<PAGE>
 
================================================================================

                    U.S. 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 (FEE REQUIRED)

                   For the fiscal year ended March 31, 1998
                        Commission file number 1-12657
                             Dynatech Corporation

            (Exact name of registrant as specified in its charter)


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

                         3 New England Executive Park
                     Burlington, Massachusetts  01803-5087
              (Address of principal executive offices)(Zip code)

      Registrant's telephone number, including area code:  (781) 272-6100

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

                    Common Stock, par value $.20 per share

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

                     Common Stock, no par value 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
by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)

At June 3, 1998, the aggregate market value of the Common Stock of the
registrant held by non-affiliates was $36,659,844.

At June 3, 1998 there were 120,251,375 shares of Common Stock of the registrant
outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None

===========================================================================
<PAGE>
 
Item 1.  Business

     Incorporated in Massachusetts in 1959, Dynatech Corporation (the
"Company") has its principal offices at 3 New England Executive Park,
Burlington, Massachusetts 01803.  As used in this Form 10-K, the "Company"
refers to Dynatech Corporation, or, as the context requires, Dynatech
Corporation and its subsidiaries.

     On May 21, 1998 CDRD Merger Corporation ("MergerCo"), 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 "Merger") with the Company continuing as the surviving
corporation.  In the Merger, (i) each then outstanding share of common stock,
par value $0.20 per share, of the Company (the "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 "Recapitalized Common Stock") and (ii) each then
outstanding share of common stock of MergerCo was converted into one share of
Recapitalized Common Stock.

     As a result of the Merger, Clayton, Dubilier & Rice Fund V Limited
Partnership, an investment partnership managed by CDR ("CDR Fund V") holds
approximately 92.3% of the Recapitalized Common Stock.  John F. Reno, the
Chairman, President and Chief Executive of the Company together with two family
trusts holds approximately 0.7% of the Recapitalized Common Stock and other
stockholders hold approximately 7.0% of the Recapitalized Common Stock.


                                  THE COMPANY

  The Company develops, manufactures and sells market-leading test, analysis,
communications and computing equipment in three product categories:

  .  Communications Test. The Company believes its subsidiary,
     Telecommunications Techniques Co. LLC ("TTC"), is the second largest U.S.
     provider of communications test instruments (by U.S. sales). TTC provides
     products to communications service providers (such as the Regional Bell
     Operating Companies ("RBOCs"), long-distance companies and competitive
     access providers), service users (such as large corporate and government
     network operators), and manufacturers of communications equipment and
     systems. TTC's broad test and analysis product line ranges from portable
     units (used by field service technicians to test telephone and data
     communications lines and services) to centralized test and monitoring
     systems installed in telephone company central offices. TTC's
     communications test business accounted for 51% of the Company's sales (or
     approximately $240.4 million) for the fiscal year ended March 31, 1998.

  .  Industrial Computing and Communications. The Company addresses two distinct
     segments of the North American ruggedized computer market. Industrial
     Computer Source ("ICS")  is the only significant direct marketer of
     computer products and systems designed to withstand excessive temperatures,
     dust, moisture and vibration in harsh operating environments such as
     production facilities. ICS markets to engineers, 


                                                                               2
<PAGE>
 
     scientists and production managers through its widely recognized Industrial
     Computer Source-Book catalogs. Itronix sells ruggedized portable
     communications and computing devices used by field-service workers for
     telephone companies, utilities, insurance companies and other organizations
     with large field-service workforces. The Company's industrial computing and
     communications business accounted for 33% of the Company's sales (or
     approximately $155.0 million) for the fiscal year ended March 31, 1998.

  .  Visual Communications. The Company's visual communications business
     consists principally of two market-leading niche-focused subsidiaries: (i)
     AIRSHOW is the world leader in passenger cabin video information display
     systems and information services for the general and commercial aviation
     markets; and (ii) da Vinci is the world leader in digital color enhancement
     systems used in the process of transferring film images into electronic
     signals--a process commonly used to transfer film images to video for use
     in the production of television commercials and programming. The Company's
     visual communications business accounted for 16% of the Company's sales (or
     approximately $77.5 million) for the fiscal year ended March 31, 1998.

For the fiscal year ended March 31, 1998, the Company generated sales of $472.9
million.

Competitive Strengths

  The following characteristics contribute to the Company's competitive position
and outlook.

  .  Leading Market Positions. The Company's principal businesses occupy the #1
     or #2 overall position in their respective principal markets. TTC, which is
     the Company's largest subsidiary and operates in a highly fragmented
     market, has in recent years held the #1 or #2 position in market segments
     accounting for an estimated 70% of its test instrument sales. ICS is the
     only significant direct marketer of ruggedized industrial computers and
     Itronix is the leading supplier of ruggedized portable notebook computers
     to U.S. telecommunications companies. AIRSHOW and da Vinci have the #1
     shares in their respective niche markets. The Company's market leadership
     is enhanced by its well known brand names, including FIREBERD and T-BERD
     test instruments, the Industrial Computer Source-Book catalogs, and the
     AIRSHOW map system.

  .  Double-Digit Market Growth. The Company participates in market segments
     that management believes have been growing at least 10% annually in recent
     years. Between fiscal 1995 and 1998, the Company increased sales at a
     compound annual growth rate of 25% (15% excluding the impact of
     acquisitions), a rate which management believes exceeds the composite sales
     growth rate for the market segments the Company addresses. The growth of
     the communications test instrument market, the Company's largest, is driven
     in part by the growth of telecommunications equipment and services.

  .  High-Margin, Cash-Generative Business. The Company's gross profit margin
     was 56.5% for the fiscal year ended March 31, 1998. Management believes 


                                                                               3
<PAGE>
 
     the Company's strong profitability is attributable to its leading market
     positions, its extensive sales and distribution networks, its entrenched
     customer relationships and a management culture emphasizing product quality
     and customer service and support, rather than price-based competition. The
     Company's strong profitability, combined with relatively low capital
     expenditure requirements (averaging 3% of sales since 1995), provides cash
     flow to fund the Company's growth strategy and has facilitated a cumulative
     investment of approximately $165 million in product development from the
     beginning of fiscal 1995 through fiscal 1998.

  .  High Installed Base of Products. As leaders in each of their respective
     served markets, the Company's principal businesses enjoy high installed
     product bases, which the Company believes generally provide a competitive
     advantage in selling product enhancements, upgrades, replacements and
     aftermarket parts and service. For example, the Company has sold over
     100,000 of its communications test instruments (representing over $1.0
     billion in customer investment), the majority of which the Company believes
     are currently in service. This installed base also represents a substantial
     investment by customers in training on the Company's communications test
     products, a familiarity that the Company capitalizes on in selling and
     marketing its products and in the development of new products.

  .  Extensive Sales and Distribution Network with Longstanding Customer
     Relationships. Management believes that each of the Company's principal
     businesses enjoys one of the most extensive, effective and highly trained
     sales and distribution networks in its respective principal markets. The
     communications test business, for example, has a 180-person U.S. sales
     organization comprising predominantly of engineers and technical
     professionals, who undergo rigorous, ongoing education and training. The
     Company has been selling to service providers such as AT&T, MCI, Sprint,
     GTE and Bell Atlantic (or their predecessors) since prior to the early
     1980s. The Industrial Computer Source-Book (over six million copies
     distributed in fiscal 1998) is the most widely recognized catalog of
     ruggedized industrial computer systems by scientists and engineers. These
     purchasers rely upon ICS's sales staff, comprising predominantly of
     electrical engineers, to solve compatibility and functionality issues in
     configuring the systems.

  .  Experienced Management Team with Substantial Equity Ownership. Led by CEO
     John F. Reno, a 23-year Dynatech veteran, the senior management of each of
     the Company's businesses has on average more than 15 years of industry
     experience. Approximately 350 senior managers and key employees are
     expected to collectively own or have options to acquire approximately 25%
     of the Recapitalized Common Stock on a fully diluted basis.


Business Strategy

  The Company intends to pursue the following strategies:


                                                                               4
<PAGE>
 
  .  Leverage Leading Market Positions. The Company believes that its leading
     market positions provide it with several competitive advantages in
     comparison to smaller market participants, particularly in its
     communications test business, and position it to expand its business by (i)
     spreading product development costs over a larger sales and unit base, (ii)
     leveraging its sales and marketing resources and customer relationships to
     sell new and enhanced products through established channels, and (iii)
     taking advantage of its high installed base of instruments to generate
     incremental sales for product enhancements, upgrades, replacements and
     service.

  .  Address New Market Segments. The Company intends to continue to develop
     products to address new market segments in each of its businesses and
     thereby expand the size of its total served market. For example, the
     Company currently addresses approximately two-thirds of the $2.1 billion
     communications test instrument market and is beginning to address segments
     within the $1.0 billion communications test and monitoring systems market.
     With product line extensions and additions, the Company can expand the size
     of its served market while leveraging its extensive sales and distribution
     network.

  .  Pursue Strategic Acquisitions. Since the end of fiscal 1993, the Company
     has focused on its higher-growth, more profitable market-leading
     businesses, selling 24 non-core businesses for gross proceeds of $190
     million and acquiring five complementary businesses. The Company intends to
     continue to pursue strategic acquisitions that complement its existing
     businesses and further expand its product lines and technological
     capabilities. The communications test instrument market is highly
     fragmented, which management believes provides significant opportunities
     for future strategic acquisitions. With the Company's economies of scale,
     well-established sales and marketing channels and customer relationships,
     the Company believes it can, through selective acquisitions, improve
     profitability while expanding the breadth of its product line and enhancing
     its technological expertise.

     Increase International Penetration. The Company generated approximately 87%
     of sales for the fiscal year ended March 31, 1998 in North America,
     primarily in the United States, where it has established market-leading
     positions in each of its principal businesses. The Company believes there
     are significant opportunities to expand its international business. For
     example, while the Company generated only 11% of its communications test
     sales from markets outside North America during the fiscal year ended March
     31, 1998, the $900 million international market represents an estimated 43%
     of the global communications test instrument market for the same period and
     grew approximately 12% from 1996 to 1997.

  Industry Overview

Communications Test

  Market Overview. The Company believes that the worldwide market for
communications testing is approximately $3.1 billion, comprising the $2.1
billion communications test instrument market and the $1.0 billion test and


                                                                               5
<PAGE>
 
monitoring systems market. Test instruments are used in the design,
manufacturing, installation and maintenance of communications equipment and
networks while test and monitoring systems automate the process of detecting,
isolating and resolving faults within a communications network. TTC currently
addresses approximately two-thirds of the $2.1 billion test instruments market,
primarily in North America, and is beginning to address segments within the $1.0
billion test and monitoring systems market.

  Given the growth of communications networks, the multiplicity of
communications technologies and the broad range of applications at various
points in a network, there are numerous different tests and analyses necessary
for communications service providers and users to install, maintain and
troubleshoot communications networks. As a result, the communications test
instrument market is highly fragmented with many competitors, most of which
address only selected niches within the overall market. The Company estimates
that there are approximately 50 competitors in the communications test
instrument market having sales of over $1 million. A small number of larger
companies compete in many segments of the overall market, including Hewlett-
Packard Company, which the Company believes is the worldwide overall market
leader and which competes in many of the same segments as the Company. Other
significant participants in the overall market include Tektronix, Inc., Wandel &
Goltermann GmbH & Co. and Wavetek Corporation and Network General Corporation.

  Industry Trends. Growth in the communications test instrument market is driven
in part by growth in the number of service providers, increased demand for
communications services and the introduction of new communications protocols.
Deregulation and privatization of the worldwide telecommunications industry has
produced increased competition and a proliferation of service providers. To
compete, communications providers must accelerate their network deployment,
maintain and upgrade existing infrastructures, and continue to increase their
quality of service, all while also reducing cost structures. In addition, the
growth of the volume of voice traffic, LAN backbones and interconnections, high-
speed interconnects, Internet access and cellular and other wireless
communications systems have led to the deployment of new high-speed transmission
technologies such as Synchronous Optical Network ("SONET"), Asynchronous
Transfer Mode ("ATM"), frame relay and Integrated Services Digital Network
("ISDN").

  The Company believes that these trends have driven overall communications test
instrument industry growth of approximately 10-12% annually in recent years.
Growth rates vary widely across segments of the market and are typically higher
in segments that support the development of high growth communications services
such as ATM, frame relay, SONET and wireless services.

Industrial Computing and Communications

  The Company's industrial computing and communications business addresses two
markets: (1) the market for ruggedized rack-mounted computers, which is
characterized by thousands of smaller customers who typically order fewer than
ten units each, and (2) the market for ruggedized portable computers, which is
characterized by a more concentrated group of larger customers that typically
order large quantities of units.


                                                                               6
<PAGE>
 
  Ruggedized Rack-Mounted Computers. The Company believes that the global market
for ruggedized industrial computer products currently exceeds $1.0 billion
annually, split roughly evenly between North America and the rest of the world.
The Company estimates that this global market has been growing approximately 10%
annually in recent years, driven by the increased use of computers in harsh
environments. The market consists of sales of (i) modular component products,
which include chassis and CPUs sold separately and integrated by the customer,
and (ii) fully integrated systems, which consist of a considerably broader
product offering that is fully integrated into complete systems prior to sale.
The Company believes that modular component products and fully integrated
systems each account for approximately half of the total global market. ICS
competes primarily in the fully integrated systems segment of the market and
focuses on the direct marketing of its products to engineers and scientists,
purchasing one to ten units through its catalogs, utilizing a proprietary
database developed over many years. In ICS's target market, ICS's principal
competitors include Texas Microsystems Inc., the I-Bus Division of Maxwell
Technologies, Inc., American Advantech Corp. and Diversified Technology, Inc.
Other significant competitors in the overall market include IBM and Siemens AG.

  Ruggedized Portable Computers. The market for ruggedized portable computers
consists of customers with large mobile workforces in industries such as
telecommunications, utilities, insurance and others that employ service and
maintenance technicians for a variety of products. The Company estimates that
the global market for ruggedized portable notebook computers, Itronix's
principal market, currently exceeds $400 million. In this market, because of the
relatively small number of customers with large field-service work forces, the
timing and size of whose orders are irregular, growth rates vary widely.
Ruggedized portable computers provide field workers with the ability to install,
diagnose and maintain company and customer equipment and collect critical
information from remote locations. The critical feature of ruggedized portable
computers is the ability to operate reliably in adverse environments and work
conditions while withstanding mechanical shock, vibration, moisture and extreme
temperatures. Itronix is the market leader in sales to U.S. telecommunications
service providers, whose large field service personnel require portable
computers to collect data from various remote locations. Itronix's competitors
in the fully-ruggedized portable notebook computer market include Panasonic
Industrial Co. (which the Company believes is the worldwide market leader) and a
number of smaller competitors, as well as competition from manufacturers of
competing mass-market "semi-rugged" mobile computers, which constrains the
pricing of premium portable ruggedized products like Itronix's. Producers of
ruggedized portable computers also face indirect competition from off-the-shelf
portable computers and single-purpose diagnostic and data collection
instruments.

Visual Communications

  AIRSHOW. AIRSHOW addresses a segment of the overall market for information and
entertainment systems used by passengers of commercial and general aviation
aircraft. The market is driven by growth in aircraft production and demand by
aircraft passengers to receive real-time video or data information while the
aircraft is in the air. Management projects estimated growth in new general
aviation aircraft production of 20% in 1998. AIRSHOW has a leadership 


                                                                               7
<PAGE>
 
position in a market niche for passenger cabin video information systems for the
general aviation and commercial airline markets. See "--Products and Services."

  da Vinci. da Vinci produces digital color correction systems, which are a
component of telecine systems used by video post production and commercial
production facilities to enhance and color match images as they are transferred
from film to video tape for editing and distribution. The principal application
of da Vinci's color correction system is to conform and enhance color in the
film editing process and to provide color to black and white films and video
images. da Vinci products occupy the leadership position in this small niche
market, growth in which is driven primarily by the introduction of new video
technologies and standards within the film and video production industry.

Products and Services

Communications Test

  Overview. TTC provides a wide range of test and analysis products, service and
support that enable customers worldwide to develop, manufacture, install and
maintain communications networks and equipment. TTC's products include a broad
portfolio of test instruments, test systems, software and professional services
that address multiple technologies and applications at various locations in
communications networks.

  TTC's test instrument products address two key categories of applications in
communications networks: (i) transmission testing between service providers'
central offices ("digital transport") and between a service provider's central
office and its customers (the "local loop"), and (ii) network services testing
by both service providers and users of a broad range of technologies and
services delivered principally to business customers. In addition, TTC is
expanding its product offerings for the communications test and monitoring
systems market.

  Transmission Testing. TTC produces a wide range of products that test and
monitor the physical transmission of voice and data signals across a service
provider's network of transmission circuits, cables, connectors and related
network components in the central office and local loop. Domestic and
international service providers use TTC's transport test products to install and
maintain high-speed transmission circuits. Service providers have employed such
circuits as inter-office links to connect voice and data transmission between
long-distance carriers, local exchange carriers and wireless carriers. More
recently, transmission circuits employing newer technologies, such as ISDN,
SONET and ATM, have been proliferating as more analog networks are being
upgraded as customers demand improvements to facilitate high-speed data
transmission. TTC's products cover most widely accepted existing and emerging
technologies in its markets, with average selling prices ranging from $5,000 for
a handheld unit to $45,000 for a fully-featured portable instrument to $70,000
for a test system.

  Service providers use TTC's local loop test products to install and maintain
voice telephone services, ISDN, digital data system ("DDS"), T1 lines, and fiber
optic facilities between the service providers' local 


                                                                               8
<PAGE>
 
central offices and the customers' premises. For example, technicians use
products such as the T-BERD 209OSP, a ruggedized field service test set, to
perform fault location and data quality testing of voice or data circuits in the
local loop. With the increased competition among service providers and the
attendant workforce downsizing of incumbent local service providers such as the
RBOCs, TTC designs its local loop test products to assist such customers in
improving service quality and productivity while reducing costs.

  Network Services Testing. TTC's network services products test communications
technologies and services employed primarily by businesses, including their
physical transmission facilities, voice services, and data services such as ATM,
frame relay and ISDN. TTC's FIREBERD data communications analyzers, for example,
measure performance of a wide range of network transmission equipment utilized
on a business customer's premises and have a modular construction to facilitate
simple upgrades as new technologies and services are employed. TTC's FIREBERD
500 Internetwork Analyzer monitors and tests network traffic between a LAN and
WAN and can analyze numerous communications protocols. In addition, TTC
manufactures portable, hand-held test instruments that enable service
technicians to install or repair networks.

  Communications Test and Monitoring Systems. TTC historically has focused on
the communications test instrument market, which continues to account for the
predominance of TTC's sales. However, TTC has been developing products to
address the $1.0 billion communications test and monitoring systems market. For
example, the CENTEST 650 was developed to automate the monitoring and testing of
DS0, DS1 and DS3 signals so that service providers can identify network trouble
spots quickly and direct mobile repair crews more efficiently from a central
location. In addition, TTC is devoting significant resources to develop
additional products for the communications test and monitoring systems market.

  TTC's sales were $172.0 million in fiscal 1996, $211.3 million in fiscal 1997
and $240.4 million in fiscal 1998, representing an 18.2% compound annual growth
rate.


Industrial Computing and Communications

  Overview. The Company's industrial computing and communications business
consists of two subsidiaries addressing different segments of the ruggedized
computer market: (1) ICS, primarily a direct marketer of rack-mounted computer
products and systems used by engineers, scientists and others in industrial or
otherwise harsh operating environments, and (2) Itronix, acquired by the Company
in December 1996, which produces mobile computing and communications devices
used by companies with field service organizations such as telephone companies
and utilities. ICS generally sells to thousands of small accounts, which
typically order fewer than ten units, whereas Itronix sells to a more
concentrated group of large organizations that typically order large quantities
of units.

  Industrial Computer Source. ICS employs a direct marketing strategy with its
widely recognized Industrial Computer Source-Book catalogs, proprietary target
customer database and highly trained sales force of electrical 

                                                                               9
<PAGE>
 
engineers to sell a broad range of integrated industrial computers, input/output
devices, and communication and accessory products. ICS primarily sells fully
customized integrated systems that its sales force configures to address a
customer's particular computing needs. ICS is geared to serving a large number
of customers which typically order fewer than ten units per order. Over the past
three years, ICS has sold to over 12,000 customers with an average order size of
approximately $3,000. ICS mailed over six million catalogs in fiscal 1998 to a
proprietary and growing list of over 250,000 scientists, engineers and
production managers.

  ICS offers rack-mounted personal computers for use in environments other than
homes and offices, including a wide range of commercial and communications
applications. Products include ruggedized computers and remote terminals
designed for operation in adverse environments (exposure to vibration, noise,
temperature fluctuations and extremes, dust, moisture, electromagnetic fields
and other hazards). ICS designs, configures and assembles its products but
generally sources components from third-party vendors and contract
manufacturers. ICS also uses its in-house CPU design capabilities to sell
customized modular products and subsystems to systems integrators.

  Itronix. Itronix is the leading supplier of portable, networked notebook
computing and communications devices used by field-service technicians in the
U.S. telecommunications industry. These products are carried by field-service
technicians who use them in a broad range of environments to communicate--either
through wireline or wireless connections--to a central office. Customers use
Itronix's mobile computing products to automate dispatching, work management and
field reporting processes.

  Itronix also targets utilities, insurance companies, and other organizations
seeking to increase the efficiency of their field-service personnel. Service
technicians often make multiple service calls to different locations without
returning to a base office. The use of networked computing devices allows for
more effective dispatching to service sites and provides two-way communications
with technicians. Itronix's flagship product provides technicians with the
ability to access engineering data and customer service histories, or to collect
and transmit key information regarding their service calls to a central
database.

  Itronix currently produces two hardware product lines, the X-C Series of
laptop computers and the T Series of smaller handheld computing devices.
Itronix's flagship product line, the X-C series, is a rugged laptop computer
that features functionality and power that is similar to commodity laptops yet
is designed to withstand harsh environments, including heat, cold, rain and the
shock and vibration found in service vehicles. The X-C is also an integrated
communications device with options for both wired and wireless communications.
Other features include intelligent battery-life management and touch screen
functionality.

  Itronix is facing significant manufacturing and marketing challenges.
Management is currently implementing a plan to (1) reduce manufacturing costs by
renegotiating component costs, outsourcing non-core manufacturing activities and
redesigning its products and (2) reposition its premium niche against new market
competition from "semi-rugged" and mass market products.


                                                                           10
<PAGE>
 
  Industrial Computing and Communications businesses sales were $142.2 million
in fiscal 1997 on a pro forma basis and $155.0 million in fiscal 1998.

Visual Communications

  Overview. The Company's principal visual communications businesses are AIRSHOW
and da Vinci. The Company's total visual communications sales were $63.1 million
in fiscal 1996, $72.8 million in fiscal 1997 and $77.5 million in fiscal 1998,
representing a 10.8% compound annual growth rate.

  AIRSHOW. AIRSHOW primarily manufactures passenger cabin video information
display systems for the general and commercial aviation markets, selling its
equipment to airlines, aircraft manufacturers, and aircraft electronic system
(avionics) installation centers. AIRSHOW also provides information services by
collecting data from various information service providers and transmitting
news, weather and financial information as text and graphics to aircraft
equipped with AIRSHOW Network products. AIRSHOW systems are installed on over
3,000 general aviation aircraft and on approximately 100 commercial airlines.

