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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                   FORM 10-K
                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
                         COMMISSION FILE NUMBER 1-3985

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

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

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

       60 EAST 42ND STREET, SUITE 5010,                            10165
              NEW YORK, NEW YORK                                 (Zip Code)
   (Address of principal executive offices)
</Table>

                                 (212) 716-2000
                                (Telephone No.)

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

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

     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  the  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 an accelerated filer  (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes [X]     No [
]

     State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of June 28, 2002...............................$414,963,677

     Indicate  the  number of  shares outstanding  of  each of  the Registrant's
classes of common stock as of February 27, 2003.......................19,709,704

                      DOCUMENTS INCORPORATED BY REFERENCE

     Certain portions  of the  Registrant's definitive  proxy statement  (to  be
filed  pursuant  to Reg.  14A) relating  to the  Annual Meeting  of Shareholders
anticipated to be held on April 22, 2003 are incorporated herein by reference in
Part III of this Report.

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<PAGE>

                                EDO CORPORATION

                               TABLE OF CONTENTS

<Table>
<S>       <C>        <C>                                                           <C>
PART I
          ITEM 1     BUSINESS....................................................    1
                     DEFENSE.....................................................    2
                       Electronic Warfare........................................    2
                       Reconnaissance and Surveillance Systems...................    3
                       Aircraft Weapons Suspension and Release Systems...........    3
                       Airborne Mine Countermeasures Systems.....................    4
                       Integrated Combat Systems.................................    4
                       Undersea Systems..........................................    4
                       Professional and Engineering Services.....................    5
                     COMMUNICATIONS AND SPACE PRODUCTS...........................    5
                       Antenna Products..........................................    5
                       Communications and Countermeasures Products...............    6
                       Space Products............................................    6
                     ENGINEERED MATERIALS........................................    6
                       Electro-Ceramic Products..................................    6
                       Advanced Fiber Composite Structural Products..............    7
                     DISCONTINUED OPERATIONS.....................................    7
                     RESEARCH AND DEVELOPMENT....................................    7
                     MARKETING AND INTERNATIONAL SALES...........................    8
                     BACKLOG.....................................................    8
                     GOVERNMENT CONTRACTS........................................    9
                     COMPETITION AND OTHER FACTORS...............................    9
                     ENVIRONMENTAL...............................................    9
                     EMPLOYEES...................................................   10
          ITEM 2     PROPERTIES..................................................   10
          ITEM 3     LEGAL PROCEEDINGS...........................................   10
          ITEM 4     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.........   11
PART II
          ITEM 5     MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
                     STOCKHOLDER MATTERS.........................................   11
          ITEM 6     SELECTED FINANCIAL DATA.....................................   11
          ITEM 7     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                     AND RESULTS OF OPERATIONS...................................   14
          ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK...   14
          ITEM 8     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................   27
          ITEM 9     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
                     AND FINANCIAL DISCLOSURE....................................   61
</Table>

                                        i
<PAGE>

<Table>
<S>          <C>            <C>                                                                               <C>
PART III
             ITEM 10        DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..............................         61
             ITEM 11        EXECUTIVE COMPENSATION..........................................................         62
             ITEM 12        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                            STOCKHOLDER MATTERS.............................................................         62
             ITEM 13        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..................................         62
             ITEM 14        CONTROLS AND PROCEDURES.........................................................         62
PART IV
             ITEM 15        EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K................         62
                            (a) Financial Statements and Financial Statement Schedules and Exhibits.........         62
                                 1. Financial Statements....................................................         62
                                 2. Financial Statement Schedules...........................................         63
                                 3. Exhibits................................................................         64
                            (b) Reports on Form 8-K.........................................................         66
CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER...............................................................         67
CERTIFICATIONS OF THE CHIEF FINANCIAL OFFICER...............................................................         68
SIGNATURES..................................................................................................         69
</Table>

                                        ii
<PAGE>

                                     PART I

ITEM 1.  BUSINESS

     In this Annual Report on Form  10-K (Report), the term "Registrant"  refers
to  EDO Corporation. The terms "EDO", "we", "us", "our" and "Company" as used in
this Report, also refer  to EDO Corporation and  its subsidiaries, except  where
the context otherwise requires.

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

     We are a leading supplier of sophisticated, highly engineered products  and
systems  for  defense, aerospace  and  industrial applications.  We  believe our
advanced  electronic,   electromechanical  systems,   information  systems   and
engineered materials are mission-critical, standard equipment on a wide range of
military  programs. In 2002,  sales of defense-related  products and services to
the U.S. Government,  including sales  to prime  contractors were  75% of  total
sales.

     Our  Internet address is www.edocorp.com. We make available free of charge,
on or through the investor relations section of our web site, annual reports  on
Form  10-K, quarterly reports on  Form 10-Q and current  reports on Form 8-K and
amendments to those  reports filed  or furnished  pursuant to  Section 13(a)  or
15(d)  of the Securities Exchange Act of  1934 as soon as reasonably practicable
after we  electronically  file  such  material  with,  or  furnish  it  to,  the
Securities and Exchange Commission.

  ACQUISITIONS

     On  April 28, 2000, we completed  the merger of our wholly-owned subsidiary
with AIL Technologies, Inc. (AIL). In the transaction, each share of AIL  common
stock  was exchanged for  1.3296 EDO common shares  (equivalent to 6,553,194 EDO
common shares valued at $39.4 million). In addition, AIL stockholders received a
cash payment of $13.3 million. The merged company also assumed AIL debt of $29.7
million. AIL became our wholly-owned  subsidiary effective upon the merger,  and
the transaction has been accounted for as a tax-free reorganization.

     In  October  2001,  we  acquired Dynamic  Systems,  Inc.,  a privately-held
company  based  in   Alexandria,  Virginia.  Dynamic   Systems,  Inc.   provides
professional   and  information  technology  services   primarily  to  the  U.S.
Department of Defense (DoD) and other government agencies.

     On July 26,  2002, we acquired  substantially all of  the assets of  Condor
Systems,  Inc., a privately-held defense  electronics company and its subsidiary
(together, "Condor") based in Morgan Hill and Simi Valley, California for  $61.9
million in cash (excluding transaction costs of $4.1 million) and the assumption
of  certain  normal employee  benefit  obligations, certain  trade  and supplier
payables and certain  other accrued liabilities,  primarily related to  contract
loss  reserves. We also assumed $28.0  million in outstanding standby letters of
credit. Condor had been operating under the protection of Chapter 11 of the U.S.
Bankruptcy Code. We expect  the acquisition of Condor's  business to expand  our
electronic  warfare  business in  the areas  of reconnaissance  and surveillance
systems as well as our communications and countermeasures business.

     In February 2003, we  acquired all of the  stock of Advanced Engineering  &
Research   Associates,  Inc.   (AERA),  a  privately-held   company  located  in
Alexandria, Virginia,  which provides  professional and  information  technology
services   primarily  to  the  U.S.  DoD  and  other  government  agencies.  The
acquisition is expected to strengthen and expand the range of such services  the
Company  offers. The preliminary purchase price was $38.0 million and is subject
to adjustment based on changes in AERA's  balance sheet as of the closing  date.
The  acquisition will be accounted for as  a purchase, and the operating results
of AERA will be included in our consolidated financial statements from the  date
of the acquisition.

     In  March  2003,  we acquired  all  of  the stock  of  Darlington,  Inc., a
privately-held defense  communications company  based in  Alexandria,  Virginia,
which  designs, manufactures and supports  military communications equipment and
information networking  systems.  The acquisition  is  expected to  enhance  our
existing positions on long-range platforms and programs across the U.S. military
services and in particular the U.S. Marine

                                        1
<PAGE>

Corps.  The  preliminary purchase  price  was $28.5  million  and is  subject to
adjustment based on  changes in  Darlington's balance  sheet as  of the  closing
date.  The acquisition will  be accounted for  as a purchase,  and the operating
results of Darlington will be included in our consolidated financial  statements
from the date of the acquisition.

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

  SEGMENTS

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

     We set forth certain  business segment information in  Note 19 on pages  55
through 58 of this Report.

     A  description of our  principal products within the  three segments is set
forth below.

                                    DEFENSE

     Our  Defense  segment  designs,  develops  and  manufactures  sophisticated
electronic,  mechanical, electro-mechanical, structural, pneumatic, hydrodynamic
and aerodynamic systems  for military  use. Additionally,  we provide  logistics
support  for  such products,  including spare  parts  and repairs,  hardware and
software upgrades  and  modifications,  training  and  technical  services.  The
revenue  from  these support  functions is  a significant  portion of  our total
sales.

     Our Defense segment, which accounted for  74% of consolidated net sales  in
2002,  71%  in  2001  and  69% in  2000,  includes  electronic  warfare systems,
reconnaissance and surveillance systems, aircraft weapons suspension and release
systems, airborne  mine  countermeasures  systems,  integrated  combat  systems,
command,  control and communications systems, undersea warfare sonar systems and
professional and engineering services.

ELECTRONIC WARFARE

     Our electronic warfare products include defensive electronic countermeasure
systems for the U.S. Air Force  and tactical support jamming exciter  subsystems
for  the U.S.  Navy. Electronic warfare  products also  include airborne, battle
field and ground surveillance radars and monolithic microwave integrated circuit
(MMIC) receiver downconverters for the airborne and shipboard electronic support
measures market.

     Our AN/ALQ-161 is the defensive avionics system that protects the U.S.  Air
Force  B-1B  bomber  from  radar guided  and  infrared  guided  missile threats.
Designed in the early  1980's specifically for the  B-1B aircraft, we  delivered
the  AN/ALQ-161  system  and spares  to  all  100 aircraft  in  the  B-1B fleet.
Currently we provide logistic support and capability upgrades to the  AN/ALQ-161
systems,  including software upgrades that have  occurred every 12-24 months, as
well as hardware improvements  to address both  situation awareness and  jamming
effectiveness.  The U.S. DoD currently expects  B-1B aircraft to be in operation
through 2040.

     We were  the original  designer and  integrator of  the AN/ALQ-99  Tactical
Support  Jamming System for the EA-6B aircraft  in the 1960s. We have been under
contract  for  support  and  modifications  for  this  aircraft's  systems   and
subsystems  since then. We  are currently under  contract with the  U.S. Navy to
upgrade the

                                        2
<PAGE>

Universal  Exciter  on  the  EA-6B  aircraft.  The  Universal  Exciter  is   the
electronics  unit in the  AN/ALQ-99 support jamming  subsystem that provides the
specific electronic  jamming technique  waveforms  and modulations  that  defeat
enemy air defense systems. In the 1980s, we produced and delivered 579 Universal
Exciters  to the U.S. Navy. Under the current upgrade program, we retrofit these
units with modifications  that improve reliability  and maintainability,  extend
frequency   range  and  provide  advanced  jamming  techniques.  The  period  of
performance of the  production contract  is through  August 2003.  The U.S.  DoD
currently expects EA-6B aircraft to be in operation through 2015.

     Net  sales of electronic  warfare products represented  23% of consolidated
net sales in 2002, 24% in 2001 and 23% in 2000.

RECONNAISSANCE AND SURVEILLANCE SYSTEMS

     Our reconnaissance and surveillance systems, acquired from Condor  Systems,
Inc. in July 2002, include the AN/USQ-149 Radar Narrow Band (RNB) Subsystem, the
AN/ALR-95 automatic Electronic Support Measures (ESM) system and variants of the
CS-3701  ESM system  which intercept, analyze  and identify  radar emissions and
provide situational awareness to military personnel.

     The U.S. Navy's AN/BLQ-10 Sea Sentry multi-channel Electronic  Intelligence
(ELINT)  system is  used aboard  Virginia class  submarines to  provide improved
intelligence collection and analysis capabilities. The AN/USQ-149 RNB  Subsystem
is  part of the  AN/BLQ-10 and is also  used on airborne  platforms. In 2002, we
received an award  from Lockheed Martin  for three RNB  systems plus spares.  We
received  an additional  contract in  2002 from  the U.S.  Navy for  a submarine
carry-on version of this system, potentially worth approximately $50 million  in
revenue  over five years, and  we received orders for  more than $25 million for
seventeen systems plus spares.

     Developed under  the Antisurface  Warfare  Improvement Program  (AIP),  our
AN/ALR-95   automatic  ESM  system  provides   threat  warning  and  situational
awareness, including signal exploitation through Specific Emitter Identification
(SEI) technology, aboard U.S. Navy P-3 aircraft. The system is a hybrid ESM that
combines a wide bandwidth  (WB) high probability of  intercept subsystem with  a
narrowband  (NB) subsystem for manual analysis. We received awards from Lockheed
Martin and the U.S.  Navy totaling more  than $8 million  in 2002 for  continued
improvements  to the system and for the production of eight additional AN/ALR-95
systems.

     The CS-3701 is a combined precision  ESM system and radar warning  receiver
(RWR) system developed to provide an improved performance replacement for all of
the  lower performance, simple design amplitude monopulse systems currently used
on ships and  submarines. Unlike  amplitude monopulse systems,  the CS-3701  ESM
system  provides all  of the  capabilities required of  a modern  ESM system for
operation in today's difficult electromagnetic environment against complex radar
threats. It uses  the latest  phase measurement  technology for  high-precision,
monopulse  direction-finding,  combined with  a  patented "autohet"  receiver to
achieve 100% probability of  intercept. This system  is currently in  production
and  use with several  international navies. In 2002,  we delivered nine CS-3701
systems.

AIRCRAFT WEAPONS SUSPENSION AND RELEASE SYSTEMS

     Over the last two decades, we have developed and manufactured bomb  release
units  (BRU) for the F-15 aircraft, ejection release units (ERU) for the Tornado
Multi-Role Combat Aircraft, jettison release  mechanisms for the F-14  aircraft,
pneumatic  missile  eject  launchers for  the  F-22, and  smart  weapon multiple
carriage systems for the F-16 and F-18. In 2002:

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

     - we continued production of the Advanced  Medium Range Air to Air  Missile
       launcher  for the F-22 aircraft and we  are now under contract to support
       long term depot services for this equipment.

                                        3
<PAGE>

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

     - we  continued the design of a  demonstration carriage system for Lockheed
       Martin Missiles  and Fire  Control as  part of  the small  diameter  bomb
       development program.

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

     Net  sales of aircraft  weapons suspension and  release systems represented
13% of consolidated net sales in 2002, 13% in 2001 and 13% in 2000.

AIRBORNE MINE COUNTERMEASURES SYSTEMS

     We believe  we are  the only  manufacturer of  airborne naval  minesweeping
equipment in the world. The principal system of this type used by the U.S. Navy,
the MK-105 helicopter towed system, was designed and developed by us starting in
1967.  In the  early 1990s, we  developed a significant  upgrade under contract,
followed by  an initial  production contract  in 1996.  We continue  to  provide
spares  and  logistics  support  for  these systems  to  the  U.S.  Navy  and an
international customer, and we continue to function as the U.S. Navy maintenance
depot for the MK-105 systems.

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

     Net  sales  of  airborne  mine countermeasures  systems  represented  5% of
consolidated net sales in 2002, 8% in 2001 and 11% in 2000.

INTEGRATED COMBAT SYSTEMS

     We act as a systems  integrator for naval C(4)I  systems. In this role,  we
integrate   all  of  a  ship's  sensor   systems,  including  radar  and  sonar,
communications systems, navigation and  integrated bridge systems, and  aircraft
control  systems to provide  situational awareness in a  common data and display
format for a ship's commander.  Integration contracts typically provide for  the
development  of  integration  software  that allows  the  various  subsystems to
intercommunicate and  produce common  information displays.  In 1998,  we  began
integration  of a combat system for the upgrade of a major class of ship for the
Norwegian Coast Guard. The integrated  system includes radars, sonars,  internal
and  external communications and navigation subsystems, fire control subsystems,
helicopter control  subsystems, display  equipment and  integration software  to
produce  common tactical displays.  This program is expected  to be completed in
2003.

     Command, control  and  communications systems  include  integrated  command
systems,  tactical data  links, display  consoles and  communication control and
monitoring systems  for  domestic and  international  customers. In  2002,  work
continued   on  NATO  Ship-Shore-Ship  Buffer  systems  deliverable  to  several
international customers.

UNDERSEA SYSTEMS

     We have  been  a supplier  of  undersea systems  including  sonar  sensors,
underwater  communication  systems,  and  depth  sounding  and  speed  measuring
equipment for over 40 years. During 2002,  work continued on a contract for  the
Brazilian  Navy to deliver a  major upgrade to the  EDO Model 610E sonar system.
Deliveries under this contract are expected  to continue into 2003. In  addition
to  the upgrade, we  delivered a new  Model 610E sonar  system for the Brazilian
Navy's new Corvette class ship. Work continued in 2002 on a contract awarded  in
2000 by a new international customer to deliver the recently developed EDO Model
980  sonar  system  for  installation  in  a  new  class  of  naval  ship  under
construction by  the customer.  Development  and delivery  of the  systems  will
extend  into 2006. Work continued  in 2002 on a contract  awarded in 2000 by the

                                        4
<PAGE>

Naval Undersea  Warfare Center  to  develop and  produce  a new  depth  sounding
system,  AN/BQN-17,  for  U.S.  Navy  attack  submarines.  Deliveries  of thirty
AN/BQN-17 units will continue into 2003. In 2002, we were awarded a contract  as
part  of a team headed by Ultra  Electronics, the UK-based aerospace and defense
electronics group,  to  provide  bow-mounted  Medium  Frequency  Sonar  --  7000
(MFS-7000)  systems to the United Kingdom's Type 45 naval destroyer program. Our
contract, valued  at approximately  $11 million,  will provide  systems for  six
ships.  EDO  Combat  Systems in  Chesapeake,  VA  will develop  the  systems and
transfer the technology to Ultra  Electronics for final assembly integration  in
the  UK. EDO Electro-Ceramic Products in Salt Lake City, UT will provide ceramic
and transducer elements. Deliveries under the contract will extend through 2006.

PROFESSIONAL AND ENGINEERING SERVICES

     We are  a  supplier  of professional  services  consisting  of  information
technology,  engineering, analytical, operation  and program management services
along with electronic warfare test and evaluation equipment to the U.S.  defense
and Federal services and information technology markets.

     In  2002, we were  awarded follow-on orders for  core services contracts in
this business area that include: the Naval Sea Systems Command, the U.S.  Marine
Corps  Warfighting Lab, the Strategic Sourcing Initiatives of the Chief of Naval
Operations  Office  for  Ashore  Readiness,  and  the  Acquisition  Center   for
Excellence  of  the Acquisition  Reform Office  in the  Office of  the Assistant
Secretary of the Navy for Research, Development and Acquisition.

     In 2002,  we continued  to  perform services  under contracts  for  design,
planning,  execution, analysis  and reporting  for the  AN/ALQ-161A preprocessor
flight software for Warner Robins  Air Logistics Center, navy threat  validation
support  for China Lake Naval Air  Warfare Center, and technical and engineering
support to various Boeing Satellite Systems programs.

     We designed and produced a line of electronic test equipment for electronic
warfare testing, data acquisition, and  radar simulation. In 2002, we  continued
to  receive orders for  our AN/PLM-4 Radar  Signal Simulators from  the U.S. Air
Force and international customers.

     Net sales  of  professional and  engineering  services represented  18%  of
consolidated net sales in 2002, 16% in 2001 and 13% in 2000.

                       COMMUNICATIONS AND SPACE PRODUCTS

     Our  Communications and Space Products segment,  which accounted for 14% of
consolidated net sales in 2002,  15% in 2001 and  14% in 2000, includes  antenna
products, communications products and space sensor products.

ANTENNA PRODUCTS

     We  design and produce antenna  systems for a wide  variety of military and
commercial applications including communications, electronic warfare, navigation
(including global positioning), radar and wireless Local Area Networks, or LANs.
Our antenna  business is  approximately  60% military  and 40%  commercial.  Our
military antennas are deployed on many different types of platforms and vehicles
including  fixed  wing and  rotary  aircraft, unmanned  aerial  vehicles (UAVs),
satellites, aircraft carriers  and other surface  ships, submarines, and  ground
vehicles.  Our commercial antennas  are used on commercial  airliners as well as
general aviation aircraft.

     We have a broad  customer and product  base in this  business. In 2002,  we
sold more than 50,000 antennas of 200 different types to more than 350 different
original  equipment manufacturers and after-market customers. A large portion of
our revenue results from spare part  sales and repair services for an  installed
base of antennas in excess of 500,000 units.

     In  2002,  we  made  substantial  progress  toward  developing  new antenna
products via internally funded and customer sponsored research and  development.
During this period, we entered into major contracts for

                                        5
<PAGE>

development  of low observable, anti-jam  global positioning satellite (GPS) and
extremely wide bandwidth electronic warfare and communication antenna systems.

COMMUNICATIONS AND COUNTERMEASURES PRODUCTS

     We design and manufacture interference cancellation and mitigation  systems
as  well as a secure voice system for  a variety of platforms. Both domestic and
international  customers  use   these  products  to   enhance  or  protect   the
communications  of  their air,  land, and  sea  forces from  unintentional radio
interference. This technology can also  be applied to defend certain  navigation
systems from intentional interference or jamming. We also design and manufacture
countermeasures  systems to defend  troops and high  value assets from proximity
fused munitions. This same jamming technology can be used against several new or
existing  communications  media.   This  capability  is   being  exploited   for
counter-terrorism and homeland defense purposes.

