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               UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549

                                  FORM 10-K/A

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

                   For the fiscal year ended March 31, 2002

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

                 For the transition period from         to

                       Commission file number 000-07438

                               -----------------

                              Acterna Corporation
            (Exact name of registrant as specified in its charter)

<TABLE>
             <S>                             <C>
                        Delaware                   04-2258582
             (State or other jurisdiction of    (I.R.S. Employer
             incorporation or organization)  Identification Number)
</TABLE>

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

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

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

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

                    Common Stock, par value $0.01 per share
                               (Title of class)

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

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

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

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

                      DOCUMENTS INCORPORATED BY REFERENCE

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

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                               EXPLANATORY NOTE

   Pursuant to Rule 12b-15 of the Securities Exchange Act of 1934, as amended,
the undersigned Registrant hereby amends its Annual Report on Form 10-K for the
fiscal year ended March 31, 2002, to correct the information contained in the
last sentence of Note R. Subsequent Event to the Consolidated Financial
Statements (page C-35 of this Form 10-K/A). This sentence inadvertently
contained an error in the previously filed Form 10-K. In the previously filed
Form 10-K, this sentence read: "The pre-tax losses from this segment prior to
interest and corporate overhead allocations for 2002, 2001 and 2000 were $7.6
million, $15.3 million and $19.2 million, respectively." The sentence has been
corrected in this Form 10-K/A to read: "The pre-tax income from this segment
prior to interest and corporate overhead allocations for 2002, 2001 and 2000
was $7.6 million, $15.3 million and $19.2 million, respectively."

   The Company has no further changes to the previously filed Form 10-K. All
other information in this Form 10-K/A is as of March 31, 2002, and does not
reflect, unless otherwise noted, any subsequent information or events other
than the change mentioned above.

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Item 1.  Business.

General

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

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

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

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

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

   The Company's principal offices are located at 20400 Observation Drive,
Germantown, Maryland 20876. Unless the context otherwise requires, the
"Company" or "Acterna" refers to Acterna Corporation and its subsidiaries.
Clayton, Dubilier & Rice Fund V Limited Partnership ("CDR Fund V") and Clayton,
Dubilier & Rice Fund VI Limited Partnership ("CDR Fund VI"), each of which are
investment partnerships managed by Clayton, Dubilier & Rice, Inc. ("CDR"),
collectively held approximately 80.1% of the Company's common stock at March
31, 2002.

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

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of fiscal 2002, which is down from approximately $223.8 in the third quarter of
fiscal 2002, and down significantly from approximately $425.4 million in the
fourth quarter of fiscal 2001.

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

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

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

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

   The Company's cash requirements for debt service and ongoing operations are
substantial. The Company's debt obligations are also substantial. (See Note B.
Liquidity, to the Consolidated Financial Statements.) As a result of the
amendment of the Senior Secured Credit Facility and the issuance at par of $75
million of 12% Senior Secured Convertible Notes in January 2002, the Company
believes that funds generated by ongoing operations and funds available under
its Senior Secured Credit Facility will be sufficient to meet its cash needs
over the next twelve-month period ended March 31, 2003.

Communications Test Segment

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

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

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

  .   broadband access technologies, including xDSL and HFC cable;

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

  .   wireless telephony and wireless broadband access; and

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

   The Company's products are designed to address its customers' desire to
deploy new technologies and provide new services rapidly, optimize utilization
of existing networks, decrease operating and maintenance costs and improve
service reliability. The Company's products address the challenges of deploying
and managing a variety of technologies and segments of a network including
optical transmission systems, data services, voice services, wireless service,
cable services, and video delivery.

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

   Instruments.  Instruments are devices that perform specific communications
test and monitoring functions. Designed to be mobile devices, these products
assist technicians in assessing the performance of devices and network segments
or verifying the integrity of the information being transmitted across the
network. These instruments incorporate high levels of intelligence and have
user interfaces that are designed to simplify the operation of these products
and decrease the training required to use them. The Company currently markets
more than 100 instruments, including products to address the performance of
optical transmission equipment, broadband access technologies (xDSL and cable
modems), data, voice, wireless and cable networks. The Company's instruments
are used by service providers, equipment manufacturers and service users.

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

                                      4

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

Industrial Computing and Communications

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

   Itronix offers a broad product and service line, including computing devices
across the full continuum of semi-rugged to fully-rugged configurations.
Itronix products and services are sold worldwide through its direct sales force
as well as resellers and manufacturers representatives.

  AIRSHOW, Inc.

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

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

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

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

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

  da Vinci Systems

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

Manufacturing

   The Company manufactures a portion of its products and outsources to third
parties a portion of its manufacturing activities, such as the assembly of
printed circuit boards and the fabrication of some mechanical

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parts. The Company generally performs its own final assembly and testing of its
products. The Company operates 11 manufacturing and assembly facilities
worldwide. All the facilities are certified in ISO 9001. In addition, one
facility is certified TL 9000. In 1996, the Company received ISO 14001
certification, which relates to environmental compliance in Germany.

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

Competition

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

  .   quality and breadth of product offerings;

  .   adaptability to evolving technologies and standards;

  .   speed of new product introductions;

  .   depth and breadth of customer relationships;

  .   price and financing terms;

  .   research and design capabilities;

  .   scale of installed base;

  .   technical support training and customer service training;

  .   strength of distribution channels; and

  .   product scalability and flexibility.

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

Customers

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

  Communications Service Providers

   Communications service providers offer telecommunications, wireless and,
increasingly, data communication services to end users, enterprises or other
service providers. Typically, communications service providers utilize a
variety of network equipment and software to originate, transport and terminate
communications sessions. Communications service providers rely on the Company's
products and services to

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configure, test and manage network elements and the traffic that runs across
them. Also, the Company's products help to ensure smooth operation of networks
and increase the reliability of services to customers.

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

  Equipment Manufacturers

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

  Service Users

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

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

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

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

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

Sales, Marketing and Customer Support

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

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

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

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

Seasonality; Backlog

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

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

Product Development

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

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

International

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

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

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Patents and Proprietary Rights

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

Government Regulation and Industry Standards and Protocols

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

Environmental Matters

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

Employees

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

Item 2.  Properties.

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

<TABLE>
<CAPTION>
                                                    Square
             Location                                Feet   Title
             --------                               ------- ------
             <S>                                    <C>     <C>
             Eningen, Germany...................... 779,000  Owned
             Germantown, Maryland.................. 272,000 Leased
             Indianapolis, Indiana................. 140,000 Leased
             Bradenton, Florida.................... 124,000 Leased
             Research Triangle Park, North Carolina  93,100 Leased
             Plymouth, United Kingdom..............  86,400  Owned
             San Diego, California.................  62,368 Leased
             Tustin, California....................  52,000 Leased
             Munich, Germany.......................  51,000 Leased
             Research Triangle Park, North Carolina  50,800 Leased
             Kirkland, Washington..................  50,500 Leased
             Liberty Lake, Washington..............  41,000 Leased
             Spokane, Washington...................  35,000 Leased
             Coventry, England.....................  30,000 Leased
</TABLE>

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   The Company believes its facilities are in good operating condition.

Item 3.  Legal Proceedings.

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

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

   During the fourth quarter of fiscal 2002, in connection with the issuance
and sale by Acterna LLC on January 15, 2002 of $75 million aggregate principal
amount of 12% Senior Secured Convertible Notes Due 2007 (the "Convertible
Notes") to Clayton, Dubilier & Rice Fund VI Limited Partnership ("Fund VI"),
Fund VI and Clayton, Dubilier & Rice Fund V Limited Partnership, as holders of
approximately 80% of the outstanding Common Stock of the Company, approved by
written consent the conversion features of the Convertible Notes. Consent was
not solicited from any other stockholder. The effective date of the stockholder
approval was March 29, 2002. For more information concerning the Convertible
Notes, see Note K. Notes Payable and Debt to the Consolidated Financial
Statements of the Company. For more information concerning the stockholder
approval of the conversion features of the Convertible Notes, see the Company's
Information Statement on Schedule 14C filed with the Securities and Exchange
Commission on February 22, 2002.

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

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

<TABLE>
<CAPTION>
                        Quarter Ended       High   Low
                        -------------      ------ ------
                        <S>                <C>    <C>
                        March 31, 2002.... $ 3.99 $ 1.48
                        December 31, 2001.   4.71   2.40
                        September 30, 2001  11.00   2.43
                        June 30, 2001.....  13.15   3.25
                        March 31, 2001....  21.44   6.00
                        December 31, 2000.  29.13   7.81
                        September 30, 2000  41.38  16.44
                        June 30, 2000.....  20.25   8.00
</TABLE>

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

                                      10

<PAGE>

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

                     Equity Compensation Plan Information

<TABLE>
<CAPTION>
                                                                                          Number of securities
                                                                                          remaining available
                                      Number of securities to                             for future issuance
                                      be issued upon exercise Weighted-average exercise       under equity
                                          of outstanding        price of outstanding       compensation plans
                                          options,options       options, warrants and    (excluding securities
                                        warrants and rights            rights           reflected in column (a))
Plan Category                                   (a)                      (b)                      (c)
-------------                         ----------------------- ------------------------- ------------------------
<S>                                   <C>                     <C>                       <C>
Equity compensation plans approved by
  security holders...................       37,732,018                  $4.45                  18,017,982
Equity compensation plans not
  approved by security holders.......                0                      0                           0
                                            ----------                  -----                  ----------
   Total.............................       37,732,018                  $4.45                  18,017,982
                                            ==========                  =====                  ==========
</TABLE>

Item 6.  Selected Financial Data.

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

Item 7.  Management Discussion and Analysis of Financial Condition and Results
of Operation.

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

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk.

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

Item 8.  Financial Statements And Supplementary Data.

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

Item 9.  Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.

   None.

Item 10.  Directors and Executive Officers of the Registrant.

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

Item 11.  Executive Compensation.

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

                                      11

<PAGE>

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

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

Item 13.  Certain Relationships and Related Transactions.

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

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

   (a) (1) Financial statements

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

       I. Report of Independent Accountants.

      II. Consolidated Balance Sheets-March 31, 2002 and 2001.

     III. Consolidated Statements of Operations-Fiscal Years Ended March 31,
          2002, 2001, and 2000.

      IV. Consolidated Statements of Stockholders' Deficit-Fiscal Years Ended
          March 31, 2002, 2001, and 2000.

       V. Consolidated Statements of Cash Flows-Fiscal Years Ended March 31,
          2002, 2001, and 2000.

      VI. Notes to Consolidated Financial Statements.

      (2) Financial Statements schedule--Schedule II

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

   (b) Reports on Form 8-K

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

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

   (c) Exhibits

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

                                      12

<PAGE>

                                  SIGNATURES

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

                                              ACTERNA CORPORATION

                                              By:    /s/  NED C. LAUTENBACH
                                                  -----------------------------
                                                  Chairman and Chief Executive
                                                             Officer
June 21, 2002

   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.

