<PAGE>

                                 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, 2003

                                  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 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 checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).  Yes [X]     No [ ]

     The aggregate market value of the registrant's common stock held by
non-affiliates was $259,747,032 based on the reported last sale price of common
stock on June 28, 2003, 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 20,
2004 was 19,898,145 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain portions of the Registrant's definitive proxy statement (filed
pursuant to Reg. 14A) relating to its 2004 Annual Meeting of Shareholders are
incorporated by reference in Part III of this Report.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                EDO CORPORATION

                               TABLE OF CONTENTS

<Table>
<Caption>

<S>       <C>                                                           <C>
                                   PART I
Item 1    Business....................................................    2
          Introduction................................................    2
          Acquisitions................................................    2
          Segments....................................................    3
            Defense Segment...........................................    3
            Communications and Space Products Segment.................    7
            Engineered Materials Segment..............................    9
          Research and Development....................................   10
          Marketing and International Sales...........................   10
          Backlog.....................................................   11
          Government Contracts........................................   11
          Competition and Other Factors...............................   12
          Environmental...............................................   12
          Employees...................................................   12
          Risk Factors................................................   12
Item 2    Properties..................................................   18
Item 3    Legal Proceedings...........................................   18
Item 4    Submission of Matters to a Vote of Security Holders.........   19

                               PART II
Item 5    Market for Registrant's Common Equity and Related
          Stockholder Matters.........................................   19
Item 6    Selected Financial Data.....................................   20
Item 7    Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   21
Item 7A   Quantitative and Qualitative Disclosure About Market Risk...   21
Item 8    Financial Statements and Supplementary Data.................   34
Item 9    Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   75
Item 9A   Controls and Procedures.....................................   75

                                  PART III
Item 10   Directors and Executive Officers of the Registrant..........   76
Item 11   Executive Compensation......................................   77
Item 12   Security Ownership of Certain Beneficial Owners and
          Management and Related Stockholder Matters..................   77
Item 13   Certain Relationships and Related Transactions..............   77
Item 14   Principal Accountant Fees and Services......................   77

                                  PART IV
Item 15   Exhibits, Financial Statement Schedules, and Reports on Form
          8-K.........................................................   77
          (a) Financial Statements and Financial Statement Schedules
          and Exhibits................................................   77
          1. Financial Statements.....................................   77
          2. Financial Statement Schedules............................   78
          3. Exhibits.................................................   78
          (b) Reports on Form 8-K.....................................   81
Signatures............................................................   82
</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 provides military and commercial products and professional
services, with core competencies in a wide range of critical defense areas,
including:

     - Defense Electronics
     - Aircraft Armament
     - Undersea Warfare
     - Professional Services
     - C4I -- Command, Control, Communications, Computers, and Intelligence
     - Integrated Composite Structures

     A disciplined acquisition program is diversifying the base of major
platforms and customers.

     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 ("SEC").

ACQUISITIONS

     Acquisitions have been the primary driver of our growth in recent years.
Since 1999, we have completed the following acquisitions:

     In April 2000, we acquired AIL Technologies, Inc. (AIL), a privately-held
defense electronics company based in Deer Park, New York. In the transaction, a
merger of AIL with a wholly-owned EDO subsidiary accounted for as a tax-free
reorganization, each share of AIL common stock was exchanged for 1.3296 EDO
common shares (equivalent to 6,553,194 EDO common shares valued at $39.4
million). In addition, AIL stockholders received a cash payment of $13.3
million. The merged company also assumed AIL debt of $29.7 million. AIL added
extensive capabilities in defense electronics, such as aircraft electronic
warfare systems in use on the B-1B bomber and the EA-6B Prowler radar-jamming
aircraft.

     In October 2001, we acquired Dynamic Systems, Inc., a privately-held
company based in Alexandria, Virginia, for $13.6 million in cash. Dynamic
Systems added to our range of professional and information technology services
that are provided primarily to the U.S. Department of Defense (DoD) and other
government agencies.

     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") based in Morgan Hill and Simi Valley, California for $62.5 million in
cash, plus transaction costs of $5.0 million. We also assumed $28.0 million in
outstanding standby letters of credit. 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.

     In February 2003, we acquired all of the stock of Advanced Engineering &
Research Associates, Inc. (AERA), a privately-held company located in
Alexandria, Virginia, for $38.1 million in cash, plus transaction costs of $0.3
million. In addition, we acquired and immediately paid off debt of $3.8 million.
AERA strengthened and expanded our range of professional services. AERA was
merged with our Professional Services business unit.

     In March 2003, we acquired all of the stock of Darlington, Inc., a
privately-held defense-communications company based in Alexandria, Virginia, for
$25.6 million in cash, plus transaction costs of approximately $0.3 million. In
addition, we acquired and immediately paid off debt of $4.9 million. The
Darlington acquisition expanded our capabilities in the areas of C4I (Command,
Control, Communications, Computers,

                                        2
<PAGE>

and Intelligence) and communications-related professional services. Darlington
operates with our Combat Systems business unit.

     In June 2003, we acquired all of the stock of Emblem Group Ltd. ("Emblem"),
a privately-held company based in Brighton, England, for $27.3 million plus
transaction costs of approximately $1.9 million. Emblem operated through its MBM
Technology unit in England and Artisan Technologies Inc. subsidiary in the
United States. Emblem, which has been renamed EDO (UK) Ltd, reinforces our
position as a global leader in aircraft armament-release systems and broadens
our customer base in Europe. The acquisition also added capabilities in C4I,
with a product line of rugged computers and related devices.

     In addition, we have completed four other acquisitions since 1998, all of
which have been disclosed in our prior Annual Reports on Form 10-K.

SEGMENTS

     We have historically reported our results in three reporting segments:
Defense, Communications and Space Products, and Engineered Materials. Because
the company continues to grow and evolve through acquisitions primarily related
to defense products, the Defense segment has become the dominant segment of our
business. Operations associated with the three acquisitions completed in 2003
were added to the Defense Segment. Management is currently evaluating other
possible reporting segments and organizational structures in view of the
expected continuation of our acquisition strategy.

     Our reporting segments currently consist of the following business units:

<Table>
<Caption>
             DEFENSE               COMMUNICATIONS AND SPACE PRODUCTS    ENGINEERED MATERIALS
             -------               ---------------------------------  ------------------------
<S>                                <C>                                <C>
Marine and Aircraft Systems        Antenna Products and Technologies  Electro-Ceramic Products
MTech                              Communications and                 Fiber Science
                                   Countermeasures Systems
Defense Programs and Technologies  Space Products portion of DPT      Specialty Plastics
  (DPT)
Combat Systems
Technical Services Operations
Professional Services
Reconnaissance and Surveillance
  Systems
EDO (UK) Ltd.
</Table>

     We set forth certain business segment information including information on
revenues from external customers, operating earnings, assets and capital
expenditures in Note 19 on pages 62 through 65 of this Report.

                                DEFENSE SEGMENT

     The Defense segment, which accounted for 78% of consolidated net sales in
2003, 74% in 2002, and 71% in 2001, includes electronic warfare systems,
reconnaissance and surveillance systems, aircraft weapons-suspension and release
systems, integrated combat systems, C4I products and systems, undersea-warfare
systems and professional and engineering services.

ELECTRONIC WARFARE SYSTEMS

     Electronic warfare systems sales accounted for 12% of consolidated net
sales in 2003, 24% in 2002, and 25% in 2001.

     Our AN/ALQ-161 is the defensive-avionics system that protects the U.S. Air
Force B-1B bomber from radar-guided and infrared-guided missile threats.
Designed in the early 1980's specifically for the B-1B aircraft, we delivered
the AN/ALQ-161 system and spares to all 100 aircraft in the B-1B fleet.
Currently we
                                        3
<PAGE>

provide logistic support and capability upgrades to the AN/ALQ-161 systems,
including software upgrades that have occurred every 12-24 months, as well as
hardware improvements to address both situation awareness and jamming
effectiveness. In 2003, the Air Force decided to extend the life of AN/ALQ-161
defensive suite until at least 2015, and has begun a significant upgrade
program.

     EDO's first award in the upgrade program was made in mid-2003, to modernize
the digital radio-frequency memory. This will provide advanced technique
waveforms to counter known threats. The memory upgrade begins an expected
modernization of the entire B-1B fleet. We have also received a contract to
continue development on the next generation of AN/ALQ-161 preprocessor flight
software. The DoD currently expects B-1B aircraft to be in operation through
2040.

     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. In 2003, we completed a substantial contract with the
U.S. Navy to upgrade the Universal Exciter on the EA-6B aircraft. The Universal
Exciter is the unit in the AN/ALQ-99 that provides the specific
electronic-jamming-technique waveforms and modulations that defeat enemy air-
defense systems. As a result of this contract completion, revenues related to
the Universal Exciter Upgrade program declined from 14 percent of total revenues
in 2002 to two percent of total revenues in 2003. We continue to maintain and
support the AN/ALQ-99 system. The DoD currently expects EA-6B aircraft to be in
operation through 2015.

     We design and produce a line of test equipment for electronic-warfare
testing, data acquisition, and radar simulation. In 2003, we received orders for
238 AN/PLM-4 radar signal simulators from the U.S. Air Force and international
customers. This brought the total number of systems ordered to 485, of which
more than 360 have been delivered to customers.

RECONNAISSANCE AND SURVEILLANCE SYSTEMS

     Our reconnaissance and surveillance systems include the AN/USQ-149 Radar
Narrow Band (RNB) Subsystem, the AN/ALR-95 automatic Electronic Support Measures
(ESM) system and variants of the ES-3701 ESM system which intercept, analyze and
identify radar emissions and provide situational awareness to military
personnel. Sales of reconnaissance and surveillance systems accounted for 17% of
consolidated net sales in 2003, 8% in 2002, and 0% in 2001.

     The ES-3701 is a leading international electronic-support system for naval
applications. More than 50 systems have been sold, many of which are already in
operation providing effective at-sea performance. A key feature is the system's
precision direction-finding at long range, even in difficult electromagnetic
environments. It can be integrated into any type of combat-system multi-function
console and enables the interception of radar threats.

INTEGRATED COMBAT SYSTEMS

     We act as a systems integrator for naval C4I systems. In this role, 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 data and display format for a
ship's commander. Integration contracts typically provide for the development of
integration software that allows the various subsystems to intercommunicate and
produce common information displays.

     In 1998, we began integration of a combat system for the upgrade of a major
class of ship for the Norwegian Coast Guard. In 2003, we completed live-fire
sea-acceptance trials of our Command, Control and Information System (CCIS) on
board three vessels. A fourth Norwegian Coast Guard vessel under contract for
CCIS installation is scheduled to begin modernization in 2004.

     CCIS is an open-architecture system that enhances maritime operations in
both the littoral and open-ocean environments. It includes modules for
surface-search radar, electro-optic fire-control system, hull-mounted sonar,
integrated-bridge system, navigation system and helicopter-control system, all
fully integrated with EDO's Piranha I Command Management System (CMS). CMS is
designed for modular integration of
                                        4
<PAGE>

sensor and weapons systems and complies with U.S. Navy Open Architecture
Computing Environment (NOACE) standards. It also provides automated decision
aids for on-scene command, real-time tactical display management, aircraft
control, search and rescue, and weapon engagement.

     In 2003, through successful international competition, we won a contract
from the Royal Norwegian Navy to upgrade the communications and data-link
systems on ULA-class submarines. Under the contract, EDO will provide
engineering, manufacturing, and integration services to deliver
open-systems-architecture, tactical-data-link systems. EDO will also upgrade the
existing submarine communications systems to provide new line-of-sight,
over-the-horizon, and satellite-data-communications capabilities, allowing
interoperability with all NATO forces. Information from EDO's data-link system
will be fully integrated with the submarine's on-board command and control
system to give the crew a common operational picture that will be distributed
throughout the submarine.

MOBILE COMMUNICATION SYSTEMS

     With the acquisition of Darlington in 2003, we added the AN/TSQ-231 Joint
Enhanced Core Communication System (JECCS) product line. JECCS provides the
Marine Corps with a mobile, first-in system for network management, data and
voice transmission, and switching services.

RUGGED COMPUTERS AND ELECTRONICS

     We also added to our C4I capabilities with our acquisition of Emblem in
2003. Emblem, which has been renamed EDO (UK) Ltd., added a new product line of
rugged computers and related electronic devices. This product line is the result
of significant investment by Emblem prior to the acquisition. It has been
designed to balance exceptional performance with user friendliness and the
rugged protection to withstand rough treatment on the battlefield. It has passed
the highest standards (Land Class A) for resistance to electro-magnetic
interference and low signal emission, allowing it to perform safely alongside
other electronic systems. The flagship "Termite" product is the only UK-designed
and developed rugged, handheld computer.

AIRCRAFT ARMAMENT

     Aircraft armament includes a broad range of sophisticated devices that
allow for the storage and release of the bombs and missiles carried on military
aircraft. This includes electronic interfaces between the weapon and the
aircraft that allow for targeting and release. Aircraft armament equipment sales
accounted for 12% of consolidated net sales in 2003, 13% in 2002, and 13% in
2001.

     EDO continues to make significant investments in technologies to meet the
worldwide demand for smart, lightweight, high-performance weapons-interface
systems. Over the last two decades, we have developed and manufactured bomb
release units (BRU) for the F-15 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-16 and F-18.

     In 2003, we:

     - continued production of F-15 BRUs for the U.S. Air Force and
       international customers and provided spare-parts support for Tornado ERUs
       and F-15 BRUs worldwide.

     - received production orders for 258 additional LAU-142/A missile launchers
       for the F/A-22 aircraft. Known as AVEL, for AMRAAM (Advanced Medium Range
       Air to Air Missile) Vertical Ejection Launcher, the LAU-142/A carries and
       ejects missiles from internal bays. During in-flight launch, the AVEL
       system ejects missiles through the jet fighter's air-flow-boundary layer
       very rapidly, assuring safe aircraft separation at supersonic speeds. The
       AVEL employs a highly reliable pneumatic-ejection system controlled by
       the aircraft's stores-management system. We have also received our first
       depot-support contract, and anticipate providing depot support through
       the life of the F/A-22.

     - continued development and testing of the pneumatic suspension-and-release
       system for the F-35 Joint Strike Fighter program.

                                        5
<PAGE>

     - began development and testing of a new electronic assembly for the
       LAU-117 Maverick launcher for Raytheon Missile Systems. This assembly
       will allow the analog-controlled Maverick missile to be carried on the
       F-16, F-35 and other digital-control aircraft.

     - received additional production orders for the BRU-57 smart-weapon
       carriage and electronics system as well as continued the integration of
       the BRU-55 onto the F-18 aircraft.

AIRBORNE MINE COUNTERMEASURES SYSTEMS

     We believe we are the only manufacturer of airborne naval-minesweeping
equipment in the world. The principal system of this type used by the U.S. Navy,
the MK105 helicopter-towed system was designed and developed by us starting in
1967. In the early 1990s, we developed a significant upgrade under contract,
followed by an initial production contract in 1996. 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
MK105 systems.

     In 1994, we began work under contract with the Navy to develop a
lightweight, helicopter-towed minesweeper for shallow water applications. We
received a production contract for these systems in 1999 with delivery completed
in 2002. In 2002, we won the competitive contract from the Navy for the next
generation minesweeping system, the Organic Airborne/Surface Influence Sweep
(OASIS). Development work will continue through 2005 followed by production for
fleet systems.

     In 2003, EDO was awarded a contract from the Navy to demonstrate the
feasibility of unmanned-surface-vessel mine-warfare technology and the
application of this technology for fleet integration. This technology will be
directly applicable to mine-warfare mission modules slated for use on the
Littoral Combat Ship.

SONAR SYSTEMS

     We have been a supplier of undersea systems including sonar sensors,
underwater-communication systems, and depth-sounding and speed-measuring
equipment for more than 40 years. During 2003, work continued on a contract for
the Brazilian Navy to deliver a major upgrade to the EDO Model 610E sonar
system. Work also continued on a contract with Singapore to deliver the recently
developed EDO Model 980 sonar system for installation in their new class of
naval ship. Development and delivery of the systems will extend into 2006.

     We continued our work with Ultra Electronics, the UK-based aerospace and
defense-electronics group, to provide bow-mounted Medium Frequency Sonar -- 7000
(MFS-7000) systems to the United Kingdom's Type 45 destroyer program. Under our
contract, we will provide systems for six ships. Deliveries under the contract
will extend through 2006.

PROFESSIONAL SERVICES

     We are a supplier of professional services consisting of acquisition and
logistics management, training and performance support systems, information
technology services, systems engineering, operation analysis, and program
management. We provide these services to the U.S. defense, federal-services, and
information-technology markets. Our professional-services capabilities increased
significantly in 2003 with the acquisitions of AERA and Darlington.

     Professional Services accounted for 22% of consolidated net sales in 2003,
13% in 2002, and 13% in 2001.

     - Acquisition Logistics and Management

     We support several of the Navy's program executive offices by providing
logisticians, acquisition specialists, engineers and financial analysts. These
professionals perform functions such as configuration management, budget
analysis, analysis of ship casualty reports, ship-manning assessments, and
review of training requirements. We also provide acquisition and logistics
support to the Marine Corps, including several

                                        6
<PAGE>

logistic bases and systems-command centers. We have provided acquisition support
to the Coast Guard's Deepwater program office as they faced the challenges of
creating a transformational fleet of vessels.

     In 2003, we assisted the Navy in reviewing approaches to the management of
shore-infrastructure.

     - Training & Performance Systems

     With the acquisition of AERA, we added capabilities in interactive,
multimedia instruction and computer-based training. This includes the
development of training courseware for the Virginia-class submarine platforms.
We are a prime contractor on the Naval Air Systems Command "Training Systems
Contract II" that will be the source of courseware development for many of the
Navy and Marine Corps air platforms over the next eight years.

     We are applying this competency internally to develop automated training
and interactive technical manuals for new EDO platforms, such as the OASIS
mine-sweeping system.

     Our logisticians and engineers support the Marine Corps' Warfighting
Laboratory, with concept-based experimentation and design, technology
evaluation, and identification of improved procedures. Similar support is also
provided to the Joint Forces Command's "Joint Concept Development and
Experimentation Process."

     - Systems Engineering

     In 2003, we continued to perform services under contracts for design,
planning, execution, analysis and reporting for the AN/ALQ-161A preprocessor
flight software for Warner Robins Air Logistics Center. In addition, 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 EW Directorate
at Edwards AFB for F/A-22 and various other aircraft platforms, and provide
technical and engineering support to various Boeing Satellite Systems programs.

     We also provide marine, propulsion, and systems engineering services in
areas such as test and evaluation, systems integration, performance modeling and
computer-aided design to a number of Navy, Coast Guard, and waterfront clients.

     - Information Technology Services

     The military continues to outsource a significant amount of IT-related
professional services. With our AERA and Darlington acquisitions, we added
support contracts in key programs with the Navy, Army and civilian agencies.

     In 2003, we were competitively awarded a contract from the Navy to provide
fleet support worldwide for existing and planned C4I systems, both afloat and
ashore. This contract is a large expansion of the previous $55 million
Darlington contract and has a contract ceiling of $107.7 million (base year plus
four option years). Deployed carriers and large-deck ships have an EDO Fleet
Systems Engineering Team (FSET) onboard. The FSETs include highly-skilled
engineers and technicians with IT and communication system expertise who serve
at US Navy shore stations as well as aboard active-duty ships. In addition to
operations, maintenance, and training support, the contract also requires
support for the rapid injection of new C4I technologies into Navy ships.

     - Operation Analysis and Program Management

     In 2003, we were awarded a contract from the Department of the Navy to
continue support for the Explosive Ordnance Disposal Program Management Office
(PMS-EOD). The task-order contract has a base year plus four option years, and a
contract ceiling of $17.5 million. We have successfully maintained this contract
since 1984.

                   COMMUNICATIONS AND SPACE PRODUCTS SEGMENT

     The Communications and Space Products segment, which accounted for 12% of
consolidated net sales in 2003, 14% in 2002, and 15% in 2001, includes antenna
product and ultra-miniature electronics and systems.

                                        7
<PAGE>

ANTENNA PRODUCTS

     We design and produce 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 60% military and 40% 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 as well as general-aviation aircraft.

     We have a broad customer and product base in this business. In 2003, we
sold more than 35,000 antennas of 200 different types to more than 350 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 500,000 units.

     We continually work on the development of new antenna products via
internally funded and customer-sponsored research and development. For example,
in 2003 we were awarded a $1.1 million contract by Boeing Integrated Defense
Systems for a specialized, multi-function antenna for use on the F/A-18 E/F
Super Hornet strike fighter. The antenna operates over a very wide bandwidth in
a low radar-cross-section configuration. We also received two multi-million
dollar awards from Northrop Grumman for antennas pertaining to the instrument
landing sensors for the F-35 aircraft, and ground mobile communications for the
new Joint Tactical Radio System. We anticipate many years of production for all
three of these major platforms.

     We also provide critical aerospace antennas for the Ground-Based Midcourse
Defense System. These antenna types have passed rugged electrical and
environmental missile-qualification requirements. Other leading technologies
include direction-finding antenna systems and microwave antennas.

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. Our systems allow full operational capability,
mitigating both friendly and intentional sources of interference.

