DYNATECH CORP, 10-K405, 2000-06-29

DYNATECH CORP
10-K405, 2000-06-29
INSTRUMENTS FOR MEAS & TESTING OF ELECTRICITY & ELEC SIGNALS

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U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended March 31, 2000

Commission file number 1-12657

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

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

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

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

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

Common Stock, no par value per share
(Title of class)

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

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

At June 12, 2000, the aggregate market value of the Common Stock of the
registrant held by non-affiliates was $303,548,219.06.

At June 12, 2000, there were 181,990,892 shares of Common Stock of the
registrant outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the 2000 Annual Meeting of Shareholders
are incorporated by reference in Part III.

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Item 1. Business.

General

Dynatech Corporation (the "Company" or "Dynatech") was formed in 1959 and is
a global communications equipment company focused on network technology
solutions. The Company's operations are conducted primarily by wholly owned
subsidiaries located principally in the United States and Europe with other
operations, primarily sales offices, located in Latin America and the Far
East. The Company is managed in two business segments: communications test and
inflight information systems.

Unless otherwise noted the information presented in Item 1 of this Report
reflects the combined businesses of the Company and Wavetek Wandel Goltermann,
Inc. ("WWG"), which merged with one of the Company's subsidiaries on May 23,
2000, and their respective subsidiaries and gives effect to the Company's
Board of Directors' decision to discontinue the Company's industrial computing
and communications business segment. Unless otherwise noted, the information
presented in the Appendices to this Report only reflects the business of the
Company and its subsidiaries and does not include the business or results of
WWG, because the WWG merger was consummated after the end of Dynatech's fiscal
year.

The communications test business develops, manufactures and markets
instruments, systems, software and services that test, deploy, manage and
optimize communications networks, equipment and services. The inflight
information systems segment, through the Company's AIRSHOW, Inc. subsidiary,
provides passenger cabin video information display systems and information
services for the general and commercial aviation markets. The Company also has
other subsidiaries that, in the aggregate, are not reportable as a segment
("Other Subsidiaries"). These Other Subsidiaries include da Vinci Systems,
Inc. which provides digital color enhancement systems used in the production
of television commercials and programming; and Dataviews, Inc., which was sold
in June 2000. In years prior to fiscal 2000 the Company's consolidated
statements of income and the Other Subsidiaries included the results of
operations of two subsidiaries which have since been divested: ComCoTec, Inc.
which was sold in June 1998, and Parallax Graphics, which was liquidated
during fiscal 1999.

On May 23, 2000, the Company completed the merger of one of its subsidiaries
with WWG, a developer, manufacturer and marketer of communications test
instruments, systems, software and services in Europe and Latin America. To
finance the WWG merger, the Company sold 12.5 million and 30.625 million
newly-issued but unregistered shares of Common Stock to Clayton, Dubilier &
Rice Fund V Limited Partnership ("CDR Fund V") and Clayton Dubilier & Rice
Fund VI Limited Partnership ("CDR Fund VI"), respectively, for an aggregate
purchase price of $172.5 million, and established a new credit facility with a
syndicate of lenders that provides for borrowings of up to $860 million. In
addition, on June 1, 2000, the Company commenced a rights offering (the
"Rights Offering") of 4.983 million newly-issued shares of Common Stock to
shareholders of record on April 20, 2000 (other than CDR Fund V) at the same
price per share that was paid by CDR Fund V and CDR Fund VI. The Rights
Offering provides such shareholders with the opportunity to reverse the
diminution of their percentage equity ownership interest in Dynatech that
resulted from the sale of common stock to CDR Fund V and CDR Fund VI. The
Rights Offering is expected to be completed on June 30, 2000.

In May 2000, the Board of Directors of the Company approved a plan to divest
the Company's industrial computing and communications business segment, which
segment consists of the Company's ICS-Advent and Itronix Corporation
subsidiaries. In connection with such decision, the Board authorized
management to retain one or more investment banks to assist with the
divestiture. The Company expects to divest these two subsidiaries, either
separately or together, no later than the first quarter of the 2002 fiscal
year. The businesses to be divested will be treated as discontinued operations
for accounting purposes.

In connection with the merger with WWG, the Company plans to issue to its
new employees up to 10 million new options to purchase shares of its common
stock. The Company expects that the exercise price of approximately 40% of
such options will be $4.00 per share. The remaining options will be granted in
subsequent years, with the exercise prices equal to the fair market value of
the Company's common stock on the date they are granted.

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The Company has its principal offices at 3 New England Executive Park,
Burlington, Massachusetts 01803. CDR Fund V and CDR FUND VI, each of which are
investment partnerships managed by Clayton, Dubilier and Rice, Inc. ("CDR"),
hold approximately 66% and 16% of the Company's Common Stock, respectively.

Communications Test Segment

The Company sells a family of communications test and management products.
The Company's products are designed to help communications service providers,
equipment manufacturers and service users to test, deploy, manage and optimize
their network's performance. The Company's products are based on an extensive
technology base. All of the Company's products are designed to address the
customers' desires to deploy new technologies and provision new services
rapidly, decrease operations and maintenance costs and improve service
reliability. The Company's products address the needs of deploying and
managing a variety of technologies and segments of the network including the
optical transport, broadband access (xDSL and Cable Network), wireless
transmission, and data (IP, ATM, and Frame Relay).

The Company markets its products 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 them. Communications equipment manufacturers rely on the
Company's products to shorten the development phase and verify the proper
functioning of their products during final assembly and test, and to monitor
the performance of their products during installation and maintenance in their
customers' networks. Finally, service users rely on the Company's products to
ensure the proper functioning of their communications networks. The
instruments, systems, software and services described below offer focused
solutions to these customers' specific needs.

Instruments. Instruments are devices that perform specific communications
test and monitoring functions. The majority of instruments are hand-held,
mobile devices. The Company's instruments are used by equipment manufacturers
for research and development, prototype testing and deployment. Instruments
are also used by field technicians at service providers to assess the
performance of networks and to verify the integrity of the information
transmitted. The Company's instruments combine a high degree of functionality
with simplified user interfaces, thereby decreasing the training required to
use them. These instruments address the performance of a wide variety of
communications products and networks, including optical transmission, systems
for data communications, voice services, wireless voice and data services,
cable services and video delivery.

Systems. The Company's systems are devices that are placed in the network,
and can be remotely accessed via intelligent terminals and allow multiple
users to simultaneously perform specific communications test and management
functions. Using an integrated testing and management system, the Company's
customers are able to assess and monitor 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 the
Company's Network Operations Center can have access to all of the test systems
within a customer's network and can perform simultaneous test and monitoring
functions on one or more systems both manually or automatically. These
capabilities reduce the need for technicians to make on-site service calls and
allow customers to respond to network faults proactively. Typically, the
Company's systems consist of combinations of hardware and software components
that are derived from the Company's instrument products. For a new network
deployment, the Company's customers use instruments for initial testing and
start using systems within a year. With the technology from the Company's
instrument products, the Company is able to enter new markets rapidly with
test and monitoring functions compatible with existing instrument functions.
The Company expects that a growing proportion of its sales will be derived
from systems products.

Software. Once the Company's customers have deployed new networks or network
technologies, they seek rapid deployment or service fulfillment, monitoring,
and management or service assurance of services over those networks for their
own new customers. The Company develops software applications that enable
customers to automate their service fulfillment and service assurance
processes. The Company's products assist customers

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in provisioning network services, monitoring the performance of networks and
services, and assessing the quality of the services delivered. Quality of
service, or 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
latencies, guaranteed levels of bandwidth or maximum acceptable data loss. The
Company's software applications are capable of integrating diverse network and
transmission technologies, database management systems, order management and
customer care applications, and other network management and assessment
technologies. The Company's leading software products are described below:

. NetOptimize Service Activator: This product enables flow through
provisioning by activating new services for specific customers in real-
time. Service Activator provides a graphical environment which enables
the user to configure the service. Service Activator then automatically
selects the most efficient routing for the services and performs the
end-to-end activation by interfacing to all of the network elements that
constitute that service. This product can activate services for mult-
vendor transmission networks (TDM and optical), access networks (DSL),
and Data/IP networks.

. NetOptimize Alarm Manager: This fault management product performs real-
time monitoring and surveillance of transmission on data networks. Alarm
Manager filters, collects, and categorizes faults/alarms and enables the
user to manage the resolution of the alarms.

. NetOptimize Capacity Manager: This product enables users to manage the
capacity of voice networks. It collects performance data from network
switches and determines current or future capacity problems. This
product enables customers to proactively anticipate network bottlenecks
and reconfigure the network to avoid the capacity problem. With the
advent of Voice over IP networks, this product is being applied to solve
capacity management problems for data networks.

. NetOptimize Service Monitor: This product enables our customers to
monitor, manage, and report the QoS and SLA for specific customers. This
product can monitor end-to-end services for transmission networks (TDM
and optical), access networks, and Data/IP networks.

Services. The Company offers customers a range of professional services,
including process improvement, program management, training, installation,
testing and management. Increasingly, communications service providers are
seeking third party expertise to assist them with network planning and
management. The Company's strong technical foundation, extensive customer
relationships and decades of experience in designing and marketing
communications test and management systems enable the Company to provide
customers with an extensive array of services.

Inflight Information Systems Segment

AIRSHOW

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
products are installed on over 4,500 general aviation aircraft and on
approximately 3,800 aircraft owned by 120 commercial airlines. 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.

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Other Subsidiary

da Vinci

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 has benefited from the transition from analog to digital production
systems and digital high-definition television, or HDTV, broadcast standards.
Many post-production facilities worldwide have begun retooling in advance of
the availability of HDTV programming by purchasing new equipment such as HDTV-
compatible color enhancement systems such as da Vinci's new "2K" product.

Manufacturing

The Company outsources to third parties a majority of its manufacturing
activities, including the assembly of printed circuit boards and the
fabrication of some mechanical parts. The Company generally performs its own
final assembly and testing of its products. The Company operates 14
manufacturing and assembly facilities worldwide. Twelve of these facilities
are certified as ISO 9002-compliant, and 10 are certified ISO-9001 facilities.
In addition, in 1996, the Company received ISO 14001 certification, which
relates to environmental compliance in Germany.

The components the Company uses to build its products are generally
available from a number of suppliers. The Company relies on a number of
limited-source suppliers for specific components and parts. The Company has
entered into long-term purchasing contracts with some of these suppliers.
However, the Company can make no assurance that these suppliers will be able
to meet its needs or that it will not experience component shortages. If the
Company were required to locate new suppliers or additional sources of supply,
the Company could experience a disruption in its operations or incur
additional costs in procuring required materials.

Competition

The markets for communications test equipment are rapidly evolving and
highly competitive. The Company believes that the principal competitive
factors affecting its 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 and training, strength of
distribution channels and product scalability and flexibility.

The Company believes that it competes favorably with respect to the above
factors. The Company's principal competitors in the communications test market
include Agilent Technologies, Inc. and Tektronix, Inc. The Company also
competes with a number of other vendors who offer products that address
discrete portions of its markets including Digital Lightwave, Turnstone
Systems and Tollgrade Communications. Some of the Company's competitors may
have greater sales, marketing, research and financial resources than the
Company does. Due to the rapidly evolving nature of the Company's markets, new
competitors with significant market presence and financial resources may enter
its markets and reduce its market share.

Customers

The Company markets its communications test instruments, systems, software
and services to three primary groups of customers: communications service
providers, communications equipment manufacturers and service users.

Communications Service Providers. Communications service providers offer
telecommunications and 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 a

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communications session. Communications service providers rely on the Company's
products and services to configure, test and manage elements and the traffic
that runs across them. Also, the Company's products help to ensure smooth
operation of the network and can increase the reliability of services to
customers.

The Company sells its products and services to virtually all large national
and international communications companies interchange carriers or IXCs;
national post-telephone-telegraphs, or PTTs; Internet service providers, or
ISPs; competitive local exchange carriers, or CLECs, incumbent local exchange
carriers, or ILECs, and emerging carriers.

Communications Equipment Manufacturers. Communications equipment
manufacturers design, develop, install and maintain voice, data and video
communications equipment. These products include switches, routers, voice and
data 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 test. Increasingly,
because communications service providers are choosing to outsource
installation and maintenance functions to the equipment vendors themselves,
equipment manufacturers are using the Company's instruments, systems and
software to assess the performance of their products during installation and
maintenance in a customer's network.

Service Users. The Company also sells its test and management instruments,
systems, software, 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.

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 2000.

Sales, Marketing and Customer Support

The Company's products and services are primarily sold through its direct
sales force. As of May 31, 2000, the Company employed approximately 750
communications test sales personnel throughout North America, Europe, Latin
America and Asia. In addition, the Company markets and sells its products and
services through third party distributors and sales representatives in areas
in which its direct sales efforts are less prominent. Through its
distributors, sales representatives and 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 sales and marketing staff consists primarily of engineers and
technical professionals. These individuals undergo rigorous training, and
ongoing professional development and education. The Company's local sales
forces are highly knowledgeable of their respective markets, customer
operations and strategies, and regulatory environments. The Company believes
that the skill level of its sales and marketing staff has been instrumental in
building longstanding customer relationships.

The Company provides installation, repair and training services to enable
its customers to improve performance of their networks. The Company operates
service centers that are located near many of its major customers. The Company
also offers on-line support services to supplement its on-site application
engineering support.

Seasonality; Backlogs

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

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The Company's backlog (excluding WWG) of orders at March 31, 1999 and 2000 was
$90.8 million and $180.4 million, respectively, reflecting a 98.6% increase.
The increase is a result of additional bookings within the communications test
and inflight information systems segments. Of the $180.4 million backlog at
March 31, 2000, approximately 94% is expected to ship in fiscal 2001.

Product Development

For the year ended March 31, 2000, on a pro forma basis to give effect to
the WWG merger, the Company invested approximately $136.6 million in research
and development activities of which approximately $117.0 million was 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 render
the Company's existing offerings obsolete or unmarketable. Automation in the
Company's 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 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 sales subdivisions or branches for its communications
test business in major countries in Europe, Latin America and Asia and has
distribution agreements in other countries where sales volume does not warrant
a direct sales organization. The Company's (excluding WWG) foreign sales from
continuing operations (including exports from North America directly to
foreign customers) were approximately 20%, 19% and 14% of consolidated net
sales in fiscal 1998, 1999 and 2000, respectively.

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, the Company's 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, the Company's 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 Company's ability to sell its 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.

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Employees

As of May 31, 2000, the Company employed approximately 4,700 persons from
continuing operations. Some of the Company's European employees are members of
one or more workers' councils, principally due to applicable legal
requirements in the jurisdictions in which they work. However, none of the
Company's other employees is represented by labor unions, and the Company
believes its employee relations are good.

Item 2. Properties.

The Company operates design and manufacturing facilities in the United
States, Germany, France, the United Kingdom, Switzerland, Canada and
Argentina. The following table sets forth the location, use and size of the
Company's facilities including those of WWG, the majority of which are leased:

<TABLE>
<CAPTION>
Square
Location Feet Title
-------- ------- ------
<S> <C> <C>
Eningen, Germany.............................................. 779,000 Owned
Indianapolis, Indiana......................................... 206,000 Leased
Germantown, Maryland.......................................... 197,000 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
Salem, Virginia............................................... 35,900 Leased
Sao Paulo, Brazil............................................. 32,400 Owned
Burnaby, British Columbia..................................... 25,604 Leased
St. Etienne, France........................................... 23,400 Leased
Ft. Lauderdale, Florida....................................... 16,300 Leased
Rennes, France................................................ 16,200 Owned
Zurich, Switzerland........................................... 15,700 Leased
Burlington, Massachusetts..................................... 14,600 Leased
Terra Haute, Indiana.......................................... 12,600 Leased
Milan, Italy.................................................. 11,200 Owned
Baden, Austria................................................ 10,800 Owned
Bern, Switzerland............................................. 9,800 Owned
Scarborough, Ontario, Canada.................................. 8,200 Owned
Buenos Aires, Argentina....................................... 3,400 Owned
</TABLE>

The Company believes its facilities are in good operating condition.

Item 3. Legal Proceedings.

The Company is a party to various legal actions that arose in the ordinary
course of its business. The Company does not expect that resolution of these
legal actions will have, individually or in the aggregate, a material adverse
effect on the Company's financial condition or results of operations.

Whistler Litigation. In 1994, the Company sold its radar detector business
to Whistler Corporation of Massachusetts. On June 27, 1996, Cincinnati
Microwave, Inc. ("CMI") filed an action against the Company and Whistler in
the United States District Court for the Southern District of Ohio alleging
infringement of CMI's patent for a mute function in radar detectors. The
Company responded that it did not infringe CMI's patent and that, in any
event, the patent was invalid and unenforceable.

The Company obtained an opinion from outside counsel that CMI's patent is
invalid. The Company intends to offer that opinion (and other evidence) to
demonstrate that any alleged infringement of CMI's patent due to the Company's
prior manufacture and sale of the Whistler series radar detectors was not
valid.

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On February 14, 1997, CMI filed for bankruptcy in the United States
Bankruptcy Court for the Southern District of Ohio. Pursuant to that filing,
CMI sold its mute feature patent (and other assets) to Escort Acquisition
Corp. CMI, however, retained the right to seek past damages from the Company.

On March 24, 1998, CMI and its co-plaintiff Escort filed a motion for
summary judgment. The Company opposed that motion and went on to complete
discovery, which closed on June 20, 1998. The Company then filed its own
series of summary judgment motions.

A hearing on the parties' dispositive motions was held in May 1999. On May
27, 1999, Whistler filed a Chapter 11 bankruptcy petition in the United States
District Court for the District of Massachusetts. As a result of that filing,
CMI's patent infringement litigation is stayed as to Whistler.

On February 18, 2000, the United States Magistrate issued a Report and
Recommendation on some of the pending motions, recommending that judgment be
entered in the Company's favor on half of the claims asserted by CMI. Then, on
June 9, 2000, the Magistrate issued a second Report and Recommendation,
recommending that the plaintiffs be precluded from recovering any damages for
any alleged infringement that occurred prior to June 1996. Because the Company
could not have infringed on CMI's patent after it sold its radar detector
business to Whistler in 1994, if this Recommendation is adopted by the
District Court Judge, the Company would have no liability to CMI. The parties
have filed (and will file) various objections to the two Report and
Recommendations. If necessary, trial in this matter is scheduled for November
2000. The Company intends to continue to defend this lawsuit vigorously and
does not believe that the outcome of this litigation will have a material
adverse effect on its financial condition, results of operation, or liquidity.