  The AIRSHOW moving map system and real-time flight information passenger video
displays are offered across general and commercial aviation markets with
variations in equipment interface for different aircraft and video systems
types. The AIRSHOW Network is an extension of the moving map system and includes
a real-time data communications system. AIRSHOW Network is now offered as an
option by leading corporate aircraft manufacturers such as Bombardier Inc., The
Cessna Aircraft Company, Inc., Dassault Falcon Jet Corp., Gulfstream Aerospace
Corporation and Learjet Inc. AIRSHOW recently introduced its AIRSHOW TV service
which provides for reception of direct broadcast satellite TV aboard general
aviation aircraft which operate within the continental U.S. This service is
being primarily marketed to the general aviation market.

  da Vinci. da Vinci produces digital color correction systems, which are a
component of telecine systems used by video post production and commercial
production facilities to enhance and color match images as they are transferred
from film to video tape for editing and distribution. The principal application
of da Vinci's color correction system is to conform and enhance color in the
film editing process and to provide color to black and white films and video
images. da Vinci products occupy the leadership position in this small niche
market, growth in which is driven primarily by the introduction of new video
technologies and standards within the film and video production industry.

  Other Subsidiaries. The Company's other visual communications subsidiaries
are: DataViews, which provides tools for software developers; ComCoTec, which
develops software solutions for the pharmacy industry; and Parallax Graphics,
Inc., which the Company plans to close operations over time.

Product Development


                                                                           11
<PAGE>
 
  For each of the Company's businesses, the development of new and enhanced
products is a key element of its strategy, designed to further penetrate served
markets, address new markets and reduce costs. From the beginning of fiscal 1996
through fiscal 1998, consolidated product development expense was approximately
$134.7 million, representing an average of 11.9% of sales per year. Consolidated
product development expense was 12.4% of sales ($36.5 million) in fiscal 1996,
11.9% of sales ($43.3 million) in fiscal 1997 and 11.6% of sales ($55.0 million)
in fiscal 1998. The Company anticipates product development spending to continue
at similar levels as a percentage of sales in the future.

  From the beginning of fiscal 1996 through fiscal 1998, the Company invested
approximately $89.2 million in the development of communications test products.
In fiscal 1998, the Company introduced a significant number of new test
instrument products including NetAnalyst, a client/server-based software product
that will allow users to centrally test the entire network from the network
operations center, the TPI 550E ISDN test set which provides complete ISDN
testing in a portable instrument, and the T-BERD 950 multi-service test set.

  The Company has also made recent Pentium product introductions in its
industrial computing and communications product lines and has significantly
expanded its AIRSHOW product offerings.

  The Company uses its customer relationships to focus its product development
strategy on customer needs and emerging technologies.

Customers and Marketing

  Overview. The Company markets its products to a diverse customer base. The
Company's products are sold to a broad range of communications service
providers, including RBOCs, long-distance carriers, competitive access
providers, wireless service companies, independent telephone companies, cable
television operations, and a wide array of computer and data communication
users, corporate and industrial customers, and scientific organizations.

  Most of the Company's revenues are generated through direct selling. The
Company also uses distributorships and representative relationships to sell its
products in areas of the United States and the rest of the world with relatively
low sales volume.

  The Company's sales of goods and services to various agencies of the United
States federal government were approximately $12.8 million, $17.5 million and
$19.3 million in fiscal 1996, 1997 and 1998, respectively. Sales of goods and
services to the agencies of the United States federal government are made
pursuant to standard contracts which generally permit such agencies to cancel or
revise the contracts at will.

  No single customer accounted for more than 10% of sales in any of these three
years.

  Communications Test. In the U.S., TTC markets and sells its communications
test and analysis products primarily through a 180-person direct sales team
comprising predominantly engineers and technical professionals who undergo


                                                                           12
<PAGE>
 
intensive initial training on TTC's and its competitors' products.
Internationally, TTC employs a 60-person direct sales team for key markets along
with distributors and representatives to market and sell its products. TTC's
principal customers are communications service providers (such as RBOCs, long-
distance companies and competitive access providers), service users such as
large corporate and government network operators, and manufacturers of
communications equipment and systems.

  Industrial Computing and Communications. ICS sells its ruggedized industrial
computer products to engineers and scientists primarily through its catalogs and
a telemarketing sales force comprised of highly-trained electrical engineers.
Itronix employs a direct sales force of engineers to market and sell its
ruggedized mobile computer products to organizations with large field service
groups such as telephone and insurance companies and utilities. ICS typically
sells to thousands of customers with no significant customer concentration while
Itronix's sales tend to be more concentrated on fewer large customers.

  Visual Communications. The Company's niche visual communications businesses
generally sell into niche markets directly through their own sales forces as
well as through distributors and representatives.

Product Assembly

  The Company outsources most of its manufacturing and mechanical parts
fabrication and generally performs its own final assembly and testing of
products.

Competition

  The markets in which the Company competes are highly competitive and are
characterized by rapidly changing technology. Principal competitors include
businesses with significant financial, development, marketing, and manufacturing
resources, as well as numerous small, specialized companies. The Company
believes it holds a relatively favorable position with respect to the important
competitive factors in each of its markets. The Company considers rapid product
development, product functionality and features, and highly trained technical
sales and support staff to be key competitive factors.

International

  The Company maintains sales subsidiaries or branches for its communications
test business in major countries in Western Europe and Asia and has distribution
agreements in other countries where sales volume does not warrant a direct sales
organization. The Company's foreign sales from continuing operations (including
exports from the United States directly to foreign customers) were approximately
20%, 20%, and 16% of consolidated net sales in fiscal 1996, 1997, and 1998,
respectively.

  The Company's international business is subject to risks customarily found in
foreign operations, such as fluctuations in currency exchange rates, import and
export controls, and regulatory policies of foreign governments. A 


                                                                           13
<PAGE>
 
summary of the Company's sales, earnings and identifiable assets by geographic
area is found in the Company's financial statements.

Discontinued Operations and Divested Businesses

  The Company engaged in a business divestiture program beginning in 1994 and
ending in fiscal 1997. Through this program, the Company sold 24 non-core
businesses, which resulted in total proceeds to the Company of approximately
$190 million, including $13.5 million in non-cash proceeds. See "Notes to
Condensed Consolidated Financial Statements."

Backlog

  The Company's backlog of orders at March 31, 1997 and 1998 was $71.7 million
and $79.1 million, respectively.

Employees

  At March 31, 1998, the Company employed approximately 2,249 people. The
Company's experience has been that employees having requisite skills for the
Company's purposes are generally available in the areas where its facilities are
located, although there are constraints on the Company's ability to fill certain
engineering positions. The Company's employees are not represented by a labor
union, and the Company believes its employee relations are good.

Intellectual Property

  The Company relies primarily on trade secrets, trademark laws, confidentiality
procedures and contractual restrictions to establish and protect its proprietary
rights.

  The Company generally seeks patent protection for inventions and improvements
to its products which it believes to be patentable. It holds numerous United
States and foreign patents and patent applications covering many products. The
Company does not believe that the expiration of any patent or group of patents
would materially affect its business.

  FIREBERD, T-BERD, CENTEST, INTERCEPTOR, XC 6250, INDUSTRIAL COMPUTER SOURCE-
BOOK, DA VINCI SYSTEMS and AIRSHOW are among the registered trademarks which the
Company considers valuable assets.

  DYNATECH and design is a registered service mark of the Company in the United
States and a registered trade or service mark (issued or applied for) of the
Company in most other major industrialized countries of the world.

  The Company is subject to customary risks of infringement of its proprietary
rights. While the Company considers its proprietary rights important, it
believes its technical marketing and manufacturing capabilities are of greater
competitive significance.

Suppliers

  Materials and components used in the Company's products are normally available
stock items or can be obtained to Company specifications from more 


                                                                           14
<PAGE>
 
than one potential supplier, with the exception of certain components which are
being sourced from a single supplier. These include certain commercially
available and customized microprocessors and application specific integrated
circuits, power supplies, display devices and certain operating system software.
The Company has not entered into long term contracts for the supply of such
components. Although alternative sources generally exist for these materials, a
significant amount of time could be required before the Company would begin to
receive adequate supplies from such alternative suppliers. The Company also
purchases certain key components from sole source vendors, including a semi-
conductor manufacturer of a component utilized in the Company's communications
test business and a component manufacturer for the Itronix series of ruggedized
laptop computers. There can be no assurance that such components will continue
to be produced or that the price for such components may not significantly
increase. Some components and assemblies are purchased in Asia pursuant to
volume contracts.

Environmental Matters

  Federal, state and local laws or regulations which have been enacted or
adopted regulating 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.

Year 2000

  The Company has commenced a review of its computer systems and products in
order to assess its exposure to Year 2000 issues. The Company is currently in
the process of determining the full scope, related costs and action plan to
insure that the Company's systems continue to meet its internal needs and those
of its customers. The Company expects to make the necessary modifications or
changes to its computer information systems to enable proper processing of
transactions relating to the Year 2000 and beyond. However, there can be no
assurance that Year 2000 costs and expenses will not have a material adverse
effect on the Company. In addition, the Company does not currently have complete
information concerning the Year 2000 compliance status of its suppliers and
customers. In the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be materially adversely affected.
Finally, there can be no assurance that the Company's existing or installed base
of products are Year 2000 compliant, or that the Company's products will not be
integrated by the Company or its customers with, or otherwise interact with,
non-compliant software or other products. Any such product non-compliance may
expose the Company to claims from its customers and others, and could impair
market acceptance of the Company's products and services, increase service and
warranty costs, or result in payment of damages, which in turn could materially
adversely affect the Company.

                                  RISK FACTORS

Control by CDR Fund V


                                                                           15
<PAGE>
 
  CDR Fund V currently controls approximately 92.3% of the outstanding shares of
Recapitalized Common Stock of the Company. As a result of its stock ownership,
CDR Fund V controls the Company and has the power to elect the directors of the
Company, appoint new management, and approve any action requiring approval by
the stockholders of the Company, including adopting certain amendments to the
Articles of Organization of the Company and approving any merger or sale of all
or substantially all the assets of the Company. The directors so elected have
the authority to effect decisions affecting the capital structure of the
Company, including the incurrence of additional indebtedness, the issuance of
preferred stock and the declaration of dividends. There can be no assurance that
the policies of the Company in effect prior to the Merger with respect to such
matters or other matters will continue after the Merger. Moreover, concentration
of ownership by CDR Fund V of Recapitalized Common Stock of the Company will
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from seeking to acquire, control of the Company. A
third party would be required to negotiate any such transaction with CDR Fund V.
There can be no assurance that the interests of CDR Fund V will not conflict
with the interests of stockholders with respect to any such transaction or
otherwise. CDR Fund V has agreed, pursuant to certain employment agreements with
Messrs. Reno, Kline and Peeler, to elect them to serve as directors of the
Company so long as they are employed by the Company.

Lack of Trading Market

  Shares of Recapitalized Common Stock trade only in the over-the-counter
market. Although prices in respect of trades may be published by the National
Association of Securities Dealers, Inc. on its electronic bulletin board and
"pink sheets," quotes for such shares may not be readily available; accordingly,
it is anticipated that the Recapitalized Common Stock will trade much less
frequently than the Common Stock traded prior to the Merger, which may have a
material adverse effect on the market value of Recapitalized Common Stock. In
addition, (depending upon certain factors) the shares of Recapitalized Common
Stock may no longer constitute "margin securities" for the purposes of the
margin regulations of the Federal Reserve Board and therefore could no longer be
used as collateral for loans made by brokers.

Termination of Exchange Act Reporting

  The Company is obligated by the Agreement and Plan of Merger (the "Merger
Agreement") dated as of December 20, 1997 between MergerCo and the Company, to
continue to be a reporting company under the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") and to continue to file periodic reports
(including annual and quarterly reports) for at least five years after the
Merger, unless fewer than 100 record holders of shares of Recapitalized Common
Stock are non-affiliates of the Company or except as otherwise provided in the
Merger Agreement. After the fifth anniversary of the effective time of the
Merger, the Company may deregister the Recapitalized Common Stock under the
Exchange Act if permitted by applicable law. If the Company were to cease to be
a reporting company under the Exchange Act and to the extent not required in
connection with any other debt or equity securities of the Company registered or
required to be registered under the Exchange Act, the information now available
to stockholders of the Company in the annual, quarterly and other reports
required to be filed by

                                                                           16
<PAGE>
 
the Company with the Securities and Exchange Commission would not be available
to them as a matter of right.

Substantial Leverage; Liquidity

  The Company incurred substantial indebtedness in connection with the Merger
and has thereby become highly leveraged, with indebtedness that is very
substantial in relation to its shareholders' equity. The Company did not have
substantial indebtedness prior to the Merger (approximately $233,000 at March
31, 1998).  At May 31, 1998 the Company had a total of $575.2 million of debt,
which consisted primarily of $275 million through the sale of the Company's 
9 3/4% Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes"),
$260 million from term loan borrowings under the Company's term loan facility
(the "Term Loan Facility"), and $40 million from borrowings under the
Company's $110 million revolving credit facility (the "Revolving Credit
Facility") (collectively, the "Senior Secured Credit Facilities"). The Term Loan
Facility and Revolving Credit Facilities are governed by a senior secured credit
agreement (the "Senior Secured Credit Agreement"). The Senior Secured Credit
Agreement and the indenture governing the Senior Subordinated Notes permit the
Company to incur or guarantee certain additional indebtedness, subject to
certain limitations. The Company will be required to repay the $260 million in
term loans under the Senior Secured Credit Facilities over the nine year period
following the effective time of the Merger. In addition, the Company will be
required to prepay Senior Secured Credit Facilities borrowings using the
proceeds from certain asset sales, certain casualty insurance, condemnation or
similar recoveries by the Company and certain indebtedness by the Company other
than as permitted under the Senior Secured Credit Agreement, as well as 50% of
its excess cash flow (as defined in the Senior Secured Credit Agreement) unless
a leverage ratio test is met. All outstanding revolving credit borrowings under
the Senior Secured Credit Agreement will become due on the sixth anniversary of
the effective time of the Merger. Because of its working capital needs, the
Company expects that it will be required at that time to enter into new
revolving credit facility arrangements. No assurance can be given that any
extension, renewal, replacement or refinancing of the Company's Revolving Credit
Facility can be successfully accomplished or accomplished on acceptable terms.

  The Company's high leverage may have important consequences for the Company,
including but not limited to the following: (a) the Company's ability to obtain
additional financing for future acquisitions (if any), working capital, capital
expenditures or other purposes may be impaired or any such financing may not be
on terms favorable to the Company; (b) a substantial amount of the Company's
operating cash flow will be dedicated to the payment of principal and interest
on its indebtedness, thereby reducing funds that would otherwise be available
for the Company's operations and other purposes, including investments in new
products, research and development, capital spending and acquisitions; (c) a
substantial decrease in net operating cash flows or increase in expenses could
make it difficult for the Company to meet its debt service requirements or force
it to modify its operations or sell assets; and (d) the Company's highly
leveraged capital structure may place it at a competitive disadvantage, hinder
its ability to adjust rapidly to market conditions or make it vulnerable to a
downturn 


                                                                           17
<PAGE>
 
in its business or the economy generally or changing market conditions
and regulations.

  The Company's ability to repay or to refinance its obligations with respect to
its indebtedness will depend on its future financial and operating performance,
which, in turn, will be subject to prevailing economic and competitive
conditions and to certain financial, business, legislative, regulatory,
industry, economic and other factors, many of which are beyond the Company's
control. These factors could include general economic conditions, operating
difficulties, increased operating costs, product pricing pressures, potential
revenue instability arising from cost savings initiatives or otherwise, labor
relations, the response of competitors or customers to the Company's business
strategy or projects, delays in implementation of the Company's business
strategy, telecommunication provider consolidation or strategy changes, and the
relative success of new product introductions. The Company's ability to meet its
debt service and other obligations may depend in significant part on the extent
to which the Company can implement successfully its business and growth
strategy. There can be no assurance that the Company will be able to implement
its strategy fully or that the anticipated results of its strategy will be
realized.

  If the Company's cash flow and capital resources are insufficient to fund its
debt service obligations, the Company may be forced to reduce or delay capital
or other expenditures, sell assets, seek to obtain additional equity capital or
refinance or restructure its debt. There can be no assurance that the Company's
cash flow and capital resources will be sufficient for payment of principal of,
premium, if any, and interest on, its indebtedness in the future, or that any
such alternative measures would be successful or would permit the Company to
meet its scheduled debt service obligations. In addition, because the Company's
obligations under the Senior Secured Credit Facilities will bear interest at
floating rates, an increase in interest rates could materially adversely affect,
among other things, the Company's ability to meet its debt service obligations.

Dependence on Communications Industry

  The Company's principal customers are RBOCs, competitive access providers,
wireless service providers, competitive local exchange carriers, other
communications service providers, mobile work forces and industrial engineers
and other users of the Company's communications devices and ruggedized
computers. The industries of the Company's principal customers are characterized
by intense competition and consolidation. Fewer customers as a result of such
consolidation could lead to pressure on the Company to lower prices. Competitive
pressures among the Company's customers or other communications industry
developments could lead to discontinuance or modifications of products
manufactured by the Company and could have a material adverse effect on the
Company's business, financial condition and results of operations. Regulation in
the communications industry could materially adversely affect the Company's
customers or otherwise materially limit or restrict the Company's business.
Further, these industries are evolving rapidly and it is difficult to predict
their potential size or future growth rate. There can be no assurance that the
deregulation trend in the telecommunications market that has resulted in
increased competition and 
<PAGE>
 
escalating demand for technologies and services will continue in a manner
favorable to the Company or its business strategies.

Highly Competitive Markets

  The markets for the Company's products and services are highly competitive.
The Company competes directly or indirectly with Hewlett-Packard Company and
Panasonic Industrial Co., among others. Due to the rapidly evolving markets in
which the Company competes, additional competitors with significant market
presence and financial resources, including large telecommunications equipment
manufacturers and computer hardware and software companies, may enter those
markets, thereby further intensifying competition. Increased competition could
result in price reductions and loss of market share which would materially
adversely affect the Company's business, financial condition and results of
operations. Certain 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. Although the
Company believes it has certain technological and other advantages over its
competitors, realizing and maintaining such advantages will require a continued
high level of investment by the Company in research and product development,
marketing and customer service and support. The highly leveraged nature of the
Company could limit the Company's ability to continue to make such investments
or other necessary or desirable capital expenditures, to compete effectively and
respond to market conditions. There can be no assurance that the Company will be
able to compete effectively with its existing competitors or with new
competitors, or that such competitors will not succeed in adapting more rapidly
and effectively to changes in technology or in the market or in developing or
marketing products that will be more widely accepted.

Rapid Technological Change; Challenges of New Product Introductions

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

  The development of new, technologically advanced products is a complex and
uncertain process requiring the accurate anticipation of technological and
market trends and the expenditure of substantial development costs. From the
beginning of fiscal 1996 through fiscal 1998, the Company has expended on
average 11.9% of its sales (or approximately $134.7 million) on product
development and, although the Company expects to continue product development


                                                                           19
<PAGE>
 
spending at similar levels, there can be no assurance that the Company will have
sufficient free cash flow to do so. There can be no assurance that errors will
not be found in new products or upgrades after commencement of commercial
shipments, resulting in delays in or loss of market acceptance and sales,
diversion of development resources, injury to the Company's reputation,
increased service and warranty costs or payment of compensatory or other
damages, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations.

Product Certification and Evolving Industry Standards

  Several of the Company's products must meet significant communications
regulations, certifications, standards and protocols, some of which are evolving
as new technologies are deployed. These regulations, certifications, and
standards and protocols include those promulgated by the Federal Communications
Commission, established by Underwriters Laboratories and imposed by various
foreign countries. Compliance with such regulations, certifications, standards
and protocols may prove costly and time-consuming for the Company, presenting
barriers to entry in particular markets or reducing 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 the Company's business. The failure
of the Company's products to comply, or delays in compliance, with the various
existing and evolving industry regulations, standards and protocols could delay
the introduction of the Company's products or cause the Company's existing
products to become obsolete.

Dependence on Sole Source Suppliers and Licensors

  The Company purchases certain key components and licenses technology from sole
source vendors, including a semiconductor manufacturer of a component utilized
in the Company's communications test business and a component manufacturer for
the Itronix series of ruggedized laptop computers. There can be no assurance
that such components will continue to be produced or that such licensed
technology will continue to be made available or that the price for such
components and licensed technology may not significantly increase. The inability
to develop alternative sources for these components and licensed technology or
to obtain sufficient quantities of these components could result in increased
costs and delays or reductions in product shipments which could materially
adversely affect the Company's business, financial condition and results of
operations. In the event of a reduction or interruption of supply, a significant
amount of time could be required before the Company would begin receiving
adequate supplies from such alternative suppliers. In such event, the Company's
business, financial condition and results of operations would be materially
adversely affected. In addition, the manufacture of certain of these sole source
components is technologically complex, and the Company's reliance on the
suppliers of these components exposes the Company to potential production
difficulties and quality variations, which could negatively impact cost and
timely delivery of the Company's products. If supply of certain components,
including but not limited to application-specific integrated circuits, power
supplies, display devices and operating system software, should cease, the
Company may be 


                                                                           20
<PAGE>
 
required to redesign certain of its products. No assurance can be given that
supply problems will not occur or, if such problems do occur, that satisfactory
solutions would be available.

Risks Relating to Business and Growth Strategy, Including Acquisitions

  The Company's future performance depends in part on the Company's success in
implementing its business and growth strategy. The components of the Company's
strategy are subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the control of the
Company. There can be no assurance that the Company will be able to fully
implement its strategy or that the anticipated results of its strategy will be
realized.

  The Company's strategy contemplates, among other things, growth through
acquisitions of complementary businesses and entry into new markets. Management
cannot predict the availability of appropriate acquisition candidates or the
likelihood of an acquisition being completed should any negotiations commence.
The Company could have difficulty obtaining financing to pursue acquisitions due
to its substantial debt and to the restrictive covenants in its debt
instruments, among other things. If the Company does complete any acquisitions,
the Company could have difficulties integrating acquired technology and
operations, or retaining and integrating key employees of acquired companies.
Integrating any acquired business could also divert management attention from
ongoing business concerns. In addition, the Company's future growth, whether by
acquisition or otherwise, depends in part upon its ability to enter markets in
which the Company may have limited experience, including international markets.
In conducting business in foreign jurisdictions, the Company may encounter
difficulties with, among other things, tariffs and other trade or regulatory
barriers, currency controls, hyperinflation, intellectual property protection,
potential adverse tax consequences, longer payment cycles, greater difficulty or
delay in accounts receivable collection, cultural differences and increased
political and economic instability.

  The Company's planned growth, if achieved, may place significant demands on
its management, administrative and operational resources. The Company's ability
to manage growth effectively will require the Company to continue to develop and
improve its operational, financial and other internal systems, as well as its
sales capabilities, and attract, manage and retain its employees. There can be
no assurance that the Company will effectively manage any strategic growth it
may achieve.