SPACE PRODUCTS

     We  manufacture a wide array  of products for space  payloads that meet the
high reliability  standards  required  by the  industry,  including  components,
subassemblies  and major subsystems that are sold directly to the government for
military and civil  systems, or  to prime  contractors for  both government  and
commercial  applications. Our sensors and  subsystems include larger subsystems,
up  to  full  satellite  payloads,  for  remote  sensing  instruments  employing
microwave   measurements  of  the  earth  and  its  atmosphere,  and  classified
government programs. Our  commercial communication  products include  a line  of
OC-192  compatible microwave devices for the ultra long-haul fiber optic market.
Our space products  include numerous high-performance  microwave subsystems  for
both  civil and commercial communication  satellite systems, including the Fixed
Satellite Service market. We also participate in multiple aspects of the overall
NASA communications network  linking the space  shuttle and geo-synchronous  and
low earth orbit satellites with ground stations.

                              ENGINEERED MATERIALS

     Our  Engineered Materials segment, which  accounted for 12% of consolidated
net sales  in  2002, 14%  in  2001 and  17%  in 2000,  includes  electro-ceramic
products and advanced fiber composite structural products.

ELECTRO-CERAMIC PRODUCTS

     Piezoelectric ceramic elements convert acoustic energy to electrical energy
and  vice versa,  and form  the basis  of many  defense and  commercial products
ranging from military sonars to ink jet printers. We are one of North  America's
leading   manufacturers   of  piezoelectric   ceramic  components   for  defense
applications and we  also provide  material and related  transducers to  several
commercial  markets. While more than 50%  of our piezoelectric ceramic sales are
for defense applications, we are increasing our efforts to expand our industrial
business, while maintaining our position in the defense market.

     Our business  is  vertically  integrated with  in-house  manufacturing  and
development  of piezoelectric, dielectric and ferrite ceramic materials, coupled
with  state-of-practice  mixed  analog  and  digital  electronics  and  software
engineering.  We  believe this  combination of  engineered active  materials and
electronics capabilities makes us competitive in several niche markets.

     Examples of our products include underwater acoustic transducers for use in
all areas of undersea warfare, piezoelectric shapes for a variety of industries,
as well as microwave ceramics for the wireless communication industry.

     Work continued in 2002 on a contract awarded from the U.S. Navy in 1999 for
development and production of a new underwater communications transducer, called
the TR232. Deliveries  under this  contract are  expected to  extend into  2004.
Additionally, we were awarded a contract by the U.S. Navy for initial production
of  hydrophone stave  assemblies used in  the Wide Aperture  Array sonar systems
installed in Los Angeles and Seawolf class attack submarines. Initial deliveries
under this contract commenced in 2001 and extend through 2004.

                                        6
<PAGE>

     Additionally in 2002  we were  awarded a  contract to  provide AN/SQS-53  C
sonar  arrays to the  Naval Sea Systems  Command for use  by U.S. Navy warships,
including the  Arleigh  Burke  class  guided  missile  destroyers.  Our  initial
contract  is valued  at approximately $6.3  million. The SQS-53C  sonar array is
part of  the AN/SQQ-89  undersea  warfare combat  system.  We will  provide  the
complete  sonar  array including  piezoelectric ceramic  materials, transducers,
array frames and associated  cable assemblies. Our  high power transducers  form
the  key active sensor used to  detect, classify and localize underwater threats
to U.S. naval forces. Initial deliveries are scheduled into 2005. If all options
are exercised, deliveries will extend to approximately 2010.

ADVANCED FIBER COMPOSITE STRUCTURAL PRODUCTS

     Our  fiber-reinforced  advanced  structural  product  capabilities  include
design,  development,  qualification, production  and after-market  support. Our
primary focus  includes  commercial  and  military  aviation,  defense  systems,
specialty  medical  products and  offshore oil-drilling  markets. We  remain the
exclusive supplier of vacuum waste tanks for all of Boeing Seattle's  commercial
aircraft. In 2002, we successfully transitioned medical tanks, which are part of
portable   dialysis  filtration  systems,  from  design  and  development  to  a
production product.

     In  2002,  we  received  contracts  from  Sikorsky  Helicopter  to  produce
composite structures for the new Comanche helicopter. Also in 2002, we completed
the  fabrication and installation  of topside piping systems  for one Korean and
one Malaysian offshore oil platform.  Production contracts for composite  piping
on three large Gulf of Mexico deep-water oil platforms also started in 2002.

                            DISCONTINUED OPERATIONS

     In  January  2000,  we  sold  our  satellite  orientation  sensor  products
business, Barnes Engineering  Company. See Note  3 on  pages 41 and  42 of  this
Report.

                            RESEARCH AND DEVELOPMENT

     Research  and  development,  performed  under  development  contracts  with
customers and at our own expense, is an important element to the success of  our
business. Research and development programs are intended to develop new products
and  assess their  market potential,  and to  extend the  capability of existing
products. Our research and  development efforts involve  about 139 employees  in
the  fields of  communications and  space, antennas,  electronic warfare, combat
systems, and  acoustic, electronic,  hydrodynamic, aerodynamic,  structural  and
material engineering.

     Customer-sponsored   research  and  development  programs  are  principally
related to military programs. Major customer-sponsored research and  development
programs  include:  improvements  to  the  MK-105  mine  countermeasures system;
development of OASIS; development of  new aircraft weapons carriage  technology;
development in combat systems integration including command and control software
development;  development  of  a  new shallow-water  sonar;  development  of low
observable  anti-jam   GPS  antennas;   and   development  of   new   underwater
communications transducer products.

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

     Principal current company-funded research and development includes: digital
signal processing technology suitable for improved performance and functionality
for  ELINT and ESM  systems; image and signal  processing and other improvements
for combat systems; improvements to minesweeping technology; new techniques  for
aircraft  weapons  carriage systems;  application  of composites  for structural
uses; development of communication  equipment, including fiber optic  equipment;
electronic  countermeasures and low observable  and advanced antennas, including
anti-jam GPS variants; improvements to  sonar systems, including processing  and
detection  enhancements;  improvements  for  noise  reduction  and  interference
cancellation; modifications to our base  of combat systems software products  to
allow seamless migration of these products to the

                                        7
<PAGE>

latest  generation  of  computer  hardware  architectures;  development  of  new
piezoelectric and composite materials; and  development of new capabilities  for
our  Field Test Simulator product to  increase the functionality and flexibility
of operation.

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

<Table>
<Caption>
                                                           YEARS ENDED DECEMBER 31,
                                                          ---------------------------
                                                           2002      2001      2000
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Customer-sponsored......................................  $38,300   $35,700   $38,400
Company-funded..........................................    8,500     8,700     5,400
                                                          -------   -------   -------
  Total.................................................  $46,800   $44,400   $43,800
                                                          =======   =======   =======
</Table>

                       MARKETING AND INTERNATIONAL SALES

     Sales  of our defense products to both the U.S. and foreign governments are
usually made under negotiated long-term  contracts or subcontracts covering  one
or  more years of  production. 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  our defense  business is  to
anticipate  specific customer needs  and to develop systems  to meet those needs
either at our  own expense or  pursuant to research  and development  contracts.
Many  of  our employees,  including  our Chief  Executive  Officer and  our Vice
President -- Washington Operations,  are actively involved  in the marketing  of
our defense products in the U.S. and abroad. We also have about 50 international
sales  representatives concentrating on the marketing of our defense products in
foreign countries.

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

     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  our policy  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.

     Export  sales comprised 15% of consolidated net  sales in 2002, 15% in 2001
and 18% in 2000.

                                    BACKLOG

     We define  backlog  as the  funded  value  of contract  awards  and  orders
received  from customers, which have not  been recognized as sales. Backlog does
not include contract awards received from the U.S. Government for which the U.S.
Government has not appropriated funds,  nor does it include unexercised  options
in any contract. 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.  As  of
December  31, 2002 our total  backlog was about $375.0  million as compared with
$294.8 million as of December 31,  2001. Approximately 71% of the total  backlog
at  December 31, 2002  is scheduled for  delivery in 2003.  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.

                                        8
<PAGE>

                              GOVERNMENT CONTRACTS

     Net  sales  to  the U.S.  Government,  as  a prime  contractor  and through
subcontracts with  other  prime  contractors,  accounted for  75%  of  our  2002
consolidated  net sales compared with 69% in 2001 and 63% in 2000, and consisted
primarily of sales to the U.S. DoD. Such sales do not include sales of  military
equipment  to the  U.S. Government for  resale to foreign  governments under the
Foreign Military Sales program.

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

     Our  contracts  with  the  U.S.  DoD  consist  of  fixed-price   contracts,
cost-reimbursable  contracts and incentive contracts  of both types. 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)  and  a
specified  fee. In general, while the risk  of loss is greater under fixed-price
contracts than under cost-reimbursable contracts, the potential for profit under
such contracts is  greater than  under cost-reimbursable  contracts. Under  both
fixed-price  incentive contracts  and cost-reimbursable  incentive contracts, an
incentive adjustment is  made in  our fee  based on  attainment of  performance,
scheduling,  cost, quality  or other goals.  The distribution  of our government
contracts among the categories of contracts  referred to above 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 us and with greater financial resources. Direct sales
of military products to  the U.S. Government and  foreign governments are  based
principally  on  product performance,  cost and  reliability. Such  products are
generally sold  in competition  with products  of other  manufacturers that  may
fulfill an equivalent function, but which are not direct substitutes.

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

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

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

                                 ENVIRONMENTAL

     Refer  to Note 18 on  page 55 of this  Report for information regarding the
cost of compliance with environmental regulations.

                                        9
<PAGE>

                                   EMPLOYEES

     As of December 31, 2002, we employed 1,931 persons.

ITEM 2.  PROPERTIES

     All of our facilities except for the Deer Park, NY facility are leased.  We
believe  our facilities are adequate for our present purposes. All facilities in
the following listing are suitable for  expansion by using available but  unused
space,  leasing additional available  space, or by  physical expansion of leased
buildings. However, in light of recent acquisitions, we are reviewing the status
of all of our facilities. We believe  that, with respect to leases which  expire
during  2003 and 2004, we will be able to either extend the lease or lease other
facilities on reasonable terms. Our obligations under the various leases are set
forth in Note 17 on page 55 of this Report.

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

<Table>
<Caption>
                                                                                    APPROXIMATE
                                                                                     FLOOR AREA
                                              SEGMENT              LOCATION         (IN SQ. FT.)
                                         ------------------  --------------------   ------------
<S>                                      <C>                 <C>                    <C>
Antenna Products and Technology and
  Defense Programs and Technologies...   Communications and  Deer Park, NY            726,000
                                         Space Products and
                                         Defense
Reconnaissance and Surveillance
  Systems.............................   Defense             Morgan Hill, CA          160,000
Electro-Ceramic Products..............   Engineered          Salt Lake City, UT       117,000
                                         Materials
Fiber Science.........................   Engineered          Salt Lake City, UT       105,000
                                         Materials
Marine & Aircraft Systems.............   Defense             North Amityville, NY      92,000
Communications and Countermeasures
  Systems.............................   Communications and  Simi Valley, CA           43,000
                                         Space Products
American Nucleonics Corporation.......   Communications and  Westlake Village, CA      40,000
                                         Space Products
Combat Systems........................   Defense             Chesapeake, VA            37,000
Technical Services Operations.........   Defense             Lancaster, CA             33,000
                                                             Alexandria & Falls
Professional Services.................   Defense             Church, VA                32,000
Specialty Plastics....................   Engineered          Baton Rouge, LA           29,000
                                         Materials
M. Technologies.......................   Defense             Huntingdon, PA            14,000
</Table>

ITEM 3.  LEGAL PROCEEDINGS

     The   Company  and/or  its  subsidiaries   are  parties  to  various  legal
proceedings  arising  in  the  normal  course  of  business,  including  various
environmental  actions described  in Note  18 on page  55 of  this Report. While
litigation is subject to  inherent uncertainties, management currently  believes
that  the  ultimate  outcome  of  these  proceedings,  individually  and  in the
aggregate, will not have a material adverse effect on the Company's consolidated
financial position, cash flow or overall results of operations. The following is
a description of certain proceedings:

     U.S. v. EDO Corporation et al.; EDO Corporation et al. v. Elinco Associates
L.P. et al. (United States District Court, District of Connecticut). The Company
and three other companies entered into a consent decree in 1990 with the Federal
government for the remediation of a Superfund site in Norwalk, CT. The Superfund
site has been divided into three  operable units. The consent decree relates  to
two of the operable

                                        10
<PAGE>

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, 2002, the Company estimates
that its  discounted liability  over  the remainder  of the  twenty-three  years
related  to the two operable units is  approximately $2.3 million. See also Note
18 on page 55 of this Report.

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

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

     None.

                                    PART II

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

     The information responsive  to this item  is set forth  under the  headings
"Common  Share Prices"  on page  25 and  "Dividends" on  page 25,  together with
dividend information contained in the "Consolidated Statements of  Shareholders'
Equity" on pages 29 through 31 and Note 9 on pages 43 and 44 of this Report.

ITEM 6.  SELECTED FINANCIAL DATA

                            SELECTED FINANCIAL DATA

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

<Table>
<Caption>
                                              2002       2001       2000      1999      1998
                                            --------   --------   --------   -------   -------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>       <C>
STATEMENT OF EARNINGS DATA:
Net sales.................................  $328,876   $259,961   $206,822   $97,936   $81,403
  Costs and expenses:
  Cost of sales...........................   240,850    189,733    151,512    72,337    57,817
  Selling, general and administrative.....    47,584     34,013     29,205    13,602    11,649
  Research and development................     8,492      8,750      5,371     2,748     2,382
  Unusual expenses (income)(a)............     2,565        389     11,495        --    (2,200)
                                            --------   --------   --------   -------   -------
                                             299,491    232,885    197,583    88,687    69,648
                                            --------   --------   --------   -------   -------
Operating earnings........................    29,385     27,076      9,239     9,249    11,755
Net interest expense......................    (4,956)    (2,216)    (2,438)     (785)     (428)
Other non-operating (expense) income,
  net.....................................       (95)      (971)      (216)      230      (100)
                                            --------   --------   --------   -------   -------
                                              (5,051)    (3,187)    (2,654)     (555)     (528)
                                            --------   --------   --------   -------   -------
</Table>

                                        11
<PAGE>

<Table>
<Caption>
                                              2002       2001       2000      1999      1998
                                            --------   --------   --------   -------   -------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>       <C>
Earnings before income taxes and
  cumulative effect of a change in
  accounting principle....................    24,334     23,889      6,585     8,694    11,227
Income tax expense........................   (10,342)    (9,210)    (5,264)   (2,610)     (880)
                                            --------   --------   --------   -------   -------
Earnings (loss) before cumulative effect
  of a change in accounting principle
  from:
  Continuing operations...................    13,992     14,679      1,321     6,084    10,347
  Discontinued operations.................        --        273         --    (4,064)   (2,116)
                                            --------   --------   --------   -------   -------
Earnings before cumulative effect of a
  change in accounting principle..........    13,992     14,952      1,321     2,020     8,231
Cumulative effect of a change in
  accounting principle, net of tax of
  $790(b).................................    (3,363)        --         --        --        --
Dividends on preferred shares(c)..........        --        194        881     1,000     1,063
                                            --------   --------   --------   -------   -------
Net earnings available for common
  shares..................................  $ 10,629   $ 14,758   $    440   $ 1,020   $ 7,168
                                            ========   ========   ========   =======   =======
PER COMMON SHARE DATA:
Basic net earnings (loss):
  Continuing operations...................  $   0.82   $   1.14   $   0.05   $  0.76   $  1.42
  Discontinued operations.................        --       0.02         --     (0.61)    (0.33)
                                            --------   --------   --------   -------   -------
Basic net earnings before cumulative
  effect of a change in accounting
  principle...............................      0.82       1.16       0.05      0.15      1.09
Cumulative effect of a change in
  accounting principle....................     (0.20)        --         --        --        --
                                            --------   --------   --------   -------   -------
Basic net earnings........................  $   0.62   $   1.16   $   0.05   $  0.15   $  1.09
                                            --------   --------   --------   -------   -------
Diluted net earnings (loss):
  Continuing operations...................  $   0.81   $   1.09   $   0.05   $  0.65   $  1.21
  Discontinued operations.................        --       0.02         --     (0.50)    (0.27)
                                            --------   --------   --------   -------   -------
Diluted net earnings before cumulative
  effect of a change in accounting
  principle...............................      0.81       1.11       0.05      0.15      0.94
Cumulative effect of a change in
  accounting principle....................     (0.20)        --         --        --        --
                                            --------   --------   --------   -------   -------
Diluted net earnings......................  $   0.61   $   1.11   $   0.05   $  0.15   $  0.94
                                            ========   ========   ========   =======   =======
Cash dividends per common share...........  $   0.12   $   0.12   $   0.12   $  0.12   $ 0.115
Weighted-average common shares
  outstanding:
  Basic...................................    17,080     12,776      9,601     6,701     6,549
  Diluted.................................    17,379     14,254     10,662     8,032     7,785
OTHER DATA:
EBITDAP(d)................................  $ 51,184   $ 37,037   $ 27,307   $11,127   $ 9,606
Depreciation and amortization.............    11,321     11,396      9,441     3,390     2,343
Capital expenditures......................     7,093     14,298      3,861     4,032     3,133
Backlog...................................   375,029    294,812    252,888   133,880   130,151
                                            --------   --------   --------   -------   -------
</Table>

                                        12
<PAGE>

<Table>
<Caption>
                                              2002       2001       2000      1999      1998
                                            --------   --------   --------   -------   -------
                                                 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                         <C>        <C>        <C>        <C>       <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, marketable
  securities and restricted cash..........  $159,860   $ 58,031   $ 16,621   $29,642   $33,510
Working capital...........................   204,382    105,177     37,552    35,110    32,674
Total assets..............................   481,574    285,630    214,254   124,491   124,630
Total debt(e).............................   137,800        463     49,444    36,483    43,732
Shareholders' equity......................   168,273    174,498     65,818    40,241    38,051
                                            --------   --------   --------   -------   -------
RECONCILIATION OF GAAP EARNINGS TO
  EBITDAP:
Earnings before income taxes and
  cumulative effect of a change in
  accounting principle....................  $ 24,334   $ 23,889   $  6,585   $ 8,694   $11,227
Merger-related costs......................       567      1,318     11,495        --        --
Defined benefit pension plan curtailment
  loss....................................     1,998         --         --        --        --
Post-retirement curtailment gain..........        --       (929)        --        --        --
Litigation settlement income..............        --         --         --        --    (2,200)
Net interest expense......................     4,956      2,216      2,438       785       428
Depreciation and amortization.............    11,321     11,396      9,441     3,390     2,343
                                            --------   --------   --------   -------   -------
Subtotal -- EBITDA........................    43,176     37,890     29,959    12,869    11,798
Pension expense (income)..................     3,965     (2,634)    (4,495)   (1,742)   (2,192)
Employee Stock Ownership Plan compensation
  expense.................................     4,043      1,781      1,843        --        --
                                            --------   --------   --------   -------   -------
EBITDAP...................................  $ 51,184   $ 37,037   $ 27,307   $11,127   $ 9,606
                                            ========   ========   ========   =======   =======
</Table>

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

 (a) Reflects  $0.2  million  and $0.4  million  in  2002 for  the  write-off of
     purchased  in-process  research   and  development   ("IPR&D")  and   other
     merger-related  costs, respectively, associated with our acquisition of the
     assets of Condor Systems, Inc., as well as a $2.0 million curtailment  loss
     associated   with  our  defined  benefit   pension  plan;  a  $0.9  million
     post-retirement curtailment gain in 2001; $1.3 million and $11.5 million in
     the years  2001 and  2000, respectively,  for the  write-off of  IPR&D  (in
     2000);  and other EDO-AIL merger-related costs (in 2001 and 2000); and $2.2
     million in 1998 of litigation settlement income.

(b) Upon adoption  of  Statement  of  Financial  Accounting  Standard  No.  142,
    "Goodwill and Other Intangible Assets," we recorded a cumulative effect of a
    change  in accounting principle effective January  1, 2002. See Note 1(g) to
    the consolidated financial statements as of and for the year ended  December
    31, 2002.

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

(d) EBITDAP  consists of  earnings from  continuing operations  before interest,
    taxes, depreciation, amortization and non-cash pension and non-cash employee
    stock ownership  plan  compensation  expense, excluding  a  defined  benefit
    pension plan curtailment loss in 2002, a post-retirement curtailment gain in
    2001, the write-off of IPR&D in 2002 and 2001, merger-related costs in 2002,
    2001 and 2000, and litigation settlement income in 1998. Items excluded from
    EBITDAP  are  significant  components  in  understanding  and  assessing our
    financial performance.  EBITDAP  is a  measure  commonly used  by  financial
    analysts  and investors  to evaluate financial  results of  companies in our
    defense and aerospace industry and, therefore, we believe it provides useful
    information to investors. EBITDAP should  not be considered in isolation  or
    as  an  alternative  to  net income,  cash  flows  generated  by operations,
    investing  or  financing  activities,  or  other  financial  statement  data
    presented   in  the  consolidated  financial  statements  as  indicators  of
    financial performance  or liquidity.  Because EBITDAP  is not  a measure  of
    financial

                                        13
<PAGE>

    performance  determined in  accordance with  accounting principles generally
    accepted in the  United States  and is susceptible  to varying  calculations
    among  companies, EBITDAP  as presented may  not be  comparable to similarly
    titled measures of other companies.

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

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

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

OVERVIEW

     EDO  Corporation (the  "Company") is  a leading  supplier of sophisticated,
highly engineered products  and systems  for defense,  aerospace and  industrial
applications.  We  believe our  advanced electronic,  electromechanical systems,
information systems  and  engineered materials  are  mission-critical,  standard
equipment  on  a  wide  range  of military  programs.  We  have  three reporting
segments: Defense, Communications and Space Products, and Engineered  Materials,
which  represented 74%, 14% and 12%, respectively, of our net sales for the year
ended December 31, 2002.