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

Pursuant to the written action of a majority of its shareholders, on May 18,
2000, the Company amended its certificate of incorporation to increase the
number of shares of authorized common stock to 350 million from 200 million
shares. No matters were submitted to a vote of the Company's shareholders,
through the solicitation of proxies or otherwise, during the fourth quarter of
fiscal 2000.

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

The Company's common stock is traded in the over-the-counter market under
the symbol "DYNA". As of March 31, 2000, there were 935 registered holders of
the common stock and the price of the common stock on the over-the-counter
market was $14.437. The following table sets forth the high and low sales
prices of the Company's common stock on the over-the-counter market for each
quarterly period within the three most recent fiscal years.

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, certain restrictions
in the credit agreements limit the Company's ability to pay cash dividends.

<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ------- -------
<S> <C> <C>
March 31, 2000............................................... $15.937 $ 6.875
December 31, 1999............................................ 8.000 4.875
September 30, 1999........................................... 5.031 3.437
June 30, 1999................................................ 4.062 3.125
March 31, 1999............................................... 3.500 2.718
December 31, 1998............................................ 3.000 2.375
September 30, 1998........................................... 3.438 2.687
June 30, 1998................................................ 4.312 3.125
June 30, 1998(a)............................................. 50.125 48.1875
</TABLE>
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(a) From January 28, 1997 to May 21, 1998, the common stock was traded on the
New York Stock Exchange ("NYSE"). After the Recapitalization on May 21,
1998 with an entity formed by CDR Fund V, however, the

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common stock ceased to be listed on the NYSE and became available in the
over-the-counter market. The high and low sales prices of the common stock
set forth herein are for the periods following May 21, 1998.

Item 6. Selected Financial Data.

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

Item 7. Management's 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 2000 Annual Meeting of Shareholders 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, 2000, pursuant to Rule 14a-6(b) under
the Securities and 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 2000
Annual Meeting of Shareholders 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, 2000, pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934, as amended; said information is incorporated
herein by reference.

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 2000
Annual Meeting of Shareholders 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, 2000, 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 2000
Annual Meeting of Shareholders 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, 2000, pursuant to Rule 14a-6(b) under the
Securities Exchange Act of 1934, as amended; said information is incorporated
herein by reference.

10
<PAGE>

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, 2000 and 1999.

III. Consolidated Statements of Income--Fiscal Years ended March 31,
2000, 1999, and 1998.

IV. Consolidated Statements of Shareholders' Equity (Deficit)--Fiscal
Years ended March 31, 2000, 1999, and 1998.

V. Consolidated Statements of Cash Flows--Fiscal Years ended March 31,
2000, 1999, and 1998.

VI. Notes to Consolidated Financial Statements.

(2) Financial statement schedule

I. Report of Independent Accountants on Financial Statement Schedule.

II. Valuation and Qualifying Accounts.

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

(b) Reports on Form 8-K

I. Current Report on Form 8-K concerning the Company's acquisition of
Applied Digital Access, Inc., filed with the SEC on November 9,
1999, and supplemented by the Company's Current Report on Form 8-
K/A, filed with the SEC on January 14, 2000.

II. Current Report on Form 8-K concerning the Company's acquisition of
Wavetek Wandel Goltermann, Inc. and planned divestiture of its
Industrial Computing and Communications business segment, filed
with the SEC on May 31, 2000.

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

11
<PAGE>

SIGNATURES

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

Dynatech Corporation

/s/ Ned C. Lautenbach
By: _________________________________
Chairman, President and
Chief Executive Officer

June 29, 2000

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.

<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Ned C. Lautenbach Chairman of the Board, June 29, 2000
______________________________________ President and Chief
Ned C. Lautenbach Executive Officer,
Director

/s/ Allan M. Kline Corporate Vice President, June 29, 2000
______________________________________ Director, Chief Financial
Allan M. Kline Officer, and Treasurer
(Principal Financial
Officer)

/s/ Robert W. Woodbury, Jr. Corporate Vice President, June 29, 2000
______________________________________ Controller, (Principal
Robert W. Woodbury, Jr. Accounting Officer)

/s/ John R. Peeler Director June 29, 2000
______________________________________
John R. Peeler

/s/ Brian D. Finn Director June 29, 2000
______________________________________
Brian D. Finn

/s/ Marvin L. Mann Director June 29, 2000
______________________________________
Marvin L. Mann

/s/ William O. McCoy Director June 29, 2000
______________________________________
William O. McCoy

/s/ Victor A. Pelson Director June 29, 2000
______________________________________
Victor A. Pelson
</TABLE>

12
<PAGE>

<TABLE>

<CAPTION>
Signature Title Date
--------- ----- ----

<S> <C> <C>
/s/ Joseph L. Rice, III Director June 29, 2000
______________________________________
Joseph L. Rice, III

Director June 29, 2000
______________________________________
Brian H. Rowe

/s/ Richard J. Schnall Director June 29, 2000
______________________________________
Richard J. Schnall

Director June 29, 2000
______________________________________
Peter M. Wagner
</TABLE>

13
<PAGE>

APPENDIX A

Selected Historical Consolidated Financial Data

The following tables set forth selected consolidated historical, financial
and other data of the Company for the five fiscal years ended March 31, 2000
which have been derived from, and should be read in conjunction with, the
audited historical Consolidated Financial Statements, and related notes
thereto, of the Company contained herein.

<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------
2000 1999 1998 1997 1996
--------- --------- -------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Results of Operations
Sales..................... $ 453,239 $ 329,532 $317,955 $284,070 $235,123
Cost of sales............. 157,090 108,618 103,923 90,401 77,676
--------- --------- -------- -------- --------
Gross profit.............. 296,149 220,914 214,032 193,669 157,447
Selling, general &
administrative expense... 156,499 113,469 106,328 95,203 82,865
Product development
expense.................. 61,172 42,472 42,919 39,037 35,461
Recapitalization and other
related costs............ 27,942 40,767 -- -- --
Nonrecurring charges...... -- -- -- 5,063 16,852
Amortization of
intangibles.............. 8,789 2,726 2,357 3,882 2,785
--------- --------- -------- -------- --------
Operating income.......... 41,747 21,480 62,428 50,484 19,484
Interest expense.......... (51,916) (46,178) (1,184) (679) (1,723)
Interest income........... 2,354 3,392 3,013 2,675 2,181
Other income (expense),
net...................... (68) 15,703 551 540 902
--------- --------- -------- -------- --------
Income (loss) from
operations before income
taxes.................... (7,883) (5,603) 64,808 53,020 20,844
Provision (benefit) for
income taxes............. (1,169) (69) 26,521 24,092 8,446
--------- --------- -------- -------- --------
Income (loss) from
continuing operations.... (6,714) (5,534) 38,287 28,928 12,398
Discontinued operations,
net of income taxes...... 12,726 11,979 3,489 921 1,845
--------- --------- -------- -------- --------
Net income................ $ 6,012 $ 6,445 $ 41,776 $ 29,849 $ 14,243
========= ========= ======== ======== ========
Income (loss) per common
share--basic:
Continuing operations... $ (0.05) $ (0.04) $ 1.87 $ 1.38 $ 0.57
Discontinued
operations............. 0.09 0.09 0.17 0.04 .08
--------- --------- -------- -------- --------
$ 0.04 $ 0.05 $ 2.04 $ 1.42 $ 0.65
========= ========= ======== ======== ========
Income (loss) per common
share--diluted:
Continuing operations... $ (0.05) $ (0.04) $ 1.80 $ 1.32 $ 0.55
Discontinued
operations............. 0.09 0.09 0.16 0.04 0.08
--------- --------- -------- -------- --------
$ 0.04 $ 0.05 $ 1.96 $ 1.36 $ 0.63
========= ========= ======== ======== ========
Weighted average number of
shares:
Basic................... 148,312 129,596 20,493 20,987 21,925
Diluted................. 148,312 129,596 21,272 21,997 22,347
========= ========= ======== ======== ========
Balance Sheet Data
Net working capital....... $ 52,262 $ 55,498 $117,791 $ 80,394 $105,861
Total assets.............. $ 414,838 $ 348,104 $288,130 $249,010 $205,189
Long-term debt............ $ 572,288 $ 504,151 $ 83 $ 5,226 $ 1,800
Shareholders' equity
(deficit)................ $(296,675) $(316,440) $202,119 $160,686 $160,719
Shares of stock
outstanding.............. 122,527 120,665 16,864 16,793 17,585
Shareholders' equity
(deficit) per share...... $ (2.42) $ (2.62) $ 11.99 $ 9.57 $ 9.14
</TABLE>

A-1
<PAGE>

APPENDIX B

Management Discussion and Analysis of Financial Condition and Results of
Operations

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. The market share and competitive
position data contained in this Form 10-K are approximations derived from
Company estimates, which the Company believes to be reasonable, but which have
not been independently verified and, to a lesser extent, from industry
sources, which the Company has not independently verified. The Company
believes that such data are inherently imprecise, but are generally indicative
of its relative market share and competitive position.

Unless otherwise noted, the information presented in this Appendix B only
reflects the business of the Company and its subsidiaries and does not include
the business or results of WWG, because the WWG merger was consummated after
the end of Dynatech's fiscal year. The statements contained in this report
(other than Company's consolidated financial statements and other statements
of historical fact) are forward-looking statements, as described below in
greater detail in "Forward-Looking Statements".

OVERVIEW

General

The Company is managed in two business segments: communications test and
inflight information systems. The communications test business develops,
manufactures and markets instruments, systems, software and services that
test, deploy, manage and optimize communications networks, equipment and
services. The inflight information systems segment, through the Company's
AIRSHOW, Inc. subsidiary, provides passenger cabin video information display
systems and information services for the general and commercial aviation
markets. The Company also has other subsidiaries that, in the aggregate, are
not reportable as a segment ("Other Subsidiaries"). These Other Subsidiaries
include da Vinci Systems, Inc. which provides digital color enhancement
systems used in the production of television commercials and programming; and
Dataviews, Inc., which was sold in June 2000. In years prior to fiscal 2000
the Company's consolidated statements of income and the Other Subsidiaries
section of Note S. Segment Information and Geographic Areas included the
results of operations of two subsidiaries which have since been divested:
ComCoTec, Inc. which was sold in June 1998, and Parallax Graphics, which was
liquidated during fiscal 1999.

In May 2000, the Board of Directors approved a plan to divest the industrial
computing and communications segment, which consists of ICS Advent and Itronix
Corporation subsidiaries. The segment's results of operations including net
sales, operating costs and expenses, other income and expense and income taxes
for fiscal 1998, 1999 and 2000, have been reclassified in the accompanying
statements of operations as discontinued operations. The Company's balance
sheet for fiscal 2000 reflects the net assets of the industrial computing and
communications segment as net assets held for sale within non-current assets.
The balance sheet for fiscal 1999 and the Statements of Cash Flows for fiscal
years 1998, 1999 and 2000 have not been reclassified for the discontinued
businesses. Management believes that the net proceeds from the disposition of
these companies will exceed the carrying amount of the net assets. In
addition, management does not anticipate net operating losses from the
discontinued segment through the first quarter of fiscal 2002, at which time
the Company anticipates to have sold these businesses. Accordingly, the
anticipated gains from the disposal of the segment and the operating results
will not be reflected in the statements of operations until they are realized.

On May 21, 1998, the Company was merged with an entity formed by CDR Fund V
(the "Recapitalization"). As a result of the Recapitalization, CDR Fund V
became the Company's controlling shareholder.

B-1
<PAGE>

On May 23, 2000, the Company completed the merger of one of its subsidiaries
with Wavetek Wandel Goltermann, Inc. ("WWG"), a developer, manufacturer and
marketer of communications test instruments, systems, software and services in
Europe and Latin America. To finance the WWG merger, the Company sold 12.5
million and 30.625 million newly-issued, but unregistered shares of Common
Stock to CDR Fund V and CDR Fund VI, respectively, for an aggregate purchase
price of $172.5 million. In addition, on June 1, 2000, the Company commenced a
rights offering of 4.983 million newly-issued shares of Common Stock to
shareholders of record on April 20, 2000 (other than CDR Fund V) at the same
price per share that was paid by CDR Fund V and CDR Fund VI. The rights
offering provides such shareholders with the opportunity to reverse the
diminution of their percentage equity ownership interest in Dynatech that
resulted from the sale of common stock to CDR Fund V and CDR Fund VI. Assuming
the rights offering is fully subscribed and CDR Fund VI does not purchase any
shares as a standby purchaser, CDR Fund V and CDR Fund VI, the Company's
controlling shareholders, will hold, upon completion of the rights offering,
approximately 66% and 16% respectively, of the outstanding shares of the
Company's common stock. The rights offering is expected to be completed on
June 30, 2000.

In connection with the Merger, the Company also entered into a credit
agreement for $860 million with a bank syndicate led by J.P. Morgan ("New
Credit Agreement"). The proceeds were used to finance the Merger, refinance
WWG and Dynatech debt and provide for additional working capital and borrowing
capacity.

On May 19, 1999, the Company's then Chairman, President and Chief Executive
Officer, John F. Reno, announced his retirement. Ned C. Lautenbach, a
principal of CDR, was named to replace Mr. Reno as Chairman, President and
Chief Executive Officer.

Current and Historical Trends

During fiscal 2000, the communications test business, the Company's largest
segment, experienced a significant increase in new orders received
("bookings"), an increase of 65% over the fiscal 1999, and a compound annual
growth rate in bookings of 35% since fiscal 1998. This recent trend of
bookings was due to increased demand primarily for the Company's high-speed
transmission products, which include optical transmission test instruments.
The growth in bookings for these products was a result of the increased demand
for high-speed data transmission.

The bookings for the Company's continuing operations have increased
approximately 69% since fiscal 1998, which was primarily due to the
communications test segment, but also the Company had an increase in bookings
for the Company's inflight information systems.

The Company's operating income excluding recapitalization and other related
costs increased 12% from fiscal 1998 to 2000 as sales growth was 43% for the
same period. During this period, the Company increased its spending in product
development expense by 43% primarily for the next generation of communications
test products. The Company also amended its compensation plans for its
commissioned-based sales personnel during this period. In addition, the
Company's gross margin decreased from 67% in fiscal 1998 to 65% in fiscal 2000
primarily the result of the acquisition of companies that operate at a lower
gross margin than the consolidated group in fiscal 1998.

Seasonality

Product Development

For the year ended March 31, 2000, on a pro forma basis to give effect to
the WWG merger, the Company invested approximately $136.6 million in research
and development activities of which $117 million was applied to the
communications test segment.

B-2
<PAGE>

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.

RECENT ACQUISITIONS AND DISPOSITIONS AND DISCONTINUED OPERATIONS

Acquisitions

Pacific Systems Corporation

On June 19, 1998, the Company, through one of its indirectly wholly owned
subsidiaries, acquired all of the outstanding stock of Pacific Systems
Corporation of Kirkland, Washington ("Pacific") for a total purchase price of
approximately $20 million in cash, which includes an incentive earnout. The
acquisition was accounted for using the purchase method of accounting and
resulted in $18.0 million of goodwill that is being amortized on a straight-
line basis over 30 years. The operating results of Pacific have been included
in Dynatech's consolidated financial statements within the inflight
information systems segment since June 19, 1998. Pacific designs and
manufactures customer-specified avionics and integrated cabin management.

Flight TECH

In February 1999, the Company, through one of its wholly owned subsidiaries,
acquired Flight TECH of Hillsboro, Oregon for $2 million in cash. The
acquisition was accounted for using the purchase method of accounting and
resulted in approximately $1.9 million of goodwill that is being amortized on
a straight-line basis over 30 years. The operating results of Flight TECH have
been included in the Company's financial statements since February 1999 within
the inflight information systems segment. Flight TECH is an inflight
entertainment manufacturer specializing in equipment for small and medium
jets, and turboprop aircraft.

Sierra Design Labs

On September 10, 1999, the Company, through one of its wholly owned
subsidiaries, purchased the outstanding stock of Sierra Design Labs
("Sierra"), a Nevada Corporation 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 that is being amortized on
a straight-line basis over 10 years. The operating results of Sierra have been
included in the Company's consolidated financial statements within Other
Subsidiaries as presented in Note S. Segment Information and Geographic Areas
since September 10, 1999. Sierra designs, manufactures, and markets
uncompressed, real-time videodisk recorders.

Applied Digital Access, Inc.

On November 1, 1999, the Company, through one of its wholly owned
subsidiaries, acquired all the outstanding stock of Applied Digital Access,
Inc. ("ADA") for a total purchase price of approximately $81 million in cash,
(of which $60 million was borrowed to finance this acquisition). The
acquisition was accounted for using the purchase method of accounting and
resulted in $36 million of goodwill that is being amortized on a straight-line
basis over 3 years. The purchase price allocation for this acquisition is
preliminary and further refinements are likely to be made based on the
completion of final valuation studies and the Company's analysis of its
business plan of integration. The operating results of ADA have been included
in the Company's consolidated financial statements within the communications
test segment since November 1, 1999.

B-3
<PAGE>

ADA is a provider of network performance management products that include
systems, software and services used to manage the quality, performance,
availability and reliability of telecommunications service providers'
networks.

ICS Advent (Europe) Ltd.

On January 4, 2000, the Company purchased the remaining outstanding stock of
ICS Advent (Europe) Ltd. ("ICS UK") for (Pounds)3.0 million (approximately
$4.9 million) in cash. The Company previously owned approximately 25% of ICS
UK. The acquisition was accounted for using the purchase method of accounting
and generated approximately $4.0 million of goodwill that is being amortized
on a straight-line basis over 5 years. The operating results of ICS UK have
been included in the Company's consolidated financial statements within
discontinued operations, since January 1, 2000. The Company intends to sell
this acquired company in connection with the sale of the other business units
within discontinued operations within the next year. ICS UK is primarily a
distributor of mission-critical computer systems to the defense, factory-
automation, data and telecommunications markets within Europe as well as a
distributor of rack-mounted computers supplied by the Company's ICS Advent
subsidiary.

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 which were subsidiaries of WPI, Inc. The total purchase price for Itronix
UK totaled approximately $34.8 million in cash (of which approximately $15
million was borrowed to finance this acquisition). The acquisition was
accounted for using the purchase method of accounting and resulted in
approximately $30 million of goodwill that is being amortized on a straight-
line basis over 5 years. The purchase price allocation for this acquisition is
preliminary and further refinements are likely to be made based on the
completion of final valuation studies and the Company's analysis of its
business plan of integration. The operating results of Itronix UK have been
included in the Company's consolidated financial statements within
discontinued operations since February 23, 2000. The Company intends to sell
this acquired company in connection with the sale of the other business units
within discontinued operations within the next year. Itronix UK distributes
rugged field computer systems including the provision of related services for
incorporation into customers' specific applications.

Divestitures

ComCoTec, Inc.