Risks Relating to Itronix

  Itronix is currently facing significant manufacturing and marketing
challenges, including competition from "semi-rugged" products that constrains
pricing of premium, ruggedized products like those manufactured by Itronix. In
addition, Itronix's results of operations have varied significantly in the past
and may vary significantly in the future, on a quarterly and annual basis, as a
result of a variety of factors, many of which are outside the Company's control.
These factors include, without limitation: (i) the timing and size of orders
which are received and can be shipped in any particular period; (ii) the
seasonality of the placement of customer orders; (iii) 



                                                                           21
<PAGE>
 
customer order deferrals in anticipation of product enhancements or new product
offerings by Itronix or its competitors; (iv) customer cancellation of orders
and the gain or loss of significant customers, including those due to industry
combinations and (v) the relative unpredictability of timing of customer orders
due to the relative concentration of organizations with large field-service work
forces. Moreover, any downturn in general economic conditions could precipitate
significant reductions in corporate spending for telecommunications equipment,
which could result in delays or cancellations of orders for Itronix's products.
Itronix's expense levels are relatively fixed and are based, in significant
part, on expectations of future revenues. Currently, costs are much higher as a
percentage of revenues for Itronix than for the Company overall, and Itronix is
not contributing to the Company's profitability. As a result of its
unpredictable revenues, costs at times can be disproportionately high as a
percentage of Itronix's business. If, as a result of these factors, Itronix's
costs exceed its revenues, Itronix's stand-alone financial condition and results
of operations would be materially adversely affected.

Reliance on Key Personnel

  The Company's success depends in large part upon its senior management, as
well as its ability to attract and retain its highly-skilled technical,
managerial, sales and marketing personnel, particularly engineers skilled and
experienced with communications equipment. Competition for such personnel is
intense and there can be no assurance that the Company will be successful in
retaining its existing key personnel and in attracting and retaining the
personnel it requires. Failure to attract and retain key personnel will have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, continued labor market shortages of
technical personnel may require wage increases well in excess of the growth in
the Company's sales and margins, thereby reducing the overall profitability of
the Company.

Restrictive Financing Covenants

  The Senior Secured Credit Agreement and the indenture governing the Senior
Subordinated Notes contain a number of covenants that significantly restrict the
operations of the Company, limiting the discretion of the Company's management
with respect to certain business matters. These covenants, among other things,
restrict the ability of the Company to incur additional indebtedness or
guarantee obligations, pay dividends and other distributions, prepay or modify
the terms of other indebtedness, create liens, make capital expenditures, make
certain investments or acquisitions, enter into mergers or consolidations, make
sales of assets, engage in certain transactions with affiliates and otherwise
restrict corporate activities. Certain term loans under the Senior Secured
Credit Agreement are subject to negative covenants similar to those contained in
the indenture. In addition, under the Senior Secured Credit Agreement, the
Company is required to satisfy a minimum interest expense coverage ratio and a
maximum leverage ratio. These financial tests become more restrictive in future
years.

  The Company's ability to comply with the covenants and restrictions contained
in the Senior Secured Credit Agreement and the indenture governing the Senior
Subordinated Notes may be affected by events beyond its control, 


                                                                           22
<PAGE>
 
including prevailing economic, financial and industry conditions, and there can
be no assurance that the Company will be able to comply with such covenants or
restrictions in the future. A breach of the covenants and restrictions contained
in the Senior Secured Credit Agreement or the indenture governing the Senior
Subordinated Notes or in any agreements with respect to any additional financing
would result in an event of default under such agreements, which would permit
acceleration of the related debt and acceleration of debt under other debt
agreements that may contain cross-acceleration or cross-default provisions, as
well as termination of the commitments of the lenders to make further extensions
of credit under the Senior Secured Credit Agreement. In addition, if the Company
were unable to repay its indebtedness to the lenders under the Senior Secured
Credit Agreement, such lenders could proceed against the collateral securing
such indebtedness, including substantially all of the Company's assets. 

Year 2000 Compliance

  The Company has commenced a review of its computer systems and products in
order to assess its exposure to Year 2000 issues. The Company is currently in
the process of determining the full scope, related costs and action plan to
ensure that the Company's systems continue to meet its internal needs and those
of its customers. The Company expects to make the necessary modifications or
changes to its computer information systems to enable proper processing of
transactions relating to the Year 2000 and beyond. However, there can be no
assurance that Year 2000 costs and expenses will not have a material adverse
effect on the Company. In addition, the Company does not currently have complete
information concerning the Year 2000 compliance status of its suppliers and
customers. In the event that any of the Company's significant suppliers or
customers do not successfully and timely achieve Year 2000 compliance, the
Company's business or operations could be materially adversely affected.
Finally, there can be no assurance that the Company's existing or installed base
of products are Year 2000 compliant, or that the Company's products will not be
integrated by the Company or its customers with, or otherwise interact with,
non-compliant software or other products. Any such product non-compliance may
expose the Company to claims from its customers and others, and could impair
market acceptance of the Company's products and services, increase service and
warranty costs, or result in payment of damages, which in turn could materially
adversely affect the Company.

Item 2.  Properties.

  The Company's policy is generally to lease real property for its manufacturing
and sales operations. Principal operating facilities for continuing operations
are as follows:

                                                          Square      Lease
Location                                                  ------      -----   
--------                                                   Feet    Termination
                                                           ----    -----------

Burlington, Massachusetts                                  14,600         1999
Ft. Lauderdale, Florida                                    16,300         2001
Germantown, Maryland                                       30,000         2006
Germantown, Maryland                                       68,400         2001
Germantown, Maryland                                       30,000         2003
Germantown, Maryland                                       68,600         2003


                                                                           23
<PAGE>
 
Lombard, Illinois                                          23,300         1998
Northampton, Massachusetts                                 22,500         1999
Tustin, California                                         52,000         2005
Salem, Virginia                                            35,900         2004
San Diego, California                                     135,000         2004
Spokane, Washington                                        66,400         1999


  The Company has other leases for continuing operations manufacturing space and
sales offices, but in each case the total leased space is under 15,000 square
feet.

  The Company has leased approximately 239,000 square feet of space in various
facilities in discontinued operations at March 31, 1998.

Item 3.  Legal Proceedings.

Litigation

  The Company is involved from time to time in routine legal matters incidental
to its business. The Company believes that the resolution of such matters will
not have a material adverse effect on the Company's financial condition or
results of operations.

  On June 27, 1996, Cincinnati Microwave, Inc. ("CMI") filed an action in the
United States District Court for the Southern District of Ohio against the
Company and Whistler Corporation of Massachusetts ("Whistler"), alleging willful
infringement of CMI's patent for a mute function in radar detectors. In 1994,
the Company sold its radar detector business to Whistler. The Company and
Whistler have asserted in response that they have not infringed, and that the
patent is invalid and unenforceable. The Company obtained an opinion of counsel
from Bromberg & Sunstein LLP in connection with the manufacture and sale of the
Company's Whistler series radar detectors and will be offering the opinion,
among other things, as evidence that any alleged infringement was not willful.
On March 24, 1998, CMI, together with its co-plaintiff and patent assignee
Escort, Inc., moved for summary judgment.  The Company and Whistler have opposed
the motion for summary judgment.  Discovery in this matter closed on June 20,
1998. The Company intends to defend the lawsuit vigorously and does not believe
that the outcome of the litigation is likely to have a material adverse effect
on the Company's financial condition, results of operations or liquidity.

Item 4.  Submission of Matters to a Vote of Security Holders.

  None

Item 5.  Market for Registrant's Common Stock and Related Security Holder
Matters.

  Prior to January 28, 1997, the Common Stock was quoted on the Nasdaq National
Market.  From January 28, 1997 to May 21, 1998, the Common Stock was traded on
the New York Stock Exchange.  As a result of the Merger on May 21, 1998, trading
in the Common Stock was halted and the Recapitalized Common Stock is traded only
in the over-the-counter market. On

                                                                           24
<PAGE>
 
June 3, 1998, the last reported price of the Recapitalized Common Stock was
$3.875.

The following table shows, for the fiscal periods indicated, the high and low
close prices of a share of Common Stock as reported by the New York Stock
Exchange and the Nasdaq National Market, as applicable.

      Quarter Ended                            High           Low             
      -------------                          --------       --------        
                                                                          
      March 31, 1998                          48.50          46.19      
      December 31, 1997                       47.31          34.00      
      September 30, 1997                      41.94          34.38      
      June 30, 1997                           41.88          29.00      
                                                                    
      March 31, 1997                          54.50          28.00      
      December 31, 1996                       58.00          40.50      
      September 30, 1996                      46.88          30.75      
      June 30, 1996                           35.00          23.00        


  There were approximately 1,042 stockholders of record as of June 3, 1998.

  Since April 1, 1995, the Company has not declared or paid cash dividends on
its Common Stock or Recapitalized Common Stock. The Company intends to retain
earnings for use in the operation and expansion of its business. The terms of
the Company's current term loan prohibits, and the Senior Secured Credit
Agreement and the indenture governing the Senior Subordinated Notes restrict ,
the payment of cash dividends on its Recapitalized Common Stock.

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 Operations.

  The information requested by this Item is attached as 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.

  The names, ages and positions of the current executive officers and the
directors after the Merger (the "New Directors") of the registrant are set forth
below.

                                                                           25
<PAGE>
 
   Name:                      Age:  Position with the Company:
--------                      ----  --------------------------
John F. Reno                   59  Chairman, President, Chief Executive Officer,
                                   Director
Allan M. Kline                 53  Corporate Vice President, Chief Financial 
                                   Officer, Treasurer, Director
John R. Peeler                 43  Corporate Vice President- Communications Test
                                   Business, Director
Samuel W. Tishler              60  Corporate Vice President, Corporate 
                                   Development
John A. Mixon                  52  Corporate Vice President, Human Resources
Robert W. Woodbury, Jr.        41  Corporate Vice President, Corporate 
                                   Controller
Mark V.B. Tremallo             41  Corporate Vice President, General Counsel
Joseph L. Rice, III            66  Director
Brian D. Finn                  37  Director
Charles P. Pieper              51  Director


  John F. Reno presently serves as Chairman, President and Chief Executive
Officer of the Company and a Director of the Company. Mr. Reno has served as
Chairman, President and Chief Executive Officer since August 1996 and as
President and Chief Executive Officer since January 1993. From July 1991 to
January 1993, Mr. Reno was President and Chief Operating Officer. Prior to July
1991, Mr. Reno served as Executive Vice President and Chief Operating Officer.
Mr. Reno is also a director of Millipore Corporation.

  Allan M. Kline presently serves as Corporate Vice President, Chief Financial
Officer, Treasurer and a Director of the Company. Mr. Kline joined the Company
in June 1996. From 1995 to 1996, he served as Senior Vice President, Chief
Financial Officer of CrossComm Corporation, a manufacturer of networking
products. From 1994 to 1995, he was President of TAR Acquisition Corp., a
private investment company. From 1989 to 1994, Mr. Kline was also a Director of
CrossComm Corporation. From 1990 to 1994, Mr. Kline was Senior Vice President,
Chief Financial Officer of Cabot Safety Corporation, a subsidiary of Cabot
Corporation. Prior to that, he served at Leggett & Platt, Incorporated and was a
partner with Arthur Young & Company.

  John R. Peeler presently serves as Corporate Vice President--Communications
Test Business and President and Chief Executive Officer of all the Company's
communication test businesses and a Director of the Company. Mr. Peeler has been
employed by the Company since 1980.

  Samuel W. Tishler presently serves as Corporate Vice President--Corporate
Development of the Company. Mr. Tishler joined the Company in September 1994.
From 1988 to 1994, he was Vice President of Raytheon Ventures, the venture
capital portfolio of Raytheon Co. From 1977 to 1986, he served as Vice President
of ADL Enterprises, a wholly owned subsidiary of Arthur D. Little, Inc. From
1970 to 1977, Mr. Tishler was President of Harnessed Energies, Inc., a
manufacturer of scientific instrumentation.
<PAGE>
 
  John A. Mixon presently serves as Corporate Vice President--Human Resources of
the Company. Mr. Mixon has been employed by the Company since 1989.

  Robert W. Woodbury, Jr. presently serves as Corporate Vice President--
Corporate Controller of the Company. Mr. Woodbury joined the Company in January
1996. From 1992 to January 1996, he served as Vice President and Controller for
Kollmorgen Corporation, a manufacturer of motion control devices. From 1990 to
1992, he was Chief Financial Officer of Kidde Fenwal, Inc., a manufacturer of
fire suppression equipment.

  Mark V.B. Tremallo presently serves as Corporate Vice President--General
Counsel of the Company. Mr. Tremallo joined the Company in May 1997. From 1995
to 1997 he served as Vice President, General Counsel and Secretary of Aearo
Corporation (formerly Cabot Safety Corporation), a manufacturer of industrial
safety products. From 1990 to 1995 he was General Counsel of Cabot Safety
Corporation, a subsidiary of Cabot Corporation.

  Joseph L. Rice, III is Chairman of CDR and a Director of the Company.  In
addition, Mr. Rice is a director of Uniroyal Holding, Inc. Remington Arms
Company, Inc. and Thyssen Schulte Bautechnik, corporations in which an
investment partnership managed by CDR has an investment, and serves as a trustee
of Williams College and The Manhattan Institute. He is a graduate of Williams
College and Harvard Law School. Mr. Rice is a limited partner of CD&R Associates
V Limited Partnership, the general partner of CDR Fund V ("Associates V"), and
is a Director and President of CD&R Investment Associates II, Inc. ("Associates
II Inc."), the managing general partner of Associates V.

  Brian D. Finn is a principal of CDR and a Director of the Company.  Mr. Finn
is also a Director of U.S. Office Products Company.  Mr. Finn joined CDR in 1997
from Credit Suisse First Boston where he was Managing Director and Co-Head of
Mergers & Acquisitions. During his 15 years at Credit Suisse First Boston he
advised a large number of corporate clients in various industries in
transactions totaling approximately $250 billion. Mr. Finn received his B.S. in
Economics from The Wharton School of the University of Pennsylvania. He is a
limited partner of Associates V and a Director of Associates II Inc.

  Charles P. Pieper is a principal of CDR and a Director of the Company.  Mr.
Pieper is also Chairman of North American Van Lines, Inc., and U.S. Office
Products Company.  Mr. Pieper joined CDR in 1997. Prior to joining CDR, he was
President and Chief Executive Officer of GE Lighting Europe. During his 16-year
career at GE, Mr. Pieper was responsible for several key business units,
including serving as President and Chief Executive Officer of: GE Japan, Korea,
Taiwan; GE Medical Systems Asia; as well as GE Lighting Europe. He joined GE in
1981, from the Boston Consulting Group. Mr. Pieper graduated from Harvard
College and holds an M.B.A from Harvard Business School. He is a limited partner
of Associates V and a Director of Associates II Inc.


  The composition of the Board is subject to change from time to time. CDR Fund
V has the right to elect the directors of the Board, except that CDR Fund V has
agreed, pursuant to the employment agreements with Messrs. Reno, 

                                                                              27
<PAGE>
 
Kline and Peeler, to elect such officers to serve as members of the Board during
the period of their employment with the Company.


Section 16(a) Beneficial Ownership Reporting Compliance

  Based solely on its review of copies of reports filed by persons ("Reporting
Persons") required to file such reports pursuant to Section 16(a) of the
Exchange Act, the Company believes that all filings required to be made by
Reporting Persons of the Company were timely made in accordance with the
requirements of the Exchange Act.

Compensation of Directors

  During the fiscal year ended March 31, 1998, compensation of non-employee
Directors ("Non-Employee Directors") of the Company was at the rate of $1,500
for each Board of Directors or committee meeting attended ($500 for each
committee meeting held directly before or after a meeting of the Board of
Directors), $750 for a meeting held over the telephone, plus a quarterly
retainer fee paid at the rate of 200 shares of Dynatech Common Stock per
quarter.  Chairmen of all Committees other than the Executive Committee also
received an additional 25 shares of Dynatech Common Stock per quarter.  In
addition, the Dynatech Corporation 1994 Stock Option and Incentive Plan provides
for the automatic grant of stock options to non-employee Directors of the
Company.  Each Non-Employee Director is entitled to receive an option to
purchase 10,000 shares of Common Stock upon initial election to the Board of
Directors and an additional option to purchase 3,000 shares of Common Stock
after each Annual Meeting of Stockholders.  Non-Employee Directors who have
served on the Board for at least five years are also entitled to receive an
annual retirement benefit equal to $16,000.  Such retirement benefit is payable
following the later of the Non-Employee Director's 60th birthday or retirement
from the Board (or such later date as the Director shall elect) for a period
equal to the number of full years service on the Board, up to a maximum of ten
years.  None of the New Directors of the Company participate in the programs or
receive the compensation described above.

Item 11.  Executive Compensation.

Summary Compensation Table

  The following summary compensation table sets forth information concerning
compensation awarded to, earned by, or paid to (i) the Company's Chief Executive
Officer, and (ii) the four highest compensated executive officers who were
serving as executive officers at the end of fiscal 1998, (collectively, the
"Named Executive Officers") for services rendered in all capacities with respect
to the Company's fiscal years ended March 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION> 
Name and Principal Position                             Annual Compensation (1)   
---------------------------                             ------ ----------------                         
                                                                                          Long Term         All Other 
                                                                                         Compensation       --------- 
                                               Fiscal  Salary            Bonus            Awards(2)        Compensation
                                               ------  ------            -----            ---------        ------------
                                                Year     ($)              ($)             Options #           ($)(3)  
                                                ----     ---              ---             ---------           ------   
<S>                                            <C>     <C>             <C>               <C>               <C> 
</TABLE> 

                                                                              28
<PAGE>
 
<TABLE> 

<S>                                            <C>     <C>             <C>                   <C>              <C> 
John F. Reno                                     1998  481,250           604,053             56,700           11,857
 Chairman, President and                         1997  456,250         1,032,185             55,100           31,892
 Chief Executive Officer                         1996  435,000           372,836             62,000           25,533
 
John R. Peeler                                   1998  270,000           383,513             24,800           47,870
 Corporate Vice President--                      1997  244,242           662,214             20,800           18,936
 Communications Test Division                    1996  225,042           293,128             28,000           15,939
 
John A. Mixon                                    1998  185,591           152,680             12,900           23,828
 Corporate Vice President--                      1997  178,500           270,591             13,800            9,910
 Human Resources                                 1996  172,125            94,384             14,000            8,851
 
Allan M. Kline(4)                                1998  218,750           198,108             16,000           23,060
 Corporate Vice President,                       1997  158,333           218,918             50,000            3,234
 Chief Financial Officer and Treasurer
 
Samuel W. Tishler(5)                             1998  176,667           145,338             31,800           15,834
 Corporate Vice President--                      1997  144,167           108,521              5,000            6,701
 Corporate Development                           1996  130,000            48,227              2,000            4,471
</TABLE>

(1) Perquisites and other personal benefits paid to each Named Executive Officer
    in each instance aggregated less than 10% of the total annual salary and
    bonus set forth in the columns entitled "Salary" and "Bonus" for each Named
    Executive Officer, and accordingly, have been omitted from the table as
    permitted by the rules of the SEC.
(2) Figures in this column show the number of options for Common Stock (not
    Recapitalized Common Stock) granted.  The Company did not grant any
    restricted stock awards or stock appreciation rights to any of the Named
    Executive Officers during the years shown.
(3) Figures in this column represent the Company's contributions on behalf of
    each of the Named Executive Officers under the Company's 401(k) plan. These
    figures also include the Company's contributions under a nonqualified
    deferred compensation plan, which became effective April 1, 1995.
(4) Mr. Kline's employment with the Company commenced in June 1996.
(5) Mr. Tishler became an officer of the Corporation in May 1997.



Option Grants in Last Fiscal Year

  The following table sets forth information concerning individual grants of
options to purchase Common Stock granted to the Named Executive Officers during
the fiscal year ended March 31, 1998:

<TABLE>
<CAPTION>
                         Individual Grants(1)
                       ------------------------
                                     % of Total
                                     ----------                                                      
                        Number of     Options                                    Potential Realizable   
                        ---------     -------                                    --------------------   
                       Securities    Granted to                                   Valued at Assumed     
                       ----------    ----------                                   -----------------     
                       Underlying    Employees      Exercise or                 Annual Rates of Stock   
                       ----------    ---------      -----------                 ---------------------
                         Options     in Fiscal      Base price     Expiration     Price Appreciation   
                         -------     ---------      ----------     ----------     ------------------   
Name                   Granted (#)    Year (%)       ($/Sh)(1)        Date        for Option Term(2)   
----                   -----------    --------       ---------        ----        ------------------ 
                                                                                  5% ($)      10% ($)  
                                                                                  -----       ------   
<S>                    <C>           <C>            <C>            <C>         <C>          <C>
John F. Reno               56,700          8.9%      $35.9375         7/30/07  $1,281,471   $3,247,498
John R. Peeler             24,800          3.9%      $35.9375         7/30/07    $560,502   $1,420,422
John A. Mixon              12,900          2.0%      $35.9375         7/30/07  $  291,552   $  738,849
Allan M. Kline             16,000          2.5%      $35.9375         7/30/07  $  361,614   $  916,402
</TABLE> 

                                                                              29
<PAGE>
 
<TABLE> 
<S>                        <C>             <C>       <C>              <C>      <C>          <C> 
Samuel W. Tishler          20,000          3.2%      $38.8750          5/6/07  $  488,966   $1,239,134
Samuel W. Tishler          11,800          1.8%      $35.9375         7/30/07  $  266,691   $  675,846
</TABLE>


(1) Options vest annually in five equal installments beginning on the first
    anniversary date of grant. The options in this table expire 10 years after
    grant.  In connection with the Merger, all of the options became fully
    vested and exercisable, other than options to purchase 20,737 shares of
    Common Stock granted to Mr. Reno.
(2) These columns show the hypothetical value of the options granted at the end
    of the option terms if the price of the Common Stock were to appreciate
    annually by 5% and 10%, respectively. There is no assurance that the stock
    price will appreciate at the rates shown.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values

  The following table sets forth certain information regarding exercises of
options to purchase Common Stock by the Named Executive officers during the
fiscal year ended, March 31, 1998 and stock options held by the Named Executive
Officers at March 31, 1998:

<TABLE>
<CAPTION> 
                                              Number of Securities    Value of Unexercised
                                              --------------------    --------------------
                                             Underlying Unexercised   In-the-Money Options
                                             ----------------------   --------------------
                      Shares       Value      Options at FY-End(#)      at FY-End(2)($)
                      ------       -----      --------------------      ---------------
                    Acquired on   Realized        Exercisable/            Exercisable/
                    -----------   --------        ------------           -------------    
     Name           Exercise(#)    (1)($)        Unexercisable           Unexercisable    
     ----           -----------    ------        -------------           -------------    
<S>                 <C>           <C>        <C>                      <C>
John F. Reno                  0          0          175,820/237,180   $5,674,711/5,824,895
John R. Peeler                0          0            68,160/98,240    2,271,940/2,464,210
John A. Mixon             3,250     96,906            30,360/52,340      898,303/1,224,860
Allan M. Kline                0          0            10,000/56,000        161,875/843,500
Samuel W. Tishler             0          0             1,800/37,000         37,288/424,075
</TABLE>

(1) Calculated on the basis of the fair market value of the Common Stock on the
    date of exercise, less the option exercise price.
(2) Calculated on the basis of the fair market value of the Common Stock on
    March 31, 1998 ($48.1875), less the applicable option exercise price.

