As filed with the Securities and Exchange Commission on March 31, 2005



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

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FORM 20-F/AAMENDMENT No. 1

|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
|---------------------------------------------------- | --------------------------------------------------------------------------- | ----
|EXPLANATORY NOTE                                     |                                                                             | 3   
|ITEM 3. KEY INFORMATION                              |                                                                             | 4   
|                                                     | Selected Consolidated Financial Information of Spirent                      |     
|                                                     | Exchange Rate Information                                                   |     
|                                                     | Risk Factors                                                                |     
|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS |                                                                             | 16  
|                                                     | 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 15. CONTROLS AND PROCEDURES                     |                                                                             | 40  
|ITEM 18. FINANCIAL STATEMENTS                        |                                                                             | 42  
|ITEM 19. EXHIBITS                                    |                                                                             | 43  

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

2

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EXPLANATORY NOTE

In accordance with Rule 12b-15 under the United States Securities Exchange Act of 1934 (the "Exchange Act"), Spirent plc (the "Company", "we", "us" or "our")
hereby amends its Annual Report on Form 20-F for the fiscal year ended December 31, 2003 (this "Amendment") as filed with the United
States Securities and Exchange Commission on June 29, 2004 (the "Original Filing") by restating its financial results and shareholders' equity presented under accounting principles generally
accepted in the United States ("US GAAP"). The restatements reflect our re-evaluation of revenue recognition and deferral of revenue relating to multiple-element arrangements with customers in the
Service Assurance division of our Communications group for the purposes of the reconciliations of our financial statements to US GAAP.

The
Company's financial statements presented under accounting principles generally accepted in the United Kingdom ("UK GAAP") are not affected by these restatements.

The
Company's Consolidated Financial Statements at December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 included in Item 18 have been
restated and amended by:



This
Amendment also amends Item 3. "Key InformationSelected Consolidated Financial Information of Spirent", Item 5. "Operating and Financial Review and
ProspectsDifferences Between UK GAAP and US GAAP", Item 15. "Controls and Procedures", and Item 19. "Exhibits" to reflect the filing of new certifications by
each of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and the furnishing of a new certification of the Chief Executive
Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 as well as filing new consents by our independent registered public accounting firm and
independent auditors.

Other
than items expressly set forth above, this Amendment does not, and does not purport to, amend, update or restate any other information in the Original Filing or reflect any events
that have occurred after the date of the Original Filing.

3

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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 amendment. 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 registered public accounting firm. 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
amendment.

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  |                       
|---------------------------------------- | ------------------------------------------------------- | ----------------------- | ----------------------
|
|
|Income/(loss) from continuing operations |                                                         |                         |                       
|                                         | As previously reported                                  |                         |                      
|                                         | Restatement                                             |                         | 5.7                   
|                                         |                                                         |                         |                       
|                                         | As restated                                             |                         | 5.7                   
|Income/loss from discontinued operations |                                                         |                        |                       
|                                         |                                                         |                         |                       
|Net income/(loss) as restated            |                                                         | 5.7                     |                       
|                                         |                                                         |                         |                       
|                                         | Net income/(loss) per share                             |                         |                       
|                                         | Basic (pence):                                          |                         |                       
|                                         |                                                         | Continuing operations   |                       
|                                         |                                                         |                         | As previously reported
|                                         |                                                         |                         | Restatement           
|                                         |                                                         |                         |                       
|                                         |                                                         |                         | As restated           
|                                         |                                                         | Discontinued operations |                       
|                                         |                                                         |                         |                       
|                                         | Net income/(loss)                                       |                         | 0.61                  
|                                         |                                                         |                         |                       
|                                         | Diluted (pence):                                        |                         |                       
|                                         |                                                         | Continuing operations   |                       
|                                         |                                                         |                         | As previously reported
|                                         |                                                         |                         | Restatement           
|                                         |                                                         |                         |                       
|                                         |                                                         |                         | As restated           
|                                         |                                                         | Discontinued operations |                       
|                                         |                                                         |                         |                       
|                                         | Net income/(loss)                                       |                         | 0.60                  
|                                         |                                                         |                         |                       
|                                         | Dividend per share (pence)                              |                         |                      
|                                         |                                                         |                         |                       
|                                         | Dividend per share (US cents)                           |                         |                      
|                                         |                                                         |                         |                       
|                                         | Net income/(loss) per American Depositary Share ("ADS") |                         |                       
|                                         | Basic (pence):                                          |                         |                       
|                                         |                                                         | Continuing operations   |                       
|                                         |                                                         |                         | As previously reported
|                                         |                                                         |                         | Restatement           
|                                         |                                                         |                         |                       
|                                         |                                                         |                         | As restated           
|                                         |                                                         | Discontinued operations |                       
|                                         |                                                         |                         |                       
|                                         | Net income/(loss)                                       |                         | 2.44                  
|                                         |                                                         |                         |                       
|                                         | Diluted (pence):                                        |                         |                       
|                                         |                                                         | Continuing operations   |                       
|                                         |                                                         |                         | As previously reported
|                                         |                                                         |                         | Restatement           
|                                         |                                                         |                         |                       
|                                         |                                                         |                         | As restated           
|                                         |                                                         | Discontinued operations |                       
|                                         |                                                         |                         |                       
|                                         | Net income/(loss)                                       |                         | 2.40                  
|                                         |                                                         |                         |                       
|                                         | Dividend per ADS (pence)                                |                         |                      
|                                         |                                                         |                         |                       
|                                         | Dividend per ADS (US cents)                             |                         |                      
|                                         |                                                         |                         |                       

