<PAGE>

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

<Table>
<C>        <S>
(Mark One)
   [X]     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
           SECURITIES EXCHANGE ACT OF 1934

           FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2005

                                  OR

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

           FOR THE TRANSITION PERIOD FROM          TO
</Table>

                         COMMISSION FILE NUMBER 1-3985
                             ---------------------

                                EDO CORPORATION
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                                  <C>
                      NEW YORK                                            11-0707740
              (State of Incorporation)                        (IRS Employer Identification No.)

          60 EAST 42ND STREET, 42ND FLOOR                                   10165
                 NEW YORK, NEW YORK                                       (Zip Code)
      (Address of principal executive offices)
</Table>

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 716-2000

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

<Table>
<Caption>
                TITLE OF EACH CLASS:                      NAME OF EACH EXCHANGE ON WHICH REGISTERED:
                --------------------                      ------------------------------------------
<S>                                                  <C>
       Common Shares, par value $1 per share                       New York Stock Exchange
</Table>

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                                      NONE

     Indicate by check mark if the registrant is a well-known seasoned issuer,
as defined in Rule 405 of the Securities Act.  Yes [ ]     No [X]

     If this report is an annual or transition report, indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934.  Yes [ ]     No [X]

     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.  [ ]

     Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

 Large accelerated filer [ ]  Accelerated filer [X]  Non-accelerated filer [ ]

     Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).  Yes [ ]     No [X]

     The aggregate market value of the registrant's common stock held by
non-affiliates was $417,561,840 based on the reported last sale price of common
stock on June 25, 2005 which is the last business day of the registrant's most
recently completed second fiscal quarter.

     The number of shares of EDO common stock outstanding as of February 24,
2006 was 20,198,731 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain portions of the Registrant's definitive proxy statement (filed
pursuant to Reg. 14A) relating to its 2006 Annual Meeting of Shareholders are
incorporated by reference in Part III of this Report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                EDO CORPORATION

                               TABLE OF CONTENTS

<Table>
<S>      <C>                                                           <C>
                                  PART I
Item 1   Business....................................................    2
         Introduction................................................    2
         Acquisitions................................................    2
         Segments....................................................    2
           Electronic Systems and Communications.....................    3
           Engineered Systems and Services...........................    5
         Research and Development....................................    9
         Marketing and International Sales...........................   10
         Backlog.....................................................   10
         Government Contracts........................................   10
         Competition and Other Factors...............................   11
         Environmental...............................................   11
         Employees...................................................   11
         Risk Factors................................................   11
Item 2   Properties..................................................   17
Item 3   Legal Proceedings...........................................   18
Item 4   Submission of Matters to a Vote of Security Holders.........   18

                                  PART II
Item 5   Market for Registrant's Common Equity and Related
         Stockholder Matters.........................................   18
Item 6   Selected Financial Data.....................................   19
Item 7   Management's Discussion and Analysis of Financial Condition
         and Results of Operations...................................   20
Item 7A  Quantitative and Qualitative Disclosure About Market Risk...   20
Item 8   Financial Statements and Supplementary Data.................   33
Item 9   Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosure....................................   76
Item 9A  Controls and Procedures.....................................   76
Item 9B  Other Information...........................................   76

                                 PART III
Item 10  Directors and Executive Officers of the Registrant..........   77
Item 11  Executive Compensation......................................   78
Item 12  Security Ownership of Certain Beneficial Owners and
         Management and Related Stockholder Matters..................   78
Item 13  Certain Relationships and Related Transactions..............   78
Item 14  Principal Accountant Fees and Services......................   78

                                  PART IV
Item 15  Exhibits, Financial Statement Schedules, and Reports on Form
         8-K.........................................................   78
         (a) Financial Statements and Financial Statement Schedules
         and Exhibits................................................   78
         1. Financial Statements.....................................   78
         2. Financial Statement Schedules............................   78
         3. Exhibits.................................................   79
         (b) Reports on Form 8-K.....................................   82
Certifications of the Chief Executive Officer........................
Certifications of the Chief Financial Officer........................
Signatures...........................................................   83
</Table>

                                        1
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

     EDO Corporation was incorporated in New York in 1925 by Earl Dodge Osborn,
from whose initials "EDO" is derived.

     EDO Corporation designs and manufactures a diverse range of products for
defense, intelligence, and commercial markets, and provides related engineering
and professional services. Major product groups include: defense electronics,
communications, aircraft-armament systems, undersea warfare, and integrated
composite structures. EDO's advanced systems are at the core of the
transformation to lighter, faster, and smarter defense capabilities.

     The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports, and the Proxy
Statement for its Annual Meeting of Shareholders are made available, free of
charge, on its Web site www.edocorp.com, as soon as reasonably practicable after
such reports have been filed with or furnished to the Securities and Exchange
Commission.

ACQUISITIONS

     Acquisitions have been a primary driver of our growth in recent years.
Since 1998, EDO has completed ten acquisitions which have added to or
strengthened our capabilities in defense products and services, including
aircraft electronic warfare systems, professional, engineering and information
technology services, reconnaissance and surveillance systems, communications and
countermeasures systems, defense communications and related services and
aircraft armament systems. The following three acquisitions were completed in
2005:

     On May 2, 2005, we acquired for cash all of the units of EVI Technology,
LLC (EVI), a privately-held company. EVI is a designer, manufacturer and
integrator of classified intelligence systems. EVI has strengthened and expanded
EDO's range of products and engineering expertise in a number of synergistic
areas.

     On September 19, 2005, we acquired for cash all of the stock of Fiber
Innovations, Inc., a privately-held company that is a designer and manufacturer
of fiber reinforced-composites. This acquisition has added important
complementary design and manufacturing capabilities to EDO's
integrated-composite-structures business.

     On December 20, 2005, the Company acquired for cash all of the stock of
NexGen Communications LLC, a privately-held company specializing in the design
and production of communications systems for a diverse set of U.S. government
organizations. The acquisition strengthened our fast-growing position in
specialized communication products.

SEGMENTS

     In 2005, EDO revised its reporting segments in line with the evolution of
the business as a result of acquisitions in defense-related markets. Our
reporting segments now reflect the two primary categories of products that we
provide to the aerospace and defense industry: Electronic Systems and
Communications; and Engineered Systems and Services.

     We set forth certain business segment information including information on
revenues from external customers, operating earnings, assets and capital
expenditures in Note 18 on pages 60 through 63 of this Report.

                                        2
<PAGE>

     Each segment's percent of our consolidated net sales for the past three
fiscal years was:

<Table>
<Caption>
                                    ELECTRONICS SYSTEMS AND                 ENGINEERED SYSTEMS
                                         COMMUNICATIONS                        AND SERVICES
                                    -----------------------                 ------------------
<S>                          <C>                                      <C>
2005.......................                    63%                                  37%
2004.......................                    51%                                  49%
2003.......................                    48%                                  52%
</Table>

                     ELECTRONIC SYSTEMS AND COMMUNICATIONS

     The Electronic Systems and Communications segment includes products that
serve the Electronic Warfare and the C4 (Command, Control, Communications and
Computers) markets. Primary products include electronic force protection
equipment, interference cancellation technology, airborne electronic warfare
systems, reconnaissance and surveillance systems, other specialized electronic
systems, C4 products and services and antenna products.

ELECTRONIC FORCE PROTECTION

     Sales of electronic force protection products accounted for 22%, 7%, and 2%
of consolidated net sales in 2005, 2004 and 2003, respectively. These products
are designed to protect troops by intercepting and jamming or modifying
electronic signals used to trigger remotely controlled explosive devices,
including improvised explosive devices, or IED's.

     One of EDO's highest priorities in 2005 was to quickly fill the U.S. Army's
orders for our counter-IED equipment known as Warlock. Although we have been
developing various versions of this technology for more than 15 years, the
Army's primary emphasis has shifted to increasing production of the newest, most
sophisticated versions. As a result, sales of this product increased
substantially in 2005. Although a number of other organizations are developing
competing products, we believe that we have the most advanced technology in our
market.

     Our Shortstop program was initiated in 1990 by the U.S. Central Command as
a quick-reaction response capability for Operation Desert Storm. The current
production system is a modified version that, as described by the Army, provides
a protective "electronic bubble for vehicles, dismounted operations in
conjunction with vehicles, and for fixed sites."

     Because of the short-term nature of the Army's recent orders, it is
difficult to predict the level of sales in 2006. However, we believe that there
will be an ongoing need to protect people and vehicles from the threat of
remotely controlled explosive devices.

INTERFERENCE CANCELLATION

     EDO has been a world leader in interference-cancellation technology for
more than 25 years. Our technology is used to eliminate interference in dense
electromagnetic environments that can degrade the effectiveness of radios and
other electronic equipment. Under a contract from the Boeing Company, EDO is
currently developing an interference-cancellation system for the EA-18G
aircraft. The EA-18G has been selected by the U.S. Navy to replace the EA-6B
Prowler aircraft, which provides an umbrella of protection for strike aircraft,
ground troops and ships by jamming enemy radar, electronic data links and
communications. EDO's interference-cancellation equipment will allow clear
communications during all mission scenarios.

     In addition, EDO is providing the interference-cancellation subsystem for
the CV-22 Osprey tilt-rotor aircraft and the Coast Guard modernization project
known as Deepwater.

AIRBORNE ELECTRONIC WARFARE SYSTEMS

     Sales of airborne electronic warfare systems accounted for 7%, 9%, and 12%
of consolidated net sales in 2005, 2004 and 2003, respectively.

                                        3
<PAGE>

     Our AN/ALQ-161 is the defensive avionics system that protects the U.S. Air
Force's B-1B bomber from radar-guided and infrared-guided missile threats.
Currently, we provide continued logistics support, sustaining engineering
support and capability upgrades to the AN/ALQ-161 systems. This support includes
software enhancements and hardware improvements to increase situation awareness
and jamming effectiveness while decreasing costs. In 2005, EDO received numerous
awards, totaling $39 million, to maintain the AN/ALQ-161 system and allow the
B-1B bomber to perform its mission against ever changing threats.

     We were the original designer and integrator of the AN/ALQ-99 Tactical
Support Jamming System for the EA-6B aircraft in the 1960s. We have been under
contract for support and modifications for this aircraft's systems and
subsystems since then. We continue to maintain and support the AN/ALQ-99 system,
including the current on-board system hardware and the tactical jamming pods.
The DoD currently expects EA-6B aircraft to be in operation through 2015 as the
jamming pod migrates to the EA-18G Growler aircraft.

RECONNAISSANCE AND SURVEILLANCE SYSTEMS

     Sales of reconnaissance and surveillance systems accounted for 13%, 16%,
and 17% of consolidated net sales in 2005, 2004 and 2003, respectively.

     Our reconnaissance and surveillance systems include state-of-the-art
electronic systems, used primarily for Electronic Intelligence (ELINT) and
Electronic Support Measure (ESM) systems. The primary purpose of an ELINT system
is to determine what electronic signals are in the mission environment and
accurately collect data. The analyzed data is stored in collection libraries for
subsequent use in ESM systems that provide both situational awareness and
warning of enemy threats. A key feature of EDO's ESM systems is precision
direction-finding at long range, even in difficult electromagnetic environments.
They can be integrated into any type of combat-system multi-function console and
enables the rapid dissemination of radar threat intercept data.

     The ES-3601 and ES-3701 are leading international ESM systems for naval
applications. More than 60 systems have been sold, many of which are already in
operation providing effective at-sea performance. The ES-3701 was selected by
the Royal Danish Navy for their new Flexible Support Ship. The ES-3601 has been
selected by General Dynamics for the initial "Flight 0" Littoral Combat Ships.
EDO is currently developing a next generation all-digital ESM system, to be
known as the ES-3801.

     The ALR-95 ESM is currently operational on U.S. Navy maritime patrol
aircraft and was selected by Lockheed Martin for the U.S. Coast Guard Deepwater
program maritime patrol mission.

SPECIALIZED ELECTRONIC SYSTEMS

     As a result of two recent acquisitions, EDO has a growing presence in the
design and production of specialized electronics systems for a diverse set of
U.S. government organizations. In particular, we specialize in developing
innovative solutions for intelligence and law-enforcement and special operations
applications. These organizations turn to EDO for some of their most
challenging, rapid-response wireless requirements.

     EDO's specialized services include research and development, product
design, and manufacturing of wireless devices and systems for monitoring and
managing data and physical assets. Nearly all of these systems are classified.

C4 (COMMAND, CONTROL, COMMUNICATIONS AND COMPUTERS)

     Sales of C4 products and services accounted for 10%, 11%, and 8% of
consolidated net sales in 2005, 2004 and 2003, respectively.

     One of EDO's leading C4 products is a tactical telecommunications system
developed for the U.S Marine Corps known as JECCS (AN/TSQ-231 Joint Enhanced
Core Communications System). JECCS provides the Marine Corps with a mobile,
first-in system for network management, data and voice transmission, and
switching services. Three "Block I" systems have been delivered and in 2006 we
will complete the delivery of our current contract for 11 JECCS units in the
Block II configuration.

                                        4
<PAGE>

     In 2005 EDO was awarded a contract for a new generation of Marine Corps
battlefield-communications equipment known as the Transition Switch Module. The
Transition Switch Module will interface with all existing USMC
telecommunications equipment to provide digital voice, data, and video
communications to deployed Marine units. The indefinite-delivery/
indefinite-quantity contract has a maximum value of $240 million for the
procurement of up to 476 units. Work is expected to be completed by May 2010.

     We provide engineering and C4 field services to U.S. Navy ships, shore
sites and critical programs, through our Fleet Systems Engineering Teams (FSET)
contract. FSETs are provided on a continuous basis to Carrier Strike Groups
(CSGs), Expeditionary Strike Groups (ESGs), Network Operating Centers (NOCs) and
Naval Computer and Telecommunications Area Master Stations (NCTAMS). Our
technicians keep communications networks up, optimize the networks to meet
changing mission requirements, and ensure connectivity between systems and
across networks. Ancillary to our FSET activities, we also provide integration
and training services for the US Navy, and we provide design, development,
installation and training services for the Virginia-class submarine Exterior
Communications System (ECS).

     EDO provides systems integration services for naval C4 systems wherein we
integrate a ship's sensor systems, including radar and sonar, communications
systems, navigation and integrated bridge systems, and aircraft control systems
to provide situational awareness in a common display format for a ship's
commander. We are currently completing a contract for Norwegian Coast Guard
vessels.

     We also provide ongoing C4 services to USAID's Office of Foreign Disaster
Assistance (OFDA) supporting the US response to worldwide disasters. We provide
OFDA headquarters with network administration, communications field support,
integrated logistics services, training, and equipment procurement, inventory
and maintenance.

     EDO maintains a C4 lab for the Marine Corps that includes an array of
circuit switching and technical control equipment procured by both the Marine
Corps and EDO. This lab provides EDO the ability to test equipment for
interoperability on-line with other U.S. Department of Defense ("DoD") and USMC
laboratories as well as participate in DoD-wide interoperability exercises. The
C4 lab is a key enabler for future developments and growth with military
tactical communications customers.

ANTENNA PRODUCTS

     We design and manufacture antenna systems for a wide variety of military
and commercial applications including communications, electronic warfare,
navigation, radar, and wireless Local Area Networks. Our antenna business is
approximately 65% military and 35% commercial. Our military antennas are
deployed on many different types of platforms and vehicles including fixed wing
and rotary aircraft, unmanned aerial vehicles (UAVs), satellites, surface ships,
submarines, and ground vehicles. Our commercial antennas are used on commercial
airliners, business jets, and general-aviation aircraft. We have been effective
in establishing long term agreements with most of the prime aircraft
manufacturers, Boeing being the most prominent.

     We have a broad customer and product base in this business. In 2005, we
sold more than 39,000 antennas of 420 different types to more than 400 different
original-equipment manufacturers and after-market customers. A large portion of
our revenue results from spare part sales and repair services for an installed
base of antennas in excess of 400,000 units. In addition, we produced antennas
for our Warlock product. We continually work on the development of new antenna
products via internally funded and customer-sponsored research and development.

                        ENGINEERED SYSTEMS AND SERVICES

     The Engineered Systems and Services segment addresses Integrated Systems
and Structures, Undersea Warfare, and Professional Services markets. Primary
products include aircraft armament systems, integrated composite structures,
mine countermeasure systems, sonar systems and flight line products. We also
offer a wide range of professional engineering services.
                                        5
<PAGE>

AIRCRAFT ARMAMENT

     Sales of aircraft armament systems accounted for 11%, 12%, and 13% of
consolidated net sales in 2005, 2004 and 2003, respectively.

     Aircraft armament systems include sophisticated devices that allow for the
carriage and release of bombs, missiles, and other "stores" utilized by military
aircraft. We also design and produce the logical and electrical interfaces
between the weapon and the aircraft that allow for targeting and release of
those weapons.

     Over the past two decades, EDO has made significant investments in
aircraft-armament technology to meet the worldwide demand for smart,
lightweight, high-performance weapons-interface systems. We have developed and
manufactured bomb-release units (BRU) for the F-15E aircraft, ejection-release
units (ERU) for the Tornado multi-role combat aircraft, jettison-release
mechanisms for the F-14, pneumatic missile-eject launchers for the F/A-22, and
smart-weapon, multiple-carriage systems for the F-18 and domestic and foreign
F-16s.

     In 2005, we continued production of F-15E BRUs for the USAF and
international customers and provided spare-parts support for Tornado ERUs and
F-15 BRUs worldwide. Furthermore, we received "Lot 6" production orders for
LAU-142/A missile launchers known as AVEL for an additional 24 F-22 aircraft.
The AVEL carries and ejects missiles from internal bays employing a highly
reliable pneumatic-ejection system controlled by the aircraft's
stores-management system. We are under contract for depot support and anticipate
that we will provide depot support through the life of the F-22. We also
received a contract for the first production lot of 135 BRU-55 dual-carriage,
"smart" bomb racks for the Navy's F/A-18 aircraft. The contract will extend for
approximately 24 months and includes an option for additional production units.

     Also in 2005, we continued development and testing of the pneumatic
suspension-and-release system for the F-35 Joint Strike Fighter program. We are
also under contract to design and develop a new electronic control unit for the
AGM-65 Maverick missile. This control unit will enable the Maverick missile to
be carried on aircraft currently not compatible with this weapon. Our control
unit will interface with the aircraft through Raytheon's LAU-117 Dual Mode
Launcher, whose electronics assembly was also designed and built by EDO. We were
also selected by Boeing to design and develop the aircraft bomb-rack system and
the sonobouy-launch system for the P-8A Multi-mission Maritime Aircraft.

INTEGRATED COMPOSITE STRUCTURES

     Our capabilities in the area of fiber-reinforced advanced composite
structures include product and system design, engineering analysis, process
development, tooling design and fabrication, qualification testing and
validation, production, and after-market support. The primary focus of our
business-development effort is advanced composite structures for all types of
platforms including manned and unmanned aircraft, missiles, ships and ground
vehicles.

     EDO produces high performance integrated composite structures through
innovative preforming technologies and liquid resin infusion processes. These
include braiding, Resin Transfer Molding (RTM) and Vacuum assisted RTM (VaRTM)
of composite structures. We are a subcontractor to Lockheed Martin for the JASSM
(Joint Air-to-Surface Standoff Missile) stealthy cruise missile. We fabricate
90% of the composite components for the vehicle including the entire fuselage,
wing spars and other smaller structures. JASSM is qualified to be carried on the
B-1B and B-52. Qualification on the F-16 and B-2 is expected soon.

     In 2005 we secured a contract with GE Aircraft Engines to fabricate
variable-bleed valve ducts for the GEnx engine. The GEnx engine is the primary
engine on Boeing's 787, 747 advanced and Airbus' A350. We fabricate 11 ducts in
total as a shipset for each engine. The contract includes the
development/qualification effort and the initial production quantities through
2012. This is a significant breakthrough for EDO as we are now an approved
production supplier for composite hardware on GE engines.

     We produce filament-wound launch canisters for the new Thales VT-1 missile
program. We also continued production of composite tanks for the Boeing C-17
aircraft. We have been the sole supplier of these

                                        6
<PAGE>

tanks since production began, more than 12 years ago. We also design and
fabricate composite structures for Northrop Grumman on military aircraft
modification programs.

     We have been a provider to Boeing for composite tanks on commercial
airliners for 38 years and our aftermarket support for these tanks to the
commercial airlines remains strong.

     We produce our trademark "Fiberbond" line of composite piping for water and
fire systems on oil rigs. This includes the fabrication and installation of
topside piping systems for Gulf of Mexico deep-water oil platforms. We continue
to invest in introducing our Fiberbond piping to the U.S. Navy due to its non-
corrosive, lightweight and non-magnetic properties.

MINE COUNTERMEASURE SYSTEMS

     We are the preeminent supplier of airborne naval-minesweeping equipment
worldwide. The principal system of this type used by the U.S. Navy, the MK 105
helicopter-towed system, was designed and developed by us. We continue to
provide spares and logistics support for these systems to the Navy and an
international customer, and we continue to function as the Navy maintenance
depot for the MK 105 systems.

     We won a competitive contract from the Navy for the next generation
lightweight, helicopter-towed minesweeping system, called the Organic
Airborne/Surface Influence Sweep (OASIS). Production is expected to start in
2008 and continue through 2015.

     We continued work on the Navy contract to demonstrate the feasibility of
unmanned, surface-vessel mine warfare technology and the application of this
technology for fleet integration. The Navy has selected EDO's Unmanned Surface
Sweep System, named US3, and OASIS, as baseline sweep mission packages for the
Littoral Combat Ship (LCS).

     In 2006, EDO will open a new facility in Panama City, FL near our primary
mine-warfare customer, the Naval Surface Warfare Center, Panama City (NSWC PC).
This facility will support our existing mine-warfare systems and develop future
systems.

SONAR SYSTEMS AND COMPONENTS

     We have been a supplier of sonar systems and components, including sonar
sensors, underwater-communication systems, depth-sounding, and speed-measuring
equipment for more than 50 years.

     We are one of North America's leading manufacturers of
piezoelectric-ceramic components for defense applications, and we also provide
material and related transducers to several commercial markets.
Piezoelectric-ceramic elements convert acoustic energy to electrical energy and
vice versa and form the basis of many defense and commercial products.

     We believe our ability to combine, manufacture and develop engineered
active materials with state-of-practice mixed analog and digital electronics and
software engineering makes us competitive in several niche markets. For example,
we produce underwater acoustic transducers for use in all areas of undersea
warfare and piezoelectric shapes for a variety of industries.

     In 2005, Lockheed Martin awarded EDO a contract valued at $30 million for
sonar equipment on the new Spanish S-80A submarine's combat management system.
This initial award covers outboard sonar arrays on four conventionally-powered
submarines. This award positions the Lockheed Martin team, including EDO, to
compete for other international submarine opportunities.

     During 2005, our newest and most capable towed-sonar system, the EDO Model
980 ALOFTS, which is designed to detect quiet submarines in littoral waters, was
delivered to an international customer. Five more systems will be installed
through 2008. We have also received an order from another international customer
for one ALOFTS system with options for two additional systems expected to be
procured in 2006 and 2007.

     Development continued in cooperation with Ultra Electronics, the UK-based
aerospace and defense-electronics group, on our newest hull-mounted sonar, the
MFS 7000. In 2005, this equipment was installed on

                                        7
<PAGE>

the United Kingdom's first new anti-air warfare destroyers, the Daring class.
There will be a total of six ships of the Daring class with MFS-7000 sonar
systems installed.

     EDO is also producing SQS-53C sonar arrays for the Arleigh Burke-class of
guided-missile destroyer. If all options are exercised, deliveries will extend
to approximately 2010. In addition to supplying these arrays for U.S. Navy
ships, EDO also provides them to allied navies under the Foreign Military Sales
(FMS) program.

     In 2005, installation of two EDO Model 997 hull-mounted sonars to replace
the earlier EDO Model 610 was also completed on two additional Brazilian Navy
ships, bringing the total number of these new systems operating to six.

     We continued to support our legacy SQR-18 and SQS-35 towed sonars in their
role as primary undersea-warfare systems for several international navies, most
notably the Taiwanese Navy.

PROFESSIONAL AND ENGINEERING SERVICES

     Professional and engineering services accounted for 13%, 17%, and 19% of
consolidated net sales in 2005, 2004 and 2003, respectively.

     Our primary areas of services include four major areas of specialty:
information technology; acquisition management; engineering; and technical
services. Within these specialties, we provide a broad range of services,
primarily to the DoD.

     We provide business transformation, analysis & information technology
services including strategic business planning, human capital planning,
benchmarking and metrics tracking and analysis, website development, and IT
policy and planning.

     We provide surface-warfare services, including human-systems integration,
configuration management, business & financial management, modernization
planning, data management, and various engineering functions. We provide the
Navy with in-service engineering support for marine-propulsion gas-turbine
systems. We also provide systems-engineering services in areas such as test and
evaluation, systems integration, performance modeling and computer-aided design
to Navy, Coast Guard, and commercial clients.

     EDO supports the Marine Corps Joint Capabilities and Integration Office,
Systems Command and Logistics Command by designing and executing concept-based
experimentation, technology identification, wargaming, and modeling and
simulation. We also provide acquisition and logistics support to the Marine
Corps, including several logistic bases and systems-command centers.

     We provide aviation and logistics-support services, including integrated
logistics support, systems engineering, systems integration, interactive
technical manuals, training systems development, and reliability engineering.

     We support several of the Navy's program executive offices by providing
logisticians, acquisition specialists, engineers and financial analysts who
perform functions such as configuration management, budget analysis, analysis of
ship casualty reports, ship-manning assessments, and review of training
requirements. We have provided acquisition support to the Coast Guard's
Deepwater program office as they create a transformational fleet of vessels.

     We support the Department of the Navy for in-service engineering and depot
support for a mine-countermeasure program based in San Diego. This contract
complements our continued support for the Explosive Ordnance Disposal Program
Management Office (PMS-EOD), a contract we have successfully maintained since
1984.

     We perform engineering services under contracts to the Navy for
threat-simulator-validation support at China Lake Naval Air Warfare Center, to
the Air Force electronic warfare directorate at Edwards Air Force Base for F-22
and various other aircraft platforms, and provide technical and engineering
support to various Boeing Satellite Systems programs.

                                        8
<PAGE>

     We also provide a broad range of electronic-warfare-related engineering
services to the Air Force, as well as aerospace and commercial businesses, to
produce and support complex, high-technology solutions. Engineering specialties
include software, radio-frequency, computer-aided design, and mechanical
engineering.

FLIGHT LINE PRODUCTS

     The provision of engineering services to the Air Force led to the
development of portable radar-signal simulators designed to test the
radar-warning receivers. Our first sale of this equipment was made in June 1998.
The first significant contract was awarded by the Air Force in 2001 for 70
units. The primary product is the AN/PLM-4.

     The AN/PLM-4 tests the radar-warning systems and electronic countermeasures
systems onboard fighter jets and other military aircraft before takeoff, as well
as during routine maintenance. In addition to the flight-line version, the
radar-signal simulator is available in configurations for laboratory, shipboard
and vehicle testing.

     In 2005, we received orders for 143 AN/PLM-4 radar signal simulators from
the USAF, US Navy and international customers. This brought the total number of
systems ordered to 677.

     We are currently developing a smaller, lightweight, hand-held version of
the radar signal simulator.

RESEARCH AND DEVELOPMENT

     Research and development is important to the success of our business,
because we focus on niche markets where we have leading-edge technology. While
research and development efforts are facilitated by a large portion of our
staff, our research and development efforts involved the primary efforts of
about 190 employees in 2005. Most of our research and development is funded by
long-term development contracts with customers, with the remainder funded at our
own expense. Expenditures under development contracts with customers vary in
amount from year to year because of the timing of contract funding and other
factors.

     Customer-funded research and development is principally related to military
programs. Major customer-sponsored programs include the development of:
mine-countermeasures systems; aircraft weapons-carriage technology;
command-and-control software for combat-systems integration; shallow-water
sonar; low-observable, anti-jam, GPS antennas; mobile-communications and data
systems; and underwater-communications transducer products.

     Company-funded research and development is intended primarily to develop
new products and extend the capabilities of existing products. Principal current
company-funded research and development includes: next-generation electronic
force protection systems; digital signal-processing technology for electronic
intelligence and support systems; image and signal processing, computer
software, and other improvements for combat systems; minesweeping technology;
aircraft weapons-carriage systems; application of composites for structural
uses; various types of communication equipment; electronic countermeasures;
advanced antennas; sonar systems, including processing and detection
enhancements; noise reduction and interference cancellation; piezoelectric and
composite materials; and new capabilities for our radar-signal simulator
products.