Conversion of Options in Connection with the Merger

  Immediately prior to the Merger, all outstanding Company stock options,
including the Company stock options then held by the Named Executive Officers,
became fully vested and exercisable except for certain of those stock options
held by Mr. Reno that qualify as "incentive stock options" under the Internal
Revenue Code. At the effective time of the Merger, outstanding options to
purchase Common Stock held by each of the Named Executive Officers were
converted into equivalent options to purchase shares of Common Stock. As a
result of the conversion of the options, Messrs. Reno, Peeler, Kline, Mixon and
Tishler hold options to purchase 8,094,800, 2,696,960, 1,293,600, 1,464,119 and
623,279 shares of Recapitalized Common Stock, respectively, at option exercise
prices ranging from $0.5357 to $1.9834. The terms of the converted options are
substantially similar to those of the prior options except that the period
following a termination of employment during which the Named Executive Officer
may exercise converted options (other than those that
                                                                              30
<PAGE>
 
qualify as incentive stock options) has been extended and in the case of Messrs.
Reno, Peeler and Kline, such extended period is substantial.

Special Termination Agreements

  Each of the Company's Executive Officers (other than Messrs. Reno, Kline,
Peeler and Other Executives) as well as other key employees, was, prior to the
Merger, party to a special termination agreement with the Company. These
agreements provided that if there is a "Change in Control" of the Company (as
defined in the Agreements), and if during the two-year period following such
Change in Control the officer's employment is terminated for any reason other
than on account of death or for "Cause," or the officer terminates his or her
own employment following a demotion, reduction in compensation, or similar
event, the officer will be entitled to receive a lump sum severance payment from
the Company within 15 days after the date of termination and continuance of
fringe benefits. Under the special termination agreements, the amount of the
severance payment is based on an officer's length of service with the Company,
ranging incrementally from one times the officer's average annual cash
compensation to three times the officer's average annual cash compensation after
fifteen years of service.  In connection with the Merger, each of the Named
Executive Officers entered into the agreements described immediately below that
supersede the special termination agreements.

Employment and Other Agreements

  In connection with the Merger, the Company entered into employment agreements,
with Messrs. Reno, Kline and Peeler. The employment agreements generally provide
for an initial term of five years, commencing at the effective time of the
Merger, and for compensation and benefit arrangements that are consistent with
the pre-existent compensation and benefit arrangements of each such Named
Executive Officer in effect prior to the Merger. The employment agreements
further provide for the election of such officers to serve as directors of the
Company during their employment with the Company.

  Pursuant to his employment agreement, Mr. Reno together with his family
trusts, contributed 40,804 shares of Common Stock to MergerCo in exchange for
799,758 shares of Common Stock of MergerCo ("MergerCo Common Stock"), which
shares of MergerCo Common Stock were converted in the Merger into a like number
of shares of Recapitalized Common Stock. In addition, pursuant to their
respective other employment agreements, all options to purchase Common Stock
held by each of Messrs. Reno and Kline prior to the Merger and a substantial
majority of the options held by Mr. Peeler prior to the Merger were converted
into equivalent options to purchase shares of Recapitalized Common Stock (the
exercise prices of which preserve the economic value of their former options),
all of which, other than options to purchase 20,737 shares of Common Stock held
by Mr. Reno, became fully vested and exercisable in connection with the Merger.
In addition, the employment agreements: (i) restrict the ability of each Named
Executive Officer to transfer shares of Recapitalized Common Stock beneficially
owned by him (other than certain permitted transfers for estate planning
purposes and transfers not exceeding in the aggregate 25% of the Recapitalized
Common Stock owned, or subject to options held by each Named Executive Officer
at the effective time of the Merger), (ii) grant each Named Executive Officer
certain "tag along" rights 

                                                                              31
<PAGE>
 
which entitle the Named Executive Officer to participate in certain sales of
Recapitalized Common Stock by CDR Fund V prior to a Public Offering (as defined
in the employment agreements), (iii) grant CDR Fund V certain "drag along"
rights which entitle CDR Fund V to require each Named Executive Officer to sell
his shares of Recapitalized Common Stock in a proposed sale of substantially all
of CDR Fund V's shares prior to a Public Offering, and (iv) grant the Company
and CDR Fund V the right, following any termination of a Named Executive
Officer's employment prior to a Public Offering, to purchase the Named Executive
Officer's shares of Recapitalized Common Stock and options to purchase
Recapitalized Common Stock.

  The Employment Agreements also provide that, in the event of a termination of
any such Named Executive Officer's employment during the term of the agreement
by the Company other than for "Cause" (as defined in the employment agreements)
or by such Named Executive Officer for "Good Reason" (as so defined), the Named
Executive Officer will be entitled to special termination benefits consisting of
(i) continued payments of his average annual base salary and average annual
bonus until the second anniversary of the date of termination, (ii) continued
coverage under the Company's medical insurance plan until his 65th birthday and
(iii) a pro rata incentive compensation bonus for the portion of the calendar
year preceding such termination. The agreements also contain customary
indemnification, confidentiality, noncompetition and nonsolicitation provisions.

  In connection with the Merger, the Company entered into certain agreements
(the "Agreements"), with Messrs. Mixon and Tishler, which supersede their
special termination agreements. These Agreements provide that, in the event of a
termination of employment prior to the third anniversary of the effective time
of the Merger by the Company other than for "Cause" (as defined in such
agreements) or by such executive for "Good Reason" (as so defined), each such
executive will be entitled to special termination benefits during a salary
continuation period which will be based on such executive's period of service
with the Company. Such salary continuation benefits will consist of continued
payments of such executive's average annual base salary, average annual bonus
and continued coverage under the Company's medical insurance and other benefit
plans. These Agreements also contain customary indemnification, confidentiality,
noncompetition and nonsolicitation provisions.

  Pursuant to the Agreements, a substantial majority of the options to purchase
shares of Common Stock held by Messrs. Mixon and Tishler prior to the Merger of
the Company were converted into equivalent options to purchase shares of
Recapitalized Common Stock (the exercise prices of which preserve the economic
value of his former options), all of which are fully vested and exercisable. In
addition, these Agreements provide for substantially the same call, drag-along
and tag-along rights as do the employment agreements of Messrs. Reno, Peeler and
Kline.

Item 12.  Security Ownership of Certain Beneficial Owners and Management.

  The following table sets forth certain information regarding the beneficial
ownership of the Recapitalized Common Stock as of June 3, 1998, with respect to
(i) each current director and each Named Executive Officer of the Company; (ii)
all current directors and executive officers of the Company 

                                                                              32
<PAGE>
 
as a group; and (iii) each current beneficial owner of five percent or more of
Recapitalized Common Stock.
<TABLE>
<CAPTION>
                                                                          Amount and               
                                                                          ----------                 
                                                                          Nature of      Percent of
                                                                          ----------     ----------   
                                                                          Beneficial       Common     
                                                                          ----------       ------     
Name                                                                     Ownership(1)     Stock(2) 
----                                                                     ------------     -------- 
<S>                                                                     <C>             <C>
Clayton, Dubilier & Rice Fund V Limited Partnership(3)                  110,790,770           92.3%
John F. Reno(4)                                                           8,491,637            6.6%
John R. Peeler(5)                                                         2,708,907            2.2%
John A. Mixon(6)                                                          1,624,027            1.3%
Allan M. Kline(7)                                                         1,294,769            1.1%
Samuel W. Tishler (8)                                                       623,780             *
 
All Directors and Executive Officers as a group (10 persons) (9)        126,777,355           93.8%
                                                                        -----------           ---- 
</TABLE> 
*   Less than 1% of outstanding Recapitalized Common Stock.
(1) Represents shares of Recapitalized Common Stock beneficially owned on June
3, 1998. Unless otherwise noted, each person has sole voting and investment
power with respect to such shares.
(2) Based upon 120,251,375 shares of Recapitalized Common Stock outstanding as
of June 3, 1998. Recapitalized Common Stock includes all shares of outstanding
Recapitalized Common Stock plus, as required for the purpose of determining
beneficial ownership (in accordance with Rule 13d-3 promulgated pursuant to the
Exchange Act), all shares of Recapitalized Common Stock subject to any right of
acquisition by such person, through exercise or conversion of any security,
within 60 days of June 3, 1998.
(3) B. Charles Ames, Michael G. Babiarz, William A. Barbe, Kevin J. Conway,
Brian D. Finn, Donald J. Gogel, Hubbard C. Howe, Thomas F. Ireland, Christopher
MacKenzie, Charles P. Pieper and Joseph L. Rice, III may be deemed to share
beneficial ownership of the shares owned of record by CDR Fund V by virtue of
their status as stockholders of Associates II Inc., the managing general partner
of Associates V, the general partner of CDR Fund V, but each expressly disclaims
such beneficial ownership of the shares owned by CDR Fund V. The voting
stockholders of Associates II Inc. share investment and voting power with
respect to securities owned by CDR Fund V. The business address for each of them
other than Mr. MacKenzie is 375 Park Avenue, New York, New York 10022. The
business address for Mr. MacKenzie is 45 Berkeley Street, London WIA WEB.
(4) Includes 1,000 shares owned by Mr. Reno's spouse, 294,000 shares owned by
The John F. Reno 1997 Qualified Annuity Trust for which Mr. Reno has sole voting
power, 294,000 shares owned by The Suzanne M. Reno 1997 Qualified Annuity Trust,
of which Mr. Reno is a Trustee, and 2,525 shares owned by a relative for which
Mr. Reno has power of attorney. Includes 7,688,355 shares of Common Stock
issuable upon exercise of stock options which are exercisable within 60 days of
June 3, 1998.

                                                                              33
<PAGE>
 
(5) Includes 2,696,960 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of June 3, 1998.
(6) Includes 1,464,120 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of  June 3,
1998.
(7) Includes 1,293,600 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of June 3, 1998 .
(8) Includes 623,280 shares of Recapitalized Common Stock issuable upon exercise
of stock options which are exercisable within 60 days of June 3, 1998.
(9) Includes 14,871,755 shares of Recapitalized Common Stock issuable upon
exercise of stock options which are exercisable within 60 days of June 3, 1998.
Also includes 110,790,770 shares of Recapitalized Common Stock owned by CDR Fund
V. Brian D. Finn, Charles P. Pieper and Joseph L. Rice, III may be deemed to
share beneficial ownership of the shares owned of record by CDR Fund V by virtue
of their status as stockholders of Associates II Inc., the managing general
partner of Associates V, the general partner of CDR Fund V, but expressly
disclaims such beneficial ownership of the shares owned by CDR Fund V. The
voting stockholders of Associates II Inc. share investment and voting power with
respect to securities owned by CDR Fund V.




Item 13.  Certain Relationships and Related Transactions.

  CDR Fund V is a private investment fund managed by CDR.  Amounts contributed
to CDR Fund V by its limited partners are invested at the discretion of the
general partner in equity or equity-related securities of entities formed to
effect leveraged acquisition transactions and in the equity of corporations
where the infusion of capital coupled with the provision of managerial
assistance by CDR can be expected to generate returns on investments comparable
to returns historically achieved in leveraged acquisition transactions.  The
general partner of CDR Fund V is CD&R Associates V Limited Partnership, a Cayman
Islands exempted limited partnership ("Associates V").  Associates V has three
general partners.  The managing general partner of Associates V is CD&R
Investment Associates II, Inc., a Cayman Island exempted company ("Associates II
Inc.").  The other general partners of Associates V are CD&R Cayman Investment
Associates, Inc., a Cayman Islands exempted company ("Associates Cayman Inc.")
and CD&R Investment Associates Inc., a Delaware corporation ("Associates Inc.").

  Mr. Rice, who is a principal of CDR and the Chairman of CDR, is a Director and
the Chairman of both Associates II Inc. and Associates Inc., is a shareholder
and Director of Associates Cayman Inc., and also serves as a Director of the
Company.  Mr. Finn, who is a principal of CDR and is a Director of Associates II
Inc., also serves as a Director of the Company.  Mr. Pieper, who is a principal
of CDR and a Director of Associates II Inc., 

                                                                              34
<PAGE>
 
also serves as a Director of the Company. See "Item 10 Directors and Executive
Officers of the Registrant."

  CDR is a private investment firm which is organized as a Delaware corporation.
CDR is the manager of a series of investment funds, including CDR Fund V formed
to invest in equity or equity-related securities of entities formed to effect
leveraged acquisition transactions and in the equity of corporation where the
infusion of capital coupled with the provision of managerial assistance by CDR
can be expected to generate returns on investments comparable to returns
historically achieved in leveraged acquisition transactions.  CDR generally
assists in structuring arranging financing for and negotiating the transactions
in which the funds it manages invest.  After the consummation of such
transactions, CDR generally provides management and financial consulting
services to the companies in which its investment funds have invested during the
period of such fund's investment.  Such services include helping such companies
to establish effective banking, legal and other business relationships and
assisting management in developing and implementing strategies in improving the
operational, marketing and financial performance of such companies.

  The Company entered into a consulting agreement with CDR which provides for
(i) an annual fee initially of $500,000, for providing such management and
financial consulting services to the Company and its subsidiaries and (ii)
reimbursement of out-of-pocket expenses it incurs after the Merger, for so long
as CDR Fund V has an investment in the Company and its subsidiaries.  At the
closing of the Merger, the Company paid CDR a transaction fee of $9.2 million
plus reimbursement of out-of-pocket expenses incurred by CDR in consideration
for services provided by CDR in arranging the Merger, arranging and negotiating
the financing for the Merger and related services.  The Company also agreed to
indemnify CDR and CDR Fund V and certain related parties, subject to certain
limitations, against all claims and liabilities arising out of or in connection
with the Securities Act, the Exchange Act or any other applicable securities or
other laws in connection with the Merger and related transactions and the
operation of the business following the Merger.  In addition, the Company
entered into a registration rights agreement with CDR Fund V, Mr. Reno and
certain family trusts which provides that such persons may require the Company
to register their shares of Common Stock under the Securities Act.

  See also "Item 11 Executive Compensation--Special Termination Agreements" and
"Employment and Other Agreements."

Item 14.  Exhibits, Financial Statements, Schedules and Reports on Form 8-K.

(a) (1)    Financial statements

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

           I.   Consolidated Balance Sheets--March 31, 1998 and 1997.

           II.  Consolidated Statements of Operations--Fiscal Years ended March
                31, 1998, 1997, and 1996.

                                                                              35
<PAGE>
 
              III.  Consolidated Statements of Shareholders' Equity--Fiscal
                    Years ended March 31, 1998, 1997, and 1996.

              IV.   Consolidated Statements of Cash Flows--Fiscal Years ended
                    March 31, 1998, 1997, and 1996.

              V.    Notes to Consolidated Financial Statements.

     (2)  Financial statement schedules

              I.    Valuation and Qualifying Accounts.

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

        (1)  Form 8-K dated December 20, 1997.

(c)   Exhibits

The exhibits that are filed with this report or that are incorporated herein by
reference are set forth in the Exhibit Index on page E-1.


                                                                              36
<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.

                                              DYNATECH CORPORATION
                                              -------------------------------


June __, 1998                                  By:
                                                  ---------------------------
                                                      Chairman, President 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.

---------------------------      Chairman of the Board, President and Chief
John F. Reno                     Executive Officer, Director     June __, 1998

---------------------------      Corporate Vice President, Director,
Allan M. Kline                   Chief Financial Officer, and Treasurer
                                 (Principal Financial Officer)   June __, 1998

---------------------------      Corporate Vice President, Controller
Robert W. Woodbury, Jr.          (Principal Accounting Officer)  June __, 1998

---------------------------      Director                        June __, 1998
Joseph L. Rice, III

---------------------------      Director                        June __, 1998
Brian D. Finn

---------------------------      Director                        June __, 1998
Charles P. Pieper

---------------------------      Director                        June __, 1998
John R.Peeler                    



                                                                              37

<PAGE>
 
     APPENDIX A
     ----------

      Selected Historical Consolidated Financial Data
     The following tables set forth selected consolidated historical, financial
     and other data of the Company for the five fiscal years ended March 31,
     1998 which have been derived from, and should be read in conjunction with,
     the audited historical Consolidated Financial Statements, and related notes
     thereto, of the Company contained herein.
     (Amounts in thousands except per share data)

<TABLE>
<CAPTION>                                                      Years Ended March 31,
                                                 1998       1997       1996       1995       1994
----------------------------                   --------   --------   --------   --------   --------
<S>                                            <C>        <C>        <C>        <C>        <C>
Results of operations
Sales                                          $472,948   $362,412   $293,042   $243,078   $199,612
Cost of sales                                   205,522    137,254    111,436     91,412     72,103
                                               --------   --------   --------   --------   --------
Gross profit                                    267,426    225,158    181,606    151,666    127,509
Selling, general & Administrative expense       138,310    114,479     98,487     86,329     70,719
Product development expense                      54,995     43,267     36,456     30,585     26,863
Nonrecurring charges                                ---     27,776     16,852        ---        ---
Amortization of intangibles                       5,835      6,793      5,136      5,106      5,728
                                               --------   --------   --------   --------   --------
Operating income                                 68,286     32,843     24,675     29,646     24,199
Interest expense                                 (1,221)      (828)    (1,723)    (3,919)    (3,794)
Interest income                                   3,012      2,785      2,181      1,518      1,244
Other income, net                                   730        634        975        850      2,198
                                               --------   --------   --------   --------   --------
Income from continuing operations before
 income taxes                                    70,807     35,434     26,108     28,095     23,847
 
Provision for income taxes                       29,031     17,585     10,394     11,671      9,897
                                               --------   --------   --------   --------   --------
Income from continuing operations                41,776     17,849     15,714     16,424     13,950
Discontinued operations, net of Income taxes        ---     12,000     (1,471)     3,763    (43,933)
Extraordinary charge, net of Income taxes           ---        ---        ---     (1,019)       ---
                                               --------   --------   --------   --------   --------
Net income (loss)                              $ 41,776   $ 29,849   $ 14,243   $ 19,168   $(29,983)
                                               ========   ========   ========   ========   ========
Income (loss) per common share-basic:
   Continuing operations                       $   2.49   $   1.04   $   0.87   $   0.92   $   0.75
   Discontinued operations                          ---       0.70      (0.08)      0.21      (2.36)
   Extraordinary charge                             ---        ---        ---      (0.06)       ---
                                               --------   --------   --------   --------   --------
                                               $   2.49   $   1.74   $   0.79   $   1.07   $  (1.61)
                                               ========   ========   ========   ========   ========
Income (loss) per common share-diluted
   Continuing operations                           2.40       0.99       0.86       0.92       0.75
   Discontinued operations                          ---       0.67      (0.08)      0.21      (2.36)
   Extraordinary charge                             ---        ---                 (0.06)       ---
                                               --------   --------   --------   --------   --------
                                               $   2.40   $   1.66   $    .78   $   1.07   $  (1.61)
                                               ========   ========   ========   ========   ========
Weighted average numer of shares:
   Basic                                         16,795     17,200     17,969     17,846     18,579
   Diluted                                       17,434     18,028     18,315     17,971     18,678
                                               ========   ========   ========   ========   ========
Balance sheet data
Net working capital                            $117,791   $ 80,394   $105,861   $ 91,513   $ 91,010
Total assets                                   $288,130   $249,010   $205,189   $256,392   $280,553
Long-term debt                                 $     83   $  5,226   $  1,800   $  7,915   $ 33,006
Shareholders' equity                           $202,119   $160,686   $160,719   $154,320   $142,643
Shares of stock outstanding                      16,864     16,793     17,585     17,573     18,594
Shareholders' equity per share                 $  11.99   $   9.57   $   9.14   $   8.78   $   7.67
</TABLE>


                                                                              38
<PAGE>
 
APPENDIX B
----------

Management's Discussion and Analysis of Financial Condition and Results of
Operations

This Annual Report on Form 10-K contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
product demand and market acceptance risks, the effect of economic conditions,
the impact of competitive products and pricing, product development,
commercialization and technological difficulties, capacity and supply
constraints or difficulties, availability of capital resources, general business
and economic conditions, the effect of the Company's accounting policies, and
other risks detailed herein. See "Item 1 The Business--Risk Factors." The market
share and competitive position data contained in this Form 10-K are
approximations derived from Company estimates, which the Company believes to be
reasonable but which have not been independently verified and, to a lesser
extent, from industry sources, which the Company has not independently verified.
The Company believes that such data are inherently imprecise, but are generally
indicative of its relative market share and competitive position.

The Merger. On May 21, 1998 MergerCo, which was organized at the direction of
CDR, was merged with and into the Company with the Company continuing as the
surviving corporation. In the Merger, (i) each then outstanding share of Common
Stock was converted into the right to receive $47.75 in cash and 0.5 shares of
Recapitalized Common Stock and (ii) each then outstanding share of common stock
of MergerCo was converted into one share of Recapitalized Common Stock.

As a result of the Merger, CDR Fund V holds approximately 92.3% of the
Recapitalized Common Stock. Mr. Reno together with two family trusts holds
approximately 0.7% of the Recapitalized Common Stock and other stockholders hold
approximately 7.0% of the Recapitalized Common Stock.

In connection with the Merger, the Company entered into the Senior Secured
Credit Agreement with certain lenders providing for the Senior Secured Credit
Facilities including a $260 million Term Loan Facility and a $110 million
Revolving Credit Facility. In connection with the Merger, the Company also
completed the offering of $275 million aggregate principal amount of the Senior
Subordinated Notes. On May 31, 1998 the Company had a total of $575.2 million of
debt, which consisted primarily of $275 million principal amount of Senior
Subordinated Notes, $260 million in term loan borrowings under the Term Loan
Facility and $40 million in revolving credit borrowings under the Revolving
Credit Facility.

The Merger was accounted for as a recapitalization of Dynatech, which had no
impact on the historical basis of assets and liabilities as reflected in the
financial statements of Dynatech. However, the Merger involved a change in the
Company's capital structure which will lead to, among other things, higher
reported interest expense. As a result, operating results for periods subsequent
to the Merger will not be comparable in all material respects to operating
results for periods prior to the Merger.


                                                                              39
<PAGE>
 
General. The Company develops, manufactures and sells test, analysis,
communications and computing equipment in three product categories: (i)
communications test instruments, (ii) industrial computing and communications,
and (iii) visual communications. In its communications test business the Company
provides products that test and analyze communications networks and equipment.
In its industrial computing and communications business, the Company addresses
two areas of the worldwide ruggedized computer market through two of its
subsidiaries: (i) ICS, which provides computer products for use in harsh
environments and (ii) Itronix, which provides ruggedized portable computing and
communications devices to field-service organizations such as telephone
companies. In its visual communications business, the Company sells visual
communications products principally through two of its subsidiaries: (i)
AIRSHOW, which provides passenger cabin video information display systems for
the general and commercial aviation markets and (ii) daVinci Systems, which
provides digital color enhancement systems used in transferring film images into
electronic signals. Since 1993, the Company has sold 24 non-core businesses
for gross proceeds of approximately $190 million pursuant to a plan to focus
on businesses that enjoy leading positions in their respective markets, strong
profitability, and good growth prospects.

Current and Historical Trends. The Company believes that overall trends in the
communications industry are the most significant trends affecting the Company's
sales and results of operations. The 18.3% average annual increase in sales of
its communications test instruments products from fiscal 1996 to 1998 was
principally driven by market growth and new product introductions by the
Company. The Company believes that demand for communications test equipment
during that period resulted from the combination of increased competition among
existing and new telecommunications service providers, the proliferation of new
telecommunications services and the increased usage of technologies related to
wireless and internet services. The Company believes that these trends have
driven overall communications test instrument industry growth of approximately
10-12% annually in recent years. Growth rates vary widely across segments of the
market and are typically higher in segments that support the development of high
growth communications services such as Asynchronous Transfer Mode, frame relay
and wireless services.