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

ACQUISITIONS AND DISPOSITION

     On July 26,  2002, we acquired  substantially all of  the assets of  Condor
Systems,  Inc., a privately-held defense  electronics company and its subsidiary
(together, "Condor") based in Morgan Hill and Simi Valley, California for  $61.9
million  in cash,  in addition  to transaction  costs of  $4.1 million,  and the
assumption of certain  normal employee  benefit obligations,  certain trade  and
supplier  payables and certain  other accrued liabilities,  primarily related to
contract loss reserves.  We also  assumed $28.0 million  in outstanding  standby
letters  of credit. Condor had been operating under the protection of Chapter 11
of the U.S. Bankruptcy Code. We expect  the acquisition of Condor to expand  our
electronic  warfare  business in  the areas  of reconnaissance  and surveillance
systems and communications  and countermeasures systems.  Condor became part  of
our  Defense and Communications and Space Products segments and was accretive to
earnings in 2002.

     In October  2001,  we acquired  Dynamic  Systems, Inc.,  a  privately  held
company  based  in Alexandria,  Virginia for  $13.9  million in  cash, including
transaction costs. Dynamic Systems, Inc. became part of our Defense segment  and
provides  professional  and  information technology  services  primarily  to the
Department of Defense  and other  government agencies. For  the 12-month  period
prior  to the  acquisition, Dynamic Systems  Inc. had  revenues of approximately
$15.0 million.

     On April 28,  2000, one of  our wholly-owned subsidiaries  merged with  AIL
Technologies  Inc.  ("AIL").  Under  the  merger  agreement  and  share purchase
agreements with  certain AIL  shareholders,  all of  the outstanding  shares  of
common  stock  and preferred  stock of  AIL were  exchanged for  6,553,194 newly
issued EDO common shares valued at  $39.4 million and cash payments  aggregating
$13.3  million. The  merged company  assumed AIL debt  of $29.7  million. Of the
newly-issued shares,  5,270,540  were held  in  trust by  AIL's  Employee  Stock
Ownership  Plan (the "AIL  ESOP"). As of January  1, 2001, the  AIL ESOP and the

                                        14
<PAGE>

existing EDO  Employee Stock  Ownership Plan  ("EDO ESOP")  were merged  into  a
single  plan (the "ESOP"). As of March 8, 2001, the existing preferred shares in
the EDO ESOP were converted into  approximately 1,067,281 of our common  shares.
In  our  public offering  completed October  30, 2001,  the ESOP  sold 1,458,900
shares reducing its ownership of EDO  to about 23% of outstanding common  shares
as  of December 31, 2001.  As of December 31,  2002, the ESOP owns approximately
22% of outstanding common shares.

     Each of  the  above acquisitions  has  been  accounted for  as  a  purchase
business  combination  and is  included in  our results  of operations  from its
acquisition date.  The  results of  operations  for the  periods  presented  are
affected by the timing of these acquisitions.

     In  January  2000,  we  sold  our  satellite  orientation  sensor  products
business, Barnes Engineering  Company. Accordingly,  our consolidated  financial
statements  treat the satellite  products business as  a discontinued operation.
Revenues, costs and expenses, assets and liabilities, and cash flows  associated
with  the satellite  products business  have been  excluded from  the respective
captions in the consolidated financial statements and discussion below.

DISCUSSION OF CRITICAL ACCOUNTING POLICIES

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

  REVENUE RECOGNITION

     Sales under long-term, fixed-price  contracts, including pro-rata  profits,
are  generally recorded based on  the relationship of costs  incurred to date to
total  projected  final  costs  or,  alternatively,  as  deliveries  and   other
milestones  are achieved or services are provided. These projections are revised
throughout the lives  of the  contracts. Adjustments to  profits resulting  from
such  revisions are made cumulative to the date of change and may affect current
period earnings.

     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. Sales under cost reimbursement contracts are recorded
as  costs  are  incurred.  Sales   on  other  than  long-term  contract   orders
(principally commercial products) are recorded as shipments are made.

  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.
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. All other inventories are stated  at the lower of cost  (principally
first-in, first-out method) or market.

     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

                                        15
<PAGE>

inventory  is  determined to  be  overvalued due  to one  or  more of  the above
factors, we would be  required to recognize  such loss in value  at the time  of
such determination.

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

  PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-LIVED ASSETS

     Property, plant and equipment is recorded  at cost and is depreciated on  a
straight-line  basis over the  estimated useful lives  of such assets. Leasehold
improvements are amortized over the shorter  of their estimated useful lives  or
their  respective  lease periods.  In those  cases where  we determine  that the
useful life  of property,  plant and  equipment should  be shortened,  we  would
depreciate  the net book value  in excess of the  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 is based upon,
among  other  things,  certain  assumptions  about  expected  future   operating
performance. Our estimates of undiscounted cash flow may differ from actual cash
flow  due to factors such as technological changes, economic conditions, changes
to our business model or changes in our operating performance. 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 Standard ("SFAS")  No.
142,  "Goodwill and Other  Intangible Assets," goodwill must  be tested at least
annually for  impairment  at the  reporting  unit  level. If  an  indication  of
impairment  exists, we are required to determine if such goodwill's implied fair
value is less than its 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  profit, adverse  legal  or  regulatory developments,
accumulation of costs significantly in excess of amounts originally expected  to
acquire  the asset and a material  decrease in the fair value  of some or all of
the assets.

  PENSION AND POST-RETIREMENT BENEFIT OBLIGATIONS

     We sponsor defined benefit  pension and other  retirement plans in  various
forms  covering all  eligible employees.  Several statistical  and other factors
which attempt to anticipate  future events are used  in calculating the  expense
and  liability related to the plans. These factors include assumptions about the
discount rate, expected return  on plan assets and  rate of future  compensation
increases as determined by us, 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  and  economic  conditions,  higher  or lower
withdrawal rates or longer or shorter life spans of participants.

FINANCIAL HIGHLIGHTS

     For 2002,  earnings before  cumulative  effect of  a change  in  accounting
principle  available for common  shares were $14.0 million  or $0.81 per diluted
share. In 2002, we recorded a $3.4 million net of tax charge ($0.20 per  diluted
share)  to account for the cumulative effect of a change in accounting principle
upon our adoption of SFAS No. 142, "Goodwill and Other Intangible Assets."  This
charge  occurred in  the Engineered Materials  segment and is  comprised of $2.3
million and  $1.9  million of  impaired  goodwill and  trademark,  respectively,
offset  by a tax benefit  of $0.8 million. Including  the cumulative effect, net
earnings available for  common shares were  $10.6 million or  $0.61 per  diluted
share. The 2002 results include pretax merger-related

                                        16
<PAGE>

costs of $0.6 million associated with our acquisition of Condor in July 2002 and
a pretax defined benefit pension plan curtailment loss of $2.0 million.

     Net  sales for 2002  increased 26.5% to $328.9  million from $260.0 million
for 2001, reflecting  five months  of Condor's  net sales  in 2002,  as well  as
increases  in  sales of  technology services  attributable  to twelve  months of
Dynamic Systems' net sales in 2002 as compared to approximately three months  in
2001  due to its acquisition in October  2001. In addition, there were increases
in sales  of  electronic  warfare equipment,  aircraft  weapons  suspension  and
release  systems, sonar systems, antenna  products, electro-ceramic products and
advanced fiber composite structural products, partially offset by a net decrease
in our  remaining product  lines. Results  of the  former Condor  business  were
included  from  the  acquisition  date  of  July  26,  2002  and  accounted  for
approximately $36.3 million or 11.1% of 2002 net sales.

     On April 2,  2002, we  completed our offering  of $137.8  million of  5.25%
Convertible  Subordinated  Notes  due  2007 (the  "Notes")  and  received $133.7
million, net of  commissions paid.  On November 8,  2002, we  negotiated with  a
consortium  of banks to  increase our credit  facility's borrowing capacity from
$69.0 million to  $140.0 million and  again, on December  20, 2002, from  $140.0
million to its current limit of $200.0 million.

     On  October 30, 2001, we completed a public offering of 3,716,100 shares of
our common  stock,  resulting in  net  proceeds  to us  of  approximately  $81.5
million.  On  November 27,  2001,  we completed  the  redemption of  all  of our
outstanding 7% Convertible Subordinated Debentures due 2011 (the  "Debentures").
Debentures  with  an  aggregate outstanding  face  value of  $22.1  million were
converted into 1,005,250  common shares  and Debentures with  an aggregate  face
value of $0.2 million were redeemed for cash plus accrued interest.

RESULTS OF OPERATIONS

  COMPARISON OF 2002 TO 2001

     Net sales by segment were as follows:

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

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

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

                                        17
<PAGE>

the  latter of which was due primarily to  the delay in orders anticipated to be
awarded to us in 2002 from international customers.

     In the Communications and Space Products  segment, $7.6 million of the  net
increase  in sales  was attributable to  sales of  electronic protection systems
from the aforementioned acquisition of Condor. Additionally, sales increases  in
our  antenna product  line were more  than offset  by decreases in  sales of our
space sensor communication products.

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

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

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

     Selling,  general and administrative  expenses for the  year ended December
31, 2002 increased to $47.6 million or 14.5% of net sales from $34.0 million  or
13.1%  of net  sales for  the year  ended December  31, 2001.  This increase was
primarily attributable to the acquisition of Condor in July 2002, twelve  months
of

                                        18
<PAGE>

Dynamic  Systems' expenses  in 2002,  and the  aforementioned change  to pension
expense  in  2002  compared  to  pension  income  in  2001  and  increased  ESOP
compensation expense.

     Research  and  development expense  for the  year  ended December  31, 2002
decreased to $8.5 million or 2.6% of net sales from $8.8 million or 3.4% of  net
sales  for  the  year  ended  December  31,  2001.  The  decrease  was primarily
attributable to higher  expenditures in  the Communications  and Space  Products
segment in 2001 relating to fiber optics product development.

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

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

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

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

  COMPARISON OF 2001 TO 2000

     Net sales by segment were as follows:

<Table>
<Caption>
                                                             TWELVE MONTHS
                                                           ENDED DECEMBER 31,       INCREASE
                                                         ----------------------    FROM PRIOR
SEGMENT                                                    2001         2000         PERIOD
-------                                                  ---------    ---------    ----------
                                                         (DOLLARS IN MILLIONS)
<S>                                                      <C>          <C>          <C>
Defense................................................    $183.5       $142.0        29.0%
Communications and Space Products......................      40.0         30.0        33.0%
Engineered Materials...................................      36.5         34.8         5.0%
                                                           ------       ------        ----
Total..................................................    $260.0       $206.8        26.0%
                                                           ======       ======        ====
</Table>

     Net sales for the  year ended December 31,  2001 increased 26.0% to  $260.0
million  from $206.8 million for the year ended December 31, 2000. This increase
comprised sales growth of $41.5 million for the Defense

                                        19
<PAGE>

segment, $10.0 million  for the  Communications and Space  Products segment  and
$1.7  million for the Engineered Materials  segment. Of this sales growth, $26.9
million in the Defense segment and $10.0 million in the Communications and Space
Products segment  was attributable  to  the EDO-AIL  merger. Since  the  EDO-AIL
merger  was  completed at  the  end of  April 2000,  the  twelve months  of 2000
reflected eight  months of  combined  operations, while  2001 reflected  a  full
twelve months of combined operations. In addition, there were increases in sales
of  aircraft weapons suspension and  release systems, integrated combat systems,
technology  services,  electroceramic  products  and  advanced  fiber  composite
structural  products for the year  ended December 31, 2001  compared to the year
ended December 31, 2000.

     Operating earnings from continuing operations  for the year ended  December
31,  2001  (before considering  one-time  EDO-AIL merger-related  costs  of $1.3
million in 2001 and $11.5 million in 2000 and before a post-retirement  benefits
curtailment gain of $0.9 million in 2001) increased to $27.5 million or 10.6% of
net  sales from $20.7 million or 10.0% of  net sales for the year ended December
31, 2000. The  increase in operating  earnings was attributable  to the  EDO-AIL
merger  as well  as earnings from  completed mine  countermeasures contracts and
increased margins in  electro-ceramic products. These  increases were  partially
offset by losses in the Communications and Space Products segment on development
programs.  For  the year  ended December  31, 2001,  net earnings  available for
common shares increased to  $14.8 million or $1.11  per diluted common share  on
14.3  million diluted shares from $0.4 million or $0.05 per diluted common share
on 10.7 million diluted shares for the year ended December 31, 2000.

     Selling, general and  administrative expenses for  the year ended  December
31,  2001 increased to $34.0 million or 13.1% of net sales from $29.2 million or
14.1% of net  sales for  the year  ended December  31, 2000.  This increase  was
primarily  attributable to  the EDO-AIL  merger and  increased bid  and proposal
costs.

     Research and  development expense  for  the year  ended December  31,  2001
increased  to $8.8 million or 3.4% of net sales from $5.4 million or 2.6% of net
sales for  the  year  ended  December  31,  2000.  The  increase  was  primarily
attributable  to expenditures in  the Communications and  Space Products segment
relating to fiber optics product development.

     Interest expense, net of interest income,  for the year ended December  31,
2001 decreased to $2.2 million from $2.4 million for the year ended December 31,
2000.

     Income  tax  expense reflected  our effective  rate of  38.6% for  the year
ending December 31, 2001. This compares to an income tax expense at an effective
rate of 79.9% for the year ended December 31, 2000. The effective tax expense of
79.9% for the  year ended December  31, 2000 was  principally attributable to  a
write-off  of $6.7 million of purchased  in-process research and development and
other expenses associated with the EDO-AIL  merger that were not deductible  for
income tax purposes.

     Dividends  on  preferred  shares  for  the  year  ended  December  31, 2001
decreased to $0.2  million from  $0.9 million for  the year  ended December  31,
2000,  due to the conversion of  all outstanding preferred shares into 1,067,281
common shares on March 8, 2001. No preferred dividends were paid after March  8,
2001.

IN-PROCESS RESEARCH AND DEVELOPMENT

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

     For  the year ended December 31, 2001,  IPR&D of $6.7 million related to an
AIL project  that had  not reached  technological feasibility  and that  had  no
alternative future uses. The amount allocated to such project was expensed as of
the  date of the EDO-AIL  merger. This development project  related to a generic
satellite subsystem called a Ku-Ku Band  Down Converter for the fixed  satellite
service  market.  The converter  represented a  single channel  providing signal
conversion  from  uplink  frequencies  in  the  14GHz  range  to  the   downlink
frequencies  in  the 12GHz  range. At  the time  of the  EDO-AIL merger,  it was
estimated that  90%  of  the  development effort  had  been  completed  and  the
remaining  development  effort would  take about  six  months to  complete. This
project was completed,  resulting in  sales of  Ku-Ku Band  Converters in  2001.
During  2000 and the first  six months of 2001,  the efforts required to develop
the in-process technology of this project

                                        20
<PAGE>

into commercially  viable  products principally  related  to the  completion  of
planning,  designing, prototyping and  testing functions that  were necessary to
establish that the down converter produced would meet its design specifications,
including technical performance features and functional requirements.

LIQUIDITY AND CAPITAL RESOURCES

  BALANCE SHEET

     Our cash, cash  equivalents and marketable  securities increased 128.3%  to
$132.5  million at December  31, 2002 from  $58.0 million at  December 31, 2001.
This increase was due primarily to  the aforementioned issuance of the Notes  in
April  2002,  which resulted  in gross  cash proceeds  of $137.8  million before
commissions of $4.1 million, and cash  provided by operations of $31.9  million.
The  increase in cash and cash equivalents  was offset by $59.0 million paid for
the acquisition of Condor in July 2002, net of cash acquired, $4.1 million  paid
for  transaction costs related to the  Condor acquisition, $27.3 million of cash
restricted to collateralize outstanding letters of credit, $7.1 million for  the
purchase  of capital equipment and $2.4 million  for the payment of common share
dividends.

     During 2001, cash, cash equivalents and marketable securities increased  to
$58.0  million from $16.6 million, primarily due  to the receipt of net proceeds
of approximately $81.5 million from the  sale of 3,716,100 common shares,  $14.1
million  provided by  operations and  $1.9 million  from the  exercises of stock
options. These increases were partially offset by uses of $13.9 million for  the
acquisition   of  Dynamic  Systems,  $14.3  million  for  purchases  of  capital
equipment, $3.2 million for the repurchase  of Debentures, $4.9 million for  the
payment  in full of the EDO ESOP loan obligation and $2.1 million for payment of
common and preferred dividends.

     Restricted cash of $27.3 million at December 31, 2002 represents collateral
backing 105% of  outstanding letters of  credit assumed in  connection with  the
acquisition  of Condor. As  the letters of  credit expire or  are cancelled, the
collateral will be  released. In the  fourth quarter of  2002, we increased  our
credit  facility to $200.0 million, which will  allow for issuance of letters of
credit under the amended facility and the release of restricted cash.

     Accounts receivable increased 20.6% to $100.6 million at December 31,  2002
from  $83.4 million  at December  31, 2001 due  primarily to  the acquisition of
Condor. Excluding  the effects  of Condor,  accounts receivable  increased  $2.5
million from December 31, 2001.

     Inventories  increased 41.3%  to $32.4  million at  December 31,  2002 from
$22.9 million at December 31, 2001  due primarily to the acquisition of  Condor.
Excluding  the  effects  of  Condor,  inventories  increased  $2.9  million from
December 31, 2001.

     The notes receivable of  $3.0 million at December  31, 2002 (of which  $0.4
million  is included in current assets at  December 31, 2002) are comprised of a
note related to  the sale of  property in Deer  Park in June  2000, which had  a
balance  of $1.1 million at December 31, 2002, and $1.9 million in notes related
to the sale of our former College Point facility in January 1996. The Deer  Park
facility  note  is  due in  monthly  installments  through July  2015  and bears
interest at a rate of 7.5% per  annum. The College Point facility notes are  due
in  annual amounts through September  2004 with a final  payment of $1.3 million
due on December 31, 2004 and bear  interest at 7.0% per annum. The latter  notes
receivable are secured by a mortgage on the facility.

     Contract  advances increased  21.4% to $20.3  million at  December 31, 2002
from $16.7 million at December  31, 2001 due to  receipts of advances by  Condor
subsequent  to its  acquisition date, offset  by the use  of previously received
advances for costs incurred on foreign contracts.

     In 2002, capital expenditures of $7.1 million, excluding the effects of the
Condor  acquisition,  have  decreased  from  the  prior  year  as  we   incurred
significant   capital  expenditures  in  2001  at  the  Deer  Park  facility  in
anticipation of a potential sale leaseback, which did not occur in 2002. We  are
currently  reviewing the status of Deer Park  and all of our facilities in light
of recent acquisitions.

                                        21
<PAGE>

  FINANCING ACTIVITIES

  Credit Facility

     At December  31, 2002,  we have  a $200.0  million credit  facility with  a
consortium  of banks, led  by Citibank, N.A. as  the administrative agent, Fleet
National  Bank  as  the  syndication  agent  and  Wachovia  Bank,  N.A.  as  the
documentation agent. The facility expires in November 2005 and amended the $69.0
million credit facility in place at December 31, 2001.

     The  credit facility provides us with  sub-limits of borrowing up to $125.0
million for acquisition-related financing  and up to  $125.0 million in  standby
letters  of credit financing. The potential cash borrowing under the facility is
reduced by the  amount of outstanding  letters of credit.  Borrowings under  the
facility  will be priced initially at LIBOR plus a predetermined amount, ranging
from 1.25% to 1.75%, depending on our consolidated leverage ratio at the time of
the borrowing.  At December  31,  2002, LIBOR  was  approximately 1.4%  and  the
applicable  adjustment to LIBOR was 1.25%. The  facility requires us to pay each
lender in the consortium a commitment fee on the average daily unused portion of
their respective commitment at a rate equal to 0.25%.

     There were no direct  borrowings outstanding under  the credit facility  at
December  31, 2002 or 2001.  Letters of credit outstanding  at December 31, 2002
pertaining to the credit facility were $31.5 million, resulting in $93.5 million
available at year end for standby letters of credit, if needed.

     In connection with the  credit facility, we are  required to maintain  both
financial  and non-financial covenants and ratios,  including but not limited to
minimum tangible net worth plus subordinated debt, leverage ratio, fixed  charge
coverage  ratio, earnings before  interest and taxes  to interest expense ratio,
total unsubordinated debt to tangible net worth, net income and dividends. As of
December 31, 2002, we were in compliance with our covenants. The credit facility
is secured by our accounts receivable, inventory and machinery and equipment.

     As of December 31, 2001, we  had a $69.0 million long-term credit  facility
with  a consortium  of banks  co-led by  Mellon and  EAB. This  was the facility
amended in 2002. The  credit facility included $19.0  million in five-year  term
debt,  payable in quarterly  installments of $1.0 million,  and $50.0 million in
revolving debt. Borrowings under the agreement bore interest based on LIBOR plus
an applicable margin  of up  to 2.00%,  depending on  the consolidated  leverage
ratio  as  defined in  the agreement.  Borrowings were  secured by  our accounts
receivable, inventories and  property, plant  and equipment.  Proceeds from  the
term  debt were used to repay existing term debt acquired in the EDO-AIL merger.
On October  31,  2001,  all outstanding  term  debt  of $14.2  million  and  all
outstanding  revolving debt of $20.8 million were paid in full with the proceeds
of our public  stock offering. At  December 31, 2001,  there were no  borrowings
under the $50.0 million revolving credit facility.

  5.25% Convertible Subordinated Notes due 2007

     In April 2002, we completed the offering of the Notes and received proceeds
of $133.7 million, net of $4.1 million of commissions paid. Interest payments on
the  Notes are due April  15 and October 15 of  each year, commencing on October
15, 2002.  Accrued  interest  payable,  included  in  accrued  expenses  on  our
consolidated balance sheet, at December 31, 2002 was $1.5 million.

