<PAGE>

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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


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

                                    FORM 10-K


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<CAPTION>
(Mark One)
<S>         <C>


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

            FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2006

                                            OR

    [ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
            ACT OF 1934
            FOR THE TRANSITION PERIOD FROM            TO
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                          COMMISSION FILE NUMBER 1-3985


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

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


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

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



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             TITLE OF EACH CLASS:                 NAME OF EACH EXCHANGE ON WHICH REGISTERED:
             --------------------                 ------------------------------------------

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     Common Shares, par value $1 per share                  New York Stock Exchange
</Table>


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

                                      NONE

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

     Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act.  Yes [ ]     No [X]

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

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

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

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

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

     The aggregate market value of the registrant's common shares held by non-
affiliates was $389,349,434 based on the reported last sale price of common
shares on June 24, 2006 which is the last business day of the registrant's most
recently completed second fiscal quarter.

     The number of shares of EDO common shares outstanding as of February 22,
2007 was 21,082,479 shares.

                      DOCUMENTS INCORPORATED BY REFERENCE:

     Certain portions of the Registrant's definitive proxy statement (filed
pursuant to Reg. 14A) relating to its 2007 Annual Meeting of Shareholders to be
held on June 12, 2007 are incorporated by reference in Part III of this Report.

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

<PAGE>

                                 EDO CORPORATION

                                TABLE OF CONTENTS



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<S>      <C>                                                                 <C>

                                     PART I
Item 1   Business.........................................................     2
         Introduction.....................................................     2
         Acquisitions.....................................................     2
         Segments.........................................................     3
           Electronic Systems and Communications..........................     3
           Engineered Systems and Services................................     6
         Research and Development.........................................    11
         Marketing and International Sales................................    11
         Backlog..........................................................    12
         Government Contracts.............................................    12
         Competition and Other Factors....................................    13
         Environmental....................................................    13
         Employees........................................................    13
Item 1A  Risk Factors.....................................................    13
Item 1B  Unresolved Staff Comments........................................    19
Item 2   Properties.......................................................    19
Item 3   Legal Proceedings................................................    20
Item 4   Submission of Matters to a Vote of Security Holders..............    20

                                     PART II
Item 5   Market for Registrant's Common Equity and Related Shareholder
         Matters..........................................................    20
Item 6   Selected Financial Data..........................................    22
Item 7   Management's Discussion and Analysis of Financial Condition and
         Results of Operations............................................    23
Item 7A  Quantitative and Qualitative Disclosure About Market Risk........    23
Item 8   Financial Statements and Supplementary Data......................    37
Item 9   Changes In and Disagreements with Accountants on Accounting and
         Financial Disclosure.............................................    81
Item 9A  Controls and Procedures..........................................    81
Item 9B  Other Information................................................    81

                                    PART III
Item 10  Directors and Executive Officers of the Registrant...............    82
Item 11  Executive Compensation...........................................    82
Item 12  Security Ownership of Certain Beneficial Owners and Management
         and Related Shareholder Matters..................................    82
Item 13  Certain Relationships and Related Transactions...................    83
Item 14  Principal Accountant Fees and Services...........................    83

                                     PART IV
Item 15  Exhibits, Financial Statement Schedules, and Reports on Form 8-
         K................................................................    83
         (a) Financial Statements and Financial Statement Schedules and
         Exhibits.........................................................    83
         1. Financial Statements..........................................    83
         2. Financial Statement Schedules.................................    83
         3. Exhibits......................................................    84
         (b) Reports on Form 8-K..........................................    86
Certifications of the Chief Executive Officer.............................
Certifications of the Chief Financial Officer.............................
Signatures................................................................    87
</Table>




                                        1

<PAGE>

                                     PART I

ITEM 1.  BUSINESS

INTRODUCTION

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

     EDO Corporation designs and manufactures a diverse range of products for
aerospace, defense, intelligence, and commercial markets. We serve all branches
of the military, as well as international markets. Major product groups include:
defense electronics, communications, aircraft-armament systems, undersea
warfare, integrated composite structures, and professional and engineering
services. Our advanced systems are at the core of the transformation to lighter,
faster, and smarter defense capabilities.

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

ACQUISITIONS

     Acquisitions have accounted for the majority of EDO's growth over the past
five years. In 2006 and 2005 we acquired five privately-held companies, bringing
us to a total of eleven acquisitions since 2000. Our five most recent
acquisitions are as follows:


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- IMPACT SCIENCE & TECHNOLOGY INC       Acquired September 15, 2006
  (IST):  Services include advanced
  radar countermeasures, electronic
  attack and electronic force
  protection, intelligence systems,
  software products, and systems
  engineering and analysis services.
  IST has increased our presence in
  the intelligence community.
- CAS INC.: CAS provides engineering    Acquired September 6, 2006
  services, logistics support, and
  weapons-systems analysis to the
  Department of Defense. CAS brings to
  EDO a substantial presence with the
  United States Army, its largest
  customer. CAS has tripled the size
  of our professional and engineering
  services business.
- NEXGEN COMMUNICATIONS, LLC:  NexGen   Acquired December 20, 2005
  focuses on developing innovative and
  rapid-response communication
  solutions for the military and
  intelligence communities. They have
  added a diverse set of U.S.
  government organizations to our
  customer base.
- FIBER INNOVATIONS, INC.:  This        Acquired September 19, 2005
  acquisition has added important
  complementary design and
  manufacturing capabilities to EDO's
  integrated-composite-structures
  business. The company is a pioneer
  in the efficient production of
  complex composite structures for
  aerospace and commercial customers.
- EVI TECHNOLOGY, LLC:  EVI designs     Acquired May 2, 2005
  and manufactures classified
  intelligence systems. EVI has
  broadened our engineering
  capabilities and expanded our range
  of products with the intelligence
  community.
</Table>




                                        2

<PAGE>

SEGMENTS

     EDO is comprised of two reporting segments, Electronic Systems and
Communications, and Engineered Systems and Services.

PERCENT CONSOLIDATED NET SALES:


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<Caption>
                                 ELECTRONIC SYSTEMS AND           ENGINEERED SYSTEMS
                                     COMMUNICATIONS                  AND SERVICES
                                 ----------------------           ------------------

<S>                           <C>                            <C>

2006........................               54%                            46%
2005........................               63%                            37%
2004........................               51%                            49%
</Table>


                      ELECTRONIC SYSTEMS AND COMMUNICATIONS

     This reporting segment consists of our Electronic Warfare, Command,
Control, Communications and Computers, ("C4") and Intelligence and Information
Warfare ("IIW") business sectors. It includes the following major product lines:

ELECTRONIC FORCE PROTECTION

     Sales of electronic force protection products accounted for 4%, 22%, and
7%, of consolidated net sales in 2006, 2005 and 2004, respectively. These
products are designed to protect troops by intercepting and jamming or modifying
electronic signals used to trigger remotely controlled explosive devices,
including improvised explosive devices, or IEDs.

     In 2004 and 2005, we received substantial orders from the U.S. Army for our
counter-IED equipment, generally known as Warlock. This resulted in a large
increase in 2005 revenue from this product line. Our customer had requested that
we prepare for similar levels of production in 2006. However, customer orders
for this product in 2006 did not meet 2005 levels. Consequently, production
declined dramatically in 2006, resulting in underutilized capacity, workforce
reductions, and substantially reduced earnings.

INTERFERENCE CANCELLATION

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

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

AIRBORNE ELECTRONIC WARFARE SYSTEMS

     Our AN/ALQ-161 is the defensive avionics system that protects the U.S. Air
Force's B-1B bomber from radar-guided and infrared-guided missile threats.
Currently, we provide continued logistics support, sustaining engineering
support and capability upgrades to the AN/ALQ-161. This support includes
software enhancements and hardware improvements to increase situation awareness
and jamming effectiveness while decreasing costs. In 2006, we completed
development of a major upgrade for the missile-warning system and an advanced
Digital RF Memory (DRFM) technique generator. Production for the missile-warning
system was initiated in 2006, while production for the DRFM is planned for 2007.
In 2006, EDO was also awarded a $9.0 million contract to supplement the Air
Force's organic-repair facility for Line Replaceable Units (LRUs), a new market
area for EDO. In 2006, EDO

                                        3

<PAGE>

received numerous awards, totaling $41 million, to maintain the AN/ALQ-161
systems and allow the B-1B bomber to perform its mission against ever-changing
threats.

     We were the original designer and integrator of the AN/ALQ-99 Tactical
Support Jamming System for the EA-6B aircraft in the 1960s. We have been under
contract for support and modifications for this aircraft's systems and
subsystems since then. We continue to maintain and support the AN/ALQ-99 system,
including the current on-board system hardware and the tactical jamming pods.
The DoD currently expects EA-6B aircraft to be in operation through 2015 as the
jamming pod migrates to the EA-18G Growler aircraft. The jamming pod which
contains our Universal Exciter Upgrade (UEU) hardware will continue to be in
operation beyond 2020.

     We are marketing an Advanced DRFM self-protect jamming pod, known as ACAP,
that has been designed for use on tactical aircraft and has proven its
performance during military engagements. We delivered the first ACAP jamming
pods in 2006 to the Air Force for use by aggressor squadrons. We are also
providing continued training and logistics support on these systems.

     EDO also provides a state-of-the-art Solid State Power Amplifier (SSPA)
which is at the heart of the F-22 Raptor's Inter Flight Data Link (IFDL) system.
EDO is currently delivering Lot 6 production units.

     Seawatch is a maritime-patrol radar designed for reconnaissance and
surveillance applications. In 2006, we successfully completed integrating the
system and conducted major demonstrations on the Predator unmanned air vehicle
for both the U.S. and Australian Navies. Our first sale to the U.S. market
occurred in early 2006. This $11.7 million program provides for engineering,
production systems, and logistics support on the U.S. Coast Guard C-130J
program.

ELINT/ESM SYSTEMS

     Sales of Electronic Intelligence (ELINT) and Electronic Support Measure
(ESM) systems accounted for 12%, 13%, and 16%, of consolidated net sales in
2006, 2005, and 2004, respectively.

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

     Our ES-3601 and ES-3701 are leading international ESM systems for naval
applications. More than 60 systems have been sold, many of which are already in
operation at sea. The ES-3701 was selected by several international navies for
new construction and ESM upgrade programs. The ES-3601 has been selected by
General Dynamics for the initial "Flight 0" Littoral Combat Ship and the first
system was delivered in 2006. The ES-3601 has received a U.S. Government
nomenclature AN/SLD-4(V). EDO is currently developing a next generation all-
digital ESM system, to be known as the ES-3801.

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

INTELLIGENCE AND INFORMATION WARFARE SYSTEMS

     As a result of three acquisitions in 2005 and 2006, EDO has a growing
presence in the design and production of specialized communications and
electronics systems for a diverse set of U.S. government organizations. In
particular, we specialize in developing innovative solutions for intelligence,
law-enforcement and special operations applications including rapid-response
wireless requirements of these organizations.

     Intelligence and Information Warfare Systems consists of the products from
the following acquired businesses: Impact Science & Technology, Inc. (IST),
acquired in September 2006 and EVI Technology and NexGen Communications both
acquired in 2005. Nearly all of our IIW programs are classified.


                                        4

<PAGE>

     We provide strategic systems and the critical infrastructure necessary for
development of next generation ELINT and Communications Intelligence (COMINT)
systems. These include real-time high-data-rate signals acquisition, storage,
retrieval, analysis, and graphics systems. Examples of our SIGINT solutions
include:

     - Wide-Band Instantaneous Frequency Pulse Parameterizers & VME black boxes

     - High performance Data Storage, Archiving, and Retrieval Systems

     - Real-Time Displays -- An integrated suite of tools that support signals
       analysis and exploitation of continuously streaming real-time and file-
       based data.

     - Data-on-Demand -- A data distribution system enabling classified signal-
       processing centers to quickly obtain high-priority data electronically.

     - Web-Based Architectures that provide data search, compression and
       filtering of archives dispersed throughout the world.

     Our recent acquisitions have helped us create a critical mass of capability
and a broad presence in the intelligence, law-enforcement, and special-
operations communities setting the stage for the pursuit of a wide range of
opportunities in those communities.

C4 PRODUCTS

     Sales of Command, Control, Communications and Computers (C4) products and
services accounted for 14%, 10%, and 11% of consolidated net sales in 2006, 2005
and 2004, respectively.

     EDO's leading C4 program, the Transition Switch Module (TSM), experienced
significant growth in 2006. The TSM will provide a flexible unit level switch
capability to transition between legacy TRI-TAC switches (SB-3865 and TTC-42)
and current commercial technology. The TSM interfaces with all existing Marine
Corps telecommunication transmission equipment to provide digital voice, data,
and video communications to deployed Marine units. Our TSM contract is an
indefinite-delivery/indefinite-quantity contract with a maximum value of $240.0
million. Under this contract we received awards of $137.0 million in 2006.
Production under the current contract is expected to continue through 2009, and
life-cycle support will continue through 2010.

     The Joint Enhanced Core Communications System (JECCS), or AN/TSQ-231
Tactical Communications System, provides the Marine Corps with a mobile, first-
in system for network management, data and voice transmission, and switching
services. In 2006, EDO was awarded contracts for three additional JECCS systems
with related spares and support for a total value of $11.0 million, bringing the
total number of JECCS units ordered to 17. Deliveries of JECCS units will
continue through the first half of 2007.

     EDO maintains a C4 lab for the Marine Corps that includes an array of
circuit-switching and technical-control equipment. This lab gives us the ability
to test equipment for interoperability on-line with other DoD and USMC
laboratories as well as participate in DoD-wide interoperability exercises. The
lab is a key enabler for future developments and growth with military tactical
communications customers.

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

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


                                        5

<PAGE>

     EDO's presence supporting U.S. operational forces with field communications
under our international communications product line continued throughout 2006.
Land Mobile Radio (LMR) support continued in Kosovo and Afghanistan under prime
contracts with the U.S. Government.

ANTENNA PRODUCTS

     We design and manufacture antenna systems for a wide variety of military
and commercial applications including communications, electronic warfare,
navigation, radar, and wireless Local Area Networks. Our antenna business is
approximately 57% military and 43% 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 airliners,
business jets, and general-aviation aircraft. We have been effective in
establishing long-term agreements with most of the prime aircraft manufacturers,
Boeing being the most prominent.

     We have a broad customer and product base in this business. In 2006, we
sold more than 40,000 antennas of 420 different types to more than 400 original-
equipment manufacturers and after-market customers including the antennas for
our Warlock product. We also receive revenue from spare-part sales and repair
services for an installed base of antennas in excess of 400,000 units.

     We continually work on the development of new antenna products via
internally funded and customer-sponsored research and development. Although a
majority of our new antenna development work is sponsored by our customers, we
have made significant breakthroughs in "low-observable" and "reduced-size
aperture" antenna technology development through the use of available internal
discretionary funding.

     In 2006, we won a number of significant antenna-development programs that
include long-term production potential. Specific programs include the
multifunction landing-aid antennas for the F-35 Lightning II aircraft, low-
observable retractable-blade antennas for covert airborne operations and UAV
platforms, and long-term, multi-year contracts with U.S. Government agencies to
provide broadband vehicular communication antennas for U.S. Armed Forces serving
in the Middle East and anti-jam GPS antennas for both domestic and foreign
upgrades for the AV8B Harrier aircraft. These and other important awards have
added to our continuing production base and will position EDO to sustain our
consistent deliveries in excess of 40,000 antennas per year.

     Approximately 17% of EDO's antenna business is international. Significant
wins this year include awards for the anti-jam GPS antennas for the A400M
European Consortium aircraft, UHF SATCOM antennas for the Eurocopter NH-90
Helicopter, and an ESM antenna suite for ELTA/IAI in Israel.

                         ENGINEERED SYSTEMS AND SERVICES

     This reporting segment consists of our Integrated Systems and Structures,
Undersea Warfare, and Professional and Engineering Services business sectors. It
includes the following major product lines:

AIRCRAFT ARMAMENT SYSTEMS

     Sales of aircraft armament systems accounted for 10%, 11%, and 12%, of
consolidated net sales in 2006, 2005, and 2004, respectively.

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

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


                                        6

<PAGE>

     In 2006, we continued production of F-15E BRUs for the USAF and
international customers and provided spare-parts support for Tornado ERUs and F-
15 BRUs worldwide. We also continued production of LAU-142/A missile launchers,
known as AVEL, for the F-22 Raptor aircraft. The AVEL carries and ejects
missiles from internal bays employing a highly reliable pneumatic-ejection
system controlled by the aircraft's stores-management system. We are under
contract for depot support and anticipate that we will provide depot support
through the life of the F-22. We also received a contract for the second
production lot of 175 BRU-55 dual-carriage, "smart" bomb racks for the Navy's
F/A-18 aircraft, bringing the total to 310 units. The contract will extend for
approximately 24 months and includes an option for additional production units.

     Also in 2006, we continued development and testing of the pneumatic
suspension-and-release system for the F-35 Lightning II program, and the bomb-
rack system and the sonobouy-launch system for the P-8A Poseidon multi-mission
maritime aircraft.

INTEGRATED COMPOSITE STRUCTURES

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

     EDO produces integrated composite structures through innovative
manufacturing processes and preforming technologies. These processes include
filament winding, hand lay-up autoclave cured, braiding, Resin Transfer Molding
(RTM) and Vacuum assisted RTM (VaRTM) of composite structures. We are a
subcontractor to Lockheed Martin for the JASSM (Joint Air-to-Surface Standoff
Missile) stealthy cruise missile. We fabricate 90% of the composite components
for the vehicle including the entire fuselage, wing spars and other smaller
structures. JASSM is qualified to be carried on the B-1B, B-2, B-52, F-16 and F-
18.

     In 2006 EDO secured a contract with Lockheed Martin to fabricate individual
composite structures for the F-35 Lightning II aircraft. Also in 2006, we
secured a contract from Sikorsky Aircraft Corporation for the fabrication of
composite tail rotor blade assemblies for the S-76C aircraft. This contract is
for 1000 tail rotor blade assemblies and it is anticipated that the work will
require 4-5 years for completion.

     In 2006, we were awarded a contract to fabricate variable-bleed valve ducts
for the General Electric Company's GEnx engine. The GEnx engine is the primary
engine on Boeing's 787 and 747-advanced aircraft. We fabricate 11 ducts in total
as a shipset for each engine. The current contract includes the initial
production quantities through 2012. This is a significant breakthrough for EDO
as we are now an approved production supplier for composite hardware on GE
engines.

     We manufacture "SMAW-HEDP" rocket launcher containers for Talley Defense
Systems (TDS), which are used by the USMC. TDS has recently developed a new
variant that uses the same rocket-launcher container.

     We produce filament-wound launch canisters for the new Thales VT-1 missile
program. We also continued production of composite tanks for the Boeing C-17
aircraft. We have been the sole supplier of these tanks since production began,
more than 12 years ago. We also design and fabricate composite structures for
Northrop Grumman on military aircraft modification programs.

     We have been a provider to Boeing for composite waste and fresh-water tanks
on commercial airliners for nearly 40 years. Our contract was renewed for an
additional five years of production in 2006. We also have a strong position in
the aftermarket support for these tanks to the commercial airlines.

     We also continued production of composite tanks for the Boeing C-17
aircraft. We have been the sole supplier of these tanks since production began
more than 13 years ago. We also continued design and fabrication of complex
composite structures for Northrop Grumman, which are used on military aircraft
modification programs.

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


                                        7

<PAGE>

MINE COUNTERMEASURE SYSTEMS

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

     We won a competitive contract from the Navy to develop the next generation
lightweight, helicopter-towed minesweeping system, called the Organic
Airborne/Surface Influence Sweep (OASIS). Production is expected to start in
2009 and continue through 2015.

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

     In 2006, EDO opened a new facility near our primary mine-warfare customer,
the Naval Surface Warfare Center in Panama City, Florida (NSWC PC). This
facility supports our existing mine-warfare systems and develops future systems.
We were awarded four contracts totaling approximately $68.0 million over their
5-year performance periods. One contract places us as the integrator of the
common neutralizer for a new Very Shallow Water Mine Warfare Mission.

SONAR SYSTEMS AND COMPONENTS

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

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

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

     In 2005, Lockheed Martin awarded EDO a contract valued at $30.0 million for
sonar equipment on the new Spanish S-80A submarine's combat management system.
This initial award covers outboard sonar arrays on four conventionally-powered
submarines. This award positions the Lockheed Martin team, including EDO, to
compete for other international submarine opportunities.

     During 2006, we delivered three units of our newest and most capable towed-
sonar system, the EDO's Model 980 ALOFTS to an international customer. ALOFTS is
designed to detect the new generation of extremely quiet diesel-electric
submarines in littoral waters. Five more systems will be installed through 2008.
We have also received an order from another international customer for one
ALOFTS system with options for two additional systems expected to be procured in
2007.

     Development continued in cooperation with Ultra Electronics, the UK-based
aerospace and defense-electronics group, on our newest hull-mounted sonar, the
MFS 7000. In 2005, this equipment was installed on the United Kingdom's first
new anti-air warfare destroyers, the Daring class. There will be a total of six
Daring class destroyers with MFS-7000 sonar systems installed.

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

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


                                        8

<PAGE>

     In 2006, we completed sea acceptance tests on integration of TRS-3D air
surveillance radar with EDO's Command Management System delivered to the
Norwegian Coast Guard. The upgraded EDO CMS provides the Norwegian Coast Guard
with the latest technology air surveillance and Identification Friend or Foe
(IFF) capabilities in support of air-space management and helicopter control
mission requirements.

     In 2006, we completed harbor acceptance testing on communication and data-
link upgrades for Norwegian navy ULA class submarines. These upgrades provide
the Norwegian Navy with latest generation data-link and over-the-horizon
communication capabilities fully integrated with the submarine combat system.

     In 2006, we completed installation and initial shipboard testing of EDO's
latest generation data-link system for an international customer. Five
additional systems will be delivered through 2008.

PROFESSIONAL AND ENGINEERING SERVICES

     EDO provides Professional and Engineering Services (PES) to all branches of
the military, including the Army, Navy, Air Force, Marines, and Coast Guard.
Professional and Engineering Services accounted for 21%, 13%, and 17%, of
consolidated net sales in 2006, 2005, and 2004, respectively. With the recent
acquisition of CAS, PES is expected to account for approximately 30% of the
consolidated net sales in 2007.

     Our PES Sector primarily provides services in the following core competency
areas: systems engineering, systems analysis, simulation and modeling, software
development, test and evaluation, systems integration, program acquisition
management, logistics, life-cycle engineering, and all aspects of information
technology.

     The largest customer of our PES Sector is the U.S. Army. This includes the
Army's Aviation and Missile Command (AMCOM), the Missiles and Space, Aviation
and C3T Program Executive Offices, Communications and Electronic Command
(CECOM), Forces Command (FORSCOM), Training and Doctrine Command (TRADOC), and
Space and Missile Defense Command (SMDC). EDO also provides services to the U.S.
Northern Command (NORTHCOM), Missile Defense Command (MDA), and numerous other
commands. We have a strong presence in Huntsville, Alabama; El Paso, Texas;
Arlington, Virginia; Colorado Springs, Colorado; and the Washington DC
metropolitan area.