Operating Profit. From fiscal 1996 to 1998 the Company increased operating
profit, excluding non-recurring charges, by a compound annual growth of 28.2%,
driven primarily by sales growth and the Company's acquisitions during this
period. Excluding non-recurring charges, operating profit margins also
increased from 14.2% of consolidated sales to 14.4% of consolidated sales
for the same period. The non-recurring charges included a charge of $16.9
million for purchased incomplete technology related to the acquisition of Tele-
Path Industries, Inc., and $27.8 million for purchased incomplete technology and
impaired intangible asset writeoffs in fiscal 1996 and fiscal 1997,
respectively. Itronix, as a manufacturer of ruggedized portable computing and
communications hardware, generally has lower margins than the Company's other
businesses and Itronix currently is not contributing to the Company's
profitability. As a result, profitability of the Company's industrial computing
and communications businesses is lower than the average profitability of the
Company's other businesses. Itronix is also currently facing significant
manufacturing and marketing challenges, including competition from "semi-rugged"
portable computers that constrains pricing of


                                                                              40
<PAGE>
 
premium ruggedized products like Itronix's. The Company is implementing several
initiatives designed to increase the profitability of Itronix, including a
program to lower costs and reposition its products. See "Item 1 The Business--
Risk Factors--Risks Relating to Itronix."

Seasonality. As a result of purchasing patterns of its telecommunications
customers which tend to place large orders periodically typically at the end of
the Company's first and third fiscal quarters, the Company expects its results
of operations to vary significantly on a quarterly basis, as they have in the
past. In addition, growth rates and results of operations for Itronix also have
varied widely and are expected to continue to do so because of the relatively
small number of potential customers with large field-service work forces, the
timing and size of whose orders are irregular.

Product Development. The market for the Company's products is characterized by
changing technology evolving industry standards and protocols, and frequent
introductions of new products. Automation in the Company's addressed markets for
communications test instruments or a shift in customer emphasis from
communications test instruments to test and monitoring systems could render the
Company's existing product offerings obsolete or unmarketable or reduce the size
of the Company's addressed market. In particular, incorporation of self-testing
functions in the equipment currently addressed by the Company's communications
test instruments could render the Company's offerings redundant and
unmarketable. The Company thus faces the challenges of anticipating and
responding rapidly to advances in technology and adapting its existing products
or developing new products. The development of new, technologically advanced
products is a complex and uncertain process requiring the accurate anticipation
of technological and market trends and the expenditure of substantial
development costs. From the beginning of fiscal 1996 through March 31, 1998, the
Company has spent an aggregate of $134.7 million on product development or
approximately 11.9% of sales, and the Company expects to continue product
development spending at similar levels as a percentage of annual sales, to the
extent that the Company has sufficient free cash flow to do so. See "Item 1 The
Business--Risk Factors--Rapid Technological Change; Challenges of New Product
Introductions" and "Substantial Leverage: Liquidity."

Recent Acquisitions and Dispositions. On December 31, 1996, the Company acquired
substantially all of the assets and assumed certain liabilities of Itronix for
$65.4 million in cash. Incident to this acquisition was the purchase of
incomplete technology activities which resulted in a one-time non-cash charge of
$20.6 million reflected in the Company's results for fiscal 1997. This
incomplete technology had not reached technological feasibility and had no
alternative use.

In March 1997, the Company acquired the net assets of Advent Design, Inc.
("Advent"), a supplier to ICS for $3.5 million in cash. Advent designs and
manufactures high performance microprocessor-based systems for the computer,
medical and communications market.

During fiscal 1997, the Company essentially completed the disposition of non-
core businesses pursuant to a strategy approved by the Board of Directors of
Dynatech in February, 1996. The Company received proceeds of $110.2 million


                                                                              41
<PAGE>
 
and $48.9 million in 1997 and 1996, respectively, related to these dispositions,
which resulted in an after-tax gain of $12.0 million.

On June 19, 1998, the Company acquired the stock of Pacific Systems Corporation
of Kirkland, Washington ("Pacific") for a total purchase price of $20 million,
including an incentive earnout. Pacific designs and manufactures customer
specified avionics and integrated cabin management equipment for the corporate
and general aviation market.

Pro Forma Financial Statements

On December 31, 1996 the Company acquired substantially all of the assets and
assumed certain liabilities of Itronix Corporation ("Itronix"). The following
discussion, as it relates to the twelve month fiscal year ended March 31, 1997,
refers to the financial information presented in "Acquisitions" of the Notes to
Consolidated Financial Statements, which presents a summary of consolidated
results of operations of the Company as if the acquisition had occurred at the
beginning of fiscal 1997.

The following table and commentary should be read in conjunction with the
Consolidated Financial Statements and related Notes to Consolidated Financial
Statements.

                                                                    Percent
                                                                    Change
                                                                     1998
                                             Percent of Sales         vs.
Years Ended March 31,                        1998        1997        1997
---------------------                       ------      ------      ------
Sales                                       100.0%      100.0%       11.0%
Gross profit                                 56.5        57.1        10.0
Selling, general & admin. Expense            29.2        28.7        13.2
Product development expense                  11.6        11.4        13.4
Amortization of intangibles                   1.2         2.1       (34.1)
Operating income                             14.4        13.2        21.1
Net income from operations                    8.8%        7.4%       32.3%

Fiscal 1998 Compared to Fiscal 1997 on a Pro Forma Basis

Sales. For the fiscal year ended March 31, 1998 consolidated sales increased
$46.7 million or 11.0% to $472.9 million as compared to $426.2 million for the
fiscal year ended March 31, 1997 on a pro forma basis. The increase was
primarily attributable to increased demand for communications test products,
catalog sales of industrial computing and communications products, and aircraft
cabin video information services.

Sales of communications test products increased $29.1 million or 13.8% to $240.4
million for the fiscal year ended March 31, 1998 as compared to $211.3 million
for the fiscal year ended March 31, 1997. The increase is primarily attributable
to continued growth in the U.S. market for communications test solutions as a
result of network expansions of the local telco service providers. The growth
was driven by the needs of communications service providers to provide higher
quality networks and to reduce costs through efficiency, which may be gained by
using test and monitoring systems.


                                                                              42
<PAGE>
 
Sales of industrial computing and communications products increased $12.8
million or 9% to $155.0 million for the fiscal year ended March 31, 1998 as
compared to $142.2 million for the fiscal year ended March 31, 1997 on a pro
forma basis. The increase was primarily attributable to an increase in sales for
the Company's catalog-marketed, rack-mounted computers, with a significant
portion of sales to customers within the Original Equipment Manufacturer (OEM)
market. The overall increase in sales of Industrial Computing and Communication
products was partially offset by slightly lower sales of the Company's
ruggedized laptop computers.

Sales of visual communications products increased $4.7 million or 6.5% to $77.5
million for the fiscal year ended March 31, 1998 as compared to $72.8 million
for the fiscal year ended March 31, 1997. Sales of the Company's real-time
flight information passenger video displays increased as more airlines
integrated this product into their in-flight entertainment systems. In addition,
the Company has improved its market penetration with additional sales to
commercial airline companies. Partially offsetting this increase was a lower
sales volume in the video compression and graphical user-interface (GUI) product
lines.

International sales (defined as sales outside of North America) were $76.1
million or 16% of consolidated sales for the fiscal year ended March 31, 1998,
as compared to $70.8 or 16.6% for the fiscal year ended March 31, 1997 on a pro
forma basis.

Gross profit. Consolidated gross profit increased $24.2 million to $267.4
million or 56.5% of consolidated sales for the fiscal year ended March 31, 1998
as compared to $243.2 million or 57.1% for the fiscal year ended March 31, 1997
on a pro forma basis. The slight decrease in percentage was attributable to a
change in the sales mix within the consolidated group along with lower gross
margins on the Company's ruggedized laptop computers.

Operating expenses. Operating expenses consist of selling, general and
administrative expenses; product development expense; amortization of
intangibles; and non-recurring expenses. Total operating expenses were $199.1
million or 42.1% of consolidated sales for the fiscal year ended March 31, 1998
as compared to $186.7 million or 43.8% of consolidated sales for the fiscal year
ended March 31, 1997 on a pro forma basis. Excluding the impact of the non-
recurring charge of $7.1 million related to the impairment of intangible assets
during fiscal 1997, operating expenses were $179.6 million or 42.1% of
consolidated sales in fiscal 1997, at the same level as fiscal 1998.

Selling, general and administrative expense was $138.3 million or 29.2% of
consolidated sales for the fiscal year ended March 31, 1998 as compared to
$122.2 million or 28.7% of consolidated sales for the fiscal year ended March
31, 1997 on a pro forma basis. The percentage increase was primarily
attributable to additional expenses related to information systems upgrades and
increased selling expenses due to the increased sales volume within the
communications test business.

Product development expense was $55.0 million or 11.6% of consolidated sales for
the fiscal year ended March 31, 1998 as compared to $48.5 million or 11.4% of
consolidated sales for the fiscal year ended March 31, 1997 on a pro


                                                                              43
<PAGE>
 
forma basis. The Company continues to invest in product development and
enhancement within all three product areas.

Amortization of intangibles was $5.8 million for the fiscal year ended March 31,
1998 as compared to $8.9 million for the fiscal year ended March 31, 1997 on a
pro forma basis. Amortization decreased during fiscal 1998 due to the write-off
of goodwill and certain intangibles related to product and distribution
transitions at the end of fiscal 1997.

Interest. Interest income, net of interest expense, was $1.8 million for the
fiscal year ended March 31, 1998 as compared to net interest expense of $0.5
million for the fiscal year ended March 31, 1997 on a pro forma basis. Net
interest income increased year to year based on higher average investment
balances and lower overall borrowings. Interest expense will increase in future
years due to the increase in borrowings.


Other income. Other income was $0.7 million for the fiscal year ended March 31,
1998, essentially at the same level of $0.6 million for the fiscal year ended
March 31, 1997 on a pro forma basis.

Taxes. The effective tax rate, before one time charges, increased for the fiscal
year ended March 31, 1998 to 41% as compared to 40.0% for the fiscal year ended
March 31, 1997 on a pro forma basis, primarily due to increased income in states
with higher income tax rates. The effective tax rate after one time charges
decreased to 41% for fiscal 1998 from 44.2% for fiscal 1997 on a pro forma basis
due to the limited tax benefits in 1997 of the charges relating to the $20.6
million writeoff of incomplete technology from the Itronix acquisition.

Net income. Net income from continuing operations was $41.8 million or $2.40 per
share on a diluted basis for the fiscal year ended March 31, 1998 as compared to
$31.6 million or $1.74 per share on a diluted basis and a pro forma basis for
the fiscal year ended March 31, 1997. The increase was primarily attributable to
the increase in sales. Net income in future years will be negatively impacted by
the expected rise in interest expense due to the increase in borrowings.

Backlog.  Backlog at March 31, 1998 was $79.1 million, an increase of 10.3% from
$71.7 million at March 31, 1997.

Historical Financial Statements

The following discussion relates to the actual result of operations of the
Company, in which fiscal 1998 includes a full-year of operations of Itronix
Corporation ("Itronix") as compared to fiscal 1997 in which the results of
operations included only three months of operations.

The following table and commentary should be read in conjunction with the
Consolidated Financial Statements and related Notes to Consolidated Financial 
Statements.


                                                                              44
<PAGE>

<TABLE> 
<CAPTION> 
                                                                                      Percent of Change
                                                                                        1998    1997
                                                                 Percent of Sales        vs.     vs.
Years ended March 31,                                          1998    1997    1996     1997    1996
----------------------------                                  -----   -----   -----     -----   ----
<S>                                                           <C>     <C>     <C>      <C>      <C>
Sales                                                         100.0%  100.0%  100.0%     30.5%  23.7%
Gross profit                                                   56.5    62.1    62.0      18.8   24.0
Selling, general & admin. expense                              29.2    31.6    33.6      20.8   16.2
Product development expense                                    11.6    11.9    12.4      27.1   18.7
Nonrecurring charges                                            ---     7.7     5.8    (100.0)  64.8
Amortization of intangibles                                     1.2     1.9     1.8     (14.1)  32.3
Operating income                                               14.4     9.1     8.4     107.9   33.1
                                                                                     
Net income from continuing operations                           8.8     4.9     5.4     134.1   13.6
</TABLE>


Fiscal 1998 Compared to Fiscal 1997 on a Historical Basis

Sales. For the fiscal year ended March 31, 1998 consolidated sales increased
$110.5 million or 30.5% to $472.9 million as compared to $362.4 million for the
fiscal year ended March 31, 1997. The increase was primarily attributable to a
full year of operations of Itronix and increased demand for communications test
products, catalog sales of industrial computing and communications products, and
aircraft cabin video information services.

Sales of communications test products increased $29.1 million or 13.8% to $240.4
million for the fiscal year ended March 31, 1998 as compared to $211.3 million
for the fiscal year ended March 31, 1997. The increase was primarily
attributable to continued growth in the U.S. market for communications test
solutions as a result of network expansions of the local telco service
providers. The growth is driven by the needs of communications service providers
to provide higher quality networks and to reduce costs through efficiency, which
may be gained by using test and monitoring systems.

Sales of industrial computing and communications products increased $76.7
million or 97.8% to $155.0 million for the fiscal year ended March 31, 1998 as
compared to $78.3 million for the fiscal year ended March 31, 1997. The increase
was primarily attributable to a full-year of operations of Itronix in fiscal
1998 as compared to three months of operation in fiscal 1997. In addition, the
Company had an increase in sales for its rack-mounted computers.

Sales of visual communications products increased $4.7 million or 6.5% to $77.5
million for the fiscal year ended March 31, 1998 as compared to $72.8 million
for the fiscal year ended March 31, 1997. Sales of the Company's real-time
flight information passenger video displays increased as more airlines
integrated this product into their in-flight entertainment systems. In addition,
the Company has improved its market penetration with additional sales to
commercial airline companies. Offsetting this increase was a lower sales volume
in the video compression and graphical user-interface (GUI) product lines.

Gross profit. Consolidated gross profit increased $42.3 million to $267.4
million or 56.5% of consolidated sales for the fiscal year ended March 31, 1998
as compared to $225.2 million or 62.1% for the fiscal year ended March 31, 1997.
The decrease in gross margin was attributable to a lower gross


                                                                              45
<PAGE>
 
margin at Itronix compared with other parts of the Company as well as a change
in the sales mix within the consolidated group.

Operating expenses. Operating expenses consist of selling, general and
administrative expense; product development expense; amortization of
intangibles; and non-recurring expenses. Total operating expenses were $199.1
million or 42.1% of consolidated sales for the fiscal year ended March 31, 1998
as compared to $192.3 million or 53.1% of consolidated sales for the fiscal year
ended March 31, 1997. Excluding the impact of the non-recurring charge of $27.8
million related to the impairment of intangible assets and the write-off of
purchased incomplete technology during fiscal 1997, operating expenses were
$164.5 million or 45.4% of consolidated sales in fiscal 1997.

Selling, general and administrative expense was $138.3 million or 29.2% of
consolidated sales for the fiscal year ended March 31, 1998 as compared to
$114.5 million or 31.6% of consolidated sales for the fiscal year ended March
31, 1997. The percentage decrease was primarily attributable to a full-year of
results of Itronix in which the percentage of selling, general and
administrative expense to sales for Itronix is less than the consolidated
average.

Product development expense was $55.0 million or 11.6% of consolidated sales for
the fiscal year ended March 31, 1998 as compared to $43.3 million or 11.9% of
consolidated sales for the fiscal year ended March 31, 1997. The Company
continues to invest in product development and enhancement within all three
product areas.

Amortization of intangibles was $5.8 million for the fiscal year ended March 31,
1998 as compared to $6.8 million for the fiscal year ended March 31, 1997.
Amortization decreased during fiscal 1998 due to the write-off of goodwill and
certain intangibles related to product and distribution transitions at the end
of fiscal 1997 and was offset by an increase in goodwill amortization related to
the acquisition of Itronix.

Interest. Interest income, net of interest expense, was $1.8 million for the
fiscal year ended March 31, 1998 as compared to $2.0 million for the fiscal year
ended March 31, 1997. Interest expense will increase in future years due to the
increase in borrowings.

Other income. Other income was $0.7 million for the fiscal year ended March 31,
1998, essentially at the same level of $0.6 million for the fiscal year ended
March 31, 1997.

Taxes. The effective tax rate, before one time charges, increased for the fiscal
year ended March 31, 1998 to 41% as compared to 40.5% for the fiscal year ended
March 31, 1997, primarily due to increased income in states with higher income
tax rates. The effective tax rate after one time charges decreased to 41% for
fiscal 1998 from 49.6% for fiscal 1997 due to the limited tax benefits in 1997
of the charges relating to the $20.6 million writeoff of incomplete technology
from the Itronix acquisition.

Net income. Net income from continuing operations was $41.8 million or $2.40 per
share on a diluted basis for the fiscal year ended March 31, 1998 as


                                                                              46
<PAGE>
 
compared to $17.8 million or $0.99 per share on a diluted basis for the fiscal
year ended March 31, 1997. The fiscal 1997 net income included a pretax charge
of $27.8 million (with an aftertax effect on earnings per share on a diluted
basis of $1.10) related to the write-off of intangible assets and the write-off
of purchased incomplete technology. Net income in future years will be
negatively impacted by the expected rise in interest expense due to the increase
in borrowings.

Fiscal 1997 Compared to Fiscal 1996 on a Historical Basis

Sales  For the year ended March 31, 1997, consolidated sales from continuing
operations increased 23.7% to $362.4 million from $293.0 million in fiscal 1996.
Sales of communications test products increased 22.8%, or $39.3 million due to
increased demand for existing products and a full year of operating results for
two acquisitions made in fiscal 1996. Sales of industrial computing and
communications products increased 35.3% or $20.4 million primarily driven by
revenue at Itronix during the fourth quarter of fiscal 1997. Sales of visual
communications products increased 15.3% or $9.7 million principally due to
continued strength in aircraft passenger video information systems and color
correction products.

Backlog from ongoing operations was $71.7 million at March 31, 1997, as compared
to $57.3 million at March 31, 1996.

International sales were 20% of consolidated sales in fiscal 1997, an increase
of 18% over consolidated sales in fiscal 1996.

Gross Profit  As a percentage of consolidated sales, gross profit from
continuing operations for fiscal 1997 was 62.1%, essentially at the same level
as the prior year.

Expenses  Selling, general and administrative costs increased 16.2% in fiscal
1997 as compared to fiscal 1996. As a percentage of consolidated sales, selling,
general and administrative expenses decreased to 31.6% as compared to 33.6% in
the previous year. Administrative and selling expenses increased at a rate
slower than revenue growth in the communications test products as a result of
the fiscal 1996 acquisitions.

Product development expense increased $6.8 million to 11.9% of consolidated
sales, compared to 12.4% of sales in fiscal 1996. The increase was a result of
additional investment in developing core communications test products as well as
the full year effect of product development at Tele-Path Industries, Inc.
("TPI"), a subsidiary which was purchased in September 1995. Additional expense
was incurred due to the acquisition of Itronix.

Amortization of intangibles increased $1.7 million as a result of the
acquisitions in fiscal 1997 and fiscal 1996.

During fiscal 1997 nonrecurring charges were $27.8 million as compared to $16.9
million in 1996. The 1997 charges included $20.6 million for incomplete
technology which had not reached technological feasibility and had no
alternative use, purchased as part of the acquisition of Itronix at the end of
the third quarter. In addition, the Company recorded a noncash charge of $7.1
million related to the impairment of intangible assets, principally


                                                                              47
<PAGE>
 
related to the effects of product and distribution transitions. The charge
consisted of a $4.5 million writeoff of goodwill and a $2.6 million writeoff in
product technology.

Interest expense declined in fiscal 1997 compared to the prior year as a result
of lower average borrowings. Interest income increased in fiscal 1997 primarily
from higher average cash balances during the year.

Taxes  The effective tax rate, before one-time charges, increased in fiscal 1997
to 40.5% as compared to 39.8% in fiscal 1996, primarily due to losses generated
in foreign locations without tax benefit. The effective tax rate after one-time
charges increased to 49.6% due to limited tax benefits of these charges. These
charges included $20.6 million of incomplete technology from the Itronix
acquisition which resulted only in a federal tax savings. In addition, the
majority of the $7.1 million of intangibles written off represented goodwill
which was not deductible for tax purposes.

Net Income  Net income from continuing operations in fiscal 1997 was $17.8
million, or $0.99 per share, as compared to $0.86 per share in fiscal 1996. Net
income in the current year included a pretax charge of $27.8 million for
purchased incomplete technology and impaired intangible asset writeoffs with an
aftertax effect on earnings per share of ($1.10). Net income for the prior year
included a charge for of incomplete purchased technology that accounted for
$16.9 million with an aftertax effect on earnings per share of ($0.56).

Capital Resources and Liquidity

  The Company broadly defines liquidity as its ability to generate sufficient
cash flow from operating activities to meet its obligations and commitments. In
addition, liquidity includes the ability to obtain appropriate debt and equity
financing and to convert into cash those assets that are no longer required to
meet existing strategic and financial objectives. Therefore, liquidity cannot be
considered separately from capital resources that consist of current or
potentially available funds for use in achieving long-range business objectives
and meeting debt service commitments.

  The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Merger and from the
funding of working capital and capital expenditures. After completion of the
Merger and related financings, the Company had $575.2 million of indebtedness,
primarily consisting of $275 million principal amount of the Senior Subordinated
Notes, $260 million in term loan borrowings under the Term Loan Facility and
$40.0 million in revolving credit borrowings under the new Revolving Credit
Facility. On May 21, 1998, the Company terminated its two credit facilities that
were in effect prior to the Merger.

Cash Flows. The Company's cash and cash equivalents increased $25.1 million
during the fiscal year ended March 31, 1998. Net cash provided by operating
activities generated $45.3 million after $13.7 million was used for the payment
of expenses related to discontinued operations.


                                                                              48
<PAGE>
 
Working Capital.  The Company's operating assets and liabilities provided a
source of cash of $4.4 million. Inventory levels increased from $40.1 million to
$48.9 million, resulting in a $8.7 million use of cash. This was primarily
attributable to the increased volume for the Company's rack-mounted computers.
Accounts receivable decreased from $70.9 million to $70.0 million, resulting in
a source of cash of approximately $1.0 million. Other current assets increased,
resulting in a use of cash of $2.4 million. This increase was primarily
attributable to expenses relating to the Merger. Accounts payable increased from
$16.9 million to $22.9 million, resulting in a source of cash of $6.0 million as
the Company continues to aggressively manage its working capital. Other current
liabilities from continuing operations increased $8.5 million due to an increase
in deferred revenue due to higher prepaid warranty costs and an increase in
accrued income taxes due to the effective tax rate increase. This increase was
offset by a decrease in discontinued operations liabilities of $13.7 million, of
which approximately $21.9 million was used for the payment of expenses
previously provided for offset by an $8.2 million deferred tax adjustment.

The Company's investing activities totaled $15.0 million primarily for the
purchase and replacement of property and equipment. The Company's historical
capital expenditures since fiscal 1996 have in substantial part resulted from
the replacement of existing property and equipment including computer systems.
The Company's capital expenditures (including acquisitions) were $15.9 million,
$10.2 million, and $8.2 million for the three fiscal years ended March 31, 1998,
1997 and 1996, respectively. The increase in expenditures for fiscal year 1998
relate principally to the Company continuing to replace existing computer
equipment. The Company estimates that for fiscal year 1999, capital expenditures
will be similar to historic levels.