On June 30, 1998, the Company sold the assets of ComCoTec, Inc. ("ComCoTec")
located in Lombard, Illinois to The Potomac Group, Inc. for $21 million.
Dynatech recorded a pre-tax gain on $15.9 million on the sale of the assets,
which was included in other income. Sales and operating results were
insignificant for the periods ended March 31, 1999 and 1998.

Parallax Graphics

During fiscal year 1999, the Company liquidated the assets and liabilities
of Parallax Graphics ("Parallax"). The loss from the liquidation activities
was immaterial. Sales and operating results were insignificant for the periods
ended March 31, 1999 and 1998.

Results of Operations

Fiscal 2000 Compared to Fiscal 1999 on a Consolidated Basis

Sales. For the fiscal year ended March 31, 2000 consolidated sales from
continuing operations increased $123.7 million or 37.5% to $453.2 million as
compared to $329.5 million for the fiscal year ended March 31,

B-4
<PAGE>

1999. The increase was primarily attributable to increased demand for the
Company's communications test products as this business segment experienced a
recovery from fiscal 1999's reduced order volume. In addition, the Company
also recognized additional revenue due to the acquisitions of ADA within the
communications test segment and Sierra within Other Subsidiaries. These
acquisitions contributed to approximately 7.5% of the total sales growth.

International sales (defined as sales outside of North America) from
continuing operations were $65.8 million or 14.5% of consolidated sales for
the fiscal year ended March 31, 2000, as compared to $63.4 million or 19.2% of
consolidated sales for the fiscal year ended March 31, 1999.

Gross Profit. Consolidated gross profit from continuing operations increased
$75.2 million to $296.2 million or 65.3% of consolidated sales for the fiscal
year ended March 31, 2000 as compared to $220.9 million or 67.0% of
consolidated sales for the fiscal year ended March 31, 1999. The dollar
increase was directly related to the increase in sales; the percentage
decrease is a result of the change in sales mix due to the shipment of
additional lower-margin products in fiscal 2000 than in fiscal 1999 as well as
certain purchase accounting effects from the acquisition of ADA.

Operating Expenses. Operating expenses from continuing operations consist of
selling, general and administrative expense; product development expense;
recapitalization and other related costs; and amortization of intangibles.
Total operating expenses were $254.4 million or 56.1% of consolidated sales
for the fiscal year ended March 31, 2000, as compared to $199.4 million or
60.5% of consolidated sales for the fiscal year ended March 31, 1999.
Excluding the impact of the recapitalization and other related costs, total
operating expenses were $226.5 million or 50.0% of consolidated sales in
fiscal 2000, as compared to $158.7 million or 48.1% of consolidated sales in
fiscal 1999. The increase in total operating expenses excluding
recapitalization and other related costs is due in part to an increase in
research and development expenses as the Company invested in the next
generation of communications test equipment. The Company also incurred
additional expenses relating to improvements in the subsidiaries' customer
service departments, ERP implementation, failed acquisitions, and additional
consulting costs.

Included in both cost of sales and operating expenses from continuing
operations is the amortization of unearned compensation which relates to the
issuance of stock options to employees and non-employee directors at a grant
price lower than fair market value (defined as the closing price on the open
market at the date of issuance). The amortization of unearned compensation in
fiscal 2000 and 1999 was $1.9 million and $1.2 million, respectively, and has
been allocated to cost of sales; selling, general and administrative expense;
and product development expense.

Selling, general and administrative expense from continuing operations was
$156.5 million or 34.5% of consolidated sales for the fiscal year ended March
31, 2000, as compared to $113.5 million or 34.4% of consolidated sales for the
fiscal year ended March 31, 1999. The marginal percentage increase is in part
a result of the increase in sales as well as the timing of sales commission
expense.

Product development expense from continuing operations was $61.2 million or
13.5% of consolidated sales for the fiscal year ended March 31, 2000 as
compared to $42.5 million or 12.9% of consolidated sales for the same period a
year ago. During fiscal 2000, the Company invested in the next generation of
high-speed test equipment as well as data services all within the
communications test segment.

Recapitalization and other related costs from continuing operations during
fiscal 2000 was $27.9 million, most of which related to the retirement of John
F. Reno, former Chairman, President and Chief Executive Officer of the
Company, as well as other employees.

Recapitalization and other related costs from continuing operations totaling
$40.8 million were incurred during fiscal 1999 in connection with the
Recapitalization, consisting of cancellation payments of employee stock
options, compensation expense due to the acceleration of unvested stock
options, and for certain other expenses resulting from the Recapitalization.

B-5
<PAGE>

Amortization of intangibles from continuing operations was $8.8 million for
the fiscal year ended March 31, 2000 as compared to $2.7 million for the same
period a year ago. The increase was primarily attributable to increased
goodwill amortization related to the acquisitions in fiscal years 1999 and
2000.

Operating income. Operating income from continuing operations increased to
$41.7 million or 9.2% of consolidated sales for the fiscal year ended March
31, 2000 as compared to $21.5 million or 6.5% of consolidated sales for the
same period a year ago. The increase was primarily a result of the
recapitalization and other related costs in connection with the
recapitalization completed in fiscal 1999. Excluding these expenses, the
Company generated operating income of $69.7 million or 15.3% of consolidated
sales in fiscal 2000 as compared to $62.2 million or 18.9% of consolidated
sales during fiscal 1999. The percentage decrease was primarily the result of
the increase in sales offset by the increase in operating expenses as
discussed above.

Interest. Interest expense, net of interest income from continuing
operations was $49.6 million for the fiscal year ended March 31, 2000 as
compared to $42.8 million for the same period a year ago. The increase in net
interest expense during fiscal 2000 was a result of the debt incurred in
connection with the Recapitalization which was outstanding for 12 months
during fiscal 2000 and outstanding for slightly more than 10 months during
fiscal 1999. Also included in interest expense is amortization expense of $3.2
million and $2.7 million in fiscal 2000 and 1999, respectively, related to
deferred debt issuance costs which are being amortized over the life of the
Senior Secured Credit Agreement. See Capital Resources and Liquidity--Debt.

Other income. During fiscal 1999, the Company sold the net assets of
ComCoTec for $21 million in gross proceeds that resulted in a gain of $15.9
million.

Taxes. The effective tax rate changed for the fiscal year ended March 31,
2000 to (14.9)% as compared to (1.2)% for the fiscal year ended March 31,
1999, primarily due to nondeductible compensation incurred in connection with
the Recapitalization during fiscal 1999, and lower foreign and states taxes
incurred in fiscal 2000.

Net loss. Net loss from continuing operations was $7.9 million for the
fiscal year ended March 31, 2000 as compared to a net loss of $5.6 million for
the same period a year ago. The increase was primarily attributable to the
Recapitalization and other related expenses and the higher operating expenses
described above.

Backlog. Backlog from continuing operations at March 31, 2000 was $180.4
million, an increase of 98.6% from $90.8 million at March 31, 1999. The
increase is a result of additional bookings within the communications test and
inflight information systems segments.

Fiscal 1999 Compared to Fiscal 1998 on a Consolidated Basis

Sales. For the fiscal year ended March 31, 1999 consolidated sales from
continuing operations increased $11.6 million or 3.6% to $329.5 million as
compared to $318.0 million for the fiscal year ended March 31, 1998. The
increase was primarily attributable to increased demand for the Company's
aircraft cabin video information services within the inflight information
systems segment offset by slightly lower sales of the Company's communications
test products.

International sales from continuing operations (defined as sales outside of
North America) were $63.4 million or 19.2% of consolidated sales for the
fiscal year ended March 31, 1999, as compared to $62.9 million or 19.8% of
consolidated sales for the fiscal year ended March 31, 1998. The slight
decrease in international sales is primarily a result of decreased demand for
the Company's communications test products due in part to the economic
slowdown in Asia.

Gross Profit. Consolidated gross profit from continuing operations increased
$6.9 million to $220.9 million or 67.0% of consolidated sales for the fiscal
year ended March 31, 1999 as compared to $214.0 million or 67.3% of
consolidated sales for the fiscal year ended March 31, 1998. The slight
percentage decrease was attributable to a change in the sales mix within the
consolidated group.

B-6
<PAGE>

Included in both cost of sales and operating expenses is the amortization of
unearned compensation which relates to the issuance of stock options to
employees and non-employee directors at a grant price lower than fair market
value as defined as the closing price on the open market at the date of
issuance. The amortization of unearned compensation in fiscal 1999 was $1.2
million and has been allocated to cost of sales; selling, general and
administrative expense; and product development expense.

Selling, general and administrative expense from continuing operations was
$113.5 million or 34.4% of consolidated sales for the fiscal year ended March
31, 1999, as compared to $106.3 million or 33.4% of consolidated sales for the
fiscal year ended March 31, 1998. The percentage increase is a result of
increased selling and marketing expense due to an increase in compensation
expense.

Product development expense from continuing operations was $42.5 million or
12.9% of consolidated sales for the fiscal year ended March 31, 1999 as
compared to $42.9 million or 13.5% of consolidated sales for the same period a
year prior. The decrease is primarily due to the timing of expenses related to
ongoing research and development programs.

Recapitalization and other related costs from continuing operations totaling
$40.8 million were incurred in connection with the Recapitalization,
consisting of cancellation payments of employee stock options, compensation
expense due to the acceleration of unvested stock options, and other expenses
resulting from the Recapitalization.

Amortization of intangibles from continuing operations was $2.7 million for
the fiscal year ended March 31, 1999 as compared to $2.4 million for the same
period a year prior. The increase was primarily attributable to increased
goodwill amortization related to the acquisition of Pacific in June 1998.

Operating income. Operating income from continuing operations decreased to
$21.5 million or 6.5% of consolidated sales for the fiscal year ended March
31, 1999 as compared to $62.4 million or 19.6% of consolidated sales for the
same period a year prior. The decrease was primarily a result of the costs in
connection with the Recapitalization. Excluding these expenses, the Company
generated operating income of $62.2 million or 18.9% of consolidated sales.
The percentage decrease was primarily the result of higher operating expenses
described above.

Interest. Interest expense, net of interest income from continuing
operations, was $42.8 million for the fiscal year ended March 31, 1999 as
compared to interest income, net of interest expense of $1.8 million for the
fiscal year ended March 31, 1998. The increase in net interest expense was
attributable to the debt incurred in connection with the Merger on May 21,
1998. Also included in interest expense is $2.7 million of amortization
expense related to deferred debt issuance costs.

Other income. Other income from continuing operations was $15.7 million for
the fiscal year ended March 31, 1999 as compared to $0.6 million for the same
period in the previous year. The increase is a result of the sale of assets of
ComCoTec for $21 million in gross proceeds that resulted in a gain of $15.9
million.

Taxes. The effective tax rate from continuing operations changed to (1.2)%
for the fiscal year ended March 31, 1999 as compared to 40.9% for the fiscal
year ended March 31, 1998 due to permanent differences arising in connection
with the accounting for the Recapitalization, and a smaller amount of income
before income taxes, which magnified the effect of such permanent differences.

B-7
<PAGE>

Net income (loss). Net loss from continuing operations was $5.5 million or
($0.04) per share on a diluted basis for the fiscal year ended March 31, 1999
as compared to net income of $38.3 million or $1.80 per share on a diluted
basis for the same period a year prior. The decrease was primarily
attributable to the recapitalization and other related expenses, higher
interest expense, and an increase in the weighted average number of shares
outstanding in connection with the Recapitalization, which collectively
resulted in a lower earnings per share.

Backlog. Backlog from continuing operations at March 31, 1999 was $90.8
million, an increase of 50.5% from $60.3 million at March 31, 1998. The
increase is a result of additional bookings within the communications test and
inflight information systems segments.

Business Segments

The Company measures the performance of its subsidiaries by the their
respective earnings before interest, taxes, amortization of intangibles, non-
recurring items, one-time charges and gain on sale of subsidiary ("EBITA").
See Appendix C--Notes to Consolidated Financial Statements: Note S. Segment
Information and Geographic Areas. The discussion below includes bookings
(defined as new orders received) sales and EBITA for the two segments in which
the Company participates in: communications test and inflight information
systems as well as Other Subsidiaries.

<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------
Segment 2000 1999 1998
------- -------- -------- --------
<S> <C> <C> <C>
Communications test segment:
Bookings.......................................... $430,254 $260,722 $233,934
Sales............................................. 349,886 238,942 240,432
EBITA............................................. 62,447 42,800 50,614
Inflight information systems segment:
Bookings.......................................... $ 71,411 $ 62,882 $ 38,758
Sales............................................. 70,960 58,794 34,797
EBITA............................................. 19,314 22,373 15,519
Other subsidiaries:
Bookings.......................................... $ 32,391 $ 32,903 $ 43,627
Sales............................................. 32,394 31,796 42,726
EBITA............................................. 8,404 7,468 4,790
</TABLE>

Fiscal 2000 Compared to Fiscal 1999--Communications Test

Bookings for the communications test products increased 65.0% to $430.3
million for the fiscal year ended March 31, 2000, as compared to $260.7
million for the same period a year ago. The increase is due to a recovery from
fiscal 1999's reduced order volume. The Company received an increase in orders
for its transmission test equipment (transport and loop) as well as an
increase in bookings due to the acquisition of ADA. The Company experienced a
decrease in bookings during fiscal 1999 for its core instruments in part due
to the Regional Bell Operating Companies (RBOC's) consolidation of their
purchasing practices as well as the economic slowdown in Asia.

Sales of communications test products increased 46.4% to $349.9 million for
the fiscal year ended March 31, 2000, as compared to $238.9 million for the
same period a year ago. The increase in sales is a direct result of the
increase in bookings. The Company shipped an increased amount of orders for
its transmission test equipment (transport and loop) as well as orders for its
training and software development.

EBITA for the communications test products increased 45.9% to $62.4 million
for fiscal 2000 as compared to $42.8 million for the same period a year ago.
The increase in EBITA is a direct result of the increase in sales.

Fiscal 2000 Compared to Fiscal 1999--Inflight Information Systems

Bookings for the inflight information systems increased 13.6% to $71.4
million for the fiscal year ended March 31, 2000 as compared to $62.9 million
for the same period a year ago. The increase is due to the increase

B-8
<PAGE>

in the Company's real-time flight information passenger video displays both in
the general and commercial aviation markets. In addition, the Company
purchased Pacific in June 1998 that provided a full year of operations during
fiscal 2000 as compared to nine months during fiscal 1999.

Sales of the inflight information systems increased 20.7% to $71.0 million
for the fiscal year ended March 31, 2000 as compared to $58.8 million for the
same period a year ago. The increase is a direct result of the increase in
bookings. The Pacific acquisition contributed approximately 12% to the total
sales growth.

EBITA for inflight information systems decreased 13.7% to $19.3 million for
the fiscal year ended March 31, 2000 as compared to $22.4 million for the same
period a year ago. The decrease was due primarily to costs associated with
potential acquisitions that did not materialize, consulting expenses and
expenses relating to the hiring of additional field service technicians.

Fiscal 2000 Compared to Fiscal 1999--Other Subsidiaries

Bookings for the Other Subsidiaries remained at essentially the same level
during fiscal 2000 of $32.4 million as compared to $32.9 million for the same
period a year ago. The bookings and the operating results during fiscal 2000
remained essentially the same although the mix differed. During June 1998 the
Company sold ComCoTec, and in September 1999 the Company purchased Sierra.

Sales of the Other Subsidiaries increased slightly to $32.4 million for the
fiscal year ended March 31, 2000 as compared to $31.8 million for the same
period a year ago.

EBITA for the Other Subsidiaries increased 12.5% to $8.4 million for fiscal
2000 as compared to $7.5 million for the same period a year ago. The increase
is due in part to better operating performance at the Company's da Vinci
subsidiary.

Fiscal 1999 Compared to Fiscal 1998--Communications Test

Bookings for communications test products increased 11.5% to $260.7 million
for the fiscal year ended March 31, 1999 as compared to $233.9 million for the
same period in the previous year.

Sales of communications test products decreased $1.5 million or 0.6% to
$238.9 million for the fiscal year ended March 31, 1999 as compared to $240.4
million for the fiscal year ended March 31, 1998. The Company had been
experiencing a decrease in demand for its core instruments in part due to the
RBOC's consolidating their purchasing practices as well as the economic
slowdown in Asia. This decrease was partially offset by an increase in demand
for the Company's systems and services.

EBITA for the communications test products decreased $7.8 million to $42.8
million for the fiscal year ended March 31, 1999 as compared to $50.6 million
for the same period a year prior. The reduction in EBITA is in part due to the
sales volume decrease as well as reorganizing and investing in the Company's
sales force.

Fiscal 1999 Compared to Fiscal 1998--Inflight Information Systems

Bookings for the inflight information systems increased $24.1 million or
62.2% to $62.9 million for the fiscal year ended March 31, 1999 as compared to
$38.8 million for the same period in the previous year. The increase was
primarily a result of a continued increased demand for the Company's real-time
flight information passenger video displays, as well as an increase in sales
from the acquisition of Pacific.

Sales for the Company's inflight information systems increased $24.0 million
or 69.0% to $58.8 million for the year ended March 31, 1999 as compared to
$34.8 million for the same period a year prior. The increase in shipments is a
result of the increased order volume as described above. The Pacific
Acquisition accounted for approximately 32% of total growth.

EBITA for the inflight information systems increased $6.9 million or 44.2%
to $22.4 million for the fiscal year ended March 31, 1999 as compared to $15.5
million for the fiscal year ended March 31, 1998. The increase in EBITA is a
result of the increased shipments as well as reducing redundant functions at
Pacific.

B-9
<PAGE>

Fiscal 1999 Compared to Fiscal 1998--Other Subsidiaries

Bookings for the Other Subsidiaries decreased $10.7 million to $32.9 million
for the fiscal year ended March 31, 1999 as compared to $43.6 million for the
same period in the previous year. The decrease was primarily a result of the
sale of ComCoTec in June 1998 as well as the shutdown of Parallax.

Sales for the Company's Other Subsidiaries decreased $10.9 million to $31.8
million for the year ended March 31, 1999 as compared to $42.7 million for the
same period a year prior. The decrease in shipments was a result of the
decreased order volume as described above.

EBITA for the Other Subsidiaries increased $2.7 million to $7.5 million for
the fiscal year ended March 31, 1999 as compared to $4.8 million for the
period ended March 31, 1998. The increase was a result of the shutdown reserve
and operating loss at Parallax that was incurred during fiscal 1998 as well as
better operating performance at the Company's da Vinci subsidiary.