            Name                           Title                  Date
            ----                           -----                  ----

   /s/  NED C. LAUTENBACH      Chairman of the Board, Chief   June 21, 2002
-----------------------------    Executive Officer and
      Ned C. Lautenbach        Director

     /s/  JOHN R. PEELER       Corporate Vice                 June 21, 2002
-----------------------------  President, President   and
       John R. Peeler          Director

    /s/  JOHN D. RATLIFF       Corporate Vice President,      June 21, 2002
-----------------------------  Chief   Financial Officer
       John D. Ratliff

/s/  ROBERT W. WOODBURY, JR.   Corporate Vice President,      June 21, 2002
-----------------------------  Controller   (Principal
   Robert W. Woodbury, Jr.     Accounting Officer)

     /s/  BRIAN D. FINN        Director                       June 21, 2002
-----------------------------
        Brian D. Finn

      /s/  DONALD GOGEL        Director                       June 21, 2002
-----------------------------
        Donald Gogel

     /s/  ALLAN M. KLINE       Director                       June 21, 2002
-----------------------------
       Allan M. Kline

     /s/  MARVIN L. MANN       Director                       June 21, 2002
-----------------------------
       Marvin L. Mann

    /s/  WILLIAM O. MCCOY      Director                       June 21, 2002
-----------------------------
      William O. McCoy

    /s/  VICTOR A. PELSON      Director                       June 21, 2002
-----------------------------
      Victor A. Pelson

     /s/  BRIAN H. ROWE        Director                       June 21, 2002
-----------------------------
        Brian H. Rowe

   /s/  RICHARD J. SCHNALL     Director                       June 21, 2002
-----------------------------
     Richard J. Schnall

    /s/  PETER M. WAGNER       Director                       June 21, 2002
-----------------------------
       Peter M. Wagner

                                      13

<PAGE>

                                                                     APPENDIX A

                Selected Historical Consolidated Financial Data

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

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

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

Interest expense..................................................    (96,625)   (102,158)   (51,949)   (46,198)   (1,221)
Interest income...................................................      1,625       3,322      2,373      3,398     3,012
Other income (expense), net.......................................     (7,615)     (4,491)      (720)    15,959       730
                                                                   ----------  ----------  ---------  ---------  --------
Income (loss) from continuing operations before income taxes and
 extraordinary item...............................................   (364,055)   (183,990)    12,822     13,279    70,807
Provision for (benefit from) income taxes.........................        799     (12,793)     6,810      6,834    29,031
                                                                   ----------  ----------  ---------  ---------  --------
Income (loss) from continuing operations before extraordinary item   (364,854)   (171,197)     6,012      6,445    41,776
Income (loss) from discontinued operations........................    (10,039)     10,039         --         --        --
                                                                   ----------  ----------  ---------  ---------  --------
Income (loss) before extraordinary item...........................   (374,893)   (161,158)     6,012      6,445    41,776
Extraordinary item, net of income tax benefit of $6,603...........         --     (10,659)        --         --        --
                                                                   ----------  ----------  ---------  ---------  --------
Net income (loss)................................................. $ (374,893) $ (171,817) $   6,012  $   6,445  $ 41,776
                                                                   ==========  ==========  =========  =========  ========
Net income (loss) per common share--basic:
   Continuing operations.......................................... $    (1.90) $    (0.93) $    0.04  $    0.05  $   2.04
   Discontinued operations........................................      (0.05)       0.06         --         --        --
   Extraordinary item.............................................         --       (0.06)        --         --        --
                                                                   ----------  ----------  ---------  ---------  --------
                                                                   $    (1.95) $    (0.93) $    0.04  $    0.05  $   2.04
                                                                   ==========  ==========  =========  =========  ========
Net income (loss) per common share--diluted:
   Continuing operations.......................................... $    (1.90) $    (0.93) $    0.04  $    0.05  $   1.96
   Discontinued operations........................................      (0.05)       0.06         --         --        --
   Extraordinary item.............................................         --       (0.06)        --         --        --
                                                                   ----------  ----------  ---------  ---------  --------
                                                                   $    (1.95) $    (0.93) $    0.04  $    0.05  $   1.96
                                                                   ==========  ==========  =========  =========  ========
Weighted average number of shares:
   Basic..........................................................    191,868     183,881    148,312    129,596    20,493
   Diluted........................................................    191,868     183,881    162,273    136,004    21,272
                                                                   ==========  ==========  =========  =========  ========
Balance Sheet Data
Net working capital............................................... $  103,626  $  184,657  $  39,125  $  55,498  $117,791
Total assets...................................................... $1,014,556  $1,382,979  $ 463,649  $ 348,104  $288,130
Long-term debt.................................................... $1,056,062  $1,056,383  $ 572,345  $ 504,151  $     83
Stockholders' equity (deficit).................................... $ (436,775) $  (80,977) $(296,675) $(316,440) $202,119
Shares of stock outstanding.......................................    192,248     190,953    122,527    120,665    16,864
Stockholders' equity (deficit) per share.......................... $    (2.27) $    (0.42) $   (2.42) $   (2.62) $  11.99
</TABLE>
--------
*  The Results of Operations for fiscal 2001 include the results of operations
   of Wavetek Wandel Goltermann, Inc. since May 23, 2000, the date of its
   acquisition, and the results of operations of Cheetah Technologies since
   August 23, 2000, the date of its acquisition.

                                      A-1

<PAGE>

                                                                     APPENDIX B

Management Discussion and Analysis of Financial Condition and Results of
Operations

OVERVIEW

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

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

Business Segments

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

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

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

   AIRSHOW is a provider of systems that deliver real-time news, information
and flight data to aircraft passengers. AIRSHOW markets its systems to
commercial airlines and private aircraft owners. On June 13, 2002, the Company
signed a definitive agreement to sell its AIRSHOW business to Rockwell Collins,
Inc. for $160 million in cash, subject to adjustment. The Company expects to
record a gain in relation to this transaction. Consummation of the sale is
subject to customary closing conditions, including regulatory approvals and
consent of the Company's lenders under its Senior Secured Credit Facility. The
Company intends to use the net proceeds of the sale (after fees and expenses)
to repay a portion of its debt or invest in its business.

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

Related Party

   The Company's controlling stockholders are Clayton, Dubilier & Rice Fund V
Limited Partnership ("CDR Fund V") and Clayton, Dubilier & Rice Fund VI Limited
Partnership ("CDR Fund VI", collectively the "CDR Funds"). The CDR Funds are
managed by Clayton, Dubilier & Rice, Inc. ("CDR"), an investment management

                                      B-1

<PAGE>

firm, and collectively held approximately 80.1% of the outstanding shares of
common stock of the Company at March 31, 2002.

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

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

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

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

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

Asset Impairment

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

                                      B-2

<PAGE>

communications test segment. This assessment resulted in the impairment of
acquired intangible assets (principally core technology) and a pre-tax charge
of $151.3 million was recorded. (See Note H. Acquired Intangible Assets)

Cash and Debt Service

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

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

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

Restructuring Activity

   The Company continues to implement cost reduction programs aimed at aligning
its ongoing operating costs with its expected revenues. At the end of the
fourth quarter of fiscal 2002, the Company's headcount was 4,973 (down from
6,380 at the beginning of fiscal 2002), and the corporate headquarters was
relocated from Burlington, Massachusetts to Germantown, Maryland. Based on
current estimates of its revenues and operating profitability and losses, the
Company plans to take additional and significant cost reduction actions in
order to remain in compliance with its financial covenant requirements under
its Senior Secured Credit Facility. (See Note B. Liquidity, to the Company's
Consolidated Financial Statements.) These cost reduction programs include among
other things: an additional reduction of 400 employees, a reduction of new
hires, reductions to employee

                                      B-3

<PAGE>

compensation, consolidation of identified facilities and an exit from certain
product lines. A portion of these actions have been implemented in the first
quarter of fiscal 2003 and are intended to reduce costs by an estimated $75
million in fiscal 2003. These new actions coupled with the fourth quarter
restructuring programs will result in reducing headcount to approximately 4,100
employees by the third quarter of fiscal 2003. The Company believes that the
cost reduction programs will be implemented and executed on a timely basis and
will align costs with revenues. In the event the Company is unable to achieve
this alignment, additional cost cutting programs would be required in the
future.

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

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

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

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

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

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

<TABLE>
<CAPTION>
                              For The Twelve Months Ended March 31, 2002
                              ------------------------------------------
                               Balance                         Balance
                              March 31,                       March 31,
                                2001      Expense    Paid       2002
                              ---------   -------  --------   ---------
            <S>               <C>         <C>      <C>        <C>
            Workforce-related    $--      $31,737  $(17,972)   $13,765
            Facilities.......     --        1,134      (763)       371
            Other............     --        1,118      (692)       426
                                 ---      -------  --------    -------
            Total............    $--      $33,989  $(19,427)   $14,562
                                 ===      =======  ========    =======
</TABLE>

Discontinued Operations

   In May 2000, the Board of Directors approved a plan to divest the industrial
computing and communications business segment, which segment consisted of the
Company's ICS Advent and Itronix Corporation subsidiaries. In October 2001, the
Company divested its ICS Advent subsidiary (See Note F. Acquisitions and
Divestitures to the Consolidated Financial Statements) and due to market
conditions, decided to retain the Itronix business. The

                                      B-4

<PAGE>

decision to retain Itronix required the Company to make certain
reclassifications to its Statements of Operations and Balance Sheets for all
periods presented. The Statements of Operations were reclassified to include
the results of operations of ICS Advent and Itronix within continuing
operations. The Balance Sheet at March 31, 2001 reflects the net assets of ICS
Advent classified as net assets held for sale. The Statement of Cash Flows was
not reclassified as these statements were not previously presented on a
discontinued basis.

Critical Accounting Policies

   Acterna's significant accounting policies are presented within Note E.
(Summary of Significant Accounting Policies) of the Consolidated Financial
Statements. While all the accounting policies impact the financial statements,
certain policies may be viewed to be critical. These policies are those that
are both most important to the portrayal of the Company's financial condition
and results of operations and require the Company's management's most
difficult, subjective or complex judgments and estimates. Actual results could
differ from those estimates. Management believes the policies that fall within
this category are the policies on revenue recognition, receivables, inventory,
long-lived asset valuation, accounting for income taxes, accounting for
employee pension plans and warranty.

Revenue

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

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

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

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

Receivables

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

Inventory

   Inventory values are stated at the lower of cost or market. Cost is
determined based on a currently-adjusted standard basis, which approximates
actual cost on a first-in, first-out basis. The Company's inventory includes
raw materials, work in process, finished goods and demonstration equipment. The
Company periodically reviews its recorded inventory and estimates a reserve for
obsolete or slow-moving items. The Company reserves the

                                      B-5

<PAGE>

entire value of all obsolete items. The Company determines excess inventory
based upon current and forecasted usage, and a reserve is provided for the
excess inventory. Such estimates are difficult to make under current economic
conditions. If actual demand and market conditions are less favorable than
those projected by management, additional reserves may be required. If actual
market conditions are more favorable than anticipated, our cost of sales will
be lower than expected in that period.

Long-Lived Assets

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

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

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

  .   Significant negative industry or economic trends; and

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

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

Income Tax

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

Pension Plans

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

                                      B-6

<PAGE>

Warranty

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

Seasonality

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

Product Development

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

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

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

ACQUISITIONS AND DISPOSITIONS

Acquisitions During Fiscal 2002

   The Company in the normal course of business entered into acquisitions
during fiscal 2002, which, in the aggregate, do not have a material impact on
the financial results of the Company. Accordingly the Company has not presented
proforma results of operations for these acquisitions.
Acquisitions During Fiscal 2001

  Wavetek Wandel Goltermann, Inc.

   On May 23, 2000, the Company merged one of its wholly owned subsidiaries
with WWG for consideration of $402.0 million, which includes $14.2 million of
acquisition costs. In connection with the WWG Merger, the Company refinanced
certain of its debt and entered into a new Senior Secured Credit Facility (See
Note K. Note Payable and Debt to the Consolidated Financial Statements). The
WWG Merger was accounted for using the purchase method of accounting. As part
of a fair value exercise, the Company increased the carrying value of acquired
inventory by $35 million in order to record this inventory at its fair value,
increased the carrying value of acquired land and buildings by $27 million to
record them at fair value, and determined the fair value of

                                      B-7

<PAGE>

acquired incomplete technology to be $51 million. This purchased incomplete
technology had not reached technological feasibility, had no alternative future
use and was written off to the income statement during the year. The WWG Merger
generated approximately $488.9 million of excess purchase price which was
allocated to other intangibles on a basis as follows: $162.2 million to core
technology (which was being amortized over six years), $45.2 million to
workforce (which was being amortized over five years prior to adoption of FAS
142, as discussed below), and $6.8 million to backlog (which was amortized over
12 months). The unallocated excess purchase price or goodwill of $274.8 million
was being amortized over six years. As of April 1, 2001, the Company adopted
FAS 142 and all amounts previous allocated to workforce have been reclassified
to goodwill; additionally, amortization of goodwill was ceased.

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

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

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

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

Divestitures During Fiscal 2002 And 2001

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

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

Other Acquisitions And Divestitures

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

                                      B-8

<PAGE>

Results Of Operations

  Fiscal 2002 Compared to Fiscal 2001 on a Consolidated Basis

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

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

   Gross Profit.  Consolidated gross profit decreased $166.8 million to $592.6
million or 52.3% of consolidated net sales for the fiscal year ended March 31,
2002 as compared to $759.4 million or 55.6% of consolidated net sales for the
fiscal year ended March 31, 2001. The decreased gross profit is primarily
attributable to the decline in demand within the communications test business
coupled with $21 million of adjustments in fiscal 2002 related to inventory and
supplier commitments, partially offset by a $35.7 million fiscal 2001 charge
related to inventory step-up amortization resulting from the acquisition of WWG
and Cheetah. The majority of these adjustments relate to additional inventory
charges resulting from reduced expectations of demand and usage.