     The following table sets forth research and development expenditures for
the years presented.

<Table>
<Caption>
                                                           YEARS ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2005      2004      2003
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Customer-sponsored......................................  $56,000   $61,600   $48,800
Company-funded..........................................   17,100    11,600     8,600
                                                          -------   -------   -------
  Total.................................................  $73,100   $73,200   $57,400
                                                          =======   =======   =======
</Table>

                                        9
<PAGE>

MARKETING AND INTERNATIONAL SALES

     We sell defense products to the U.S. DOD as a prime contractor and through
subcontracts with other prime contractors. In addition, we also sell defense
equipment to foreign governments directly, (including through Foreign Military
Funded Programs) and through the U.S. Government under Foreign Military Sales
programs. We also sell commercial products domestically and internationally.

     Sales of our defense products are usually made under long-term contracts or
subcontracts covering one or more years of production. These contracts are
obtained either through competitive bidding or contract negotiation. We believe
that our long history of association with our military customers is an important
factor in our overall business, and that the experience gained through this
history has enhanced our ability to anticipate our customers' needs. Our
approach to defense business is to anticipate specific customer needs and to
develop systems to meet those needs either at our own expense or pursuant to
research and development contracts. Many of our employees, including our chief
executive officer and our vice president of Washington operations, are actively
involved in the marketing of our defense products in the U.S. and abroad. We
also have about 50 independent international sales representatives concentrating
on the marketing of our defense products in foreign countries.

     Commercial products are sold in industrial and commercial markets. In
foreign markets, piezoelectrics, antennas and electronic products are generally
sold commercially through a network of sales representatives. Fiber-reinforced
composite products are sold directly and through sales representatives.

     It is generally the policy of our U.S. business units to denominate all
foreign contracts in U.S. dollars and seek not to incur significant costs in
connection with long-term foreign contracts until we have received advance
payments or letters-of-credit on amounts due under the contracts. EDO (UK) Ltd.
generally denominates its contracts in British Pounds Sterling.

     International sales comprised 14% of consolidated net sales in 2005, 14% in
2004, and 18% in 2003.

BACKLOG

     We define backlog as the funded value of contracts and orders that has not
been recognized as sales. As of December 31, 2005 our total backlog was $558.7
million compared with $474.6 million as of December 31, 2004. Approximately 72%
of the total backlog at December 31, 2005 is scheduled for delivery in 2006. Our
backlog consists primarily of current orders under long-lived, mission-critical
programs of key defense platforms on which we have a strong strategic position.
A significant portion of our sales is to prime contractors, the U.S. DoD and
foreign governments pursuant to long-term contracts. Accordingly, our backlog
consists in large part of orders under these contracts.

     Backlog does not include portions of contracts for which the U.S.
Government has not appropriated funds, nor does it include unexercised options
in any contract. There is about $646.6 million in unfunded contracts and
unexercised options at the end of 2005.

GOVERNMENT CONTRACTS

     Net sales to the U.S. Government, as a prime contractor and through
subcontracts with other prime contractors, accounted for $528.6 million or 82%
of our 2005 consolidated net sales compared with $425.6 million or 79% in 2004
and $348.3 million or 76% in 2003, and consisted primarily of sales to the DoD.
Such sales include sales of military equipment to the U.S. Government for resale
to foreign governments under the Foreign Military Sales program. Our business is
not substantially dependent on any contract.

     Our defense business can be and has been significantly affected by changes
in national-defense policy and spending. Our U.S. Government contracts and
subcontracts and certain foreign-government contracts contain the usual required
provisions permitting termination at any time for the convenience of the
government with payment for work completed and committed along with associated
profit at the time of termination.

     Our contracts with the DoD are made on either a fixed-price or
cost-reimbursable basis. Both types may include incentive provisions.
Fixed-price contracts provide fixed compensation for specified work. Cost-

                                        10
<PAGE>

reimbursable contracts require us to perform specified work in return for
reimbursement of costs (to the extent allowable under U.S. Government
regulations) plus a specified fee. Under both contract types, an incentive
adjustment may be made to our fee based on attainment of performance,
scheduling, cost, quality or other goals. In general, with fixed-price contracts
we assume a greater risk of loss, but also have the potential for higher profit
margins, compared to cost-reimbursable contracts. The distribution of our
government contracts between fixed-price and cost-reimbursable contracts varies
from time to time.

COMPETITION AND OTHER FACTORS

     Some of our products are sold in markets containing a number of competitors
substantially larger than we are and with greater financial resources. Direct
sales of military products to the U.S. and foreign governments are based
principally on product performance, cost and reliability. Such products are
generally sold in competition with products of other manufacturers that may
fulfill an equivalent function, but which are not direct substitutes.

     We purchase some materials and components used in our systems and equipment
from independent suppliers. These materials and components are normally not
purchased under long-term contracts unless a long-term sales contract with one
of our customers so requires. We believe that most of the items we purchase are
obtainable from a variety of suppliers. We normally seek to have alternative
sources for major items, although we are sometimes dependent on a single
supplier or a few suppliers for some items.

     It is difficult to state precisely our market position in all of our
product lines because information as to the volume of sales of similar products
by our competitors is not generally available and the relevant markets are often
not precisely defined. However, we believe that we are a significant factor in
the markets for stores-release mechanisms for military aircraft, military sonar
systems, military data-links, helicopter-towed mine-countermeasures systems,
piezoelectric ceramics, electronic-countermeasures systems, and antennas.

     Although we own a significant number of patents and have filed applications
for additional patents, we do not believe that our businesses depend heavily
upon our patents. In addition, most of our U.S. Government contracts license us
to use patents owned by others. Similar provisions in the U.S. government
contracts awarded to other companies make it impossible for us to prevent the
use by other companies of our patents in most domestic defense work.

ENVIRONMENTAL

     Refer to Note 17 on page 60 of this Report for information regarding the
cost of compliance with environmental regulations.

EMPLOYEES

     As of December 31, 2005, we employed 3,000 persons.

RISK FACTORS

  REDUCTIONS IN GOVERNMENT SPENDING WOULD ADVERSELY AFFECT OUR RESULTS OF
  OPERATIONS.

     A reduction in purchases of our products by domestic and foreign government
agencies would have a material adverse effect on our business because a
significant portion of our net sales are derived from contracts directly or
indirectly with government agencies. In 2005, 2004 and 2003, we derived about
82%, 79% and 76%, respectively, of net sales from direct and indirect contracts
with the U.S. Government and derived about 14%, 14% and 18%, respectively, of
net sales from international sales to foreign governments. The development of
our business will depend upon the continued willingness of the U.S. and foreign
governments to fund existing and new defense programs and, in particular, to
continue to purchase our products and services. Although defense spending in the
United States has recently increased, further increases may not continue and any
proposed budget or supplemental budget request may not be approved. In addition,
the U.S. Department of Defense may not continue to focus its spending on
technologies that we incorporate in our products.

                                        11
<PAGE>

  THE U.S. GOVERNMENT MAY TERMINATE OR MODIFY OUR EXISTING CONTRACTS OR ITS
  CONTRACTS WITH THE PRIME CONTRACTORS FOR WHICH WE ARE A SUBCONTRACTOR, WHICH
  WOULD ADVERSELY AFFECT OUR REVENUE.

     A significant portion of our revenues are derived from U.S. Government
contracts, directly or indirectly. There are inherent risks in contracting with
the U.S. Government, including risks peculiar to the defense industry, which
could have a material adverse effect on our business, financial condition or
results of operations. Laws and regulations permit the U.S. Government to:

     - terminate contracts for its convenience;

     - reduce or modify contracts or subcontracts if its requirements or
       budgetary constraints change;

     - cancel multi-year contracts and related orders if funds for contract
       performance for any subsequent year become unavailable;

     - adjust contract costs and fees on the basis of audits done by its
       agencies; and

     - control or prohibit the export of our products.

     If the U.S. Government terminates our contracts for convenience, we may
only recover our costs incurred or committed for settlement expenses and profit
on work completed before the termination. Additionally, most of our backlog
could be adversely affected by any modification or termination of contracts with
the U.S. Government or contracts the prime contractors have with the U.S.
Government. The U.S. Government regularly reviews our costs and performance on
its contracts, as well as our accounting and general business practices. The
U.S. Government may reduce the reimbursement for our fees and contract-related
costs as a result of an audit.

  OUR BUSINESS IS SUBJECT TO VARIOUS RESTRICTIVE LAWS AND REGULATIONS BECAUSE WE
  ARE A CONTRACTOR AND SUBCONTRACTOR TO THE U.S. GOVERNMENT AND BECAUSE WE
  PROVIDE MILITARY PRODUCTS TO FOREIGN GOVERNMENTS.

     As a contractor and subcontractor to the U.S. Government, we are subject to
various laws and regulations that are more restrictive than those applicable to
non-government contractors. We are required to obtain and maintain material
governmental authorizations and approvals to run our business as it is currently
conducted.

     For example, we need a license to operate an FAA repair station. In
addition, because we provide defense equipment and related services to foreign
governments, we must obtain licenses from the U.S. State Department for our
foreign exports. Our failure or inability to obtain these licenses could have a
material adverse effect on our business. New or more stringent laws or
government regulations concerning government contracts and defense exports, if
adopted and enacted, could have a material adverse effect on our business.
Responding to governmental audits, inquiries or investigations may involve
significant expense and divert management attention from regular operations.
Also, an adverse finding in any such audit, inquiry or investigation could
involve debarment, fines, injunctions or other sanctions.

  IF WE FAIL TO WIN COMPETITIVELY AWARDED CONTRACTS IN THE FUTURE, WE MAY
  EXPERIENCE A REDUCTION IN OUR SALES, WHICH COULD NEGATIVELY AFFECT OUR
  PROFITABILITY.

     We obtain many of our U.S. Government contracts through a competitive
bidding process. We cannot assure you that we will continue to win competitively
awarded contracts or that awarded contracts will generate sales sufficient to
result in our profitability. We are also subject to risks associated with the
following:

     - the frequent need to bid on programs in advance of the completion of
       their design (which may result in unforeseen technological difficulties
       and cost overruns);

     - the substantial time and effort, including the relatively unproductive
       design and development required to prepare bids and proposals, spent for
       competitively awarded contracts that may not be awarded to us;

     - design complexity and rapid technological obsolescence; and

     - the constant need for design improvement.

                                        12
<PAGE>

     Our government contracts may be subject to protest or challenge by
unsuccessful bidders or to termination, reduction or modification in the event
of changes in government requirements, reductions in federal spending or other
factors. In addition, failure to obtain a renewal or follow-on contract with
respect to any significant contract or a number of lesser contracts with the
U.S. Government or foreign governments would result in a loss of revenues. If
revenues from the award of new contracts fail to offset this loss, it could have
a material adverse effect on our results of operations and financial position.

  A LARGE MAJORITY OF OUR CONTRACTS ARE FIXED-PRICE, AND WE MAY FACE INCREASED
  RISKS OF COST OVERRUNS OR LOSSES ON OUR CONTRACTS.

     The majority of our government contracts and subcontracts are firm,
fixed-price contracts providing for a predetermined fixed price for the products
we make regardless of the costs we incur. At times, we must therefore make
pricing commitments to our customers based on our expectation that we will
achieve more cost-effective product designs and automate more of our
manufacturing operations. The manufacture of our products requires a complex
integration of demanding processes involving unique technical skill sets. In
addition, the expense of producing products can rise due to increased costs of
materials, components, labor, capital equipment or other factors. As a result,
we face risks of cost overruns or order cancellations if we fail to achieve
forecasted product design and manufacturing efficiencies or if products cost
more to produce than expected.

  WE MAY BE REQUIRED TO REDUCE OUR PROFIT MARGINS ON CONTRACTS ON WHICH WE USE
  THE PERCENTAGE-OF-COMPLETION ACCOUNTING METHOD.

     We record sales and profits on many of our contracts using
percentage-of-completion methods of accounting. As a result, revisions made to
our estimates of sales and profits are recorded in the period in which the
conditions that require such revisions become known and can be estimated.
Although we believe that our profit margins are fairly stated and that adequate
provisions for losses for our fixed price contracts are recorded in our
financial statements, as required under U.S. generally accepted accounting
principles, we cannot assure you that our contract profit margins will not
decrease or our loss provisions will not increase materially in the future.

  OUR PRODUCTS AND SYSTEMS MAY BE RENDERED OBSOLETE BY OUR INABILITY TO ADAPT TO
  TECHNOLOGICAL CHANGE.

     The rapid change of technology continually affects our product applications
and may directly impact the performance of our products. For our electronic
warfare products, we are required to improve reliability and maintainability,
extend frequency ranges and provide advanced jamming techniques. We can give you
no assurances that we will successfully maintain or improve the effectiveness of
our existing products, nor can we assure you that we will successfully identify
new opportunities and continue to have the needed financial resources to develop
new products in a timely or cost-effective manner. In addition, products
manufactured by others may render our products and systems obsolete or
non-competitive. If any of these events occur, our results of operations would
be adversely affected.

  THE UNSUCCESSFUL INTEGRATION OF A BUSINESS OR BUSINESS SEGMENT WE ACQUIRE
  COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS.

     One of our key operating strategies is to pursue selective acquisitions. We
review and actively pursue possible acquisitions on a continuous basis. Except
as previously disclosed in our public filings, we do not currently have any
commitments, agreements or understandings to acquire any specific businesses or
other material assets. Our acquisition strategy may require additional debt or
equity financing, resulting in additional leverage or dilution of ownership. We
cannot assure you that any future acquisition will be consummated, or that if
consummated, we will be able to integrate such acquisition successfully without
a material adverse

                                        13
<PAGE>

effect on our financial condition or results of operations. Moreover, any
acquisition could involve other risks, including:

     - diversion of management's attention from existing operations;

     - potential loss of key employees or customers of acquired companies; and

     - exposure to unforeseen liabilities of acquired companies.

  WE ARE DEPENDENT IN PART UPON OUR RELATIONSHIPS AND ALLIANCES WITH INDUSTRY
  PARTICIPANTS IN ORDER TO GENERATE REVENUE.

     We rely on the strength of our relationships with other contractors to form
strategic alliances. Some of our partners assist us in the development of some
of our products through teaming arrangements. Under these teaming arrangements,
our partners usually have borne a portion of the expenses associated with our
research and development of new and existing products that are the subject of
such agreements. We cannot assure you that our partners will continue to bear
these expenses in the future. If any of our existing relationships with our
partners were impaired or terminated, we could experience significant delays in
the development of our new products ourselves, and we would incur additional
development costs. We would need to fund these costs internally or identify new
partners.

     Some of our partners are also potential competitors, which may impair the
viability of new strategic relationships. While we must compete effectively in
the marketplace, our future alliances may depend on our partners' perception of
us. Our ability to win new and/or follow-on contracts may be dependent upon our
relationships within the military industry.

  WE HAVE DEVELOPED OUTSOURCING ARRANGEMENTS FOR THE MANUFACTURE OF MANY OF THE
  COMPONENTS AND SUB-ASSEMBLIES OF OUR PRODUCTS. IF THIRD PARTIES FAIL TO
  DELIVER QUALITY PRODUCTS AND COMPONENTS AT REASONABLE PRICES ON A TIMELY
  BASIS, WE MAY ALIENATE SOME OF OUR CUSTOMERS AND OUR REVENUES, PROFITABILITY
  AND CASH FLOW MAY DECLINE.

     We use contract manufacturers as an alternative to our own manufacture of
the components and sub-assemblies of our products. If these contract
manufacturers are not willing to contract with us on competitive terms or devote
adequate resources to fulfill their obligations to us, or we do not properly
manage these relationships, our existing customer relationships may suffer. In
addition, by undertaking these activities, we run the risks that

     - the reputation and competitiveness of our products and services may
       deteriorate as a result of the reduction of our control and quality and
       delivery schedules and the consequent risk that we will experience supply
       interruptions and be subject to escalating costs; and

     - our competitiveness may be harmed by the failure of our contract
       manufacturers to develop, implement or maintain manufacturing methods
       appropriate for our products and customers.

  WE MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES IN CONNECTION WITH THE
  ALLEGED OR ACTUAL HARM CAUSED BY OUR PRODUCTS.

     We face an inherent business risk of exposure to product liability claims
in the event that the use of some of our products is alleged to have resulted in
unintended harm to others or to property. Although we maintain general liability
and product liability insurance, we may incur significant liability if product
liability lawsuits against us are successful. We cannot assure you that such
coverage will be adequate to cover all claims that may arise or that it will
continue to be available to us on acceptable terms.

  WE MAY INCUR SUBSTANTIAL ENVIRONMENTAL LIABILITY ARISING FROM OUR ACTIVITIES
  INVOLVING THE USE OF HAZARDOUS MATERIALS.

     Our business is subject to federal, state, local and foreign laws,
regulations and ordinances governing the use, manufacture, storage, handling and
disposal of hazardous materials and waste products. From time to time, our

                                        14
<PAGE>

operations have resulted or may result in noncompliance with environmental laws
or liability for the costs of investigating and cleaning up, and certain damages
resulting from, sites of past spills, disposals or other releases of hazardous
materials. In addition, we have been identified as a potentially responsible
party pursuant to the federal Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or corresponding state
environmental laws, for the cleanup of contamination resulting from past
disposals of hazardous materials at some sites where we, along with others, sent
waste in the past. We are a party to consent decrees as a result of our
potential responsibility for contamination caused by the disposal of hazardous
materials. We cannot assure you that such matters, or any similar liabilities
that arise in the future, will not exceed our resources, nor can we completely
eliminate the risk of accidental contamination or injury from these materials.

  POLITICAL AND ECONOMIC INSTABILITY IN FOREIGN MARKETS MAY HAVE A MATERIAL
  ADVERSE EFFECT ON OUR OPERATING RESULTS.

     Foreign sales represented about 14% our total sales in 2005 and we intend
to increase the amount of foreign sales we make in the future. Foreign sales are
subject to numerous risks, including political and economic instability in
foreign markets, restrictive trade policies of foreign governments, economic
conditions in local markets, inconsistent product regulation by foreign agencies
or governments, the imposition of product tariffs and the burdens of complying
with a wide variety of international and U.S. export laws and differing
regulatory requirements. If we fail to increase our foreign sales it could have
a material adverse effect on our results of operations.

  CONCENTRATION OF VOTING POWER AND CERTAIN PROVISIONS IN OUR CHARTER DOCUMENTS
  COULD MAKE A MERGER, TENDER OFFER OR PROXY CONTEST DIFFICULT AND MAY ADVERSELY
  AFFECT THE PRICE OF OUR COMMON SHARES.

     At December 31, 2005, the EDO Employee Stock Ownership Trust, or ESOT,
owned 3,720,214 common shares (or about 18% of the outstanding common shares).
The trustee of the plan has obligations under the trust agreement and its
fiduciary duties when voting allocated shares under the plan. The procedure the
trustee generally follows is to receive direction from each of the plan
participants with respect to his or her allocated shares, and then to vote all
shares in accordance with the direction received. The market may perceive that
the concentration of voting power in the hands of a single employee stock
ownership plan creates a potential barrier against another party acquiring us.
This perception could result in lower market prices for our common shares. In
addition, certain agreements to which we are a party, including loan and
executive officer agreements, contain provisions that impose increased costs in
the event of a change of control.

  IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS ADEQUATELY, THE
  VALUE OF OUR COMMERCIAL PRODUCTS COULD BE DIMINISHED.

     The value of our commercial products is increased, in part, by obtaining,
maintaining and enforcing our patents and other proprietary rights. While we
take precautionary steps to protect our technological advantages and
intellectual property and rely in part on patent, trademark, trade secret and
copyright laws, we cannot assure you that the precautionary steps we have taken
will completely protect our intellectual property rights. In the event a
competitor successfully challenges our patents or licenses, we could incur
substantial litigation costs that could have a material adverse effect on our
operating results and financial condition.

  THE U.S. GOVERNMENT'S RIGHT TO USE TECHNOLOGY DEVELOPED BY US LIMITS OUR
  INTELLECTUAL PROPERTY RIGHTS.

     We seek to protect the competitive benefits we derive from our patents,
proprietary information and other intellectual property. However, we do not have
the right to prohibit the U.S. Government from using certain technologies
developed or acquired by us or to prohibit third party companies, including our
competitors, from using those technologies in providing products and services to
the U.S. Government. The U.S. Government has the right to royalty-free use of
technologies that we have developed under U.S. Government contracts. We are free
to commercially exploit those government-funded technologies and may assert our
intellectual property rights to seek to block other non-government users
thereof, but we cannot assure you we could successfully do so.

                                        15
<PAGE>

  A FAILURE TO ATTRACT AND RETAIN TECHNICAL PERSONNEL COULD REDUCE OUR REVENUES
  AND OUR OPERATIONAL EFFECTIVENESS.

     There is a continuing demand for qualified technical personnel, and we
believe that our future growth and success will depend upon our ability to
attract, train and retain such personnel. Competition for personnel in the
military industry is intense, and there are a limited number of persons with
knowledge of, and experience in, this industry. Although we currently experience
relatively low rates of turnover for our technical personnel, the rate of
turnover may increase in the future. An inability to attract or maintain a
sufficient number of technical personnel could have a material adverse effect on
our contract performance or on our ability to capitalize on market
opportunities.

  INCREASED SCRUTINY OF FINANCIAL DISCLOSURE COULD ADVERSELY AFFECT INVESTOR
  CONFIDENCE, AND ANY RESTATEMENT OF EARNINGS COULD INCREASE LITIGATION RISKS
  AND LIMIT OUR ABILITY TO ACCESS THE CAPITAL MARKETS.

     Congress, the SEC, other regulatory authorities and the media are intensely
scrutinizing a number of financial reporting issues and practices. Although all
businesses face uncertainty with respect to how the U.S. financial disclosure
regime may be affected by this process, particular attention has been focused
recently on companies' interpretations of generally accepted accounting
principles.

     If we are required to restate our financial statements as a result of a
determination that we had incorrectly applied generally accepted accounting
principles, that restatement could adversely affect our ability to access the
capital markets or the trading price of our securities. The recent scrutiny
regarding financial reporting may also result in an increase in litigation
involving companies with publicly traded securities, such as us. There can be no
assurance that any such litigation against us would not materially adversely
affect our business or the trading price of our securities.

  IF WE ARE UNABLE TO COMPLY WITH THE RESTRICTIONS AND COVENANTS IN OUR DEBT
  AGREEMENTS, THERE WOULD BE A DEFAULT UNDER THE TERMS OF THOSE AGREEMENTS, AND
  THIS COULD RESULT IN AN ACCELERATION OF PAYMENT OF FUNDS THAT HAVE BEEN
  BORROWED.

     If we are unable to comply with the restrictions and covenants in our debt
agreements, there would be a default under the terms of these agreements. Some
of the debt agreements also require us to maintain specified financial ratios
and satisfy financial tests. Our ability to meet these financial ratios and
tests may be affected by events beyond our control, including, without
limitation, sales levels, contract terminations and potential acquisitions. As a
result, there can be no assurance that we will be able to meet these tests. In
the event of a default under these agreements, the lenders could terminate their
commitments to lend or accelerate the loans and declare all amounts borrowed due
and payable.

     Borrowings under other debt instruments that contain cross-acceleration or
cross-default provisions may also be accelerated and become due and payable. If
any of these events occur, there can be no assurance that we would be able to
make necessary payments to the lenders or that we would be able to find
alternative financing. Even if we are able to obtain alternative financing, it
may not be on terms that are acceptable to us.

  RESTRICTIONS AND COVENANTS IN OUR DEBT AGREEMENTS LIMIT OUR ABILITY TO CONDUCT
  OUR BUSINESS AND COULD PREVENT US FROM OBTAINING NEEDED FUNDS IN THE FUTURE.

     Our debt and financing arrangements contain a number of significant
limitations that restrict our ability to, among other things:

     - borrow additional money or issue guarantees;

     - pay dividends or other distributions to shareholders;

     - make investments;

     - create liens on assets;

     - sell assets;

     - enter into transactions with affiliates; and

     - engage in mergers or consolidations.

                                        16
<PAGE>

     These restrictions may limit our ability to obtain future financing, fund
needed capital expenditures or withstand a future downturn in business or the
economy.

  WE CURRENTLY DERIVE A SIGNIFICANT PERCENTAGE OF OUR TOTAL SALES FROM OUR
  WARLOCK FORCE PROTECTION SYSTEMS. IF SALES OF THE WARLOCK FORCE PROTECTION
  SYSTEMS DECREASE, OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY BE
  ADVERSELY AFFECTED.

     Currently, sales of our Warlock force protection systems to the United
States Army constitute a significant percentage of our total sales. Sales of
Warlock force protection systems accounted for 22% of our total sales for fiscal
2005. Due to the immediate need for the systems, the United States Army places
expedited, short term orders with us for these products from time to time.
Consequently, the termination, reduction or postponement of purchases by the
United States Army, which could happen at any time, may adversely affect our
financial condition and results of operations.

ITEM 2.  PROPERTIES

     All of our operating facilities are leased except a Wando, SC facility
obtained in the Darlington acquisition. In 2003, we sold our facility in Deer
Park, NY. We believe our facilities are adequate for our present purposes. All
facilities in the following listing are suitable for expansion by using
available but unused space, leasing additional available space, or by physical
expansion of leased buildings. We believe that, with respect to leases which
expire during 2006 we will be able to either extend the lease or lease other
facilities on reasonable terms. Our obligations under the various leases are set
forth in Note 16 on pages 59 and 60 of this Report.

     Set forth below is a listing of our principal plants and other materially
important physical properties.

<Table>
<Caption>
                                                                                           APPROXIMATE
                                                                                            FLOOR AREA
SEGMENT                                    LOCATION                        TYPE            (IN SQ. FT.)
-------                                    --------                        ----            ------------
<S>                            <C>                                <C>                      <C>
Electronic Systems and
  Communications/ Engineered
  Systems and Services.......  North Amityville, NY               Manufacturing/Assembly     225,000
Electronic Systems and
  Communications/Engineered
  Systems and Services.......  Chesapeake, VA                     Assembly                    46,000
Electronic Systems and
  Communications.............  Morgan Hill, CA                    Manufacturing              160,000
Electronic Systems and
  Communications.............  Thousand Oaks, CA                  Assembly                   113,000
Electronic Systems and
  Communications.............  Alexandria, VA & Wando, SC         Manufacturing              105,000
Electronic Systems and
  Communications.............  Bohemia, NY                        Manufacturing               94,000
Electronic Systems and
  Communications.............  Columbia, MD                       Office/Assembly             77,000
Engineered Systems and
  Services...................  Salt Lake City, UT (2 facilities)  Manufacturing              284,000
Engineered Systems and
  Services...................  Alexandria, VA                     Office                     193,000
Engineered Systems and
  Services...................  Brighton, UK                       Manufacturing               56,000
Engineered Systems and
  Services...................  Walpole, MA                        Manufacturing               55,000
Engineered Systems and
  Services...................  Huntingdon, PA                     Assembly                    40,000
Engineered Systems and
  Services...................  Lancaster, CA                      Office/Assembly             38,000
Engineered Systems and
  Services...................  Baton Rouge, LA                    Manufacturing               29,000
</Table>

                                        17
<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     The Company and/or its subsidiaries are parties to various legal
proceedings arising in the normal course of business, including various
environmental actions described in Note 17 on page 60 of this Report. While
litigation is subject to inherent uncertainties, management currently believes
that the ultimate outcome of these proceedings, individually and in the
aggregate, are not material to the business or financial condition of the
Company. The following is a description of certain proceedings:

     U.S. v. EDO Corporation et al.; EDO Corporation et al. v. Elinco Associates
L.P. et al.  (United States District Court, District of Connecticut). The
Company and three other companies entered into a consent decree in 1990 with the
Federal government for the remediation of a Superfund site in Norwalk, CT. The
Superfund site has been divided into three operable units. The consent decree
relates to two of the operable units. The third operable unit has not been
formally studied and the Company is unable to determine whether the EPA will
address the third operable unit or, if it does, whether it will conclude that
specific remedial response action will be required for it, and in such event,
what the costs, if any, or the Company's degree of responsibility will be. As of
December 31, 2005 the Company estimates that its discounted liability over the
remainder of the twenty years related to the two operable units is approximately
$1.6 million. See also Note 17 on page 60 of this Report.

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

None.

                                    PART II

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

     The information responsive to this item is set forth under the headings
"Common Share Prices" and "Dividends" on pages 31 and 32, together with dividend
information contained in the "Consolidated Statements of Shareholders' Equity"
on pages 35 and 36 and Note 8 on pages 47 and 48 of this Report. The information
regarding equity compensation plans can be found in Note 1(k) on pages 42 and 43
and Note 13 on pages 51 and 52 of this Report.

