<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K

       [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                    For the fiscal year ended March 31, 2002

       [_] 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 000-07438
                               Acterna Corporation

             (Exact name of registrant as specified in its charter)

              DELAWARE                                04-2258582
   (State or other jurisdiction of                 (I.R.S. Employer
   incorporation or organization)               Identification Number)

                             20400 Observation Drive
                              Germantown, MD 20876
               (Address of principal executive offices) (Zip code)

       Registrant's telephone number, including area code: (301) 353-1550

        Securities registered pursuant to Section 12(b) of the Act: None

           Securities registered pursuant to Section 12(g) of the Act:

                     Common Stock, par value $0.01 per share

                                (Title of class)

Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No__.
                                              ---

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

At May 31, 2002, the aggregate market value of the Common Stock of the
registrant held by non-affiliates was $ 49,185,556

 At May 31, 2002, there were 192,247,507 shares of Common Stock of the
registrant outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the 2002 Annual Meeting of Stockholders are
incorporated by reference in Part III.

================================================================================

<PAGE>

ITEM 1.  BUSINESS.

GENERAL

Acterna Corporation (the "Company" or "Acterna"), formerly Dynatech Corporation,
was formed in 1959 and is a global communications equipment company focused on
network technology solutions. The Company's operations are conducted by wholly
owned subsidiaries located principally in the United States of America and
Europe with other operations, primarily sales offices, located in Asia and Latin
America.

The Company is currently managed in four business segments: communications test,
industrial computing and communications, AIRSHOW, and da Vinci.

The communications test segment develops, manufactures and markets instruments,
systems, software and services to test, deploy, manage and optimize
communications networks and equipment. The Company offers products that test and
manage the performance of equipment found in modern, converged networks,
including optical transmission systems for data communications, voice services,
wireless voice and data services, cable services, and video delivery. Industrial
computing and communications (Itronix) provides portable computer products to
the ruggedized personal computer market. AIRSHOW provides systems that deliver
real-time news, information and flight data to aircraft passengers. AIRSHOW
systems are marketed to commercial airlines and private aircraft owners. da
Vinci provides digital color enhancement systems used in the production of
television commercials and programming. da Vinci's products are sold to
post-production and video production professionals and producers of content for
standard- and high-definition television market.

The information presented in this Report reflects the sale of ICS Advent. The
Company previously reported the industrial computing and communications segment
as discontinued operations. This segment was comprised of two subsidiaries: ICS
Advent and Itronix Corporation. In October 2001, the Company divested its ICS
Advent subsidiary (See Note F. Acquisitions and Divestitures to the Consolidated
Financial Statements) and due to market conditions, decided to retain the
Itronix business. The decision to retain Itronix required the Company to make
certain reclassifications to its Statements of Operations and Balance Sheets for
all periods presented. The Statements of Operations were reclassified to include
the results of operations of ICS Advent and Itronix within continuing
operations. The Balance Sheet at March 31, 2001 reflects the net assets of ICS
Advent classified as net assets held for sale. The Statement of Cash Flows was
not reclassified as these statements were not previously presented on a
discontinued basis.

On June 13, 2002, the Company signed a definitive agreement to sell its AIRSHOW
business to Rockwell Collins, Inc. for $160 million in cash, subject to
adjustment. The Company expects to record a gain in relation to this
transaction. Consummation of the sale is subject to customary closing
conditions, including regulatory approvals and consent of the Company's lenders
under its Senior Secured Credit Facility. The Company intends to use the net
proceeds of the sale (after fees and expenses) to repay a portion of its debt or
invest in its business.

The Company's principal offices are located at 20400 Observation Drive,
Germantown, Maryland 20876. Unless the context otherwise requires, the "Company"
or "Acterna" refers to Acterna Corporation and its subsidiaries. Clayton,
Dubilier & Rice Fund V Limited Partnership ("CDR Fund V") and Clayton, Dubilier
& Rice Fund VI Limited Partnership ("CDR Fund VI"), each of which are investment
partnerships managed by

                                       2

<PAGE>


Clayton, Dubilier & Rice, Inc. ("CDR"), collectively held approximately 80.1% of
the Company's common stock at March 31, 2002.

The current global economic downturn has exacerbated the severe downturn in the
Company's communications test segment and in its other businesses. As a result,
the Company continues to experience diminished product demand, excess
manufacturing capacity and erosion of average selling prices. The downturn in
the communications test business results from among other things a significant
decrease in network expansion activity and capital spending generally by the
Company's telecommunications customers. The dramatic slowdown is reflected in
the company's bookings decline to approximately $175.3 million for the fourth
quarter of fiscal 2002, which is down from approximately $223.8 in the third
quarter of fiscal 2002, and down significantly from approximately $425.4 million
in the fourth quarter of fiscal 2001.

In response to this decline in product demand and the downturn in the Company's
markets generally, the Company has been and is continuing to implement cost
reduction programs aimed at aligning its ongoing operating costs with its
currently expected revenues over the near term. For example, at the end of the
fourth quarter of fiscal 2002, the Company's headcount was 4,973, down from
6,380 at the beginning of fiscal 2002. In addition, the Company relocated its
corporate headquarters from Burlington, Massachusetts to Germantown, Maryland.

Based on current estimates of its revenues and operating profitability and
losses, the Company plans to take additional and significant cost reduction
actions in order to remain in compliance with its financial covenant
requirements under its Senior Secured Credit Facility. (See Note B. Liquidity,
to the Company's Consolidated Financial Statements.) These cost reduction
programs include among other things: an additional reduction of 400 employees, a
reduction of new hires, reductions to employee compensation, consolidation of
identified facilities and an exit from certain product lines. A portion of these
actions have been implemented in the first quarter of fiscal 2003 and are
intended to reduce costs by an estimated $75 million in fiscal 2003. These new
actions coupled with the fourth quarter restructuring programs will result in
reducing headcount to approximately 4,100 employees by the third quarter of
fiscal 2003.

Given the severity of current market conditions, however, the Company cannot
make any assurance that these cost reduction programs will actually align the
Company's operating expenses and revenues or be sufficient to avoid operating
losses, or that additional cost reduction programs will not be necessary in the
future.

On December 27, 2001 the Company amended its Senior Secured Credit Facility to,
among other things, waive the Company's minimum interest coverage and maximum
leverage covenants through June 30, 2003 and to impose new minimum liquidity and
EBITDA requirements. (See Note K. Notes Payable and Debt, to the Company's
Consolidated Financial Statements contained elsewhere in this report.) As of
March 31, 2002, the Company was in compliance with the covenants under its
Senior Secured Credit Facility as amended.

The Company's cash requirements for debt service and ongoing operations are
substantial. The Company's debt obligations are also substantial. (See Note B.
Liquidity, to the Consolidated Financial Statements.) As a result of the
amendment of the Senior Secured Credit Facility and the issuance at par of $75
million of 12% Senior Secured Convertible Notes in January 2002, the Company
believes that funds generated by ongoing operations and funds available under
its Senior Secured

                                       3

<PAGE>


Credit Facility will be sufficient to meet its cash needs over the next
twelve-month period ended March 31, 2003.

COMMUNICATIONS TEST SEGMENT

The Company develops, manufactures and markets a broad range of instruments,
systems, software and services used by communications service providers,
equipment manufacturers and service users to optimize the development,
manufacture, deployment and management of advanced communications networks. The
Company's extensive knowledge of communications technologies, combined with the
broad capabilities of its test and management products and services, enable the
Company to provide integrated test and management systems to its customers.
Integrated test and management systems enable its customers to simplify and
automate the deployment and maintenance of modern, converged networks by
combining multiple functions historically found in discrete instruments into a
single platform.

The Company's test and management systems currently support a wide array of
transmission technologies, protocols and standards, including:

..    optical transmission, including SONET/SDH and DWDM equipment;

..    broadband access technologies, including xDSL and HFC cable;

..    data services, including IP, ATM and frame relay;

..    wireless telephony and wireless broadband access; and

..    traditional voice and time division multiplexed (TDM) services.

The Company's products are designed to address its customers' desire to deploy
new technologies and provide new services rapidly, optimize utilization of
existing networks, decrease operating and maintenance

costs and improve service reliability. The Company's products address the
challenges of deploying and managing a variety of technologies and segments of a
network including optical transmission systems, data services, voice services,
wireless service, cable services, and video delivery.

The Company markets to three primary groups of customers: communications service
providers, communications equipment manufacturers and service users.
Communications service providers rely on the Company's products and services to
configure, test and manage network elements and the traffic that runs across the
network. Equipment manufacturers rely on these products to shorten the product
development phase and verify the proper functioning of their products during
final assembly and to monitor the performance of their products during
installation and maintenance in their customers' networks. Finally, service
users rely on these products to ensure the proper functioning of their
communications networks. The instruments, systems, and services described below
offer focused solutions to these customer-specific needs.

Instruments. Instruments are devices that perform specific communications test
and monitoring functions. Designed to be mobile devices, these products assist
technicians in assessing the performance of devices and network segments or
verifying the integrity of the information being transmitted across the network.
These instruments incorporate high levels of intelligence and have user
interfaces that are designed to simplify the operation of these products and
decrease the training required to use

                                       4

<PAGE>

them. The Company currently markets more than 100 instruments, including
products to address the performance of optical transmission equipment, broadband
access technologies (xDSL and cable modems), data, voice, wireless and cable
networks. The Company's instruments are used by service providers, equipment
manufacturers and service users.

Systems. The Company's systems are test and management devices that reside in
its customers' communication networks. They can be accessed remotely using an
intelligent terminal and allow multiple users to simultaneously perform specific
communications test and management functions. Typically, these systems consist
of hardware and software components that are derived from core instrument
products. Using an integrated test and management system, the Company's
customers are able to analyze a variety of network elements, transmission
technologies and protocols from a single console, thereby simplifying the
process of deploying, provisioning and managing network equipment and services.
From a centralized location, technicians in their network operations center can
have access to the test systems within the network and perform simultaneous test
and monitoring functions on one or more systems, either manually or in an
automated fashion. These capabilities decrease the need for technicians to make
on-site service calls and allow service providers to respond to potential
network faults proactively. In tandem with the core instrument products, the
Company's software components help assess the quality of the services, or QoS,
delivered. QoS refers to the achievement of specific performance benchmarks
defined by agreements between communications service providers and the customer.
These agreements are commonly called service level agreements, or SLAs, and
specify such things as network availability, maximum allowable transmission
latencies, guaranteed levels of bandwidth or maximum acceptable data loss. The
Company's applications allow service providers and users to track SLAs more
readily. Customers typically begin using the Company's instruments for initial
deployments and start using systems within a year of the completion of
deployment. By reusing the technology from its instrument products, the Company
is able to enter new markets rapidly with new test and monitoring functionality
that is very similar, in scope, to the existing instrument functions. The
Company expects that a growing proportion of sales will be derived from its
systems products.

Services. The Company offers a range of product support and professional
services geared to comprehensively address its customers' requirements. The
Company provides repair, calibration and software support services for its
products and also provides technical assistance on a global basis for a wide
array of test equipment. In addition, the Company offers customers training
services that are aimed at both product and technology areas. Project management
services are an integral part of the professional service offerings. These
professional services are provided in conjunction with system integration
projects that include installation and implementation services. Custom software
and interface development are key offerings that build upon process consulting
and software development expertise. The Company provides both product and
process consulting to its customers.

Industrial Computing and Communications

Itronix, headquartered in Spokane, WA, is a global provider of mobile, wireless,
ruggedized computing solutions, including laptop and handheld computing devices.
Itronix also provides a wide range of support services including long-term
maintenance contracts, implementation support, product installation, and asset
management.

Itronix offers a broad product and service line, including computing devices
across the full continuum of semi-rugged to fully-rugged configurations. Itronix
products

                                       5

<PAGE>


and services are sold worldwide through its direct sales force as well as
resellers and manufacturers representatives.

AIRSHOW, Inc.

AIRSHOW is the leading supplier of inflight video information systems and
services for passengers of private and commercial aircraft. The Company markets
AIRSHOW products to airlines, aircraft manufacturers, avionics installation
centers and owners and operators of corporate aircraft. AIRSHOW's key products
are:

The AIRSHOW moving map system, which provides passengers with a graphical
representation of the aircraft's location, heading, altitude and other
information displayed in real time;

The AIRSHOW Network, which delivers to passengers of private aircraft text-based
network broadcasts of stock quotes, news briefs, business updates, and
customized financial reports. AIRSHOW currently has agreements to provide
up-to-the-minute content from CNN, Wall Street Journal Interactive, Bloomberg,
SportsTicker and Intellicast weather products; and

AIRSHOW TV, which provides direct broadcast satellite TV to corporate aircraft.

On June 13, 2002, the Company signed a definitive agreement to sell its AIRSHOW
business to Rockwell Collins, Inc. for $160 million in cash, subject to
adjustment. The Company expects to record a gain in relation to this
transaction. Consummation of the sale is subject to customary closing
conditions, including regulatory approvals and consent of the Company's lenders
under its Senior Secured Credit Facility. The Company intends to use the net
proceeds of the sale (after fees and expenses) to repay a portion of its debt or
invest in its business.

da Vinci Systems

da Vinci manufactures and sells digital color correction systems used by video
post-production and commercial production facilities to correct and enhance
color saturation levels as video images are transferred from film to video tape
for editing and distribution. da Vinci systems are sold worldwide through its
direct sales force in the United States, as well as in conjunction with
manufacturers of related products. da Vinci benefits from changes in technology
such as the transition from analog to digital production systems and digital
high-definition television, or HDTV, broadcast standards.

MANUFACTURING

The Company manufactures a portion of its products and outsources to third
parties a portion of its manufacturing activities, such as the assembly of
printed circuit boards and the fabrication of some mechanical parts. The Company
generally performs its own final assembly and testing of its products. The
Company operates 11 manufacturing and assembly facilities worldwide. All the
facilities are certified in ISO 9001. In addition, one facility is certified TL
9000. In 1996, the Company received ISO 14001 certification, which relates to
environmental compliance in Germany.

The components used to build the Company's products are generally available from
a number of suppliers. The Company relies on a number of limited-source
suppliers for

                                       6

<PAGE>


specific components and parts. Although the Company has entered into long-term
purchasing contracts with some of these suppliers, the Company cannot assure
that these suppliers will be able to meet the Company's needs or that component
shortages will not be experienced. If the Company was required to locate new
suppliers or additional sources of supply, a disruption in operations could
occur or additional costs could be incurred in procuring required materials. Due
to the long lead times and exclusive nature of some of the components purchased
by its suppliers, the Company may have contractual obligations to purchase some
of this inventory from certain suppliers.

COMPETITION

The markets for communications test products and services are rapidly evolving
and highly competitive. The principal competitive factors affecting the business
include:

     .  quality and breadth of product offerings;

     .  adaptability to evolving technologies and standards;

     .  speed of new product introductions;

     .  depth and breadth of customer relationships;

     .  price and financing terms;

     .  research and design capabilities;

     .  scale of installed base;

     .  technical support training and customer service training;

     .  strength of distribution channels; and

     .  product scalability and flexibility.

The Company believes it competes favorably with respect to the above factors.
Its principal competitors in the communications test and management markets
include Agilent Technologies, Tektronix, Spirent and Anritsu. The Company also
competes with a number of other companies that offer products that address
discrete portions of its markets, including EXFO Electro-Optical Engineering,
Sunrise Telecom, Inc., Digital Lightwave, and Ixia. Some of these competitors
have greater sales, marketing, research and financial resources than the Company
does. In addition, new competitors with significant market presence and
financial resources may enter markets that the Company competes in and reduce
its market share.

CUSTOMERS

The Company markets its communication test products to three primary groups of
customers: communications service providers, equipment manufacturers and service
users.

Communications Service Providers

Communications service providers offer telecommunications, wireless and,
increasingly, data communication services to end users, enterprises or other
service providers. Typically, communications service providers utilize a variety
of network equipment and software to originate, transport and terminate
communications sessions. Communications service providers rely on the Company's
products and services to configure, test and manage network elements and the
traffic that runs across them. Also, the Company's products help to ensure
smooth operation of networks and increase the reliability of services to
customers.

                                       7

<PAGE>

The Company's products and services are sold to virtually all inter-exchange
carriers, or IXCs; incumbent local exchange carriers, or ILECs; competitive
local exchange carriers, or CLECs; internet service providers, or ISPs;
integrated communications providers, or ICPs; wireless network operators; cable
service providers; international post, telephone and telegraph companies, or
PTTs; and other service providers.


Equipment Manufacturers

Communications equipment manufacturers design, develop, install and maintain
voice, data and video communications equipment. These products include switches,
routers, voice gateways, cellular base stations, cable headends, optical access
and multiplexing devices and other types of communications systems. Network
equipment manufacturers rely on the Company's products to verify the proper
functioning of their products during final assembly and testing. Increasingly,
because communications service providers are choosing to outsource installation
and maintenance functions to the equipment manufacturers themselves, equipment
manufacturers are using the Company's instruments and systems to assess the
performance of their products during installation and maintenance of a
customer's network.


Service Users

The Company also sells test and management instruments, systems, and services to
large corporate customers, government operators and educational institutions.

AIRSHOW products are marketed to airlines, aircraft manufacturers, avionics
installation centers and owners and operators of corporate aircraft.

Itronix products and services are sold to customers with wireless mobile
computing needs in the communication, home and business services, utility,
insurance, emergency services, military, and field service markets.

da Vinci systems are sold to video post-production and commercial production
facilities.

None of the Company's customers represented more than 10 percent of its sales
during fiscal 2002. The Company is not dependent upon any one customer, or group
of customers, to the extent that the loss of such customers would have a
material adverse effect on the Company.


SALES, MARKETING AND CUSTOMER SUPPORT

The Company's communications test products and services are primarily sold
through its direct sales force. In addition, the Company's communications test
products and services are sold through third party distributors and sales
representatives in areas where direct sales efforts are less developed. Through
distributors, sales representatives and its direct sales force, the Company has
a presence in over 80 countries. In addition, the Company uses the Internet,
advertisements in the trade press, direct mail, seminars, trade shows and
quarterly newsletters to raise awareness of its products.

The Company's communications test sales and marketing staff consists primarily
of engineers and technical professionals. They undergo extensive training and
ongoing

                                        8

<PAGE>

professional development and education. The skill level of the sales and
marketing staff has been instrumental in building longstanding customer
relationships. In addition, the Company's frequent dialogue with its customers
provides it with valuable input on systems and features they desire in future
products. The Company's consultative sales approach and product and market
knowledge differentiates its sales force from those of its primary competitors.

The local sales forces are highly knowledgeable of their respective markets,
customer operations and strategies, and regulatory environments. In addition,
the representatives' familiarity with local languages and customs enables them
to build close relationships with the Company's customers.

The Company provides installation, repair and training services to enable its
customers to improve performance of their networks. Service centers are located
near many of the Company's major customers. The Company also offers on-line
support services to supplement its on-site application engineering support.
Customers can also access the Company's products remotely through its technical
assistance center.

SEASONALITY; BACKLOG


As a result of purchasing patterns of the Company's telecommunications
customers, which tend to place large orders periodically, typically during the
third quarter and at the end of the Company's fourth fiscal quarters, the
Company expects that its results of operations may vary on a quarterly basis, as
they have in the past.

The Company estimates that its backlog of orders at March 31, 2002 and 2001 was
approximately $213.1 million and $487.2 million, respectively. The decrease in
backlog is primarily a result of the downturn in the communications test
industry. The Company expects it will be able to fill the majority of the
backlog during fiscal 2003.


PRODUCT DEVELOPMENT

For the year ended March 31, 2002, the Company invested approximately $160.2
million in research and development activities of which approximately $130.1
million applied to the Company's communications test segment.

The market for the Company's products and services is characterized by rapidly
changing technologies, new and evolving industry standards and protocols and
product and service introductions and enhancements that may render the Company's
existing offerings obsolete or unmarketable. Automation in the Company's
targeted markets for communications test equipment or a shift in customer
emphasis from employee-operated communications test to automated test and
monitoring systems could likewise render the Company's existing product
offerings obsolete or unmarketable, or reduce the size of one or more of its
targeted markets. In particular, incorporation of self-testing functions in the
equipment currently addressed by the Company's communications test instruments
could render some of the Company's offerings redundant and unmarketable. The
development of new, technologically advanced products is a complex and uncertain
process requiring the accurate anticipation of technological and market trends
and the incurrence of substantial research and development costs.

INTERNATIONAL

                                        9

<PAGE>

The Company maintains manufacturing facilities and sales subdivisions or
branches for its communications test business in major countries in Europe, and
sales subdivisions in Latin America and Asia and has distribution agreements in
other countries where sales volume does not warrant a direct sales organization.
The Company's foreign sales (excluding WWG in fiscal 2000 and including exports
from North America directly to foreign customers) were approximately 12%, 39%,
and 42% of consolidated net sales in fiscal 2000, 2001 and 2002, respectively.
Accordingly, the Company's domestic sales were 88%, 61% and 58% of consolidated
net sales in fiscal 2000, 2001 and 2002, respectively.

Because the Company sells its products worldwide, the Company's business is
subject to risks associated with doing business internationally. In addition,
many of the Company's manufacturing facilities and suppliers are located outside
the United States. Accordingly, the Company's future results could be harmed by
a variety of factors, including changes in foreign currency exchange rates,
changes in a specific country's or region's political or economic conditions,
particularly in emerging markets, trade protection measures and import or export
licensing requirements, and potentially negative consequences from changes in
tax laws and other regulatory requirements.


PATENTS AND PROPRIETARY RIGHTS

The Company relies primarily on trade secrets, trademark laws, confidentiality
procedures and contractual restrictions to establish and protect its proprietary
rights. The Company owns a number of U.S. and foreign patents and patent
applications that are collectively important to its business. The Company does
not believe, however, that the expiration of any patent or group of patents
would materially affect its business.


GOVERNMENT REGULATION AND INDUSTRY STANDARDS AND PROTOCOLS

The Company designs its products to comply with a significant number of industry
standards and regulations, some of which are evolving as new technologies are
deployed. In the United States, these products must comply with various
regulations defined by the U.S. Federal Communications Commission and
Underwriters Laboratories as well as industry standards established by Telcordia
Technologies, Inc., formerly Bellcore, and the American National Standards
Institute. Internationally, these products must comply with standards
established by the European Committee for Electrotechnical Standardization, the
European Committee for Standardization, the European Telecommunications
Standards Institute, telecommunications authorities in various countries as well
as with recommendations of the International Telecommunications Union. The
failure of the Company's products to comply, or delays in compliance, with the
various existing and evolving standards could negatively impact the ability to
sell products.


ENVIRONMENTAL MATTERS

Federal, state and local laws or regulations concerning the discharge of
materials into the environment have not had and, under present conditions, the
Company does not foresee that they will have, a material adverse effect on
capital expenditures, earnings or the competitive position of the Company.

                                       10

<PAGE>

EMPLOYEES

As of March 31, 2002, the Company employed approximately 4,973 persons. Some of
the European employees are members of a workers' council, principally due to
applicable legal requirements in the jurisdictions in which they work. However,
none of the Company's other employees are represented by labor unions and the
Company believes its employee relations are good.


ITEM 2.  PROPERTIES.

The following table describes the Company's largest design and manufacturing
facilities. The Company also has sales offices and facilities in Europe, South
America and elsewhere.

        Location                                     Square        Title
                                                     Feet

        Eningen, Germany                             779,000       Owned
        Germantown, Maryland                         272,000       Leased
        Indianapolis, Indiana                        140,000       Leased
        Bradenton, Florida                           124,000       Leased
        Research Triangle Park, North Carolina        93,100       Leased
        Plymouth, United Kingdom                      86,400       Owned
        San Diego, California                         62,368       Leased
        Tustin, California                            52,000       Leased
        Munich, Germany                               51,000       Leased
        Research Triangle Park, North Carolina        50,800       Leased
        Kirkland, Washington                          50,500       Leased
        Liberty Lake, Washington                      41,000       Leased
        Spokane, Washington                           35,000       Leased
        Coventry, England                             30,000       Leased

The Company believes its facilities are in good operating condition.


ITEM 3.  LEGAL PROCEEDINGS.

The Company is a party to several pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with certainty,
the Company believes that the final outcome should not have a material adverse
effect on the Company's business, operations or financial position.



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

During the fourth quarter of fiscal 2002, in connection with the issuance and
sale by Acterna LLC on January 15, 2002 of $75 million aggregate principal
amount of 12% Senior Secured Convertible Notes Due 2007 (the "Convertible
Notes") to Clayton, Dubilier & Rice Fund VI Limited Partnership ("Fund VI"),
Fund VI and Clayton, Dubilier & Rice Fund V Limited Partnership, as holders of
approximately 80% of the outstanding Common Stock of the Company, approved by
written consent the conversion features of the Convertible Notes. Consent was
not solicited from any other stockholder. The effective date of the stockholder
approval was March 29, 2002. For more information concerning the Convertible
Notes, see Note K. Notes Payable and Debt to the Consolidated Financial
Statements of the Company. For more information concerning the

                                       11

<PAGE>

stockholder approval of the conversion features of the Convertible Notes, see
the Company's Information Statement on Schedule 14C filed with the Securities
and Exchange Commission on February 22, 2002.


ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

The Company's common stock is currently traded on the NASDAQ National Market
under the symbol "ACTR". From May 21, 1998 to November 8, 2000, the common stock
was traded on the over-the-counter market under the symbol "DYNA". Since
November 9, 2000, the common stock has been trading on the NASDAQ National
Market. The Company has filed to transfer from the NASDAQ National Market to the
NASDAQ Small Cap Market. The Company expects the transfer to occur in June 2002.
As of March 31, 2002, there were 581 registered holders of the common stock and
the price of the common stock on the NASDAQ was $1.50. The following table sets
forth the high and low sales prices of the Company's common stock on the
over-the-counter market and the NASDAQ National Market for each quarterly period
within the two most recent fiscal years.


         Quarter Ended                         High              Low

         March 31, 2002                    $   3.99          $   1.48
         December 31, 2001                     4.71              2.40
         September 30, 2001                   11.00              2.43
         June 30, 2001                        13.15              3.25
         March 31, 2001                       21.44              6.00
         December 31, 2000                    29.13              7.81
         September 30, 2000                   41.38             16.44
         June 30, 2000                        20.25              8.00


Since April 1, 1995, the Company has not declared or paid cash dividends to the
holders of common stock. The Company intends to retain earnings for use in the
operation and expansion of its business. In addition, restrictions in the
Company's credit agreements limit the Company's ability to pay cash dividends.

The following table sets forth information concerning compensation plans
previously approved by security holders and not previously approved by security
holders.

<TABLE>
<CAPTION>
                                     Equity Compensation Plan Information
--------------------------------------------------------------------------------------------------------------
                                                 Number of          Weighted-average    Number of securities
         Plan Category                         securities to            exercise         remaining available
                                                 be issued              price of                 for
                                                    upon              outstanding       future issuance under
                                                exercise of        options, warrants     equity compensation
                                            outstanding options,       and rights               plans
                                                  options                               (excluding securities
                                                  warrants                                   reflected in
                                                    and                                       column (a))
                                                   rights                                         (c)

                                                    (a)                   (b)
--------------------------------------------------------------------------------------------------------------
<S>                                         <C>                     <C>                 <C>
Equity compensation plans approved by          37,732,018              $4.45               18,017,982
              security
              holders

--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>

                                       12

<PAGE>

<TABLE>
--------------------------------------------------------------------------------------------------------------
        <S>                                   <C>                       <C>                <C>
        Equity compensation plans                         0                  0                        0
         not approved by security
                 holders
--------------------------------------------------------------------------------------------------------------

                  Total                          37,732,018              $4.45               18,017,982

--------------------------------------------------------------------------------------------------------------
</TABLE>

   ITEM 6.  SELECTED FINANCIAL DATA.

   The information requested by this Item is attached as Appendix A.


   ITEM 7.  MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
   RESULTS OF OPERATION.

   The information requested by this Item is attached as Appendix B.


   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

   The information requested by this Item is included in Appendix B.




   ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

   The information requested by this Item is attached as Appendix C.




   ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
   FINANCIAL DISCLOSURE.

   None.



   ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

   Reference is made to the information responsive to Items 401 and 405 of
   Regulation S-K contained in the Company's definitive Proxy Statement relating
   to its fiscal 2002 Annual Meeting of Stockholders which will be filed with
   the U.S. Securities and Exchange Commission within 120 days after the close
   of the Company's fiscal year ended March 31, 2002, pursuant to Rule 14a-6(b)
   under the Securities Exchange Act of 1934, as amended; said information is
   incorporated herein by reference.



   ITEM 11. EXECUTIVE COMPENSATION.

   Reference is made to the information responsive to Item 402 of Regulation S-K
   contained in the Company's definitive Proxy Statement relating to its fiscal
   2002 Annual Meeting of Stockholders which will be filed with the U.S.
   Securities and Exchange Commission within 120 days after the close of the
   Company's fiscal year ended March 31, 2002, pursuant to Rule 14a-6(b) under
   the Securities Exchange Act of 1934, as amended; said information is
   incorporated herein by reference.

                                       13

<PAGE>

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Reference is made to the information responsive to Item 403 of Regulation S-K
contained in the Company's definitive Proxy Statement relating to its fiscal
2002 Annual Meeting of Stockholders which will be filed with the U.S. Securities
and Exchange Commission within 120 days after the close of the Company's fiscal
year ended March 31, 2002, pursuant to Rule 14a-6(b) under the Securities
Exchange Act of 1934, as amended; said information is incorporated herein by
reference.



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Reference is made to the information responsive to Item 404 of Regulation S-K
contained in the Company's definitive Proxy Statement relating to its fiscal
2002 Annual Meeting of Stockholders which will be filed with the U.S. Securities
and Exchange Commission within 120 days after the close of the Company's fiscal
year ended March 31, 2002, pursuant to Rule 14a-6(b) under the Securities
Exchange Act of 1934, as amended; said information is incorporated herein by
reference.



ITEM 14.  EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.

(a) (1) Financial statements

The following financial statements and schedules of the Company are included as
Appendix C to this Report.

        I.     Report of Independent Accountants.
        II.    Consolidated Balance Sheets-March 31, 2002 and 2001.
        III.   Consolidated Statements of Operations-Fiscal Years Ended March
               31, 2002, 2001, and 2000.
        IV.    Consolidated Statements of Stockholders' Deficit-Fiscal Years
               Ended March 31, 2002, 2001, and 2000.
        V.     Consolidated Statements of Cash Flows-Fiscal Years Ended March
               31, 2002, 2001, and 2000.
        VI.    Notes to Consolidated Financial Statements.

        (2)    Financial Statements schedule - Schedule II

Schedules other than those listed above have been omitted because they are
either not required or not applicable or because the required information has
been included elsewhere in the financial statements or notes thereto.

(b) Reports on Form 8-K

        Current Report on Form 8-K concerning the issuance and sale by Acterna
        LLC, a Delaware limited liability company that is wholly-owned and
        controlled by Acterna Corporation, of $75,000,000 aggregate principal
        amount 12% Senior Secured Convertible Notes due 2007 to Clayton,
        Dubilier & Rice Fund VI Limited Partnership, filed with the SEC on
        January 16, 2002.

                                       14

<PAGE>

       Current Report on Form 8-K concerning the sale of AIRSHOW business to
       Rockwell Collins, Inc. for $160 million in cash, subject to adjustment,
       filed with the SEC on June 14, 2002.

(c)  Exhibits

The exhibits that are filed with this report or that are incorporated herein by
reference are set forth in Appendix D.

                                       15

<PAGE>

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                                  ACTERNA CORPORATION

June 18, 2002                                   By: /s/ Ned C. Lautenbach
                                                  -----------------------
                                                Chairman and Chief
                                                Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

/s/ Ned C. Lautenbach        Chairman of the Board, Chief          June 18, 2002
---------------------        Executive Officer and Director
Ned C. Lautenbach

/s/ John R. Peeler           Corporate Vice President, President   June 18, 2002
------------------           and Director
John R. Peeler

/s/ John D. Ratliff          Corporate Vice President, Chief       June 18, 2002
-------------------          Financial Officer
John D. Ratliff

/s/ Robert W. Woodbury, Jr.  Corporate Vice President, Controller  June 18, 2002
---------------------------  (Principal Accounting Officer)
Robert W. Woodbury, Jr.

/s/ Brian D. Finn            Director                              June 18, 2002
-----------------
Brian D. Finn

/s/ Donald Gogel             Director                              June 18, 2002
----------------
Donald Gogel

/s/ Allan M. Kline           Director                              June 18, 2002
------------------
Allan M. Kline

/s/ Marvin L. Mann           Director                              June 18, 2002
------------------
Marvin L. Mann

/s/ William O. McCoy         Director                              June 18, 2002
--------------------
William O. McCoy

/s/ Victor A. Pelson         Director                              June 18, 2002
--------------------
Victor A. Pelson

/s/ Brian H. Rowe            Director                              June 18, 2002
-----------------
Brian H. Rowe

/s/ Richard J. Schnall       Director                              June 18, 2002
----------------------
Richard J. Schnall

/s/ Peter M. Wagner          Director                              June 18, 2002
-------------------
Peter M. Wagner


                                      16

<PAGE>

                                                                      APPENDIX A


                 Selected Historical Consolidated Financial Data

     The following tables set forth selected historical consolidated financial
     data of the Company for the five fiscal years ended March 31, 2002 which,
     as of March 31, 2002 and 2001 and for the three years in the period ended
     March 31, 2002, have been derived from, and should be read in conjunction
     with, the audited Consolidated Financial Statements, and related notes
     thereto, of the Company contained elsewhere in this report.