     The PES Sector includes the following principal operations:

AIR AND MISSILE DEFENSE

     We provide comprehensive engineering and analysis support for the U.S. Army
Lower Tier Project Office (LTPO), which has development and management
responsibility for the PATRIOT, Medium Extended Air Defense System (MEADS) and
Joint Tactical Ground System (JTAGS) systems. This includes systems engineering,
high-fidelity simulation, testing, logistics, product assurance, production-
engineering analysis, programmatic analysis, hardware engineering and software
engineering. We also provide technical, logistical and financial analysis for a
variety of international partners through our support to the Security Assistance
Management Directorate and its portfolio of Foreign Military Sales cases.

LIFE CYCLE ENGINEERING

     We provide high-value engineering services to a number of government and
commercial customers. This includes: systems engineering and integration, rapid
prototyping, light manufacturing, test engineering and analysis, network
engineering, and software engineering and development. These competencies allow
us to provide value-added solutions and services across a system's life cycle.

AIR, SPACE AND MISSILE DEFENSE ANALYSIS

     We provide technical and analytical services for combat development,
training development, and materiel development along with training to U.S. Army
Air Defense Artillery School and Space and Missile Defense Command. Other
significant customers are FORSCOM, Threat System Management Office (TSMO),
Garrison Command, Army Air and Missile Defense Command (AAMDC), and Air Defense
Artillery Brigades. In addition, we provide support at Fort Sill, Oklahoma in
preparation for the Air Defense School relocation in 2009.


                                        9

<PAGE>

AVIATION AND MISSILES SYSTEMS

     We provide comprehensive technical, programmatic, and logistics services to
Army aviation and missile programs. These services include all aspects of the
DoD material acquisition process, resource management, cost estimating/analysis,
schedule development/assessment, program management plans and integration,
strategic planning and analysis, acquisition and fielding support, data base
management, technical analysis, engineering design, logistical and operational
requirements associated with U.S. Army programs. At the highest levels within
Army Aviation, we provide strategic planning and major material systems
acquisition support.

FORCE PROTECTION PROGRAMS

     We support the Counter Rockets, Artillery, and Mortar (C-RAM), Air and
Missile Defense Command and Control Systems (AMDCCS), and multiple tactical
missile programs including Joint Attack Missiles (JAMS), Precision Fires Rocket
and Missile Systems (PFRMS), Non-Line of Sight launcher Systems (NLOS-LS), and
Close Combat Weapon Systems (CCWS).

     For these customers, we provide the full spectrum of System Engineering and
Technical Assistance (SETA) support to include: programmatic, system
engineering, logistical services, planning and analysis, modeling and
simulations, life cycle systems management, and soldier training.

     Our Force Protection Programs Unit is based in Huntsville, Alabama. We
support customers on-site at the Redstone Arsenal as well as at other military
locations and also deploy staff to theaters of conflict.

ACQUISITION, INFORMATION TECHNOLOGY, AND LOGISTICS MANAGEMENT

     We provide a broad range of acquisition, IT, and logistics management
services primarily supporting the Navy and Marine Corps. Examples include
strategic business planning, human-capital planning, benchmarking and metrics
tracking and analysis, website development, and IT policy and planning.

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

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

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

TECHNICAL SERVICES OPERATIONS

     We provide a broad range of electronic-warfare-related engineering services
and products to the U.S. Armed Forces allied foreign militaries, as well as
aerospace and commercial businesses, to produce and support complex, high-
technology solutions. Engineering specialties include software, radio-frequency,
computer-aided design, digital engineering and mechanical engineering.

     We perform engineering services under contracts to the Navy for threat-
simulator-validation support at China Lake Naval Air Warfare Center, and to the
Air Force Electronic Warfare Directorate at Edwards Air Force Base for F-22 and
various other aircraft platforms. Additionally, we provide technical and
engineering support to Warner Robins Air Logistics Center at Robins Air Force
Base and the Air Combat Command at Eglin Air Force Base for avionics laboratory
development, support, and maintenance.


                                       10

<PAGE>

FLIGHT LINE PRODUCTS

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

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

     In 2006, we received orders for 294 AN/PLM-4 radar signal simulators from
the U.S. Air Force, U.S. Navy, and international and commercial customers. This
brought the total number of systems ordered to 971.

     We have developed a smaller, lightweight, hand-held version of the radar-
signal simulator for future sales to various military organizations. In
addition, we have developed a small light-weight test set for counter-IED
jamming equipment.

     In 2006, we were awarded a contract to develop a "swept-frequency tester."
This product is a combined tester that does transmission-line testing and
emitter-signal generation. The product is for the U.S. Navy with production
starting in 2007.

RESEARCH AND DEVELOPMENT

     Research and development is important to the success of our business,
because we focus on niche markets where we have leading-edge technology. While
research and development efforts are facilitated by a large portion of our
staff, our research and development efforts involved the primary efforts of
about 195 employees in 2006. Most of our research and development is funded by
long-term development contracts with customers, with the remainder funded at our
own expense. Expenditures under development contracts with customers vary in
amount from year to year because of the timing of contract funding and other
factors.

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

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

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


<Table>
<Caption>
                                                     YEARS ENDED DECEMBER 31,
                                                   ---------------------------
                                                     2006      2005      2004
                                                   -------   -------   -------
                                                          (IN THOUSANDS)

<S>                                                <C>       <C>       <C>

Customer sponsored...............................  $47,600   $56,000   $61,600
Company funded...................................   14,000    17,100    11,600
                                                   -------   -------   -------
  Total..........................................  $61,600   $73,100   $73,200
                                                   =======   =======   =======

</Table>


MARKETING AND INTERNATIONAL SALES

     We sell defense products to the U.S. DoD as a prime contractor and through
subcontracts with other prime contractors. In addition, we also sell defense
equipment to foreign governments directly, (including through Foreign

                                       11

<PAGE>

Military Funded Programs) and through the U.S. Government under Foreign Military
Sales programs. We also sell commercial products domestically and
internationally.

     Sales of our defense products are usually made under long-term contracts or
subcontracts covering one or more years of production. These contracts are
obtained either through competitive bidding or contract negotiation. We believe
that our long history of association with our military customers is an important
factor in our overall business, and that the experience gained through this
history has enhanced our ability to anticipate our customers' needs. Our
approach to defense business is to anticipate specific customer needs and to
develop systems to meet those needs either at our own expense or pursuant to
research and development contracts. Many of our employees, including our chief
executive officer and our senior 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 35 independent international sales representatives
concentrating on the marketing of our defense products in foreign countries.

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

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

     The following table sets forth international sales for the years ended
December 31, 2006, 2005, and 2004:

                               INTERNATIONAL SALES


<Table>
<Caption>
                                                                CONSOLIDATED
YEAR                                                              NET SALES
----                                                            ------------

<S>                                                             <C>

2006..........................................................       15%
2005..........................................................       14%
2004..........................................................       14%
</Table>


BACKLOG

     We define backlog as the funded value of contracts and orders that has not
been recognized as sales. As of December 31, 2006 our total backlog was $804.4
million compared with $558.7 million as of December 31, 2005. Approximately 76%
of the total backlog at December 31, 2006 is scheduled for delivery in 2007. 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. We had about $1,757.9 million in unfunded contracts and
unexercised options at the end of 2006.

GOVERNMENT CONTRACTS

     Net sales to the U.S. Government, as a prime contractor and through
subcontracts with other prime contractors, accounted for $579.4 million or 81%
of our 2006 consolidated net sales compared with $528.6 million or 82% in 2005
and $425.6 million or 79% in 2004, 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

                                       12

<PAGE>

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.

COMPETITION AND OTHER FACTORS

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

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

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

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

ENVIRONMENTAL

     Refer to Note 16 on page 65 of this Report for information regarding the
cost of compliance with environmental regulations.

EMPLOYEES

     As of December 31, 2006, we employed 4,000 persons.

ITEM 1A.  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 2006, 2005 and 2004, we derived about
81%, 82% and 79%, respectively, of net sales from direct and indirect contracts
with the U.S. Government and derived about 15%, 14% and 14%, 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


                                       13

<PAGE>

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 unique to the defense industry, which could
have a material adverse effect on our business, financial condition or results
of operations. Laws and regulations permit the U.S. Government to:

     - terminate contracts for its convenience;

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

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

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

     - control or prohibit the export of our products.

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

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

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

     For example, we require a license to operate an FAA repair station. Because
we provide defense products and related services to foreign governments, we must
obtain export licenses from the U.S. Department of State. 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;


                                       14

<PAGE>

     - 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 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. 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


                                       15

<PAGE>

     - exposure to unforeseen liabilities of acquired companies.

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

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

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

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

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

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

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

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

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

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

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

                                       16

<PAGE>

potential responsibility for contamination caused by the disposal of hazardous
materials. We cannot assure you that such matters, or any similar liabilities
that arise in the future, will not exceed our resources, nor can we completely
eliminate the risk of accidental contamination or injury from these materials.

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

     Foreign sales represented about 15% of our net sales in 2006 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, 2006, the EDO Employee Stock Ownership Trust, or ESOT,
owned 3,560,762 common shares (or about 17% of the outstanding common shares).
The trustee of the plan has obligations under the trust agreement and its
fiduciary duties when voting allocated shares under the plan. The procedure the
trustee generally follows is to receive direction from each of the plan
participants with respect to his or her allocated shares, and then to vote all
shares in accordance with the direction received. The market may perceive that
the concentration of voting power in the hands of a single employee stock
ownership plan creates a potential barrier against another party acquiring us.
This perception could result in lower market prices for our common shares. In
addition, certain agreements to which we are a party, including note and
executive officer agreements, contain provisions that impose increased costs in
the event of a change of control.

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

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

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

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

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

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

                                       17

<PAGE>

could have a material adverse effect on our contract performance or on our
ability to capitalize on market opportunities.

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

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

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

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

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

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

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

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

     - borrow additional money or issue guarantees;

     - pay dividends or other distributions to shareholders;

     - make investments;

     - create liens on assets;

     - sell assets;

     - enter into transactions with affiliates; and

     - engage in mergers or consolidations.

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


                                       18

<PAGE>

ITEM 1B.  UNRESOLVED STAFF COMMENTS

     None.

ITEM 2.  PROPERTIES

     We currently lease all our operating facilities. We believe our facilities
are adequate for our present purposes. All facilities in the following listing
are suitable for expansion by using available but unused space, leasing
additional available space, or by physical expansion of leased buildings. We
believe that, with respect to leases which expire during 2007, 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 15 on page 64 of this
Report. During 2006, the Board of Directors of the Company approved the decision
to sell our 76,000 square foot facility in Wando, South Carolina. This decision
was based on a company-wide facility plan that evaluated potential uses for the
property. We concluded that the Wando facility would not meet future
requirements, and thus an outright sale was completed. We have leased a new
facility in Charleston, South Carolina that fits the needs of the Company and
will accommodate our growth needs. The Company recorded a pre-tax gain of $0.3
million, as the net book value of the assets was less than the sale price.

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


<Table>
<Caption>
                                                                                                APPROXIMATE
                                                                                                FLOOR AREA
SEGMENT                                      LOCATION                         TYPE             (IN SQ. FT.)
-------                                      --------                         ----             ------------

<S>                             <C>                                  <C>                       <C>

Electronic Systems and
  Communications/ Engineered
  Systems and Services.......   North Amityville, NY                 Manufacturing/Assembly       225,000
Electronic Systems and
  Communications.............   Morgan Hill, CA                      Manufacturing                160,000
Electronic Systems and
  Communications.............   Thousand Oaks, CA                    Assembly                     113,000
Electronic Systems and
  Communications.............   Alexandria, VA                       Manufacturing                105,000
Electronic Systems and
  Communications.............   Bohemia, NY                          Manufacturing                103,000
Electronic Systems and
  Communications.............   Columbia, MD                         Office/Assembly              168,000
Electronic Systems and
  Communications.............   Nashua, NH                           Office/Assembly               90,000
Electronic Systems and
  Communications.............   Charleston, SC                       Manufacturing                 50,000
Engineered Systems and
  Services...................   Huntsville, AL                       Office                       243,000
Engineered Systems and
  Services...................   Chesapeake, VA                       Assembly                      34,000
Engineered Systems and
  Services...................   Salt Lake City, UT (2 facilities)    Manufacturing                284,000
Engineered Systems and
  Services...................   Alexandria, VA                       Office                       129,000
Engineered Systems and
  Services...................   Brighton, UK                         Manufacturing                 56,000
Engineered Systems and
  Services...................   Walpole, MA                          Manufacturing                 56,000
Engineered Systems and
  Services...................   Warminster, PA                       Assembly                      29,000
Engineered Systems and
  Services...................   Lancaster, CA                        Office/Assembly               36,000
Engineered Systems and
  Services...................   Baton Rouge, LA                      Manufacturing                 38,000
Engineered Systems and
  Services...................   Panama City, FL                      Office/Assembly               32,000
</Table>




                                       19

<PAGE>

ITEM 3.  LEGAL PROCEEDINGS

     The Company and/or its subsidiaries are parties to various legal
proceedings arising in the normal course of business, including various
environmental actions, described in Note 16 on page 65 of this Report. While
litigation is subject to inherent uncertainties, management currently believes
that the ultimate outcome of these proceedings, individually and in the
aggregate, are not material to the business or financial condition of the
Company. The following is a description of certain proceedings:

     U.S. v. EDO Corporation et al.; EDO Corporation et al. v. Elinco Associates
L.P. et al.  (United States District Court, District of Connecticut). The
Company and three other companies entered into a consent decree in 1990 with the
Federal government for the remediation of a Superfund site in Norwalk, CT. The
Superfund site has been divided into three operable units. The consent decree
relates to two of the operable units. The third operable unit has not been
formally studied and the Company is unable to determine whether the EPA will
address the third operable unit or, if it does, whether it will conclude that
specific remedial response action will be required for it, and in such event,
what the costs, if any, or the Company's degree of responsibility will be. As of
December 31, 2006 the Company estimates that its discounted liability over the
remainder of the nineteen years related to the two operable units is
approximately $1.4 million. See also Note 16 on page 65 of this Report.

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

     None.

                                     PART II

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

     The information responsive to this item is set forth under the headings
"Common Share Prices" and "Dividends" on page 35 together with dividend
information contained in the "Consolidated Statements of Shareholders' Equity"
on pages 39 and 40 and Note 7 on pages 50 and 51 of this Report. The information
regarding equity compensation plans can be found in Note 1(k) on pages 46 and
Note 12 on pages 54 through 57 of this Report.


                                       20

<PAGE>

FIVE-YEAR FINANCIAL PERFORMANCE GRAPH: 2001-2006

                COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
  EDO Corporation, Standard & Poors 500 and VALUE Line Aerospace/Defense Index
                     (Performance Results Through 12/31/06)

                               (PERFORMANCE GRAPH)

Assumes $100 invested at the close of trading 12/01 in EDO Corporation common
stock, Standard & Poors 500, and Aerospace/Defense.

*    Cumulative total return assumes reinvestment of dividends.



<Table>
<Caption>
--------------------------------------------------------------------------------------
                         2001       2002       2003       2004       2005        2006
--------------------------------------------------------------------------------------
 <S>                  <C>        <C>        <C>        <C>        <C>          <C>
 EDO Corporation        100.00     78.95       94.29     122.02     104.43       92.05
--------------------------------------------------------------------------------------
 Standard & Poors
 500                    100.00     76.63       96.85     105.56     108.73      123.54
--------------------------------------------------------------------------------------
 Aerospace/Defense      100.00     90.50      110.64     134.20     163.42      215.42
--------------------------------------------------------------------------------------
</Table>





                                       21

<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

                             SELECTED FINANCIAL DATA

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


<Table>
<Caption>
                                             2006       2005       2004       2003       2002
                                           --------   --------   --------   --------   --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                        <C>        <C>        <C>        <C>        <C>

STATEMENT OF EARNINGS DATA:
Net sales................................  $715,197   $648,482   $536,173   $460,667   $328,876
  Costs and expenses:
  Cost of sales..........................   565,486    490,617    392,961    338,259    240,850
  Selling, general and administrative....   109,809     85,921     78,791     71,855     47,584
  Research and development...............    14,029     17,122     11,620      8,594      8,492
  Acquisition-related costs..............     3,537         --         --         --         --
  Environmental costs/impairment
     loss(a).............................     1,487      1,543         --      9,160         --
  Other expenses(b)......................        --         --         --      1,871      2,565
                                           --------   --------   --------   --------   --------
                                            694,348    595,203    483,372    429,739    299,491
                                           --------   --------   --------   --------   --------
Operating earnings.......................    20,849     53,279     52,801     30,928     29,385
Net interest expense(c)..................    (9,496)   (11,291)    (7,848)    (8,152)    (4,956)
Other non-operating (expense) income,
  net....................................       (37)      (147)      (319)       279        (95)
                                           --------   --------   --------   --------   --------
                                             (9,533)   (11,438)    (8,167)    (7,873)    (5,051)
                                           --------   --------   --------   --------   --------
Earnings before income taxes and
  cumulative effect of a change in
  accounting principle...................    11,316     41,841     44,634     23,055     24,334
Income tax benefit (expense).............       261    (15,572)   (15,566)    (9,644)   (10,342)
                                           --------   --------   --------   --------   --------
Earnings before cumulative effect of a
  change in accounting principle from:
  Continuing operations..................    11,577     26,269     29,068     13,411     13,992
  Discontinued operations................        --         --         --      1,398         --
                                           --------   --------   --------   --------   --------
Earnings before cumulative effect of a
  change in accounting principle.........    11,577     26,269     29,068     14,809     13,992
Cumulative effect of a change in
  accounting principle, net of tax of
  $790(d)................................        --         --         --         --     (3,363)
                                           --------   --------   --------   --------   --------
Net earnings.............................  $ 11,577   $ 26,269   $ 29,068   $ 14,809   $ 10,629
                                           ========   ========   ========   ========   ========
PER COMMON SHARE DATA:
Basic net earnings:
  Continuing operations..................  $   0.64   $   1.45   $   1.64   $   0.78   $   0.82
  Discontinued operations................        --         --         --       0.08         --
                                           --------   --------   --------   --------   --------
Basic net earnings before cumulative
  effect of a change in accounting
  principle..............................      0.64       1.45       1.64       0.86       0.82
Cumulative effect of a change in
  accounting principle...................        --         --         --         --      (0.20)
                                           --------   --------   --------   --------   --------
Basic net earnings.......................  $   0.64   $   1.45   $   1.64   $   0.86   $   0.62
                                           --------   --------   --------   --------   --------
Diluted net earnings:
  Continuing operations..................  $   0.62   $   1.33   $   1.49   $   0.76   $   0.81
  Discontinued operations................        --         --         --       0.08         --
                                           --------   --------   --------   --------   --------
Diluted net earnings before cumulative
  effect of a change in accounting
  principle..............................      0.62       1.33       1.49       0.84       0.81
Cumulative effect of a change in
  accounting principle...................        --         --         --         --      (0.20)
                                           --------   --------   --------   --------   --------
Diluted net earnings.....................  $   0.62   $   1.33   $   1.49   $   0.84   $   0.61
                                           ========   ========   ========   ========   ========
Cash dividends per common share..........  $   0.12   $   0.12   $   0.12   $   0.12   $   0.12
Weighted-average common shares
  outstanding:
  Basic..................................    18,189     18,081     17,695     17,308     17,080
  Diluted(e).............................    18,645     23,001     22,377     17,561     17,379
</Table>

                                       22

<PAGE>

<Table>
<Caption>
                                             2006       2005       2004       2003       2002
                                           --------   --------   --------   --------   --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<S>                                        <C>        <C>        <C>        <C>        <C>
OTHER DATA:
Depreciation and amortization............  $ 20,127   $ 15,699   $ 16,040   $ 17,065   $ 11,321
Capital expenditures.....................    18,946     23,718     14,206      8,865      7,093
Backlog..................................   804,427    558,685    474,605    462,327    375,029
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, marketable
  securities and restricted cash.........  $ 25,322   $108,731   $ 98,884   $ 86,632   $159,860
Working capital(f).......................    (3,280)   244,862    226,708    175,715    204,382
Total assets.............................   949,822    687,399    546,689    494,696    481,574
Total debt (f) and (g)...................   403,549    208,250    137,800    137,800    137,800
Shareholders' equity.....................   274,916    239,893    211,928    190,332    168,273
</Table>


--------

(a)    In 2006, the Company recorded an impairment charge of approximately $1.5
       million related to certain other intangible assets associated with the
       Company's rugged computer product line. In 2005 and 2003, the Company
       recorded approximately $1.5 million and $9.2 million, respectively for
       environmental cost/impairment loss on our Deer Park facility.

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

(c)    In 2006, includes interest expense of $4.6 million related to borrowings
       under our credit facility. In 2005, includes $2.9 million of premium paid
       to redeem all of the outstanding $137.8 million principal amount of our
       5.25% Convertible Subordinated Notes and $1.3 million of write-off of the
       remaining unamortized deferred finance costs associated with these Notes.

(d)    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.

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

(f)    Reflects in 2006, $180 million borrowings under our revolver.

(g)    Includes current portion of notes payable. See discussion about our
       credit facility on page 33 of this report.

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

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

OVERVIEW

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


                                       23

<PAGE>

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

ACQUISITIONS

     On September 15, 2006, the Company acquired all of the stock of Impact
Science and Technology Inc., (IST) a privately-held company providing signals
intelligence (SIGINT) systems and analysis support to the intelligence
community, and advanced countermeasures and electronic-attack systems to the
U.S. Department of Defense (DoD) and other government agencies. The acquisition
strengthened our fast-growing position in specialized communication products and
expanded the company's business in the intelligence community. The acquired
company became part of the Company's Electronic Systems and Communications
segment. The Company has estimated the fair value of the acquired assets and
liabilities. Consequently, amounts recorded are subject to change. The excess of
the purchase price over the net assets acquired related to IST is not deductible
for income tax purposes.

     On September 6, 2006, the Company acquired all of the stock of CAS Inc.,
(CAS) a privately-held company providing engineering services, logistics
support, and weapon-systems analysis to the DoD. This acquisition has
strengthened and expanded our range of professional and engineering services.
The acquired company became part of the Company's Engineered Systems and
Services segment. The Company has estimated the fair value of the acquired
assets and liabilities. Consequently, the amounts recorded are subject to
change. The excess of the purchase price over the net assets acquired recorded
as goodwill and other intangible assets in the amount of $168.5 million is
deductible for income tax purposes over 15 years.

     On December 20, 2005, the Company acquired for cash all of the stock of
NexGen Communications LLC (NexGen), a privately-held company specializing in the
design and production of communications systems for a diverse set of U.S.
government organizations. The acquisition strengthened our fast-growing position
in specialized communication products. The acquired company became part of the
Company's Electronic Systems and Communications segment. The excess of the
purchase price over the net assets acquired related to NexGen is not deductible
for income tax purposes.

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

     On May 2, 2005, we acquired for cash all of the units of EVI Technology,
LLC (EVI), a privately-held company. EVI is a designer, manufacturer and
integrator of classified intelligence systems. EVI has strengthened and expanded
EDO's range of products and engineering expertise in a number of synergistic
areas. The acquired company became part of the Company's Electronic Systems and
Communications segment. The excess of the purchase price over the net assets
acquired related to EVI recorded as goodwill and other intangible assets in the
amount of $36.6 million is deductible for income tax purposes over 15 years.