During the year, the Company repaid all of its borrowings under its two existing
credit facilities. At March 31, 1998, the Company had $180 million in unused
line of credit. In addition, the Company repurchased 163 thousand shares of its
common stock for a $5.3 million use of cash and generated $4.5 million from the
exercise of stock options and issuance of common stock related to its Employee
Stock Purchase Plan.

Debt Service. Principal and interest payments under the new Senior Secured
Credit Agreement and interest payments on the Senior Subordinated Notes
represent significant liquidity requirements for the Company. With respect to
the $260.0 million borrowed under the Term Loan Facility, in which the facility
is divided into tranches, of which each tranche has a different term and
repayment schedule, the Company will be required to make scheduled principal
payments of the $50.0 million of tranche A term loan thereunder over its six-
year term, with substantial amortization of the $70.0 million of tranche B term
loan, $70.0 million of tranche C term loan and $70 million tranche D term loan
thereunder occurring after six, seven and eight years, respectively. The $275
million of Senior Subordinated Notes will mature in 2008, and bear interest at 
9 3/4%. Total interest expense is expected to be $51.0 million in fiscal 1999. 
The Senior Secured Credit Facilities are also subject to mandatory prepayment
and reduction in an amount equal to, subject to certain exceptions, (a) 100% of
the net proceeds of (i) certain debt offerings by the Company and any of its
subsidiaries, (ii) certain asset sales by the Company or any of its
subsidiaries, and (iii) casualty


                                                                              49
<PAGE>
 
insurance, condemnation awards or other recoveries received by the Company or
any of its subsidiaries and (b) 50% of the Company's excess cash flow (as to be
defined) 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. The Revolving Credit Facility matures
in 2004, with all amounts then outstanding becoming due. The Company expects
that its working capital needs will require it to obtain new revolving credit
facilities at the time that the Revolving Credit Facility matures, whether by
extending, renewing, replacing or otherwise refinancing the Revolving Credit
Facility. No assurance can be given that any such extension, renewal,
replacement or refinancing can be successfully accomplished. The loans under the
Senior Secured Credit Agreement bear interest at floating rates based upon the
interest rate option elected by the Company. As a result of the substantial
indebtedness incurred in connection with the Merger, it is expected that the
Company's interest expense will be higher and will have a greater proportionate
impact on net income in comparison to preceding periods.

Future Financing Sources and Cash Flows.  The amount under the Revolving Credit
Facility that remained undrawn following the Closing of the Merger was $70.0
million. The undrawn portion of this facility will be available to meet future
working capital and other business needs of the Company and replaces the
Company's previously outstanding credit facilities totaling $180.0 million. The
Company believes that cash generated from operations, together with amounts
available under the Revolving Credit Facility and any other available sources of
liquidity, will be adequate to permit the Company to meet its debt service
obligations, capital expenditure program requirements, ongoing operating costs
and working capital needs, although no assurance can be given in this regard.
The Company's future operating performance and ability to service or refinance
the Senior Subordinated Notes and to repay, extend or refinance the Senior
Secured Credit Facilities (including the Revolving Credit Facility) will be,
among other things, subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.

Covenant Restrictions.  The Senior Secured Credit Agreement imposes restrictions
on the ability of the Company to make capital expenditures and both the Senior
Secured Credit Facilities and the indenture governing the Senior Subordinated
Notes limit the Company's ability to incur additional indebtedness. Such
restrictions, together with the highly leveraged nature of the Company, could
limit the Company's ability to respond to market conditions, to meet its capital
spending program, to provide for unanticipated capital investments or to take
advantage of business opportunities. The covenants contained in the Senior
Secured Credit Agreement also, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur guarantee obligations,
prepay other indebtedness, and 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. In addition, under the Senior
Secured Credit Agreement, the Company is required to comply with a minimum
interest expense coverage ratio and a maximum leverage ratio. These financial
tests become more restrictive in future years. The term loans


                                                                              50
<PAGE>
 
under the Senior Credit Facility (other than the $50 million tranche A term
loan) have negative covenants which 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 businesses.

New Pronouncements

During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which modifies the
calculation of earnings per share ("EPS"). The Standard replaces the previous
presentation of primary and fully diluted EPS to basic and diluted EPS. Basic
EPS excludes dilution and is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS includes the dilution of common stock equivalents, and is
computed similarly to fully diluted EPS pursuant to APB Opinion 15. All prior
periods presented have been restated to reflect this adoption.

The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income" which establishes standards for the reporting and display
of comprehensive income in general-purpose financial statements. This Standard
is effective for fiscal periods beginning after December 15, 1997 and its
adoption is not expected to have a material impact on the Company's disclosures.

The Financial Accounting Standards Board issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes
standards for the reporting of operating segments in the financial statements.
This Standard is effective for fiscal periods beginning after December 15, 1997
and its adoption is not expected to have a material impact on the Company's
historical financial data.

In October, 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company will adopt the guidelines of SOP 97-2 as of April
1, 1998 and does not expect adoption to have a material impact on the Company's
financial results.

Year 2000

The Company has commenced a review of its computer systems and products in order
to assess its exposure to Year 2000 issues. The Company is currently in the
process of determining the full scope, related costs and action plan to ensure
that the Company's systems continue to meet its internal needs and those of its
customers. The Company expects to make the necessary modifications or changes to
its computer information systems to enable proper processing of transactions
relating to the Year 2000 and beyond. However, there can be no assurance that
Year 2000 costs and expenses will not have a material adverse effect on the
Company. In addition, the Company does not currently have complete information
concerning the Year 2000 compliance status of its suppliers and customers. In
the event that any of the Company's significant suppliers or customers do not
successfully and timely


                                                                              51
<PAGE>
 
achieve Year 2000 compliance, the Company's business or operations could be
materially adversely affected. Finally, there can be no assurance that the
Company's existing or installed base of products are Year 2000 compliant, or
that the Company's products will not be integrated by the Company or its
customers with, or otherwise interact with, non-compliant software or other
products. Any such product non-compliance may expose the Company to claims from
its customers and others, and could impair market acceptance of the Company's
products and services, increase service warranty costs, or result in payment of
damages, which in turn could materially affect the Company.


                                                                              52
<PAGE>
 
APPENDIX C

                             DYNATECH CORPORATION
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                                        
REPORT OF INDEPENDENT ACCOUNTANTS                               54

FINANCIAL STATEMENTS

  CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 1998 AND 1997     55

  CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED
   MARCH 31, 1998, 1997 AND 1996                                57

  CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY               58

  CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED
   MARCH 31, 1998, 1997 AND 1996                                59

  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS          60


                                                                             53
<PAGE>
 
Report of Independent Accountants

To the Board of Directors and Shareholders of Dynatech Corporation:

We have audited the accompanying consolidated balance sheets of Dynatech
Corporation as of March 31, 1998 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows and related
schedule of valuation and qualifying accounts for each of the three fiscal years
in the period ended March 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dynatech
Corporation as of March 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended March 31, 1998 in conformity with generally accepted accounting
principles.


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


Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 28, 1998, except as to the information in the
"Subsequent Event" Note for which the date is May 21, 1998.


                                                                              54
<PAGE>
 
Dynatech Corporation
Consolidated Balance Sheets

ASSETS
(Amounts in thousands except share data)

<TABLE>
<CAPTION>                                                                    March 31,
                                                                          1998       1997
------------------------------------------------                        --------   --------
<S>                                                                     <C>        <C>
Current assets:
   Cash and cash equivalents                                            $ 64,904   $ 39,782
   Accounts receivable
     (net of allowance of $1,764 and $1,872,
      respectively)                                                       69,988     70,930
   Inventories:
      Raw materials                                                       24,263     19,423
      Work in process                                                     11,769     11,376
      Finished goods                                                      12,850      9,326
                                                                         -------    -------
         Total inventory                                                  48,882     40,125
 
   Other current assets                                                   16,823     11,074
                                                                         -------    -------
      Total current assets                                               200,597    161,911
 
Property and equipment:
   Land, building and leasehold improvements                               4,904      4,141
   Machinery and equipment                                                51,220     47,020
   Furniture and fixtures                                                 12,351      9,940
                                                                         -------    -------
                                                                          68,475     61,101
   Less accumulated depreciation and amortization                        (42,110)   (37,268)
                                                                         -------    -------
                                                                          26,365     23,833
Other assets:
   Intangible assets, net                                                 39,595     43,813
   Other                                                                  21,573     19,453
                                                                         -------    -------
                                                                        $288,130   $249,010
                                                                         =======    =======
</TABLE>



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


                                                                              55
<PAGE>
 
Dynatech Corporation
Consolidated Balance Sheets

Liabilities and Shareholders' Equity
(Amounts in thousands except share data)



<TABLE>
<CAPTION>                                                                    March 31,
                                                                          1998       1997
------------------------------------------------------                  --------   --------
<S>                                                                     <C>        <C>
Current liabilities:
   Notes payable and current portion of long-term debt                  $    150   $    201
   Accounts payable                                                       22,933     16,900
   Accrued expenses:
      Compensation and benefits                                           21,750     23,912
      Taxes, other than income taxes                                       2,071      1,850
      Deferred revenue                                                    13,868      8,876
      Other                                                               16,082     19,948
   Accrued income taxes                                                    5,196        657
   Net liabilities of discontinued operations                                756      9,173
                                                                        --------   --------
      Total current liabilities                                           82,806     81,517
 
Long-term debt                                                                83      5,226
Deferred compensation                                                      3,122      1,581
 
Commitments and contingencies
 
Shareholders' equity:
   Serial preference stock, par value $1 per share;
     Authorized 100,000 shares; none issued
   Common stock, par value $0.20 per share;
     Authorized 50,000,000 shares; issued 18,605,689                       3,721      3,721
   Additional paid-in capital                                              7,647      9,887
   Retained earnings                                                     237,282    195,506
   Cumulative translation adjustments                                     (1,600)    (1,247)
   Treasury stock, at cost; 1,741,265 and 1,812,287
     Shares, respectively                                                (44,931)   (47,181)
                                                                        --------   --------
      Total shareholders' equity                                         202,119    160,686
                                                                        --------   --------
                                                                        $288,130   $249,010
                                                                        ========   ========
</TABLE>

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


                                                                              56
<PAGE>
 
Dynatech Corporation
Consolidated Statements of Operations
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>                                                               Years Ended March 31,
                                                                     1998       1997       1996
-----------------------------------------------------               -------    -------    -------
<S>                                                                <C>        <C>        <C>
Sales                                                              $472,948   $362,412   $293,042
Cost of sales                                                       205,522    137,254    111,436
                                                                   --------   --------   --------
Gross profit                                                        267,426    225,158    181,606
 
Selling, general and administrative expense                         138,310    114,479     98,487
Product development expense                                          54,995     43,267     36,456
Nonrecurring charges                                                    ---     27,776     16,852
Amortization of intangibles                                           5,835      6,793      5,136
                                                                   --------   --------   --------
   Operating income                                                  68,286     32,843     24,675
 
Interest expense                                                     (1,221)      (828)    (1,723)
Interest income                                                       3,012      2,785      2,181
Other income, net                                                       730        634        975
                                                                   --------   --------   --------
Income from continuing operations before income taxes                70,807     35,434     26,108
 
Provision for income taxes                                           29,031     17,585     10,394
                                                                   --------   --------   --------
Income from continuing operations                                    41,776     17,849     15,714
Discontinued operations:
   Gain on sale of businesses net of income tax
     Provision of $22,692                                               ---     12,000        ---
   Operating loss, net of income tax
  benefit of $(1,009) in 1996                                           ---        ---     (1,471)
                                                                   --------   --------   --------
Net income                                                         $ 41,776   $ 29,849   $ 14,243
                                                                   ========   ========   ========
Income (loss) per common share - basic:
   Continuing operations                                           $   2.49   $   1.04   $   0.87
   Discontinued operations                                              ---       0.70      (0.08)
                                                                   --------   --------   --------
                                                                   $   2.49   $   1.74   $   0.79
                                                                   ========   ========   ========
Income (loss) per common share - diluted:
   Continuing operations                                           $   2.40   $   0.99   $   0.86
   Discontinued operations                                              ---       0.67      (0.08)
                                                                   --------   --------   --------
                                                                   $   2.40   $   1.66   $   0.78
                                                                   ========   ========   ========
 
Weighted average number of common shares
   Basic                                                             16,795     17,200     17,969
   Diluted                                                           17,434     18,028     18,315
</TABLE>


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


                                                                              57
<PAGE>
 
Dynatech Corporation
Consolidated Statements of Shareholders' Equity

(Amounts in thousands)




<TABLE>
<CAPTION>
                                   Number of Shares               Additional                Cumulative               Total
                                  Common   Treasury      Common      Paid-In    Retained   Translation  Treasury     Shareholders'
                                   Stock      Stock       Stock      Capital    Earnings   Adjustments    Stock      Equity
<S>                              <C>        <C>         <C>       <C>           <C>        <C>          <C>         <C> 
-----------------------          --------   --------    --------    --------    --------    --------    --------    --------
Balance, March 31, 1995            18,605     (1,033)   $  3,721    $  7,432    $151,414    $  2,659    $(10,906)   $154,320
 
Net income - 1996                                                                 14,243                              14,243
Purchases of treasury
  stock                                         (800)                                                    (19,367)    (19,367)
Translation adjustments                                                                       (2,317)                 (2,317)
Exercise of stock
  options and other
  issuances                                      812                   3,688                               9,170      12,858  
Tax benefit from
  exercise of stock                                                                                                      982 
  options                                                                982
                                 --------   --------    --------    --------    --------    --------    --------    --------
Balance, March 31, 1996            18,605     (1,021)      3,721      12,102     165,657         342     (21,103)    160,719
 
Net income - 1997                                                                 29,849                              29,849
Purchases of treasury                                
  stock                                       (1,021)                                                    (32,695)    (32,695) 
Translation adjustments                                                                       (1,589)                 (1,589)
Exercise of stock
  options and other
  issuances                                      230                  (3,533)                              6,617       3,084
Tax benefit from
  exercise of stock
  options                                                              1,318                                           1,318
                                 --------   --------    --------    --------    --------    --------    --------    --------
Balance, March 31, 1997            18,605     (1,812)      3,721       9,887     195,506      (1,247)    (47,181)    160,686
                                 ========   ========    ========    ========    ========    ========    ========    ========
Net income - 1998                                                                 41,776                              41,776
Purchases of treasury
  stock                                         (163)                                                     (5,330)     (5,330)
Translation adjustments                                                                         (353)                   (353)
Exercise of stock
  options and other
  issuances                                      234                  (2,919)                              7,580       4,661
Tax benefit from
  exercise of stock
  options                                                                679                                             679
                                 --------   --------    --------    --------    --------    --------    --------    --------
Balance, March 31, 1998            18,605     (1,741)   $  3,721    $  7,647    $237,282    $ (1,600)   $(44,931)   $202,119
                                 ========   ========    ========    ========    ========    ========    ========    ========
</TABLE>



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


                                                                              58
<PAGE>
 
Dynatech Corporation
Consolidated Statements of Cash Flows
(Amounts in thousands)

<TABLE>
<CAPTION>
                                                                                                Years Ended March 31,
                                                                                             1998       1997       1996
----------------------------------------------------------                                 --------   --------   --------
<S>                                                                                        <C>        <C>        <C>
Operating activities:
   Net income from operations                                                              $ 41,776   $ 29,849   $ 15,714
   Adjustment for noncash items included in net income:
      Gain on discontinued operations                                                           ---    (12,000)       ---
      Depreciation                                                                           12,066      9,280      8,279
      Amortization of intangibles                                                             5,835      6,793      5,136
      Purchased incomplete technology                                                           ---     20,627     16,852
      Intangibles writeoff                                                                      ---      7,149        ---
      Change in net deferred income tax asset                                                (5,575)    (7,617)    (5,173)
      Other                                                                                     580        797        457
   Changes in operating assets and liabilities, net of effects
     Of purchase acquisitions and divestitures                                                4,380      4,926    (19,556)
                                                                                           --------   --------   --------
   Net cash provided by continuing operations                                                59,062     59,804     21,709
   Net cash provided by (used in) discontinued operations                                   (13,717)   (52,313)       699
                                                                                           --------   --------   --------
   Net cash flows provided by operating activities                                           45,345      7,491     22,408
Investing activities:
   Purchases of property and equipment                                                      (15,879)   (10,176)    (8,198)
   Disposals of property and equipment                                                          219        214        308
   Proceeds from sales of businesses                                                            ---     96,682     48,901
   Businesses acquired in purchase transactions,
     Net of cash acquired                                                                       ---    (68,930)   (17,143)
   Other                                                                                        144        290      5,597
                                                                                           --------   --------   --------
   Net cash flows provided by (used in) continuing operations                               (15,516)    18,080     29,465
   Net cash flows provided by (used in) discontinued operations                                 507       (951)    (5,487)
                                                                                           --------   --------   --------
   Net cash flows provided by (used in) investing activities                                (15,009)    17,129     23,978
Financing activities:
   Net borrowings (repayment) of debt                                                        (5,195)     2,522     (9,400)
   Proceeds from issuance of common stock                                                     4,513      1,693        952
   Purchases of treasury stock                                                               (5,330)   (32,695)   (19,367)
                                                                                           --------   --------   --------
   Net cash flows used in financing activities                                               (6,012)   (28,480)   (27,815)
Effect of exchange rate on cash                                                                 798     (2,452)      (272)
Increase (decrease) in cash and cash equivalents                                             25,122     (6,312)    18,299
Cash and cash equivalents at beginning of year                                               39,782     46,094     27,795
                                                                                           --------   --------   --------
Cash and cash equivalents at end of year                                                   $ 64,904   $ 39,782   $ 46,094
                                                                                           ========   ========   ========
Change in operating asset and liability components:
   Decrease (increase) in trade accounts receivable                                        $    994   $(15,833)  $(10,287)
   Decrease (increase) in inventories                                                        (8,739)       450     (2,007)
   Increase in other current assets                                                          (2,431)    (3,341)      (297)
   Increase (decrease) in accounts payable                                                    6,009      2,059       (402)
   Increase (decrease) in accrued expenses and taxes                                          8,547     21,591     (6,563)
                                                                                           --------   --------   --------
   Change in operating assets and liabilities                                              $  4,380   $  4,926   $(19,556)
                                                                                           ========   ========   ========
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
      Interest                                                                             $    934   $    889   $  1,739
      Income taxes                                                                           24,307     42,340     13,798
   Tax benefit of disqualifying dispositions of stock options                                   679      1,318        982
   Noncash proceeds from sale of businesses:
      Promissory notes                                                                          ---      7,200        ---
      Preferred stock                                                                           ---      6,300        ---
</TABLE>


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


                                                                              59
<PAGE>
 
Dynatech Corporation
Notes to Consolidated Financial Statements

Summary of Significant Accounting Policies

Business  Dynatech is a global communications equipment company focused on
network technology solutions. Its products address communications test,
industrial computing and communications, and visual communications applications.

Subsequent/Merger Recapitalization  On May 21, 1998, the Company completed its
management-led merger with Clayton, Dubilier & Rice, Inc. ("CDR") ("the
Merger"). The Merger and related transactions were 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.

Principles of Consolidation  The consolidated financial statements include the
accounts of the parent company and its wholly owned domestic and international
subsidiaries. Intercompany accounts and transactions have been eliminated.
Certain prior year amounts have been reclassified to conform with the current
year.

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,
tax valuation reserves, nonrecurring charges, and the carrying values of
discontinued operations. Actual results could differ from those estimates.

Interest Rate Swap Agreements  The Company may, from time to time, enter into
interest rate swap agreements to reduce the impact of interest rate changes on
its debt. The interest rate swap agreements involve exchanges of fixed or
floating rate interest payments without the exchange of the underlying notional
amounts. The notional amounts of such agreements are used to measure the
interest to be paid or received and do not represent the amount of exposure to
loss. The Company did not enter into any interest swap agreements during fiscal
1998, 1997 or 1996.

Cash Equivalents  Cash equivalents represent highly liquid debt instruments with
a maturity of three months or less at the time of purchase. Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist primarily of short-term deposits in Europe with major banks, with
investment levels and debt ratings set to limit exposure from any one
institution.


                                                                              60
<PAGE>
 
Inventories  Inventories are carried and charged to revenue at standard costs,
which is updated regularly and which approximates the lower of cost (first-in,
first-out or average) or market.

Property and Equipment  Property and equipment are carried at cost and include
expenditures for major improvements which substantially increase their useful
life. Repairs and maintenance are expensed as incurred. When assets are retired
or otherwise disposed of, the assets and related allowances for depreciation and
amortization are eliminated from the accounts and any resulting gain or loss is
recognized in the Statement of Operations.

Depreciation and Amortization  For financial reporting purposes, depreciation of
machinery, equipment, and fixtures is computed on the straight-line method over
estimated useful lives of two to ten years. Leasehold improvements are amortized
over the lesser of the lives of the leases or estimated useful lives of the
improvements.

Intangible Assets  Intangible assets acquired primarily from business
acquisitions are summarized as follows:

<TABLE>
<CAPTION>
Amounts in thousands                                                   1998     1997
----------------------------------------                              -------  -------
<S>                                                                   <C>      <C>
Product technology                                                    $17,042  $17,042
Excess of cost over net assets required                                32,478   30,861
Other intangible assets                                                13,307   13,307
                                                                      -------  -------
                                                                       62,827   61,210
Less accumulated amortization                                          23,232   17,397
                                                                      -------  -------
   Total                                                              $39,595  $43,813
                                                                      =======  =======
</TABLE>

At each balance sheet date, management evaluates whether there has been a
permanent impairment in the value of goodwill or intangible assets by assessing
the carrying value of the asset against the anticipated future cash flows from
related operating activities. Factors which management considers in performing
this assessment include current operating results, trends, product transition,
distribution channels and prospects, and, in addition, demand, competition, and
other economic factors. In March 1997, the Company recorded a $7.1 million
charge related to product and distribution transitions.

Product technology and other intangible assets are amortized on a straight-line
basis primarily over two to ten years, but in no event longer than their
expected useful lives. Amortization expense related to product technology was
$3.1 million in fiscal 1998, $3.1 million in fiscal 1997, and $1.9 million in
fiscal 1996, and was excluded from cost of sales. Excess of cost over fair
market value of net assets is being amortized on a straight-line basis primarily
over 15 years.

Foreign Currency Translation  The functional currency for the majority of the
Company's foreign operations is the applicable local currency. The translation
from the applicable foreign currencies to U.S. dollars is performed for balance
sheet accounts using the exchange rates in effect at


                                                                              61
<PAGE>
 
the balance sheet date and for revenue and expense accounts using a weighted
average exchange rate during the period. The gains or losses resulting from such
translation are included in shareholders' equity. Gains or losses resulting from
foreign currency transactions are included in other income.

Treasury Stock The Company delivers treasury shares upon the exercise of stock
options and issuance of shares for the Company's Employee Stock Purchase Plan
and the difference between the cost of the treasury shares, on a last-in, first-
out basis, and the exercise price of the option is reflected in additional paid-
in capital. Repurchase of treasury stock is accounted for by using the cost
method of accounting.