                                        18
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                            SELECTED FINANCIAL DATA

                        EDO CORPORATION AND SUBSIDIARIES
                 (NOT COVERED BY INDEPENDENT AUDITOR'S REPORTS)

<Table>
<Caption>
                                                      2005       2004       2003       2002       2001
                                                    --------   --------   --------   --------   --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>        <C>        <C>        <C>        <C>
STATEMENT OF EARNINGS DATA:
Net sales.........................................  $648,482   $536,173   $460,667   $328,876   $259,961
  Costs and expenses:
  Cost of sales...................................   490,617    392,961    338,259    240,850    189,733
  Selling, general and administrative.............    85,921     78,791     71,855     47,584     34,013
  Research and development........................    17,122     11,620      8,594      8,492      8,750
  Environmental costs/impairment loss on Deer Park
    facility......................................     1,543         --      9,160         --         --
  Other expenses(a)...............................        --         --      1,871      2,565        389
                                                    --------   --------   --------   --------   --------
                                                     595,203    483,372    429,739    299,491    232,885
                                                    --------   --------   --------   --------   --------
Operating earnings................................    53,279     52,801     30,928     29,385     27,076
Net interest expense(b)...........................   (11,291)    (7,848)    (8,152)    (4,956)    (2,216)
Other non-operating (expense) income, net.........      (147)      (319)       279        (95)      (971)
                                                    --------   --------   --------   --------   --------
                                                     (11,438)    (8,167)    (7,873)    (5,051)    (3,187)
                                                    --------   --------   --------   --------   --------
Earnings before income taxes and cumulative effect
  of a change in accounting principle.............    41,841     44,634     23,055     24,334     23,889
Income tax expense................................   (15,572)   (15,566)    (9,644)   (10,342)    (9,210)
                                                    --------   --------   --------   --------   --------
Earnings before cumulative effect of a change in
  accounting principle from:
  Continuing operations...........................    26,269     29,068     13,411     13,992     14,679
  Discontinued operations.........................        --         --      1,398         --        273
                                                    --------   --------   --------   --------   --------
Earnings before cumulative effect of a change in
  accounting principle............................    26,269     29,068     14,809     13,992     14,952
Cumulative effect of a change in accounting
  principle, net of tax of $790(c)................        --         --         --     (3,363)        --
Dividends on preferred shares(d)..................        --         --         --         --       (194)
                                                    --------   --------   --------   --------   --------
Net earnings available for common shares..........  $ 26,269   $ 29,068   $ 14,809   $ 10,629   $ 14,758
                                                    ========   ========   ========   ========   ========
PER COMMON SHARE DATA:
Basic net earnings (loss):
  Continuing operations...........................  $   1.45   $   1.64   $   0.78   $   0.82   $   1.14
  Discontinued operations.........................        --         --       0.08         --       0.02
                                                    --------   --------   --------   --------   --------
Basic net earnings before cumulative effect of a
  change in accounting principle..................      1.45       1.64       0.86       0.82       1.16
Cumulative effect of a change in accounting
  principle.......................................        --         --         --      (0.20)        --
                                                    --------   --------   --------   --------   --------
Basic net earnings................................  $   1.45   $   1.64   $   0.86   $   0.62   $   1.16
                                                    --------   --------   --------   --------   --------
Diluted net earnings (loss):
  Continuing operations...........................  $   1.33   $   1.49   $   0.76   $   0.81   $   1.09
  Discontinued operations.........................        --         --       0.08         --       0.02
                                                    --------   --------   --------   --------   --------
Diluted net earnings before cumulative effect of a
  change in accounting principle..................      1.33       1.49       0.84       0.81       1.11
Cumulative effect of a change in accounting
  principle.......................................        --         --         --      (0.20)        --
                                                    --------   --------   --------   --------   --------
Diluted net earnings..............................  $   1.33   $   1.49   $   0.84   $   0.61   $   1.11
                                                    ========   ========   ========   ========   ========
Cash dividends per common share...................  $   0.12   $   0.12   $   0.12   $   0.12   $   0.12
Weighted-average common shares outstanding:
  Basic...........................................    18,081     17,695     17,308     17,080     12,776
  Diluted(e)......................................    23,001     22,377     17,561     17,379     14,254
</Table>

                                        19
<PAGE>

<Table>
<Caption>
                                                      2005       2004       2003       2002       2001
                                                    --------   --------   --------   --------   --------
                                                          (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                 <C>        <C>        <C>        <C>        <C>
OTHER DATA:
Depreciation and amortization.....................  $ 15,699   $ 16,040   $ 17,065   $ 11,321   $ 11,396
Capital expenditures..............................    23,718     14,206      8,865      7,093     14,298
Backlog...........................................   558,685    474,605    462,327    375,029    294,812
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, marketable securities and
  restricted cash.................................  $108,731   $ 98,884   $ 86,632   $159,860   $ 58,031
Working capital...................................   244,862    226,708    175,715    204,382    105,177
Total assets......................................   687,399    546,689    494,696    481,574    285,630
Total debt(f).....................................   208,250    137,800    137,800    137,800        463
Shareholders' equity..............................   239,893    211,928    190,332    168,273    174,498
</Table>

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

(a)  Reflects $0.9 million in 2003 and $0.6 million in 2002 for the write-off of
     purchased in-process research and development ("IPR&D") and other
     acquisition-related costs, respectively, associated with our acquisition of
     the assets of Condor Systems, Inc., as well as a $0.9 million curtailment
     loss in 2003 and a $2.0 million curtailment loss in 2002 associated with
     our benefit plans; a $0.9 million post-retirement curtailment gain in 2001;
     $1.3 million in 2001 for the write-off of IPR&D; and other EDO-AIL merger-
     related costs in 2001.

(b)  In 2005, includes $2.9 million of premium paid to redeem all of the
     outstanding $137.8 million principal amount of our 5.25% Convertible
     Subordinated Notes and $1.3 million of write-off of the remaining
     unamortized deferred finance costs associated with these Notes.

(c)  Upon adoption of Statement of Financial Accounting Standard No. 142,
     "Goodwill and Other Intangible Assets," we recorded a cumulative effect of
     a change in accounting principle effective January 1, 2002. See Note 1(f)
     to the consolidated financial statements.

(d)  ESOP Convertible Cumulative Preferred Shares, Series A. On March 8, 2001,
     all outstanding preferred shares were converted into common shares. No
     preferred dividends were paid after March 8, 2001.

(e)  In 2005 and 2004, the 5.25% Convertible Subordinated Notes had a dilutive
     effect on the earnings per share calculation. In November 2005, the 5.25%
     Convertible Subordinated Notes were redeemed. Also in November 2005, 4.0%
     Convertible Subordinated Notes were issued which had a dilutive effect in
     2005. Consequently, 4.7 million shares are included in the diluted shares
     outstanding in 2005 compared to 4.4 million shares in 2004.

(f)  Includes current portion of notes payable.

ITEMS 7. AND 7A.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS AND QUANTITATIVE AND QUALITATIVE
                  DISCLOSURE ABOUT MARKET RISK

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

     EDO Corporation (the "Company") designs and manufactures a diverse range of
products with core competencies in critical defense areas. We are a leading
supplier of sophisticated, highly engineered products and systems for defense,
aerospace and intelligence applications. We believe our advanced systems are
mission-critical on a wide range of military programs and are at the core of
transforming defense capabilities. We have two reporting segments: Electronic
Systems and Communications and Engineered Systems and Services. Our Electronic
Systems and Communications segment provides highly-engineered electronic systems
and equipment including electronic warfare systems, reconnaissance and
surveillance systems, and command, control, communications, and computers (C4)
products and systems. Our Engineered Systems and Structures segment comprises
aircraft armament systems, integrated composite structures, undersea warfare
sonar systems, and professional engineering services. The Company has a
disciplined acquisition program which is diversifying its base of major
platforms and customers.

                                        20
<PAGE>

     The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports, and the Proxy
Statement for its Annual Meeting of Shareholders are made available, free of
charge, on its Web site www.edocorp.com, as soon as reasonably practicable after
such reports have been filed with or furnished to the Securities and Exchange
Commission.

ACQUISITIONS

     On December 20, 2005, the Company acquired for cash all of the stock of
NexGen Communications LLC (NexGen), a privately-held company specializing in the
design and production of communications systems for a diverse set of U.S.
government organizations. The acquisition strengthened our fast-growing position
in specialized communication products. The acquired company became part of the
Company's Electronic Systems and Communications segment. The Company has not yet
completed its analysis of the fair value of the acquired assets and liabilities.
Consequently, the excess purchase price over the net assets acquired has been
temporarily assigned to goodwill, and amounts recorded are subject to change.
The excess of the purchase price over the net assets acquired related to NexGen
is not deductible for income tax purposes.

     On September 19, 2005, we acquired for cash all of the stock of Fiber
Innovations, Inc., (Fiber Innovations) a privately-held company that is a
designer and manufacturer of fiber reinforced-composites. This acquisition has
added important complementary design and manufacturing capabilities to EDO's
integrated-composite-structures business. The acquired company became part of
the Company's Engineered Systems and Services segment. The excess of the
purchase price over the net assets acquired related to Fiber Innovations is not
deductible for income tax purposes.

     On May 2, 2005, we acquired for cash all of the units of EVI Technology,
LLC (EVI), a privately-held company. EVI is a designer, manufacturer and
integrator of classified intelligence systems. EVI has strengthened and expanded
EDO's range of products and engineering expertise in a number of synergistic
areas. The acquired company became part of the Company's Electronic Systems and
Communications segment. The excess of the purchase price over the net assets
acquired related to EVI recorded as goodwill and other intangible assets is
deductible for income tax purposes over 15 years.

     In June 2003, we acquired all of the stock of Emblem Group Ltd., a
privately-held company based in England. Emblem, which has been renamed EDO (UK)
Ltd., operated through its MBM Technology unit in England and Artisan
Technologies Inc. subsidiary in the United States. EDO (UK) reinforces our
position as a global leader in aircraft armament-release systems and broadens
our customer base in Europe. Emblem became part of the Company's Engineered
Systems and Services segment. In the second quarter of 2004 we received $0.3
million from an escrow account resulting in a decrease in purchase price and,
therefore, goodwill. The excess of the purchase price over the net assets
acquired recorded as goodwill and other intangibles related to Emblem's units
located in the UK is deductible for U.S. income tax purposes over 15 years. The
excess of the purchase price over the net assets acquired related to Artisan
Technologies, Inc. is not deductible for income tax purposes.

     In March 2003, we acquired all of the stock of Darlington, Inc., a
privately-held defense-communications company. This acquisition significantly
expanded our capabilities in defense communications and related services.
Darlington became part of the Company's Electronic Systems and Communications
segment. The excess of the purchase price over the net assets acquired recorded
as goodwill and other intangible assets is deductible for income tax purposes
over 15 years.

     In February 2003, we acquired all of the stock of Advanced Engineering &
Research Associates, Inc. (AERA), a privately-held company which strengthened
and expanded our range of professional services. AERA became part of the
Company's Engineered Systems and Services segment. The excess of the purchase
price over the net assets acquired recorded as goodwill and other intangible
assets is deductible for income tax purposes over 15 years.

     In July 2002, we acquired, in an auction under section 363 of the U.S.
Bankruptcy Code, substantially all of the assets of Condor Systems, Inc., a
privately-held defense-electronics company and its subsidiary

                                        21
<PAGE>

(together, "Condor"). The acquisition of Condor's business has significantly
expanded our defense-electronics capabilities in the areas of reconnaissance and
surveillance systems and communications and countermeasures. The assets became
part of the Company's Electronic Systems and Communications segment. Associated
with the acquisition and included in operating earnings for 2003 is $0.9
million, of acquisition-related costs. The excess of the purchase price over the
net assets acquired recorded as goodwill, IPR&D and other intangible assets is
deductible for income tax purposes over 15 years.

     These acquisitions were accounted for as purchases and, accordingly, their
operating results are included in the Company's consolidated financial
statements since their respective acquisition dates.

SALE OF PROPERTY

     On June 24, 2003, the Board of Directors of the Company approved the
decision to sell our 726,000 square foot facility in Deer Park, NY. This
decision was based on a company-wide facility plan that evaluated potential uses
for the property. We concluded that the Deer Park facility would not meet future
requirements, and thus an outright sale was completed, freeing assets for more
productive use, including acquisitions. A pre-tax impairment loss of $9.2
million was recorded in the second quarter of 2003, as the net book value of the
assets exceeded the fair value less the costs to sell. The fair value was based
on a $29.0 million sales price per the sales agreement entered into in July
2003. In 2005, we recorded $1.5 million of an additional cost provision to
account for an environmental cleanup that was not discovered until after the
sale.

     Of the $29.0 million sales price, $22.0 million was in cash and $7.0
million in the form of a purchase money mortgage and note. We closed on the sale
in October 2003 and received the cash less closing payments. The due date of the
note is October 9, 2005 or the date EDO achieves "Material Closure" defined as
"the investigation, assessment and remediation of an Environmental Condition
sufficient to not cause any material interference with the buyer's ability to
develop, construct, finance or lease the Premises." The Company believes that
the note is currently due and payable. See Note 4 to our consolidated financial
statements on pages 45 and 46.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

     We make estimates and assumptions in the preparation of our consolidated
financial statements in conformity with accounting principles generally accepted
in the United States. Actual results could differ significantly from those
estimates under different assumptions and conditions. We believe that the
following discussion addresses our critical accounting policies, which are those
that are most important to the portrayal of our consolidated financial condition
and results of operations and which require our most difficult and subjective
judgments, often as a result of the need to make estimates about the effect of
matters that are inherently uncertain. The following is a brief discussion of
the critical accounting policies employed by us.

  REVENUE RECOGNITION

     Sales under long-term, fixed-price contracts, including pro-rata profits,
are generally recorded based on the relationship of costs incurred to date to
total projected final costs or, alternatively, as deliveries and other
milestones are achieved or services are provided. These projections are revised
throughout the lives of the contracts. Adjustments to profits resulting from
such revisions are made cumulative to the date of change and may affect current
period earnings. Sales on other than long-term contract orders (principally
commercial products) are recorded as shipments are made. Our gross profit is
affected by a variety of factors, including the mix of products, systems and
services sold, production efficiencies, price competition and general economic
conditions. Estimated losses on long-term contracts are recorded when
identified.

  INVENTORIES

     Inventories under long-term contracts and programs reflect all accumulated
production costs, including factory overhead, initial tooling and other related
costs (including general and administrative expenses relating to certain of our
defense contracts), less the portion of such costs charged to cost of sales. All
other inventories
                                        22
<PAGE>

are stated at the lower of cost (principally first-in, first-out method) or
market. Inventory costs in excess of amounts recoverable under contracts and
which relate to a specific technology or application and which may not have
alternative uses are charged to cost of sales when such circumstances are
identified.

     From time to time, we manufacture certain products prior to receiving firm
contracts in anticipation of future demand. Such costs are inventoried and are
incurred to help maintain stable and efficient production schedules.

     Several factors may influence the sale and use of our inventories,
including our decision to exit a product line, technological change, new product
development and/or revised estimates of future product demand. If inventory is
determined to be overvalued due to one or more of the above factors, we would be
required to recognize such loss in value at the time of such determination.

     Under the contractual arrangements by which progress payments are received,
the United States Government has a title to or a security interest in the
inventories identified with related contracts.

  PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-LIVED ASSETS

     Property, plant and equipment is recorded at cost and is depreciated on a
straight-line basis over the estimated useful lives of such assets. Leasehold
improvements are amortized over the shorter of their estimated useful lives or
their respective lease periods.

     In those cases where we determine that the useful life of property, plant
and equipment should be shortened, we depreciate the net book value in excess of
salvage value over its revised remaining useful life thereby increasing
depreciation expense. Factors such as technological advances, changes to our
business model, changes in our capital strategy, changes in the planned use of
equipment, fixtures, software or changes in the planned use of facilities could
result in shortened useful lives. Long-lived assets, other than goodwill, are
reviewed by us for impairment whenever events or changes in circumstances
indicate that the carrying amount of any such asset may not be recoverable. The
estimate of cash flow, which is used to determine recoverability, is based upon,
among other things, certain assumptions about future operating performance.

     Our estimates of undiscounted cash flow may differ from actual cash flow
due to such factors including technological advances, changes to our business
model, or changes in our capital strategy or planned use of long-lived assets.
If the sum of the undiscounted cash flows, excluding interest, is less than the
carrying value, we would recognize an impairment loss, measured as the amount by
which the carrying value exceeds the fair value of the asset.

     In accordance with Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets" goodwill must be tested at least
annually for impairment at the reporting unit level. If an indication of
impairment exists, we are required to determine if such goodwill's implied fair
value is less than the unit carrying value in order to determine the amount, if
any, of the impairment loss required to be recorded. Impairment indicators
include, among other conditions, cash flow deficits, an historic or anticipated
decline in revenue or operating profits, adverse legal or regulatory
developments, accumulation of costs significantly in excess of amounts
originally expected to acquire the asset and/or a material decrease in the fair
value of some or all of the assets.

     To determine the fair value of our reporting units, we generally use a
present value technique (discounted cash flow) corroborated by market multiples
when available and as appropriate, for all of the reporting units. The
discounted cash flow method measures intrinsic value by reference to an
enterprise's or an asset's expected annual free cash flows. We applied what we
believe to be the most appropriate valuation methodology for each of the
reporting units. If we had established different reporting units or utilized
different valuation methodologies, the impairment test results could differ.

  PENSION AND POST-RETIREMENT BENEFITS OBLIGATIONS

     We sponsor defined benefit pension and other retirement plans in various
forms covering all eligible employees. Several statistical and other factors
which attempt to anticipate future events are used in

                                        23
<PAGE>

calculating the expense and liability related to the plans. These factors
include assumptions about the discount rate and expected return on plan assets
within certain guidelines and in conjunction with our actuarial consultants. In
addition, our actuarial consultants also use subjective factors such as
withdrawal and mortality rates to estimate the expense and liability related to
these plans. The actuarial assumptions used by us may differ significantly,
either favorably or unfavorably, from actual results due to changing market,
economic or regulatory conditions, higher or lower withdrawal rates or longer or
shorter life spans of participants.

     We use the building block approach to the estimation of the long-term rate
of return on assets. Under this approach, we reviewed the publicly available
common source data for the range of returns on basic types of equity and fixed
income instruments and the differential to those rates provided by active
investment management. In consultation with our actuarial and active asset
management consultants and taking into account the funds' actual performance and
expected asset allocation going forward, we selected an overall return rate
within the resulting range.

FINANCIAL HIGHLIGHTS

     Net sales for 2005 increased 20.9% to 648.5 million from $536.2 million for
2004 and included sales from the acquisitions of Fiber Innovations and EVI. For
2005, net earnings were $26.3 million or $1.33 per diluted share on 23.0 million
shares compared to net earnings of $29.1 million or $1.49 per diluted share on
22.4 million shares in 2004. In 2005 and 2004, the 5.25% Convertible
Subordinated Notes had a dilutive effect on the earnings per share calculation.
In November 2005, the 5.25% Convertible Subordinated Notes were redeemed. Also
in November 2005, 4.0% Convertible Subordinated Notes were issued which had a
dilutive effect in 2005. Consequently, 4.7 million shares are included in the
diluted shares outstanding in 2005 compared to 4.4 million shares in 2004.

RECENT ACCOUNTING PRONOUNCEMENTS

     On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004) (FAS 123(R)), Share-Based Payment,
which is a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation. FAS123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to employees, and amends FASB Statement No. 95, Statement of Cash Flows.
Generally, the approach in FAS123(R) is similar to the approach described in
Statement 123. However, FAS123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. FAS123(R) must be adopted by the Company no later than January
1, 2006.

     As permitted by Statement 123, the Company accounted for share-based
payments to employees using APB Opinion No. 25's intrinsic value method and, as
such, generally recognized no compensation cost for employee stock options
through December 31, 2005.

     The Company has adopted FAS123(R) on January 1, 2006, using the "modified
prospective" method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of FAS123(R) for all share-based
payments granted after the effective date and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to the effective date of
FAS123(R) that remain unvested on the effective date.

     Accordingly, the adoption of FAS123(R)'s fair value method will have an
impact on our result of operations. The impact of the adoption of FAS123(R)
cannot be determined at this time because it will depend on levels of
share-based payments granted in the future. However, had we adopted FAS123(R) in
prior periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and
earnings per share in Note (1)(k) to our consolidated financial statements.

     FAS123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after

                                        24
<PAGE>

adoption. The Company cannot estimate what those amounts will be in the future,
because they depend on, among other things, when employees exercise stock
options and the fair value of the Company's stock on the date of exercise.

RESULTS OF OPERATIONS

  COMPARISON OF 2005 TO 2004

     Net sales by segment were as follows:

<Table>
<Caption>
                                                       TWELVE MONTHS
                                                           ENDED
                                                          DECEMBER           INCREASE/(DECREASE)
                                                   ----------------------           FROM
SEGMENT                                              2005         2004          PRIOR PERIOD
-------                                            ---------    ---------    -------------------
                                                   (DOLLARS IN MILLIONS)
<S>                                                <C>          <C>          <C>
Electronic Systems and Communications............   $408.2       $273.3             49.4%
Engineered Systems and Services..................    240.3        262.9             (8.6)%
                                                    ------       ------
Total............................................   $648.5       $536.2             20.9%
                                                    ======       ======
</Table>

     The increase in sales in the Electronic Systems and Communications segment
for the year ended December 31, 2005 compared to the year ended December 31,
2004 is attributable to sales of Warlock force protection equipment to the U.S.
Army. The Warlock program was a significant contributor to sales and margin in
2005, accounting for 22% of our total sales. In addition, the acquisition of EVI
contributed sales for the eight months since its acquisition date. There were
also increases in sales of C4 products and systems, including the Joint Enhanced
Core Communication Systems ("JECCS") program for the Marine Corps and antennas.
These increases were partially offset by a decrease in sales of electronic
warfare systems due primarily to reduced efforts on the EA-6B aircraft and also
to the completion of B1-B development efforts.

     The decrease in sales in the Engineered Systems and Services segment for
the year ended December 31, 2005 compared to the year ended December 31, 2004 is
attributable to lower sales of professional services, mine countermeasures
systems, and sonar systems, partially offset by three months of sales from the
acquisition of Fiber Innovations since its acquisition date. The decrease in
sales of professional services was due to lower levels of awards as well as
timing of awards. The decrease in sales of mine countermeasures systems was due
to the completion of various spares orders that followed the final deliveries of
the MK-105 Mod 4 Upgrade program. The decrease in sales of sonar systems was due
to several major programs nearing completion during 2005.

     Operating earnings were as follows:

<Table>
<Caption>
                                                      TWELVE MONTHS
                                                          ENDED
                                                      DECEMBER 31,     INCREASE/(DECREASE)
                                                      -------------           FROM
SEGMENT                                               2005    2004        PRIOR PERIOD
-------                                               -----   -----    -------------------
                                                       (DOLLARS IN
                                                        MILLIONS)
<S>                                                   <C>     <C>      <C>
Electronic Systems and Communications...............  $42.1   $26.5            58.9%
Engineered Systems and Services.....................   12.7    26.3           (51.8)%
Deer Park facility environmental cost provision.....   (1.5)     --
                                                      -----   -----
Total...............................................  $53.3   $52.8             1.0%
                                                      =====   =====
</Table>

                                        25
<PAGE>

     Items of note affecting operating earnings are summarized here to clarify
the comparison of results.

<Table>
<Caption>
                                                               TWELVE MONTHS
                                                                   ENDED
                                                               DECEMBER 31,
                                                              ---------------
                                                               2005     2004
                                                              ------   ------
                                                                (DOLLARS IN
                                                                THOUSANDS)
<S>                                                           <C>      <C>
Pension.....................................................  $4,277   $2,183
ESOP Compensation expense...................................  $4,952   $4,330
Intangible asset amortization...............................  $5,931   $5,564
</Table>

     The increased pension expense in 2005 compared to 2004 is attributable to
changes in actuarial assumptions, namely a reduction in the discount rate. The
higher ESOP compensation expense in 2005 is attributable to our higher average
stock price compared to 2004. Pension and ESOP compensation expense are
allocated between cost of sales and selling, general and administrative expense.
The intangible asset amortization expense is associated with the acquisitions
made in 2002, 2003 and 2005 and affects primarily the Electronic Systems and
Communications segment. In 2005, we incurred a $1.5 million charge to provide
for environmental cleanup efforts relating to our former Deer Park facility.

     Operating earnings in the Electronic Systems and Communications segment for
the year ended December 31, 2005 were $42.1 million, or 10.3% of this segment's
sales compared to $26.5 million, or 9.7% of this segment's sales for the year
ended December 31, 2004. The increase in operating earnings is largely
attributable to the increased sales of Warlock force protection systems and
increased margins on sales of C4 products and systems, namely the aforementioned
JECCS program. These increases were partially offset by cost growth of $2.4
million on an electronic warfare systems program. Additionally, as discussed in
further detail below in the comparison of results of operations of 2004 compared
to 2003, 2004 operating earnings were negatively impacted by a write-off of $2.6
million of Ku-band products inventory.

     Operating earnings in the Engineered Systems and Services segment for the
year ended December 31, 2005 were $12.7 million, or 5.3% of this segment's sales
compared to $26.3 million, or 10.0% of this segment's sales for the year ended
December 31, 2004. The decrease in operating earnings was due largely to the
aforementioned lower sales in our professional services business. In addition,
there was cost growth of $1.4 million on several sonar array and depth sounder
programs. The lower spares sales related to mine countermeasures systems also
contributed to lower earnings. These negative impacts were partially offset by
an adjustment of $1.6 million of the estimated costs to complete on an aircraft
armament program.

     Operating earnings were also negatively affected by cost growth totaling
$3.6 million on an undersea warfare systems program known as ALOFTS. Ongoing
system testing identified various performance issues that required design and
software modifications, which are continuing. We believe we have accounted for
all costs for the modifications and future re-testing in our
estimate-to-complete. The next significant tests for this program are currently
scheduled to occur in 2006. In 2004, there was a $3.8 million negative impact to
earnings on the same program.

     In 2004 there was a positive impact to operating earnings in this segment
of approximately $3.4 million resulting from the release of a reserve which had
been previously established for a potential issue on MK105-related contracts.
The release of the reserve was triggered by final deliveries of MK105 systems
made in 2003 and proven performance resulting from system utilization over the
course of 2004. This increase in earnings was partially offset by a $1.6 million
negative impact to operating earnings resulting from an increase in the
estimate-to-complete on an aircraft armament program.

     Selling, general and administrative expenses for the year ended December
31, 2005 of $85.9 million decreased as a percent of net sales to 13.2% from
14.7% for the year ended December 31, 2004. The increase in sales is the primary
driver of the decrease.

     Research and development expense for the year ended December 31, 2005
increased to $17.1 million or 2.6% of net sales from $11.6 million or 2.2% of
net sales for the year ended December 31, 2004. This increase is attributable to
increased spending on next generation force protection efforts.
                                        26
<PAGE>

     Interest expense, net of interest income, for the year ended December 31,
2005 decreased to $7.1 million compared to $7.8 million for the year ended
December 31, 2004, primarily due to higher interest income resulting from higher
average cash levels. Interest expense includes interest on the 5.25% Convertible
Subordinated Notes through their redemption date in November 2005 as well as
interest on the 4.0% Convertible Subordinated Notes due 2025 issued in November
2005. Also included in interest expense is amortization of deferred debt
issuance costs associated with the offering of the 4.0% notes and amortization
of deferred financing costs associated with our credit facility.

     On November 29, 2005, we redeemed for cash all of our outstanding 5.25%
Convertible Subordinated Notes. Associated with this redemption, we expensed
$2.9 million representing a 2.1% premium paid on the $137.8 million principal
amount of these 5.25% Notes, and wrote-off $1.3 million of the remaining
unamortized deferred financing costs associated with these notes.

     Income tax expense reflects an effective rate of 37.2% for the year ended
December 31, 2005 and 34.9% for the year ended December 21, 2004. The higher
effective tax rate for 2005 as compared to 2004 is attributable to the
following: higher non-deductible non-cash ESOP compensation; a reduction in the
state tax expense due to state filing positions; additional tax benefit from the
manufacturing exemption that became effective January 1, 2005 and lower net
benefit recorded for the adjustment to tax reserves. The Company recorded an
income tax benefit of $1.5 million for the year ended December 31, 2005 due to
the net adjustment for income tax contingencies of which $.7 million was
recorded in the fourth quarter of 2005. This compares to an income tax benefit
of $2.8 million that was recorded for the year ended December 31, 2004.