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

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

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

                                      B-9

<PAGE>

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

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

   As a result of the declining financial performance and reduced expectations
for future revenues and earnings within the communication test segment,
management performed an assessment of the carrying values of long-lived assets
within that segment. This assessment, based on estimated undiscounted future
cash flows of the segment indicated that long-lived assets were impaired. The
Company discounted cash flows to arrive at a value today, to quantify the
impairment of long-lived assets (principally core technology). As a result, a
pre-tax charge of $151.3 million was recorded during the fourth quarter of
fiscal 2002.

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

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

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

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

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

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

  Fiscal 2001 Compared to Fiscal 2000 on a Consolidated Basis

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

   The Company's international sales (excluding WWG in fiscal 2000 and
including exports from North America directly to foreign customers) were $535
million or 39.2% of consolidated sales for the fiscal year

                                     B-10

<PAGE>

ended March 31, 2001, as compared to $82 million or 12.5% of consolidated sales
for the fiscal year ended March 31, 2000. The increase in international sales
was due primarily to the WWG Merger. WWG's operations are principally in Europe
with significant sales offices in Asia and Latin America, as well as in the
United States.

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

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

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

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

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

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

                                     B-11

<PAGE>

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

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

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

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

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

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

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

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

  Business Segments

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

                                     B-12

<PAGE>

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

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

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

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

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

  Fiscal 2002 Compared to Fiscal 2001--Communications Test

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

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

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

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

  Fiscal 2002 Compared to Fiscal 2001--Industrial Computing and Communications

   Bookings for the industrial computing and communications products decreased
37.5% to $141.5 million for the fiscal year ended March 31, 2002, as compared
to $226.6 million for the same period a year ago. The decrease was primarily
due to the disposition of ICS Advent, a division of industrial computing and

                                     B-13

<PAGE>

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

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

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

  Fiscal 2002 Compared to Fiscal 2001--AIRSHOW

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

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

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

  Fiscal 2002 Compared to Fiscal 2001--da Vinci

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

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

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

                                     B-14

<PAGE>

  Fiscal 2001 Compared to Fiscal 2000--Communications Test

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

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

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

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

  Fiscal 2001 Compared to Fiscal 2000--Industrial Computing and Communications

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

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

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

  Fiscal 2001 Compared to Fiscal 2000--AIRSHOW

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

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

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

                                     B-15

<PAGE>

  Fiscal 2001 Compared to Fiscal 2000--da Vinci

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

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

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

Debt, Capital Resources and Liquidity

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

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

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

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

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

   The Company has recorded significant losses from operations and seen a
substantial reduction in revenues and operations as a result of the economic
downturn and in particular the downturn within the

                                     B-16

<PAGE>

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

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

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

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

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

   The Company's future operating performance and ability to repay, extend or
refinance the Senior Secured Credit Facility (including the Revolving Credit
Facility) or any new borrowings, and to service and repay or

                                     B-17

<PAGE>

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

Convertible Notes

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

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

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

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

Senior Secured Credit Facility and Amendment to Senior Secured Credit Facility

   In connection with the WWG Merger, the Company refinanced a portion of its
debt and entered into a senior secured credit facility with a syndicate of
lenders (the "Senior Secured Credit Facility") that provided for term

                                     B-18

<PAGE>

loans and a revolving credit facility (the "Revolving Credit Facility"). As of
March 31, 2002, the Company had $647.7 million in the term loan borrowings,
$63.0 million in revolving credit borrowings and $17 million of outstanding
letters of credit under the Senior Secured Credit Facility. As of March 31,
2002 and 2001, the Company was in compliance with all covenants under the
Senior Secured Credit Facility, as amended on December 27, 2001.

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

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

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

   On December 27, 2001, in order to remain in compliance with the terms of the
Senior Secured Credit Facility, the Company entered into an amendment to the
facility. Pursuant to the amendment, the lenders under the facility agreed,
among other things, to waive the minimum interest coverage and maximum leverage
covenants of the Company under the facility through June 30, 2003. The
amendment imposed a new minimum liquidity on the Company, which requires that
the sum of cash, cash equivalents plus aggregate available revolving credit
commitments equal at least $25 million. The Company must also comply with a new
minimum EBITDA covenant that requires EBITDA of negative $10 million, positive
$17 million, and positive $40 million for the six, nine and twelve month
periods ended September 30, 2002, December 31, 2002, and March 31, 2003,
respectively. The amendment also imposed additional covenants and restrictions,
including, without limitation, additional restrictions on the Company's ability
to make capital expenditures, incur and guarantee debt, make investments,
optionally prepay the Senior Subordinated Notes and dispose of assets. The
amendment also, among other things, added additional prepayment requirements
for certain transactions, establishes additional guarantees and pledges of
collateral and increases the interest rates on loans under the Senior Secured
Credit Facility by 0.75%.

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

   On June 30, 2003, the Company will again become subject to the minimum
interest coverage and maximum leverage covenants under the Senior Secured
Credit Facility. Based on current estimates of its revenues and

                                     B-19

<PAGE>

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

Senior Subordinated Notes

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

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

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

<TABLE>
<CAPTION>
                      Period              Redemption Price
                      ------              ----------------
                      <S>                 <C>
                      2003...............     104.875%
                      2004...............     103.250%
                      2005...............     101.625%
                      2006 and thereafter     100.000%
</TABLE>

Capital Resources

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

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

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

                                     B-20

<PAGE>

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

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

Future Financing Sources and Cash Flows

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

New Pronouncements

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

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

   In April 2002, the FASB issued Statement of Financial Accounting Standards
FAS No. 145, "Rescission of FASB Statements No. 4, 44, and 62, Amendment of
FASB Statement No. 13, and Technical Corrections". In general, FAS 145 will
require gains and losses on extinguishments of debt to be classified as income
or loss from continuing operations rather than as extraordinary items as
previously required under Statement 4. Gains or losses from extinguishments of
debt for fiscal years beginning after May 15, 2002 shall not be reported as
extraordinary items unless the extinguishment qualifies as an extraordinary
item under the provisions of APB Opinion No. 30, Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The
extraordinary item in 2001 will be reclassified on adoption of this standard.

                                     B-21

<PAGE>

Quantitative and Qualitative Disclosures about Market Risk

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

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

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

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

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

Subsequent Event

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

                    FACTORS THAT MAY AFFECT FUTURE RESULTS

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

                                     B-22

<PAGE>

            Factors Related to the Company's Business and Industry

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

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

  .   incur additional indebtedness, guarantee obligations and create liens;

  .   pay dividends and make other distributions;

  .   prepay or modify the terms of other indebtedness;

  .   make certain capital expenditures, investments or acquisitions, or

  .   enter into mergers or consolidations or sales of assets; and

  .   engage in certain transactions with affiliates.

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

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

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

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

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

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

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

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

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

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

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

                                     B-23

<PAGE>

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

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

  .   the uneven pace of technology innovation;

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

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

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

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

The Company operates in highly competitive markets.

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

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

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

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

                                     B-24

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

   Mergers and acquisitions of high-technology companies are inherently risky.
The Company cannot assure that any business that it may acquire will achieve
anticipated net sales and operating results, which could decrease the value of
the acquisition to the Company. Any of these risks could materially harm the
Company's business, financial condition and results of operations. Payment paid
for future acquisitions, if any, could be in the form of cash, stock, and
rights to purchase stock or a combination of these. Dilution to existing
stockholders and to earnings per share may result in connection with any future
acquisitions.

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

                                     B-25

<PAGE>

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

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

  .   trade protection measures and import or export licensing requirements; and

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

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

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

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

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

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

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

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

                                     B-26

<PAGE>

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

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

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

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

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

   The Company's success depends in large part on its intellectual property.
The Company relies on a combination of patents, copyrights, trademarks and
trade secrets, confidentiality provisions and licensing arrangements to
establish and protect its proprietary intellectual property. If the Company
fails to protect or to enforce successfully its intellectual property rights,
the Company's competitive position could suffer, which could have a material
adverse effect on its business, financial condition and results of operations.

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

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

                Factors Related to the Company's Common Stock.

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

   As of March 31, 2002, the CDR Funds, the Company's controlling stockholders,
together held approximately 80.1% of the outstanding shares of the Company's
common stock. In addition, three of the eleven directors who serve on the
Company's board are currently affiliated with the CDR Funds. By virtue of such
stock ownership and board representation, the CDR funds have effective control
over all matters submitted to the Company's stockholders, including the
election of the Company's directors, and exercise significant control over

                                     B-27

<PAGE>

the Company's policies and affairs. Such concentration of voting power could
have the effect of delaying, deterring or preventing a change in control or
other business combination that might otherwise be beneficial to the Company's
stockholders. In addition, CDR Fund V has agreed, with Mr. John R. Peeler, the
President and Chief Executive Officer of the Company's Communications Test
Business, to vote its shares to elect him as a director so long as he is
employed by the Company.

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

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

  .   changes in financial estimates or investment recommendations relating to
      the Company by securities analysts;

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

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

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

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

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

Forward-Looking Statements

   This report (other than the Company's consolidated financial statements and
other statements of historical fact) contains forward-looking statements. The
Company has based these forward-looking statements on its current expectations
and projections about future events. Although the Company believes that its
assumptions made in connection with the forward-looking statements are
reasonable, there can be no assurance that the Company's assumptions and
expectations will prove to have been correct. These forward-looking statements
are subject to various risks, uncertainties and assumptions, including the risk
factors described elsewhere in this report and the Company's other Securities
and Exchange Commission filings.

   The Company undertakes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this report might not occur, actual results may differ
materially from the estimates or expectations reflected in the Company's
forward-looking statements, and undue reliance should not be placed upon the
forward-looking events discussed in this report.

                                     B-28

<PAGE>

                                                                     APPENDIX C

                              ACTERNA CORPORATION

                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
  <S>                                                                      <C>
  REPORT OF INDEPENDENT ACCOUNTANTS....................................... C-2

  FINANCIAL STATEMENTS

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

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

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

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

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

                                      C-1

<PAGE>

                       Report of Independent Accountants

To the Board of Directors and Stockholders of Acterna Corporation:

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

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

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

                                          /s/ PRICEWATERHOUSECOOPERS LLP

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

                                      C-2

<PAGE>

                              ACTERNA CORPORATION

                          CONSOLIDATED BALANCE SHEETS

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

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

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

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

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

                                      C-3

<PAGE>

                              ACTERNA CORPORATION

                    CONSOLIDATED BALANCE SHEETS, CONTINUED

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

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

Commitments and contingencies (Note P.)

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

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

                                      C-4

<PAGE>

                              ACTERNA CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

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

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

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

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

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

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

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

                                      C-5

<PAGE>

                              ACTERNA CORPORATION

               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
                 (amounts in thousands, except per share data)

<TABLE>
<CAPTION>
                                                        Additional                               Other         Total
                                         Common  Common  Paid-In   Accumulated    Unearned   Comprehensive Shareholders'
                                         Stock   Stock   Capital     Deficit    Compensation Income (loss)    Deficit
                                         ------- ------ ---------- -----------  ------------ ------------- -------------
<S>                                      <C>     <C>    <C>        <C>          <C>          <C>           <C>
Balance, April 1, 1999.................. 120,665 $   --  $322,746  $  (629,941)   $ (7,563)     $(1,682)     $(316,440)
  Net income--2000......................                                 6,012                                   6,012
  Translation adjustment................                                                           (197)          (197)
                                                                                                -------      ---------
  Total comprehensive income............                                                                         5,815
  Exercise of stock options and other
   issuances............................   1,862     11     4,725                                                4,736
  Adjustment to unearned compensation...                   (1,143)                   1,130                         (13)
  Stock option expense..................                   12,327                                               12,327
  Redemption of stock options...........                   (6,980)                                              (6,980)
  Unearned compensation from stock
   option grants........................                   12,951                  (12,951)                         --
  Change in par value of common stock...          1,214    (1,214)                                                  --
  Amortization of unearned
   compensation.........................                                             2,419                       2,419
  Tax benefit from exercise of stock
   options..............................                    1,461                                                1,461
                                         ------- ------  --------  -----------    --------      -------      ---------
Balance, March 31, 2000................. 122,527  1,225   344,873     (623,929)    (16,965)      (1,879)      (296,675)
                                         ======= ======  ========  ===========    ========      =======      =========
  Net loss 2001.........................                              (171,817)                               (171,817)
  Translation adjustment................                                                          4,644          4,644
                                                                                                             ---------
  Total comprehensive loss..............                                                                      (167,173)
  Issuance of common stock to CDR
   Funds................................  43,125    431   172,069                                              172,500
  Issuance of common stock rights
   offering, net of fees................   4,983     50    16,882                                               16,932
  Issuance of common stock to WWG
   stockholders.........................  14,987    150   129,850                                              130,000
  Stock option expense..................                   12,255                                               12,255
  Conversion of Cheetah stock options...                    5,754                   (6,721)                       (967)
  Amortization of unearned compensation
   -- continued operations..............                                            19,840                      19,840
  Exercise of stock option and other
   issuances............................   5,331     54    10,919                                               10,973
  Unearned compensation from stock
   option grants........................                   98,726                  (98,726)                         --
  Adjustment to unearned compensation...                  (11,567)                  11,586                          19
  Tax benefit from exercise of stock
   options..............................                   21,319                                               21,319
                                         ------- ------  --------  -----------    --------      -------      ---------
Balance, March 31, 2001................. 190,953 $1,910  $801,080  $  (795,746)   $(90,986)     $ 2,765      $ (80,977)
                                         ======= ======  ========  ===========    ========      =======      =========
  Net loss 2002.........................                              (374,893)                               (374,893)
  Translation adjustment and minimum
   pension liability....................                                                         (3,435)        (3,435)
                                                                                                             ---------
  Total comprehensive loss..............                                                                      (378,328)
  Amortization of unearned
   compensation.........................                                            19,368                      19,368
  Exercise of stock option and other
   issuances, net.......................   1,295     12     2,156                                                2,168
  Adjustment to unearned compensation...                  (17,693)                  17,693                          --
  Tax benefit from exercise of stock
   options..............................                      994                                                  994
                                         ------- ------  --------  -----------    --------      -------      ---------
Balance, March 31, 2002................. 192,248 $1,922  $786,537  $(1,170,639)   $(53,925)     $  (670)     $(436,775)
                                         ======= ======  ========  ===========    ========      =======      =========
</TABLE>
   The accompanying notes are an integral part of the consolidated financial
                                  statements.