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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                                   |               

|                                   |                                        | Restated(2) |       | Restated(2) |       | Restated(2) |         | Restated(2) |         | 
|---------------------------------- | -------------------------------------- | ----------- | ----- | ----------- | ----- | ----------- | ------- | ----------- | ------- | 
|Amounts in accordance with US GAAP |                                        |             |       |             |       |             |         |             |         | 
|                                   | Intangible assets                      |             | 79.0  |             | 94.4  |             | 907.8   |             | 1,841.4 | 
|                                   | Tangible fixed assets                  |             | 90.2  |             | 110.0 |             | 137.6   |             | 136.2   | 
|                                   | Current assets                         |             | 220.1 |             | 283.1 |             | 314.1   |             | 408.7   | 
|                                   | Total assets                           |             | 431.7 |             | 579.5 |             | 1,450.4 |             | 2,458.3 | 
|                                   | Current liabilities                    |             | 186.1 |             | 179.1 |             | 234.2   |             | 246.9   | 
|                                   | Creditors due after more than one year |             | 135.2 |             | 298.1 |             | 252.4   |             | 380.8   | 
|                                   | Total liabilities                      |             | 388.4 |             | 566.9 |             | 538.1   |             | 669.3   | 
|                                   | Shareholders' funds                    |             | 41.1  |             | 10.5  |             | 909.9   |             | 1,785.3 | 
|                                   | Share capital                          |             | 31.5  |             | 31.3  |             | 31.1    |             | 30.9    | 

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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 Amendment, 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.

13

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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:



14

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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".

15

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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 Amendment. 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

17

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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

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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

20

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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.

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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.

23

---



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

24

---



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

25

---



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.

26

---





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).

27

---





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.

28

---





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).

29

---



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

30

---



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                    |  |    

31

---



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.

32

---





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".

33

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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.

34

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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                 
|                                                    |  |                       

35

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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.

36

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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

37

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elsewhere
in this Amendment. 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               | )                      | (1,050.7
|                                                             |                                        |                    |                        |         
|Adjustments:                                                 |                                        |                    |                        |         
|                                                             | Revenue recognition                    | deferred revenues |                        | 12.2    
|                                                             |                                        | deferred costs    |                        | (3.0    
|                                                             | 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 |                    | (0.7                   | )       
|                                                             |                                        |                    |                        |         
|Total adjustments                                            |                                        | 6.2                |                        | 272.8   
|                                                             |                                        |                    |                        |         
|Net income/(loss) in accordance with US GAAP                 |                                        | 5.7                |                        | (777.9  
|                                                             |                                        |                    |                        |         

---

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

38

---



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.