     The Notes are convertible, unless previously redeemed or repurchased by us,
at  the option  of the  holder at any  time prior  to maturity,  into our common
shares at an initial conversion price of $31.26 per share, subject to adjustment
in certain events. As of December 31, 2002, there had been no conversions.

  7% Convertible Subordinated Debentures due 2011

     During the  fourth  quarter  of  2001, the  Company  redeemed  all  of  its
outstanding  Debentures.  Debentures with  an  outstanding face  value  of $22.1
million were converted into 1,005,250 common shares under the conversion  rights
of the Debentures and $0.2 million face value was redeemed for cash plus accrued
interest.

                                        22
<PAGE>

  Employee Stock Ownership Trust ("ESOT") Loan

     In  July  2001, we  paid in  full our  direct ESOT  loan obligation  with a
balance of $4.9 million at  an interest rate of  82% of the prime-lending  rate.
This obligation represented the bank borrowing by the EDO ESOT guaranteed by us.
The  EDO ESOT has  serviced this obligation  with the dividends  received on our
preferred shares  and  cash contributions  from  us. As  described  above  under
"Acquisitions  and Disposition,"  as of  January 1, 2001,  the AIL  ESOP and the
existing EDO  ESOP were  merged into  a single  plan, and  the preferred  shares
issued  by us  and held  by the EDO  ESOT were  converted into  1,067,281 of our
common shares, effective March  8, 2001. As  of June 30,  2001, the merged  ESOT
restructured  its indirect loan from us to  extend the maturity date to December
31, 2017. As a result of the conversion of the preferred shares, debt service on
the ESOP indirect loan will be funded by cash contributions from us.

     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  servicing of  the ESOP  indirect loan.  We
continue  to focus on  positioning ourselves to  be a significant  player in the
consolidation of first-tier defense  suppliers and, to  that end, have  actively
sought  candidates for strategic acquisitions. Future acquisitions may be funded
from any of  the following sources:  cash on hand;  borrowings under our  credit
facility;  issuance  of  our common  stock  or other  equity  securities; and/or
convertible or other debt offerings.

  COMMITMENTS AND CONTINGENCIES

     In order to  aggregate all  commitments and contractual  obligations as  of
December  31, 2002, we have included  the following table. Our commitments under
letters of credit and advance payment and performance bonds relate primarily  to
advances  received  on foreign  contracts.  We do  not  expect to  have  to make
payments under these  letters of credits  or bonds since  these obligations  are
removed  as we perform under  the related contracts. The  amounts for letters of
credit and performance bonds represent  the amount of commitment expiration  per
period.

<Table>
<Caption>
                                                         PAYMENTS DUE IN (IN MILLIONS):
                                                 -----------------------------------------------
                                                                                        2007 AND
                                                 TOTAL    2003    2004   2005    2006    BEYOND
                                                 ------   -----   ----   -----   ----   --------
<S>                                              <C>      <C>     <C>    <C>     <C>    <C>
5.25% Convertible Subordinated Notes due
  2007.........................................  $137.8   $  --   $ --   $  --   $ --    $137.8
Operating leases...............................    47.2     8.0    6.4     5.5    4.4      22.9
Letters of credit..............................    86.9    21.4    2.0    62.9    0.2       0.4
Advance payment and performance bonds..........     2.3     0.6     --      --     --       1.7
                                                 ------   -----   ----   -----   ----    ------
Total..........................................  $274.2   $30.0   $8.4   $68.4   $4.6    $162.8
                                                 ======   =====   ====   =====   ====    ======
</Table>

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

  CONCENTRATION OF SALES

     We  conduct a  significant amount  of our  business with  the United States
Government. Domestic U.S. Government sales, including sales to prime contractors
of the U.S.  Government, accounted  for approximately 75%,  69% and  63% of  our
total  net sales for 2002, 2001 and  2000, respectively. In addition, sales from
the Universal Exciter Upgrade program  accounted for approximately 14%, 15%  and
15%  of our total net sales in 2002, 2001 and 2000, respectively. Although there
are currently no indications of a significant change in the status of government
funding of  certain programs,  should  this occur,  our results  of  operations,
financial  position and  liquidity could be  materially affected.  Such a change
could have a significant impact on  our profitability and our stock price.  This
could  also affect our ability to acquire  funds from our credit facility due to
covenant restrictions  or from  other  sources. As  of  December 31,  2002,  one
customer,  a prime contractor, in addition  to the U.S. Government accounted for
more than 10% of our consolidated accounts receivable.

                                        23
<PAGE>

  BACKLOG

     The funded backlog  of unfilled orders  at December 31,  2002 increased  to
$375.0  million from $294.8  million at December 31,  2001. Our backlog consists
primarily of current orders under  long-lived, mission-critical programs of  key
defense platforms.

NEW ACCOUNTING STANDARDS

  BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS

     In June 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No.  141, "Business Combinations,"  and No. 142,  "Goodwill and Other Intangible
Assets." SFAS No. 141  requires that the purchase  method of accounting be  used
for  all business combinations initiated after June  30, 2001. SFAS No. 141 also
includes guidance on  the initial  recognition and measurement  of goodwill  and
other  intangible assets arising from business combinations completed after June
30, 2001. SFAS  No. 142 prohibits  the amortization of  goodwill and  intangible
assets  with indefinite useful lives and  requires that these assets be reviewed
for impairment at  least annually.  Intangible assets with  definite lives  will
continue  to be amortized over their estimated useful lives. We adopted SFAS No.
142 effective January  1, 2002;  however, the  provisions that  provide for  the
non-amortization  of  goodwill  were  effective July  1,  2001  for acquisitions
completed after the issuance of SFAS No. 141. Accordingly, the goodwill acquired
in connection with the purchase of Dynamic Systems in October 2001 and Condor in
July 2002 is not being amortized.

     We performed the required impairment tests of goodwill and indefinite lived
intangible assets as of January 1, 2002 using the two-step process prescribed in
SFAS No. 142. The first  step was a review  for potential impairment, while  the
second  step  measured  the  amount of  the  impairment.  The  impairment charge
resulting from these transitional impairment tests was reflected as a cumulative
effect of a  change in  accounting principle  as of  January 1,  2002. The  $3.4
million  charge, net of an $0.8 million  tax benefit, occurred in the Engineered
Materials segment and is comprised of $2.2 million and $1.9 million of  impaired
goodwill  and trademark, respectively,  related to the  acquisition of Specialty
Plastics and $0.1  million of impaired  goodwill related to  the acquisition  of
Zenix.

  IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long  Lived  Assets,"  which  addresses  financial
accounting and reporting for the impairment or disposal of long lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for  Long-Lived  Assets to  be Disposed  Of," and  the accounting  and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations," for a disposal of a  segment of a business. We adopted SFAS  No.
144  as of  January 1, 2002.  The effect  of the adoption  of this  SFAS was not
material to our operating results or financial position.

  EXIT OR DISPOSAL ACTIVITIES

     On July  30, 2002,  the FASB  issued SFAS  No. 146,  "Accounting for  Costs
associated  with  Exit or  Disposal Activities."  SFAS No.  146 requires  that a
liability be recognized for costs associated  with an exit or disposal  activity
only when the liability is incurred. SFAS No. 146 also establishes fair value as
the objective for initial measurement of liabilities related to exit or disposal
activities.  SFAS No. 146 is effective for exit or disposal activities initiated
after December 31,  2002. The  adoption of SFAS  No. 146,  effective January  1,
2003, did not have a material effect on our consolidated financial statements.

  ACCOUNTING FOR STOCK-BASED COMPENSATION

     In  December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation - Transition and Disclosure --  an Amendment of FASB Statement  No.
123."  SFAS  No. 148  amends  SFAS No.  123  to provide  alternative  methods of
transition for a voluntary change to  the fair value based method of  accounting
for  stock-based employee compensation. In addition,  SFAS No. 148 requires more
prominent and

                                        24
<PAGE>

more frequent disclosures in both annual and interim financial statements  about
the method of accounting used for stock-based compensation and the effect of the
method  used on reported results. The disclosure  provisions of SFAS No. 148 are
effective for years ending  after December 15, 2002  and have been reflected  in
Note  14 to the consolidated financial statements. We do not plan to voluntarily
change our method of accounting for stock-based compensation. However, should we
change our method of accounting for stock-based compensation in the future, that
change would fall under the provisions of SFAS Nos. 123 and 148.

COMMON SHARE PRICES

     EDO common shares are traded on the New York Stock Exchange. As of February
26, 2003, there were 1,964 shareholders of record (brokers and nominees  counted
as one each).

     The price range in 2002 and 2001 was as follows:

<Table>
<Caption>
                                                       2002                2001
                                                 -----------------   -----------------
                                                  HIGH       LOW      HIGH       LOW
                                                 -------   -------   -------   -------
<S>                                              <C>       <C>       <C>       <C>
1st Quarter....................................  31.1500   21.9900   15.1000    7.1875
2nd Quarter....................................  32.9000   25.9000   22.9500   12.7500
3rd Quarter....................................  28.4900   17.5000   28.7500   14.9100
4th Quarter....................................  22.6500   15.5000   31.9000   22.4000
</Table>

DIVIDENDS

     During  2002  and 2001,  the  Board of  Directors  approved the  payment of
quarterly cash  dividends  of  $0.03  per common  share.  The  Company's  credit
facility places certain limits on the payment of cash dividends.

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

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

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

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

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

     Achievement of margins on sales, earnings and cash flow can be affected by:
unanticipated  technical  problems;  government  termination  of  contracts  for
convenience;    decline    in    expected    levels    of    sales;   underesti-

                                        25
<PAGE>

mation of  anticipated  costs  on  specific  programs;  the  ability  to  effect
acquisitions;  and risks  inherent in  integrating recent  acquisitions into our
overall structure.

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

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

                                        26
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                      CONSOLIDATED STATEMENTS OF EARNINGS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                      YEARS ENDED DECEMBER 31,
                                                              -----------------------------------------
                                                                 2002           2001           2000
                                                              -----------    -----------    -----------
                                                              (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>            <C>            <C>
CONTINUING OPERATIONS:
  NET SALES.................................................   $328,876       $259,961       $206,822
                                                               --------       --------       --------
  COSTS AND EXPENSES
    Cost of sales...........................................    240,850        189,733        151,512
    Selling, general and administrative.....................     47,584         34,013         29,205
    Research and development................................      8,492          8,750          5,371
    Write-off of purchased in-process research and
       development and merger-related costs.................        567          1,318         11,495
    Defined benefit pension plan curtailment loss...........      1,998             --             --
    Post-retirement curtailment gain........................         --           (929)            --
                                                               --------       --------       --------
                                                                299,491        232,885        197,583
                                                               --------       --------       --------
  OPERATING EARNINGS........................................     29,385         27,076          9,239
  NON-OPERATING INCOME (EXPENSE)
    Interest income.........................................      1,729            915          1,881
    Interest expense........................................     (6,685)        (3,131)        (4,319)
    Other, net..............................................        (95)          (971)          (216)
                                                               --------       --------       --------
                                                                 (5,051)        (3,187)        (2,654)
                                                               --------       --------       --------
    Earnings from continuing operations before income taxes
       and cumulative effect of a change in accounting
       principle............................................     24,334         23,889          6,585
    Income tax expense......................................    (10,342)        (9,210)        (5,264)
                                                               --------       --------       --------
  EARNINGS FROM CONTINUING OPERATIONS BEFORE CUMULATIVE
    EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE..............     13,992         14,679          1,321
DISCONTINUED OPERATIONS:
    Gain from discontinued satellite products business, net
       of tax...............................................         --            273             --
                                                               --------       --------       --------
  EARNINGS FROM DISCONTINUED OPERATIONS.....................         --            273             --
                                                               --------       --------       --------
EARNINGS BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
  PRINCIPLE.................................................     13,992         14,952          1,321
Cumulative effect of a change in accounting principle, net
  of tax of $790............................................     (3,363)            --             --
Dividends on preferred shares...............................         --            194            881
                                                               --------       --------       --------
NET EARNINGS AVAILABLE FOR COMMON SHARES....................   $ 10,629       $ 14,758       $    440
                                                               --------       --------       --------
EARNINGS (LOSS) PER COMMON SHARE:
  Basic:
    Continuing operations...................................   $   0.82       $   1.14       $   0.05
    Discontinued operations.................................         --           0.02             --
                                                               --------       --------       --------
Earnings per Common Share before Cumulative Effect of a
  Change in Accounting Principle............................   $   0.82       $   1.16       $   0.05
Cumulative effect of a change in accounting principle, net
  of tax....................................................      (0.20)            --             --
                                                               --------       --------       --------
NET EARNINGS PER COMMON SHARE-BASIC.........................   $   0.62       $   1.16       $   0.05
                                                               --------       --------       --------
  Diluted:
    Continuing operations...................................   $   0.81       $   1.09       $   0.05
    Discontinued operations.................................         --           0.02             --
                                                               --------       --------       --------
Earnings per Common Share before Cumulative Effect of a
  Change in Accounting Principle............................   $   0.81       $   1.11       $   0.05
Cumulative effect of a change in accounting principle, net
  of tax....................................................      (0.20)            --             --
                                                               --------       --------       --------
NET EARNINGS PER COMMON SHARE-DILUTED.......................   $   0.61       $   1.11       $   0.05
                                                               ========       ========       ========
UNAUDITED PRO FORMA AMOUNTS ASSUMING RETROACTIVE EFFECT OF A
  CHANGE IN ACCOUNTING PRINCIPLE:
  Net Earnings Available for Common Shares..................         --       $ 15,329       $    933
  Basic Net Earnings per Common Share.......................         --       $   1.18       $   0.10
  Diluted Net Earnings per Common Share.....................         --       $   1.13       $   0.10
                                                               ========       ========       ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.

                                        27
<PAGE>

                          CONSOLIDATED BALANCE SHEETS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              ----------------------
                                                                2002         2001
                                                              ---------    ---------
                                                              (IN THOUSANDS, EXCEPT
                                                               SHARE AND PER SHARE
                                                                     AMOUNTS)
<S>                                                           <C>          <C>
                                       ASSETS
Current assets:
  Cash and cash equivalents.................................  $132,320     $ 57,841
  Restricted cash...........................................    27,347           --
  Marketable securities.....................................       193          190
  Accounts receivable, net..................................   100,594       83,407
  Inventories...............................................    32,406       22,937
  Deferred income tax asset, net............................     3,222        3,018
  Prepayments and other.....................................     3,133        2,346
                                                              --------     --------
     Total current assets...................................   299,215      169,739
                                                              --------     --------
Property, plant and equipment, net..........................    64,472       62,255
Notes receivable............................................     2,556        2,910
Goodwill....................................................    61,352       22,874
Other intangible assets.....................................    11,867          325
Deferred income tax asset, net..............................    20,439        2,553
Other assets................................................    21,673       24,974
                                                              --------     --------
                                                              $481,574     $285,630
                                                              ========     ========
                        LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................  $ 19,108     $ 12,743
  Accrued liabilities.......................................    55,448       34,654
  Contract advances and deposits............................    20,277       16,702
  Current portion of note payable...........................        --          463
                                                              --------     --------
     Total current liabilities..............................    94,833       64,562
                                                              --------     --------
Long-term debt..............................................   137,800           --
Post-retirement benefits obligations........................    78,643       44,675
Environmental obligation....................................     2,025        1,895
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 in 2002; 19,790,477 issued in 2002
     and 2001...............................................    19,790       19,790
  Additional paid-in capital................................   147,091      143,747
  Retained earnings.........................................    56,325       47,744
  Accumulated other comprehensive loss, net of income tax
     benefit................................................   (33,899)     (13,385)
  Treasury shares at cost (94,322 shares in 2002 and 182,459
     shares in 2001)........................................    (1,321)      (2,461)
  Unearned Employee Stock Ownership Plan shares.............   (18,541)     (19,792)
  Deferred compensation under Long-Term Incentive Plan......      (579)        (300)
  Management group receivables..............................      (593)        (845)
                                                              --------     --------
     Total shareholders' equity.............................   168,273      174,498
                                                              --------     --------
                                                              $481,574     $285,630
                                                              ========     ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.

                                        28
<PAGE>

                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                      YEARS ENDED DECEMBER 31,
                                      ---------------------------------------------------------
                                            2002                2001                2000
                                      -----------------   -----------------   -----------------
                                       AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                      --------   ------   --------   ------   --------   ------
                                                           (IN THOUSANDS)
<S>                                   <C>        <C>      <C>        <C>      <C>        <C>
PREFERRED SHARES
  Balance at beginning of year......  $     --       --   $     49       49   $     57       57
  Shares converted to common
     shares.........................        --       --        (49)     (49)        (8)      (8)
                                      --------   ------   --------   ------   --------   ------
  Balance at end of year............        --       --         --       --         49       49
                                      --------   ------   --------   ------   --------   ------
COMMON SHARES
  Balance at beginning of year......    19,790   19,790     15,007   15,007      8,454    8,454
  Shares issued for purchase of AIL
     Technologies, Inc..............        --       --         --       --      6,553    6,553
  Conversion of preferred shares to
     common shares..................        --       --      1,067    1,067         --       --
  Sale of stock in public
     offering.......................        --       --      3,716    3,716         --       --
                                      --------   ------   --------   ------   --------   ------
  Balance at end of year............    19,790   19,790     19,790   19,790     15,007   15,007
                                      --------   ------   --------   ------   --------   ------
ADDITIONAL PAID-IN CAPITAL
  Balance at beginning of year......   143,747              58,614              28,483
  Exercise of stock options.........      (466)             (2,405)               (183)
  Income tax benefit related to
     stock options and Long-Term
     Incentive Plan.................       713               1,118                  42
  Shares used for payment of
     directors' fees................        64                  35                (125)
  Purchase of AIL Technologies,
     Inc............................        --                  --              33,733
  Shares used for Long-Term
     Incentive Plan.................       241                 (73)               (432)
  Conversion of preferred shares to
     common shares..................        --              (1,018)             (3,227)
  Conversion of subordinated
     debentures.....................        --               8,525                  --
  Sale of stock in public
     offering.......................        --              77,775                  --
  Compensation expense on
     accelerated options............        --                 276                  --
  Employee Stock Ownership Plan
     shares
     committed-to-be-released.......     2,792                 900                 323
                                      --------            --------            --------
  Balance at end of year............   147,091             143,747              58,614
                                      --------            --------            --------
</Table>

                                        29
<PAGE>
         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- (CONTINUED)
                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                      YEARS ENDED DECEMBER 31,
                                      ---------------------------------------------------------
                                            2002                2001                2000
                                      -----------------   -----------------   -----------------
                                       AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                      --------   ------   --------   ------   --------   ------
                                                           (IN THOUSANDS)
<S>                                   <C>        <C>      <C>        <C>      <C>        <C>
RETAINED EARNINGS
  Balance at beginning of year......    47,744              34,803              35,667
  Net earnings......................    10,629              14,952               1,321
  Common share dividends (12 cents
     per share).....................    (2,048)             (1,840)             (1,428)
  Dividends on preferred shares.....        --                (194)               (881)
  Tax benefit on unallocated
     preferred share dividends......        --                  23                 124
                                      --------            --------            --------
  Balance at end of year............    56,325              47,744              34,803
                                      --------            --------            --------
ACCUMULATED OTHER COMPREHENSIVE LOSS
  Balance at beginning of year......   (13,385)                (61)               (255)
  Unrealized gain on marketable
     securities, net of tax.........        --                  61                 194
  Unrealized gain on foreign
     currency.......................        86                  --                  --
  Additional minimum pension
     liability, net of tax..........   (20,600)            (13,385)                 --
                                      --------            --------            --------
  Balance at end of year............   (33,899)            (13,385)                (61)
                                      --------            --------            --------
TREASURY SHARES AT COST
  Balance at beginning of year......    (2,461)    (182)   (19,388)  (1,370)   (23,967)  (1,694)
  Shares used for exercise of stock
     options........................       952       69      4,297      314        280       20
  Shares used for payment of
     directors' fees................        78        6        122        9        251       18
  Shares used for (repurchased from)
     Long-Term Incentive Plan.......       110       13        (63)      (6)       813       57
  Shares used for conversion of
     preferred shares...............        --       --         --       --      3,235      229
  Shares used for conversion of
     subordinated debentures........        --       --     13,591    1,005         --       --
  Repurchase of Employee Stock
     Ownership Plan shares..........        --       --     (1,020)    (134)        --       --
                                      --------   ------   --------   ------   --------   ------
  Balance at end of year............    (1,321)     (94)    (2,461)    (182)   (19,388)  (1,370)
                                      --------   ------   --------   ------   --------   ------
EMPLOYEE STOCK OWNERSHIP TRUST LOAN
  OBLIGATION
  Balance at beginning of year......        --              (5,781)             (7,429)
  Repayments made during year.......        --                 890               1,648
  Restructuring of EDO Employee
     Stock Ownership Plan...........        --               4,891                  --
                                      --------            --------            --------
  Balance at end of year............        --                  --              (5,781)
                                      --------            --------            --------
</Table>

                                        30
<PAGE>
         CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY -- (CONTINUED)
                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                      YEARS ENDED DECEMBER 31,
                                      ---------------------------------------------------------
                                            2002                2001                2000
                                      -----------------   -----------------   -----------------
                                       AMOUNT    SHARES    AMOUNT    SHARES    AMOUNT    SHARES
                                      --------   ------   --------   ------   --------   ------
                                                           (IN THOUSANDS)
<S>                                   <C>        <C>      <C>        <C>      <C>        <C>
DEFERRED COMPENSATION UNDER LONG-
  TERM INCENTIVE PLAN
  Balance at beginning of year......      (300)               (423)               (769)
  Shares used for Long-Term
     Incentive Plan.................      (480)               (148)               (392)
  Amortization of Long-Term
     Incentive Plan deferred
     compensation expense...........       201                 271                 738
                                      --------            --------            --------
  Balance at end of year............      (579)               (300)               (423)
                                      --------            --------            --------
UNEARNED EMPLOYEE STOCK OWNERSHIP
  PLAN COMPENSATION
  Balance at beginning of year......   (19,792)            (15,782)                 --
  Purchase of AIL Technologies,
     Inc............................        --                  --             (17,302)
  Restructuring of EDO Employee
     Stock Ownership Plan...........        --              (4,891)                 --
  Employee Stock Ownership Plan
     shares
     committed-to-be-released.......     1,251                 881               1,520
                                      --------            --------            --------
  Balance at end of year............   (18,541)            (19,792)            (15,782)
                                      --------            --------            --------
MANAGEMENT GROUP RECEIVABLES
  Balance at beginning of year......      (845)             (1,220)                 --
  Purchase of AIL Technologies,
     Inc............................        --                  --              (1,220)
  Payments received on management
     loans..........................       252                 375                  --
                                      --------            --------            --------
  Balance at end of year............      (593)               (845)             (1,220)
                                      --------            --------            --------
TOTAL SHAREHOLDERS' EQUITY..........  $168,273            $174,498            $ 65,818
                                      ========            ========            ========
COMPREHENSIVE (LOSS) INCOME
  Net earnings......................  $ 10,629            $ 14,952            $  1,321
  Additional minimum pension
     liability, net of income tax
     benefit of $14,316 in 2002 and
     $9,302 in 2001.................   (20,600)            (13,385)                 --
  Unrealized gain on marketable
     securities, net of income tax
     expense of $31 in 2001 and $100
     in 2000........................        --                  61                 194
  Unrealized gain on foreign
     currency.......................        86                  --                  --
                                      --------            --------            --------
  Comprehensive (loss) income.......  $ (9,885)           $  1,628            $  1,515
                                      ========            ========            ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.