                                      C-6

<PAGE>

                              ACTERNA CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                                   Years Ended March 31,
                                                                                              -------------------------------
                                                                                                 2002       2001       2000
                                                                                              ---------  ---------  ---------
                                                                                                   (Amounts in thousands)
<S>                                                                                           <C>        <C>        <C>
Operating activities:
   Net income (loss) from operations......................................................... $(374,893) $(171,817) $   6,012
   Adjustment for noncash items included in net income (loss):
      Depreciation...........................................................................    36,391     28,427     13,082
      Bad debt...............................................................................      (582)     7,147      1,024
      Amortization of intangibles and goodwill...............................................    42,271    120,151     12,327
      Amortization of inventory step-up......................................................        --     35,750         --
      Amortization of unearned compensation..................................................    19,368     19,840      2,419
      Amortization of deferred debt issuance costs...........................................     5,582      3,974      3,232
      Impairment of acquired intangible assets...............................................   151,322         --         --
      Write-off of deferred debt issuance costs..............................................        --     10,019         --
      Loss on discontinued operations........................................................    10,039         --         --
      Loss on sale of fixed assets...........................................................     4,173         --         --
      Impairment of assets held for sale and goodwill impairment.............................    21,865         --         --
      Purchased incomplete technology........................................................        --     56,000         --
      Recapitalization and other related costs...............................................        --      9,194     12,327
      Tax benefit from stock option exercises................................................       994     21,319      1,461
      Other..................................................................................        --      2,047         56
      Change in deferred income taxes........................................................    59,291    (31,309)    (2,840)
   Changes in operating assets and liabilities, net of effects of purchase acquisitions and
    divestitures.............................................................................    26,300    (91,372)     8,310
                                                                                              ---------  ---------  ---------
   Net cash flows provided by operating activities...........................................     2,121     19,370     57,410
                                                                                              ---------  ---------  ---------
Investing activities:
   Purchases of property and equipment.......................................................   (38,403)   (45,905)   (21,859)
   Proceeds from sale of property and equipment..............................................     1,178      2,433         --
   Proceeds from sales of businesses.........................................................    23,800      6,381         --
   Businesses acquired in purchase transactions,net of cash and noncash items................    (1,495)  (422,137)  (113,227)
   Other.....................................................................................    (1,029)    (4,863)    (7,165)
                                                                                              ---------  ---------  ---------
   Net cash flows used in investing activities...............................................   (15,949)  (464,091)  (142,251)
                                                                                              ---------  ---------  ---------
Financing activities:
   Borrowings (repayments) under revolving credit facility, net..............................   (45,000)   108,000     70,000
   Borrowings of term loan debt..............................................................     3,350    683,566         --
   Repayment of term loan debt...............................................................   (35,010)   (12,944)   (17,139)
   Borrowings of notes payable...............................................................    75,000         --         --
   Borrowings (repayments) of notes payable and other debt...................................      (260)    31,735       (212)
   Repayment of debt under old Senior Secured Credit Facility................................        --   (304,861)        --
   Repayment of WWG term debt................................................................        --   (118,594)        --
   Redemption of WWG bonds...................................................................        --    (94,148)        --
   Financing fees............................................................................    (6,256)   (18,519)        --
   Proceeds from issuance of common stock, net...............................................     2,168    200,405      4,736
   Purchases of treasury stock, common stock and stock options...............................        --         --     (6,980)
                                                                                              ---------  ---------  ---------
   Net cash flows provided by (used in) financing activities.................................    (6,008)   474,640     50,405
                                                                                              ---------  ---------  ---------
Effect of exchange rates on cash.............................................................      (479)    (2,634)      (157)
                                                                                              ---------  ---------  ---------
Increase (decrease) in cash and cash equivalents.............................................   (20,315)    27,285    (34,593)
Cash and cash equivalents at beginning of year...............................................    63,054     35,769     70,362
                                                                                              ---------  ---------  ---------
Cash and cash equivalents at end of year..................................................... $  42,739  $  63,054  $  35,769
                                                                                              =========  =========  =========
Change in operating asset and liability components:
   Decrease (increase) in trade accounts receivable.......................................... $ 106,979  $ (47,191) $ (19,200)
   Decrease (increase) in inventories........................................................    44,552    (32,950)     7,185
   Decrease (increase) in other current assets...............................................   (72,519)    (1,403)    (7,324)
   Increase (decrease) in accounts payable...................................................   (44,238)    22,200     12,397
   Increase (decrease) in accrued expenses, taxes and other..................................    (8,474)   (32,028)    15,252
                                                                                              ---------  ---------  ---------
Change in operating assets and liabilities................................................... $  26,300  $ (91,372) $   8,310
                                                                                              =========  =========  =========
Supplemental disclosures of cash flow information:
   Cash paid during the year for:
      Interest............................................................................... $  87,258  $ 105,115  $  48,791
      Income taxes...........................................................................    15,555     13,036     14,737
</TABLE>

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

                                      C-7

<PAGE>

                              ACTERNA CORPORATION

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A.  FORMATION AND BACKGROUND

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

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

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

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

B.  LIQUIDITY

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

                                      C-8

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   of debt, and on-going operations are substantial. Debt repayment obligations
   are significant and increase through 2007 (See Note K. Notes Payable and
   Debt) As a result of the amendment of the Senior Secured Credit Facility and
   the issuance at par of $75 million of 12% Senior Secured Convertible Notes
   due 2007 (the "Convertible Notes") in January 2002, the Company believes
   that funds generated by ongoing operations and funds available under its
   Senior Secured Credit Facility will be sufficient to meet its cash needs
   over the next twelve-month period.

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

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

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

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

      After March 31, 2003, the Company's future operating performance and
   ability to repay, extend or refinance the Senior Secured Credit Facility
   (including the Revolving Credit Facility) or any new borrowings, and to
   service and repay or refinance the Convertible Notes and the Senior
   Subordinated Notes, will be subject to future economic, financial and
   business conditions and other factors, including demand for communications
   test equipment, many of which are beyond the Company's control.

                                      C-9

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


C.  RECAPITALIZATION

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

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

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

D.  RELATED PARTY

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

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

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

      On January 15, 2002, Acterna LLC, a wholly-owned subsidiary of the
   Company, issued and sold at par $75 million aggregate principal amount of
   12% Senior Secured Convertible Notes due 2007 (the "Convertible Notes") to
   CDR Fund VI. Interest on the Convertible Notes is payable semi-annually in
   arrears on each March 31st and September 30th, with interest payments
   commencing on March 31, 2002.

                                     C-10

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   At the option of Acterna LLC, interest is payable in cash or in-kind by the
   issuance of additional Convertible Notes. Due to limitations imposed by the
   Company's Senior Secured Credit Facility, Acterna LLC expects to pay
   interest on the Convertible Notes in-kind by issuing additional Convertible
   Notes. The Convertible Notes are secured by a second lien on all of the
   assets of the Company and its subsidiaries that secure the Senior Secured
   Credit Facility, and are guaranteed by the Company and its domestic
   subsidiaries.

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

E.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

      Credit risk related to its accounts receivable are limited due to the
   large number of customers and their dispersion across many business and
   geographic areas. However, a significant amount of trade receivables are
   with customers within the telecommunications industry, which is currently
   experiencing a significant downturn. The Company extends credit to its
   customers based upon an evaluation of the customer's financial condition and
   credit history and generally does not require collateral. The Company has
   historically incurred insignificant credit losses.

                                     C-11

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

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

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

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

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

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

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

      Long-Lived Assets.  The Company periodically evaluates the recoverability
   of long-lived assets, including intangibles, whenever events and changes in
   circumstances indicate that the carrying amount of an asset may not be fully
   recoverable. When indicators of impairment are present, the carrying values
   of the

                                     C-12

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   assets are evaluated in relation to the operating performance and future
   undiscounted cash flows of the underlying business. Impairment is measured
   by the amount discounted cash flows are less than book value. Fair values
   are based on quoted market prices and assumptions concerning the amount and
   timing of estimated future cash flows and assumed discount rates, reflecting
   varying degrees of perceived risk. If the Company determines that any of the
   impairment indicators exist, and these assets were determined to be
   impaired, an adjustment to write down the long-lived assets would be charged
   to income in the period such determination was made.

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

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

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

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

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

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

      The Company adjusts unearned compensation for employees and non-employee
   directors who have terminated employment with the Company whose options,
   which were granted at an exercise price lower than the trading price on the
   open market, were not fully vested at the time of departure. The adjustment
   reverses any amortization charge recognized for unvested options and
   eliminates any related remaining unearned compensation.

                                     C-13

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

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

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

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

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

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

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

                                     C-14

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

   New Pronouncements

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

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

      In April 2002, the FASB issued Statement of Financial Accounting
   Standards FAS No. 145, "Rescission of FASB Statements No.4, 44, and 62,
   Amendment of FASB Statement No. 13, and Technical Corrections". In general,
   FAS 145 will require gains and losses on extinguishments of debt to be
   classified as income or loss from continuing operations rather than as
   extraordinary items as previously required under Statement 4. Gains or
   losses from extinguishments of debt for fiscal years beginning after May 15,
   2002 shall not be reported as extraordinary items unless the extinguishment
   qualifies as an extraordinary item under the provisions of APB Opinion
   No.30, Reporting the Results of Operations--Reporting the Effects of
   Disposal of a Segment of a Business, and Extraordinary, Unusual and
   Infrequently Occurring Events and Transactions. The extraordinary item in
   2001 will be reclassified on adoption of this standard.

F.  ACQUISITIONS AND DIVESTITURES

   Acquisitions During Fiscal 2002

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

   Acquisitions During Fiscal 2001

   Wavetek Wandel Goltermann,Inc.

      On May 23, 2000, the Company merged one of its wholly owned subsidiaries
   with Wavetak Wandel Goltermann, Inc. ("WWG") for consideration of $402.0
   million. The WWG Merger was accounted for

                                     C-15

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   using the purchase method of accounting. Purchased incomplete technology of
   $51 million had not reached technological feasibility, had no alternative
   future use and was written off to the income statement in the fiscal year
   2001. The excess purchase price was allocated to other intangibles and
   goodwill.