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.

39

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ITEM 15    CONTROLS AND PROCEDURES

As of December 31, 2003, we evaluated, under the supervision, and with the participation, of the Company's management, including the Chief Executive
Officer and Chief Financial Officer, the effectiveness of the design and operation of the Group's disclosure controls and procedures (as defined in Exchange Act rules 13a-15(e) and
15d-15(e)). Based on that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Group's disclosure controls and
procedures were effective in all material regards to ensure that the information required to be disclosed in the reports the Company 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.

However,
in 2004, as part of our on-going assessment of internal control over financial reporting, the Company's management, including the Chief Executive Officer and Chief
Financial Officer, undertook a review of the controls over the Group's methods of revenue recognition in relation to certain complex arrangements with customers entered into in 2004 in the Service
Assurance division of our Communications group. The terms of these arrangements with customers included, among other terms, ongoing customer support for hardware and software and the provision, in
some instances, of product roadmaps, which contain expected release dates of planned updates and enhancements. The existence of a particular item on a roadmap does not, in itself, create a contractual
obligation to deliver that item; however, under US GAAP an implied obligation is deemed to exist. In the light of this US GAAP requirement we conducted an extensive review of these arrangements with
customers to determine whether the revenue had been correctly recognized in previous years in accordance with Statement of Position (SOP) 97-2 "Software Revenue Recognition" and related US
GAAP. This further review covered how multiple-element arrangements with customers are accounted for under US GAAP and the basis for determining Vendor Specific Objective Evidence (VSOE) for each
element. From this further review we concluded that, contrary to our prior determination, we did not have sufficient VSOE for certain elements of some of the multiple-element arrangements with
customers in the Service Assurance division.

As
a result of our review, we have restated, under US GAAP, the revenues and related costs arising from these arrangements as discussed more fully in note 34 of Notes to the
Financial Statements. This has resulted in the Group restating its net income/(loss) and shareholders' equity under US GAAP in respect of the fiscal years 2001, 2002 and 2003. There are no changes to
the Group's financial statements for any of the fiscal years 2001, 2002 and 2003 and related notes prepared in accordance with UK GAAP.

In
conjunction with the decision to restate our financial statements, we have re-evaluated our internal controls over financial reporting. We have concluded that there was a
material weakness in our internal control over financial reporting and disclosure controls and procedures at December 31, 2003 regarding the Group's selection and application of accounting
policies in respect of revenue recognition under US GAAP. We are taking steps to further strengthen our internal control over financial reporting under US GAAP, in particular, our control processes
and procedures over accounting for revenue recognition including employing specialized consultants, providing additional training and supplementing existing internal revenue recognition policies and
procedures to clarify certain complex areas.

We
believe the changes to controls mentioned above will be adequate to provide reasonable assurance that the objectives of these control systems will be met. However, because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues within the Company have been detected.

40

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Change in Internal Control Over Financial Reporting

Except as disclosed above, there were no changes in the Company's internal control over financial reporting that occurred during the Company's last fiscal year
that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

41

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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 Registered Public Accounting Firm       |                                                                                                                           | F-1  
|Consent of Independent Registered Public Accounting Firm      |                                                                                                                           | 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-112
|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 Auditors                    |                                                                                                                           | F-133
|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                                                                                             |      

42

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ITEM 19.    EXHIBITS

All exhibits except those marked * (which are exhibits to this Amendment) 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, 2003, 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                                                                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    

43

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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-112)                                                                                                                            
|15.3  |  | Consent of Ernst & Young ShinNihon & Co. (included on page F-133)                                                                                                                                         

44

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SPIRENT plc
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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. We were not engaged to perform an audit of the Company's internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not
for the
purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, assessing the accounting principles used and significant estimates made by management and 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, except for
Note 34Differences between United Kingdom and
United States Generally Accepted Accounting Principles,
as to which the date is
March 31, 2005

F-1

---



CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, except for Note 34Differences between United Kingdom and United States Generally Accepted Accounting Principles, as
to which the date is March 31, 2005, with respect to the consolidated financial statements and schedule of Spirent plc included in this Amendment No. 1 to the Annual Report (Form 20-F/A)
for the year ended December 31, 2003.

|                               |  | ERNST & YOUNG LLP
|------------------------------ |  | -----------------
|London, England
March 31, 2005 |  |                  

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

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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

---



|                                                                            |  | 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

---



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

---



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

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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

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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:

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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 | )
|                                                                          |  |       |  

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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.