                                        31
<PAGE>

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES:
  Earnings from operations..................................  $ 10,629   $ 14,679   $  1,321
  Adjustments to earnings to arrive at cash provided by
     operations:
     Depreciation...........................................    10,365      9,686      7,740
     Amortization...........................................       956      1,710      1,701
     Deferred tax (benefit) expense.........................    (2,984)     5,941      1,292
     Write-off of purchased in-process research and
       development..........................................       150         --      6,700
     Real estate tax assessment adjustment..................        --      7,846         --
     Bad debt expense.......................................       407        220        287
     Gain on repurchase of debentures.......................        --       (171)      (215)
     Loss (gain) on sale of property, plant and equipment...        53        (76)        (7)
     Gain on sale of marketable securities..................        --        (81)        --
     Deferred compensation expense..........................       201        271        738
     Non-cash Employee Stock Ownership Plan compensation
       expense..............................................     4,043      1,781      1,843
     Dividends on unallocated Employee Stock Ownership Plan
       shares...............................................       312         80         --
     Non-cash compensation expense..........................        --        276         --
     Common shares issued for directors' fees...............       142        157        126
     Income tax benefit from stock options and Long-Term
       Incentive Plan.......................................       713      1,118         42
     Cumulative effect of a change in accounting
       principle............................................     3,363         --         --
     Changes in operating assets and liabilities, excluding
       effects of acquisitions:
       Accounts receivable..................................    (2,519)   (10,753)    (4,388)
       Inventories..........................................    (2,926)     2,033     (2,214)
       Prepayments and other assets.........................       220       (629)    (1,825)
       Accounts payable, accrued liabilities and other......     5,217     (4,974)   (11,923)
       Contract advances and deposits.......................     3,575    (15,017)     8,116
                                                              --------   --------   --------
Cash provided by operations.................................    31,917     14,097      9,334
INVESTING ACTIVITIES:
  Purchase of plant and equipment...........................    (7,093)   (14,298)    (3,861)
  Payments received on notes receivable.....................       350        347        168
  Proceeds from sale of property, plant and equipment.......         1        280      4,569
  Purchase of marketable securities.........................        (3)       (59)      (818)
  Sale or redemption of marketable securities...............        --     14,455      2,541
  Proceeds from sale of discontinued operations.............        --         --      8,641
  Restricted cash...........................................   (27,347)        --         --
  Cash paid for acquisitions, net of cash acquired..........   (59,024)   (13,938)   (15,004)
                                                              --------   --------   --------
Cash used by investing activities...........................   (93,116)   (13,213)    (3,764)
</Table>

                                        32
<PAGE>
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                        EDO CORPORATION AND SUBSIDIARIES

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              ------------------------------
                                                                2002       2001       2000
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
FINANCING ACTIVITIES:
  Issuance of convertible subordinated notes................   137,800         --         --
  Proceeds from exercise of stock options...................       486      1,892         97
  Proceeds from management group receivables................       252        375         --
  Proceeds from sale of stock in public offering, net of
     expenses...............................................        --     81,491         --
  Borrowings under revolver.................................        --     20,800      9,000
  Repayments of borrowings under revolver...................        --    (20,800)   (18,000)
  Repayments of long-term debt..............................        --    (17,300)    (3,570)
  Repurchase of debentures..................................        --     (3,184)    (1,879)
  Purchase of treasury shares...............................        --     (1,020)        --
  Payment of EDO ESOP loan obligation.......................        --     (4,891)        --
  Payment made on note payable..............................      (500)      (500)      (500)
  Payment of common share cash dividends....................    (2,360)    (1,920)    (1,428)
  Payment of preferred share cash dividends.................        --       (194)      (881)
                                                              --------   --------   --------
Cash provided (used) by financing activities................   135,678     54,749    (17,161)
                                                              --------   --------   --------
Net increase (decrease) in cash and cash equivalents........    74,479     55,633    (11,591)
Cash and cash equivalents at beginning of year..............    57,841      2,208     13,799
                                                              --------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................  $132,320   $ 57,841   $  2,208
                                                              ========   ========   ========
Supplemental disclosures:
  Cash paid for:
     Interest...............................................  $  3,878   $  2,166   $  3,500
     Income taxes...........................................  $ 14,063   $  5,913   $  3,756
                                                              ========   ========   ========
</Table>

          See accompanying Notes to Consolidated Financial Statements.

                                        33
<PAGE>
              CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
                        EDO CORPORATION AND SUBSIDIARIES

                        EDO CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 AND 2000

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) PRINCIPLES OF CONSOLIDATION AND BUSINESS

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

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

(b) RESTRICTED CASH

     At  December 31,  2002, there  is restricted  cash of  $27.3 million, which
relates to amounts collateralizing the outstanding letters of credit assumed  as
part  of the  acquisition of Condor  Systems, Inc.  (Note 2). As  the letters of
credit expire or are cancelled, collateral is released. On November 8, 2002, the
Company increased its credit facility from  $69.0 million to $140.0 million  and
again,  on December 20, 2002, from $140.0  million to $200.0 million, which will
allow the Company to  replace the letters of  credit under the amended  facility
and release the restricted cash.

(c) CASH EQUIVALENTS

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

(d) REVENUE RECOGNITION

     Sales under long-term, fixed-price  contracts, including pro-rata  profits,
are  generally recorded based on  the relationship of costs  incurred to date to
total  projected  final  costs  or,  alternatively,  as  deliveries  and   other
milestones  are achieved or services are provided. These projections are revised
throughout the lives  of the  contracts. Adjustments to  profits resulting  from
such  revisions are made cumulative to the date of change and may affect current
period earnings.

     Gross profit is  affected by  a variety of  factors, including  the mix  of
products,  systems and services sold or provided, production efficiencies, price
competition and  general  economic  conditions. Estimated  losses  on  long-term
contracts are recorded when identified. Sales under cost reimbursement contracts
are  recorded  as costs  are incurred.  Sales on  other than  long-term contract
orders (principally commercial products) are recorded as shipments are made.

(e) INVENTORIES

     Inventories under long-term contracts and programs reflect all  accumulated
production  costs, including factory overhead, initial tooling and other related
costs (including general and administrative expenses relating to certain of  the
Company's  defense contracts), less the portion of such costs charged to cost of
sales. 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.  All other inventories are stated  at the lower of cost (principally
first-in, first-out method) or market.

     From time  to time,  the  Company manufactures  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.

                                        34
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

     Several   factors  may  influence  the  sale   and  use  of  the  Company's
inventories, including  the  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, the Company  would recognize such  loss in value  at the time of
such determination.

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

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

     Property,  plant  and  equipment  are  stated  at  cost.  Depreciation  and
amortization have been  provided primarily using  the straight-line method  over
the  estimated useful lives of the  assets. Leasehold improvements are amortized
over the  shorter of  their estimated  useful lives  or their  respective  lease
periods.

     In  those cases where the Company determines that the useful life 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.

     Property,  plant and equipment are  reviewed for impairment whenever events
or changes  in  circumstances indicate  that  the  carrying amount  may  not  be
recoverable.  If the sum of the  undiscounted cash flows, excluding interest, is
less than the asset's carrying value, the Company recognizes an impairment loss,
measured as the amount by which the carrying value exceeds the fair value of the
asset.

     The estimate  of cash  flow  is based  upon,  among other  things,  certain
assumptions about expected future operating performance. The Company's estimates
of  undiscounted cash flow may differ from  actual cash flow due to such factors
as those listed above.

     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 2002  and 2001,  the Company  capitalized approximately  $0.3
million  and $1.7  million, respectively, of  such costs. These  costs are being
amortized on a straight-line basis over a period of four years.

     Deferred financing costs are  amortized on a  straight-line basis over  the
life of the related financing. The unamortized balances of $5.5 million and $0.5
million   are  included  in  other  assets   at  December  31,  2002  and  2001,
respectively.

(g) BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS

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

                                        35
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

goodwill acquired in connection  with the purchase of  Dynamic Systems, Inc.  in
October 2001 and Condor Systems, Inc. in July 2002 is not being amortized.

     Impairment  indicators include, among other conditions, cash flow deficits,
an historic or anticipated decline in revenue or operating profit, adverse legal
or regulatory developments,  accumulation of  costs significantly  in excess  of
amounts  originally expected to acquire the asset and a material decrease in the
fair value of some or all of the assets.

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

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

<Table>
<Caption>
                                                         COMMUNI-
                                                          CATIONS
                                                         AND SPACE   ENGINEERED
                                               DEFENSE   PRODUCTS    MATERIALS     TOTAL
                                               -------   ---------   ----------   -------
                                                             (IN THOUSANDS)
<S>                                            <C>       <C>         <C>          <C>
Balance as of January 1, 2002................  $20,600    $   --      $ 2,274     $22,874
Impairment loss..............................       --        --       (2,274)     (2,274)
Acquisition of Condor Systems, Inc...........   37,060     3,692           --      40,752
                                               -------    ------      -------     -------
Balance as of December 31, 2002..............  $57,660    $3,692      $    --     $61,352
                                               =======    ======      =======     =======
</Table>

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

<Table>
<Caption>
                                                               2002     2001
                                                              -------   -----
                                                              (IN THOUSANDS)
<S>                                                           <C>       <C>
Capitalized non-compete agreements related to the
  acquisition of Dynamic Systems, Inc. .....................  $   200   $ 200
Capitalized technical rights related to the acquisition of
  Zenix.....................................................       --     300
Purchased technologies related to the acquisition of Condor
  Systems, Inc. ............................................   11,648      --
Other intangible assets related to the acquisition of Condor
  Systems, Inc. ............................................      916      --
                                                              -------   -----
                                                               12,764     500
Less accumulated amortization...............................     (897)   (175)
                                                              -------   -----
                                                              $11,867   $ 325
                                                              =======   =====
</Table>

     The non-compete  agreements  and  the other  intangible  assets  are  being
amortized  on  a  straight-line  basis over  a  two-year  period.  The purchased
technologies are being  amortized on  a straight-line basis  over an  eight-year
period. The amortization expense for the years ended December 31, 2002, 2001 and
2000  amounted to  $0.9 million,  $0.1 million  and $0.1  million, respectively.
Amortization expense for 2003, 2004, 2005, 2006,

                                        36
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

2007  and thereafter related to these intangible assets are estimated to be $2.0
milion, $1.7 million, $1.5 million, $1.5 million, $1.5 million and $3.7 million,
respectively.

     Since the total trademark carrying amount  of $1.9 million was written  off
in  2002 as part of  the cumulative effect of  a change in accounting principle,
there are no intangible assets other  than goodwill not subject to  amortization
as of December 31, 2002.

     Net  earnings for  the year ended  December 31, 2001  included goodwill and
trademark  amortization  expense  of  approximately  $0.9  million  before  tax.
Excluding  this amount net of tax would  have resulted in basic net earnings per
common share  and diluted  net earnings  per common  share of  $1.18 and  $1.13,
respectively,  for the year ended  December 31, 2001. Net  earnings for the year
ended December 31, 2000 included goodwill and trademark amortization expense  of
$1.0 million before tax. Excluding this amount net of tax would have resulted in
basic net earnings per common share and diluted net earnings per common share of
$0.10 and $0.10, respectively, for the year ended December 31, 2000.

(h) INCOME TAXES

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

(i) TREASURY SHARES

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

(j) FINANCIAL INSTRUMENTS

     The net carrying value of notes receivable approximates fair value based on
current  rates  for  comparable  commercial mortgages.  The  fair  value  of the
Company's 5.25%  Convertible  Subordinated  Notes  due  2007  (the  "Notes")  at
December  31,  2002  approximates  its carrying  value  based  on  recent market
transactions. 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.

(k) USE OF ESTIMATES

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

(l) STOCK-BASED COMPENSATION

     The  Company accounts for its  stock-based compensation plans in accordance
with Accounting Principles Board ("APB")  Opinion No. 25, "Accounting for  Stock
Issued  to Employees" and related interpretations. Under APB No. 25, because the
exercise price of the Company's stock options  is set equal to the market  price
of  the  underlying stock  on  the date  of  grant, no  compensation  expense is
recognized.
                                        37
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

(m) ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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

(n) RECLASSIFICATIONS

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

(o) NEW ACCOUNTING STANDARDS

     In  August  2001,  the  FASB  issued  SFAS  No.  144,  "Accounting  for the
Impairment  or  Disposal  of  Long-Lived  Assets,"  which  addresses   financial
accounting and reporting for the impairment or disposal of long-lived assets and
supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for  Long-Lived  Assets to  be Disposed  Of," and  the accounting  and reporting
provisions of APB Opinion No. 30,  "Reporting the Results of Operations," for  a
disposal  of a  segment of a  business. The Company  adopted SFAS No.  144 as of
January 1, 2002. The effect of the adoption of this SFAS was not material to the
Company's operating results or financial position.

     On July  30, 2002,  the FASB  issued SFAS  No. 146,  "Accounting for  Costs
associated  with  Exit or  Disposal Activities."  SFAS No.  146 requires  that a
liability be recognized for costs associated  with an exit or disposal  activity
only when the liability is incurred. SFAS No. 146 also establishes fair value as
the objective for initial measurement of liabilities related to exit or disposal
activities.  SFAS No. 146 is effective for exit or disposal activities initiated
after December 31,  2002. The  adoption of SFAS  No. 146,  effective January  1,
2003,  did not  have a  material effect  on the  Company's operating  results or
financial position.

     In December 2002, the FASB issued SFAS No. 148 "Accounting for  Stock-Based
Compensation  -- Transition and Disclosure -- an Amendment of FASB Statement No.
123." SFAS  No.  148 amends  SFAS  No. 123  to  provide alternative  methods  of
transition  for a voluntary change to the  fair value based method of accounting
for stock-based employee compensation. In  addition, SFAS No. 148 requires  more
prominent  and more  frequent disclosures in  both annual  and interim financial
statements about the method of accounting used for stock-based compensation  and
the  effect of the method used on reported results. The disclosure provisions of
SFAS No.  148  are  effective for  years  ending  after December  15,  2002  and
accordingly  are reflected in Note  14. Presently, the Company  does not plan to
voluntarily change  its  method  of  accounting  for  stock-based  compensation.
However,  should the  Company change  its method  of accounting  for stock-based
compensation in the future, that change would fall under the provisions of  SFAS
Nos. 123 and 148.

(2) ACQUISITIONS

     On  July 26, 2002, the Company acquired  substantially all of the assets of
Condor Systems,  Inc.,  a privately-held  defense  electronics company  and  its
domestic  subsidiary (together, "Condor") for $61.9 million in cash, in addition
to transaction  costs of  $4.1 million,  and the  assumption of  certain  normal
employee  benefit obligations, certain  trade and supplier  payables and certain
other accrued  liabilities  primarily  related to  contract  loss  reserves.  In
addition, the Company assumed approximately $28.0 million of outstanding letters
of  credit and deposited $5.0 million into an escrow account to be released upon
settlement of the closing Condor

                                        38
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

balance  sheet. Condor had been operating under  protection of Chapter 11 of the
U.S. Bankruptcy  Code.  The acquisition  is  expected to  expand  the  Company's
electronic  warfare  business in  the areas  of reconnaissance  and surveillance
systems. The  acquisition was  accounted  for as  a purchase  and,  accordingly,
Condor's  operating results are included in the Company's consolidated financial
statements since  the acquisition  date.  Condor became  part of  the  Company's
Defense and Communications and Space Products segments.

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

     Unaudited  pro  forma results  of operations,  assuming the  acquisition of
Condor had  been  completed at  the  beginning  of each  period,  which  include
adjustments   to  net  sales,  cost  of  sales,  interest  income  and  expense,
amortization expense, purchased IPR&D and other merger-related costs, income tax
expense and assuming a  retroactive effect of a  change in accounting  principle
upon adoption of SFAS No. 142 are as follows:

<Table>
<Caption>
                                                                 2002           2001
                                                              -----------    -----------
                                                              (UNAUDITED, IN THOUSANDS,
                                                              EXCEPT PER SHARE AMOUNTS)
<S>                                                           <C>            <C>
Net sales...................................................   $383,057       $337,048
Net earnings (loss) before cumulative effect of a change in
  accounting principle......................................   $ 11,360       $(25,794)
Net earnings (loss) available for common shares.............   $  7,997       $(29,569)
Diluted earnings (loss) per common share....................   $   0.46       $  (2.31)
                                                               ========       ========
</Table>

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

     The following table summarizes the allocation of the purchase price to  the
assets  acquired and liabilities assumed at  the date of acquisition. The excess
of the purchase price over the  net assets acquired recorded as goodwill,  IPR&D
and other intangible assets is deductible for tax purposes over 15 years.

<Table>
<Caption>
                                                               AT JULY 26, 2002
                                                               ----------------
                                                                (IN THOUSANDS)
<S>                                                            <C>
Current assets..............................................       $ 29,964
Property, plant and equipment...............................          5,543
Goodwill....................................................         40,752
Purchased in-process research and development...............            150
Purchased technologies (eight-year life)....................         11,648
Other intangible assets subject to amortization (two-year
  life).....................................................            916
Other assets................................................             76
Current liabilities.........................................        (22,907)
                                                                   --------
Net assets acquired.........................................       $ 66,142
                                                                   ========
</Table>

     In  October 2001, the Company acquired all of the stock of Dynamic Systems,
Inc., a privately-held  company based  in Alexandria,  Virginia, which  provides
professional  and information technology services primarily to the Department of
Defense and other government agencies. The acquisition is expected to strengthen
and expand the range  of services the  Company offers to  both existing and  new
customers. The

                                        39
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

Company paid $13.7 million, including transaction costs and subsequent to a $0.2
million  reduction in the purchase price, and accounted for the acquisition as a
purchase. Accordingly, the operating results of Dynamic Systems, Inc. have  been
included  in the Company's  consolidated financial statements  since the date of
acquisition. The excess of the purchase price over the fair market value of  net
assets  acquired was  approximately $12.2 million,  which is  not deductible for
income tax purposes. On a pro forma basis, had the acquisition taken place as of
the beginning of each respective year, the results of operations would not  have
been materially affected for 2001 and 2000.

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

<Table>
<Caption>
                                                               AT OCTOBER 8, 2001
                                                               ------------------
                                                                 (IN THOUSANDS)
<S>                                                            <C>
Current assets..............................................        $ 3,250
Property, plant and equipment...............................            363
Goodwill....................................................         12,191
Other intangible assets subject to amortization (two-year
  life).....................................................            200
Other assets................................................            214
Current liabilities.........................................         (2,515)
                                                                    -------
Net assets acquired.........................................        $13,703
                                                                    =======
</Table>

     In April 2000,  a wholly-owned subsidiary  of the Company  merged with  AIL
Technologies,  Inc.  ("AIL")  (the  "EDO-AIL merger").  In  connection  with the
EDO-AIL merger, the  Company issued  6,553,194 of  its common  shares valued  at
$39.4  million, and made cash payments aggregating $13.3 million in exchange for
all of the  outstanding common  and preferred shares  of AIL.  In addition,  the
Company incurred $2.7 million of transaction costs. The merger was accounted for
as  a purchase and is included in  the Company's results of operations since the
date of acquisition. The transaction resulted in goodwill of $3.6 million.

     Associated with this merger and included in operating earnings in 2000  are
a  $6.7 million write-off  of purchased IPR&D, described  more fully below, $1.5
million of severance costs and $3.3 million of other merger-related costs.  Such
costs are included in write-off of purchased in-process research and development
and   merger-related  costs  in  the  accompanying  consolidated  statements  of
earnings. The $1.5 million of severance  costs pertain to an AIL employee  group
of approximately 200, all of which was paid as of December 31, 2001.