      The purchase accounting is summarized as follows:

<TABLE>
  <S>                                                               <C>
  Aggregate purchase price:
     Cash in exchange for WWG stock................................ $249,562
     Cash in exchange for WWG options..............................    8,248
     Acterna common stock, 14,987 shares...........................  130,000
     Acquisition costs.............................................   14,228
                                                                    --------
         Total purchase price......................................  402,038
  Plus net tangible liabilities acquired...........................  150,504
                                                                    --------
         Total purchase price in excess of net assets acquired..... $552,542
                                                                    ========
  Allocations of purchase price:
     Inventory step-up to fair value............................... $ 35,000
     In-process research and development acquired..................   51,000
     Allocation to land and buildings..............................   27,000
     Deferred tax liabilities......................................  (49,447)
     Core technology...............................................  162,180
     Backlog.......................................................    6,841
     Goodwill......................................................  319,968
                                                                    --------
                                                                    $552,542
                                                                    ========
</TABLE>

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

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

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

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

                                     C-16

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      The purchase accounting is summarized as follows:

<TABLE>
<S>                                                                                <C>
Aggregate purchase price:
   Cash paid...................................................................... $164,723
   Fair value of Cheetah stock options converted to Acterna stock options.........    5,754
   Acquisition costs..............................................................      997
                                                                                   --------
       Total purchase price.......................................................  171,474
Less net assets acquired..........................................................  (15,073)
                                                                                   --------
       Total purchase price in excess of net assets acquired...................... $156,401
                                                                                   ========
Allocations of purchase price:
   Inventory step-up to fair value................................................ $    750
   In-process research and development acquired...................................    5,000
   Deferred compensation related to unvested stock options assumed by the Company.    6,720
   Core technology................................................................   48,300
   Backlog........................................................................    3,300
   Other intangibles..............................................................      700
   Goodwill.......................................................................   91,631
                                                                                   --------
                                                                                   $156,401
                                                                                   ========
</TABLE>

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

   ACQUISITIONS DURING FISCAL 2000

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

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


   ICS Advent (Europe) Ltd.

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

   Applied Digital Access, Inc.

      On November 1, 1999, the Company acquired all the outstanding stock of
   Applied Digital Access, Inc. ("ADA") for a total purchase price of
   approximately $81.0 million in cash. The operating results of ADA

                                     C-17

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   have been included in the Consolidated Financial Statements since November
   1, 1999 and is included within the Company's communications test segment.

   Sierra Design Labs

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

   DIVESTITURE DURING FISCAL 2002

   ICS Advent and Other Subsidiary

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

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

   DIVESTITURE DURING FISCAL 2001

   Data Views Corporation

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


   Other Acquisitions And Divestitures

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

G.  RESTRUCTURING

      The Company continues to implement cost reduction programs aimed at
   aligning its ongoing operating costs with its expected revenues. At the end
   of the fourth quarter of fiscal 2002, the Company's headcount was 4,973
   (down from 6,380 at the beginning of fiscal 2002), and the corporate
   headquarters was relocated from Burlington, Massachusetts to Germantown,
   Maryland. Based on current estimates of its revenues and operating
   profitability and losses, the Company plans to take additional and
   significant cost reduction actions in order to remain in compliance with its
   financial covenant requirements under its Senior Secured Credit Facility.
   (See Note B. Liquidity, to the Company's Consolidated Financial Statements.)
   These cost reduction programs include among other things: an additional
   reduction of 400 employees, a reduction of new hires, reductions to employee
   compensation, consolidation of identified facilities and an exit from

                                     C-18

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   certain product lines. A portion of these actions have been implemented in
   the first quarter of fiscal 2003 and are intended to reduce costs by an
   estimated $75 million in fiscal 2003. These new actions coupled with the
   fourth quarter restructuring programs will result in reducing headcount to
   approximately 4,100 employees by the third quarter of fiscal 2003. The
   Company believes that the cost reduction programs will be implemented and
   executed on a timely basis and will align costs with revenues. In the event
   the Company is unable to achieve this alignment, additional cost cutting
   programs would be required in the future.

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

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

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

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

      During the fiscal year ended March 31, 2002, the Company paid
   approximately $19.4 million in severance and other related costs. At March
   31, 2002 approximately $14.6 million was left to be paid for this
   restructuring; the Company anticipates that this amount will be paid
   primarily during the first half of fiscal 2003.

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

<TABLE>
<CAPTION>
                              For The Twelve Months Ended March 31, 2002
                              ------------------------------------------
                               Balance                         Balance
                              March 31,                       March 31,
                                2001      Expense    Paid       2002
                              ---------   -------  --------   ---------
            <S>               <C>         <C>      <C>        <C>
            Workforce-related    $--      $31,737  $(17,972)   $13,765
            Facilities.......    $--        1,134      (763)       371
            Other............    $--        1,118      (692)       426
                                 ---      -------  --------    -------
               Total.........    $--      $33,989  $(19,427)   $14,562
                                 ===      =======  ========    =======
</TABLE>

                                     C-19

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


H.  ACQUIRED INTANGIBLE ASSETS

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

      The remaining acquired intangible assets are as follows:

<TABLE>
<CAPTION>
                                                As of March 31, 2002
                                             ---------------------------
                                                 Gross
                                                Carrying    Accumulated
                                                 Amount     Amortization
                                             -------------- ------------
                                             (In thousands)
       <S>                                   <C>            <C>
       Amortized intangible assets:
          Core technology...................    $ 8,758        $6,930
          Other intangible assets...........      1,050           425
                                                -------        ------
       Total................................    $ 9,808        $7,355
                                                =======        ======
       Aggregate amortization expense:
       For the year ended March 31, 2002....    $42,271
       Estimated amortization expense:
          For the year ended March 31, 2003.    $ 1,297
          For the year ended March 31, 2004.    $ 1,031
          For the year ended March 31, 2005.    $   125
</TABLE>

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

I.  GOODWILL AND OTHER INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>
                             Communications
                                  Test      Itronix  AIRSHOW  da Vinci   Total
                             -------------- -------  -------  -------- --------
                                               (In thousands)
<S>                          <C>            <C>      <C>      <C>      <C>
Balance as of April 1, 2001.    $377,187    $34,036  $19,039  $ 5,216  $435,478
Goodwill adjustments........      (1,016)    (2,391)    (875)  (4,110)   (8,392)
                                --------    -------  -------  -------  --------
Balance as of March 31, 2002    $376,171    $31,645  $18,164  $ 1,106  $427,086
                                ========    =======  =======  =======  ========
</TABLE>

      The goodwill adjustments in the communications test reporting unit
   resulted primarily from final adjustments to the purchase price allocation
   for the WWG Merger (See Note F. Acquisitions and Divestitures) and due to
   the deferred tax adjustment relating to reclassifying certain intangible
   assets as goodwill on adoption of FAS 142. The goodwill adjustment for the
   Itronix reporting unit is related to the disposition of a subsidiary of
   Itronix during the second quarter of fiscal 2002. The goodwill adjustment
   for AIRSHOW relates to the reclassification of an identified intangible
   asset from goodwill. The goodwill

                                     C-20

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   adjustment for da Vinci relates to the goodwill impairment as a result of
   the closure of Sierra Design Labs, a subsidiary of da Vinci Systems, Inc.
   during the third quarter of fiscal 2002. The effects of adopting FAS 142 are
   set out below:

<TABLE>
<CAPTION>
                                                                           Year Ended Year Ended
                                                                           March 31,  March 31,
                                                                              2001       2000
                                                                           ---------- ----------
<S>                                                                        <C>        <C>
Income (loss) from continuing operations before extraordinary item........ $(171,197)  $ 6,012
Add back goodwill amortization............................................    68,896     9,192
Add back other intangible amortization....................................     9,258       164
                                                                           ---------   -------
Adjusted income (loss) from continuing operations before extraordinary
  item.................................................................... $ (93,043)  $15,368
                                                                           =========   =======
Basic and diluted loss per share:
Reported net income (loss) from continuing operations before extraordinary
  item.................................................................... $   (0.93)  $  0.04
Goodwill amortization.....................................................      0.37      0.06
Other intangible amortization.............................................      0.05      0.00
                                                                           ---------   -------
Adjusted basic and diluted income (loss) per share from continuing
  operations before extraordinary item.................................... $   (0.51)  $  0.10
                                                                           =========   =======
</TABLE>

      The Company completed its transitional impairment test of goodwill during
   the year ended March 31, 2002 for all reporting units required under FAS 142
   as of March 31, 2001 and determined that goodwill was not impaired. The
   impairment testing was based on discounted cash flow analyses of
   expectations of future earnings for each of the reporting units over the
   remaining estimated lives of the separately identifiable intangible assets.
   The Company's annual impairment test was performed as of March 31, 2002 and
   determined that goodwill was not impaired for all reporting units required
   under FAS 142.

                                     C-21

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


J.  NET INCOME (LOSS) PER SHARE

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

<TABLE>
<CAPTION>
                                                                  2002            2001           2000
                                                                 ---------       ---------       --------
                                                               (Amounts in thousands except per share data)
<S>                                                            <C>             <C>             <C>
Net income (loss):
   Continuing operations...................................... $(364,854)      $(171,197)      $  6,012
   Discontinued operations....................................   (10,039)         10,039             --
   Extraordinary loss.........................................        --         (10,659)            --
                                                                 ---------       ---------       --------
Net income (loss)............................................. $(374,893)      $(171,817)      $  6,012
                                                                 =========       =========       ========
Basic And Diluted:
Common stock outstanding, net of treasury stock, beginning of
  period......................................................   190,953         122,527        120,665
Weighted average common stock and treasury stock issued during
  the period..................................................       915          57,188            886
                                                                 ---------       ---------       --------
                                                                 191,868         179,715        121,551
Bonus element adjustment related to rights offering...........        --           4,166         26,761
                                                                 ---------       ---------       --------
Weighted average common stock outstanding, net of treasury
  stock, end of period........................................   191,868         183,881        148,312
                                                                 =========       =========       ========
Net income (loss) per common share basic and diluted:
   Continuing operations...................................... $   (1.90)      $   (0.93)      $   0.04
   Discontinued operations....................................     (0.05)           0.06             --
   Extraordinary loss.........................................        --           (0.06)            --
                                                                 ---------       ---------       --------
Net income (loss) per common share............................ $   (1.95)      $   (0.93)      $   0.04
                                                                 =========       =========       ========
</TABLE>

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

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

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

                                     C-22

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


K.  NOTES PAYABLE AND DEBT

      Notes payable and Long-term debt is summarized below:

<TABLE>
<CAPTION>
                                                 2002        2001
                                              ----------  ----------
                                              (Amounts in thousands)
            <S>                               <C>         <C>
            Senior secured credit facility... $  710,683  $  776,354
            Senior subordinated notes........    275,000     275,000
            Senior secured convertible note..     76,875
            Capitalized leases and other debt     22,441      27,277
            Other notes payable..............      2,523      10,919
                                              ----------  ----------
            Total debt.......................  1,087,522   1,089,550
                                              ----------  ----------
            Less current portion.............     31,460      33,167
                                              ----------  ----------
            Long-term debt................... $1,056,062  $1,056,383
                                              ==========  ==========
</TABLE>

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

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

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

    Senior Secured Convertible Notes

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

      Interest on the Convertible Notes is payable semi-annually in arrears on
   each March 31st and September 30th, with interest payments commencing on
   March 31, 2002. At the option of Acterna LLC, interest is payable in cash or
   in-kind by the issuance of additional Convertible Notes. Due to limitations
   imposed by the Senior Secured Credit Facility, Acterna LLC expects to pay
   interest on the Convertible

                                     C-23

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

   Notes in-kind by issuing additional Convertible Notes. The Convertible Notes
   are secured by a second lien on all of the assets of the Company and its
   subsidiaries that secure the Senior Secured Credit Facility, and are
   guaranteed by the Company and its domestic subsidiaries. A termination or
   acceleration of the Senior Secured Credit Facility because of a default
   under the Senior Secured Credit Facility, or a material payment default
   under the Senior secured Credit Facility, constitutes a default under the
   Convertible Notes.

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

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

   Senior Secured Credit Facility

      In connection with the WWG Merger, the Company refinanced certain of its
   debt and entered into a new senior secured credit facility (the "Senior
   Secured Credit Facility") which provided for up to $175.0 million in
   revolving credit borrowings (the "Revolving Credit Facility") and $685.0
   million of term loan borrowings. As of March 31, 2002, the Company had
   $710.7 million of indebtedness outstanding under the Senior Secured Credit
   Facility consisting of $647.7 million in term loans and $63.0 million in
   revolving credit borrowings. The amount under the Revolving Credit Facility
   that remained available at March 31, 2002 was approximately $95 million,
   including outstanding letters of credit which reduce the borrowing capacity
   of the Company under the terms of the Revolving Credit Facility. As of March
   31, 2002 and 2001, the Company was in compliance with all covenants under
   the Senior Secured Credit Facility, as amended on December 27, 2001.