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

SALE OF PROPERTY

     On June 24, 2003, the Board of Directors of the Company approved the
decision to sell our 726,000 square foot facility in Deer Park, NY. This
decision was based on a company-wide facility plan that evaluated potential uses
for the property. We concluded that the Deer Park facility would not meet future
requirements, and thus an outright sale was completed, freeing assets for more
productive use, including acquisitions. A pre-tax impairment loss of $9.2
million was recorded in the second quarter of 2003, as the net book value of the
assets exceeded the fair value

                                       24

<PAGE>

less the costs to sell. The fair value was based on a $29.0 million sales price
per the sales agreement entered into in July 2003. In 2005, we recorded $1.5
million of an additional cost provision to account for an environmental cleanup
that was not discovered until after the sale.

     Of the $29.0 million sales price, $22.0 million was in cash and $7.0
million in the form of a note and purchase money mortgage ("Mortgage"). We
closed on the sale in October 2003, received the cash less closing payments and
leased back a portion of the property through April 2005. Payments were made in
respect to the note and mortgage in October and December 2006. There is an on-
going dispute between the Company and the purchaser of the Deer Park facility
relating to rental payments after April 2005 that the purchaser claims it is
entitled to, and the purchaser is also seeking recovery of certain interest and
costs paid in respect of the note and mortgage. See Note 16 to our consolidated
financial statements on page 65.

     During 2006, the Board of Directors of the Company approved the decision to
sell our 76,000 square foot facility in Wando, South Carolina. This decision was
based on a company-wide facility plan that evaluated potential uses for the
property. We concluded that the Wando facility would not meet future
requirements, and thus an outright sale was completed. We have leased a new
facility in Charleston, South Carolina that fits the needs of the Company and
will accommodate our growth needs. The Company recorded a pre-tax gain of $0.3
million, as the net book value of the assets was less than the sale price.

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 cumulatively 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.


                                       25

<PAGE>

     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
primarily on a straight-line basis over the estimated useful lives of such
assets. Leasehold improvements are amortized over the shorter of their estimated
useful lives or their respective lease periods.

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

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

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

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

  PENSION AND POST-RETIREMENT BENEFITS OBLIGATIONS

     We sponsor defined benefit pension and other retirement plans in various
forms covering all eligible employees. Several statistical and other factors
which attempt to anticipate future events are used in calculating the expense
and liability related to the plans. These factors include assumptions about the
discount rate and expected return on plan assets within certain guidelines and
in conjunction with our actuarial consultants. In addition, our actuarial
consultants also use subjective factors such as withdrawal and mortality rates
to estimate the expense and liability related to these plans. The actuarial
assumptions used by us may differ significantly, either favorably or
unfavorably, from actual results due to changing market, economic or regulatory
conditions, higher or lower withdrawal rates or longer or shorter life spans of
participants.

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

                                       26

<PAGE>

performance and expected asset allocation going forward, we selected an overall
return rate within the resulting range.

FINANCIAL HIGHLIGHTS

     Net sales for 2006 increased 10.3% to $715.2 million from $648.5 million
for 2005 and included sales from the acquisitions of CAS and IST. For 2006, net
earnings were $11.6 million or $0.62 per diluted share on 18.6 million shares
compared to net earnings of $26.3 million or $1.33 per diluted share on 23.0
million shares in 2005. In 2006, the 4.0% Convertible Subordinated Notes did not
have a dilutive effect on the earnings per share calculation. In 2005,
Convertible Subordinated Notes had a dilutive effect on the earnings per share
calculation.

RECENT ACCOUNTING PRONOUNCEMENTS

     In September 2006, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 108 (SAB 108). Due to diversity in practice among
registrants, SAB 108 expresses SEC staff views regarding the process by which
misstatements in financial statements are evaluated for purposes of determining
whether financial statement restatement is necessary. SAB 108 is effective for
fiscal years ending after November 15, 2006, and early application is
encouraged. SAB 108 did not have a material impact on our results from
operations or financial position.

     In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair
value, establishes a framework for using fair value to measure assets and
liabilities, and expands disclosure requirements about fair value measurements.
SFAS 157 is effective for fiscal year beginning after November 15, 2007, and
early application is permitted. SFAS 157 becomes effective for the Company on
January 1, 2008. The Company does not believe SFAS 157 will have a material
impact on our results from operations or financial position.

     In September 2006, the FASB issued FASB Statement No. 158 (SFAS 158),
Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R). SFAS 158
requires plan sponsors of defined benefit pension and other postretirement
benefit plans (collectively, "postretirement benefit plans") to recognize
prospectively the funded status of their postretirement benefit plans in the
statement of financial position, measure the fair value of plan assets and
benefit obligations as of the date of the fiscal year-end statement of financial
position, and provide additional disclosures. On December 31, 2006, the Company
adopted the recognition and disclosure provisions of SFAS 158. The effect of
adopting SFAS 158 on the Company's financial condition at December 31, 2006 has
been included in the accompanying consolidated balance sheet. SFAS 158 did not
have any effect on the Company's consolidated financial condition at December
31, 2005 or 2004. SFAS 158's provisions regarding the change in the measurement
date of post retirement benefit plans are not applicable as the Company already
uses a measurement date of December 31 for its postretirement benefit plans. See
Note 13 for further discussion of the effect of adopting SFAS 158 on the
Company's consolidated financial statements.

     In June 2006, the Financial Accounting Standards Board issued
Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
interpretation of FAS 109, Accounting for Income Taxes (FIN 48), to create a
single model to address accounting for uncertainty in tax positions. FIN 48
clarifies the accounting for income taxes, by prescribing a minimum recognition
threshold a tax position is required to meet before being recognized in the
financial statements. FIN 48 also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim
periods, disclosure and transition. FIN 48 is effective for fiscal years
beginning after December 15, 2006. The Company will adopt FIN 48 as of January
1, 2007, as required. The cumulative effect of adopting FIN 48 will be recorded
as an adjustment to the opening balance of retained earnings and other accounts
as applicable. The Company has not determined the effect, if any, the adoption
of FIN 48 will have.

     On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004)
(FAS 123(R)), Share-Based Payment, which is a revision of FASB Statement No.
123, Accounting for Stock-Based Compensation. FAS 123(R) supersedes APB Opinion
No. 25, Accounting for Stock Issued to employees, and amends FASB Statement No.
95, Statement of Cash Flows. Generally, the approach in FAS 123(R) is similar to
the approach described in Statement 123. However, FAS 123(R) requires all share-
based payments to employees, including grants of

                                       27

<PAGE>

employee stock options, to be recognized in the income statement based on their
fair values. FAS 123(R) also requires the benefits of tax deductions in excess
of recognized compensation cost to be reported as a financing cash flow, rather
than as an operating cash flow. Pro forma disclosure is no longer an
alternative. On January 1, 2006, the Company adopted the fair value recognition
provisions of FAS 123(R), using the modified prospective transition method. See
Notes 1(k) and 12 for further discussion of the effect of adopting FAS 123(R) on
the Company's consolidated financial statements.

RESULTS OF OPERATIONS

  COMPARISON OF 2006 TO 2005

     Net sales by segment were as follows:


<Table>
<Caption>
                                                 TWELVE MONTHS
                                                     ENDED
                                                    DECEMBER      INCREASE/(DECREASE)
                                                ---------------           FROM
SEGMENT                                          2006     2005        PRIOR PERIOD
-------                                         ------   ------   -------------------
                                                  (DOLLARS IN
                                                   MILLIONS)

<S>                                             <C>      <C>      <C>

Electronic Systems and Communications.........  $388.7   $408.2           (4.8)%
Engineered Systems and Services...............   326.5    240.3           35.8%
                                                ------   ------
Total.........................................  $715.2   $648.5           10.2%
                                                ======   ======

</Table>


     The decrease in sales in the Electronic Systems and Communications segment
for the year ended December 31, 2006 compared to the year ended December 31,
2005 is due primarily to the decline in sales of Warlock force protection
equipment to the U.S. Army. There was a lack of orders this year for our
electronic force protection systems and a delay in delivery of systems on order.
For the year ended December 31, 2006, sales of Warlock force protection systems
represented 4% of our net sales compared to 22% for the year ended December 31,
2005. These lower sales were partially offset by sales at EVI, NexGen and IST,
which were acquired in the second and fourth quarter of 2005 and the third
quarter of 2006, respectively. Lower force protection sales were also offset by
the increase in sales on the TSM program for the Marine Corps and higher sales
of B-1B spares, as well as radar and RF products.

     The increase in sales in the Engineered Systems and Services segment for
the year ended December 31, 2006 compared to the year ended December 31, 2005 is
attributable to higher sales of aircraft armament systems relating to the F-22
missile launcher program, higher sales in composite structures, including sales
by Fiber Innovations which was acquired on September 19, 2005. In addition,
sales increased in undersea warfare products and in professional services,
including the contribution of sales of CAS which was acquired on September 6,
2006. These increases were slightly offset by lower sales of flight line test
systems due to delayed orders in the first half of the year.

     Operating earnings were as follows:


<Table>
<Caption>
                                                 TWELVE MONTHS
                                                     ENDED
                                                  DECEMBER 31,   INCREASE/(DECREASE)
                                                 -------------           FROM
SEGMENT                                           2006    2005       PRIOR PERIOD
-------                                          -----   -----   -------------------
                                                  (DOLLARS IN
                                                   MILLIONS)

<S>                                              <C>     <C>     <C>

Electronic Systems and Communications..........  $11.8   $42.1          (72.0)%
Engineered Systems and Services................    9.0    12.7          (29.1)%
Deer Park facility environmental cost
  provision....................................     --    (1.5)
                                                 -----   -----
Total..........................................  $20.8   $53.3          (60.9)%
                                                 =====   =====

</Table>


     Operating earnings for the year ended December 31, 2006 were $20.8 million
or 2.9% of net sales. This compares to operating earnings for the year ended
December 31, 2005 of $53.3 million or 8.2% of net sales. The Company incurred a
charge of $1.5 million in 2005, to provide for environmental cleanup efforts
relating to our former Deer Park facility. This effort was completed with no
additional cost impact.


                                       28

<PAGE>

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


<Table>
<Caption>
                                                             TWELVE MONTHS
                                                                 ENDED
                                                              DECEMBER 31,
                                                            ---------------
                                                             2006     2005
                                                            ------   ------
                                                              (DOLLARS IN
                                                               THOUSANDS)

<S>                                                         <C>      <C>

Pension...................................................  $4,776   $4,277
ESOP Compensation expense.................................  $4,283   $4,952
Other intangible asset amortization.......................  $7,702   $5,931
Acquisition related costs.................................  $3,537   $   --
Stock-based compensation expense for options..............  $  838   $   --
</Table>


     The increase in pension expense in 2006 compared to 2005 is attributable to
changes in actuarial assumptions such as discount rate and return on plan
assets. The lower ESOP compensation expense in 2006 is attributable to our lower
average share price compared to 2005. Pension and ESOP compensation expense are
allocated between cost of sales and selling, general and administrative expense.
The increase in other intangible asset amortization expense is associated with
the three acquisitions made in 2005, two of which were finalized in 2006, as
well as our 2006 acquisitions of CAS and IST, where we have estimated the fair
value of other intangible assets and amortized one quarter's worth in the fourth
quarter.

     The increase in acquisition related costs is associated with stay pay
incentives associated with the three acquisitions in 2005 and the two
acquisitions in 2006.

     The increase in Stock-Based Compensation Expense relates to the
implementation of Financial Accounting Standards Board Statement No. 123(R),
Accounting for Stock-Based Compensation, (FAS 123(R)). Prior to adoption of FAS
123(R) as of January 1, 2006, we accounted for our 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 was recognized and pro-forma disclosure information was
provided. In 2006, we issued options only to Directors. Those options were 100%
vested at issuance and, therefore, accounted for most of the $0.8 million
expense recorded in 2006.

     Operating earnings in the Electronic Systems and Communications segment for
the year ended December 31, 2006 were $11.8 million, or 3.0% of this segment's
sales compared to $42.1 million, or 10.3% of this segment's sales for the year
ended December 31, 2005. Operating earnings were negatively impacted by lower
sales volume of electronic force protection systems, accounting for
approximately $22.0 million in year over year earnings. In addition, there was
cost growth of $2.7 million on an interference cancellation program, $0.8
million on a force protection program and $0.5 million on an antenna program, as
well as lower milestone achievements of reconnaissance and surveillance systems
and acquisition-related costs for "stay-pay" agreements associated with the
acquisitions in 2005 and 2006. For the year ended December 31, 2006, sales of
Warlock force protection systems represented 4.0% of our net sales compared to
22.0% for the year ended December 31, 2005. The lower earnings were partially
offset by higher earnings related to our RF products and B-1B support. Operating
earnings for the year ended December 31, 2006 were also negatively impacted by
$5.2 million in legal costs.

     For the year ended December 31, 2005, operating earnings for this segment
were significantly affected by the larger sales volume of Warlock force
protection systems and increased margins on sales of C4 products and systems,
namely the JECCS program. This was partially offset by cost growth of $2.4
million on an electronic warfare systems program.

     Operating earnings in the Engineered Systems and Services segment for the
year ended December 31, 2006 were $9.0 million, or 2.7% of this segment's sales
compared to $12.7 million, or 5.3% of this segment's sales for the year ended
December 31, 2005. Operating earnings were negatively impacted by cost growths
of $3.4 million and $0.9 million on two aircraft armament systems programs. We
believe that, based on our most current estimates, we have accounted for all
future costs necessary to complete these programs. Operating earnings were also
negatively impacted by $1.2 million in legal costs. In addition, we wrote off
approximately $1.5 million of unamortized

                                       29

<PAGE>

intangible assets related to the Company's rugged computer product line, where
sales and orders were not materializing to expected levels. Consequently, the
related identifiable intangible assets were deemed impaired. Operating earnings
were also negatively affected by cost growth totaling $3.4 million on an
undersea warfare systems program known as ALOFTS. Ongoing system testing
identified various performance issues. We believe we have accounted for all
costs for the modifications and future re-testing in our estimate-to-complete.
The next significant tests for this program are currently scheduled to occur in
2007. In 2005, there was a $3.6 million negative impact to earnings on the same
program. These reductions were partially offset by performance improvements on
other programs, the release of a $0.9 million reserve on an aircraft armament
program and the release of a $0.5 million reserve on a sonar systems program,
both due to program completion below anticipated cost. Earnings were also
positively affected by the recently acquired CAS.

     In 2005, operating earnings in this segment were negatively impacted by
lower sales in our professional services business. In addition, there was a cost
growth of $1.4 million on several sonar array and depth sounder programs. The
lower spares sales related to mine counter measures systems also contributed to
lower earnings. These negative impacts were partially offset by a positive
adjustment of $1.6 million to the estimated costs-to-complete on an aircraft
armament program.

     Selling, general and administrative expenses for the year ended December
31, 2006 of $109.8 million increased as a percentage of net sales to 15.3% from
13.2% for the year ended December 31, 2005. The increase is mainly attributable
to the acquisitions of Fiber Innovations and NexGen in September and December of
2005, respectively, as well as the acquisitions of CAS and IST in the third
quarter of 2006. The increase also reflects the legal costs mentioned above,
stock based compensation expense associated with the implementation of FAS
123(R) and the increased amortization expense due to the acquisitions in 2005
and 2006.

     Research and development expense for the year ended December 31, 2006
decreased to $14.0 million or 1.9% of net sales from $17.1 million or 2.6% of
net sales for the year ended December 31, 2005. The decrease is attributable to
lower spending on electronic force protection, aircraft armament products and
composite munitions.

     Interest expense, net of interest income, for the year ended December 31,
2006 increased to $9.5 million compared to $7.1 million for the year ended
December 31, 2005, primarily due to interest on borrowings under our credit
facility. This was partially offset by higher interest income resulting from
higher average cash levels earlier in the year. Also included in interest
expense is interest on our 4.0% Convertible Subordinated Notes due 2025 which
were issued in November 2005, the amortization of deferred debt issuance costs
associated with the offering of the Notes and amortization of deferred financing
costs associated with our credit facility.

     Income tax benefit reflects an effective rate of (2.31)% for the year ended
December 31, 2006 and 37.2% for the year ended December 31, 2005. The change in
the effective tax rate for 2006 as compared to 2005 is primarily attributable to
benefits claimed for the extraterritorial income exclusion and research and
development credits during 2006 offset by the increase of the effect of the non-
cash non-deductible ESOP compensation expense as a percent of pretax book
income. In addition, the Company recorded a net benefit for the year ended
December 31, 2006 related to tax contingencies in the amount of $1.5 million.
This compares to a net income tax benefit related to tax contingencies of $1.5
million that was recorded for the year ended December 31, 2005.

     For the year ended December 31, 2006, net earnings were $11.6 million or
$0.62 per diluted common share on 18.6 million diluted shares compared to net
earnings of $26.3 million or $1.33 per diluted common share on 23.0 million
diluted shares for the year ended December 31, 2005. The convertible notes were
anti-dilutive for the year ended December 31, 2006 and dilutive for the year
ended December 31, 2005.


                                       30

<PAGE>

  COMPARISON OF 2005 TO 2004

     Net sales by segment were as follows:


<Table>
<Caption>
                                                    TWELVE MONTHS
                                                        ENDED
                                                     DECEMBER 31,      INCREASE
                                                   ---------------       FROM
SEGMENT                                             2005     2004    PRIOR PERIOD
-------                                            ------   ------   ------------
                                                     (DOLLARS IN
                                                      MILLIONS)

<S>                                                <C>      <C>      <C>

Electronic Systems and Communications............  $408.2   $273.3       49.4%
Engineered Systems and Services..................   240.3    262.9       (8.6)%
                                                   ------   ------
Total............................................  $648.5   $536.2       20.9%
                                                   ======   ======

</Table>


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

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

     Operating earnings by segment were as follows:


<Table>
<Caption>
                                                 TWELVE MONTHS
                                                     ENDED
                                                  DECEMBER 31,   INCREASE/(DECREASE)
                                                 -------------           FROM
SEGMENT                                           2005    2004       PRIOR PERIOD
-------                                          -----   -----   -------------------
                                                  (DOLLARS IN
                                                   MILLIONS)

<S>                                              <C>     <C>     <C>

Electronic Systems and Communications..........  $42.1   $26.5           58.9%
Engineered Systems and Services................   12.7    26.3          (51.8)%
Deer Park facility environmental cost
  provision....................................   (1.5)     --
                                                 -----   -----
Total..........................................  $53.3   $52.8            1.0%
                                                 =====   =====

</Table>


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


<Table>
<Caption>
                                                             TWELVE MONTHS
                                                                 ENDED
                                                              DECEMBER 31,
                                                            ---------------
                                                             2005     2004
                                                            ------   ------
                                                              (DOLLARS IN
                                                               THOUSANDS)

<S>                                                         <C>      <C>

Pension...................................................  $4,277   $2,183
ESOP Compensation expense.................................  $4,952   $4,330
Other intangible asset amortization.......................  $5,931   $5,564
</Table>


     The increased pension expense in 2005 compared to 2004 was attributable to
changes in actuarial assumptions, namely a reduction in the discount rate. The
higher ESOP compensation expense in 2005 was attributable to our higher average
share price compared to 2004. Pension and ESOP compensation expense are
allocated between cost of sales and selling, general and administrative expense.
The intangible asset amortization expense is associated

                                       31

<PAGE>

with the acquisitions made in 2002, 2003 and 2005 and affects primarily the
Electronic Systems and Communications segment. In 2005, we incurred a $1.5
million charge to provide for environmental cleanup efforts relating to our
former Deer Park facility.

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

     Operating earnings in the Engineered Systems and Services segment for the
year ended December 31, 2005 were $12.7 million, or 5.3% of this segment's sales
compared to $26.3 million, or 10.0% of this segment's sales for the year ended
December 31, 2004. The decrease in operating earnings was due largely to the
aforementioned lower sales in our professional services business. In addition,
there was cost growth of $1.4 million on several sonar array and depth sounder
programs. The lower spares sales related to mine countermeasures systems also
contributed to lower earnings. These negative impacts were partially offset by
an adjustment of $1.6 million of the estimated costs to complete on an aircraft
armament program. Operating earnings were also negatively affected by cost
growth totaling $3.6 million on an undersea warfare systems program known as
ALOFTS. Ongoing system testing identified various performance issues that
required design and software modifications. In 2004, there was a $3.8 million
negative impact to earnings on the same program.

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

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

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

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

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

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

                                       32

<PAGE>

$0.7 million was recorded in the fourth quarter of 2005. This compared to an
income tax benefit of $2.8 million that was recorded for the year ended December
31, 2004.

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

LIQUIDITY AND CAPITAL RESOURCES

  BALANCE SHEET

     Our cash and cash equivalents decreased 76.7% to $25.3 million at December
31, 2006 from $108.7 million at December 31, 2005. This decrease was due
primarily to the acquisitions of CAS and IST, repayment of borrowings under our
credit facility, as well as $18.9 million used for the purchase of capital
equipment and $2.5 million for the payment of common share dividends.

     Accounts receivable increased 40.2% to $265.3 million at December 31, 2006
from $189.2 million at December 31, 2005. This increase was due to the timing of
collections of billed receivables, increased sales, and the aforementioned
acquisitions. At December 31, 2006, approximately 89% of billed receivables were
in the under 60 days aging category compared to 81% at December 31, 2005.

     The note receivable at December 31, 2005 related to the sale of our
facility in Deer Park in 2003, and in 2006, we received a payments in respect of
this note. As described above, there is an on-going dispute between the Company
and the purchaser of the property, including a dispute regarding interest and
costs paid in respect of the note and mortgage. See Note 16 on page 65.

  FINANCING ACTIVITIES

  Credit Facility

     We have a five-year credit facility with a consortium of banks, led by
Citibank, N.A., as the administrative agent, Bank of America as the syndication
agent and Wachovia Bank, N.A. as the documentation agent. The facility expires
in November 2010. The Credit Agreement provides for a revolving credit facility
in an aggregate amount equal to $300 million with sub-limits of $20 million for
short-term swing loans and $100 million for letters of credit. The potential
cash borrowing under the facility is reduced by the amount of outstanding
letters of credit. The Company has the option to select Base Rate or Eurodollar
Rate loans under the terms of the Credit Agreement. Any borrowings under the
facility would be priced initially at LIBOR plus a predetermined amount
depending on our consolidated leverage ratio at the time of the borrowing. At
December 31, 2006, LIBOR was approximately 5.3% and the applicable adjustment to
LIBOR was 2.75%. 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%. In addition, the agreement provides for
potential incremental credit extensions in the form of term loans or revolving
credit commitment increases up to $300 million.

     Letters of credit outstanding at December 31, 2006, pertaining to the
credit facility were $34.7 million, resulting in $265.3 million available for
borrowings. As at December 31, 2006, there were $180.0 million direct borrowings
outstanding under the credit facility. There were no direct borrowings
outstanding under the credit facility at December 31, 2005. Accrued interest
payable related to the credit facility was approximately $0.8 million at
December 31, 2006.

     In connection with the credit facility, the Company is required to maintain
both financial and non-financial covenants and ratios, including, but not
limited to, leverage ratio, fixed charge coverage ratio, and senior secured
leverage ratio. As of December 31, 2006, the Company was in compliance with its
covenants. The credit facility is secured by the Company's accounts receivable,
inventories and machinery and equipment.


                                       33

<PAGE>

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

     In November 2005, we completed the offering of $201.2 million principal of
4.0% Notes and received proceeds of $195.7 million, net of $5.5 million of
commissions. Interest payments are due May 15 and November 15 of each year
commencing on May 15, 2006. Accrued interest payable was $1.0 million at
December 31, 2006. The 4.0% Notes are convertible, unless previously redeemed or
repurchased by the Company, at the option of the holder at any time prior to
maturity, into the Company's common shares at an initial conversion price of
$34.19 per share, subject to adjustment in certain events. As of December 31,
2006, there had been no such conversions.