     The  IPR&D  related  to  a  project  that  had  not  reached  technological
feasibility and that had no alternative future uses. The amount allocated to the
project was expensed  as of  the date  of acquisition.  The development  project
related  to a generic satellite subsystem called a Ku-Ku Band Down Converter for
a fixed  satellite service  market. The  converter represents  a single  channel
providing  signal conversion from  uplink frequencies in the  14GHz range to the
downlink frequencies in the  12GHz range. The income  approach was utilized  for
the   valuation  analysis   of  the   IPR&D.  This   approach  focused   on  the
income-producing capability of  the asset,  which was based  on relative  market
sizes,  growth factors  and expected  trends in  technology. This  approach also
included analysis of  the stage  of completion  of the  project, estimating  the
costs  to develop the  purchased in-process technology  into commercially viable
products, estimating  the  resulting  net  cash flows  from  such  projects  and
discounting  the  net  cash flows  back  to  their present  value  using  a rate
commensurate with the relative risk levels. The rate used in discounting the net
cash flows from the IPR&D was 25%.

     The efforts  then required  to develop  the in-process  technology of  this
project  into commercially viable products principally related to the completion
of planning, designing, prototyping, and testing functions that are necessary to
establish that the down converter produced will meet its design  specifications,
including

                                        40
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

technical  performance features  and function requirements.  At the  time of the
EDO-AIL merger, it  was estimated that  90% of the  development effort had  been
completed  and  the remaining  development effort  would take  approximately six
months to complete, with a cost  of approximately $1.0 million. This project  is
now completed resulting in sales in 2001 of Ku-Ku Band Converters.

     Unaudited  pro forma results of operations, assuming the EDO-AIL merger had
been completed at the beginning of  2000, which include adjustments to  interest
expense, amortization expense and income tax expense are as follows:

<Table>
<Caption>
                                                                         2000
                                                               -------------------------
                                                               (UNAUDITED, IN THOUSANDS,
                                                               EXCEPT PER SHARE AMOUNTS)
<S>                                                            <C>
Net sales from continuing operations........................           $250,080
Net loss from continuing operations available for common
  shares....................................................           $ (1,961)
Basic loss per common share from continuing operations......           $  (0.18)
                                                                       ========
</Table>

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

     In  November  1999,   the  Company  acquired   the  outstanding  stock   of
M.Technologies Inc., an integrator of aircraft weapons and avionics systems, for
$3.0  million in cash  paid at closing and  a $1.5 million note  to be paid over
three years. The  note payable  (fully paid  as of  December 31,  2002 and  $0.5
million  at December  31, 2001) has  been recorded  at its present  value in the
accompanying  consolidated  balance  sheet  at  an  interest  rate  of  8%.  The
acquisition has been accounted for as a purchase, and accordingly, the operating
results  of M.  Technologies have  been included  in the  Company's consolidated
financial statements since the date of  acquisition. The excess of the  purchase
price  over the fair market value of  net assets acquired was approximately $4.4
million.

  SUBSEQUENT EVENTS (UNAUDITED)

     In February 2003, a wholly-owned subsidiary of the Company acquired all  of
the  stock  of  Advanced Engineering  &  Research Associates,  Inc.  ("AERA"), a
privately-held  company  located   in  Alexandria,   Virginia,  which   provides
professional  and information technology services primarily to the Department of
Defense and other government agencies. The acquisition is expected to strengthen
and expand  the range  of  such services  the  Company offers.  The  preliminary
purchase price was $38.0 million, which included an amount placed in escrow. The
acquisition  will be accounted for  as a purchase, and  the operating results of
AERA will be included  in the Company's  consolidated financial statements  from
the date of the acquisition.

     In March 2003, a wholly-owned subsidiary of the Company acquired all of the
stock of Darlington, Inc., a privately-held defense communications company based
in  Alexandria,  Virginia,  which designs,  manufactures  and  supports military
communications equipment and information networking systems. The acquisition  is
expected to enhance the Company's existing positions on long-range platforms and
programs  across the  U.S. military services  and in particular  the U.S. Marine
Corps. The  preliminary purchase  price  was $28.5  million, which  included  an
amount  placed in escrow. The  acquisition will be accounted  for as a purchase,
and the operating results of Darlington, Inc. will be included in the  Company's
consolidated financial statements from the date of the acquisition.

                                        41
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

(3) DISCONTINUED OPERATIONS

     In  November  1999, the  Board  of Directors  of  the Company  approved the
decision to sell its satellite  products business (Barnes Engineering  Company),
which  sale was completed in  January 2000. The Company  agreed to indemnify the
buyer for certain contract-related costs  originally estimated at $2.3  million.
In  2001, a change in the estimate of remaining costs to be incurred resulted in
earnings from discontinued operations of $0.3 million, net of income taxes.

     The revenues, costs and  expenses, assets and  liabilities, and cash  flows
associated  with the  satellite products  business have  been excluded  from the
respective captions in the accompanying consolidated financial statements.

(4) MARKETABLE SECURITIES

     The Company determines the appropriate classification of securities at  the
time of purchase and reevaluates such designation as of each balance sheet date.
All  marketable  securities  are  classified  as  available-for-sale securities.
Available-for-sale securities are  carried at  fair value,  with the  unrealized
gains  and losses, net of tax, reported as a separate component of shareholders'
equity. Realized gains and losses, interest and dividends and declines in  value
judged  to  be other-than-temporary  declines  are included  in  interest income
(expense). The cost of securities sold  is based on the specific  identification
method.  At  December  31,  2002 and  2001,  the  marketable  securities balance
represents amounts in mutual funds.

(5) ACCOUNTS AND NOTES RECEIVABLE

     Accounts receivable included  $43.0 million and  $39.1 million at  December
31,  2002 and 2001, respectively, of unbilled revenues. Substantially all of the
unbilled balances at December  31, 2002 will  be billed and  are expected to  be
collected  during  2003. Total  billed receivables  due  from the  United States
Government, either directly or as a subcontractor to a prime contractor with the
Government, were $31.0 million and $26.2 million at December 31, 2002 and  2001,
respectively.

     Notes receivable at December 31, 2002 include $1.9 million which relates to
the  sale of the Company's College Point facility in January 1996, of which $0.4
million is included  in current  assets. The notes  are due  in equal  quarterly
amounts  through September  2004 with  a final  payment of  $1.3 million  due on
December 31, 2004 and bear  interest at 7% per  annum. The notes receivable  are
secured  by a  mortgage on  the facility. Also  included in  notes receivable at
December 31, 2002 is $1.1  million related to the sale  in June 2000 of  certain
parcels  of land and  a building at  the Company's Deer  Park facility, of which
$0.1 million  is included  in  current assets.  The gain  on  the sale  was  not
material as the carrying value approximated the sales value.

(6) INVENTORIES

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

<Table>
<Caption>
                                                               2002      2001
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Raw material and supplies...................................  $ 7,804   $ 6,539
Work-in-process.............................................   22,561    14,680
Finished goods..............................................    2,041     1,718
                                                              -------   -------
                                                              $32,406   $22,937
                                                              =======   =======
</Table>

                                        42
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

(7) PROPERTY, PLANT AND EQUIPMENT, NET

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

<Table>
<Caption>
                                                      2002       2001        LIFE
                                                    --------   --------   -----------
                                                      (IN THOUSANDS)
<S>                                                 <C>        <C>        <C>
Land..............................................  $ 18,080   $ 18,080
Buildings and improvements........................    33,842     26,297   10-30 years
Machinery and equipment...........................    44,585     45,271    3-19 years
Software..........................................     2,031      1,723     4 years
Leasehold improvements............................    13,150     10,934   Lease terms
                                                    --------   --------
                                                     111,688    102,305
Less accumulated depreciation and amortization....   (47,216)   (40,050)
                                                    --------   --------
                                                    $ 64,472   $ 62,255
                                                    ========   ========
</Table>

(8) ACCRUED LIABILITIES

     Accrued liabilities consisted of the following at December 31:

<Table>
<Caption>
                                                               2002      2001
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Employee compensation and benefits..........................  $16,744   $13,664
Deferred revenue and accrual for future costs related to
  acquired contracts........................................   11,562        --
Income taxes payable........................................    3,991     5,096
Accrued interest............................................    1,782        --
Warranty....................................................    1,622       803
Current portion of environmental obligation.................      250       395
Indemnification liability...................................       --        80
Other.......................................................   19,497    14,616
                                                              -------   -------
                                                              $55,448   $34,654
                                                              =======   =======
</Table>

(9) LONG-TERM DEBT AND CREDIT FACILITY

 CREDIT FACILITY

     At December 31, 2002, the Company has a $200.0 million credit facility with
a  consortium of banks, led by Citibank, N.A. as the administrative agent, Fleet
National  Bank  as  the  syndication  agent  and  Wachovia  Bank,  N.A.  as  the
documentation agent. The facility expires in November 2005 and amended the $69.0
million  credit facility in place  at December 31, 2001.  In connection with the
amended facility, $1.2 million of deferred  finance costs are included in  other
assets  on the accompanying  consolidated balance sheet  and are being amortized
using the straight-line method over the term of the agreement.

     The credit facility provides sub-limits  of borrowing up to $125.0  million
for acquisition-related financing and up to $125.0 million in standby letters of
credit  financing. The potential cash borrowing under the facility is reduced by
the amount of outstanding letters of credit. Borrowings under the facility  will
be  priced initially at LIBOR plus a predetermined amount, ranging from 1.25% to
1.75%, depending on the Company's consolidated leverage ratio at the time of the
borrowing. At December 31, 2002, LIBOR was approximately

                                        43
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

1.4% and the applicable adjustment to LIBOR was 1.25%. The facility requires the
Company to pay each  lender in the  consortium a commitment  fee on the  average
daily unused portion of their respective commitment at a rate equal to 0.25%.

     There  were no direct  borrowings outstanding under  the credit facility at
December 31, 2002 or  2001. Letters of credit  outstanding at December 31,  2002
pertaining to the credit facility were $31.5 million, resulting in $93.5 million
available for additional letters of credit, if needed.

     In connection with the credit facility, the Company is required to maintain
both financial and non-financial covenants and ratios, including but not limited
to  minimum tangible  net worth  plus subordinated  debt, leverage  ratio, fixed
charge coverage ratio, earnings  before interest and  taxes to interest  expense
ratio,  total  unsubordinated  debt  to  tangible  net  worth,  net  income  and
dividends. As  of December  31, 2002,  the Company  was in  compliance with  its
covenants. The credit facility is secured by the Company's accounts receivables,
inventory and machinery and equipment.

 5.25% CONVERTIBLE SUBORDINATED NOTES DUE 2007

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

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

     The Notes are convertible, unless previously redeemed or repurchased by the
Company, at the option  of the holder  at any time prior  to maturity, into  the
Company's  common  stock at  an initial  conversion price  of $31.26  per share,
subject to adjustment in certain events. As of December 31, 2002, there had been
no such conversions.

 7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011

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

(10) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST

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

     Prior to the  EDO-AIL merger, the  EDO ESOP was  being accounted for  under
Statement  of  Position  ("SOP")  No. 76-3,  "Accounting  Practices  for Certain
Employee Stock Ownership Plans" and the  AIL ESOP was being accounted for  under
SOP No. 93-6, "Employers' Accounting for Employee Stock

                                        44
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

Ownership  Plans." The merged  ESOP is being  accounted for under  SOP No. 93-6.
Accordingly, 328,993 unallocated shares of common stock related to the EDO  ESOP
and  now held by the merged ESOP are not considered outstanding for the purposes
of computing earnings per share in 2002 and 2001, respectively. In prior  years,
such shares were considered outstanding in accordance with SOP No. 76-3.

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

     As quarterly payments are made under the indirect loan, unallocated  common
shares  in  the  merged  ESOP are  committed-to-be-released.  The  allocation to
participants is based on (i) a match of 50% of the first 6% of the participants'
401(k) contributions;  (ii)  $600  per  participant;  and  (iii)  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  2002, 2001 and  2000, respectively, non-cash  ESOP compensation expense
recorded by the Company amounted to $4.0 million, $1.8 million and $1.8 million.
At December 31, 2002, there are 2,500,188 unearned/unallocated shares which have
an aggregate market value of $52.0 million and 1,751,605 allocated shares. Total
principal and interest  payments made  in 2002 and  2001 under  the merged  ESOP
indirect loan amounted to $1.7 million and $1.1 million, respectively.

     A discussion of each plan prior to the merger follows.

  EDO ESOP

     During  1988, the EDO Employee Stock Ownership Trust ("EDO ESOT") purchased
89,772 preferred shares from  the Company for  approximately $19.2 million.  The
preferred shares were being allocated to employees on the basis of compensation.
The  preferred  shares  provided  for  dividends of  8%  per  annum,  which were
deductible by the  Company for Federal  and state income  tax purposes. The  tax
benefit  that was attributable to unallocated  preferred shares was reflected as
an  increase  to  retained  earnings.  Each  unallocated  preferred  share   was
convertible  at  its stated  conversion rate  into  10 common  shares. Allocated
preferred shares were convertible at the  greater of the stated conversion  rate
or the fair value of each preferred share divided by the current market price of
each  common share. The EDO ESOT purchased the preferred shares from the Company
using the proceeds of a bank borrowing  guaranteed by the Company. The EDO  ESOT
serviced this obligation with the dividends received on the preferred shares and
any  additional  contributions  from  the  Company  as  required.  Principal and
interest payments on  the note  of the  EDO ESOT were  to be  made in  quarterly
installments  through 2003.  Interest was  charged at  82% of  the prime lending
rate. During 2001 and 2000,  respectively, the Company's cash contributions  and
dividends  on the preferred shares were used  to repay principal of $0.9 million
and $1.6 million and pay interest of $0.2 million and $0.5 million. During  2001
and 2000, respectively, cash contributions of $0.7 million and $1.2 million were
made to the EDO ESOP and were recorded as compensation expense.

     The  EDO  ESOT's borrowing  guaranteed by  the Company  was reflected  as a
liability on the consolidated balance sheets with an equal amount as a reduction
to shareholders' equity, offsetting the increase in the capital stock  accounts.
As  the principal portion of the note was repaid, the liability and the EDO ESOT
loan obligation, included in shareholder's equity, were reduced concurrently.

                                        45
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

  AIL ESOP

     The AIL ESOP held AIL common shares prior to the EDO-AIL merger which  were
converted  to EDO common shares. The cost  basis of the unearned AIL ESOP shares
were recorded as a reduction to shareholders' equity, offsetting the increase in
the capital stock accounts. As AIL ESOP shares were committed-to-be-released  to
plan  participants, the earned  AIL ESOP shares were  released from the unearned
AIL ESOP shares account  based on the cost  of the shares to  the AIL ESOP.  The
allocation  to participants  was based  on (i) $600  per employee  at the market
value of the common shares and (ii) pro rata based on compensation. Compensation
expense was recorded based on the  market value of the Company's common  shares.
The  Company  recorded the  difference between  the market  value of  the shares
committed-to-be-released and  the  cost of  these  shares  to the  AIL  ESOP  to
additional paid-in capital.

     In  2000, the Company  recorded compensation expense  of approximately $1.8
million subsequent  to the  EDO-AIL merger  and contributed  approximately  $2.0
million  to  the  AIL  ESOP  to  cover  the  AIL  ESOP's  indirect  loan service
requirements.

(11) INCOME TAXES

     The 2002, 2001 and 2000 significant components of the provision for  income
taxes attributable to continuing operations are as follows:

<Table>
<Caption>
                                                             2002      2001     2000
                                                            -------   ------   ------
                                                                 (IN THOUSANDS)
<S>                                                         <C>       <C>      <C>
Federal
  Current.................................................  $10,659   $2,345   $3,042
  Deferred................................................   (2,503)   5,598    1,313
                                                            -------   ------   ------
                                                            $ 8,156   $7,943   $4,355
                                                            -------   ------   ------
State
  Current.................................................  $ 2,667   $1,097   $  683
  Deferred................................................     (481)     170      226
                                                            -------   ------   ------
                                                            $ 2,186   $1,267   $  909
                                                            -------   ------   ------
Total.....................................................  $10,342   $9,210   $5,264
                                                            =======   ======   ======
</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 PRETAX
                                                                   EARNINGS
                                                              ------------------
                                                              2002   2001   2000
                                                              ----   ----   ----
<S>                                                           <C>    <C>    <C>
Tax at statutory rate.......................................  35.0%  35.0%  35.0%
State taxes, net of Federal benefit.........................   5.0    3.0    3.6
Write-off of purchased in-process research and
  development...............................................    --     --   35.6
Non-deductible goodwill amortization........................    --    1.0    3.9
Non-cash ESOP compensation expense..........................   3.0    0.5    1.0
Foreign sales benefit.......................................  (1.4)  (1.4)  (2.1)
Other, net..................................................   0.9    0.5    2.9
                                                              ----   ----   ----
Effective income tax rate...................................  42.5%  38.6%  79.9%
                                                              ====   ====   ====
</Table>

                                        46
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

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

<Table>
<Caption>
                                                               2002      2001
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
DEFERRED TAX ASSETS
Retirement plans' additional minimum liability..............  $23,617   $ 9,302
Post-retirement benefits obligation other than pensions.....    5,001     5,091
Deferred revenue............................................      980       873
Deferred compensation.......................................    2,843     2,612
Inventory valuation.........................................    2,242     1,777
Other.......................................................       99       281
                                                              -------   -------
Total deferred tax assets...................................   34,782    19,936
                                                              =======   =======
DEFERRED TAX LIABILITIES
Depreciation and amortization...............................    7,946     7,964
Prepaid pension asset.......................................    3,175     5,619
Identifiable intangible asset...............................       --       782
                                                              -------   -------
Total deferred tax liabilities..............................   11,121    14,365
                                                              -------   -------
Net deferred tax asset......................................  $23,661   $ 5,571
                                                              =======   =======
</Table>

(12) SHAREHOLDERS' EQUITY

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

     At various times beginning in 1983,  the Board of Directors has  authorized
and subsequently increased by amendments, a plan to purchase an aggregate amount
of  4,190,000 common shares. As  of December 31, 2002,  the Company had acquired
approximately 4,091,000 common shares in open market transactions at  prevailing
market  prices.  Approximately  4,026,000 of  these  shares have  been  used for
various purposes, including:  conversion of preferred  shares; contributions  of
common  shares  to the  EDO  ESOP; grants  pursuant  to the  Company's Long-Term
Incentive Plans; payment  of directors'  fees; partial  payment of  a 50%  stock
dividend;  and  stock  options exercised.  As  of  December 31,  2002  and 2001,
respectively, the Company held 94,322 and 182,459 common shares in its  treasury
for future use.

     At  December 31,  2002, the Company  had reserved  6,161,473 authorized and
unissued common  shares  for stock  option  and long-term  incentive  plans  and
conversion of the Notes.

                                        47
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

(13) EARNINGS PER SHARE

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

<Table>
<Caption>
                                                           2002      2001      2000
                                                          -------   -------   -------
                                                                (IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Numerator:
  Earnings from continuing operations available for
     common shares for basic calculation................  $10,629   $14,485   $   440
  Effect of dilutive securities:
     Convertible debentures.............................       --       998        --
     Convertible preferred shares.......................       --         5       119
                                                          -------   -------   -------
  Numerator for diluted calculation.....................  $10,629   $15,488   $   559
                                                          =======   =======   =======
Denominator:
  Denominator for basic calculation.....................   17,080    12,776     9,601
  Effect of dilutive securities:
     Stock options......................................      299       270        68
     Convertible preferred shares.......................       --       153       993
     Convertible debentures.............................       --     1,055        --
                                                          -------   -------   -------
  Denominator for diluted calculation...................   17,379    14,254    10,662
                                                          =======   =======   =======
</Table>

     The assumed conversion of the Notes was anti-dilutive for 2002. The assumed
conversion of the Debentures was anti-dilutive for 2000.

(14) STOCK PLANS

     The Company has granted nonqualified  stock options to officers,  directors
and other key employees under plans approved by the shareholders in 2002 for the
purchase  of its common shares at the fair  market value of the common shares on
the dates of  grant. Options under  the 2002 Long-Term  Incentive Plan  ("LTIP")
generally  become exercisable on the third anniversary  of the date of the grant
and expire on the tenth anniversary of the date of the grant. The 2002 LTIP will
expire in 2012. Options under the  2002 Non-Employee Director Stock Option  Plan
("NEDSOP"),  which  pertains  only to  non-employee  directors,  are immediately
exercisable and expire on the  tenth anniversary of the  date of the grant.  The
2002 NEDSOP will also expire in 2012.