      On December 27, 2001, in order to meet the requirements under its
   existing credit facility, the Company entered into an amendment to the
   credit agreement (the "Amendment") governing its senior secured credit
   facility. Under the Amendment, the lenders under the credit agreement, among
   other things, agreed to waive the minimum interest coverage and maximum
   leverage covenants of the Company under the credit agreement through June
   30, 2003, subject to the successful issuance and sale of the Convertible

                                     C-24

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

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

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

      The loans under the Senior Secured Credit Facility bear interest at
   floating rates based upon the interest rate option elected by the Company.
   These rates are based on LIBOR plus an applicable margin ranging from 2.75%
   to 3.25% per annum. To fix interest charged on a portion of its debt, the
   Company entered into interest rate hedge agreements. After giving effect to
   these agreements, $130 million of the Company's debt is currently subject to
   an effective average annual fixed rate of 5.718% per annum until September
   2002.

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

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

                                     C-25

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

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

    Senior Subordinated Notes

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

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

                                     C-26

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                             Redemption
                         Period                Price
                         ------              ----------
                         <S>                 <C>
                         2003...............  104.875%
                         2004...............  103.250%
                         2005...............  101.625%
                         2006 and thereafter  100.000%
</TABLE>

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

    Short-term Credit Facility

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

    Other Credit Arrangements

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

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

L.  INTEREST RATE SWAP CONTRACTS

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

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

                                     C-27

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

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

M.  INCOME TAXES

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

<TABLE>
<CAPTION>
                                 2002       2001      2000
                              ---------  ---------  -------
                                  (Amounts in thousands)
                    <S>       <C>        <C>        <C>
                    Domestic. $(332,846) $(204,129) $12,881
                    Foreign..   (31,209)    20,139      (59)
                              ---------  ---------  -------
                       Total. $(364,055) $(183,990) $12,822
                              =========  =========  =======
</TABLE>

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

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

                                     C-28

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

   Reconciliation between U.S. federal statutory rate and the effective tax rate of continuing
operations before extraordinary items follow:
                                                                        2002       2001      2000
                                                                     --------   --------   -------
U.S. federal statutory income tax (benefit) rate....................    (35.0)%    (35.0)%    35.0%
Increases (reductions) to statutory tax rate resulting from:
   Foreign income subject to tax at a rate different than U.S. rate.      0.1       7.05
   State income taxes, net of federal income tax benefit............     (1.1)      (0.7)      1.3
   Nondeductible purchased incomplete technology....................       --        9.7        --
   Nondeductible amortization.......................................       --        9.2      19.5
   Adjustment to foreign deferred tax assets and liabilities for
     enacted changes in tax rates...................................       --       (5.6)       --
   Unremitted earnings of foreign subsidiaries......................     11.0        5.6        --
   Nondeductible compensation.......................................       --        0.8       0.9
   Foreign sales corporation tax benefit............................       --         --      (7.4)
   Non-deductible meals and entertainment expenses..................      0.2        0.4       3.0
   Net increase to valuation allowance..............................     24.5         --        --
   Foreign deductible investment writedown..........................     (3.7)        --        --
   Tax effect of losses for which carryback was restricted..........      3.5         --        --
   Other, net.......................................................       .5        1.6       0.3
                                                                     --------   --------   -------
       Effective income tax (benefit) rate before extraordinary
         items......................................................      0.0%      (7.0)%    53.1%
                                                                     ========   ========   =======
</TABLE>

                                     C-29

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

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

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

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


                                     C-30

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

N.  EMPLOYEE RETIREMENT PLANS

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

      The Company has a nonqualified deferred compensation plan that permits
   certain key employees to annually elect to defer a portion of their
   compensation for their retirement. The amount of compensation deferred and
   related investment earnings have been placed in an irrevocable rabbi trust
   and recorded within other assets in the Company's balance sheet, as this
   trust will be available to the general creditors of the Company in the event
   of the Company's insolvency. An offsetting deferred compensation liability,
   which equals the total value of the trust at March 31, 2002 and 2001 of
   $11.4 million and $10.6 million, respectively, reflect amounts due the
   employees who contribute to the plan. The change in the valuation is due to
   employee contributions, the Company match on the contributions, and the
   change in the market valuation of the fund.

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

    Defined Benefit Plans

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

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

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

                                     C-31

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

      The following table represents a statement of the funded status:

<TABLE>
<CAPTION>
                                                2002       2001
                                               -------     -------
                                              (Amounts in thousands)
                 <S>                          <C>         <C>
                 Accrued pension cost........ $46,996     $42,637
                 Unrecognized net (gain)/loss   1,564       2,700
                 Minimum liability...........  (1,797)         --
                                               -------     -------
                 Funded status............... $46,763     $45,337
                                               =======     =======
</TABLE>

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

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

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

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

O.  STOCK COMPENSATION PLANS

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

                                     C-32

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

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

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

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

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

<TABLE>
<CAPTION>
                                           2002                 2001                 2000
                                         Weighted             Weighted             Weighted
                                         Average              Average              Average
                                2002     Exercise    2001     Exercise    2000     Exercise
                               Shares     Price     Shares     Price     Shares     Price
                             ----------  -------- ----------  -------- ----------  --------
<S>                          <C>         <C>      <C>         <C>      <C>         <C>
Shares under option,
  beginning of year......... 37,553,498   $4.02   33,384,111   $2.40   33,903,244   $1.85
Options granted (at an
  exercise price of $2.28 to
  $12.45 in 2002, $3.25 to
  $27.94 in 2001, $3.25 to
  $4.00 in 2000)............  8,015,633    6.94   12,675,790    7.62    9,537,781    3.29
Options exercised........... (1,427,207)   2.09   (5,223,498)   1.84   (1,194,318)   1.24
Options canceled............ (6,409,906)   5.37   (3,282,905)   4.94   (8,862,596)   1.36
                             ----------           ----------           ----------
Shares under option, end of
  year...................... 37,732,018   $4.45   37,553,498   $4.02   33,384,111   $2.40
                             ==========           ==========           ==========
Shares exercisable.......... 15,934,557   $2.90   12,402,897   $2.00   13,178,441   $1.66
</TABLE>

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

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

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

                                     C-33

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

<TABLE>
<CAPTION>
                                          2002     2001     2000
                                         ------  -------  -------
             <S>                         <C>     <C>      <C>
             Expected volatility........ 100.00%  100.00%   70.00%
             Risk-free rate of return...   4.72%    6.30%    6.13%
             Expected life (in years)... 5 yrs.   5 yrs.   5 yrs.
             Weighted average fair value  $5.16  $14.007  $ 3.274
             Dividend yield.............   0.00%    0.00%    0.00%
</TABLE>

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

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

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

P.  COMMITMENTS AND CONTINGENCIES

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

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

Q.  EXTRAORDINARY CHARGE

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

                                     C-34

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


R.  SUBSEQUENT EVENT

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

S.  SEGMENT INFORMATION AND GEOGRAPHIC AREAS

   Segment Information.

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

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

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

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

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

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

                                     C-35

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


<TABLE>
<CAPTION>
                                                 Years ending March 31,
                                            --------------------------------
                                               2002        2001       2000
                                            ----------  ----------  --------
                                                 (Amounts in thousands)
   <S>                                      <C>         <C>         <C>
   Communications test:
      Net sales............................ $  854,437  $1,052,747  $349,886
      Depreciation and amortization........ $   69,181  $  129,272  $ 15,441
      EBITA................................ $   (3,662) $  139,498  $ 62,447
      Total assets......................... $  749,338  $1,109,270  $179,338
      Capital expenditures................. $   33,080  $   35,339  $ 13,629
   Industrial Computing and Communications:
      Net sales............................ $  188,351  $  198,441  $203,361
      Depreciation and amortization........ $    6,267  $   14,938  $  6,553
      EBITA................................ $    4,950  $   (1,914) $ 25,379
      Total assets......................... $   91,118  $  139,084  $121,412
      Capital expenditures................. $    3,078  $    6,889  $  5,695
   AIRSHOW:
      Net sales............................ $   65,024  $   78,886  $ 70,960
      Depreciation and amortization........ $    2,253  $    2,621  $  2,105
      EBITA................................ $    9,493  $   15,886  $ 19,314
      Total Assets......................... $   41,548  $   46,846  $ 39,728
      Capital Expenditures................. $      976  $    2,730  $  1,743
   da Vinci:
      Net sales............................ $   24,849  $   35,329  $ 26,572
      Depreciation and amortization........ $      829  $    1,616  $    972
      EBITA................................ $    5,970  $   10,909  $  8,642
      Total assets......................... $    3,810  $   11,268  $ 11,532
      Capital expenditures................. $    1,251  $      718  $    604
   Corporate and other:
      Net sales............................ $       --  $      854  $  5,822
      Depreciation and amortization........ $      132  $      131  $    338
      EBITA................................ $  (10,971) $   (5,551) $ (4,757)
      Total assets......................... $  128,742  $   76,511  $111,639
      Capital expenditures................. $       18  $      229  $    188
   Total Company:
      Net sales............................ $1,132,661  $1,366,257  $656,601
      Depreciation and amortization........ $   78,662  $  148,578  $ 25,409
      EBITA................................ $    5,780  $  158,828  $111,025
      Total assets......................... $1,014,556  $1,382,979  $463,649
      Capital expenditures................. $   38,403  $   45,905  $ 21,859
</TABLE>


                                     C-36

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


      The following are excluded from the calculation of EBITA:

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

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

<TABLE>
<CAPTION>
                                                      United States Outside U.S.
                                                           (a)          (b)       Combined
                                                      ------------- ------------ ----------
                                                              (Amounts in thousands)
<S>                                                   <C>           <C>          <C>
Sales to unaffiliated customers
   2002..............................................   $ 655,868    $ 476,793   $1,132,661
   2001..............................................   $ 831,342    $ 534,915   $1,366,257
   2000..............................................   $ 574,610    $  81,991   $  656,601
Income (loss) before taxes from continuing operations
   2002..............................................   $(203,201)   $(160,854)  $ (364,055)
   2001..............................................   $(214,636)   $  30,646   $ (183,990)
   2000..............................................   $  12,576    $     246   $   12,822
Long-lived assets at.................................
   March 31, 2002....................................   $ 475,020    $  76,605   $  551,625
   March 31, 2001....................................   $ 709,280    $  45,857   $  755,137
   March 31, 2000....................................   $ 138,553    $   3,502   $  142,055
</TABLE>
   -----
   (a) Sales within the United States include export sales of $61,122 $158,351,
       and $57,251, in 2002, 2001, and 2000, respectively.

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

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

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

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

                                     C-37

<PAGE>

                              ACTERNA CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)


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

                                     C-38

<PAGE>

                              ACTERNA CORPORATION

          SUPPLEMENTAL CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                March 31, 2002

<TABLE>
<CAPTION>
                                          Acterna    Acterna   Non-Guarantor                Total
                                           Corp        LLC     Subsidiaries  Elimination Consolidated
                                         ---------  ---------  ------------- ----------- ------------
                                                                (In thousands)
<S>                                      <C>        <C>        <C>           <C>         <C>
Net sales............................... $      --  $ 315,107    $ 817,554          --    $1,132,661
Cost of sales...........................        --    159,021      381,027          --       540,048
                                         ---------  ---------    ---------    --------    ----------
Gross profit............................        --    156,086      436,527          --       592,613
Selling, general and administrative
  expense...............................        --    213,924      230,463          --       444,387
Product development expense.............        --     55,803      104,416          --       160,219
Impairment of assets held for sale......        --         --       17,918          --        17,918
Impairment of acquired intangible assets        --      3,724      147,598          --       151,322
Goodwill impairment.....................        --         --        3,947          --         3,947
Restructuring...........................        --     16,429       17,560          --        33,989
Amortization of intangibles.............        --      3,037       39,234          --        42,271
                                         ---------  ---------    ---------    --------    ----------
Total operating expense.................        --    292,917      561,136          --       854,053
   Operating loss.......................        --   (136,831)    (124,609)         --      (261,440)
Interest expense........................        --    (85,164)     (11,461)         --       (96,625)
Interest income.........................        --        562        1,063          --         1,625
Intercompany interest income (expense)..        --      3,902       (3,902)         --            --
Intercompany royalty income (expense)...        --     19,657      (19,657)         --            --
Other income (expense), net.............        --        420       (8,035)         --        (7,615)
                                         ---------  ---------    ---------    --------    ----------
Loss from continuing operations before
  income taxes..........................        --   (197,454)    (166,601)         --      (364,055)
Provision (benefit) for income taxes....        --     (3,909)       4,708          --           799
                                         ---------  ---------    ---------    --------    ----------
Loss from continuing operations before
  extraordinary item....................        --   (193,545)    (171,309)         --      (364,854)
Equity income (loss)....................  (374,893)  (171,309)          --     546,202            --
Loss from discontinued operations.......        --    (10,039)          --          --       (10,039)
                                         ---------  ---------    ---------    --------    ----------
Net income (loss)....................... $(374,893) $(374,893)   $(171,309)   $546,202    $ (374,893)
                                         =========  =========    =========    ========    ==========
</TABLE>