Revenue Recognition Sales of products and services are recorded based on product
shipment and performance of service, respectively. Proceeds received in advance
of product shipment or performance of service are recorded as deferred revenue
in the balance sheet.

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

Warranty Costs The Company generally warrants its products for one year after
delivery. A provision for estimated warranty costs is recorded at the time
revenue is recognized.

Income Taxes The Company provides for income taxes in accordance with Statement
of Financial Accounting Standard No. 109, "Accounting for Income Taxes." Under
this method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

New Pronouncements During the quarter ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No. 128, "Earnings per
Share," which modifies the calculation of earnings per share ("EPS"). The
Standard replaces the previous presentation of primary and fully diluted EPS to
basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS includes the dilution of common
stock equivalents, and is computed similarly to fully diluted EPS pursuant to
APB Opinion 15. All prior periods presented have been restated to reflect this
adoption.


<TABLE>
<CAPTION>
                                                                                    Years Ended March 31,
                                                                                   1998     1997     1996
                                                                                  ------   ------   ------
<S>                                                                               <C>      <C>      <C>
Basic:
   Common stock outstanding beginning of year                                     16,803   17,594   17,577
   Weighted average treasury stock issued during the period                          134      144      461
   Weighted average treasury stock repurchased                                      (142)    (538)     (69)
                                                                                  ------   ------   ------
   Weighted average common stock outstanding end of year                          16,795   17,200   17,969
                                                                                  ======   ======   ======
</TABLE> 

                                                                              62
<PAGE>
 
<TABLE> 
<CAPTION> 
Diluted:
<S>                                                                              <C>      <C>      <C> 
   Common stock outstanding beginning of year                                     16,803   17,594   17,577
   Weighted average treasury stock issued during the period                          134      144      461
   Weighted average common stock equivalents                                         639      828      346
   Weighted average treasury stock repurchased                                      (142)    (538)     (69)
                                                                                  ------   ------   ------
   Weighted average common stock outstanding end of year                          17,434   18,028   18,315
                                                                                  ======   ======   ======
</TABLE>

The Financial Accounting Standards Board issued Statement No. 130, "Reporting
Comprehensive Income" which establishes standards for the reporting and display
of comprehensive income in general-purpose financial statements. This Standard
is effective for fiscal periods beginning after December 15, 1997 and its
adoption is not expected to have a material impact on the Company's disclosures.

The Financial Accounting Standards Board issued Statement No. 131, "Disclosures
about Segments of an Enterprise and Related Information," which establishes
standards for the reporting of operating segments in the financial statements.
This Standard is effective for fiscal periods beginning after December 15, 1997
and its adoption is not expected to have a material impact on the Company's
historical financial data.

In October, 1997, Statement of Position 97-2, "Software Revenue Recognition"
("SOP 97-2"), was issued which provides guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions. SOP 97-2
is effective for transactions entered into in fiscal years beginning after
December 15, 1997. The Company adopted the guidelines of SOP 97-2 as of April 1,
1998 and does not expect adoption to have a material impact on the Company's
financial results.

Discontinued Operations

A formal plan to discontinue noncore businesses was approved by the Board of
Directors on February 7, 1996. In fiscal 1997, the Company essentially completed
its disposition of the noncore businesses. Proceeds from these sales in fiscal
1997 and 1996 were $96.7 million in cash, $7.2 million in long-term promissory
notes, and Class A Preferred Stock of CMSI Holdings Corporation with an
aggregate liquidation preference of $6.3 million, and $48.9 million in cash,
respectively, which resulted in an aftertax gain of $12 million or $0.67 per
share on a diluted basis.

In connection with the sale of one of its subsidiaries, the Company agreed to
guarantee the purchaser's payment obligations under a credit facility obtained
by the purchaser. The guaranteed portion of the principal amount of this
facility is $3 million for a period of seven years from the closing date of
March 1997 and is to be used to fund the purchaser's capital expenditures.

Summary operating results of noncore businesses prior to the formal plan to
discontinue operations are as follows:
 
Amounts in thousands                                       1996
--------------------------------------------------------------------------------
Sales                                                  $182,040


                                                                              63
<PAGE>
 
Gross margin                                    79,571
Income (loss) before taxes                      (3,460)
Net income (loss)                              $(1,471)

In connection with the disposition of these subsidiaries, the Company had net
liabilities of $756 thousand and $9.2 million at March 31, 1998 and 1997,
respectively. Included in these amounts are liabilities related to severance,
legal, lease runout, taxes and warranty accruals, most of which were paid in
fiscal 1998, offset by noncash investments.

Long-Term Debt

Long-term debt is summarized below:

Amounts in thousands                               1998       1997
-------------------------------------------      --------   --------

Revolving credit and term bank loan              $  ---     $5,000 
Capital lease obligations                           233        427
                                                 --------   --------
   Total debt                                       233      5,427
      Less current portion                          150        201
                                                 --------   --------
   Long-term debt                                $   83     $5,226
                                                 ========   ========


In 1997, the Company had an unsecured $70 million revolving credit and term bank
loan agreement ("Old Agreement") with several commercial banks which allowed for
borrowings in various currencies and provided for interest to be payable at the
Eurocurrency rate, or base or money market rate quoted by the lender, depending
upon the currencies borrowed and the form of borrowing. Under the terms of the
Old Agreement, the principal borrowings would have converted to a term loan
payable in eight equal quarterly installments beginning September 30, 1998.

In April 1997, the Company entered into a new $150 million revolving credit and
term loan agreement ("New Agreement") with several commercial banks.  This
agreement allows for borrowings using various instruments with interest payable
at Eurodollar rate plus an applicable margin based on the Company's leverage
ratio or base rate, quoted by the lender.  Under the terms of the New Agreement,
the principal borrowings may convert to a term loan payable in eight equal
quarterly installments beginning June 30, 2000.

The terms of both the Old and New Agreement require, among other things,
specific levels of current ratio, fixed- charge coverage ratio, and minimum
tangible net worth. The Company was in compliance with all covenants at March
31, 1998.

After the Merger. After completion of the Merger and related financings, the
Company had $575.2 million of indebtedness, primarily consisting of $275 million
principal amount of the Senior Subordinated Notes, $260 million in term loan
borrowings under the Term Loan Facility and $40.0 million in revolving credit
borrowings under the new Revolving Credit Facility.  On May 21, 1998, the
Company terminated it Old and New Agreements.

                                                                           64

                                                                           
<PAGE>
 
Debt Service.  Principal and interest payments under the new Senior Secured
Credit Facilities and interest payments on the Senior Subordinated Notes will
represent significant liquidity requirements for the Company.  It is expected
that with respect to the $260.0 million borrowed under the Term Loan Facility,
in which the facility is divided into tranches, of which each tranche has a
different term and repayment schedule, the Company will be required to make
scheduled principal payments of the $50.0 million of tranche A term loan
thereunder over its six-year term, with substantial amortization of the $70.0
million of tranche B term loan, $70.0 million of tranche C term loan and $70
million tranche D term loan thereunder occurring after six, seven and eight
years, respectively. The $275 million of Senior Subordinated Notes will mature
in 2008, and bear interest at 9  3/4%.  Total interest expense is expected to be
$51.0 million in fiscal 1999.  The Senior Secured Credit Facilities are also
subject to mandatory prepayment and reduction in an amount equal to, subject to
certain exceptions, (a) 100% of the net proceeds of (i) certain debt offerings
by the Company and any of its subsidiaries, (ii) certain asset sales by the
Company or any of its subsidiaries, and (iii) casualty insurance, condemnation
awards or other recoveries received by the Company or any of its subsidiaries
and (b) 50% of the Company's excess cash flow (as to be defined) 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.  The Revolving Credit Facility matures in 2004, with all amounts
then outstanding becoming due.  The Company expects that its working capital
needs will require it to obtain new revolving credit facilities at the time that
the Revolving Credit Facility matures, whether by extending, renewing, replacing
or otherwise refinancing the Revolving Credit Facility.  No assurance can be
given that any such extension, renewal, replacement or refinancing can be
successfully accomplished.  The loans under the Senior Secured Credit Facilities
bear interest at floating rates based upon the interest rate option elected by
the Company.  As a result of the substantial indebtedness incurred in connection
with the Merger, it is expected that the Company's interest expense will be
higher and will have a greater proportionate impact on net income in comparison
to preceding periods.

Future Financing Sources and Cash Flows.  The amount under the Revolving Credit
Facility that remained undrawn following the closing of the Merger was $70.0
million.  The undrawn portion of this facility will be available to meet future
working capital and other business needs of the Company and replaces the
Company's previously outstanding credit facilities totaling $180.0 million.  The
Company believes that cash generated from operations, together with amounts
available under the Revolving Credit Facility and any other available sources of
liquidity, will be adequate to permit the Company to meet its debt service
obligations, capital expenditure program requirements, ongoing operating costs
and working capital needs, although no assurance can be given in this regard.
The Company's future operating performance and ability to service or refinance
the Senior Subordinated Notes and to repay, extend or refinance the Senior
Secured Credit Facilities (including the Revolving Credit Facility) will be,
among other things, subject to future economic conditions and to financial,
business and other factors, many of which are beyond the Company's control.

Income Taxes


                                                                           65
<PAGE>
 
The components of income (loss) from continuing operations before taxes are as
follows:

<TABLE>
<CAPTION>

Amounts in thousands                                         1998        1997        1996
--------------------------------------                     ---------   ---------   ---------
<S>                                                        <C>         <C>         <C>
Domestic                                                   $69,772     $38,486     $26,657
Foreign                                                      1,035      (3,052)       (549)
                                                           ---------   ---------   ---------
   Total                                                   $70,807     $35,434     $26,108
                                                           =========   =========   =========
</TABLE>

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

<TABLE>
<CAPTION>

Amounts in thousands                                         1998        1997        1996
--------------------------------------                     ---------   ---------   ---------
<S>                                                        <C>         <C>         <C>
Provision for income taxes:
   United States                                           $22,810     $11,729     $ 9,092
   Foreign                                                     327         234        (428)
   State                                                     5,894       5,622       1,730
                                                           ---------   ---------   ---------
      Total                                                $29,031     $17,585     $10,394
                                                           =========   =========   =========
</TABLE>
 
Components of income tax provision:

<TABLE>
<CAPTION>
Current:
<S>                                                        <C>         <C>         <C>
   Federal                                                 $21,248     $19,297     $15,247
   Foreign                                                    (978)        234        (423)
   State                                                     6,123       5,671       3,072
                                                           ---------   ---------   ----------
      Total Current                                         26,393      25,202      17,896
                                                           ---------   ---------    --------
Deferred:
   Federal                                                   1,562      (7,568)     (6,155)
   Foreign                                                   1,305         ---          (5)
   State                                                      (229)        (49)     (1,342)
                                                           ---------   ---------   ----------
   Total deferred                                            2,638      (7,617)     (7,502)
                                                           ---------   ---------   ----------
   Total                                                   $29,031     $17,585     $10,394
                                                           =========   =========   ==========
</TABLE>

Reconciliations between U.S. federal statutory rate and the effective tax rate
of continuing operations follow:

<TABLE>
<CAPTION>
                                                                             1998   1997   1996
----------------------------------------------------                         ----   ----   ----
<S>                                                                          <C>    <C>    <C>
Tax at U.S. federal statutory 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                                                           ---    0.6   (0.5)

</TABLE> 
                                                                           66
<PAGE>
 
<TABLE> 
   <S>                                                                      <C>     <C>    <C> 
   State income taxes, net of federal income tax
     benefit                                                                  5.1    3.8    4.3
   Research and development tax credit                                       (1.3)  (0.7)  (0.7)
   Nondeductible amortization                                                 1.2    1.1    1.9
   Other                                                                      1.0    0.7   (0.2)
                                                                             -----  -----  -----
      Effective tax rate before certain charges                              41.0%  40.5%  39.8%
   Nondeductible purchased research and development                           ---    8.2     ---
   Nondeductible writeoff of intangibles                                      ---    0.9     ---
                                                                             -----  -----  -----
      Total effective tax rate on continuing operations                      41.0%  49.6%  39.8%
                                                                             -----  -----  -----
</TABLE>

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

<TABLE>
<CAPTION>
Amounts in thousands                                                        1998      1997
-------------------------------------------------------                   -------   -------
<S>                                                                       <C>       <C>
Deferred tax assets:
   Net operating loss carryforwards                                       $ 4,608   $ 3,291
   Vacation benefits                                                        1,556       792
   Bad debt allowance                                                         ---       364
   Inventory capitalization                                                   403       363
   Depreciation and amortization                                           16,343    16,767
   Other deferred assets                                                    8,976     4,434
                                                                          -------   -------
                                                                           31,886    26,011
Valuation allowance                                                        (4,608)   (3,291)
                                                                          -------   -------
                                                                           27,278    22,720
Deferred tax liabilities:
   Depreciation and amortization                                              431     1,025
   Other deferred liabilities                                               1,068     1,491
                                                                          -------   -------
                                                                            1,499     2,516
                                                                          -------   -------
Net deferred tax assets                                                   $25,779   $20,204
                                                                          =======   =======
</TABLE>

Deferred income taxes are included in the following balance sheet accounts:

<TABLE>
<CAPTION>
Amounts in thousands                                                       1998      1997
-------------------------------------------------------                   -------   -------
<S>                                                                       <C>       <C>
Other current assets                                                      $ 8,695   $ 3,846
Other assets                                                               17,084    16,358
                                                                          -------  --------
                                                                          $25,779   $20,204
                                                                          =======  ========
</TABLE>

The valuation allowance applies to state and foreign net operating loss
carryforwards that may not be fully utilized by the Company. The increase in the
valuation reserve relates to the increase in these net loss carryforwards.

Employee Retirement Plans

                                                                           67
<PAGE>
 
The Company has a trusteed employee retirement profit sharing and 401(k) savings
plan for eligible U.S. employees. The Plan does not provide for stated benefits
upon retirement. Employees outside the U.S. are covered principally by
government-sponsored plans that are deferred contribution plans. The cost of
Company-provided plans is not material.

The Company has a nonqualified deferred compensation plan which 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 will be placed in an irrevocable rabbi trust and presented as assets in
the Company's balance sheet because they will be available to the general
creditors of the Company in the event of the Company's insolvency. An offsetting
liability will reflect amounts due employees.

Corporate contributions to employee retirement plans were $4.5 million in fiscal
1998, $4.0 million in fiscal 1997, and $3.3 million in 1996.

Stock Compensation and Purchase Plans

On July 30, 1996 the shareholders adopted the 1996 Employee Stock Purchase Plan
under which eligible employees may contribute up to 10% of their salary toward
semi-annual purchases of the Company's capital stock. The plan commenced October
1, 1996 and each plan period lasts six months beginning on October 1 and April 1
of each year. The purchase price for each share of stock is the lesser of 85% of
the market price on the first or last day of the plan period. A total of 600,000
shares are available for purchase under the plan.  There were 44,840 shares
issued under the plan in October, 1997 and 38,692 shares were reserved for
issuance at March 31, 1998.  Pursuant to the Merger, the plan has been amended
to provide that there will be no new stock purchase periods after March 31,
1998.  The Employee Stock Purchase Plan terminated on May 21, 1998.

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.


A summary of activity in the Company's option plans is as follows:
 
<TABLE>
<CAPTION>
                                                         1998                  1997                  1996
                                                     Weighted              Weighted              Weighted
                                                      Average               Average               Average
                                               1998  Exercise        1997  Exercise        1996  Exercise
                                             Shares     Price      Shares     Price      Shares     Price
---------------------------------          --------   -------    --------   -------    --------   -------
<S>                                       <C>         <C>       <C>         <C>       <C>         <C>
Shares under option, beginning of year    1,770,560     $21.87  1,684,580     $15.17  1,296,720     $12.09
Options granted (at an exercise price
 Of $35 to $44 in 1998, $32 to $54 in
 1997, and $15.50 to $20.25 in 1996)        634,800      36.25    607,550      34.51    673,700      20.01
                                                                                                  
Options exercised                          (148,941)     17.20   (255,690)     11.99   (126,500)     10.26

</TABLE> 

                                                                             68
<PAGE>
 
<TABLE> 
<S>                                       <C>           <C>     <C>           <C>     <C>           <C> 
Options canceled                           (120,700)     24.26   (265,880)     17.82   (159,340)     14.44
                                           --------             ---------             ---------
Shares under option, end of year          2,135,719      26.33  1,770,560      21.87  1,684,580      15.17
                                           ========             =========             =========
Shares exercisable                          512,999     $18.79    300,710     $14.77    261,780     $11.52
</TABLE>
                                                                               

Options available for future grants under the plans were 497 thousand, 1.0
million, and 1.4 million at March 31, 1998, 1997, and 1996, respectively.

The fair market value of each option granted during 1998, 1997, and 1996 is
estimated on the date of grant using the Black-Scholes option-pricing model with
the following weighted average assumptions:  expected volatility of 40% in 1998,
39% in 1997 and 1996, risk-free interest rate of 6% in 1998, 6.59% in 1997, and
6.27% in 1996, expected life of 7 years and a dividend yield of 0%. The Weighted
Average Fair Value of options granted, net of forfeitures, during the years
1998, 1997, and 1996 was $19.20, $18.68, and $10.68, respectively.

The following table summarizes information about currently outstanding and
exercisable stock options at March 31, 1998:

<TABLE>
<CAPTION>
                                                             Weighted
                                               Number of      Average   Weighted
                                                 Options    Remaining    Average
                                             Outstanding  Contractual   Exercise
Range of Exercise Price                       At 3/31/98         Life      Price
 ---------------------------                 -----------  -----------   --------
<S>                                          <C>          <C>           <C>
$9.00 - $15.00                                  437,540        4.62      $11.05
$15.00 - $30.00                                 542,860        7.14       19.08
$30.00 - $54.00                               1,155,319        8.85       35.93
                                             ----------- 
   Total                                      2,135,719        7.55      $26.33
                                             ===========
</TABLE>

The Company applies ABP Opinion 25 and related interpretations in accounting for
its plans. In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS123"), which is effective for transactions entered into for
fiscal years that begin after December 15, 1995. FAS123 established a fair
value-based method of accounting for stock-based compensation plans. In adopting
FAS123 in 1997, the Company elected footnote disclosure only. Accordingly, no
compensation cost has been recognized for its stock option plans and its stock
purchase plan under FAS123. 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 FAS123, the Company's net income and
earnings per share would have been changed to the pro forma amounts indicated
below:

<TABLE>
<CAPTION>
                                                                                                        
Amounts in thousands except per share                  1998                    1997                    1996                    
                                             As           Pro        As           Pro        As           Pro
                                             Reported     Forma      Reported     Forma      Reported     Forma
------------------------                     --------     -------    --------     -------    --------     --------
<S>                                          <C>          <C>        <C>          <C>        <C>          <C>
Net income                                   $41,776      $38,441    $29,849      $27,863    $14,243      $13,464
Net income per share:
   Basic                                     $  2.49      $  2.29    $  1.74      $  1.62    $  0.79      $  0.75
   Diluted                                   $  2.40      $  2.20    $  1.66      $  1.55    $  0.78      $  0.74
</TABLE>

                                                                           69
<PAGE>
 
The effect of applying FAS123 in this pro forma disclosure is not indicative of
future amounts. FAS123 does not apply to awards prior to 1995; and additional
awards in future years are anticipated.

Shareholder Rights Plan

In February 1989 the Board of Directors adopted a Shareholder Rights Plan and
declared a dividend distribution of one Right for each outstanding share of
Dynatech's common stock. The Plan was amended in March 1990. Each Right, when
exercisable, entitles a qualifying shareholder to buy shares of Dynatech junior
participating cumulative preferred stock. The Rights would only become
exercisable (i) ten days after a person has become the beneficial owner of 15%
or more of Dynatech's common stock, or (ii) ten business days after the
commencement of a tender offer that would result in the ownership of 15% or more
of the common stock, or (iii) upon determination by the Board of Directors that
a person who holds 10% or more of Dynatech's common stock intends to, or is
likely to, act in certain specified manners adverse to the interests of Dynatech
and its shareholders.

In the event Dynatech is acquired and is not the surviving corporation in a
merger, or in the event of the acquisition of 50% or more of the assets or
earning power of Dynatech, each Right would then entitle the qualified holder to
purchase, at the then-current exercise price, shares of common stock of the
acquiring company having a value of twice the exercise price of the Right.
Furthermore, if any party were to acquire 15% or more of Dynatech's common stock
or were determined to be an adverse person as described above, qualified holders
of the Rights would be entitled to acquire shares of Dynatech junior
participating cumulative preferred stock having a value of twice the then-
current exercise price. At the option of the Board of Directors, all of the
Rights could be exchanged into shares of common or preferred stock.

The Board of Directors of the Company contemporaneously with the execution of
the Merger Agreement amended the Rights Agreement so that (i) none of CDR, Fund
or MergerCo became an "Acquiring Person" as a result of the consummation of the
transactions contemplated by the Merger Agreement, (ii) no "Stock Acquisition
Date," "Triggering Event" or "Distribution Date" (as such terms are defined in
the Rights Agreement) occurred as a result of the consummation of the
transactions contemplated by the Agreement, and (iii) all outstanding Rights
issued and outstanding under the Rights Agreement and the Rights Agreement
terminated immediately prior to the effective time of the Merger and no shares
of Recapitalized Common Stock issued on or after the effective time of the
Merger will have any Rights associated with them under the Rights Agreement.

Commitments and Contingencies

The Company has operating leases from continuing operations covering plant,
office facilities, and equipment which expire at various dates through 2006.
Future minimum annual fixed rentals required during the years ending in fiscal
1999 through 2003 under noncancelable operating leases having an original term
of more than one year are $8.9 million, $7.4 million, $5.6 million, $4.9
million, and $4.2 million, respectively. The aggregate 


                                                                           70
<PAGE>
 
obligation subsequent to fiscal 2003 is $6.2 million. Rent expense from
continuing operations was approximately $8.1 million, $6.2 million, and $5.7
million in fiscal 1998, 1997, and 1996, respectively.
 
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 counsel and management are of the opinion that the final outcome
should not have a material adverse effect on the Company's operations or
financial position.

On June 27, 1996, Cincinnati Microwave, Inc. ("CMI") filed an action in the
United States District Court for the Southern District of Ohio against the
Company and Whistler Corporation of Massachusetts ("Whistler"), alleging willful
infringement of CMI's patent for a mute function in radar detectors.  In 1994,
the Company sold its radar detector business to Whistler.  The Company and
Whistler have asserted in response that they have not infringed, and that the
patent is invalid and unenforceable.  The Company obtained an opinion of counsel
from Bromberg & Sunstein LLP in connection with the manufacture and sale of the
Company's Whistler series radar detectors and will be offering the opinion,
among other things, as evidence that any alleged infringement was not willful.
On March 24, 1998, CMI, together with its co-plaintiff and patent assignee
Escort, Inc., moved for summary judgment.  The Company and Whistler have opposed
the motion for summary judgment.  Discovery in this matter closed on June 20,
1998.  The Company intends to defend the lawsuit vigorously and does not believe
that the outcome of the litigation is likely to have a material adverse effect
on the Company's financial condition, results of operations or liquidity.