  Shelf Registration

     At December 31, 2006, our remaining capacity under the universal shelf
registration statement that became effective in January 2004 was approximately
$298.8 million.

     We believe that, for the foreseeable future, we have adequate liquidity and
sufficient capital to fund our currently anticipated requirements for working
capital, capital expenditures, including acquisitions, research and development
expenditures, interest payments and funding of our pension and post-retirement
benefit obligations. We continue to focus on positioning ourselves to be a
significant player in the consolidation of first-tier defense suppliers and, to
that end, have actively sought candidates for strategic acquisitions. Future
acquisitions may be funded from any of the following sources: cash on hand;
borrowings under our credit facility; issuance of our common shares 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, 2006, we have included the following table. We are obligated under
building and equipment leases expiring between 2007 and 2019. The aggregate
future minimum lease commitments under those obligations with non-cancellable
terms in excess of one year are shown below. Our commitments under letters of
credit and advance payment and performance bonds relate primarily to advances
received on foreign contracts should we fail to perform in accordance with the
contract terms. We do not expect to have to make payments under these letters of
credit 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.

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


<Table>
<Caption>
                                                        PAYMENTS DUE IN:
                                    --------------------------------------------------------
                                                                                       2012
COMMITMENTS AND CONTRACTUAL                                                             AND
OBLIGATIONS:                         TOTAL    2007     2008    2009    2010    2011   BEYOND
---------------------------         ------   ------   -----   -----   -----   -----   ------
                                                          (IN MILLIONS)

<S>                                 <C>      <C>      <C>     <C>     <C>     <C>     <C>

Borrowings Under Revolver.........  $180.0   $180.0   $  --   $  --   $  --   $  --   $   --
Notes Payable.....................    22.3      7.8     8.8     5.7      --      --       --
4.0% Convertible Subordinated
  Notes due 2025(1)...............   201.2       --      --      --      --      --    201.2
Operating leases..................   161.2     22.7    21.7    20.1    18.4    17.3     61.0
Letters of credit.................    34.7     14.5     5.9    13.7      --      --      0.6
Projected pension
  contributions(2)................    41.6      8.0    14.7     8.5     8.3     2.1       --
Advance payment and performance
  bonds...........................     1.9      0.2      --     1.7      --      --       --
                                    ------   ------   -----   -----   -----   -----   ------
Total.............................  $642.9   $233.2   $51.1   $49.7   $26.7   $19.4   $262.8
                                    ======   ======   =====   =====   =====   =====   ======

</Table>


--------

   (1) Excludes interest of approximately $8.0 million annually.

   (2) The Company contributed $6.0 million to our qualified defined benefit
       pension plan in both 2006 and 2005. Actual pension contributions may
       differ from amounts presented above and are contingent on cash flow and
       liquidity.


                                       34

<PAGE>

  CONCENTRATION OF SALES

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

  BACKLOG

     The funded backlog of unfilled orders at December 31, 2006 increased to
$804.4 million from $558.7 million at December 31, 2005. Our backlog consists
primarily of current orders under long-lived, mission-critical programs on key
defense platforms.

COMMON SHARE PRICES

     EDO common shares are traded on the New York Stock Exchange. As of February
20, 2007, there were 1,645 shareholders of record (brokers and nominees counted
as one each).

     The price range for EDO common shares in 2006 and 2005 was as follows:


<Table>
<Caption>
                                                   2006                2005
                                            -----------------   -----------------
                                              HIGH      LOW       HIGH      LOW
                                            -------   -------   -------   -------

<S>                                         <C>       <C>       <C>       <C>

1st Quarter...............................  31.0700   25.4300   32.8700   27.1600
2nd Quarter...............................  31.0000   24.3200   30.8900   26.5800
3rd Quarter...............................  25.1600   21.7000   31.6300   26.8600
4th Quarter...............................  25.3500   20.9000   30.3900   25.8000
</Table>


DIVIDENDS

     During 2006 and 2005, the Board of Directors approved the payment of
quarterly cash dividends of $0.03 per common share. The Company's credit
facility places certain limits on the payment of cash dividends.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     None.

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

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

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


                                       35

<PAGE>

     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, tax
treatment of acquisitions, results of tax audits, and the amount of the non-
deductible portion of our non-cash ESOP compensation expense.

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


                                       36

<PAGE>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                       CONSOLIDATED STATEMENTS OF EARNINGS

                        EDO CORPORATION AND SUBSIDIARIES



<Table>
<Caption>
                                                          YEARS ENDED DECEMBER 31,
                                                       ------------------------------
                                                         2006       2005       2004
                                                       --------   --------   --------
                                                               (IN THOUSANDS,
                                                          EXCEPT PER SHARE AMOUNTS)

<S>                                                    <C>        <C>        <C>

NET SALES............................................  $715,197   $648,482   $536,173
COSTS AND EXPENSES
  Cost of sales......................................   565,486    490,617    392,961
  Selling, general and administrative................   109,809     85,921     78,791
  Research and development...........................    14,029     17,122     11,620
  Acquisition-related costs..........................     3,537         --         --
  Impairment loss on intangible assets...............     1,487         --         --
  Environmental cost provision, Deer Park facility...        --      1,543         --
                                                       --------   --------   --------
                                                        694,348    595,203    483,372
                                                       --------   --------   --------
OPERATING EARNINGS...................................    20,849     53,279     52,801
NON-OPERATING INCOME (EXPENSE)
  Interest income....................................     4,945      2,300      1,271
  Interest expense...................................   (14,441)    (9,420)    (9,119)
  Loss on redemption of 5.25% Convertible
     Subordinated Notes..............................        --     (4,171)        --
  Other, net.........................................       (37)      (147)      (319)
                                                       --------   --------   --------
                                                         (9,533)   (11,438)    (8,167)
                                                       --------   --------   --------
  Earnings before income taxes.......................    11,316     41,841     44,634
Income tax benefit (expense).........................       261    (15,572)   (15,566)
                                                       --------   --------   --------
NET EARNINGS.........................................  $ 11,577   $ 26,269   $ 29,068
                                                       ========   ========   ========
NET EARNINGS PER COMMON SHARE:
  Basic..............................................  $   0.64   $   1.45   $   1.64
                                                       ========   ========   ========
  Diluted............................................  $   0.62   $   1.33   $   1.49
                                                       ========   ========   ========
Dividends declared per common share..................  $   0.12   $   0.12   $   0.12
                                                       ========   ========   ========

</Table>



          See accompanying Notes to Consolidated Financial Statements.


                                       37

<PAGE>

                           CONSOLIDATED BALANCE SHEETS

                        EDO CORPORATION AND SUBSIDIARIES



<Table>
<Caption>
                                                                   DECEMBER 31,
                                                               -------------------
                                                                 2006       2005
                                                               --------   --------
                                                                  (IN THOUSANDS)

<S>                                                            <C>        <C>

                                      ASSETS
Current assets:
  Cash and cash equivalents..................................  $ 25,322   $108,731
  Accounts receivable, net...................................   265,298    189,190
  Inventories................................................    56,255     56,567
  Deferred income tax asset, net.............................    12,160      8,946
  Notes receivable...........................................        --      7,100
  Prepayments and other......................................    13,682      3,809
                                                               --------   --------
     Total current assets....................................   372,717    374,343
                                                               --------   --------
Property, plant and equipment, net...........................    59,109     49,574
Goodwill.....................................................   385,926    152,347
Other intangible assets......................................   103,776     55,925
Deferred income tax asset, net...............................     8,291     29,637
Other assets.................................................    20,003     25,573
                                                               --------   --------
                                                                949,822   $687,399
                                                               ========   ========

                       LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable...........................................  $ 63,334   $ 33,111
  Accrued liabilities........................................    78,780     52,126
  Contract advances and deposits.............................    44,323     42,244
  Postretirement benefits obligation, short-term.............     1,794         --
  Short-term borrowings under revolver.......................   180,000         --
  Notes payable..............................................     7,766      2,000
                                                               --------   --------
     Total current liabilities...............................   375,997    129,481
                                                               --------   --------
Income taxes payable.........................................     4,154      6,513
Notes payable, long-term.....................................    14,533      5,000
Long-term debt...............................................   201,250    201,250
Postretirement benefits obligation, long-term................    77,734    103,815
Environmental obligation.....................................     1,198      1,392
Other long-term liabilities..................................        40         55
Shareholders' equity:
  Preferred shares, par value $1 per share, authorized
     500,000 shares..........................................        --         --
  Common shares, par value $1 per share, authorized
     50,000,000 shares, 21,177,072 issued in 2006 and
     20,305,815 issued in 2005...............................    21,177     20,306
  Additional paid-in capital.................................   177,117    167,219
  Retained earnings..........................................   129,444    120,103
  Accumulated other comprehensive loss, net of income tax
     benefit ($25,814 in 2006 and $32,711 in 2005)...........   (37,319)   (47,072)
  Treasury shares at cost (111,499 shares in 2006 and 111,317
     shares in 2005).........................................    (1,966)    (1,868)
  Unearned Employee Stock Ownership Plan shares..............   (13,537)   (14,789)
  Deferred compensation under Long-Term Incentive Plan.......        --     (3,866)
  Management group receivables...............................        --       (140)
                                                               --------   --------
     Total shareholders' equity..............................   274,916    239,893
                                                               --------   --------
                                                               $949,822   $687,399
                                                               ========   ========

</Table>



          See accompanying Notes to Consolidated Financial Statements.


                                       38

<PAGE>

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                        EDO CORPORATION AND SUBSIDIARIES



<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                              ---------------------------------------------------------
                                                     2006                2005                2004
                                              -----------------   -----------------   -----------------
                                               AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                              --------   ------   --------   ------   --------   ------
                                                                    (IN THOUSANDS)

<S>                                           <C>        <C>      <C>        <C>      <C>        <C>

COMMON SHARES
  Balance at beginning of year..............    20,306   20,306     20,112   20,112     19,832   19,832
  Exercise of stock options.................        98       98         83       83        164      164
  Shares used for Long-Term Incentive Plan
     and other Restricted Shares grants.....       558      558        111      111        116      116
  CAS purchase price shares.................       215      215         --       --         --       --
                                              --------   ------   --------   ------   --------   ------
  Balance at end of year....................    21,177   21,177     20,306   20,306     20,112   20,112
                                              --------   ------   --------   ------   --------   ------
ADDITIONAL PAID-IN CAPITAL
  Balance at beginning of year..............   167,219             158,548             150,097
  Exercise of stock options.................       966                 792               1,371
  Income tax benefit related to stock
     options and Long-Term Incentive Plan...       581                 711               1,134
  Shares used for payment of directors'
     fees...................................        65                  83                  60
  Shares used for Long-Term Incentive Plan
     and other Restricted Shares grants.....     8,282               3,347               2,807
  Compensation expense on accelerated
     options................................        --                  37                  --
  Employee Stock Ownership Plan shares
     committed-to-be-released...............     3,032               3,701               3,079
  FAS 123(R) Compensation expense...........       838                  --                  --
  FAS 123(R) transfer from Deferred
     Compensation Under Long-Term Incentive
     Plan...................................    (3,866)                 --                  --
                                              --------            --------            --------
  Balance at end of year....................   177,117             167,219             158,548
                                              --------            --------            --------
RETAINED EARNINGS
  Balance at beginning of year..............   120,103              96,004              69,059
  Net earnings..............................    11,577              26,269              29,068
  Common share dividends (12 cents per
     share).................................    (2,236)             (2,170)             (2,123)
                                              --------            --------            --------
  Balance at end of year....................   129,444             120,103              96,004
                                              --------            --------            --------
ACCUMULATED OTHER COMPREHENSIVE LOSS
  Balance at beginning of year..............   (47,072)            (42,619)            (29,281)
  Unrealized gain (loss) on foreign
     currency, net of tax...................       249                   8                (273)
  Additional minimum pension liability
     adjustment (Pre-SFAS 158), net of tax..     7,052              (4,461)            (13,065)
  Adoption of SFAS 158, net of tax (see Note
     13)....................................     2,452                  --                  --
                                              --------            --------            --------
  Balance at end of year....................   (37,319)            (47,072)            (42,619)
                                              --------            --------            --------
TREASURY SHARES AT COST
  Balance at beginning of year..............    (1,868)    (111)    (1,449)     (95)    (1,255)     (88)
  Shares used for payment of directors'
     fees...................................       148        8        115        7         80        5
  Shares repurchased from Long-Term
     Incentive Plan.........................      (246)      (8)      (534)     (23)      (274)     (12)
                                              --------   ------   --------   ------   --------   ------
  Balance at end of year....................    (1,966)    (111)    (1,868)    (111)    (1,449)     (95)
                                              --------   ------   --------   ------   --------   ------
DEFERRED COMPENSATION UNDER LONG-TERM
  INCENTIVE PLAN
  Balance at beginning of year..............    (3,866)             (2,408)               (479)
  Shares repurchased from Long-Term
     Incentive Plan.........................                        (3,136)             (2,845)
  Shares cancelled of Long-Term Incentive
     Plan...................................                            17
  Amortization of Long-Term Incentive Plan
     deferred compensation expense..........                         1,661                 916
  FAS 123(R) transfer to Additional Paid-In
     Capital................................     3,866                  --                  --
                                              --------            --------            --------
  Balance at end of year....................        --              (3,866)             (2,408)
                                              --------            --------            --------
</Table>

                                       39

<PAGE>

<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                              ---------------------------------------------------------
                                                     2006                2005                2004
                                              -----------------   -----------------   -----------------
                                               AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                              --------   ------   --------   ------   --------   ------
                                                                    (IN THOUSANDS)

<S>                                           <C>        <C>      <C>        <C>      <C>        <C>
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN
  COMPENSATION
  Balance at beginning of year..............   (14,789)            (16,039)            (17,290)
  Employee Stock Ownership Plan Shares
     committed-to-be-released...............     1,252               1,250               1,251
                                              --------            --------            --------
  Balance at end of year....................   (13,537)            (14,789)            (16,039)
                                              --------            --------            --------
MANAGEMENT GROUP RECEIVABLES
  Balance at beginning of year..............      (140)               (221)               (351)
  Payments received on management loans.....       140                  81                 130
                                              --------            --------            --------
  Balance at end of year....................        --                (140)               (221)
                                              --------            --------            --------
TOTAL SHAREHOLDERS' EQUITY..................  $274,916            $239,893            $211,928
                                              ========            ========            ========
COMPREHENSIVE INCOME
  Net earnings..............................  $ 11,577            $ 26,269            $ 29,068
  Additional minimum pension liability (Pre-
     SFAS 158), net of income tax benefit
     (expense) of $(4,900) in 2006, $3,100
     in 2005 and $9,079 in 2004.............     7,052              (4,461)            (13,065)
  Unrealized gain (loss) on foreign
     currency, net of tax...................       249                   8                (273)
                                              --------            --------            --------
  Comprehensive income......................  $ 18,878            $ 21,816            $ 15,730
                                              ========            ========            ========

</Table>



          See accompanying Notes to Consolidated Financial Statements.


                                       40

<PAGE>

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                        EDO CORPORATION AND SUBSIDIARIES


<Table>
<Caption>
                                                          YEARS ENDED DECEMBER 31,
                                                      --------------------------------
                                                         2006        2005       2004
                                                      ---------   ---------   --------
                                                               (IN THOUSANDS)

<S>                                                   <C>         <C>         <C>

OPERATING ACTIVITIES:
  Earnings from operations..........................  $  11,577   $  26,269   $ 29,068
  Adjustments to earnings to arrive at cash provided
     by operations:
     Depreciation...................................     12,425       9,768     10,476
     Amortization...................................      7,702       5,931      5,564
     Impairment loss on other intangible assets.....      1,487          --         --
     Deferred tax benefit...........................       (214)     (3,219)      (660)
     Bad debt (recovery) expense....................        (88)        823         --
     (Gain) loss on sale of property, plant and
       equipment....................................       (309)        801        255
     Environmental cost provision, Deer Park
       facility.....................................         --       1,543         --
     Long-Term Incentive Plan compensation expense..      3,937       1,661        916
     Stock option compensation expense..............        838          --         --
     Non-cash Employee Stock Ownership Plan
       compensation expense.........................      4,283       4,952      4,330
     Dividends on unallocated Employee Stock
       Ownership Plan shares........................        226         251        272
     Non-cash compensation expense..................         --          37         --
     Common shares issued for directors' fees.......        214         198        140
     Changes in operating assets and liabilities,
       excluding effects of acquisitions:
       Accounts receivable..........................    (32,194)    (28,362)   (19,507)
       Inventories..................................      5,435      (2,309)   (18,134)
       Prepayments and other assets.................      4,255       4,554      3,588
       Contribution to defined benefit pension
          plan......................................     (6,000)     (6,000)        --
       Accounts payable, accrued liabilities and
          other.....................................     (2,409)       (905)     2,744
       Contract advances and deposits...............      2,079      28,119      5,501
                                                      ---------   ---------   --------
Cash provided by operations.........................     13,244      44,112     24,553
                                                      ---------   ---------   --------
INVESTING ACTIVITIES:
  Purchase of plant and equipment...................    (18,946)    (23,718)   (14,206)
  Payments received on notes receivable.............      7,100         300      1,200
  Proceeds from sale of property, plant and
     equipment......................................      1,266          --         --
  Cash (paid) received related to acquisitions, net
     of cash acquired...............................   (263,397)    (61,078)       301
                                                      ---------   ---------   --------
Cash used by investing activities...................   (273,977)    (84,496)   (12,705)
                                                      ---------   ---------   --------
</Table>

                                       41

<PAGE>

<Table>
<Caption>
                                                          YEARS ENDED DECEMBER 31,
                                                      --------------------------------
                                                         2006        2005       2004
                                                      ---------   ---------   --------
                                                               (IN THOUSANDS)

<S>                                                   <C>         <C>         <C>
FINANCING ACTIVITIES:
  Short-term borrowings under revolver..............    216,000          --         --
  Repayments of revolving debt......................    (36,000)         --         --
  Issuance of 4.0% convertible subordinated notes...         --     195,716         --
  Redemption of 5.25% convertible subordinated
     notes..........................................         --    (137,800)        --
  Proceeds from exercise of stock options...........      1,064         875      1,535
  Excess income tax benefit from stock options and
     Long-Term Incentive Plan.......................        581         711      1,134
  Proceeds from management group receivables........        140          81        130
  Repayments of acquired debt.......................         --      (6,931)        --
  Payment of notes payable..........................     (2,000)         --         --
  Payment of common share cash dividends............     (2,461)     (2,421)    (2,395)
                                                      ---------   ---------   --------
Cash provided by financing activities...............    177,324      50,231        404
                                                      ---------   ---------   --------
Net (decrease) increase in cash and cash
  equivalents.......................................    (83,409)      9,847     12,252
Cash and cash equivalents at beginning of year......    108,731      98,884     86,632
                                                      ---------   ---------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR............  $  25,322   $ 108,731   $ 98,884
                                                      =========   =========   ========
Supplemental disclosures:
  Cash paid for:
     Interest.......................................  $  12,024   $   8,119   $  7,234
                                                      =========   =========   ========
     Income taxes...................................  $  11,163   $  15,424   $ 16,278
                                                      =========   =========   ========

</Table>



          See accompanying Notes to Consolidated Financial Statements.


                                       42

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2006, 2005 AND 2004

(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
inter-company accounts and transactions have been eliminated in consolidation.

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

  (B) CASH EQUIVALENTS

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

  (C) REVENUE RECOGNITION

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

  (D) INVENTORIES

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

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

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

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

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

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


                                       43

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

     Costs associated with the acquisition and development of software for
internal use are recognized in accordance with Statement of Position ("SOP") No.
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." In 2006 and 2005, the Company capitalized approximately $1.4
million and $2.6 million, respectively, of such costs. These costs are being
amortized on a straight-line basis over periods ranging from two to five years.

     Deferred financing costs are amortized on a straight-line basis over the
life of the related financing. Unamortized deferred financing costs of $6.8
million and $7.5 million are included in other assets at December 31, 2006 and
2005, respectively, and comprised primarily of the costs associated with the
issuance of the 4.0% Convertible Subordinated Notes and the costs to enter into
our $300 million Credit Facility.

  (F) BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS

     In accordance with SFAS No. 142, goodwill must be tested at least annually
for impairment at the reporting unit level. If an indication of impairment
exists, we are required to determine if such goodwill's implied fair value is
less than the carrying value in order to determine the amount, if any, of the
impairment loss required to be recorded. Impairment indicators include, among
other conditions, cash flow deficits, an historic or anticipated decline in
revenue or operating profits, adverse legal or regulatory developments,
accumulation of costs significantly in excess of amounts originally expected to
acquire the asset and/or a material decrease in the fair value of some or all of
the assets. The Company performs the required impairment tests of goodwill as of
October 1 each year. There was no indication of impairment at December 31, 2006
and 2005.


                                       44

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The changes in the carrying amount of goodwill by segment for the years
ended December 31, 2006 and 2005 are as follows:


<Table>
<Caption>
                                               ENGINEERED      ELECTRONIC
                                              SYSTEMS AND      SYSTEMS AND
                                                SERVICES     COMMUNICATIONS      TOTAL
                                              -----------    --------------    --------
                                                      (IN THOUSANDS)

<S>                                           <C>            <C>               <C>

Balance as of January 1, 2005..............     $ 37,899        $ 53,752       $ 91,651
Acquisition of EVI.........................           --          31,302         31,302
Acquisition of Fiber Innovations...........        5,947              --          5,947
Acquisition of NexGen......................           --          23,447         23,447
                                                --------        --------       --------
Balance as of December 31, 2005............       43,846         108,501        152,347
Purchase price adjustments.................          328          (3,385)        (3,057)
Acquisition of CAS.........................      142,286              --        142,286
Acquisition of IST.........................           --          94,350         94,350
                                                --------        --------       --------
Balance as of December 31, 2006............     $186,460        $199,466       $385,926
                                                ========        ========       ========

</Table>


     Summarized below are other intangible assets as of December 31:


<Table>
<Caption>
                                                   2006       2005        LIFE
                                                 --------   --------   ----------
                                                    (IN THOUSANDS)

<S>                                              <C>        <C>        <C>

Other intangible assets subject to
  amortization:
  Capitalized non-compete agreements related to
     acquisitions..............................  $  2,738   $  3,118   1-5 years
  Purchased technologies related to
     acquisitions..............................    28,083     21,103   8-25 years
  Customer contracts and relationships related
     to acquisitions...........................    87,186     45,698   6-20 years
  Tradename related to acquisitions............     8,464      2,069   5-10 years
                                                 --------   --------
                                                  126,471     71,988
     Less accumulated amortization.............   (23,095)   (16,463)
                                                 --------   --------
                                                 $103,376   $ 55,525
Other intangible assets not subject to
  amortization:
     Tradename related to acquisitions.........       400        400
                                                 --------   --------
Balance as of December 31......................  $103,776   $ 55,925
                                                 ========   ========

</Table>


     The amortization expense for the years ended December 31, 2006, 2005 and
2004 amounted to $7.7 million, $5.9 million and $5.5 million, respectively.
Amortization expense for 2007, 2008, 2009, 2010, 2011 and thereafter related to
these other intangible assets is estimated to be $10.3 million, $9.6 million,
$9.5 million, $8.8 million, $7.4 million and $57.8 million, respectively. In
2006, we wrote off approximately $1.5 million of unamortized intangible assets
related to the Company's rugged computer product line, where sales and orders
were not materializing to expected levels. Consequently, the related
identifiable intangible assets were deemed impaired.