     For the year ended December 31, 2005, net earnings were $26.3 million or
$1.33 per diluted common share on 23.0 million diluted shares compared to net
earnings of $29.1 million or $1.49 per diluted common share on 22.4 million
diluted shares for the year ended December 31, 2004. The convertible notes had a
dilutive effect for the years ended December 31, 2005, and 2004.

  COMPARISON OF 2004 TO 2003

     Net sales by segment were as follows:

<Table>
<Caption>
                                                            TWELVE MONTHS
                                                                ENDED
                                                             DECEMBER 31,           INCREASE
                                                        ----------------------        FROM
SEGMENT                                                   2004         2003       PRIOR PERIOD
-------                                                 ---------    ---------    ------------
                                                        (DOLLARS IN MILLIONS)
<S>                                                     <C>          <C>          <C>
Electronic Systems and Communications.................   $273.3       $221.6          23.3%
Engineered Systems and Services.......................    262.9        239.1          10.0%
                                                         ------       ------
Total.................................................   $536.2       $460.7          16.4%
                                                         ======       ======
</Table>

     The increase in sales in the Electronic Systems and Communications segment
for the year ended December 31, 2004 compared to the year ended December 31,
2003 is attributable to increases in sales of reconnaissance and surveillance
systems, and command, control, communications and computers ("C4") systems,
including antenna products. There was also an increase in sales due to
deliveries on our contract with the U.S. Army for the new force protection
systems. This "rapid response" program was a significant contributor to sales
and margin for the year. These increases were partially offset by decreases in
sales of electronic warfare equipment due to the completion of the UEU
production program as well as completion of production deliveries of
interference cancellation systems and the basic shortstop electronic protection
systems ("SEPS") in 2003.

     In addition, in 2004 there were no sales of our space products related to
commercial communication satellites due to a significant downturn in market
demand. Entering into 2004 there was a forecast from our primary customer that
indicated a demand for our product. As the year progressed, and as late as
October, there was market potential, including our pursuit of secondary
customers. However, as we continued to evaluate the market for our inventory of
Ku-band products, we concluded that the market was shifting to

                                        27
<PAGE>

Ka-band systems and that there was no potential sale of our product for the
foreseeable future. Consequently, we wrote-off our remaining $2.6 million of
inventory in the fourth quarter.

     The increase in sales in the Engineered Systems and Services segment for
the year ended December 31, 2004 compared to the year ended December 31, 2003 is
attributable in part to a full year of sales of Emblem Group Ltd. ("Emblem"),
which was acquired on June 16, 2003. This accounted for approximately $12.7
million of the increase in sales. There were also increases in sales of aircraft
armament systems, airborne mine countermeasure systems, and professional
services. There also were increases in sales of electro-ceramic products
utilized in sonar transducers and in sales of integrated composite structures
including production and installation of our composite pipe for water and fire
systems on offshore oil platforms.

     Partially offsetting these increases was a decrease in sales of $2.7
million in 2004 to reflect an increase to the estimate-to-complete of an
undersea warfare systems program accounted for under the percentage of
completion method. The increase in the estimate resulted in a decrease to the
percent complete and therefore the decrease to sales. The revision to the
estimate resulted from performance issues discovered during testing phases.
Consequently, there was a reduction to operating earnings as discussed below.

     Operating earnings by segment were as follows:

<Table>
<Caption>
                                                      TWELVE MONTHS
                                                          ENDED
                                                      DECEMBER 31,     INCREASE/(DECREASE)
                                                      -------------           FROM
SEGMENT                                               2004    2003        PRIOR PERIOD
-------                                               -----   -----    -------------------
                                                       (DOLLARS IN
                                                        MILLIONS)
<S>                                                   <C>     <C>      <C>
Electronic Systems and Communications...............  $26.5   $18.5           43.3%
Engineered Systems and Services.....................   26.3    22.5           16.9%
Impairment loss on Deer Park Facility...............     --    (9.2)
Benefit plan curtailment loss.......................     --    (0.9)
                                                      -----   -----
Total...............................................  $52.8   $30.9           70.9%
                                                      =====   =====
</Table>

     The lower pension expense in 2004 compared to 2003 is attributable to the
cash contribution we made to our defined benefit plan in 2003. The higher ESOP
compensation expense in 2004 is attributable to our higher average stock price
compared to 2003. Pension and ESOP compensation expense are allocated between
cost of sales and selling, general and administrative expense. The intangible
asset amortization expense is associated with the acquisitions made in 2002 and
2003 and affects primarily the Electronic Systems and Communications segment.
The $9.2 million impairment charge in 2003 related to our Deer Park facility
which was sold. Operating earnings for 2004 were also affected by several
contract-related items which are described in further detail below in the
discussion of segment operating earnings.

     The Electronic Systems and Communications segment's operating earnings for
the year ended December 31, 2004 were $26.5 million or 9.7% of this segment's
net sales compared to $18.5 million or 8.3% of this segment's net sales for the
year ended December 31, 2003. This increase in operating earnings was
attributable to continuing higher-margin sales of reconnaissance and
surveillance systems. In addition, operating results were positively affected by
sales associated with the force protection systems program which was a
significant contributor to operating earnings in this segment for the year.
Partially offsetting these increases were operating losses related to
adjustments to estimates-to-complete on development and start-up production
phases on certain interference cancellation programs resulting from issues
discovered in the first quarter during testing. In addition, there were losses
in the antenna product line due to production inefficiencies that resulted in
inventory adjustments as well as increases in estimates-to-complete. In the
fourth quarter, there was the aforementioned write-off of space-products related
inventory of $2.6 million.

     The Engineered Systems and Services segment's operating earnings for the
year ended December 31, 2004 were $26.3 million or 10.0% of this segment's net
sales compared to $22.5 million or 9.4% of this segment's net sales for the year
ended December 31, 2003. This increase in operating earnings was attributable to
higher-margin sales of radar signal simulators and fiber-composite structural
products/spares. The higher

                                        28
<PAGE>

level of sales of aircraft armament systems, mine countermeasure systems, and
professional services also contributed to the increase. In addition, there was a
positive impact to operating earnings of approximately $3.4 million resulting
from the release of a reserve which had been previously established for a
potential issue on MK105-related contracts. The release of the reserve was
triggered by final closeout of MK105 programs and proven performance resulting
from system utilization over the course of the year. These increases were
partially offset by the effect of increasing the estimate-to-complete on an
aircraft armament program resulting in a $1.6 million negative impact to
operating earnings and the aforementioned $3.8 million impact on an undersea
warfare systems program.

     Selling, general and administrative expenses for the year ended December
31, 2004 of $78.8 million decreased as a percent of net sales to 14.7% from
15.6% for the year ended December 31, 2003. This decrease was attributable
primarily to facilities consolidations and other synergies achieved on the AERA
and Darlington acquisitions. Included in selling, general and administrative
expenses in 2004 and 2003 were $2.2 million and $1.1 million, respectively, of
external costs for compliance with Sarbanes-Oxley. We have not quantified the
internal costs.

     Research and development expense for the year ended December 31, 2004
increased to $11.6 million or 2.2% of net sales from $8.6 million or 1.9% of net
sales for the year ended December 31, 2003. The increase is attributable to
expenditures in reconnaissance and surveillance systems and force protection
systems.

     Interest expense, net of interest income, for the year ended December 31,
2004 decreased to $7.8 million compared to $8.2 for the year ended December 31,
2003, primarily due to higher interest income on a higher average cash balance.
Interest expense is associated primarily with our $137.8 million principal
amount of 5.25% Convertible Subordinated Notes ("Notes") issued in April 2002,
amortization of deferred debt issuance costs associated with the offering of the
Notes, and amortization of deferred financing costs associated with our credit
facility.

     Income tax expense reflects an effective rate of 34.9% for the year ended
December 31, 2004 and 41.8% for the year ended December 21, 2003. In 2004, the
Company recorded an income tax benefit of $2.8 million due to the reversal of
income tax contingencies which were determined to be no longer needed during the
fourth quarter of 2004.

     For the year ended December 31, 2004, net earnings were $29.1 million or
$1.49 per diluted common share on 22.4 million diluted shares compared to net
earnings from continuing operations of $13.4 million or $0.76 per diluted common
share on 17.6 million diluted shares for the year ended December 31, 2003. The
convertible notes had a dilutive effect for the year ended December 31, 2004,
but not for the year ended December 31, 2003. In the year ended December 31,
2003, we received notification of final settlement of bankruptcy matters
pertaining to our former energy business. Upon the discontinuance of such
business in 1996, a liability was established pending final settlement of the
bankruptcy. This liability was reversed as of December 31, 2003. Consequently,
$1.4 million, which was net of income tax expense of $1.0 million, was reported
as earnings from discontinued operations in the accompanying statement of
earnings.

LIQUIDITY AND CAPITAL RESOURCES

  BALANCE SHEET

     Our cash and cash equivalents increased 10.0% to $108.7 million at December
31, 2005 from $98.9 million at December 31, 2004. This increase was due to
approximately $49.5 million received from financing activities comprised
primarily of the issuance of 4.0% convertible subordinated notes and redemption
of our 5.25% convertible subordinated notes. In addition, we generated $44.8
million from operations. These increases were offset by approximately $61.0
million used for acquisitions and $23.7 million for the purchase of capital
equipment.

     Accounts receivable increased 23.0% to $189.2 million at December 31, 2005
from $153.8 million at December 31, 2004. This increase was due to the timing of
collections of billed receivables, primarily on aircraft armament systems
programs, and due to increased sales. At December 31, 2005, approximately 81% of
billed receivables were in the under 60 days aging category compared to 83% at
December 31, 2004.
                                        29
<PAGE>

     Inventories increased 7.0% to $56.6 million at December 31, 2005 from $52.9
million at December 31, 2004 due primarily to the efforts expended on
work-in-progress on major programs.

     The notes receivable of $7.1 million at December 31, 2005 and $7.2 million
at December 31, 2004 are comprised of a note receivable from the sale of our
facility in Deer Park in 2003 and a note receivable from the sale of our former
College Point facility in January 1996. The outstanding amount of the College
Point facility note was collected in January 2006. The Deer Park facility note
is due on the later of October 9, 2005 or the date EDO achieves "Material
Closure" defined as the investigation, assessment and remediation of an
Environmental Condition sufficient to not cause any material interference with
the Buyer's ability to develop, construct, finance or lease the Premises. EDO
believes that this note is currently due, but it has not yet been collected;
however, we see no reason to change its current classification.

  FINANCING ACTIVITIES

  Credit Facility

     In 2005, we entered into a $300 million credit facility which replaced our
expiring $200 million credit facility. The new credit facility is a five-year
facility with a consortium of banks, led by Citibank, N.A. as the administrative
agent, Bank of America as the syndication agent and Wachovia Bank, N.A. as the
documentation agent. The facility expires in November, 2010. The Credit
Agreement provides for a revolving credit facility in an aggregate amount equal
to $300 million which includes a swing loan facility with a sublimit of $20
million and a letter of credit facility with a sublimit of $100 million. The
potential cash borrowing under the facility is reduced by the amount of
outstanding letters of credit. The Company has the option to select Base Rate or
Eurodollar Rate loans under the terms of the Credit Agreement. Any borrowings
under the facility would be priced initially at LIBOR plus a predetermined
amount depending on our consolidated leverage ratio at the time of the
borrowing. At December 31, 2005, LIBOR was approximately 4.39% and the
applicable adjustment to LIBOR was 1.50%. The facility requires us to pay each
lender in the consortium a commitment fee on the average daily unused portion of
their respective commitment at a rate equal to 0.25%.

     There were no direct borrowings outstanding under any credit facility at
December 31, 2005 or 2004. Letters of credit outstanding at December 31, 2005,
pertaining to the credit facility were $32.2 million, resulting in $267.8
million available for borrowings.

     In connection with the credit facility, the Company is required to maintain
both financial and non-financial covenants and ratios, including, but not
limited to, leverage ratio, fixed charge coverage ratio, and senior secured
leverage ratio. As of December 31, 2005, the Company was in compliance with its
covenants. The credit facility is secured by the Company's accounts receivables,
inventory and machinery and equipment.

     4.0% Convertible Subordinated Notes due 2025 ("4.0% Notes")

     In November 2005, we completed the offering of $201.2 million principal of
4.0% Notes and received proceeds of $195.7 million, net of $5.5 million of
commissions. Interest payments are due May 15 and November 15 of each year
commencing on May 15, 2006. Accrued interest payable was $0.9 million at
December 31, 2005. The 4.0% Notes are convertible, unless previously redeemed or
repurchased by the Company, at the option of the holder at any time prior to
maturity, into the Company's common stock at an initial conversion price of
$34.19 per share, subject to adjustment in certain events. As of December 31,
2005, there had been no such conversions.

     5.25% Convertible Subordinated Notes due 2007("5.25% Notes")

     In April 2002, we completed the offering of the Notes and received proceeds
of $133.7 million, net of $4.1 million of commissions paid. On November 29, 2005
these notes were redeemed for cash at a premium of 2.1% of the $137.8 million
principal amount, or $2.9 million, which was expensed. As a result of the
redemption, we also wrote-off $1.3 million of the remaining unamortized deferred
financing costs associated with these notes.

                                        30
<PAGE>

  Shelf Registration

     At December 31, 2005, our remaining capacity under the universal shelf
registration statement that became effective in January 2004, was approximately
$298.8 million.

     We believe that, for the foreseeable future, we have adequate liquidity and
sufficient capital to fund our currently anticipated requirements for working
capital, capital expenditures, including acquisitions, research and development
expenditures, interest payments and funding of our pension and post-retirement
benefit obligations. We continue to focus on positioning ourselves to be a
significant player in the consolidation of first-tier defense suppliers and, to
that end, have actively sought candidates for strategic acquisitions. Future
acquisitions may be funded from any of the following sources: cash on hand;
borrowings under our credit facility; issuance of our common stock or other
equity securities; and/or convertible or other debt offerings.

  COMMITMENTS AND CONTINGENCIES

     In order to aggregate all commitments and contractual obligations as of
December 31, 2005, we have included the following table. We are obligated under
building and equipment leases expiring between 2006 and 2017. The aggregate
future minimum lease commitments under those obligations with non-cancellable
terms in excess of one year are shown below. Our commitments under letters of
credit and advance payment and performance bonds relate primarily to advances
received on foreign contracts should we fail to perform in accordance with the
contract terms. We do not expect to have to make payments under these letters of
credits or bonds since these obligations are removed as we perform under the
related contracts. The amounts for letters of credit and performance bonds
represent the amount of commitment expiration per period. Actual pension
contributions may differ from amounts presented below and are contingent on cash
flow and liquidity.

     Additionally, we are subject to certain legal actions that arise out of the
normal course of business. It is our belief that the ultimate outcome of these
actions will not have a material adverse effect on our consolidated financial
position, results of operations or liquidity.

<Table>
<Caption>
                                                              PAYMENTS DUE IN:
                                          ---------------------------------------------------------
                                                                                             2011
                                                                                             AND
COMMITMENTS AND CONTRACTUAL OBLIGATIONS:  TOTAL    2006    2007    2008    2009    2010     BEYOND
----------------------------------------  ------   -----   -----   -----   -----   -----   --------
                                                                (IN MILLIONS)
<S>                                       <C>      <C>     <C>     <C>     <C>     <C>     <C>
Note Payable............................  $  7.0   $ 2.0   $ 2.0   $ 3.0   $  --   $  --    $   --
4.0% Convertible Subordinated Notes due
  2025..................................   201.2      --      --      --      --      --     201.2
Operating leases........................   138.7    16.8    16.1    15.6    15.5    14.3      60.4
Letters of credit.......................    32.2    12.4    16.6      --     3.2      --        --
Projected pension contributions.........    23.0     6.0     6.0     6.0     5.0      --        --
Advance payment and performance bonds...     1.9     0.2      --      --     1.7      --        --
                                          ------   -----   -----   -----   -----   -----    ------
Total...................................  $404.0   $37.4   $40.7   $24.6   $25.4   $14.3    $261.6
                                          ======   =====   =====   =====   =====   =====    ======
</Table>

  CONCENTRATION OF SALES

     We conduct a significant amount of our business with the United States
Government. Although there are currently no indications of a significant change
in the status of government funding of certain programs, should this occur, our
results of operations, financial position and liquidity could be materially
affected. Such a change could have a significant impact on our profitability and
our stock price. This could also affect our ability to acquire funds from our
credit facility due to covenant restrictions or from other sources.

  BACKLOG

     The funded backlog of unfilled orders at December 31, 2005 increased to
$558.7 million from $474.6 million at December 31, 2004. Our backlog consists
primarily of current orders under long-lived, mission-critical programs on key
defense platforms.

COMMON SHARE PRICES

     EDO common shares are traded on the New York Stock Exchange. As of February
21, 2006, there were 1,715 shareholders of record (brokers and nominees counted
as one each).

                                        31
<PAGE>

     The price range in 2005 and 2004 was as follows:

<Table>
<Caption>
                                                       2005                2004
                                                 -----------------   -----------------
                                                  HIGH       LOW      HIGH       LOW
                                                 -------   -------   -------   -------
<S>                                              <C>       <C>       <C>       <C>
1st Quarter....................................  32.8700   27.1600   27.2000   23.1000
2nd Quarter....................................  30.8900   26.5800   25.8900   20.7100
3rd Quarter....................................  31.6300   26.8600   28.0100   22.3100
4th Quarter....................................  30.3900   25.8000   32.4200   26.2400
</Table>

DIVIDENDS

     During 2005 and 2004, the Board of Directors approved the payment of
quarterly cash dividends of $0.03 per common share. The Company's credit
facility places certain limits on the payment of cash dividends.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     None.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

     The statements in this Annual Report and in oral statements that may be
made by representatives of the Company relating to plans, strategies, economic
performance and trends and other statements that are not descriptions of
historical facts may be forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995, Section 27(a) of the
Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward looking statements are inherently subject to risks and uncertainties,
and actual results could differ materially from those currently anticipated due
to a number of factors, which include, but are not limited to the following for
each of the types of information noted below.

     U.S. and international military program sales, follow-on procurement,
contract continuance, and future program awards, upgrades and spares support are
subject to: U.S. and international military budget constraints and
determinations; U.S. congressional and international legislative body
discretion; U.S. and international government administration policies and
priorities; changing world military threats, strategies and missions;
competition from foreign manufacturers of platforms and equipment; NATO country
determinations regarding participation in common programs; changes in U.S. and
international government procurement timing, strategies and practices, the
general state of world military readiness and deployment; and the ability to
obtain export licenses.

     Commercial satellite programs and equipment sales, follow-on procurement,
contract continuance and future program awards, upgrades and spares support are
subject to: establishment and continuance of various consortiums for satellite
constellation programs; delay in launch dates due to equipment, weather or other
factors beyond our control; and development of sufficient customer base to
support a particular satellite constellation program.

     Commercial product sales are subject to: success of product development
programs currently underway or planned; competitiveness of current and future
production costs and prices and market and consumer base development of new
product programs.

     Achievement of margins on sales, earnings and cash flow can be affected by:
unanticipated technical problems; government termination of contracts for
convenience; decline in expected levels of sales; underestimation of anticipated
costs on specific programs; the ability to effect acquisitions; and risks
inherent in integrating recent acquisitions into our overall structure.

     Expectations of future income tax rates can be affected by a variety of
factors, including statutory changes in Federal and state tax rates,
nondeductibility of goodwill amortization and IPR&D acquired in a stock purchase
business combination and the nondeductibility of our noncash ESOP compensation
expense.

     The Company has no obligation to update any forward-looking statements.

                                        32
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      CONSOLIDATED STATEMENTS OF EARNINGS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2005       2004       2003
                                                              --------   --------   --------
                                                                      (IN THOUSANDS,
                                                                EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>        <C>        <C>
CONTINUING OPERATIONS:
  NET SALES.................................................  $648,482   $536,173   $460,667
  COSTS AND EXPENSES
    Cost of sales...........................................   490,617    392,961    338,259
    Selling, general and administrative.....................    85,921     78,791     71,855
    Research and development................................    17,122     11,620      8,594
    Environmental cost provision on Deer Park facility......     1,543         --         --
    Impairment loss on Deer Park facility...................        --         --      9,160
    Write-off of purchased in-process research and
       development and merger-related costs.................        --         --        929
    Benefit plan curtailment loss...........................        --         --        942
                                                              --------   --------   --------
                                                               595,203    483,372    429,739
                                                              --------   --------   --------
  OPERATING EARNINGS........................................    53,279     52,801     30,928
  NON-OPERATING INCOME (EXPENSE)
    Interest income.........................................     2,300      1,271        941
    Interest expense........................................    (9,420)    (9,119)    (9,093)
    Loss on redemption of 5.25% Convertible Subordinated
       Notes................................................    (4,171)        --         --
    Other, net..............................................      (147)      (319)       279
                                                              --------   --------   --------
                                                               (11,438)    (8,167)    (7,873)
                                                              --------   --------   --------
    Earnings from continuing operations before income
       taxes................................................    41,841     44,634     23,055
Income tax expense..........................................   (15,572)   (15,566)    (9,644)
                                                              --------   --------   --------
  EARNINGS FROM CONTINUING OPERATIONS.......................    26,269     29,068     13,411
DISCONTINUED OPERATIONS:
  Gain from discontinued operations, net of tax of $971.....        --         --      1,398
                                                              --------   --------   --------
  EARNINGS FROM DISCONTINUED OPERATIONS.....................        --         --      1,398
                                                              --------   --------   --------
NET EARNINGS................................................  $ 26,269   $ 29,068   $ 14,809
                                                              ========   ========   ========
EARNINGS PER COMMON SHARE:
  Basic:
    Continuing operations...................................  $   1.45   $   1.64   $   0.78
    Discontinued operations.................................        --         --       0.08
                                                              --------   --------   --------
NET EARNINGS PER COMMON SHARE -- BASIC......................  $   1.45   $   1.64   $   0.86
                                                              ========   ========   ========
  Diluted:
    Continuing operations...................................  $   1.33   $   1.49   $   0.76
    Discontinued operations.................................        --         --       0.08
                                                              --------   --------   --------
NET EARNINGS PER COMMON SHARE -- DILUTED....................  $   1.33   $   1.49   $   0.84
                                                              ========   ========   ========
Dividends declared per common share.........................  $   0.12   $   0.12   $   0.12
                                                              ========   ========   ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.
                                        33
<PAGE>

                          CONSOLIDATED BALANCE SHEETS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2005        2004
                                                              ---------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                               SHARE AND PER SHARE
                                                                    AMOUNTS)
<S>                                                           <C>         <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $108,731    $ 98,884
  Accounts receivable, net..................................   189,190     153,810
  Inventories...............................................    56,567      52,867
  Deferred income tax asset, net............................     8,946       5,046
  Notes receivable..........................................     7,100       7,202
  Prepayments and other.....................................     3,809       3,493
                                                              --------    --------
     Total current assets...................................   374,343     321,302
                                                              --------    --------
Property, plant and equipment, net..........................    49,574      34,830
Goodwill....................................................   152,347      91,651
Other intangible assets.....................................    55,925      50,356
Deferred income tax asset, net..............................    29,637      30,241
Other assets................................................    25,573      18,309
                                                              --------    --------
                                                              $687,399    $546,689
                                                              ========    ========

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 33,111    $ 32,406
  Accrued liabilities.......................................    52,126      48,492
  Contract advances and deposits............................    42,244      13,696
  Note payable..............................................     2,000          --
                                                              --------    --------
     Total current liabilities..............................   129,481      94,594
                                                              --------    --------
Income taxes payable........................................     6,513       5,768
Note payable, long-term.....................................     5,000          --
Long-term debt..............................................   201,250     137,800
Post-retirement benefits obligations........................   103,815      94,936
Environmental obligation....................................     1,392       1,663
Other long-term liabilities.................................        55          --
Shareholders' equity:
  Preferred shares, par value $1 per share, authorized
     500,000 shares.........................................        --          --
  Common shares, par value $1 per share, authorized
     50,000,000 shares, 20,305,815 issued in 2005 and
     20,112,243 issued in 2004..............................    20,306      20,112
  Additional paid-in capital................................   167,219     158,548
  Retained earnings.........................................   120,103      96,004
  Accumulated other comprehensive loss, net of income tax
     benefit ($32,711 in 2005 and $29,617 in 2004)..........   (47,072)    (42,619)
  Treasury shares at cost (111,317 shares in 2005 and 94,585
     shares in 2004)........................................    (1,868)     (1,449)
  Unearned Employee Stock Ownership Plan shares.............   (14,789)    (16,039)
  Deferred compensation under Long-Term Incentive Plan......    (3,866)     (2,408)
  Management group receivables..............................      (140)       (221)
                                                              --------    --------
     Total shareholders' equity.............................   239,893     211,928
                                                              --------    --------
                                                              $687,399    $546,689
                                                              ========    ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.
                                        34
<PAGE>

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                              YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------------------------
                                                                    2005                2004                2003
                                                              -----------------   -----------------   -----------------
                                                               AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                                              --------   ------   --------   ------   --------   ------
                                                                                   (IN THOUSANDS)
<S>                                                           <C>        <C>      <C>        <C>      <C>        <C>
COMMON SHARES
  Balance at beginning of year..............................    20,112   20,112     19,832   19,832     19,790   19,790
  Exercise of stock options.................................        83       83        164      164         31       31
  Shares used for Long-Term Incentive Plan..................       111      111        116      116         11       11
                                                              --------   ------   --------   ------   --------   ------
  Balance at end of year....................................    20,306   20,306     20,112   20,112     19,832   19,832
                                                              --------   ------   --------   ------   --------   ------
ADDITIONAL PAID-IN CAPITAL
  Balance at beginning of year..............................   158,548             150,097             147,091
  Exercise of stock options.................................       792               1,371                 150
  Income tax benefit related to stock options and Long-Term
    Incentive Plan..........................................       711               1,134                 328
  Shares used for payment of directors' fees................        83                  60                  28
  Shares used for Long-Term Incentive Plan..................     3,347               2,807                 178
  Compensation expense on accelerated options...............        37                  --                 292
  Employee Stock Ownership Plan shares
    committed-to-be-released................................     3,701               3,079               2,030
                                                              --------            --------            --------
  Balance at end of year....................................   167,219             158,548             150,097
                                                              --------            --------            --------
RETAINED EARNINGS
  Balance at beginning of year..............................    96,004              69,059              56,325
  Net earnings..............................................    26,269              29,068              14,809
  Common share dividends (12 cents per share)...............    (2,170)             (2,123)             (2,075)
                                                              --------            --------            --------
  Balance at end of year....................................   120,103              96,004              69,059
                                                              --------            --------            --------
ACCUMULATED OTHER COMPREHENSIVE LOSS
  Balance at beginning of year..............................   (42,619)            (29,281)            (33,899)
  Unrealized gain (loss) on foreign currency, net of tax....         8                (273)                 50
  Additional minimum pension liability, net of tax..........    (4,461)            (13,065)              4,568
                                                              --------            --------            --------
  Balance at end of year....................................   (47,072)            (42,619)            (29,281)
                                                              --------            --------            --------
TREASURY SHARES AT COST
  Balance at beginning of year..............................    (1,449)     (95)    (1,255)     (88)    (1,321)     (94)
  Shares used for exercise of stock Options.................                            --                  87        6
  Shares used for payment of directors' fees................       115        7         80        5         80        6
  Shares (repurchased from) used for Long-Term Incentive
    Plan....................................................      (534)     (23)      (274)     (12)      (101)      (6)
                                                              --------   ------   --------   ------   --------   ------
  Balance at end of year....................................    (1,868)    (111)    (1,449)     (95)    (1,255)     (88)
                                                              --------   ------   --------   ------   --------   ------
DEFERRED COMPENSATION UNDER LONG-TERM INCENTIVE PLAN
  Balance at beginning of year..............................    (2,408)               (479)               (579)
  Shares used for Long-Term Incentive Plan..................    (3,136)             (2,845)               (189)
  Shares cancelled of Long-Term Incentive Plan..............        17
  Amortization of Long-Term Incentive Plan deferred
    compensation expense....................................     1,661                 916                 289
                                                              --------            --------            --------
  Balance at end of year....................................    (3,866)             (2,408)               (479)
                                                              --------            --------            --------
</Table>