     Most recently, this technology has given EDO a significant role in both of
the Coast Guard's two major modernization projects, known as Rescue 21 and
Deepwater. EDO is also developing a subsystem for the CV-22 Osprey tiltrotor
aircraft that will mitigate interference between onboard radios, allowing
unimpeded communications.

FORCE PROTECTION TECHNOLOGY

     EDO is the world's only supplier of the Shortstop Electronic Protection
System (SEPS), life-saving technology that protects people and equipment from
proximity-fused weapons such as mortar rounds, rockets, and artillery shells.
Shortstop works automatically and silently. It acts as an "electronic umbrella"
that can protect military forces, equipment, personnel and high-value assets.
The Shortstop program was initiated in 1990 by the US Central Command as a
quick-reaction response capability for Operation Desert Storm. Our Shortstop
product line includes modified versions that provide protection in various
military situations.

SPACE PRODUCTS

     We manufacture products for space payloads that meet the high reliability
standards required by the industry, including components, subassemblies and
major subsystems that are sold directly to the government for military and civil
systems, or to prime contractors for both government and commercial
applications. Our sensors and subsystems include larger subsystems, up to full
satellite payloads, for remote sensing instruments employing microwave
measurements of the earth and its atmosphere, and classified government
programs.

                                        8
<PAGE>

                          ENGINEERED MATERIALS SEGMENT

     The Engineered Materials segment, which accounted for 10% of consolidated
net sales in 2003, 12% in 2002, and 12% in 2001, includes electro-ceramic
products and advanced fiber-composite structural products.

ELECTRO-CERAMIC PRODUCTS

     Piezoelectric-ceramic elements convert acoustic energy to electrical energy
and vice versa, and form the basis of many defense and commercial products
ranging from military sonar to ink-jet printers. 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. While more than 50% of our piezoelectric-ceramic sales are
for defense applications, we are increasing our efforts to expand our commercial
business, while maintaining our position in the defense market.

     Our business is vertically integrated with in-house manufacturing and
development of piezoelectric and dielectric ceramic materials, coupled with
state-of-practice mixed analog and digital electronics and software engineering.
We believe this combination of engineered active materials and electronics
capabilities makes us competitive in several niche markets. Examples of our
products include underwater acoustic transducers for use in all areas of
undersea warfare and piezoelectric shapes for a variety of industries.

     In 2003, the Naval Sea System Command (NAVSEA) awarded us contract options
worth $7.6 million for additional production of SQS-53C sonar arrays for the
Arleigh Burke Class of guided-missile destroyer and for foreign military sales.
The sonar is used for detection, classification, and localization of submarines.
This latest order covers production of four shipments of sonar arrays. These
arrays include piezoelectric-ceramic rings incorporated into high-power
transducers, and associated array framework and cable assemblies. The
transducers and other hardware will be integrated by EDO into the cylindrical
arrays that are mounted in the bow of the ships.

     The SQS-53C sonar arrays are a major component of the SQQ-89 combat system,
which integrates detection, classification, and engagement subsystems for
control of the undersea battlespace. If all options are exercised, deliveries
will extend to approximately 2010.

     In 2003, EDO won a competitively awarded contract to develop new
passive-sonar technology on U.S. Navy submarines. The IDIQ,
indefinite-delivery/indefinite-quantity, contract has a base year plus four
option years, and a ceiling of $7.7 million. The contract includes the design,
development, and multi-year production of wide-band multi-mode and
radius-of-curvature sensors with associated electronics and electro-optics.
These are critical components of new hydrophone-array technology being developed
to improve detection of threats and counteract increasingly quieter submarines.
Wide-band multi-mode sensors allow identification of specific sounds made by
submarines and weapons. Radius-of-curvature sensors will improve the ability to
compute the distance to various threat emissions, a limitation of current
passive-sonar systems.

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.

     In 2003, we secured a number of development contracts for the next
generation Boeing X-45 UCAV (Unmanned Combat Air Vehicle). Our success on these
development contracts led to a production contract, near the end of 2003, for
composite structures for two proof-of-concept aircraft, with options for 12
additional aircraft. These structures will elevate our production expertise by
using the latest in technology and materials used in the fabrication of modern
military aircraft.

     In 2003, we delivered the first production filament-wound launch canisters
for the new Thales VT-1 missile program. This contract extends out into 2005. We
also continued production of composite tanks for the

                                        9
<PAGE>

Boeing C-17 aircraft. We have been the sole supplier of these tanks since
production began, more than 10 years ago.

     In commercial markets, 2003 marked the 36th year in which we have been a
provider to Boeing for composite tanks on commercial airliners. In the medical
device market, we supply special water/chemical dilution tanks for use in the
Aksys Personal Hemo-Dialysis Plus (PHD+) system. We also produce similar tanks
for Teijin Pharma, an Aksys licensee in Japan. For the offshore oil industry, we
produce the "Fiberbond" line of composite piping. In 2003, we initiated the
fabrication and installation of topside piping systems for offshore oil
platforms in Malaysia, Brazil and the UK. We also won production contracts for
composite piping on four large Gulf of Mexico deep-water oil platforms.

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. In
2003, our research and development efforts involved about 130 employees. Most of
our research and development is funded by long-term development contracts with
customers, with the remainder funded at our own expense.

     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.

     Expenditures under development contracts with customers vary in amount from
year to year because of the timing of contract funding and other factors.

     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: 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,
                                                          ---------------------------
                                                           2003      2002      2001
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Customer-sponsored......................................  $48,800   $38,300   $35,700
Company-funded..........................................    8,600     8,500     8,700
                                                          -------   -------   -------
  Total.................................................  $57,400   $46,800   $44,400
                                                          =======   =======   =======
</Table>

MARKETING AND INTERNATIONAL SALES

     We sell defense products as a prime contractor and through subcontracts
with other prime contractors. In addition to defense sales to the U.S. DoD, we
also sell defense equipment to the U.S. Government on behalf of foreign
governments under the Foreign Military Sales program. Subject to approval by the
U.S. Department of State, we sell to foreign governments both directly and
through Foreign Military Funded programs and commercial sales.

     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

                                        10
<PAGE>

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.

     International sales comprised 18% of consolidated net sales in 2003, 15% in
2002, and 15% in 2001.

BACKLOG

     We define backlog as the funded value of contracts and orders that has not
been recognized as sales. As of December 31, 2003 our total backlog was $462.3
million compared with $375.0 million as of December 31, 2002. Approximately 75%
of the total backlog at December 31, 2003 is scheduled for delivery in 2004. 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 $520 million in unfunded contracts and
unexercised options at the end of 2003.

GOVERNMENT CONTRACTS

     Net sales to the U.S. Government, as a prime contractor and through
subcontracts with other prime contractors, accounted for 76% of our 2003
consolidated net sales compared with 75% in 2002 and 69% in 2001, 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-
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.

                                        11
<PAGE>

COMPETITION AND OTHER FACTORS

     Some of our products are sold in markets containing a number of competitors
substantially larger than us 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 18 on page 62 of this Report for information regarding the
cost of compliance with environmental regulations.

EMPLOYEES

     As of December 31, 2003, we employed 2,640 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 2003, 2002 and 2001, we derived about
76%, 75% and 69%, respectively, of net sales from direct and indirect contracts
with the U.S. Government and derived about 18%, 15% and 15%, 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.

  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

                                        12
<PAGE>

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.

     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

                                        13
<PAGE>

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 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.

                                        14
<PAGE>

  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
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

                                        15
<PAGE>

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 18% of our total sales in 2003, 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, 2003, the EDO Employee Stock Ownership Trust, or ESOT,
owned 4,099,033 common shares (or about 21% 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, our Certificate of Incorporation and By-Laws provide for a
classified board of directors and restrict the ability of shareholders to call
special meetings. These provisions could delay or impede the removal of
incumbent directors and could make it more difficult to effect a merger, tender
offer or proxy contest, even if such events might be favorable to our
shareholders. Moreover, 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. Our Board of Directors and management
are recommending that our shareholders agree to amend our certificate of
incorporation to eliminate the classified board. If the holders of 80% of EDO's
outstanding common shares vote in favor of this amendment at our annual meeting
of shareholders to be held on April 27, 2004, then the risk of delay or
impediment to a merger, tender offer or proxy contest will be significantly
lessened.

  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

                                        16
<PAGE>

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.

  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 is 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;

                                        17
<PAGE>

     - create liens on assets;

     - sell assets;

     - enter into transactions with affiliates; and

     - engage in mergers or consolidations.

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

ITEM 2.  PROPERTIES

     All of our operating facilities are leased except a Charleston, SC facility
obtained in the Darlington acquisition. In 2003, we sold our facility in Deer
Park, NY. As part of the sale agreement, we are leasing the facility for a
period not to exceed two years. 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. However, in light of recent
acquisitions, we are reviewing the status of all of our facilities. We believe
that, with respect to leases which expire during 2004 and 2005, 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 17 on page 62 of this
Report.

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

<Table>
<Caption>
                                                                                    APPROXIMATE
                                                                                     FLOOR AREA
BUSINESS UNIT                             SEGMENT                  LOCATION         (IN SQ. FT.)
-------------                             -------                  --------         ------------
<S>                               <C>                        <C>                    <C>
EDO Antenna Products and
  Technology and EDO Defense
  Programs and Technologies.....  Communications and Space
                                  Products and Defense       Deer Park, NY            726,000
EDO Reconnaissance and
  Surveillance Systems..........  Defense                    Morgan Hill, CA          160,000
EDO Electro-Ceramic Products....  Engineered Materials       Salt Lake City, UT       117,000
EDO Fiber Science...............  Engineered Materials       Salt Lake City, UT       105,000
EDO Marine & Aircraft Systems...  Defense                    North Amityville, NY      92,000
EDO Communications and
  Countermeasures Systems.......  Communications and Space
                                  Products                   Simi Valley &
                                                             Westlake Village, CA      83,000
EDO Professional Services.......  Defense                    Alexandria, VA           118,000
EDO (UK) Ltd....................  Defense                    Brighton, UK              43,000
EDO Combat Systems..............  Defense                    Chesapeake, VA            37,000
EDO Technical Services
  Operations....................  Defense                    Lancaster, CA             33,000
EDO Specialty Plastics..........  Engineered Materials       Baton Rouge, LA           29,000
EDO Darlington..................  Defense                    Alexandria, VA &
                                                             Charleston, SC            43,000
EDO Artisan.....................  Defense                    Parsippany, NJ            25,000
EDO MTech.......................  Defense                    Huntingdon, PA            14,000
</Table>

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 18 on page 62 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, will not have a material adverse effect on the Company's

                                        18
<PAGE>

consolidated financial position, cash flow or overall results of operations. 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, 2003, the Company estimates that its discounted liability over the
remainder of the twenty-two years related to the two operable units is
approximately $2.0 million. See also Note 18 on page 62 of this Report.

     Technip Offshore Inc. v.  EDO Fiber Science and EDO Corporation  (U.S.
District Court for the Southern District of Texas). Technip Offshore Inc.
(Technip), a U.S. subsidiary of Technip-Coflexip, S.A., a French corporation,
brought a declaratory judgment action seeking a declaration that Technip
Offshore Inc. is the owner of a patent application jointly filed by Technip and
the Company and that Technip has not breached an agreement with the Company by
offering to sell products described in the patent application to certain third
parties. The Company has denied the allegations and filed a counterclaim seeking
damages pursuant to certain agreements between the Company and Technip. Technip
does not seek damages.

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" on page 32 and "Dividends" on page 32, together with
dividend information contained in the "Consolidated Statements of Shareholders'
Equity" on pages 36 and 37 and Note 9 on pages 50 and 51 of this Report. The
information regarding equity compensation plans can be found in Notes 1(l) on
page 45 and 14 on pages 54 and 55 of this Report.

                                        19
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                            SELECTED FINANCIAL DATA

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

<Table>
<Caption>
                                                           2003       2002       2001       2000      1999
                                                         --------   --------   --------   --------   -------
                                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                      <C>        <C>        <C>        <C>        <C>
STATEMENT OF EARNINGS DATA:
Net sales..............................................  $460,667   $328,876   $259,961   $206,822   $97,936
  Costs and expenses:
  Cost of sales........................................   338,259    240,850    189,733    151,512    72,337
  Selling, general and administrative..................    71,855     47,584     34,013     29,205    13,602
  Research and development.............................     8,594      8,492      8,750      5,371     2,748
  Other expenses (income)(a)...........................     1,871      2,565        389     11,495        --
  Impairment loss on Deer Park facility................     9,160         --         --         --        --
                                                         --------   --------   --------   --------   -------
                                                          429,739    299,491    232,885    197,583    88,687
                                                         --------   --------   --------   --------   -------
Operating earnings.....................................    30,928     29,385     27,076      9,239     9,249
Net interest expense...................................    (8,152)    (4,956)    (2,216)    (2,438)     (785)
Other non-operating income (expense), net..............       279        (95)      (971)      (216)      230
                                                         --------   --------   --------   --------   -------
                                                           (7,873)    (5,051)    (3,187)    (2,654)     (555)
                                                         --------   --------   --------   --------   -------
Earnings before income taxes and cumulative effect of a
  change in accounting principle.......................    23,055     24,334     23,889      6,585     8,694
Income tax expense.....................................    (9,644)   (10,342)    (9,210)    (5,264)   (2,610)
                                                         --------   --------   --------   --------   -------
Earnings before cumulative effect of a change in
  accounting principle from:
  Continuing operations................................    13,411     13,992     14,679      1,321     6,084
  Discontinued operations..............................     1,398         --        273         --    (4,064)
                                                         --------   --------   --------   --------   -------
Earnings before cumulative effect of a change in
  accounting principle.................................    14,809     13,992     14,952      1,321     2,020
Cumulative effect of a change in accounting principle,
  net of tax of $790(b)................................        --     (3,363)        --         --        --
Dividends on preferred shares(c).......................        --         --       (194)      (881)   (1,000)
                                                         --------   --------   --------   --------   -------
Net earnings available for common shares...............  $ 14,809   $ 10,629   $ 14,758   $    440   $ 1,020
                                                         ========   ========   ========   ========   =======
PER COMMON SHARE DATA:
Basic net earnings (loss):
  Continuing operations................................  $   0.78   $   0.82   $   1.14   $   0.05   $  0.76
  Discontinued operations..............................      0.08         --       0.02         --     (0.61)
                                                         --------   --------   --------   --------   -------
Basic net earnings before cumulative effect of a change
  in accounting principle..............................      0.86       0.82       1.16       0.05      0.15
Cumulative effect of a change in accounting
  principle............................................        --      (0.20)        --         --        --
                                                         --------   --------   --------   --------   -------
Basic net earnings.....................................  $   0.86   $   0.62   $   1.16   $   0.05   $  0.15
                                                         --------   --------   --------   --------   -------
Diluted net earnings (loss):
  Continuing operations................................  $   0.76   $   0.81   $   1.09   $   0.05   $  0.65
  Discontinued operations..............................      0.08         --       0.02         --     (0.50)
                                                         --------   --------   --------   --------   -------
Diluted net earnings before cumulative effect of a
  change in accounting principle.......................      0.84       0.81       1.11       0.05      0.15
Cumulative effect of a change in accounting
  principle............................................        --      (0.20)        --         --        --
                                                         --------   --------   --------   --------   -------
Diluted net earnings...................................  $   0.84   $   0.61   $   1.11   $   0.05   $  0.15
                                                         ========   ========   ========   ========   =======
Cash dividends per common share........................  $   0.12   $   0.12   $   0.12   $   0.12   $  0.12
Weighted-average common shares outstanding:
  Basic................................................    17,308     17,080     12,776      9,601     6,701
  Diluted..............................................    17,561     17,379     14,254     10,662     8,032
</Table>

                                        20
<PAGE>

<Table>
<Caption>
                                                           2003       2002       2001       2000      1999
                                                         --------   --------   --------   --------   -------
                                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                      <C>        <C>        <C>        <C>        <C>
OTHER DATA:
Depreciation and amortization..........................  $ 17,065   $ 11,321   $ 11,396   $  9,441   $ 3,390
Capital expenditures...................................     8,865      7,093     14,298      3,861     4,032
Backlog................................................   462,327    375,029    294,812    252,888   133,880
                                                         --------   --------   --------   --------   -------
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, marketable securities and
  restricted cash......................................  $ 86,632   $159,860   $ 58,031   $ 16,621   $29,642
Working capital........................................   172,278    204,382    105,177     37,552    35,110
Total assets...........................................   494,696    481,574    285,630    214,254   124,491
Total debt(d)..........................................   137,800    137,800        463     49,444    36,483
Shareholders' equity...................................   190,332    168,273    174,498     65,818    40,241
                                                         --------   --------   --------   --------   -------
</Table>

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

(a) Reflects $0.9 million in 2003 and $0.4 million in 2002 for the write-off of
    purchased in-process research and development ("IPR&D") and other
    merger-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 and $11.5 million in the years 2001 and 2000, respectively, for the
    write-off of IPR&D (in 2000); and other EDO-AIL merger-related costs (in
    2001 and 2000).

(b) 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(g) to
    the consolidated financial statements.

(c) 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.

(d) Includes note payable, Employee Stock Ownership Trust loan obligation and
    current portions of long-term debt.

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") is a leading supplier of sophisticated,
highly engineered products and systems for defense, aerospace and industrial
applications. We believe our advanced electronic, electromechanical systems,
information systems and engineered materials are mission-critical on a wide
range of military programs. We have three reporting segments: Defense,
Communications and Space Products, and Engineered Materials, which represented
78%, 12% and 10%, respectively, of our net sales for the year ended December 31,
2003.

     Our Defense segment provides integrated front-line warfighting systems and
components including electronic-warfare systems, reconnaissance and surveillance
systems, aircraft weapons suspension and release systems, integrated combat
systems, command, control, communications, computers, and intelligence (C4I)
products and systems, undersea-warfare systems and professional and engineering
services for military forces and friendly governments worldwide. Our
Communications and Space Products segment supplies antenna products and
ultra-miniature electronics and systems for the remote sensing and electronic
warfare industries. Our Engineered Materials segment supplies commercial and
military piezo-electric ceramic products and integrated composite structures for
the aircraft and oil industries.

ACQUISITIONS

     Acquisitions of businesses that we believe will enhance our position in the
markets that we serve have been an important factor in our growth.

                                        21
<PAGE>

     On June 16, 2003, we acquired for cash all of the stock of Emblem Group
Ltd. ("Emblem"), a privately-held company based in Brighton, England. Emblem,
now known as EDO (UK) Ltd., is a supplier of aerospace and defense products and
services, primarily through its MBM Technology unit in England and Artisan
Technologies, Inc., a subsidiary in the United States. Emblem has a core
competency in aircraft weapons-carriage and interfacing systems that will
reinforce our position as a global leader in aircraft armament release systems.
Emblem is expected to broaden our customer base in Europe. The purchase price
was L16.3 million ($27.3 million), excluding transaction costs of approximately
$1.9 million. Emblem became part of our Defense segment.

     On March 10, 2003, we acquired for cash all of the stock of Darlington,
Inc. ("Darlington"), a privately-held defense communications company based in
Alexandria, Virginia. Darlington designs, manufactures and supports military
communications equipment and information networking systems. The acquisition is
expected to enhance our existing positions on long-range platforms and programs
across the U.S. military services and in particular the U.S. Marine Corps. The
purchase price was $25.6 million, excluding transaction costs of approximately
$0.3 million. In addition, we acquired and immediately paid off debt of $4.9
million. Darlington became part of our Defense segment.

     On February 5, 2003, a wholly-owned subsidiary of the Company acquired for
cash all of the stock of Advanced Engineering & Research Associates, Inc.
("AERA"), a privately-held company located in Alexandria, Virginia. AERA, which
was merged with another EDO subsidiary in 2004 and is now known as EDO
Professional Services Inc., provides professional and information technology
services primarily to the Department of Defense and other government agencies.
The acquisition is expected to strengthen and expand the range of such services
that we offer. The purchase price was $38.1 million, excluding transaction costs
of $0.3 million. In addition, we acquired and immediately paid off debt of $3.8
million. AERA became part of our Defense segment.

     On July 26, 2002, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Condor
Systems, Inc., a privately-held defense electronics company and its domestic
subsidiary (together, "Condor") for $62.5 million in cash, in addition to
transaction costs of $5.0 million. The acquisition expanded our electronic
warfare business in the areas of reconnaissance and surveillance systems. The
assets became part of our Defense and Communications and Space Products
segments.

     In October 2001, we acquired all of the stock of Dynamic Systems, Inc., a
privately-held company based in Alexandria, Virginia, for $13.6 million in cash,
excluding transaction costs of approximately $0.1 million. The acquisition
strengthened and expanded the range of professional and information technology
services we offered to both existing and new customers in the Defense segment.

     These acquisitions were accounted for as purchases and, accordingly, their
operating results are included in our 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. This impairment charge represents the entire loss we expect to incur.

     Of the $29.0 million sales price, $22.0 million is in cash and $7.0 million
is 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 note receivable is
due when we vacate the facility. As part of the agreement, we will lease the
facility for a period not to exceed two years. The lease agreement does not have
any renewal or buyout options.

                                        22
<PAGE>

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 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

                                        23
<PAGE>

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 the 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 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 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.

  PENSION AND POST-RETIREMENT BENEFIT 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 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.

     In 2003, 2002 and 2001 we used 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.