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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"), which differ in certain respects from those generally accepted in the United States ("US GAAP"). The following are the main differences between UK GAAP and
US GAAP which are relevant to the Group's financial statements.

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a)    Revenue Recognition

Under UK GAAP, multiple-element arrangements with hardware, software and post contract support (PCS) components are accounted for as two or more separate transactions only
where the commercial substance is that the individual components operate independently of each other because they are capable of being provided separately from one another and it is possible to
attribute reliable fair values to each component. To the extent that a separate component comprises a product sale of hardware or software, revenue is recognized at the time of delivery and acceptance
and when there are no significant vendor obligations remaining. Terms of acceptance are dependent upon the specific contractual arrangement agreed with the customer. Revenue is recognized on other
components as the Group fulfils its contractual obligations and to the extent that it has earned the right to consideration.

Under
US GAAP, the rules for revenue recognition under multiple-element arrangements are detailed and prescriptive. These rules include the requirement that revenues be allocated to the
respective elements of such an arrangement on the basis of Vendor Specific Objective Evidence (VSOE) for each element. Statement of Position (SOP) 97-2 "Software Revenue Recognition" sets
out precise requirements for establishing VSOE for valuing elements of a multiple-element arrangement. When VSOE for individual elements of an arrangement cannot be established in accordance with
SOP 97-2, revenue is generally deferred and recognized over the term of the final element.

Under
US GAAP, the Group does not have sufficient VSOE for certain elements of certain multiple-element arrangements with customers in the Service Assurance division of its Communications
group. The terms of these arrangements with customers include, among other terms, on-going customer support (known as "PCS" under SOP 97-2) for hardware and software and the
provision of product roadmaps, which contain expected release dates of planned updates and enhancements. The existence of a particular item on the roadmap does not, in itself, create a contractual
obligation to deliver that item; however, under US GAAP an implied obligation is deemed to exist. As a consequence of the terms of these arrangements, revenue is deferred under US GAAP
and does not start to be recognized until delivery or discharge of the obligation in respect of the final element of the arrangement for which VSOE is not determinable. If this final element is PCS,
then revenue is recognized over the remaining term of the PCS contract. The Service Assurance division has a number of multi-year contracts for PCS and this has the effect of extending the
period over which revenue is recognized for US GAAP.

Direct
costs of the delivered products for which revenue recognition is deferred are also deferred.

The
above gives rise to a UK GAAP to US GAAP difference in respect of revenue recognition in the reconciliations of both net income/(loss) and shareholders' equity.

During
2004 the Group reviewed its accounting treatment for revenue recognition in relation to SOP 97-2 and related US GAAP for multiple-element arrangements. This review
caused the Group to re-evaluate how it had accounted for multiple-element arrangements in previous years within the Service Assurance division of its Communications group under
US GAAP and the basis for determining VSOE for each element. The Group concluded that in complying with SOP 97-2, it is necessary to restate prior periods under
US GAAP in order to reflect a consistent accounting treatment.