<TABLE>
<CAPTION>
                                                           Years Ended March 31,
                                                           2002           2001*          2000          1999         1998
                                                        ----------     ----------     ---------     ---------    ----------
                                                        (Amounts in thousands, except per share data)
<S>                                                     <C>          <C>             <C>            <C>         <C>
RESULTS OF OPERATIONS
Net sales                                               $1,132,661     $1,366,257     $ 656,601     $ 522,854    $  472,948
Cost of sales                                              540,048        606,860       285,531       228,572       205,522
                                                        ----------     ----------     ---------     ---------    ----------
Gross profit                                               592,613        759,397       371,070       294,282       267,426

Selling, general and administrative expense                444,387        486,598       192,286       149,926       138,310
Product development expense                                160,219        168,117        75,398        54,356        54,995
Amortization of intangibles                                 42,271        120,151        12,326         6,228         5,835
Restructuring expense                                       33,989            ---           ---           ---           ---
Impairment of net assets held for sale                      17,918            ---           ---           ---           ---
Goodwill impairment                                          3,947            ---           ---           ---           ---
Impairment of acquired intangible assets                   151,322            ---           ---           ---           ---
Recapitalization and other related costs                       ---          9,194        27,942        43,652           ---
Purchased incomplete technology                                ---         56,000           ---           ---           ---
                                                        ----------     ----------     ---------     ---------    ----------
Operating income (loss)                                   (261,440)       (80,663)       63,118        40,120        68,286

Interest expense                                           (96,625)      (102,158)      (51,949)      (46,198)       (1,221)
Interest income                                              1,625          3,322         2,373         3,398         3,012
Other income (expense), net                                 (7,615)        (4,491)         (720)       15,959           730
                                                        ----------     ----------     ---------     ---------    ----------
Income (loss) from continuing operations
 before income taxes and extraordinary item               (364,055)      (183,990)       12,822        13,279        70,807

Provision for (benefit from) income taxes                      799        (12,793)        6,810         6,834        29,031
                                                        -----------    ----------     ---------     ---------    ----------
Income (loss) from continuing operations before
extraordinary item                                        (364,854)      (171,197)        6,012         6,445        41,776
Income (loss) from discontinued
   operations                                              (10,039)        10,039           ---           ---           ---
                                                        ----------     ----------     ---------     ---------    ----------
Income (loss) before extraordinary item                   (374,893)      (161,158)        6,012         6,445        41,776
Extraordinary item, net of income tax
 benefit of $6,603                                             ---        (10,659)          ---           ---           ---
                                                        ----------     ----------     ---------     ---------    ----------
Net income (loss)                                       $ (374,893)    $ (171,817)    $   6,012     $   6,445    $   41,776
                                                        ==========     ==========     =========     =========    ==========
Net income (loss) per common share-basic:
   Continuing operations                                $    (1.90)    $    (0.93)    $    0.04     $    0.05    $     2.04
   Discontinued operations                                   (0.05)          0.06           ---           ---           ---
   Extraordinary item                                          ---          (0.06)          ---           ---           ---
                                                        ----------     ----------     ---------     ---------    ----------
                                                        $    (1.95)    $    (0.93)    $    0.04     $    0.05    $     2.04
                                                        ==========     ==========     =========     =========    ==========

Net income (loss) per common share-diluted:
</TABLE>

                                       A-1

<PAGE>

<TABLE>
   <S>                                                  <C>            <C>            <C>           <C>           <C>
   Continuing operations                                $    (1.90)    $    (0.93)    $    0.04     $    0.05     $    1.96
   Discontinued operations                                   (0.05)          0.06           ---           ---           ---
   Extraordinary item                                          ---          (0.06)          ---           ---           ---
                                                        ----------     ----------     ---------     ---------     ---------
                                                        $    (1.95)    $    (0.93)    $    0.04     $    0.05     $    1.96
                                                        ==========     ==========     =========     =========     =========
Weighted average number of shares:
   Basic                                                   191,868        183,881       148,312       129,596        20,493
   Diluted                                                 191,868        183,881       162,273       136,004        21,272
                                                        ==========     ==========     =========     =========     =========
BALANCE SHEET DATA
 Net working capital                                    $  103,626     $  184,657     $  39,125     $  55,498     $ 117,791
 Total assets                                           $1,014,556     $1,382,979     $ 463,649     $ 348,104     $ 288,130
 Long-term debt                                         $1,056,062     $1,056,383     $ 572,345     $ 504,151     $      83
 Stockholders' equity (deficit)                         $ (436,775)    $  (80,977)    $(296,675)    $(316,440)    $ 202,119
 Shares of stock outstanding                               192,248        190,953       122,527       120,665        16,864
 Stockholders' equity (deficit) per share               $    (2.27)    $    (0.42)    $   (2.42)    $   (2.62)    $   11.99
</TABLE>

       * The Results of Operations for fiscal 2001 include the results of
       operations of Wavetek Wandel Goltermann, Inc. since May 23, 2000, the
       date of its acquisition, and the results of operations of Cheetah
       Technologies since August 23, 2000, the date of its acquisition.

                                       A-2

<PAGE>



                                                                      APPENDIX B

Management Discussion and Analysis of Financial Condition and Results of
Operations

OVERVIEW

The following discussion of the results of operations, financial condition and
liquidity of the Company should be read in conjunction with the information
contained in the consolidated financial statements and notes thereto included
elsewhere in this Form 10-K. These statements have been prepared in conformity
with generally accepted accounting principles and require management to make
estimates and assumptions that affect amounts reported and disclosed in the
financial statements and related notes. Actual results could differ from these
estimates.

Unless otherwise noted, the information presented in this Appendix B reflects
the business of the Company and its subsidiaries, including the results of
operations of the businesses the Company has acquired during fiscal 2002.
Wavetek Wandel Goltermann, Inc. ("WWG")'s results of operations are included in
the statements of operations since May 23, 2000; Cheetah Technologies
("Cheetah")'s results of operations are included since August 23, 2000. Applied
Digital Access, Inc. ("ADA")'s results of operations are included since November
3, 1999. The results of ICS Advent are included through October 31, 2001, the
date it was sold by the Company. The statements contained in this report (other
than the Company's consolidated financial statements and other statements of
historical fact) include forward-looking statements, as described below in
greater detail in "Forward-Looking Statements."

Business Segments

The Company reports its results of operations in four business segments that the
Company refers to as communications test, industrial computing and
communications, AIRSHOW and da Vinci.

The communications test segment develops, manufactures and markets instruments,
systems and services to test, deploy, manage and optimize communications
networks, equipment and services.

The industrial computing and communications segment provides computer products
to the ruggedized computer market. This segment was comprised of two
subsidiaries: ICS Advent and Itronix. On October 31, 2001, the ICS Advent
subsidiary was disposed through a sale, See Note F. Acquisitions and
Divestitures to the Consolidated Financial Statements. ICS Advent sold computer
products and systems designed to withstand excessive temperatures, dust,
moisture and vibration in harsh operating environments. Itronix sells ruggedized
portable communications and computing devices used by field service workers.

AIRSHOW is a provider of systems that deliver real-time news, information and
flight data to aircraft passengers. AIRSHOW markets its systems to commercial
airlines and private aircraft owners. On June 13, 2002, the Company signed a
definitive agreement to sell its AIRSHOW business to Rockwell Collins, Inc. for
$160 million in cash, subject to adjustment. The Company expects to record a
gain in relation to this transaction. Consummation of the sale is subject to
customary closing conditions, including regulatory approvals and consent of the

                                      B-1

<PAGE>

Company's lenders under its Senior Secured Credit Facility. The Company intends
to use the net proceeds of the sale (after fees and expenses) to repay a portion
of its debt or invest in its business.

da Vinci Systems, Inc. ("da Vinci") provides digital color enhancement systems
used in the production of television commercials and programming. da Vinci's
products are sold to post-production and video production professionals and
producers of content for standard- and high-definition television markets.

Related Party

The Company's controlling stockholders are Clayton, Dubilier & Rice Fund V
Limited Partnership ("CDR Fund V") and Clayton, Dubilier & Rice Fund VI Limited
Partnership ("CDR Fund VI", collectively the "CDR Funds"). The CDR Funds are
managed by Clayton, Dubilier & Rice, Inc. ("CDR"), an investment management
firm, and collectively held approximately 80.1% of the outstanding shares of
common stock of the Company at March 31, 2002.

On January 15, 2002, Acterna LLC, a wholly-owned subsidiary of the Company,
issued and sold at par $75 million aggregate principal amount of 12% Senior
Secured Convertible Notes due 2007 (the "Convertible Notes") to CDR Fund VI.
Interest on the Convertible Notes is payable semi-annually in arrears on each
March 31/st/ and September 30/th/, with interest payments commencing on
March 31, 2002. At the option of Acterna LLC, interest is payable in cash or
in-kind by the issuance of additional Convertible Notes. Due to limitations
imposed by the Company's Senior Secured Credit Facility, Acterna LLC expects to
pay interest on the Convertible Notes in-kind by issuing additional Convertible
Notes. The Convertible Notes are secured by a second lien on all of the assets
of the Company and its subsidiaries that secure the Senior Secured Credit
Facility, and are guaranteed by the Company and its domestic subsidiaries.

The Company used the net proceeds of $69 million from the issuance and sale of
the Convertible Notes (net of fees and expenses) to repay a portion of its
indebtedness under its Revolving Credit Facility. The amounts repaid remain
available to be re-borrowed by the Company. As a result of the repayment, the
Company had $95 million of availability under its Revolving Credit Facility as
of March 31, 2002. (For additional information concerning the Convertible Notes
see Note K. Notes Payable and Debt, to the Company's Consolidated Financial
Statements included elsewhere in this report.)

The Company paid an annual management fee to CDR totaling $ 1.6 million, $0.5
million and $0.5 million in the three fiscal years ending March 31, 2002, 2001
and 2000, respectively. In return for the annual management fee, CDR provides
management and financial consulting services to the Company and its
subsidiaries. In fiscal 2002, the Company also paid CDR a $2.3 million financing
fee in connection with the issuance of the Senior Secured Convertible Notes.

In connection with the merger (the "WWG Merger") between a subsidiary of the
Company and Wavetek Wandel Goltermann, Inc. ("WWG") in May 2000 and the
concurrent establishment of the Company's new Senior Secured Credit Facility,
the Company paid CDR $6.0 million for services provided in connection with the
WWG Merger and the related financing, of which $3.0 million has been allocated
to deferred debt issuance costs and $3.0 million allocated to additional paid-in
capital in connection with the rights offering to the Company's other
stockholders undertaken by the Company in June 2000.

                                      B-2

<PAGE>


On May 19, 1999, Ned C. Lautenbach, a principal of CDR, became the Company's
Chairman and Chief Executive Officer. Mr. Lautenbach has not received direct
compensation from the Company for these services. However, his compensation for
any services is covered in the above mentioned management and consulting
arrangement.

Asset Impairment

The current global economic slowdown and a downturn in the telecommunications
industry has negatively impacted the Company's communications test segment as
well as its other businesses. As in past downturns, the Company is experiencing
diminished product demand, excess manufacturing capacity and erosion of average
selling prices. In the fourth quarter of fiscal 2002, the Company's bookings
decreased to approximately $175.3 million, which included $28 million of
de-bookings originally booked in the fourth quarter of fiscal 2001, from
approximately $223.8 million in the third quarter, and down significantly from
approximately $425.4 million in the fourth quarter of fiscal 2001 (excluding
bookings related to ICS Advent). At present, the Company cannot predict the
duration or severity of this downturn, but based on the current bookings trends,
the Company expects fiscal 2003 revenue in its communications test segment to be
down substantially as compared with fiscal 2002. During the fourth quarter of
fiscal 2002, as a result of the substantial declining financial performance in
the communication test segment and resulting reduced expectations for future
revenues and earnings, management performed an assessment of the carrying values
of long-lived assets within the communications test segment. This assessment
resulted in the impairment of acquired intangible assets (principally core
technology) and a pre-tax charge of $151.3 million was recorded. (See Note H.
Acquired Intangible Assets)

Cash and Debt Service

During the year ended March 31, 2002, the Company took actions to reduce its
operating costs by reducing its existing workforce and by disposing of its
ICS Advent subsidiary, which was a business not considered strategic. The
Company also issued and sold at par $75 million aggregate principal amount of
the Convertible Notes to CDR Fund VI and used the net proceeds to repay a
portion of its debt under its Revolving Credit Facility, which amounts remain
available to be re-borrowed by the Company. In addition, during the fourth
quarter of the fiscal year ended March 31, 2002, new U.S. tax legislation was
enacted that increased the period over which net operating losses may be carried
back, from two years to five. As a result, the Company obtained a refund during
the first quarter of fiscal 2003 of approximately $61 million of taxes paid in
prior years. The Company currently anticipates that its available cash coupled
with funds available under its current borrowing arrangements will be sufficient
to meet its anticipated working capital and capital expenditure requirements
through March 31, 2003. The Company's continuing operations beyond March 31,
2003 is dependent upon its ability to achieve significant operating
profitability and cash flows from operations to fund the business and its
ability to repay, extend or refinance the senior secured credit facility
(including the Revolving Credit Facility) or any new borrowings, and to service
and repay or refinance the Convertible Notes and the Senior Subordinated Notes.
There is no assurance that the Company will be able to achieve this level of
operating profitability and cash flows from operations or repay, extend or
refinance its debt. In the event its operations are not profitable or do not
generate sufficient cash to fund the business, the Company may fail to comply
with its restrictions, covenants and other obligations under the Credit
Facility, which could result in a default. This could result in the Company's
Lenders requiring immediate repayment of debt and could limit the availability
of borrowings under the current borrowing facility. The Company may have to
immediately find other sources of capital and further substantially reduce its
level of operations.

                                      B-3

<PAGE>


Beyond March 31, 2003, based on current forecasts of revenues and results of
operations, assuming timely completion and execution of the cost reduction
programs, and based on the increasing and significant debt repayment obligations
beginning in 2003, the Company believes that its current capital structure will
need to be renegotiated, extended or refinanced. There can be no guarantee that
in the event the Company is required to extend, refinance or repay its debt,
that new or additional sources of financing will be available or will be
available on terms acceptable to the Company. Inability to repay the debt
obligations or source alternative finance will likely have a material negative
impact on the business, financial position and results of operations of the
Company.

The Company's future operating performance and ability to repay, extend or
refinance the Senior Secured Credit Facility (including the Revolving Credit
Facility) or any new borrowings, and to service and repay or refinance the
Convertible Notes and the Senior Subordinated Notes, will be subject to future
economic, financial and business conditions and other factors, including demand
for communications test equipment, many of which are beyond the Company's
control.

Restructuring Activity

The Company continues to implement cost reduction programs aimed at aligning its
ongoing operating costs with its expected revenues. At the end of the fourth
quarter of fiscal 2002, the Company's headcount was 4,973 (down from 6,380 at
the beginning of fiscal 2002), and the corporate headquarters was relocated from
Burlington, Massachusetts to Germantown, Maryland. Based on current estimates of
its revenues and operating profitability and losses, the Company plans to take
additional and significant cost reduction actions in order to remain in
compliance with its financial covenant requirements under its Senior Secured
Credit Facility. (See Note B. Liquidity, to the Company's Consolidated Financial
Statements.) These cost reduction programs include among other things: an
additional reduction of 400 employees, a reduction of new hires, reductions to
employee compensation, consolidation of identified facilities and an exit from
certain product lines. A portion of these actions have been implemented in the
first quarter of fiscal 2003 and are intended to reduce costs by an estimated
$75 million in fiscal 2003. These new actions coupled with the fourth quarter
restructuring programs will result in reducing headcount to approximately 4,100
employees by the third quarter of fiscal 2003. The Company believes that the
cost reduction programs will be implemented and executed on a timely basis and
will align costs with revenues. In the event the Company is unable to achieve
this alignment, additional cost cutting programs would be required in the
future.

During the fiscal year ended March 31, 2002, the Company recorded $34.0 million
of restructuring charges, related to three restructuring plans, as a result of
the cost reduction programs mentioned above. Details of these restructuring
plans and the associated charges are described below:

On August 1, 2001 the Company announced a comprehensive cost reduction program
that included a reduction of: (1) approximately 400 jobs worldwide; (2)
expenditures on outside contractors and consultants; (3) operating expenses; and
(4) manufacturing costs through procurement programs to lower materials costs.
The Company expected these steps to result in annualized cost savings in excess
of $50 million. As a result of these measures, the Company terminated 328
employees and recorded a charge of $8.0 million relating primarily to severance
in the second quarter of fiscal 2002.

In October 2001, the Company announced an expanded cost reduction plan which
included (1) a reduction of 500 additional positions, excluding the employees of
the sold ICS Advent

                                      B-4

<PAGE>

subsidiary; (2) consolidating certain of its development and marketing offices;
(3) instituting a reduced workweek at selected manufacturing locations; (4)
reducing capital expenditures, and (5) the relocation of its corporate
headquarters. The Company incurred a restructuring charge of $9.3 million for
this plan, primarily related to severance.

During the fourth quarter of 2002, the Company announced additional cost
reduction plans, which included (1) a reduction of approximately 400 jobs
nationwide; and (2) consolidation of certain Itronix facilities located abroad.
As a result the Company incurred a restructuring charge of $16.7 million during
the fourth quarter of 2002.

During the fiscal year ended March 31, 2002, the Company paid approximately
$19.4 million in severance and other related costs. At March 31, 2002
approximately $14.6 million was left to be paid for the restructuring programs,
which the Company anticipates will be paid primarily during the first half of
fiscal 2003. (See Note G. Restructuring to the Consolidated Financial
Statements.)

A summary of restructuring actions taken during fiscal 2002 are outlined as
follows:

                            For The Twelve Months Ended March 31, 2002
                                Balance                                 Balance
                               March 31,                               March 31,
                                 2001         Expense     Paid           2002
                              ----------      -------     ----       -----------

      Workforce-related     $      ---       $ 31,737   $(17,972)   $     13,765
      Facilities                   ---          1,134       (763)            371
      Other                        ---          1,118       (692)            426
                            ------------     --------   --------    ------------
      Total                 $      ---       $ 33,989   $(19,427)   $     14,562
                            ============     ========   ========    ============

Discontinued Operations

In May 2000, the Board of Directors approved a plan to divest the industrial
computing and communications business segment, which segment consisted of the
Company's ICS Advent and Itronix Corporation subsidiaries. In October 2001, the
Company divested its ICS Advent subsidiary (See Note F. Acquisitions and
Divestitures to the Consolidated Financial Statements) and due to market
conditions, decided to retain the Itronix business. The decision to retain
Itronix required the Company to make certain reclassifications to its Statements
of Operations and Balance Sheets for all periods presented. The Statements of
Operations were reclassified to include the results of operations of ICS Advent
and Itronix within continuing operations. The Balance Sheet at March 31, 2001
reflects the net assets of ICS Advent classified as net assets held for sale.
The Statement of Cash Flows was not reclassified as these statements were not
previously presented on a discontinued basis.

Critical Accounting Policies

Acterna's significant accounting policies are presented within Note E. (Summary
of Significant Accounting Policies) of the Consolidated Financial Statements.
While all the accounting policies impact the financial statements, certain
policies may be viewed to be critical. These policies are those that are both
most important to the portrayal of the Company's financial condition and results
of operations and require the Company's management's most difficult, subjective
or complex judgments and estimates. Actual results

                                      B-5

<PAGE>

could differ from those estimates. Management believes the policies that fall
within this category are the policies on revenue recognition, receivables,
inventory, long-lived asset valuation, accounting for income taxes, accounting
for employee pension plans and warranty.

Revenue

The Company derives revenue, principally, from the sale of products. The Company
recognizes revenue when it is earned, which is determined to be when it has
persuasive evidence of an arrangement, the product has been shipped or the
services have been provided to the customer, title and the risk of loss has been
transferred to the customer, the sales price is fixed or determinable and
collectibility is reasonably assured.

Revenue on long-term contracts is recognized using the completed contract basis
or the percentage of completion basis, as appropriate. Profit estimates on
long-term contracts are revised periodically based on changes in estimates of
costs to be incurred and any losses on contracts are recognized in the period
that such losses become known. Generally, the terms of long-term contracts
provide for progress billing based upon completion of defined phases of work.

Revenue from software sales is generally recognized upon delivery provided that
a contract has been executed, there are no uncertainties regarding customer
acceptance and that collection of the related receivable is probable. When
significant post-delivery obligations exist, revenue is deferred until such
obligations are fulfilled.

Revenue recognition involves judgments, and assessments of expected returns, the
likelihood of nonpayment and estimates of expected costs and profits on
long-term contracts. The Company analyzes various factors, including a review of
specific transactions, historical experience, credit-worthiness of customers and
current market and economic conditions in determining when to recognize revenue.
Changes in judgments on these factors could impact the timing and amount of
revenue recognized.

Receivables

Accounts receivable and notes receivable are evaluated based upon the
credit-worthiness of customers and the age of historical balances and historical
experience. The Company maintains an allowance for doubtful accounts for
estimated losses resulting from the inability of its customers to make required
payments.

Inventory

Inventory values are stated at the lower of cost or market. Cost is determined
based on a currently-adjusted standard basis, which approximates actual cost on
a first-in, first-out basis. The Company's inventory includes raw materials,
work in process, finished goods and demonstration equipment. The Company
periodically reviews its recorded inventory and estimates a reserve for obsolete
or slow-moving items. The Company reserves the entire value of all obsolete
items. The Company determines excess inventory based upon current and forecasted
usage, and a reserve is provided for the excess inventory. Such estimates are
difficult to make under current economic conditions. If actual demand and market
conditions are less favorable than those projected by management, additional
reserves may be required. If actual market conditions are more favorable than
anticipated, our cost of sales will be lower than expected in that period.

Long-Lived Assets

                                      B-6

<PAGE>

Property, plant and equipment, goodwill and intangible, and other long-lived
assets are evaluated based upon various factors, including the expected period
the asset will be utilized, forecasted cash flows, changes in technology and
customer demand. The Company assesses impairment of long-lived and intangible
assets and goodwill whenever events or changes in circumstances indicate that
the carrying value may not be recoverable. Factors the Company considers include
among others the following:

..  Significant under-performance relative to expected historical or projected
   future operating results;

..  Significant changes in the manner of the Company's use of the acquired
   assets or the strategy for our overall business;

..  Significant negative industry or economic trends; and

..  The Company's market capitalization relative to book value.

When the Company determines that the carrying value of intangibles, long-lived
assets and goodwill may not be recoverable based upon the existence of one or
more of the above indicators of impairment, the Company measures impairment
based on one of two methods. For assets related to ongoing operations the
Company plans to continue, the Company uses a projected undiscounted cash flow
method to determine if impairment exists and then measures impairment using
discounted cash flows. For assets to be disposed of and goodwill, the Company
assesses the fair value of the asset based on current market condition for
similar assets. If the Company determines that any of the impairment indicators
exist, and these assets were determined to be impaired, an adjustment to write
down the long-lived assets would be charged to income in the period such
determination was made.

Income Tax

The Company is required to estimate its income taxes in each of the
jurisdictions in which it operates. This process involves estimating the
Company's actual current tax obligations together with assessing differences
resulting from the different treatment of items for tax and accounting purposes
which result in deferred tax assets and liabilities. The Company has deferred
tax assets and liabilities included within its balance sheet. The Company's
deferred tax assets are assessed for each reporting period as to whether it is
more likely than not that they will be recovered from future taxable income,
including assumptions regarding on-going tax planning strategies. To the extent
the Company believes that recovery is not more likely than not, the Company must
establish a valuation allowance for assets not expected to be recovered. Changes
to the valuation allowance are included as an expense or benefit within the tax
provision in the statement of operations. In the event that actual results
differ from these estimates, the Company's provision for income taxes could be
materially impacted.

Pension Plans

Pension assets and liabilities are determined on an actuarial basis and are
affected by the estimated market-related value of plan assets, estimates of the
expected return on plan assets, discount rates and other assumptions relating to
estimates of future salary costs and employee service lives, inherent in these
valuations. The Company annually reviews the assumptions underlying the
actuarial calculations and makes changes to these assumptions, based on the
current market conditions, as necessary. Actual changes in the fair market

                                      B-7

<PAGE>

value of plan assets and differences between the actual return on plan assets
and the expected return on plan assets will affect the amount of pension
(income) expense ultimately recognized.

Warranty

The Company accrues for warranty costs at the time of shipment, based on
estimates of expected rework rates and warranty costs to be incurred. While the
Company engages in product quality programs and processes, the Company's
warranty obligation is affected by product failure rates, material usage and
service delivery costs. Should actual product failure rates, material usage or
service delivery costs differ from the Company's estimates, the amount of actual
warranty costs could differ from the Company's estimates. The Company's warranty
period ranges from 1 to 3 years.

Seasonality

As a result of purchasing patterns of the Company's telecommunications
customers, which tend to place large orders periodically, typically during the
third quarter and at the end of the Company's fourth fiscal quarters, the
Company expects that its results of operations may vary on a quarterly basis, as
they have in the past.

Product Development

For the year ended March 31, 2002 and 2001, the Company invested approximately
$160.2 million and $168.1 million in product development activities,
respectively.

The market for the Company's products and services is characterized by rapidly
changing technologies, new and evolving industry standards and protocols and
product and service introductions and enhancements that render the Company's
existing offerings obsolete or unmarketable. Automation in addressed markets for
communications test equipment or a shift in customer emphasis from
employee-operated communications test to automated test and monitoring systems
could likewise render the Company's existing product offerings obsolete or
unmarketable, or reduce the size of one or more of its addressed markets. In
particular, incorporation of self-testing functions in the equipment currently
addressed by the Company's communications test instruments could render product
offerings redundant and unmarketable. The development of new, technologically
advanced products is a complex and uncertain process requiring the accurate
anticipation of technological and market trends and the incurrence of
substantial research and development costs.

We do not have any financial partnerships with unconsolidated entities, such as
entities often referred to as structured finance or special purpose entities,
which are often established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. Accordingly, we
are not exposed to any financing, liquidity, market or credit risk that could
arise if we had such relationships.

ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS DURING FISCAL 2002

                                      B-8

<PAGE>

The Company in the normal course of business entered into acquisitions during
fiscal 2002, which, in the aggregate, do not have a material impact on the
financial results of the Company. Accordingly the Company has not presented
proforma results of operations for these acquisitions.

ACQUISITIONS DURING FISCAL 2001

Wavetek Wandel Goltermann, Inc.

On May 23, 2000, the Company merged one of its wholly owned subsidiaries with
WWG for consideration of $402.0 million, which includes $14.2 million of
acquisition costs. In connection with the WWG Merger, the Company refinanced
certain of its debt and entered into a new Senior Secured Credit Facility (See
Note K. Note Payable and Debt to the Consolidated Financial Statements). The WWG
Merger was accounted for using the purchase method of accounting. As part of a
fair value exercise, the Company increased the carrying value of acquired
inventory by $35 million in order to record this inventory at its fair value,
increased the carrying value of acquired land and buildings by $27 million to
record them at fair value, and determined the fair value of acquired incomplete
technology to be $51 million. This purchased incomplete technology had not
reached technological feasibility, had no alternative future use and was written
off to the income statement during the year. The WWG Merger generated
approximately $488.9 million of excess purchase price which was allocated to
other intangibles on a basis as follows: $162.2 million to core technology
(which was being amortized over six years), $45.2 million to workforce (which
was being amortized over five years prior to adoption of FAS 142, as discussed
below), and $6.8 million to backlog (which was amortized over 12 months). The
unallocated excess purchase price or goodwill of $274.8 million was being
amortized over six years. As of April 1, 2001, the Company adopted FAS 142 and
all amounts previous allocated to workforce have been reclassified to goodwill;
additionally, amortization of goodwill was ceased.

Superior Electronics Group, Inc., doing business as Cheetah Technologies

On August 23, 2000, the Company acquired Cheetah for a purchase price of $171.5
million. The acquisition was accounted for using the purchase method of
accounting. As part of a fair value exercise, the Company increased the carrying
value of the acquired inventory by $750 thousand to reflect its fair value, and
determined the fair value of acquired incomplete technology to be $5.0 million.
This purchased incomplete technology had not reached technological feasibility,
had no alternative future use and was written off to the income statement during
the year. The acquisition generated approximately $143.9 million of excess
purchase price which was allocated to other intangibles as follows: $48.3
million to core technology (which was being amortized over six years), $3.9
million to workforce (which was being amortized over five years prior to
adoption of FAS 142, as discussed below), $3.3 million to backlog (which was
amortized over 12 months), and $0.7 million to trademarks (which is being
amortized over 6 years). The unallocated excess purchase price or goodwill of
$87.7 million was being amortized over six years. As of April 1, 2001, the
Company adopted FAS 142 and all amounts previous allocated to workforce have
been reclassified to goodwill; additionally, amortization of goodwill was
ceased.

The Company funded the purchase price with borrowings of $100 million under its
Senior Secured Credit Facility (See Note K. Notes Payable and Debt to the
Consolidated Financial Statements) and approximately $65.7 million from its
existing cash balances.

                                      B-9

<PAGE>

In connection with the Cheetah acquisition, options to purchase shares of
Cheetah were converted into options to purchase shares of Acterna common stock.
The fair value as of the announcement date of the acquisition of all options
converted was $5.8 million using an option-pricing model. A total of $6.7
million relates to the unearned intrinsic value of unvested options as of the
closing date of the acquisition, and has been recorded as deferred compensation
to be amortized over the remaining vesting period of the options (the weighted
average vesting period is approximately three years).

DIVESTITURES DURING FISCAL 2002 AND 2001

On October 31, 2001, the Company sold its ICS Advent subsidiary for $23
million in cash proceeds. (See Note F. Acquisitions and Divestitures) The
Company wrote down the net assets of ICS Advent at September 30, 2001, to the
cash to be received less expenses related to the sale, which resulted in an
impairment charge of $15 million in the Statement of Operations during the
quarter ended September 30, 2001.

In addition, the Company recorded a charge of $2.9 million relating to the
disposition of a subsidiary of Itronix Corporation during the second quarter of
fiscal 2002.

OTHER ACQUISITIONS AND DIVESTITURES

The Company has, in the normal course of business, entered into acquisitions and
divestitures of small companies or businesses that, in the aggregate, do not
have a material impact on the financial results of the Company.

RESULTS OF OPERATIONS

Fiscal 2002 Compared to Fiscal 2001 on a Consolidated Basis

Net Sales. For the fiscal year ended March 31, 2002 consolidated net sales
decreased $233.6 million or 17.1% to $1.13 billion as compared to $1.37 billion
for the fiscal year ended March 31, 2001. The decrease was primarily
attributable to the current global economic slowdown and a severe downturn in
the telecommunications industry, resulting in a significant decrease in network
build-outs and capital spending. As a result, the Company experienced a
significant decrease in revenues from its communication test segment during
fiscal 2002. The Company also experienced reduced revenues at its AIRSHOW and da
Vinci units during fiscal 2002, offset with increased revenues at its Itronix
unit.

International net sales (defined as sales originating outside of North America)
were $477 million or 42.1% of consolidated net sales for the fiscal year ended
March 31, 2002, as compared to $535 million or 39.2% of consolidated net sales
for the fiscal year ended March 31, 2001.

Gross Profit. Consolidated gross profit decreased $166.8 million to $592.6
million or 52.3% of consolidated net sales for the fiscal year ended March 31,
2002 as compared to $759.4 million or 55.6% of consolidated net sales for the
fiscal year ended March 31, 2001. The decreased gross profit is primarily
attributable to the decline in demand within the communications test business
coupled with $21 million of adjustments in fiscal 2002 related to inventory and
supplier commitments, partially offset by a $35.7 million fiscal 2001 charge

                                      B-10

<PAGE>

related to inventory step-up amortization resulting from the acquisition of WWG
and Cheetah. The majority of these adjustments relate to additional inventory
charges resulting from reduced expectations of demand and usage.

Operating Expenses.  Operating expenses consist of selling, general and
administrative expense; product development expense; recapitalization and other
related costs; purchased incomplete technology; restructuring charges;
impairment of other assets held for sale, goodwill and acquired intangible
assets, and amortization of intangibles. Total operating expenses were $854.1
million or 75.4% of consolidated sales for the fiscal year ended March 31, 2002,
as compared to $840.1 million or 61.5% of consolidated sales for the fiscal year
ended March 31, 2001. The increase during fiscal 2002 as compared to the same
period a year ago is principally due to the impairment of acquired intangibles
and other assets of $173.2 million during fiscal 2002 and restructuring charges
of $34.0 million, which were offset by non-recurring fiscal 2001 charges of $9.2
million for recapitalization and other charges as well as $56.0 million in
write-offs of purchased of incomplete technology in fiscal 2001. In addition,
intangible amortization expense decreased by $77.9 million (amortization of
goodwill ceased on April 1, 2001) during fiscal 2002 as a result of the
implementation of FAS 142.


Amortization of unearned compensation relates to the issuance of non-qualified
stock options to employees and non-employee directors at an exercise price lower
than the closing price in the public market on the date of issuance. During
October 2000, the Company ceased granting options with a strike price less than
the fair market value of the underlying stock. The amortization of unearned
compensation expense during fiscal 2002 was $19.4 million and has been allocated
to cost of sales ($1.2 million), product development expense ($4.4 million), and
selling, general and administrative expense ($13.8 million). The amortization
expense during fiscal 2001 of $19.8 million was allocated to cost of sales ($1.2
million), product development expense ($3.8 million) and selling, general and
administrative expense ($14.8 million).


Selling, general and administrative expense was $444.4 million or 39.2% of
consolidated sales for the fiscal year ended March 31, 2002, as compared to
$486.6 million or 35.6% of consolidated sales for the fiscal year ended March
31, 2001. The $42.2 million decrease is primarily a result of the Company's
restructuring efforts in the second half of the fiscal year to reduce operating
costs of the business as well as a reduction of $9.7 million due to the sale of
ICS Advent. Included in these expenses is approximately $23.0 million during
fiscal 2002 related to charges for the implementation of enhanced systems and
$25.2 million during fiscal 2001 related to the product rebranding and
additional consultants hired for the integration of WWG.