     The expected long-term rate of return on plan assets to be used for 2004
expense is 8.25%. This rate of return was determined by application of a
statistical forecast modeling algorithm which, using the pension investment mix
and pension demographic data, simulates the long term performance of the plan
over a series of 2000 trials of variable economic conditions, rounded to the
nearest quarter-percent. The resulting rate is a 50 basis-point reduction in the
forecast from that used in 2003. The discount rate also reflects a similar 50
basis-point reduction from that used in 2003. The discount rate is selected
based on review of selected widely available index information for high quality
corporate bonds such as Factiva, adjusted for term.

FINANCIAL HIGHLIGHTS

     Net sales for 2003 increased 40.1% to $460.7 million from $328.9 million
for 2002. These results included sales of three acquisitions made in 2003. Also
included in 2003 are a full year's sales from the acquisition of substantially
all of the assets of the former Condor business compared to five months' worth
in 2002. For 2003, net earnings were $14.8 million or $0.84 per diluted share.
These results include a pre-tax impairment loss on the sale of the Deer Park
facility of $9.2 million, pre-tax acquisition-related costs of $0.9 million
associated with our acquisition of substantially all of the assets of Condor in
July 2002, and a pre-tax curtailment loss of $0.9 million on the non-qualified
pension plan. Also included in 2003 is $1.4 million net of tax earnings from
discontinued operations. In 2002, we recorded a $3.4 million net of tax charge
($0.20 per diluted share) to account for the cumulative effect of a change in
accounting principle upon our adoption of SFAS No. 142, "Goodwill and Other
Intangible Assets." This charge occurred in the Engineered Materials segment and
was comprised of $2.3 million and $1.9 million of impaired goodwill and
trademark, respectively, offset by a tax
                                        24
<PAGE>

benefit of $0.8 million. Including the cumulative effect, net earnings available
for common shares were $10.6 million or $0.61 per diluted share. Also, in 2002,
there was a pre-tax defined benefit pension plan curtailment charge of $2.0
million and pre-tax acquisition related costs of $0.6 million associated with
Condor.

RESULTS OF OPERATIONS

  COMPARISON OF 2003 TO 2002

     Net sales by segment were as follows:

<Table>
<Caption>
                                                            TWELVE MONTHS
                                                                ENDED
                                                             DECEMBER 31,           INCREASE
                                                        ----------------------        FROM
SEGMENT                                                   2003         2002       PRIOR PERIOD
-------                                                 ---------    ---------    ------------
                                                        (DOLLARS IN MILLIONS)
<S>                                                     <C>          <C>          <C>
Defense...............................................   $360.0       $243.5             47.8%
Communications and Space Products.....................     55.5         47.3             17.3%
Engineered Materials..................................     45.2         38.1             18.4%
                                                         ------       ------
Total.................................................   $460.7       $328.9             40.1%
                                                         ======       ======
</Table>

     Net sales for the year ended December 31, 2003 increased 40.1% to $460.7
million from $328.9 million for the year ended December 31, 2002. This increase
comprised sales growth of $116.5 million for the Defense segment, $8.2 million
for the Communications and Space Products segment and $7.1 million for the
Engineered Materials segment.

     In the Defense segment, $91.3 million of the net increase was attributable
to sales of Emblem Group Ltd. ("Emblem"), Darlington, Inc. ("Darlington"), and
Advanced Engineering & Research Associates, Inc. ("AERA") since their
acquisition dates of June 16, March 10, and February 5, 2003, respectively. In
addition, $48.4 million of the increase is attributable to a full year's worth
of sales of reconnaissance and surveillance systems associated with the
acquisition of substantially all of the assets of Condor Systems, Inc.
("Condor"), compared to only five months in 2002. In addition, there were
increases in sales of aircraft weapons suspension and release systems due in
part to the F/A-22 AMRAAM Vertical Eject Launcher program, the BRU-57 Multiple
Carriage Smart Bomb Rack program, and development efforts on the Joint Strike
Fighter weapons suspension and release units programs. Sales of undersea sonar
systems and aircraft radar signal simulator units also increased in 2003
compared to 2002. These increases were offset by decreases in sales of
electronic warfare equipment as well as integrated combat systems. The decrease
in sales of electronic warfare equipment was due to the completion of the
Universal Exciter Upgrade ("UEU") production program in the third quarter of
2003. The decrease in integrated combat systems was due primarily to delays in
receipt of orders from foreign customers.

     In the Communications and Space Products segment, most of the net increase
in sales was attributable to a full year's worth of sales of electronic
protection systems from the aforementioned acquisition of Condor compared to
only five months in 2002. Additionally, sales increases in our antenna product
line were more than offset by decreases in sales of our space sensor
communication products.

     In the Engineered Materials segment, there were increases in sales of
electro-ceramic products, attributable to transducers and sonar arrays. There
were also increases in sales of integrated composite structures including work
associated with the Sikorsky Comanche program as well as production and
installation of our composite pipe on offshore oil rig projects resulting from
increased activity in the Gulf of Mexico.

     Operating earnings for the year ended December 31, 2003 were $30.9 million
or 6.7% of net sales. This compares to operating earnings for the year ended
December 31, 2002 of $29.4 million or 8.9% of net sales. The 2003 results were
negatively impacted by a $9.2 million loss on the sale of our facility in Deer
Park, a $0.9 million curtailment loss associated with our non-qualified pension
plan, and $0.9 million of costs associated with the acquisition of the former
Condor business. In 2002, operating earnings included a

                                        25
<PAGE>

$2.0 million curtailment loss associated with our defined benefit pension plan
and $0.6 million of costs associated with the acquisition of substantially all
of the assets of the former Condor business. In addition, 2003 operating
earnings include $4.9 million of intangible asset amortization expense
associated with the Condor, AERA, Darlington and Emblem acquisitions. This
compares to total amortization expense of approximately $1.0 million for 2002.
Also included in operating earnings for the year ended December 31, 2003 is
pension expense of $3.9 million and ESOP compensation expense of $3.3 million.
Included in operating earnings for the year ended December 31, 2002 is pension
expense of $4.0 million and ESOP compensation expense of $4.0 million. The lower
ESOP compensation expense for 2003 is attributable to our lower average stock
price in 2003 compared to 2002. Pension and ESOP compensation expense are
allocated between cost of sales and selling, general and administrative expense.

     The Defense segment's operating earnings for the year ended December 31,
2003 were $35.1 million or 9.7% of this segment's net sales compared to $28.7
million or 11.8% of this segment's net sales for the year ended December 31,
2002. In 2003, operating earnings were positively affected by higher-margin
sales of reconnaissance and surveillance systems from the acquisition of
substantially all of the assets of Condor, efficiencies achieved on higher
production volume associated with our radar signal simulator, and higher margin
sales of aircraft weapons suspension and release systems. The completion of
production activities on certain long-term programs, including the UEU, also
resulted in earnings at relatively high margins. In addition, there were high
margins recognized on various B-1B spares and repairs contracts. These increases
were offset in part by a shift in the margins of mine countermeasure systems
from higher-margin production on the MK105 program last year to lower-margin,
non-recurring development efforts this year associated with OASIS, as well as by
the aforementioned lower sales of combat systems. Operating earnings for 2003
were also negatively impacted by amortization expense pertaining to intangible
assets associated with acquisitions.

     The Communications and Space Products segment's operating earnings for the
year ended December 31, 2003 were $3.6 million or 6.5% of this segment's net
sales compared to an operating loss of $0.4 million or 0.9% of this segment's
net sales in 2002. In 2003, operating earnings in this segment were negatively
impacted by a $1.1 million pre-tax charge to write down satellite-related
inventory to net realizable value. This reduction was caused by competitive
price pressure from our major customer as well as some obsolescence. This charge
was more than offset by the receipt of an award fee on a classified program as
well as the contribution from the higher sales of communications systems from
the acquisition of substantially all of the assets of Condor. Included in the
2002 operating loss was a $1.5 million charge to provide for manufacturing
inefficiencies resulting from our primary customer's decrease in its forecasted
purchases of our satellite down converters.

     The Engineered Materials segment's operating earnings for the year ended
December 31, 2003 were $2.4 million or 5.3% of this segment's net sales compared
to operating earnings of $3.2 million or 8.3% of this segment's net sales in
2002. During the year ended December 31, 2003, we incurred a pre-tax charge of
$0.7 million to write down inventory and receivables related to the microwave
product line that services the telecommunications industry. As sales from such
product line were not materializing to expected levels set forth in the business
plan for this line, we conducted an analysis of market potential. Such analysis
was completed in the second quarter of 2003 and indicated that approximately
$0.1 million of unbilled receivables were unrecoverable and that the net
realizable value of the related inventory was $0.6 million lower than its book
value. In addition, the decrease in this segment's operating earnings as a
percentage of net sales was due to a decrease in contribution from composite
structural products resulting from a shift in sales to lower-margin,
non-recurring engineering efforts associated with the Sikorsky Comanche program.

     Selling, general and administrative expenses for the year ended December
31, 2003 increased to $71.9 million or 15.6% of net sales from $47.6 million or
14.5% of net sales for the year ended December 31, 2002. This increase was
primarily attributable to three acquisitions made in 2003.

     Research and development expense for the year ended December 31, 2003
increased slightly to $8.6 million or 1.9% of net sales from $8.5 million or
2.6% of net sales for the year ended December 31, 2002. As a percent of sales,
the decrease is attributable to the absence of such expenditures in the services
businesses.

                                        26
<PAGE>

     Interest expense, net of interest income, for the year ended December 31,
2003 increased 64.5% to $8.2 million from $5.0 million for the year ended
December 31, 2002, due primarily to interest expense associated with our $137.8
million principal amount Notes issued in April 2002, increased amortization
expense of deferred debt issuance costs associated with the offering of the
Notes and increased amortization of deferred financing costs associated with our
credit facility amended in November 2002.

     Income tax expense reflects an effective rate of 41.8% for the year ended
December 31, 2003 compared to 42.5% for the year ended December 31, 2002. The
decrease in the effective tax rate was principally attributable to the decreased
amount of non-deductible, non-cash ESOP compensation expense in 2003.

     For the year ended December 31, 2003, earnings available for common shares
were $14.8 million or $0.84 per diluted common share on 17.6 million diluted
shares compared to earnings before cumulative effect of change in accounting
principle of $14.0 million or $0.81 per diluted common share on 17.4 million
diluted shares for the year ended December 31, 2002. The cumulative effect of a
change in accounting principle for the year ended December 31, 2002 was recorded
as of January 1, 2002 and is shown net of a tax benefit of $0.8 million on the
consolidated statement of earnings. This charge pertained to the impairment of
goodwill and a trademark resulting from impairment tests performed in 2002, as
required by SFAS No. 142. The impairment occurred in the Engineered Materials
segment and is comprised of the following: $2.2 million and $1.9 million of
goodwill and a trademark, respectively, related to our acquisition of Specialty
Plastics and $0.1 million of goodwill related to our acquisition of Zenix.

  COMPARISON OF 2002 TO 2001

     Net sales by segment were as follows:

<Table>
<Caption>
                                                            TWELVE MONTHS
                                                                ENDED
                                                             DECEMBER 31,           INCREASE
                                                        ----------------------        FROM
SEGMENT                                                   2002         2001       PRIOR PERIOD
-------                                                 ---------    ---------    ------------
                                                        (DOLLARS IN MILLIONS)
<S>                                                     <C>          <C>          <C>
Defense...............................................   $243.5       $183.5         32.7%
Communications and Space Products.....................     47.3         40.0         18.3%
Engineered Materials..................................     38.1         36.5          4.5%
Total.................................................   $328.9       $260.0         26.5%
</Table>

     Net sales for the year ended December 31, 2002 increased 26.5% to $328.9
million from $260.0 million of net sales from continuing operations for the year
ended December 31, 2001. This increase comprised sales growth of $60.0 million
for the Defense segment, $7.3 million for the Communications and Space Products
segment and $1.6 million for the Engineered Materials segment.

     In the Defense segment, $28.7 million or 47.8% of the net increase was
attributable to five months of sales of Condor since its acquisition on July 26,
2002. Additionally in the Defense segment, there were increases in sales of
technology services attributable to twelve months of Dynamic Systems' net sales
in 2002 as compared to approximately three months in 2001 due to its acquisition
in October 2001, electronic warfare equipment attributable in part to the
Universal Exciter Upgrade program, aircraft weapons suspension and release
systems due in part to efforts on the production phase of the AMRAAM Vertical
Eject Launcher program for the F/A-22, efforts on the production lots of the
BRU-57 Multiple-Carriage Smart Bomb Rack platform with the U.S. Air Force,
efforts on the Joint Strike Fighter's suspension and release subsystem and
weapons release units programs and development efforts associated with the Small
Diameter Bomb program. There was also an increase in our sales of undersea sonar
systems. These increases in the Defense segment were partially offset most
notably by the decreases in sales of mine countermeasures systems as well as
integrated combat systems, the latter of which was due primarily to the delay in
orders anticipated to be awarded to us in 2002 from international customers.

     In the Communications and Space Products segment, $7.6 million of the net
increase in sales was attributable to sales of electronic protection systems
from the aforementioned acquisition of Condor.

                                        27
<PAGE>

Additionally, sales increases in our antenna product line were more than offset
by decreases in sales of our space sensor communication products.

     In the Engineered Materials segment, there were increases in sales of
electro-ceramic products, attributable to transducers and sonar arrays, and
advanced fiber composite structural products.

     Operating earnings for the year ended December 31, 2002 were $32.0 million
or 9.7% of net sales, before the write-off of $0.2 million of purchased
in-process research and development ("IPR&D") and $0.4 million of other
merger-related costs associated with our acquisition of the assets of Condor, as
well as a $2.0 million defined benefit pension plan curtailment loss. This
compares to operating earnings for the year ended December 31, 2001 of $27.5
million or 10.6% of net sales, before EDO-AIL merger-related costs of $1.3
million and a post-retirement benefits curtailment gain of $0.9 million.
Including the respective aforementioned charges or gain in each year, operating
earnings for the year ended December 31, 2002 were $29.4 million or 8.9% of net
sales compared to $27.1 million or 10.4% of net sales for the year ended
December 31, 2001. The decrease in operating margin for the year ended December
31, 2002 compared to the year ended December 31, 2001 was due primarily to the
recording of $6.0 million of defined benefit pension plan expense, which
includes $2.0 million of a curtailment loss, and ESOP compensation expense of
$4.0 million in 2002 compared to $2.6 million of pension income and $1.8 million
of ESOP compensation expense in 2001. The change to pension expense in 2002 from
pension income in 2001 was due primarily to continued poor performance of plan
assets invested in the stock market and the lowering of the discount rate in
2002 reflecting the general decline in interest rates. Additionally, pension
expense in 2002 included a $2.0 million curtailment loss upon an amendment to
the pension plan whereby benefits accrued were frozen as of December 31, 2002.
The increase in ESOP compensation expense is attributable in part to our higher
average stock price in 2002 compared to 2001. Pension and ESOP compensation
expense or income is allocated between cost of sales and selling, general and
administrative expense.

     The Defense segment's operating earnings for the year ended December 31,
2002 were $28.7 million or 11.8% of this segment's net sales compared to
operating earnings for the year ended December 31, 2001 of $21.9 million or
11.9% of this segment's net sales. The increase in operating earnings in the
Defense segment is due primarily to the completion of some MK-105 Mod 4 mine
countermeasures systems in 2002 and final deliveries of Lots 4 and 5 of the
Universal Exciter Upgrade program resulting in additional profit based on final
costs at completion compared to prior estimates. These increases were offset in
part by a decrease in aircraft weapons suspension and release systems resulting
from a shift from primarily production efforts last year to lower-margin
non-recurring development efforts on recently awarded long-term programs. The
Communications and Space Products segment's operating loss for the year ended
December 31, 2002 was $0.4 million or 0.9% of this segment's net sales compared
to a loss of $0.4 million or 1.0% of this segment's net sales in 2001. Included
in the 2002 operating loss was a $1.5 million charge taken in the first quarter
to provide for manufacturing inefficiencies resulting from lowering our
production levels of the Ku-Band down converter. Such production level decrease
was prompted primarily by one of our primary customer's decrease in its
forecasted demand for our Ku-Band down converters. The Engineered Materials
segment's operating earnings for the year ended December 31, 2002 were $3.2
million or 8.3% of this segment's net sales compared to operating earnings for
the year ended December 31, 2001 of $4.6 million or 12.6% of this segment's net
sales. The net decrease in the Engineered Materials segment's operating earnings
was due primarily to the aforementioned pension expense in 2002 compared to
pension income in 2001, as well as a decrease in contribution from fiber
composite waste tanks, due primarily to the commercial aviation industry's
decreased demand for such tanks in 2002.

     Selling, general and administrative expenses for the year ended December
31, 2002 increased to $47.6 million or 14.5% of net sales from $34.0 million or
13.1% of net sales for the year ended December 31, 2001. This increase was
primarily attributable to the acquisition of Condor in July 2002, twelve months
of Dynamic Systems' expenses in 2002, and the aforementioned change to pension
expense in 2002 compared to pension income in 2001 and increased ESOP
compensation expense.

     Research and development expense for the year ended December 31, 2002
decreased to $8.5 million or 2.6% of net sales from $8.8 million or 3.4% of net
sales for the year ended December 31, 2001. The decrease

                                        28
<PAGE>

was primarily attributable to higher expenditures in the Communications and
Space Products segment in 2001 relating to fiber optics product development.

     Interest expense, net of interest income, for the year ended December 31,
2002 increased 123.6% to $5.0 million from $2.2 million for the year ended
December 31, 2001, due primarily to interest expense associated with our $137.8
million principal amount Notes, increased amortization expense of deferred debt
issuance costs associated with the offering of the Notes and increased
amortization of deferred financing costs associated with our credit facility
amended in November 2002, partially offset by an $0.8 million increase in
interest income due primarily to a higher average cash and cash equivalent
balance resulting from our offering of the Notes in April 2002 and stock
offering in 2001. Interest expense for the year ended December 31, 2001
consisted primarily of interest expense on our Debentures, which were fully
converted into common shares or redeemed in the fourth quarter of 2001.

     Income tax expense reflects an effective rate of 42.5% for the year ended
December 31, 2002 compared to 38.6% for the year ended December 31, 2001. The
increase in the effective tax rate was principally attributable to the increased
amount of nondeductible, non-cash ESOP compensation expense and increase in
state taxes in 2002.

     For the year ended December 31, 2002, earnings available for common shares
before cumulative effect of a change in accounting principle decreased to $14.0
million or $0.81 per diluted common share on 17.4 million diluted shares from
$14.8 million or $1.11 per diluted common share on 14.3 million diluted shares
for the year ended December 31, 2001. For the year ended December 31, 2002, net
earnings available for common shares after the cumulative effect of a change in
accounting principle decreased to $10.6 million or $0.61 per diluted common
share on 17.4 million diluted shares from $14.8 million or $1.11 per diluted
common share on 14.3 million diluted shares for the year ended December 31,
2001. The cumulative effect of a change in accounting principle for the year
ended December 31, 2002 was recorded as of January 1, 2002 and is shown net of a
tax benefit of $0.8 million on the consolidated statement of earnings. This
charge pertained to the impairment of goodwill and a trademark resulting from
impairment tests performed in 2002, as required by SFAS No. 142. The impairment
occurred in the Engineered Materials segment and is comprised of the following:
$2.2 million and $1.9 million of goodwill and a trademark, respectively, related
to our acquisition of Specialty Plastics and $0.1 million of goodwill related to
our acquisition of Zenix.

     Dividends on preferred shares for the year ended December 31, 2001 were
$0.2 million. On March 8, 2001, we converted all of our outstanding preferred
shares into 1,067,281 common shares. No preferred dividends were paid after
March 8, 2001.

IN-PROCESS RESEARCH AND DEVELOPMENT

     For the year ended December 31, 2002, IPR&D of $0.2 million related to a
Condor project that had not reached technological feasibility and that had no
alternative future uses. The amount allocated to such project was expensed as of
the date of the acquisition.

LIQUIDITY AND CAPITAL RESOURCES

  BALANCE SHEET

     Our cash, cash equivalents and marketable securities decreased 34.6% to
$86.6 million at December 31, 2003 from $132.5 million at December 31, 2002.
This decrease was due primarily to the cash outlays related to the three
acquisitions made in 2003. Also, $8.9 million was used for the purchase of
capital equipment and $2.4 million for the payment of common share dividends.
Partially offsetting these decreases were the net proceeds of $21.3 million
received from the sale of the Deer Park facility and the release of $27.3
million of restricted cash. Cash provided by operations was $17.6 million.

     Restricted cash of $27.3 million at December 31, 2002 represented
collateral backing 105% of outstanding letters of credit assumed in connection
with the acquisition of substantially all of the assets of Condor. As the
letters of credit expired or were cancelled, the collateral was released. At
December 31, 2003 there was no restricted cash.
                                        29
<PAGE>

     Accounts receivable increased 33.5% to $134.3 million at December 31, 2003
from $100.6 million at December 31, 2002 due primarily to the acquisitions of
AERA, Darlington and Emblem. Excluding the effects of these acquisitions and
adjustments finalizing the purchase price allocation of Condor, accounts
receivable increased $3.2 million from December 31, 2002.

