |           | 508,393      |   |               |  |                   |        |                                       
|                                      | Change in fair value of available-for-sale securities (net of income tax of ¥1,624 thousand) |       |           | 2,517        |   |               |  |                   |        |                                       
|                                      | Bonuses to directors and statutory auditors                                                  |       |           | (20,000      | ) |               |  |                   |        |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|                                      | Total comprehensive income                                                                   |       |           | 490,910      |   |               |  |                   |        |                                       
|                                      | Dividends¥15,000 per share                                                                  |       |           | (60,000      | ) |               |  |                   |        |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       
|Balance at March 31, 2004             |                                                                                              | ¥     | 5,759,500 |              | ¥ | 200,000       |  | ¥                 | 50,000 |                                       
|                                      |                                                                                              |       |           |              |   |               |  |                   |        |                                       

See
accompanying notes to financial statements.

F-135

---





TYTON COMPANY OF JAPAN, LIMITED

NOTES TO FINANCIAL STATEMENTS

(Information with respect to the year ended March 31, 2003 and 2002 is unaudited)

March 31, 2004

1.     General and Significant Accounting Policies

Description of Business

Tyton Company of Japan, Limited (the "Company") is owned 49%-owned by Spirent plc (a UK company), 30%-owned by Kyoritsu Electric Industries Company Limited and 21%-owned
by Sansei Bussan Company Limited.

The
Company was incorporated under the Commercial Code of Japan on October 29, 1970 for the purpose of manufacturing and selling cable accessories, tools and other related products mainly
to Japanese customers.

Basis of Presentation

The Company maintains its accounting records and prepares their financial statements in accordance with accounting principles generally accepted in Japan. The accompanying
financial statements of the Company are prepared on a stand-alone basis in accordance with accounting principles generally accepted in Japan, which may differ in certain material respects from
accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of the Company's financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of the assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. The actual results could differ from those estimated.

Inventories

Inventories are stated at the lower of cost or market, cost being determined mainly by the average cost method.

Property, Plant and Equipment and Depreciation

Property, plant and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Depreciation of property, plant and equipment is computed by
the declining-balance method over the estimated useful lives of the respective assets, which are as follows:

Buildings and improvements

350 yearsMachinery and equipment

215 yearsMotor and vehicles

26 years


Software

Software is stated at cost and amortized by the straight-line method over their estimated useful lives of 5 years.

F-136

---



Investments in affiliated companies

Investments in affiliated companies are accounted for using the cost method and relate to 20% to 50% owned companies to which the Company has the ability to exercise
significant influence over operational and financial policies of the investee company.

Severance and retirement benefits

The Company has defined benefit plans, which are either funded or unfunded plans, covering substantially all employees who are entitled to lump-sum or annuity
benefit payments, the amounts of which are determined by reference to their ability-based grade, length of service, and the conditions under which the termination occurs.

In
addition, directors are customarily entitled to lump-sum payments under the directors' retirement plan. Provision for the retirement allowances for directors has been estimated.

Income Taxes

Deferred income taxes are provided for the temporary differences between the financial reporting basis and tax basis of the Company's assets and liabilities measured using
the enacted tax rates. Transactions subject to consumption tax are recorded at amounts exclusive of consumption tax.

Foreign Currency Transactions

Certain assets and liabilities denominated in foreign currencies are translated into Japanese yen at the current exchange rate as of the balance sheet date. All revenues
and expenses associated with foreign currencies are translated at the exchange rates prevailing when such transactions are made. The resulting exchange gains and losses are credited or charged to
income.

Revenue Recognition

The Company recognizes revenue when goods are shipped.

Allowance for Doubtful Accounts

Allowance for doubtful receivables, including both trade and notes receivable, is the Company's best estimate of the amount of probable credit losses in their existing
receivables. The allowance is determined based on, but not limited to, historical collection experience adjusted for the effects of the current economic environment and the financial performance
of debtors. Write-offs of accounts receivable historically have been within management's expectations.

Recent accounting pronouncement

A new Japanese accounting standard "Impairment of Fixed Assets" was issued in August 2002 that is effective for fiscal years beginning on or after April 1,
2005. The new standard requires that tangible and intangible fixed assets be carried at cost less depreciation, and be reviewed for

F-137

---



impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Companies would be required to recognize an impairment loss in their
income statement if certain indicators of asset impairment exist and the book value of an asset exceeds the undiscounted sum of future cash flows of the asset. The standard covers land,
factories, building and other forms of property, plant and equipment as well as intangible assets. Fixed assets will be grouped at the lowest level for which there are identifiable cash flows
that are independent of cash flows of other groups of assets.