  (G) INCOME TAXES

     Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the

                                       45

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

years in which those temporary differences are expected to be realized or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

  (H) TREASURY SHARES

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

  (I) FINANCIAL INSTRUMENTS

     The fair value of the Company's 4.0% Convertible Subordinated Notes due
2025 (4.0% Notes) at December 31, 2006 was approximately $194.2 million based on
recent market transactions compared to a carrying value of $201.2 million. In
2005, the net carrying value of notes receivable approximated fair value based
on existing rates for comparable commercial mortgages. The fair value of the
environmental obligation approximates its carrying value since it has been
discounted. The fair values of all other financial instruments approximate book
values because of the short-term maturities of these instruments.

  (J) USE OF ESTIMATES

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

  (K) STOCK-BASED COMPENSATION

     The Company has granted non-qualified stock options and restricted shares
under the 2002 Long-Term Incentive Plan (LTIP), the 2002 Non-Employee Director
Stock Option Plan (NEDSOP) (see Note 12) and in connection with the CAS and IST
acquisitions.

     Prior to January 1, 2006, the Company accounted 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,
as permitted by Financial Accounting Standard Board (FASB) Statement No. 123
(SFAS No. 123), "Accounting for Stock-based Compensation." Under APB No. 25,
because the exercise price of the Company's stock options is set at the market
price of the underlying shares on the date of grant, no employee compensation
expense was recognized in the Statement of Earnings. Effective January 1, 2006,
the Company adopted the fair value recognition provisions of FAS 123(R), using
the modified prospective transition method. Under this method, compensation cost
recognized in 2006 includes: (a) compensation cost for all options granted prior
to January 1, 2006, but not yet vested, based on the fair value on the grant
date and (b) compensation cost for all options granted to Directors under the
NEDSOP subsequent to January 1, 2006, which are 100% vested on the date of
grant. Results of prior periods are not required to be restated.

  (L) RECLASSIFICATIONS

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

(2) ACQUISITIONS

     On September 15, 2006, the Company acquired all of the stock of Impact
Science and Technology Inc., (IST) for $123.7 million, consisting of a cash
payment of $106.4 million and a $17.3 million promissory note to be paid over
three years. We also incurred $0.6 million of transaction costs. In addition,
there was a subsequent determination of final purchase price, resulting in a
$9.2 million accrual at December 31, 2006 and payment in

                                       46

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

January 2007. IST is a privately-held company providing signals intelligence
(SIGINT) systems and analysis support to the intelligence community, and
advanced countermeasures and electronic-attack systems to the U.S. Department of
Defense (DoD) and other government agencies. The acquisition strengthened our
position in specialized communication products and expanded the company's
business in the intelligence community. The acquired company became part of the
Company's Electronic Systems and Communications segment. The Company has
estimated the fair value of the acquired assets and liabilities. Consequently,
amounts recorded are subject to change. The excess of the purchase price over
the net assets acquired related to IST is not deductible for income tax
purposes.

     On September 6, 2006, the Company acquired all of the stock of CAS Inc.,
(CAS) for $178.1 million, consisting of a cash payment of $173.2 million and
214,574 EDO common shares valued at $4.9 million. We also incurred $1.5 million
in transaction costs. CAS is a privately-held company providing engineering
services, logistics support, and weapon-systems analysis to the DoD. This
acquisition has strengthened and expanded our range of professional and
engineering services. The acquired company became part of the Company's
Engineered Systems and Services segment. The Company has estimated the fair
value of the acquired assets and liabilities. Consequently, the amounts recorded
are subject to change. The excess of the purchase price over the net assets
acquired recorded as goodwill and other intangible assets in the amount of
$168.5 million is deductible for income tax purposes over 15 years.

     On December 20, 2005, the Company acquired for cash all of the stock of
NexGen Communications LLC (NexGen), a privately-held company specializing in the
design and production of communications systems for a diverse set of U.S.
government organizations. The acquisition strengthened our position in
specialized communication products. The acquired company became part of the
Company's Electronic Systems and Communications segment. The excess of the
purchase price over the net assets acquired related to NexGen is not deductible
for income tax purposes.

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

     On May 2, 2005, we acquired for cash all of the units of EVI Technology,
LLC (EVI), a privately-held company. EVI is a designer, manufacturer and
integrator of classified intelligence systems. EVI has strengthened and expanded
EDO's range of products and engineering expertise in a number of synergistic
areas. The acquired company became part of the Company's Electronic Systems and
Communications segment. The excess of the purchase price over the net assets
acquired related to EVI recorded as goodwill and other intangible assets in the
amount of $36.6 million is deductible for income tax purposes over 15 years.

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


                                       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 dates of acquisition:


<Table>
<Caption>
                                                       IST AT               CAS AT
                                                 SEPTEMBER 15, 2006   SEPTEMBER 6, 2006
                                                 ------------------   -----------------
                                                             (IN THOUSANDS)

<S>                                              <C>                  <C>

Current assets.................................       $ 37,110             $ 34,842
Plant and equipment............................          3,265                1,317
Purchased technology...........................          6,420                   --
Tradename......................................            700                6,030
Customer contracts.............................         17,970               20,220
Goodwill.......................................         84,289              142,285
Liabilities....................................        (16,264)             (25,088)
                                                      --------             --------
Total purchase price...........................       $133,490             $179,606
                                                      ========             ========

</Table>


     Unaudited pro forma results of operations, assuming the acquisitions of IST
and CAS had been completed at the beginning of 2006 and 2005 are summarized
below. The results reflect adjustments to net sales, cost of sales, compensation
expense, interest income and expense, acquisition-related costs, and income tax
expense. The interest rates used in determining pro forma adjustments to
interest income are based on the average yield of the Company's invested cash
and cash equivalents which approximated 4.2% and 2.9% for the twelve months
ended December 31, 2006 and 2005, respectively. The interest rates used in
determining the pro forma adjustments for interest expense is related to our
credit facility and approximated 7.1% and 5.0% for the twelve months ended
December 31, 2006, and 2005, respectively.


<Table>
<Caption>
                                                              YEAR ENDED
                                                             DECEMBER 31,
                                                         -------------------
                                                           2006       2005
                                                         --------   --------
                                                            (IN THOUSANDS,
                                                                EXCEPT
                                                          PER SHARE AMOUNTS)
                                                             (UNAUDITED)

<S>                                                      <C>        <C>

Net Sales..............................................  $906,337   $897,219
Net Earnings...........................................    12,930     25,905
Diluted Earnings per share.............................  $   0.71   $   1.31
</Table>


     On a pro forma basis, the effect of the convertible subordinated notes was
anti-dilutive and dilutive for 2006 and 2005, respectively.

     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 years, or of the results which may occur
in the future.

     On a pro forma basis, had the acquisitions of NexGen, Fiber Innovations,
and EVI taken place as of the beginning of each year, the results of operations
would not have been materially affected.

(3) ACCOUNTS AND NOTES RECEIVABLE

     Accounts receivable included $129.7 million and $65.6 million at December
31, 2006 and 2005, respectively, of unbilled revenues. Substantially all of the
unbilled balances at December 31, 2006 will be billed and are expected to be
collected during 2007. Total billed receivables due from the United States
Government, either directly or as a subcontractor to a prime contractor with the
Government, were $105.4 million and $92.1 million at December 31, 2006 and 2005,
respectively. Billed accounts receivable are net of allowances for doubtful
accounts of approximately $0.8 million and $1.0 million at December 31, 2006 and
2005, respectively.


                                       48

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At December 31, 2005 Notes receivable included $0.1 million related to the
sale of the College Point facility in January 1996, which was collected in
January 2006. Also included in notes receivable at December 31, 2005 was the
note related to the sale of the Company's Deer Park facility in July 2003.

(4) INVENTORIES

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


<Table>
<Caption>
                                                            2006       2005
                                                          --------   -------
                                                            (IN THOUSANDS)

<S>                                                       <C>        <C>

Raw material and supplies...............................  $ 14,881   $11,976
Work-in-process.........................................    52,742    49,829
Finished goods..........................................    15,045     1,690
  Less: Unliquidated progress payments..................   (26,413)   (6,928)
                                                          --------   -------
Total...................................................  $ 56,255   $56,567
                                                          ========   =======

</Table>


(5) 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>
                                             2006       2005              LIFE
                                           --------   --------   ---------------------
                                              (IN THOUSANDS)

<S>                                        <C>        <C>        <C>

Land.....................................  $     --   $    125
Buildings and improvements...............       161        161   10-30 years
Machinery and equipment..................    83,971     71,710   3-19 years
Software.................................    14,342     12,016   2-5 years
Leasehold improvements...................    32,997     28,379   Lesser of useful life
                                                                 or lease term
                                           --------   --------
                                            131,471    112,391
Less accumulated depreciation and
  amortization...........................   (72,362)   (62,817)
                                           --------   --------
                                           $ 59,109   $ 49,574
                                           ========   ========

</Table>




                                       49

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) ACCRUED LIABILITIES

     Accrued liabilities consisted of the following at December 31:


<Table>
<Caption>
                                                            2006      2005
                                                          -------   -------
                                                            (IN THOUSANDS)

<S>                                                       <C>       <C>

Employee compensation and benefits......................  $38,212   $24,788
Accrual for future costs related to acquired contracts..       --     2,520
Income taxes payable....................................    5,497     5,141
Accrued rent............................................    5,296     3,995
Accrued interest........................................    2,095       904
Warranty................................................    1,865     1,481
Current portion of environmental obligation.............      234     1,070
Accrued additional purchase price -- IST................    9,224        --
Other...................................................   16,357    12,227
                                                          -------   -------
                                                          $78,780   $52,126
                                                          =======   =======

</Table>


(7) NOTES PAYABLE, LONG-TERM DEBT AND CREDIT FACILITY

  NOTES PAYABLE

     As part of its acquisition of Impact Science and Technology Inc., on
September 15, 2006, the Company issued a $17.3 million promissory note payable
to the non-ESOP sellers. The note bears interest at 6.0% and is payable in three
equal annual installments of approximately $5.8 million starting on September
15, 2007.

     Also, as part of its acquisition of NexGen Communications LLC, on December
20, 2005, the Company issued a $7.0 million note payable to the sellers. The
note bears interest at approximately 4.41% and is payable in annual installments
of $2.0 million, $2.0 million and $3.0 million due on December 20, 2006, 2007
and 2008, respectively. The Company made the December 20, 2006 payment as
scheduled, leaving $5.0 million outstanding at December 31, 2006.

  4.0% CONVERTIBLE SUBORDINATED NOTES DUE 2025

     In November 2005, the Company completed its offering of $201.2 million of
4.0% Convertible Senior Subordinated Notes (4.0% Notes) due 2025 and received
$195.7 million, net of $5.5 million of commissions. Interest payments are due
May 15 and November 15 of each year. Accrued interest payable, included in
accrued liabilities on the accompanying consolidated balance sheet, was $1.0
million and $0.9 million at December 31, 2006 and 2005, respectively.

     The Company used part of the proceeds from the offering of the 4.0% Notes
to redeem its 5.25% Convertible Subordinated Notes in November 2005. The
payments associated with the redemption were $137.8 million of principal, $2.9
million for a 2.1% premium on the principal amount, and $0.9 million in accrued
interest from October 15 through the redemption date of November 29, 2005.
Additionally at time of redemption, the Company expensed the remaining
unamortized deferred charges in the amount of $1.3 million associated with the
5.25% Notes.

     In connection with the offering of the 4.0% Notes, there are $5.4 million
and $5.7 million of unamortized debt issuance costs at December 31, 2006 and
2005, respectively, which are included in other assets on the accompanying
consolidated balance sheets and are being amortized through April 2025.

     The 4.0% Notes are convertible, unless previously redeemed or repurchased
by the Company, at the option of the holder at any time prior to maturity, into
the Company's common share at an initial conversion price of

                                       50

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$34.19 per share, subject to adjustment in certain events. As of December 31,
2006, there had been no such conversions.

  CREDIT FACILITY

     In November 2005, the Company entered into a $300 million revolving credit
facility with a consortium of banks, led by Citibank, N.A. as the administrative
agent, Fleet National Bank as the syndication agent and Wachovia Bank, N.A. as
the documentation agent. This new facility replaced the Company's expiring $200
million facility and expires in November 2010. In connection with the new credit
facility, $1.3 million and $1.6 million of deferred finance costs are included
in other assets on the accompanying consolidated balance sheet at December 31,
2006 and 2005, respectively, and are being amortized over the term of the
agreement.

     The credit agreement provides for a revolving credit facility in an
aggregate amount equal to $300 million with sub-limits of $20 million for short-
term swing loans and $100 million for letters of credit. The potential cash
borrowing under the facility is reduced by the amount of outstanding letters of
credit. The Company has the option to select Base Rate or Eurodollar Rate loans
under the terms of the Credit Agreement. Any borrowings under the facility would
be priced initially at LIBOR plus a predetermined amount depending on our
consolidated leverage ratio at the time of the borrowing. At December 31, 2006,
LIBOR was approximately 5.3% and the applicable adjustment to LIBOR was 2.75%.
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%. In addition, the agreement provides for potential incremental
credit extensions in the form of term loans or revolving credit commitment
increases of up to $300 million.

     At December 31, 2006, there were $180.0 million of borrowings outstanding
under the credit facility and $34.7 million of outstanding letters of credit,
leaving $85.3 million available for additional borrowings. Accrued interest
payable was $0.8 million at December 31, 2006. There were no direct borrowings
outstanding under the credit facility at December 31, 2005.

     In connection with the credit facility, the Company is required to maintain
both financial and non-financial covenants and ratios, including, but not
limited to, leverage ratio, fixed charge coverage ratio, and senior secured
leverage ratio. As of December 31, 2006, the Company was in compliance with its
covenants. The credit facility is secured by the Company's accounts receivable,
inventory and machinery and equipment.

(8) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

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

     The ESOP has an indirect loan from the Company payable through December 31,
2017. As quarterly payments are made under the indirect loan, unallocated common
shares in the ESOP are committed-to-be-released. The allocation to participants
is based on (i) a match of 50% of the first 6% of the participants' 401(k)
contributions; (ii) a special allocation for employees who meet certain service
requirements (iii) a 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 2006, 2005 and 2004, non-cash ESOP compensation expense recorded by the
Company amounted to $4.3 million, $5.0 million, and $4.3 million, respectively.
At December 31, 2006, there are 1,822,172 unearned/unallocated shares which have
an aggregate market value of $43.3 million and 1,738,590 allocated shares. Total
principal and interest payments made in 2006, 2005, and 2004 under the ESOP
indirect loan amounted to $1.7 million in each of the three years.


                                       51

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(9) INCOME TAXES

     The 2006, 2005 and 2004 significant components of the provision for income
taxes attributable to continuing operations are as follows:


<Table>
<Caption>
                                                      2006      2005      2004
                                                    -------   -------   -------
                                                           (IN THOUSANDS)

<S>                                                 <C>       <C>       <C>

Federal
  Current.........................................  $ 2,117   $16,711   $13,375
  Deferred........................................     (292)   (2,926)     (533)
                                                    -------   -------   -------
                                                    $ 1,825   $13,785   $12,842
                                                    -------   -------   -------
Foreign
  Current.........................................       --       135       (25)
  Deferred........................................       26       213        77
                                                    -------   -------   -------
                                                    $    26   $   348   $    52
                                                    -------   -------   -------
State
  Current.........................................  $(2,164)  $ 1,945   $ 2,876
  Deferred........................................       52      (506)     (204)
                                                    -------   -------   -------
                                                    $(2,112)  $ 1,439   $ 2,672
                                                    -------   -------   -------
Total.............................................  $  (261)  $15,572   $15,566
                                                    =======   =======   =======

</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
                                                         ---------------------
                                                          2006     2005   2004
                                                         -----     ----   ----

<S>                                                      <C>       <C>    <C>

Tax at statutory rate..................................   35.0%    35.0%  35.0%
State taxes, net of Federal benefit....................    6.5      2.9    4.7
Reserve adjustment.....................................  (12.8)    (3.5)  (6.2)
Non-cash ESOP compensation expense.....................   10.4      3.4    1.9
Federal Research and Development Credit................  (22.8)(a)   --     --
State Investment Tax Credits...........................   (5.3)      --     --
Foreign sales benefit..................................  (14.7)(b) (1.0)  (1.1)
Manufacturing exemption................................   (1.0)    (1.0)    --
Other, net.............................................    2.4      1.4    0.6
                                                         -----     ----   ----
Effective income tax rate..............................   (2.3)%   37.2%  34.9%
                                                         =====     ====   ====

</Table>



(a)   Federal research and development credit includes 18.2% benefit
       attributable to 2005 and 2002 resulting from studies completed in the
       third quarter of 2006.

(b)   Foreign sales benefit includes 11.9% benefit attributable to 2005
       resulting from studies completed in the third quarter of 2006.


                                       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>
                                                            2006      2005
                                                          -------   -------
                                                            (IN THOUSANDS)

<S>                                                       <C>       <C>

DEFERRED TAX ASSETS
Retirement plans' additional minimum liability..........  $26,017   $32,621
Post-retirement benefits obligation.....................    5,406     5,512
Non-qualified plans.....................................    7,628     5,194
Inventory valuation.....................................    1,312     1,310
Vacation accrual........................................    4,115     2,954
Rent accrual............................................    2,193     1,732
Other...................................................    5,112     4,338
                                                          -------   -------
Total deferred tax assets...............................   51,783    53,661
                                                          -------   -------
DEFERRED TAX LIABILITIES
Depreciation and amortization...........................   23,938     8,801
Prepaid pension asset...................................    6,851     5,530
Other...................................................      543       747
                                                          -------   -------
Total deferred tax liabilities..........................   31,332    15,078
                                                          -------   -------
Net deferred tax asset..................................  $20,451   $38,583
                                                          =======   =======

</Table>


     The Company is subject to ongoing tax examinations in various
jurisdictions, which may result in challenges to tax positions taken and,
accordingly, the Company may record adjustments to provisions based on the
probable outcomes of such matters. However, the Company believes that the
resolution of these matters will not have a material effect on its financial
position, results of operations or cash flows. The Company recorded an income
tax benefit of $1.5 million and $1.5 million for the years ended December 31,
2006 and December 31, 2005, respectively, as a net adjustment for income tax
contingency reserves.

(10) SHAREHOLDERS' EQUITY

     At various times beginning in 1983, the Board of Directors has authorized
and subsequently increased by amendments, a plan to purchase an aggregate amount
of 4,190,000 common shares. As of December 31, 2006, the Company had acquired
approximately 4,091,000 common shares in open market transactions at prevailing
market prices. Approximately 4,062,000 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% share
dividend; and stock options exercised. As of December 31, 2006 and 2005,
respectively, the Company held 111,499 and 111,317 common shares in its treasury
for future use.

     At December 31, 2006, the Company had reserved 8,346,692 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)

(11) EARNINGS PER SHARE

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


<Table>
<Caption>
                                                     2006      2005      2004
                                                   -------   -------   -------
                                                          (IN THOUSANDS)

<S>                                                <C>       <C>       <C>

Numerator:
  Earnings from continuing operations for basic
     calculation.................................  $11,577   $26,269   $29,068
  Effect of dilutive securities:
     Convertible notes...........................       --     4,404     4,268
                                                   -------   -------   -------
  Numerator for diluted calculation..............  $11,577   $30,673   $33,336
                                                   =======   =======   =======
Denominator:
  Denominator for basic calculation..............   18,189    18,081    17,695
  Effect of dilutive securities:
     Stock options...............................      456       264       274
     Convertible notes...........................       --     4,656     4,408
                                                   -------   -------   -------
  Denominator for diluted calculation............   18,645    23,001    22,377
                                                   =======   =======   =======

</Table>


     The assumed conversion of convertible notes was anti-dilutive for 2006 and
dilutive for 2005 and 2004.

     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,
                                                          -------------------
                                                           2006   2005   2004
                                                          -----   ----   ----
                                                             (IN THOUSANDS)

<S>                                                       <C>     <C>    <C>

Convertible Subordinated Notes..........................  5,886    --     --
Unexercised Stock Options...............................    399    74      2
                                                          -----    --     --
                                                          6,285    74      2
                                                          =====    ==     ==

</Table>


(12) STOCK PLANS

     As a result of adopting FAS 123(R) on January 1, 2006, the Company's income
before income taxes and net income were $0.8 million and $0.5 million lower,
respectively, than if it had continued to account for share-based compensation
under Opinion No. 25. Basic and diluted earnings per share were $0.02 and $0.03
lower, respectively, than if the company had continued to account for share-
based compensation under Opinion No. 25.

     Prior to the adoption of FAS 123(R), the Company presented all excess tax
benefits on deductions resulting from the exercise of stock options as an
operating cash flow in the Statement of Cash Flows. FAS 123(R) requires that
this excess tax benefit now be classified as a financing cash flow.
Consequently, $0.6 million excess tax benefit was classified as a financing cash
flow in 2006.

     During 2006, the Company granted options only to its Board of Directors,
which when issued were 100% vested. The Company estimated the fair value of the
2006 stock option awards as of the grant date by applying the Black-Scholes
pricing valuation model. The application of this valuation model involves
assumptions that are judgmental and sensitive in the determination of
compensation expense. The weighted average for key assumptions used in
determining the fair value of options granted are as follows: expected dividend
yield of 1%, risk free interest rate of 4.3%, expected volatility of 44%, and an
expected option life of 7 years.


                                       54

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     A summary of the Company's stock option activity during the twelve months
ended December 31, 2006 is as follows:


<Table>
<Caption>
                                                                    WEIGHTED-
                                                       WEIGHTED-     AVERAGE
                                                        AVERAGE     REMAINING       AGGREGATE
                                                        EXERCISE   CONTRACTUAL      INTRINSIC
                                          OPTIONS        PRICE         TERM           VALUE
                                      --------------   ---------   -----------   --------------
                                      (IN THOUSANDS)                (IN YEARS)   (IN THOUSANDS)

<S>                                   <C>              <C>         <C>           <C>

Outstanding on January 1, 2006......       1,045         $17.25
Options granted.....................          55          27.39
Options exercised...................         (98)         10.79
Options expired/canceled............         (36)         23.86
                                           -----
Exercisable on December 31, 2006....         966         $18.23        4.97          $6,327
                                           =====

</Table>


     As of December 31, 2006, there was no unrecognized future compensation
expense related to non-vested options not yet recognized in the consolidated
statement of earnings.

     Stock based compensation expense recognized for restricted share awards was
$3.9 million $1.7 million and $0.9 million for the twelve months ended December
31, 2006, 2005 and 2004, respectively. The unrecognized compensation cost
related to the unvested restricted shares at December 31, 2006 was approximately
$12.9 million, which will be recognized over a weighted-average period of 2.2
years.