Capital Resources and Liquidity

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

The Company's liquidity needs arise primarily from debt service on the
substantial indebtedness incurred in connection with the Recapitalization and
from the funding of working capital and capital expenditures. As of March 31,
2000, the Company had $579.9 million of indebtedness, primarily consisting of
$275.0 million principal amount of the Senior Subordinated Notes, $234.9
million in borrowings under the Term Loan Facility and $70.0 million
borrowings under the Revolving Credit Facility.

The Statement of Cash Flows for fiscal years 1998 through 2000 includes the
cash flows from the industrial computing and communications segment on a
fully-consolidated basis and has not been restated to reflect discontinued
operations.

Cash Flows. The Company's cash and cash equivalents decreased $34.6 million
during the fiscal year ended March 31, 2000.

Working Capital. For the fiscal year ended March 31, 2000, the Company's net
working capital decreased as its operating assets and liabilities provided a
$9.3 million source of cash, excluding acquisitions. Accounts receivable
increased, creating a use of cash of $18.2 million, primarily due to the
increase in shipments during the last month of the fiscal year. Inventory
levels decreased, creating a source of cash of $7.2 million, due primarily to
better inventory management throughout the organization. Other current assets
increased, creating a use of cash of $7.3 million, primarily due to the
prepayment of expenses relating to the merger of TTC and WWG. Accounts payable
increased, creating a source of cash of $12.4 million as the Company continues
to manage its working capital. Other current liabilities increased, creating a
source of cash of $15.3 million, in part related to an increase in commission
and compensation expense as a result of the increase in sales during the last
quarter of fiscal 2000.

Investing activities. The Company's investing activities totaled $142.3
million for the fiscal year ended March 31, 2000 in part for the purchase and
replacement of property and equipment. The primary use of cash was for the
acquisition of four companies during fiscal 2000 for a total purchase price of
approximately $113.2 million (approximately $126.9 million in gross purchase
price less $13.7 million of cash acquired): Sierra for net $6.2 million; ADA
for net $67.2 million; ICS Advent (Europe) Ltd. for net $4.2 million; and
Itronix UK for net $35.6 million.

B-10
<PAGE>

The Company's capital expenditures in fiscal 2000 were $21.9 million as
compared to $11.3 in fiscal 1999. The increase during fiscal 2000 was
primarily due to replacing certain of the Company's Enterprise Resource
Planning (ERP) systems at the communications test and industrial computing and
communications businesses. The Company is, according to the terms of the
Senior Secured Credit Agreement, subject to annual maximum capital
expenditures.

Debt and equity. The Company's financing activities generated $50.4 million
in cash during fiscal 2000, due primarily to revolving credit borrowings for
the acquisition of the four companies described above. In addition, the
Company repaid $17.1 million in term loan borrowings.

Debt

In connection with the Recapitalization, the Company entered into a senior
secured credit facility (the "Senior Secured Credit Facility") which consisted
of a $260 million term loan facility (the "Term Loan Facility") and a $110
million revolving credit facility ("the Revolving Credit Facility"). In
addition, the Company incurred $275 million of debt through the sale of its 9
3/4% Senior Subordinated Notes (the "Senior Subordinated Notes"). The
Company's weighted-average interest rate on the loans under the Senior Secured
Credit Facility was 7.85% per annum for fiscal 2000.

Principal and interest payments under the Senior Secured Credit Agreement
and interest payments on the Senior Subordinated Notes represented significant
liquidity requirements for the Company. Total interest expense including the
amortization of deferred debt issuance costs was $51.9 million in fiscal 2000.
In addition, during fiscal 2000 and 1999, the Company repaid approximately
$17.1 million and $8 million, respectively, of term debt and incurred net
borrowings under the Revolving Credit Facility of $70 million in fiscal 2000.
At March 31, 2000, the Company had $40 million undrawn under the Revolving
Credit Facility.

To finance the acquisition of WWG, the Company needed to restructure its
current debt and equity. As a result, on May 23, 2000 the Company entered into
a new credit facility with a syndicate of lenders (the "New Credit Facility").
The Company's new senior credit agreement (the "New Senior Credit Agreement"),
which established the New Credit Facility, provided for senior secured credit
facilities in an aggregate principal amount of up to approximately $860
million, consisting of (1) a revolving credit facility available to Dynatech
LLC in U.S. dollars or euros, in an aggregate principal amount of up to $175
million, which can also be used to issue letters of credit (the "New Revolving
Credit Facility"), (2) a Tranche A term loan of $75 million to Dynatech LLC
with a six year amortization (the "Tranche A Term Loan"), (3) a Tranche B term
loan of $510 million to Dynatech LLC with a seven and one-half year
amortization (the "Tranche B Term Loan"), and (4) German term loans from
certain German banks in an aggregate amount equal to (Euro)108.375 million to
the Company"s German subsidiaries with six year amortization periods (the
"German Term Loans") (all term loans collectively, the "New Term Loans"). The
New Credit Facility also provides for the issuance of a letter of credit that
the German banks may draw upon in the event of the failure of the Company"s
German subsidiaries to make payments on the (Euro)108.375 million loans, and
the Company"s German subsidiaries are required to reimburse the letter of
credit issuer for any such issuances. The amount of the letter of credit also
may be fully drawn under certain circumstances, and in such event the amount
of the draw shall convert into term loans to the Company's German subsidiaries
with similar amortization to the German term loans.

B-11
<PAGE>

June 30, 2005. The Tranche B Term Loan will be amortized in 24 quarterly
installments of $2.0 million, commencing on June 30, 2000; four quarterly
installments of $77.5 million commencing on June 30, 2006, and two quarterly
installments of $76.0 million commencing on June 30, 2007. The German Term
Loans will be amortized in four quarterly installments of (Euro)530 thousand
commencing on June 30, 2000; twelve quarterly installments of (Euro)790
thousand commencing on June 30, 2001; four quarterly installments of
(Euro)7.625 million commencing on June 30, 2004; three quarterly installments
of (Euro)15.780 million commencing on June 30, 2005 and one quarterly
installment of (Euro)18.935 million on March 31, 2006. The $275 million of
Senior Subordinated Notes will mature in 2008, and bear interest at 9 3/4% per
annum. As a result of the substantial indebtedness incurred in connection with
the Merger, it is expected that the Company's interest expense will be higher
and will have a greater proportionate impact on net income in comparison to
preceding periods.

The loans under the Senior Secured Credit Facility and the New Credit
Facility bear interest at floating rates based upon the interest rate option
elected by the Company. To fix the interest charged on a portion of the total
debt outstanding under the Term Loan Facility and the New Term Loan Facility,
the Company entered into interest rate swaps which are effective for periods
ranging from two to three years which began in September 30, 1998. After
giving effects to these arrangements, $220 million of the debt outstanding is
subject to an effective average annual fixed rate of 5.66% (plus an applicable
margin). The terms of one interest rate swap contract provide upon termination
for a one-year option to renew 50% of the notional amount at the discretion of
the lender. See Note L. Interest Rate Swap Contracts.

The obligations of Dynatech LLC under the New Revolving Credit Facility, the
Tranche A Term Loan, the Tranche B Term Loan and the reimbursement obligations
of the German subsidiaries under the letter of credit relating to the German
Term Loan is guaranteed by each active direct or indirect U.S. subsidiary of
Dynatech LLC and by Dynatech Corporation. The obligations under the New Credit
Facility are secured by a pledge of the Company's equity interest in Dynatech
LLC, by substantially all of the assets of Dynatech LLC and each active direct
or indirect U.S. subsidiary of Dynatech 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 Dynatech LLC that acts as a holding company of
Dynatech LLC's foreign subsidiaries.

The Company's New Credit Facility generally permits voluntary prepayment of
loans thereunder without premium or penalty, subject to certain limitations.
Mandatory prepayments are required to be made from (a) 100% of net proceeds
from certain asset sales, casualty insurance and condemnation awards or other
similar recoveries; (b) 100% of the net proceeds from the issuance of
indebtedness by us, other than as permitted by the New Credit Facility; and
(c) 50% of annual excess cash flow for each fiscal year in which the ratio of
the Company's debt on the last day of such fiscal year to the Company's EBITDA
(defined as earnings before interest, taxes, depreciation and amortization)
for such fiscal year is greater than or equal to 4.0 to 1.0.

Future Financing Sources and Cash Flows. The amount under the Revolving Credit
Facility that remained undrawn at June 1, 2000 was $175 million. The undrawn
portion of this facility will be available to meet future working capital and
other business needs of the Company. The Company believes that cash generated
from operations, together with amounts available under the Revolving Credit
Facility and any other available sources of liquidity, will be adequate to
permit the Company to meet its debt service obligations, capital expenditure
program requirements, ongoing operating costs and working capital needs,
although no assurance can be given in this regard. The Company's future
operating performance and ability to service or refinance the Senior
Subordinated Notes and to repay, extend or refinance the Senior Secured Credit
Facilities (including the New Revolving Credit Facility) will be, among other
things, subject to future economic conditions and to financial, business and
other factors, many of which are beyond the Company's control.

B-12
<PAGE>

The indenture governing the Senior Subordinated Notes limit the Company's
ability to incur additional indebtedness. Such restrictions, together with the
highly leveraged nature of the Company, could limit the Company's ability to
respond to market conditions, to meet its capital-spending program, to provide
for unanticipated capital investments, or to take advantage of business
opportunities. These restrictions, among other things, preclude Dynatech LLC
from distributing assets to Dynatech Corporation (which has no independent
operations and no significant assets other than its membership interest in
Dynatech LLC), except in limited circumstances. In addition, under the New
Credit Facility, the Company is required to comply with a minimum interest
expense coverage ratio and a maximum leverage ratio. These financial tests
become more restrictive in future years. The Term Loans under the New Credit
Facility are 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.

Going forward, the Company's principal sources of liquidity are expected to
be cash flow from its operations and borrowings under its New Revolving Credit
Facility. The Company anticipates that the principal uses of its liquidity
will be able to provide working capital, meet debt service requirements and to
finance capital expenditures.

Year 2000 Issue

Year 2000 issues exist when dates in computer systems are recorded using two
digits (rather than four) and are then used for arithmetic operations,
comparisons or sorting. A two-digit date recording may recognize a date using
"00" as 1900 rather than 2000, which could cause the Company's computer
systems to perform inaccurate computations.

During 1998 and 1999, the Company completed a detailed assessment of its
information systems and other hardware and software at each of the Company's
business units. Based upon these assessments, non-compliant software or
hardware were either upgraded to Year 2000 compliant versions, remediated to
become Year 2000 compliant or replaced by other hardware or software which
provided Year 2000 compliance and other benefits. As a result of the Company's
Year 2000 readiness efforts, the Company's mission critical systems
successfully distinguished between the year 1900 and 2000 without any critical
system failures. In addition, the Company did not experience a significant
adverse impact due to Year 2000 issues at any of its significant suppliers.
The Company will continue to monitor its mission critical applications and
equipment through the normal course of business operations to ensure that any
Year 2000 matters that do arise are addressed promptly.

With regard to financial cost, the Company estimates it had incurred $1.8
million on Year 2000 activities through December 31, 1999.

New Pronouncements

In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summaries the staff's view in applying generally accepted
accounting principles to selected revenue recognition issues. The application
of the guidance in SAB 101 will be required in the Company's first quarter of
fiscal 2001. The Company evaluated the application of SAB 101 and has
determined that it not have a signifcant impact.

In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an Interpretation of APB Opinion
No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25 and
among other issues clarifies the following: the definition of an employee for
purposes of applying APB Opinion No. 25; the criteria for determining whether
a plan qualifies as a noncompensatory plan; the accounting consequence of
various modifications to the terms of previously fixed stock options or
awards; and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 is effective July 1, 2000, but certain
conclusions in FIN 44 cover specific events that occurred after either
December 15, 1998 or January 12, 2000. The Company does not expect the
application of FIN 44 to have a material impact on its results of operations
and financial position.

B-13
<PAGE>

On June 15, 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities." SFAS 133 was amended by
Statement of Financial Accounting Standards No. 137 which modified the
effective date of SFAS 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. SFAS 133, as amended, requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. The Company is assessing the impact of the adoption of SFAS 133
on its results of operations and its financial position.

Quantitative and Qualitative Disclosures about Market Risk

The Company operates both manufacturing facilities and sales offices within
the United States and primarily sales offices outside the United States. 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 sales offices are located, as well as the low percentage of
overall sales outside the United States (approximately 15%, 19% and 20% in
fiscal 2000, 1999 and 1998, respectively of consolidated sales relate to
foreign sales including exports from the United States). The Company's
principal currency exposures against the U.S. dollar are in the major European
currencies and in Canadian currency. The Company does not 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 solely of
interest rate swap contracts. 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, 2000, the Company had $234.9 million of variable rate debt
outstanding. The Company currently has three interest rate swap contracts with
notional amounts totaling $220 million which fixed its variable rate debt to a
fixed interest rate for periods of two to three years in which the Company
pays a fixed interest rate on a portion of its outstanding debt and receives
three-month LIBOR.

At March 31, 2000, all of the swap contracts had a fixed interest rate lower
than the three-month LIBOR quoted by its financial institutions. However, the
3-month LIBOR rate was lower than the fixed interest rate during fiscal 1999
and the first part of fiscal 2000 creating a net additional interest expense
(calculated as the difference between the interest rate in the swap contracts
and the three-month LIBOR rate) recognized by the Company during fiscal 2000
and fiscal 1999 was $0.4 million and $0.5 million, respectively. 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, 2000, the analysis demonstrated
that such movement would cause the Company to recognize additional interest
expense of approximately $1.4 million, and accordingly, would cause a
hypothetical loss in cash flows of approximately $1.4 million.

Forward-Looking Statements

This report (other than the Company's consolidated financial statements of
historical fact) contains forward-looking statements, including, without
limitation:

1. the statement in "Business--General", "Management Discussion and
Analysis of Financial Condition and Results of Operations--
Overview", and in "Notes to Consolidated Financial Statements.
Note B. Discontinued Operations" that the Company expects to
divest these two subsidiaries, either separately or together, no
later than the first quarter of the 2002 fiscal year;

2. The statement in "Business--General: Communications Test" that the
Company expects that a growing proportion of its sales will be
derived from its system products;

B-14
<PAGE>

3. the statement in "Business--Seasonality; Backlogs" and "Management
Discussion and Analysis of Financial Condition and Results of
Operations--Overview" concerning the Company's belief that its
results of operations may vary on a quarterly basis;

4. the statement in "Business--Patents and Proprietary Rights" that
the Company does not believe that the expiration of any patent or
group of patents would materially effect its business;

5. the statement in "Business--Environmental Matters" that the Company
does not foresee that federal, state and local laws or regulations
which have been enacted or adopted regarding the discharge of
materials into the environment will have a material adverse effect
on capital expenditures, earnings or the competitive position of
the Company;

6. the statements in "Legal Proceedings-Litigation" and "Financial
Statements and Supplementary Data--Note Q. Commitments and
Contingencies":

a. concerning the Company's belief that the resolution of routine
legal matters incidental to the Company's business in which the
Company is involved from time to time will not have a material
adverse effect on the Company's financial condition or results
of operations; and

b. that the Company does not believe that the outcome of current
litigation is likely to have a material adverse effect on the
Company's financial condition, results of operations or
liquidity;

7. the statement in "Market for Registrant's Common Stock and Related
Security Holder Matters" that the Company intends to retain
earnings for use in the operation and expansion of its business;

8. the statements in "Management Discussion and Analysis of Financial
Condition and Results of Operations--Capital Resources--and
Liquidity" and "Financial Statements and Supplementary Data--Note
K. Debt" that:

a. the Company expects that its interest expense will be higher and
will have a greater proportionate impact on net income in
comparison to preceding periods; and

b. the Company believes that cash generated from operations,
together with amounts available under the Revolving Credit
Facility and any other available sources of liquidity, will be
adequate to permit the Company to meet its debt service
obligations, capital expenditure program requirements, ongoing
operating costs and working capital needs;

9. the statement in "Management Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital
Resources" that, going forward, the Company's principal sources of
liquidity are expected to be cash flow from its operations and
borrowings under its revolving credit facility, that the Company
anticipates that the principal uses of its liquidity will be able
to provide working capital, meet debt service requirements and to
finance capital expenditures and that the Company's revolving
credit facility will also be available for the issuance of letters
of credit.

10. the statement in "Management Discussion and Analysis of Financial
Condition and Results of Operations-Year 2000 Issue" that the
Company will continue to monitor its mission critical applications
and equipment through the normal course of business operations to
ensure that any Year 2000 matters that do arise are addressed
promptly;

11. the statement in "Quantitative and Qualitative Disclosures about
Market Risk" concerning the Company's belief that the political and
economic risks related to its foreign operations are mitigated due
to the stability of the countries in which its sales offices are
located, as well as the low percentage of overall sales outside the
United States; and

12. other statements as to management's or the Company's expectations
or beliefs presented in "Management Discussion and Analysis of
Financial Condition and Results of Operations".

B-15
<PAGE>

All statements other than statements of historical facts included in this
Annual Report on Form 10-K may constitute forward-looking statements. The
Company has based these forward-looking statements on its current expectations
and projections about future events. Although it believes that its assumptions
made in connection with the forward-looking statements are reasonable, there
can be no assurances that its assumptions and expectations will prove to have
been correct. These forward-looking statements are subject to various risks,
uncertainties and assumptions including, among other things:

. the Company's outstanding indebtedness and its leverage, and the
restrictions imposed by its indebtedness;

. the cyclical nature of certain of the Company's businesses, and domestic
and international economic conditions;

. the high degree of competition in certain of the Company's businesses,
and the potential for new competitors to enter into those businesses;

. the integration of recent and future acquired businesses with the
Company's existing operations in a timely and efficient manner;

. the extent to which the Company undertakes new acquisitions or enters
into strategic joint ventures or partnerships;

. future modifications to existing laws and regulations;

. discovery of unknown contingent liabilities, including environmental
contamination at the Company's facilities;

. fluctuations in interest rates and in foreign currency exchange rates;
and

. increases in the cost of raw materials and other inputs used to make the
Company's products.

The Company undertakes no obligation to publicly 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.

B-16
<PAGE>

APPENDIX C

DYNATECH CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2000 AND 1999................ C-3

CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED MARCH 31, 2000,
1999 AND 1998........................................................... C-4

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS
ENDED MARCH 31, 2000, 1999 AND 1998..................................... C-5

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 2000,
1999 AND 1998........................................................... C-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS............................... C-7
</TABLE>

C-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Dynatech Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholders' equity (deficit) and cash
flows present fairly, in all material respects, the financial position of
Dynatech Corporation and its subsidiaries (the "Company") at March 31, 2000
and 1999, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 2000, in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, 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 the opinion expressed above.

As discussed in Note S. to the consolidated financial statements, segment
information for the fiscal years 1999 and 1998 has been restated to conform to
the requirements of Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information".