                                     C-39

<PAGE>

                              ACTERNA CORPORATION

               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
                                March 31, 2002

<TABLE>
<CAPTION>
                                             Acterna      Acterna    Non-Guarantor                Total
                                              Corp          LLC      Subsidiaries  Elimination Consolidated
                                           -----------  -----------  ------------- ----------- ------------
                                                                    (in thousands)
<S>                                        <C>          <C>          <C>           <C>         <C>
                  ASSETS
Current assets:
   Cash and cash equivalents.............. $        --  $    14,969    $  27,770   $       --  $    42,739
   Accounts receivable, net...............          --       38,875       87,506           --      126,381
   Inventory..............................          --       23,623       88,978           --      112,601
   Other current assets...................          --       91,233       39,811           --      131,044
                                           -----------  -----------    ---------   ----------  -----------
       Total current assets...............          --      168,700      244,065           --      412,765
Property and equipment, net...............          --       31,255       90,831           --      122,086
Investments in and advances to
  consolidated subsidiaries...............    (376,167)    (234,866)    (593,530)   1,204,563           --
Goodwill..................................          --       16,908      410,178           --      427,086
Intangible assets, net....................          --                     2,453           --        2,453
Deferred income taxes.....................          --       (9,284)       9,284           --           --
Other.....................................          --       40,574        9,592           --       50,166
                                           -----------  -----------    ---------   ----------  -----------
       Total assets....................... $  (376,167) $    13,287    $ 172,873   $1,204,563  $ 1,014,556
                                           ===========  ===========    =========   ==========  ===========
             LIABILITIES AND
            STOCKHOLDERS' EQUITY
                 (DEFICIT)
Current liabilities:
   Notes payable and current portion
     of long-term debt.................... $        --  $    23,000    $   8,460   $       --  $    31,460
   Accounts payable.......................          --       27,547       45,827           --       73,374
   Accrued expenses.......................          --       87,349      116,956           --      204,305
                                           -----------  -----------    ---------   ----------  -----------
       Total current liabilities..........          --      137,896      171,243           --      309,139
Long-term debt............................          --      953,200      102,862           --    1,056,062
Deferred income taxes.....................          --       15,739        1,842           --       17,581
Other long-term liabilities...............          --       11,386       57,163           --       68,549
Stockholders' equity (deficit):...........
   Common stock...........................       1,922      (16,200)      17,214       (1,014)       1,922
   Additional paid-in capital.............     786,537      (13,784)     203,097     (189,313)     786,537
   Accumulated deficit....................  (1,164,626)  (1,020,520)    (380,383)   1,394,890   (1,170,639)
   Unearned compensation..................          --      (53,925)          --           --      (53,925)
   Other comprehensive loss...............          --         (505)        (165)          --         (670)
                                           -----------  -----------    ---------   ----------  -----------
       Total stockholders' equity
         (deficit)........................    (376,167)  (1,104,934)    (160,237)   1,204,563     (436,775)
                                           -----------  -----------    ---------   ----------  -----------
Total liabilities and stockholders' equity
  (deficit)............................... $  (376,167) $    13,287    $ 172,873   $1,204,563  $ 1,014,556
                                           ===========  ===========    =========   ==========  ===========
</TABLE>


                                     C-40

<PAGE>

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

<TABLE>
<CAPTION>
                                                         Acterna    Acterna   Non-Guarantor                Total
                                                          Corp        LLC     Subsidiaries  Elimination Consolidated
                                                        ---------  ---------  ------------- ----------- ------------
                                                                               (In thousands)
<S>                                                     <C>        <C>        <C>           <C>         <C>
Operating activities:
    Net income (loss) from operations.................. $(374,893) $(374,893)  $(171,309)..  $ 546,202.  $(374,893).
    Adjustment for noncash items included in net
     income (loss):
       Depreciation....................................         --     13,392      22,999..         --.      36,391.
       Bad debt........................................         --      (863)         281..         --.       (582).
       Amortization of intangibles.....................         --      3,037      39,234..         --.      42,271.
       Amortization of unearned compensation...........         --      8,751      10,617..         --.      19,368.
       Amortization of deferred debt issuance
        costs..........................................        --      5,582                        --       5,582
       Impairment of intangibles.......................         --      3,724     147,598..         --.     151,322.
       Write-off of previously deferred loss on
        discontinued operations........................         --         --      10,039..         --.      10,039.
       Loss on sale of fixed assets....................         --      3,738         435..         --.       4,173.
       Impairment of assets held for sale and
        goodwill impairment............................        --                  21,865           --      21,865
       Tax benefit from stock option exercise..........        --        994                        --         994
       Change in deferred income taxes.................        --     59,291                        --      59,291
    Changes in operating assets and liabilities, net
     of effects of purchase acquisitions and
     divestitures......................................         --   (12,445)      38,745..         --.      26,300.
    Changes in intercompany............................    374,893    291,299   (119,990)..  (546,202).          --.
                                                        ---------  ---------    ---------    ---------   ---------
    Net cash flows provided by operating
     activities........................................         --      1,607         514..         --.       2,121.
Investing activities:
    Purchases of property and equipment................        --    (17,122)     (21,281)          --     (38,403)
    Proceeds from sale of property and
     equipment.........................................        --         --        1,178           --       1,178
    Proceeds from sales of businesses..................        --         --       23,800           --      23,800
    Businesses acquired in purchase transactions,net
     of cash and noncash items.........................        --         --       (1,495)                  (1,495)
    Other..............................................        --     (1,607)         578           --      (1,029)
                                                        ---------  ---------    ---------    ---------   ---------
    Net cash flows provided by (used in) investing
     activities........................................         --   (18,729)       2,780..         --.    (15,949).
Financing activities:
    Repayments under revolving credit facility,
     net...............................................        --    (45,000)                       --     (45,000)
    Borrowings of term loan debt.......................         --         --       3,350..         --.       3,350.
    Borrowings of notes payable and other debt.........         --         --       (260)..         --.       (260).
    Repayment of term loan debt........................         --   (16,000)    (19,010)..         --.    (35,010).
    Borrowings of notes payable........................         --     75,000          --..         --.      75,000.
    Financing fees.....................................               (6,256)                       --      (6,256)
    Proceeds from issuance of common stock, net of
     expenses..........................................         --      2,168          --..         --.       2,168.
                                                        ---------  ---------    ---------    ---------   ---------
    Net cash flows provided by or (used) in
     financing activities..............................         --      9,912    (15,920)..         --.     (6,008).
Effect of exchange rate on cash........................        --         --         (479)          --        (479)
                                                        ---------  ---------    ---------    ---------   ---------
Decrease in cash and cash equivalents..................        --     (7,210)     (13,105)          --     (20,315)
Cash and cash equivalents at beginning of year.........        --     22,179       40,875           --      63,054
                                                        ---------  ---------    ---------    ---------   ---------
Cash and cash equivalents at end of year............... $      --  $  14,969    $  27,770    $      --   $  42,739
                                                        =========  =========    =========    =========   =========
</TABLE>


                                     C-41

<PAGE>

                              ACTERNA CORPORATION

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

<TABLE>
<CAPTION>
                                          Acterna    Acterna   Non-Guarantor                Total
                                           Corp        LLC     Subsidiaries  Elimination Consolidated
                                         ---------  ---------  ------------- ----------- ------------
                                                                (In thousands)
<S>                                      <C>        <C>        <C>           <C>         <C>
Net sales...............................        --  $ 418,232    $ 948,025    $     --    $1,366,257
Cost of sales...........................        --    138,675      468,185          --       606,860
                                         ---------  ---------    ---------    --------    ----------
Gross profit............................        --    279,557      479,840          --       759,397
Selling, general and administrative
  expense...............................        --    221,812      264,786          --       486,598
Product development expense.............        --     51,838      116,279          --       168,117
Purchased incomplete technology.........        --                  56,000          --        56,000
Recapitalization and other related costs        --      9,194           --          --         9,194
Amortization of intangibles.............        --                 120,151          --       120,151
                                         ---------  ---------    ---------    --------    ----------
   Operating loss.......................        --     (3,287)     (77,376)         --       (80,663)

Interest expense........................        --    (90,003)     (12,155)         --      (102,158)
Interest income.........................        --      1,742        1,580          --         3,322
Intercompany interest income (expense)..        --     19,481      (19,481)         --            --
Other income (expense), net.............        --        284       (4,775)         --        (4,491)
                                         ---------  ---------    ---------    --------    ----------
Loss from continuing operations before
  income taxes..........................        --    (71,783)    (112,207)         --      (183,990)
Benefit for income taxes................        --     (3,549)      (9,244)         --       (12,793)
                                         ---------  ---------    ---------    --------    ----------
Loss from continuing operations.........        --    (68,234)    (102,963)         --      (171,197)
Equity income (loss)....................  (171,817)   (92,924)      10,039     264,741        10,039
Extraordinary item......................        --    (10,659)          --          --       (10,659)
                                         ---------  ---------    ---------    --------    ----------
Net income (loss)....................... $(171,817) $(171,817)   $ (92,924)   $264,741    $ (171,817)
                                         =========  =========    =========    ========    ==========
</TABLE>


                                     C-42

<PAGE>

                              ACTERNA CORPORATION

               SUPPLEMENTAL CONDENSED CONSOLIDATED BALANCE SHEET
                                March 31, 2001

<TABLE>
<CAPTION>
                                             Acterna    Acterna   Non-Guarantor                Total
                                              Corp        LLC     Subsidiaries  Elimination Consolidated
                                            ---------  ---------  ------------- ----------- ------------
                                                                   (In thousands)
<S>                                         <C>        <C>        <C>           <C>         <C>
                  ASSETS
Current assets:
   Cash and cash equivalents............... $      --  $  22,179    $  40,875    $      --   $   63,054
   Accounts receivable, net................        --     67,637      165,734           --      233,371
   Inventory, net..........................        --     28,053      129,428           --      157,481
   Other current assets....................        --     38,799       38,772           --       77,571
                                            ---------  ---------    ---------    ---------   ----------
       Total current assets................        --    156,668      374,809           --      531,477
Property and equipment, net................        --     26,641       97,925           --      124,566
Investments in and advances to consolidated
  subsidiaries.............................    13,255    259,637     (547,301)     274,409           --
Goodwill...................................        --         --      435,478           --      435,478
Intangible assets, net.....................        --         --      195,093           --      195,093
Net assets of discontinued operations......        --         --       37,908           --       37,908
Other......................................        --     28,166       30,291           --       58,457
                                            ---------  ---------    ---------    ---------   ----------
       Total assets........................ $  13,255  $ 471,112    $ 624,203    $ 274,409   $1,382,979
                                            =========  =========    =========    =========   ==========

       LIABILITIES AND STOCKHOLDERS'
             EQUITY (DEFICIT)
Current liabilities:
   Notes payable and current portion of
     debt.................................. $      --  $  16,000    $  17,167    $      --   $   33,167
   Accounts payable........................        --     31,623       80,532           --      112,155
   Accrued expenses........................        --     53,331      148,167           --      201,498
       Total current liabilities...........        --    100,954      245,866           --      346,820

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


                                     C-43

<PAGE>

                              ACTERNA CORPORATION

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

<TABLE>
<CAPTION>
                                                         Acterna    Acterna   Non-Guarantor                Total
                                                          Corp        LLC     Subsidiaries  Elimination Consolidated
                                                        ---------  ---------  ------------- ----------- ------------
                                                                               (In thousands)
<S>                                                     <C>        <C>        <C>           <C>         <C>
Operating activities:
    Net income (loss) from operations.................. $(171,817) $(171,817)   $(92,924)    $ 264,741   $(171,817)
    Adjustment for noncash items included in net
     income (loss):
       Depreciation....................................        --      9,872      18,555            --      28,427
       Bad debt........................................        --      3,509       3,638            --       7,147
       Amortization of intangibles.....................        --         --     120,151            --     120,151
       Amortization of inventory step-up...............        --     35,750          --            --      35,750
       Amortization of unearned compensation...........        --     17,012       2,828            --      19,840
       Amortization of deferred debt issuance
        costs..........................................        --      3,974          --            --       3,974
       Write-off of deferred debt issuance
        costs..........................................        --     10,019          --            --      10,019
       Purchased incomplete technology.................        --     56,000          --            --      56,000
       Recapitalization and other related costs........        --      9,194          --            --       9,194
       Tax benefit from stock option exercise..........        --     21,319          --            --      21,319
       Other...........................................        --         45       2,002            --       2,047
       Change in deferred income taxes.................        --    (40,452)      9,143            --     (31,309)
    Changes in operating assets and liabilities, net
     of effects of purchase acquisitions and
     divestitures......................................        --    (23,181)    (68,191)           --     (91,372)
    Changes in intercompany............................   171,817     39,639      53,285      (264,741)         --
                                                        ---------  ---------    --------     ---------   ---------
    Net cash flows provided by (used in) operating
     activities........................................        --    (29,117)     48,487            --      19,370