The
Accounting Standards Board of Japan issued practical guidelines on the application of the standard in October 2003. The Company is assessing the impact of this new accounting standard
on their financial condition and results of operations under the current guidelines.

2.     Investments in Affiliated Companies

The Company owns a 49% interest in both Wago Company of Japan, Ltd ("Wago Japan"), a joint venture with Wago Kontakttechnik GmbH, and Hellermann Asian Private
Limited ("Hellerman"), a joint venture with Spirent B.V.

Wago
Japan and Hellerman have carrying values of ¥39,200 thousand and ¥625,404 thousand, respectively. These joint ventures have fiscal years that differ
from March 31 by 93 days or less.

3.     Balances and Transactions with Affiliated Companies

Balances with affiliated companies at March 31, 2004 and 2003 are summarized as follows:

|                  |                                              | March 31,
|----------------- | -------------------------------------------- | ---------
|
|
|Receivables from: |                                              |          
|                  | Kyoritsu Electric Industries Company Limited |          
|                  | Sansei Bussan Company Limited                |          
|                  | Hellermann Tyton USA                         |          
|                  | Hellermann Asian Private Limited             |          
|                  | Hellermann Tyton UK                          |          
|                  | Other                                        |          
|                  |                                              |          
|                  |                                              | ¥        
|                  |                                              |          
|Payables to:      |                                              |          
|                  | Sansei Bussan Company Limited                |          
|                  | Hellermann Tyton USA                         |          
|                  | Hellermann Asian Private Limited             |          
|                  | Other                                        |          
|                  |                                              |          
|                  |                                              | ¥        
|                  |                                              |          

F-138

---



Transactions
with affiliated companies for the year ended March 31, 2004, 2003 and 2002 are summarized as follows:

|                |                                              | Year ended March 31,
|--------------- | -------------------------------------------- | --------------------
|
|
|Sales to:       |                                              |                     
|                | Kyoritsu Electric Industries Company Limited |                     
|                | Sansei Bussan Company Limited                |                     
|                | Hellermann Tyton USA                         |                     
|                | Hellermann Asian Private Limited             |                     
|                | Hellermann Tyton UK                          |                     
|                | Other                                        |                     
|                |                                              |                     
|                |                                              | ¥                   
|                |                                              |                     
|Purchases from: |                                              |                     
|                | Sansei Bussan Company Limited                |                     
|                | Hellermann Tyton USA                         |                     
|                | Hellermann Asian Private Limited             |                     
|                | Hellermann Tyton UK                          |                     
|                | Other                                        |                     
|                |                                              |                     
|                |                                              | ¥                   
|                |                                              |                     

4.     Investments in Securities

The Company classifies its investments in marketable equity securities, which all have a readily determinable fair value, as available for sale. Management does not intend
to sell its equity securities within the next twelve months. Investments in equity securities have a cost of ¥9,685 thousands and ¥9,485 thousands and gross
unrealized holding gains of ¥6,320 thousands and ¥2,179 thousands at March 31, 2004 and 2003. The Company did not realize any gains in the
three-year period ended March 31, 2004.

5.     Severance and Retirement Benefits

The components of net periodic benefit cost for the years ended March 31, 2004, 2003 and 2002, and reconciliation of the beginning and ending balances of the
benefit obligation and the fair value

F-139

---



of the plan assets, the funded status and the amounts recognized in the balance sheet for the Company's defined benefit plans as of March 31, 2004 and 2003 are outlined as follows:

|                                         |                                    | March 31, 2004 |  
|---------------------------------------- | ---------------------------------- | -------------- | -
|
|
|Components of net periodic benefit cost: |                                    |                |  
|                                         | Service cost                       |                | ¥
|                                         | Interest cost                      |                |  
|                                         | Expected return on plan assets     |                |  
|                                         | Amortization of actuarial loss     |                |  
|                                         | Amortization of prior service cost |                |  
|                                         |                                    |                |  
|                                         | Net periodic benefit cost          |                | ¥
|                                         |                                    |                |  