Product development expense was $160.2 million or 14.1% of consolidated net
sales for the fiscal year ended March 31, 2002 as compared to $168.1 million or
12.3% of consolidated net sales for the same period a year ago.

During 2001, recapitalization and other related costs of $9.2 million related to
an executive who left the Company during fiscal 2000. No such costs were
incurred during 2002.

As a result of the declining financial performance and reduced expectations for
future revenues and earnings within the communication test segment, management
performed an assessment of the carrying values of long-lived assets within that
segment. This assessment, based on estimated undiscounted future cash flows of
the segment indicated that long-lived

                                      B-11

<PAGE>

assets were impaired. The Company discounted cash flows to arrive at a value
today, to quantify the impairment of long-lived assets (principally core
technology). As a result, a pre-tax charge of $151.3 million was recorded during
the fourth quarter of fiscal 2002.

During fiscal 2002, the Company completed its transitional test of goodwill
impairment, upon adoption of SFAS 142, which resulted in no impairment charge.
(See Note H. Acquired Intangible Assets to the Company's Consolidated Financial
Statements.)

Amortization of intangibles was $42.3 million for the fiscal year ended March
31, 2002 as compared to $120.2 million for the same period a year ago. The
decrease was primarily attributable to the Company's early adoption of FAS 142
in the first quarter of fiscal 2002, which eliminated the amortization of
goodwill for the entire fiscal year.

Interest.  Interest expense, net of interest income, was $95.0 million for the
fiscal year ended March 31, 2002 as compared to $98.8 million for the same
period a year ago. The decrease in net interest expense during fiscal 2002 as
compared to fiscal 2001, is primarily a result of decreased interest rates,
offset partially by a decrease in interest income.

Other expense.  During fiscal 2002, the Company incurred other expense of $7.6
million principally related to losses in connection with changes in foreign
currencies. Other expense of $4.5 million during fiscal 2001 was also related
principally to changes in foreign currencies.

Taxes.  The Company recorded a provision for taxes of $0.8 million for fiscal
2002 compared to a benefit of $12.8 million for fiscal 2001. The amounts
recorded for income taxes during both fiscal 2002 and 2001 differ significantly
from the amounts that would have been expected by applying the U.S. federal
statutory tax rate to income (loss) from operations before income taxes. During
fiscal 2002 the principal reasons for such differences were: (1) the recording
of valuation allowance against the Company's U.S. net deferred tax assets in the
amount of approximately $74 million, (2) a provision for U.S. income taxes on
unremitted foreign earnings of approximately $40 million, and (3) the carryback
of fiscal 2002 losses for five years.

During fiscal 2001 the principal reasons for the differences between the
expected tax rate and the rate utilized were non-deductible goodwill
amortization as a result of the WWG Merger and an increase in the amount of
income earned in various countries with tax rates higher than the U.S. federal
rate, primarily Germany.

Fiscal 2001 Compared to Fiscal 2000 on a Consolidated Basis

Sales.  For the fiscal year ended March 31, 2001 consolidated net sales
increased $709.7 million to $1.37 billion as compared to $656.6 million for the
fiscal year ended March 31, 2000. The increase occurred primarily within the
communications test segment primarily as a result of the WWG Merger and the
acquisition of Cheetah Technologies.

The Company's international sales (excluding WWG in fiscal 2000 and including
exports from North America directly to foreign customers) were $535 million or
39.2% of consolidated sales for the fiscal year ended March 31, 2001, as
compared to $82 million or 12.5% of consolidated sales for the fiscal year ended
March 31, 2000. The increase in international sales was due primarily to the WWG
Merger. WWG's operations are principally in Europe with significant sales
offices in Asia and Latin America, as well as in the United States.

                                      B-12

<PAGE>

Gross Profit. Consolidated gross profit increased $388.3 million to $759.4
million or 55.6% of consolidated net sales for the fiscal year ended March 31,
2001 as compared to $371.1 million or 56.5% of consolidated net sales for the
fiscal year ended March 31, 2000. Included in the fiscal 2001 gross profit is a
purchase accounting charge of $35.7 million related to the amortization of
inventory step-up as a result of the acquisitions of WWG and Cheetah. Excluding
this step-up, gross profit was $795.1 million or 58.2% of consolidated net
sales. The increase in gross margin as a percent of sales was, in part, a result
of increased capacity utilization due to the increase in sales.

Operating Expenses.  Operating expenses consist of selling, general and
administrative expense; product development expense; recapitalization and other
related costs; purchased incomplete technology; and amortization of intangibles.
Total operating expenses were $840.1 million or 61.5% of consolidated net sales
for the fiscal year ended March 31, 2001, as compared to $308.0 million or 46.9%
of consolidated net sales for the fiscal year ended March 31, 2000. Excluding
the impact of the write-off of the purchased incomplete technology of $56.0
million and the recapitalization and other related costs of $9.2 million, total
operating expenses were $774.9 million or 56.7% of consolidated net sales during
fiscal 2001. The increase was primarily a result of the WWG Merger, which has a
higher cost structure than the Company has had historically, increased
intangible amortization expense, increased amortization of unearned
compensation, and expenses relating to product rebranding and additional
consultants hired for the integration of WWG with the Company's communications
test segment.

Amortization of unearned compensation relates to the issuance of non-qualified
stock options to employees and non-employee directors at an exercise price lower
than the closing price in the public market on the date of issuance. The
amortization of unearned compensation expense during fiscal 2001 was $19.8
million and has been allocated to cost of sales ($1.2 million), product
development expense ($3.8 million), and selling, general and administrative
expense ($14.8 million). The amortization expense during fiscal 2000 of $2.4
million was allocated to cost of sales ($0.4 million), product development
expense ($0.1 million) and selling, general and administrative expense ($1.9
million).

The increase in the amortization of unearned compensation expense is primarily a
result of the non-qualified stock options that were granted to former WWG and
Cheetah employees who became active employees of the Company at the time of the
acquisitions. (See Note E. Summary of Significant Accounting Policies to the
Company's Consolidated Financial Statements.)

Selling, general and administrative expense was $486.6 million or 35.6% of
consolidated net sales for the fiscal year ended March 31, 2001, as compared to
$192.3 million or 29.3% of consolidated net sales for the fiscal year ended
March 31, 2000. The percentage increase is in part a result of expenses totaling
$25.2 million, which related to product rebranding and additional consultants
hired for the integration of WWG with the Company's communications test segment
(the "integration expenses"). In addition, the Company recorded a charge of $2.0
million during the third quarter of fiscal 2001 related to the write-off of all
charges capitalized in connection with the Company's registration statement on
Form S-1, which the Company filed in July 2000 for a potential common stock
offering. The Company amended this registration statement by converting it to a
universal shelf registration statement on Form S-3 under which the company may
offer from time to time up to $1 billion of equity or debt securities.

                                      B-13

<PAGE>

Excluding the amortization of unearned compensation of $14.8 million, the
integration expenses of $25.2 million, and the write-off of the S-1 charges of
$2.0 million, selling, general and administrative expense was $446.6 million in
fiscal 2001, or 32.5% of consolidated net sales, which is comparable to the
results for fiscal 2000.

Product development expense was $168.1 million or 12.3% of consolidated sales
for the fiscal year ended March 31, 2001 as compared to $75.4 million or 11.5%
of consolidated sales for the fiscal year ended March 31, 2000. The dollar
increase resulted principally from the WWG Merger and the acquisition of
Cheetah.

Recapitalization and other related costs during fiscal 2001 were $9.2 million as
compared to $27.9 million in fiscal 2000. The expense incurred during the first
three months of fiscal 2001 of $9.2 million related to an executive who left the
Company during fiscal 2000. The expense incurred during fiscal 2000 related to
termination expenses of certain executives including the retirement of John F.
Reno, former Chairman, President and Chief Executive Officer of the Company, as
well as other employees.

During fiscal 2001, the Company recorded a total charge of $56.0 million for
acquired incomplete technology, of which $51.0 million related to the WWG Merger
and $5.0 million related to the acquisition of Cheetah. This purchased
incomplete technology had not reached technological feasibility and had no
alternative future use.

Amortization of intangibles was $120.2 million for the fiscal year ended March
31, 2001 as compared to $12.3 million for the fiscal year ended March 31, 2000.
The increase was primarily attributable to increased goodwill and other
intangible amortization related to the acquisitions of Cheetah, WWG and ADA.

Interest.  Interest expense, net of interest income, was $98.8 million for the
fiscal year ended March 31, 2001 as compared to $49.6 million for the same
period during fiscal 2000. The increase in net interest expense during fiscal
2001 resulted from the additional debt incurred for the WWG Merger and the
acquisition of Cheetah.

Other income (expense).  During fiscal 2001, the Company incurred approximately
$4.5 million of losses in connection with changes in foreign currencies.

Taxes.  The effective tax rate changed for the fiscal year ended March 31, 2001
to a benefit of 7% as compared to a provision of 53.1% for the fiscal year ended
March 31, 2000. The principal reasons for the decrease in the effective tax rate
were: (1) additional non-deductible goodwill amortization in fiscal 2001 as a
result of the WWG Merger and (2) an increase in the amount of income earned in
various countries with tax rates higher than the U.S. federal rate, primarily
Germany.

Extraordinary item.  During fiscal 2001, in connection with the WWG Merger, the
Company recorded an extraordinary charge of approximately $10.7 million (net of
an income tax benefit of $6.6 million), of which $7.3 million (pretax) related
to a premium paid by the Company to WWG's former bondholders for the repurchase
of WWG's senior subordinated debt outstanding prior to the WWG Merger. In
addition, the Company booked a charge of $10.0 million (pretax) for the
unamortized deferred debt issuance costs that originated at the time of the May
1998 Recapitalization.


Business Segments

                                      B-14

<PAGE>

The Company measures the performance of its segments by their respective new
orders received ("bookings"), net sales and earnings before interest, taxes, and
amortization of intangibles and amortization of unearned compensation ("EBITA"),
which excludes non-recurring and one-time charges (See Note S. Segment
Information and Geographic Areas to the Company's Consolidated Financial
Statements.)

Included in the segment's EBITA is an allocation of corporate expenses. The
information below includes bookings, net sales and EBITA for the Company's
communications test, industrial computing and communications, AIRSHOW and da
Vinci segments:

<TABLE>
<CAPTION>
                                                             Years ending March 31,
                                                                 2002             2001               2000
                                                                 ----             ----               ----
 <S>                                                         <C>               <C>                <C>
 SEGMENTS
 Communications test:                                                 (Amounts in thousands)
   Bookings ............................................      $ 657,147        $1,248,465         $  430,254
   Net sales ...........................................        854,437         1,052,747            349,886
   EBITA ...............................................         (3,662)          139,498             62,447

 Industrial computing and communications:
   Bookings ............................................      $ 141,535        $  226,566         $  180,555
   Net sales ...........................................        188,351           198,441            203,361
   EBITA ...............................................          4,950            (1,914)            25,379

 AIRSHOW:
   Bookings ............................................      $  58,321        $   79,142         $   72,275
   Net sales ...........................................         65,024            78,886             70,960
   EBITA ...............................................          9,493            15,886             19,314

 da Vinci:
   Bookings ............................................      $  23,048        $   33,720         $   26,906
   Net sales ...........................................         24,849            35,329             26,572
   EBITA ...............................................          5,970            10,909              8,642
</TABLE>


Fiscal 2002 Compared to Fiscal 2001 - Communications Test

Bookings for the communications test products decreased 47.4% to $657.1 million
for the fiscal year ended March 31, 2002, as compared to $1.25 billion for the
same period a year ago. The decrease is primarily due to a global downturn
within the telecommunications industry.

Sales of communications test products decreased 18.8% to $854.4 million for the
fiscal year ended March 31, 2002, as compared to $1.05 billion for the same
period a year ago. The decrease in sales is primarily a result of the downturn
in the telecommunications industry and has affected all of the segments' product
lines.

EBITA for the communications test products decreased to a loss of $3.7 million
for fiscal 2002 as compared to an income of $139.5 million for the same period a
year ago. The decrease is primarily related to reduced sales and pricing
pressures, which were partially offset by reduced operating expenses in the
second half of fiscal 2002 resulting from the restructuring actions taken during
the year.

                                      B-15

<PAGE>

As a result of the declining financial performance and reduced expectations for
future earnings, management performed an assessment of the carrying value of the
long-lived assets within the communications test segment resulting in an
impairment of acquired intangible assets (principally core technology). As a
result, a charge of $151.3 million was recorded during the fourth quarter of
fiscal 2002.

Fiscal 2002 Compared to Fiscal 2001 - Industrial Computing and Communications

Bookings for the industrial computing and communications products decreased
37.5% to $141.5 million for the fiscal year ended March 31, 2002, as compared to
$226.6 million for the same period a year ago. The decrease was primarily due to
the disposition of ICS Advent, a division of industrial computing and
communications, on October 31, 2001. Excluding the effect of ICS Advent for both
fiscal 2002 and 2001, bookings decreased by 11.1% to $116.8 million for the
fiscal year ended March 31, 2002, as compared to $131.4 million for the same
period a year ago. The $14.6 million pro-forma decrease in bookings is primarily
related to slower first half orders at the Company's Itronix subsidiary.

Net sales of industrial computing and communications products decreased 5.1% to
$188.4 million for the fiscal year ended March 31, 2002, as compared to
$198.4 million for the same period a year ago. The decrease in net sales was
primarily due to the disposition of ICS Advent and was offset in part by an
increase in net sales from the Itronix business. Excluding the effect of ICS
Advent for both fiscal 2002 and 2001, net sales increased by 34.9% to $152.7
million for the fiscal year ended March 31, 2002, as compared to $113.2 million
for the same period a year ago. The $39.5 million pro-forma increase in net
sales is from the Itronix business and is primarily due to shipments of
Itronix's new rugged laptop PC (Go Book) product.

EBITA for the industrial computing and communications segment increased $6.9
million to $5.0 million for fiscal 2002 as compared to a loss of $1.9 million
for the same period a year ago. The increase in EBITA results primarily from an
increase in net sales at Itronix, offset by increased losses at ICS Advent.
Excluding the effect of ICS Advent for both fiscal 2002 and 2001, EBITA
increased by $10.0 million to $10.7 million for the fiscal year ended March 31,
2002, as compared to $0.7 million for the same period a year ago.

Fiscal 2002 Compared to Fiscal 2001 - AIRSHOW

Bookings for AIRSHOW products decreased 26.3% to $58.3 million for the fiscal
year ended March 31, 2002, as compared to $79.1 million for the same period a
year ago. The decrease was primarily due to a reduction in spending in the
aviation markets after September 11, 2001.

Net sales of AIRSHOW products decreased 17.6% to $65.0 million for the fiscal
year ended March 31, 2002, as compared to $78.9 million for the same period a
year ago. The decrease in sales was primarily due to a reduction in orders
during the second half of the fiscal year.

EBITA for the AIRSHOW products decreased 40.2% to $9.5 million as compared to
$15.9 million for the same period a year ago. The decrease in EBITA primarily
resulted from higher product costs and lower volumes, which were partially
offset by reduced operating expenses in the second half of fiscal 2002, which
resulted from the restructuring actions taken during the year to more
appropriately reflect current demand levels for its products.

                                      B-16

<PAGE>

Fiscal 2002 Compared to Fiscal 2001 - da Vinci

Bookings for da Vinci decreased 31.6% to $23.0 million for the fiscal year ended
March 31, 2002, as compared to $33.7 million for the same period a year ago. The
decrease related primarily to industry cutbacks of advertising budgets which
indirectly drives the capital expenditure for post production video houses. This
decrease became more pronounced in the second half of the fiscal year with the
general downturn in the economy.

Net sales of da Vinci decreased 29.7% to $24.8 million for the fiscal year ended
March 31, 2002, as compared to $35.3 million for the same period a year ago. The
decrease in sales was due to the factors described above causing a reduction in
sales of the da Vinci products.

EBITA for da Vinci decreased 45.3% to $6.0 million as compared to $10.9 million
for the same period a year ago. The decrease in EBITA primarily resulted from
the $10.5 million decrease in sales for fiscal 2002 as compared to fiscal 2001
and was offset by reduced operating expenses level in the third quarter of
fiscal 2002.

Fiscal 2001 Compared to Fiscal 2000 - Communications Test

Bookings for communications test products increased 190.2% to $1.25 billion for
the fiscal year ended March 31, 2001, as compared to $430.3 million for the same
period of fiscal 2000. The increase was primarily due to the WWG Merger and the
acquisition of Cheetah and ADA as well as an increase in bookings for
instruments, principally for optical transport products, systems and services at
the Company's existing communications test businesses.

Net sales of communications test products increased 200.9% to $1.05 billion for
the fiscal year ended March 31, 2001, as compared to $349.9 million for the same
period of fiscal 2000. The increase in sales was primarily due to the additional
net sales from the WWG Merger and the acquisitions of Cheetah and ADA. The
increase is related to the following portions of the communications test
segment: 15.0% was attributable to core growth, 3.8% was attributable to the
additional sales from ADA; 77.2% was attributable to the WWG Merger; and 4.0%
was attributable to the acquisition of Cheetah.

For the fiscal years ended March 31, 2001 and March 31, 2000, respectively,
sales of optical transport products were $420.3 million and $154.1 million;
sales of cable products were $129.6 million and $0 million; and sales of
telecommunications systems and software products were $90.3 million and $47.3
million.

EBITA for the communications test products increased 123.4% to $139.5 million
for fiscal 2001 as compared to $62.4 million for the same period of fiscal 2000.
The increase in EBITA primarily resulted from the WWG Merger and the acquisition
of Cheetah, which was offset by integration expenses principally related to the
WWG Merger.

Fiscal 2001 Compared to Fiscal 2000 - Industrial Computing and Communications

Bookings for the industrial computing and communications product increased 25.5%
to $226.6 million for the fiscal year ended March 31, 2001, as compared to
$180.6 million for the same period of fiscal 2000. The increase in bookings is
primarily related to the introduction of Itronix's new rugged laptop PC (Go
Book) product during the fourth quarter of fiscal 2001.

                                      B-17

<PAGE>

Net sales for the industrial computing and communications product decreased 2.4%
to $198.4 million for the fiscal year ended March 31, 2001, as compared to
$203.4 million for the same period of fiscal 2000. The decrease in sales
primarily resulted from a decline in sales at ICS Advent.

EBITA for the industrial computing and communications products decreased $27.3
million to a loss of $1.9 million for the fiscal year ended March 31 2001, as
compared to $25.4 million in income in fiscal 2000. The decrease in EBITA
primarily resulted from declining gross margins due to competitive pricing
pressures, as well as costs incurred for product redesign.

Fiscal 2001 Compared to Fiscal 2000 - AIRSHOW

Bookings for AIRSHOW products increased 9.5% to $79.1 million for the fiscal
year ended March 31, 2001 as compared to $72.3 million for the same period
during fiscal 2000. The increase in bookings is primarily due to increase in the
overall demand for general aviation products.

Net sales for AIRSHOW products increased 11.2% to $78.9 million for the fiscal
year ended March 31, 2001, as compared to $71.0 million for the same period
during fiscal 2000. The increase in sales is primarily due to the increase in
the general aviation market.

EBITA for AIRSHOW products decreased 17.7% to $15.9 million for the fiscal year
ended March 31, 2001, as compared to $19.3 million for the same during fiscal
2000. The decrease in EBITA is primarily due to an increase in shipments to the
general aviation market, which have lower gross margins than commercial aviation
products.

Fiscal 2001 Compared to Fiscal 2000 - da Vinci

Bookings for da Vinci products increased 25.3% to $33.7 million for the fiscal
year ended March 31, 2001, as compared to $26.9 million for the same period
during fiscal 2000. The increase in bookings is primarily related to the
introduction of da Vinci's "2K" product, a digitally compatible color
enhancement systems.

Net sales for da Vinci products increased 33.0% to $35.3 million for the fiscal
year ended March 31, 2002, as compared to $26.6 million for the same period
during fiscal 2000. The increase in sales is primarily due to the emergence of
the HDTV technology within the advertising film industry.

EBITA for da Vinci products increased 26.2% to $10.9 million for the fiscal year
ended March 31, 2001, as compared to $8.6 million during fiscal 2000. The
increase was due primarily to the increase in sales.

Debt, Capital Resources and Liquidity

The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the WWG Merger, Cheetah
acquisition, the recent and significant operating losses recorded as well as
funding the Company's on-going operations. As of March 31, 2002, the Company had
$1.088 billion of indebtedness, primarily consisting of $275 million principal
amount of 9.75% Senior Subordinated Notes due 2008 (the "Senior Subordinated
Notes"), $711 million in borrowings under the Company's Senior
Secured Credit Facility, $77 million principal amount of 12% of Senior Secured
Convertible Note due 2007 (the "Convertible Notes") and $25 million of other
debt obligations. The working capital

                                      B-18

<PAGE>


balances of the Company at March 31, 2002 are expected to continue at similar
levels for the foreseeable future.

During the fourth quarter of the fiscal year ended March 31, 2002, new U.S. tax
legislation was enacted which increased the period over which net operating
losses may be carried back, from two years to five. Consistent with these new
laws, the Company filed claims for a refund of approximately $61 million of
taxes paid in prior years. The entire $61 million was collected during the first
quarter of fiscal 2003.

On June 13, 2002, the Company signed a definitive agreement to sell its AIRSHOW
business to Rockwell Collins, Inc. for $160 million in cash, subject to
adjustment. The Company expects to record a gain in relation to this
transaction. Consummation of the sale is subject to customary closing
conditions, including regulatory approvals and consent of the Company's lenders
under its Senior Secured Credit Facility. The Company intends to use the net
proceeds of the sale (after fees and expenses) to repay a portion of its debt or
invest in its business.

The following table lists the future payments for debt, operating leases and
purchase obligations:(In thousands)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
  Debt, operating leases     Fiscal      Fiscal      Fiscal      Fiscal      Fiscal
       and purchase
       obligations            2003        2004        2005        2006        2007        Thereafter       Total
-------------------------------------------------------------------------------------------------------------------
<S>                         <C>         <C>         <C>         <C>         <C>           <C>           <C>
Senior secured credit
facility                    $25,749     $40,700     $44,500     $74,700     $310,000      $ 215,034     $  710,683
-------------------------------------------------------------------------------------------------------------------
Senior secured
convertible note                ---         ---         ---         ---          ---         76,875         76,875
-------------------------------------------------------------------------------------------------------------------
Senior subordinated
notes                           ---         ---         ---         ---          ---        275,000        275,000
-------------------------------------------------------------------------------------------------------------------
Other notes payable           2,523         ---         ---         ---          ---            ---          2,523
-------------------------------------------------------------------------------------------------------------------
Capital leases and
other debt                    3,188       3,813       3,802       2,666        2,667          6,305         22,441
-------------------------------------------------------------------------------------------------------------------
Operating leases             18,386      16,489      12,257       9,630        8,208         43,195        108,165
-------------------------------------------------------------------------------------------------------------------
Purchase obligations         13,852       5,898       5,899         ---          ---            ---         25,649
-------------------------------------------------------------------------------------------------------------------
                            -------     -------     -------     -------     --------      ---------     ----------
-------------------------------------------------------------------------------------------------------------------
Total                       $63,698     $66,900     $66,458     $86,996     $320,875      $ 616,409     $1,221,336
-------------------------------------------------------------------------------------------------------------------
</TABLE>

The Company has recorded significant losses from operations and seen a
substantial reduction in revenues and operations as a result of the economic
downturn and in particular the downturn within the telecommunications sector and
related industries. Consequently the Company has undertaken several
restructurings during the year ended March 31, 2002 (See Note G. to the
Consolidated Financial Statements) to align its cost structures and its
revenues. Due to the severity of the continuing downturn, management have
identified the need to make further cost reductions during the course of fiscal
2003. These cost reduction plans are designed to align the cost base of the
Company with the reduced forecast revenues and to enable the Company to remain
compliant with the liquidity and earnings covenants required under
the Senior Secured Credit Facility (See Note K. to the Consolidated Financial
Statements) during the course of fiscal 2003. Continuing compliance with these
covenant requirements during fiscal 2003 is dependent upon the timely execution
of the cost cutting plans identified and being implemented. The Company's cash
requirements for debt service, including repayment of debt, and on-going
operations are substantial. Debt repayment obligations are significant and
increase through 2007 (See Note K. to the Consolidated Financial Statements).


                                      B-19

<PAGE>


As a result of the amendment of the Senior Secured Credit agreement and the
issuance at par of $75 million of 12% Senior Secured Convertible Notes due 2007
(the "Convertible Notes") in January 2002, the Company believes that funds
generated by ongoing operations and funds available under its senior secured
credit facility will be sufficient to meet its cash needs over the next
twelve-month period.

Under the Senior Secured Credit Facility, the Company is subject to certain
covenants including but not limited to minimum liquidity and minimum EBITDA
amounts. The Company must maintain minimum liquidity of $25 million, which is
defined as the sum of cash and cash equivalents plus aggregate available
revolving credit commitments. The Company must also comply with minimum
cumulative EBITDA amounts of ($10 million), $17 million, and $40 million for the
six, nine, and twelve month periods ended September 30, 2002, December 31, 2002,
and March 31, 2003, respectively. The Company believes it has sufficient cash
and borrowing availability to meet its liquidity covenants for fiscal 2003 and
that at expected reduced revenue levels and on timely and successful execution
of its restructuring programs, will be able to meet its EBITDA covenant
requirements for the next twelve months ended March 31, 2003.

Beyond March 31, 2003, the Company is dependent upon its ability to generate
significant operating profitability and cash flows from operations to fund the
repayment of the future debt obligations. There is no assurance that the Company
will be able to achieve these levels of operating profitability and cash flows
from operations or remain in compliance with its covenants requirements. In the
event its operations are not profitable or do not generate sufficient cash to
fund the business, the Company may fail to comply with its restrictions,
obligations and covenants under its Senior Secured Credit Facility, which could
result in a default. A default could result in the Company's Lenders requiring
immediate repayment and limiting the availability of borrowings under the
Company's Revolving Credit Facility. The Company may have to find other sources
of capital and further substantially reduce its operations. In addition, the
Company may need to raise additional capital to meet its needs after fiscal
2003, to develop new products and to enhance existing products in response to
competitive pressures, and to acquire complementary products, businesses or
technologies. However, the Company may not be able to obtain additional
financing on terms favorable to it, if at all. If adequate funds are not
available or are not available on terms favorable to the Company, its business,
results of operations and financial condition could be materially and adversely
affected.

Beyond March 31, 2003, based on current forecasts of revenues and results of
operations, assuming timely completion and execution of the cost reduction
programs, and based on the increasing and significant debt repayment obligations
beginning in 2003, the Company believes that its current capital structure will
need to be renegotiated, extended or refinanced. There can be no guarantee that
in the event the Company is required to extend, refinance or repay its debt,
that new or additional sources of financing will be available or will be
available on terms acceptable to the Company. Inability to repay the debt
obligations or source alternative finance will likely have a material negative
impact on the business, financial position and results of operations of the
Company.

The Company's future operating performance and ability to repay, extend or
refinance the Senior Secured Credit Facility (including the Revolving Credit
Facility) or any new borrowings, and to service and repay or refinance the
Convertible Notes and the Senior Subordinated Notes, will be subject to future
economic, financial and business conditions and other factors, including demand
for communications test equipment, many of which are beyond the Company's
control.

Convertible Notes

                                      B-20

<PAGE>

On January 15, 2002, Acterna LLC, a wholly-owned subsidiary of the Company,
issued and sold at par $75 million aggregate principal amount of the Convertible
Notes to CDR Fund VI. The Company used the net proceeds of $69 million from the
issuance and sale of the Convertible Notes (net of fees and expenses) to repay a
portion of its indebtedness under its Revolving Credit Facility. The amounts
repaid remain available to be re-borrowed by the Company, subject to compliance
with the terms of the Senior Secured Credit Facility. As of March 31, 2002, the
Company was in compliance with all covenants under the agreement governing the
Convertible Notes.

Interest on the Convertible Notes is payable semi-annually in arrears on each
March 31/st/ and September 30/th/, with interest payments commencing on
March 31, 2002. At the option of Acterna LLC, interest is payable in cash or
in-kind by the issuance of additional Convertible Notes. Due to limitations
imposed by the Senior Secured Credit Facility, Acterna LLC expects to pay
interest on the Convertible Notes in-kind by issuing additional Convertible
Notes. The Convertible Notes are secured by a second lien on all of the assets
of the Company and its subsidiaries that secure the Senior Secured Credit
Facility, and are guaranteed by the Company and its domestic subsidiaries. A
termination or acceleration of the Senior Secured Credit Facility because of a
default under the Senior Secured Credit Facility, or a material payment default
under the Senior secured Credit Facility, constitutes a default under the
Convertible Notes.

At the option of CDR Fund VI (or any subsequent holder of Convertible Notes), at
any time prior to December 31, 2007, the maturity date of the Convertible Notes,
the Convertible Notes may be converted into newly-issued shares of common stock
of the Company at a conversion price of $3.00 per share, subject to customary
anti-dilution adjustments. On the date of issuance, the conversion price of the
Convertible Notes exceeded the public market price per share of common stock of
the Company. If in the future any Convertible Note is issued with a conversion
price that is less than the public market price on January 15, 2002 (the date of
original issuance) as a result of an anti-dilution adjustment of the conversion
price, then the Company would be required to take a charge to its results of
operations to reflect the discount of the adjusted conversion price to the
market price of the common stock on the date of original issuance.

Acterna LLC may redeem the Convertible Notes, in whole or in part, and without
penalty or premium, at any time prior to the maturity date. In addition, Acterna
LLC is required to offer to repurchase the Convertible Notes upon a change of
control and upon the disposition of certain assets. If any Convertible Note is
redeemed, repurchased or repaid for any reason prior to the maturity date, the
holder will be entitled to receive from the Company a warrant to purchase a
number of newly-issued shares of common stock of the Company equal to the number
of shares of common stock that such Convertible Note was convertible into
immediately prior to its redemption, repurchase or repayment. The exercise price
of such warrant will be the conversion price in effect immediately prior to such
warrant's issuance, subject to customary anti-dilution adjustments. Warrants
will be exercisable upon issuance and will expire on the maturity date of the
Convertible Notes. The Company is required to classify the contingently issuable
warrants as liabilities. Because the warrants are only issuable upon redemption,
repurchase or repayment prior to maturity, which requires the consent of the
lenders under the Company's Senior Secured Credit Facility, the Company has
valued the warrants at zero as of the date of issuance. The change in fair value
of the warrants will be recorded as a charge to operations.

Senior Secured Credit Facility and Amendment to Senior Secured Credit Facility

                                      B-21

<PAGE>

In connection with the WWG Merger, the Company refinanced a portion of its debt
and entered into a senior secured credit facility with a syndicate of lenders
(the "Senior Secured Credit Facility") that provided for term loans and a
revolving credit facility (the "Revolving Credit Facility"). As of March 31,
2002, the Company had $647.7 million in the term loan borrowings, $63.0 million
in revolving credit borrowings and $17 million of outstanding letters of credit
under the Senior Secured Credit Facility. As of March 31, 2002 and 2001, the
Company was in compliance with all covenants under the Senior Secured Credit
Facility, as amended on December 27, 2001.

Interest on the loans outstanding under the Senior Secured Credit Facility is
payable quarterly in arrears on each June 30, September 30, December 31 and
March 31 through maturity. The loans under the Senior Secured Credit Facility
bear interest at floating rates based upon the interest rate option elected by
the Company. To fix interest charged on a portion of its debt, the Company
entered into interest rate hedge agreements. After giving effect to these hedge
agreements, $130 million of the Company's debt is currently subject to an
effective average annual fixed rate of 5.655% per annum until September 2002.
Taking into account its interest rate swap agreement, the annual
weighted-average interest rate on the loans under the Company's Senior Secured
Credit Facility was 6.7% and 9.8% for the fiscal years ended March
31, 2002 and 2001, respectively. Due to the recent reduction in interest rates,
the Company's 90-day LIBOR borrowing rate (plus the applicable margin) was
5.904% at March 31, 2002. The obligations of the Company under the Senior
Secured Credit Facility are guaranteed by each direct and indirect U.S.
subsidiary of the Company. The obligation under the Senior Secured Credit
Facility are secured by a pledge of the equity interests in Acterna LLC, by
substantially all of the assets of Acterna LLC and each direct or indirect U.S.
subsidiary of the Acterna LLC, and by a pledge of the capital stock of each such
direct or indirect U.S. subsidiary, and 65% of the capital stock of each
subsidiary of the Company that acts as a holding company of the Company's
foreign subsidiaries.

The Company is also required to pay a commitment fee based on the unused amount
of the Revolving Credit Facility. The rate is an annual rate, paid quarterly,
and ranges from 0.30% to 0.50%, and is based on the Company's leverage ratio in
effect at the beginning of the quarter. The Company paid $0.2 million and $0.3
million in fiscal 2002 and 2001, respectively, in commitment fees.

The mandatory principal repayment schedule of the Senior Secured Credit Facility
over the next five years and thereafter is: $25.7 million in fiscal 2003, $40.7
million in fiscal 2004, $44.5 million in fiscal 2005, $74.7 million in fiscal
2006, $310.0 million in fiscal 2007 and $215.0 million in fiscal years
subsequent to fiscal 2007.