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

Financing activities:
    Borrowings under revolving credit facility,
     net...............................................        --    108,000          --            --     108,000
    Borrowings of term loan debt, net..................        --    683,566          --            --     683,566
    Repayment of term loan debt........................        --    (12,944)         --            --     (12,944)
    Borrowings of notes payable and other debt.........        --     31,858        (123)           --      31,735
    Repayment of debt under old Senior Secured
     Credit Facility...................................        --   (304,861)         --            --    (304,861)
    Repayment of WWG term debt.........................        --   (118,594)         --            --    (118,594)
    Redemption of WWG bonds............................        --    (94,148)         --            --     (94,148)
    Financing fees.....................................        --    (18,519)         --            --     (18,519)
    Proceeds from issuance of common stock, net of
     expenses..........................................        --    200,404           1            --     200,405
                                                        ---------  ---------    --------     ---------   ---------
    Net cash flows provided by (used in) financing
     activities........................................        --    474,762        (122)           --     474,640
    Effect of exchange rate on cash....................        --     (9,380)      6,746            --      (2,634)
                                                        ---------  ---------    --------     ---------   ---------
Increase in cash and cash equivalents..................        --      2,820      24,465            --      27,285
Cash and cash equivalents at beginning of year.........        --     19,359      16,410            --      35,769
                                                        ---------  ---------    --------     ---------   ---------
Cash and cash equivalents at end of year............... $      --  $  22,179    $ 40,875     $      --   $  63,054
                                                        =========  =========    ========     =========   =========
</TABLE>

                                     C-44

<PAGE>

                              ACTERNA CORPORATION

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

<TABLE>
<CAPTION>
                                                Acterna  Acterna  Non-Guarantor                Total
                                                 Corp      LLC    Subsidiaries  Elimination Consolidated
                                                ------- --------  ------------- ----------- ------------
                                                                     (In thousands)
<S>                                             <C>     <C>       <C>           <C>         <C>
Net sales...................................... $   --  $306,504    $350,097     $     --     $656,601
Cost of sales..................................     --   104,805     180,726           --      285,531
                                                ------  --------    --------     --------     --------
Gross profit...................................     --   201,699     169,371           --      371,070
   Selling, general and administrative
     expense...................................     --   106,982      85,304           --      192,286
Product development expense....................     --    43,497      31,901           --       75,398
Recapitalization and other related costs.......     --    27,543         399           --       27,942
Amortization of intangibles....................     --     1,847      10,479           --       12,326
                                                ------  --------    --------     --------     --------
Operating income...............................     --    21,830      41,288           --       63,118
Interest expense...............................     --   (51,899)        (50)          --      (51,949)
Interest income................................     --     1,537         836           --        2,373
Intercompany interest income (expense).........     --       477        (477)          --
Other income (expense), net....................     --      (972)        252           --         (720)
                                                ------  --------    --------     --------     --------
Income (loss) from continuing operations before
  income taxes.................................     --   (29,027)     41,849           --       12,822
Provision (benefit) for income taxes...........     --    (4,304)     11,114           --        6,810
                                                ------  --------    --------     --------     --------
Income (loss) from continuing operations.......     --   (24,723)     30,735           --        6,012
Equity income..................................  6,012    30,735          --      (36,747)          --
                                                ------  --------    --------     --------     --------
Net income (loss).............................. $6,012  $  6,012    $ 30,735     $(36,747)    $  6,012
                                                ======  ========    ========     ========     ========
</TABLE>


                                     C-45

<PAGE>

                              ACTERNA CORPORATION

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

<TABLE>
<CAPTION>
                                                     Acterna    Acterna   Non-Guarantor                Total
                                                      Corp        LLC     Subsidiaries  Elimination Consolidated
                                                     -------   ---------  ------------- ----------- ------------
                                                                           (In thousands)
<S>                                                  <C>       <C>        <C>           <C>         <C>
Operating activities:
   Net income (loss) from operations................ $ 6,012   $   6,012    $ 30,735     $(36,747)   $   6,012
   Adjustment for noncash items included in net
     income (loss):
      Depreciation..................................      --       6,543       6,539           --       13,082
      Bad debt......................................      --         461         563           --        1,024
      Amortization of intangibles...................      --       7,645       4,682           --       12,327
      Recapitalization and other related
        costs.......................................      --      12,327          --           --       12,327
      Amortization of unearned
        compensation................................      --       2,419          --           --        2,419
      Amortization of deferred debt issuance........      --       3,232          --           --        3,232
        costs.......................................      --      (2,840)         --           --       (2,840)
      Tax benefit from stock option exercise........      --       1,461          --           --        1,461
      Other.........................................      --          --          56           --           56
   Changes in operating assets and liabilities, net
     of effects of purchase acquisitions and
     divestitures...................................      --      (9,935)     18,245           --        8,310
   Changes in intercompany..........................  (6,012)     19,676     (50,411)      36,747           --
                                                     -------   ---------    --------     --------    ---------
   Net cash flows provided by operating
     activities.....................................      --      47,001      10,409           --       57,410
Investing activities:
   Purchases of property and equipment..............      --     (11,962)     (9,897)          --      (21,859)
   Businesses acquired in purchase
     transactions,net of cash acquired..............      --    (113,227)         --           --     (113,227)
   Other............................................      --      (5,643)     (1,522)          --       (7,165)
                                                     -------   ---------    --------     --------    ---------
   Net cash flows used in investing activities......      --    (130,832)    (11,419)          --     (142,251)
Financing activities:
   Borrowings under revolving credit facility,
     net............................................      --      70,000          --           --       70,000
   Repayment of term loan debt......................      --     (17,139)         --           --      (17,139)
   Repayment of capital lease obligations...........      --          --        (212)          --         (212)
   Proceeds from issuance of common stock and
     stock options..................................      --       4,736          --           --        4,736
   Redemption of stock options......................      --      (6,980)         --           --       (6,980)
                                                     -------   ---------    --------     --------    ---------
Net cash flows provided by (used in) financing
  activities........................................      --      50,617        (212)          --       50,405
Effect of exchange rate on cash.....................      --          92        (249)          --         (157)
                                                     -------   ---------    --------     --------    ---------
Increase (decrease) in cash and cash equivalents....      --     (33,122)     (1,471)          --      (34,593)
Cash and cash equivalents at beginning of year......      --      52,481      17,881           --       70,362
                                                     -------   ---------    --------     --------    ---------
Cash and cash equivalents at end of year............ $    --   $  19,359    $ 16,410     $     --    $  35,769
                                                     =======   =========    ========     ========    =========
</TABLE>


                                     C-46

<PAGE>

                 SUMMARY OF OPERATIONS BY QUARTER (UNAUDITED)

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

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

--------
(1) The Company recorded a charge of $71 million to provide for valuation
    allowance against its U.S. deferred tax assets.
(2) The Company recorded charges of $21.8 million for impairments of assets
    held for sale and goodwill.
(3) The Company recorded a charge of $151 million with respect to intangible
    assets and a tax benefit of $61 million relating to the carryback of U.S.
    net operating losses.


                                     C-47

<PAGE>

                                                                     APPENDIX D

                                 EXHIBIT INDEX

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

                                      D-1

<PAGE>

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

                                      D-2

<PAGE>

<TABLE>
<CAPTION>
Exhibit
  No.
-------
<C>     <S>
 10.20  Second Credit Agreement Amendment, dated as of December 27, 2001, among Acterna Corporation
        ("Acterna"), Acterna LLC, certain subsidiaries of Acterna LLC, JPMorgan Chase Bank (as successor
        by merger to the Morgan Guaranty Trust Company of New York), as administrative agent, and certain
        of the lenders under the Credit Agreement, dated May 23, 2000, among Acterna LLC, Wavetek
        Wandel Goltermann GmbH and Acterna Subworld Holdings GmbH, the lenders named therein,
        Morgan Guaranty and Trust Company of New York ("Morgan Guaranty") as administrative agent,
        Morgan Guaranty as German Term Loan Servicing Bank, Credit Suisse First Boston as syndication
        agent and The Chase Manhattan Bank and Bankers Trust Company as co-documentation agents. (14)
 10.21  Guarantee and Collateral Agreement, dated as of December 27, 2001, made by Acterna Corporation,
        Acterna LLC and certain subsidiaries of Acterna LLC for the benefit of Clayton, Dubilier & Rice
        Fund VI Limited Partnership. (14)
 10.22  Intercreditor Agreement, dated as of December 27, 2001, between JPMorgan Chase Bank and
        Clayton, Dubilier & Rice Fund VI Limited Partnership, and consented to by Acterna Corporation and
        Acterna LLC. (14)
 10.23  Separation Agreement for Allan M. Kline, dated as of February 28, 2002.
 10.24  Form of Separation Agreement for each of Mark V.B. Tremallo and Robert W. Woodbury, Jr.
 21     Subsidiaries of Acterna Corporation.
 23     Consent of Independent Accountants.
</TABLE>
--------
(1)  Incorporated by reference to Acterna Corporation's Report on Form 8-K
     (File No. 0-7438).
(2)  Incorporated by reference to Acterna Corporation's Schedule 14D-1 (File
     No. 5-44783).
(3)  Incorporated by reference to Acterna Corporation's Report on Form 8-K
     (File No. 1-12657).
(4)  Incorporated by reference to Acterna Corporation's Form 10-Q for the
     quarter ended September 30, 1999 (File No. 1-12657).
(5) Incorporated by reference to Acterna Corporation's Report on Form 10-K for
    the year ended March 31, 2000 (File No. 0-7438).
(6) Incorporated by reference to Acterna Corporation's Registration Statement
    on Form S-4 (Registration No. 333-60893).
(7) Incorporated by reference to Acterna Corporation's Registration Statement
    on Form S-3 (Registration No. 333-35476).
(8) Incorporated by reference to Acterna Corporation's Registration Statement
    on Form S-4 (File No. 333-44933).
(9) Incorporated by reference to Acterna Corporation's Form 10-Q for the
    quarter ended December 31, 1998 (File No. 1-12657).
(10) Incorporated by reference to Acterna Corporation's Registration Statement
     on Form S-8 (File No. 333-75797).
(11) Incorporated by reference to Acterna Corporation's Form 10-Q for the
     quarter ended December 31, 1999 (File No. 1-12657).
(12) Incorporated by reference to Acterna Corporation's Form 10-Q for the
     quarter ended June 30, 1999 (File No. 1-12657).
(13) Incorporated by reference to Acterna Corporation's Report on Form 10-K for
     the year ended March 31, 2001 (File No. 0-7438).
(14) Incorporated by reference to Acterna Corporation's Report on Form 8-K
     (File No. 0-7438).

                                      D-3

<PAGE>

Item 14(a) (2)

                                                                    SCHEDULE II

                              ACTERNA CORPORATION

                       VALUATION AND QUALIFYING ACCOUNTS
              For the Years Ended March 31, 2002, 2001, and 2000

Reserve for Doubtful Accounts

<TABLE>
<CAPTION>
                                                       (In thousands)
                                                       --------------
          <S>                                          <C>
          Balance, March 31, 1999.....................    $ 1,634
             Additions charged to income..............      1,024
             Write-off of uncollectible accounts, net.        (22)
             Balance acquired by acquisition..........        247
                                                          -------
          Balance, March 31, 2000.....................      2,883
             Additions charged to income..............      7,147
             Write-off of uncollectible accounts, net.     (3,222)
             Balance acquired by acquisition..........      3,933
                                                          -------
          Balance, March 31, 2001.....................     10,741
             Additions charged to income..............       (582)
             Write-off of uncollectible accounts, net.     (2,287)
                                                          -------
             Balance, March 31, 2002..................    $ 7,872
                                                          =======
</TABLE>

                                      D-4