     Inventories increased 7.2% to $34.7 million at December 31, 2003 from $32.4
million at December 31, 2002 due primarily to the Emblem acquisition. Excluding
the effect of the acquisition, inventories decreased by $1.4 million. In 2003,
satellite-related inventory was written down by $1.1 million to net realizable
value due to competitive price pressures from a major customer as well as some
obsolescence. Also in 2003, inventory in the microwave product line in the
Engineered Materials segment was written down by $0.6 million to net realizable
value as sales in this product line were not materializing to expected levels.

     The note receivable of $6.5 million at December 31, 2003 represents the
note receivable from the sale of our facility in Deer Park in 2003. Included in
other current assets is $1.6 million in notes related to the sale of our former
College Point facility in January 1996. The College Point facility notes are due
in annual amounts through September 2004 with a final payment of $1.3 million
due on December 31, 2004 and bear interest at 7.0% per annum. The latter notes
receivable are secured by a mortgage on the facility. A note receivable related
to the sale of property in Deer Park in June 2000, which had a balance of $1.1
million at December 31, 2002, was collected in 2003.

     Contract advances decreased 59.6% to $8.2 million at December 31, 2003 from
$20.3 million at December 31, 2002 due to the use of previously received
advances for costs incurred on foreign contracts.

     In 2003, capital expenditures of $8.9 million increased 25% compared to
2002. Increases were in accordance with planned expenditures and partially
attributable to leasehold improvements at the Company's headquarters as well as
purchases of machinery and equipment.

  FINANCING ACTIVITIES

  Credit Facility

     At December 31, 2003 we have a $200.0 million 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. The facility expires in November 2005.

     The credit facility provides us with sub-limits of borrowing up to $125.0
million for acquisition-related financing and up to $125.0 million in standby
letters of credit financing. The potential cash borrowing under the facility is
reduced by the amount of outstanding letters of credit. Borrowings under the
facility will be priced initially at LIBOR plus a predetermined amount, ranging
from 1.25% to 1.75%, depending on our consolidated leverage ratio at the time of
the borrowing. At December 31, 2003, LIBOR was approximately 1.15% and the
applicable adjustment to LIBOR was 1.25%. 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 the credit facility at
December 31, 2003 or 2002. Letters of credit outstanding at December 31, 2003
pertaining to the credit facility were $52.3 million, resulting in $72.7 million
available at year end for standby letters of credit, if needed.

     In connection with the credit facility, we are required to maintain both
financial and non-financial covenants and ratios, including but not limited to
minimum tangible net worth plus subordinated debt, leverage ratio, fixed charge
coverage ratio, earnings before interest and taxes to interest expense ratio,
total unsubordinated debt to tangible net worth, net income and dividends. Also,
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. As of December 31, 2003, we were in compliance
with our covenants. The credit facility is secured by our accounts receivable,
inventory and machinery and equipment.

                                        30
<PAGE>

  5.25% Convertible Subordinated Notes due 2007

     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. Interest payments on
the Notes are due April 15 and October 15 of each year, commencing on October
15, 2002. Accrued interest payable, included in accrued expenses on our
consolidated balance sheet, at December 31, 2003 and 2002 was $1.5 million.

     The Notes are convertible, unless previously redeemed or repurchased by us,
at the option of the holder at any time prior to maturity, into our common
shares at an initial conversion price of $31.26 per share, subject to adjustment
in certain events. As of December 31, 2003, there had been no conversions.

  Shelf Registration

     On December 23, 2003, we filed a shelf registration statement to
potentially offer for sale common shares, preferred shares, debt securities and
warrants. We may sell any combination of the foregoing securities in one or more
offerings up to an aggregate initial offering price of $500,000,000.

     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, 2003, we have included the following table. We are obligated under
building and equipment leases expiring between 2004 and 2012. The aggregate
future minimum lease commitments under those obligations with noncancellable
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.

<Table>
<Caption>
<S>                             <C>      <C>     <C>     <C>    <C>      <C>    <C>
<Caption>
                                                    PAYMENTS DUE IN:
                                --------------------------------------------------------
                                                                                2009 AND
                                TOTAL    2004    2005    2006    2007    2008    BEYOND
                                ------   -----   -----   ----   ------   ----   --------
                                                     (IN MILLIONS)
<S>                             <C>      <C>     <C>     <C>    <C>      <C>    <C>
5.25% Convertible Subordinated
  Notes due 2007..............  $137.8   $  --   $  --   $ --   $137.8   $ --    $  --
Operating leases..............    72.1    13.6    11.0    7.8      6.8    6.3     26.6
Letters of credit.............    53.7    26.0    27.4     --       --    0.3       --
Advance payment and
  performance bonds...........     1.9     0.2      --     --       --     --      1.7
                                ------   -----   -----   ----   ------   ----    -----
Total.........................  $265.5   $39.8   $38.4   $7.8   $144.6   $6.6    $28.3
                                ======   =====   =====   ====   ======   ====    =====
</Table>

     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.

  CONCENTRATION OF SALES

     We conduct a significant amount of our business with the United States
Government. Domestic U.S. Government sales, including sales to prime contractors
of the U.S. Government, accounted for

                                        31
<PAGE>

approximately 76%, 75% and 69% of our total net sales for 2003, 2002 and 2001,
respectively. In addition, sales from the Universal Exciter Upgrade program
accounted for approximately 2%, 14% and 15% of our total net sales in 2003, 2002
and 2001, respectively. 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. As of December 31, 2003, one customer, a prime contractor, in
addition to the U.S. Government accounted for more than 10% of our consolidated
accounts receivable.

  BACKLOG

     The funded backlog of unfilled orders at December 31, 2003 increased to
$462.3 million from $375.0 million at December 31, 2002. Our backlog consists
primarily of current orders under long-lived, mission-critical programs of key
defense platforms.

COMMON SHARE PRICES

     EDO common shares are traded on the New York Stock Exchange. As of February
25, 2004, there were 1,904 shareholders of record (brokers and nominees counted
as one each). The price range in 2003 and 2002 was as follows:

<Table>
<Caption>
                                                       2003                2002
                                                 -----------------   -----------------
                                                  HIGH       LOW      HIGH       LOW
                                                 -------   -------   -------   -------
<S>                                              <C>       <C>       <C>       <C>
1st Quarter....................................  21.6000   14.7500   31.1500   21.9900
2nd Quarter....................................  20.3100   14.9700   32.9000   25.9000
3rd Quarter....................................  23.5900   17.0900   28.4900   17.5000
4th Quarter....................................  25.9500   19.7000   22.6500   15.5000
</Table>

DIVIDENDS

     During 2003 and 2002, 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.

"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

                                        32
<PAGE>

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.

                                        33
<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      CONSOLIDATED STATEMENTS OF EARNINGS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                      (IN THOUSANDS,
                                                                EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>        <C>        <C>
CONTINUING OPERATIONS:
  NET SALES.................................................  $460,667   $328,876   $259,961
                                                              --------   --------   --------
  COSTS AND EXPENSES
    Cost of sales...........................................   338,259    240,850    189,733
    Selling, general and administrative.....................    71,855     47,584     34,013
    Research and development................................     8,594      8,492      8,750
    Write-off of purchased in-process research and
       development and merger-related costs.................       929        567      1,318
    Benefit plan curtailment loss (gain)....................       942      1,998       (929)
    Impairment loss on Deer Park facility...................     9,160         --         --
                                                              --------   --------   --------
                                                               429,739    299,491    232,885
                                                              --------   --------   --------
  OPERATING EARNINGS........................................    30,928     29,385     27,076
  NON-OPERATING INCOME (EXPENSE)
    Interest income.........................................       941      1,729        915
    Interest expense........................................    (9,093)    (6,685)    (3,131)
    Other, net..............................................       279        (95)      (971)
                                                              --------   --------   --------
                                                                (7,873)    (5,051)    (3,187)
                                                              --------   --------   --------
    Earnings from continuing operations before income taxes
       and cumulative effect of a change in accounting
       principle............................................    23,055     24,334     23,889
    Income tax expense......................................    (9,644)   (10,342)    (9,210)
                                                              --------   --------   --------
  EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
    EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE..............    13,411     13,992     14,679
DISCONTINUED OPERATIONS:
  Gain from discontinued operations, net of tax.............     1,398         --        273
                                                              --------   --------   --------
  EARNINGS FROM DISCONTINUED OPERATIONS.....................     1,398         --        273
                                                              --------   --------   --------
EARNINGS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
  PRINCIPLE.................................................    14,809     13,992     14,952
                                                              --------   --------   --------
Cumulative effect of a change in accounting principle, net
  of tax of $790............................................        --     (3,363)        --
Dividends on preferred shares...............................        --         --        194
                                                              --------   --------   --------
NET EARNINGS AVAILABLE FOR COMMON SHARES....................  $ 14,809   $ 10,629   $ 14,758
                                                              ========   ========   ========
EARNINGS PER COMMON SHARE:
  Basic:
    Continuing operations...................................  $   0.78   $   0.62   $   1.14
    Discontinued operations.................................      0.08         --       0.02
                                                              --------   --------   --------
NET EARNINGS PER COMMON SHARE -- BASIC......................  $   0.86   $   0.62   $   1.16
                                                              ========   ========   ========
  Diluted:
    Continuing operations...................................  $   0.76   $   0.61   $   1.09
    Discontinued operations.................................      0.08         --       0.02
                                                              --------   --------   --------
NET EARNINGS PER COMMON SHARE -- DILUTED....................  $   0.84   $   0.61   $   1.11
                                                              ========   ========   ========
UNAUDITED PRO FORMA AMOUNTS ASSUMING RETROACTIVE EFFECT OF A
  CHANGE IN ACCOUNTING PRINCIPLE:
  Net Earnings Available for Common Shares..................                        $ 15,329
  Basic Net Earnings per Common Share.......................                        $   1.18
  Diluted Net Earnings per Common Share.....................                        $   1.13
                                                                                    ========
</Table>

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

                          CONSOLIDATED BALANCE SHEETS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2003        2002
                                                              ---------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                               SHARE AND PER SHARE
                                                                    AMOUNTS)
<S>                                                           <C>         <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 86,416    $132,320
  Restricted cash...........................................        --      27,347
  Marketable securities.....................................       216         193
  Accounts receivable, net..................................   134,303     100,594
  Inventories...............................................    34,733      32,406
  Deferred income tax asset, net............................     3,594       3,222
  Prepayments and other.....................................     5,954       3,133
                                                              --------    --------
     Total current assets...................................   265,216     299,215
                                                              --------    --------
Property, plant and equipment, net..........................    31,355      64,472
Notes receivable............................................     6,538       2,556
Goodwill....................................................    92,527      61,352
Other intangible assets.....................................    55,898      11,867
Deferred income tax asset, net..............................    21,774      20,439
Other assets................................................    21,388      21,673
                                                              --------    --------
                                                              $494,696    $481,574
                                                              ========    ========

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 22,801    $ 19,108
  Accrued liabilities.......................................    61,942      55,448
  Contract advances and deposits............................     8,195      20,277
                                                              --------    --------
     Total current liabilities..............................    92,938      94,833
                                                              --------    --------
Long-term debt..............................................   137,800     137,800
Post-retirement benefits obligations........................    71,898      78,643
Environmental obligation....................................     1,728       2,025
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, 19,832,108 issued in 2003 and
     19,790,477 issued in 2002..............................    19,832      19,790
  Additional paid-in capital................................   150,097     147,091
  Retained earnings.........................................    69,059      56,325
  Accumulated other comprehensive loss, net of income tax
     benefit................................................   (29,281)    (33,899)
  Treasury shares at cost (88,128 shares in 2003 and 94,322
     shares in 2002)........................................    (1,255)     (1,321)
  Unearned Employee Stock Ownership Plan shares.............   (17,290)    (18,541)
  Deferred compensation under Long-Term Incentive Plan......      (479)       (579)
  Management group receivables..............................      (351)       (593)
                                                              --------    --------
     Total shareholders' equity.............................   190,332     168,273
                                                              --------    --------
                                                              $494,696    $481,574
                                                              ========    ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.
                                        35
<PAGE>

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                            YEARS ENDED DECEMBER 31,
                                                            ---------------------------------------------------------
                                                                  2003                2002                2001
                                                            -----------------   -----------------   -----------------
                                                             AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                                            --------   ------   --------   ------   --------   ------
                                                                                 (IN THOUSANDS)
<S>                                                         <C>        <C>      <C>        <C>      <C>        <C>
PREFERRED SHARES
  Balance at beginning of year............................  $     --       --   $     --      --    $     49       49
  Shares converted to common shares.......................        --       --         --      --         (49)     (49)
                                                            --------   ------   --------   ------   --------   ------
  Balance at end of year..................................        --       --         --      --          --       --
                                                            --------   ------   --------   ------   --------   ------
COMMON SHARES
  Balance at beginning of year............................    19,790   19,790     19,790   19,790     15,007   15,007
  Exercise of stock options...............................        31       31         --      --          --       --
  Shares used for Long-Term Incentive Plan................        11       11         --      --          --       --
  Conversion of preferred shares to common shares.........        --       --         --      --       1,067    1,067
  Sale of stock in public offering........................        --       --         --      --       3,716    3,716
                                                            --------   ------   --------   ------   --------   ------
  Balance at end of year..................................    19,832   19,832     19,790   19,790     19,790   19,790
                                                            --------   ------   --------   ------   --------   ------
ADDITIONAL PAID-IN CAPITAL
  Balance at beginning of year............................   147,091             143,747              58,614
  Exercise of stock options...............................       150                (466)             (2,405)
  Income tax benefit related to stock options and
    Long-Term Incentive Plan..............................       328                 713               1,118
  Shares used for payment of directors' fees..............        28                  64                  35
  Shares used for Long-Term Incentive Plan................       178                 241                 (73)
  Conversion of preferred shares to common shares.........        --                  --              (1,018)
  Conversion of subordinated debentures...................        --                  --               8,525
  Sale of stock in public offering........................        --                  --              77,775
  Compensation expense on accelerated options.............       292                  --                 276
  Employee Stock Ownership Plan shares committed-to-be-
    released..............................................     2,030               2,792                 900
                                                            --------            --------            --------
  Balance at end of year..................................   150,097             147,091             143,747
                                                            --------            --------            --------
RETAINED EARNINGS
  Balance at beginning of year............................    56,325              47,744              34,803
  Net earnings............................................    14,809              10,629              14,952
  Common share dividends (12 cents per share).............    (2,075)             (2,048)             (1,840)
  Dividends on preferred shares...........................        --                  --                (194)
  Tax benefit on unallocated preferred share dividends....        --                  --                  23
                                                            --------            --------            --------
  Balance at end of year..................................    69,059              56,325              47,744
                                                            --------            --------            --------
ACCUMULATED OTHER COMPREHENSIVE LOSS
  Balance at beginning of year............................   (33,899)            (13,385)                (61)
  Unrealized gain on marketable securities, net of tax....        --                  --                  61
  Unrealized gain on foreign currency, net of tax.........        50                  86                  --
  Additional minimum pension liability, net of tax........     4,568             (20,600)            (13,385)
                                                            --------            --------            --------
  Balance at end of year..................................   (29,281)            (33,899)            (13,385)
                                                            --------            --------            --------
TREASURY SHARES AT COST
  Balance at beginning of year............................    (1,321)    (94)     (2,461)   (182)    (19,388)  (1,370)
  Shares used for exercise of stock options...............        87       6         952      69       4,297      314
  Shares used for payment of directors' fees..............        80       6          78       6         122        9
  Shares used for (repurchased from) Long-Term Incentive
    Plan..................................................      (101)     (6)        110      13         (63)      (6)
  Shares used for conversion of subordinated debentures...        --      --          --      --      13,591    1,005
  Repurchase of Employee Stock Ownership Plan shares......        --      --          --      --      (1,020)    (134)
                                                            --------   ------   --------   ------   --------   ------
  Balance at end of year..................................    (1,255)    (88)     (1,321)    (94)     (2,461)    (182)
                                                            --------   ------   --------   ------   --------   ------
</Table>

                                        36
<PAGE>

<Table>
<Caption>
                                                                            YEARS ENDED DECEMBER 31,
                                                            ---------------------------------------------------------
                                                                  2003                2002                2001
                                                            -----------------   -----------------   -----------------
                                                             AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                                            --------   ------   --------   ------   --------   ------
                                                                                 (IN THOUSANDS)
<S>                                                         <C>        <C>      <C>        <C>      <C>        <C>
EMPLOYEE STOCK OWNERSHIP TRUST LOAN OBLIGATION
  Balance at beginning of year............................        --                  --              (5,781)
  Repayments made during year.............................        --                  --                 890
  Restructuring of EDO Employee Stock Ownership Plan......        --                  --               4,891
                                                            --------            --------            --------
  Balance at end of year..................................        --                  --                  --
                                                            --------            --------            --------
DEFERRED COMPENSATION UNDER LONG-TERM INCENTIVE PLAN
  Balance at beginning of year............................      (579)               (300)               (423)
  Shares used for Long-Term Incentive Plan................      (189)               (480)               (148)
  Amortization of Long-Term Incentive Plan deferred
    compensation expense..................................       289                 201                 271
                                                            --------            --------            --------
  Balance at end of year..................................      (479)               (579)               (300)
                                                            --------            --------            --------
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN COMPENSATION
  Balance at beginning of year............................   (18,541)            (19,792)            (15,782)
  Restructuring of EDO Employee Stock Ownership Plan......        --                  --              (4,891)
  Employee Stock Ownership Plan Shares committed-to-be-
    released..............................................     1,251               1,251                 881
                                                            --------            --------            --------
  Balance at end of year..................................   (17,290)            (18,541)            (19,792)
                                                            --------            --------            --------
MANAGEMENT GROUP RECEIVABLES
  Balance at beginning of year............................      (593)               (845)             (1,220)
  Payments received on management loans...................       242                 252                 375
                                                            --------            --------            --------
  Balance at end of year..................................      (351)               (593)               (845)
                                                            --------            --------            --------
TOTAL SHAREHOLDERS' EQUITY................................  $190,332            $168,273            $174,498
                                                            ========            ========            ========
COMPREHENSIVE INCOME (LOSS)
  Net earnings............................................  $ 14,809            $ 10,629            $ 14,952
  Additional minimum pension liability, net of income tax
    expense of $3,175 in 2003 and net of income tax
    benefit of $14,316 in 2002 and $9,302 in 2001.........     4,568             (20,600)            (13,385)
  Unrealized gain on marketable securities, net of income
    tax expense of $31 in 2001............................        --                  --                  61
  Unrealized gain on foreign currency.....................        50                  86                  --
                                                            --------            --------            --------
  Comprehensive income (loss).............................  $ 19,427            $ (9,885)           $  1,628
                                                            ========            ========            ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.
                                        37
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES:
  Earnings from operations..................................  $ 13,411   $ 10,629   $ 14,679
  Adjustments to earnings to arrive at cash provided by
     operations:
     Depreciation...........................................    12,180     10,365      9,686
     Amortization...........................................     4,885        956      1,710
     Deferred tax (benefit) expense.........................    (6,840)    (2,984)     5,941
     Write-off of purchased in-process research and
       development..........................................        --        150         --
     Real estate tax assessment adjustment..................        --         --      7,846
     Bad debt expense.......................................       568        407        220
     Gain on repurchase of debentures.......................        --         --       (171)
     Loss on sale of Deer Park facility.....................     9,160         --         --
     (Gain) loss on sale of property, plant and equipment...      (131)        53        (76)
     Gain on sale of marketable securities..................        --         --        (81)
     Deferred compensation expense..........................       289        201        271
     Non-cash Employee Stock Ownership Plan compensation
       expense..............................................     3,281      4,043      1,781
     Dividends on unallocated Employee Stock Ownership Plan
       shares...............................................       292        312         80
     Non-cash compensation expense..........................       292         --        276
     Common shares issued for directors' fees...............       108        142        157
     Income tax benefit from stock options and Long-Term
       Incentive Plan.......................................       328        713      1,118
     Cumulative effect of a change in accounting
       principle............................................        --      3,363         --
     Changes in operating assets and liabilities, excluding
       effects of acquisitions:
       Accounts receivable..................................    (3,203)    (2,519)   (10,753)
       Inventories..........................................     1,406     (2,926)     2,033
       Prepayments and other assets.........................     4,032        220       (629)
       Contribution to defined benefit pension plan.........    (5,000)        --         --
       Accounts payable, accrued liabilities and other......    (5,402)     5,217     (4,974)
       Contract advances and deposits.......................   (12,082)     3,575    (15,017)
                                                              --------   --------   --------
Cash provided by operations.................................    17,574     31,917     14,097
                                                              --------   --------   --------
Net cash provided by discontinued operations................        79         --         --
                                                              --------   --------   --------
</Table>

                                        38
<PAGE>

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
INVESTING ACTIVITIES:
  Purchase of plant and equipment...........................    (8,865)    (7,093)   (14,298)
  Payments received on notes receivable.....................     1,385        350        347
  Proceeds from sale of property, plant and equipment.......    21,304          1        280
  Purchase of marketable securities.........................       (23)        (3)       (59)
  Sale or redemption of marketable securities...............        --         --     14,455
  Restricted cash...........................................    27,347    (27,347)        --
  Cash paid for acquisitions, net of cash acquired..........   (94,188)   (59,024)   (13,938)
                                                              --------   --------   --------
Cash used by investing activities...........................   (53,040)   (93,116)   (13,213)
                                                              --------   --------   --------
FINANCING ACTIVITIES:
  Issuance of convertible subordinated notes................        --    137,800         --
  Proceeds from exercise of stock options...................       268        486      1,892
  Proceeds from management group receivables................       242        252        375
  Proceeds from sale of stock in public offering, net of
     expenses...............................................        --         --     81,491
  Borrowings under revolver.................................        --         --     20,800
  Repayments of borrowings under revolver...................        --         --    (20,800)
  Repayments of long-term debt..............................        --         --    (17,300)
  Repayments of acquired debt...............................    (8,660)        --         --
  Repurchase of debentures..................................        --         --     (3,184)
  Purchase of treasury shares...............................        --         --     (1,020)
  Payment of EDO ESOP loan obligation.......................        --         --     (4,891)
  Payment made on note payable..............................        --       (500)      (500)
  Payment of common share cash dividends....................    (2,367)    (2,360)    (1,920)
  Payment of preferred share cash dividends.................        --         --       (194)
                                                              --------   --------   --------
Cash provided (used) by financing activities................   (10,517)   135,678     54,749
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........   (45,904)    74,479     55,633
Cash and cash equivalents at beginning of year..............   132,320     57,841      2,208
                                                              --------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................  $ 86,416   $132,320   $ 57,841
                                                              ========   ========   ========
Supplemental disclosures:
  Cash paid for:
     Interest...............................................  $  7,234   $  3,878   $  2,166
                                                              ========   ========   ========
     Income taxes...........................................  $ 11,880   $ 14,063   $  5,913
                                                              ========   ========   ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.
                                        39
<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2003, 2002 AND 2001

(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 three segments: Defense, Communications and Space
Products, and Engineered Materials. The Company discontinued its former
satellite products business (Barnes Engineering Company) in 1999.