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b)    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

F-87

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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

F-88

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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 £724.3 million, comprising
£715.6 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-89

---



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

F-90

---



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)             |  | 5.7                    | 
|Add back goodwill amortization         |  |                       | 
|                                       |  |                        | 
|Adjusted net income/(loss)             |  | 5.7                    | 
|                                       |  |                        | 
|                                       |  |                        | 
|Basic earnings per share               |  |                        | 
|Reported net income/(loss)             |  | 0.61                   | 
|Add back goodwill amortization         |  |                       | 
|                                       |  |                        | 
|Adjusted basic earnings per share      |  | 0.61                   | 
|                                       |  |                        | 
|Diluted earnings per share             |  |                        | 
|Reported net income/(loss)             |  | 0.60                   | 
|Add back goodwill amortization         |  |                       | 
|                                       |  |                        | 
|Adjusted diluted earnings per share    |  | 0.60                   | 
|                                       |  |                        | 

---

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.

c)    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                    | 
|                                            |  |                        | 

d)    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

F-94

---



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.

e)    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.

F-95

---



f)    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.

g)    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.

h)    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

F-96

---



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.

i)    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.

j)    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.

k)    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-97

---





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.

F-98

---



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)    Revenue recognitiondeferred revenue                   |                        | 12.2                                        |    
|deferred cost                                               |                        | (3.0                                        | )  
|b)    Goodwill and other intangible assets:                  |                        |                                             |    
|                                                             |                        | (i)    Capitalization                       |    
|                                                             |                        | (ii)   Contingent consideration             |    
|                                                             |                        | (iii)  Impairment                           |    
|                                                             |                        | (iv)  Other purchase accounting adjustments |    
|                                                             |                        |                                             |    
|                                                             |                        | (0.7                                        | )  
|c)     Stock-based compensation                              |                        | (0.9                                        | )  
|d)    Pension costs                                          |                        | 2.2                                         |    
|e)    Profit on disposal                                     |                        | (1.0                                        | )  
|f)     Vacation payroll costs                                |                        |                                            |    
|g)     Derivative financial instruments                      |                        | (1.9                                        | )  
|h)    Income from interests in joint ventures                |                        |                                            |    
|i)     Deferred taxation on above adjustments                |                        | (0.7                                        | )  
|                                                             |                        |                                             |    
|Total adjustments                                            |                        | 6.2                                         |    
|                                                             |                        |                                             |    
|Net income/(loss) as adjusted to accord with US GAAP         |                        | 5.7                                         |    
|                                                             |                        |                                             |    
|Arising from                                                 |                        |                                             |    
|Continuing operations                                        |                        |                                             |    
|                                                             | As previously reported |                                             |   
|                                                             | Restatement            |                                             | 5.7
|                                                             |                        |                                             |    
|                                                             | As restated            |                                             | 5.7
|Discontinued operations                                      |                        |                                             |    
|                                                             | Result for the period  |                                             |   
|                                                             | Surplus on disposal    |                                             |   
|                                                             |                        |                                             |    
|Net income/(loss)                                            |                        | 5.7                                         |    
|                                                             |                        |                                             |    

---

F-99

---



Consolidated Statement of Income Under US GAAP

|                                                             |                        | Year ended December 31 |    
|------------------------------------------------------------ | ---------------------- | ---------------------- | ---
|
|
|Net sales                                                    |                        | 478.4                  |    
|Cost of goods sold                                           |                        | (282.8                 | )  
|                                                             |                        |                        |    
|Gross profit                                                 |                        | 195.6                  |    
|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)                                      |                        | 34.4                   |    
|Interest expense                                             |                        | (27.2                  | )  
|                                                             |                        |                        |    
|Income/(loss) before taxes and minority interest             |                        | 7.2                    |    
|Taxes                                                        |                        | (1.3                   | )  
|Minority interest                                            |                        | (0.2                   | )  
|                                                             |                        |                        |    
|Income/(loss) from continuing operations                     |                        | 5.7                    |    
|                                                             |                        |                        |    
|Income from discontinued operations (net of tax)             |                        |                       |    
|Gain on disposal of discontinued operations (net of tax)     |                        |                       |    
|                                                             |                        |                        |    
|Income from discontinued operations                          |                        |                       |    
|                                                             |                        |                        |    
|Net income/(loss)                                            |                        | 5.7                    |    
|                                                             |                        |                        |    
|Income/(loss) from continuing operations                     |                        |                        |    
|                                                             | As previously reported |                        |   
|                                                             | Restatement            |                        | 5.7
|                                                             |                        |                        |    
|                                                             | As restated            |                        | 5.7
|                                                             |                        |                        |    