     A summary of the activity of restricted shares for the twelve months ended
December 31, 2006 is as follows:


<Table>
<Caption>
                                                                         WEIGHTED-
                                                                          AVERAGE
                                                                        GRANT DATE
                                                           SHARES       FAIR VALUE
                                                       --------------   ----------
                                                       (IN THOUSANDS)

<S>                                                    <C>              <C>

Outstanding on January 1, 2006.......................        219          $27.78
Granted..............................................        558           23.65
Forfeited/Canceled...................................         (9)          28.12
                                                             ---
Outstanding on December 31, 2006.....................        768          $24.78
                                                             ===

</Table>


     Prior to adoption of FAS 123(R), the fair value of restricted share awards
was recorded as deferred compensation expense as a separate component of
shareholders equity. In accordance with FAS 123(R), the deferred compensation
expense balance of $3.9 million at December 31, 2005 was reclassified to
additional paid-in-capital. The restricted share awards cliff vest in 3 years
and are subject to continued employment. If such employment goal is not met, no
compensation cost is recognized and any previously recognized compensation cost
is reversed.


                                       55

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The following table illustrates the effect on net earnings and earnings per
share if, for the twelve months ended December 31, 2005, the Company had applied
the fair value recognition provisions of SFAS No. 123:


<Table>
<Caption>
                                                               (IN THOUSANDS,
                                                              EXCEPT PER SHARE
                                                                  AMOUNTS)

<S>                                                           <C>

Earnings:
  As reported...............................................       $26,269
  Deferred compensation expense, net of tax.................           980
  Stock option compensation expense based on fair value
     method, net of tax.....................................        (2,528)
                                                                   -------
  Pro forma.................................................       $24,721
                                                                   =======
Basic earnings per common share:
  As reported...............................................       $  1.45
  Pro forma.................................................       $  1.37
Diluted earnings per common share:
  As reported...............................................       $  1.33
  Pro forma.................................................       $  1.27
</Table>


     The Company has granted non-qualified stock options and restricted shares
under the 2002 Long-Term Incentive Plan (LTIP), the 2002 Non-Employee Director
Stock Option Plan ("2002 NEDSOP") and the 2004 Non-Employee Director Stock Plan
("2004 NEDSOP") and in connection with the CAS and IST acquisitions 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 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 expire in 2012. The
2004 NEDSOP will expire in 2014.

     Changes in options outstanding are as follows:


<Table>
<Caption>
                                   2006                     2005                     2004
                          ----------------------   ----------------------   ----------------------
                          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.......    $17.25     1,045,039     $15.86     1,083,811     $14.65     1,206,096
Options granted.........     27.39        55,000      30.68        65,000      24.37        65,000
Options exercised.......     10.79       (98,580)     10.50       (83,322)      9.35      (164,135)
Options
  expired/cancelled.....     23.86       (35,726)     13.76       (20,450)     23.05       (23,150)
                                       ---------                ---------                ---------
End of year.............    $18.23       965,733     $17.25     1,045,039     $15.86     1,083,811
                                       =========                =========                =========
Exercisable at year
  end...................    $18.23       965,733     $17.08       895,759     $12.33       732,956
                                       =========                =========                =========

</Table>




                                       56

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The options outstanding as of December 31, 2006 are summarized as follows:


<Table>
<Caption>
                                               WEIGHTED-      NUMBER OF       WEIGHTED-
RANGE OF                                        AVERAGE        OPTIONS     AVERAGE/AVERAGE
EXERCISE PRICES                             EXERCISE PRICE   OUTSTANDING    REMAINING LIFE
---------------                             --------------   -----------   ---------------

<S>                                         <C>              <C>           <C>

$7.0-$9.60................................      $ 7.89         372,503     3 years
$18.05-$25.01.............................      $20.44         244,505     6 years
$27.02-$31.44.............................      $27.74         348,725     6 years
                                                               -------
                                                               965,733
                                                               =======

</Table>


     The 2002 LTIP also provides for restricted common share long-term incentive
awards as defined under the plan. As of December 31, 2006 plan participants had
been awarded 784,250 restricted common shares. Prior to the Company adopting FAS
123(R), deferred compensation costs related to restricted common shares were
recorded, as a separate component of shareholders' equity, for the fair value of
the restricted common share awards on the date of grant and amortized to
earnings over the period the related services were provided. Pursuant to FAS
123(R), which was adopted by the Company on January 1, 2006, compensation costs
are now being charged directly to earnings over the three-year period the
related services are provided. The fair value of a restricted common share award
is calculated as the average of the high and low market values of our common
shares on the grant date as reported for such date on a national exchange or
nationally recognized system of price quotation. The amount charged to
operations in 2006, 2005 and 2004 was $3.9 million, $1.7 million and $0.9
million, respectively. The increase in the expense for 2006 compared to prior
years is due to an increase in the amount of shares issued over the past two
years compared to prior years as well as the 405,103 restricted shares issued in
conjunction with the IST acquisition.

     The 2006 Long-Term Incentive Plan (2006 LTIP) was approved by shareholders
at the 2006 annual meeting and became effective on January 1, 2007. The 2006
LTIP permits the granting of awards covering 1,200,000 common shares. The
maximum number of common shares may not exceed 200,000 shares during any twelve-
month period. The 2006 LTIP permits the grant of non-qualified stock options,
stock appreciation rights, restricted shares (with or without performance
criteria), performance shares in lieu of cash compensation. The 2006 LTIP
expires on December 31, 2017. As of January 1, 2007, 1,494,537 shares are
available for additional awards and all LTIP and NEDSOP plans.

(13) OTHER EMPLOYEE BENEFIT PLANS

     On December 31, 2006, the Company adopted the recognition and disclosure
provisions of SFAS 158. SFAS 158 requires the Company to recognized the funded
status (the difference between the fair value of plan assets and the projected
benefit obligations) of its post-retirement benefit plans in its December 31,
2006 consolidated balance sheet, with corresponding adjustments to accumulated
other comprehensive income, net of tax. The adjustments to accumulated other
comprehensive income at adoption represent the net unrecognized actuarial gains
and losses, and unrecognized prior service costs remaining from the initial
adoption of FASB statement 87 (Statement 87), which was previously netted
against the plans' funded status in the Company's consolidated balance sheet
pursuant to Statement 87. These amounts will continue to be recognized as net
periodic pension costs in accordance with the Company's accounting policy for
amortizing such amounts. Further, actuarial gains and losses that arise in
subsequent periods that are not recognized as net periodic pension costs in the
same periods will be recognized as a component of other comprehensive income and
subsequently recognized as a component of net periodic pension cost.

     Pursuant to the requirements of SFAS 158, the incremental effect of
adopting SFAS 158 on the Company's consolidated balance sheet at December 31,
2006 are presented below separately for each plan. The adoption of SFAS 158 had
no effect on the Company's consolidated statement of earnings for the year ended
December 31, 2006, or for prior periods presented, and will not affect the
Company's operating results in future periods. Had the

                                       57

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company not been required to adopt SFAS 158 at December 31, 2006, it would have
recognized an additional minimum liability for its qualified and non-qualified
defined benefit plans pursuant to Statement 87.

  DEFINED BENEFIT PLANS

     The Company maintains a qualified noncontributory defined benefit pension
plan covering approximately twenty five percent of its employees. In November
2002, the plan was amended whereby participation and benefits accrued under the
plan were frozen as of December 31, 2002. The Company's funding policy is to
make annual contributions to the extent such contributions are at least equal to
the minimum required contribution and are tax deductible.

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


<Table>
<Caption>
                                                          2006   2005   2004
                                                          ----   ----   ----

<S>                                                       <C>    <C>    <C>

Discount Rate (for obligations as of December 31).......  5.75%  5.50%  5.75%
Expected long-term return on plan assets................  8.25%  8.25%  8.25%
</Table>


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

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

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

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


<Table>
<Caption>
                                                         2006    2005    2004
                                                        -----   -----   -----

<S>                                                     <C>     <C>     <C>

Equity Securities.....................................   73.3%   70.7%   73.7%
Debt Securities.......................................   26.6%   28.7%   25.7%
Cash..................................................    0.1%    0.6%    0.6%
                                                        -----   -----   -----
Total.................................................  100.0%  100.0%  100.0%
                                                        =====   =====   =====

</Table>


     The Company made contributions of $6.0 million to the plan in both 2006 and
2005.

     There was no effect of SFAS 158 on accumulated other comprehensive income
for the qualified benefit plan, since benefits are frozen and no intangible
assets exist. Included in accumulated other comprehensive income in

                                       58

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

shareholders' equity are $35.8 million (net of tax) and $43.0 million (net of
tax) for the years ended December 31, 2006 and 2005, respectively, representing
unrecognized actuarial losses that have not yet been recognized in net periodic
pension cost. The unrecognized actuarial losses included in accumulated other
comprehensive income and expected to be recognized in net periodic pension cost
during 2007 is $4.3 million. The Company recorded an additional minimum
liability of $72.9 million and a net of tax comprehensive loss of $3.8 million
in 2005.

     In 2006, 2005 and 2004 the Company recorded pension expense of $4.8
million, $4.3 million and $2.2 million, respectively. A summary of the
components of net periodic pension expense follows:


<Table>
<Caption>
                                                    2006       2005       2004
                                                  --------   --------   --------
                                                          (IN THOUSANDS)

<S>                                               <C>        <C>        <C>

Interest on projected benefit obligation........    12,154     12,354     12,151
Expected return on plan assets..................   (12,838)   (12,722)   (12,705)
Recognized net actuarial loss...................     5,460      4,645      2,737
                                                  --------   --------   --------
Net pension expense.............................  $  4,776   $  4,277   $  2,183
                                                  ========   ========   ========

</Table>


     The reconciliation of the beginning and ending balances of the projected
benefit obligation and fair value of plan assets as of December 31, 2006 and
2005 are as follows:


<Table>
<Caption>
                                                           2006        2005
                                                        ---------   ---------
                                                            (IN THOUSANDS)

<S>                                                     <C>         <C>

Projected benefit obligation at beginning of year.....  $(228,488)  $(221,945)
Interest cost.........................................    (12,154)    (12,354)
Benefits paid.........................................     15,522      15,270
Actuarial gain (loss).................................      3,365      (9,459)
                                                        ---------   ---------
Projected benefit obligation at the end of year.......  $(221,755)  $(228,488)
                                                        ---------   ---------
Fair value of plan assets at beginning of year........  $ 163,114   $ 161,294
Actual return plan assets.............................     16,124      11,090
Employer contributions................................      6,000       6,000
Benefits paid.........................................    (15,522)    (15,270)
                                                        ---------   ---------
Fair value of plan assets at end of year..............  $ 169,716   $ 163,114
                                                        ---------   ---------
Funded Status.........................................  $ (52,039)  $ (65,374)
                                                        =========   =========
Accumulated benefit obligation........................  $(221,755)  $(228,488)
                                                        =========   =========

</Table>


  ESTIMATED FUTURE BENEFIT PAYMENTS

     The following table presents estimated future benefit payments:


<Table>
<Caption>
                                                               (IN THOUSANDS)

<S>                                                            <C>

2007.........................................................      $14,559
2008.........................................................      $14,806
2009.........................................................      $15,028
2010.........................................................      $15,201
2011.........................................................      $15,271
2012-2016....................................................      $76,390
</Table>




                                       59

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  NON-QUALIFIED PLAN

     The Company has a supplemental retirement plan for officers and certain
employees. Benefits are based on years of service and certain compensation that
is excluded under the qualified plan. The plan is unfunded and has no assets.

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


<Table>
<Caption>
                                                          2006   2005   2004
                                                          ----   ----   ----

<S>                                                       <C>    <C>    <C>

Discount Rate (for obligations as of December 31).......  5.75%  5.50%  5.75%
Rate of compensation increase...........................  5.00%  5.00%  5.00%
</Table>


     In 2006, 2005 and 2004, the Company recorded expense of $2.2 million, $2.3
million and $1.2 million, respectively, related to this plan. A summary of the
components of net periodic pension expense follows:


<Table>
<Caption>
                                                       2006     2005     2004
                                                      ------   ------   ------
                                                           (IN THOUSANDS)

<S>                                                   <C>      <C>      <C>

Service cost........................................  $  268   $  302   $  220
Interest on projected benefit obligation............     978      984      700
Amortization of transitional liability..............       1        3        3
Amortization of prior service cost..................      63       63       63
Recognized net actuarial loss.......................     855      963      171
                                                      ------   ------   ------
Net pension expense.................................  $2,165   $2,315   $1,157
                                                      ======   ======   ======

</Table>


     The incremental effect of adopting the provisions of SFAS 158 on the
Company's consolidated balance sheet with respect to the non-qualified benefit
plan are presented in the following table. The effect of recognizing an
additional minimum liability is included in the column labeled "Prior to
Application of SFAS 158."


<Table>
<Caption>
                                                         AT DECEMBER 31, 2006
                                               ----------------------------------------
                                                  PRIOR TO      EFFECT OF
                                               APPLICATION OF    ADOPTING
                                                  SFAS 158       SFAS 158   AS REPORTED
                                               --------------   ---------   -----------
                                                            (IN THOUSANDS)

<S>                                            <C>              <C>         <C>

Intangible asset.............................     $    370        $(370)      $     --
Deferred income tax asset....................        2,814          501          3,315
Accumulated other comprehensive income (net
  of tax)....................................        4,049          721          4,770
Postretirement benefits obligation...........      (18,831)        (852)       (19,683)
</Table>


     At December 31, 2006, included in accumulated other comprehensive income in
shareholders' equity are the following amounts that have not yet been recognized
in periodic pension cost: unrecognized actuarial losses of $4.6 million (net of
tax) and unrecognized prior service cost of $0.2 million (net of tax). At
December 31, 2005, unrecognized actuarial losses of $4.4 million (net of tax)
and unrecognized prior service cost of $0.2 million (net of tax) were included
in accumulated other comprehensive. In 2005, the Company recorded an additional
minimum liability of $7.1 million and a net of tax comprehensive loss of $0.7.
The actuarial losses and prior service cost included in accumulated other
comprehensive income and expected to be recognized in net periodic pension cost
in 2007 are $1.0 million and $63 thousand, respectively.


                                       60

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The reconciliation of the beginning and ending balances of the projected
benefit obligation and fair value of plan assets as of December 31, 2006 and
2005 are as follows:


<Table>
<Caption>
                                                           2006       2005
                                                         --------   --------
                                                            (IN THOUSANDS)

<S>                                                      <C>        <C>

Projected benefit obligation at beginning of year......  $(18,277)  $(17,583)
Service cost...........................................      (268)      (302)
Interest cost..........................................      (978)      (984)
Benefits paid..........................................       939        944
Actuarial loss.........................................    (1,099)      (352)
                                                         --------   --------
Projected benefit obligation at the end of year........  $(19,683)  $(18,277)
                                                         --------   --------
Fair value of plan assets at beginning of year.........  $     --   $     --
Employer contributions.................................       939        944
Benefits paid..........................................      (939)      (944)
                                                         --------   --------
Fair value of plan assets at end of year...............  $     --   $     --
                                                         --------   --------
Funded Status..........................................  $(19,683)  $(18,277)
                                                         ========   ========
Accumulated benefit obligation.........................  $(18,831)  $(17,510)
                                                         ========   ========

</Table>


  ESTIMATED FUTURE PENSION BENEFIT PAYMENTS

     The following table presents estimated future benefit payments:


<Table>
<Caption>
                                                               (IN THOUSANDS)

<S>                                                            <C>

2007.........................................................      $  926
2008.........................................................      $1,930
2009.........................................................      $1,909
2010.........................................................      $1,874
2011.........................................................      $1,853
2012-2016....................................................      $8,864
</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 shares under the
ESOP plan.

(14) 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.


                                       61

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  EDO POST-RETIREMENT BENEFIT PLAN

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


<Table>
<Caption>
                                                         2006   2005   2004
                                                         ----   ----   ----
                                                           (IN THOUSANDS)

<S>                                                      <C>    <C>    <C>

Interest cost..........................................  $114   $124   $143
Recognized actuarial loss..............................    76     58     53
                                                         ----   ----   ----
Total post-retirement health care and life insurance
  expense..............................................  $190   $182   $196
                                                         ====   ====   ====

</Table>


     The incremental effect of adopting the provisions of SFAS 158 on the
Company's consolidated balance sheet with respect to the EDO Post-Retirement
Benefit plan are presented in the following table.


<Table>
<Caption>
                                                         AT DECEMBER 31, 2006
                                               ----------------------------------------
                                                  PRIOR TO      EFFECT OF
                                               APPLICATION OF    ADOPTING
                                                  SFAS 158       SFAS 158   AS REPORTED
                                               --------------   ---------   -----------
                                                            (IN THOUSANDS)

<S>                                            <C>              <C>         <C>

Postretirement benefits obligation...........      (1,635)         (178)       (1,813)
Deferred income tax asset....................          --            73            73
Accumulated other comprehensive income (net
  of tax)....................................          --           105           105
</Table>


     The reconciliation of the beginning and ending balances of the benefit
obligation and fair value of plan assets as of December 31, 2006 and 2005 are as
follows:


<Table>
<Caption>
                                                             2006      2005
                                                           -------   -------
                                                             (IN THOUSANDS)

<S>                                                        <C>       <C>

Benefit obligation at beginning of year..................  $(2,234)  $(2,322)
Interest cost............................................     (114)     (124)
Participants, contributions..............................      (28)      (35)
Benefits paid............................................      215       328
Amendment................................................      217        --
Actuarial gain (loss)....................................      131       (81)
                                                           -------   -------
Benefit obligation at the end of year....................  $(1,813)  $(2,234)
                                                           -------   -------
Fair value of plan assets at beginning of year
Employer contributions...................................  $   187   $   294
Participants, contributions..............................       28        34
Benefits paid............................................     (215)     (328)
                                                           -------   -------
Fair value of plan assets at end of year.................  $    --   $    --
                                                           -------   -------
Funded Status............................................  $(1,813)  $(2,234)
                                                           =======   =======
Accumulated benefit obligation...........................  $(1,813)  $(2,234)
                                                           =======   =======

</Table>


     Included in accumulated other comprehensive income at December 31, 2006 in
shareholders' equity are the following amounts that have not yet been recognized
in net periodic pension cost: unrecognized actuarial losses of $0.2 million (net
of tax) and unrecognized prior service credit of $0.1 million (net of tax). The
actuarial losses and prior service credit included in accumulated other
comprehensive income and expected to be recognized in net periodic pension cost
in 2007 are $21 thousand and $22 thousand, respectively.

     Actuarial assumptions used in determining the accumulated post-retirement
benefit obligation include a discount rate of 5.75% at December 31, 2006 and
5.50% at December 31, 2005, and estimated increases in health

                                       62

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

     A one percentage point change in the assumed health care cost trend rates
would not have had any effect on interest cost and/or the benefit obligation for
2006.

  AIL POST-RETIREMENT BENEFIT PLAN

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


<Table>
<Caption>
                                                        2006    2005    2004
                                                       -----   -----   ------
                                                           (IN THOUSANDS)

<S>                                                    <C>     <C>     <C>

Service cost.........................................  $ 113   $ 201   $  452
Interest cost........................................    361     446      741
Recognized net actuarial (gain) loss.................   (372)   (226)      12
                                                       -----   -----   ------
Total post-retirement expense........................  $ 102   $ 421   $1,205
                                                       =====   =====   ======

</Table>


     The incremental effect of adopting the provisions of SFAS 158 on the
Company's balance sheet with respect to the AIL Post-Retirement Benefit Plan are
presented in the following table:


<Table>
<Caption>
                                                         AT DECEMBER 31, 2006
                                               ----------------------------------------
                                                  PRIOR TO      EFFECT OF
                                               APPLICATION OF    ADOPTING
                                                  SFAS 158       SFAS 158   AS REPORTED
                                               --------------   ---------   -----------
                                                            (IN THOUSANDS)

<S>                                            <C>              <C>         <C>

Postretirement benefits obligation...........     $(11,549)      $ 5,556      $(5,993)
Deferred income taxes........................           --        (2,278)      (2,278)
Accumulated other comprehensive income (net
  of tax)....................................           --        (3,278)      (3,278)
</Table>


     The reconciliation of the beginning and ending balances of the benefit
obligation and fair value of plan assets as of December 31, 2006 and 2005 are as
follows:


<Table>
<Caption>
                                                             2006      2005
                                                           -------   -------
                                                             (IN THOUSANDS)

<S>                                                        <C>       <C>

Benefit obligation at beginning of year..................  $(6,922)  $(8,213)
Service cost.............................................     (113)     (201)
Interest cost............................................     (361)     (446)
Benefits paid............................................      365       296
Actuarial gain...........................................    1,038     1,642
                                                           -------   -------
Benefit obligation at the end of year....................  $(5,993)  $(6,922)
                                                           -------   -------
Fair value of plan assets at beginning of year ..........  $    --   $    --
Employer contributions...................................      365       296
Benefits paid............................................     (365)     (296)
                                                           -------   -------
Fair value of plan assets at end of year.................  $    --   $    --
                                                           -------   -------
Funded Status............................................  $(5,993)  $(6,992)
                                                           =======   =======
Accumulated benefit obligation...........................  $(5,993)  $(6,992)
                                                           =======   =======

</Table>


     Included in accumulated other comprehensive income at December 31, 2006 in
shareholders' equity is an unrecognized actuarial gain of $5.6 million ($3.3
million net of tax) that has not yet been recognized in net periodic

                                       63

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

pension cost. The actuarial gain included in accumulated other comprehensive
income and expected to be recognized in net periodic pension cost in 2007 is
$0.6 million.

     Actuarial assumptions used in determining the accumulated post-retirement
benefit obligation include a discount rate of 5.75% at December 31, 2006 and
5.50% at December 31, 2005. 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.

     A one percentage point change in the assumed health care cost trend rates
would have had the following effects on the benefit obligation and costs for
2006:


<Table>
<Caption>
                                                          1% POINT   1% POINT
                                                          INCREASE   DECREASE
                                                          --------   --------
                                                             (IN THOUSANDS)

<S>                                                       <C>        <C>

Benefit obligation at end of year.......................    $244       $(219)
Interest cost and service cost..........................    $ 29       $ (26)
</Table>


(15) COMMITMENTS AND CONTINGENCIES

     In order to aggregate all commitments and contractual obligations as of
December 31, 2006, we have included the following table. We are obligated under
building and equipment leases expiring between 2007 and 2019. The aggregate
future minimum lease commitments under those obligations with non-cancellable
terms in excess of one year are shown below. Our commitments under letters of
credit and advance payment and performance bonds relate primarily to advances
received on foreign contracts should we fail to perform in accordance with the
contract terms. We do not expect to have to make payments under these letters of
credit 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:
                                     --------------------------------------------------------
                                                                                        2012
COMMITMENTS AND CONTRACTUAL                                                              AND
OBLIGATIONS:                          TOTAL    2007     2008    2009    2010    2011   BEYOND
---------------------------          ------   ------   -----   -----   -----   -----   ------
                                                           (IN MILLIONS)

<S>                                  <C>      <C>      <C>     <C>     <C>     <C>     <C>

Borrowings under revolver.........   $180.0   $180.0   $  --   $  --   $  --   $  --   $   --
Notes payable.....................     22.3      7.8     8.8     5.7      --      --       --
4.0% Convertible Subordinated
  Notes due 2025(1)...............    201.2       --      --      --      --      --    201.2
Operating leases..................    161.2     22.7    21.7    20.1    18.4    17.3     61.0
Letters of credit.................     34.7     14.5     5.9    13.7      --      --      0.6
Projected pension
  contributions(2)................     41.6      8.0    14.7     8.5     8.3     2.1       --
Advance payment and performance
  bonds...........................      1.9      0.2      --     1.7      --      --       --
                                     ------   ------   -----   -----   -----   -----   ------
Total.............................   $642.9   $233.2   $51.1   $49.7   $26.7   $19.4   $262.8
                                     ======   ======   =====   =====   =====   =====   ======

</Table>


--------

   (1) Excludes interest of approximately $8.0 million annually.