On December 27, 2001, in order to remain in compliance with the terms of the
Senior Secured Credit Facility, the Company entered into an amendment to the
facility. Pursuant to the amendment, the lenders under the facility agreed,
among other things, to waive the minimum interest coverage and maximum leverage
covenants of the Company under the facility through June 30, 2003. The amendment
imposed a new minimum liquidity on the Company, which requires that the sum of
cash, cash equivalents plus aggregate available revolving credit commitments
equal at least $25 million. The Company must also comply with a new minimum
EBITDA covenant that requires EBITDA of negative $10 million, positive $17
million, and positive $40 million for the six, nine and twelve month periods
ended September 30, 2002, December 31, 2002, and March 31, 2003, respectively.
The amendment also imposed additional covenants and restrictions, including,
without limitation, additional restrictions on the Company's ability to make
capital expenditures, incur and guarantee debt, make investments, optionally
prepay the Senior Subordinated Notes and dispose of assets. The amendment also,
among other things, added additional prepayment requirements for certain
transactions, establishes additional

                                      B-22

<PAGE>

guarantees and pledges of collateral and increases the interest rates on loans
under the Senior Secured Credit Facility by 0.75%.

The Company believes it has sufficient cash and borrowing availability to meet
its liquidity covenant for fiscal 2003. In addition, based upon expected revenue
levels over the near term and on timely and successful execution of the
Company's restructuring programs, the Company believes that it will be able to
meet its EBITDA covenant requirements through March 31, 2003. However, there can
be no assurance that this will be the case.

On June 30, 2003, the Company will again become subject to the minimum interest
coverage and maximum leverage covenants under the Senior Secured Credit
Facility. Based on current estimates of its revenues and projected operating
losses and profits in the near term, the Company does not believe that it will
be in compliance with these covenants upon reversion. As a result, the Company
has begun discussions with its lenders under the Senior Secured Credit Facility
to amend the interest coverage and maximum leverage covenant requirements. If
the Company is unable to amend the terms of its Senior Secured Credit Facility,
a default could occur. If a default occurs, the lenders under the Senior
Secured Credit Facility could require immediate repayment of the loans under the
facility and refuse to extend funds under the Company's Revolving Credit
Facility. The Company cannot give any assurance that it will be able to obtain
an amendment to its Senior Secured Credit Facility, or if it is does, that the
amendment will be sufficient to remain in compliance with the terms of the
facility.

Senior Subordinated Notes

In connection with the 1998 recapitalization of the Company, the Company issued
the Senior Subordinated Notes. Interest on the Senior Subordinated Notes accrues
at the rate of 9 3/4% per annum and is payable semi-annually in arrears on each
May 15 and November 15 through maturity in 2008. As of March 31, 2002 and 2001,
the Company was in compliance with all covenants under the Senior Subordinated
Notes.

The Senior Subordinated Notes will not be redeemable at the option of the
Company prior to May 15, 2003 unless a change of control occurs. Should that
happen, the Company may redeem the Notes in whole, but not in part, at a price
equal to 100% of the principal amount plus the greater of (1) 1.0% of the
principal amount of such Note and (2) the excess of (a) the present value of (i)
redemption price of such Note plus (ii) all required remaining scheduled
interest payments due on such Note through May 15, 2003, over (b) principal
amount of such Note on the redemption date.

Except as noted above, the Notes are redeemable at the Company's option, in
whole or in part, anytime on and after May 15, 2003, and prior to maturity at
the following redemption prices:

                                                             Redemption
                   Period                                      Price
                   ------                                    ----------
                   2003                                      104.875%
                   2004                                      103.250%
                   2005                                      101.625%
                   2006 and thereafter                       100.000%


Capital Resources

                                      B-23

<PAGE>

Cash Flows. The Company's cash and cash equivalents decreased $20.3 million to
$42.7 million during the fiscal year ended March 31, 2002.

Working Capital. For the fiscal year ended March 31, 2002, the Company's net
working capital decreased as its operating assets and liabilities provided $26.3
million of cash, excluding acquisitions. Accounts receivable decreased, creating
a source of cash of $107.0 million, primarily due to the decrease in sales
during the fourth quarter of 2002 as compared to the same period in 2001 as well
as reduction in days sales outstanding due to more effective collections.
Inventory levels decreased, creating a source of cash of $44.6 million, due in
part to the efforts to control costs and maintain inventory levels in line with
expected sales. Other current assets increased, creating a use of cash of $72.5
million, due primarily to a $77.5 million income tax receivable at March 31,
2002. Accounts payable decreased $44.2 million and accrued expenses and other
current liabilities decreased $8.5 million as a result of a reduced level of
purchases in the fourth quarter of 2002, as compared to the same period a year
ago.

Investing activities. The Company used $15.9 million in investing activities for
the fiscal year ended March 31, 2002. The Company acquired property and
equipment of $38.4 million, which was offset by the sale of businesses of $23.8
million and other of $1.3 million.

The Company's capital expenditures in fiscal 2002 were $38.4 million as compared
to $45.9 million in fiscal 2001. The decrease during fiscal 2002 was primarily
due to the Company's cost reduction and alignment efforts resulting from the
economic slowdown previously mentioned.

Debt and equity. The Company's financing activities used $6.0 million in cash
during fiscal 2002, partially due to the repayment of long-term debt in excess
of new borrowings. New borrowings during fiscal 2002 included $75 million,
Senior Secured Convertible Notes, of which approximately $69 million was used to
repay long-term debt. The Company also paid $6.3 million in financing fees
associated with obtaining notes payable during fiscal 2002.

Future Financing Sources and Cash Flows

As of March 31, 2002, the Company had $63.0 million of borrowings and $17.0
million of letters of credit outstanding under its Revolving Credit Facility and
$95.0 million of additional availability under the facility. As of March 31,
2002 the Company also has a $61.0 million receivable due to new U.S. tax
legislation changes as mentioned previously. The entire $61.0 millions was
collected during the first fiscal quarter of 2003.

New Pronouncements

In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141")
and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS No. 141
requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. FAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of the
goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. FAS No. 141 is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition is before
June 30, 2001. The provisions of FAS No. 142 will be effective for fiscal years
beginning after December 15, 2001; however, the Company elected to early adopt
the provisions

                                      B-24

<PAGE>

effective April 1, 2001. The effects of adoption of FAS 142 are detailed in Note
H. Acquired Intangible to the Consolidated Financial Statements.

In October 2001, FASB issued Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"). FAS 144 supercedes FASB Statement No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of". FAS 144
applies to all long-lived assets (including discontinued operations) and
consequently amends Accounting Principles Board Opinion No. 30, "Reporting
Results of Operations- Reporting the Effects of Disposal of a Segment of a
Business". FAS 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and will thus be adopted by the Company, as
required, on April 1, 2002. The company has determined that the adoption of this
standard will require the Company to disclose AIRSHOW as a discontinued
operation in the first quarter of fiscal 2003 and reclassify prior period
presentation.

In April 2002, the FASB issued Statement of Financial Accounting Standards FAS
No. 145, "Rescission of FASB Statements No.4, 44, and 62, Amendment of FASB
Statement No. 13, and Technical Corrections". In general, FAS 145 will require
gains and losses on extinguishments of debt to be classified as income or loss
from continuing operations rather than as extraordinary items as previously
required under Statement 4. Gains or losses from extinguishments of debt for
fiscal years beginning after May 15, 2002 shall not be reported as extraordinary
items unless the extinguishment qualifies as an extraordinary item under the
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. The extraordinary item in
2001 will be reclassified on adoption of this standard.

Quantitative and Qualitative Disclosures about Market Risk

The Company operates manufacturing facilities and sales offices in over 80
countries. The Company is subject to business risks inherent in non-U.S.
activities, including political and economic uncertainty, import and export
limitations, and market risk related to changes in interest rates and foreign
currency exchange rates. The Company believes the political and economic risks
related to its foreign operations are mitigated due to the stability of the
countries in which its facilities are located. The Company's principal currency
exposures against the U.S. dollar are in the Euro and in Canadian currency. The
Company does use foreign currency forward exchange contracts to mitigate
fluctuations in currency. The Company's market risk exposure to currency rate
fluctuations is not material. The Company does not hold derivatives for trading
purposes.

The Company uses derivative financial instruments consisting primarily of
interest rate hedge agreements to manage exposures to interest rate changes. The
Company's objective in managing its exposure to changes in interest rates (on
its variable rate debt) is to limit the impact of such changes on earnings and
cash flow and to lower its overall borrowing costs.

At March 31, 2002, the Company had $710.7 million of variable rate debt
outstanding which represents approximately 65.3% of total outstanding debt. The
Company currently has one interest rate swap contract with notional amount
totaling $130 million which fixed its variable rate debt to a fixed interest
rate for periods of two years expiring in September 2002 in which the Company
pays a fixed interest rate on a portion of its outstanding debt and receives
interest at the three-month LIBOR rate. This swap contact has an expiration date
of September 28, 2002.

                                      B-25

<PAGE>

At March 31, 2002, the swap contract currently outstanding and the swap contract
that had expired had fixed interest rates higher than the three-month LIBOR
quoted by its financial institutions. The Company therefore recognized an
increase in interest expense (calculated as the difference between the interest
rate in the swap contracts and the three-month LIBOR rate) for the fiscal year
2002 of $2.6 million. The Company performed a sensitivity analysis assuming a
hypothetical 10% adverse movement in the floating interest rate on the interest
rate sensitive instruments described above. The Company believes that such a
movement is reasonably possible in the near term. As of March 31, 2002, the
analysis demonstrated that such movement would cause the Company to recognize
additional interest expense of approximately $0.3 million, and accordingly,
would cause a hypothetical loss in cash flows of approximately $0.3 million on
an annual basis.

The Company has significant debt and resulting debt service obligations. A
substantial portion of the debt is subject to variable rate interest expense.
The weighted average interest rate for the fiscal year ended March 31, 2002 was
6.7%. Interest rates are at historically low rates and an increase in interest
rates in the future could have a material impact on the results of operations
and financial position of the Company. An increase of 1% in interest rates would
increase interest expense by approximately $7.1 million on an annual basis.

SUBSEQUENT EVENT

On June 13, 2002, the Company signed a definitive agreement to sell its AIRSHOW
business to Rockwell Collins, Inc. for $160 million in cash, subject to
adjustment. The Company expects to record a gain in relation to this
transaction. Consummation of the sale is subject to customary closing
conditions, including regulatory approvals and consent of the Company's lenders
under its Senior Secured Credit Facility. The Company intends to use the net
proceeds of the sale (after fees and expenses) to repay a portion of its debt or
invest in its business.

Factors That May Affect Future Results

Set forth below and elsewhere in this annual report and in the other documents
the Company files with the SEC are risks and uncertainties that could cause
actual results to differ materially from the results contemplated by the
forward- looking statements contained in this annual report.

             Factors Related to the Company's Business and Industry

The Company's substantial debt could adversely affect its financial condition.

The Company is required to comply with debt covenants; however, the Company
cannot provide any assurance that it will have the ability to do so beyond March
31, 2003. Inability to comply with covenants or obtain modifications to covenant
requirements could result in default and cause the lenders to require immediate
repayment of debt and limit or cancel the availability of borrowings. The
Company's debt agreements impose significant operating and financial
restrictions which limit the discretion of management with respect to certain
business matters and may prevent the Company from capitalizing on business
opportunities. These agreements restrict, among other things, the Company's
ability to:

      .   incur additional indebtedness, guarantee obligations and create liens;

                                      B-26

<PAGE>

     .     pay dividends and make other distributions;
     .     prepay or modify the terms of other indebtedness;
     .     make certain capital expenditures, investments or acquisitions, or
           enter into mergers or consolidations or sales of assets; and
     .     engage in certain transactions with affiliates.

The Company's substantial level of debt and the terms of its debt instruments
may also have important consequences for the Company, including, but not limited
to, the following:

the Company's vulnerability to adverse general economic conditions is
heightened;

the Company will be required to dedicate a substantial portion of its cash flow
from operations to repayment of debt, limiting the availability of cash for
other purposes;

the Company is and will continue to be limited by financial and other
restrictive covenants in its ability to borrow additional funds, guarantee
obligations, pay dividends, consummate asset sales, enter into transactions with
affiliates or conduct mergers and acquisitions;

the Company's flexibility in planning for, or reacting to, changes in its
business and industry will be limited;

the Company is sensitive to fluctuations in interest rates because a substantial
portion of its debt obligations are subject to variable interest rates; and

the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions, general corporate purposes or to
capitalize on business opportunities may be impaired.

The Company's leverage and restrictions in the Company's debt instruments may
materially and adversely affect the Company's ability to finance its future
operations or capital needs or to capitalize on business opportunities.

Because the Company's quarterly operating results have fluctuated in the past
and are likely to fluctuate in the future, the price of the Company's securities
may be volatile and may decline.

The Company has experienced in the past and expects to experience in the future
fluctuations in its quarterly results due to a number of factors beyond the
Company's control. Many factors could cause the Company's operating results to
fluctuate from quarter to quarter, including the following:

..    the size and timing of orders from the Company's customers;

..    the degree to which the Company's customers have allocated and spent their
     yearly budgets, which has, in some cases, resulted in higher net sales in
     the Company's fourth quarter;

..    the uneven buying patterns of the Company's customers;

..    the uneven pace of technology innovation;

..    economic downturns or other factors reducing demand for telecommunication
     equipment and services; and

                                      B-27

<PAGE>

..    a significant portion of the Company's operating expenses is fixed and if
     the Company's net sales are below its expectations in any quarter, the
     Company may not be able to reduce its spending in a timely manner.

The Company's operating results could be harmed if the markets into which the
Company sells its products experience a downturn as a result of a reduction in
previously planned capital expenditures for infrastructure expansion.

Several significant markets into which the Company sells its products are
cyclical. For example, the telecommunications industry in general, and the
competitive local exchange carrier segment in particular, are now experiencing a
downturn that has resulted in a reduction in previously planned capital
expenditures for infrastructure expansion. These industry downturns have been
characterized by diminished product demand, excess manufacturing capacity and
the subsequent accelerated erosion of average selling prices. Any further
downturn in the Company's customers' markets or in general economic conditions
would likely result in a further reduction in demand for the Company's products
and services, which would harm its business results and operating and financial
condition. The Company's customers, which have also been effected by the
downturn in the telecommunication industry and may be unable to meet current and
ongoing obligations.

The Company operates in highly competitive markets.

The markets for the Company's products are highly competitive. Some of the
Company's current and potential competitors have greater name recognition and
greater financial, selling and marketing, technical, manufacturing and other
resources than the Company does. In addition, due to the rapid evolution of the
markets in which the Company competes, additional competitors with significant
market presence and financial resources, including large telecommunications
equipment manufacturers, may enter the Company's markets and further intensify
competition.

The Company may not be able to compete effectively with its existing competitors
or with new competitors, and the Company's competitors may succeed in adapting
more rapidly and effectively to changes in technology, in the market or in
developing or marketing products that will be more widely accepted.

The markets the Company serves are characterized by rapid change and innovation.
The Company may not be able to develop and successfully market products that
account for such changes and innovations.

The market for the Company's products and services is characterized by rapidly
changing technologies, new and evolving industry standards and protocols and
product and service introductions and enhancements that may render the Company's
existing offerings obsolete or unmarketable. A shift in customer emphasis from
employee-operated communications test to automated, remote test and monitoring
systems could likewise render some of the Company's existing product offerings
obsolete or unmarketable, or reduce the size of one or more of the Company's
addressed markets. In particular, incorporation of self-testing functions in the
equipment currently addressed by the Company's communications test instruments
could render some of its offerings redundant and unmarketable. Failure to
anticipate or to respond rapidly to advances in technology and to adapt its
products appropriately could have a material adverse effect on the Company's
business, financial condition and results of operations.

                                      B-28

<PAGE>

The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends and the incurrence of substantial research and development costs.
The Company may not successfully anticipate such trends or have sufficient free
cash flow to continue to incur such costs. The Company cannot assure you that it
will successfully identify new product opportunities, develop and bring new
products to market in a timely manner and achieve market acceptance of its
products or that products and technologies developed by others will not render
the Company's products or technologies obsolete or noncompetitive.

The Company's manufacturing efforts could be interrupted due to component
shortages, which could reduce the Company's ability to build and sell its
products.

The Company uses a number of components to build its products and systems that
are only available from a limited number of, or single-source, vendors. In
addition, to obtain the components the Company requires to build its products
and systems, the Company may be required to identify alternate sources of
supply, which can be time consuming and result in higher procurement costs. The
Company also cannot assure that it will be able to obtain suitable substitutes
for components that become unavailable, which could potentially require the
Company to perform costly and time consuming redesigns of its products. If the
Company is unable to obtain sufficient quantities of required components, or if
suppliers choose to reduce the amount of parts they make available to the
Company, the Company may be unable to meet customer demand for its products,
which would negatively affect its business and results of operations and could
materially damage customer relationships.

Acquisitions by the Company of additional businesses, products or technologies
could negatively affect its business and the price of its securities.

The Company has acquired businesses and technologies in the past and may pursue
acquisitions of other companies, technologies and new and complementary product
lines in the future. Any acquisition would involve risks to the Company's
business, including:

an inability to integrate the operations, products and personnel of the
Company's acquired businesses and diversion of management's time and attention;

an inability to expand the Company's financial and management controls and
reporting systems and procedures to incorporate the acquired businesses;

potential difficulties in completing projects associated with purchased
in-process research and development;

assumption of unknown liabilities, or other unanticipated events or
circumstances;

the possibility that the Company may pay too much cash or issue too much of its
stock as the purchase price for an acquired business relative to the economic
benefits that the Company ultimately derives from operating the acquired
business; and

the need to record significant one-time charges or amortize intangible assets,
which could lower the Company's reported earnings.

Mergers and acquisitions of high-technology companies are inherently risky. The
Company cannot assure that any business that it may acquire will achieve
anticipated net sales and operating results, which could decrease the value of
the acquisition to the Company. Any of these risks could materially harm the
Company's business, financial condition and results of

                                      B-29

<PAGE>

operations. Payment paid for future acquisitions, if any, could be in the form
of cash, stock, and rights to purchase stock or a combination of these. Dilution
to existing stockholders and to earnings per share may result in connection with
any future acquisitions.

Economic, political and other risks associated with international sales and
operations could adversely affect the Company's net sales.

Because the Company sells its products worldwide, the Company's business is
subject to risks associated with doing business internationally. The Company
expects its net sales originating outside the United States to be approximately
half of the Company's Communication Test total net sales for its 2003 fiscal
year. In addition, many of the Company's manufacturing facilities and suppliers
are located outside the United States. Accordingly, the Company's future results
could be harmed by a variety of factors, including: changes in foreign currency
exchange rates;

changes in a specific country's or region's political or economic conditions,
particularly in emerging markets;

trade protection measures and import or export licensing requirements; and

potentially negative consequences from changes in tax laws and other regulatory
requirements.

Compliance with applicable regulations, standards and protocols may be time
consuming and costly for the Company.

Several of the Company's products must comply with significant governmental and
industry-based regulations, certifications, standards and protocols, some of
which evolve as new technologies are deployed. Compliance with such regulations,
certifications, standards and protocols may prove costly and time-consuming for
the Company, and the Company cannot assure that its products will continue to
meet these standards in the future. In addition, regulatory compliance may
present barriers to entry in particular markets or reduce the profitability of
the Company's product offerings. Such regulations, certifications, standards and
protocols may also adversely affect the communications industry, limit the
number of potential customers for the Company's products and services or
otherwise have a material adverse effect on its business, financial condition
and results of operations. Failure to comply, or delays in compliance, with such
regulations, standards and protocols or delays in receipt of such certifications
could delay the introduction of new products or cause the Company's existing
products to become obsolete.

Industry consolidation or changes in regulation could adversely affect the
Company's business.

A substantial portion of the Company's customers are regional telephone service
operating companies, competitive access providers, wireless service providers,
competitive local exchange carriers and other communications service providers
and industrial engineers and other users of communications test equipment. Their
industries are characterized by intense competition and consolidation.
Consolidation could reduce the number of the Company's customers, increase their
buying power and create pressure on the Company to lower its prices. In
addition, governmental regulation of the communications industry could
materially adversely affect the Company's customers and, as a result, materially
limit or restrict its business.

                                      B-30

<PAGE>

If service providers reduce their use of field technicians and successfully
implement a self-service installation model, demand for the Company's products
could decrease.

To ensure quality service, the Company's major service provider customers
typically send into the field a technician who uses its products to verify
service for installations. However, some providers have recently announced plans
to encourage their customers to install their own service and, by doing so, hope
to reduce their expenses and expedite installation for their customers. To
encourage self-installation, these companies offer financial incentives. If
service providers successfully implement these plans or choose to send
technicians into the field only after a problem has been reported, or if
alternative methods of verification become available, such as remote
verification service, the need for field technicians and the need for some of
the Company's communications test instruments could decrease, which would
negatively affect the Company's business and results of operations.

The Company's success depends upon the quality of its key personnel. If the
Company is unable to retain some of its personnel, or if it is unable to
continue to attract and retain highly-skilled personnel, its business may
suffer.

The Company's success depends in large part upon its senior management, as well
as its ability to attract and retain highly-skilled technical, managerial, sales
and marketing personnel, particularly engineers with communications equipment
experience. Competition for such personnel is intense, and the Company may not
be successful in retaining its existing key personnel or attracting additional
employees. Any failure of the Company to retain its personnel, including senior
management, could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, continued labor
market shortages of technically-skilled personnel may lead to significant wage
increases, which could adversely affect the Company's business, results of
operations or financial condition.

In order to reduce operating costs, the Company implemented restructuring plans.
These restructuring plans included a reduction of personnel, many of which were
highly skilled employees. The Company's operations could be negatively impacted
by the loss of such employees.

Third parties may claim the Company is infringing their intellectual property
and, as a result of such claims, the Company may face significant litigation or
incur licensing expenses or be prevented from selling its products.

Third parties may claim that the Company is infringing their intellectual
property rights, and the Company may be found to infringe those intellectual
property rights. Any litigation regarding patents or other intellectual property
rights could be costly and time consuming, and divert the attentions of the
Company's management and key personnel from its business operations. Claims of
intellectual property infringement might also require the Company to enter into
costly royalty or license agreements. However, the Company may not be able to
obtain royalty or license agreements on terms acceptable to it, or at all. The
Company also may be subject to significant damages or injunctions against
development and sale of certain of its products.

Third parties may infringe on the Company's intellectual property and, as a
result, the Company may be required to expend significant resources enforcing
its rights or suffer competitively.

The Company's success depends in large part on its intellectual property. The
Company relies on a combination of patents, copyrights, trademarks and trade
secrets, confidentiality

                                      B-31

<PAGE>

provisions and licensing arrangements to establish and protect its proprietary
intellectual property. If the Company fails to protect or to enforce
successfully its intellectual property rights, the Company's competitive
position could suffer, which could have a material adverse effect on its
business, financial condition and results of operations.

The Company's products are complex, and its failure to detect errors and defects
may subject it to costly repairs, product returns under warranty and product
liability litigation.

The Company's products are complex and may contain undetected defects or errors
when first introduced or as enhancements are released. The existence of these
errors or defects could result in costly repairs and/or returns of products
under warranty, diversion of development resources and, more generally, in
delayed market acceptance of the product or damage to the Company's reputation
and business, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.

                 Factors Related to the Company's Common Stock.

The Company's current principal stockholders have effective control over the
Company's business.

As of March 31, 2002, the CDR Funds, the Company's controlling stockholders,
together held approximately 80.1% of the outstanding shares of the Company's
common stock. In addition, three of the eleven directors who serve on the
Company's board are currently affiliated with the CDR Funds. By virtue of such
stock ownership and board representation, the CDR funds have effective control
over all matters submitted to the Company's stockholders, including the election
of the Company's directors, and exercise significant control over the Company's
policies and affairs. Such concentration of voting power could have the effect
of delaying, deterring or preventing a change in control or other business
combination that might otherwise be beneficial to the Company's stockholders. In
addition, CDR Fund V has agreed, with Mr. John R. Peeler, the President and
Chief Executive Officer of the Company's Communications Test Business, to vote
its shares to elect him as a director so long as he is employed by the Company.

Only approximately 19% of the Company's common stock trades publicly and the
market for technology stocks is extremely volatile.

The public market for the Company's common stock is limited as only
approximately 19% of the outstanding stock trades publicly. The small size of
the Company's float tends to increase the volatility of the Company's stock
price. In addition, the stock market in general, and the market for technology
stocks in particular, have experienced extreme volatility and this volatility
has often been unrelated to the operating performance of particular companies.
The market price of the Company's common stock could fluctuate significantly at
any time in response to such factors as:
changes in financial estimates or investment recommendations relating to the
Company by securities analysts;

the Company's quarterly operating results falling below securities analysts' or
investors' expectations in any given period;

announcements by the Company or its competitors of new products, acquisitions or
strategic relationships; and

                                      B-32

<PAGE>

general market conditions and domestic and international economic factors
unrelated to the Company's performance.

In the past, following periods of market volatility, stockholders have
instituted securities class action litigation. If the Company were involved in
securities litigation, it could have a substantial cost and divert resources and
the attention of executive management from the Company's business.

Since November 9, 2000, the Company's common stock has been trading on the
NASDAQ National Market. The Company has filed to transfer from the NASDAQ
National market to the NASDAQ Small Cap Market. The Company expects such
transfer to occur in June 2002. However, there is no assurance that such
transfer will occur by such date, or at all. Furthermore, the Company's transfer
from the NASDAQ National Market increases the risk that the market for the
Company's common stock will become less liquid.

Forward-Looking Statements

This report (other than the Company's consolidated financial statements and
other statements of historical fact) contains forward-looking statements.
The Company has based these forward-looking statements on its current
expectations and projections about future events. Although the Company believes
that its assumptions made in connection with the forward-looking statements are
reasonable, there can be no assurance that the Company's assumptions and
expectations will prove to have been correct. These forward-looking statements
are subject to various risks, uncertainties and assumptions, including the risk
factors described elsewhere in this report and the Company's other Securities
and Exchange Commission filings.
The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur, actual results may differ
materially from the estimates or expectations reflected in the Company's
forward-looking statements, and undue reliance should not be placed upon the
forward-looking events discussed in this report.

                                      B-33

<PAGE>


                                                                      APPENDIX C


                               ACTERNA CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S>                                                                    <C>
REPORT OF INDEPENDENT ACCOUNTANTS                                          C-2

FINANCIAL STATEMENTS

     CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2002 AND 2001             C-3

     CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
       MARCH 31, 2002, 2001 AND 2000                                       C-5

     CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
      FOR THE YEARS ENDED MARCH 31, 2002, 2001 AND 2000                    C-6

     CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
       MARCH 31, 2002, 2001 AND 2000                                       C-7

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                            C-9
</TABLE>

                                      C-1

<PAGE>

                        Report of Independent Accountants

To the Board of Directors and Stockholders of Acterna Corporation:

     In our opinion, the consolidated financial statements listed in the index
     appearing under Item 14 (a)(1) present fairly, in all material respects,
     the financial position of Acterna Corporation and its subsidiaries (the
     "Company") at March 31, 2002 and 2001, and the results of their operations
     and their cash flows for each of the three years in the period ended March
     31, 2002, in conformity with accounting principles generally accepted in
     the United States of America. In addition, in our opinion the financial
     statement schedule listed in the index appearing under Item 14 (a)(2)
     presents fairly, in all material respects, the information set forth
     therein when read in conjunction with the related consolidated financial
     statements. These financial statements and financial statement schedule are
     the responsibility of the Company's management; our responsibility is to
     express an opinion on these financial statements and financial statement
     schedule based on our audits. We conducted our audits of these statements
     in accordance with auditing standards generally accepted in the United
     States of America, which require that we plan and perform the audit to
     obtain reasonable assurance about whether the financial statements are free
     of material misstatement. An audit includes examining, on a test basis,
     evidence supporting the amounts and disclosures in the financial
     statements, assessing the accounting principles used and significant
     estimates made by management, and evaluating the overall financial
     statement presentation. We believe that our audits provide a reasonable
     basis for our opinion.

     As discussed in Note E to the consolidated financial statements, the
     Company adopted Statement of Financial Accounting Standards No. 141,
     Business Combinations, and No. 142, Goodwill and Other Intangible Assets,
     on April 1, 2001.

     As discussed in Note B to the consolidated financial statements, the
     Company has significant liquidity needs.


/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
May 28, 2002, except for Note R, as
to which the date is June 14, 2002

                                      C-2

<PAGE>

                               Acterna Corporation
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>

                                                                                        March 31,
                                                                                 2002              2001
                                                                               --------          --------
          Assets                                                             (Amounts in thousands except
                                                                               share and per share data)
<S>                                                                         <C>               <C>
Current assets:
   Cash and cash equivalents                                                 $   42,739        $   63,054
   Accounts receivable, net
     of allowance of $7,872 and $10,741
     respectively                                                               126,381           233,371
   Inventories, net:
      Raw materials                                                              39,511            61,009
      Work in process                                                            36,759            48,266
      Finished goods                                                             36,331            48,206
                                                                             ----------        ----------
         Total inventory                                                        112,601           157,481

   Deferred income taxes                                                         18,878            37,961
   Income tax receivable                                                         77,479               ---
   Notes receivable                                                               1,422             2,033
   Other current assets                                                          33,265            37,577
                                                                             ----------        ----------
      Total current assets                                                      412,765           531,477

Property, plant and equipment:
  Land and buildings                                                             55,075            55,123
  Leasehold improvements                                                          9,719            12,443
  Machinery and equipment                                                        88,567            87,716
  Furniture and fixtures                                                         75,679            55,240
                                                                             ----------        ----------
                                                                                229,040           210,522

  Less accumulated depreciation and amortization                               (106,954)          (85,956)
                                                                             ----------        ----------
  Property, plant and equipment, net                                            122,086           124,566

Other assets:
   Net assets held for sale                                                         ---            37,908
   Goodwill, net                                                                427,086           435,478
   Other intangible assets, net                                                   2,453           195,093
   Deferred debt issuance costs, net                                             26,582            25,908
   Other                                                                         23,584            32,549
                                                                             ----------        ----------
      Total assets                                                           $1,014,556        $1,382,979
                                                                             ==========        ==========
</TABLE>


                                      C-3

<PAGE>

                               Acterna Corporation
                     Consolidated Balance Sheets, continued


<TABLE>
<CAPTION>
                                                                                                March 31,
                                                                                        2002              2001
                                                                                      --------          --------
Liabilities and Stockholders' Deficit                                               (Amounts in thousands except
                                                                                      share and per share data)
<S>                                                                              <C>                <C>
Current liabilities:
   Notes payable                                                                   $    2,523          $   10,919
   Current portion of long-term debt                                                   28,937              22,248
   Accounts payable                                                                    73,374             112,155
   Accrued expenses:
      Compensation and benefits                                                        37,931              71,836
      Deferred revenue                                                                 52,540              47,743
      Warranty                                                                         17,332              11,914
      Interest                                                                         10,700              11,476
      Restructuring                                                                    14,562                 ---
      Other                                                                            31,747              36,801
      Taxes other than income taxes                                                     8,230              14,112
   Accrued income taxes                                                                31,263               7,616
                                                                                    ---------           ---------
      Total current liabilities                                                       309,139             346,820

Long-term debt                                                                        979,187           1,056,383
Long-term notes payable                                                                76,875                 ---
Deferred income taxes                                                                  17,581               2,915
Other long-term liabilities                                                            68,549              57,838

Commitments and contingencies (Note P.)