  (B) RESTRICTED CASH

     At December 31, 2003, there was no restricted cash. At December 31, 2002
the $27.3 million of restricted cash related to amounts collateralizing the
outstanding letters of credit assumed as part of the acquisition of Condor
Systems, Inc. (Note 2). As the letters of credit expired or were cancelled,
collateral was released.

  (C) 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.

  (D) 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.

     Our gross profit is affected by a variety of factors, including the mix of
products, systems and services sold or provided, production efficiencies, price
competition and general economic conditions. Estimated losses on long-term
contracts are recorded when identified.

  (E) 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

                                        40
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

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

     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 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 accounts for its investments in long-lived assets 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". The Company adopted SFAS No. 144 on January 1, 2002. 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 2003 and 2002, the Company capitalized approximately $1.1
million and $0.3 million, respectively, of such costs. These costs are being
amortized on a straight-line basis over a period of two to four years.

     Deferred financing costs are amortized on a straight-line basis over the
life of the related financing. The unamortized balances of $4.1 million and $5.5
million are included in other assets at December 31, 2003 and 2002,
respectively.

  (G) BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS

     In June 2001, the FASB issued SFAS Nos. 141, "Business Combinations," and
142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. SFAS No. 141 also includes guidance on the initial
recognition and measurement of goodwill and other intangible assets arising from
business combinations completed after June 30, 2001. SFAS No. 142 prohibits the
amortization of goodwill and intangible assets with indefinite useful lives and
requires that these assets be reviewed for impairment at least annually.
Intangible assets with definite lives will continue to be amortized over their
estimated useful lives. SFAS No. 142 was adopted by the Company effective
January 1, 2002; however, the provisions that provide

                                        41
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for the non-amortization of goodwill were effective July 1, 2001 for
acquisitions completed after the issuance of SFAS No. 141.

     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. In 2003, the Company performed the required impairment tests of
goodwill as of October 1, 2003. There was no indication of impairment.

     In 2002 the Company performed the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002, using the two-step
process prescribed in SFAS No. 142. The first step was a review for potential
impairment, while the second step measured the amount of the impairment. The
impairment charge resulting from these transitional impairment tests was
reflected as a cumulative effect of a change in accounting principle as of
January 1, 2002. The $3.4 million charge, net of a tax benefit of $0.8 million,
occurred in the Engineered Materials segment and is comprised of $2.2 million
and $1.9 million of impaired goodwill and trademark, respectively, related to
the acquisition of Specialty Plastics and $0.1 million of impaired goodwill
related to the acquisition of Zenix. In the case of Zenix, the trend in sales
and earnings performance has been lower than expected resulting in the
impairment of the entire goodwill carrying value. In the case of Specialty
Plastics, the fair value of this reporting unit was estimated using a discounted
cash flow analysis, also resulting in an impairment loss of the entire goodwill
carrying value.

     The changes in the carrying amount of goodwill by segment for the years
ended December 31, 2003 and 2002 are as follows:

<Table>
<Caption>
                                                     COMMUNICATIONS
                                                       AND SPACE      ENGINEERED
                                           DEFENSE      PRODUCTS      MATERIALS     TOTAL
                                           -------   --------------   ----------   -------
                                                           (IN THOUSANDS)
<S>                                        <C>       <C>              <C>          <C>
Balance as of January 1, 2002............  $20,601      $    --        $ 2,274     $22,875
Impairment Loss..........................       --           --         (2,274)     (2,274)
Acquisition of Condor Systems, Inc. .....   37,059        3,692             --      40,751
                                           -------      -------        -------     -------
Balance as of January 1, 2003............  $57,660      $ 3,692        $    --     $61,352
Settlement of certain pre-acquisition
  Condor liabilities.....................    1,569       (2,031)            --        (462)
Adjustments to pre-acquisition tax
  liabilities............................   (3,059)          --             --      (3,059)
Acquisition of AERA......................   11,626           --             --      11,626
Acquisition of Darlington................   13,462           --             --      13,462
Acquisition of Emblem....................    9,608           --             --       9,608
                                           -------      -------        -------     -------
Balance as of December 31, 2003..........  $90,866      $ 1,661        $    --     $92,527
                                           =======      =======        =======     =======
</Table>

                                        42
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Summarized below are intangible assets subject to amortization as of
December 31:

<Table>
<Caption>
                                                        2003      2002        LIFE
                                                       -------   -------   -----------
                                                               (IN THOUSANDS)
<S>                                                    <C>       <C>       <C>
Capitalized non-compete agreements related to the
  acquisitions of DSI/AERA/Darlington/Emblem.........  $ 2,968   $   200   1-5 years
Purchased technologies related to the acquisitions of
  Condor/Emblem......................................   17,003    11,648   8-20 years
Customer contracts and relationships related to the
  acquisitions of AERA/Darlington/Emblem.............   39,198        --   10-20 years
Tradename related to the acquisitions of AERA/
  Darlington/Emblem..................................    1,569        --   5-10 years
Other intangible assets related to the acquisition of
  Condor Systems, Inc. ..............................      916       916   2 years
                                                       -------   -------
                                                        61,654    12,764
Less accumulated amortization........................   (5,756)     (897)
                                                       -------   -------
                                                       $55,898   $11,867
                                                       =======   =======
</Table>

     The amortization expense for the years ended December 31, 2003, 2002 and
2001 amounted to $4.9 million, $0.9 million and $0.1 million, respectively.
Amortization expense for 2004, 2005, 2006, 2007, 2008 and thereafter related to
these intangible assets is estimated to be $5.5 million, $5.2 million, $5.2
million, $5.2 million, $4.6 million and $30.2 million, respectively.

     Since the total trademark carrying amount of $1.9 million was written off
in 2002 as part of the cumulative effect of a change in accounting principle,
there are no intangible assets other than goodwill that are not subject to
amortization.

                                        43
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table represents a reconciliation of reported net earnings
from continuing operations available for common shares to adjusted net earnings
from continuing operations available for common shares exclusive of amortization
expense associated with goodwill and intangible assets that are no longer being
amortized subsequent to the adoption of SFAS No. 142, effective January 1, 2002:

<Table>
<Caption>
                                                           YEARS ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2003      2002      2001
                                                          -------   -------   -------
                                                           (IN THOUSANDS, EXCEPT FOR
                                                              PER SHARE AMOUNTS)
<S>                                                       <C>       <C>       <C>
Reported net earnings from continuing operations
  available for common shares...........................  $13,411   $10,629   $14,485
Add back: Goodwill and trademark amortization, net of
  taxes.................................................       --        --       571
                                                          -------   -------   -------
Pro Forma...............................................  $13,411   $10,629   $15,056
                                                          =======   =======   =======
Basic earnings per share:
  Reported net earnings from continuing operations
     available for common shares........................  $  0.78   $  0.62   $  1.14
Add back: Goodwill and trademark amortization, net of
  taxes.................................................       --        --      0.04
                                                          -------   -------   -------
Adjusted net earnings...................................  $  0.78   $  0.62   $  1.18
                                                          =======   =======   =======
Diluted earnings per share:
  Reported net earnings from continuing operations
     available for common shares........................  $  0.76   $  0.61   $  1.09
Add back: Goodwill and trademark amortization, net of
  taxes.................................................       --        --      0.04
                                                          -------   -------   -------
Adjusted net earnings...................................  $  0.76   $  0.61   $  1.13
                                                          =======   =======   =======
</Table>

  (H) 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.

  (I) 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.

  (J) 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 5.25% Convertible Subordinated Notes due 2007 (the "Notes") at
December 31, 2003 was approximately $150.6 million based on recent market
transactions compared to a carrying value of $137.8 million. At December 31,
2002, the fair value of the Notes approximated the carrying value of $137.8
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.

                                        44
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (K) 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.

  (L) 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 per
share weighted-average fair value of stock options granted was $10.63, $15.28
and $4.88 in 2003, 2002 and 2001, respectively, on the dates of grant using the
Black Scholes option-pricing model with the following weighted-average
assumptions: 2003 -- expected dividend yield of 1%, risk free interest rate of
3.6%, expected volatility of 51%, and an expected option life of 7 1/2 years;
2002 -- expected dividend yield of 1%, risk free interest rate of 4.8%, expected
stock volatility of 51%, and an expected option life of 7 1/2 years; 2001 --
expected dividend yield of 1%, risk free interest rate of 4.9%, expected stock
volatility of 47%, and an expected option life of 7 1/2 years.

<Table>
<Caption>
                                                           2003      2002      2001
                                                          -------   -------   -------
                                                                (IN THOUSANDS,
                                                           EXCEPT PER SHARE AMOUNTS)
<S>                                                       <C>       <C>       <C>
Earnings:
  As reported...........................................  $13,411   $10,629   $14,679
  Stock option compensation expense based on fair value
     method, net of tax.................................   (1,626)   (1,078)     (466)
                                                          -------   -------   -------
  Pro forma.............................................  $11,785   $ 9,551   $14,213
Basic earnings per common share:
  As reported...........................................  $  0.78   $  0.62   $  1.14
  Pro forma.............................................     0.68      0.56      1.10
Diluted earnings per common share:
  As reported...........................................  $  0.76   $  0.61   $  1.09
  Pro forma.............................................     0.67      0.55      1.05
                                                          =======   =======   =======
</Table>

     In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation -- Transition and Disclosure -- an Amendment of FASB Statement No.
123." SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of accounting
for stock-based employee compensation. In addition, SFAS No. 148 requires more
prominent and more frequent disclosures in both annual and interim financial
statements about the method of accounting used for stock-based compensation and
the effect of the method used on reported results. The disclosure provisions of
SFAS No. 148 are effective for years ending after December 15, 2002 and
accordingly are reflected above. Presently, the Company does not plan to
voluntarily change its method of accounting for stock-based compensation.
However, should the Company change its method of accounting for stock-based
compensation in the future that change would fall under the provisions of SFAS
Nos. 123 and 148.
                                        45
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (M) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and on June 15, 2000, issued SFAS No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an Amendment to FASB Statement No. 133." These statements
establish methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. The
Company adopted these statements in the first quarter of 2001. The effect of the
adoption of these statements was not material to the Company's operating results
or financial position.

  (N) RECLASSIFICATIONS

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

(2) ACQUISITIONS

     On June 16, 2003, the Company acquired for cash all of the stock of Emblem
Group Ltd. ("Emblem"), a privately-held company based in Brighton, England.
Emblem, now known as EDO (UK) Ltd., is a supplier of aerospace and defense
products and services, primarily through its MBM Technology unit in England and
Artisan Technologies, Inc. subsidiary in the United States. Emblem has a core
competency in aircraft weapons-carriage and interfacing systems that will
reinforce EDO's position as a global leader in aircraft armament release
systems. Emblem is expected to broaden the Company's customer base in Europe.
The purchase price was L16.3 million ($27.3 million), excluding transaction
costs of approximately $1.9 million. Emblem became part of the Company's Defense
segment. The excess of the purchase price over the net assets acquired recorded
as goodwill and other intangibles related to Emblem's units located in England
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.

     On March 10, 2003, the Company acquired for cash all of the stock of
Darlington, Inc. ("Darlington"), a privately-held defense communications company
based in Alexandria, Virginia. Darlington designs, manufactures and supports
military communications equipment and information networking systems. The
acquisition is expected to enhance the Company's existing positions on
long-range platforms and programs across the U.S. military services and in
particular the U.S. Marine Corps. The purchase price was $25.6 million,
excluding transaction costs of approximately $0.3 million. In addition, the
Company acquired and immediately paid off debt of $4.9 million. Darlington
became part of the Company's Defense 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.

     On February 5, 2003, a wholly-owned subsidiary of the Company acquired for
cash all of the stock of Advanced Engineering & Research Associates,
Inc.("AERA"), a privately-held company located in Alexandria, Virginia. AERA,
which was merged with another EDO subsidiary and renamed EDO Professional
Services Inc., provides professional and information technology services
primarily to the Department of Defense and other government agencies. The
acquisition is expected to strengthen and expand the range of such services that
the Company offers. The purchase price was $38.1 million, excluding transaction
costs of $0.3 million. In addition, the Company acquired and immediately paid
off debt of $3.8 million. AERA became part of the Company's Defense 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.

     On July 26, 2002, a wholly-owned subsidiary of the Company acquired
substantially all of the assets and assumed certain liabilities of Condor
Systems, Inc., a privately-held defense electronics company and its domestic
subsidiary (together, "Condor") for $62.5 million in cash, in addition to
transaction costs of

                                        46
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$5.0 million. The acquisition expanded the Company's electronic warfare business
in the areas of reconnaissance and surveillance systems. The assets became part
of the Company's Defense and Communications and Space Products segments. 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.

     In October 2001, the Company acquired all of the stock of Dynamic Systems,
Inc., a privately-held company based in Alexandria, Virginia, which provides
professional and information technology services primarily to the Department of
Defense and other government agencies. The acquisition strengthened and expanded
the range of services the Company offered to both existing and new customers.
The Company paid $13.7 million, including transaction costs and subsequent to a
$0.2 million reduction in the purchase price, and accounted for the acquisition
as a purchase. Accordingly, the operating results of Dynamic Systems, Inc. have
been included in the Company's consolidated financial statements since the date
of acquisition. The excess of the purchase price over the fair market value of
net assets acquired recorded as goodwill is not deductible for income tax
purposes.

     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.

     Associated with the acquisition and included in operating earnings for 2003
and 2002 is $0.9 million and $0.6 million, respectively, of acquisition-related
costs, of which $0.2 million in 2002 represents the write-off of purchased
in-process research and development ("IPR&D"). This IPR&D was determined to not
have reached technological feasibility and to not have alternative future use.
The development project related to detecting and locating weak modulated
continuous wave signals.

     Unaudited pro forma results of operations, assuming the acquisitions of
Emblem, Darlington, AERA and Condor had been completed at the beginning of each
period 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     DECEMBER 31, 2002
                                                      -------------------   -------------------
                                                      (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                   <C>                   <C>
Net sales...........................................        $489,531              $494,332
Earnings available for common shares, before
  discontinued operations and cumulative effect of a
  change in accounting principle....................        $ 15,995              $ 15,456
Diluted earnings per common share...................        $   0.91              $   0.89
</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.

                                        47
<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 date of acquisition.

<Table>
<Caption>
                                          EMBLEM       DARLINGTON       AERA AT        CONDOR AT
                                        AT JUNE 16,   AT MARCH 10,    FEBRUARY 5,      JULY 26,
                                           2003           2003            2003           2002
                                        -----------   ------------   --------------   -----------
                                                             (IN THOUSANDS)
<S>                                     <C>           <C>            <C>              <C>
Current assets........................    $ 9,314       $ 11,943        $13,022        $ 31,775
Plant and equipment...................      3,537          1,534          1,048           5,543
Customer contracts and
  relationships.......................      7,698         14,400         17,100              --
Purchased in-process research and
  development.........................         --             --             --             150
Purchased technologies................      5,355             --             --          11,648
Purchased backlog.....................         --             --             --             916
Non-compete agreements................        318             30          2,420              --
Tradename.............................        669            400            500              --
Goodwill..............................      9,608         13,462         11,626          40,290
Other assets..........................         --            446            414              76
Liabilities...........................     (7,257)       (16,326)        (7,768)        (22,922)
                                          -------       --------        -------        --------
Total purchase price..................    $29,242       $ 25,889        $38,362        $ 67,476
                                          =======       ========        =======        ========
</Table>

     Adjustments resulting from the settlement of purchase prices on Condor,
AERA and Darlington have been made. In addition, there were adjustments due to
the settlement of certain pre-acquisition Condor liabilities. Adjustments
related to the settlement of the Emblem purchase price are expected to be
determined in the first half of 2004.

(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 $0.9 million, was
reported as earnings from discontinued operations in the accompanying statement
of earnings.

(4) MARKETABLE SECURITIES

     The Company determines the appropriate classification of securities at the
time of purchase and reevaluates such designation as of each balance sheet date.
All marketable securities are classified as available-for-sale securities.
Available-for-sale securities are carried at fair value, with the unrealized
gains and losses, net of tax, reported as a separate component of shareholders'
equity. Realized gains and losses, interest and dividends and declines in value
judged to be other-than-temporary declines are included in interest income
(expense). The cost of securities sold is based on the specific identification
method. At December 31, 2003 and 2002, the marketable securities balance
represents amounts in mutual funds.

(5) ACCOUNTS AND NOTES RECEIVABLE

     Accounts receivable included $ 44.1 million and $43.0 million at December
31, 2003 and 2002, respectively, of unbilled revenues. Substantially all of the
unbilled balances at December 31, 2003 will be billed and are expected to be
collected during 2004. Total billed receivables due from the United States
Government, either directly or as a subcontractor to a prime contractor with the
Government, were $67.6 million and $31.0 million at December 31, 2003 and 2002,
respectively.

                                        48
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Notes receivable at December 31, 2003 and 2002 include $1.6 million and
$1.9 million, respectively, from the sale of the Company's College Point
facility in January 1996 all of which is included in current assets at December
31, 2003 and $0.4 million is in current assets at December 31, 2002. The notes
are due in equal quarterly amounts through September 2004 with a final payment
of $1.3 million due on December 31, 2004 and bear interest at 7% per annum. The
notes receivable are secured by a mortgage on the facility. Also included in
notes receivable at December 31, 2003 is $6.5 million from the sale in July 2003
of the Company's Deer Park facility. At December 2002, notes receivable included
$1.1 million from the sale of certain parcels of land and a building at the
Company's Deer Park facility, which was collected in 2003.

(6) INVENTORIES

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

<Table>
<Caption>
                                                                2003      2002
                                                              --------   -------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Raw material and supplies...................................  $  8,624   $ 7,804
Work-in-process.............................................    38,052    27,024
Finished goods..............................................     1,870     2,041
  Less: Unliquidated progress payments......................   (13,813)   (4,463)
                                                              --------   -------
Finished goods..............................................  $ 34,733   $32,406
                                                              ========   =======
</Table>

(7) 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>
                                                      2003       2002        LIFE
                                                    --------   --------   -----------
                                                             (IN THOUSANDS)
<S>                                                 <C>        <C>        <C>
Land..............................................  $    128   $ 18,080
Buildings and improvements........................     1,015     25,906   10-30 years
Machinery and equipment...........................    70,079     59,550   3-19 years
Software..........................................     3,158      2,030   2-4 years
Leasehold improvements............................    16,039     13,151   Lease terms
                                                    --------   --------
                                                      90,419    118,717
Less accumulated depreciation and amortization....   (59,064)   (54,245)
                                                    --------   --------
                                                    $ 31,355   $ 64,472
                                                    ========   ========
</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 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. This impairment charge
represents the entire loss the Company expects to incur.

     Of the $29.0 million sales price, $22.0 million is in cash and $7.0 million
is in the form of a purchase money mortgage and note. The Company closed on the
sale in October 2003 and received the cash less closing payments. The note
receivable is due when the Company vacates the facility. As part of the
agreement, the Company will lease the facility for a period not to exceed two
years. The lease agreement does not have any renewal or buyout options.