                                        35
<PAGE>

<Table>
<Caption>
                                                                              YEARS ENDED DECEMBER 31,
                                                              ---------------------------------------------------------
                                                                    2005                2004                2003
                                                              -----------------   -----------------   -----------------
                                                               AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                                              --------   ------   --------   ------   --------   ------
                                                                                   (IN THOUSANDS)
<S>                                                           <C>        <C>      <C>        <C>      <C>        <C>
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN COMPENSATION
  Balance at beginning of year..............................   (16,039)            (17,290)            (18,541)
  Employee Stock Ownership Plan Shares
    committed-to-be-released................................     1,250               1,251               1,251
                                                              --------            --------            --------
  Balance at end of year....................................   (14,789)            (16,039)            (17,290)
                                                              --------            --------            --------
MANAGEMENT GROUP RECEIVABLES
  Balance at beginning of year..............................      (221)               (351)               (593)
  Payments received on management loans.....................        81                 130                 242
                                                              --------            --------            --------
  Balance at end of year....................................      (140)               (221)               (351)
                                                              --------            --------            --------
TOTAL SHAREHOLDERS' EQUITY..................................  $239,893            $211,928            $190,332
                                                              ========            ========            ========
COMPREHENSIVE INCOME
  Net earnings..............................................  $ 26,269            $ 29,068            $ 14,809
  Additional minimum pension liability, net of income tax
    benefit (expense) of $3,100 in 2005, 9,079 in 2004 and
    $(3,175) in 2003........................................    (4,461)            (13,065)              4,568
  Unrealized gain (loss) on foreign currency, net of tax....         8                (273)                 50
                                                              --------            --------            --------
  Comprehensive income......................................  $ 21,816            $ 15,730            $ 19,427
                                                              ========            ========            ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.
                                        36
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                  YEARS ENDED DECEMBER 31,
                                                               -------------------------------
                                                                 2005        2004       2003
                                                               ---------   --------   --------
                                                                       (IN THOUSANDS)
<S>                                                            <C>         <C>        <C>
OPERATING ACTIVITIES:
  Earnings from operations..................................   $  26,269   $ 29,068   $ 13,411
  Adjustments to earnings to arrive at cash provided by
     operations:
     Depreciation...........................................       9,768     10,476     12,180
     Amortization...........................................       5,931      5,564      4,885
     Deferred tax benefit...................................      (3,219)      (660)    (6,840)
     Bad debt expense.......................................         823         --        568
     Loss on sale of Deer Park facility.....................          --         --      9,160
     Loss (gain) on sale of property, plant and equipment...         801        255       (131)
     Environmental cost provision, Deer Park facility.......       1,543         --         --
     Deferred compensation expense..........................       1,661        916        289
     Non-cash Employee Stock Ownership Plan compensation
       expense..............................................       4,952      4,330      3,281
     Dividends on unallocated Employee Stock Ownership Plan
       shares...............................................         251        272        292
     Non-cash compensation expense..........................          37         --        292
     Common shares issued for directors' fees...............         198        140        108
     Income tax benefit from stock options and Long-Term
       Incentive Plan.......................................         711      1,134        328
     Changes in operating assets and liabilities, excluding
       effects of acquisitions:
       Accounts receivable..................................     (28,362)   (19,507)    (3,203)
       Inventories..........................................      (2,309)   (18,134)     1,406
       Prepayments and other assets.........................       4,554      3,588      4,032
       Contribution to defined benefit pension plan.........      (6,000)        --     (5,000)
       Accounts payable, accrued liabilities and other......        (905)     2,744     (5,402)
       Contract advances and deposits.......................      28,119      5,501    (12,082)
                                                               ---------   --------   --------
Cash provided by operations.................................      44,823     25,687     17,574
                                                               ---------   --------   --------
Net cash provided by discontinued operations................          --         --         79
                                                               ---------   --------   --------
INVESTING ACTIVITIES:
  Purchase of plant and equipment...........................     (23,718)   (14,206)    (8,865)
  Payments received on notes receivable.....................         300      1,200      1,385
  Proceeds from sale of property, plant and equipment.......          --         --     21,304
  Restricted cash...........................................          --         --     27,347
  Cash (paid) received related to acquisitions, net of cash
     acquired...............................................     (61,078)       301    (94,188)
                                                               ---------   --------   --------
Cash used by investing activities...........................     (84,496)   (12,705)   (53,017)
                                                               ---------   --------   --------
</Table>

                                        37
<PAGE>

<Table>
<Caption>
                                                                  YEARS ENDED DECEMBER 31,
                                                               -------------------------------
                                                                 2005        2004       2003
                                                               ---------   --------   --------
                                                                       (IN THOUSANDS)
<S>                                                            <C>         <C>        <C>
FINANCING ACTIVITIES:
  Issuance of 4.0% convertible subordinated notes...........     195,716         --         --
  Redemption of 5.25% convertible subordinated notes........    (137,800)        --         --
  Proceeds from exercise of stock options...................         875      1,535        268
  Proceeds from management group receivables................          81        130        242
  Repayments of acquired debt...............................      (6,931)        --     (8,660)
  Payment of common share cash dividends....................      (2,421)    (2,395)    (2,367)
                                                               ---------   --------   --------
Cash provided (used) by financing activities................      49,520       (730)   (10,517)
                                                               ---------   --------   --------
Net increase (decrease) in cash and cash equivalents........       9,847     12,252    (45,881)
Cash and cash equivalents at beginning of year..............      98,884     86,632    132,513
                                                               ---------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................   $ 108,731   $ 98,884   $ 86,632
                                                               =========   ========   ========
Supplemental disclosures:
  Cash paid for:
     Interest...............................................   $   8,119   $  7,234   $  7,234
                                                               =========   ========   ========
     Income taxes...........................................   $  15,424   $ 16,278   $ 11,880
                                                               =========   ========   ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.
                                        38
<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2005, 2004 AND 2003

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  (A) PRINCIPLES OF CONSOLIDATION AND BUSINESS

     The consolidated financial statements include the accounts of EDO
Corporation and all wholly-owned subsidiaries (the "Company"). All significant
intercompany accounts and transactions have been eliminated in consolidation.

     The Company operates in two segments: Engineered Systems and Services and
Electronic Systems and Communications.

  (B) CASH EQUIVALENTS

     The Company considers all securities with an original maturity of three
months or less at the date of acquisition to be cash equivalents.

  (C) REVENUE RECOGNITION

     Sales under long-term, fixed-price contracts, including pro-rata profits,
are generally recorded based on the relationship of costs incurred to date to
total projected final costs or, alternatively, as deliveries and other
milestones are achieved or services are provided. These projections are revised
throughout the lives of the contracts. Adjustments to profits resulting from
such revisions are made cumulative to the date of change and may affect current
period earnings. Sales on other than long-term contract orders (principally
commercial products) are recorded as shipments are made. Our gross profit is
affected by a variety of factors, including the mix of products, systems and
services sold, production efficiencies, price competition and general economic
conditions. Estimated losses on long-term contracts are recorded when
identified.

  (D) INVENTORIES

     Inventories under long-term contracts and programs reflect all accumulated
production costs, including factory overhead, initial tooling and other related
costs (including general and administrative expenses relating to certain of our
defense contracts), less the portion of such costs charged to cost of sales. All
other inventories are stated at the lower of cost (principally first-in,
first-out method) or market. Inventory costs in excess of amounts recoverable
under contracts and which relate to a specific technology or application and
which may not have alternative uses are charged to cost of sales when such
circumstances are identified.

     From time to time, we manufacture certain products prior to receiving firm
contracts in anticipation of future demand. Such costs are inventoried and are
incurred to help maintain stable and efficient production schedules.

     Several factors may influence the sale and use of our inventories,
including our decision to exit a product line, technological change, new product
development and/or revised estimates of future product demand. If inventory is
determined to be overvalued due to one or more of the above factors, we would be
required to recognize such loss in value at the time of such determination.

     Under the contractual arrangements by which progress payments are received,
the United States Government has a title to or a security interest in the
inventories identified with related contracts.

  (E) LONG-LIVED ASSETS, OTHER THAN GOODWILL AND OTHER INTANGIBLES

     Property, plant and equipment are recorded at cost and is generally
depreciated on a straight-line basis over the estimated useful lives of such
assets. Amortization of leasehold improvements is computed using the

                                        39
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

straight-line method over the shorter of the remaining lease term or the
estimated useful lives of the improvements.

     In those cases where the Company determines that the useful life of
property, plant and equipment should be shortened, the Company would depreciate
the net book value in excess of salvage value over its revised remaining useful
life thereby increasing depreciation expense. Factors such as technological
advances, changes to the Company's business model, changes in the Company's
capital strategy, changes in the planned use of equipment, fixtures, software or
changes in the planned use of facilities could result in shortened useful lives.

     The Company reviews its long-lived assets for impairment in accordance with
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standard ("SFAS") No. 144, "Accounting for Impairment or Disposal of Long-Lived
Assets". SFAS No. 144 requires the Company to review its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of any such asset may not be recoverable. The estimate of cash
flow, which is used to determine recoverability, is based upon, among other
things, certain assumptions about future operating performance.

     The Company's estimates of undiscounted cash flow may differ from actual
cash flow due to such factors including technological advances, changes to the
Company's business model, or changes in the Company's capital strategy or
planned use of long-lived assets. If the sum of the undiscounted cash flows,
excluding interest, is less than the carrying value, we would recognize an
impairment loss, measured as the amount by which the carrying value exceeds the
fair value of the asset.

     Costs associated with the acquisition and development of software for
internal use are recognized in accordance with Statement of Position ("SOP") No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." In 2005 and 2004, the Company capitalized approximately $2.6
million and $0.6 million, respectively, of such costs. These costs are being
amortized on a straight-line basis over periods ranging from two to five years.

     Deferred financing costs are amortized on a straight-line basis over the
life of the related financing. The unamortized balances of $7.5 million and $2.7
million are included in other assets at December 31, 2005 and 2004,
respectively. The increase in 2005 is attributable to the costs associated with
the issuance of the 4.0% Convertible Subordinated Notes and the costs to enter
into the new $300 million Credit Facility.

  (F) BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS

     In accordance with SFAS No. 142, goodwill must be tested at least annually
for impairment at the reporting unit level. If an indication of impairment
exists, we are required to determine if such goodwill's implied fair value is
less than the carrying value in order to determine the amount, if any, of the
impairment loss required to be recorded. Impairment indicators include, among
other conditions, cash flow deficits, an historic or anticipated decline in
revenue or operating profits, adverse legal or regulatory developments,
accumulation of costs significantly in excess of amounts originally expected to
acquire the asset and/or a material decrease in the fair value of some or all of
the assets. The Company performs the required impairment tests of goodwill as of
October 1 each year. There was no indication of impairment at December 31, 2005
and 2004.

                                        40
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The changes in the carrying amount of goodwill by segment for the years
ended December 31, 2005 and 2004 are as follows:

<Table>
<Caption>
                                               ENGINEERED           ELECTRONIC
                                              SYSTEMS AND          SYSTEMS AND
                                                SERVICES          COMMUNICATIONS      TOTAL
                                              -----------         --------------     --------
<S>                                        <C>                  <C>                  <C>
Balance as of January 1, 2005............       $37,899              $ 53,752        $ 91,651
Acquisitions in 2005.....................         5,947                54,749          60,696
                                                -------              --------        --------
Balance as of December 31, 2005..........       $43,846              $108,501        $152,347
                                                =======              ========        ========
</Table>

     Summarized below are intangible assets as of December 31:

<Table>
<Caption>
                                                        2005       2004         LIFE
                                                      --------   --------   -------------
                                                        (IN THOUSANDS)
<S>                                                   <C>        <C>        <C>
Intangible assets subject to amortization:
  Capitalized non-compete agreements related to
     acquisitions...................................  $  3,118   $  3,118   1-5 years
  Purchased technologies related to acquisitions....    21,103     17,003   8-25 years
  Customer contracts and relationships related to
     acquisitions...................................    45,698     39,198   6-20 years
  Tradename related to acquisitions.................     2,069      1,569   5-10 years
Other intangible assets related to acquisitions.....       916        916   2 years
                                                      --------   --------
                                                        72,904     61,804
     Less accumulated amortization..................   (17,379)   (11,448)
                                                      --------   --------
                                                      $ 55,525   $ 50,356
                                                      --------   --------
Intangible assets not subject to amortization:
     Tradename related to acquisitions..............       400         --
                                                      --------   --------
Balance as of December 31...........................  $ 55,925   $ 50,356
                                                      ========   ========
</Table>

     The amortization expense for the years ended December 31, 2005, 2004 and
2003 amounted to $5.9 million, $5.5 million and $4.9 million, respectively.
Amortization expense for 2006, 2007, 2008, 2009, 2010 and thereafter related to
these intangible assets is estimated to be $6.5 million, $6.4 million, $5.7
million, $5.7 million, $4.9 million and $26.3 million, respectively.

  (G) INCOME TAXES

     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be realized or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

  (H) TREASURY SHARES

     Common shares held as treasury shares are recorded at cost, with issuances
from treasury recorded at average cost. Treasury shares issued for directors'
fees are recorded as an expense for an amount equal to the fair market value of
the common shares on the issuance date.

                                        41
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (I) FINANCIAL INSTRUMENTS

     The net carrying value of notes receivable approximates fair value based on
current rates for comparable commercial mortgages. The fair value of the
Company's new 4.0% Convertible Subordinated Notes due 2025 (4.0% Notes) at
December 31, 2005 was approximately $203.3 million based on recent market
transactions compared to a carrying value of $201.2 million. The fair value of
the environmental obligation approximates its carrying value since it has been
discounted. The fair values of all other financial instruments approximate book
values because of the short-term maturities of these instruments.

  (J) USE OF ESTIMATES

     Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with accounting principles generally accepted in the
United States. Actual results could differ from these and other estimates.

  (K) STOCK-BASED COMPENSATION

     The Company accounts for its stock-based compensation plans in accordance
with Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations. Under APB No. 25, because the
exercise price of the Company's stock options is set equal to the market price
of the underlying stock on the date of grant, no compensation expense is
recognized. The following table illustrates the effect on net earnings and
earnings per share if the Company had applied the fair market value recognition
provisions of SFAS No. 123 "Accounting for Stock-Based Compensation" whereby
compensation expense would be recognized as incurred for stock-based employee
compensation. For purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. The
Company did not issue any options during fiscal year 2005, other than to
Directors, which when issued were 100% vested and the expense associated with
the grants is reflected in the proformas in 2005. The per share weighted-average
fair value of stock options granted was $13.06 and $10.63 in 2004 and 2003,
respectively, on the dates of grant using the Black Scholes option-pricing model
with the following weighted-average assumptions: 2004 -- expected dividend yield
of 1%, risk free interest rate of 3.8%, expected volatility of 47%, and an
expected option life of 6 years; 2003 -- expected dividend yield of 1%, risk
free interest rate of 3.6%, expected stock volatility of 51%, and an expected
option life of 7 1/2 years.

<Table>
<Caption>
                                                           2005      2004      2003
                                                          -------   -------   -------
                                                                (IN THOUSANDS,
                                                           EXCEPT PER SHARE AMOUNTS)
<S>                                                       <C>       <C>       <C>
Earnings:
  As reported...........................................  $26,269   $29,068   $13,411
Deferred compensation expense, net of tax...............    1,002       540       171
  Stock compensation expense based on fair value method,
     net of tax.........................................   (2,377)   (2,425)   (1,797)
                                                          -------   -------   -------
  Pro forma.............................................  $24,894   $27,183   $11,785
                                                          =======   =======   =======
Basic earnings per common share:
  As reported...........................................  $  1.45   $  1.64   $  0.78
  Pro forma.............................................     1.38      1.54      0.68
Diluted earnings per common share:
  As reported...........................................  $  1.33   $  1.49   $  0.76
  Pro forma.............................................     1.27      1.41      0.67
                                                          =======   =======   =======
</Table>

                                        42
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     For the twelve months ended December 31, 2005 and December 31, 2004, the
Company issued 83,332 and 164,132 common shares for the exercise of stock
options and 110,250 and 116,000 restricted common shares for long-term incentive
awards.

     On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004) (FAS 123(R)), Share-Based Payment,
which is a revision of FASB Statement No. 123, Accounting for Stock-Based
Compensation. FAS123(R) supersedes APB Opinion No. 25, Accounting for Stock
Issued to employees, and amends FASB Statement No. 95, Statement of Cash Flows.
Generally, the approach in FAS123(R) is similar to the approach described in
Statement 123. However, FAS123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro forma disclosure is no longer
an alternative. FAS123(R) must be adopted by the Company no later than January
1, 2006.

     As permitted by Statement 123, the Company accounted for share-based
payments to employees using APB Opinion No. 25's intrinsic value method and, as
such, generally recognized no compensation cost for employee stock options
through December 31, 2005.

     The Company has adopted FAS123(R) on January 1, 2006, using the "modified
prospective" method in which compensation cost is recognized beginning with the
effective date (a) based on the requirements of FAS123(R) for all share-based
payments granted after the effective date and (b) based on the requirements of
Statement 123 for all awards granted to employees prior to the effective date of
FAS123(R) that remain unvested on the effective date.

     Accordingly, the adoption of FAS123(R)'s fair value method will have an
impact on our result of operations. The impact of the adoption of
FAS123(R)cannot be determined at this time because it will depend on levels of
share-based payments granted in the future. However, had we adopted FAS123(R) in
prior periods, the impact of that standard would have approximated the impact of
Statement 123 as described in the disclosure of pro forma net income and
earnings per share in this Note to our consolidated financial statements.

     FAS 123(R) also requires the benefits of tax deductions in excess of
recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow as required under current literature. This
requirement will reduce net operating cash flows and increase net financing cash
flows in periods after adoption. The Company cannot estimate what those amounts
will be in the future, because they depend on, among other things, when
employees exercise stock options and the fair value of the Company's stock on
the date of exercise.

  (L) RECLASSIFICATIONS

     Certain reclassifications have been made to prior year presentations to
conform to current year presentations.

(2) ACQUISITIONS

     On December 20, 2005, the Company acquired for cash all of the stock of
NexGen Communications LLC, a privately-held company specializing in the design
and production of communications systems for a diverse set of U.S. government
organizations. The acquisition strengthened our fast-growing position in
specialized communication products. The acquired company became part of the
Company's Electronic Systems and Communications segment. The Company has not yet
completed its analysis of the fair value of the acquired assets and liabilities.
Consequently, the excess purchase price over the net assets acquired has been
temporarily assigned to goodwill, and amounts recorded are subject to change.
The excess of the purchase price over the net assets acquired related to NexGen
is not deductible for income tax purposes.

                                        43
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     On September 19, 2005, we acquired for cash all of the stock of Fiber
Innovations, Inc., a privately-held company that is a designer and manufacturer
of fiber reinforced-composites. This acquisition has added important
complementary design and manufacturing capabilities to EDO's
integrated-composite-structures business. The acquired company became part of
the Company's Engineered Systems and Services segment. The excess of the
purchase price over the net assets acquired related to Fiber Innovations is not
deductible for income tax purposes.

     On May 2, 2005, we acquired for cash all of the units of EVI Technology,
LLC (EVI), a privately-held company. EVI is a designer, manufacturer and
integrator of classified intelligence systems. EVI has strengthened and expanded
EDO's range of products and engineering expertise in a number of synergistic
areas. The acquired company became part of the Company's Electronic Systems and
Communications segment. The excess of the purchase price over the net assets
acquired related to EVI recorded as goodwill and other intangible assets is
deductible for income tax purposes over 15 years.

     In June 2003, we acquired all of the stock of Emblem Group Ltd., a
privately-held company based in England. Emblem became part of the Company's
Engineered Systems and Services segment and reinforced our position as a global
leader in aircraft armament-release systems. In the second quarter of 2004 we
received $0.3 million from an escrow account resulting in a decrease in purchase
price and, therefore, goodwill. The excess of the purchase price over the net
assets acquired recorded as goodwill and other intangibles related to Emblem's
units located in the UK is deductible for U.S. income tax purposes over 15
years. The excess of the purchase price over the net assets acquired related to
Artisan Technologies, Inc. is not deductible for income tax purposes.

     In March 2003, we acquired all of the stock of Darlington, Inc., a
privately-held defense-communications company. This acquisition significantly
expanded our capabilities in defense communications and related services.
Darlington became part of the Company's Electronic Systems and Communications
segment. The excess of the purchase price over the net assets acquired recorded
as goodwill and other intangible assets is deductible for income tax purposes
over 15 years.

     In February 2003, we acquired all of the stock of Advanced Engineering &
Research Associates, Inc. (AERA), a privately-held company which strengthened
and expanded our range of professional services. AERA became part of the
Company's Engineered Systems and Services segment. The excess of the purchase
price over the net assets acquired recorded as goodwill and other intangible
assets is deductible for income tax purposes over 15 years.

     In July 2002, we acquired, in an auction under section 363 of the U.S.
Bankruptcy Code, substantially all of the assets of Condor Systems, Inc., a
privately-held defense-electronics company and its subsidiary (together,
"Condor"). The acquisition of Condor's business has expanded our
defense-electronics capabilities in the areas of reconnaissance and surveillance
systems and communications and countermeasures. The assets became part of the
Company's Electronic Systems and Communications segment. Associated with the
acquisition and included in operating earnings for 2003 is $0.9 million, of
acquisition-related costs. The excess of the purchase price over the net assets
acquired recorded as goodwill, IPR&D and other intangible assets is deductible
for income tax purposes over 15 years.

     These acquisitions were accounted for as purchases and, accordingly, their
operating results are included in the Company's consolidated financial
statements since their respective acquisition dates.

                                        44
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table summarizes the allocation of the purchase price to the
assets acquired and liabilities assumed at the dates of acquisition.

<Table>
<Caption>
                                                               2005 ACQUISITIONS
                                                               -----------------
                                                                (IN THOUSANDS)
<S>                                                            <C>
Current assets..............................................       $ 12,332
Plant and equipment.........................................          1,594
Customer contracts and relationships........................          6,500
Purchased technologies......................................          4,100
Tradename...................................................            900
Goodwill....................................................         60,696
Liabilities.................................................        (15,617)
                                                                   --------
Total purchase price........................................       $ 70,505
                                                                   ========
</Table>

     The allocation of the purchase price for two acquisitions have been
finalized. There are outstanding amounts held in escrow which, when settled, may
result in further adjustments to goodwill.

     Unaudited pro forma results of operations, assuming the acquisitions of
Emblem, Darlington and AERA had been completed at the beginning of 2003 are
summarized below. The results reflect adjustments to net sales, cost of sales,
amortization expense, compensation expense, purchased in-process research and
development costs, interest income and expense and income tax expense. The
interest rate used in determining pro forma adjustments to interest income or
expense was based on the average yield of the Company's invested cash and cash
equivalents and approximated 1.0% for each of the respective periods presented
below.

<Table>
<Caption>
                                                                    YEAR ENDED
                                                                 DECEMBER 31, 2003
                                                               ---------------------
                                                               (IN THOUSANDS, EXCEPT
                                                                PER SHARE AMOUNTS)
<S>                                                            <C>
Net sales...................................................         $489,531
Earnings available for common shares, before discontinued
  operations and cumulative effect of a change in accounting
  principle.................................................         $ 15,995
Diluted earnings per common share...........................         $   0.91
</Table>

     The pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had these acquisitions
been completed at the beginning of the periods, or of the results which may
occur in the future.

     On a proforma basis, had the three acquisitions made in 2005 taken place as
of the beginning of each respective year, the results of operations would not
have been materially affected for 2003, 2004 and 2005.

(3) DISCONTINUED OPERATIONS

     In 2003, we received notification of final settlement of bankruptcy matters
pertaining to our former energy business. Upon the discontinuance of such
business in 1996, a liability was established pending final settlement of the
bankruptcy. This liability was reversed in the second quarter of 2003.
Consequently, $1.4 million, net of income tax expense of $1.0 million, was
reported as earnings from discontinued operations in the accompanying statement
of earnings.

(4) ACCOUNTS AND NOTES RECEIVABLE

     Accounts receivable included $65.6 million and $51.8 million at December
31, 2005 and 2004, respectively, of unbilled revenues. Substantially all of the
unbilled balances at December 31, 2005 will be

                                        45
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

billed and are expected to be collected during 2006. Total billed receivables
due from the United States Government, either directly or as a subcontractor to
a prime contractor with the Government, were $92.1 million and $70.9 million at
December 31, 2005 and 2004 respectively. Billed accounts receivable are net of
an allowance for doubtful accounts of approximately $1.0 million and $0.6
million at December 31, 2005 and 2004, respectively.

     Notes receivable consist of the following at December 31:

<Table>
<Caption>
                                                               2005     2004
                                                              ------   ------
                                                              (IN THOUSANDS)
<S>                                                           <C>      <C>
Current:
  College Point.............................................  $  100   $  400
  Deer Park.................................................   7,000    6,802
                                                              ------   ------
Total.......................................................  $7,100   $7,202
                                                              ======   ======
</Table>

     The original notes from the sale of the College Point facility in January
1996 were to be paid in full by December 31, 2004. One note was collected in
full in 2004 and the other note was amended and extended to December 31, 2005.
The latter note was due in equal quarterly amounts through September 2005 with a
final payment of $0.1 million due on December 31, 2005 and bore interest at 7%
per annum. The outstanding amount of $0.1 million was collected in January 2006.
Also included in notes receivable is the note related to the sale of the
Company's Deer Park facility in July 2003. Of the $29.0 million sales price,
$22.0 million was in cash and $7.0 million was in the form of a purchase money
mortgage and note. The outstanding amount of the College Point facility note was
collected in January 2006. The Deer Park facility note is due on the later of
October 9, 2005 or the date EDO achieves "Material Closure" defined as the
investigation, assessment and remediation of an Environmental Condition
sufficient to not cause any material interference with the Buyer's ability to
develop, construct, finance or lease the Premises. The Company believes that
this note is currently due, but it has not yet been collected.

(5) INVENTORIES

     Inventories are summarized by major classification as follows at December
31:

<Table>
<Caption>
                                                               2005      2004
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Raw material and supplies...................................  $11,976   $10,461
Work-in-process.............................................   49,829    44,752
Finished goods..............................................    1,690     2,043
  Less: Unliquidated progress payments......................   (6,928)   (4,389)
                                                              -------   -------
Total.......................................................  $56,567   $52,867
                                                              =======   =======
</Table>

                                        46
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) PROPERTY, PLANT AND EQUIPMENT, NET

     The Company's property, plant and equipment at December 31 and their
related useful lives are summarized as follows:

<Table>
<Caption>
                                                2005       2004             LIFE
                                              --------   --------   ---------------------
                                                (IN THOUSANDS)
<S>                                           <C>        <C>        <C>
Land........................................  $    125   $    125
Buildings and improvements..................       161      1,017   10-30 years
Machinery and equipment.....................    71,710     73,466   3-19 years
Software....................................    12,016      7,190   2-5 years
Leasehold improvements......................    28,379     16,816   Lesser of useful life
                                                                    or lease term
                                              --------   --------
                                               112,391     98,614
Less accumulated depreciation and
  amortization..............................   (62,817)   (63,784)
                                              --------   --------
                                              $ 49,574   $ 34,830
                                              ========   ========
</Table>

     On June 24, 2003, the Board of Directors of the Company approved the
decision to sell the Company's 726,000 square foot facility in Deer Park, NY.
The Company recorded a pre-tax impairment loss of $9.2 million in 2003, as the
net book value of the assets exceeded the fair value less the costs to sell. The
fair value was based on a $29.0 million sales price per the sales agreement
entered into in July 2003.

(7) ACCRUED LIABILITIES

     Accrued liabilities consisted of the following at December 31:

<Table>
<Caption>
                                                               2005      2004
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Employee compensation and benefits..........................  $24,788   $20,066
Deferred revenue and accrual for future costs related to
  acquired contracts........................................    2,520     8,857
Income taxes payable........................................    5,141     2,950
Accrued rent................................................    3,995       442
Accrued interest............................................      904     1,579
Warranty....................................................    1,481     1,354
Current portion of environmental obligation.................    1,070       280
Other.......................................................   12,227    12,964
                                                              -------   -------
                                                              $52,126   $48,492
                                                              =======   =======
</Table>

(8) NOTE PAYABLE, LONG-TERM DEBT AND CREDIT FACILITY

  NOTE PAYABLE

     As part of its acquisition of NexGen Communications LLC, the Company issued
a $7.0 million note payable to the sellers. The note bears interest at
approximately 4.40% and is payable in annual installments of $2.0 million, $2.0
million and $3.0 million due on December 20, 2006, 2007 and 2008, respectively.