|                        |                        | (pence) |     
|----------------------- | ---------------------- | ------- | ----
|Per share:              |                        |         |     
|Basic                   |                        |         |     
|Continuing operations   |                        |         |     
|                        | As previously reported |         |    
|                        | Restatement            |         | 0.61
|                        |                        |         |     
|                        | As restated            |         | 0.61
|Discontinued operations |                        |        |     
|                        |                        |         |     
|Net income/(loss)       |                        | 0.61    |     
|                        |                        |         |     
|Diluted                 |                        |         |     
|Continuing operations   |                        |         |     
|                        | As previously reported |         |    
|                        | Restatement            |         | 0.60
|                        |                        |         |     
|                        | As restated            |         | 0.60
|Discontinued operations |                        |        |     
|                        |                        |         |     
|Net income/(loss)       |                        | 0.60    |     
|                        |                        |         |     

---

F-100

---



Statement of Comprehensive Income/(Loss)

|                                                                                            |  | Year ended December 31 | 
|------------------------------------------------------------------------------------------- |  | ---------------------- | 
|
|
|Net income/(loss) as adjusted to accord with US GAAP                                        |  | 5.7                    | 
|Other comprehensive income:                                                                 |  |                        | 
|Minimum pension liability adjustment net of £12.9 million tax (2002 nil; 2001 £4.8 million) |  | 10.5                   | 
|Currency translation differences                                                            |  | 10.3                   | 
|                                                                                            |  |                        | 
|Comprehensive income/(loss) in accordance with US GAAP                                      |  | 26.5                   | 
|                                                                                            |  |                        | 

---

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 |  | 33.3                             |   | (11.1                                | )
|                     |  |                                  |   |                                      |  
|At December 31, 2001 |  | (12.5                            | ) | (11.1                                | )
|Movement in the year |  | (47.7                            | ) | (37.4                                | )
|                     |  |                                  |   |                                      |  
|At December 31, 2002 |  | (60.2                            | ) | (48.5                                | )
|Movement in the year |  | 10.3                             |   | 10.5                                 |  
|                     |  |                                  |   |                                      |  
|At December 31, 2003 |  | (49.9                            | ) | (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-101

---



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                                       |                                                            |                |         
|                                                        | b)    Goodwill                                             |                |         
|                                                        | Cost                                                       |                | (1,741.6
|                                                        | Amortization                                               |                | 1,683.9 
|                                                        |                                                            |                |         
|                                                        |                                                            | (57.7          | )       
|                                                        | b)    Other intangible assets                              |                |         
|                                                        | Cost                                                       |                | 84.2    
|                                                        | Amortization                                               |                | (49.1   
|                                                        |                                                            |                |         
|                                                        |                                                            | 35.1           |         
|Fixed asset investments                                 |                                                            |                |         
|                                                        | h)    Investment in joint venture                          |                |        
|Current assets                                          |                                                            |                |         
|                                                        | j)     Other debtors                                       |                | 0.2     
|                                                        | i)     Deferred taxation on adjustmentsless than one year |                | 18.8    
|                                                        | greater than one year                                     |                | 20.3    
|                                                        | a)    Deferred costless than one year                     |                | 21.6    
|                                                        | greater than one year                                     |                | 7.2     
|                                                        |                                                            |                |         
|                                                        |                                                            | 68.1           |         
|Current liabilities                                     |                                                            |                |         
|                                                        | b)    Accrualscontingent consideration                    |                |        
|                                                        | f)     Accrualsvacation pay                               |                | (1.0    
|                                                        | a)    Deferred revenue                                     |                | (71.1   
|                                                        | g)     Derivative financial instruments                    |                | (0.9    
|                                                        |                                                            |                |         
|                                                        |                                                            | (73.0          | )       
|Long-term liabilities                                   |                                                            |                |         
|                                                        | a)    Deferred revenue                                     |                | (26.7   
|                                                        | d)    Accrued pension liability                            |                | (12.7   
|                                                        | j)     Borrowings                                          |                | (0.2    
|                                                        |                                                            |                |         
|                                                        |                                                            | (39.6          | )       
|Provisions for liabilities and charges                  |                                                            |                |         
|                                                        | i)     Deferred taxation on adjustments                    |                | (11.7   
|                                                        |                                                            |                |         
|Total adjustments                                       |                                                            | (78.8          | )       
|                                                        |                                                            |                |         
|Shareholders' equity as adjusted to accord with US GAAP |                                                            | 41.1           |         
|                                                        |                                                            |                |         