|                                         |                                    | March 31, 2003 |  
|---------------------------------------- | ---------------------------------- | -------------- | -
|
|
|Components of net periodic benefit cost: |                                    |                |  
|                                         | Service cost                       |                | ¥
|                                         | Interest cost                      |                |  
|                                         | Expected return on plan assets     |                |  
|                                         | Amortization of actuarial loss     |                |  
|                                         | Amortization of prior service cost |                |  
|                                         |                                    |                |  
|                                         | Net periodic benefit cost          |                | ¥
|                                         |                                    |                |  

|                                         |                                | March 31, 2002 |  
|---------------------------------------- | ------------------------------ | -------------- | -
|
|
|Components of net periodic benefit cost: |                                |                |  
|                                         | Service cost                   |                | ¥
|                                         | Interest cost                  |                |  
|                                         | Expected return on plan assets |                |  
|                                         | Recognized net actuarial loss  |                |  
|                                         |                                |                |  
|                                         | Net periodic benefit cost      |                | ¥
|                                         |                                |                |  

Actuarial
gain or loss is being amortized by the straight-line method over 10 years.

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---



Prior
service cost is being amortized by the straight-line method over 10 years.

|                                    |                                                | March 31, 2004 |         
|----------------------------------- | ---------------------------------------------- | -------------- | --------
|
|
|Changes in benefit obligation:      |                                                |                |         
|                                    | Benefit obligation at beginning of year        |                | ¥       
|                                    | Service cost                                   |                |         
|                                    | Interest cost                                  |                |         
|                                    | Actuarial loss                                 |                |         
|                                    | Prior service cost                             |                |         
|                                    | Benefits paid                                  |                |         
|                                    |                                                |                |         
|                                    | Benefit obligation at end of year              |                |         
|                                    |                                                |                |         
|Changes in plan assets:             |                                                |                |         
|                                    | Fair value of plan assets at beginning of year |                |         
|                                    | Actual return on plan assets                   |                |         
|                                    | Employer contribution                          |                |         
|                                    | Benefits paid                                  |                |         
|                                    |                                                |                |         
|                                    | Fair value of plan assets at end of year       |                |         
|                                    |                                                |                |         
|Funded status                       |                                                |                | (378,194
|Unrecognized actuarial gain or loss |                                                |                | 53,469  
|Unrecognized prior service cost     |                                                |                | 4,698   
|                                    |                                                |                |         
|Accrued severance and pension costs |                                                | ¥              | (320,027
|                                    |                                                |                |         

F-141

---



|                                    |                                                | March 31, 2003 |         
|----------------------------------- | ---------------------------------------------- | -------------- | --------
|
|
|Changes in benefit obligation:      |                                                |                |         
|                                    | Benefit obligation at beginning of year        |                | ¥       
|                                    | Service cost                                   |                |         
|                                    | Interest cost                                  |                |         
|                                    | Actuarial loss                                 |                |         
|                                    | Prior service cost                             |                |         
|                                    | Benefits paid                                  |                |         
|                                    |                                                |                |         
|                                    | Benefit obligation at end of year              |                |         
|                                    |                                                |                |         
|Changes in plan assets:             |                                                |                |         
|                                    | Fair value of plan assets at beginning of year |                |         
|                                    | Actual return on plan assets                   |                |         
|                                    | Employer contribution                          |                |         
|                                    | Benefits paid                                  |                |         
|                                    |                                                |                |         
|                                    | Fair value of plan assets at end of year       |                |         
|                                    |                                                |                |         
|Funded status                       |                                                |                | (329,705
|Unrecognized actuarial gain or loss |                                                |                | 39,922  
|Unrecognized prior service cost     |                                                |                | 5,286   
|                                    |                                                |                |         
|Accrued severance and pension costs |                                                | ¥              | (284,497
|                                    |                                                |                |         

The
key actuarial assumptions used in the accounting for the plans as of March 31, 2004, 2003 and 2002 are as follows:

|                                                 |  | March 31,
|------------------------------------------------ |  | ---------
|
|
|Discount rate                                    |  | 2.0      
|Expected long-term rate of return on plan assets |  | 3.0      

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6.     Income Taxes

The Company pays corporation, inhabitants' and enterprise income taxes, which, in the aggregate, resulted in a statutory tax rate of 39.96%, 41.34% and 41.34% in 2004,
2003 and 2002, respectively.