  4.0% CONVERTIBLE SUBORDINATED NOTES DUE 2025

     In November 2005 the Company completed its offering of $201.2 million of
4.0% Convertible Senior Subordinated Notes ("4.0% Notes") due 2025 and received
$195.7 million, net of $5.5 million of

                                        47
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

commissions. Interest payments are due May 15 and November 15 of each year,
commencing on May 15, 2006. Accrued interest payable, included in accrued
liabilities on the accompanying consolidated balance sheet, was $0.9 million at
December 31, 2005.

     The Company used part of the proceeds to redeem its 5.25% Convertible
Subordinated Notes that were due in 2007. The payments associated with the
redemption were $137.8 million of principal, $2.9 million for a 2.1% premium on
the principal amount, and $0.9 million in accrued interest from October 15
through the redemption date of November 29, 2005. Additionally, the Company
expensed the remaining unamortized deferred charges in the amount of $1.3
million associated with the 5.25% Notes.

     In connection with the offering of the 4.0% Notes, there are $5.7 million
of unamortized debt issuance costs at December 31, 2005, which are included in
other assets on the accompanying consolidated balance sheet and are being
amortized through April 2025.

     The 4.0% Notes are convertible, unless previously redeemed or repurchased
by the Company, at the option of the holder at any time prior to maturity, into
the Company's common stock at an initial conversion price of $34.19 per share,
subject to adjustment in certain events. As of December 31, 2005, there had been
no such conversions.

  CREDIT FACILITY

     In November 2005, the Company entered into a $300 million revolving credit
facility with a consortium of banks, led by Citibank, N.A. as the administrative
agent, Fleet National Bank as the syndication agent and Wachovia Bank, N.A. as
the documentation agent. This new facility replaced the Company's expiring $200
million facility. In connection with the new credit facility, $1.6 million of
deferred finance costs are included in other assets on the accompanying
consolidated balance sheet at December 31, 2005 are being amortized over the
term of the agreement.

     The credit facility provides sub-limits of borrowing up to $100.0 million
in standby letters of credit financing. The potential cash borrowing under the
facility is reduced by the amount of outstanding letters of credit. Any
borrowings under the facility would be priced initially at LIBOR plus a
predetermined amount, ranging from 1.25% to 1.75%, depending on the Company's
consolidated leverage ratio at the time of the borrowing. At December 31, 2005,
LIBOR was approximately 4.39% and the applicable adjustment to LIBOR was 1.50%.
The facility requires the Company to pay each lender in the consortium a
commitment fee on the average daily unused portion of their respective
commitment at a rate equal to 0.25%.

     There were no direct borrowings outstanding under the credit facility at
December 31, 2005. Letters of credit outstanding at December 31, 2005,
pertaining to the credit facility were $32.2 million, resulting in $267.8
million available for borrowings.

     In connection with the credit facility, the Company is required to maintain
both financial and non-financial covenants and ratios, including, but not
limited to, leverage ratio, fixed charge coverage ratio, and senior secured
leverage ratio. As of December 31, 2005, the Company was in compliance with its
covenants. The credit facility is secured by the Company's accounts receivables,
inventory and machinery and equipment.

(9) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

     The Company sponsors an employee stock ownership plan (ESOP) which provides
retirement benefits to substantially all employees.

     The ESOP has an indirect loan from the Company payable through December 31,
2017. As quarterly payments are made under the indirect loan, unallocated common
shares in the ESOP are committed-to-be-released. The allocation to participants
is based on (i) a match of 50% of the first 6% of the participants' 401(k)
contributions; (ii) a special allocation for employees who meet certain service
requirements (iii) a
                                        48
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fixed amount per participant chosen annually; and (iv) any remaining
distribution is based on participants' relative compensation. The cost basis of
the unearned/unallocated shares is initially recorded as a reduction to
shareholders' equity. Compensation expense is recorded based on the market value
of the Company's common shares as they are committed-to-be-released. The
difference between the market value and the cost basis of the shares is recorded
as additional paid-in capital. Dividends on unallocated shares are recorded as
compensation expense.

     In 2005, 2004 and 2003, non-cash ESOP compensation expense recorded by the
Company amounted to $5.0 million, $4.3 million, and $3.3 million, respectively.
At December 31, 2005, there are 1,991,676 unearned/unallocated shares which have
an aggregate market value of $53.9 million and 1,728,538 allocated shares. Total
principal and interest payments made in 2005, 2004, and 2003 under the ESOP
indirect loan amounted to $1.7 million in each of the three years.

(10) INCOME TAXES

     The 2005, 2004 and 2003 significant components of the provision for income
taxes attributable to continuing operations are as follows:

<Table>
<Caption>
                                                           2005      2004      2003
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Federal
  Current...............................................  $16,711   $13,375   $12,927
  Deferred..............................................   (2,926)     (533)   (5,900)
                                                          -------   -------   -------
                                                          $13,785   $12,842   $ 7,027
                                                          -------   -------   -------
Foreign
  Current...............................................      135       (25)      207
  Deferred..............................................      213        77        82
                                                          -------   -------   -------
                                                          $   348   $    52   $   289
                                                          -------   -------   -------
State
  Current...............................................  $ 1,945   $ 2,876   $ 3,350
  Deferred..............................................     (506)     (204)   (1,022)
                                                          -------   -------   -------
                                                          $ 1,439   $ 2,672   $ 2,328
                                                          -------   -------   -------
Total...................................................  $15,572   $15,566   $ 9,644
                                                          =======   =======   =======
</Table>

                                        49
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The reconciliation of income tax attributable to continuing operations
computed at the U.S. Federal tax rate to income tax expense is:

<Table>
<Caption>
                                                                  PERCENT OF
                                                               PRE-TAX EARNINGS
                                                              ------------------
                                                              2005   2004   2003
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Tax at statutory rate.......................................  35.0%  35.0%  35.0%
State taxes, net of Federal benefit.........................   2.9    4.7    5.0
Reserve adjustment..........................................  (3.5)  (6.2)    --
Non-cash ESOP compensation expense..........................   3.4    1.9    2.0
Foreign sales benefit.......................................  (1.0)  (1.1)  (1.3)
Manufacturing exemption.....................................  (1.0)    --     --
Other, net..................................................   1.4    0.6    1.1
                                                              ----   ----   ----
Effective income tax rate...................................  37.2%  34.9%  41.8%
                                                              ====   ====   ====
</Table>

     The significant components of deferred tax assets and liabilities as of
December 31 are as follows:

<Table>
<Caption>
                                                               2005      2004
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
DEFERRED TAX ASSETS
Retirement plans' additional minimum liability..............  $32,621   $29,521
Post-retirement benefits obligation other than pensions.....    5,512     5,507
Deferred revenue............................................      743     1,185
Non-qualified plans.........................................    5,194     4,145
Inventory valuation.........................................    1,310     1,597
Vacation accrual............................................    2,954     1,643
Rent accrual................................................    1,732       181
Other.......................................................    3,595     1,518
                                                              -------   -------
Total deferred tax assets...................................   53,661    45,297
                                                              -------   -------
DEFERRED TAX LIABILITIES
Depreciation and amortization...............................    8,801     4,754
Prepaid pension asset.......................................    5,530     4,823
Other.......................................................      747       433
                                                              -------   -------
Total deferred tax liabilities..............................   15,078    10,010
                                                              -------   -------
Net deferred tax asset......................................  $38,583   $35,287
                                                              =======   =======
</Table>

     The Company is subject to ongoing tax examinations in various
jurisdictions, which may result in challenges to tax positions taken and,
accordingly, the Company may record adjustments to provisions based on the
probable outcomes of such matters. However, the Company believes that the
resolution of these matters will not have a material effect on its financial
position, results of operations or cash flows. The Company recorded an income
tax benefit of $1.5 million and $2.8 million for the years ended December 31,
2005 and December 31, 2004, respectively, due to the reversal of income tax
contingency reserves which were determined to be no longer needed.

                                        50
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(11) SHAREHOLDERS' EQUITY

     At various times beginning in 1983, the Board of Directors has authorized
and subsequently increased by amendments, a plan to purchase an aggregate amount
of 4,190,000 common shares. As of December 31, 2005, the Company had acquired
approximately 4,091,000 common shares in open market transactions at prevailing
market prices. Approximately 4,053,000 of these shares have been used for
various purposes, including: conversion of preferred shares; contributions of
common shares to the EDO ESOP; grants pursuant to the Company's Long-Term
Incentive Plans; payment of directors' fees; partial payment of a 50% stock
dividend; and stock options exercised. As of December 31, 2005 and 2004,
respectively, the Company held 111,317 and 94,585 common shares in its treasury
for future use.

     At December 31, 2005, the Company had reserved 7,389,522 authorized and
unissued common shares for stock option and long-term incentive plans and
conversion of the Notes.

(12) EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share:

<Table>
<Caption>
                                                           2005      2004      2003
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Numerator:
  Earnings from continuing operations for basic
     calculation........................................  $26,269   $29,068   $13,411
  Effect of dilutive securities:
     Convertible notes..................................    4,404     4,268        --
                                                          -------   -------   -------
  Numerator for diluted calculation.....................  $30,673   $33,336   $13,411
                                                          =======   =======   =======
Denominator:
  Denominator for basic calculation.....................   18,081    17,695    17,308
  Effect of dilutive securities:
     Stock options......................................      264       274       253
     Convertible notes..................................    4,656     4,408        --
                                                          -------   -------   -------
  Denominator for diluted calculation...................   23,001    22,377    17,561
                                                          =======   =======   =======
</Table>

     The assumed conversion of the convertible notes was dilutive for 2005 and
2004 and anti-dilutive for 2003.

     The following table summarizes, for each year presented, the number of
shares excluded from the computation of diluted earnings per share, as their
effect upon potential issuance was anti-dilutive.

<Table>
<Caption>
                                                              FOR THE YEARS ENDED
                                                                 DECEMBER 31,
                                                              -------------------
                                                              2005   2004   2003
                                                              ----   ----   -----
                                                                (IN THOUSANDS)
<S>                                                           <C>    <C>    <C>
Convertible Subordinated Notes..............................   --    --     4,408
Unexercised Stock Options...................................   74     2       311
                                                               --     --    -----
                                                               74     2     4,719
                                                               ==     ==    =====
</Table>

(13) STOCK PLANS

     The Company has granted nonqualified stock options to officers, directors
and other key employees under plans approved by the shareholders in 2002 for the
purchase of its common shares at the fair market value of

                                        51
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the common shares on the dates of grant. Options under the 2002 Long-Term
Incentive Plan ("LTIP") generally become exercisable on the third anniversary of
the date of the grant and expire on the tenth anniversary of the date of the
grant. The 2002 LTIP will expire in 2012. Options under the 2002 Non-Employee
Director Stock Option Plan ("NEDSOP"), which pertains only to non-employee
directors, are immediately exercisable and expire on the tenth anniversary of
the date of the grant. The 2002 NEDSOP will also expire in 2012.

     Changes in options outstanding are as follows:

<Table>
<Caption>
                                     2005                     2004                     2003
                            ----------------------   ----------------------   ----------------------
                            WEIGHTED-                WEIGHTED-                WEIGHTED-
                             AVERAGE      SHARES      AVERAGE      SHARES      AVERAGE      SHARES
                            EXERCISE    SUBJECT TO   EXERCISE    SUBJECT TO   EXERCISE    SUBJECT TO
                              PRICE       OPTION       PRICE       OPTION       PRICE       OPTION
                            ---------   ----------   ---------   ----------   ---------   ----------
<S>                         <C>         <C>          <C>         <C>          <C>         <C>
Beginning of year.........   $15.86     1,083,811     $14.65     1,206,096     $13.59     1,057,143
Options granted...........    30.68        65,000      24.37        65,000      19.00       224,405
Options exercised.........    10.50       (83,322)      9.35      (164,135)      6.66       (37,327)
Options
  expired/cancelled.......    13.76       (20,450)     23.05       (23,150)     18.53       (38,125)
                             ------     ---------     ------     ---------     ------     ---------
End of year...............   $17.25     1,045,039     $15.86     1,083,811     $14.65     1,206,096
                             ======     =========     ======     =========     ======     =========
Exercisable at year end...   $17.08       895,759     $12.33       732,956     $11.26       602,916
                             ======     =========     ======     =========     ======     =========
</Table>

     The options outstanding as of December 31, 2005 are summarized as follows:

<Table>
<Caption>
                                                  WEIGHTED-       NUMBER OF        WEIGHTED-
RANGE OF                                           AVERAGE         OPTIONS          AVERAGE
EXERCISE PRICES                                 EXERCISE PRICE   OUTSTANDING    REMAINING LIFE
---------------                                 --------------   -----------    --------------
<S>                                             <C>              <C>           <C>
$5.00.........................................      $ 5.00            7,500    1 year or less
$6.13-$9.60...................................      $ 7.86          440,409    4 years
$17.86-$25.01.................................      $20.45          283,280    7 years
$27.02-$31.44.................................      $27.83          313,850    7 years
                                                                  ---------
                                                                  1,045,039
                                                                  =========
</Table>

     The 2002 LTIP also provides for restricted common share long-term incentive
awards as defined under the plan. As of December 31, 2005 plan participants had
been awarded 631,250 restricted common shares. Deferred compensation is recorded
for the fair value of the restricted common share awards on the date of grant
and is amortized over the five-year period the related services are provided.
The fair value of a restricted common share award is calculated as the average
of the high and low market values of our common shares on the grant date, as
reported for such date on a national exchange or nationally recognized system of
price quotation. The amount charged to operations in 2005, 2004 and 2003 was
$1.7 million, $0.9 million and $0.3 million, respectively. The increase in the
expense for 2005 compared to prior years is due to an increase in the amount of
shares issued over the past two years compared to prior years. As of December
31, 2005, 458,061 shares are available for additional awards.

(14) OTHER EMPLOYEE BENEFIT PLANS

  DEFINED BENEFIT PLANS

     The Company maintains a qualified noncontributory defined benefit pension
plan covering less than one half of its employees. In November 2002, the plan
was amended whereby participation and benefits accrued under the plan were
frozen as of December 31, 2002. The Company's funding policy is to make annual

                                        52
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

contributions to the extent such contributions are at least equal to the minimum
required contribution and are tax deductible.

     In 2005, 2004 and 2003 the Company recorded pension expense of $4.3
million, $2.2 million and $3.9 million, respectively.

     A summary of the weighted-average rate assumptions as of December 31 used
in pension calculations follows. (Since the Company froze the defined benefit
plan in December 2002, there is no future compensation increase for subsequent
years.)

<Table>
<Caption>
                                                              2005   2004   2003
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Discount Rate (for obligations as of December 31)...........  5.50%  5.75%  6.25%
Expected long-term return on plan assets....................  8.25%  8.25%  8.75%
</Table>

     The Company uses the building block approach to the estimation of the
long-term rate of return on assets. Under this approach, the Company reviewed
the publicly available common source data for the range of returns on basic
types of equity and fixed income instruments and the differential to those rates
provided by active investment management. In consultation with the Company's
actuarial and active asset management consultants and taking into account the
funds' actual performance and expected asset allocation going forward, the
Company selected an overall return rate within the resulting range.

     Plan asset investment decisions are made by the Pension Investment
Committee of the Board of Directors. This committee utilizes the services of a
financial advisor in the selection and monitoring of specific asset managers. At
its periodic meetings the committee reviews the performance of various funds
against benchmarks and makes investment decisions which are then carried out by
the fund trustee. The target asset allocation is 70% equity instruments and 30%
fixed income instruments. The assets are invested in a variety of both actively
managed and passive funds chosen by the committee. Furthermore, equity
investments are diversified across U.S. and non-U.S. stocks, as well as growth,
value, and small and large capitalizations. Our plan investments are diversified
to mitigate any adverse results from one security class on the entire investment
portfolio. A small amount of excess return is expected from active investment
management.

  PLAN ASSETS

     The assets of the Company's defined benefit plans are managed on a
commingled basis in a third party master trust. The investment policy and
allocation of the assets in the master trust were approved by the Company's
Pension Plans Investment Committee of the Board of Directors, which has
oversight responsibility for the Company's retirement plans.

     The investment allocation for each major asset class as a percent of plan
asset fair value as of December 31 is as follows:

<Table>
<Caption>
                                                              2005    2004    2003
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
Equity Securities...........................................   70.7%   73.7%   69.7%
Debt Securities.............................................   28.7%   25.7%   29.7%
Cash........................................................    0.6%    0.6%    0.6%
                                                              -----   -----   -----
Total.......................................................  100.0%  100.0%  100.0%
                                                              =====   =====   =====
</Table>

     In 2005, the Company made a $6.0 million contribution to the plan compared
to no contribution in 2004.

                                        53
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the components of net periodic pension expense follows:

<Table>
<Caption>
                                                         2005       2004       2003
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Interest on projected benefit obligation.............   (12,354)   (12,151)   (12,727)
Expected return on plan assets.......................    12,722     12,705     12,250
Recognized net actuarial loss........................    (4,645)    (2,737)    (3,454)
                                                       --------   --------   --------
Net pension expense..................................  $ (4,277)  $ (2,183)  $ (3,931)
                                                       ========   ========   ========
</Table>

     The following sets forth the funded status of the plan as of December 31:

<Table>
<Caption>
                                                                2005       2004
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year...........  $221,945   $204,439
Interest cost...............................................    12,354     12,151
Benefits paid...............................................   (15,270)   (18,959)
Actuarial loss..............................................     9,459     24,314
                                                              --------   --------
Projected benefit obligation at end of year.................  $228,488   $221,945
                                                              --------   --------
Change in plan assets:
Fair value of plan assets at beginning of year..............  $161,294   $164,024
Actual return on plan assets................................    11,090     16,229
Employer contribution.......................................     6,000         --
Benefits paid...............................................   (15,270)   (18,959)
                                                              --------   --------
Fair value of plan assets at end of year....................  $163,114   $161,294
                                                              --------   --------
Funded status...............................................   (65,374)  $(60,651)
Unrecognized net loss.......................................    72,861     66,415
                                                              --------   --------
Prepaid pension cost........................................  $  7,487   $  5,764
                                                              ========   ========
</Table>

     Due to the lower discount rate, offset by positive fund performance, the
accumulated benefit obligation at December 31, 2005 and 2004 exceeded the fair
value of plan assets by $65.4 million and $60.7 million, respectively. The
Company recorded an additional minimum liability of $72.9 million and $66.4
million as of December 31, 2005 and 2004, respectively. Consequently, net of tax
comprehensive loss of $3.8 and $10.7 million were charged against shareholders'
equity in 2005 and 2004, respectively. Amounts recognized in the consolidated
balance sheets at December 31 are as follows:

<Table>
<Caption>
                                                                2005       2004
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Prepaid pension cost (included in other assets).............  $  7,487   $  5,764
                                                              ========   ========
Additional minimum liability (included in post-retirement
  benefits obligations).....................................  $(72,861)  $(66,415)
                                                              ========   ========
Accumulated other comprehensive loss (included in
  shareholders' equity).....................................  $ 72,861   $ 66,415
                                                              ========   ========
</Table>

                                        54
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  ESTIMATED FUTURE BENEFIT PAYMENTS

     The following table presents estimated future benefit payments:

<Table>
<Caption>
                                                               (IN THOUSANDS)
<S>                                                           <C>
2006........................................................       $14,294
2007........................................................       $14,567
2008........................................................       $14,787
2009........................................................       $15,010
2010........................................................       $15,174
2011-2015...................................................       $76,198
</Table>

  NON-QUALIFIED PLANS

     The Company has a supplemental retirement plan for officers and certain
employees. Benefits are based on years of service and certain compensation that
is excluded under the qualified plan. In November 2003 the plan was amended
whereby benefits under the plan were frozen for all but two individuals as of
December 31, 2003. The plan is unfunded and has no assets.

     A summary of the weighted-average assumptions as of December 31 used in
pension calculations follows:

<Table>
<Caption>
                                                              2005   2004   2003
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Discount Rate (for obligations as of December 31)...........  5.50%  5.75%  6.25%
Rate of compensation increase...............................  5.00%  5.00%  5.00%
</Table>

     Total expenses under the non-qualified plans in 2005, 2004 and 2003 were
$2.3 million, $1.2 million and $2.6 million, respectively.

     A summary of the components of net periodic pension expense follows:

<Table>
<Caption>
                                                              2005     2004     2003
                                                             ------   ------   ------
<S>                                                          <C>      <C>      <C>
Service cost...............................................  $  302   $  220   $  372
Interest on projected benefit obligation...................     984      700      802
Amortization of transitional liability.....................       3        3        3
Amortization of prior service cost.........................      63       63      184
Recognized net actuarial loss..............................     963      171      273
Effect of curtailment......................................      --       --      942
                                                             ------   ------   ------
Net pension expense........................................  $2,315   $1,157   $2,576
                                                             ======   ======   ======
</Table>

                                        55
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Summarized below is the funded status of the combined supplemental plans as
of December 31:

<Table>
<Caption>
                                                                2005       2004
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year...........  $ 17,583   $ 11,641
Service cost................................................       302        219
Interest cost...............................................       984        700
Benefits paid...............................................      (944)      (892)
Actuarial loss..............................................       352      5,915
                                                              --------   --------
Projected benefit obligation at end of year.................  $ 18,277   $ 17,583
                                                              --------   --------
Change in plan assets:
Fair value of plan assets at beginning of the year..........  $     --   $     --
Employer contribution.......................................       944        892
Benefits paid...............................................      (944)      (892)
                                                              --------   --------
Fair value of plan assets at end of year....................  $     --   $     --
                                                              --------   --------
Funded status...............................................  $(18,277)  $(17,583)
Unrecognized net loss.......................................     7,470      8,081
Unrecognized prior service cost.............................       434        496
Unrecognized net obligation.................................        --          4
                                                              --------   --------
Accrued benefit cost........................................  $(10,373)  $ (9,002)
                                                              ========   ========
</Table>

     The accumulated benefit obligation at December 31, 2005 and 2004 exceeded
the fair value of plan assets by $17.5 million and $15.1 million, respectively.
The Company recorded an additional minimum liability of $7.1 million and $6.1
million as of December 31, 2005 and 2004, respectively. Consequently, a net of
tax comprehensive loss of $0.7 million and $2.4 million were charged against
shareholders' equity in 2005 and 2004, respectively. Amounts recognized in the
consolidated balance sheets at December 31 are as follows:

<Table>
<Caption>
                                                                2005      2004
                                                              --------   -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Accrued benefit cost (included in post-retirement benefits
  obligation)...............................................  $(10,373)  $(9,002)
                                                              ========   =======
Intangible asset (included in other assets).................       434   $   500
                                                              ========   =======
Additional minimum liability (included in post-retirement
  benefits obligations).....................................  $ (7,137)  $(6,088)
                                                              ========   =======
Accumulated other comprehensive loss (included in
  shareholders' equity).....................................  $  6,703   $ 5,588
                                                              ========   =======
</Table>

                                        56
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  ESTIMATED FUTURE PENSION BENEFIT PAYMENTS

     The following table presents estimated future benefit payments:

<Table>
<Caption>
                                                               (IN THOUSANDS)
<S>                                                           <C>
2006........................................................       $1,647
2007........................................................       $1,652
2008........................................................       $1,633
2009........................................................       $1,615
2010........................................................       $1,579
2011-2015...................................................       $7,552
</Table>

  401(K) PLANS

     The Company sponsors a 401(k) plan covering substantially all employees
which provides for a match by the Company of 50% of the first 6% of employee
contributions. The match is provided in the Company's common stock under the
ESOP plan.

(15) POST-RETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS

     The Company provides certain health care and life insurance benefits to
qualified retired employees and dependents at certain locations. These benefits
are funded as benefits are provided, with the retiree paying a portion of the
cost through contributions, deductibles and coinsurance provisions. The Company
has always retained the right to modify or terminate the plans providing these
benefits.

     In accordance with SFAS No. 106, "Employers' Accounting for Post-Retirement
Benefits Other Than Pensions," the Company recognizes these benefit expenses on
an accrual basis as the employees earn them during their employment rather than
when they are actually paid.

  EDO POST-RETIREMENT BENEFIT PLAN

     Post-retirement health care and life insurance expense included the
following components:

<Table>
<Caption>
                                                              2005   2004   2003
                                                              ----   ----   ----
                                                                (IN THOUSANDS)
<S>                                                           <C>    <C>    <C>
Interest cost...............................................  $124   $143   $126
Recognized actuarial loss...................................    58     53     --
                                                              ----   ----   ----
Total post-retirement health care and life insurance
  expense...................................................  $182   $196   $126
                                                              ====   ====   ====
</Table>

                                        57
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The funded status of the EDO post-retirement health care and life insurance
benefits plan is as follows as of December 31:

<Table>
<Caption>
                                                               2005     2004
                                                              ------   ------
                                                              (IN THOUSANDS)
<S>                                                           <C>      <C>
Change in accumulated post-retirement benefit obligation:
  Accumulated benefit obligation at beginning of year.......  $2,322   $2,441
  Interest cost.............................................     124      143
  Benefits paid.............................................    (328)    (353)
  Participant contributions.................................      35       29
  Actuarial loss............................................      81       62
                                                              ------   ------
Unfunded accumulated post-retirement benefit obligation at
  end of year...............................................  $2,234   $2,322
Unrecognized net loss.......................................    (601)    (578)
                                                              ------   ------
Accrued post-retirement benefit cost........................  $1,633   $1,744
                                                              ======   ======
</Table>

     Actuarial assumptions used in determining the accumulated post-retirement
benefit obligation include a discount rate of 5.50% at December 31, 2005 and
5.75% at December 31, 2004, and estimated increases in health care costs. The
Company has limited its increase in health care costs to 5% per year by
requiring the retirees to absorb any costs in excess of 5% and has used such
rate to measure its obligation.

     The effects of a one percentage point change in the assumed health care
cost trend rates would have had the following effects increase/(decrease) in
cost and/or obligation on the results for fiscal year 2005:

<Table>
<Caption>
                                                              1% POINT   1% POINT
                                                              INCREASE   DECREASE
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Benefit obligation at end of year...........................    $ 12      $ (11)
Interest cost...............................................    $0.7      $(0.7)
</Table>

     The above 1% increase/decrease trend is based primarily on the change in
dental trend rates, since medical plan benefits are capped.

  AIL POST-RETIREMENT BENEFIT PLAN

     Post-retirement expense included in the consolidated financial statements
comprised the following:

<Table>
<Caption>
                                                              2005     2004     2003
                                                              -----   ------   ------
                                                                  (IN THOUSANDS)
<S>                                                           <C>     <C>      <C>
Service cost................................................  $ 201   $  452   $  453
Interest cost...............................................    446      741      765
Recognized net actuarial (gain) loss........................   (226)      12       40
                                                              -----   ------   ------
Total post-retirement expense...............................  $ 421   $1,205   $1,258
                                                              =====   ======   ======
</Table>

                                        58
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The funded status of the AIL post-retirement benefit plan is as follows as
of December 31:

<Table>
<Caption>
                                                               2005      2004
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Change in accumulated post-retirement benefit obligation:
Accumulated benefit obligation..............................  $ 8,213   $12,258
Service cost................................................      201       452
Interest cost...............................................      446       741
Benefits paid...............................................     (296)     (381)
Actuarial gain..............................................   (1,642)   (4,857)
                                                              -------   -------
Unfunded accumulated post-retirement benefit obligation at
  end of year...............................................  $ 6,922   $ 8,213
Unrecognized gain...........................................    4,890     3,474
                                                              -------   -------
Accrued post-retirement benefit cost........................  $11,812   $11,687
                                                              =======   =======
</Table>

     Actuarial assumptions used in determining the accumulated post-retirement
benefit obligation include a discount rate of 5.50% at December 31, 2005 and
5.75 at December 31, 2004. The accumulated benefit obligation would not be
affected by increases in healthcare costs for retirees since such costs are
funded by the participants. Healthcare trend costs will only affect the amounts
related to disabled participants.

     The effects of a one percentage point change in the assumed health care
cost trend rates would have had the following effects increase/(decrease) in
cost and/or obligation on the results for fiscal year 2004:

<Table>
<Caption>
                                                              1% POINT   1% POINT
                                                              INCREASE   DECREASE
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Benefit obligation at end of year...........................    $289      $(269)
Interest cost...............................................    $ 24      $ (22)
</Table>

(16) COMMITMENTS AND CONTINGENCIES

     In order to aggregate all commitments and contractual obligations as of
December 31, 2005, the following table is included. The Company is obligated
under building and equipment leases expiring between 2006 and 2019. The
aggregate future minimum lease commitments under those obligations with
noncancellable terms in excess of one year are shown below. The Company's
commitments under letters of credit and advance payment and performance bonds
relate primarily to advances received on foreign contracts which would be paid
only if the Company failed to perform in accordance with the contract terms. The
Company does not expect to have to make payments under these letters of credits
or bonds since these obligations are removed as we perform under the related
contracts. The amounts for letters of credit and performance bonds represent the

                                        59
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amount of commitment expiration per period. Actual pension contributions may
differ from amounts presented below and are contingent on cash flow and
liquidity.