   (2) The Company contributed $6.0 million to the pension plan in both 2006 and
       2005. Actual pension contributions may differ from amounts presented
       above and are contingent on cash flow and liquidity.

     Rental expense for the years ended December 31, 2006, 2005 and 2004
amounted to $19.5 million, $16.5 million and $13.6 million, respectively.


                                       64

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) 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, 2006, the discounted liability over the
remainder of the twenty years related to these two operable units is
approximately $1.4 million of which approximately $0.2 million has been
classified as current and is included in accrued liabilities. Approximately $0.5
million of the $1.4 million liability will be incurred over the next five years.
The Company is 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.

     There is a pending action against the Company by the purchaser of the
Company's Deer Park, New York facility seeking payment of rent after April 2005
and recovery of a portion of the $9.1 million the purchaser paid the Company in
respect of a note and mortgage in the principal sum of $7 million. The Company
and its subsidiaries are also subject to certain other 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.

(17) BUSINESS SEGMENTS

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


                                       65

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Principal products and services by segment are as follows:

ELECTRONIC SYSTEMS AND COMMUNICATIONS

     - ELECTRONIC FORCE PROTECTION SYSTEMS
     - INTERFERENCE CANCELLATION
     - AIRBORNE ELECTRONIC WARFARE SYSTEMS
     - ELINT/ESM SYSTEMS
     - COMMAND, CONTROL, COMMUNICATIONS, AND COMPUTERS (C4) PRODUCTS AND
       SERVICES
     - INTELLIGENCE AND INFORMATION WARFARE SYSTEMS
     - ANTENNA PRODUCTS

     ENGINEERED SYSTEMS AND SERVICES

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

     Domestic U.S. Government sales, which include sales to prime contractors of
the U.S. Government, amounted to 81%, 82% and 79% of net sales, which were 75%,
73% and 72% of Engineered Systems and Services' net sales, 86%, 87% and 87% of
Electronic Systems and Communications' net sales for 2006, 2005 and 2004,
respectively. International sales comprised 15%, 14% and 14% of net sales for
2006, 2005 and 2004, respectively.


                                       66

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Information by segment on net 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>
                                                   2006       2005       2004
                                                 --------   --------   --------
                                                         (IN THOUSANDS)

<S>                                              <C>        <C>        <C>

Net sales:
  Electronic Systems and Communications........  $388,712   $408,217   $273,306
  Engineered Systems and Services..............   326,485    240,265    262,867
                                                 --------   --------   --------
                                                 $715,197   $648,482   $536,173
                                                 --------   --------   --------
Operating earnings:
  Electronic Systems and Communications........  $ 11,798   $ 42,071   $ 26,493
  Engineered Systems and Services..............     9,051     12,751     26,308
  Environmental cost provision-Deer Park
     facility..................................        --     (1,543)        --
                                                 --------   --------   --------
                                                 $ 20,849   $ 53,279   $ 52,801
Net interest expense...........................    (9,496)   (11,291)    (7,848)
Other (expense) income, net....................       (37)      (147)      (319)
                                                 --------   --------   --------
Earnings before income taxes...................  $ 11,316   $ 41,841   $ 44,634
                                                 --------   --------   --------
Identifiable assets:
  Electronic Systems and Communications........  $468,930   $296,294   $201,625
  Engineered Systems and Services..............   403,606    215,121    191,890
  Corporate....................................    77,286    175,984    153,174
                                                 --------   --------   --------
                                                 $949,822   $687,399   $546,689
                                                 --------   --------   --------
Depreciation and amortization:
  Electronic Systems and Communications........  $ 10,334   $  7,180   $  8,015
  Engineered Systems and Services..............     9,160      7,975      7,648
  Corporate....................................       633        544        377
                                                 --------   --------   --------
                                                 $ 20,127   $ 15,699   $ 16,040
                                                 --------   --------   --------
Capital expenditures:
  Electronic Systems and Communications........  $ 11,091   $ 14,316   $  6,076
  Engineered Systems and Services..............     7,571      6,664      7,490
  Corporate....................................       284      2,738        640
                                                 --------   --------   --------
                                                 $ 18,946   $ 23,718   $ 14,206
                                                 ========   ========   ========

</Table>




                                       67

<PAGE>

                        EDO CORPORATION AND SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Acquisition-related costs attributable to the acquisitions are included in
the segments as follows:


<Table>
<Caption>
                                                          2006    2005   2004
                                                         ------   ----   ----
                                                            (IN THOUSANDS)

<S>                                                      <C>      <C>    <C>

Electronic Systems and Communications..................  $1,959    $--    $--
Engineered Systems and Services........................   1,578     --     --
                                                         ------    ---    ---
                                                         $3,537    $--    $--
                                                         ======    ===    ===

</Table>


(18) 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, 2006 and 2005 and for each of the three years in the period ended
December 31, 2006. 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 shares in an amount that exceeds fifty percent of its
consolidated net income for the immediately preceding quarter.


                                       68

<PAGE>

                                 EDO CORPORATION

                      CONDENSED CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2006



<Table>
<Caption>
                                   EDO CORPORATION
                                    PARENT COMPANY   SUBSIDIARY
                                         ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                   ---------------   ----------   --------------   ------------   ------------
                                                                  (IN THOUSANDS)

<S>                                <C>               <C>          <C>              <C>            <C>

ASSETS
Current assets:
Cash and cash equivalents.......       $ 15,305       $  7,588        $ 2,429               --      $ 25,322
Accounts receivable, net........         48,241        212,191          4,866               --       265,298
Inventories.....................         10,816         42,020          3,419               --        56,255
Deferred income tax asset, net..         12,160             --             --               --        12,160
Prepayments and other...........         10,312          3,064            306               --        13,682
                                       --------       --------        -------        ---------      --------
Total current assets............         96,834        264,863         11,020               --       372,717
Investment in subsidiaries......        678,997             --             --         (678,997)           --
Property, plant and equipment,
  net...........................         27,476         27,974          3,659               --        59,109
Goodwill........................             --        377,216          8,710               --       385,926
Other intangible assets, net....             --         94,594          9,182               --       103,776
Deferred income tax asset, net..          8,291             --             --               --         8,291
Other assets....................         17,387          2,616             --               --        20,003
                                       --------       --------        -------        ---------      --------
                                       $828,985       $767,263        $32,571        $(678,997)     $949,822
                                       ========       ========        =======        =========      ========

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
  liabilities...................       $ 52,769       $ 84,685        $ 4,660               --      $142,114
Contract advances and deposits..         13,581         30,742             --               --        44,323
Postretirement benefits
  obligation, short-term........          1,794             --             --               --         1,794
Short-term borrowings under
  revolver......................        180,000             --             --               --       180,000
Notes payable...................          7,766             --             --               --         7,766
                                       --------       --------        -------        ---------      --------
Total current liabilities.......        255,910        115,427          4,660               --       375,997
Long-term debt..................        201,250             --             --               --       201,250
Income taxes payable............          4,154             --             --               --         4,154
Deferred income tax liabilities,
  net...........................           (427)            --            427               --            --
Postretirement benefits
  obligation, long-term.........         77,734             --             --               --        77,734
Notes payable...................         14,533             --             --               --        14,533
Environmental obligation........          1,198             --             --               --         1,198
Other long-term liabilities.....             40             --             --               --            40
Intercompany accounts...........             --        501,335         21,249         (522,584)           --
Shareholders' equity:
Preferred shares................             --             --             --               --            --
Common shares...................         21,177             98             --              (98)       21,177
Additional paid-in capital......        177,117         60,403          6,418          (66,821)      177,117
Retained earnings...............        129,444         94,052           (506)         (93,546)      129,444
Accumulated other comprehensive
  loss, net of income tax
  benefit.......................        (37,642)            --            323               --       (37,319)
Treasury shares.................         (1,966)        (4,052)            --            4,052        (1,966)
Unearned ESOP shares............        (13,537)            --             --               --       (13,537)
                                       --------       --------        -------        ---------      --------
Total shareholders' equity......        274,593        150,501          6,235         (156,413)      274,916
                                       --------       --------        -------        ---------      --------
                                       $828,985       $767,263        $32,571        $(678,997)     $949,822
                                       ========       ========        =======        =========      ========

</Table>




                                       69

<PAGE>

                                 EDO CORPORATION

                  CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                                DECEMBER 31, 2006



<Table>
<Caption>
                                   EDO CORPORATION
                                    PARENT COMPANY   SUBSIDIARY
                                         ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                   ---------------   ----------   --------------   ------------   ------------
                                                                  (IN THOUSANDS)

<S>                                <C>               <C>          <C>              <C>            <C>

Net Sales.......................       $204,607       $495,183        $26,743        $(11,336)      $715,197
Costs and expenses:
Cost of sales...................        169,304        389,202         18,316         (11,336)       565,486
Selling, general and
  administrative................         17,912         84,368          7,529              --        109,809
Research and development........          4,856          8,518            655              --         14,029
Acquisition related costs.......          3,537             --             --              --          3,537
Impairment loss on intangible
  assets........................             --             --          1,487              --          1,487
                                       --------       --------        -------        --------       --------
                                        195,609        482,088         27,987         (11,336)       694,348
                                       --------       --------        -------        --------       --------
Operating Earnings..............          8,998         13,095         (1,244)             --         20,849
Non-operating income (expense)
  Interest income...............          4,542            158            245              --          4,945
Interest expense................        (14,439)            (2)            --              --        (14,441)
Other, net......................            (26)           128           (139)             --            (37)
                                       --------       --------        -------        --------       --------
                                         (9,923)           284            106              --         (9,533)
(Loss) earnings before income
  taxes.........................           (925)        13,379         (1,138)             --         11,316
Income tax benefit (expense)....          7,181         (6,599)          (321)             --            261
                                       --------       --------        -------        --------       --------
Earnings (loss) after income
  taxes.........................          6,256          6,780         (1,459)             --         11,577
Equity in undistributed earnings
  of subsidiaries...............          3,574             --             --          (3,574)            --
                                       --------       --------        -------        --------       --------
Net earnings (loss).............       $  9,830       $  6,780        $(1,459)       $ (3,574)      $ 11,577
                                       ========       ========        =======        ========       ========

</Table>




                                       70

<PAGE>

                                 EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                DECEMBER 31, 2006



<Table>
<Caption>
                                        EDO CORPORATION
                                         PARENT COMPANY   SUBSIDIARY
                                              ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                        ---------------   ----------   --------------   ------------   ------------
                                                                       (IN THOUSANDS)

<S>                                     <C>               <C>          <C>              <C>            <C>

Operating Activities:
Earnings from operations.............      $  11,577       $  5,033        $(1,459)        $(3,574)      $  11,577
Adjustments to earnings to arrive at
  cash provided (used) by operations:
Depreciation.........................          4,925          6,522            978              --          12,425
Amortization.........................             --          6,754            948              --           7,702
Impairment loss on other intangible
  assets.............................             --             --          1,487              --           1,487
Deferred tax (benefit) provision.....          1,358         (1,572)            --              --            (214)
Bad debt expense.....................            (43)           (45)            --              --             (88)
Loss (gain) on sale of property,
  plant and equipment................              4           (313)            --              --            (309)
Long-Term Incentive Plan compensation
  expense............................          3,937             --             --              --           3,937
Stock option compensation expense....            838             --             --              --             838
Non-cash Employee Stock Ownership
  Plan compensation expense..........          4,283             --             --              --           4,283
Dividends on unallocated Employee
  Stock Ownership Plan shares........            226             --             --              --             226
Common shares issued for directors'
  fees...............................            214             --             --              --             214
Changes in operating assets and
  liabilities, excluding effects of
  acquisitions:
Equity in earnings of subsidiaries...         (3,574)            --             --           3,574              --
Inter-company........................        (57,070)        60,591         (3,521)             --              --
Accounts receivable..................         20,405        (51,156)        (1,443)             --         (32,194)
Inventories..........................          6,472           (750)          (287)             --           5,435
Prepayments and other assets.........         10,952         (6,725)            28              --           4,255
Contribution to defined benefit
  pension plan.......................         (6,000)            --             --              --          (6,000)
Accounts payable, accrued liabilities
  and other..........................         (3,670)          (395)         1,656              --          (2,409)
Contract advances and deposits.......          7,461         (5,382)            --              --           2,079
                                           ---------       --------        -------         -------       ---------
Cash provided (used) by operations...          2,295         12,562         (1,613)             --          13,244
Investing Activities:
Purchase of plant and equipment......         (7,084)       (10,472)        (1,390)             --         (18,946)
Proceeds from sale of property, plant
  and equipment......................             --          1,266             --              --           1,266
Payments received on notes
  receivable.........................          7,100             --             --              --           7,100
Cash paid for acquisitions, net of
  cash acquired......................       (263,397)            --             --              --        (263,397)
                                           ---------       --------        -------         -------       ---------
Cash used by investing activities....       (263,381)        (9,206)        (1,390)             --        (273,977)
Financing Activities:
Proceeds from exercise of stock
  options............................          1,064             --             --              --           1,064
Excess income tax benefit from stock
  options and Long-Term Incentive
  Plan...............................            581             --             --              --             581
Proceeds from management group
  receivables........................            140             --             --              --             140
Short-term borrowings under
  revolver...........................        216,000             --             --              --         216,000
Repayments of revolving debt.........        (36,000)            --             --              --         (36,000)
Repayments of note payable...........         (2,000)            --             --              --          (2,000)
Payment of common share cash
  dividends..........................         (2,461)            --             --              --          (2,461)
                                           ---------       --------        -------         -------       ---------
Cash provided by financing
  activities.........................        177,324             --             --              --         177,324
                                           ---------       --------        -------         -------       ---------
Net (decrease) increase in cash and
  cash equivalents...................        (83,762)         3,356         (3,003)             --         (83,409)
Cash and cash equivalents at
  beginning of year..................         99,067          4,232          5,432              --         108,731
                                           ---------       --------        -------         -------       ---------
Cash and cash equivalents at end of
  year...............................      $  15,305       $  7,588        $ 2,429         $    --       $  25,322
                                           =========       ========        =======         =======       =========

</Table>




                                       71

<PAGE>

                                 EDO CORPORATION

                      CONDENSED CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2005



<Table>
<Caption>
                          EDO CORPORATION
                           PARENT COMPANY
                                ONLY        SUBSIDIARY GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                          ---------------   ---------------------   --------------   ------------   ------------
                                                              (IN THOUSANDS)

<S>                       <C>               <C>                     <C>              <C>            <C>

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

</Table>




                                       72

<PAGE>

                                 EDO CORPORATION

                  CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                                DECEMBER 31, 2005



<Table>
<Caption>
                                     EDO
                                 CORPORATION
                               PARENT COMPANY   SUBSIDIARY
                                    ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                               --------------   ----------   --------------   ------------   ------------
                                                             (IN THOUSANDS)

<S>                            <C>              <C>          <C>              <C>            <C>

Continuing Operations:
Net Sales....................     $188,521       $443,069        $29,820        $(12,928)      $648,482
Costs and expenses:
Cost of sales................      153,307        329,640         20,598         (12,928)       490,617
Selling, general and
  administrative.............       16,484         62,816          6,621              --         85,921
Research and development.....        4,940         11,097          1,085              --         17,122
Environmental cost provision,
  Deer Park Facility.........        1,543             --             --              --          1,543
                                  --------       --------        -------        --------       --------
                                   176,274        403,553         28,304         (12,928)       595,203
                                  --------       --------        -------        --------       --------
Operating Earnings...........       12,247         39,516          1,516              --         53,279
Non-operating income
  (expense) Interest income..        2,006            146            148              --          2,300
Interest expense.............      (13,591)            --             --              --        (13,591)
Other, net...................          134           (104)          (177)             --           (147)
                                  --------       --------        -------        --------       --------
                                   (11,451)            42            (29)             --        (11,438)
Earnings from continuing
  operations before income
  taxes......................          796         39,558          1,487              --         41,841
Income tax benefit
  (expense)..................        1,301        (15,991)          (882)             --        (15,572)
                                  --------       --------        -------        --------       --------
Earnings from continuing
  operations.................        2,097         23,567            605              --         26,269
Equity in undistributed
  earnings of subsidiaries...       24,172             --             --         (24,172)            --
                                  --------       --------        -------        --------       --------
                                    26,269         23,567            605         (24,172)        26,269
                                  --------       --------        -------        --------       --------
Net earnings.................     $ 26,269       $ 23,567        $   605        $(24,172)      $ 26,269
                                  ========       ========        =======        ========       ========

</Table>




                                       73

<PAGE>

                                 EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                DECEMBER 31, 2005



<Table>
<Caption>
                                       EDO
                                   CORPORATION
                                 PARENT COMPANY   SUBSIDIARY
                                      ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                 --------------   ----------   --------------   ------------   ------------
                                                               (IN THOUSANDS)

<S>                              <C>              <C>          <C>              <C>            <C>

Operating Activities:
Earnings from operations.......     $  26,269      $ 23,567        $   605        $(24,172)      $  26,269
Adjustments to earnings to
  arrive at cash provided by
  operations:
Depreciation...................         4,100         4,991            677              --           9,768
Amortization...................            --         4,929          1,002              --           5,931
Deferred tax benefit...........        (3,446)          227             --              --          (3,219)
Bad debt expense...............           156           667             --              --             823
Loss on sale of property, plant
  and equipment................           485             3            313              --             801
Environmental cost
  provision -- Deer Park.......         1,543            --             --              --           1,543
Deferred compensation expense..         1,661            --             --              --           1,661
Non-cash Employee Stock
  Ownership Plan compensation
  expense......................         4,952            --             --              --           4,952
Non-cash accelerated vesting
  option expense...............            37            --             --              --              37
Dividends on unallocated
  Employee Stock Ownership Plan
  shares.......................           251            --             --              --             251
Common shares issued for
  directors' fees..............           198            --             --              --             198
Changes in operating assets and
  liabilities, excluding
  effects of acquisitions:
Equity in earnings of
  subsidiaries.................       (24,172)           --             --          24,172              --
Intercompany...................        36,376       (35,236)        (1,140)             --              --
Accounts receivable............       (17,438)      (12,233)         1,309              --         (28,362)
Inventories....................        (2,631)       (1,020)         1,342              --          (2,309)
Prepayments and other assets...         3,647           905              2              --           4,554
Contribution to defined benefit
  pension plan.................        (6,000)           --             --              --          (6,000)
Accounts payable, accrued
  liabilities and other........         3,211        (1,779)        (2,337)             --            (905)
Contract advances and
  deposits.....................           886        27,233             --              --          28,119
                                    ---------      --------        -------        --------       ---------
Cash provided by operations....        30,085        12,254          1,773              --          44,112
Investing Activities:
Purchase of plant and
  equipment....................       (13,600)       (9,336)          (782)             --         (23,718)
Payments received on notes
  receivable...................           300            --             --              --             300
Cash paid for acquisitions, net
  of cash acquired.............       (61,078)           --             --              --         (61,078)
                                    ---------      --------        -------        --------       ---------
Cash used by investing
  activities...................       (74,378)       (9,336)          (782)             --         (84,496)
Financing Activities:
Proceeds from exercise of stock
  options......................           875            --             --              --             875
Excess income tax benefit from
  stock options and Long-Term
  Incentive Plan...............           711            --             --              --             711
Proceeds from management group
  receivables..................            81            --             --              --              81
Repayments of acquired debt....        (6,931)           --             --              --          (6,931)
Redemption of 5.25% Convertible
  Subordinated Notes...........      (137,800)           --             --              --        (137,800)
Issuance of 4.0% Convertible
  Subordinated Notes...........       195,716            --             --              --         195,716
Payment of common share cash
  dividends....................        (2,421)           --             --              --          (2,421)
                                    ---------      --------        -------        --------       ---------
Cash provided by financing
  activities...................        50,231            --             --              --          50,231
                                    ---------      --------        -------        --------       ---------
Net increase in cash and cash
  equivalents..................         5,938         2,918            991              --           9,847
Cash and cash equivalents at
  beginning of year............        93,129         1,314          4,441              --          98,884
                                    ---------      --------        -------        --------       ---------
Cash and cash equivalents at
  end of year..................     $  99,067      $  4,232        $ 5,432        $     --       $ 108,731
                                    =========      ========        =======        ========       =========

</Table>




                                       74

<PAGE>

                                 EDO CORPORATION

                      CONDENSED CONSOLIDATING BALANCE SHEET
                                DECEMBER 31, 2004



<Table>
<Caption>
                               EDO CORPORATION
                                PARENT COMPANY   SUBSIDIARY
                                     ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                               ---------------   ----------   --------------   ------------   ------------
                                                              (IN THOUSANDS)
<S>                            <C>               <C>          <C>              <C>            <C>

ASSETS
Current assets:
Cash and cash equivalents....      $ 93,129       $  1,314        $ 4,441               --      $ 98,884
Accounts receivable, net.....        51,321         97,757          4,732               --       153,810
Inventories..................        14,657         33,736          4,474               --        52,867
Deferred income tax asset,
  net........................         5,046             --             --               --         5,046
Notes receivable.............         7,202             --             --               --         7,202
Prepayments and other........         2,029          1,128            336               --         3,493
                                   --------       --------        -------        ---------      --------
Total current assets.........       173,384        133,935         13,983               --       321,302
Investment in subsidiaries...       254,311             --             --         (254,311)           --
Property, plant and
  equipment, net.............        16,931         14,442          3,457               --        34,830
Goodwill.....................            --         82,941          8,710               --        91,651
Other intangible assets,
  net........................            --         37,737         12,619               --        50,356
Deferred income tax asset,
  net........................        30,241             --             --               --        30,241
Other assets.................        17,394            915             --               --        18,309
                                   --------       --------        -------        ---------      --------
                                   $492,261       $269,970        $38,769        $(254,311)     $546,689
                                   ========       ========        =======        =========      ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
  liabilities................      $ 34,490       $ 40,676        $ 5,732               --      $ 80,898
Contract advances and
  deposits...................         5,234          8,462             --               --        13,696
                                   --------       --------        -------        ---------      --------
Total current liabilities....        39,724         49,138          5,732               --        94,594
Long-term debt...............       137,800             --             --               --       137,800
Income taxes payable, long-
  term.......................         5,768             --             --               --         5,768
Deferred income tax
  liabilities, net...........          (169)            --            169               --            --
Postretirement benefits
  obligation.................        94,936             --             --               --        94,936
Environmental obligation.....         1,663             --             --               --         1,663
Intercompany accounts........            --        142,626         25,911         (168,537)           --
Shareholders' equity:
Preferred shares.............            --             --             --               --            --
Common shares................        20,112             98             --              (98)       20,112
Additional paid-in capital...       158,548         25,221          6,418          (31,639)      158,548
Retained earnings............        96,004         57,740            349          (58,089)       96,004
Accumulated other
  comprehensive loss, net of
  income tax benefit.........       (42,008)          (801)           190               --       (42,619)
Treasury shares..............        (1,449)        (4,052)            --            4,052        (1,449)
Unearned ESOP shares.........       (16,039)            --             --               --       (16,039)
Management group
  receivables................          (221)            --             --               --          (221)
Deferred compensation under
  Long-Term Incentive Plan...        (2,408)            --             --               --        (2,408)
                                   --------       --------        -------        ---------      --------
Total shareholders' equity...       212,539         78,206          6,957          (85,774)      211,928
                                   --------       --------        -------        ---------      --------
                                   $492,261       $269,970        $38,769        $(254,311)     $546,689
                                   ========       ========        =======        =========      ========