                                        49
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(8) ACCRUED LIABILITIES

     Accrued liabilities consisted of the following at December 31:

<Table>
<Caption>
                                                               2003      2002
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Employee compensation and benefits..........................  $22,453   $16,744
Deferred revenue and accrual for future costs related to
  acquired contracts........................................   11,161    11,562
Income taxes payable........................................    7,175     3,991
Accrued interest............................................    1,673     1,782
Warranty....................................................    1,612     1,622
Current portion of environmental obligation.................      264       250
Other.......................................................   17,604    19,497
                                                              -------   -------
                                                              $61,942   $55,448
                                                              =======   =======
</Table>

(9) LONG-TERM DEBT AND CREDIT FACILITY

  CREDIT FACILITY

     At December 31, 2003, the Company has a $200 million 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. The facility expires in November 2005 and amended the $69
million credit facility in place at December 31, 2001. In connection with the
amended facility, $0.9 million and $1.2 million of deferred finance costs are
included in other assets on the accompanying consolidated balance sheet at
December 31, 2003 and 2002, respectively, and are being amortized using the
straight-line method over the term of the agreement.

     The credit facility provides sub-limits of borrowing up to $125.0 million
for acquisition-related financing and up to $125.0 million in standby letters of
credit financing. The potential cash borrowing under the facility is reduced by
the amount of outstanding letters of credit. Borrowings under the facility will
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, 2003, LIBOR was approximately 1.15% and the
applicable adjustment to LIBOR was 1.25%. 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, 2003 or 2002. Letters of credit outstanding at December 31, 2003
pertaining to the credit facility were $52.3 million, resulting in $72.7 million
available for additional letters of credit, if needed.

     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 minimum tangible net worth plus subordinated debt, leverage ratio, fixed
charge coverage ratio, earnings before interest and taxes to interest expense
ratio, total unsubordinated debt to tangible net worth, net income and
dividends. Also, 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. As of December
31, 2003, the Company was in compliance with its covenants. The credit facility
is secured by the Company's accounts receivables, inventory and machinery and
equipment.

                                        50
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  5.25% CONVERTIBLE SUBORDINATED NOTES DUE 2007

     In April 2002, the Company completed its offering of $137.8 million of
5.25% Convertible Subordinated Notes due 2007 and received $133.7 million, net
of commissions paid. Interest payments on the Notes are due April 15 and October
15 of each year, commencing on October 15, 2002. Accrued interest payable,
included in accrued liabilities on the accompanying consolidated balance sheet,
was $1.5 million at December 31, 2003 and 2002.

     In connection with the offering of the Notes, there are $3.1 million and
$4.1 million of unamortized debt issuance costs at December 31, 2003 and 2002,
respectively, which are included in other assets on the accompanying
consolidated balance sheet and are being amortized using the straight-line
method through April 2007.

     The 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 $31.26 per share,
subject to adjustment in certain events. As of December 31, 2003, there had been
no such conversions.

  7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011

     During the fourth quarter of 2001, the Company redeemed all of its
outstanding 7% Convertible Subordinated Debentures due 2011 (the "Debentures").
As a result of the redemption, $22.1 million face value of the Debentures were
converted into 1,005,250 common shares and $0.2 million face value were redeemed
for cash. During 2001, the Company also purchased $3.4 million of the Debentures
for $3.2 million and recognized a gain of $0.2 million, which is included in
other non-operating income in the accompanying consolidated statement of
earnings.

(10) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

     Prior to 2001 the Company sponsored two employee stock ownership plans: the
existing EDO Employee Stock Ownership Plan ("EDO ESOP"); and the AIL Employee
Stock Ownership Plan ("AIL ESOP") that was acquired in connection with the
EDO-AIL merger. These two plans were merged into a single plan effective as of
January 1, 2001 ("merged ESOP"), and the preferred shares from the EDO ESOP were
converted into 1,067,281 common shares as of March 8, 2001. The merged ESOP
provides retirement benefits to substantially all employees.

     As of June 30, 2001, the merged ESOP restructured its indirect loan from
the Company to extend the maturity date to December 31, 2017. As part of this
restructuring, the EDO ESOP bank loan obligation was paid in full on July 30,
2001.

     As quarterly payments are made under the indirect loan, unallocated common
shares in the merged 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 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 2003, 2002 and 2001 non-cash ESOP compensation expense recorded by the
Company amounted to $3.3 million, $4.0 million, and $1.8 million, respectively.
At December 31, 2003, there are 2,330,684 unearned/unallocated shares which have
an aggregate market value of $57.5 million and 1,768,349 allocated

                                        51
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shares. Total principal and interest payments made in 2003, 2002, and 2001 under
the merged ESOP indirect loan amounted to $1.7 million, $1.7 million, and $1.1
million, respectively.

(11) INCOME TAXES

     The 2003, 2002 and 2001 significant components of the provision for income
taxes attributable to continuing operations are as follows:

<Table>
<Caption>
                                                            2003      2002      2001
                                                           -------   -------   ------
                                                                 (IN THOUSANDS)
<S>                                                        <C>       <C>       <C>
Federal
  Current................................................  $12,927   $10,659   $2,345
  Deferred...............................................   (5,900)   (2,503)   5,598
                                                           -------   -------   ------
                                                           $ 7,027   $ 8,156   $7,943
                                                           -------   -------   ------
Foreign
  Current................................................      207        --       --
  Deferred...............................................       82        --       --
                                                           -------   -------   ------
                                                           $   289   $    --   $   --
                                                           -------   -------   ------
State
  Current................................................  $ 3,350   $ 2,667   $1,097
  Deferred...............................................   (1,022)     (481)     170
                                                           -------   -------   ------
                                                           $ 2,328   $ 2,186   $1,267
                                                           -------   -------   ------
Total....................................................  $ 9,644   $10,342   $9,210
                                                           =======   =======   ======
</Table>

     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
                                                              ------------------
                                                              2003   2002   2001
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Tax at statutory rate.......................................  35.0%  35.0%  35.0%
State taxes, net of Federal benefit.........................   5.0    5.0    3.0
Non-deductible goodwill amortization........................    --     --    1.0
Non-cash ESOP compensation expense..........................   2.0    3.0    0.5
Foreign sales benefit.......................................  (1.3)  (1.4)  (1.4)
Other, net..................................................   1.1    0.9    0.5
                                                              ----   ----   ----
Effective income tax rate...................................  41.8%  42.5%  38.6%
                                                              ====   ====   ====
</Table>

                                        52
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                               2003      2002
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
DEFERRED TAX ASSETS
Retirement plans' additional minimum liability..............  $20,442   $23,617
Post-retirement benefits obligation other than pensions.....    5,233     5,001
Deferred revenue............................................    1,697       980
Deferred compensation.......................................    3,614     2,843
Inventory valuation.........................................    1,897     2,242
Other.......................................................      404        99
                                                              -------   -------
Total deferred tax assets...................................   33,287    34,782
                                                              -------   -------
DEFERRED TAX LIABILITIES
Depreciation and amortization...............................    4,306     7,946
Prepaid pension asset.......................................    3,613     3,175
                                                              -------   -------
Total deferred tax liabilities..............................    7,919    11,121
                                                              -------   -------
Net deferred tax asset......................................  $25,368   $23,661
                                                              =======   =======
</Table>

(12) SHAREHOLDERS' EQUITY

     On October 31, 2001, the Company completed the public sale of 3,716,100 of
its common shares and received net proceeds of approximately $81.5 million.

     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, 2003, the Company had acquired
approximately 4,091,000 common shares in open market transactions at prevailing
market prices. Approximately 4,041,000 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, 2003 and 2002,
respectively, the Company held 88,128 and 94,322 common shares in its treasury
for future use.

     At December 31, 2003, the Company had reserved 6,113,646 authorized and
unissued common shares for stock option and long-term incentive plans and
conversion of the Notes.

                                        53
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(13) EARNINGS PER SHARE

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

<Table>
<Caption>
                                                           2003      2002      2001
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Numerator:
  Earnings from continuing operations available for
     common shares for basic calculation................  $13,411   $10,629   $14,485
  Effect of dilutive securities:
     Convertible debentures.............................       --        --       998
     Convertible preferred shares.......................       --        --         5
                                                          -------   -------   -------
  Numerator for diluted calculation.....................  $13,411   $10,629   $15,488
                                                          =======   =======   =======
Denominator:
  Denominator for basic calculation.....................   17,308    17,080    12,776
  Effect of dilutive securities:
     Stock options......................................      253       299       270
     Convertible preferred shares.......................       --        --       153
     Convertible debentures.............................       --        --     1,055
                                                          -------   -------   -------
  Denominator for diluted calculation...................   17,561    17,379    14,254
                                                          =======   =======   =======
</Table>

     The assumed conversion of the Notes was anti-dilutive for 2002 and 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,
                                                              --------------------
                                                              2003    2002    2001
                                                              -----   -----   ----
                                                                 (IN THOUSANDS)
<S>                                                           <C>     <C>     <C>
5.25% Convertible Subordinated Notes........................  4,408   3,285     --
Unexercised Stock Options...................................    311     326      4
                                                              -----   -----   ----
                                                              4,719   3,611      4
                                                              =====   =====   ====
</Table>

(14) 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 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.

                                        54
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Changes in options outstanding are as follows:

<Table>
<Caption>
                                 2003                     2002                     2001
                        ----------------------   ----------------------   ----------------------
                        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.....   $13.59     1,057,143     $ 7.75       805,876      $6.46       848,211
Options granted.......    19.00       224,405      26.72       327,850       9.76       275,350
Options exercised.....     6.66       (37,327)      6.98       (69,433)      6.02      (314,458)
Options
  expired/cancelled...    18.53       (38,125)     22.02        (7,150)      7.08        (3,227)
                         ------     ---------     ------     ---------      -----      --------
End of year...........   $14.65     1,206,096     $13.59     1,057,143      $7.75       805,876
                         ------     ---------     ------     ---------      -----      --------
Exercisable at year
  end.................   $11.26       602,916     $10.70       490,243      $6.76       455,426
                         ======     =========     ======     =========      =====      ========
</Table>

     The options outstanding as of December 31, 2003 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>
$3.07-5.69.....................................      $ 3.88           31,500       1 year
6.13-9.60......................................        7.90          645,591       6 years
17.10-31.40....................................       23.54          529,005       9 years
                                                                   ---------
                                                                   1,206,096
                                                                   =========
</Table>

     The 2002 plan also provides for restricted common share long-term incentive
awards as defined under the plan. As of December 31, 2003 plan participants had
been awarded 405,000 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. In the event that there are no transactions reported on such
exchange or system on such date, the average would be based on the high and low
market values of our common shares on the immediately preceding date. The amount
charged to operations in 2003, 2002 and 2001 was $0.3 million, $0.2 million and
$0.3 million, respectively. As of December 31, 2003, 499,361 shares are
available for additional awards.

(15) 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 benefits accrued under the plan were frozen as of December
31, 2002. The Company's funding policy is to make annual contributions to the
extent such contributions are actuarially determined and tax deductible.

     In 2003, the Company recorded pension expense of $3.9 million. In 2002, the
Company recorded pension expense of $6.0 million, which included a curtailment
loss of $2.0 million resulting from the aforementioned amendment to the plan. In
2001, the Company recorded pension income of $2.8 million.

                                        55
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the assumptions used in pension calculations follows:

<Table>
<Caption>
                                                       WEIGHTED-AVERAGE RATE ASSUMPTIONS
                                                               AS OF DECEMBER 31
                                                       ----------------------------------
                                                        2004      2003     2002     2001
                                                       -------   -------   -----   ------
<S>                                                    <C>       <C>       <C>     <C>
Discount Rate (for obligations as of Dec 31).........     n/a      6.25%   6.75%    7.25%
Expected long-term return on plan assets.............    8.25%     8.75%   9.50%   10.00%
Rate of compensation increase........................  Note 1    Note 1    4.95%    4.95%
</Table>

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

Note 1: The Company froze the Defined Benefit plan in December 2002, therefore
there is no future compensation increase for subsequent years.

     The expected long-term rate of return on plan assets to be used for 2004
expense is 8.25% as shown above. This rate of return was determined by
application of a statistical forecast modeling algorithm which, using the
pension investment mix and pension demographic data, simulates the long term
performance of the plan over a series of 2000 trials of variable economic
conditions, rounded to the nearest quarter-percent. The resulting rate is a 50
basis-point reduction in the forecast from the previous year.

     Previously, the company used 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 65% equity instruments and 35%
fixed income instruments. Each asset class has a minimum and maximum range as
follows: For equity-based securities -- a minimum of 60% and a maximum of 70%;
for fixed-income-based securities -- a minimum of 30% and a maximum of 40%. The
plan may also have a minimum of 0% and a maximum of 5% in cash and cash
equivalents. The assets are invested in a variety of both actively managed and
passive funds chosen by the committee.

     The investment mix of plan assets as of December 31 in each year was:

<Table>
<Caption>
                                                                AS OF DECEMBER 31
                                                              ---------------------
                                                              2003    2002    2001
                                                              -----   -----   -----
                                                              (AS A % OF PLAN ASSET
                                                                   FAIR VALUE)
<S>                                                           <C>     <C>     <C>
Equity Securities...........................................   69.7%   65.0%   66.9%
Debt Securities.............................................   29.7%   34.4%   33.1%
Cash........................................................    0.6%    0.6%    0.0%
                                                              -----   -----   -----
Total.......................................................  100.0%  100.0%  100.0%
                                                              =====   =====   =====
</Table>

     In 2003, the Company made a $5.0 million contribution to the plan. With
regard to the Company's planned contributions in the next calendar year, the
Company does not foresee any required or voluntary contributions.

                                        56
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the components of net periodic pension (expense) income
follows:

<Table>
<Caption>
                                                         2003       2002       2001
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Service cost.........................................  $     --   $ (4,353)  $ (3,693)
Interest on projected benefit obligation.............   (12,727)   (15,091)   (14,281)
Expected return on plan assets.......................    12,250     17,217     20,820
Amortization of transitional assets..................        --         --          8
Amortization of prior service cost...................        --       (261)       (85)
Recognized net actuarial loss........................    (3,454)    (1,476)        --
Curtailment loss.....................................        --     (1,998)        --
                                                       --------   --------   --------
Net pension (expense) income.........................  $ (3,931)  $ (5,962)  $  2,769
                                                       ========   ========   ========
</Table>

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

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year...........  $197,188   $214,273
Service cost................................................        --      4,353
Interest cost...............................................    12,727     15,091
Benefits paid...............................................   (20,058)   (17,279)
Actuarial loss..............................................    14,582         12
Effect of curtailment.......................................        --    (19,262)
                                                              --------   --------
Projected benefit obligation at end of year.................  $204,439   $197,188
                                                              --------   --------
Change in plan assets:
Fair value of plan assets at beginning of year..............  $148,635   $187,350
Actual return on plan assets................................    30,447    (21,436)
Employer contribution.......................................     5,000         --
Benefits paid...............................................   (20,058)   (17,279)
                                                              --------   --------
Fair value of plan assets at end of year....................  $164,024   $148,635
                                                              --------   --------
Funded status...............................................  $(40,415)  $(48,553)
Unrecognized net loss.......................................    48,362     55,432
                                                              --------   --------
Prepaid pension cost........................................  $  7,947   $  6,879
                                                              ========   ========
</Table>

     In accordance with the provisions of SFAS No. 88, "Employers' Accounting
for Settlements and Curtailments of Defined Benefit Plans and for Termination
Benefits," since the curtailment of $19.3 million did not exceed the previous
unrecognized net loss, no portion of the $19.3 million curtailment was
recognized in earnings for 2002. Accordingly, the remaining unrecognized net
loss will be accounted for in future pension plan expense consistent with SFAS
No. 87, "Employers' Accounting for Pensions."

     Due to the lower discount rate offset by fund performance and Company
contributions in 2003, the accumulated benefit obligation at December 31, 2003
and 2002 exceeded the fair value of plan assets by $40.4 million and $48.6
million, respectively. The Company recorded an additional minimum liability of
$48.4 million and $55.4 million in 2003 and 2002, respectively, and net of tax
comprehensive income of

                                        57
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$4.2 million and loss of $19.8 million were charged against shareholders' equity
in 2003 and 2002, respectively. Amounts recognized in the consolidated balance
sheets at December 31 are as follows:

<Table>
<Caption>
                                                                2003       2002
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Prepaid pension cost (included in other assets).............  $  7,947   $  6,879
                                                              ========   ========
Additional minimum liability (included in post-retirement
  benefits obligations).....................................  $(48,362)  $(55,432)
                                                              ========   ========
Accumulated other comprehensive loss (included in
  shareholders' equity).....................................  $ 48,362   $ 55,432
                                                              ========   ========
</Table>

  NON-QUALIFIED PLANS

     The Company has a supplemental defined benefit plan for employees with long
term service at AIL and EDO under which employees may receive an amount by which
benefits earned under the pension plan exceed the limitations imposed by the
Internal Revenue Code. The Company also 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. Consequently, a curtailment charge of $0.9
million was recorded. The plan is unfunded and has no assets.

     The following is a table of the weighted average assumptions as of December
31 on each year:

<Table>
<Caption>
RATE                                                          2003   2002   2001
----                                                          ----   ----   ----
<S>                                                           <C>    <C>    <C>
Discount Rate...............................................  6.25%  6.75%  7.25%
Expected rate of Return on Assets...........................   n/a    n/a    n/a
Rate of Compensation Increase...............................  5.00%  4.95%  4.95%
</Table>

     Total expenses under the non-qualified plans in 2003, 2002 and 2001 were
$2.6 million, $1.4 million and $0.7 million, respectively. The supplemental
plans of EDO and AIL were combined in 2001.

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

<Table>
<Caption>
                                                               2003     2002
                                                              ------   ------
                                                              (IN THOUSANDS)
<S>                                                           <C>      <C>
Service cost................................................  $  372   $  190
Interest on projected benefit obligation....................     802      815
Amortization of transitional assets.........................       3       32
Amortization of prior service cost..........................     184      141
Recognized net actuarial loss...............................     273      225
Effect of curtailment.......................................     942       --
                                                              ------   ------
Net pension expense.........................................  $2,576   $1,403
                                                              ======   ======
</Table>

                                        58
<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>
                                                                2003       2002
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year...........  $ 13,047   $ 11,538
Service cost................................................       372        190
Interest cost...............................................       802        815
Benefits paid...............................................      (987)      (847)
Actuarial loss..............................................       158        951
Plan amendments.............................................        --        400
Effect of curtailment.......................................    (1,752)        --
                                                              --------   --------
Projected benefit obligation at end of year.................  $ 11,640   $ 13,047
                                                              --------   --------
Change in plan assets:
Fair value of plan assets at beginning of the year..........  $     --   $     --
Employer contribution.......................................       987        847
Benefits paid...............................................      (987)      (847)
                                                              --------   --------
Fair value of plan assets at end of year....................  $     --   $     --
                                                              --------   --------
Funded status...............................................  $(11,640)  $(13,047)
Unrecognized net loss.......................................     2,338      4,204
Unrecognized prior service cost.............................       558      1,684
Unrecognized net obligation.................................         7         10
                                                              --------   --------
Accrued benefit cost........................................  $ (8,737)  $ (7,149)
                                                              ========   ========
</Table>

     The accumulated benefit obligation at December 31, 2003 and 2002 exceeded
the fair value of plan assets by $10.8 million and $11.0 million, respectively.
The Company recorded an additional minimum liability of $2.1 million and $3.9
million in 2003 and 2002, respectively, and net of tax comprehensive income of
$0.4 million and loss of $0.8 million were charged against shareholders' equity
in 2003 and 2002, respectively. Amounts recognized in the consolidated balance
sheets at December 31 are as follows:

<Table>
<Caption>
                                                               2003      2002
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Accrued benefit cost (included in post-retirement benefits
  obligation)...............................................  $(8,737)  $(7,149)
                                                              =======   =======
Intangible asset (included in other assets).................  $   565   $ 1,694
                                                              =======   =======
Additional minimum liability (included in post-retirement
  benefits obligations).....................................  $(2,062)  $(3,864)
                                                              =======   =======
Accumulated other comprehensive loss (included in
  shareholders' equity).....................................  $ 1,497   $ 2,170
                                                              =======   =======
</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.

                                        59
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) 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 (income) included
the following components:

<Table>
<Caption>
                                                              2003   2002   2001
                                                              ----   ----   -----
                                                                (IN THOUSANDS)
<S>                                                           <C>    <C>    <C>
Service cost................................................  $ --   $ --   $  69
Interest cost...............................................   126    171     229
Curtailment gain............................................    --     --    (929)
                                                              ----   ----   -----
Total post-retirement health care and life insurance expense
  (income)..................................................  $126   $171   $(631)
                                                              ====   ====   =====
</Table>

     In 2001, the Company recognized a curtailment gain as a result of a plan
amendment whereby coverage will not be provided for future retirees.

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

<Table>
<Caption>
                                                               2003     2002
                                                              ------   ------
                                                              (IN THOUSANDS)
<S>                                                           <C>      <C>
Change in accumulated post-retirement benefit obligation:
  Accumulated benefit obligation at beginning of year.......  $2,113   $2,317
  Interest cost.............................................     126      171
  Benefits paid.............................................    (432)    (448)
  Participant contributions.................................      27       31
  Actuarial loss............................................     608       42
                                                              ------   ------
Unfunded accumulated post-retirement benefit obligation at
  end of year...............................................  $2,442   $2,113
Unrecognized net (loss) gain................................    (569)      39
                                                              ------   ------
Accrued post-retirement benefit cost........................  $1,873   $2,152
                                                              ======   ======
</Table>

     Actuarial assumptions used in determining the accumulated post-retirement
benefit obligation include a discount rate of 6.25% and 6.75% at December 31,
2003 and 2002, respectively, 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. Since no increase above the said 5% rate is
possible no effect would take place if the actual rate were above the assumed
rate. A 1% decrease in the trend rate would decrease the benefit obligation at
the end of the year by approximately $13,000 and the interest cost by $1,000.