On
March 31, 2003, amendments to local business tax law in Japan were enacted, resulting in the lower business tax rates. Those changes became effective on April 1, 2004. As a
result, the aggregated statutory income tax rate for the Company will be approximately 39.96% for the year ending March 31, 2005. The effect of this change on the Company's deferred tax
balances increased deferred income tax expense by ¥1,421 thousand for the year ended March 31, 2004.

Significant
components of the Company's deferred tax assets and liabilities as of March 31, 2004 and 2003 were as follows:

|                          |                                                     | March 31, 2004 |       
|------------------------- | --------------------------------------------------- | -------------- | ------
|
|
|Deferred tax assets:      |                                                     |                |       
|                          | Severance and retirement benefits                   |                | ¥     
|                          | Depreciation and amortization                       |                |       
|                          | Other accrued liabilities                           |                |       
|                          | Allowance for doubtful accounts                     |                |       
|                          | Enterprise tax                                      |                |       
|                          |                                                     |                |       
|                          |                                                     |                | 64,469
|Valuation allowance       |                                                     |                |      
|                          |                                                     |                |       
|                          |                                                     |                | 64,469
|Deferred tax liabilities: |                                                     |                |       
|                          | Net unrealized gain on marketable equity securities |                |       
|                          | Depreciation and amortization                       |                |       
|                          | Other                                               |                |       
|                          |                                                     |                |       
|                          |                                                     |                | 395   
|                          |                                                     |                |       
|Net deferred tax assets   |                                                     | ¥              | 64,074
|                          |                                                     |                |       

F-143

---



|                          |                                                     | March 31, 2003
|------------------------- | --------------------------------------------------- | --------------
|
|
|Deferred tax assets:      |                                                     |               
|                          | Severance and retirement benefits                   |               
|                          | Depreciation and amortization                       |               
|                          | Other accrued liabilities                           |               
|                          | Allowance for doubtful accounts                     |               
|                          | Enterprise tax                                      |               
|                          |                                                     |               
|                          |                                                     |               
|                          | Valuation allowance                                 |               
|                          |                                                     |               
|                          |                                                     |               
|Deferred tax liabilities: |                                                     |               
|                          | Net unrealized gain on marketable equity securities |               
|                          | Depreciation and amortization                       |               
|                          | Other                                               |               
|                          |                                                     |               
|                          |                                                     |               
|                          |                                                     |               
|Net deferred tax assets   |                                                     | ¥             
|                          |                                                     |               

7.     Leases

The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased assets at March 31, 2004 and 2003, which
would have been reflected in the balance sheets if finance leases of equipment currently accounted for as operating leases had been capitalized.

|                         |  | Year ended March 31, |        
|------------------------ |  | -------------------- | -------
|
|
|Acquisition costs        |  | ¥                    | 46,533 
|Accumulated depreciation |  |                      | (43,750
|                         |  |                      |        
|Net book value           |  | ¥                    | 2,783  
|                         |  |                      |        

Future
minimum lease payments for the above leased assets under capital lease agreements at March 31, 2004 were ¥1,200 thousand, less amounts representing interest of
¥8 thousand, due in the year ended March 31, 2005.

Operating
leases are mainly for office space and office equipment. Total rental expense of such operating leases for the year ended March 31, 2004, 2003 and 2002 were
¥125,056 thousand, ¥157,112 thousand and ¥134,605 thousand, respectively.

F-144

---



8.     Research and Development Expenses and Advertising Expenses

Research and development expenses and advertising expenses included in selling, general and administrative expenses for the year ended March 31, 2004, 2003 and 2002
were as follows:

|                                  |  | March 31,
|--------------------------------- |  | ---------
|
|
|Research and development expenses |  | ¥        
|Advertising costs                 |  |          

9.     Legal Reserve and Retained Earnings

The Commercial Code of Japan (the "Code") provides that an amount equal to at least 10% of the amounts to be disbursed as distributions of earnings be appropriated to the
legal reserve until
the sum of the legal reserve and additional paid-in capital equals 25% of the common stock account. The Code also stipulates that if the sum of the additional paid-in
capital account and the legal reserve exceeds 25% of the common stock account, the excess may be available for appropriation either as a return of capital or as dividends by resolution of the
shareholders.

The
legal reserve is not available for dividends but may be used to eliminate or reduce a deficit by resolution of the shareholders or may be capitalized by resolution of the Board of Directors.

The
amount of retained earnings available for dividends under the Code is based on the amount recorded in the Company's books maintained in accordance with Japanese accounting practices. The
maximum amount of retained earnings of the Company available for cash dividends at March 31, 2004 totaled ¥5,505,705 thousand.