<Table>
<Caption>
                                                              PAYMENTS DUE IN:
                                          ---------------------------------------------------------
                                                                                             2011
                                                                                             AND
COMMITMENTS AND CONTRACTUAL OBLIGATIONS:  TOTAL    2006    2007    2008    2009    2010     BEYOND
----------------------------------------  ------   -----   -----   -----   -----   -----   --------
                                                                (IN MILLIONS)
<S>                                       <C>      <C>     <C>     <C>     <C>     <C>     <C>
Note Payable............................  $  7.0   $ 2.0   $ 2.0   $ 3.0   $  --   $  --    $   --
4.0% Convertible Subordinated Notes due
  2025..................................   201.2      --      --      --      --      --     201.2
Operating leases........................   138.7    16.8    16.1    15.6    15.5    14.3      60.4
Letters of credit.......................    32.2    12.4    16.6      --     3.2      --        --
Projected pension contributions.........    23.0     6.0     6.0     6.0     5.0      --        --
Advance payment and performance bonds...     1.9     0.2      --      --     1.7      --        --
                                          ------   -----   -----   -----   -----   -----    ------
Total...................................  $404.0   $37.4   $40.7   $24.6   $25.4   $14.3    $261.6
                                          ======   =====   =====   =====   =====   =====    ======
</Table>

     Rental expense for the years ended December 31, 2005, 2004 and 2003
amounted to $16.5 million, $13.6 million and $10.7 million, respectively.

(17) LEGAL MATTERS

     The Company and three other companies entered into a consent decree in 1990
with the Federal government for the remediation of a Superfund site. The
Superfund site has been divided into three operable units. The consent decree
relates to two of the operable units. The third operable unit has not been
formally studied and, accordingly, no liability has been recorded by the
Company. The Company believes that the aggregate amount of the obligation and
timing of cash payments associated with the two operable units subject to the
consent decree are reasonably fixed and determinable. Accordingly, the
environmental obligation has been discounted at five percent. Management
estimates that as of December 31, 2005, the discounted liability over the
remainder of the twenty years related to these two operable units is
approximately $1.6 million of which approximately $0.3 million has been
classified as current and is included in accrued liabilities. Approximately $0.6
million of the $1.6 million liability will be incurred over the next five years.

     The Company is also involved in other environmental cleanup efforts, none
of which management believes is likely to have a material adverse effect on the
Company's consolidated financial position, results of operations or liquidity.

     Additionally, the Company and its subsidiaries are subject to certain legal
actions that arise out of the normal course of business. It is management's
belief that the ultimate outcome of these actions will not have a material
adverse effect on the Company's consolidated financial position, results of
operations or liquidity.

(18) BUSINESS SEGMENTS

     The Company determines its operating segments based upon an analysis of its
products and services, production processes, types of customers, economic
characteristics and the related regulatory environment, which is consistent with
how management operates the Company. In 2005, the Company revised its reporting
segments in line with the evolution of the business. The Company's continuing
operations are reflected in two business segments: Engineered Systems and
Services and Electronic Systems and Communications. The Company has a
disciplined acquisition program which is diversifying its base of major
platforms and customers.

                                        60
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Principal products and services by segment are as follows:

ELECTRONIC SYSTEMS AND COMMUNICATIONS

     - ELECTRONIC FORCE PROTECTION SYSTEMS
     - INTERFERENCE CANCELLATION
     - AIRBORNE ELECTRONIC WARFARE SYSTEMS
     - RECONNAISSANCE AND SURVEILLANCE SYSTEMS
     - SPECIALIZED ELECTRONIC SYSTEMS
     - COMMAND, CONTROL, COMMUNICATIONS, AND COMPUTERS (C4)
     - ANTENNA PRODUCTS

ENGINEERED SYSTEMS AND SERVICES

     - AIRCRAFT ARMAMENT SYSTEMS
     - INTEGRATED COMPOSITE STRUCTURES
     - MINE COUNTERMEASURES SYSTEMS
     - UNDERSEA WARFARE SONAR SYSTEMS
     - PROFESSIONAL AND ENGINEERING SERVICES
     - FLIGHT LINE PRODUCTS

     Domestic U.S. Government sales, which include sales to prime contractors of
the U.S. Government, amounted to 82%, 79% and 76% of net sales, which were 73%,
72% and 72% of Engineered Systems and Services' net sales, 87%, 87% and 79% of
Electronic Systems and Communications' net sales for 2005, 2004 and 2003,
respectively. International sales comprised 14%, 14% and 18% of net sales for
2005, 2004 and 2003, respectively.

                                        61
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Information by segment on sales, operating earnings, identifiable assets,
depreciation and amortization, and capital expenditures is as follows for each
of the three years ended December 31:

<Table>
<Caption>
                                                         2005       2004       2003
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Net sales:
  Electronic Systems and Communications..............  $408,217   $273,306   $221,554
  Engineered Systems and Services....................   240,265    262,867    239,113
                                                       --------   --------   --------
                                                       $648,482   $536,173   $460,667
                                                       --------   --------   --------
Operating earnings:
  Electronic Systems and Communications..............  $ 42,071   $ 26,493   $ 18,476
  Engineered Systems and Services....................    12,751     26,308     22,554
  Environmental cost provision-Deer Park facility....    (1,543)        --         --
  Impairment loss on Deer Park facility..............        --         --     (9,160)
  Curtailment loss...................................        --         --       (942)
                                                       --------   --------   --------
                                                       $ 53,279   $ 52,801   $ 30,928
Net interest expense.................................   (11,291)    (7,848)    (8,152)
Other (expense) income, net..........................      (147)      (319)       279
                                                       --------   --------   --------
Earnings from continuing operations before income
  taxes..............................................  $ 41,841   $ 44,634   $ 23,055
                                                       --------   --------   --------
Identifiable assets:
  Electronic Systems and Communications..............  $296,294   $201,625   $182,968
  Engineered Systems and Services....................   215,121    191,890    186,079
  Corporate..........................................   175,984    153,174    125,649
                                                       --------   --------   --------
                                                       $687,399   $546,689   $494,696
                                                       --------   --------   --------
Depreciation and amortization:
  Electronic Systems and Communications..............  $  7,180   $  8,015   $ 10,358
  Engineered Systems and Services....................     7,975      7,648      6,421
  Corporate..........................................       544        377        286
                                                       --------   --------   --------
                                                       $ 15,699   $ 16,040   $ 17,065
                                                       --------   --------   --------
Capital expenditures:
  Electronic Systems and Communications..............  $ 14,316   $  6,076   $  2,878
  Engineered Systems and Services....................     6,664      7,490      4,733
  Corporate..........................................     2,738        640      1,254
                                                       --------   --------   --------
                                                       $ 23,718   $ 14,206   $  8,865
                                                       ========   ========   ========
</Table>

                                        62
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Acquisition-related costs in 2003, including IPR&D, attributable to the
Condor acquisition are included in the segments as follows:

<Table>
<Caption>
                                                              2005    2004    2003
                                                              -----   -----   ----
                                                                 (IN THOUSANDS)
<S>                                                           <C>     <C>     <C>
Electronic Systems and Communications.......................  $ --    $ --    $929
Engineered Systems and Services.............................    --      --      --
                                                              -----   -----   ----
Total.......................................................  $ --    $ --    $929
                                                              =====   =====   ====
</Table>

(19) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES

     The Company may, from time to time, issue indebtedness, a condition of
which would be the guarantee of this indebtedness by certain of its
subsidiaries. Presented below is condensed consolidating financial information
for the Company and the contemplated subsidiary guarantors and non-guarantors at
December 31, 2005 and 2004 and for each of the three years in the period ended
December 31, 2005. Each contemplated subsidiary guarantor is 100% owned,
directly or indirectly, by the Company. Any guarantees that may be issued will
be full and unconditional, as well as joint and several. In connection with the
Company's credit facility, the Company cannot declare or pay any dividend on its
outstanding common stock in an amount that exceeds fifty percent of its
consolidated net income for the immediately preceding quarter.

     On January 1, 2005 the Company merged into itself two wholly owned
subsidiaries resulting in three operating units of the former subsidiaries
becoming operating units of the Company.

                                        63
<PAGE>

                                EDO CORPORATION

                     CONDENSED CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 2005

<Table>
<Caption>
                                   EDO CORPORATION
                                   PARENT COMPANY    SUBSIDIARY
                                        ONLY         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                   ---------------   ----------   --------------   ------------   ------------
<S>                                <C>               <C>          <C>              <C>            <C>
ASSETS
Current assets:
Cash and cash equivalents........     $ 99,067        $  4,232       $ 5,432               --       $108,731
Accounts receivable, net.........       68,603         117,164         3,423               --        189,190
Inventories......................       17,288          36,147         3,132               --         56,567
Deferred income tax asset, net...        8,946              --            --               --          8,946
Notes receivable.................        7,358            (258)           --               --          7,100
Prepayments and other............        2,037           1,438           334               --          3,809
                                      --------        --------       -------        ---------       --------
Total current assets.............      203,299         158,723        12,321               --        374,343
Investment in subsidiaries.......      317,356              --            --         (317,356)            --
Property, plant and equipment,
  net............................       25,946          20,380         3,248               --         49,574
Goodwill.........................           --         143,637         8,710               --        152,347
Other intangible assets, net.....           --          44,308        11,617               --         55,925
Deferred income tax asset, net...       29,637              --            --               --         29,637
Other assets.....................       24,751             822            --               --         25,573
                                      --------        --------       -------        ---------       --------
                                      $600,989        $367,870       $35,896        $(317,356)      $687,399
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
  liabilities....................     $ 37,942        $ 43,729       $ 3,566               --       $ 85,237
Contract advances and deposits...        6,120          36,124            --               --         42,244
Notes payable....................        2,000              --            --               --          2,000
                                      --------        --------       -------        ---------       --------
Total current liabilities........       46,062          79,853         3,566               --        129,481
Long-term debt...................      201,250              --            --               --        201,250
Income taxes payable.............        6,513              --            --               --          6,513
Deferred income tax liabilities,
  net............................       (3,244)          2,891           353               --             --
Post retirement benefits
  obligations....................      103,815              --            --               --        103,815
Notes payable....................        5,000              --            --               --          5,000
Environmental obligation.........        1,392              --            --               --          1,392
Other long-term liabilities......           55              --            --               --             55
Intercompany accounts............           --         174,844        24,771         (199,615)            --
Shareholders' equity:
Preferred shares.................           --              --            --               --             --
Common shares....................       20,306              98            --              (98)        20,306
Additional paid-in capital.......      167,219          25,221         6,418          (31,639)       167,219
Retained earnings................      120,103          89,103           953          (90,056)       120,103
Accumulated other comprehensive
  loss, net of income tax
  benefit........................      (46,819)            (88)         (165)              --        (47,072)
Treasury shares..................       (1,868)         (4,052)           --            4,052         (1,868)
Unearned ESOP shares.............      (14,789)             --            --               --        (14,789)
Management group receivables.....         (140)             --            --               --           (140)
Deferred compensation under Long-
  Term Incentive Plan............       (3,866)             --            --               --         (3,866)
                                      --------        --------       -------        ---------       --------
Total shareholders' equity.......      240,146         110,282         7,206         (117,741)       239,893
                                      --------        --------       -------        ---------       --------
                                      $600,989        $367,870       $35,896        $(317,356)      $687,399
</Table>

                                        64
<PAGE>

                                EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                               DECEMBER 31, 2005

<Table>
<Caption>
                                   EDO CORPORATION
                                   PARENT COMPANY    SUBSIDIARY
                                        ONLY         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                   ---------------   ----------   --------------   ------------   ------------
<S>                                <C>               <C>          <C>              <C>            <C>
Continuing Operations:
Net Sales........................     $188,521        $443,069       $29,820        $ (12,928)      $648,482

Costs and expenses:
Cost of sales....................      153,307         329,640        20,598          (12,928)       490,617
Selling, general and
  administrative.................       16,484          62,816         6,621               --         85,921
Research and development.........        4,940          11,097         1,085               --         17,122
Environmental cost provision,
  Deer Park Facility.............        1,543              --            --               --          1,543
                                      --------        --------       -------        ---------       --------
                                       176,274         403,553        28,304          (12,928)       595,203
                                      --------        --------       -------        ---------       --------
Operating Earnings...............       12,247          39,516         1,516               --         53,279

Non-operating income (expense)
Interest income                          2,006             146           148               --          2,300
Interest expense.................      (13,591)             --            --               --        (13,591)
Other, net.......................          134            (104)         (177)              --           (147)
                                      --------        --------       -------        ---------       --------
                                       (11,451)             42           (29)              --        (11,438)
Earnings from continuing
  operations before income
  taxes..........................          796          39,558         1,487               --         41,841
Income tax (benefit) expense.....       (1,301)         15,991           882               --         15,572
                                      --------        --------       -------        ---------       --------
Earnings from continuing
  operations.....................        2,097          23,567           605               --         26,269
Equity in undistributed earnings
  of subsidiaries................       24,172              --            --          (24,172)            --
                                      --------        --------       -------        ---------       --------
                                        26,269          23,567           605          (24,172)        26,269
                                      --------        --------       -------        ---------       --------
Net earnings.....................     $ 26,269        $ 23,567       $   605        $ (24,172)      $ 26,269
</Table>

                                        65
<PAGE>

                                EDO CORPORATION

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                               DECEMBER 31, 2005

<Table>
<Caption>
                                        EDO CORPORATION
                                        PARENT COMPANY    SUBSIDIARY
                                             ONLY         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                        ---------------   ----------   --------------   ------------   ------------
<S>                                     <C>               <C>          <C>              <C>            <C>
Operating Activities:
Earnings from operations..............     $ 26,269        $ 23,567       $    605        $(24,172)      $ 26,269
Adjustments to earnings to arrive at
  cash provided (used) by operations:
Depreciation..........................        4,100           4,991            677              --          9,768
Amortization..........................           --           4,929          1,002              --          5,931
Deferred tax benefit..................       (3,446)            227             --              --         (3,219)
Bad debt expense......................          156             667             --              --            823
Loss on sale of property, plant and
  equipment...........................          485               3            313              --            801
Environmental cost provision - Deer
  Park................................        1,543              --             --              --          1,543
Deferred compensation expense.........        1,661              --             --              --          1,661
Non-cash Employee Stock Ownership Plan
  compensation expense................        4,952              --             --              --          4,952
Non-cash accelerated vesting option
  expense.............................           37              --             --              --             37
Dividends on unallocated Employee
  Stock Ownership Plan shares.........          251              --             --              --            251
Common shares issued for directors'
  fees................................          198              --             --              --            198
Income tax benefit from stock
  options.............................          711              --             --              --            711
Changes in operating assets and
  liabilities, excluding effects of
  acquisitions:
Equity in earnings of subsidiaries....      (24,172)             --             --          24,172             --
Intercompany..........................       36,376         (35,236)        (1,140)             --             --
Accounts receivable...................      (17,438)        (12,233)         1,309              --        (28,362)
Inventories...........................       (2,631)         (1,020)         1,342              --         (2,309)
Prepayments and other assets..........        3,647             905              2              --          4,554
Contribution to defined benefit
  pension plan........................       (6,000)             --             --              --         (6,000)
Accounts payable, accrued liabilities
  and other...........................        3,211          (1,779)        (2,337)             --           (905)
Contract advances and deposits........          886          27,233             --              --         28,119
                                           --------        --------       --------        --------       --------
Cash provided by operations...........       30,796          12,254          1,773              --         44,823
Investing Activities:
Purchase of plant and equipment.......      (13,600)         (9,336)          (782)             --        (23,718)
Payments received on notes
  receivable..........................          300              --             --              --            300
Cash paid for acquisitions, net of
  cash acquired.......................      (61,078)             --             --              --        (61,078)
                                           --------        --------       --------        --------       --------
Cash used by investing activities.....      (74,378)         (9,336)          (782)             --        (84,496)
Financing Activities:
Proceeds from exercise of stock
  options.............................          875              --             --              --            875
Proceeds from management group
  receivables.........................           81              --             --              --             81
Repayments of acquired debt...........       (6,931)             --             --              --         (6,931)
Redemption of 5.25% Convertible
  Subordinated Notes..................     (137,800)             --             --              --       (137,800)
Issuance of 4.0% Convertible
  Subordinated Notes..................      195,716              --             --              --        195,716
Payment of common share cash
  dividends...........................       (2,421)             --             --              --         (2,421)
                                           --------        --------       --------        --------       --------
Cash provided by financing
  activities..........................       49,520              --             --              --         49,520
                                           --------        --------       --------        --------       --------
Net increase in cash and cash
  equivalents.........................        5,938           2,918            991              --          9,847
Cash and cash equivalents at beginning
  of year.............................       93,129           1,314          4,441              --         98,884
                                           --------        --------       --------        --------       --------
Cash and cash equivalents at end of
  year................................     $ 99,067        $  4,232       $  5,432              --       $108,731
</Table>

                                        66
<PAGE>

                                EDO CORPORATION

                     CONDENSED CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 2004

<Table>
<Caption>
                           EDO CORPORATION
                           PARENT COMPANY
                                ONLY         SUBSIDIARY GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                           ---------------   ---------------------   --------------   ------------   ------------
<S>                        <C>               <C>                     <C>              <C>            <C>
ASSETS
Current assets:
Cash and cash
  equivalents............     $  93,129            $  1,314             $ 4,441               --       $ 98,884
Accounts receivable,
  net....................        51,321              97,757               4,732               --        153,810
Inventories..............        14,657              33,736               4,474               --         52,867
Deferred income tax
  asset, net.............         5,046                  --                  --               --          5,046
Notes receivable.........         7,202                  --                  --               --          7,202
Prepayments and other....         2,029               1,128                 336               --          3,493
                              ---------            --------             -------        ---------       --------
Total current assets.....       173,384             133,935              13,983               --        321,302
Investment in
  subsidiaries...........       254,311                  --                  --         (254,311)            --
Property, plant and
  equipment, net.........        16,931              14,442               3,457               --         34,830
Goodwill.................            --              82,941               8,710               --         91,651
Other intangible assets,
  net....................            --              37,737              12,619               --         50,356
Deferred income tax
  asset, net.............        30,241                  --                  --               --         30,241
Other assets.............        17,394                 915                  --               --         18,309
                              ---------            --------             -------        ---------       --------
                              $ 492,261            $269,970             $38,769        $(254,311)      $546,689

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
  accrued liabilities....     $  34,490            $ 40,676             $ 5,732               --       $ 80,898
Contract advances and
  deposits...............         5,234               8,462                  --               --         13,696
                              ---------            --------             -------        ---------       --------
Total current
  liabilities............        39,724              49,138               5,732               --         94,594
Long-term debt...........       137,800                  --                  --               --        137,800
Income taxes payable,
  long-term..............         5,768                  --                  --               --          5,768
Deferred income tax
  liabilities, net.......          (169)                 --                 169               --             --
Post retirement benefits
  obligations............        94,936                  --                  --               --         94,936
Environmental
  obligation.............         1,663                  --                  --               --          1,663
Intercompany accounts....            --             142,626              25,911         (168,537)            --
Shareholders' equity:
Preferred shares.........            --                  --                  --               --             --
Common shares............        20,112                  98                  --              (98)        20,112
Additional paid-in
  capital................       158,548              25,221               6,418          (31,639)       158,548
Retained earnings........        96,004              57,740                 349          (58,089)        96,004
Accumulated other
  comprehensive loss, net
  of income tax
  benefit................       (42,008)               (801)                190               --        (42,619)
Treasury shares..........        (1,449)             (4,052)                 --            4,052         (1,449)
Unearned ESOP shares.....       (16,039)                 --                  --               --        (16,039)
Management group
  receivables............          (221)                 --                  --               --           (221)
Deferred compensation
  under Long-Term
  Incentive Plan.........        (2,408)                 --                  --               --         (2,408)
                              ---------            --------             -------        ---------       --------
Total shareholders'
  equity.................       212,539              78,206               6,957          (85,774)       211,928
                              ---------            --------             -------        ---------       --------
                              $ 492,261            $269,970             $38,769        $(254,311)      $546,689
                              =========            ========             =======        =========       ========
</Table>

                                        67
<PAGE>

                                EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                               DECEMBER 31, 2004

<Table>
<Caption>
                                     EDO
                                 CORPORATION
                                PARENT COMPANY   SUBSIDIARY
                                     ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                --------------   ----------   --------------   ------------   ------------
<S>                             <C>              <C>          <C>              <C>            <C>
Continuing Operations:
Net Sales.....................     $206,778       $313,544       $29,062         $(13,211)      $536,173
Costs and expenses:
Cost of sales.................      159,885        225,225        21,062          (13,211)       392,961
Selling, general and
  administrative..............       22,720         49,735         6,336               --         78,791
Research and development......        4,548          5,635         1,437               --         11,620
                                   --------       --------       -------         --------       --------
                                    187,153        280,595        28,835          (13,211)       483,372
                                   --------       --------       -------         --------       --------
Operating Earnings............       19,625         32,949           227               --         52,801
Non-operating income (expense)
  Interest income.............        1,041            134            96               --          1,271
Interest expense..............       (9,119)            --            --               --         (9,119)
Other, net....................          (55)            20          (284)              --           (319)
                                   --------       --------       -------         --------       --------
                                     (8,133)           154          (188)              --         (8,167)
Earnings from continuing
  operations before income
  taxes.......................       11,492         33,103            39               --         44,634
Income tax expense............        2,182         13,146           238               --         15,566
                                   --------       --------       -------         --------       --------
(Loss) earnings from
  continuing operations.......        9,310         19,957          (199)              --         29,068
Equity in undistributed
  earnings of subsidiaries....       19,758             --            --          (19,758)            --
                                   --------       --------       -------         --------       --------
                                     29,068         19,957          (199)         (19,758)        29,068
Earnings from discontinued
  operations..................           --             --            --               --             --
                                   --------       --------       -------         --------       --------
Net earnings (loss)...........     $ 29,068       $ 19,957       $  (199)        $(19,758)      $ 29,068
                                   ========       ========       =======         ========       ========
</Table>

                                        68
<PAGE>

                                EDO CORPORATION

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                               DECEMBER 31, 2004

<Table>
<Caption>
                                        EDO
                                    CORPORATION
                                   PARENT COMPANY
                                        ONLY        SUBSIDIARY GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                   --------------   ---------------------   --------------   ------------   ------------
<S>                                <C>              <C>                     <C>              <C>            <C>
Operating Activities:
Earnings (loss) from continuing
  operations.....................     $29,068              $19,957             $  (199)        $(19,758)      $29,068
Adjustments to earnings to arrive
  at cash provided (used) by
  continuing operations:
Depreciation.....................       4,718                4,912                 846               --        10,476
Amortization.....................          --                4,561               1,003               --         5,564
Deferred tax benefit.............        (650)                 (10)                 --               --          (660)
Loss (gain) on sale of property,
  plant and equipment............         226                   29                  --               --           255
Deferred compensation expense....         916                   --                  --               --           916
Non-cash Employee Stock Ownership
  Plan compensation expense......       4,330                   --                  --               --         4,330
Dividends on unallocated Employee
  Stock Ownership Plan shares....         272                   --                  --               --           272
Common shares issued for
  directors' fees................         140                   --                  --               --           140
Income tax benefit from stock
  options........................       1,134                   --                  --               --         1,134
Changes in operating assets and
  liabilities:
Equity in earnings of
  subsidiaries...................     (19,758)                  --                  --           19,758            --
Intercompany.....................       5,992               (5,525)               (467)              --            --
Accounts receivable..............      (2,741)             (16,018)               (748)              --       (19,507)
Inventories......................       2,769              (19,718)             (1,185)              --       (18,134)
Prepayments and other assets.....       2,444                1,150                  (6)              --         3,588
Accounts payable, accrued
  liabilities and other..........      (1,733)               3,860                 617               --         2,744
Contract advances and deposits...      (1,890)               7,391                  --               --         5,501
                                      -------              -------             -------         --------       -------
Cash provided (used) by
  continuing operations..........      25,237                  589                (139)              --        25,687
Investing Activities:
Purchase of plant and
  equipment......................      (6,713)              (6,905)               (588)              --       (14,206)
Payments received on notes
  receivable.....................       1,200                   --                  --               --         1,200
Cash received from Emblem escrow
  settlement.....................         301                   --                  --               --           301
                                      -------              -------             -------         --------       -------
Cash used by investing
  activities.....................      (5,212)              (6,905)               (588)              --       (12,705)
Financing Activities:
Proceeds from exercise of stock
  options........................       1,535                   --                  --               --         1,535
Proceeds from management group
  receivables....................         130                   --                  --               --           130
Payment of common share cash
  dividends......................      (2,395)                  --                  --               --        (2,395)
                                      -------              -------             -------         --------       -------
Cash (used) provided by financing
  activities.....................        (730)                  --                  --               --          (730)
                                      -------              -------             -------         --------       -------
Net increase (decrease) in cash
  and cash equivalents...........      19,295               (6,316)               (727)              --        12,252
Cash and cash equivalents at
  beginning of year..............      73,834                7,630               5,168               --        86,632
                                      -------              -------             -------         --------       -------
Cash and cash equivalents at end
  of year........................     $93,129              $ 1,314             $ 4,441         $     --       $98,884
                                      =======              =======             =======         ========       =======
</Table>

                                        69
<PAGE>

                                EDO CORPORATION

                     CONDENSED CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 2003

<Table>
<Caption>
                                   EDO CORPORATION
                                   PARENT COMPANY    SUBSIDIARY
                                        ONLY         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                   ---------------   ----------   --------------   ------------   ------------
<S>                                <C>               <C>          <C>              <C>            <C>
ASSETS
Current assets:
Cash and cash equivalents........     $ 73,834        $  7,630       $ 5,168               --       $ 86,632
Accounts receivable, net.........       48,580          81,740         3,984               (1)       134,303
Inventories......................       17,426          14,018         3,289               --         34,733
Deferred income tax asset, net...        4,836              --            --               --          4,836
Notes receivable.................        1,600              --            --               --          1,600
Prepayments and other............        2,171           1,853           330               --          4,354
                                      --------        --------       -------        ---------       --------
Total current assets.............      148,447         105,241        12,771               (1)       266,458
Investment in subsidiaries.......      240,846              --            --         (240,846)            --
Property, plant and equipment,
  net............................       15,161          12,479         3,715               --         31,355
Notes receivable.................        6,538              --            --               --          6,538
Goodwill.........................           --          82,919         9,608               --         92,527
Other intangible assets, net.....           --          42,276        13,622               --         55,898
Deferred income tax asset, net...       20,532              --                             --         20,532
Other assets.....................       20,026           1,362            --               --         21,388
                                      --------        --------       -------        ---------       --------
                                      $451,550        $244,277       $39,716        $(240,847)      $494,696

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
  liabilities....................     $ 40,786        $ 35,759       $ 6,004        $      (1)        82,548
Contract advances and deposits...        7,124           1,071            --               --          8,195
                                      --------        --------       -------        ---------       --------
Total current liabilities........       47,910          36,830         6,004               (1)        90,743
Income taxes payable,
  long-term......................        2,195              --            --               --          2,195
Long-term debt...................      137,800              --            --               --        137,800
Deferred income tax liabilities,
  net............................          (82)             --            82               --              0
Post retirement benefits
  obligations....................       71,898              --            --               --         71,898
Environmental obligation.........        1,728              --            --               --          1,728
Intercompany accounts............           --         105,222        26,611         (131,833)            --
Shareholders' equity:
Preferred shares.................           --              --            --               --             --
Common shares....................       19,832              99                            (99)        19,832
Additional paid-in capital.......      150,097          25,221         6,486          (31,707)       150,097
Retained earnings................       69,059          80,878           548          (81,426)        69,059
Accumulated other comprehensive
  loss, net of income tax
  benefit........................      (29,512)             79           (15)             167        (29,281)
Treasury shares..................       (1,255)         (4,052)           --            4,052         (1,255)
Unearned ESOP shares.............      (17,290)             --            --               --        (17,290)
Management group receivables.....         (351)             --            --               --           (351)
Deferred compensation under Long-
  Term Incentive Plan............         (479)             --            --               --           (479)
                                      --------        --------       -------        ---------       --------
Total shareholders' equity.......      190,101         102,225         7,019         (109,013)       190,332
                                      --------        --------       -------        ---------       --------
                                      $451,550        $244,277       $39,716        $(240,847)      $494,696
</Table>