                                        60
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  AIL POST-RETIREMENT BENEFIT PLAN

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

<Table>
<Caption>
                                                               2003    2002    2001
                                                              ------   -----   ----
                                                                 (IN THOUSANDS)
<S>                                                           <C>      <C>     <C>
Service cost................................................  $  453   $ 313   $ 86
Interest cost...............................................     765     431    663
Recognized net actuarial loss (gain)........................      40    (269)   (11)
                                                              ------   -----   ----
Total post-retirement expense...............................  $1,258   $ 475   $738
                                                              ======   =====   ====
</Table>

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

<Table>
<Caption>
                                                               2003      2002
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Change in accumulated post-retirement benefit obligation:
Accumulated benefit obligation..............................  $11,771   $ 8,737
Service cost................................................      453       313
Interest cost...............................................      765       431
Benefits paid...............................................     (441)     (449)
Actuarial (gain) loss.......................................     (291)    2,739
                                                              -------   -------
Unfunded accumulated post-retirement benefit obligation at
  end of year...............................................  $12,257   $11,771
Unrecognized loss...........................................   (1,394)   (1,725)
                                                              -------   -------
Accrued post-retirement benefit cost........................  $10,863   $10,046
                                                              =======   =======
</Table>

     Actuarial assumptions used in determining the accumulated post-retirement
benefit obligation include a discount rate of 6.25% and 6.75% at December 31,
2003 and 2002, respectively. 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. An increase of 1% in the trend rate would
increase the benefit obligation at the end of the year by approximately $0.5
million and the interest cost and service cost by approximately $58,000. A
decrease of 1% in the trend rate would decrease the benefit obligation at the
end of the year by approximately $0.5 million and interest cost and service cost
by approximately $52,000.

                                        61
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) COMMITMENTS AND CONTINGENCIES

     In order to aggregate all commitments and contractual obligations as of
December 31, 2003, the following table is included. The Company is obligated
under building and equipment leases expiring between 2004 and 2012. 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
amount of commitment expiration per period.

<Table>
<Caption>
                                                               PAYMENTS DUE IN:
                                           --------------------------------------------------------
                                                                                           2009 AND
                                           TOTAL    2004    2005    2006    2007    2008    BEYOND
                                           ------   -----   -----   ----   ------   ----   --------
                                                                (IN MILLIONS)
<S>                                        <C>      <C>     <C>     <C>    <C>      <C>    <C>
5.25% Convertible Subordinated Notes due
  2007...................................  $137.8   $  --   $  --   $ --   $137.8   $ --    $  --
Operating leases.........................    72.1    13.6    11.0    7.8      6.8    6.3     26.6
Letters of credit........................    53.7    26.0    27.4     --       --    0.3       --
Advance payment and performance bonds....     1.9     0.2      --     --       --     --      1.7
                                           ------   -----   -----   ----   ------   ----    -----
Total....................................  $265.5   $39.8   $38.4   $7.8   $144.6   $6.6    $28.3
                                           ======   =====   =====   ====   ======   ====    =====
</Table>

     Rental expense for the years ended December 31, 2003, 2002 and 2001
amounted to $10.7 million, $5.4 million and $4.7 million, respectively.

(18) 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, 2003, the discounted liability over the
remainder of the twenty two years related to these two operable units is
approximately $2.0 million of which approximately $0.3 million has been
classified as current and is included in accrued liabilities. Approximately $0.6
million of the $2.0 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.

(19) 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. The Company's continuing operations are

                                        62
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

conducted in three business segments: Defense, Communications and Space
Products, and Engineered Materials.

     The Defense segment provides integrated front-line warfighting systems and
components including electronic warfare, radar countermeasures systems,
reconnaissance and surveillance systems, aircraft weapons suspension and release
systems, airborne mine countermeasures systems, integrated combat and sonar
systems, command, control and communications systems and professional,
operational, technical and information technology services for military forces
and governments worldwide. The Communications and Space Products segment
supplies antenna products and ultra-miniature electronics and systems for the
remote sensing and electronic warfare industries. The Engineered Materials
segment supplies commercial and military piezo-electric ceramic products and
advanced fiber composite structural products for the aircraft, communication,
navigation, chemical, petrochemical, paper and oil industries.

     Domestic U.S. Government sales, which include sales to prime contractors of
the U.S. Government, amounted to 76%, 75% and 69% of net sales, which were 80%,
82% and 77% of Defense's net sales, 71%, 62% and 55% of Communications and Space
Products' net sales and 49%, 42% and 41% of Engineered Materials' net sales for
2003, 2002 and 2001, respectively. International sales comprised 18%, 15% and
15% of net sales for 2003, 2002 and 2001, respectively. In addition, the
Universal Exciter Upgrade program in the Defense segment comprised approximately
2%, 14% and 15% of net sales for 2003, 2002 and 2001, respectively.

     Principal products and services by segment are as follows:

DEFENSE SEGMENT

     - Electronic Warfare
     - Reconnaissance and Surveillance Systems
     - Integrated Combat Systems
     - Mobile Communication Systems
     - Rugged Computer and Electronics
     - Aircraft Armament
     - Undersea Warfare Sonar Systems
     - Airborne Mine Countermeasures Systems
     - Sonar Systems
     - Professional Services

COMMUNICATIONS AND SPACE PRODUCTS SEGMENT

     - Antenna Products
     - Interference Cancellation
     - Force Protection Technology

ENGINEERED MATERIALS SEGMENT

     - Electro-Ceramic Products
     - Integrated Composite Structures Products

                                        63
<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>
                                                         2003       2002       2001
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Net sales:
  Defense............................................  $360,001   $243,447   $183,454
  Communications and Space Products..................    55,458     47,262     39,998
  Engineered Materials...............................    45,208     38,167     36,509
                                                       --------   --------   --------
                                                       $460,667   $328,876   $259,961
                                                       --------   --------   --------
Operating earnings:
  Defense............................................  $ 35,062   $ 28,674   $ 21,927
  Communications and Space Products..................     3,583       (441)      (383)
  Engineered Materials...............................     2,385      3,150      4,603
  Impairment loss on Deer Park facility..............    (9,160)        --         --
  Curtailment (loss) gain............................      (942)    (1,998)       929
                                                       --------   --------   --------
                                                       $ 30,928   $ 29,385   $ 27,076
Net interest expense.................................    (8,152)    (4,956)    (2,216)
Other expense, net...................................       279        (95)      (971)
                                                       --------   --------   --------
Earnings from continuing operations before income
  taxes and cumulative effect of a change in
  accounting principle...............................  $ 23,055   $ 24,334   $ 23,889
                                                       --------   --------   --------
Identifiable assets:
  Defense............................................  $303,881   $224,017   $129,631
  Communications and Space Products..................    34,684     40,001     49,769
  Engineered Materials...............................    30,482     28,496     27,690
  Corporate..........................................   125,649    189,060     78,540
                                                       --------   --------   --------
                                                       $494,696   $481,574   $285,630
                                                       --------   --------   --------
Depreciation and amortization:
  Defense............................................  $ 12,551   $  7,440   $  6,081
  Communications and Space Products..................     2,335      1,895      2,438
  Engineered Materials...............................     1,893      1,800      2,029
  Corporate..........................................       286        186        848
                                                       --------   --------   --------
                                                       $ 17,065   $ 11,321   $ 11,396
                                                       --------   --------   --------
Capital expenditures:
  Defense............................................  $  4,309   $  3,587   $  7,896
  Communications and Space Products..................       956        816      4,308
  Engineered Materials...............................     2,347      1,819      1,479
  Corporate..........................................     1,253        871        615
                                                       --------   --------   --------
                                                       $  8,865   $  7,093   $ 14,298
                                                       ========   ========   ========
</Table>

                                        64
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Acquisition-related costs in 2003 and 2002, including IPR&D, attributable
to the Condor acquisition and in 2001 attributable to the EDO-AIL merger are
included in the segments as follows:

<Table>
<Caption>
                                                              2003   2002    2001
                                                              ----   ----   ------
                                                                 (IN THOUSANDS)
<S>                                                           <C>    <C>    <C>
Defense.....................................................  $929   $567   $  937
Communications and Space Products...........................    --     --      184
Engineered Materials........................................    --     --      197
                                                              ----   ----   ------
Total.......................................................  $929   $567   $1,318
                                                              ====   ====   ======
</Table>

(20) 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, 2003 and 2002, and for each of the three years in the period ended
December 31, 2003. There were no subsidiaries that would have been non-guarantor
subsidiaries for 2002 and 2001. 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.

                                        65
<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....     $ 69,877        $ 11,371       $ 5,168               --       $ 86,416
Marketable securities........          216              --            --               --            216
Accounts receivable, net.....       29,087         101,233         3,984               (1)       134,303
Inventories..................        5,320          26,124         3,289               --         34,733
Deferred income tax asset,
  net........................        3,594              --            --               --          3,594
Prepayments and other........        2,610           3,014           330               --          5,954
                                  --------        --------       -------        ---------       --------
Total current assets.........      110,704         141,742        12,771               (1)       265,216
Investment in subsidiaries...      261,950              --            --         (261,950)            --
Property, plant and
  equipment, net.............        6,966          20,674         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........................       21,774              --            --               --         21,774
Other assets.................       19,850           1,538            --               --         21,388
                                  --------        --------       -------        ---------       --------
                                  $427,782        $289,149       $39,716        $(261,951)      $494,696
                                  ========        ========       =======        =========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
  liabilities................     $ 34,061        $ 44,679       $ 6,004        $      (1)        84,743
Contract advances and
  deposits...................        2,788           5,407            --               --          8,195
                                  --------        --------       -------        ---------       --------
Total current liabilities....       36,849          50,086         6,004               (1)        92,938
Long-term debt...............      137,800              --            --               --        137,800
Deferred income tax
  liabilities, net...........          (82)             --            82               --             --
Post retirement benefits
  obligations................       61,035          10,863            --               --         71,898
Environmental obligation.....        1,728              --            --               --          1,728
Intercompany accounts........           --         126,326        26,611         (152,937)            --
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...      190,452         101,874         7,019         (109,013)       190,332
                                  --------        --------       -------        ---------       --------
                                  $427,782        $289,149       $39,716        $(261,951)      $494,696
                                  ========        ========       =======        =========       ========
</Table>

                                        66
<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....................      $91,420        $371,306       $16,047         $(18,106)      $460,667
Costs and expenses:
Cost of sales................       76,684         271,384         8,297          (18,106)       338,259
Selling, general and
  administrative.............        5,420          60,132         6,303               --         71,855
Research and development.....        2,970           5,210           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
                                   -------        --------       -------         --------       --------
                                    86,266         346,565        15,014          (18,106)       429,739
                                   -------        --------       -------         --------       --------
Operating Earnings...........        5,154          24,741         1,033               --         30,928
Non-operating income
  (expense)
Interest income..............          630             282            29               --            941
Interest expense.............       (9,093)             --            --               --         (9,093)
Other, net...................          (42)            321            --               --            279
                                   -------        --------       -------         --------       --------
                                    (8,505)            603            29               --         (7,873)
(Loss) earnings from
  continuing operations
  before income taxes........       (3,351)         25,344         1,062               --         23,055
Income tax (benefit)
  expense....................       (1,068)         10,198           514               --          9,644
                                   -------        --------       -------         --------       --------
(Loss) earnings from
  continuing operations......       (2,283)         15,146           548               --         13,411
Equity in undistributed
  earnings of subsidiaries...       15,694              --            --          (15,694)            --
                                   -------        --------       -------         --------       --------
                                    13,411          15,146           548          (15,694)        13,411
Earnings from discontinued
  operations.................        1,398              --            --               --          1,398
                                   -------        --------       -------         --------       --------
Net earnings.................      $14,809        $ 15,146       $   548         $(15,694)      $ 14,809
                                   =======        ========       =======         ========       ========
</Table>

                                        67
<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        $ 15,146        $  548         $(15,694)      $ 13,411
Adjustments to earnings to arrive at cash
  provided (used) by continuing operations:
Depreciation.................................        1,748          10,082           350               --         12,180
Amortization.................................            0           4,466           419               --          4,885
Deferred tax benefit.........................       (7,227)            387            --               --         (6,840)
Bad debt expense.............................           --             568            --               --            568
Loss (gain) on sale of property, plant and
  equipment..................................            6            (137)           --               --           (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...........      (15,694)             --            --           15,694             --
Intercompany.................................       33,636         (36,859)        3,223               --             --
Accounts receivable..........................       (4,500)            217         1,080               --         (3,203)
Inventories..................................       (4,228)          5,190           444               --          1,406
Prepayments and other assets.................        4,334            (295)           (7)              --          4,032
Contribution to defined benefit pension
  plan.......................................       (5,000)             --            --               --         (5,000)
Accounts payable, accrued liabilities and
  other......................................       22,406         (27,447)         (361)              --         (5,402)
Contract advances and deposits...............       (8,297)         (3,785)           --               --        (12,082)
                                                  --------        --------        ------         --------       --------
Cash provided (used) by continuing
  operations.................................       35,185         (23,307)        5,696               --         17,574
Net cash provided by discontinued
  operations.................................           79              --            --               --             79
Investing Activities:
Purchase of plant and equipment..............       (3,224)         (5,113)         (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
Purchase of marketable securities............          (23)             --            --               --            (23)
Restricted cash..............................       27,347              --            --               --         27,347
Cash paid for acquisitions, net of cash
  acquired...................................      (94,188)             --            --               --        (94,188)
                                                  --------        --------        ------         --------       --------
Cash (used) provided by investing
  activities.................................      (69,788)         17,276          (528)              --        (53,040)
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) provided by financing
  activities.................................      (10,759)            242            --               --        (10,517)
                                                  --------        --------        ------         --------       --------
Net decrease in cash and cash equivalents....      (45,283)         (5,789)        5,168               --        (45,904)
Cash and cash equivalents at beginning of
  year.......................................      115,160          17,160            --               --        132,320
                                                  --------        --------        ------         --------       --------
Cash and cash equivalents at end of year.....     $ 69,877        $ 11,371        $5,168         $     --       $ 86,416
                                                  ========        ========        ======         ========       ========
</Table>

                                        68
<PAGE>

                                EDO CORPORATION

                     CONDENSED CONSOLIDATING BALANCE SHEET
                               DECEMBER 31, 2002

<Table>
<Caption>
                                             EDO CORPORATION
                                             PARENT COMPANY    SUBSIDIARY
                                                  ONLY         GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                             ---------------   ----------   ------------   ------------
<S>                                          <C>               <C>          <C>            <C>
ASSETS
Current assets:
Cash and cash equivalents..................     $115,160        $ 17,160            --       $132,320
Restricted cash............................       27,347              --            --         27,347
Marketable securities......................          193              --            --            193
Accounts receivable, net...................       24,587          76,001             6        100,594
Inventories................................        1,092          31,314            --         32,406
Deferred income tax asset, net.............      (10,202)         13,424            --          3,222
Prepayments and other......................        1,296           1,837            --          3,133
                                                --------        --------     ---------       --------
Total current assets.......................      159,473         139,736             6        299,215
Investment in subsidiaries.................      192,099              --      (192,099)            --
Property, plant and equipment, net.........        5,495          58,977            --         64,472
Notes receivable...........................        1,525           1,031            --          2,556
Goodwill...................................           --          61,352            --         61,352
Other intangible assets, net...............           --          11,867            --         11,867
Deferred income tax asset, net.............       20,439              --             -         20,439
Other assets...............................       20,467           1,206            --         21,673
                                                --------        --------     ---------       --------
                                                $399,498        $274,169     $(192,093)      $481,574
                                                ========        ========     =========       ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities...     $ 23,438        $ 51,112     $       6       $ 74,556
Contract advances and deposits.............       11,085           9,192                       20,277
                                                --------        --------     ---------       --------
Total current liabilities..................       34,523          60,304             6         94,833
Long-term debt.............................      137,800              --            --        137,800
Deferred income tax liabilities, net.......      (12,227)         12,227            --              0
Post retirement benefits obligations.......       68,597          10,046            --         78,643
Environmental obligation...................        2,025              --                        2,025
Intercompany accounts......................           --         111,690      (111,690)            --
Shareholders' equity:
Preferred shares...........................           --              --            --             --
Common shares..............................       19,790              93           (93)        19,790
Additional paid-in capital.................      147,091          14,708       (14,708)       147,091
Retained earnings..........................       56,325          65,732       (65,732)        56,325
Accumulated other comprehensive loss, net
  of income tax benefit....................      (33,985)             86            --        (33,899)
Treasury shares............................       (1,321)           (124)          124         (1,321)
Unearned ESOP shares.......................      (18,541)             --                      (18,541)
Management group receivables...............           --            (593)           --           (593)
Deferred compensation under Long-Term
  Incentive Plan...........................         (579)             --            --           (579)
                                                --------        --------     ---------       --------
Total shareholders' equity.................      168,780          79,902       (80,409)       168,273
                                                --------        --------     ---------       --------
                                                $399,498        $274,169     $(192,093)      $481,574
                                                ========        ========     =========       ========
</Table>

                                        69
<PAGE>

                                EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                               DECEMBER 31, 2002

<Table>
<Caption>
                                             EDO CORPORATION
                                             PARENT COMPANY    SUBSIDIARY
                                                  ONLY         GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                             ---------------   ----------   ------------   ------------
<S>                                          <C>               <C>          <C>            <C>
Continuing Operations:
Net Sales..................................      $87,154        $254,772      $(13,050)      $328,876
Costs and expenses:
Cost of sales..............................       68,827         185,073       (13,050)       240,850
Selling, general and administrative........        5,891          41,693            --         47,584
Research and development...................        3,698           4,794            --          8,492
Write-off of purchased in-process research
  and development and related costs........           42             525            --            567
Defined benefit pension plan curtailment
  loss.....................................        1,998              --            --          1,998
                                                 -------        --------      --------       --------
                                                  80,456         232,085       (13,050)       299,491
                                                 -------        --------      --------       --------
Operating Earnings.........................        6,698          22,687            --         29,385
Non-operating income (expense)
Interest income............................        1,515             214            --          1,729
Interest expense...........................       (6,685)             --            --         (6,685)
Other, net.................................         (301)            206            --            (95)
                                                 -------        --------      --------       --------
                                                  (5,471)            420            --         (5,051)
Earnings from continuing operations before
  income taxes.............................        1,227          23,107            --         24,334
Income tax expense.........................        1,048           9,294            --         10,342
                                                 -------        --------      --------       --------
Earnings from continuing operations........          179          13,813            --         13,992
Equity in undistributed earnings of
  subsidiaries.............................       10,450              --       (10,450)            --
                                                 -------        --------      --------       --------
                                                  10,629          13,813       (10,450)        13,992
Cumulative effect of a change in accounting
  principle, net of tax....................           --          (3,363)           --         (3,363)
                                                 -------        --------      --------       --------
Net earnings...............................      $10,629        $ 10,450      $(10,450)      $ 10,629
                                                 =======        ========      ========       ========
</Table>

                                        70
<PAGE>

                                EDO CORPORATION

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                               DECEMBER 31, 2002

<Table>
<Caption>
                                                       EDO CORPORATION
                                                       PARENT COMPANY    SUBSIDIARY
                                                            ONLY         GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                       ---------------   ----------   ------------   ------------
<S>                                                    <C>               <C>          <C>            <C>
Operating Activities:
Earnings from continuing operations..................     $ 10,629        $10,450       $(10,450)      $ 10,629
Adjustments to earnings to arrive at cash provided by
  continuing operations:
Depreciation.........................................        1,751          8,614             --         10,365
Amortization.........................................           --            956                           956
Deferred tax benefit.................................       (2,984)            --             --         (2,984)
Write-off of purchased in-process research and
  development........................................           --            150             --            150
Bad debt expense.....................................           --            407             --            407
Loss on sale of property, plant and equipment........           --             53             --             53
Deferred compensation expense........................          201             --             --            201
Non-cash Employee Stock Ownership Plan compensation
  expense............................................        4,043             --             --          4,043
Dividends on unallocated Employee Stock Ownership
  Plan shares........................................          312             --             --            312
Common shares issued for directors' fees.............          142             --             --            142
Income tax benefit from stock options and Long-Term
  Incentive Plan.....................................          713             --             --            713
Cumulative effect of a change in accounting
  principle..........................................        3,363             --             --          3,363
Changes in operating assets and liabilities,
  excluding effects of acquisitions:
Equity in earnings of subsidiaries...................      (10,450)            --         10,450             --
Intercompany.........................................        1,412         (1,412)            --             --
Accounts receivable..................................         (197)        (2,322)            --         (2,519)
Inventories..........................................          944         (3,870)            --         (2,926)
Prepayments and other assets.........................        3,859         (3,639)            --            220
Accounts payable, accrued liabilities and other......        9,136         (3,919)            --          5,217
Contract advances and deposits.......................       (3,484)         7,059             --          3,575
                                                          --------        -------       --------       --------
Cash provided by operations..........................       19,390         12,527             --         31,917
Investing Activities:
Purchase of plant and equipment......................       (3,099)        (3,994)            --         (7,093)
Payments received on notes receivable................          300             50             --            350
Proceeds from sale of property, plant and
  equipment..........................................           --              1                             1
Purchase of marketable securities....................           (3)            --             --             (3)
Restricted cash......................................      (27,347)            --             --        (27,347)
Cash paid for acquisitions, net of cash acquired.....      (59,024)            --             --        (59,024)
                                                          --------        -------       --------       --------
Cash used by investing activities....................      (89,173)        (3,943)            --        (93,116)
Financing Activities:
Issuance of convertible subordinated notes...........      137,800             --             --        137,800
Proceeds from exercise of stock options..............          486             --             --            486
Proceeds from management group receivables...........           --            252             --            252
Payment made on note payable.........................         (500)            --             --           (500)
Payment of common share cash dividends...............       (2,360)            --             --         (2,360)
                                                          --------        -------       --------       --------
Cash provided by financing activities................      135,426            252             --        135,678
                                                          --------        -------       --------       --------
Net increase in cash and cash equivalents............       65,643          8,836             --         74,479
Cash and cash equivalents at beginning of year.......       49,517          8,324             --         57,841
                                                          --------        -------       --------       --------
Cash and cash equivalents at end of year.............     $115,160        $17,160       $     --       $132,320
                                                          ========        =======       ========       ========
</Table>