Stockholders' deficit:
  Serial preference stock, par value $1 per share;
   authorized 100,000 shares; none issued                                                 ---                ---
  Common stock, par value $0.01,
    authorized 350,000,000 shares;
   issued and outstanding 192,247,785 and
   190,953,052 shares, 2002 and 2001, respectively                                      1,922               1,910
  Additional paid-in capital                                                          786,537             801,080
  Accumulated deficit                                                              (1,170,639)           (795,746)
  Unearned compensation                                                               (53,925)            (90,986)
  Other comprehensive income (loss)                                                      (670)              2,765
                                                                                   ----------           ---------
      Total stockholders' deficit                                                    (436,775)           ( 80,977)
                                                                                   ----------           ---------
      Total liabilities and stockholders' deficit                                  $1,014,556          $1,382,979
                                                                                   ==========           =========
</TABLE>

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

                                      C-4

<PAGE>

                               Acterna Corporation
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                             Years Ended March 31,
                                                                   2002             2001             2000
                                                                  ------            -----           ------
                                                                            (Amounts in thousands
                                                                            except per share data)
<S>                                                             <C>                <C>             <C>
Net sales                                                       $1,132,661        $1,366,257       $ 656,601
Cost of sales                                                      540,048           606,860         285,531
                                                                ----------        ----------       ---------
Gross profit                                                       592,613           759,397         371,070

Selling, general and administrative expense                        444,387           486,598         192,286
Product development expense                                        160,219           168,117          75,398
Amortization of intangibles                                         42,271           120,151          12,326
Restructuring expense                                               33,989               ---             ---
Impairment of net assets held for sale                              17,918               ---             ---
Goodwill impairment                                                  3,947               ---             ---
Impairment of acquired intangible assets                           151,322               ---             ---
Recapitalization and other related costs                               ---             9,194          27,942
Purchased incomplete technology                                        ---            56,000             ---
                                                                ----------        ----------       ---------
Operating income (loss)                                           (261,440)          (80,663)         63,118

Interest expense                                                   (96,625)         (102,158)        (51,949)
Interest income                                                      1,625             3,322           2,373
Other expense, net                                                  (7,615)           (4,491)           (720)
                                                                ----------        ----------       ---------
Income (loss) from continuing operations before
  income taxes and extraordinary item                             (364,055)         (183,990)         12,822

Provision for (benefit from) income taxes                              799           (12,793)          6,810
                                                                ----------        ----------       ---------
Income (loss) from continuing operations before
  extraordinary item                                              (364,854)         (171,197)          6,012
Income (loss) from discontinued operations                         (10,039)           10,039             ---
                                                                ----------        ----------       ---------

Income (loss) before extraordinary item                           (374,893)         (161,158)          6,012

Extraordinary item, net of income tax benefit
  of $6,603                                                            ---           (10,659)            ---
                                                                ----------        ----------       ---------
Net income (loss)                                               $ (374,893)       $ (171,817)      $   6,012
                                                                ==========        ==========       =========
Net income(loss) per common share-basic and diluted:
  Continuing operations                                         $    (1.90)       $    (0.93)      $    0.04
  Discontinued operations                                            (0.05)             0.06             ---
  Extraordinary item                                                   ---             (0.06)            ---
                                                                ----------        ----------       ---------
                                                                $    (1.95)       $    (0.93)      $    0.04
                                                                ==========        ==========       =========
Weighted average number of common shares:
  Basic                                                            191,868           183,881         148,312
  Diluted                                                          191,868           183,881         162,273
</TABLE>

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

                                      C-5

<PAGE>

                               Acterna Corporation
                Consolidated Statements of Stockholders' Deficit
                  (amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                               Additional                                  Other           Total
                                           Common     Common   Paid - In    Accumulated    Unearned    Comprehensive   Shareholders'
                                           Stock      Stock     Capital       Deficit    Compensation  Income (loss)      Deficit
                                          ------------------------------------------------------------------------------------------
<S>                                        <C>        <C>      <C>          <C>            <C>           <C>            <C>
Balance, April 1, 1999                     120,665    $   --   $  322,746   $  (629,941)   $ (7,563)     $ (1,682)      $ (316,440)

Net income - 2000                                                                 6,012                                      6,012
Translation adjustment                                                                                       (197)            (197)
                                                                                                         --------       ----------
Total comprehensive income                                                                                                   5,815
Exercise of stock options and other
  issuances                                  1,862        11        4,725                                                    4,736
Adjustment to unearned compensation                                (1,143)                    1,130                            (13)
Stock option expense                                               12,327                                                   12,327
Redemption of stock options                                        (6,980)                                                  (6,980)
Unearned compensation from stock
  option grants                                                    12,951                   (12,951)                           ---
Change in par value of common stock                    1,214       (1,214)                                                     ---
Amortization of unearned compensation                                                         2,419                          2,419
Tax benefit from exercise of stock
  options                                                           1,461                                                    1,461
                                          --------    ------   ----------   -----------    --------      --------       ----------
Balance, March 31, 2000                    122,527     1,225      344,873      (623,929)    (16,965)       (1,879)        (296,675)
                                          --------    ------   ----------   -----------    --------      --------       ----------
Net loss 2001                                                                  (171,817)                                  (171,817)
Translation adjustment                                                                                      4,644            4,644
                                                                                                                        ----------
Total comprehensive loss                                                                                                  (167,173)

Issuance of common stock to CDR Funds       43,125       431      172,069                                                  172,500
Issuance of common stock rights
  offering, net of fees                      4,983        50       16,882                                                   16,932
Issuance of common stock to WWG
  stockholders                              14,987       150      129,850                                                  130,000
Stock option expense                                               12,255                                                   12,255
Conversion of Cheetah stock options                                 5,754                    (6,721)                          (967)
Amortization of unearned compensation-
  continued operations                                                                       19,840                         19,840
Exercise of stock option and other
  issuances                                  5,331        54       10,919                                                   10,973
Unearned compensation from stock
  option grants                                                    98,726                   (98,726)                           ---
Adjustment to unearned compensation                               (11,567)                   11,586                             19
Tax benefit from exercise of stock
  options                                                          21,319                                                   21,319
                                          --------    ------   ----------   -----------    --------      --------       ----------
Balance, March 31, 2001                    190,953    $1,910   $  801,080   $  (795,746)   $(90,986)     $  2,765       $  (80,977)
                                          --------    ------   ----------   -----------    --------      --------       ----------
Net loss 2002                                                                  (374,893)                                  (374,893)
Translation adjustment and minimum
  pension liability                                                                                        (3,435)          (3,435)
                                                                                                                        ----------
Total comprehensive loss                                                                                                  (378,328)
Amortization of unearned compensation                                                        19,368                         19,368
Exercise of stock option and other
  issuances, net                             1,295        12        2,156                                                    2,168
Adjustment to unearned compensation                               (17,693)                   17,693                            ---
Tax benefit from exercise of stock
  options                                                             994                                                      994
                                          --------    ------   ----------   -----------    --------      --------       ----------
Balance, March 31, 2002                    192,248    $1,922   $  786,537   $(1,170,639)   $(53,925)     $   (670)      $ (436,775)
                                          ========    ======   ==========   ===========    ========      ========       ==========
</TABLE>

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

                                      C-6

<PAGE>

                               Acterna Corporation
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                                 Years Ended March 31,
                                                                                         2002            2001            2000
                                                                                      ----------      ----------       --------
                                                                                                 (Amounts in thousands)
<S>                                                                                  <C>              <C>             <C>
Operating activities:
   Net income (loss) from operations                                                 $  (374,893)     $(171,817)      $   6,012
   Adjustment for noncash items included in net income (loss):
      Depreciation                                                                        36,391         28,427          13,082
      Bad debt                                                                              (582)         7,147           1,024
      Amortization of intangibles and goodwill                                            42,271        120,151          12,327
      Amortization of inventory step-up                                                      ---         35,750             ---
      Amortization of unearned compensation                                               19,368         19,840           2,419
      Amortization of deferred debt issuance costs                                         5,582          3,974           3,232
      Impairment of acquired intangible assets                                           151,322            ---             ---
      Write-off of deferred debt issuance costs                                              ---         10,019             ---
      Loss on discontinued operations                                                     10,039            ---             ---
      Loss on sale of fixed assets                                                         4,173            ---             ---
      Impairment of assets held for sale and goodwill impairment                          21,865            ---             ---
      Purchased incomplete technology                                                        ---         56,000             ---
      Recapitalization and other related costs                                               ---          9,194          12,327
      Tax benefit from stock option exercises                                                994         21,319           1,461
      Other                                                                                  ---          2,047              56
      Change in deferred income taxes                                                     59,291        (31,309)         (2,840)
   Changes in operating assets and liabilities, net of effects
      of purchase acquisitions and divestitures                                           26,300        (91,372)          8,310
                                                                                     -----------      ---------       ---------
   Net cash flows provided by operating activities                                         2,121         19,370          57,410
                                                                                     -----------      ---------       ---------
Investing activities:
   Purchases of property and equipment                                                   (38,403)       (45,905)        (21,859)
   Proceeds from sale of property and equipment                                            1,178          2,433             ---
   Proceeds from sales of businesses                                                      23,800          6,381             ---
   Businesses acquired in purchase transactions,
      net of cash and noncash items                                                       (1,495)      (422,137)       (113,227)
   Other                                                                                  (1,029)        (4,863)         (7,165)
                                                                                     -----------      ---------       ---------
   Net cash flows used in investing activities                                           (15,949)      (464,091)       (142,251)
                                                                                     -----------      ---------       ---------
Financing activities:
   Borrowings (repayments) under revolving credit facility, net                          (45,000)       108,000          70,000
   Borrowings of term loan debt                                                            3,350        683,566             ---
   Repayment of term loan debt                                                           (35,010)       (12,944)        (17,139)
   Borrowings of notes payable                                                            75,000            ---             ---
   Borrowings (repayments) of notes payable and other debt                                  (260)        31,735            (212)
   Repayment of debt under old Senior Secured Credit Facility                                ---       (304,861)            ---
   Repayment of WWG term debt                                                                ---       (118,594)            ---
   Redemption of WWG bonds                                                                   ---        (94,148)            ---
   Financing fees                                                                         (6,256)       (18,519)            ---
   Proceeds from issuance of common stock, net                                             2,168        200,405           4,736
   Purchases of treasury stock, common stock and stock options                               ---            ---          (6,980)
                                                                                     -----------      ---------       ---------
   Net cash flows provided by (used in) financing activities                              (6,008)       474,640          50,405
                                                                                     -----------      ---------       ---------
Effect of exchange rates on cash                                                            (479)        (2,634)           (157)
                                                                                     -----------      ---------       ---------
Increase (decrease) in cash and cash equivalents                                         (20,315)        27,285         (34,593)
Cash and cash equivalents at beginning of year                                            63,054         35,769          70,362
                                                                                     -----------      ---------       ---------
Cash and cash equivalents at end of year                                             $    42,739      $  63,054       $  35,769
                                                                                     ===========      =========       =========
Change in operating asset and liability components:
    Decrease (increase) in trade accounts receivable                                 $   106,979      $ (47,191)      $ (19,200)
</TABLE>

                                      C-7

<PAGE>

<TABLE>
<S>                                                                                  <C>              <C>              <C>
   Decrease (increase) in inventories                                                     44,552         (32,950)         7,185
   Decrease (increase) in other current assets                                           (72,519)         (1,403)        (7,324)
   Increase (decrease) in accounts payable                                               (44,238)         22,200         12,397
   Increase (decrease) in accrued expenses, taxes and other                               (8,474)        (32,028)        15,252
                                                                                     -----------      ----------       --------
Change in operating assets and liabilities                                           $    26,300      $  (91,372)      $  8,310
                                                                                     ===========      ==========       ========
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
      Interest                                                                       $    87,258      $  105,115       $ 48,791
      Income taxes                                                                        15,555          13,036         14,737
</TABLE>

   The accompanying notes are an integral part of the consolidated financial
                                   statements

                                      C-8

<PAGE>

                               ACTERNA CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.   FORMATION AND BACKGROUND

     Acterna Corporation (the "Company" or "Acterna", formerly Dynatech
     Corporation), was formed in 1959 and is a global communications equipment
     company focused on network technology solutions. The Company's operations
     are conducted by wholly owned subsidiaries located principally in the
     United States of America and Europe with other operations, primarily sales
     offices, located in Asia and Latin America. The Company is managed in four
     business segments: communications test, industrial computing and
     communications, AIRSHOW and da Vinci.

     The Company previously reported the industrial computing and communications
     segment as discontinued operations. This segment is comprised of two
     subsidiaries: ICS Advent and Itronix Corporation. In October 2001, the
     Company divested its ICS Advent subsidiary (see Note F. Acquisitions and
     Divestitures), but decided to retain Itronix based on current market
     conditions. The decision to retain Itronix required the Company to make
     certain reclassifications to its Statements of Operations and Balance
     Sheets for all periods presented. The Statements of Operations were
     reclassified to include the results of operations of ICS Advent and Itronix
     as continuing operations. The Balance Sheets as of March 31, 2002 and March
     31, 2001 include the assets and liabilities of Itronix. The Balance Sheet
     at March 31, 2001 reflects the net assets of ICS Advent classified as net
     assets held for sale. The Statement of Cash Flows was not reclassified as
     these statements were not previously presented on a discontinued basis.

     The communications test business develops, manufacturers and markets
     instruments, systems, software and services used to test, deploy, manage
     and optimize communications networks, equipment and services. The
     industrial computing and communications segment provides computer products
     to the ruggedized computer market. ICS Advent sold computer products and
     systems designed to withstand excessive temperatures, dust, moisture and
     vibration in harsh operating environments. Itronix sells ruggedized
     portable communications and computing devices used by field service
     workers. AIRSHOW is a provider of systems that deliver real-time news,
     information and flight data to aircraft passengers. AIRSHOW systems are
     marketed to commercial airlines and private aircraft owners. The da Vinci
     segment manufactures systems that correct or enhance the accuracy of color
     during the process of transferring film-based images to videotape.

     The Company operates on a fiscal year ended March 31 in the calendar year
     indicated (e.g., references to fiscal 2002 are references to the Company's
     fiscal year which began April 1, 2001 and ended March 31, 2002).


B.   LIQUIDITY

     The Company has recorded significant losses from operations and seen a
     substantial reduction in revenues and operations as a result of the
     economic downturn and in particular the downturn within the
     telecommunications sector and related industries. Consequently the Company
     has undertaken several restructurings during the year ended March 31, 2002
     (See Note G. Restructuring) to align its cost structures and its revenues.
     Due to the severity and continuing downturn, management have

                                      C-9

<PAGE>

     identified the need to make further cost reductions during the course of
     fiscal 2003. These cost reduction plans are designed to align the cost base
     of the Company with the reduced forecast revenues and to enable the Company
     to remain compliant with the liquidity and earnings covenants required
     under the Senior Secured Credit Facility (See Note K. Notes Payable and
     Debt) during the course of fiscal 2003. Continuing compliance with these
     covenant requirements during fiscal 2003 is dependent upon the timely
     execution of the cost cutting plans identified and being implemented. The
     Company's cash requirements for debt service, including repayment of debt,
     and on-going operations are substantial. Debt repayment obligations are
     significant and increase through 2007 (See Note K. Notes Payable and Debt)
     As a result of the amendment of the Senior Secured Credit Facility and the
     issuance at par of $75 million of 12% Senior Secured Convertible Notes due
     2007 (the "Convertible Notes") in January 2002, the Company believes that
     funds generated by ongoing operations and funds available under its Senior
     Secured Credit Facility will be sufficient to meet its cash needs over the
     next twelve-month period.

     In December 2001, in order to remain compliant with the terms of the Senior
     Secured Credit Facility, the Company amended its near-term covenants under
     the Senior Secured Credit Facility. Based on the terms of the amendment,
     the Company must maintain minimum liquidity of $25 million, which is
     defined as the sum of cash and cash equivalents plus aggregate available
     revolving credit commitments. The Company must also comply with minimum
     EBITDA amounts of ($10 million), $17 million, and $40 million for the six,
     nine, and twelve month periods ended September 30, 2002, December 31, 2002,
     and March 31, 2003, respectively. The Company believes it has sufficient
     cash and borrowing availability to meet its liquidity covenants for the
     year ending March 31, 2003 and that based on expected reduced revenue
     levels and timely and successful execution of its restructuring programs,
     it will be able to meet its EBITDA covenant requirements for the next
     twelve months.

     Beyond March 31, 2003, based on current forecasts of revenues and results
     of operations, assuming timely completion and execution of the cost
     reduction programs, and based on the increasing and significant debt
     repayment obligations beginning in 2003, the Company believes that its
     current financing base, consisting of equity and debt instruments, will
     need to be renegotiated, extended or refinanced. There can be no guarantee
     that in the event the Company is required to extend, refinance or repay its
     debt, that new or additional sources of finance will be available or will
     be available on terms acceptable to the Company. Inability to repay the
     debt obligations or source alternative financing will likely have a
     material impact on the financial position of the Company.

     After March 31, 2003, the Company will again be subject to covenants
     outlined in the original Senior Secured Credit Facility which include
     minimum interest and maximum debt to EBITDA coverage ratios. Based on the
     current economic outlook, the Company does not believe it has the ability
     to comply with these covenants.

     The Company plans to work with its senior lenders to amend its covenants
     requirements, however, it cannot provide any assurance that it will be able
     to reach agreement with it lenders on reasonable terms. Inability to modify
     the current covenant agreement could result in default and cause the
     lenders to require immediate repayment of all debt under the Credit
     Facility and limit or cancel the availability of borrowings under the
     Company's Revolving Credit Facility. The Company may have to immediately
     find other sources of capital and further substantially reduce its cost of
     operations. In addition, the Company may need to raise additional capital
     to meet its needs after 2003, to develop new products and to enhance
     existing products in response to competitive pressures, and to acquire
     complementary products, businesses or technologies.

     After March 31, 2003, the Company's future operating performance and
     ability to repay, extend or refinance the Senior Secured Credit Facility
     (including the Revolving Credit Facility) or any new borrowings, and to
     service and repay or refinance the Convertible Notes and the Senior

                                      C-10

<PAGE>

     Subordinated Notes, will be subject to future economic, financial and
     business conditions and other factors, including demand for communications
     test equipment, many of which are beyond the Company's control.


C.   RECAPITALIZATION

     On May 21, 1998, CDRD Merger Corporation, a nonsubstantive transitory
     merger vehicle, which was organized at the direction of Clayton, Dubilier &
     Rice, Inc. ("CDR"), a private investment firm, was merged with and into the
     Company (the "Recapitalization" or the "Transaction") with the Company
     continuing as the surviving corporation. In the Recapitalization, (1) each
     then outstanding share of common stock, par value $0.20 per share, of the
     Company (the "Old Common Stock") was converted into the right to receive
     $47.75 in cash and 0.5 shares of common stock, no par value, of the Company
     (the "Common Stock") and (2) each then outstanding share of common stock of
     CDRD Merger Corporation was converted into one share of Common Stock.

     Upon consummation of the Recapitalization, Clayton, Dubilier & Rice Fund V
     Limited Partnership, an investment partnership managed by CDR ("CDR Fund
     V"), held approximately 91.8% of the Company's Common Stock and other
     stockholders held approximately 8.2% of the Common Stock. The Transaction
     was treated as a recapitalization for financial reporting purposes.
     Accordingly, the historical basis of the Company's assets and liabilities
     were not affected by these transactions. As of March 31, 2002, CDR Fund V
     and Clayton, Dubilier & Rice Fund VI Limited Partnership ("CDR Fund VI")
     held approximately 80.1% of the Common Stock outstanding.

     Recapitalization and other related costs during fiscal 2002, 2001 and 2000
     totaled $0 million, $9.2 million and $27.9 million, respectively, most of
     which related to termination expenses of certain executives including the
     retirement of John F. Reno, former Chairman, President and Chief Executive
     Officer of the Company, as well as other employees.


D.   RELATED PARTY

     The Company paid an annual management fee to CDR totaling $ 1.6 million,
     $0.5 million and $0.5 million in the three fiscal years ending March 31,
     2002, 2001 and 2000, respectively. In return for the annual management fee,
     CDR provides management and financial consulting services to the Company
     and its subsidiaries. In fiscal 2002, the Company also paid CDR a $2.3
     million financing fee in connection with the issuance of the Senior Secured
     Convertible Notes and the amendment of the Senior Secured Credit Facility.

     In connection with the merger (the "WWG Merger") between a subsidiary of
     the Company and Wavetek Wandel Goltermann, Inc. ("WWG") in May 2000 and the
     concurrent establishment of the new Senior Secured Credit Facility, the
     Company paid CDR $6.0 million for services provided in connection with the
     WWG Merger and the related financing, of which $3.0 million has been
     allocated to deferred debt issuance costs and $3.0 million allocated to
     additional paid-in capital in connection with the rights offering to the
     Company's other stockholders undertaken by the Company in June 2000.

     On May 19, 1999, Ned C. Lautenbach, a principal of CDR, became the
     Company's Chairman and Chief Executive Officer. Mr. Lautenbach has not
     received direct compensation from the Company for these services. However,
     his compensation for any services is covered in the above mentioned
     management fees paid to CDR.

                                      C-11

<PAGE>

     On January 15, 2002, Acterna LLC, a wholly-owned subsidiary of the Company,
     issued and sold at par $75 million aggregate principal amount of 12% Senior
     Secured Convertible Notes due 2007 (the "Convertible Notes") to CDR Fund
     VI. Interest on the Convertible Notes is payable semi-annually in arrears
     on each March 31st and September 30th, with interest payments commencing on
     March 31, 2002. At the option of Acterna LLC, interest is payable in cash
     or in-kind by the issuance of additional Convertible Notes. Due to
     limitations imposed by the Company's Senior Secured Credit Facility,
     Acterna LLC expects to pay interest on the Convertible Notes in-kind by
     issuing additional Convertible Notes. The Convertible Notes are secured by
     a second lien on all of the assets of the Company and its subsidiaries that
     secure the Senior Secured Credit Facility, and are guaranteed by the
     Company and its domestic subsidiaries.

     The Company used the net proceeds of $69 million from the issuance and sale
     of the Convertible Notes (net of fees and expenses) to repay a portion of
     its indebtedness under its Revolving Credit Facility. The amounts repaid
     remain available to be re-borrowed by the Company. As a result of the
     repayment, the Company had $95 million of availability under its Revolving
     Credit Facility as of March 31, 2002. (For additional information
     concerning the Convertible Notes see Note K. Notes Payable and Debt.)


E.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Principles of Consolidation. The consolidated financial statements include
     the accounts of the parent company and its wholly owned domestic and
     international subsidiaries. The results of companies acquired or disposed
     of during the fiscal year are included in the Consolidated Financial
     Statements from the effective date of acquisition or up to the date of
     disposal. Intercompany accounts and transactions have been eliminated.
     Certain prior year amounts have been reclassified to conform to the current
     year presentations.

     Use of Estimates. The preparation of financial statements in conformity
     with generally accepted accounting principles requires management to make
     certain estimates and assumptions that affect the reported amount of assets
     and liabilities and disclosure of contingent assets and liabilities at the
     date of the financial statements and the reported amounts of revenues and
     expenses during the reported period. Significant estimates in these
     financial statements include allowances for accounts receivable, net
     realizable value of inventories, carrying values of long-lived assets,
     pension assets and liabilities, tax valuation reserves and nonrecurring
     charges. Actual results could differ from those estimates.

     Fair Value of Financial Instruments. The fair value of cash and cash
     equivalents, accounts receivable and accounts payable approximated book
     value at March 31, 2002 and 2001. Other financial instruments include debt
     and interest rate swaps. (See Note K. Notes Payable and Debt and Note L.
     Interest Rate Swap Contracts)

     Concentration of Credit Risk. Financial instruments that potentially
     subject the Company to concentrations of credit risk consist primarily of
     cash investments, accounts receivable and interest rate swap contracts.

     The Company maintains its cash accounts in various institutions worldwide
     and places its cash investments in prime quality certificates of deposit,
     commercial paper, or mutual funds.

     Credit risk related to its accounts receivable are limited due to the large
     number of customers and their dispersion across many business and
     geographic areas. However, a significant amount of trade receivables are
     with customers within the telecommunications industry, which is currently
     experiencing a significant downturn. The Company extends credit to its
     customers based upon an

                                      C-12

<PAGE>

     evaluation of the customer's financial condition and credit history and
     generally does not require collateral. The Company has historically
     incurred insignificant credit losses.

     The Company's counterparties to the investment agreements and interest rate
     swap contracts consist of various major corporations and financial
     institutions of high credit standing. The Company does not believe there is
     significant risk of non-performance by these counterparties.

     Cash Equivalents. Cash equivalents represent highly liquid investment
     instruments with an original maturity of three months or less at the time
     of purchase.

     Inventories. Inventory values are stated at the lower of cost or market.
     Cost is determined based on a currently-adjusted standard basis, which
     approximates actual cost on a first-in, first-out basis. The company's
     inventory includes raw materials, work in process, finished goods and
     demonstration equipment. The Company periodically reviews its recorded
     inventory and estimates a reserve for obsolete or slow-moving items. The
     Company reserves the entire value of all obsolete items. The Company
     determines excess inventory based upon current and forecasted usage, and a
     reserve is provided for the excess inventory. Such estimates are difficult
     to make under current economic conditions.

     Property, Plant and Equipment. Property, plant and equipment is principally
     recorded at cost and depreciated on a straight-line basis over the
     estimated useful lives of the assets as follows:

                Buildings                                30 years
                Leasehold improvements                   Remaining life of lease
                Machinery and equipment                  7 to 10 years
                Furniture and fixtures                   5 years
                Computer software/hardware               3 years
                Tooling                                  3 years
                Vehicles                                 3 years

     When a fixed asset is disposed of, the cost of the asset and any related
     accumulated depreciation is written off and any gain or loss is recognized.
     Maintenance and repairs' expenditures are expensed when incurred.

     Goodwill. Goodwill represents the excess of cost over the fair market value
     of the net assets acquired and, prior to March 31, 2001, goodwill was
     charged to earnings on a straight-line basis over the period estimated to
     be benefited, averaging 6 years. Effective April 1, 2001, the Company
     adopted FAS 141 and FAS 142. Under the provisions of FAS 142, the Company
     ceased amortization of goodwill and will complete an impairment test using
     a discounted cash flow method of the remaining goodwill, at least annually
     on March 31, and therefore, will only be charged to operations to the
     extent it has been determined to be impaired.

     Acquired Intangible Assets. Acquired intangible assets consist primarily of
     product technology acquired in business combinations. Product technology
     and other acquired intangible assets are amortized on a straight-line basis
     primarily over six years. Amortization expense related to product
     technology was $38.9 million in 2002, $32.7 million in fiscal 2001, and
     $2.6 million in fiscal 2000. Amortization expense related to other
     intangibles was $3.3 million in 2002, $18.6 million in fiscal 2001, and
     $0.5 million in fiscal 2000.

     Long-Lived Assets. The Company periodically evaluates the recoverability of
     long-lived assets, including intangibles, whenever events and changes in
     circumstances indicate that the carrying

                                      C-13

<PAGE>

     amount of an asset may not be fully recoverable. When indicators of
     impairment are present, the carrying values of the assets are evaluated in
     relation to the operating performance and future undiscounted cash flows of
     the underlying business. Impairment is measured by the amount discounted
     cash flows are less than book value. Fair values are based on quoted market
     prices and assumptions concerning the amount and timing of estimated future
     cash flows and assumed discount rates, reflecting varying degrees of
     perceived risk. If the Company determines that any of the impairment
     indicators exist, and these assets were determined to be impaired, an
     adjustment to write down the long-lived assets would be charged to income
     in the period such determination was made.

     Deferred Debt Issuance Costs. In connection with the Recapitalization and
     the new Senior Secured Credit Facility, the Company incurred financing fees
     that are being amortized over the life of the Senior Secured Credit
     Facilities and Senior Subordinated Notes. (See Note K. Notes Payable and
     Debt.)

     Other Comprehensive Income (Loss). The functional currency for the majority
     of the Company's foreign operations is the applicable local currency. The
     translation from the local foreign currencies to U.S. dollars is performed
     for balance sheet accounts using the exchange rates in effect at the
     balance sheet date and for revenue and expense accounts using a weighted
     average exchange rate during the period. The unrealized gains or losses
     resulting from such translation are included in stockholders' equity
     (deficit). The realized gains or losses resulting from foreign currency
     transactions are included in other income. During fiscal 2002, 2001 and
     2000 the Company recorded transaction losses of $5.2 million, $5.5 million
     and a gain of $54.5 thousand, respectively.

     Other comprehensive income (loss) that is shown in the Statement of
     Stockholders' Deficit consists of foreign currency translation adjustments
     and unrealized gains (losses) on interest rate swap contracts offset by
     changes in minimum pension funding obligations.

     Stock-Based Compensation. The Company accounts for stock-based awards to
     its employees using the intrinsic value-based method as prescribed in
     Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
     Issued to Employees," and related interpretations. The Company has adopted
     the pro forma footnote disclosure provisions of Statement of Financial
     Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
     Compensation," which prescribes the recognition of compensation expense
     based on the fair value of options on the grant date with compensation
     costs recognized ratably over the vesting period.

     Unearned Compensation. From the time of the Recapitalization through
     October 2000, the Company issued non-qualified stock options to employees
     and non-employee directors at an exercise price equal to the fair market
     value as determined by the Company's board of directors. The exercise price
     may or may not have been equal to the trading price in the public market on
     the dates of the grants. The Company recorded a charge equal to the
     difference between the closing price in the public market and the exercise
     price of the options within unearned compensation within stockholders'
     deficit. This unearned compensation charge is being amortized to expense
     over the options' vesting periods of up to five years.

     The Board of Directors voted on October 23, 2000 to issue non-qualified
     stock options based on the average of the highest and lowest trading prices
     in the public market as of the day of the grant for all stock options
     issued after that date.

     The Company adjusts unearned compensation for employees and non-employee
     directors who have terminated employment with the Company whose options,
     which were granted at an exercise price

                                      C-14

<PAGE>

     lower than the trading price on the open market, were not fully vested at
     the time of departure. The adjustment reverses any amortization charge
     recognized for unvested options and eliminates any related remaining
     unearned compensation.

     Revenue Recognition. The Company's revenues are primarily derived from
     product sales. The Company recognizes revenue when it is earned. The
     Company considers revenue earned when it has persuasive evidence of an
     arrangement, the product has been shipped or the services have been
     provided to the customer, title and risk of loss have passed to the
     customer, the sales price is fixed or determinable and collectibility is
     reasonably assured.

     Revenue from product sales are generally recognized at the time the
     products are shipped to the customer. In certain cases where the Company
     has not transferred the risks and rewards of ownership, revenue recognition
     is deferred. Upon shipment, the Company also provides for estimated costs
     that may be incurred for product warranties and sales returns. Service
     revenue is deferred and recognized over the contract period or as services
     are rendered. Revenue on multi-element arrangements is recognized among
     each of the deliverables based on the relative fair value.

     Revenue on long-term contracts is recognized using the completed contract
     basis or the percentage of completion basis, as appropriate. Profit
     estimates on long-term contracts are revised periodically based on changes
     in circumstances and any losses on contracts are recognized in the period
     that such losses become known. Generally, the terms of long-term contracts
     provide for progress billing based on completion of certain phases of work.

     Revenue from software sales is generally recognized upon delivery provided
     that a contract has been executed, there are no uncertainties regarding
     customer acceptance and that collection of the related receivable is
     probable. When significant post-delivery obligations exist, revenue is
     deferred until such obligations are fulfilled.

     Product Development Expense. Costs relating to research and development are
     expensed as incurred. Internal software development costs that qualify for
     capitalization are not significant.

     Warranty Costs. The Company generally warrants its products for one to
     three years after delivery. A provision for estimated warranty costs, based
     on expected return rates and costs to repair, is recorded at the time
     revenue is recognized.

     Interest Rate Swap Contracts. The Company uses interest rate swap contracts
     to effectively fix a portion of its variable rate Term Loan Facility to a
     fixed rate to reduce the impact of interest rate changes on future income.
     The Company does not hold or issue financial instruments for trading or
     speculative purposes. The differential to be paid or received under these
     agreements is recognized within interest expense. (See Note L. Interest
     Rate Swap Contracts.)

     Income Taxes. Deferred tax liabilities and assets are recognized for the
     expected future tax consequences of assets and liabilities that have been
     included in the financial statements or tax returns. Under this method,
     deferred tax liabilities and assets are determined based on the difference
     between the tax bases of assets and liabilities and their reported amounts
     using enacted tax rates in effect for the year in which the differences are
     expected to reverse. Tax credits are generally recognized as reductions of
     income tax provisions in the year in which the credits arise. The Company's
     deferred tax assets are evaluated as to whether it is more likely than not
     they will be recovered from future income. To the extent the Company
     believes that recovery is not likely, the Company establishes a valuation
     allowance against such assets. (See Note M. Income Taxes.)

                                      C-15

<PAGE>

     The Company does not provide for U.S. income tax liabilities on
     undistributed earnings of its foreign subsidiaries which are considered
     indefinitely reinvested.

     New Pronouncements

     In July 2001, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 141, "Business Combinations" ("FAS 141")
     and No. 142, "Goodwill and Other Intangible Assets" ("FAS 142"). FAS No.
     141 requires that all business combinations be accounted for under the
     purchase method only and that certain acquired intangible assets in a
     business combination be recognized as assets apart from goodwill. FAS No.
     142 requires that ratable amortization of goodwill be replaced with
     periodic tests of the goodwill's impairment and that intangible assets
     other than goodwill be amortized over their useful lives. FAS No. 141 is
     effective for all business combinations initiated after June 30, 2001 and
     for all business combinations accounted for by the purchase method for
     which the date of acquisition is before June 30, 2001. The provisions of
     FAS No. 142 will be effective for fiscal years beginning after December 15,
     2001; however, the Company elected to early adopt the provisions effective
     April 1, 2001. The effects of FAS 142 are detailed in Note H. Goodwill and
     Other Intangible Assets.

     In October 2001, the Financial Accounting Standards Board ("FASB") issued
     Statement of Financial Accounting Standards No. 144, "Accounting for the
     Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144
     supercedes FASB Statement No. 121, "Accounting for the Impairment of
     Long-Lived Assets and for Long-Lived Assets to be Disposed of". FAS 144
     applies to all long-lived assets (including discontinued operations) and
     consequently amends Accounting Principles Board Opinion No. 30, "Reporting
     Results of Operations- Reporting the Effects of Disposal of a Segment of a
     Business". FAS 144 is effective for financial statements issued for fiscal
     years beginning after December 15, 2001, and was adopted by the Company, as
     required, on April 1, 2002. The Company has determined that the adoption of
     this standard will require the Company to disclose AIRSHOW as a
     discontinued operation in the first quarter of fiscal 2003 and reclassify
     prior period presentation.

     In April 2002, the FASB issued Statement of Financial Accounting Standards
     FAS No. 145, "Rescission of FASB Statements No.4, 44, and 62, Amendment of
     FASB Statement No. 13, and Technical Corrections". In general, FAS 145 will
     require gains and losses on extinguishments of debt to be classified as
     income or loss from continuing operations rather than as extraordinary
     items as previously required under Statement 4. Gains or losses from
     extinguishments of debt for fiscal years beginning after May 15, 2002 shall
     not be reported as extraordinary items unless the extinguishment qualifies
     as an extraordinary item under the 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. The extraordinary item in 2001 will be
     reclassified on adoption of this standard.


F.   ACQUISITIONS AND DIVESTITURES

     ACQUISITIONS DURING FISCAL 2002

     The Company in the normal course of business entered into acquisitions
     during fiscal 2002, which, in the aggregate, do not have a material impact
     on the results of operations and financial position of the Company.
     Accordingly the Company has not presented proforma results of operations
     for these acquisitions.

                                      C-16

<PAGE>

     ACQUISITIONS DURING FISCAL 2001

     Wavetek Wandel Goltermann,Inc.