     Changes in options outstanding are as follows:

<Table>
<Caption>
                                                     2002                      2001                    2000
                                          --------------------------   ---------------------   ---------------------
                                          WEIGHTED-                    WEIGHTED-               WEIGHTED-
                                           AVERAGE        SHARES        AVERAGE     SHARES      AVERAGE     SHARES
                                          EXERCISE       SUBJECT       EXERCISE     SUBJECT    EXERCISE     SUBJECT
                                            PRICE       TO OPTION        PRICE     TO OPTION     PRICE     TO OPTION
                                          ---------   --------------   ---------   ---------   ---------   ---------
<S>                                       <C>         <C>              <C>         <C>         <C>         <C>
Beginning of year.......................   $ 7.75         805,876        $6.46      848,211      $6.61      612,350
Options granted.........................    26.72         327,850         9.76      275,350       6.58      428,121
Options exercised.......................     6.98         (69,433)        6.02     (314,458)      4.87      (19,775)
Options expired/cancelled...............    22.02          (7,150)        7.08       (3,227)      7.46     (172,485)
                                           ------       ---------        -----     --------      -----     --------
End of year.............................   $13.59       1,057,143        $7.75      805,876      $6.46      848,211
                                           ------       ---------        -----     --------      -----     --------
Exercisable at year end.................   $10.70         490,243        $6.76      455,426      $6.03      517,795
                                           ======       =========        =====     ========      =====     ========
</Table>

                                        48
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

     The options outstanding as of December 31, 2002 are summarized as follows:

<Table>
<Caption>
                                                   WEIGHTED-       NUMBER OF      WEIGHTED-
RANGE OF                                            AVERAGE         OPTIONS        AVERAGE
EXERCISE PRICES                                  EXERCISE PRICE   OUTSTANDING   REMAINING LIFE
---------------                                  --------------   -----------   --------------
<S>                                              <C>              <C>           <C>
$ 3.07-5.69....................................      $3.96            35,500       2 years
  6.13-9.60....................................       7.89           694,668       7 years
 17.10-31.40...................................      26.74           326,975       9 years
                                                                   ---------
                                                                   1,057,143
                                                                   =========
</Table>

     The 2002 plan also provides for restricted common share long-term incentive
awards  as defined under the plan. As of December 31, 2002 plan participants had
been awarded 392,000 restricted common shares. Deferred compensation is recorded
for the fair value of  the restricted common share awards  on the date of  grant
and  is amortized over  the five-year period the  related services are provided.
The amount charged to operations in 2002,  2001 and 2000 was $0.2 million,  $0.3
million  and $0.7 million, respectively. As of December 31, 2002, 696,141 shares
are available for additional awards.

     The per  share weighted-average  fair value  of stock  options granted  was
$15.28,  $4.88 and $3.22 in  2002, 2001 and 2000,  respectively, on the dates of
grant  using  the  Black  Scholes   option-pricing  model  with  the   following
weighted-average  assumptions: 2002 -- expected dividend  yield of 1%, risk free
interest rate of 4.8%, expected stock volatility of 51%, and an expected  option
life  of 7 1/2 years; 2001 -- expected  dividend yield of 1%, risk free interest
rate of 4.9%, expected stock volatility of  47%, and an expected option life  of
7  1/2 years; and  2000 -- expected  dividend yield of  1.3%, risk free interest
rate of 6.5%, expected stock volatility of  42%, and an expected option life  of
7  1/2 years. The Company applies APB Opinion No. 25 in accounting for its stock
option grants and, accordingly, no compensation cost has been recognized in  the
consolidated  financial  statements for  its stock  options which  have exercise
prices equal to  or greater than  the fair values  of the common  shares on  the
dates  of the grant. Had  the Company determined compensation  cost based on the
fair values  at the  grant  dates for  its stock  options  under SFAS  No.  123,
"Accounting   for  Stock-Based   Compensation,"  the   Company's  earnings  from
continuing operations, and basic and diluted earnings from continuing operations
per common share  would have  been reduced to  the pro  forma amounts  indicated
below:

<Table>
<Caption>
                                                            2002      2001      2000
                                                           -------   -------   ------
                                                                 (IN THOUSANDS,
                                                           EXCEPT PER SHARE AMOUNTS)
<S>                                                        <C>       <C>       <C>
Earnings:
  As reported............................................  $10,629   $14,679   $1,321
  Stock option compensation expense based on fair value
     method, net of tax..................................   (1,155)     (475)    (186)
                                                           -------   -------   ------
  Pro forma..............................................  $ 9,474   $14,204   $1,135
Basic earnings per common share:
  As reported............................................  $  0.62   $  1.14   $ 0.05
  Pro forma..............................................     0.55      1.10     0.03
Diluted earnings per common share:
  As reported............................................  $  0.61   $  1.09   $ 0.05
  Pro forma..............................................     0.55      1.05     0.03
                                                           =======   =======   ======
</Table>

                                        49
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

(15) OTHER EMPLOYEE BENEFIT PLANS

  DEFINED BENEFIT PLANS

     The  Company  maintains  a  noncontributory  defined  benefit  pension plan
covering substantially all  of its  employees. In  November 2002,  the plan  was
amended  whereby benefits accrued under the plan  were frozen as of December 31,
2002. The Company's funding policy is to make annual contributions to the extent
such contributions are actuarially determined and tax deductible.

     In 2002,  the  Company recorded  pension  expense of  $6.0  million,  which
includes  a curtailment loss  of $2.0 million  resulting from the aforementioned
amendment to the plan. In 2001 and 2000, the Company recorded pension income  of
$2.8  million and  $4.6 million,  respectively. The  expected long-term  rate of
return on plan assets was 9.5% in 2002 and 2001 and 9% in 2000. For 2003 pension
expense, the  expected return  on plan  assets has  been reduced  to 8.75%.  The
actuarial  computations  assumed  a  discount  rate  on  benefit  obligations at
December 31, 2002 and 2001 of 6.75% and 7.25%, respectively. The assumed rate of
compensation increase  of 4.95%  for 2002  and 2001  approximated the  Company's
previous  experience. No compensation increase will be assumed after 2002 due to
the aforementioned freezing of the plan. The assets of the pension plan  consist
primarily of equity and fixed income securities, which are readily marketable.

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

<Table>
<Caption>
                                                         2002       2001       2000
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Service cost.........................................  $ (4,353)  $ (3,693)  $ (2,819)
Interest on projected benefit obligation.............   (15,091)   (14,281)   (11,361)
Expected return on plan assets.......................    17,217     20,820     17,616
Amortization of transitional assets..................        --          8          8
Amortization of prior service cost...................      (261)       (85)      (101)
Recognized net actuarial (loss) gain.................    (1,476)        --      1,277
Curtailment loss.....................................    (1,998)        --         --
                                                       --------   --------   --------
Net pension (expense) income.........................  $ (5,962)  $  2,769   $  4,620
                                                       ========   ========   ========
</Table>

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

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year...........  $214,273   $196,700
Service cost................................................     4,353      3,693
Interest cost...............................................    15,091     14,281
Benefits paid...............................................   (17,279)   (12,228)
Actuarial loss..............................................        12     11,827
Effect of curtailment.......................................   (19,262)        --
                                                              --------   --------
Projected benefit obligation at end of year.................  $197,188   $214,273
                                                              --------   --------
</Table>

                                        50
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Change in plan assets:
Fair value of plan assets at beginning of year..............  $187,350   $214,418
Actual loss on plan assets..................................   (21,436)   (14,840)
Benefits paid...............................................   (17,279)   (12,228)
                                                              --------   --------
Fair value of plan assets at end of year....................  $148,635   $187,350
                                                              --------   --------
Funded status...............................................  $(48,553)  $(26,923)
Unrecognized net loss.......................................    55,432     37,505
Unrecognized prior service cost.............................        --      2,259
                                                              --------   --------
Prepaid pension cost........................................  $  6,879   $ 12,841
                                                              ========   ========
</Table>

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

     Due to the lower discount  rate and a decline in  the fair market value  of
plan assets during 2002 and 2001, the accumulated benefit obligation at December
31,  2002 and 2001 exceeded  the fair value of plan  assets by $48.6 million and
$11.3 million, respectively. Consequently,  a net of  tax comprehensive loss  of
$19.8 million and $12.9 million was charged against shareholders' equity in 2002
and 2001, respectively. Amounts recognized in the consolidated balance sheets at
December 31 are as follows:

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Prepaid pension cost (included in other assets).............  $  6,879   $ 12,841
Intangible asset (included in other assets).................  $     --   $  2,259
Additional minimum liability (included in post-retirement
  benefits obligations).....................................  $(55,432)  $(24,094)
Accumulated other comprehensive loss (included in
  shareholders' equity).....................................  $ 55,432   $ 21,835
                                                              --------   --------
</Table>

  NON-QUALIFIED PLANS

     The  Company has a supplemental defined  benefit plan for substantially all
employees under which employees may receive  an amount by which benefits  earned
under  the pension plan  exceed the limitations imposed  by the Internal Revenue
Code. The  Company also  has a  supplemental retirement  plan for  officers  and
certain   employees.  Benefits  are  based  on  years  of  service  and  certain
compensation that is excluded under the qualified plan.

     Total expenses under the  non-qualified plans in 2002,  2001 and 2000  were
$1.4  million,  $0.7 million  and $0.9  million, respectively.  The supplemental
plans of EDO and AIL were combined in 2001.

                                        51
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

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

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

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

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
                                                                (IN THOUSANDS)
<S>                                                           <C>        <C>
Change in projected benefit obligation:
Projected benefit obligation at beginning of year...........  $ 11,538   $  9,747
Service cost................................................       190         84
Interest cost...............................................       815        700
Benefits paid...............................................      (847)      (760)
Actuarial loss..............................................       951        297
Plan amendments.............................................       400      1,470
                                                              --------   --------
Projected benefit obligation at end of year.................  $ 13,047   $ 11,538
                                                              --------   --------
Change in plan assets:
Fair value of plan assets at beginning of the year..........  $     --   $     --
Employer contribution.......................................       847        760
Benefits paid...............................................      (847)      (760)
                                                              --------   --------
Fair value of plan assets at end of year....................  $     --   $     --
                                                              --------   --------
Funded status...............................................  $(13,047)  $(11,538)
Unrecognized net loss.......................................     4,204      3,525
Unrecognized prior service cost.............................     1,684      1,377
Unrecognized net obligation.................................        10         42
                                                              --------   --------
Accrued benefit cost........................................  $ (7,149)  $ (6,594)
                                                              ========   ========
</Table>

     Due to  the lower  discount  rate during  2002  and 2001,  the  accumulated
benefit obligation at December 31, 2002 and 2001 exceeded the fair value of plan
assets  by $11.0 million and $8.9  million, respectively. Consequently, a net of
tax comprehensive loss  of $0.8  million and  $0.5 million  was charged  against

                                        52
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

shareholders'  equity in 2002 and 2001,  respectively. Amounts recognized in the
consolidated balance sheets at December 31 are as follows:

<Table>
<Caption>
                                                               2002      2001
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Accrued benefit cost (included in post-retirement benefits
  obligation)...............................................  $(7,149)  $(6,594)
Intangible asset (included in other assets).................  $ 1,694   $ 1,419
Additional minimum liability (included in post-retirement
  benefits obligations).....................................  $(3,864)  $(2,270)
Accumulated other comprehensive loss (included in
  shareholders' equity).....................................  $ 2,170   $   851
                                                              =======   =======
</Table>

  401(K) PLANS

     In 2000, there  were four 401(k)  plans sponsored by  the Company  covering
substantially  all employees. These plans were merged as of January 1, 2001. The
current merged plan provides for matching by the Company of 50% of the first  6%
of  employee contributions. The match is  provided in the Company's common stock
under the ESOP plan.  In 2000, matching contributions  under the original  plans
were not material.

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

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

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

  EDO POST-RETIREMENT BENEFIT PLAN

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

<Table>
<Caption>
                                                              2002   2001    2000
                                                              ----   -----   ----
                                                                (IN THOUSANDS)
<S>                                                           <C>    <C>     <C>
Service cost................................................  $ --   $  69   $ 57
Interest cost...............................................   171     229    239
Curtailment gain............................................    --    (929)    --
                                                              ----   -----   ----
Total post-retirement health care and life insurance expense
  (income)..................................................  $171   $(631)  $296
                                                              ====   =====   ====
</Table>

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

                                        53
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

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

<Table>
<Caption>
                                                               2002     2001
                                                              ------   ------
                                                              (IN THOUSANDS)
<S>                                                           <C>      <C>
Change in accumulated post-retirement benefit obligation:
  Accumulated benefit obligation at beginning of year.......  $2,317   $3,227
  Service cost..............................................      --       69
  Interest cost.............................................     171      229
  Benefits paid.............................................    (448)    (354)
  Participant contributions.................................      31       32
  Actuarial loss............................................      42       43
  Effect of curtailment.....................................      --     (929)
                                                              ------   ------
Unfunded accumulated post-retirement benefit obligation at
  end of year...............................................  $2,113   $2,317
Unrecognized net gain.......................................      39       81
                                                              ------   ------
Accrued post-retirement benefit cost........................  $2,152   $2,398
                                                              ======   ======
</Table>

     Actuarial assumptions used in  determining the accumulated  post-retirement
benefit  obligation include a discount  rate of 6.75% and  7.25% at December 31,
2002 and 2001, respectively, and estimated  increases in health care costs.  The
Company  has  limited  its increase  in  health care  costs  to 5%  per  year by
requiring the retirees to  absorb any costs  in excess of 5%  and has used  such
rate to measure its obligation.

  AIL POST-RETIREMENT BENEFIT PLAN

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

<Table>
<Caption>
                                                              2002    2001   2000
                                                              -----   ----   ----
                                                                (IN THOUSANDS)
<S>                                                           <C>     <C>    <C>
Service cost................................................  $ 313   $ 86   $ 53
Interest cost...............................................    431    663    468
Recognized net actuarial gain...............................   (269)   (11)    --
                                                              -----   ----   ----
Total post-retirement expense...............................  $ 475   $738   $521
                                                              =====   ====   ====
</Table>

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

<Table>
<Caption>
                                                               2002      2001
                                                              -------   -------
                                                               (IN THOUSANDS)
<S>                                                           <C>       <C>
Change in accumulated post-retirement benefit obligation:
Accumulated benefit obligation..............................  $ 8,737   $ 8,876
Service cost................................................      313        86
Interest cost...............................................      431       663
Benefits paid...............................................     (449)     (591)
Actuarial loss (gain).......................................    2,739      (297)
                                                              -------   -------
Unfunded accumulated post-retirement benefit obligation at
  end of year...............................................  $11,771   $ 8,737
Unrecognized (loss) gain....................................   (1,725)    1,282
                                                              -------   -------
Accrued post-retirement benefit cost........................  $10,046   $10,019
                                                              =======   =======
</Table>

                                        54
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

     Actuarial  assumptions used in  determining the accumulated post-retirement
benefit obligation include a  discount rate of 6.75%  and 7.25% at December  31,
2002  and 2001,  respectively. The accumulated  benefit obligation  would not be
affected by increases  in healthcare costs  since such costs  are funded by  the
participants.

(17) COMMITMENTS AND CONTINGENCIES

     The  Company is  contingently liable under  the terms of  letters of credit
aggregating approximately $86.9 million at December 31, 2002, should it fail  to
perform in accordance with the terms of its contracts with foreign customers.

     At December 31, 2002, the Company and its subsidiaries were obligated under
building  and equipment  leases expiring  between 2003  and 2012.  The aggregate
future minimum  lease commitments  under those  obligations with  noncancellable
terms in excess of one year are as follows:

     - 2003 - $7,995

     - 2004 - $6,432

     - 2005 - $5,467

     - 2006 - $4,448

     - 2007 - $4,011

     - Thereafter - $18,919

     Rental  expense for continuing  operations under such  leases for the years
ended December 31, 2002,  2001 and 2000 amounted  to $5.2 million, $4.7  million
and $3.9 million, respectively.

(18) LEGAL MATTERS

     The Company and three other companies entered into a consent decree in 1990
with  the  Federal  government for  the  remediation  of a  Superfund  site. The
Superfund site has been  divided into three operable  units. The consent  decree
relates  to two  of the  operable units.  The third  operable unit  has not been
formally studied  and,  accordingly,  no  liability has  been  recorded  by  the
Company.  The Company believes  that the aggregate amount  of the obligation and
timing of cash payments  associated with the two  operable units subject to  the
consent   decree  are  reasonably  fixed   and  determinable.  Accordingly,  the
environmental  obligation  has  been  discounted  at  five  percent.  Management
estimates  that  as of  December  31, 2002,  the  discounted liability  over the
remainder of  the twenty  three years  related to  these two  operable units  is
approximately  $2.3  million  of  which  approximately  $0.3  million  has  been
classified as current and is included in accrued liabilities. Approximately $0.6
million of the $2.3 million liability will be incurred over the next five years.

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

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

(19) BUSINESS SEGMENTS

     The Company determines its operating segments based upon an analysis of its
products  and  services,  production  processes,  types  of  customers, economic
characteristics and the related regulatory environment,

                                        55
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

which is  consistent with  how management  operates the  Company. The  Company's
continuing  operations  are  conducted  in  three  business  segments:  Defense,
Communications and Space Products, and Engineered Materials.

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

     Domestic U.S. Government sales, which include sales to prime contractors of
the U.S. Government, amounted to 75%, 69% and 63% of net sales, which were  82%,
77% and 69% of Defense's net sales, 62%, 55% and 66% of Communications and Space
Products'  net sales and 42%, 41% and 33% of Engineered Materials' net sales for
2002, 2001 and 2000,  respectively. Export sales comprised  15%, 15% and 18%  of
net  sales for  2002, 2001  and 2000,  respectively. In  addition, the Universal
Exciter Upgrade program in the Defense segment comprised approximately 14%,  15%
and 15% of net sales for 2002, 2001 and 2000, respectively.

     Principal products and services by segment are as follows:

     Defense Segment

     - Electronic Warfare

     - Radar Countermeasures Systems

     - Reconnaissance and Surveillance Systems

     - Aircraft Weapons Suspension and Release Systems

     - Airborne Mine Countermeasures Systems

     - Integrated Combat Systems

     - Command, Control and Communications Systems

     - Undersea Systems

     - Professional, Operational, Technical and Information Technology Services

     Communications and Space Products Segment

     - Antenna Products

     - Communications and Countermeasures Systems

     - Space Products

     Engineered Materials Segment

     - Electro-Ceramic Products

     - Advanced Fiber Composite Structural Products

                                        56
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

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

<Table>
<Caption>
                                                         2002       2001       2000
                                                       --------   --------   --------
                                                               (IN THOUSANDS)
<S>                                                    <C>        <C>        <C>
Net sales:
  Defense............................................  $243,447   $183,454   $142,044
  Communications and Space Products..................    47,262     39,998     30,027
  Engineered Materials...............................    38,167     36,509     34,751
                                                       --------   --------   --------
                                                       $328,876   $259,961   $206,822
                                                       --------   --------   --------
Operating earnings:
  Defense............................................  $ 28,674   $ 21,927   $ 17,117
  Communications and Space Products..................      (441)      (383)   (11,176)
  Engineered Materials...............................     3,150      4,603      3,298
  Curtailment (loss) gain............................    (1,998)       929         --
                                                       --------   --------   --------
                                                       $ 29,385   $ 27,076   $  9,239
Net interest expense.................................    (4,956)    (2,216)    (2,438)
Other expense, net...................................       (95)      (971)      (216)
                                                       --------   --------   --------
Earnings before income taxes and cumulative effect of
  a change in accounting principle...................  $ 24,334   $ 23,889   $  6,585
                                                       --------   --------   --------
Identifiable assets:
  Defense............................................  $224,017   $129,631   $106,958
  Communications and Space Products..................    40,001     49,769     37,576
  Engineered Materials...............................    28,496     27,690     29,139
  Corporate..........................................   189,060     78,540     40,581
                                                       --------   --------   --------
                                                       $481,574   $285,630   $214,254
                                                       --------   --------   --------
Depreciation and amortization:
  Defense............................................  $  7,440   $  6,081   $  5,047
  Communications and Space Products..................     1,895      2,438      1,960
  Engineered Materials...............................     1,800      2,029      1,882
  Corporate..........................................       186        848        552
                                                       --------   --------   --------
                                                       $ 11,321   $ 11,396   $  9,441
                                                       --------   --------   --------
Capital expenditures:
  Defense............................................  $  3,587   $  7,896   $  1,559
  Communications and Space Products..................       816      4,308        570
  Engineered Materials...............................     1,819      1,479      1,705
  Corporate..........................................       871        615         27
                                                       --------   --------   --------
                                                       $  7,093   $ 14,298   $  3,861
                                                       ========   ========   ========
</Table>

                                        57
<PAGE>
                        EDO CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
                        DECEMBER 31, 2002, 2001 AND 2000

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

<Table>
<Caption>
                                                              2002    2001     2000
                                                              ----   ------   -------
                                                                  (IN THOUSANDS)
<S>                                                           <C>    <C>      <C>
Defense.....................................................  $567   $  937   $ 3,342
Communications and Space Products...........................    --      184     7,595
Engineered Materials........................................    --      197       558
                                                              ----   ------   -------
Total.......................................................  $567   $1,318   $11,495
                                                              ====   ======   =======
</Table>

                                        58
<PAGE>

                  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The following table  sets forth unaudited  quarterly financial  information
for 2002 and 2001 (in thousands, except per share amounts).