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
June 21, 2000

C-2
<PAGE>

DYNATECH CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
March 31,
--------------------
2000 1999
--------- ---------
(Amounts in
thousands except
share and per share
data)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 33,839 $ 70,362
Accounts receivable (net of allowance of $1,952 and
$1,634, respectively)................................. 78,236 70,996
Inventories:
Raw materials........................................ 11,085 16,680
Work in process...................................... 12,859 13,644
Finished goods....................................... 6,308 16,947
--------- ---------
Total inventory.................................... 30,252 47,271
--------- ---------
Deferred income taxes.................................. 21,548 15,921
Other current assets................................... 16,332 6,229
--------- ---------
Total current assets............................... 180,207 210,779
--------- ---------
Property and equipment:
Leasehold improvements................................. 5,843 6,170
Machinery and equipment................................ 62,361 51,893
Furniture and fixtures................................. 18,908 14,748
--------- ---------
87,112 72,811
Less accumulated depreciation and amortization......... (59,796) (47,192)
--------- ---------
27,316 25,619
Other assets:
Net assets held for sale............................... 72,601 --
Intangible assets, net................................. 58,508 56,768
Deferred income taxes.................................. 42,689 23,852
Deferred debt issuance costs, net...................... 21,382 24,614
Other.................................................. 12,135 6,472
--------- ---------
$ 414,838 $ 348,104
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Notes payable and current portion of long-term debt.... $ 7,646 $ 23,191
Accounts payable....................................... 38,374 34,317
Accrued expenses:
Compensation and benefits............................ 35,036 24,420
Deferred revenue..................................... 13,564 27,141
Warranty............................................. 8,297 7,811
Interest............................................. 10,055 10,129
Other................................................ 9,270 14,874
Accrued income taxes................................... 5,703 13,398
--------- ---------
Total current liabilities.......................... 127,945 155,281
Long-term debt........................................... 572,288 504,151
Deferred compensation.................................... 11,280 5,112
Commitments and contingencies (Note Q)
Shareholders' deficit:
Serial preference stock, par value $1 per share;
authorized 100,000 shares; none issued................ -- --
Common stock, 2000 and 1999, respectively:
par value $0.01 and $0.00, authorized 200,000,000 and
50,000,000 shares; issued and outstanding 122,526,750
and 120,665,048 shares................................ 1,225 --
Additional paid-in capital............................. 344,873 322,746
Accumulated deficit.................................... (623,929) (629,941)
Unearned compensation.................................. (16,965) (7,563)
Other comprehensive loss............................... (1,879) (1,682)
--------- ---------
Total shareholders' deficit........................ (296,675) (316,440)
--------- ---------
$ 414,838 $ 348,104
========= =========
</TABLE>

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

C-3
<PAGE>

DYNATECH CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years Ended March 31,
----------------------------
2000 1999 1998
-------- -------- --------
(Amounts in thousands
except per share data)
<S> <C> <C> <C>
Net sales........................................ $453,239 $329,532 $317,955
Cost of sales.................................... 157,090 108,618 103,923
-------- -------- --------
Gross profit..................................... 296,149 220,914 214,032
Selling, general and administrative expense...... 156,499 113,469 106,328
Product development expense...................... 61,172 42,472 42,919
Recapitalization and other related costs......... 27,942 40,767 --
Amortization of intangibles...................... 8,789 2,726 2,357
-------- -------- --------
Total operating expenses......................... 254,402 199,434 151,604
-------- -------- --------
Operating income............................... 41,747 21,480 62,428
Interest expense................................. (51,916) (46,178) (1,184)
Interest income.................................. 2,354 3,392 3,013
Other income (expense), net...................... (68) 15,703 551
-------- -------- --------
Income (loss) from continuing operations before
income taxes.................................... (7,883) (5,603) 64,808
Provision (benefit) for income taxes............. (1,169) (69) 26,521
-------- -------- --------
Income (loss) from continuing operations......... (6,714) (5,534) 38,287
Discontinued operations:
Operating income, net of income tax provision
of $7,967 in 2000, $6,903 in 1999, and $2,510
in 1998....................................... 12,726 11,979 3,489
-------- -------- --------
Net income....................................... $ 6,012 $ 6,445 $ 41,776
======== ======== ========
Income (loss) per common share--basic:
Continuing operations.......................... $ (0.05) $ (0.04) $ 1.87
Discontinued operations........................ 0.09 0.09 0.17
-------- -------- --------
$ 0.04 $ 0.05 $ 2.04
======== ======== ========
Income (loss) per common share--diluted:
Continuing operations.......................... $ (0.05) $ (0.04) $ 1.80
Discontinued operations........................ 0.09 0.09 0.16
-------- -------- --------
$ 0.04 $ 0.05 $ 1.96
======== ======== ========
Weighted average number of common shares
Basic.......................................... 148,312 129,596 20,493
Diluted........................................ 148,312 129,596 21,272
</TABLE>

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

C-4
<PAGE>

DYNATECH CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
Total
Number of Shares Retained Other Share-
----------------- Additional Earnings/ Unearned Compre- holders'
Common Treasury Common Paid-In (Accumulated Compen- hensive Treasury Equity
Stock Stock Stock Capital Deficit) sation Loss Stock (Deficit)
------- -------- ------- ---------- ------------ -------- ------- -------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1997................... 18,605 (1,812) $ 3,721 $ 9,887 $ 195,506 $ 0 $(1,247) $(47,181) $ 160,686
Net income--1998....... 41,776 41,776
Translation
adjustment............ (353) (353)
---------
Total comprehensive
income................ 41,423
---------
Purchases of treasury
stock................. (163) (5,330) (5,330)
Exercise of stock
options and other
issuances............. 234 (2,919) 7,580 4,661
Tax benefit from
exercise of stock
options............... 679 679
------- ------ ------- -------- --------- -------- ------- -------- ---------
Balance, March 31,
1998................... 18,605 (1,741) 3,721 7,647 237,282 0 (1,600) (44,931) 202,119
======= ====== ======= ======== ========= ======== ======= ======== =========
Net income--1999....... 6,445 6,445
Translation
adjustment............ (82) (82)
---------
Total comprehensive
income................ 6,363
---------
Exercise of stock
options and other
issuances............. 414 59 (111) 1,946 1,835
Tax benefit from
exercise of stock
options............... 609 609
Recapitalization and
other related costs:
Common stock
repurchased........... (18,605) 1,682 (3,721) (7,269) (873,668) 42,985 (841,673)
Issuance of new stock,
net of fees........... 120,251 298,148 298,148
Stock options expense.. 14,640 14,640
Unearned compensation.. 9,082 (9,082) --
Amortization of
unearned
compensation.......... 1,519 1,519
------- ------ ------- -------- --------- -------- ------- -------- ---------
Balance, March 31,
1999................... 120,665 0 $ 0 $322,746 $(629,941) $ (7,563) $(1,682) $ 0 $(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 0 $ 1,225 $344,873 $(623,929) $(16,965) $(1,879) $ 0 $(296,675)
======= ====== ======= ======== ========= ======== ======= ======== =========
</TABLE>

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

C-5
<PAGE>

DYNATECH CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended March 31,
------------------------------
2000 1999 1998
--------- --------- --------
(Amounts in thousands)
<S> <C> <C> <C>
Operating activities:
Net income from operations.................... $ 6,012 $ 6,445 $ 41,776
Adjustment for noncash items included in net
income:
Depreciation.................................. 13,082 11,741 12,066
Amortization of intangibles................... 12,327 6,228 5,835
Gain on sale of subsidiary.................... -- (15,900) --
Recapitalization and other related costs...... 12,327 14,640 --
Amortization of unearned compensation......... 2,419 1,519 --
Amortization of deferred debt issuance costs.. 3,232 2,693 --
Change in net deferred income tax asset....... (2,840) (12,289) 2,638
Other......................................... 1,517 612 594
Changes in operating assets and liabilities,
net of effects of purchase acquisitions and
divestitures................................. 9,334 51,981 (17,564)
--------- --------- --------
Net cash flows provided by operating
activities................................... 57,410 67,670 45,345
--------- --------- --------
Investing activities:
Purchases of property and equipment........... (21,859) (11,323) (15,879)
Disposals of property and equipment........... 7 369 219
Proceeds from sales of businesses............. -- 21,000 507
Businesses acquired in purchase transactions,
net of cash acquired......................... (113,227) (21,365) --
Incentive earnout related to the purchase of
Advent....................................... -- (3,845) --
Other......................................... (7,172) (4,915) 144
--------- --------- --------
Net cash flows provided by (used in) investing
activities................................... (142,251) (20,079) (15,009)
--------- --------- --------
Financing activities:
Borrowings (repayments) under revolving credit
facility, net................................ 70,000 -- (5,000)
Borrowings of term loan debt.................. -- 535,000 --
Repayment of term loan debt................... (17,139) (8,000) --
Repayment of notes payable.................... -- (2,192) --
Repayment of capital lease obligations........ (212) (159) (195)
Financing fees................................ -- (38,631) --
Proceeds from issuance of common stock........ 3,257 277,035 4,513
Proceeds from exercise of stock options....... 1,479 1,800 --
Purchases of treasury stock, common stock and
stock options................................ (6,980) (806,508) (5,330)
--------- --------- --------
Net cash flows used in financing activities... 50,405 (41,655) (6,012)
Effect of exchange rate on cash................ (157) (478) 798
--------- --------- --------
Increase (decrease) in cash and cash
equivalents................................... (34,593) 5,458 25,122
Cash and cash equivalents at beginning of
year.......................................... 70,362 64,904 39,782
--------- --------- --------
Cash and cash equivalents at end of year....... $ 35,769 $ 70,362 $ 64,904
========= ========= ========
Change in operating asset and liability
components:
Decrease (increase) in trade accounts
receivable................................... $ (18,176) $ (1,114) $ 994
Decrease (increase) in inventories............ 7,185 2,503 (8,739)
Increase (decrease) in other current assets... (7,324) 2,089 (887)
Increase in accounts payable.................. 12,397 11,025 6,009
Increase in accrued expenses, taxes and
other........................................ 15,252 37,478 (14,941)
--------- --------- --------
Change in operating assets and liabilities..... $ 9,334 $ 51,981 $(17,564)
========= ========= ========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest...................................... $ 48,791 $ 33,376 $ 934
Income taxes.................................. $ 14,737 $ 16,013 $ 24,307
</TABLE>

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

C-6
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. FORMATION AND BACKGROUND

Dynatech Corporation was formed in 1959 and is a global communications
equipment company focused on network technology solutions. The Company's
operations are conducted primarily by wholly owned subsidiaries located
principally in the United States with other operations, primarily sales
offices, located in Europe and the Far East. The Company is managed in two
business segments: communications test and inflight information systems.

The communications test business, through the Company's TTC division,
manufactures and markets a broad range of communications test solutions
used in the planning, deploying, provisioning, manufacturing, managing and
maintaining of communications equipment and networks. The inflight
information systems segment, through the Company's AIRSHOW, Inc.
subsidiary, provides passenger cabin video information display systems and
information services for the general and commercial aviation markets. The
Company also has other subsidiaries that, in the aggregate, are not
reportable as a segment ("Other Subsidiaries"). These Other Subsidiaries
include da Vinci Systems, Inc. which provides digital color enhancement
systems used in the production of television commercials and programming;
and Dataviews, Inc., which was sold in June 2000. In years prior to fiscal
2000 the Company's consolidated statements of income and the Other
Subsidiaries section of Note S. Segment Information and Geographic Areas
included the results of operations of two subsidiaries which have since
been divested: ComCoTec, Inc. was sold in June 1998, and Parallax Graphics,
which was liquidated during fiscal 1999.

The Company operates on a fiscal year ended March 31 in the calendar year
indicated (e.g., references to fiscal 2000 are references to the Company's
fiscal year which began April 1, 1999 and ended March 31, 2000).

B. DISCONTINUED OPERATIONS

In May 2000, the Board of Directors approved a plan to divest the
industrial computing and communications segment, which consists of ICS
Advent and Itronix Corporation subsidiaries. In connection with its
decision, the Board authorized management to retain one or more investment
banks to assist the Company with respect to the divestiture. The segment's
results of operations including net sales, operating costs and expenses,
other income and expense and income taxes for fiscal 1998, 1999 and 2000,
have been reclassified in the accompanying statements of operations as
discontinued operations. The Company's balance sheet for fiscal 2000
reflects the net assets of the industrial computing and communications
segment as net assets held for sale within non-current assets. The balance
sheet for fiscal 1999 and the Statements of Cash Flows for fiscal years
1998, 1999 and 2000 have not been reclassified for the discontinued
businesses. Management believes that the net proceeds from the disposition
of these companies will exceed the carrying amount of the net assets. In
addition, management does not anticipate net operating losses from the
discontinued segment through the first quarter of fiscal 2002, at which
time the Company anticipates to have sold these businesses. Accordingly,
the anticipated gains from the disposal of the segment and the operating
results will not be reflected in the statements of operations until they
are realized.

C-7
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Summary operating results and balance sheet information of the
discontinued operations are as follows:

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- --------
(Amounts in thousands)
<S> <C> <C> <C>
Sales........................................... $203,361 $193,322 $154,993
Operating income................................ 21,304 18,638 6,036
Net income...................................... 12,726 11,979 3,489
Accounts receivable, net........................ 23,524
Inventories..................................... 28,453
Intangible assets, net.......................... 62,464
Accounts payable................................ (20,054)
Deferred revenue................................ (28,812)
Other, net...................................... 7,026
</TABLE>

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
shareholders 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, 2000, CDR Fund V
holds approximately 90.5% of the Common Stock and other shareholders hold
approximately 9.5% of the Common Stock.

In connection with the Recapitalization, the Company incurred a charge of
$40.8 million from continuing operations, for the cancellation payments of
employee stock options and compensation expense due to the acceleration of
unvested stock options, and $3.5 million for certain other expenses
resulting from the Recapitalization, including employee termination
expense. The Company incurred an additional $41.3 million in expenses, of
which $27.3 million was capitalized and is being amortized over the life of
the Senior Secured Credit Facilities and Senior Subordinated Notes. The
remaining $14.0 million was charged directly to shareholders' equity. See
Note K. Debt.

Recapitalization and other related costs from continuing operations
during fiscal 2000 totaled $27.9 million, 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. FINANCIAL POSITION OF DYNATECH CORPORATION AND DYNATECH LLC

In connection with the Recapitalization and related transactions,
Dynatech LLC (formerly known as Telecommunications Techniques Co., LLC),
Dynatech Corporation's wholly owned subsidiary ("Dynatech

C-8
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

LLC"), became the primary obligor (and Dynatech Corporation, a guarantor)
with respect to indebtedness of Dynatech Corporation, including the 9 3/4%
Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes") and
the Senior Secured Credit Facilities referred to elsewhere in these Notes
to the Consolidated Financial Statements.

Dynatech Corporation has fully and unconditionally guaranteed the Senior
Subordinated Notes. Dynatech Corporation, however, is a holding company
with no independent operations and no significant assets other than its
membership interest in Dynatech LLC. Accordingly, the condensed
consolidated financial statements of Dynatech Corporation, presented in
this report, are not materially different from those of Dynatech LLC.
Management has not included separate financial statements of Dynatech LLC
because management has determined that they would not be material to
holders of the Senior Subordinated Notes or to the holders of Dynatech
Corporation's common stock. Dynatech LLC is subject, under agreements
governing its indebtedness, to prohibitions on its ability to make
distributions to Dynatech Corporation (with limited exceptions) and other
significant restrictions on its operations. See Note K. Debt.

E. RELATED PARTY

The Company paid an annual management fee to CDR totaling $0.5 million
each in fiscal 2000 and in fiscal 1999. In return for the annual management
fee, CDR provides management and financial consulting services to the
Company and its subsidiaries.

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

F. CHANGE OF JURISDICTION OF INCORPORATION

On September 8, 1999 the shareholders of the Company approved a proposal
to change the jurisdiction of incorporation of the Company from the
Commonwealth of Massachusetts to the State of Delaware and the jurisdiction
of incorporation changed effective on such date.

The common stock of the Company, issued when it was incorporated under
the laws of the Commonwealth of Massachusetts, had no par value per share.
Therefore, the Company did not reflect a value for the common stock on the
balance sheet. The common stock issued under the laws of the State of
Delaware has a par value of $0.01 per share, and the consolidated balance
sheet reflects a reclassification from additional paid-in capital of $1,214
(representing the par value of 121,408,993 outstanding shares at September
30, 1999).

G. 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. Intercompany accounts and transactions have
been eliminated. Certain prior year amounts have been reclassified to
conform to the current year.

Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amount of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period.

C-9
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Significant estimates in these financial statements include allowances for
accounts receivable, net realizable value of inventories, tax valuation
reserves, nonrecurring charges, and the carrying values of discontinued
operations. Actual results could differ from those estimates.

Fair Value of Financial Instruments. The fair value of cash and cash
equivalents, accounts receivable and accounts payable approximated book
value at March 31, 2000 and 1999. Other financial instruments include debt
and interest rate swaps. See Note K. Debt and Note L. Interest Rate Swap
Contracts.

Concentration of Credit Risk. Financial instruments which 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 primarily with one institution
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. 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. In fiscal 2000 the Company provided approximately $0.6 million for
doubtful accounts ($0.5 million in fiscal 1999 and $0.4 million in fiscal
1998).

The Company's counterparties to the agreements relating to the Company's
investments 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 debt
instruments with an original maturity of three months or less at the time
of purchase.

Inventories. Inventories are stated at the lower of cost (first-in,
first-out) or market, not in excess of net realizable value.

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>

Maintenance and repairs' expenditures are expensed when incurred. 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.

Intangible Assets. Intangible assets consist primarily of goodwill and
product technology acquired in business combinations. The excess of cost
over the fair market value of net assets (goodwill) is amortized

C-10
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

on a straight-line basis over 3 to 30 years. Product technology and other
intangible assets are amortized on a straight-line basis primarily over 2
to 10 years, but in no event longer than their expected useful lives.
Amortization expense from continuing operations related to product
technology was $1.6 million in fiscal 2000, $1.5 million in fiscal 1999 and
$1.5 million in fiscal 1998, and was excluded from cost of sales.
Amortization expense from continuing operations related to goodwill was
$8.8 million in fiscal 2000, $2.7 million in fiscal 1999, and $2.4 million
in fiscal 1998.

Long-Lived Assets. The Company periodically evaluates the recoverability
of long-lived assets, including intangibles, whenever events and changes in
circumstances indicate that carrying amount of an asset may not be fully
recoverable. When indicators of impairment are present, the carrying values
of the assets are evaluated in relation to the operating performance and
future undiscounted cash flows of the underlying business. The net book
value of the underlying assets is adjusted to fair value if the sum of the
expected undiscounted cash flows is 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.