     On May 23, 2000, the Company merged one of its wholly owned subsidiaries
     with Wavetak Wandel Goltermann, Inc. ("WWG") for consideration of $402.0
     million. The WWG Merger was accounted for using the purchase method of
     accounting. Purchased incomplete technology of $51 million had not reached
     technological feasibility, had no alternative future use and was written
     off to the income statement in the fiscal year 2001. The excess purchase
     price was allocated to other intangibles and goodwill.

     The purchase accounting is summarized as follows:

          Aggregate purchase price:
           Cash in exchange for WWG stock                             $ 249,562
           Cash in exchange for WWG options                               8,248
           Acterna common stock, 14,987 shares                          130,000
           Acquisition costs                                             14,228
                                                                      ---------
                 Total purchase price                                   402,038

          Plus net tangible liabilities acquired                        150,504
                                                                      ---------
                 Total purchase price in excess of net assets
                  acquired                                            $ 552,542
                                                                      =========
          Allocations of purchase price:
           Inventory step-up to fair value                            $  35,000
           In-process research and development acquired                  51,000
           Allocation to land and buildings                              27,000
           Deferred tax liabilities                                     (49,447)
           Core technology                                              162,180
           Backlog                                                        6,841
           Goodwill                                                     319,968
                                                                      ---------
                                                                      $ 552,542
                                                                      =========

          As of April 1, 2001, the Company adopted FAS 142 and all amounts
           previous allocated to workforce have been reclassified to goodwill.

     Superior Electronics Group, Inc., doing business as Cheetah Technologies

     On August 23, 2000, the Company acquired Superior Electronics Group, Inc.,
     a Florida corporation doing business as Cheetah Technologies ("Cheetah")
     for a purchase price of $171.5 million. The acquisition was accounted for
     using the purchase method of accounting. The Company funded the purchase
     price with borrowings of $100 million under its Senior Secured Credit
     Facility (See Note K. Notes Payable and Debt) and approximately $65.7
     million from its existing cash balance. Purchased incomplete technology of
     $5 million had not reached technological feasibility, had no alternative
     future use and was written off to the income statement in the fiscal year
     2001. The excess purchase price was allocated to other intangibles and
     goodwill.

                                      C-17

<PAGE>

     In connection with the Cheetah acquisition, options to purchase shares of
     Cheetah common stock were converted into options to purchase shares of
     Acterna common stock. The fair value as of the announcement date of the
     acquisition of all options converted was $5.8 million using an
     option-pricing model. An additional charge of $6.7 million relates to the
     unearned intrinsic value of unvested options as of the closing date of the
     acquisition, and has been recorded as deferred compensation to be amortized
     over the remaining vesting period of the options (the weighted average
     vesting period is approximately three years).

     The purchase accounting is summarized as follows:

     Aggregate purchase price:
      Cash paid                                                       $ 164,723
      Fair value of Cheetah stock options converted to Acterna
        stock options                                                     5,754
      Acquisition costs                                                     997
                                                                      ---------
         Total purchase price                                           171,474

     Less net assets acquired                                           (15,073)
                                                                      ---------
         Total purchase price in excess of net assets acquired        $ 156,401
                                                                      =========
     Allocations of purchase price:
      Inventory step-up to fair value                                 $     750
      In-process research and development acquired                        5,000
      Deferred compensation related to unvested stock options
          assumed by the Company                                          6,720

      Core technology                                                    48,300
      Backlog                                                             3,300
      Other intangibles                                                     700
      Goodwill                                                           91,631
                                                                      ---------
                                                                      $ 156,401
                                                                      =========

       As of April 1, 2001, the Company adopted FAS 142 and all amounts
        previous allocated to workforce have been reclassified to goodwill.

     ACQUISITIONS DURING FISCAL 2000

     WPI Husky Technology, Inc., WPI Oyster Termiflex Limited, WPI Husky
     Technology Limited and WPI Husky Technology GmbH

     On February 24, 2000 the Company, through one of its wholly owned
     subsidiaries, purchased certain assets and liabilities of WPI Husky
     Technology, Inc., and WPI Oyster Termiflex Limited, and the stock of WPI
     Husky Technology Limited and WPI Husky Technology GmbH (collectively
     "Itronix UK"), all of which were subsidiaries of WPI, Inc. The total
     purchase price for Itronix UK totaled approximately $34.8 million in cash
     (of which approximately $30 million was borrowed to finance the
     acquisition). The acquisition was accounted for using the purchase method
     of accounting and resulted in approximately $30 million of goodwill.
     Itronix UK distributes rugged field computer systems including the
     provision of related services for incorporation into customers' specific
     applications.

                                      C-18

<PAGE>

     ICS Advent (Europe) Ltd.

     On January 4, 2000, the Company purchased the remaining outstanding stock
     of ICS Advent (Europe) Ltd. ("ICS UK") for (pound)3.0 million
     (approximately $4.9 million) in cash. The acquisition was accounted for
     using the purchase method of accounting and generated approximately $4.0
     million of goodwill. On October 31, 2001, the ICS business was sold. (See
     Divestiture during Fiscal 2002)

     Applied Digital Access, Inc.

     On November 1, 1999, the Company acquired all the outstanding stock of
     Applied Digital Access, Inc. ("ADA") for a total purchase price of
     approximately $81.0 million in cash. The operating results of ADA have been
     included in the Consolidated Financial Statements since November 1, 1999
     and is included within the Company's communications test segment.

     Sierra Design Labs

     On September 10, 1999, the Company purchased the outstanding stock of
     Sierra Design Labs ("Sierra") for a total purchase price of $6.3 million in
     cash. The acquisition was accounted for using the purchase method of
     accounting and resulted in $4.9 million of goodwill. The operating results
     of Sierra have been included in the consolidated financial statements since
     September 10, 1999 and is included within the Company's Other Subsidiaries.

     DIVESTITURE DURING FISCAL 2002

     ICS ADVENT AND OTHER SUBSIDIARY

     On October 31, 2001, the Company sold its ICS Advent subsidiary for $23
     million in cash proceeds. The Company wrote down the net assets of ICS
     Advent at September 30, 2001, to the cash to be received less expenses
     related to the sale, which resulted in an impairment charge of $15 million
     in the Statement of Operations in the quarter ended September 30, 2001.

     In addition, the Company recorded a charge of $2.9 million relating to the
     disposition of a subsidiary of Itronix Corporation during the second
     quarter of fiscal 2002.

     DIVESTITURE DURING FISCAL 2001

     Data Views Corporation

     In June 2000, the Company sold the assets and liabilities of DataViews
     Corporation ("DataViews"), a subsidiary that manufactures software for
     graphical-user-interface applications, to GE Fanuc for $3.5 million. The
     sale generated a loss of approximately $0.1 million. Prior to the sale, the
     results of DataViews were included in the Company's financial statements
     within "Corporate and Other Subsidiaries".

                                      C-19

<PAGE>

     OTHER ACQUISITIONS AND DIVESTITURES

     In the normal course of business, the Company has acquired and sold small
     companies that, in the aggregate, do not have a material impact on the
     results of operations and financial position of the Company for the periods
     presented.

G.   RESTRUCTURING

     The Company continues to implement cost reduction programs aimed at
     aligning its ongoing operating costs with its expected revenues. At the end
     of the fourth quarter of fiscal 2002, the Company's headcount was 4,973
     (down from 6,380 at the beginning of fiscal 2002), and the corporate
     headquarters was relocated from Burlington, Massachusetts to Germantown,
     Maryland. Based on current estimates of its revenues and operating
     profitability and losses, the Company plans to take additional and
     significant cost reduction actions in order to remain in compliance with
     its financial covenant requirements under its Senior Secured Credit
     Facility. (See Note B. Liquidity, to the Company's Consolidated Financial
     Statements.) These cost reduction programs include among other things: an
     additional reduction of 400 employees, a reduction of new hires, reductions
     to employee compensation, consolidation of identified facilities and an
     exit from certain product lines. A portion of these actions have been
     implemented in the first quarter of fiscal 2003 and are intended to reduce
     costs by an estimated $75 million in fiscal 2003. These new actions coupled
     with the fourth quarter restructuring programs will result in reducing
     headcount to approximately 4,100 employees by the third quarter of fiscal
     2003. The Company believes that the cost reduction programs will be
     implemented and executed on a timely basis and will align costs with
     revenues. In the event the Company is unable to achieve this alignment,
     additional cost cutting programs would be required in the future.

     During the fiscal year ended March 31, 2002, the Company recorded $34.0
     million of restructuring charges, related to three restructuring plans, as
     a result of the cost reduction programs mentioned above. Details of these
     restructuring plans and the associated charges are described below:

     On August 1, 2001 the Company announced a comprehensive cost reduction
     program that included a reduction of: (1) approximately 400 jobs worldwide;
     (2) outside contractors and consultants; (3) operating expenses; and (4)
     manufacturing costs through procurement programs to lower materials costs.
     The Company expects these steps to result in annualized cost savings in
     excess of $50 million. As a result of these measures, the Company
     terminated 328 employees and recorded a charge of $8.0 million relating
     primarily to severance in the second quarter of fiscal 2002.

     In October 2001, the Company announced an expanded cost reduction plan that
     included (1) a reduction of 500 additional positions (excluding the
     employees of the sold ICS Advent subsidiary); (2) consolidating certain of
     its development and marketing offices; (3) instituting a reduced workweek
     at selected manufacturing locations; (4) reducing capital expenditures, and
     (5) the relocation of its corporate headquarters. The Company incurred a
     restructuring charge of $9.3 million for this plan.

     During the fourth quarter of 2002, the Company announced additional cost
     reduction plans that included (1) a reduction of approximately 400 jobs
     nationwide; and (2) consolidation of certain Itronix facilities located
     abroad. As a result, the Company incurred a restructuring charge of $16.7
     million during the fourth quarter of 2002.

     During the fiscal year ended March 31, 2002, the Company paid approximately
     $19.4 million in severance and other related costs. At March 31, 2002
     approximately $14.6 million was left to be

                                      C-20

<PAGE>

     paid for this restructuring; the Company anticipates that this amount will
     be paid primarily during the first half of fiscal 2003.

     The following table summarizes the restructuring expenses and payments
     incurred during the fiscal year ended March 31, 2002:

                           For The Twelve Months Ended March 31, 2002
                             Balance                                    Balance
                            March 31,                                  March 31,
                             2001       Expense      Paid                2002
                           ----------   -------      ----             ----------

     Workforce-related     $     ---    $ 31,737   $(17,972)          $   13,765
     Facilities                  ---       1,134       (763)                 371
     Other                       ---       1,118       (692)                 426
                           ---------    --------   --------           ----------
      Total                $     ---    $ 33,989   $(19,427)          $   14,562
                           =========    ========   ========           ==========

H.   ACQUIRED INTANGIBLE ASSETS

     During the fourth quarter of fiscal 2002, as a result of the substantial
     declining financial performance within the communication test segment and
     resulting reduced expectations for future revenues and earnings, management
     performed an assessment of the carrying values of long-lived assets within
     the communications test segment. This assessment, based on estimated future
     cash flows of the assets, discounted to arrive at a value today, quantified
     the impairment of acquired intangible assets (principally core technology).
     As a result, a charge of $151.3 million was recorded during the fourth
     quarter of fiscal 2002.

     The remaining acquired intangible assets are as follows:

                                          As of March 31, 2002
                                              Gross Carrying      Accumulated
                                                  Amount          Amortization
                                               -----------        ------------
                                             (In thousands)

      Amortized intangible assets:
         Core technology                        $   8,758          $   6,930
         Other intangible assets                    1,050                425
                                                ---------          ---------
      Total                                     $   9,808          $   7,355
                                                =========          =========

      Aggregate amortization expense:
       For the year ended March 31, 2002        $  42,271

      Estimated amortization expense:
       For the year ended March 31, 2003        $   1,297
       For the year ended March 31, 2004        $   1,031
       For the year ended March 31, 2005        $     125

     Core technology is amortized over a weighted average life of 8 years and
     all other intangible assets are amortized over a weighted average life of 5
     years.

I.   GOODWILL AND OTHER INTANGIBLE ASSETS

                                      C-21

<PAGE>

The changes in the carrying amount of goodwill during the year ended March 31,
2002, are as follows:

<TABLE>
<CAPTION>
                                       --------------------------------------------------------
                                        Communications
                                            Test         Itronix        AIRSHOW      da Vinci        Total
                                       ---------------- ---------     -------------------------      -----
                                                                     (In thousands)
<S>                                       <C>           <C>            <C>           <C>           <C>
Balance as of April 1, 2001               $377,187      $  34,036      $ 19,039      $ 5,216       $435,478

Goodwill adjustments                        (1,016)        (2,391)         (875)      (4,110)        (8,392)
                                          --------      ---------      --------      -------       --------
Balance as of March 31, 2002              $376,171      $  31,645      $ 18,164      $ 1,106       $427,086
                                          ========      =========      ========      =======       ========
</TABLE>

The goodwill adjustments in the communications test reporting unit resulted
primarily from final adjustments to the purchase price allocation for the WWG
Merger (See Note F. Acquisitions and Divestitures) and due to the deferred tax
adjustment relating to reclassifying certain intangible assets as goodwill on
adoption of FAS 142. The goodwill adjustment for the Itronix reporting unit is
related to the disposition of a subsidiary of Itronix during the second quarter
of fiscal 2002. The goodwill adjustment for AIRSHOW relates to the
reclassification of an identified intangible asset from goodwill. The goodwill
adjustment for da Vinci relates to the goodwill impairment as a result of the
closure of Sierra Design Labs, a subsidiary of da Vinci Systems, Inc. during the
third quarter of fiscal 2002. The effects of adopting FAS 142 are set out below:

<TABLE>
<CAPTION>
                                                        Year Ended        Year Ended
                                                         March 31,         March 31,
                                                           2001              2000
                                                           ----              ----
<S>                                                      <C>               <C>
   Income (loss) from continuing
     operations before extraordinary item               $ (171,197)       $    6,012
   Add back goodwill amortization                           68,896             9,192
   Add back other intangible amortization                    9,258               164
                                                        ----------        ----------
   Adjusted income (loss) from continuing
    operations before extraordinary item                $  (93,043)       $   15,368
                                                        ==========        ==========
   Basic and diluted loss per share:
   Reported net income (loss) from continuing
    operations before extraordinary item                $    (0.93)       $     0.04
   Goodwill amortization                                      0.37              0.06
   Other intangible amortization                              0.05              0.00
                                                        ----------        ----------
   Adjusted basic and diluted income (loss)
    per share from continuing operations
    before extraordinary item                           $    (0.51)       $     0.10
                                                        ==========        ==========
</TABLE>
The Company completed its transitional impairment test of goodwill during the
year ended March 31, 2002 for all reporting units required under FAS 142 as of
March 31, 2001 and determined that goodwill was not impaired. The impairment
testing was based on discounted cash flow analyses of expectations of future
earnings for each of the reporting units over the remaining estimated lives of
the separately identifiable intangible assets. The Company's annual impairment
test was performed as of

                                      C-22

<PAGE>

March 31, 2002 and determined that goodwill was not impaired for all reporting
units required under FAS 142.

J.   NET INCOME (LOSS) PER SHARE

        The computation for net income (loss) per share is as follows:

<TABLE>
<CAPTION>
                                                            2002         2001         2000
                                                          ---------    ---------    ---------
                                                      (Amounts in thousands except per share data)
<S>                                                       <C>          <C>          <C>
Net income (loss):
   Continuing operations                                  $(364,854)   $(171,197)   $   6,012
   Discontinued operations                                  (10,039)      10,039           --
   Extraordinary loss                                            --      (10,659)          --
                                                          ---------    ---------    ---------
Net income (loss)                                         $(374,893)   $(171,817)   $   6,012
                                                          =========    =========    =========

BASIC AND DILUTED:
Common stock outstanding, net of treasury stock,
 beginning of period                                        190,953      122,527      120,665
Weighted average common stock and treasury stock
 issued during the period                                       915       57,188          886
                                                          ---------    ---------    ---------
                                                            191,868      179,715      121,551

Bonus element adjustment related to rights offering              --        4,166       26,761
                                                          ---------    ---------    ---------
Weighted average common stock outstanding, net of
 treasury stock, end of period                              191,868      183,881      148,312
                                                          =========    =========    =========

Net income (loss) per common share basic and diluted:
  Continuing operations                                   $   (1.90)   $   (0.93)   $    0.04
  Discontinued operations                                     (0.05)        0.06           --
  Extraordinary loss                                             --        (0.06)          --
                                                          ---------    ---------    ---------
Net income (loss) per common share                        $   (1.95)   $   (0.93)   $    0.04
                                                          =========    =========    =========
</TABLE>

     On May 23, 2000 in connection with the WWG Merger, the Company issued
     43,125,000 shares of common stock to CDR Fund V and CDR Fund VI at a price
     of $4.00 per share. In order to reverse the diminution of all other common
     stockholders as a result of shares issued in connection with the WWG
     Merger, the Company made a rights offering to all its common stock
     stockholders (including CDR) of record on April 20, 2000 (the "Rights
     Offering"). CDR Fund V elected to waive its right to participate in this
     Rights Offering. As a result, 4,983,000 shares of common stock were covered
     by the Rights Offering to stockholders other than CDR Fund V. As a result
     of these transactions, the Company granted a right to all stockholders
     other than CDR Fund V to purchase 4,983,000 shares of common stock at a
     price of $4.00 per share. The closing trading price of the common stock on
     May 22, 2000, immediately prior to the sale of the common stock to CDR Fund
     V, was $11.25.

                                      C-23

<PAGE>

     For purposes of calculating weighted average shares and earnings per share,
     the Company has treated the sale of common stock to the CDR Funds and the
     sale of common stock to all other stockholders as a rights offer. Since the
     common stock was offered to all stockholders at a price that was less than
     that of the market trading price (the "bonus element"), a retroactive
     adjustment of 1.22 per share was made to weighted average shares to reflect
     this bonus element.

     In fiscal 2002, 2001 and 2000 the Company excluded from its diluted
     weighted average shares outstanding the effect of the weighted average
     common stock equivalents (7.6 million in fiscal 2002, 13.5 million in
     fiscal 2001 and 11.4 million in fiscal 2000) and the Secured Convertible
     Notes as the Company incurred a net loss from continuing operations. Common
     stock equivalents have been excluded from the calculation of diluted
     weighted average shares outstanding because inclusion would have the effect
     of reducing net loss per common share from continuing operations.

 K.  NOTES PAYABLE AND DEBT

     Notes payable and Long-term debt is summarized below:

                                                   2002              2001
                                                ----------        ----------
                                                    (Amounts in thousands)

      Senior secured credit facility            $  710,683        $  776,354
      Senior subordinated notes                    275,000           275,000
      Senior secured convertible note               76,875               ---
      Capitalized leases and other debt             22,441            27,277
      Other notes payable                            2,523            10,919
                                                ----------        ----------
         Total debt                              1,087,522         1,089,550
                                                ----------        ----------
      Less current portion                          31,460            33,167
                                                ----------        ----------
         Long-term debt                         $1,056,062        $1,056,383
                                                ==========        ==========

The book value of the debt under the Senior Secured Credit Facility and the
Senior Secured Convertible Notes represents fair market value at March 31, 2002
and 2001. The fair market value of the Senior Subordinated Notes was $77.7
million and $226.9 million, at March 31, 2002 and 2001, respectively.

The following table lists the future payments for debt obligations: (In
thousands)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
     Debt obligations               Fiscal     Fiscal     Fiscal      Fiscal     Fiscal     Thereafter      Total
                                     2003       2004       2005        2006       2007
--------------------------------------------------------------------------------------------------------------------
<S>                              <C>         <C>         <C>         <C>         <C>         <C>         <C>
Senior secured credit facility   $   25,749  $   40,700  $   44,500  $   74,700  $  310,000  $  215,034  $  710,683
--------------------------------------------------------------------------------------------------------------------
Senior secured convertible note          --          --          --          --          --      76,875      76,875
--------------------------------------------------------------------------------------------------------------------
Senior subordinated notes                --          --          --          --          --     275,000     275,000
--------------------------------------------------------------------------------------------------------------------
Other notes payable                   2,523          --          --          --          --          --       2,523
--------------------------------------------------------------------------------------------------------------------
Capital leases and other debt         3,188       3,813       3,802       2,666       2,667       6,305      22,441
--------------------------------------------------------------------------------------------------------------------
Total                            $   31,460  $   44,513  $   48,302  $   77,366  $  312,667  $  573,214  $1,087,522
--------------------------------------------------------------------------------------------------------------------
</TABLE>

     Senior Secured Convertible Notes

                                      C-24

<PAGE>

     On January 15, 2002, Acterna LLC, a wholly-owned subsidiary of the Company,
     issued and sold at par $75 million aggregate principal amount of the
     Convertible Notes to CDR Fund VI. The Company used the net proceeds of $69
     million from the issuance and sale of the Convertible Notes (net of fees
     and expenses) to repay a portion of its indebtedness under its Revolving
     Credit Facility. The amounts repaid remain available to be re-borrowed by
     the Company. As a result of the repayment, the Company currently had $95
     million of availability under its Revolving Credit Facility as of March 31,
     2002. As of March 31, 2002, the Company was in compliance with all
     covenants under the agreement governing the Convertible Notes.

     Interest on the Convertible Notes is payable semi-annually in arrears on
     each March 31st and September 30th, with interest payments commencing on
     March 31, 2002. At the option of Acterna LLC, interest is payable in cash
     or in-kind by the issuance of additional Convertible Notes. Due to
     limitations imposed by the Senior Secured Credit Facility, Acterna LLC
     expects to pay interest on the Convertible Notes in-kind by issuing
     additional Convertible Notes. The Convertible Notes are secured by a second
     lien on all of the assets of the Company and its subsidiaries that secure
     the Senior Secured Credit Facility, and are guaranteed by the Company and
     its domestic subsidiaries. A termination or acceleration of the Senior
     Secured Credit Facility because of a default under the Senior Secured
     Credit Facility, or a material payment default under the Senior secured
     Credit Facility, constitutes a default under the Convertible Notes.

     At the option of CDR Fund VI (or any subsequent holder of Convertible
     Notes), at any time prior to December 31, 2007, the maturity date of the
     Convertible Notes, the Convertible Notes may be converted into newly-issued
     shares of common stock of the Company at a conversion price of $3.00 per
     share, subject to customary antidilution adjustments. On the date of
     issuance, the conversion price of the Notes exceeded the public market
     price per share of common stock of the Company. If in the future any
     Convertible Note is issued with a conversion price that is less than the
     public market price on January 15, 2002 (the date of original issuance) as
     a result of an anti-dilution adjustment of the conversion price, then the
     Company would be required to take a charge to its results of operations to
     reflect the discount of the adjusted conversion price to the market price
     of the common stock on the date of original issuance.

     Acterna LLC may redeem the Convertible Notes, in whole or in part, and
     without penalty or premium, at any time prior to the maturity date. In
     addition, Acterna LLC is required to offer to repurchase the Notes upon a
     change of control and upon the disposition of certain assets. If any
     Convertible Note is redeemed, repurchased or repaid for any reason prior to
     the maturity date, the holder will be entitled to receive from the Company
     a warrant to purchase a number of newly-issued shares of common stock of
     the Company equal to the number of shares of common stock that such
     Convertible Note was convertible into immediately prior to its redemption,
     repurchase or repayment. The exercise price of such warrant will be the
     conversion price in effect immediately prior to such warrant's issuance,
     subject to customary antidilution adjustments. Warrants will be exercisable
     upon issuance and will expire on the maturity date of the Convertible
     Notes. The Company is required to classify the contingently issuable
     warrants as liabilities. Because the warrants are only issuable upon
     redemption, repurchase or repayment prior to maturity, which requires the
     consent of the lenders under the Company's Senior Secured Credit Facility,
     the Company has valued the warrants at zero as of the date of issuance. The
     change in fair value of the warrants will be recorded as a charge to
     operations.

     Senior Secured Credit Facility

     In connection with the WWG Merger, the Company refinanced certain of its
     debt and entered into a new senior secured credit facility (the "Senior
     Secured Credit Facility") which provided for up to $175.0 million in
     revolving credit borrowings (the "Revolving Credit Facility") and $685.0
     million

                                      C-25

<PAGE>

     of term loan borrowings. As of March 31, 2002, the Company had $710.7
     million of indebtedness outstanding under the Senior Secured Credit
     Facility consisting of $647.7 million in term loans and $63.0 million in
     revolving credit borrowings. The amount under the Revolving Credit Facility
     that remained available at March 31, 2002 was approximately $95 million,
     including outstanding letters of credit which reduce the borrowing capacity
     of the Company under the terms of the Revolving Credit Facility. As of
     March 31, 2002 and 2001, the Company was in compliance with all covenants
     under the Senior Secured Credit Facility, as amended on December 27, 2001.

     On December 27, 2001, in order to meet the requirements under its existing
     credit facility, the Company entered into an amendment to the credit
     agreement (the "Amendment") governing its senior secured credit facility.
     Under the Amendment, the lenders under the credit agreement, among other
     things, agreed to waive the minimum interest coverage and maximum leverage
     covenants of the Company under the credit agreement through June 30, 2003,
     subject to the successful issuance and sale of the Convertible Notes. Under
     the Amendment, the Company is subject to certain additional covenants and
     restrictions, including, without limitation, minimum liquidity and EBITDA
     requirements and additional restrictions on the Company's ability to make
     capital expenditures, incur and guarantee debt, make investments,
     optionally prepay the 9.75% Senior Subordinated Notes Due 2008 and dispose
     of assets. The Company must maintain minimum liquidity of $25 million,
     which is defined as the sum of cash and cash equivalents plus aggregate
     available revolving credit commitments. The Company must also comply with
     minimum cumulative EBITDA amounts of ($10 million), $17 million, and $40
     million for the six, nine and twelve month periods ended September 30,
     2002, December 31, 2002, and March 31, 2003, respectively. The Amendment
     also, among other things, adds additional prepayment requirements for
     certain transactions, establishes additional guarantees and pledges of
     collateral and increases the interest rates on loans under the senior
     secured credit facility by 0.75%. On June 30, 2003, the Company will again
     become subject to the minimum interest coverage and maximum leverage
     covenants under the Senior Secured Credit Facility. Based on current
     estimates of its revenues and projected operating losses and profits in the
     near term, the Company does not believe that it will be in compliance with
     these covenants upon reversion. As a result, the Company has begun
     discussions with its lenders under the Senior Secured Credit Facility to
     amend the interest coverage and maximum leverage covenants requirements. If
     the Company is unable to amend the terms of its Senior Secured Credit
     Facility, a default could occur. If a default occurs, the lenders under the
     Senior Secured Credit Facility could require immediate repayment of the
     loans under the facility and refuse to extend funds under the Company's
     Revolving Credit Facility. The Company cannot give any assurance that it
     will be able to obtain an amendment to its Senior Secured Credit Facility,
     or if it does, that the amendment will be sufficient to remain in
     compliance with the terms of the Facility.

     The obligation under the Senior Secured Credit Facility are secured by a
     pledge of the equity interests in Acterna LLC, by substantially all of the
     assets of Acterna LLC and each direct or indirect U.S. subsidiary of the
     Acterna LLC, and by a pledge of the capital stock of each such direct or
     indirect U.S. subsidiary, and 65% of the capital stock of each subsidiary
     of the Company that acts as a holding company of the Company's foreign
     subsidiaries.

     The Company incurred a $2.9 million fee payable to the lenders under its
     Senior Secured Credit Facility in connection with the consummation of the
     December 2001 amendment which has been capitalized as deferred debt
     issuance costs to be amortized over the remaining life of the Senior
     Secured Credit Facility. At the time of the WWG Merger, the Company
     acquired and subsequently repaid approximately $118.6 million of WWG
     revolving credit debt and $94.1 million of outstanding WWG bonds.

     The loans under the Senior Secured Credit Facility bear interest at
     floating rates based upon the interest rate option elected by the Company.
     These rates are based on LIBOR plus an applicable

                                      C-26

<PAGE>

     margin ranging from 2.75% to 3.25% per annum. To fix interest charged on a
     portion of its debt, the Company entered into interest rate hedge
     agreements. After giving effect to these agreements, $130 million of the
     Company's debt is currently subject to an effective average annual fixed
     rate of 5.718% per annum until September 2002.

     The annual weighted-average interest rate on the loans under the Company's
     Senior Secured Credit Facility was 6.7% and 9.8% for the fiscal years ended
     March 31, 2002 and 2001, respectively. Due to the recent reduction in
     interest rates, the Company's 90-day LIBOR borrowing rate plus margin at
     March 31, 2002 was 5.655%.

     The Company is also required, under the terms of the Senior Secured Credit
     Facility, to pay a commitment fee based on the unused amount of the
     Revolving Credit Facility. The rate is an annual rate, paid quarterly, and
     ranges from 0.30% to 0.50%, and is based on the Company's leverage ratio in
     effect at the beginning of the quarter. The Company paid $0.2 million and
     $0.3 million in fiscal 2002 and 2001, respectively, in commitment fees.

     Covenant Restrictions. The Senior Secured Credit Facility imposes
     restrictions on the ability of the Company to make capital expenditures,
     and the Senior Secured Credit Facility, the Convertible Notes and the
     indenture governing the Senior Subordinated Notes limit the Company's
     ability to incur additional indebtedness. On December 27, 2001, the Company
     entered into an amendment of the Senior Secured Credit Facility, modifying
     the covenants until June 30, 2003. Beginning June 30, 2003, the Company
     will again be subject to these covenants. The covenants contained in the
     Senior Secured Credit Facility also, among other things, restrict the
     ability of the Company and its subsidiaries to dispose of assets, incur
     guarantee obligations, prepay other indebtedness, make restricted payments,
     create liens, make equity or debt investments, make acquisitions, modify
     terms of the indenture governing the Senior Subordinated Notes, engage in
     mergers or consolidations, change the business conducted by the Company and
     its subsidiaries taken as a whole or engage in certain transactions with
     affiliates. These restrictions, among other things, preclude Acterna LLC
     from distributing assets to Acterna Corporation (which has no independent
     operations and no significant assets other than its membership interest in
     Acterna LLC), except in limited circumstances. The term loans under the
     Senior Secured Credit Facility is governed by negative covenants that are
     substantially similar to the negative covenants contained in the indenture
     governing the Senior Subordinated Notes, which also impose restrictions on
     the operation of the Company's business.

     The Senior Secured Credit Facility is subject to mandatory prepayments and
     reductions in an amount equal to, subject to certain exceptions, (a) 100%
     of the net proceeds of (1) certain debt offerings by the Company and any of
     its subsidiaries, (2) certain asset sales or other dispositions by the
     Company or any of its subsidiaries, and (3) property insurance or
     condemnation awards received by the Company or any of its subsidiaries, and
     (b) 50% of the Company's excess cash flow (the "Recapture") (as defined in
     the Senior Secured Credit Facility) for each fiscal year in which the
     Company exceeds a certain leverage ratio. The Senior Subordinated Notes are
     subject to certain mandatory prepayments under certain circumstances.

     Based on the Recapture calculations at March 31, 2002 and March 31, 2001,
     the Company was not required to make any additional mandatory principal
     reduction payments during these years.

     Senior Subordinated Notes

     In connection with the 1998 recapitalization of the Company, the Company
     issued the Senior Subordinated Notes. Interest on the Senior Subordinated
     Notes accrues at the rate of 9 3/4% per

                                      C-27

<PAGE>

     annum and is payable semi-annually in arrears on each May 15 and November
     15 through maturity in 2008. As of March 31, 2002 and 2001, the Company was
     in compliance with all covenants under the Senior Subordinated Notes.

     The Senior Subordinated Notes due 2008 will not be redeemable at the option
     of the Company prior to May 15, 2003 unless a change of control occurs.
     Should that happen, the Company may redeem the Notes in whole, but not in
     part, at a price equal to 100% of the principal amount plus the greater of
     (1) 1.0% of the principal amount of such Note and (2) the excess of (a) the
     present value of (i) redemption price of such Note plus (ii) all required
     remaining scheduled interest payments due on such Note through May 15,
     2003, over (b) principal amount of such Note on the redemption date.

     Except as noted above, the Notes are redeemable at the Company's option, in
     whole or in part, anytime on and after May 15, 2003, and prior to maturity
     at the following redemption prices:

                                                             Redemption
                   Period                                      Price
                   ------                                    ----------
                   2003                                      104.875%
                   2004                                      103.250%
                   2005                                      101.625%
                   2006 and thereafter                       100.000%


     Principal and interest payments under the Senior Secured Credit Facility
     and interest payments on the Senior Subordinated Notes have represented and
     will continue to represent significant liquidity requirements for the
     Company.

     Short-term Credit Facility

     On June 29, 2001, the Company entered into an unsecured, short-term
     revolving credit facility (the "Short-Term Credit Facility") with Credit
     Suisse First Boston and The Chase Manhattan Bank, which provided for
     revolving credit loans in an aggregate principal amount not to exceed $40
     million. The Company arranged the facility to provide additional funds for
     general corporate purposes including short-term working capital needs. The
     Company never borrowed any funds under the Short-Term Credit Facility. The
     Short-Term Facility was terminated on December 31, 2001.

     Other Credit Arrangements

     Certain of the Company's foreign subsidiaries have agreements with banks
     that provide for short-term revolving advances and overdraft facilities
     (the "Overdraft Facilities") in an aggregate total amount of approximately
     $30.7 million. At March 31, 2002 and 2001, aggregate amounts of $1.4 and
     $8.5 million, respectively, had been borrowed under these facilities.
     Certain of these bank agreements also provide for long-term borrowings and
     are generally secured by the assets of the local subsidiary and guaranteed
     by the Company. Most of these agreements do not have stated maturity dates,
     but are cancelable by the banks at any time and, accordingly, are
     classified as short-term liabilities.

     Revolving borrowings under these Overdraft Facilities vary significantly by
     country. The average interest rate on the Overdraft Facilities ranges from
     approximately 15% to 20%.