                                        71
<PAGE>

                                EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                               DECEMBER 31, 2001

<Table>
<Caption>
                                             EDO CORPORATION
                                             PARENT COMPANY    SUBSIDIARY
                                                  ONLY         GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                             ---------------   ----------   ------------   ------------
<S>                                          <C>               <C>          <C>            <C>
Continuing Operations:
Net Sales..................................      $86,752        $181,406      $(8,197)       $259,961
Costs and expenses:
Cost of sales..............................       62,392         135,538       (8,197)        189,733
Selling, general and administrative........        4,351          29,662           --          34,013
Research and development...................        3,803           4,947           --           8,750
Write-off of merger-related costs..........        1,318              --           --           1,318
Postretirement curtailment gain............         (929)             --           --            (929)
                                                 -------        --------      -------        --------
                                                  70,935         170,147       (8,197)        232,885
                                                 -------        --------      -------        --------
Operating Earnings.........................       15,817          11,259           --          27,076
Non-operating income (expense)
Interest income............................          670             245           --             915
Interest expense...........................       (2,456)           (675)          --          (3,131)
Other, net.................................         (955)            (16)          --            (971)
                                                 -------        --------      -------        --------
                                                  (2,741)           (446)          --          (3,187)
Earnings from continuing operations before
  income taxes.............................       13,076          10,813           --          23,889
Income tax expense.........................        4,940           4,270           --           9,210
                                                 -------        --------      -------        --------
Earnings from continuing operations........        8,136           6,543           --          14,679
Equity in undistributed earnings of
  subsidiaries.............................        6,543              --       (6,543)             --
                                                 -------        --------      -------        --------
                                                  14,679           6,543       (6,543)         14,679
Discontinued operations....................          273              --           --             273
                                                 -------        --------      -------        --------
Net earnings...............................      $14,952        $  6,543      $(6,543)       $ 14,952
                                                 =======        ========      =======        ========
</Table>

                                        72
<PAGE>

                                EDO CORPORATION

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                               DECEMBER 31, 2001

<Table>
<Caption>
                                                              EDO CORPORATION
                                                              PARENT COMPANY    SUBSIDIARY
                                                                   ONLY         GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                              ---------------   ----------   ------------   ------------
<S>                                                           <C>               <C>          <C>            <C>
Operating Activities:
Earnings from operations....................................     $ 14,679        $  6,543      $(6,543)       $ 14,679
Adjustments to earnings to arrive at cash (used) provided by
  operations:
Depreciation................................................        1,529           8,157           --           9,686
Amortization................................................          717             993           --           1,710
Deferred tax expense........................................        5,941              --           --           5,941
Real estate tax assessment adjustment.......................           --           7,846           --           7,846
Bad debt expense............................................           30             190           --             220
Gain on repurchase of debentures............................         (171)             --           --            (171)
Gain on sale of property, plant and equipment...............           --             (76)          --             (76)
Gain on sale of marketable securities.......................          (81)             --           --             (81)
Deferred compensation expense...............................          271              --           --             271
Non-cash Employee Stock Ownership Plan compensation
  expense...................................................        1,781              --           --           1,781
Dividends on unallocated Employee Stock Ownership Plan
  shares....................................................           80              --           --              80
Non-cash compensation expense...............................          276              --           --             276
Common shares issued for directors' fees....................          157              --           --             157
Income tax benefit from stock options and Long-Term
  Incentive Plan............................................        1,118              --           --           1,118
Changes in operating assets and liabilities, excluding
  effects of acquisitions:
Equity in earnings of subsidiaries..........................       (6,543)             --        6,543              --
Intercompany................................................      (12,383)         12,383           --              --
Accounts receivable.........................................       (2,880)         (7,873)          --         (10,753)
Inventories.................................................        4,352          (2,319)          --           2,033
Prepayments and other assets................................       (6,243)          5,614           --            (629)
Accounts payable, accrued liabilities and other.............         (890)         (4,084)          --          (4,974)
Contract advances and deposits..............................      (12,713)         (2,304)          --         (15,017)
                                                                 --------        --------      -------        --------
Cash (used) provided by operations..........................      (10,973)         25,070           --          14,097
Investing Activities:
Purchase of plant and equipment.............................       (1,754)        (12,544)          --         (14,298)
Payments received on notes receivable.......................          300              47           --             347
Proceeds from sale of property, plant and equipment.........           --             280           --             280
Purchase of marketable securities...........................          (59)             --           --             (59)
Sale or redemption of marketable securities.................       14,455              --           --          14,455
Cash paid for acquisitions, net of cash acquired............      (13,938)             --           --         (13,938)
                                                                 --------        --------      -------        --------
Cash used by investing activities...........................         (996)        (12,217)          --         (13,213)
Financing Activities:
Proceeds from exercise of stock options.....................        1,892              --           --           1,892
Proceeds from management group receivables..................           --             375           --             375
Proceeds from sale of stock in public offering, net of
  expenses..................................................       81,491              --           --          81,491
Borrowings under revolver...................................       20,800              --           --          20,800
Repayments of borrowings under revolver.....................      (20,800)             --           --         (20,800)
Repayments of long-term debt................................      (14,450)         (2,850)          --         (17,300)
Repurchase of debentures....................................       (3,184)             --           --          (3,184)
Purchase of treasury shares.................................       (1,020)             --           --          (1,020)
Payment of EDO ESOP loan obligation.........................       (4,891)             --           --          (4,891)
Payment made on note payable................................         (500)             --           --            (500)
Payment of common share cash dividends......................       (1,920)             --           --          (1,920)
Payment of preferred share cash dividends...................         (194)             --           --            (194)
                                                                 --------        --------      -------        --------
Cash provided (used) by financing activities................       57,224          (2,475)          --          54,749
                                                                 --------        --------      -------        --------
Net increase in cash and cash equivalents...................       45,255          10,378           --          55,633
Cash and cash equivalents at beginning of year..............        4,262          (2,054)                       2,208
                                                                 --------        --------      -------        --------
Cash and cash equivalents at end of year....................     $ 49,517        $  8,324      $    --        $ 57,841
                                                                 ========        ========      =======        ========
</Table>

                                        73
<PAGE>

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
EDO Corporation

     We have audited the accompanying consolidated balance sheets of EDO
Corporation and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of earnings, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 2003. 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 auditing standards generally
accepted in the 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 financial position of EDO
Corporation and subsidiaries at December 31, 2003 and 2002 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2003, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

     As discussed in Note 1(g) to the consolidated financial statements,
effective January 1, 2002, the Company changed its method of accounting for
goodwill to conform with Statement of Financial Accounting Standard No.
142,"Goodwill and Other Intangible Assets."

                                          /s/ ERNST & YOUNG LLP

New York, New York
February 13, 2004

                                        74
<PAGE>

                  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table sets forth unaudited quarterly financial information
for 2003 and 2002 (in thousands, except per share amounts).

<Table>
<Caption>
                                    FIRST QUARTER         SECOND QUARTER        THIRD QUARTER        FOURTH QUARTER
                                  ------------------    -------------------   ------------------   -------------------
                                   2003       2002        2003       2002       2003      2002       2003       2002
                                  -------   --------    --------    -------   --------   -------   --------   --------
<S>                               <C>       <C>         <C>         <C>       <C>        <C>       <C>        <C>
Net sales from continuing
  operations....................  $94,377   $ 66,909    $111,736    $73,719   $118,783   $85,104   $135,771   $103,144
Net earnings (loss):
  Continuing operations.........    2,982(a)    2,810     (1,626)(b)   3,074     5,559(c)   3,371(d)    6,496(e)    4,737(f)
  Discontinued operations.......       --         --       1,398         --         --        --         --         --
Cumulative effect of a change in
  accounting principle, net of
  tax...........................       --     (3,363)(g)       --        --         --        --         --         --
                                  -------   --------    --------    -------   --------   -------   --------   --------
Earnings (loss).................    2,982       (553)       (228)     3,074      5,559     3,371      6,496      4,737
Earnings (loss) per share:
  Basic:
    Continuing operations.......     0.17       0.17       (0.09)      0.18       0.32      0.20       0.37       0.28
    Discontinued operations.....       --         --        0.08         --         --        --         --         --
    Cumulative effect of a
      change in accounting
      principle, net of tax.....       --      (0.20)         --         --         --        --         --         --
                                  -------   --------    --------    -------   --------   -------   --------   --------
    Earnings (loss) -- Basic....     0.17      (0.03)      (0.01)      0.18       0.32      0.20       0.37       0.28
  Diluted:
    Continuing operations.......     0.17       0.16       (0.09)      0.18       0.30      0.19       0.34       0.26
    Discontinued operations.....       --         --        0.08         --         --        --         --         --
    Cumulative effect of a
      change in accounting
      principle, net of tax:....       --      (0.20)         --         --         --        --         --         --
                                  -------   --------    --------    -------   --------   -------   --------   --------
  Earnings (loss) -- Diluted....     0.17      (0.04)      (0.01)      0.18       0.30      0.19       0.34       0.26
                                  -------   --------    --------    -------   --------   -------   --------   --------
</Table>

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

(a) Includes acquisition-related costs of $0.2 million.

(b) Includes acquisition-related costs of $0.2 million and an impairment loss on
    the facility at Deer Park of $9.2 million.

(c) Includes acquisition-related costs of $0.2 million.

(d) Includes write-off of purchased in-process research and development costs of
    $0.2 million and acquisition-related costs of $0.2 million.

(e) Includes acquisition-related costs of $0.3 million and a $0.9 million
    non-qualified pension plan curtailment loss.

(f) Includes acquisition-related costs of $0.2 million and a $2.0 million
    defined benefit pension plan curtailment loss.

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

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, EDO
carried out an evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures under the supervision

                                        75
<PAGE>

and with the participation of its management, including its Review and
Disclosure Committee, its Chief Executive Officer and its Chief Financial
Officer. The Chief Executive Officer and Chief Financial Officer concluded that
EDO's disclosure controls and procedures are effective to ensure that material
information is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission rules and forms.

CHANGES IN INTERNAL CONTROLS

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

                                    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 27, 2004.

                               EXECUTIVE OFFICERS

<Table>
<Caption>
NAME                                        AGE   POSITION, TERM OF OFFICE AND PRIOR POSITIONS
----                                        ---   --------------------------------------------
<S>                                         <C>   <C>
James M. Smith............................  62    Chairman of the Board (since May 2002) President
                                                  and Chief Executive Officer (since April 2000).
                                                  Previously, he was President and CEO of AIL
                                                  Systems, Inc.
Frederic B. Bassett.......................  57    Vice President (since September 2002), Chief
                                                  Financial Officer and Treasurer (since January
                                                  2003). Prior thereto, he was Vice President,
                                                  Treasurer and Chief Financial Officer of Condor
                                                  Systems, Inc. (December 2000-July 2002). Prior
                                                  thereto, he was U.S. Operations Controller for the
                                                  Howmet Division of Alcoa.
Patricia D. Comiskey......................  53    Vice President-Human Resources (since June 2001)
                                                  and Assistant Secretary (since September 2000).
                                                  Previously, she was Director -- Corporate Human
                                                  Resources (since September 2000). Prior thereto she
                                                  was Director -- Human Resources and Assistant
                                                  Secretary of AIL Systems, Inc.
George Fox................................  61    Vice President-Electronic Systems Group (since May
                                                  2000). Previously, he was Director of Operations of
                                                  AIL Systems, Inc. (since 1998). Prior thereto, he
                                                  was Director of Programs of AIL Systems, Inc.
                                                  (since 1997).
William J. Frost..........................  62    Vice President-Administration and Shareholder
                                                  Relations (since April 2000) and Secretary (since
                                                  May 2001).
Milo Hyde.................................  50    Vice President -- Systems & Analysis Group (since
                                                  April 2000); prior thereto, he served as Systems
                                                  and Analysis Group General Manager.
Harvey N. Kreisberg.......................  67    Vice President-Corporate Development (since January
                                                  2001). Prior thereto, he was
                                                  Director -- Diversified Products Group of AIL
                                                  Systems, Inc.
</Table>

                                        76
<PAGE>

<Table>
<Caption>
NAME                                        AGE   POSITION, TERM OF OFFICE AND PRIOR POSITIONS
----                                        ---   --------------------------------------------
<S>                                         <C>   <C>
Frank Otto................................  54    Executive Vice President (since September 2002) and
                                                  Chief Operating Officer (since February 2004).
                                                  Prior thereto, he was Vice President -- Integrated
                                                  Systems and Structures Group (January
                                                  2001-September 2002). Prior thereto, he was General
                                                  Manager of the Marine and Aircraft Systems
                                                  Division.
Lisa M. Palumbo...........................  45    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.

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 27, 2004.

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 27, 2004.

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 27, 2004.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The information called for by Item 14 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 27, 2004.

                                    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, 2003 and 2002

     Consolidated Statements of Earnings for the Years Ended December 31, 2003,
2002 and 2001

                                        77
<PAGE>

     Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2003, 2002 and 2001

     Consolidated Statements of Cash Flows for the Years Ended December 31,
2003, 2002 and 2001

     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.

                SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<Table>
<Caption>
                                          BALANCE AT    CHARGED TO   CHARGED TO   NET WRITE-    BALANCE AT
                                         BEGINNING OF   COSTS AND      OTHER         OFFS/        END OF
DESCRIPTION                                 PERIOD       EXPENSES     ACCOUNTS    DEDUCTIONS      PERIOD
-----------                              ------------   ----------   ----------   -----------   ----------
                                                                  (IN THOUSANDS)
<S>                                      <C>            <C>          <C>          <C>           <C>
Year ended December 31, 2003:
  Allowance for doubtful accounts......     $1,023         568         216(a)        (448)        $1,359
Year ended December 31, 2002:
  Allowance for doubtful accounts......     $  893         407          44(b)        (321)        $1,023
Year ended December 31, 2001:
  Allowance for doubtful accounts......     $  981         220          63(c)        (371)        $  893
</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.

(b) Amount acquired as a result of purchase of Condor Systems, Inc. on July 26,
    2002.

(c) Amount acquired as a result of purchase of Dynamic Systems, Inc. on October
    9, 2001.

3.  EXHIBITS

<Table>
<Caption>
EXHIBIT
NUMBER                                EXHIBIT
-------                               -------
<S>         <C>
 2(a)       Agreement and Plan of Merger by and among the Company, EDO
            Acquisition III Inc. and AIL Technologies Inc. as amended
            and restated dated January 2, 2000 (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 1999, Exhibit 2(a)).
 2(b)       Management Stock Purchase Agreement dated as of January 2,
            2000 between the Company as Buyer and eleven individuals as
            Sellers, relating to the purchase and sale of shares of
            common stock of AIL Technologies Inc. (incorporated herein
            by reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 1999, Exhibit 2(b)).
 2(c)       Stock Purchase Agreement dated as of January 2, 2000 between
            the Company, as Buyer, and Defense Systems Holding Co., as
            Seller, relating to the purchase and sale of shares of
            common and preferred stock of AIL Technologies Inc.
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            1999, Exhibit 2(c)).
 2(d)       Stock Purchase Agreement dated as of October 9, 2001, by EDO
            Acquisition II, Inc. and the former stockholders of Dynamic
            Systems, Inc., with a list of the schedules and exhibits
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2001, Exhibit 2(d)).
 2(e)       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).
</Table>

                                        78
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER                                EXHIBIT
-------                               -------
<S>         <C>
 2(f)       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(g)       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)(1)*   Restated Certificate of Incorporation of the Company dated
            May 15, 2003.
 3(b)*      By-Laws of the Company as amended December 1, 2003.
 4(a)       Indenture, dated as of April 2, 2002, by and between the
            Company and HSBC Bank, USA, as trustee (incorporated herein
            by reference to the Company's Quarterly Report on Form 10-Q
            for the quarterly period ended March 30, 2002, Exhibit
            4(a)).
 4(b)       Registration Rights Agreement, dated as of April 2, 2002, by
            and among the Company and Salomon Smith Barney, Inc., SG
            Cowen Securities Corporation and Robertson Stephens, Inc.,
            as representatives of the initial purchasers (incorporated
            herein by reference to the Company's Quarterly Report on
            Form 10-Q for the quarterly period ended March 30, 2002,
            Exhibit 4(b)).
10(a)(1)    Credit Agreement, dated as of November 8, 2002, by and among
            the Company and AIL Systems Inc., with Citibank N.A., Fleet
            National Bank, Wachovia Bank, N.A., et al. (incorporated
            herein by reference to the Company's Annual Report on Form
            10-K for the fiscal year ended December 31, 2002, Exhibit
            10(a)(1))
10(a)(2)    Amendment No. 1, dated December 20, 2002, to the Credit
            Agreement dated as of November 8, 2002 described above
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2002, Exhibit 10(a)(2)).
10(a)(3)    Amendment No. 2, dated February 4, 2003, to the Credit
            Agreement dated as of November 8, 2002 described above
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2002, Exhibit 10(a)(3)).
10(a)(4)    Amendment No. 3, dated February 28, 2003, to the Credit
            Agreement dated as of November 8, 2002 described above
            (incorporated herein by reference to the Company's Annual
            Report on Form 10-K for the fiscal year ended December 31,
            2002, Exhibit 10(a)(4)).
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)).
10(c)*      EDO Corporation 2002 Long-Term Incentive Plan as amended
            January 1, 2004.
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 24 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,
            effective January 1, 2004.
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)).
</Table>

                                        79
<PAGE>

<Table>
<Caption>
EXHIBIT
NUMBER                                EXHIBIT
-------                               -------
<S>         <C>
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)       Employment Agreement, dated as of February 1, 2003, by and
            between EDO Corporation and James M. Smith (incorporated
            herein by reference to the Company's Annual Report on Form
            10-K for the fiscal year ended December 31, 2002, Exhibit
            10(k)).
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 March 21, 2003 between the
            Company and William J. Frost (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 2002, Exhibit 10(o)).
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 21, 2003 between the
            Company and Harvey N. Kreisberg (incorporated herein by
            reference to the Company's Annual Report on Form 10-K for
            the fiscal year ended December 31, 2002, Exhibit 10(q)).
10(r)       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(s)       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)).
10(t)*      Form of Amendment to the Change in Control Agreement.
10(u)*      Form of 2004 Restricted Share and Retention Incentive Award
            Agreement.
10(v)*      Form of 2003 Stock Option Agreement.
10(w)       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.
14*         EDO Corporation Standards Ethical Business Conduct for all
            EDO Employees.
21*         List of Subsidiaries.
23*         Consent of Independent Auditors.
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.

                                        80
<PAGE>

     (b) Reports on 8-K

     The following reports on 8-K were filed during the three months ended on
December 31, 2003:

<Table>
<Caption>
DATE OF REPORT                             ITEMS REPORTED
--------------                             --------------
<S>                 <C>
November 5, 2003    Earnings Release, dated November 5, 2003, announcing
                    financial results for the quarter ended September 27, 2003.
December 23, 2003   Adding a footnote to the Company's Consolidated Financial
                    Statements containing condensed consolidating financial
                    information for the Registrant's subsidiaries which are
                    expected to guarantee the indebtedness the Registrant may
                    issue pursuant to its shelf registration statement on Form
                    S-3 filed with the Securities and Exchange Commission on
                    December 23, 2003.
</Table>

                                        81
<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, thereunto duly authorized.

                                          EDO CORPORATION (REGISTRANT)

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

Dated: March 5, 2004

                               POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Lisa M. Palumbo and William J. Frost, 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 2003 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 March 5, 2004 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/ FREDERIC B. BASSETT                Vice President -- Finance, Treasurer and
--------------------------------------                Chief Financial Officer
        (Frederic B. Bassett)               (principal financial and accounting officer)


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


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


          /s/ GEORGE M. BALL                                  Director
--------------------------------------
           (George M. Ball)


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

                                        82
<PAGE>

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

<S>     <C>                              <C>

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


                                                              Director
--------------------------------------
         (Michael J. Hegarty)


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


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


                                                              Director
--------------------------------------
             (James Roth)
</Table>

                                        83