</Table>




                                       75

<PAGE>

                                 EDO CORPORATION

                  CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
                                DECEMBER 31, 2004



<Table>
<Caption>
                               EDO CORPORATION
                                PARENT COMPANY   SUBSIDIARY
                                     ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                               ---------------   ----------   --------------   ------------   ------------
                                                              (IN THOUSANDS)

<S>                            <C>               <C>          <C>              <C>            <C>

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

</Table>




                                       76

<PAGE>

                                 EDO CORPORATION

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                                DECEMBER 31, 2004



<Table>
<Caption>
                                EDO CORPORATION
                                 PARENT COMPANY   SUBSIDIARY
                                      ONLY        GUARANTORS   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                ---------------   ----------   --------------   ------------   ------------
                                                               (IN THOUSANDS)

<S>                             <C>               <C>          <C>              <C>            <C>

Operating Activities:
Earnings (loss) from
  continuing operations.......      $ 29,068       $ 19,957        $  (199)       $(19,758)      $ 29,068
Adjustments to earnings to
  arrive at cash provided
  (used) by continuing
  operations:
Depreciation..................         4,718          4,912            846              --         10,476
Amortization..................            --          4,561          1,003              --          5,564
Deferred tax benefit..........          (650)           (10)            --              --           (660)
Loss on sale of property,
  plant and equipment.........           226             29             --              --            255
Deferred compensation
  expense.....................           916             --             --              --            916
Non-cash Employee Stock
  Ownership Plan compensation
  expense.....................         4,330             --             --              --          4,330
Dividends on unallocated
  Employee Stock Ownership
  Plan shares.................           272             --             --              --            272
Common shares issued for
  directors' fees.............           140             --             --              --            140
Changes in operating assets
  and liabilities:
Equity in earnings of
  subsidiaries................       (19,758)            --             --          19,758             --
Intercompany..................         5,992         (5,525)          (467)             --             --
Accounts receivable...........        (2,741)       (16,018)          (748)             --        (19,507)
Inventories...................         2,769        (19,718)        (1,185)             --        (18,134)
Prepayments and other assets..         2,444          1,150             (6)             --          3,588
Accounts payable, accrued
  liabilities and other.......        (1,733)         3,860            617              --          2,744
Contract advances and
  deposits....................        (1,890)         7,391             --              --          5,501
                                    --------       --------        -------        --------       --------
Cash provided (used) by
  continuing operations.......        24,103            589           (139)             --         24,553
Investing Activities:
Purchase of plant and
  equipment...................        (6,713)        (6,905)          (588)             --        (14,206)
Payments received on notes
  receivable..................         1,200             --             --              --          1,200
Cash received from Emblem
  escrow settlement...........           301             --             --              --            301
                                    --------       --------        -------        --------       --------
Cash used by investing
  activities..................        (5,212)        (6,905)          (588)             --        (12,705)
Financing Activities:
Proceeds from exercise of
  stock options...............         1,535             --             --              --          1,535
Excess income tax benefit from
  stock options and Long-term
  Incentive Plan..............         1,134             --             --              --          1,134
Proceeds from management group
  receivables.................           130             --             --              --            130
Payment of common share cash
  dividends...................        (2,395)            --             --              --         (2,395)
                                    --------       --------        -------        --------       --------
Cash provided by financing
  activities..................           404             --             --              --            404
                                    --------       --------        -------        --------       --------
Net increase (decrease) in
  cash and cash equivalents...        19,295         (6,316)          (727)             --         12,252
Cash and cash equivalents at
  beginning of year...........        73,834          7,630          5,168              --         86,632
                                    --------       --------        -------        --------       --------
Cash and cash equivalents at
  end of year.................      $ 93,129       $  1,314        $ 4,441        $     --       $ 98,884
                                    ========       ========        =======        ========       ========

</Table>




                                       77

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
EDO Corporation

     We have audited the accompanying consolidated balance sheets of EDO
Corporation and Subsidiaries (the Company) as of December 31, 2006 and 2005, and
the related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 2006. Our
audits also included the financial statement schedule listed in the Index at
Item 15(a). These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EDO Corporation at December 31, 2006 and 2005, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2006, in conformity with U.S. generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

     As discussed in Notes 1, 12 and 13 to the Consolidated Financial
Statements, the Company adopted Statements of Financial Accounting Standards No.
123(R), "Share-Based Payment," and No. 158 "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans -- an amendment of FASB
Statements No. 87, 88, 106, and 132(R)."

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of the
Company's internal control over financial reporting as of December 31, 2006,
based on criteria established in Internal Control -- Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission and our
report dated February 21, 2007 expressed an unqualified opinion thereon.

                                        /s/ ERNST & YOUNG LLP
New York, NY
February 21, 2007


                                       78

<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders of
EDO Corporation

     We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that EDO
Corporation and Subsidiaries maintained effective internal control over
financial reporting as of December 31, 2006, based on criteria established in
Internal Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO criteria). EDO Corporation's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion on
management's assessment and an opinion on the effectiveness of the Company's
internal control over financial reporting based on our audit.

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

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

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

     As indicated in the accompanying Management's Report on Internal Control
Over Financial Reporting, management's assessment of and conclusion on the
effectiveness of internal control over financial reporting did not include the
internal controls of CAS, Inc and Impact Science and Technology, Inc. (the
"acquisitions") which are included in the 2006 consolidated financial statements
of EDO Corporation and Subsidiaries and constituted $333.8 million and $36.5
million of total and net assets, respectively, as of December 31, 2006 and $86.8
million of net sales for the year then ended. Our audit of internal control over
financial reporting of EDO Corporation also did not include an evaluation of the
internal controls over financial reporting of the acquisitions.

     In our opinion, management's assessment that EDO Corporation and
Subsidiaries maintained effective internal control over financial reporting as
of December 31, 2006, is fairly stated, in all material respects, based on the
COSO criteria. Also, in our opinion, EDO Corporation and Subsidiaries
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2006, based on the COSO criteria.

     We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets of EDO Corporation and Subsidiaries as of December 31, 2006 and 2005, and
the related consolidated statements of earnings, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2006 and our
report dated February 21, 2007 expressed an unqualified opinion thereon.

                                        /s/ Ernst & Young LLP

New York, NY
February 21, 2007


                                       79

<PAGE>

                   QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table sets forth unaudited quarterly financial information
for 2006 and 2005 (in thousands, except per share amounts).


<Table>
<Caption>
                               FIRST QUARTER         SECOND QUARTER        THIRD QUARTER         FOURTH QUARTER
                            -------------------   -------------------   -------------------   -------------------
                              2006       2005       2006       2005       2006       2005       2006       2005
                            --------   --------   --------   --------   --------   --------   --------   --------

<S>                         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>

Net sales................   $119,709   $116,508   $152,398   $156,112   $184,393   $175,884   $258,697   $199,978
(Loss) earnings..........       (939)     2,908      6,271      6,089      2,065      9,841      4,180      7,431
Earnings per share:
  Basic:.................      (0.05)      0.16       0.35       0.34       0.11       0.54       0.23       0.41
     Earnings -- Basic...      (0.05)      0.16       0.35       0.34       0.11       0.54       0.23       0.41
  Diluted:
     Earnings -- Dilute-
       d.................      (0.05)      0.16       0.30       0.31       0.11       0.48       0.22       0.38
                            ========   ========   ========   ========   ========   ========   ========   ========

</Table>




                                       80

<PAGE>

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

     None.

ITEM 9A.  CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

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

     The Company's conclusion on the effectiveness of internal control over
financial reporting did not include the internal controls of the acquisitions in
2006 of CAS Inc., and Impact Science and Technology Inc., (the "acquisitions")
which are included in the 2006 consolidated financial statements of EDO
Corporation and Subsidiaries.

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

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control -- Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control -- Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of December
31, 2006. We have excluded from this assessment the operations of CAS Inc., and
Impact Science and Technology Inc. These businesses were acquired during 2006
and constituted $333.8 million and $36.5 million of total and net assets,
respectively, as of December 31, 2006 and $86.8 million of net sales for the
year then ended. Management's assessment of the effectiveness of our internal
control over financial reporting as of December 31, 2006 has been audited by
Ernst and Young LLP, an independent registered public accounting firm, as stated
in their report which is included herein.

ITEM 9B.  OTHER INFORMATION

     None.


                                       81

<PAGE>

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

     The information called for by Item 10 (except to the extent set forth in
this Item) is incorporated in this Report by reference to the Company's
definitive proxy statement relating to the Annual Meeting of Shareholders
anticipated to be held on June 12, 2007.

                               EXECUTIVE OFFICERS


<Table>
<Caption>
                                  POSITION, TERM OF OFFICE, PRINCIPAL
NAME                        AGE   OCCUPATION DURING THE LAST FIVE YEARS.
----                        ---   --------------------------------------

<S>                         <C>   <C>

James M. Smith...........    65   Chairman of the Board (since May 2002)
                                  President and Chief Executive Officer.
Jon A. Anderson..........    64   Senior Vice President, Washington Operations
                                  (since October 2005); prior thereto, Vice
                                  President, Washington Operations.
Frederic B. Bassett......    60   Senior Vice President-Finance, (since October
                                  2005)Chief Financial Officer and Treasurer
                                  (since January 2003); previously, Vice
                                  President (since September 2002). Prior
                                  thereto, he was Vice President, Treasurer and
                                  Chief Financial Officer of Condor Systems,
                                  Inc.
Patricia D. Comiskey.....    56   Senior Vice President-Human Resources (since
                                  October 2005) and Assistant Secretary; prior
                                  thereto, Vice President-Human Resources and
                                  Assistant Secretary.
George Fox...............    64   Vice President -- Special Projects, Office of
                                  the Chairman, (since January); previously Vice
                                  President Electronic Systems Group.
Milo Hyde................    53   Vice President -- Corporate Business
                                  Development (since January 2007); previously,
                                  Vice President, Systems & Analysis Group.
Frank Otto...............    57   Senior Vice President, Strategic Development
                                  (since March 2005); prior thereto, Executive
                                  Vice President (since September 2002) and
                                  Chief Operating Officer (since February 2004);
                                  previously, Vice President -- Integrated
                                  Systems and Structures Group.
Lisa M. Palumbo..........    48   Senior Vice President, General Counsel and
                                  Secretary (since October 2005); prior thereto,
                                  Vice President, General Counsel and Assistant
                                  Secretary.
</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 June 12, 2007.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
          RELATED SHAREHOLDER 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 June 12, 2007.


                                       82

<PAGE>

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 June 12, 2007.

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 June 12, 2007.

                                     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, 2006 and 2005

     Consolidated Statements of Earnings for the Years Ended December 31, 2006,
2005 and 2004

     Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2006, 2005 and 2004

     Consolidated Statements of Cash Flows for the Years Ended December 31,
2006, 2005 and 2004

     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       BALANCE AT
                                      BEGINNING OF    COSTS AND      OTHER     WRITE-OFFS/     END OF
DESCRIPTION                              PERIOD       EXPENSES     ACCOUNTS     DEDUCTIONS     PERIOD
-----------                           ------------   ----------   ----------   -----------   ----------
                                                                (IN THOUSANDS)

<S>                                   <C>            <C>          <C>          <C>           <C>

Year ended December 31, 2006:
  Allowance for doubtful accounts...     $  970           88           0           (304)        $754
Year ended December 31, 2005:
  Allowance for doubtful accounts...     $  616          823           0           (469)        $970
Year ended December 31, 2004:
  Allowance for doubtful accounts...     $1,359            0           0           (743)        $616
</Table>




                                       83

<PAGE>

3.  EXHIBITS


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

<S>           <C>

2(a)          First Amendment to Stock Purchase Agreement, dated September 6, 2006,
              by and among EDO Corporation, CAS, Inc. and William H. Stender, Jr.,
              Frederic H. Clark and Elizabeth L. Boyer, as trustee of the William
              H. Stender, Jr. Estate Preservation Trust as Sellers. (incorporated
              herein by reference to the Company's Current Report on Form 8-K dated
              September 8, 2006, Exhibit 1.a)).
2(b)          Stock Purchase Agreement, dated as of July 26, 2006, by and among EDO
              Corporation, as Buyer, Fredric H. Clark, William H. Stender, Jr. and
              Elizabeth L. Boyer, as Trustee of the William H. Stender, Jr. Estate
              Preservation Trust as Sellers and CAS, Inc. (incorporated herein by
              reference to the Company's Current Report on Form 8-K dated August 1,
              2006, Exhibit 2.1)).
2(c)          Stock Purchase Agreement, dated as of July 26, 2006, by and among EDO
              Corporation, and Shareholders of Impact Science and Technology, Inc.
              ("Selling Shareholders") (incorporated herein by reference to the
              Company's Current Report on Form 8-K dated August 1, 2006, Exhibit
              2.2)).
3(a)          Restated Certificate of Incorporation of the Company as amended May
              10, 2004 (incorporated herein by reference to the Company's Quarterly
              Report on Form 10-Q for the quarterly period ended June 26, 2004
              Exhibit 3(a)(2)).
3(b)          By-Laws of the Company as amended October 26, 2004 (incorporated
              herein by reference to the Company's Quarterly Report on Form 10-Q
              for the quarterly period ended September 25, 2004 Exhibit 3(b)).
4(a)          Form of 4.0% Convertible Senior Subordinate Notes due 2025
              (incorporated herein by reference to the Company's Current Report on
              Form 8-K, dated November 21, 2005 Exhibit 4(g)).
4(b)          Indenture, dated as of November 21, 2005, by and between the Company
              and HSBC Bank, USA, as trustee (incorporated herein by reference to
              the Company's Current Report on Form 8-K, dated November 21, 2005,
              Exhibit 4(e)).
4(b)(1)       First Supplemental Indenture, dated as of November 21, 2005, by and
              between the Company and HSBC Bank, USA, as trustee (incorporated
              herein by reference to the Company's Current Report on Form 8-K,
              dated November 21, 2005, Exhibit 4(f)).
10(a)         Credit Agreement, dated as of November 4, 2005, by and among the
              Company, Citicorp U.S.A, Inc., Wachovia Bank, N.A. and Bank of
              America, N.A., et al. (incorporated herein by reference to the
              Company's Current Report on Form 8-K, dated November 10, 2005,
              Exhibit 10(a)(6)).
10(a)(1)      Amendment No. 1,dated March 6, 2006 to the Credit Agreement dated as
              of November 4, 2005, by and among the Company, Citicorp U.S.A, Inc.,
              Wachovia Bank, N.A. and Bank of America, N.A., et al. (incorporated
              herein by reference to the Company's Quarterly Report on Form 10-Q
              for the quarterly period ended March 25, 2006, Exhibit 10(1)).
10(a)(2)      Amendment No. 2, dated April 24, 2006 to the Credit Agreement dated
              as of November 4, 2005, by and among the Company, Citicorp U.S.A,
              Inc., Wachovia Bank, N.A. and Bank of America, N.A., et al.
              (incorporated herein by reference to the Company's Quarterly Report
              on Form 10-Q for the quarterly period ended March 25, 2006, Exhibit
              10(2)).
10(a)(3)      Amendment and Waiver No. 3, dated as of August 31, 2006, by and among
              EDO Corporation, the Lenders party hereto and Citicorp USA, Inc., as
              Administrative Agent (incorporated by reference to the Company's
              Current Report on Form 8-K dated September 5, 2006, Exhibit 10(a)).
10(a)(4)      Amendment No. 4, dated as of February 16, 2007, by and among EDO
              Corporation, the Lenders party hereto and Citicorp USA, Inc., as
              Administrative Agent (incorporated by reference to the Company's
              Current Report on Form 8-K dated February 21, 2007, Exhibit 10(b)).
10(b)         EDO Corporation 2006 Long-Term Incentive Plan (incorporated herein by
              reference to the Company's Quarterly Report on Form 10-Q for the
              quarterly period ended June 24, 2006 Exhibit 10.1)).
10(c)         EDO Corporation 2002 Long-Term Incentive Plan as amended January 1,
              2004 (incorporated herein by reference to the Company's Annual Report
              on Form 10-K for the fiscal year ended December 31, 2003, Exhibit
              10(c)).
10(d)         EDO Corporation 1996 Long-Term Incentive Plan (incorporated herein by
              reference to the Company's Annual Report on Form 10-K for the fiscal
              year ended December 31, 1996, Exhibit 10(a)).
</Table>

                                       84

<PAGE>

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

<S>           <C>
10(e)         EDO Corporation Nonqualified Deferred Compensation Plan I effective
              January 1, 2004 (incorporated herein by reference to the Company's
              Quarterly Report on Form 10-Q for the quarterly period ended March
              27, 2004, Exhibit 10(b)).
10(f)         EDO Corporation Nonqualified Deferred Compensation Plan II effective
              January 1, 2004 (incorporated herein by reference to the Company's
              Quarterly Report on Form 10-Q for the quarterly period ended March
              27, 2004, Exhibit 10(c)).
10(g)         EDO Corporation 2004 Non-Employee Director Stock Plan (incorporated
              herein by reference to the Company's Registration Statement on Form
              S-8, File No. 333-129353, dated November 1, 2005).
10(g)(1)      Amendment to EDO Corporation 2004 Non-Employee Director Stock Plan,
              as amended (incorporated herein by reference to the Company's
              Quarterly Report on Form 10-Q for the quarterly period ended
              September 30, 2006, Exhibit 10)).
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 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(j)         EDO Corporation Compensation Plan for Directors (incorporated herein
              by reference to the Company's Annual Report on Form 10-K for the
              fiscal year ended December 31, 1998, Exhibit 10(g)).
10(k)         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(l)         Amended and Restated Employment Agreement, dated as of October 1,
              2004, by and between EDO Corporation and James M. Smith (incorporated
              herein by reference to the Company's Current Report on Form 8-K dated
              October 28, 2004, Exhibit 10).
10(m)(1)      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)(2)      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(m)(3)      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(m)(4)      Change in Control Agreement dated July 8, 2003 between the Company
              and Jon A. Anderson (incorporated herein by reference to the
              Company's Current Report on Form 8-K, dated February 1, 2006 Exhibit
              10(b)).
10(m)(5)      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(m)(6)      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(m)(7)      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(m)(8)*     Form of Amendment to the Change in Control Agreement.
10(n)(1)      2004 Restricted Share and Retention Incentive Award Agreement between
              the Company and Frederic B. Bassett (incorporated herein by reference
              to the Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 2004, Exhibit 10(t)(1)).
</Table>

                                       85

<PAGE>

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

<S>           <C>
10(n)(2)      2004 Restricted Share and Retention Incentive Award Agreement between
              the Company and Patricia D. Comiskey (incorporated herein by
              reference to the Company's Annual Report on Form 10-K for the fiscal
              year ended December 31, 2004, Exhibit 10(t)(2)).
10(n)(3)      2004 Restricted Share and Retention Incentive Award Agreement between
              the Company and Frank W. Otto (incorporated herein by reference to
              the Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 2004, Exhibit 10(t)(4)).
10(n)(4)      2004 Restricted Share and Retention Incentive Award Agreement between
              the Company and Lisa M. Palumbo (incorporated herein by reference to
              the Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 2004, Exhibit 10(t)(5)).
10(o)         Form of Stock Option Agreement (incorporated herein by reference to
              the Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 2003, Exhibit 10(v)).
10(p)*        Form of 2006 LTIP Stock Appreciation Rights Agreement.
10(q)*        Form of 2006 LTIP Restricted Share Agreement.
10(r)         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(s)         Form of Directors' and Officers' Indemnity Agreements between the
              Company its 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(t)         Retainer Agreement between EDO (UK) Ltd. and Robert Walmsley, dated
              April 11, 2006(incorporated herein by reference to the Company's
              Quarterly Report on Form 10-Q for the quarterly period ended March
              25, 2006, Exhibit 10(3)).
10(u)         Consent Decree, entered on November 25, 1992, amongst the United
              States, the Company, Plessey, Inc., Vernitron Corporation and Pitney
              Bowes, Inc. Incorporated by reference to Exhibit 10(e) to the
              Company's Annual Report on Form 10-K for the fiscal year ended
              December 31, 1998.
10(v)         Agreement for Sale of Deer Park facility dated July 31, 2003
              (incorporated herein by reference to the Company's Annual Report on
              Form 10-K for the fiscal year ended December 31, 2004, Exhibit
              10(w)).
10(w)         Trust Deed and Rules of the EDO Corporation Share Incentive Plan,
              dated July 6, 2005 (incorporated herein by reference to the Company's
              Annual Report on Form 10-K for the fiscal year ended December 31,
              2005, Exhibit 10(x)).
21*           List of Subsidiaries.
23*           Consent of Independent Registered Public Accounting Firm.
24*           Powers of Attorney (included on the signature page).
31.1*         Certification of Chief Executive Officer pursuant to Rule 13a-14(a)
              and 15d-14(a) of the Securities Exchange Act of 1934, as adopted
              pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*         Certification of Chief Financial Officer pursuant to Rule 13a-14(a)
              and 15d-14(a) of the Securities Exchange Act of 1934, as adopted
              pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32*           Certification of Chief Executive Officer and Chief Financial Officer
              Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.
</Table>


--------

*    Filed herewith.

     (b) Reports on 8-K

     The following reports on 8-K were filed during the three months ended on
December 31, 2006:


<Table>
<Caption>
DATE OF REPORT                               ITEMS REPORTED
--------------                               --------------

<S>                  <C>

November 2, 2006     Item 2.02 Results of operation and financial condition.
November 20, 2006    Item 2.01 Completion of acquisition or disposition of assets.
November 28, 2006    Item 2.01 Completion of acquisition or acquisition of assets.
</Table>




                                       86

<PAGE>

                                   SIGNATURES

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

                                        EDO CORPORATION (REGISTRANT)

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

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

Dated: March 7, 2007

                                POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James M. Smith and Lisa M. Palumbo, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to the Annual Report on
Form 10-K for the Company's 2006 fiscal year, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or either of them, or their or his
substitutes, may lawfully do or cause to be done by virtue thereof.

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


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

<S>  <C>                           <C>


     /s/ JAMES M. SMITH              Chairman, President, Chief Executive Officer
-------------------------------                          and
        (James M. Smith)                Director (principal executive officer)
                                                       Director
    /s/ ROBERT E. ALLEN
-------------------------------
       (Robert E. Allen)
                                                       Director
     /s/ ROBERT ALVINE
-------------------------------
        (Robert Alvine)
                                                       Director
   /s/ ROBERT M. HANISEE
-------------------------------
      (Robert M. Hanisee)
</Table>

                                       87

<PAGE>

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

<S>  <C>                           <C>
                                                       Director
   /s/ MICHAEL J. HEGARTY
-------------------------------
      (Michael J. Hegarty)
                                                       Director
    /s/ LESLIE F. KENNE
-------------------------------
       (Leslie F. Kenne)
                                                       Director
      /s/ PAUL J. KERN
-------------------------------
         (Paul J. Kern)
                                                       Director
    /s/ RONALD L. LEACH
-------------------------------
       (Ronald L. Leach)
                                                       Director
       /s/ JAMES ROTH
-------------------------------
          (James Roth)
                                                       Director
    /s/ ROBERT S. TYRER
-------------------------------
       (Robert S. Tyrer)
                                                       Director
    /s/ ROBERT WALMSLEY
-------------------------------
       (Robert Walmsley)
                                                       Director
         JOHN A. GORDON
-------------------------------
        (John A. Gordon)
</Table>




                                       88