10.   Reconciliation to Accounting Principles Generally Accepted in the United States

The Company's financial statements have been prepared in accordance with accounting principles generally accepted in Japan (JGAAP). JGAAP varies in certain significant
respects from accounting principles generally accepted in the United States (U.S. GAAP). Differences, which have significant consequences on the Company's results of operations and shareholders'
equity, are summarized as follows:

Equity method investments

In Japan, companies are permitted to issue stand-alone financial information accounted for under JGAAP that do not record consolidating entries, as defined under the
Japanese Commercial Code (JCC). Consolidating entries include increases to the carrying value of investments accounted for under the equity method for the investor's share of the investee's
operating results.

Under
U.S. GAAP, Accounting Principles Board (APB) Opinion No. 18,The Equity Method of Accounting for Investments in Common Stock, requires
that the investor's share of the investee's
earnings or losses be included in net income with the carrying value of the investment adjusted accordingly. APB 18 also requires the elimination of intercompany profit until such transactions
are realized and dividends received. If financial statements of an investee are not sufficiently timely

F-145

---



for an investor to apply the equity method currently, the investor ordinarily should record its share of the earnings (losses) of an investee from the most recent financial statements available.
The lag in reporting should be consistent from period to period (i.e. differ less than 93 days from March 31).

Revenue recognition

Under JGAAP, revenue can be recognized upon either shipment or delivery. After initial selection, the revenue recognition policy must be consistently applied. The
Company's accounting policy is to recognize revenue upon shipment.

U.S.
GAAP requires that revenues be recognized upon the culmination of the earnings process, which occurs when persuasive evidence of an arrangement exists, delivery has occurred, the sales price
is fixed and determinable and collection is reasonably assured. Typically, the Company enters into sales contracts whereby title and risk of loss transfer to the buyer upon delivery. For certain
distributors, the Company provides extended payment terms (typically, 120 days after delivery) and accepts a note receivable evidencing such terms. In addition, the Company provides a
price concession, in the form of a purchase discount when the aforementioned note is received. Under U.S. GAAP, the selling price is not fixed and determinable upon delivery and, as such, revenue
recognition occurs as the notes are received, generally 30 days after shipment. The reversal of sales and related costs of goods sold decreased revenues by ¥13,957 thousand and
cost of goods sold by ¥6,254 thousand for the year ended March 31, 2004.

Statement of cash flows

Under JGAAP, a statement of cash flows is not required when reporting on a stand-alone basis.

U.S.
GAAP requires the presentation of a statement of cash flows prepared in accordance with Statement of Financial Accounting Standard (FAS) No. 95,Statement of
Cash Flows.

Accrued vacation

Under JGAAP, an employee's accumulated right to take vacation earned as a result of services rendered is expensed when taken.

U.S.
GAAP Statement of Financial Accounting Standard (FAS) No. 43,Accounting for Compensated Absences, requires the accrual of compensated
future absences such as vacation if the employer's obligation relates to services already rendered, the obligation relates to rights that vest or accumulate, payment is probable, and the amount
can be reasonably estimated.

Cash surrender value of life insurance policies

Under JGAAP, life insurance premiums paid are capitalized and expensed in the period that the eligible individual retires.

F-146

---



Under
U.S. GAAP, life insurance premiums are expensed in the period incurred. In addition, Financial Accounting Standard Board Technical Bulletin (FTB) No. 85-4, Accounting for Purchases of Life Insurance, requires that the amount that could be realized under the insurance contract, such as cash surrender
value as of the date of the statement of financial position, should be reported as an asset and changes in the cash surrender value should be an adjustment to the income statement.

Asset retirement obligations

In Japan, the provisions of lease agreements typically require the lessee to restore lease office space to its original condition. Such costs may include painting,
carpeting, cleaning and repairing minor damages to the building that result from modifications made during the lease term. JGAAP requires these costs to be expensed as incurred.

Under
U.S. GAAP, FAS 143,Accounting for Asset Retirement Obligations, applies to legal obligations that arise from written contracts,
including lease agreements that obligate the lessee to remove leasehold improvements. Statement 143 requires that the initial liability and corresponding asset be
measured at fair value based on expected cash flows taking into consideration current market and credit rate risks. The Company would have adopted FAS 143 in the current year resulting in
a cumulative effect adjustment.