Deferred Debt Issuance Costs. In connection with the Recapitalization,
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. Debt and Note R. Subsequent Events.

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 shareholders' equity
(deficit). The realized gains or losses resulting from foreign currency
transactions are included in other income.

Other comprehensive income (loss) which is shown in the Statement of
Shareholders' Equity (Deficit) consists only of foreign currency
translation adjustments.

Stock-Based Compensation. In 1996 the Financial Accounting Standards
Board issued Statement No. 123 "Accounting for Stock-Based Compensation"
("FAS 123"), which prescribes the recognition of compensation expense based
on the fair value of options on the grant date using the Black-Scholes
valuation model with compensation costs recognized ratably over the vesting
period. The Company has elected footnote disclosure only. See Note O.
Stock-Based Compensation.

Unearned Compensation. Since the time of the Recapitalization, the
Company has issued non-qualified stock options to primarily all employees
and non-employee directors at an exercise price equal to the fair market
value as determined by the Company's board of directors. This price may or
may not be equal to the trading price on the open market on the dates of
the grants. During fiscal 1999, the Company granted non-qualified stock
options to certain key employees to purchase 14.3 million shares of common
stock at a price lower than the closing market price. The Company recorded
a charge of $9.1 million within shareholder's deficit (under the caption
"unearned compensation") related to the difference between the market price
and the grant price. This unearned compensation is being charged to expense
over a five-year vesting period and is recorded in cost of sales, selling,
general and administrative expense, and product development expense as
appropriate. During fiscal 1999 the amortization of unearned compensation
was $1.2 million for continued operations and $0.3 million related to
discontinued operations, all of which related to stock option grants during
fiscal years 2000 and 1999.

During fiscal 2000 the Company granted non-qualified stock options to
primarily all employees and non-employee directors to purchase 4.3 million
shares of common stock at a price lower than the trading

C-11
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

price on the open market. The Company incurred a charge of approximately
$13.0 million for the difference between the market price and the fair
market value as determined by the Board of Directors and recorded this
unearned compensation within shareholders' deficit. This charge will be
amortized over the options' vesting periods. During fiscal 2000 the
amortization of unearned compensation was $1.9 million for continuing
operations and $0.5 million for discontinued operations.

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 recognized for unvested options and eliminates
any remaining unearned compensation.

Revenue Recognition. The Company generally recognizes revenue from
product sales upon shipment provided that (1) the shipping terms of the
arrangement allow for recognizing revenue upon shipment (products sold with
destination terms are recognized upon delivery), (2) no significant post-
delivery obligations remain (including installation and acceptance), and
(3) collection of the resulting receivable is reasonably assured. When
significant post-delivery obligations exist, revenue is deferred until such
obligations are fulfilled. The Company accrues for warranty costs, sales
returns, and other allowances at the time of shipment based on its
experience. Software development and consulting services are recognized
when rendered based on contractual arrangements that allow for revenue and
billing as actual time and costs are incurred. Service revenue is
recognized over the contractual period or as services are rendered. In
transactions that include multiple products and/or services, the Company
allocates the sales value among each of the deliverables based on their
relative fair values.

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 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 events 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. See Note M. Income Taxes. Tax credits are generally
recognized as reductions of income tax provisions in the year in which the
credits arise.

The Company does not provide for U.S. income tax liability on
undistributed earnings of its foreign subsidiaries. The earnings of non-
U.S. subsidiaries, which reflect full provision for non-U.S. income taxes,
are indefinitely reinvested in non-U.S. operations. Accordingly, no
provision has been made for taxes that might be payable upon remittance of
such non-U.S. earnings.

C-12
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

New Pronouncements

In December 1999 the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB 101"). SAB 101 summarizes the staff's view in applying generally
accepted accounting principles to selected revenue recognition issues. The
application of the guidance in SAB 101 will be required in the Company's
quarter ended June 30, 2000. The Company has evaluated the application of
SAB 101 based on the current guidance and interpretations and has
determined that it will not have a significant impact.

In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation--an interpretation of APB Opinion
No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No. 25
and among other issues clarifies the following: the definition of an
employee for purposes of applying APB Opinion No. 25; the criteria for
determining whether a plan qualifies as a noncompensatory plan; the
accounting consequence of various modifications to the terms of previously
fixed stock options or awards; and the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1,
2000, but certain conclusions in FIN 44 cover specific events that occurred
after either December 15, 1998 or January 12, 2000. The Company does not
expect the application of FIN 44 to have a material impact on results of
operations and financial position.

On June 15, 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS 133"),
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
was amended by Statement of Financial Accounting Standards No. 137 which
modified the effective date of SFAS 133 to all fiscal quarters of all
fiscal years beginning after June 15, 2000. SFAS 133, as amended, requires
that all derivative instruments be recorded on the balance sheet at their
fair value. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income, depending on
whether a derivative is designated as part of a hedge transaction. The
Company is assessing the impact of the adoption of SFAS 133 on its results
of operations and financial position.

H. ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

Pacific Systems Corporation

On June 19, 1998, the Company, through one of its indirectly wholly owned
subsidiaries, acquired all of the outstanding stock of Pacific Systems
Corporation of Kirkland, Washington ("Pacific") for a total purchase price
of approximately $20 million in cash, which includes an incentive earnout.
The acquisition was accounted for using the purchase method of accounting
and resulted in $18.0 million of goodwill that is being amortized on a
straight-line basis over 30 years. The operating results of Pacific have
been included in Dynatech's consolidated financial statements within the
inflight information systems segment since June 19, 1998. Pacific designs
and manufactures customer-specified avionics and integrated cabin
management.

Flight TECH

In February 1999, the Company, through one of its wholly owned
subsidiaries, acquired Flight TECH of Hillsboro, Oregon for $2 million in
cash. The acquisition was accounted for using the purchase method of
accounting and resulted in approximately $1.9 million of goodwill that is
being amortized on a straight-line basis over 30 years. The operating
results of Flight TECH have been included in the Company's financial
statements since February 1999 within the inflight information systems
segment. Flight TECH is

C-13
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

an inflight entertainment manufacturer specializing in equipment for small
and medium jets, and turboprop aircraft.

Sierra Design Labs

On September 10, 1999, the Company, through one of its wholly owned
subsidiaries, purchased the outstanding stock of Sierra Design Labs
("Sierra"), a Nevada Corporation 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 that is being amortized
on a straight-line basis over 10 years. The operating results of Sierra
have been included in the Company's consolidated financial statements
within Other Subsidiaries as presented in Note S. Segment Information and
Geographic Areas since September 10, 1999. Sierra designs, manufactures,
and markets uncompressed, real-time videodisk recorders.

Applied Digital Access, Inc.

On November 1, 1999, the Company, through one of its wholly owned
subsidiaries, acquired all the outstanding stock of Applied Digital Access,
Inc. ("ADA") for a total purchase price of approximately $81 million in
cash, (of which $60 million was borrowed to finance this acquisition). The
acquisition was accounted for using the purchase method of accounting and
resulted in $36 million of goodwill that is being amortized on a straight-
line basis over 3 years. The purchase price allocation for this acquisition
is preliminary and further refinements are likely to be made based on the
completion of final valuation studies and the Company's analysis of its
business plan of integration. The operating results of ADA have been
included in the Company's consolidated financial statements within the
communications test segment since November 1, 1999. ADA is a provider of
network performance management products that include systems, software and
services used to manage the quality, performance, availability and
reliability of telecommunications service providers' networks.

ICS Advent (Europe) Ltd.

On January 4, 2000, the Company purchased the remaining outstanding stock
of ICS Advent (Europe) Ltd. ("ICS UK") for (Pounds)3.0 million
(approximately $4.9 million) in cash. The Company previously owned
approximately 25% of ICS UK. The acquisition was accounted for using the
purchase method of accounting and generated approximately $4.0 million of
goodwill that is being amortized on a straight-line basis over 5 years. The
operating results of ICS UK have been included in the Company's financial
statements presented within discontinued operations, since January 1, 2000.
The Company intends to sell this acquired company in connection with the
sale of the other business units within discontinued operations within the
next year. ICS UK is primarily a distributor of mission-critical computer
systems to the defense, factory-automation, data and telecommunications
markets within Europe as well as a distributor of rack-mounted computers
supplied by the Company's ICS Advent subsidiary.

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 which were subsidiaries of WPI, Inc. The total purchase
price for Itronix UK totaled approximately $34.8 million in cash (of which
approximately $15 million was borrowed to finance this acquisition). The
acquisition was accounted for using the purchase method of accounting and
resulted in approximately $30 million of goodwill that is being amortized
on a straight-line basis over 5 years. The purchase price allocation for
this

C-14
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

acquisition is preliminary and further refinements are likely to be made
based on the completion of final valuation studies and the Company's
analysis of its business plan of integration. The operating results of
Itronix UK have been included in the Company's consolidated financial
statements presented within discontinued operations since February 23,
2000. The Company intends to sell this acquired company in connection with
the sale of the other business units within discontinued operations within
the next year. Itronix UK distributes rugged field computer systems
including the provision of related services for incorporation into
customers' specific applications.

The goodwill generated from these acquisitions was calculated based on
the purchase price less the net assets acquired, as follows:

<TABLE>
<CAPTION>
2000 1999
-------- -------
<S> <C> <C>
Total purchase price...................................... $126,891 $22,000
-------- -------
Less net assets acquired:
Cash.................................................... 13,664 385
Accounts receivable..................................... 12,638 2,058
Inventories............................................. 19,684 1,865
Deferred tax asset...................................... 20,099 (46)
Other assets............................................ 11,949 1,914
Notes payable........................................... (124) (2,221)
Accounts payable........................................ (11,686) (575)
Accrued liabilities..................................... (14,431) (872)
Long-term debt.......................................... (139) (238)
-------- -------
51,654 2,270
-------- -------
Goodwill.................................................. $ 75,237 $19,730
======== =======
</TABLE>

The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company as if the acquisitions
had occurred at the beginning of the fiscal year presented, with pro forma
adjustments to give effect to amortization of goodwill and intangibles,
interest expense on acquisition debt, and certain other adjustments,
together with related income tax effect. These pro forma amounts do not
purport to be indicative of the results that would have actually been
obtained if the acquisitions had occurred as of the beginning of the
periods presented, or that may be obtained in the future.

<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Revenue.................................................. $479,535 $369,389
Net loss from continuing operations...................... (14,687) (16,881)
Loss per share from continuing operations:
Basic.................................................. (0.10) (0.13)
Diluted................................................ (0.10) (0.13)
Weighted average shares:
Basic.................................................. 148,312 129,596
Diluted................................................ 148,312 129,596
</TABLE>

DIVESTITURES

ComCoTec, Inc.

On June 30, 1998, the Company sold the assets of ComCoTec, Inc.
("ComCoTec") located in Lombard, Illinois to The Potomac Group, Inc. for
$21 million. Dynatech recorded a pre-tax gain on $15.9

C-15
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

million on the sale of the assets, which was included in other income.
Sales and operating results were insignificant for the periods ended March
31, 1999 and 1998.

Parallax, Inc.

During fiscal year 1999, the Company liquidated the assets and
liabilities of Parallax, Inc. ("Parallax"). The loss from the liquidation
activities was immaterial. Sales and operating results were insignificant
for the periods ended March 31, 1999 and 1998.

I. INTANGIBLE ASSETS

Intangible assets, acquired primarily from business acquisitions, are
summarized as follows (See Note H. Acquisitions and Divestitures):

<TABLE>
<CAPTION>
2000(a) 1999
------- -------
(Amounts in
thousands)
<S> <C> <C>
Product technology.......................................... $ 9,236 $17,042
Goodwill.................................................... 67,328 55,878
Other intangible assets..................................... 4,177 13,307
------- -------
80,741 86,227
Less accumulated amortization............................... 22,233 29,459
------- -------
Total..................................................... $58,508 $56,768
======= =======
</TABLE>
--------
(a) Balances as of March 31, 2000 reflect continuing operations only.

C-16
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

J. EARNINGS PER SHARE

The computation for earnings per share is as follows:

<TABLE>
<CAPTION>
2000 1999 1998
-------- -------- -------
<S> <C> <C> <C>
Net income (loss):
Continuing operations....................... $ (6,714) $ (5,534) $38,287
Discontinued operations..................... 12,726 11,979 3,489
-------- -------- -------
Net income.................................... $ 6,012 $ 6,445 $41,776
======== ======== =======
BASIC:
Common stock outstanding, net of treasury
stock, beginning of period................... 120,665 16,864 16,793
Weighted average common stock and treasury
stock issued during the period............... 886 104,331 144
Weighted average common stock and treasury
stock repurchased............................ -- (14,983) (142)
-------- -------- -------
121,551 106,212 16,795
Bonus element adjustment related to rights
offering..................................... 26,761 23,384 3,698
-------- -------- -------
Weighted average common stock outstanding, net
of treasury stock, end of period............. 148,312 129,596 20,493
======== ======== =======
Net income per common share:
Continuing operations....................... $ (0.05) $ (0.04) $ 1.87
Discontinued operations..................... 0.09 0.09 0.17
-------- -------- -------
Net income per common share................... $ 0.04 $ 0.05 $ 2.04
======== ======== =======
DILUTED:
Common stock outstanding, net of treasury
stock, beginning of period................... 120,665 16,871 16,803
Weighted average common stock and treasury
stock issued during the period............... 886 104,324 134
Weighted average common stock equivalents..... -- -- 639
Weighted average common stock and treasury
stock repurchased............................ -- (14,983) (142)
-------- -------- -------
121,551 106,212 17,434
Bonus element adjustment related to rights
offering..................................... 26,761 23,384 3,838
-------- -------- -------
Weighted average common stock outstanding, net
of treasury stock, end of period............. 148,312 129,596 21,272
======== ======== =======
Net income per common share:
Continuing operations....................... $ (0.05) $ (0.04) $ 1.80
Discontinued operations..................... 0.09 0.09 0.16
-------- -------- -------
Net income per common share................... $ 0.04 $ 0.05 $ 1.96
======== ======== =======
</TABLE>

On May 23, 2000 in connection with the Wavetek Wandel Goltermann merger,
the Company issued 12.5 million and 30.625 million shares of common stock
to CDR, CDR Fund V and Clayton, Dubilier & Rice Limited Partnership, an
investment partnership managed by CDR ("CDR Fund VI"), respectively at a
price of $4.00 per share. See Note R. Subsequent Events. In order to
reverse the diminution of all other common shareholders as a result of
shares issued in connection with the WWG Merger, the Company granted a
rights offering to all its common stock shareholders (including CDR Fund V)
of record on

C-17
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

April 20, 2000 (the "Offering"). CDR elected to waive its right to
participate in this Offering. Thus, 4,983,000 shares of common stock are
covered under the Offering to shareholders other than CDR. As a result of
these transactions, the Company has effectively granted a right to all
shareholders 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, was $11.25.

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

In fiscal 2000 and 1999 the Company excluded from its diluted weighted
average shares outstanding the effect of the weighted average common stock
equivalents (11.4 million in fiscal 2000 and 5.3 million in fiscal 1999) as
the Company incurred a net loss from continuing operations. The common
stock equivalents has been excluded from the calculation of diluted
weighted average shares outstanding as inclusion would result in an
antidilutive effect on net loss per common share from continuing
operations.

K. DEBT

Long-term debt is summarized below:

<TABLE>
<CAPTION>
2000 1999
-------- --------
(Amounts in
thousands)
<S> <C> <C>
Senior secured credit facilities.......................... $304,861 $252,000
Senior subordinated notes................................. 275,000 275,000
Capital lease obligations(a).............................. 73 342
-------- --------
Total debt.............................................. 579,934 527,342
-------- --------
Less current portion...................................... 7,646 23,191
-------- --------
Long-term debt.......................................... $572,288 $504,151
======== ========
</TABLE>
--------
(a) Balances as of March 31, 2000 reflect debt from continuing operations
only.

The book value of the debt under the Senior Secured Credit Facilities
represent fair market value at March 31, 2000 and 1999. The fair market
value of the Senior Subordinated Notes was $250.3 million and $274.3
million at March 31, 2000 and 1999, respectively.

Senior Secured Credit Facilities

In connection with the Recapitalization, the Company entered into a
senior secured credit agreement (the "Senior Secured Credit Agreement")
consisting of a $260 million term loan facility (the "Term Loan Facility")
and a $110 million revolving credit facility (the "Revolving Credit
Facility") (collectively, the "Senior Secured Credit Facilities"). In
addition, the Company incurred $275 million of debt through the sale of its
9 3/4% Senior Subordinated Notes (the "Senior Subordinated Notes").

In connection with the Recapitalization and related transactions,
Dynatech LLC became the primary obligor with respect to the Senior Secured
Credit Facility and the Senior Subordinated Notes. See Note F. Financial
Position of Dynatech Corporation and Dynatech LLC. Dynatech Corporation has
guaranteed the Senior Secured Credit Facilities and the Senior Subordinated
Notes.

C-18
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Principal and interest payments under the new Senior Secured Credit
Agreement and interest payments on the Senior Subordinated Notes represent
significant liquidity requirements for the Company. With respect to the
$260 million initially borrowed under the Term Loan Facility (which is
divided into four tranches, each of which has a different term and
repayment schedule), the Company is required to make scheduled principal
payments of the $50 million Tranche A Term Loan thereunder during its six-
year term, with substantial amortization of the $70 million Tranche B Term
Loan, $70 million Tranche C Term Loan and $70 million Tranche D Term Loan
thereunder occurring after six, seven and eight years, respectively. The
$275 million of Senior Subordinated Notes will mature in 2008, and bear
interest at 9 3/4% per annum.

The Senior Secured Credit Facilities are 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 Agreement) 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.

During fiscal 2000 the Company was required, under the terms of the
Recapture, to repay $15 million in Term Loan borrowings on June 30, 1999.
The Company elected to use the $15 million in part to prepay the mandatory
$8 million amortization due in fiscal 2000. Based on the Recapture
calculation at March 31, 2000, the Company will not be required to make an
additional mandatory principal reduction during fiscal 2001 based on the
excess cash flow calculation at March 31, 2000. During fiscal 1999 the
Company repaid $8 million of mandatory principal payments and repaid $40
million of indebtedness under its $110 million Revolving Credit Facility.