L.   INTEREST RATE SWAP CONTRACTS

                                      C-28

<PAGE>

     The Company uses interest rate swap contracts to effectively fix a portion
     of its variable rate term loans under the Senior Secured Credit Facility to
     a fixed rate in order to reduce the impact of interest rate changes on
     future income. The differential to be paid or received under these
     agreements is recognized as an adjustment to interest expense related to
     the debt. At March 31, 2002 the Company had one interest rate swap contract
     under which the Company pays a fixed interest rate and the Company receives
     a three-month LIBOR interest rate.

<TABLE>
<CAPTION>
                   Notional                           Fixed Interest  Market Valuation
         Swap No.   Amount            Term                 Rate       at March 31, 2002
         --------  --------           ----            --------------  -----------------
                              (Amounts in thousands)
         <S>       <C>           <C>                  <C>             <C>
                                 September 30, 1998 -
           1       $130,000      September 28, 2002         5.655%         $ (2,113)
</TABLE>

     During fiscal 2002, the Company recognized an increase in interest expense
     from the swap contracts of $2.6 million and a reduction in interest expense
     in fiscal 2001 of $1.8 million. During 2000, the Company recognized an
     increase in interest expense from swap contracts of $0.4 million.

     The valuations of derivative transactions are indicative values based on
     mid-market levels as of the close of business of the date they are
     provided. These valuations are provided for information purposes only and
     do not represent (1) the actual terms at which new transactions could be
     entered into, (2) the actual terms at which existing transactions could be
     liquidated or unwound, or (3) the calculation or estimate of an amount that
     would be payable following the early termination of any master trading
     agreement to which the Company is a party.

     The provided valuations of derivative transactions are derived from
     proprietary models based upon well-recognized financial principles and
     reasonable estimates about relevant future market conditions. The valuation
     set forth above indicates a net payment from the Company to the financial
     institution since the fixed interest rate in the contract was higher than
     the three-month LIBOR interest rate at March 31, 2002.

M.   INCOME TAXES

     The components of income (loss) from continuing operations before taxes are
as follows:

                                          2002         2001          2000
                                      ---------     ---------     --------
                                             (Amounts in thousands)
     Domestic                         $(332,846)    $(204,129)    $ 12,881
     Foreign                            (31,209)       20,139          (59)
                                      ---------     ---------     --------
       Total                          $(364,055)    $(183,990)    $ 12,822
                                      =========     =========     ========

                                      C-29

<PAGE>

The components of the provision (benefit) for income taxes from continuing
operations are as follows:

                                          2002        2001        2000
                                        --------    --------    --------
                                                (Amounts in thousands)
Provision (benefit) for income taxes:
   US Federal & State                   $ 15,675    $(28,982)   $  6,597
   Foreign                               (14,876)     16,189         213
                                        --------    --------    --------
      Total                             $    799    $(12,793)   $  6,810
                                        ========    ========    ========

The components of the income tax provision (benefit) are as follows:

                                                 2002        2001        2000
                                               --------    --------    --------
                                                   (Amounts in thousands)
Current:
   Federal                                     $(45,453)   $(11,499)   $  8,285
   Foreign                                       13,293      25,223         213
   State                                            220           7         741
                                               --------    --------    --------
      Total Current                             (31,940)     13,731       9,239
                                               --------    --------    --------
Deferred:
   Federal                                       60,908     (15,568)     (2,252)
   Foreign                                      (28,169)     (9,034)        ---
   State                                            ---      (1,922)       (177)
                                               --------    --------    --------
   Total deferred                                32,739     (26,524)     (2,429)
                                               --------    --------    --------
   Total                                       $    799    $(12,793)   $  6,810
                                               ========    ========    ========

Reconciliation between U.S. federal statutory rate and the effective tax rate of
continuing operations before extraordinary items follow:

                                                        2002     2001      2000
                                                       ------   ------    ------
U.S. federal statutory income tax (benefit) rate        (35.0)%  (35.0)%   35.0%

Increases (reductions) to statutory tax rate
 resulting from:
   Foreign income subject to tax at a rate
     different than U.S. rate                             0.1      7.0       .5
   State income taxes, net of federal income
     tax benefit                                         (1.1)    (0.7)     1.3
   Nondeductible purchased incomplete technology           --      9.7       --
   Nondeductible amortization                              --      9.2     19.5
   Adjustment to foreign deferred tax assets

                                      C-30

<PAGE>

<TABLE>
<S>                                                                              <C>            <C>         <C>
          and liabilities for enacted changes in tax
          rates                                                                    --          (5.6)         --
        Unremitted earnings of foreign subsidiaries                              11.0           5.6          --
        Nondeductible compensation                                                 --           0.8         0.9
        Foreign sales corporation tax benefit                                      --            --        (7.4)
        Non-deductible meals and entertainment
          expenses                                                                0.2           0.4         3.0
         Net increase to valuation allowance                                     24.5            --          --
         Foreign deductible investment writedown                                 (3.7)           --          --
         Tax effect of losses for which carryback was                                            --          --
          restricted                                                              3.5            --          --
        Other, net                                                                 .5           1.6         0.3
                                                                                -----         -----       -----
          Effective income tax (benefit) rate before
            extraordinary items                                                   0.0%         (7.0)%      53.1%
                                                                                =====         =====       =====
</TABLE>


     The principal components of the deferred tax assets and liabilities follow:

<TABLE>
<CAPTION>
                                                                               2002             2001
                                                                              ------           ------
                                                                              (Amounts in thousands)
<S>                                                                          <C>              <C>
     Deferred tax assets:
        Net operating loss and credit carryforwards                         $  83,668         $ 53,444
        Depreciation and amortization                                          24,305           26,739
        Other accruals                                                         19,816           12,867
        Deferred revenue                                                        5,787            8,908
        Deferred compensation                                                   4,708            4,705
        Compensation related to stock options                                  19,993           16,255
        Other deferred assets                                                  14,754           15,756
                                                                             --------         --------
                                                                              173,031          138,674
     Valuation allowance                                                     (106,522)         (16,189)
                                                                             --------         --------
                                                                               66,509          122,485
                                                                             --------         --------
     Deferred tax liabilities:
        Depreciation and amortization                                          11,721           76,241
        Unremitted earnings of foreign subsidiaries                            50,419           10,356
        Other deferred liabilities                                              3,072              842
                                                                             --------         --------
                                                                               65,212           87,439
                                                                             --------         --------
     Net deferred tax assets                                                $   1,297         $ 35,046
                                                                             ========         ========
</TABLE>


     During the year ended March 31, 2002 the Company recorded a valuation
     allowance of approximately $78 million against all of its U.S. net deferred
     tax assets. Statement of Financial Accounting Standards No. 109 requires a
     valuation allowance to be recorded against deferred tax assets when it is
     more likely than not that some or all of the deferred tax assets will not
     be realized. The Company incurred significant and previously unanticipated
     financial accounting and taxable losses in the U.S. for the year ended
     March 31, 2002 and the current outlook indicates that significant

                                      C-31

<PAGE>

     uncertainty will continue into the next fiscal year. These cumulative
     losses, together with the Company's prior fiscal financial accounting and
     taxable losses in the U.S., resulted in management's decision that it is
     more likely than not that all of its U.S. deferred tax assets will not be
     realized.

     The valuation allowance also applies to state and foreign net operating
     loss carryforwards that may not be fully utilized by the Company. The
     increase in the valuation allowance relates primarily to the above
     described charge against the Company's U.S. net deferred tax assets.

     At March 31, 2002 the Company has tax net operating losses (NOL) and credit
     carryforwards expiring as follows:


<TABLE>
<CAPTION>

                                                                                     Federal &
                                U.S. Federal                       Foreign           State
                                    NOLs           State NOLs       NOLs             Credits
                                ------------       ----------      -----             ----------
                                    (Amounts in thousands)
             Year of
             expiration:
<S>                             <C>                <C>             <C>               <C>
             2003 - 2008        $    ---           $    ---        $    700          $ 14,274
             2009 - 2014           1,200                ---          29,400               900
             2015 - 2020          13,500             28,800             ---             2,700
             2021 - 2026          43,200            295,600             ---             5,000
             Thereafter              ---                ---          30,800             1,300
                                --------           --------        --------          --------
             Totals             $ 57,900           $324,400        $ 60,900          $ 24,174
                                ========           ========        ========          ========
</TABLE>


     The Company previously had not provided U.S. income taxes on unremitted
     foreign earnings of approximately $13.8 million at March 31, 2001 because
     such earnings had been considered to be permanently reinvested in non-U.S.
     operations. During the year ended March 31, 2002 the Company determined
     that such earnings are no longer permanently reinvested and accordingly
     provided U.S. income taxes for such earnings.

     During the fourth quarter of the fiscal year ended March 31, 2002, new U.S.
     tax legislation was enacted which increased the period over which net
     operating losses may be carried back, from two years to five. Consistent
     with these new laws, the Company filed claims for a refund of approximately
     $61 million of taxes paid in prior years. The entire $61 million was
     collected during the first quarter of fiscal 2003.

N.   EMPLOYEE RETIREMENT PLANS

     The Company has a trusteed employee 401(k) savings plan for eligible U.S.
     employees. The Plan does not provide for stated benefits upon retirement.

     The Company has a nonqualified deferred compensation plan that permits
     certain key employees to annually elect to defer a portion of their
     compensation for their retirement. The amount of compensation deferred and
     related investment earnings have been placed in an irrevocable rabbi trust
     and recorded within other assets in the Company's balance sheet, as this
     trust will be

                                      C-32

<PAGE>


available to the general creditors of the Company in the event of the Company's
insolvency. An offsetting deferred compensation liability, which equals the
total value of the trust at March 31, 2002 and 2001 of $11.4 million and $10.6
million, respectively, reflect amounts due the employees who contribute to the
plan. The change in the valuation is due to employee contributions, the Company
match on the contributions, and the change in the market valuation of the fund.

Corporate contributions to employee retirement plans were $9.1 in fiscal 2002,
$8.8 million in fiscal 2001 and $6.2 million in fiscal 2000.

Defined Benefit Plans

The Company sponsors several qualified and non-qualified pension plans for its
employees. For those employees participating in defined benefit plans, benefits
are generally based upon years of service and compensation or stated amounts for
each year of service. Assets of the various pension plans consist primarily of
managed funds that have underlying investments in stocks and bonds. The
Company's policy for funded plans is to make contributions equal to or greater
than the requirements prescribed by law in each country.

The following table provides a reconciliation of the changes in the plans'
benefits obligations:

               (Amounts in thousands)                        2002       2001
                                                             ----       ----
               Obligation at April 1, 2001                $ 59,298   $ 50,712
               Service cost                                  2,464      4,373
               Interest cost                                 3,793      2,939
               Actuarial gain/loss                          (2,366)     4,254
               Plan participants' contributions                524       ---
               Foreign currency exchange rate changes         (947)    (1,116)
               Benefits paid                                (2,242)    (1,864)
                                                          --------   --------
               Obligation at March 31, 2002               $ 60,524   $ 59,298
                                                           =======   ========


The following table provides a reconciliation of the changes in the fair value
of assets under the benefits plans:

               (Amounts in thousands)                          2002       2001
                                                               ----       ----
               Fair value of plan assets                    $ 13,961   $ 14,084
               Actual return on plan assets                   (1,240)       139
               Foreign currency exchange rate changes           (101)      (786)
               Employer contributions                            997        816
               Employee contributions                            524        ---
               Benefits paid                                    (380)      (292)
                                                            --------   --------
               Fair value of plan assets at March 31, 2002  $ 13,761   $ 13,961
                                                            ========   ========


                                      C-33

<PAGE>

The following table represents a statement of the funded status:
<TABLE>
<CAPTION>
               (Amounts in thousands)                                           2002               2001
                                                                                ----               ----
<S>                                                                          <C>                <C>
               Accrued pension cost                                          $ 46,996           $ 42,637
               Unrecognized net (gain)/loss                                     1,564              2,700
               Minimum liability                                               (1,797)               ---
                                                                             --------           --------
               Funded status                                                 $ 46,763           $ 45,337
                                                                             ========           ========
</TABLE>

     The following table provides the amounts recognized in the consolidated
     balance sheets:

<TABLE>
<CAPTION>
               (Amounts in thousands)                                           2002               2001
                                                                                ----               ----
<S>                                                                            <C>                <C>
               Prepaid benefit cost                                           $  ---             $  (370)
               Accrued benefit liability                                       46,996             43,007
               Minimum liability                                               (1,797)               ---
                                                                             --------           --------
               Net amount recognized                                         $ 45,199           $ 42,637
                                                                             ========           ========
</TABLE>

     The following table provides the components of the net periodic benefit
     cost for the plans:

<TABLE>
<CAPTION>
               (Amounts in thousands)                                           2002               2001
                                                                                ----               ----
<S>                                                                          <C>                <C>
               Service cost                                                  $  2,464           $  4,374
               Interest cost                                                    3,793              2,939
               Expected return of plan assets                                    (966)              (822)
                                                                             ----------         ----------
               Net periodic pension cost                                     $  5,291           $  6,491
                                                                             ==========         ==========
</TABLE>

O.   STOCK COMPENSATION PLANS

     The Company maintains two Stock Option plans in which common stock is
     available for grant to key employees at prices not less than fair market
     value (110% of fair market value for employees holding more than 10% of the
     outstanding common stock) at the date of grant determined by the Board of
     Directors. Incentive or nonqualified options may be issued under the plans
     and are exercisable from one to ten years after grant. There are 55,000,000
     shares of stock reserved for issuance under the plans.

     The Company maintains a third Stock Option plan in which common stock is
     available for grant to non-employee directors. Each eligible director is
     automatically granted a stock option to purchase 25,000 shares of stock
     when he or she is first elected to the Board of Directors. There are
     750,000 shares of stock reserved for under the plan.

     Stock options for all three plans vest primarily between three and five
     years.

     At the time of the Recapitalization, primarily all Company stock options
     became fully vested and exercisable. Any Company stock option that was
     outstanding immediately prior to the effective time of the Recapitalization
     was cancelled and each holder received an option cancellation payment.

                                      C-34

<PAGE>

Stock options held by certain key executives were converted into equivalent
options to purchase shares of Common Stock and were not cancelled.

A summary of activity in the Company's option plans is as follows:

<TABLE>
<CAPTION>
                                                                    2002                        2001                          2000
                                                                  Weighted                    Weighted                      Weighted
                                                                   Average                     Average                       Average
                                                  2002            Exercise        2001        Exercise        2000          Exercise
                                                 Shares            Price         Shares        Price         Shares           Price
                                               ----------        ---------       ------        -----         ------           -----
<S>                                            <C>               <C>          <C>           <C>            <C>               <C>
Shares under option, beginning of year         37,553,498         $  4.02      33,384,111     $  2.40      33,903,244        $ 1.85
Options granted (at an exercise price
 of $2.28 to $12.45 in 2002, $3.25 to
 $27.94 in 2001, $3.25 to $4.00 in 2000)        8,015,633            6.94      12,675,790        7.62       9,537,781          3.29

Options exercised                              (1,427,207)           2.09      (5,223,498)       1.84      (1,194,318)         1.24
Options canceled                               (6,409,906)           5.37      (3,282,905)       4.94      (8,862,596)         1.36
                                               ----------                     -----------                  ----------
Shares under option, end of year               37,732,018         $  4.45      37,553,498     $  4.02      33,384,111        $ 2.40
                                               ==========                     ===========                  ==========
Shares exercisable                             15,934,557         $  2.90      12,402,897     $  2.00      13,178,441        $ 1.66
</TABLE>

As of March 31, 2001, the Company had issued approximately 10.3 million stock
options at a weighted-average exercise price of $5.28 per share which was below
the quoted market price on the day of grant. During fiscal 2002 no stock options
were granted with an exercise price below the quoted market price on the day of
the grant. Options available for future grants under the plans were 18.0
million, 18.2 million and 3.9 million at March 31, 2002, 2001, and 2000,
respectively.

The following table summarizes information about currently outstanding and
exercisable stock options at March 31, 2002:

<TABLE>
<CAPTION>
                                                                  Weighted
                                               Number of           Average         Weighted
                                                Options           Remaining         Average      Number
                                             Outstanding         Contractual       Exercise    of Options
        Range of Exercise Price            At March 31,2002     (Years) Life          Price    Exercisable
<S>                                       <C>                   <C>               <C>          <C>
        $  0.00 - $  4.00                     30,013,846                 5.1           2.76     15,053,451
        $  4.01 - $  8.00                      2,360,286                 8.5           7.40        304,507
        $  8.01 - $ 15.00                      3,986,115                 8.7          10.31        168,115
        $ 15.01 - $ 28.00                      1,371,771                 8.3          19.21        408,484
                                              ----------         -----------      ---------    -----------
           Total                              37,732,018                 7.1           2.90     15,934,557
                                              ==========         ===========      =========    ===========
</TABLE>

The fair market value of each option granted during 2002, 2001, and 2000 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following assumptions:

<TABLE>
<CAPTION>
                                                   2002              2001             2000
                                                ---------         ---------        ---------
<S>                                            <C>               <C>               <C>
Expected volatility                               100.00%          100.00%           70.00%
Risk-free rate of return                            4.72%            6.30%            6.13%
</TABLE>

                                      C-35

<PAGE>

Expected life (in years)                   5 yrs.         5 yrs.         5 yrs.
Weighted average fair value             $  5.16        $ 14.007       $  3.274
Dividend yield                             0.00%          0.00%          0.00%

Had compensation cost for the Company's stock-based compensation plans been
recorded based on the fair value of awards or grant date consistent with the
method prescribed by Statement of Financial Accounting Standards No. 123 (FAS
123), "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share would approximate the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                            2002                               2001                           2000
                                  ------------------------           ------------------------        -----------------------
                                  As                 Pro             As                 Pro          As               Pro
                                  Reported           Forma           Reported           Forma        Reported         Forma
                                  --------           -----           --------           -----        --------         -----
                                               (Amounts in thousands except per share)
<S>                               <C>              <C>             <C>               <C>             <C>             <C>
Net income (loss)                 $(374,893)       $(394,543)      $(171,817)        $(185,166)      $ 6,012         $ 2,579
Net income (loss) per share:
   Basic                          $   (1.95)       $   (2.06)      $   (0.93)        $   (1.01)      $  0.04         $  0.02
   Diluted                        $   (1.95)       $   (2.06)      $   (0.93)        $   (1.01)      $  0.04         $  0.02
</TABLE>

     The effect of applying FAS 123 in this pro forma disclosure is not
     indicative of future amounts. Additional awards in future years are
     anticipated.

P.   COMMITMENTS AND CONTINGENCIES

     The Company has operating leases covering plant, office facilities, and
     equipment that expire at various dates through 2006. Future minimum annual
     fixed rentals required during the years ending in fiscal 2003 through 2007
     under noncancelable operating leases having an original term of more than
     one year are $18.4 million, $16.5 million, $12.3 million, $9.6 million, and
     $8.2 million, respectively. The aggregate obligation subsequent to fiscal
     2007 is $43.2 million. Rent expense was approximately $20.1 million, $18.5
     million and $9.6 million in fiscal 2002, 2001 and 2000, respectively. The
     Company has inventory purchase obligations with certain vendors that total
     $25.6 million over the next three years.

     The Company is a party to several pending legal proceedings and claims.
     Although the outcome of such proceedings and claims cannot be determined
     with certainty, the Company's management is of the opinion that the final
     outcome should not have a material adverse effect on the Company's
     operations or financial position.

Q.   EXTRAORDINARY CHARGE

     In connection with the WWG Merger, during fiscal 2001, the Company recorded
     an extraordinary charge of approximately $10.7 million (net of an income
     tax benefit of $6.6 million), of which $7.3 million (pretax) related to a
     premium paid by the Company to WWG's former bondholders for the repurchase
     of WWG's senior subordinated debt outstanding prior to the WWG Merger. In
     addition, during fiscal 2001, the Company booked a charge of $10.0 million
     (pretax) for the unamortized deferred debt issuance costs that originated
     at the time of the May 1998 Recapitalization.

                                      C-36

<PAGE>

R.   SUBSEQUENT EVENT

     On June 14, 2002, the Company announced that it signed a definitive
     agreement to sell its AIRSHOW business to Rockwell Collins for $160 million
     in cash, subject to adjustment. The Company expects to record a gain in
     relation to this transaction. This agreement is subject to customary
     regulatory approvals and consent of the Company's Lenders under the Senior
     Secured Credit Facility. The Company intends to use the net proceeds of the
     sale (after fees and expenses) to repay a portion of its debt or invest in
     its business. The pre-tax losses from this segment prior to interest and
     corporate overhead allocations for 2002, 2001 and 2000 were $7.6 million,
     $15.3 million and $19.2 million, respectively.

S.   SEGMENT INFORMATION AND GEOGRAPHIC AREAS

     Segment Information.

     The Company is currently managed in four business segments: communications
     test segment, industrial computing and communications segment, AIRSHOW and
     da Vinci. Communications test develops, manufactures and markets
     instruments, systems, software and services to test, deploy, manage and
     optimize communications networks and equipment. The Company offers products
     that test and manage the performance of equipment found in modern,
     converged networks, including optical transmission systems for data
     communications, voice services, wireless voice and data services, cable
     services, and video delivery. Industrial computing and communications
     provides portable computer products to the ruggedized personal computer
     market. AIRSHOW provides systems that deliver real-time news, information
     and flight data to aircraft passengers. AIRSHOW systems are marketed to
     commercial airlines and private aircraft owners. da Vinci Systems, Inc.
     provides digital color enhancement systems used in the production of
     television commercials and programming. da Vinci's products are sold to
     post-production and video production professionals and producers of content
     for standard- and high-definition television market. DataViews, Inc., was
     sold in June 2000.

     The Company measures the performance of its segments by their respective
     earnings before interest, taxes and amortization of intangibles and
     amortization of unearned compensation ("EBITA"), which excludes
     non-recurring and one-time charges. Included in the segment's EBITA is an
     allocation of corporate expenses. The information below includes net sales
     and EBITA for the Company's communications test segment, industrial
     computing and communications segment, AIRSHOW segment and da Vinci.

     Corporate EBITA is comprised of a portion of the total corporate general
     and administrative expense that has not been allocated to the segments.
     Corporate assets are comprised primarily of cash, deferred financing fees,
     and deferred taxes. As of March 31, 2002, corporate assets include an
     income tax receivable of $77.5 million.

     The Company is a multi-national corporation with continuing operations in
     the United States and Europe as well as distribution and sales offices in
     the Far East and Latin America.

     The accounting policies for the Company's segments are the same as those
     described in the summary of significant accounting policies. (See Note E.
     Summary of Significant Accounting Policies.)

     No single customer accounted for more than 10.0% of net sales from
     continuing operations during fiscal 2002, 2001, and 2000.

                                      C-37

<PAGE>

<TABLE>
<CAPTION>
                                                                  Years ending March 31,
                                                                2002                 2001               2000
                                                               ------               -------           -------
                                                                   (Amounts in thousands)
<S>                                                         <C>                   <C>                 <C>
      Communications test:
        Net sales                                            $  854,437           $1,052,747         $ 349,886
        Depreciation and amortization                        $   69,181           $  129,272         $  15,441
        EBITA                                                $   (3,662)          $  139,498         $  62,447
        Total assets                                         $  749,338           $1,109,270         $ 179,338
        Capital expenditures                                 $   33,080           $   35,339         $  13,629

      Industrial Computing and
        Communications:
        Net sales                                            $  188,351           $  198,441         $ 203,361
        Depreciation and amortization                        $    6,267           $   14,938         $   6,553
        EBITA                                                $    4,950           $   (1,914)        $  25,379
        Total assets                                         $   91,118           $  139,084         $ 121,412
        Capital expenditures                                 $    3,078           $    6,889         $   5,695

      AIRSHOW:
        Net sales                                            $   65,024           $   78,886         $  70,960
        Depreciation and amortization                        $    2,253           $    2,621         $   2,105
        EBITA                                                $    9,493           $   15,886         $  19,314
        Total Assets                                         $   41,548           $   46,846         $  39,728
        Capital Expenditures                                 $      976           $    2,730         $   1,743

      da Vinci:
        Net sales                                            $   24,849           $   35,329         $  26,572
        Depreciation and amortization                        $      829           $    1,616         $     972
        EBITA                                                $    5,970           $   10,909         $   8,642
        Total assets                                         $    3,810           $   11,268         $  11,532
        Capital expenditures                                 $    1,251           $      718         $     604

      Corporate and other:
        Net sales                                            $        -           $      854         $   5,822
        Depreciation and amortization                        $      132           $      131         $     338
        EBITA                                                $  (10,971)          $   (5,551)        $  (4,757)
        Total assets                                         $  128,742           $   76,511         $ 111,639
        Capital expenditures                                 $       18           $      229         $     188

      Total Company:
        Net sales                                            $1,132,661           $1,366,257         $ 656,601
        Depreciation and amortization                        $   78,662           $  148,578         $  25,409
        EBITA                                                $    5,780           $  158,828         $ 111,025
        Total assets                                         $1,014,556           $1,382,979         $ 463,649
        Capital expenditures                                 $   38,403           $   45,905         $  21,859
</TABLE>

                                      C-38

<PAGE>

     The following are excluded from the calculation of EBITA:

<TABLE>
     <S>                                           <C>            <C>            <C>
     Amortization of inventory step up             $     ---      $  35,750      $   4,899
     Purchased incomplete technology               $     ---      $  56,000      $     ---
     Amortization of unearned compensation         $  19,368      $  19,840      $   2,419
     Recapitalization and other
       related costs                               $     ---      $   9,194      $  27,942
     Impairment of assets                          $ 173,187      $     ---      $     ---
     Restructuring                                 $  33,989      $     ---      $     ---
     Loss from discontinued
       operations                                  $  10,039      $ (10,039)     $     ---
     Non-recurring cost reduction                  $   4,715      $     ---      $     ---
     Other                                         $   1,305      $   3,047      $   1,040
                                                   ---------      ---------      ---------
       Total excluded items                        $ 242,603      $ 113,792      $  36,300
                                                   =========      =========      =========
</TABLE>

     Geographic Information. Information by geographic areas for the years ended
     March 31, 2002, 2001, and 2000 is summarized below:

<TABLE>
<CAPTION>
                                                        United States     Outside U.S.
                                                             (a)              (b)             Combined
                                                        -------------     ------------       -----------
                                                                     (Amounts in thousands)
<S>                                                     <C>               <C>                <C>
Sales to unaffiliated customers ...................
   2002 ...........................................      $   655,868       $   476,793       $ 1,132,661
   2001 ...........................................      $   831,342       $   534,915       $ 1,366,257
   2000 ...........................................      $   574,610       $    81,991       $   656,601
Income (loss) before taxes from continuing
 operations
   2002 ...........................................      $  (203,201)      $  (160,854)      $  (364,055)
   2001 ...........................................      $  (214,636)      $    30,646       $  (183,990)
   2000 ...........................................      $    12,576       $       246       $    12,822
Long-lived assets at
   March 31, 2002 .................................      $   475,020       $    76,605       $   551,625
   March 31, 2001 .................................      $   709,280       $    45,857       $   755,137
   March 31, 2000 .................................      $   138,553       $     3,502       $   142,055
</TABLE>

(a)  Sales within the United States include export sales of $61,122 $158,351,
     and $57,251, in 2002, 2001, and 2000, respectively.

(b)  Sales outside the United States includes sales from foreign subsidiaries to
     the United States of $12,318, 28,817 and 1,150 in fiscal 2002, 2001 and
     2000, respectively.

     Currency gains (losses). Net income in fiscal 2002, 2001, and 2000 included
     currency gains (losses) of approximately $(5.2) million, ($5.5) million,
     and $54.5 thousand, respectively.

T.   SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENTS OF ACTERNA CORPORATION AND
     ACTERNA LLC

                                      C-39

<PAGE>

     In connection with the Recapitalization and related transactions, Acterna
     LLC (formerly known as Telecommunications Techniques Co., LLC), Acterna
     Corporation's wholly owned subsidiary ("Acterna LLC"), became the primary
     obligor (and Acterna Corporation, a guarantor) with respect to indebtedness
     of Acterna Corporation, including the 9 3/4% Senior Subordinated Notes due
     2008 (the "Senior Subordinated Notes").

     Acterna Corporation has fully and unconditionally guaranteed the Senior
     Subordinated Notes. Acterna Corporation, however, is a holding company with
     no independent operations and no significant assets other than its
     membership interest in Acterna LLC. Certain other subsidiaries of the
     Company are not guarantors of the Senior Subordinated Notes. The condensed
     consolidating financial statements presented herein include the statement
     of operations, balance sheets, and statements of cash flows without
     additional disclosure as the Company has determined that the additional
     disclosure is not material to investors.