Directors' bonuses and statutory auditors' bonuses

JGAAP requires that bonuses paid to directors and statutory auditors represent a reduction of retained earnings upon payment.

Under
U.S. GAAP, bonuses are expensed as incurred and recognized in the income statement.

F-147

---



Reconciliation
of net income for the year ended March 31, 2004:

|                                   |  |                                                                                                  |         | (Thousands of yen) |        
|---------------------------------- |  | ------------------------------------------------------------------------------------------------ | ------- | ------------------ | -------
|Net income as reported under JGAAP |  | ¥                                                                                                | 508,393 |                   
|U.S. GAAP adjustments:             |  |                                                                                                  |         |                   
|(a)                                |  | Equity earnings of affiliated companies, net of dividends and elimination of intercompany profit |         |                    | 107,866
|(b)                                |  | Recognition of cash surrender value of life insurance policies                                   |         |                    | 2,176  
|(c)                                |  | Compensated absences                                                                             |         |                    | (8,395 
|(d)                                |  | Asset retirement obligation, cumulative effect on an accounting change                           |         |                    | (5,794 
|(e)                                |  | Amortization of asset retirement costs capitalized                                               |         |                    | (849   
|(f)                                |  | Accretion of asset retirement obligation interest                                                |         |                    | (331   
|(g)                                |  | Accrued bonuses                                                                                  |         |                    | (25,000
|(h)                                |  | Difference in revenue recognition principles                                                     |         |                    | (7,703 
|(i)                                |  | Income tax effect of adjustments                                                                 |         |                    | (33,224
|                                   |  |                                                                                                  |         |                    |        
|Net income under U.S. GAAP         |  | ¥                                                                                                | 537,139 |                   
|                                   |  |                                                                                                  |         |                    |        

Reconciliation
of shareholders' equity at March 31, 2004:

|                                             |  |                                                                                                  |           | (Thousands of yen) |         
|-------------------------------------------- |  | ------------------------------------------------------------------------------------------------ | --------- | ------------------ | --------
|Shareholders' equity as reported under JGAAP |  | ¥                                                                                                | 5,759,500 |                   
|U.S. GAAP adjustments:                       |  |                                                                                                  |           |                   
|(a)                                          |  | Equity earnings of affiliated companies, net of dividends and elimination of intercompany profit |           |                    | 461,451 
|(b)                                          |  | Recognition of cash surrender value of life insurance policies                                   |           |                    | (37,172 
|(c)                                          |  | Compensated absences                                                                             |           |                    | (46,904 
|(d)                                          |  | Asset retirement obligation, cumulative effect on an accounting change                           |           |                    | (5,794  
|(e)                                          |  | Amortization of asset retirement costs capitalized                                               |           |                    | (849    
|(f)                                          |  | Accretion of asset retirement obligation interest                                                |           |                    | (331    
|(g)                                          |  | Accrued bonuses                                                                                  |           |                    | (25,000 
|(h)                                          |  | Difference in revenue recognition principles                                                     |           |                    | (82,574 
|(i)                                          |  | Deferred income taxation above adjustments                                                       |           |                    | (115,152
|(j)                                          |  | Foreign currency translation adjustment of affiliated company - net of taxes of ¥36,600 thousand |           |                    | (54,991 
|                                             |  |                                                                                                  |           |                    |         
|Shareholders' equity under U.S. GAAP         |  | ¥                                                                                                | 5,852,184 |                   
|                                             |  |                                                                                                  |           |                    |         

F-148

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A
reconciliation of the significant balance sheet accounts under JGAAP to the amounts determined under U.S. GAAP is as follows:

|                                                |                                                                                                  | March 31, 2004 |        
|----------------------------------------------- | ------------------------------------------------------------------------------------------------ | -------------- | -------
|
|Investments in affiliated companies:            |                                                                                                  |                |        
|                                                | As reported under JGAAP                                                                          |                | ¥      
|                                                | Equity earnings of affiliated companies, net of dividends and elimination of intercompany profit |                |        
|                                                |                                                                                                  |                |        
|                                                | As adjusted under U.S. GAAP                                                                      |                |        
|                                                |                                                                                                  |                |        
|Other accrued liabilities:                      |                                                                                                  |                |        
|                                                | As reported under JGAAP                                                                          |                |        
|                                                | Compensated absences                                                                             |                |        
|                                                | Accrued bonuses                                                                                  |                |        
|                                                |                                                                                                  |                |        
|                                                | As adjusted under U.S. GAAP                                                                      |                |        
|                                                |                                                                                                  |                |        
|Lease deposits and other assets:                |                                                                                                  |                |        
|                                                | As reported under JGAAP                                                                          |                |        
|                                                | Recognition of cash surrender value of life insurance policies                                   |                |        
|                                                | Asset retirement costs capitalized                                                               |                |        
|                                                | Accumulated amortizationasset retirement costs capitalized                                      |                |        
|                                                |                                                                                                  |                |        
|                                                | As adjusted under U.S. GAAP                                                                      |                |        
|                                                |                                                                                                  |                |        
|Deferred income taxes (current and noncurrent): |                                                                                                  |                |        
|                                                | As reported under JGAAP                                                                          |                |        
|                                                | Adjustments for GAAP differences                                                                 |                |        
|                                                |                                                                                                  |                |        
|                                                | As adjusted under U.S. GAAP                                                                      |                |        
|                                                |                                                                                                  |                |        
|Asset retirement obligation                     |                                                                                                  | ¥              | 14,618 
|                                                |                                                                                                  |                |        
|Inventories:                                    |                                                                                                  |                |        
|                                                | As reported under JGAAP                                                                          |                |        
|                                                | Adjustment for revenue recognition principles                                                    |                |        
|                                                |                                                                                                  |                |        
|                                                | As adjusted under U.S. GAAP                                                                      |                |        
|                                                |                                                                                                  |                |        
|Deferred revenue                                |                                                                                                  | ¥              | 111,009
|                                                |                                                                                                  |                |        

F-149

---



Statements
of cash flows prepared in accordance with FAS 95 using the indirect method for the years ended March 31, 2004, 2003 (unaudited), and 2002 (unaudited) are shown below:

|                                                                                  |                                                          | Year ended March 31,                  |          
|--------------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------------------- | ---------
|
|
|Operating activities                                                              |                                                          |                                       |          
|Net Income                                                                        |                                                          | ¥                                     | 537,139  
|Adjustments to reconcile net income to net cash provided by operating activities: |                                                          |                                       |          
|                                                                                  | Cumulative effect of change in accounting principle      |                                       |          
|                                                                                  | Depreciation and amortization                            |                                       |          
|                                                                                  | Deferred income taxes                                    |                                       |          
|                                                                                  | Equity earnings of affiliated company, net of dividends  |                                       |          
|                                                                                  | Provision for doubtful accounts                          |                                       |          
|                                                                                  | Reserve of severance and retirement benefits             |                                       |          
|                                                                                  | Loss on sale (disposal) of property, plant and equipment |                                       |          
|                                                                                  | Unrealized gain on investment securities                 |                                       |          
|                                                                                  | Unrealized loss on director's retirement insurance fund  |                                       |          
|                                                                                  | Changes in operating assets and liabilities:             |                                       |          
|                                                                                  |                                                          | Account receivable                    |          
|                                                                                  |                                                          | Inventories                           |          
|                                                                                  |                                                          | Other current assets                  |          
|                                                                                  |                                                          | Account payable                       |          
|                                                                                  |                                                          | Income tax payable                    |          
|                                                                                  |                                                          | Consumption tax payable               |          
|                                                                                  |                                                          | Accrued expenses and deferred revenue |          
|                                                                                  |                                                          |                                       |          
|Net cash provided by operating activities                                         |                                                          |                                       | 601,949  
|                                                                                  |                                                          |                                       |          
|Investing activities                                                              |                                                          |                                       |          
|Purchases of property, plant and equipments                                       |                                                          |                                       | (609,758 
|Purchases of intangible assets                                                    |                                                          |                                       | (11,949  
|Purchase of investment securities                                                 |                                                          |                                       | (200     
|Repayment of loan to employees and directors, net                                 |                                                          |                                       | 5,759    
|Proceeds from sales of property, plant and equipment                              |                                                          |                                       | 16,553   
|Payment (receipt) for lease deposits and other assets                             |                                                          |                                       | (42,719  
|Other liabilities                                                                 |                                                          |                                       | 1,730    
|                                                                                  |                                                          |                                       |          
|Net cash used in investing activities                                             |                                                          |                                       | (640,584 
|                                                                                  |                                                          |                                       |          
|Financing activities                                                              |                                                          |                                       |          
|Payments on capital lease obligations                                             |                                                          |                                       | (5,816   
|Cash dividend paid                                                                |                                                          |                                       | (60,000  
|                                                                                  |                                                          |                                       |          
|Net cash used in financing activities                                             |                                                          |                                       | (65,816  
|                                                                                  |                                                          |                                       |          
|Net (decrease) increase in cash                                                   |                                                          |                                       | (104,451 
|Cash and cash equivalents at beginning of year                                    |                                                          |                                       | 1,348,997
|                                                                                  |                                                          |                                       |          
|Cash and cash equivalents at end of year                                          |                                                          | ¥                                     | 1,244,546
|                                                                                  |                                                          |                                       |          