The loans under the Senior Secured Credit Agreement bear interest at
floating rates based upon the interest rate option elected by the Company.
The Company's weighted-average interest rate on the loans under the Senior
Credit Agreement was 7.85% per annum for fiscal 2000. The Company has
entered into interest rate swaps which are effective for periods ranging
from two to three years beginning September 30, 1998 to fix the interest
charged on a portion of the total debt outstanding under the Term Loan
Facility. After giving effects to these arrangements, approximately $220
million of the debt outstanding is subject to an effective average annual
fixed rate of 5.66% (plus an applicable margin). The terms of one interest
rate swap contract provide upon termination for a one-year option to renew
50% of the notional amount at the discretion of the lender. See Note L.
Interest Rate Swap Contracts.

At March 31, 2000, the Company had $70 million in borrowings outstanding
and $40 million undrawn under the Revolving Credit Facility. The Revolving
Credit Facility matures in 2004, with all amounts then outstanding becoming
due. The Company expects that its working capital needs will require it to
obtain new revolving credit facilities at the time that the Revolving
Credit Facility matures, by extending, renewing, replacing or otherwise
refinancing the Revolving Credit Facility. No assurance can be given that
any such extension, renewal, replacement or refinancing can be successfully
accomplished or accomplished on acceptable terms.

The mandatory repayment schedule of the Senior Secured Credit Facilities
and the Senior Subordinated Notes over the next five years and thereafter
is as follows: $8.0 million in fiscal 2001, $11.5 million in fiscal 2002,
$14.5 million in fiscal 2003, $82.7 million in fiscal 2004, $64.7 million
in fiscal 2005, and $398.5 million in fiscal years subsequent to fiscal
2005.

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,

C-19
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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 $0.3 million and $0.4 million in fiscal 2000 and 1999,
respectively, in commitment fees.

Covenant Restrictions. The Senior Secured Credit Agreement imposes
restrictions on the ability of the Company to make capital expenditures,
and both the Senior Secured Credit Facilities and the indenture governing
the Senior Subordinated Notes limit the Company's ability to incur
additional indebtedness. The covenants contained in the Senior Secured
Credit Agreement also, among other things, restrict the ability of the
Company and its subsidiaries to dispose of assets, incur guarantee
obligations, prepay other indebtedness, 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 Dynatech LLC
from distributing assets to Dynatech Corporation (which has no independent
operations and no significant assets other than its membership interest in
Dynatech LLC), except in limited circumstances. In addition, under the
Senior Secured Credit Agreement, the Company is required to comply with a
minimum interest expense coverage ratio and a maximum leverage ratio. These
financial tests become more restrictive in future years. The term loans
under the Senior Secured Credit Facilities (other than the $50 million
Tranche A Term Loan) are 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.

On May 23, 2000 the Company entered into a new credit facility in
connection with the acquisition of Wavetek Wandel Goltermann. See Note R.
Subsequent Events.

Senior Subordinated Notes

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

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

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

L. 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 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

C-20
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

related to the debt. At March 31, 2000 the Company had three interest rate
swap contracts in which the Company pays a fixed interest rate and the
Company receives a three-month LIBOR interest rate.

<TABLE>
<CAPTION>
Fixed
Swap Notional Interest Market
No. Amount Term Rate Valuation
---- -------- ---- -------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C>
1 $ 25,000 October 16, 1998--October 16, 2000 4.715% $ 307
2 $ 65,000 September 30, 1998--September 30, 2001 5.845% $1,003
3* $130,000 September 30, 1998--September 30, 2001 5.755% $1,980
</TABLE>
--------
* This interest rate swap agreement has a one-year option to renew for 50%
of the notional amount ($65 million) at the discretion of the lender.

During fiscal 2000 and 1999, the Company recognized interest expense from
the swap contracts of $0.4 million and $0.5 million, respectively.

The valuations of derivatives 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 to.

The provided valuations of derivatives transactions are derived from
proprietary models based upon well-recognized financial principles and
reasonable estimates about relevant future market conditions. The
valuations set forth above indicate a net payment from the financial
institution to the Company. This valuation reflects a payment to the
Company since the fixed interest rates in the contracts is less than the
three-month LIBOR interest rate at March 31, 2000.

M. INCOME TAXES

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

<TABLE>
<CAPTION>
2000 1999 1998
------- ------- -------
(Amounts in thousands)
<S> <C> <C> <C>
Domestic........................................... $(8,645) $(5,398) $63,376
Foreign............................................ 762 (205) 1,432
------- ------- -------
Total............................................ $(7,883) $(5,603) $64,808
======= ======= =======
</TABLE>

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

<TABLE>
<CAPTION>
2000 1999 1998
------- ----- -------
(Amounts in
thousands)
<S> <C> <C> <C>
Provision for income taxes:
United States..................................... $(1,334) $(469) $20,824
Foreign........................................... 213 (125) 327
State............................................. (48) 525 5,370
------- ----- -------
Total........................................... $(1,169) $ (69) $26,521
======= ===== =======
</TABLE>

C-21
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The components of the income tax provision are as follows:

<TABLE>
<CAPTION>
2000 1999 1998
------- ------ -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 346 $5,435 $18,847
Foreign.......................................... 213 (125) (978)
State............................................ 84 142 5,567
------- ------ -------
Total Current.................................. 643 5,452 23,436
------- ------ -------
Deferred:
Federal.......................................... (1,680) (5,904) 1,976
Foreign.......................................... -- -- 1,305
State............................................ (132) 383 (196)
------- ------ -------
Total deferred................................. (1,812) (5,521) 3,085
------- ------ -------
Total.......................................... $(1,169) $ (69) $26,521
======= ====== =======
</TABLE>

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

<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ----
<S> <C> <C> <C>
Tax at U.S. federal statutory rate.................... (35.0)% (35.0)% 35.0%
Increases (reductions) to statutory tax rate resulting
from:
Foreign income subject to tax at a rate different
than U.S. rate..................................... (2.9) 8.3 0.6
State income taxes, net of federal income tax
benefit............................................ (0.4) 6.1 5.4
Research and development tax credit................. -- -- (1.4)
Nondeductible amortization.......................... 31.7 7.6 0.5
Nondeductible compensation.......................... 1.4 13.9 --
Foreign sales corporation tax benefit............... (12.1) (14.2) (.7)
Non-deductible meals and entertainment expenses..... 4.0 4.1 0.5
Other............................................... (1.6) 8.0 1.0
------ ------ ----
Effective tax rate before certain charges......... (14.9)% (1.2)% 40.9%
====== ====== ====
</TABLE>

C-22
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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

<TABLE>
<CAPTION>
2000 1999
------- -------
(Amounts in
thousands)
<S> <C> <C>
Deferred tax assets:
Corporate severance...................................... $ 2,567 $ 571
Net operating loss and credit carryforwards.............. 15,931 4,758
Vacation benefits........................................ 1,264 1,109
Depreciation and amortization............................ 23,979 16,349
Other accruals........................................... 4,328 8,174
Deferred revenue......................................... 9,797 6,705
Compensation related to stock options.................... 9,708 5,126
Other deferred assets.................................... 3,616 2,755
------- -------
71,190 45,547
Valuation allowance........................................ (5,681) (4,758)
------- -------
65,509 40,789
Deferred tax liabilities:
Depreciation and amortization............................ 256 --
Other deferred liabilities............................... 1,016 1,016
------- -------
1,272 1,016
------- -------
Net deferred tax assets.................................... $64,237 $39,773
======= =======
</TABLE>

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

On March 31, 2000, the Company had foreign and state net operating loss
carryforwards of $8.5 million and $43.8 million, respectively. The foreign
loss carryforwards begin to expire in the year ending March 31, 2003, and
the state net operating losses begin to expire in the year ending March 31,
2004. In addition, as a result of certain acquisitions, the Company had at
March 31, 2000, U.S. federal net operating loss carryforwards of
approximately $19.8 million and $2.8 million of research credits, which
begin to expire in the years ending March 31, 2006 and March 31, 2003,
respectively. The utilization of these carryforwards is subject to a yearly
limitation of approximately $4 million under Internal Revenue Code Section
382. The realization of the remaining net deferred tax assets is considered
more likely than not.

U.S. income taxes have not been provided for unremitted foreign earnings
of approximately $13.8 million. These earnings are considered to be
permanently invested in non-U.S. operations. The residual U.S. tax
liability, if such amounts were remitted, would be approximately $2.4
million.

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.
Employees outside the U.S. are covered principally by government-sponsored
plans that are deferred contribution plans. The cost of Company-provided
plans is not material.

The Company has a nonqualified deferred compensation plan that permits
certain key employees to annually elect to defer a portion of their
compensation for their retirement. The amount of compensation

C-23
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

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, 2000 and 1999 of $11.3 million and $5.1 million, respectively, reflect
amounts due the key 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 $6.2 million in
fiscal 2000, $4.9 million in fiscal 1999 and $4.5 million in fiscal 1998.

O. STOCK-BASED COMPENSATION

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.

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.

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>
2000 1999 1998
Weighted Weighted Weighted
Average Average Average
2000 Exercise 1999 Exercise 1998 Exercise
Shares Price Shares Price Shares Price
---------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Shares under option,
beginning of year...... 33,903,244 $1.85 2,135,719 $26.33 1,770,560 $21.87
Impact of converting
shares on date of
Recapitalization....... -- 18,479,093
Options granted (at an
exercise price of $3.25
to $4.00 in 2000, $2.50
to $3.187 in 1999 and
$35 to $44 in 1998).... 9,537,781 3.29 16,439,511 2.54 634,800 36.25
Options exercised....... (1,194,318) 1.24 (860,120) 15.15 (148,941) 17.20
Options canceled........ (8,862,596) 1.36 (2,290,959) 9.68 (120,700) 24.26
---------- ---------- ---------
Shares under option, end
of year................ 33,384,111 $2.40 33,903,244 $ 1.85 2,135,719 $26.33
========== ========== =========
Shares exercisable...... 13,178,441 $1.66 18,420,794 $ 1.30 512,999 $18.79
</TABLE>

As of March 31, 2000 and 1999, the Company issued approximately 4.3
million and 14.3 million stock options, respectively, at a weighted-average
exercise price of $3.33 and $2.50, respectively, which was

C-24
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

below the quoted market price on the day of grant. Options available for
future grants under the plans were 3.9 million, 4.2 million and 497
thousand at March 31, 2000, 1999, and 1998, respectively.

The following table summarizes information about currently outstanding
and exercisable stock options at March 31, 2000:

<TABLE>
<CAPTION>
Weighted
Number of Average Weighted
Options Remaining Average
Outstanding Contractual Exercise
Range of Exercise Price At 3/31/00 Life Price
----------------------- ----------- ----------- --------
<S> <C> <C> <C>
$0.00 - $1.00............................... 2,563,680 4.800 .775
$1.00 - $2.00............................... 7,753,303 6.558 1.634
$2.00 - $3.00............................... 12,892,247 8.159 2.497
$3.00 - $4.00............................... 10,174,881 9.448 3.284
----------
Total..................................... 33,384,111 7.922 2.404
==========
</TABLE>

The fair market value of each option granted during 2000, 1999, and 1998
is estimated on the date of grant using the Black-Scholes option-pricing
model with the following assumptions:

<TABLE>
<CAPTION>
2000 1999 1998
------ ------ ------
<S> <C> <C> <C>
Expected volatility.................................. 70.00% 45.00% 40.00%
Risk-free rate of return............................. 6.13% 5.38% 6.00%
Expected life (in years)............................. 5 yrs 5 yrs 5 yrs
Weighted average fair value.......................... $3.274 $1.673 $19.20
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, "Accounting for Stock-Based Compensation", the Company's net
income and earnings per share would approximate the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
2000 1999 1998
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------ -------- ------- -------- -------
(Amounts in thousands except per share)
<S> <C> <C> <C> <C> <C> <C>
Net income............... $6,012 $2,579 $6,445 $(7,510) $41,776 $38,441
Net income per share:
Basic.................. $ 0.04 $ 0.02 $ 0.05 $ (0.06) $ 2.04 $ 1.88
Diluted................ $ 0.04 $ 0.02 $ 0.05 $ (0.06) $ 1.96 $ 1.81
</TABLE>

The effect of applying FAS123 in this pro forma disclosure is not
indicative of future amounts. FAS123 does not apply to awards prior to
1995. Additional awards in future years are anticipated.

P. SHAREHOLDER RIGHTS PLAN

In February 1989 the Board of Directors adopted a Shareholder Rights Plan
and declared a dividend distribution of one Right for each outstanding
share of Dynatech's common stock. The Plan as amended entitled a qualifying
shareholder to buy shares of Dynatech junior participating cumulative
preferred stock in the case of an acquisition of, or tender offer for, more
than a specified percentage of Dynatech's common stock.

C-25
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

All outstanding Rights issued and outstanding under the Rights Agreement
and the Rights Agreement terminated immediately prior to the effective time
of the Recapitalization and no shares of Common Stock issued on or after
the effective time of the Recapitalization have or will have any Rights
associated with them under the Rights Agreement.

Q. COMMITMENTS AND CONTINGENCIES

The Company has operating leases from continuing operations 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 2001 through 2005 under noncancelable operating leases
having an original term of more than one year are $12.1 million, $10.7
million, $8.0 million, $6.6 million, and $3.5 million, respectively. The
aggregate obligation subsequent to fiscal 2005 is $2.9 million. Rent
expense was approximately $7.3 million, $7.1 million and $6.6 million in
fiscal 2000, 1999 and 1998, respectively.

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

In 1994, the Company sold its radar detector business to Whistler
Corporation of Massachusetts. On June 27, 1996, Cincinnati Microwave, Inc.
("CMI") filed an action against the Company and Whistler in the United
States District Court for the Southern District of Ohio alleging
infringement of CMI's patent for a mute function in radar detectors. The
Company responded that it did not infringe CMI's patent and that, in any
event, the patent was invalid and unenforceable.

The Company obtained an opinion from outside counsel that CMI's patent is
invalid. The Company intends to offer that opinion (and other evidence) to
demonstrate that any alleged infringement of CMI's patent due to the
Company's prior manufacture and sale of the Whistler series radar detectors
was not valid.

On February 14, 1997, CMI filed for bankruptcy in the United States
Bankruptcy Court for the Southern District of Ohio. Pursuant to that
filing, CMI sold its mute feature patent (and other assets) to Escort
Acquisition Corp. CMI, however, retained the right to seek past damages
from the Company.

A hearing on the parties' dispositive motions was held in May 1999. On
May 27, 1999, Whistler filed a Chapter 11 bankruptcy petition in the United
States District Court for the District of Massachusetts. As a result of
that filing, CMI's patent infringement litigation is stayed as to Whistler.

On February 18, 2000, the United States Magistrate issued a Report and
Recommendation on some of the pending motions, recommending that judgment
be entered in the Company's favor on half of the claims asserted by CMI.
Then, on June 9, 2000, the Magistrate issued a second Report and
Recommendation, recommending that the plaintiffs be precluded from
recovering any damages for any alleged infringement that occurred prior to
June 1996. Because the Company could not have infringed on CMI's patent
after it sold its radar detector business to Whistler in 1994, if this
Recommendation is adopted by the District Court Judge, the Company would
have no liability to CMI. The parties have filed (and will file) various
objections to the two Report and Recommendations. If necessary, trial in
this matter is scheduled for November 2000.

C-26
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company intends to continue to defend this lawsuit vigorously and does
not believe that the outcome of this litigation will have a material
adverse effect on its financial condition, results of operation, or
liquidity.

R. SUBSEQUENT EVENTS

Increase in Authorized Shares of Common Stock

On April 28, 2000 the Company amended its Certificate of Incorporation of
the Company to increase the number of shares of authorized common stock to
be issued from 200,000,000 to 350,000,000.

Acquisition of WWG

On May 23, 2000, the Company and its wholly owned subsidiary DWW
Acquisition Corporation, a Delaware corporation ("MergerCo"), completed
their merger (the "Merger") with Wavetek Wandel Goltermann, Inc., a
Delaware corporation ("WWG"), pursuant to which WWG became an indirect,
wholly owned subsidiary of Dynatech.

The Merger was consummated pursuant to an Agreement and Plan of Merger,
dated as of February 14, 2000 (the "Merger Agreement"), among Dynatech,
MergerCo and WWG. In connection with the Merger, Dynatech paid the former
WWG stockholders approximately $250 million in cash and issued
approximately 15 million newly-issued shares of Dynatech common stock,
valued at approximately $130 million. In addition, Dynatech paid
approximately $8 million in cash in exchange for all outstanding WWG
options and paid approximately $200 million of WWG outstanding debt.

Dynatech financed the Merger with the proceeds from the issuance of debt
and common stock. The Company issued 43.125 million newly-issued, but
unregistered shares of the Company's common stock to funds managed by CDR
for $4.00 per share. The Company also intends to sell 4.983 million newly-
issued shares of common stock at $4.00 per share to its shareholders of
record of April 20, 2000 under a rights offering. See Note J. Earning Per
Share.

In addition to the issuance of common stock, the Company entered into a
new credit facility with a syndicate of lenders (the "New Credit
Facility"). The Company's new senior credit agreement (the "New Senior
Credit Agreement"), which established the New Credit Facility, provided for
senior secured credit facilities in an aggregate principal amount of up to
approximately $860 million, consisting of (1) a revolving credit facility
available to Dynatech LLC in U.S. dollars or euros, in an aggregate
principal amount of up to $175 million, which can also be used to issue
letters of credit (the "New Revolving Credit Facility"), (2) a Tranche A
term loan of $75 million to Dynatech LLC with a six year amortization (the
"Tranche A Term Loan"), (3) a Tranche B term loan of $510 million to
Dynatech LLC with a seven and one-half year amortization (the "Tranche B
Term Loan"), and (4) German term loans from certain German banks in an
aggregate amount equal to (Euro)108.375 million to the Company's German
subsidiaries with six-year amortization periods (the "German Term Loans")
(all term loans collectively, the "New Term Loans"). The New Credit
Facility also provides for the issuance of a letter of credit that the
German banks may draw upon in the event of the failure of the Company's
German subsidiaries to make payments on the (Euro)108.375 million loans,
and the Company's German subsidiaries are required to reimburse the letter
of credit issuer for any such issuances. The amount of the letter of credit
also may be fully drawn under certain circumstances, and in such event the
amount of the draw shall convert into term loans to the Company's German
subsidiaries with similar amortization to the German term loans.

The loans under the New Credit Facility bear interest at floating rates
based upon the interest rate option elected by the Company.