---

F-102

---



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-103

---



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 |  | 5.7                    | 
|                                                                                                          |  |                        | 
|Weighted average number of shares in issue (millions)                                                     |  |                        | 
|Basic                                                                                                     |  | 929.3                  | 
|Dilutive potential of employee share options                                                              |  | 17.1                   | 
|                                                                                                          |  |                        | 
|Diluted                                                                                                   |  | 946.4                  | 
|                                                                                                          |  |                        | 

---

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.

F-104

---



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 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-105

---



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-106

---



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-107

---



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                                                                   |  | 5.7                    |  
|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 under US GAAP                                                                              |  | (2.8                   | )
|                                                                                                              |  |                        |  
|
|Per Ordinary share:                                                                                           |  |                        |  
|Basic                                                                                                         |  |                       |  
|Diluted                                                                                                       |  |                       |  
|                                                                                                              |  |                        |  

---

F-108

---



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 |                | (11.7
|                              | Capital allowances in excess of depreciation         |                | (1.4 
|                              | Short-term timing differences                        |                | (0.9 
|                              |                                                      |                |      
|                              |                                                      | (14.0          | )    
|Deferred taxation assets      |                                                      |                |      
|                              | Pension liability                                    |                | 12.9 
|                              | Deferred income                                      |                | 26.2 
|                              |                                                      |                |      
|                              |                                                      | 39.1           |      
|                              |                                                      |                |      
|Net deferred tax asset        |                                                      | 25.1           |      
|                              |                                                      |                |      
|Of which:                     |                                                      |                |      
|Current                       |                                                      | 17.9           |      
|Non-current                   |                                                      | 7.2            |      
|                              |                                                      |                |      
|                              |                                                      | 25.1           |      
|                              |                                                      |                |      

---

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-109

---



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-110

---



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-111

---





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 Amendment No. 1 to the December 31, 2003 annual report on Form 20-F of Spirent plc.

Allrevision
Dornhof Kloss und Partner GmbH
Wirtschaftsprüfungsgesellschaft
Steuerberatungsgesellschaft
Hamburg, Germany
March 31, 2005

F-112

---





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-113

---





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-114

---





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-115

---





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-116

---





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.

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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-120

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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-121

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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-122

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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-123

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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                
|                               |  |                       

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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       
|           |  |              

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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.

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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                      |  
|                                   |  |                            |   |                              |   |                              |  

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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-128

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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-129

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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-130

---



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-131

---



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-132

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REPORT OF INDEPENDENT AUDITORS

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 auditing standards generally accepted in the 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. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for 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 AUDITORS' 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
Amendment No. 1 to the Annual Report (Form 20-F/A) of Spirent plc for the year ended December 31, 2003.

|                            |  | /S/ ERNST & YOUNG SHINNIHON
|--------------------------- |  | ---------------------------
|Tokyo, Japan
March 31, 2005 |  |                            

F-133

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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-134

---



|                                           |                                                 | 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-135

---



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-136

---



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-137

---





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-138

---



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-139

---



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-140

---



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-141

---



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.

F-142

---



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-143

---



|                                    |                                                | 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      

F-144

---





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-145

---



|                          |                                                     | 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-146

---



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-147

---



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-148

---



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-149

---



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-150

---



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-151

---



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-152

---



|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-153

---



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-154

---



SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the
undersigned to sign this Amendment on its behalf.

| |  | SPIRENT PLC   
| |  | --------------
| |  | By:           
| |  | March 31, 2005

---



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