F-150

---



|Supplemental disclosures of cash flow information: |              |  |   |         |  |   |         |  |   |        
|-------------------------------------------------- | ------------ |  | - | ------- |  | - | ------- |  | - | -------
|Cash paid during the year for:                     |              |  |   |         |  |   |         |  |   |        
|                                                   | Interest     |  | ¥ |        |  | ¥ |        |  | ¥ | 646    
|                                                   | Income taxes |  | ¥ | 543,870 |  | ¥ | 113,672 |  | ¥ | 257,967

Additional U.S. GAAP Disclosures

Investments in affiliated companies

Summarized combined financial information relating to affiliated companies accounted for under the equity method at March 31, 2004 and for the year then ended:

|                                            |  | (Thousands of yen)
|------------------------------------------- |  | ------------------
|As of and for the year ended March 31, 2004 |  |                   
|Current assets                              |  | ¥                 
|Noncurrent assets                           |  |                   
|Current liabilities                         |  |                   
|Noncurrent liabilities                      |  |                   
|Revenues                                    |  |                   
|Net income                                  |  |                   
|As of and for the year ended March 31, 2003 |  |                   
|Current assets                              |  | ¥                 
|Noncurrent assets                           |  |                   
|Current liabilities                         |  |                   
|Noncurrent liabilities                      |  |                   
|Revenues                                    |  |                   
|Net income                                  |  |                   
|For the year ended March 31, 2002           |  |                   
|Revenues                                    |  |                   
|Net income                                  |  |                   

Concentration of credit risk

The Company performs ongoing credit evaluations of its customers' financial condition, but does not require collateral to support customer receivables. The Company accepts
notes receivables from its customers, which is a general business practice in Japan. Potential credit-related losses could occur in the event of non-performance by counterparties to
certain financial instruments.

F-151

---



Impact of recently issued accounting standards not yet adopted

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46, Consolidation of Variable Interest Entities, an Interpretation of
ARB No. 51 (FIN 46). In December 2003, the FASB modified FIN 46 to make certain technical corrections and address certain implementation issues that had arisen. FIN 46 provides a
new framework for identifying variable interest entities (VIEs) and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE
in its consolidated financial statements. FIN 46 addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting
rights and accordingly should consolidate the entity.

For
non-public companies, the provisions of FIN 46, as revised, is effective, for all VIEs created before January 1, 2004, no later than the beginning of the first annual
reporting period beginning after December 15, 2004.

F-152

---





SCHEDULE II

SPIRENT PLC    VALUATION AND QUALIFYING ACCOUNTS

|Description                           |  | Balance at
beginning
of year |  | Additions
charged to
Profit and
Loss |   | Exchange
Differences |   | Deductions |   | Balance at
end of
year
|------------------------------------- |  | ---------------------------- |  | ------------------------------------ | - | -------------------- | - | ---------- | - | ----------------------
|
|Year ended December 31, 2001          |  |                              |  |                                      |   |                      |   |            |   |                       
|Provisions for bad and doubtful debts |  | 5.5                          |  | 4.7                                  |   |                     |   | (0.9       | ) | 9.3                   
|Year ended December 31, 2002          |  |                              |  |                                      |   |                      |   |            |   |                       
|Provisions for bad and doubtful debts |  | 9.3                          |  | 0.4                                  |   | 0.2                  |   | (2.8       | ) | 7.1                   
|Year ended December 31, 2003          |  |                              |  |                                      |   |                      |   |            |   |                       
|Provision for bad and doubtful debts  |  | 7.1                          |  | (1.8                                 | ) | (0.5                 | ) | (3.2       | ) | 1.6                   

S-1

---



SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.

| |  | SPIRENT PLC  
| |  | -------------
| |  | By:          
| |  | June 29, 2004

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