C-27
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company collectively used the New Term Loans to refinance certain
existing indebtedness of the Company and as part of the financing for the WWG
merger. The New Revolving Credit Facility is available to the Company from
time to time for potential acquisitions and other general corporate purposes.
Principal and interest payments under the New Credit Facility and interest
payments on the Senior Subordinated Notes represent significant liquidity
requirements for the Company. The Tranche A Term Loan will be amortized in
four quarterly installments of $750 thousand commencing on June 30, 2000; four
quarterly installments of $2.0 million commencing on June 30, 2001; four
quarterly installments of $3.75 million commencing on June 30, 2002; four
quarterly installments of $7.5 million commencing on June 30, 2003; four
quarterly installments of $2.5 million commencing on June 30, 2004 and four
quarterly installments of $2.25 million commencing on June 30, 2005. The
Tranche B Term Loan will be amortized in 24 quarterly installments of $2.0
million, commencing on June 30, 2000; four quarterly installments of $77.5
million commencing on June 30, 2006, and two quarterly installments of $76.0
million commencing on June 30, 2007. The German Term Loans will be amortized
in four quarterly installments of (Euro)530 thousand commencing on June 30,
2000; twelve quarterly installments of (Euro)790 thousand commencing on June
30, 2001; four quarterly installments of (Euro)7.625 million commencing on
June 30, 2004; three quarterly installments of (Euro)15.780 million commencing
on June 30, 2005 and one quarterly installment of (Euro)18.935 million on
March 31, 2006.

Covenant Restrictions. The Company's New Credit Facility contains covenants
that, among other things, restrict the Company's ability to dispose of assets,
incur additional debt, guarantee obligations or contingent liabilities, repay
its 9 3/4% Senior Subordinated Notes due 2008, pay dividends, create liens on
assets, make investments, loans or advances, engage in mergers or
consolidations, make capital expenditures or engage in certain transactions
with affiliates. The Company's New Credit Facility contains customary events
of default. In addition, under the New Credit Facility, the Company is
required to comply with a minimum interest expense coverage ratio and a
maximum leverage ratio. These financial tests become more restrictive in
future years. The Term Loans under the New Credit Facility are 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 following unaudited pro forma condensed consolidated financial
statements give effect to the following assuming that these transactions
occurred on the first day in the fiscal year presented:

. The merger with WWG (after giving effect to the divestitures of the
Precision Measurement and Test Tools divisions, which occurred in
January 2000)

. The acquisition of Pacific Systems Corporation

. The acquisition of Flight TECH

. The acquisition of Sierra Design Labs

. The acquisition of Applied Digital Access, Inc.

. The acquisition of ICS Advent (Europe) Ltd.

. The acquisition of WPI Husky Technology, Inc., WPI Oyster Termiflex
Limited, WPI Husky Technology Limited and WPI Husky Technology GmbH

The condensed, unaudited pro forma statement of operations data listed
below is for informational purposes only and does not necessarily represent
what the Company's results of operations would have been if the above
listed transactions had in fact occurred at the beginning of the fiscal
periods presented and are not necessarily indicative of the results of
operations for any future period.

C-28
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
2000 1999
-------- --------
<S> <C> <C>
Net sales.............................................. $972,381 $803,816
Loss from operations before income taxes from
continuing operations................................. (79,991) (147,670)
Loss per common share from continuing operations:
Basic................................................ (0.43) (0.87)
Diluted.............................................. (0.43) (0.87)
</TABLE>

Extraordinary Charge

In connection with the merger and related financing of debt, the Company
will incur a pretax extraordinary charge of approximately $10.3 million
during the first quarter of fiscal 2001 for the writeoff of unamortized
debt discount fees relating to the early extinguishment of debt that
originated from the Recapitalization.

S. SEGMENT INFORMATION AND GEOGRAPHIC AREAS

Segment Information.

The Company is currently managed in two business segments: communications
test and inflight information systems. The largest segment, communication
test, develops, manufactures and markets instruments, systems, software and
services which 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. The
inflight information systems segment, which is operated by the Company's
AIRSHOW, Inc. subsidiary, is a provider of systems that deliver real-time
news, information and flight data to aircraft passengers. AIRSHOW's systems
are marketed to commercial airlines and private aircraft owners. The
Company also has other subsidiaries that, in the aggregate, are not
reportable as a segment ("Other Subsidiaries"). These Other Subsidiaries
include da Vinci Systems, Inc. ("da Vinci") and Dataviews, Inc.
("Dataviews"). 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.
Dataviews, Inc., was sold in June 2000. In years prior to fiscal 2000, the
Company's consolidated statements of income and the Other Subsidiaries
section of this Note included the results of operations of two subsidiaries
which have since been divested: ComCoTec, Inc. was sold in June 1998, and
Parallax Graphics, which was liquidated during fiscal 1999.

The Company measures the performance of its subsidiaries by the their
respective earnings before interest, taxes and amortization ("EBITA"),
which excludes non-recurring and one-time charges. Included in each
segment's EBITA is an allocation of corporate expenses. The information
below includes sales and EBITA for the two segments the Company operates
in.

Corporate EBITA is comprised of corporate general and administrative
expense that has not been allocated to each segment. Corporate assets are
comprised primarily of cash, deferred financing fees, and deferred taxes.

The Company is a multi-national corporation with continuing operations
outside the United States consisting of distribution and sales offices in
Germany, England, France and the Pacific Rim.

The accounting policies for the segments are the same as those described
in the summary of significant accounting policies. See Note G. Summary of
Significant Accounting Policies. In order to conform to the requirements of
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", the operating segment
information for the fiscal years 1999 and 1998 has been restated.

C-29
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

No single customer accounted for more than 10% of sales from continuing
operations during fiscal 2000, 1999, and 1998.

<TABLE>
<CAPTION>
Segment 2000 1999 1998
------- ------- ------- -------
<S> <C> <C> <C>
Communications test segment:
Sales.......................................... 349,886 238,942 240,432
Depreciation and amortization.................. 15,441 8,845 9,345
EBITA.......................................... 62,447 42,800 50,614
Total assets................................... 179,338 71,453 78,586
Capital expenditures........................... 13,629 5,147 8,898
Inflight information systems segment:
Sales.......................................... 70,960 58,794 34,797
Depreciation and amortization.................. 2,102 1,477 399
EBITA.......................................... 19,314 22,373 15,519
Total assets................................... 39,728 36,583 8,012
Capital expenditures........................... 1,743 2,230 740
Other subsidiaries:
Sales.......................................... 32,394 31,796 42,726
Depreciation and amortization.................. 1,218 1,114 1,731
EBITA.......................................... 8,404 7,468 4,790
Total assets................................... 13,061 5,165 8,857
Capital expenditures........................... 761 799 1,609
Discontinued operations:
Net assets held for sale....................... 72,601 N/A N/A
Total assets................................... N/A $93,753 $94,724
Capital expenditures........................... N/A 2,967 4,586
Corporate:
Depreciation and amortization.................. 95 93 125
Loss before interest, taxes and amortization... (4,941) (6,638) (5,586)
Total assets................................... 110,110 141,150 97,951
Capital expenditures........................... 31 180 46
Total Company:
Sales.......................................... 453,239 329,532 317,955
Depreciation and amortization.................. 18,856 11,529 11,610
EBITA(a)....................................... 85,224 66,003 65,337
Total assets................................... 414,838 348,104 288,130
Capital expenditures........................... 16,164 11,323 15,879
</TABLE>
--------
(a) Non-recurring charges of $33,241, $24,867, and $0 and amortization of
unearned compensation of $1,515, $1,228 and $0, in fiscal 2000, 1999,
and 1998 have been excluded from EBITA.

C-30
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Geographic Information. Information by geographic areas for the years
ended March 31, 2000, 1999, and 1998 is summarized below:

<TABLE>
<CAPTION>
Outside U.S.
United (principally
States Europe) Combined
-------- ------------ --------
(Amounts in thousands)
<S> <C> <C> <C>
Sales to unaffiliated customers
2000.................................... $432,216* $21,023 $453,239
1999.................................... $310,724* $18,808 329,532
1998.................................... $298,907* 19,048 317,955
Income (loss) before taxes from continuing
operations
2000.................................... $ (7,957) $ 74 $ (7,883)
1999.................................... $ (5,398) $ (205) $ (5,603)
1998.................................... $ 63,773 $ 1,035 $ 64,808
Long-lived assets at
March 31, 2000.......................... $ 85,122 $ 702 $ 85,824
March 31, 1999.......................... $ 81,662 $ 725 $ 82,387
March 31, 1998.......................... $ 65,134 $ 826 $ 65,960
</TABLE>
--------
* Includes export sales of $44,798, $44,567, and $43,865 in 2000, 1999,
and 1998, respectively.

Currency Income. Net income in fiscal 2000, 1999, and 1998 included
currency gains (losses) of approximately $54,500, $9,800, and $12,600,
respectively.

T.SUMMARY OF OPERATIONS BY QUARTER (UNAUDITED)

<TABLE>
<CAPTION>
FY 2000
---------------------------------------------
First Second Third Fourth Year
------- -------- -------- -------- --------
(Amounts in thousands except per share
data)
<S> <C> <C> <C> <C> <C>
Sales....................... $90,794 $103,789 $122,225 $136,431 $453,239
Gross profit................ 60,080 69,730 81,409 84,930 296,149
Net income (loss) from
continuing operations...... (6,066) 5,642 3,934 (10,224) (6,714)
Net income (loss)........... 2,551 9,566 4,754 (10,859) 6,012
Income (loss) per common
share--basic:
Continuing operations..... $ (0.04) $ 0.04 $ 0.02 $ (0.07) $ (0.05)
Net income (loss)......... 0.02 0.06 0.03 (0.07) 0.04
Income (loss) per common
share--diluted:
Continuing operations..... $ (0.04) $ 0.04 $ 0.02 $ (0.07) $ (0.05)
Net income (loss)......... 0.02 0.06 0.03 (0.07) 0.04
Market Share Price(b)--
High....................... $ 4.062 $ 5.031 $ 8.000 $ 15.937
--Low.............. 3.125 3.437 4.875 6.875
</TABLE>

C-31
<PAGE>

DYNATECH CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

<TABLE>
<CAPTION>
FY 1999
------------------------------------------
First Second Third Fourth Year
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Sales.......................... $75,192 $84,429 $90,219 $79,692 $329,532
Gross profit................... 50,214 57,050 60,744 52,906 220,914
Net income (loss) from
continuing operations......... (11,983) 2,463 4,564 (578) (5,534)
Net income (loss).............. (11,933) 3,662 6,949 7,767 6,445
Income (loss) per common
share--basic:
Continuing operations........ $ (0.15) $ 0.02 $ 0.03 $ 0.00 $ (0.04)
Net income (loss)............ (0.15) 0.02 0.05 0.05 0.05
Income (loss) per common
share--diluted:
Continuing operations........ $ (0.15) $ 0.02 $ 0.03 $ 0.00 $ (0.04)
Net income (loss).............. (0.15) 0.02 0.04 0.05 0.05
Market Share Price(a)--High.... $ 4.312 $ 3.438 $ 3.000 $ 3.500
--Low................. 3.125 2.687 2.375 2.718
</TABLE>
--------
(a) From January 28, 1997 to May 21, 1998, shares of Common Stock of the
Company were traded on the New York Stock Exchange. No cash dividends
were paid on shares of Common Stock of the Company. As a result of the
Recapitalization on May 21, 1998, trading in the Old Common Stock was
halted and the Common Stock is traded only in the over-the-counter
market. The market share prices reflect the high and low close prices
after May 21, 1998.

C-32
<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 Dynatech Corporation and CDRD Merger Corporation.(1)

2.2 Agreement and Plan of Merger, dated as of September 7, 1999, by and
among Dynatech Corporation, Dynatech Acquisition Corporation and
Applied Digital Access, Inc.(2)

2.3 Agreement and Plan of Merger, dated as of February 14, 2000, by and
among Dynatech 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 Dynatech Nominees Limited,
WPI Group (UK), and WPI Group, Inc.

3.1 Amended and Restated Certificate of Incorporation of Dynatech
Corporation.

3.2 Amended and Restated By-Laws of Dynatech Corporation.(4)

4.1 Indenture, dated as of May 21, 1998, among Dynatech Corporation, TTC
Merger Co. LLC (now known as Dynatech LLC) and State Street Bank and
Trust Company, as trustee.(5)

4.2 Form of 9 3/4% Senior Subordinated Note due 2008(5).

4.3 First Supplemental Indenture, dated as of May 21, 1998, among Dynatech
Corporation, Telecommunications Techniques Co., LLC (now known as
Dynatech LLC) and State Street Bank and Trust Company, as trustee.(5)

4.4 Registration Rights Agreement, dated May 21, 1998, by and among
Dynatech Corporation, Telecommunications Techniques Co., LLC (now
known as Dynatech LLC), Credit Suisse First Boston Corporation and
J.P. Morgan Securities Inc.(5)

4.5 Registration Rights Agreement, dated as of May 21, 1998, among
Dynatech 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.(5)

4.6 Amendment No. 1, dated as of May 23, 2000, among Dynatech Corporation
("Dynatech"), 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
Dynatech, Fund V and the other parties thereto.

4.7 Form of Piggyback Registration Rights Agreement, dated as of February
29, 2000, by and among Wavetek Wandel Goltermann, Inc. ("WWG"),
Dynatech Corporation and each stockholder of WWG party thereto.

4.8 Form of Subscription Warrant to Subscribe for Shares of Dynatech
Corporation Common Stock.(6)

10.1 Credit Agreement, dated May 23, 2000, among Dynatech LLC, Wavetek
Wandel Goltermann GmbH and Dynatech 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.

10.2 Guarantee and Collateral Agreement, dated as of May 23, 2000, among
Dynatech LLC, certain of its subsidiaries and Morgan Guaranty and
Trust Company of New York as administrative agent.

</TABLE>

D-1
<PAGE>

<TABLE>
<CAPTION>
Exhibit
No.
-------
<C> <S>
10.3 Indemnification Agreement, dated as of May 21, 1998, by and among
Dynatech Corporation, Telecommunications Techniques Co., LLC (now
known as Dynatech LLC), Clayton, Dubilier & Rice, Inc. and Clayton,
Dubilier & Rice Fund V Limited Partnership.(5)

10.4 Indemnification Agreement, dated as of May 23, 2000, by and among
Dynatech Corporation, Clayton, Dubilier & Rice Fund VI Limited
Partnership and Clayton, Dubilier & Rice, Inc.

10.5 Consulting Agreement, dated May 21, 1998, by and among Dynatech
Corporation, Telecommunications Techniques Co., LLC (now known as
Dynatech LLC) and Clayton, Dubilier & Rice, Inc.(5)

10.6 Agreement, dated as of May 23, 2000, by and between Clayton, Dubilier
& Rice, Inc. and Dynatech Corporation.

10.7 Tax Sharing Agreement, dated as of May 21, 1998, by and between
Dynatech Corporation and Telecommunications Techniques Co., LLC (now
known as Dynatech LLC).(5)

10.8 Form of Letter Agreement by and between Dynatech Corporation
("Dynatech") and certain officers of Dynatech.(7)

10.9 Form of Management Equity Agreement among Dynatech Corporation,
Clayton, Dubilier & Rice Fund V Limited Partnership and Messrs. Kline
and Peeler.(7)

10.10 Form of Management Equity Agreement among Dynatech Corporation
("Dynatech"), Clayton, Dubilier & Rice Fund V Limited Partnership and
certain officers of Dynatech.(7)

10.11 Amended and Restated Employment Agreement, entered into on November 1,
1998, by and between Dynatech Corporation and Allan M. Kline.(8)

10.12 Amended and Restated Employment Agreement, entered into on November 1,
1998, by and between Dynatech Corporation and John R. Peeler.(8)

10.13 Form of Nondisclosure, Noncompetition and Nonsolicitation Agreement by
and between Dynatech Corporation ("Dynatech") and certain executives
of Dynatech.(7)

10.14 Dynatech Corporation 1992 Stock Option Plan.(5)

10.15 Dynatech Corporation Amended and Restated 1994 Stock Option and
Incentive Plan.(9)

10.16 Dynatech Corporation Non-Employee Directors Stock Incentive Plan.(9)

10.17 Dynatech Corporation Directors Stock Purchase Plan.(4)

10.18 Form of Non-Employee Director Stock Subscription Agreement between
Dynatech Corporation ("Dynatech") and non-employee directors of
Dynatech.(10)

10.19 Loanout Agreement, dated as of May 19, 1999, by and among Dynatech
Corporation, Dynatech LLC and Clayton, Dubilier & Rice, Inc.(11)

21 Subsidiaries of Dynatech Corporation.

23 Consent of Independent Accountants.

27 Financial Data Schedule.
</TABLE>
--------
(1) Incorporated by reference to Dynatech Corporation's Report on Form 8-K
(File No. 0-7438).
(2) Incorporated by reference to Dynatech Corporation's Schedule 14D-1 (File
No. 5-44783).
(3) Incorporated by reference to Dynatech Corporation's Report on Form 8-K
(File No. 1-12657), filed May 31, 2000.
(4) Incorporated by reference to Dynatech Corporation's Form 10-Q for the
quarter ended September 30, 1999.

D-2
<PAGE>

(5) Incorporated by reference to Dynatech Corporation's Registration
Statement on Form S-4 (Registration No. 333-60893).
(6) Incorporated by reference to Dynatech Corporation's Registration
Statement on Form S-3 (Registration No. 333-35476).
(7) Incorporated by reference to Dynatech Corporation's Registration
Statement on Form S-4 (File No. 333-44933).
(8) Incorporated by reference to Dynatech Corporation's Form 10-Q for the
quarter ended December 31, 1998.
(9) Incorporated by reference to Dynatech Corporation's Registration
Statement on Form S-8 (File No. 333-75797).
(10) Incorporated by reference to Dynatech Corporation's Form 10-Q for the
quarter ended December 31, 1999.
(11) Incorporated by reference to Dynatech Corporation's Form 10-Q for the
quarter ended June 30, 1999.

D-3
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Shareholders of Dynatech Corporation:

Our audits of the consolidated financial statements referred to in our
report dated June 21, 2000 appearing in this Annual Report on Form 10-K of
Dynatech Corporation also included an audit of the financial statement
schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.

/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
June 21, 2000
<PAGE>

SCHEDULE II

DYNATECH CORPORATION

VALUATION AND QUALIFYING ACCOUNTS

For the years ended March 31, 2000, 1999, 1998, and 1997

<TABLE>
<S> <C>
Reserve for Doubtful Accounts (in thousands)
Balance, March 31, 1997................................................. $1,872
Additions charged to income........................................... 425
Writeoff of uncollectible accounts, net............................... (533)
------
Balance, March 31, 1998................................................. 1,764
Additions charged to income........................................... 483
Writeoff of uncollectible accounts, net............................... (613)
------
Balance, March 31, 1999................................................. $1,634
Additions charged to income........................................... 620
Writeoff of uncollectible accounts, net............................... (22)
Balance acquired by acquisition......................................... 247
Adjustment for discontinued operations.................................. (527)
------
Balance, March 31, 2000................................................. $1,952
======
</TABLE>