Nonrecurring Charges

The components of nonrecurring expenses include the following:

<TABLE>
<CAPTION>
Amounts in thousands                                                1997      1996
--------------------------------------------                      --------  --------
<S>                                                               <C>       <C>
Incomplete technology                                             $20,627   $16,852
Intangible writeoffs                                                7,149       ---
                                                                  --------  --------
   Total                                                          $27,776   $16,852
                                                                  ========  ========
</TABLE>

Acquisitions

1997 Acquisitions  In March of 1997, the Company acquired the net assets of
Advent Design, Inc. ("Advent") for $3.5 million in cash.  Advent designs and
manufactures high-performance microprocessor-based systems for the computer,
medical and communications markets. This acquisition generated $3.4 million of
goodwill which is being amortized over 15 years.  During fiscal 1998, the
Company incurred a $1.6 million increase in goodwill, related to a targeted
three-year earnout based on, among other things, a positive operating income.

On December 31, 1996, the Company acquired substantially all of the assets and
assumed certain liabilities of Itronix Corporation ("Itronix") located in
Spokane, Washington, for $65.4 million in cash.  Approximately $40 million of
the purchase price was borrowed pursuant to the terms of the Company's 

                                                                           71
<PAGE>
 
revolving credit and term loan agreement in effect at that time. A significant
portion of the borrowed funds was repaid during the fourth quarter of 1997.
Itronix is a manufacturer of mobile computing and communications devices,
including ruggedized laptop computers, which increase the efficiency of large,
mission-critical service groups.

Incident to this acquisition was the purchase of incomplete technology
activities which resulted in a one-time pretax charge of $20.6 million or
($0.74) per share on a diluted basis. This purchased incomplete technology that
had not reached technological feasibility and which had no alternative future
use was valued using a risk adjusted cash flow model, both in 1997 and 1996,
under which future cash flows associated with in-process research and
development were discounted considering risks and uncertainties related to the
viability of potential changes in future target markets and to the completion of
the products that will ultimately be marketed by the Company. Acquired complete
technology of $8.4 million is being amortized over two to seven years, and
goodwill of $17.9 million is being amortized over 15 years.

As a percentage of sales, the gross margin and selling, general and
administrative expenses of Itronix are lower than the consolidated financial
results of the Company prior to the acquisition.  Therefore, the pro forma
income statements below reflect a lower gross margin and selling, general and
administrative expenses as a percent of consolidated sales.  Hence, in order to
demonstrate the Company's operating performance versus the previous years, the
following unaudited pro forma information presents a summary of consolidated
results of operations of the Company as if the acquisition had occurred at the
beginning of fiscal 1996, with pro forma adjustments to give effect to
amortization of goodwill and intangibles, interest expense on acquisition debt,
and certain other adjustments, together with related income tax effects.  (In
thousands except per share data).

<TABLE>
<CAPTION>
                                                   Fiscal Year Ended   Fiscal Year Ended
                                                     March 31, 1997      March 31, 1996
---------------------------------                  -----------------   -----------------
<S>                                                <C>                 <C>
Sales                                                       $426,234            $355,886
Cost of sales                                                183,076             158,602
                                                           ---------           ---------
Gross profit                                                 243,158             197,284
 
Selling, general & administrative expense
                                                             122,232             105,383
Product development expense                                   48,515              40,913
Nonrecurring charges                                           7,149              16,852
Amortization of intangibles                                    8,853               7,886
                                                           ---------           ---------
Operating income                                              56,409              26,250
 
Interest expense                                              (3,284)             (4,998)
Interest income                                                2,785               2,181
Other income, net                                                633                 975
                                                           ---------           ---------
Income from continuing operations before income
 taxes                                                        56,543              24,408
 
Provision for income taxes                                    24,974               9,799
</TABLE> 



                                                                              72
<PAGE>
 
<TABLE> 
<CAPTION> 

                                                            --------            --------
<S>                                                         <C>                 <C> 
Income from continuing operations                           $ 31,569            $ 14,609
                                                            ========            ========
Income per share:
   Basic                                                       $1.84               $0.81
   Diluted                                                     $1.74               $0.80
Weighted average shares:
   Basic                                                      17,200              17,969
   Diluted                                                    18,028              18,315
</TABLE>


1996 Acquisitions.  On February 20, 1996 Dynatech acquired the stock of
Synergistic Solutions, Inc. ("SSI"), of Atlanta, Georgia, for approximately $5.5
million. Acquired technology and other intangible assets of approximately $4.3
million are being amortized over four to seven years. The investment in excess
of fair market value of assets purchased of $964 thousand is being amortized
over 15 years.

On September 1, 1995 Dynatech acquired substantially all of the business and
assets of Tele-Path Industries, Inc. ("TPI"), of Salem, Virginia, for $23.6
million. Approximately $12.6 million was cash, including a $2.6 million
contingent adjustment for the stock price, and 688,096 shares of the Company's
common stock at $19.91 per share. Acquired complete technology and other
intangible assets of approximately $6.7 million are being amortized over five
years.

Incident to this acquisition, the Company purchased the incomplete technology
activities of TPI, resulting in a one-time pretax charge in the second quarter
of approximately $16.9 million, or ($0.56) per share on a diluted basis. This
purchased incomplete technology that had not reached technological feasibility
and which had no alternative future use was valued using a risk adjusted cash
flow model.

Acquisitions, both in fiscal 1997 and 1996, were recorded using the purchase
method of accounting.

Subsequent Events

On June 19, 1998, the Company acquired the stock of Pacific Systems Corporation
of Kirkland, Washington ("Pacific") for a total purchase price of $20 million,
including an incentive earnout.  Pacific designs and manufactures customer
specified avionics and integrated cabin management equipment for the corporate
and general aviation market.

On May 21, 1998, the Company completed its management-led recapitalization with
Clayton, Dublilier & Rice, Inc.  In connection with the Merger, the Company's
shareholders received consideration consisting of $47.75 per share in cash and a
0.5 share of recapitalized common stock.  In connection with the Merger, the
Company entered into a credit agreement with certain lenders providing for the
Senior Secured Credit Facilities including a $260 million term loan facility and
a $110 million revolving credit facility (the "Revolving Credit Facility").  In
connection with the Merger, the Company also completed the offering of $275
million aggregate principal amount of the Senior Subordinated Notes.  On May 31,
1998 the Company had a total of $575.2

                                                                              73
<PAGE>
 
million of debt which consisted primarily of $275 million principal amount of
Senior Subordinated Notes, $260 million in term loan borrowings under the Term
Loan Facility and $40 million in revolving credit borrowings under the Revolving
Credit Facility.

Debt Service.  Principal and interest payments under the new Senior Secured
Credit Agreement and interest payments on the Senior Subordinated Notes will
represent significant liquidity requirements for the Company.  It is expected
that with respect to the $260.0 million borrowed under the Term Loan Facility,
in which the facility is divided into tranches, of which each tranche has a
different term and repayment schedule, the Company will be required to make
scheduled principal payments of the $50.0 million of tranche A term loan
thereunder over its six-year term, with substantial amortization of the $70.0
million of tranche B term loan, $70.0 million of tranche C term loan and $70
million tranche D term loan thereunder occurring after six, seven and eight
years, respectively. The $275 million of Senior Subordinated Notes will mature
in 2008, and bear interest at 9 3/4%.  Total interest expense is expected to be
$51.0 million in fiscal 1999.  The Senior Secured Credit Agreement are also
subject to mandatory prepayment and reduction in an amount equal to, subject to
certain exceptions, (a) 100% of the net proceeds of (i) certain debt offerings
by the Company and any of its subsidiaries, (ii) certain asset sales by the
Company or any of its subsidiaries, and (iii) casualty insurance, condemnation
awards or other recoveries received by the Company or any of its subsidiaries
and (b) 50% of the Company's excess cash flow (as to be defined) 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.  The Revolving Credit Facility matures in 2004, with all amounts
then outstanding becoming due.  The Company expects that its working capital
needs will require it to obtain new revolving credit facilities at the time that
the Revolving Credit Facility matures, whether by extending, renewing, replacing
or otherwise refinancing the Revolving Credit Facility.  No assurance can be
given that any such extension, renewal, replacement or refinancing can be
successfully accomplished.  The loans under the Senior Secured Credit Agreement
bear interest at floating rates based upon the interest rate option elected by
the Company. As a result of the substantial indebtedness incurred in connection
with the Merger, it is expected that the Company's interest expense will be
higher and will have a greater proportionate impact on net income in comparison
to preceding periods.

Future Financing Sources and Cash Flows.  The amount under the Revolving Credit
Facility that remained undrawn following the closing of the Merger was $70.0
million.  The undrawn portion of this facility will be available to meet future
working capital and other business needs of the Company and replaced the
Company's previously outstanding credit facilities totaling $180.0 million.  The
Company believes that cash generated from operations, together with amounts
available under the Revolving Credit Facility and any other available sources of
liquidity, will be adequate to permit the Company to meet its debt service
obligations, capital expenditure program requirements, ongoing operating costs
and working capital needs, although no assurance can be given in this regard.
The Company's future operating performance and ability to service or refinance
the Senior Subordinated Notes and to repay, extend or refinance the Senior
Secured Credit Facilities (including the Revolving Credit Facility) will be,
among other things,

                                                                              74
<PAGE>
 
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control.

The Senior Secured Credit Agreement imposes restrictions on the ability of the
Company to make capital expenditures and both the Senior Secured Credit
Agreement and the indenture governing the Senior Subordinated Notes limit the
Company's ability to incur additional indebtedness.  Such restrictions, together
with the highly leveraged nature of the Company, could limit the Company's
ability to respond to market conditions, to meet its capital spending program,
to provide for unanticipated capital investments or to take advantage of
business opportunities.  The covenants contained in the Senior Secured Credit
Agreement also, among other things, restrict the ability of the Company and its
subsidiaries to dispose of assets, incur guarantee obligations, prepay other
indebtedness, and 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.  In addition, under the Senior
Secured Credit Agreement, the Company is required to comply with a minimum
interest expense coverage ratio and a maximum leverage ratio.  These financial
tests become more restrictive in future years.  The term loans under the Senior
Credit Facility (other than the $50 million tranche A term loan) have negative
covenants which 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 businesses.

Shares of Recapitalized Common Stock trade only in the over-the-counter market.
Although prices in respect of trades may be published by the National
Association of Securities Dealers, Inc. on its electronic bulletin board, "pink
sheets," quotes for such shares may not be as readily available; accordingly, it
is anticipated that the Recapitalized Common Stock will trade much less
frequently than the Common Stock traded prior to the Merger, which may have a
material adverse effect on the market value of shares of Recapitalized Common
Stock.  In addition, (depending upon certain factors) the shares of
Recapitalized Common Stock may no longer constitute "margin securities" for the
purposes of the margin regulations of the Federal Reserve Board and therefore
could no longer be used as collateral for loans made by brokers.

The Company is obligated by the Merger Agreement to continue to be a reporting
company under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and to continue to file periodic reports (including annual and quarterly
reports) for at least five years after the Merger, unless fewer than 100 record
holders of shares of Recapitalized Common Stock are non-affiliates of the
Surviving Corporation or except as otherwise provided in the Merger Agreement.
After the fifth anniversary of the effective time of the Merger, the Company may
deregister the Recapitalized Common Stock under the Exchange Act if permitted by
applicable law.  If the Company were to cease to be a reporting company under
the Exchange Act and to the extent not required in connection with any other
debt or equity securities of the Company registered or required to be registered
under the Exchange Act, the information now available to stockholders of the
Company in the annual, quarterly and other reports required to be filed by the
Company with the

                                                                              75
<PAGE>
 
Securities and Exchange Commission would not be available to them as a matter of
right.

The following unaudited pro forma condensed consolidated balance sheet of the
Company has been prepared to give effect to the Merger and related transactions
as a recapitalization for financial reporting purposes.










                                                                              76
<PAGE>
 
Dynatech Corporation
Pro Forma Balance Sheet
(Unaudited)

<TABLE>
<CAPTION>                                                                                                      March 31,
                                                                                                                 1998
------------------------------------------------                                                               --------
<S>                                                                                                            <C>
Current assets:
   Cash and cash equivalents                                                                                   $ 43,619
   Accounts receivable                                                                                           69,988
   Inventories:
      Raw materials                                                                                              24,263
      Work in process                                                                                            11,769
      Finished goods                                                                                             12,850
                                                                                                               --------
         Total inventory                                                                                         48,882
 
   Other current assets                                                                                          16,823
                                                                                                               --------
      Total current assets                                                                                      179,312
 
Property and equipment:
   Land, building and leasehold improvements                                                                      4,904
   Machinery and equipment                                                                                       51,220
   Furniture and fixtures                                                                                        12,351
                                                                                                               --------
                                                                                                                 68,475
   Less accumulated depreciation and amortization                                                               (42,110)
                                                                                                               --------
                                                                                                                 26,365
Other assets:
   Intangible assets, net                                                                                        39,595
   Other                                                                                                         63,508
                                                                                                               --------
                                                                                                               $308,780
                                                                                                               ========
</TABLE>

<TABLE>
<CAPTION>
Current liabilities:
<S>                                                                                                           <C>
   Notes payable and current portion of long-term debt                                                        $     150
   Accounts payable                                                                                              22,933
   Accrued expenses:
      Compensation and benefits                                                                                  21,750
      Taxes, other than income taxes                                                                              2,071
      Deferred revenue                                                                                           13,868
      Other                                                                                                      16,082
   Accrued income taxes                                                                                           5,196
   Net liabilities of discontinued operations                                                                       756
                                                                                                               --------
      Total current liabilities                                                                                  82,806
 
Long-term debt                                                                                                  567,983
Deferred compensation                                                                                             3,122
 
Commitments and contingencies
 
Shareholders' equity:
   Recapitalized common stock, including additional
     paid-in capital                                                                                            304,092
   Retained earnings                                                                                           (647,623)
   Cumulative translation adjustments                                                                            (1,600)
                                                                                                               --------
      Total shareholders' equity                                                                               (345,131)
                                                                                                               --------
                                                                                                              $ 308,780
                                                                                                               ========
</TABLE>


                                                                              77
<PAGE>
 
The pro forma balance sheet reflects:

(i)   The issuance of 111,590,528 shares of Recapitalized Common Stock in
      exchange for MergerCo Common Stock, net of related issuance costs of
      $13,800; MergerCo is a nonsubstantive transitory merger vehicle (which was
      merged into the Company at the effective time) and its only tangible
      assets were $277,000 of cash and 40,804 shares of Common Stock from the
      issuance of its common stock.

(ii)  The issuance of Senior Secured Credit Facilities, Senior Subordinated
      Notes and borrowings under the Revolving Credit Facility.

(iii) Deferred issuance costs incurred in connection with the issuance of Senior
      Secured Credit Facilities, Senior Subordinated Notes and the Revolving
      Credit Facility of which $2,500 was prepaid by the Company at December 31,
      1997.

(iv)  The net cash paid in connection with the settlement of certain stock
      options in an amount equal to the excess of $49.00 over the exercise price
      per share of Common Stock subject so such settled options, and the related
      tax benefit.

(v)   The assuming of approximately 1,100,000 Company Stock Options by the
      Company held by Management Stockholders converted into equivalent options
      to purchase shares of Recapitalized Common Stock (the exercise prices of
      which preserve the economic value of their current Company Stock Options),
      most of which will be fully vested and exercisable. Of the 1,100,000
      Company Stock Options, approximately 820,618 Company Stock Options, have
      revisions to the original terms, which resulted in a new measurement date
      for the Company Stock Options and a non-cash charge of $10.7 million (net
      of related tax benefit).

(vi)  The conversion of 16,818,945 shares of Common Stock (excluding shares held
      by MergerCo and held in treasury assumed to be cancelled) into the right
      to receive $47.75 per share in cash and the 0.5 shares of Recapitalized
      Common Stock per share of Common Stock (totaling 8,409,473 shares of the
      Recapitalized Common Stock).

Also, see Notes Summary of Significant Accounting Policies, Stock Compensation
and Purchase Plans, and Shareholder Rights Plan for other matters relating to
the Merger.

Segment Information and Geographic Areas

The Corporation operates predominantly in a single industry as a global
communications equipment manufacturer focused on network technology solutions.
Its products address communications test, industrial computing and
communications, and visual communications applications. Dynatech is a multi-
national corporation with continuing operations outside the United States
consisting of distribution and sales offices in Germany, England, France and the
Pacific Rim.

Net income in fiscal 1998, 1997, and 1996 included currency gains (losses) of
approximately $12,600, $99,300, and $(90,300), respectively.


                                                                              78
<PAGE>
 
Information by geographic areas for the years ended March 31, 1998, 1997, and
1996 is summarized below:


<TABLE>
<CAPTION>
 
                                                                                   Outside U.S.
                                                                     United        (principally
Amounts in thousands                                                 States           Europe)     Combined
------------------------------------------                           -----------     ----------    -------
<S>                                                                <C>             <C>            <C>
Sales to unaffiliated customers
   1998                                                                 $451,360*       $21,588   $472,948
   1997                                                                  340,603*        21,809    362,412
   1996                                                                  268,830*        24,212    293,042
Income (loss) before taxes from continuing operations
   1998                                                                 $ 69,772        $ 1,035   $ 70,807
   1997                                                                   38,486         (3,052)    35,434
   1996                                                                   26,657           (549)    26,108
Identifiable assets at
   March 31, 1998                                                       $250,382        $37,748   $288,130
   March 31, 1997                                                        215,218         33,792    249,010
   March 31, 1996                                                        186,186         19,003    205,189
</TABLE>

* Includes export sales of $54,552, $48,959, and $35,844 in 1998, 1997 and
 1996, respectively.












                                                                              79
<PAGE>
 
        Summary of Operations by Quarter (Unaudited)
        (Amounts in thousands except per share data)

<TABLE>
<CAPTION>
                                                            1998
                                       First     Second    Third     Fourth     Year
----------------------------          -------   -------   -------   -------   -------
<S>                                   <C>       <C>       <C>       <C>       <C>
Sales                                 $104,320  $115,856  $133,138  $119,634  $472,948
Gross profit                            61,683    65,044    74,873    65,826   267,426
Net income (loss)                        8,982    10,512    12,735     9,549    41,776
Income (loss) per common share
   Basic                              $   0.54  $   0.63  $   0.76  $   0.57  $   2.49
   Diluted                                0.52      0.60      0.73      0.55      2.40
Market Share Price(a) - High          $  41.88  $  41.94  $  47.31  $  48.50
                      - Low              29.00     34.38     34.00     46.19
</TABLE>


<TABLE>
<CAPTION>
                                                             1997
                                       First    Second      Third        Fourth       Year
----------------------------          -------  -------    --------     --------    ---------
<S>                                   <C>      <C>      <C>          <C>          <C>
Sales                                 $81,122  $85,725    $92,007      $103,558     $362,412
Gross profit                           50,874   54,463     58,485        61,336      225,158
Income (loss) from
   Continuing operations                8,412    9,277     (2,896)(b)     3,056(c)    17,849
Net income (loss)                       8,412    9,277     (2,896)       15,056(d)    29,849
Income (loss) per share continuing
 operations:
   Basic                              $  0.48  $  0.54    $ (0.16)     $   0.18     $   1.04
   Diluted                               0.46     0.52      (0.16)         0.17         0.99
Net income (loss) per share:
   Basic                              $  0.48  $  0.54    $ (0.16)     $   0.88     $   1.74
   Diluted                               0.46     0.52      (0.16)         0.84         1.66
Market Share Price(a) - High          $ 35.00  $ 46.88    $ 58.00      $  54.50
                      - Low             23.00    30.75      40.50         28.00
</TABLE>
 

(a)  From January 28, 1997 to May 21, 1998, shares of Common Stock of the
     Company were traded on the New York Stock Exchange. Prior to January 28,
     1997, shares of Common Stock of the Company were traded on the Nasdaq -
     National Market. No cash dividends were paid on shares of Common Stock of
     the Company.

(b)  Includes charge for purchased incomplete technology of $20.6 million or
     ($0.74) per share on a diluted basis in 1997.

(c)  Includes a charge of $7.1 million or ($0.36) per share on a diluted basis
     relating to the writeoff of certain intangible assets.
 
(d)  Includes gain on discontinued operations of $12 million or $0.67 per share
     on a diluted basis.


                                                                              80
<PAGE>
 
SCHEDULE II

                             Dynatech Corporation
                       Valuation and Qualifying Accounts
                              For the years ended
                         March 31, 1998, 1997 and 1996



Reserve for Doubtful Accounts (in thousands)

Balance, March 31, 1995                               5,077 (a)
         Additions charged to income                    356
         Write-off of uncollectible accounts, net      (494)
         Allowances reclassified, related to
           discontinued operations                   (3,982)
                                                     -------

Balance, March 31, 1996                                 957
         Additions charged to income                    646
         Write-off of uncollectible accounts, net      (359)
         Allowances reclassified                        628
                                                     -------

Balance, March 31, 1997                               1,872
         Additions charged to income                    425
         Write-off of uncollectible accounts, net      (533)
                                                     -------

Balance, March 31, 1998                               1,764


(a) Prior year balances have not been restated to reflect elimination of
    discontinued operations.
<PAGE>
 
                                  EXHIBIT INDEX

Exhibit No.

    2(1)   Agreement and Plan of Merger, dated as of December 20, 1997 by and
           between MergerCo and Registrant (included as Appendix A to the Proxy
           Statement/Prospectus filed as part of this Registration Statement).

  3.1      Amended and Restated Articles of Organization of Registrant.

  3.2(1)   By-Laws of Registrant.

 10.1(1)   Form of Amended and Restated Employment Agreement with John F. Reno.*

 10.2(1)   Form of Amended and Restated Employment Agreement with Allan M.
           Kline.*

 10.3(1)   Form of Amended and Restated Employment Agreement with John R.
           Peeler.*

 10.4(1)   Form of Letter Agreement with John A. Mixon and Certain Other
           Officers.*

 10.5(1)   Form of Management Equity Agreement with Mr. Reno.*

 10.6(1)   Form of Management Equity Agreement with Messrs. Kline and Peeler.*

 10.7(1)   Form of Management Equity Agreement with Mr. Mixon and Certain Other
           Officers.*

 10.8(1)   Form of Nondisclosure, Noncompetition and Nonsolicitation Agreement.*

 10.9(2)   1992 Stock Option Plan.

10.10(3)   1994 Stock Option and Incentive Plan, as amended.

21(1)      Schedule of Subsidiaries of Registrant.

23         Consent of Coopers & Lybrand L.L.P.

27.1       Financial Data Schedule for Fiscal Year Ended March 31, 1998.

27.2       Financial Data Schedule for Quarter Ended September 30, 1997
           Restated.

27.3       Financial Data Schedule for Quarter Ended June 30, 1997 Restated.

27.4       Financial Data Schedule for Fiscal Year Ended March 31, 1997
           Restated.

27.5       Financial Data Schedule for Quarter Ended December 31, 1996 Restated.

27.6       Financial Data Schedule for Quarter Ended September 30, 1996
           Restated.

27.7       Financial Data Schedule for Quarter Ended June 30, 1996 Restated.

27.8       Financial Data Schedule for Fiscal year Ended March 31, 1996
           Restated.


* Management contract or compensatory plan or arrangement filed as an exhibit to
  this Form pursuant to Items 14(a) and 14(c) of Form 10-K.

  (1) Incorporated by reference to the Company's Registration Statement on Form
      S-4 (File No. 333-44933).

  (2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
      for the fiscal year ended March 31, 1992.

  (3) Incorporated by reference to the Company's Registration Statement on Form
      S-8 (File No. 333-01639).



                                                                             81