<Table>
<Caption>
                                FIRST QUARTER          SECOND QUARTER          THIRD QUARTER         FOURTH QUARTER
                             --------------------     -----------------     -------------------   --------------------
                              2002         2001        2002      2001        2002        2001       2002        2001
                             -------      -------     -------   -------     -------     -------   --------     -------
<S>                          <C>          <C>         <C>       <C>         <C>         <C>       <C>          <C>
Net sales from continuing
  operations...............  $66,909      $60,151     $73,719   $66,776     $85,104     $60,353   $103,144     $72,681
Net earnings before
  cumulative effect of a
  change in accounting
  principle:
  Continuing operations....    2,810        2,843(a)    3,074     3,095(b)    3,371(c)    3,833      4,737(d)    4,908(e)
  Discontinued
    operations.............       --           --          --        --          --          --         --         273
                             -------      -------     -------   -------     -------     -------   --------     -------
                               2,810        2,843       3,074     3,095       3,371       3,833      4,737       5,181
Cumulative effect of a
  change in accounting
  principle, net of tax....   (3,363)(f)       --          --        --          --          --         --          --
                             -------      -------     -------   -------     -------     -------   --------     -------
(Loss) earnings............     (553)       2,843       3,074     3,095       3,371       3,833      4,737       5,181
Earnings per share before
  cumulative effect of a
  change in accounting
  principle:
  Basic:
    Continuing
      operations...........     0.17         0.23        0.18      0.25        0.20        0.32       0.28        0.32
    Discontinued
      operations...........       --           --          --        --          --          --         --        0.02
                             -------      -------     -------   -------     -------     -------   --------     -------
                                0.17         0.23        0.18      0.25        0.20        0.32       0.28        0.34
  Cumulative effect of a
    change in accounting
    principle, net of
    tax....................    (0.20)          --          --        --          --          --         --          --
                             -------      -------     -------   -------     -------     -------   --------     -------
  (Loss)
    earnings -- Basic......    (0.03)        0.23        0.18      0.25        0.20        0.32       0.28        0.34
  Diluted:
    Continuing
      operations...........     0.16         0.22        0.18      0.24        0.19        0.30       0.26        0.31
    Discontinued
      operations...........       --           --          --        --          --          --         --        0.02
                             -------      -------     -------   -------     -------     -------   --------     -------
                                0.16         0.22        0.18      0.24        0.19        0.30       0.26        0.33
  Cumulative effect of a
    change in accounting
    principle, net of
    tax:...................    (0.20)          --          --        --          --          --         --          --
                             -------      -------     -------   -------     -------     -------   --------     -------
  (Loss)
    earnings -- Diluted....    (0.04)        0.22        0.18      0.24        0.19        0.30       0.26        0.33
                             -------      -------     -------   -------     -------     -------   --------     -------
Preferred dividends paid...       --          194          --        --          --          --         --          --
                             =======      =======     =======   =======     =======     =======   ========     =======
</Table>

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

(a) Includes merger-related costs of $0.5 million

(b) Includes merger-related costs of $0.8 million.

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

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

(e) Includes a $0.9 million post-retirement curtailment gain.

(f)  Upon adoption  of  Statement  of Financial  Accounting  Standard  No.  142,
     "Goodwill  and Other Intangible Assets,"  the Company recorded a cumulative
     effect of a change in accounting  principle effective January 1, 2002.  See
     Note  1(g) to the consolidated financial statements  as of and for the year
     ended December 31, 2002.

                                        59
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Shareholders
EDO Corporation

     We  have  audited  the  accompanying  consolidated  balance  sheets  of EDO
Corporation and subsidiaries as of December  31, 2002 and 2001, and the  related
consolidated  statements of  earnings, shareholders'  equity and  cash flows for
each of the three years in the  period ended December 31, 2002. Our audits  also
included  the financial  statement schedule listed  in the index  at Item 15(a).
These consolidated financial statements are the responsibility of the  Company's
management.  Our responsibility is  to express an  opinion on these consolidated
financial statements based on our audits.

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

     In  our opinion,  the consolidated  financial statements  referred to above
present fairly,  in  all  material  respects,  the  financial  position  of  EDO
Corporation  and subsidiaries at December  31, 2002 and 2001  and the results of
their operations and their cash flows for each of the three years in the  period
ended  December  31, 2002,  in conformity  with accounting  principles generally
accepted in  the United  States. Also,  in our  opinion, the  related  financial
statement   schedule,  when  considered  in  relation  to  the  basic  financial
statements taken as  a whole,  presents fairly,  in all  material respects,  the
information set forth therein.

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

                                                           /s/ Ernst & Young LLP

New York, New York
February 11, 2003

                                        60
<PAGE>

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

     None.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS

     The information called for by  Item 10 (except to  the extent set forth  in
this  Item)  is  incorporated  in  this Report  by  reference  to  the Company's
definitive proxy  statement  relating  to the  Annual  Meeting  of  Shareholders
anticipated to be held on April 22, 2003.

                               EXECUTIVE OFFICERS

<Table>
<Caption>
NAME                                           AGE     POSITION, TERM OF OFFICE AND PRIOR POSITIONS
----                                           ---     --------------------------------------------
<S>                                            <C>   <C>
James M. Smith...............................  61    Chairman of the Board (since May 2002) President
                                                     and Chief Executive Officer (since 2000).
                                                     Previously, he was President and CEO of AIL
                                                     Systems, Inc.
Frederic B. Bassett..........................  56    Vice President (since September 2002), Chief
                                                     Financial Officer and Treasurer (since January
                                                     2003). Prior thereto, he was Vice President,
                                                     Treasurer and Chief Financial Officer of Condor
                                                     Systems, Inc. (December 2000-July 2002). Prior
                                                     thereto, he was U.S. Operations Controller for
                                                     the Howmet Division of Alcoa.
Patricia D. Comiskey.........................  52    Vice President-Human Resources since June 2001
                                                     and Assistant Secretary since September 2000.
                                                     Previously, she was Director -- Corporate Human
                                                     Resources since September 2000. Prior thereto
                                                     she was Director -- Human Resources and
                                                     Assistant Secretary of AIL Systems, Inc.
George Fox...................................  60    Vice President-Electronic Systems Group since
                                                     May 2000. Previously, he was Director of
                                                     Operations of AIL Systems, Inc. since 1998.
                                                     Prior thereto he was Director of Programs of AIL
                                                     Systems, Inc. since 1997.
William J. Frost.............................  61    Vice President-Administration and (since 2002)
                                                     Investor Relations and (since 2001) Secretary.
Milo Hyde....................................  49    Vice President -- Systems & Analysis Group since
                                                     2000 and Group General Manager since 1998. Prior
                                                     thereto, he was General Manager of the Combat
                                                     Systems Division.
Harvey N. Kreisberg..........................  66    Vice President-Corporate Development since
                                                     January 2001. Prior thereto, he was
                                                     Director -- Diversified Products Group of AIL
                                                     Systems, Inc.
Frank Otto...................................  53    Executive Vice President (since September 2002)
                                                     and Vice President -- Integrated Systems and
                                                     Structures Group (since January 2001). Prior
                                                     thereto, he was General Manager of the Marine
                                                     and Aircraft Systems Division.
Lisa M. Palumbo..............................  44    Vice President, General Counsel and Assistant
                                                     Secretary since April 2002. Previously, she was
                                                     Senior Vice President, General Counsel and
                                                     Secretary of Moore Corporation Ltd. (from March
                                                     to September 2001), and prior thereto, Vice
                                                     President and General Counsel of Rayonier, Inc.
</Table>

                                        61
<PAGE>

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

ITEM 11. EXECUTIVE COMPENSATION

     The information called  for by Item  11 is incorporated  in this Report  by
reference  to the  Company's definitive proxy  statement relating  to the Annual
Meeting of Shareholders anticipated to be held on April 22, 2003.

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

     The information called  for by Item  12 is incorporated  in this Report  by
reference  to the  Company's definitive proxy  statement relating  to the Annual
Meeting of Shareholders anticipated to be held on April 22, 2003.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information called  for by Item  13 is incorporated  in this Report  by
reference  to the  Company's definitive proxy  statement relating  to the Annual
Meeting of Shareholders anticipated to be held on April 22, 2003.

ITEM 14. CONTROLS AND PROCEDURES

 Evaluation of disclosure controls and procedures

     Within the 90 day  period prior to  filing this Report,  we carried out  an
evaluation,  under  the supervision  and with  the participation  of management,
including our  Chief  Executive Officer  and  Chief Financial  Officer,  of  the
effectiveness  of  the  design  and operation  of  our  disclosure  controls and
procedures. Based upon  the evaluation,  the Chief Executive  Officer and  Chief
Financial  Officer concluded that  the design and  operation of these disclosure
controls and procedures were effective to ensure that information required to be
disclosed in reports that we file or submit under the Securities Exchange Act of
1934 is recorded,  processed, summarized  and reported within  the time  periods
specified in the Securities and Exchange Commission rules and forms.

 Changes in internal controls

     There  were no significant  changes in EDO's internal  controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.

                                    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, 2002 and 2001

     Consolidated Statements of Earnings for the Years Ended December 31, 2002,
2001 and 2000

     Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 2002, 2001 and 2000

     Consolidated Statements of Cash Flows for the Years Ended December 31,
2002, 2001 and 2000

     Notes to Consolidated Financial Statements

     Report of Ernst & Young LLP

                                        62
<PAGE>

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>
Deducted from asset accounts:
Year ended December 31, 2002:
Allowance for doubtful accounts........      $893          407           44(a)       (321)        $1,023

Deducted from asset accounts:
Year ended December 31, 2001:
Allowance for doubtful accounts........      $981          220           63(b)       (371)        $  893

Deducted from asset accounts:
Year ended December 31, 2000:
Allowance for doubtful accounts........      $232          287          600(c)       (138)        $  981
Valuation allowance on net deferred tax
  assets...............................      $976           --           --          (976)        $   --

Deducted from asset accounts:
Year ended December 31, 1999:
Allowance for doubtful accounts........      $321           --           --           (89)        $  232
Valuation allowance on net deferred tax
  assets...............................      $976           --           --            --         $  976
</Table>

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

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

(c) Amount  acquired as a result of purchase  of AIL Technologies, Inc. on April
    28, 2000.

                                        63
<PAGE>

3.  EXHIBITS.

<Table>
<S>        <C>
2(a)       Agreement and Plan of Merger by and among the Company, EDO
           Acquisition III Inc. and AIL Technologies Inc. as amended
           and restated dated January 2, 2000 (incorporated herein by
           reference to the Company's Annual Report on Form 10-K for
           the fiscal year ended December 31, 1999, Exhibit 2(a)).
2(b)       Management Stock Purchase Agreement dated as of January 2,
           2000 between the Company as Buyer and eleven individuals as
           Sellers, relating to the purchase and sale of shares of
           common stock of AIL Technologies Inc. (incorporated herein
           by reference to the Company's Annual Report on Form 10-K for
           the fiscal year ended December 31, 1999, Exhibit 2(b)).
2(c)       Stock Purchase Agreement dated as of January 2, 2000 between
           the Company, as Buyer, and Defense Systems Holding Co., as
           Seller, relating to the purchase and sale of shares of
           common and preferred stock of AIL Technologies Inc.
           (incorporated herein by reference to the Company's Annual
           Report on Form 10-K for the fiscal year ended December 31,
           1999, Exhibit 2(c)).
2(d)       Stock Purchase Agreement dated as of October 9, 2001, by EDO
           Acquisition II, Inc. and the former stockholders of Dynamic
           Systems, Inc., with a list of the schedules and exhibits
           (incorporated herein by reference to the Company's Annual
           Report on Form 10-K for the fiscal year ended December 31,
           2001, Exhibit 2(d)).
2(e)       Amended and Restated Asset Purchase Agreement and Amendment
           1 thereto, dated as of May 31, 2002, between EDO Acquisition
           IV Inc., a wholly-owned subsidiary of the Company, as Buyer,
           and Condor Systems, Inc. and CEI Systems, Inc. as Sellers
           (incorporated herein by reference to the Company's Current
           Report on Form 8-K dated July 26, 2002, Exhibits 2.1 and
           2.2).
2(f)       Stock Purchase Agreement, dated as of February 5, 2003,
           between EDO Professional Services Inc, a wholly-owned
           subsidiary of the Company, as Buyer and four individuals as
           Sellers (incorporated herein by reference to the Company's
           Current Report on Form 8-K dated February 5, 2003, Exhibit
           2.1).
3(a)(1)    Certificate of Incorporation of the Company and amendments
           thereto dated June 14, 1984, July 18, 1988 and July 22, 1988
           (incorporated herein by reference to the Company's Annual
           Report on Form 10-K for the fiscal year ended December 31,
           1994, Exhibit 3(i)).
3(a)(2)    Amendment to the Certificate of Incorporation of the Company
           dated July 29, 1998 (incorporated herein by reference to the
           Company's Annual Report on Form 10-K for the fiscal year
           ended December 31, 1998, Exhibit 3(i)).
3(a)(3)*   Amendment to the Certificate of Incorporation of the Company
           dated May 17, 2002.
3(b)       By-Laws of the Company effective October 1, 2002
           (incorporated herein by reference to the Company's Quarterly
           Report on Form 10-Q for the quarterly period ended September
           28, 2002, Exhibit 3(ii)).
4(a)       Indenture, dated as of April 2, 2002, by and between the
           Company and HSBC Bank, USA, as trustee (incorporated herein
           by reference to the Company's Quarterly Report on Form 10-Q
           for the quarterly period ended March 30, 2002, Exhibit
           4(a)).
4(b)       Registration Rights Agreement, dated as of April 2, 2002, by
           and among the Company and Salomon Smith Barney, Inc., SG
           Cowen Securities Corporation and Robertson Stephens, Inc.,
           as representatives of the initial purchasers (incorporated
           herein by reference to the Company's Quarterly Report on
           Form 10-Q for the quarterly period ended March 30, 2002,
           Exhibit 4(b)).
</Table>

                                        64
<PAGE>
<Table>
<S>        <C>
10(a)(1)*  Credit Agreement, dated as of November 8, 2002, by and among
           the Company and AIL Systems Inc., with Citibank N.A., Fleet
           National Bank, Wachovia Bank, N.A., et al.
10(a)(2)*  Amendment No. 1, dated December 20, 2002, to the Credit
           Agreement dated as of November 8, 2002 described above.
10(a)(3)*  Amendment No. 2, dated February 4, 2003, to the Credit
           Agreement dated as of November 8, 2002 described above.
10(a)(4)*  Amendment No. 3, dated February 28, 2003, to the Credit
           Agreement dated as of November 8, 2002 described above.
10(b)      EDO Corporation 1996 Long-Term Incentive Plan (incorporated
           herein by reference to the Company's Annual Report on Form
           10-K for the fiscal year ended December 31, 1996, Exhibit
           10(a)).
10(c)*     EDO Corporation 2002 Long-Term Incentive Plan.
10(d)      Executive Life Insurance Plan Agreements, as amended through
           January 23, 1990, between the Company and 28 employees and
           retirees (incorporated herein by reference to the Company's
           Annual Report on Form 10-K for the fiscal year ended
           December 31, 1994, Exhibit 10(g)).
10(e)      Form of Directors' and Officers' Indemnity Agreements
           between the Company and 23 current Company directors and
           officers (incorporated herein by reference to the Company's
           Annual Report on Form 10-K for the fiscal year ended
           December 31, 1996, Exhibit 10(d)).
10(f)      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(g)      EDO Corporation 1997 Non-Employee Director Stock Option Plan
           (incorporated herein by reference to the Company's
           Registration Statement on Form S-8, File No. 333-77865,
           dated May 6, 1999).
10(h)*     EDO Corporation 2002 Non-Employee Director Stock Option
           Plan.
10(i)      EDO Corporation Compensation Plan for Directors
           (incorporated by reference to the Company's Annual Report on
           Form 10-K for the fiscal year ended December 31, 1998,
           Exhibit 10(g)).
10(j)      Supplemental Executive Retirement Plan, dated July 1, 2001
           (incorporated by reference to the Company's Annual Report on
           Form 10-K for the fiscal year ended December 31, 2001,
           Exhibit 10(i)).
10(k)*     Employment Agreement, dated as of February 1, 2003, by and
           between EDO Corporation and James M. Smith.
10(l)*     Change in Control Agreement dated March 3, 2003 between the
           Company and Frederic B. Bassett.
10(m)*     Change in Control Agreement dated March 21, 2002, between
           the Company and Patricia D. Comiskey.
10(n)*     Change in Control Agreement dated March 25, 2002 between the
           Company and George P. Fox, Jr.
10(o)*     Change in Control Agreement dated March 21, 2002 between the
           Company and William J. Frost.
10(p)*     Change in Control Agreement dated March 22, 2002 between the
           Company and Milo Hyde.
</Table>

                                        65
<PAGE>
<Table>
<S>        <C>
10(q)*     Change in Control Agreement dated March 21, 2002 between the
           Company and Harvey N. Kreisberg.
10(r)*     Change in Control Agreement dated March 26, 2002 between the
           Company and Frank W. Otto.
10(s)*     Change in Control Agreement dated May 1, 2002 between the
           Company and Lisa M. Palumbo.
21*        List of Subsidiaries.
23*        Consent of Independent Auditors
</Table>

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

* Filed herewith.

(b)  Reports on Form 8-K

     The following reports on Form 8-K were filed during the three months  ended
December 31, 2002:

<Table>
<Caption>
   DATE OF REPORT                                   ITEMS REPORTED
---------------------        ------------------------------------------------------------
<C>                          <S>
  November 12, 2002          Furnishing the 18 U.S.C. Section 1350 certifications of
                             James M. Smith, Chairman, President and Chief Executive
                             Officer and Darrell L. Reed, Vice President -- Finance,
                             Treasurer and Chief Financial Officer relating to the
                             Corporation's Quarterly Report on Form 10-Q for the quarter
                             ended September 28, 2002.
</Table>

                                        66
<PAGE>

                                 CERTIFICATIONS

I, James M. Smith, certify that:

          1.    I  have  reviewed  this  annual  report  on  Form  10-K  of  EDO
     Corporation;

          2.  Based  on my knowledge,  this annual report  does not contain  any
     untrue  statement  of a  material fact  or  omit to  state a  material fact
     necessary to make the statements made, in light of the circumstances  under
     which  such statements were made, not misleading with respect to the period
     covered by this annual report;

          3.   Based  on  my  knowledge, the  financial  statements,  and  other
     financial information included in this annual report, fairly present in all
     material  respects the financial condition,  results of operations and cash
     flows of  the registrant  as of,  and for,  the periods  presented in  this
     annual report;

          4.   The registrant's other certifying  officers and I are responsible
     for establishing  and maintaining  disclosure controls  and procedures  (as
     defined  in Exchange  Act Rules 13a-14  and 15d-14) for  the registrant and
     have:

             a) designed such disclosure controls and procedures to ensure  that
        material   information  relating   to  the   registrant,  including  its
        consolidated subsidiaries, is made  known to us  by others within  those
        entities,  particularly during the period in which this annual report is
        being prepared;

             b) evaluated  the  effectiveness  of  the  registrant's  disclosure
        controls  and procedures as of a date within 90 days prior to the filing
        date of this annual report (the "Evaluation Date"); and

             c) presented  in  this  annual report  our  conclusions  about  the
        effectiveness  of the  disclosure controls  and procedures  based on our
        evaluation as of the Evaluation Date;

          5.  The registrant's other  certifying officers and I have  disclosed,
     based  on our most recent evaluation,  to the registrant's auditors and the
     audit committee of registrant's board  of directors (or persons  performing
     the equivalent functions):

             a)  all  significant deficiencies  in  the design  or  operation of
        internal controls which could adversely affect the registrant's  ability
        to  record,  process,  summarize  and  report  financial  data  and have
        identified for  the registrant's  auditors  any material  weaknesses  in
        internal controls; and

             b)  any fraud, whether or not material, that involves management or
        other employees who have a significant role in the registrant's internal
        controls; and

          6.  The registrant's other certifying officers and I have indicated in
     this annual  report  whether  or  not there  were  significant  changes  in
     internal  controls  or in  other  factors that  could  significantly affect
     internal controls subsequent  to the  date of our  most recent  evaluation,
     including  any corrective  actions with regard  to significant deficiencies
     and material weaknesses.

                                          Date: March 13, 2003

                                                  /s/ JAMES M. SMITH
                                          --------------------------------------
                                                      James M. Smith
                                              Chairman, President and Chief
                                                    Executive Officer

                                        67
<PAGE>

                                 CERTIFICATIONS

I, Frederic B. Bassett, certify that:

          1.    I  have  reviewed  this  annual  report  on  Form  10-K  of  EDO
     Corporation;

          2.   Based on  my knowledge, this  annual report does  not contain any
     untrue statement  of a  material fact  or  omit to  state a  material  fact
     necessary  to make the statements made, in light of the circumstances under
     which such statements were made, not misleading with respect to the  period
     covered by this annual report;

          3.    Based  on  my knowledge,  the  financial  statements,  and other
     financial information included in this annual report, fairly present in all
     material respects the financial condition,  results of operations and  cash
     flows  of the  registrant as  of, and  for, the  periods presented  in this
     annual report;

          4.  The registrant's other  certifying officers and I are  responsible
     for  establishing and  maintaining disclosure  controls and  procedures (as
     defined in Exchange  Act Rules 13a-14  and 15d-14) for  the registrant  and
     have:

             a)  designed such disclosure controls and procedures to ensure that
        material  information  relating   to  the   registrant,  including   its
        consolidated  subsidiaries, is made  known to us  by others within those
        entities, particularly during the period in which this annual report  is
        being prepared;

             b)  evaluated  the  effectiveness  of  the  registrant's disclosure
        controls and procedures as of a date within 90 days prior to the  filing
        date of this annual report (the "Evaluation Date"); and

             c)  presented  in  this  annual report  our  conclusions  about the
        effectiveness of the  disclosure controls  and procedures  based on  our
        evaluation as of the Evaluation Date;

          5.   The registrant's other certifying  officers and I have disclosed,
     based on our most recent evaluation,  to the registrant's auditors and  the
     audit  committee of registrant's board  of directors (or persons performing
     the equivalent functions):

             a) all  significant  deficiencies in  the  design or  operation  of
        internal  controls which could adversely affect the registrant's ability
        to record,  process,  summarize  and  report  financial  data  and  have
        identified  for  the registrant's  auditors  any material  weaknesses in
        internal controls; and

             b) any fraud, whether or not material, that involves management  or
        other employees who have a significant role in the registrant's internal
        controls; and

          6.  The registrant's other certifying officers and I have indicated in
     this  annual  report  whether  or not  there  were  significant  changes in
     internal controls  or  in other  factors  that could  significantly  affect
     internal  controls subsequent  to the date  of our  most recent evaluation,
     including any corrective  actions with regard  to significant  deficiencies
     and material weaknesses.

                                          Date: March 13, 2003

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

                                        68