                                      C-40

<PAGE>

                               ACTERNA CORPORATION
           SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                 March 31, 2002

<TABLE>
<CAPTION>
                                                         Acterna         Acterna      Non-Guarantor                      Total
                                                          Corp             LLC        Subsidiaries     Elimination   Consolidated
                                                       -----------     -----------    ------------     -----------   ------------
                                                                     (In thousands)
<S>                                                    <C>             <C>            <C>              <C>           <C>
Net sales                                              $       ---     $   315,107     $   817,554     $       ---    $ 1,132,661
Cost of sales                                                  ---         159,021         381,027             ---        540,048
                                                       -----------     -----------     -----------     -----------    -----------
Gross profit                                                   ---         156,086         436,527             ---        592,613

Selling, general and administrative expense                    ---         213,924         230,463             ---        444,387
Product development expense                                    ---          55,803         104,416             ---        160,219
Impairment of assets held for sale                             ---             ---          17,918             ---         17,918
Impairment of acquired intangible assets                       ---           3,724         147,598             ---        151,322
Goodwill impairment                                            ---             ---           3,947             ---          3,947
Restructuring                                                  ---          16,429          17,560             ---         33,989
Amortization of intangibles                                    ---           3,037          39,234             ---         42,271
                                                       -----------     -----------     -----------     -----------    -----------
Total operating expense                                        ---         292,917         561,136             ---        854,053

   Operating loss                                              ---        (136,831)       (124,609)            ---       (261,440)

Interest expense                                               ---         (85,164)        (11,461)            ---        (96,625)
Interest income                                                ---             562           1,063             ---          1,625
Intercompany interest income (expense)                         ---           3,902          (3,902)            ---            ---
Intercompany royalty income (expense)                          ---          19,657         (19,657)            ---            ---
Other income (expense), net                                    ---             420          (8,035)            ---         (7,615)
                                                       -----------     -----------     -----------     -----------    -----------

Loss from continuing operations
  before income taxes                                          ---        (197,454)       (166,601)            ---       (364,055)

Provision (benefit) for income taxes                           ---          (3,909)          4,708             ---            799
                                                       -----------     -----------     -----------     -----------    -----------

Loss from continuing operations
  before extraordinary item                                    ---        (193,545)       (171,309)            ---       (364,854)

Equity income (loss)                                      (374,893)       (171,309)            ---         546,202            ---

Loss from discontinued operations                              ---         (10,039)            ---             ---        (10,039)
                                                       -----------     -----------     -----------     -----------    -----------
Net income (loss)                                      $  (374,893)    $  (374,893)    $  (171,309)    $   546,202    $  (374,893)
                                                       ===========     ===========     ===========     ===========    ===========
</TABLE>

                                      C-41

<PAGE>

                               ACTERNA CORPORATION
                SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
                                 March 31, 2002
<TABLE>
<CAPTION>
                                                              Acterna        Acterna      Non-Guarantor                Total
                                                               Corp            LLC        Subsidiaries   Elimination   Consolidated
                                                            -----------    ------------   ------------   -----------   ------------
 ASSETS                                                           (in thousands)
<S>                                                         <C>            <C>            <C>            <C>            <C>
Current assets:
   Cash and cash equivalents                                $       ---    $    14,969    $    27,770    $       ---    $    42,739
   Accounts receivable, net                                         ---         38,875         87,506            ---        126,381
   Inventory                                                        ---         23,623         88,978            ---        112,601
   Other current assets                                             ---         91,233         39,811            ---        131,044
                                                            -----------    -----------    -----------    -----------    -----------
      Total current assets                                          ---        168,700        244,065            ---        412,765

Property and equipment, net                                         ---         31,255         90,831            ---        122,086
Investments in and advances to
   consolidated subsidiaries                                   (376,167)      (234,866)      (593,530)     1,204,563            ---
Goodwill                                                            ---         16,908        410,178            ---        427,086
Intangible assets, net                                              ---            ---          2,453            ---          2,453
Deferred income taxes                                               ---         (9,284)         9,284            ---             --
Other                                                               ---         40,574          9,592            ---         50,166
                                                            -----------    -----------    -----------    -----------    -----------
     Total assets                                           $  (376,167)   $    13,287    $   172,873    $ 1,204,563    $ 1,014,556
                                                            ===========    ===========    ===========    ===========    ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Notes payable and current portion
    of long-term debt                                       $       ---    $    23,000    $     8,460    $       ---    $    31,460
   Accounts payable                                                 ---         27,547         45,827            ---         73,374
   Accrued expenses                                                 ---         87,349        116,956            ---        204,305
                                                            -----------    -----------    -----------    -----------    -----------
      Total current liabilities                                     ---        137,896        171,243            ---        309,139

Long-term debt                                                      ---        953,200        102,862            ---      1,056,062
Deferred income taxes                                               ---         15,739          1,842            ---         17,581
Other long-term liabilities                                         ---         11,386         57,163            ---         68,549
Stockholders' equity (deficit):
   Common stock                                                   1,922        (16,200)        17,214         (1,014)         1,922
   Additional paid-in capital                                   786,537        (13,784)       203,097       (189,313)       786,537
   Accumulated deficit                                       (1,164,626)    (1,020,520)      (380,383)     1,394,890     (1,170,639)
   Unearned compensation                                            ---        (53,925)           ---            ---        (53,925)
   Other comprehensive loss                                         ---           (505)          (165)           ---           (670)
                                                            -----------    -----------    -----------    -----------    -----------
     Total stockholders' equity
      (deficit)                                                (376,167)    (1,104,934)      (160,237)     1,204,563       (436,775)
                                                            -----------    -----------    -----------    -----------    -----------
Total liabilities and stockholders' equity
(deficit)                                                   $  (376,167)   $    13,287    $   172,873    $ 1,204,563    $ 1,014,556
                                                            ===========    ===========    ===========    ===========    ===========
</TABLE>

                                      C-42

<PAGE>

                               ACTERNA CORPORATION
   SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For The Twelve
                           Months Ended March 31, 2002

<TABLE>
<CAPTION>
                                                            Acterna        Acterna      Non-Guarantor                      Total
                                                             Corp            LLC         Subsidiaries    Elimination    Consolidated
                                                            -------        -------      -------------    -----------    ------------
                                                                        (In thousands)
<S>                                                        <C>          <C>             <C>              <C>            <C>
Operating activities:
   Net income (loss) from operations                       $(374,893)     $(374,893)      $(171,309)      $ 546,202      $(374,893)
   Adjustment for noncash items included
    in net income (loss):
      Depreciation                                               ---         13,392          22,999             ---         36,391
      Bad debt                                                   ---           (863)            281             ---           (582)
      Amortization of intangibles                                ---          3,037          39,234             ---         42,271
      Amortization of unearned compensation                      ---          8,751          10,617             ---         19,368
      Amortization of deferred debt
       issuance costs                                            ---          5,582                             ---          5,582
      Impairment of intangibles                                  ---          3,724         147,598             ---        151,322
     Write-off of previously deferred loss on
       discontinued operations                                   ---            ---          10,039             ---         10,039
      Loss on sale of fixed assets                               ---          3,738             435             ---          4,173
      Impairment of assets held for sale and
       goodwill impairment                                       ---            ---          21,865             ---         21,865
      Tax benefit from stock option exercise                     ---            994                             ---            994
      Change in deferred income taxes                            ---         59,291                             ---         59,291
   Changes in operating assets and liabilities,
      net of effects of purchase acquisitions
      and divestitures                                           ---        (12,445)         38,745             ---         26,300
   Changes in intercompany                                   374,893        291,299        (119,990)       (546,202)             -
                                                           ---------      ---------       ---------       ---------      ---------
   Net cash flows provided by operating activities               ---          1,607             514             ---          2,121

Investing activities:
   Purchases of property and equipment                           ---        (17,122)        (21,281)            ---        (38,403)
   Proceeds from sale of property and equipment                  ---            ---           1,178             ---          1,178
   Proceeds from sales of businesses                             ---            ---          23,800             ---         23,800
   Businesses acquired in purchase transactions,
      net of cash and noncash items                                             ---          (1,495)                        (1,495)
   Other                                                         ---         (1,607)            578             ---         (1,029)
                                                           ---------      ---------       ---------       ---------      ---------
   Net cash flows provided by (used in)
     investing activities                                        ---        (18,729)          2,780             ---        (15,949)

Financing activities:
   Repayments under revolving credit
     facility, net                                               ---        (45,000)            ---             ---        (45,000)
   Borrowings of term loan debt                                  ---            ---           3,350             ---          3,350
   Borrowings of notes payable and other debt                    ---            ---            (260)            ---           (260)
   Repayment of term loan debt                                   ---        (16,000)        (19,010)            ---        (35,010)
   Borrowings of notes payable                                   ---         75,000             ---             ---         75,000
   Financing fees                                                ---         (6,256)            ---             ---         (6,256)
</TABLE>

                                      C-43

<PAGE>

<TABLE>
<S>                                                         <C>            <C>             <C>             <C>            <C>
   Proceeds from issuance of common stock, net of
      expenses                                                   ---          2,168             ---             ---          2,168
                                                            --------       --------        --------        --------       --------
   Net cash flows provided by or (used) in financing             ---          9,912         (15,920)            ---         (6,008)
activities

Effect of exchange rate on cash                                  ---            ---            (479)            ---           (479)
                                                            --------       --------        --------        --------       --------
Decrease in cash and cash equivalents                            ---         (7,210)        (13,105)            ---        (20,315)

Cash and cash equivalents at beginning of year                   ---         22,179          40,875             ---         63,054
                                                            --------       --------        --------        --------       --------
Cash and cash equivalents at end of year                    $    ---       $ 14,969        $ 27,770        $    ---       $ 42,739
                                                            ========       ========        ========        ========       ========
</TABLE>

                                      C-44

<PAGE>

                               ACTERNA CORPORATION
           SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                   For The Twelve Months Ended March 31, 2001

<TABLE>
<CAPTION>
                                                   Acterna         Acterna        Non-Guarantor                      Total
                                                    Corp             LLC           Subsidiaries      Elimination     Consolidated
                                                  ---------       ---------       -------------      -----------     ------------
                                                                (In thousands)
<S>                                               <C>             <C>             <C>                <C>             <C>
Net sales                                         $     ---       $ 418,232       $  948,025         $      ---      $ 1,366,257
Cost of sales                                           ---         138,675          468,185                ---          606,860
                                                  ---------       ---------       ----------         ----------      -----------
Gross profit                                            ---         279,557          479,840                ---          759,397

Selling, general and administrative expense             ---         221,812          264,786                ---          486,598
Product development expense                             ---          51,838          116,279                ---          168,117
Purchased incomplete technology                         ---             ---           56,000                ---           56,000
Recapitalization and other related costs                ---           9,194              ---                ---            9,194
Amortization of intangibles                             ---             ---          120,151                ---          120,151
                                                  ---------       ---------       ----------         ----------      -----------
   Operating loss                                       ---          (3,287)         (77,376)               ---          (80,663)

Interest expense                                        ---         (90,003)         (12,155)               ---         (102,158)
Interest income                                         ---           1,742            1,580                ---            3,322
Intercompany interest income (expense)                  ---          19,481          (19,481)               ---              ---
Other income (expense), net                             ---             284           (4,775)               ---           (4,491)
                                                  ---------       ---------       ----------         ----------      -----------
 Loss from continuing operations
 before income taxes                                    ---         (71,783)        (112,207)               ---         (183,990)

Benefit for income taxes                                ---          (3,549)          (9,244)               ---          (12,793)
                                                  ---------       ---------       ----------         ----------      -----------
Loss from continuing operations                         ---         (68,234)        (102,963)               ---         (171,197)

Equity income (loss)                               (171,817)        (92,924)          10,039            264,741           10,039

Extraordinary item                                      ---         (10,659)             ---                ---          (10,659)
                                                  ---------       ---------       ----------         ----------      -----------
Net income (loss)                                 $(171,817)      $(171,817)      $  (92,924)        $  264,741      $  (171,817)
                                                  =========       =========       ==========         ==========      ===========
</TABLE>

                                      C-46

<PAGE>

                               ACTERNA CORPORATION
                SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
                                 March 31, 2001

<TABLE>
<CAPTION>
                                                          Acterna       Acterna       Non-Guarantor                      Total
                 ASSETS                                    Corp           LLC          Subsidiaries    Elimination    Consolidated
                                                         ---------     ---------      -------------    -----------    ------------
                                                                      (In thousands)
<S>                                                      <C>           <C>            <C>              <C>            <C>
Current assets:
   Cash and cash equivalents                             $     ---     $ 22,179       $   40,875       $     ---      $   63,054
   Accounts receivable, net                                    ---       67,637          165,734             ---         233,371
   Inventory, net                                              ---       28,053          129,428             ---         157,481
   Other current assets                                        ---       38,799           38,772             ---          77,571
                                                         ---------     --------       ----------       ---------      ----------
      Total current assets                                     ---      156,668          374,809             ---         531,477

Property and equipment, net                                    ---       26,641           97,925             ---         124,566
Investments in and advances to
  consolidated subsidiaries                                 13,255      259,637         (547,301)        274,409             ---
Goodwill                                                       ---          ---          435,478                         435,478
Intangible assets, net                                         ---          ---          195,093             ---         195,093
Net assets of discontinued operations                          ---          ---           37,908             ---          37,908
Other                                                          ---       28,166           30,291             ---          58,457
                                                         ---------     --------       ----------       ---------      ----------
Total assets                                             $  13,255     $471,112       $  624,203       $ 274,409      $1,382,979
                                                         =========     ========       ==========       =========      ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
   Notes payable and current portion of debt             $     ---     $ 16,000        $  17,167       $     ---        $ 33,167
   Accounts payable                                            ---       31,623           80,532             ---         112,155
   Accrued expenses                                            ---       53,331          148,167             ---         201,498
                                                         ---------     --------       ----------       ---------      ----------
      Total current liabilities                                ---      100,954          245,866             ---         346,820

Long-term debt                                                 ---      875,100          181,283             ---       1,056,383
Deferred income taxes                                          ---      (77,765)          80,680             ---           2,915
Other long-term liabilities                                    ---       10,624           47,214             ---          57,838
Stockholders' equity (deficit):
   Common stock                                              1,910        1,221           17,595         (18,816)          1,910
   Additional paid-in capital                              801,080      418,845          171,408        (590,253)        801,080
   Accumulated deficit                                    (789,735)    (765,953)        (123,536)        883,478        (795,746)
   Unearned compensation                                       ---      (90,986)             ---             ---         (90,986)
   Other comprehensive income (loss)                           ---         (928)           3,693             ---           2,765
                                                         ---------     --------       ----------       ---------      ----------
      Total stockholders' equity (deficit)                  13,255     (437,801)          69,160         274,409         (80,977)
                                                         ---------     --------       ----------       ---------      ----------
Total liabilities and stockholders' equity               $  13,255     $471,112       $  624,203       $ 274,409      $1,382,979
                                                         =========     ========       ==========       =========      ==========
</TABLE>

                                      C-47

<PAGE>

                               ACTERNA CORPORATION
         SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For
                     The Twelve Months Ended March 31, 2001

<TABLE>
<CAPTION>
                                                         Acterna        Acterna        Non-Guarantor                       Total
                                                           Corp            LLC          Subsidiaries    Elimination     Consolidated
                                                         --------       --------       -------------    -----------     ------------
                                                                     (In thousands)
<S>                                                      <C>           <C>             <C>              <C>             <C>
Operating activities:
   Net income (loss) from operations                     $(171,817)     $(171,817)      $ (92,924)      $ 264,741       $(171,817)
   Adjustment for noncash items included
      in net income (loss):
      Depreciation                                             ---          9,872          18,555             ---          28,427
      Bad debt                                                 ---          3,509           3,638             ---           7,147
      Amortization of intangibles                              ---            ---         120,151             ---         120,151
      Amortization of inventory step-up                        ---         35,750             ---             ---          35,750
      Amortization of unearned compensation                    ---         17,012           2,828             ---          19,840
      Amortization of deferred debt issuance costs             ---          3,974             ---             ---           3,974
      Write-off of deferred debt issuance costs                ---         10,019             ---             ---          10,019
      Purchased incomplete technology                          ---         56,000             ---             ---          56,000
      Recapitalization and other related costs                 ---          9,194             ---             ---           9,194
      Tax benefit from stock option exercise                   ---         21,319             ---             ---          21,319
      Other                                                    ---             45           2,002             ---           2,047
      Change in deferred income taxes                          ---        (40,452)          9,143             ---         (31,309)

   Changes in operating assets and liabilities,
      net of effects of purchase acquisitions
      and divestitures                                         ---        (23,181)        (68,191)            ---         (91,372)
   Changes in intercompany                                 171,817         39,639          53,285        (264,741)            ---
                                                         ---------      ---------       ---------       ---------       ---------
   Net cash flows provided by (used in) operating
    activities                                                 ---        (29,117)         48,487             ---          19,370

Investing activities:
   Purchases of property and equipment                         ---        (17,300)        (28,605)            ---         (45,905)
   Proceeds from sale of property and equipment                ---            ---           2,433             ---           2,433
   Proceeds from sale of businesses                            ---          6,381             ---             ---           6,381
   Businesses acquired in purchase transactions,
      net of cash and non-cash items                           ---       (422,137)            ---             ---        (422,137)
   Other                                                       ---           (389)         (4,474)            ---          (4,863)
                                                         ---------      ---------       ---------       ---------       ---------
   Net cash flows used in investing
    activities                                                 ---       (433,445)        (30,646)            ---        (464,091)

Financing activities:
   Borrowings under revolving
    credit facility, net                                       ---        108,000             ---             ---         108,000
   Borrowings of term loan debt, net                           ---        683,566             ---             ---         683,566
   Repayment of term loan debt                                 ---        (12,944)            ---             ---         (12,944)
   Borrowings of notes payable and other debt                  ---         31,858             (123)           ---          31,735
   Repayment of debt under old Senior Secured
</TABLE>

                                      C-48

<PAGE>

<TABLE>
<S>                                                             <C>          <C>           <C>           <C>           <C>
    Credit Facility                                                   ---     (304,861)          ---           ---      (304,861)
   Repayment of WWG term debt                                         ---     (118,594)          ---           ---      (118,594)
   Redemption of WWG bonds                                            ---      (94,148)          ---           ---       (94,148)
   Financing fees                                                     ---      (18,519)          ---           ---       (18,519)
   Proceeds from issuance of common stock, net
    of expenses                                                       ---      200,404             1           ---       200,405
                                                                ---------    ---------     ---------     ---------     ---------
   Net cash flows provided by (used in) financing activities          ---      474,762          (122)          ---       474,640

   Effect of exchange rate on cash                                    ---       (9,380)        6,746           ---        (2,634)
                                                                ---------    ---------     ---------     ---------     ---------
Increase in cash and cash equivalents                                 ---        2,820        24,465           ---        27,285

Cash and cash equivalents at beginning of year                        ---       19,359        16,410           ---        35,769
                                                                ---------    ---------     ---------     ---------     ---------
Cash and cash equivalents at end of year                        $     ---    $  22,179     $  40,875     $     ---     $  63,054
                                                                =========    =========     =========     =========     =========
</TABLE>

                                      C-49

<PAGE>

                               ACTERNA CORPORATION
           SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                   For The Twelve Months Ended March 31, 2000

<TABLE>
<CAPTION>
                                                         Acterna        Acterna      Non-Guarantor                         Total
                                                          Corp            LLC        Subsidiaries     Elimination      Consolidated
                                                        ---------      ---------     -------------    -----------      ------------
                                                                               (In thousands)
<S>                                                     <C>            <C>           <C>              <C>              <C>
Net sales                                               $     ---      $ 306,504       $ 350,097       $     ---        $ 656,601
Cost of sales                                                 ---        104,805         180,726             ---          285,531
                                                        ---------      ---------       ---------       ---------        ---------
Gross profit                                                  ---        201,699         169,371             ---          371,070

     Selling, general and administrative expense              ---        106,982          85,304             ---          192,286
Product development expense                                   ---         43,497          31,901             ---           75,398
Recapitalization and other related costs                      ---         27,543             399             ---           27,942
Amortization of intangibles                                   ---          1,847          10,479             ---           12,326
                                                        ---------      ---------       ---------       ---------        ---------
Operating income                                              ---         21,830          41,288             ---           63,118

Interest expense                                              ---        (51,899)            (50)            ---          (51,949)
Interest income                                               ---          1,537             836             ---            2,373
Intercompany interest income (expense)                        ---            477            (477)            ---              ---
Other income (expense), net                                   ---           (972)            252             ---             (720)
Income (loss) from continuing operations                ---------      ---------       ---------       ---------        ---------
  before income taxes                                         ---        (29,027)         41,849             ---           12,822

Provision (benefit) for income taxes                          ---         (4,304)         11,114             ---            6,810

                                                        ---------      ---------       ---------       ---------        ---------
Income (loss) from continuing operations                      ---        (24,723)         30,735             ---            6,012

Equity income                                               6,012         30,735             ---         (36,747)             ---

                                                        ---------      ---------       ---------       ---------        ---------
Net income (loss)                                       $   6,012      $   6,012       $  30,735       $ (36,747)       $   6,012
                                                        =========      =========       =========       =========        =========
</TABLE>

                                      C-50

<PAGE>

                               ACTERNA CORPORATION
           SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                   For The Twelve Months Ended March 31, 2000

<TABLE>
<CAPTION>
                                                           Acterna      Acterna       Non-Guarantor                       Total
                                                             Corp         LLC         Subsidiaries      Elimination    Consolidated
                                                           --------    ---------      -------------     -----------    ------------
                                                                            (In thousands)
<S>                                                        <C>         <C>            <C>               <C>            <C>
Operating activities:
   Net income (loss) from operations                       $  6,012    $  6,012        $   30,735        $(36,747)       $  6,012
   Adjustment for noncash items included
      in net income (loss):
      Depreciation                                              ---       6,543             6,539             ---          13,082
      Bad debt                                                  ---         461               563             ---           1,024
      Amortization of intangibles                               ---       7,645             4,682             ---          12,327
      Recapitalization and other related costs                  ---      12,327               ---             ---          12,327
      Amortization of unearned compensation                     ---       2,419               ---             ---           2,419
      Amortization of deferred debt issuance                    ---       3,232               ---             ---           3,232
       costs                                                    ---      (2,840)              ---             ---          (2,840)
      Tax benefit from stock option exercise                    ---       1,461               ---             ---           1,461
      Other                                                     ---         ---                56             ---              56
   Changes in operating assets and liabilities,
     net of effects of purchase acquisitions
     and divestitures                                           ---      (9,935)           18,245             ---           8,310
   Changes in intercompany                                   (6,012)     19,676           (50,411)         36,747             ---
                                                           --------    --------        ----------        --------        --------
   Net cash flows provided by operating
     activities                                                 ---      47,001            10,409             ---          57,410

Investing activities:
   Purchases of property and equipment                          ---     (11,962)           (9,897)            ---         (21,859)
   Businesses acquired in purchase transactions,
      net of cash acquired                                      ---    (113,227)              ---             ---        (113,227)
   Other                                                        ---      (5,643)           (1,522)            ---          (7,165)
                                                           --------    --------        ----------        --------        --------
   Net cash flows used in
     investing activities                                       ---    (130,832)          (11,419)            ---        (142,251)

Financing activities:
   Borrowings under revolving
    credit facility, net                                        ---      70,000               ---             ---          70,000
   Repayment of term loan debt                                  ---     (17,139)              ---             ---         (17,139)
   Repayment of capital lease obligations                       ---         ---              (212)            ---            (212)
   Proceeds from issuance of common stock and
    stock options                                               ---       4,736               ---             ---           4,736
   Redemption of stock options                                  ---      (6,980)              ---             ---          (6,980)
                                                           --------    --------        ----------        --------        --------
Net cash flows provided by (used in) financing activities       ---      50,617              (212)            ---          50,405
</TABLE>

                                      C-51

<PAGE>

<TABLE>
<S>                                                           <C>           <C>           <C>            <C>            <C>
Effect of exchange rate on cash                                    ---            92            (249)         ---           (157)
                                                              --------      --------      ----------     --------       --------
Increase (decrease) in cash and cash equivalents                   ---       (33,122)         (1,471)         ---        (34,593)
Cash and cash equivalents at beginning of year                     ---        52,481          17,881          ---         70,362
                                                              --------      --------      ----------     --------       --------
Cash and cash equivalents at end of year                      $    ---      $ 19,359      $   16,410     $    ---       $ 35,769
                                                              ========      ========      ==========     =========      =========
</TABLE>

                                      C-52

<PAGE>

     SUMMARY OF OPERATIONS BY QUARTER (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                   FY 2002
                                                                                   -------
                                                             (Amounts in thousands except per share data)
                                               First             Second (1)        Third (2)         Fourth (3)          Year
                                               -----             -------           -----             ------              ----
<S>                                            <C>               <C>               <C>               <C>                 <C>
Net sales                                      $356,600          $ 314,812         $ 248,785         $ 212,464           $1,132,661
Gross profit                                   $201,389          $ 171,799         $ 116,521         $ 102,904           $  592,613
Net income (loss) from
  continuing operations                        $ (7,201)         $(136,431)        $ (74,006)        $(147,216)          $ (364,854)
Net income (loss)                              $ (6,150)         $(147,521)        $ (74,006)        $(147,216)          $ (374,893)
Income (loss) per common
  share - basic and diluted:
   Continuing operations                       $  (0.04)         $   (0.71)        $   (0.39)        $   (0.77)          $    (1.90)
   Discontinued operations                     $  (0.01)         $   (0.06)        $     ---         $     ---           $    (0.05)

<CAPTION>
                                                                                   FY 2001
                                                                                   -------
                                               First             Second            Third             Fourth              Year
                                               -----             ------            -----             ------              ----
<S>                                            <C>               <C>               <C>               <C>                 <C>
Net sales                                      $ 254,686         $348,287          $369,982          $393,302            $1,366,257
Gross profit                                     132,848          177,767           219,107           229,675               759,397
Net loss from
  continuing operations                        $ (75,578)        $(52,248)         $(22,467)         $(20,904)           $ (171,197)
Net (loss)                                       (82,394)         (50,389)          (18,306)          (20,728)             (171,817)
Income (loss) per common
  share - basic and diluted:
   Continuing operations                       $   (0.40)        $  (0.28)         $  (0.12)         $  (0.10)           $    (0.93)
   Extraordinary (loss)
                                                   (0.06)            ---               ---                ---                 (0.06)
   Discontinued operations                           ---             0.01              0.02               ---                  0.06
</TABLE>

     (1) The Company recorded a charge of $71 million to provide for valuation
         allowance against its U.S. deferred tax assets.

     (2) The Company recorded charges of $21.8 million for impairments of assets
         held for sale and goodwill.

     (3) The Company recorded a charge of $151 million with respect to
         intangible assets and a tax benefit of $61 million relating to the
         carryback of U.S. net operating losses.

                                      C-50

<PAGE>

                                                                      Appendix D

EXHIBIT INDEX

Exhibit No.
2.1           Agreement and Plan of Merger, dated as of December 20, 1997, by
              and between Acterna Corporation and CDRD Merger Corporation. (1)
2.2           Agreement and Plan of Merger, dated as of September 7, 1999, by
              and among Acterna Corporation, Acterna Acquisition Corporation and
              Applied Digital Access, Inc. (2)
2.3           Agreement and Plan of Merger, dated as of February 14, 2000, by
              and among Acterna Corporation, DWW Acquisition Corporation and
              Wavetek Wandel Goltermann, Inc. (3)
2.4           Agreement for the Sale and Purchase of Shares in WPI Husky
              Technology Ltd., dated February 23, 2000, by and among Acterna
              Nominees Limited, WPI Group (UK), and WPI Group, Inc.(5)
3.1           Amended and Restated Certificate of Incorporation of Acterna
              Corporation.(5)
3.2           Amended and Restated By-Laws of Acterna Corporation. (4)
4.1           Indenture, dated as of May 21, 1998, among Acterna Corporation,
              TTC Merger Co. LLC (now known as Acterna LLC) and State Street
              Bank and Trust Company, as trustee. (6)
4.2           Form of 9 3/4% Senior Subordinated Note due 2008 (6).
4.3           First Supplemental Indenture, dated as of May 21, 1998, among
              Acterna Corporation, Telecommunications Techniques Co., LLC (now
              known as Acterna LLC) and State Street Bank and Trust Company, as
              trustee. (6)
4.4           Registration Rights Agreement, dated May 21, 1998, by and among
              Acterna Corporation, Telecommunications Techniques Co., LLC (now
              known as Acterna LLC), Credit Suisse First Boston Corporation and
              J.P. Morgan Securities Inc. (6)
4.5           Registration Rights Agreement, dated as of May 21, 1998, among
              Acterna Corporation, Clayton, Dubilier & Rice Fund V Limited
              Partnership, Mr. John F. Reno, The John F. Reno 1997 Qualified
              Annuity Trust, under Trust Agreement, dated as of the 28th day of
              November, 1997, between John F. Reno as Grantor and John F. Reno
              and John D. Hamilton, Jr. as Trustees, and The Suzanne D. Reno
              1997 Qualified Annuity Trust, under Trust Agreement, dated as of
              the 28th day of November, 1997, between Suzanne D. Reno as Grantor
              and John F. Reno and John D. Hamilton, Jr. as Trustees. (6)
4.6           Amendment No. 1, dated as of May 23, 2000, among Acterna
              Corporation ("Acterna"), Clayton, Dubilier & Rice Fund V Limited
              Partnership ("Fund V") and Clayton, Dubilier & Rice Fund VI
              Limited Partnership, to the Registration Rights Agreement, dated
              as of May 21, 1998, among Acterna, Fund V and the other parties
              thereto. (5)
4.7           Form of Piggyback Registration Rights Agreement, dated as of
              February 29, 2000, by and among Wavetek Wandel Goltermann, Inc.
              ("WWG"), Acterna Corporation and each stockholder of WWG party
              thereto.(5)
4.8           Form of Subscription Warrant to Subscribe for Shares of Acterna
              Corporation Common Stock. (7)
4.9           Investment Agreement, dated as of December 27, 2001, among Acterna
              Corporation, Acterna LLC and Clayton, Dubilier & Rice Fund VI
              Limited Partnership. (14)
4.10          Form of Note Issuable under Investment Agreement, dated as of
              December 27, 2001, among Acterna Corporation, Acterna LLC and
              Clayton, Dubilier & Rice Fund VI Limited Partnership. (14)
4.11          Form of Warrant Issuable under Investment Agreement, dated as of
              December 27, 2001, among Acterna Corporation, Acterna LLC and
              Clayton, Dubilier & Rice Fund VI Limited Partnership. (14)

                                      D-1

<PAGE>

4.12          Amendment No. 2, dated as of January 15, 2002, among Acterna
              Corporation ("Acterna"), Clayton, Dubilier & Rice Fund V Limited
              Partnership ("Fund V"), and Clayton, Dubilier & Rice Fund VI
              Limited Partnership ("Fund VI"), to the Registration Rights
              Agreement, dated as of May 21, 1998, among Acterna, Fund V, Fund
              VI, and certain other parties thereto. (14)
10.1          Credit Agreement, dated May 23, 2000, among Acterna LLC, Wavetek
              Wandel Goltermann GmbH and Acterna Subworld Holdings GmbH, the
              lenders named therein, Morgan Guaranty and Trust Company of New
              York ("Morgan Guaranty") as administrative agent, Morgan Guaranty
              as German Term Loan Servicing Bank, Credit Suisse First Boston as
              syndication agent and The Chase Manhattan Bank and Bankers Trust
              Company as co-documentation agents. (5)
10.2          Guarantee and Collateral Agreement, dated as of May 23, 2000,
              among Acterna LLC, certain of its subsidiaries and Morgan Guaranty
              and Trust Company of New York as administrative agent.(5)
10.3          Indemnification Agreement, dated as of May 21, 1998, by and among
              Acterna Corporation, Telecommunications Techniques Co., LLC (now
              known as Acterna LLC), Clayton, Dubilier & Rice, Inc. and Clayton,
              Dubilier & Rice Fund V Limited Partnership. (6)
10.4          Indemnification Agreement, dated as of May 23, 2000, by and among
              Acterna Corporation, Clayton, Dubilier & Rice Fund VI Limited
              Partnership and Clayton, Dubilier & Rice, Inc.(5)
10.5          Amended and Restated Consulting Agreement, dated as of January 1,
              2001, by and among Acterna Corporation, Acterna LLC and Clayton,
              Dubilier & Rice, Inc. (13)
10.6          Agreement, dated as of May 23, 2000, by and between Clayton,
              Dubilier & Rice, Inc. and Acterna Corporation.(5)
10.7          Tax Sharing Agreement, dated as of May 21, 1998, by and between
              Acterna Corporation and Telecommunications Techniques Co., LLC
              (now known as Acterna LLC). (6)
10.8          Form of Letter Agreement by and between Acterna Corporation
              ("Acterna") and certain officers of Acterna. (8)
10.9          Form of Management Equity Agreement among Acterna Corporation,
              Clayton, Dubilier & Rice Fund V Limited Partnership and Messrs.
              Kline and Peeler. (8)
10.10         Form of Management Equity Agreement among Acterna Corporation
              ("Acterna"), Clayton, Dubilier & Rice Fund V Limited Partnership
              and certain officers of Acterna. (8)
10.11         Amended and Restated Employment Agreement, entered into on
              November 1, 1998, by and between Acterna Corporation and Allan M.
              Kline. (9)
10.12         Amended and Restated Employment Agreement, entered into on
              November 1, 1998, by and between Acterna Corporation and John R.
              Peeler. (9)
10.13         Form of Nondisclosure, Noncompetition and Nonsolicitation
              Agreement by and between Acterna Corporation ("Acterna") and
              certain executives of Acterna. (8)
10.14         Acterna Corporation 1992 Stock Option Plan. (6)
10.15         Acterna Corporation Amended and Restated 1994 Stock Option and
              Incentive Plan. (10)
10.16         Acterna Corporation Non-Employee Directors Stock Incentive Plan.
              (10)
10.17         Acterna Corporation Directors Stock Purchase Plan. (4)
10.18         Form of Non-Employee Director Stock Subscription Agreement between
              Acterna Corporation and non-employee directors of Acterna. (11)
10.19         Loanout Agreement, dated as of May 19, 1999, by and among Acterna
              Corporation, Acterna LLC and Clayton, Dubilier & Rice, Inc. (12)
10.20         Second Credit Agreement Amendment, dated as of December 27, 2001,
              among Acterna Corporation ("Acterna"), Acterna LLC, certain
              subsidiaries of Acterna LLC, JPMorgan Chase Bank (as successor by
              merger to the Morgan Guaranty Trust Company of New York), as
              administrative agent, and certain of the lenders under the Credit
              Agreement, dated May 23, 2000, among Acterna LLC, Wavetek Wandel
              Goltermann GmbH and Acterna Subworld Holdings GmbH, the lenders
              named therein, Morgan Guaranty and Trust Company of New York
              ("Morgan Guaranty") as administrative agent, Morgan Guaranty as
              German Term Loan Servicing Bank, Credit

                                      D-2

<PAGE>

              Suisse First Boston as syndication agent and The Chase Manhattan
              Bank and Bankers Trust Company as co-documentation agents. (14)
10.21         Guarantee and Collateral Agreement, dated as of December 27, 2001,
              made by Acterna Corporation, Acterna LLC and certain subsidiaries
              of Acterna LLC for the benefit of Clayton, Dubilier & Rice Fund VI
              Limited Partnership. (14)
10.22         Intercreditor Agreement, dated as of December 27, 2001, between
              JPMorgan Chase Bank and Clayton, Dubilier & Rice Fund VI Limited
              Partnership, and consented to by Acterna Corporation and Acterna
              LLC. (14)
10.23         Separation Agreement for Allan M. Kline, dated as of February 28,
              2002.
10.24         Form of Separation Agreement for each of Mark V.B. Tremallo and
              Robert W. Woodbury, Jr.
21            Subsidiaries of Acterna Corporation.
23            Consent of Independent Accountants.

(1)      Incorporated by reference to Acterna Corporation's Report on Form 8-K
         (File No. 0-7438).
(2)      Incorporated by reference to Acterna Corporation's Schedule 14D-1 (File
         No. 5-44783).
(3)      Incorporated by reference to Acterna Corporation's Report on Form 8-K
         (File No. 1-12657).
(4)      Incorporated by reference to Acterna Corporation's Form 10-Q for the
         quarter ended September 30, 1999 (File No. 1-12657).
(5)      Incorporated by reference to Acterna Corporation's Report on Form 10-K
         for the year ended March 31, 2000 (File No. 0-7438).
(6)      Incorporated by reference to Acterna Corporation's Registration
         Statement on Form S-4 (Registration No. 333-60893).
(7)      Incorporated by reference to Acterna Corporation's Registration
         Statement on Form S-3 (Registration No. 333-35476).
(8)      Incorporated by reference to Acterna Corporation's Registration
         Statement on Form S-4 (File No. 333-44933).
(9)      Incorporated by reference to Acterna Corporation's Form 10-Q for the
         quarter ended December 31, 1998 (File No. 1-12657).
(10)     Incorporated by reference to Acterna Corporation's Registration
         Statement on Form S-8 (File No. 333-75797).
(11)     Incorporated by reference to Acterna Corporation's Form 10-Q for the
         quarter ended December 31, 1999 (File No. 1-12657).
(12)     Incorporated by reference to Acterna Corporation's Form 10-Q for the
         quarter ended June 30, 1999 (File No. 1-12657).
(13)     Incorporated by reference to Acterna Corporation's Report on Form 10-K
         for the year ended March 31, 2001 (File No. 0-7438).
(14)     Incorporated by reference to Acterna Corporation's Report on Form 8-K
         (File No. 0-7438).

                                       D-3

<PAGE>


Item 14(a) (2)

                                                                     SCHEDULE II

                               ACTERNA CORPORATION

                        VALUATION AND QUALIFYING ACCOUNTS

               For the years ended March 31, 2002, 2001, and 2000

Reserve for Doubtful Accounts

                                                        (In thousands)

Balance, March 31, 1999                                               $  1,634
   Additions charged to income                                           1,024
   Write-off of uncollectible accounts, net                                (22)
   Balance acquired by acquisition                                         247
                                                                      --------
Balance, March 31, 2000                                                  2,883

   Additions charged to income                                           7,147
   Write-off of uncollectible accounts, net                             (3,222)
   Balance acquired by acquisition                                       3,933
                                                                      --------
Balance, March 31, 2001                                                 10,741
   Additions charged to income                                            (582)
   Write-off of uncollectible accounts, net                             (2,287)
                                                                      --------
Balance, March 31, 2002                                               $  7,872
                                                                      ========