                                        70
<PAGE>

                                EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                               DECEMBER 31, 2003

<Table>
<Caption>
                               EDO CORPORATION
                               PARENT COMPANY    SUBSIDIARY
                                    ONLY         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                               ---------------   ----------   --------------   ------------   ------------
<S>                            <C>               <C>          <C>              <C>            <C>
Continuing Operations:
Net Sales....................     $205,517        $257,209       $16,047         $(18,106)      $460,667
Costs and expenses:
Cost of sales................      158,501         189,567         8,297          (18,106)       338,259
Selling, general and
  administrative.............       21,112          44,440         6,303               --         71,855
Research and development.....        4,967           3,213           414               --          8,594
Acquisition-related costs....          250             679            --               --            929
Benefit plan curtailment
  loss.......................          942              --            --               --            942
Impairment loss on Deer Park
  facility...................        9,160              --            --               --          9,160
                                  --------        --------       -------         --------       --------
                                   194,932         237,899        15,014          (18,106)       429,739
                                  --------        --------       -------         --------       --------
Operating Earnings...........       10,585          19,310         1,033               --         30,928
Non-operating income
  (expense)
Interest income..............          706             206            29               --            941
Interest expense.............       (9,093)             --            --               --         (9,093)
Other, net...................          (11)            290            --               --            279
                                  --------        --------       -------         --------       --------
                                    (8,398)            496            29               --         (7,873)
Earnings from continuing
  operations before income
  taxes......................        2,187          19,806         1,062               --         23,055
Income tax expense...........        1,523           7,607           514               --          9,644
                                  --------        --------       -------         --------       --------
Earnings from continuing
  operations.................          664          12,199           548               --         13,411
Equity in undistributed
  earnings of subsidiaries...       12,747              --            --          (12,747)            --
                                  --------        --------       -------         --------       --------
                                    13,411          12,199           548          (12,747)        13,411
Earnings from discontinued
  operations.................        1,398              --            --               --          1,398
                                  --------        --------       -------         --------       --------
Net earnings.................     $ 14,809        $ 12,199       $   548         $(12,747)      $ 14,809
</Table>

                                        71
<PAGE>

                                EDO CORPORATION

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                               DECEMBER 31, 2003

<Table>
<Caption>
                                        EDO CORPORATION
                                        PARENT COMPANY    SUBSIDIARY
                                             ONLY         GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                        ---------------   ----------   --------------   ------------   ------------
<S>                                     <C>               <C>          <C>              <C>            <C>
Operating Activities:
Earnings from continuing operations...     $ 13,411        $ 12,199        $  548         $(12,747)      $ 13,411
Adjustments to earnings to arrive at
  cash provided (used) by continuing
  operations:
Depreciation..........................        6,122           5,708           350               --         12,180
Amortization..........................           --           4,466           419               --          4,885
Deferred tax benefit..................       (6,095)           (745)           --               --         (6,840)
Bad debt expense......................           --             568            --               --            568
Loss (gain) on sale of property, plant
  and equipment.......................           61            (192)           --               --           (131)
Impairment loss on assets held for
  sale................................        9,160              --            --               --          9,160
Deferred compensation expense.........          289              --            --               --            289
Non-cash Employee Stock Ownership Plan
  compensation expense................        3,281              --            --               --          3,281
Non-cash stock option compensation
  expense.............................          292              --            --               --            292
Dividends on unallocated Employee
  Stock Ownership Plan shares.........          292              --            --               --            292
Common shares issued for directors'
  fees................................          108              --            --               --            108
Income tax benefit from stock
  options.............................          328              --            --               --            328
Changes in operating assets and
  liabilities, excluding effects of
  acquisitions:
Equity in earnings of subsidiaries....      (12,747)             --            --           12,747             --
Intercompany..........................       (3,240)             17         3,223               --             --
Accounts receivable...................       (1,253)         (3,030)        1,080               --         (3,203)
Inventories...........................       (2,691)          3,653           444               --          1,406
Prepayments and other assets..........        5,150          (1,111)           (7)              --          4,032
Contribution to defined benefit
  pension plan........................       (5,000)             --            --               --         (5,000)
Accounts payable, accrued liabilities
  and other...........................       10,328         (15,369)         (361)              --         (5,402)
Contract advances and deposits........       (6,547)         (5,535)           --               --        (12,082)
                                           --------        --------        ------         --------       --------
Cash provided by continuing
  operations..........................       11,249             629         5,696               --         17,574
Net cash provided by discontinued
  operations..........................           79              --            --               --             79
Investing Activities:
Purchase of plant and equipment.......       (4,079)         (4,258)         (528)              --         (8,865)
Proceeds from sale of property, plant
  and Equipment.......................       21,304              --            --               --         21,304
Payments received on notes
  receivable..........................          300           1,085            --               --          1,385
Restricted cash.......................       27,347              --            --               --         27,347
Cash paid for acquisitions, net of
  cash acquired.......................      (92,854)         (1,334)           --               --        (94,188)
                                           --------        --------        ------         --------       --------
Cash used by investing activities.....      (47,982)         (4,507)         (528)              --        (53,017)
Financing Activities:
Proceeds from exercise of stock
  options.............................          268              --            --               --            268
Proceeds from management group
  receivables.........................          242              --            --               --            242
Repayments of acquired debt...........       (8,660)             --            --               --         (8,660)
Payment of common share cash
  dividends...........................       (2,367)             --            --               --         (2,367)
                                           --------        --------        ------         --------       --------
Cash used by financing activities.....      (10,517)             --            --               --        (10,517)
                                           --------        --------        ------         --------       --------
Net (decrease) increase in cash and
  cash equivalents....................      (47,171)         (3,878)        5,168               --        (45,881)
Cash and cash equivalents at beginning
  of year.............................      121,005          11,508            --               --        132,513
                                           --------        --------        ------         --------       --------
Cash and cash equivalents at end of
  year................................     $ 73,834        $  7,630        $5,168         $     --       $ 86,632
                                           ========        ========        ======         ========       ========
</Table>

                                        72
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
EDO Corporation Inc.

     We have audited the accompanying consolidated balance sheets of EDO
Corporation Inc. and Subsidiaries (the Company) as of December 31, 2005 and
2004, and the related consolidated statements of earnings, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
2005. Our audits also included the financial statement schedule listed in the
Index at Item 15(a). These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EDO Corporation Inc. at December 31, 2005 and 2004, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2005, in conformity with U.S. generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, present fairly in all material respects the information set forth
therein.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 24, 2006 expressed an unqualified opinion thereon.

                                          /s/ ERNST & YOUNG LLP

New York, NY
February 24, 2006

                                        73
<PAGE>

            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
EDO Corporation.

     We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that EDO
Corporation and Subsidiaries maintained effective internal control over
financial reporting as of December 31, 2005, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). EDO Corporation's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

     We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

     A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

     Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

     As indicated in the accompanying Management's Report on Internal Control
Over Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of Nexgen, Fiber Innovations and EVI (the "acquisitions")
which are included in the 2005 consolidated financial statements of EDO
Corporation and Subsidiaries and constituted $87.4 million and $7.7 million of
total and net assets, respectively, as of December 31, 2005 and $22.7 million of
net sales for the year then ended. Our audit of internal control over financial
reporting of EDO Corporation Inc. also did not include an evaluation of the
internal controls over financial reporting of the acquisitions.

     In our opinion, management's assessment that EDO Corporation and
Subsidiaries maintained effective internal control over financial reporting as
of December 31, 2005, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, EDO Corporation and Subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2005, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of EDO Corporation Inc. and Subsidiaries as of December 31, 2005 and
2004, and the related consolidated statements of earnings, shareholders' equity
and cash flows for each of the three years in the period ended December 31, 2005
and our report dated February 24, 2006 expressed an unqualified opinion thereon.

                                          /s/ Ernst & Young LLP

New York, NY
February 24, 2006

                                        74
<PAGE>

                  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table sets forth unaudited quarterly financial information
for 2005 and 2004(in thousands, except per share amounts).

<Table>
<Caption>
                               FIRST QUARTER        SECOND QUARTER         THIRD QUARTER        FOURTH QUARTER
                            -------------------   -------------------   -------------------   -------------------
                              2005       2004       2005       2004       2005       2004       2005       2004
                            --------   --------   --------   --------   --------   --------   --------   --------
<S>                         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net sales.................  $116,508   $110,877   $156,112   $126,290   $175,884   $129,875   $199,978   $169,131
Earnings..................     2,908      3,857      6,089      4,176      9,841      6,874      7,431     14,161
Earnings per share:
  Basic:..................      0.16       0.22       0.34       0.24       0.54       0.39       0.41       0.79
    Earnings -- Basic.....      0.16       0.22       0.34       0.24       0.54       0.39       0.41       0.79
  Diluted:
    Earnings -- Diluted...      0.16       0.22       0.31       0.23       0.48       0.35       0.38       0.68
                            ========   ========   ========   ========   ========   ========   ========   ========
</Table>

                                        75
<PAGE>

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

     None.

ITEM 9A.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

     As of the end of the period covered by this Annual Report on Form 10-K the
Company carried out an evaluation, under the supervision and with the
participation of the Company's senior management, including the Chief Executive
Officer and the Chief Financial Officer, as well as members of the Board of
Directors, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures.

     The Company's conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of the acquisitions in
2005 of Nexgen Communications LLC, Fiber Innovations, Inc. and EVI Technology,
LLC, (the "acquisitions") which are included in the 2005 consolidated financial
statements of EDO Corporation and Subsidiaries.

     Based on their evaluation, the Chief Executive Officer and the Chief
Financial Officer of the Company have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934) are effective to ensure that the information
required to be disclosed by the Company in the reports that it files or submits
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     There were no changes in EDO's internal controls over financial reporting
during EDO's last fiscal quarter that have materially affected, or likely to
materially affect internal controls over financial reporting.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control -- Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of December
31, 2005. We have excluded from this assessment the operations of EVI, Fiber
Innovations and NexGen. These businesses were acquired during 2005 and
constituted $87.4 million and $7.7 million of total and net assets,
respectively, as of December 31, 2005 and $22.7 million of net sales for the
year then ended. Management's assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2005 has been audited by
Ernst and Young LLP, an independent registered public accounting firm, as stated
in their report which is included herein.

ITEM 9B.  OTHER INFORMATION

     None.

                                        76
<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

     The information called for by Item 10 (except to the extent set forth in
this Item) is incorporated in this Report by reference to the Company's
definitive proxy statement relating to the Annual Meeting of Shareholders
anticipated to be held on April 25, 2006.

                               EXECUTIVE OFFICERS

<Table>
<Caption>
NAME                                        AGE   POSITION, TERM OF OFFICE AND PRIOR POSITIONS
----                                        ---   --------------------------------------------
<S>                                         <C>   <C>
James M. Smith............................  64    Chairman of the Board (since May 2002) President
                                                  and Chief Executive Officer (since April 2000).
Jon A. Anderson...........................  63    Senior Vice President, Washington Operations (since
                                                  October 2005); prior thereto, Vice President,
                                                  Washington Operations (since April 2001);
                                                  previously Director of Government Relations and
                                                  Washington Regional Manager of AIL Systems, Inc.
Frederic B. Bassett.......................  59    Senior Vice President-Finance, (since October 2005)
                                                  Chief Financial Officer and Treasurer (since
                                                  January 2003); prior thereto, he was Vice President
                                                  (since September 2002). From December 2000-July
                                                  2002 he was Vice President, Treasurer and Chief
                                                  Financial Officer of Condor Systems, Inc. Prior
                                                  thereto, he was U.S. Operations Controller for the
                                                  Howmet Division of Alcoa.
Patricia D. Comiskey......................  55    Senior Vice President-Human Resources (since
                                                  October 2005) and Assistant Secretary; prior
                                                  thereto, she was Vice President-Human Resources
                                                  (since June 2001) and Assistant Secretary (since
                                                  September 2000). Previously, she was
                                                  Director - Corporate Human Resources.
George Fox................................  63    Vice President - Electronic Systems Group (since
                                                  May 2000).
Milo Hyde.................................  52    Vice President - Systems & Analysis Group (since
                                                  April 2000).
Frank Otto................................  56    Senior Vice President, Strategic Development (since
                                                  March 2005); prior thereto, Executive Vice
                                                  President (since September 2002) and Chief
                                                  Operating Officer (since February 2004); prior
                                                  thereto, he was Vice President - Integrated
                                                  Systems and Structures Group (since January 2001).
Lisa M. Palumbo...........................  47    Senior Vice President, General Counsel and
                                                  Secretary (since October 2005); prior thereto, Vice
                                                  President, General Counsel and Assistant Secretary
                                                  (since April 2002). Previously, she was Senior Vice
                                                  President, General Counsel and Secretary of Moore
                                                  Corporation Ltd. (from March to September 2001),
                                                  and prior thereto, Vice President and General
                                                  Counsel of Rayonier, Inc.
</Table>

     Each officer is either elected by the board of directors or, as provided in
our By-Laws, appointed by the Chief Executive Officer and holds office until the
first meeting of the board following the next succeeding annual meeting of
shareholders, and thereafter until a successor is appointed and qualified,
unless the executive officer dies, is disqualified, resigns or is removed in
accordance with our By-Laws.

                                        77
<PAGE>

ITEM 11.  EXECUTIVE COMPENSATION

     The information called for by Item 11 is incorporated in this Report by
reference to the Company's definitive proxy statement relating to the Annual
Meeting of Shareholders anticipated to be held on April 25, 2006.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS

     The information called for by Item 12 is incorporated in this Report by
reference to the Company's definitive proxy statement relating to the Annual
Meeting of Shareholders anticipated to be held on April 25, 2006.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information called for by Item 13 is incorporated in this Report by
reference to the Company's definitive proxy statement relating to the Annual
Meeting of Shareholders anticipated to be held on April 25, 2006.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     Information appearing under the captions "Fees to Independent Registered
Public Accountants for fiscal 2005 and 2004" in the 2006 Proxy Statement is
hereby incorporated by reference.

                                    PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) Financial Statements and Financial Statement Schedules and Exhibits

1.  FINANCIAL STATEMENTS.

     Consolidated Balance Sheets as of December 31, 2005 and 2004

     Consolidated Statements of Earnings for the Years Ended December 31, 2005,
2004 and 2003

     Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2005, 2004 and 2003

     Consolidated Statements of Cash Flows for the Years Ended December 31,
2005, 2004 and 2003

     Notes to Consolidated Financial Statements

     Report of Ernst & Young LLP

2.  FINANCIAL STATEMENT SCHEDULES.

     See Schedule II -- Valuation and Qualifying Accounts below. All other
schedules have been omitted because they are not applicable.

                                        78
<PAGE>

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
                                          BALANCE AT    CHARGED TO   CHARGED TO       NET       BALANCE AT
                                         BEGINNING OF   COSTS AND      OTHER      WRITE-OFFS/     END OF
DESCRIPTION                                 PERIOD       EXPENSES     ACCOUNTS    DEDUCTIONS      PERIOD
-----------                              ------------   ----------   ----------   -----------   ----------
                                                                  (IN THOUSANDS)

<S>                                      <C>            <C>          <C>          <C>           <C>
Year ended December 31, 2005:
  Allowance for doubtful accounts......     $  616         823            0          (469)        $  970

Year ended December 31, 2004:
  Allowance for doubtful accounts......     $1,359           0            0          (743)        $  616

Year ended December 31, 2003:
  Allowance for doubtful accounts......     $1,023         568          216(a)       (448)        $1,359
</Table>

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

(a)  Amounts acquired as a result of purchase of Emblem Group Ltd. on June 16,
     2003, Darlington, Inc. on March 10, 2003, and Advanced Engineering &
     Research Associates, Inc. on February 5, 2003.

3.  EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER                                EXHIBIT
-------                               -------

<S>         <C>
2(a)        Amended and Restated Asset Purchase Agreement and Amendment
            1 thereto, dated as of May 31, 2002, between EDO Acquisition
            IV Inc., a wholly-owned subsidiary of the Company, as Buyer
            and Condor Systems Inc. and CEI Systems, Inc. as Seller
            (incorporated herein by reference to the Company's Current
            Report on Form 8-K dated July 26, 2002, Exhibits 2.1 and
            2.2).

2(b)        Stock Purchase Agreement, dated as of February 5, 2003,
            between EDO Professional Services Inc, a wholly-owned
            subsidiary of the Company, as Buyer and four individuals as
            Sellers (incorporated herein by reference to the Company's
            Current Report on Form 8-K dated February 5, 2003, Exhibit
            2.1).

2(c)        Stock Purchase Agreement, dated as of March 10, 2003, by the
            Company, as Buyer, and three individuals as Sellers
            (incorporated by reference to the Company's Current Report
            on Form 8-K dated March 10, 2003, Exhibit 2.1).

3(a)        Restated Certificate of Incorporation of the Company as
            amended May 10, 2004 (incorporated herein by reference to
            the Company's Quarterly Report on Form 10-Q for the
            quarterly period ended June 26, 2004 Exhibit 3(a)(2)).

3(b)        By-Laws of the Company as amended October 26, 2004
            (incorporated herein by reference to the Company's Quarterly
            Report on Form 10-Q for the quarterly period ended September
            25, 2004 Exhibit 3(b)).

4(a)        Form of 4.0% Convertible Senior Subordinate Notes due 2025
            (incorporated herein by reference to the Company's Current
            Report on Form 8-K, dated November 21, 2005 Exhibit 4(g)).

4(b)        Indenture, dated as of November 21, 2005, by and between the
            Company and HSBC Bank, USA, as trustee (incorporated herein
            by reference to the Company's Current Report on Form 8-K,
            dated November 21, 2005, Exhibit 4(e)).

4(b)(1)     First Supplemental Indenture, dated as of November 21, 2005,
            by and between the Company and HSBC Bank, USA, as trustee
            (incorporated herein by reference to the Company's Current
            Report on Form 8-K, dated November 21, 2005, Exhibit 4(f)).

10(a)       Credit Agreement, dated as of November 4, 2005, by and among
            the Company, Citicorp U.S.A, Inc., Wachovia Bank, N.A. and
            Bank of America, N.A., et al. (incorporated herein by
            reference to the Company's Current Report on Form 8-K, dated
            November 10, 2005, Exhibit 10(a)(6)).

10(b)       EDO Corporation 1996 Long-Term Incentive Plan (incorporated
            herein by reference to the Company's Annual Report on Form
            10-K for the fiscal year ended December 31, 1996, Exhibit
            10(a)).
</Table>

                                        79
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER                                EXHIBIT
-------                               -------

<S>         <C>


10(c)       EDO Corporation 2002 Long-Term Incentive Plan as amended
            January 1, 2004 (incorporated herein by reference to the
            Company's Annual Report on Form 10-K for the fiscal year
            ended December 31, 2003, Exhibit 10(c)).

10(d)       Executive Life Insurance Plan Agreements, as amended through
            January 23, 1990, between the Company and 28 employees and
            retirees (incorporated herein by reference to the Company's
            Annual Report on Form 10-K for the fiscal year ended
            December 31, 1994, Exhibit 10(g)).

10(e)       Form of Directors' and Officers' Indemnity Agreements
            between the Company and 20 current Company directors and
            officers (incorporated herein by reference to the Company's
            Annual Report on Form 10-K for the fiscal year ended
            December 31, 1996, Exhibit 10(d)).

10(f)       EDO Corporation Nonqualified Deferred Compensation Plan I
            effective January 1, 2004 (incorporated herein by reference
            to the Company's Quarterly Report on Form 10-Q for the
            quarterly period ended March 27, 2004, Exhibit 10(b)).

10(f)(1)    EDO Corporation Nonqualified Deferred Compensation Plan II
            effective January 1, 2004 (incorporated herein by reference
            to the Company's Quarterly Report on Form 10-Q for the
            quarterly period ended March 27, 2004, Exhibit 10(c)).

10(g)       EDO Corporation 1997 Non-Employee Director Stock Option Plan
            (incorporated herein by reference to the Company's
            Registration Statement on Form S-8, File No. 333-77865,
            dated May 6, 1999).

10(h)       EDO Corporation 2002 Non-Employee Director Stock Option Plan
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2002, Exhibit 10(h)).

10(i)       EDO Corporation Compensation Plan for Directors
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            1998, Exhibit 10(g)).

10(j)       Supplemental Executive Retirement Plan, dated July 1, 2001
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2001, Exhibit 10(i)).

10(k)       Amended and Restated Employment Agreement, dated as of
            October 1, 2004, by and between EDO Corporation and James M.
            Smith (incorporated herein by reference to the Company's
            Current Report on Form 8-K dated October 28, 2004, Exhibit
            10).

10(l)       Change in Control Agreement dated March 3, 2003 between the
            Company and Frederic B. Bassett (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 2002, Exhibit 10(l)).

10(m)       Change in Control Agreement dated March 21, 2003 between the
            Company and Patricia D. Comiskey (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 2002, Exhibit 10(m)).

10(n)       Change in Control Agreement dated March 25, 2003 between the
            Company and George P. Fox, Jr. (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 2002, Exhibit 10(n)).

10(o)       Change in Control Agreement dated July 8, 2003 between the
            Company and Jon A. Anderson (incorporated herein by
            reference to the Company's Current Report on Form 8-K, dated
            February 1, 2006 Exhibit 10(b)).

10(p)       Change in Control Agreement dated March 22, 2003 between the
            Company and Milo Hyde (incorporated herein by reference to
            the Company's Annual Report on Form 10-K for the fiscal year
            ended December 31, 2002, Exhibit 10(p)).

10(q)       Change in Control Agreement dated March 26, 2003 between the
            Company and Frank W. Otto (incorporated herein by reference
            to the Company's Annual Report on Form 10-K for the fiscal
            year ended December 31, 2002, Exhibit 10(r)).

10(r)       Change in Control Agreement dated May 1, 2003 between the
            Company and Lisa M. Palumbo (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 2002, Exhibit 10(s)).
</Table>

                                        80
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER                                EXHIBIT
-------                               -------

<S>         <C>


10(s)       Form of Amendment to the Change in Control Agreement
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2004, Exhibit 10(s)).

10(s)(1)    Form of Amendment to the Change in Control Agreement
            (incorporated herein by reference to the Company's Current
            Report on Form 8-K, dated February 1, 2006, Exhibit 10(a)).

10(t)(1)    2004 Restricted Share and Retention Incentive Award
            Agreement between the Company and Frederic B. Bassett
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2004, Exhibit 10(t)(1)).

10(t)(2)    2004 Restricted Share and Retention Incentive Award
            Agreement between the Company and Patricia D. Comiskey
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2004, Exhibit 10(t)(2)).

10(t)(4)    2004 Restricted Share and Retention Incentive Award
            Agreement between the Company and Frank W. Otto
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2004, Exhibit 10(t)(4)).

10(t)(5)    2004 Restricted Share and Retention Incentive Award
            Agreement between the Company and Lisa M. Palumbo
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2004, Exhibit 10(t)(5)).

10(u)       Form of 2003 Stock Option Agreement (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 2003, Exhibit 10(v)).

10(v)       Consent Decree, entered on November 25, 1992, amongst the
            United States, the Company, Plessey, Inc., Vernitron
            Corporation and Pitney Bowes, Inc. Incorporated by reference
            to Exhibit 10(e) to the Company's Annual Report on Form 10-K
            for the fiscal year ended December 31, 1998.

10(w)       Agreement for Sale of Deer Park facility dated July 31, 2003
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2004, Exhibit 10(w)).

10(x)*      EDO Corporation Share Incentive Plan, dated July 6, 2005.

10(y)       EDO Corporation 2004 Non-Employee Director Stock Option Plan
            (incorporated herein by reference to the Company's
            Registration Statement on Form S-8, File No. 333-129353,
            dated November 1, 2005).

14          EDO Corporation Standards Ethical Business Conduct for all
            EDO Employees (incorporated herein by reference to the
            Company's Annual Report on Form 10-K for the fiscal year
            ended December 31, 2003, Exhibit 14).

21*         List of Subsidiaries.

23*         Consent of Independent Registered Public Accounting Firm.

24*         Powers of Attorney (included on the signature page).

31.1*       Certification of Chief Executive Officer pursuant to Rule
            13a-14(a) and 15d-14(a) of the Securities Exchange Act of
            1934, as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

31.2*       Certification of Chief Financial Officer pursuant to Rule
            13a-14(a) and 15d-14(a) of the Securities Exchange Act of
            1934, as adopted pursuant to Section 302 of the
            Sarbanes-Oxley Act of 2002.

32*         Certification of Chief Executive Officer and Chief Financial
            Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to
            Section 906 of the Sarbanes-Oxley Act of 2002.
</Table>

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

* Filed herewith.

     (b) Reports on 8-K

                                        81
<PAGE>

     The following reports on 8-K were filed during the three months ended on
December 31, 2005:

<Table>
<Caption>
DATE OF REPORT                                ITEMS REPORTED
--------------                                --------------
<S>                    <C>
October 27, 2005       Earnings Release dated October 27, 2005, announcing
                       financial results for the quarter ended September 24, 2005.
November 10, 2005      Entered into a $300 million credit facility by and among the
                       Company, Citigroup USA, Wachovia Bank and Bank of America,
                       N.A.
November 14, 2005      In connection with the filing of a prospectus supplement,
                       the Company is updating certain risk factors affecting its
                       business and securities.
November 15, 2005      On November 15, 2005, EDO Corporation (the "Company")
                       entered into an Underwriting Agreement (the "Underwriting
                       Agreement"), by and among the Company and Citigroup Global
                       Markets Inc., acting for itself and as representative of
                       Wachovia Capital Markets, LLC (the "Underwriters") in
                       connection with the proposed underwritten public offering of
                       $175 million principal amount of 4.0% Convertible
                       Subordinated Notes due 2025 (the "Notes"). The Underwriters
                       have an option to purchase up to an additional $26.25
                       million principal amount of the Notes to cover
                       over-allotments.
</Table>

                                        82
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, its principal executive officer and principal financial officer,
thereunto duly authorized.

                                          EDO CORPORATION (REGISTRANT)

                                          By: /s/   JAMES M. SMITH
                                          --------------------------------------
                                                      James M. Smith
                                          President and Chief Executive Officer

                                          /s/     FREDERIC B. BASSETT
                                          --------------------------------------
                                                   Frederic B. Bassett
                                              Sr. Vice President -- Finance,
                                          Treasurer and Chief Financial Officer

Dated: March 1, 2006

                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James M. Smith and Lisa M. Palumbo, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to the Annual Report on
Form 10-K for the Company's 2005 fiscal year, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitutes, may lawfully do or cause to be done by virtue thereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below on February 20, 2006 by the following persons on
behalf of the Registrant and in the capacities indicated.

<Table>
<Caption>
                    SIGNATURE                                              TITLE
                    ---------                                              -----
<S>     <C>                                          <C>

                /s/ JAMES M. SMITH                    Chairman, President, Chief Executive Officer and
 ------------------------------------------------          Director (principal executive officer)
                 (James M. Smith)


               /s/ ROBERT E. ALLEN                                        Director
 ------------------------------------------------
                (Robert E. Allen)


                /s/ ROBERT ALVINE                                         Director
 ------------------------------------------------
                 (Robert Alvine)


               /s/ DENNIS C. BLAIR                                        Director
 ------------------------------------------------
                (Dennis C. Blair)
</Table>

                                        83
<PAGE>

<Table>
<Caption>
                    SIGNATURE                                              TITLE
                    ---------                                              -----

<S>     <C>                                          <C>

              /s/ ROBERT M. HANISEE                                       Director
 ------------------------------------------------
               (Robert M. Hanisee)


              /s/ MICHAEL J. HEGARTY                                      Director
 ------------------------------------------------
               (Michael J. Hegarty)


               /s/ LESLIE F. KENNE                                        Director
 ------------------------------------------------
                (Leslie F. Kenne)


                 /s/ PAUL J. KERN                                         Director
 ------------------------------------------------
                  (Paul J. Kern)


               /s/ RONALD L. LEACH                                        Director
 ------------------------------------------------
                (Ronald L. Leach)


                  /s/ JAMES ROTH                                          Director
 ------------------------------------------------
                   (James Roth)


               /s/ ROBERT S. TYRER                                        Director
 ------------------------------------------------
                (Robert S. Tyrer)


               /s/ ROBERT WALMSLEY                                        Director
 ------------------------------------------------
                (Robert Walmsley)
</Table>

                                        84