10-Q 1 a5534801.txt EDO CORPORATION 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-Q (MARK ONE) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 2007 OR | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________ COMMISSION FILE NUMBER 1-3985 --------------- EDO CORPORATION (Exact name of registrant as specified in its charter) NEW YORK 11-0707740 (State of Incorporation) (IRS Employer Identification No.) 60 EAST 42ND STREET, 42ND FLOOR, 10165 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices) (212) 716-2000 (Registrant's telephone number, including area code) 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 whether the registrant is a large accelerated filer, an accelerated filer (as defined in Rule 12b-2 of the Act), or a non-accelerated filer. Large accelerated filer [ ] Accelerated filer |X| Non-accelerated filer [ ] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). [ ] Yes |X| No The number of shares of EDO common stock outstanding as of November 2, 2007 was 21,330,597 shares, with a par value $1 per share.

~~Page~~EDO ~~----~~CORPORATION TABLE OF CONTENTS Page PART I FINANCIAL INFORMATION ITEM 1 Financial Statements ......................................... ~~3 Consolidated Balance Sheets - June 24, 2006 (unaudited) and December 31, 2005~~ .....................................3 Consolidated Balance Sheets - September 29, 2007 (unaudited) and December 31, 2006.... ............3 Consolidated Statements of Earnings - (unaudited) Three months ended ~~June~~September 2429, ~~2006~~2007 and ~~June~~September 2530, ~~2005~~ 2006........ ......................4 Consolidated Statements of Earnings - (unaudited) ~~Six~~Nine months ended ~~June~~September 2429, ~~2006~~2007 and ~~June~~September 2530, ~~2005~~ 2006.......... .....................5 Consolidated Statements of Cash Flows - (unaudited) ~~Six~~Nine months ended ~~June~~September 2429, ~~2006~~2007 and ~~June~~September 2530, ~~2005~~ 2006.......... .....................6 Notes to Consolidated Financial Statements (unaudited) ....... .....................................7 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............19 ITEM 3 Quantitative and Qualitative Disclosures about Market Risk................................. ~~17 ITEM 3 Quantitative and Qualitative Disclosures about Market Risk~~ ......27 25 ITEM 4 Controls and Procedures ..........................................................................27 25 PART II OTHER INFORMATION ITEM 1 Legal Proceedings................................................................................28 ITEM 1A Risk Factors...........................................................................................28 ITEM 4 Submission of Matters to a Vote of Security Holders ..................................................28 25 ITEM 6 Exhibits and Reports Filed on Form 8-K ...............................................................28 26 SIGNATURE PAGE .......................................................... 26.........................................28

~~JUNE~~PART 24I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 29, DECEMBER 31, 2007 2006 ~~2005~~ --------------- ---------------- (UNAUDITED) (IN THOUSANDS) ASSETS Current assets: Cash and cash equivalents ~~.............................~~ $~~109~~ 3,~~092~~418 $~~108~~ 25,~~731~~322 Accounts receivable, net ~~.............................. 168~~233,~~015~~116 ~~189~~265,~~190~~298 Inventories ~~........................................... 70~~118,~~761~~724 56,~~567~~255 Deferred income tax asset, net ~~........................ 9~~12,~~090~~159 812,~~946~~160 ~~Notes receivable ...................................... 7,000 7,100~~ Prepayments and other ~~.................................~~9,442 13,~~159~~682 ~~3,809~~ --------------- ---------------- Total current assets ~~............................... 377~~376,~~117~~859 ~~374~~372,~~343~~717 --------------- ---------------- Property, plant and equipment, net ~~....................... 52~~60,~~013~~499 4959,~~574~~109 Goodwill ~~................................................. 149~~394,~~419~~879 ~~152~~385,~~347~~926 Other intangible assets, net ~~............................. 58~~86,~~211~~463 55103,~~925~~776 Deferred income tax asset, net ~~........................... 27~~16,~~300~~295 298,~~637~~291 Other assets ~~............................................. 25~~18,~~217~~535 2520,~~573~~003 --------------- ---------------- $~~689~~ 953,~~277~~530 $~~687~~ 949,~~399~~822 =============== ================ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ~~......................................~~ $ 2364,~~247~~456 $ 3363,~~111~~334 Accrued liabilities ~~................................... 49~~82,~~598~~366 5278,~~126~~780 Contract advances and deposits ~~........................ 45~~49,~~405~~006 4244,~~244~~323 ~~Note~~Postretirement ~~payable~~benefits ~~..........................................~~obligation, short-term 2,512 1,794 Short-term borrowings under revolver 144,000 2180,000 Notes payable 7,766 7,766 --------------- ---------------- Total current liabilities ~~.......................... 120~~350,~~250~~106 ~~129~~375,~~481~~997 --------------- ---------------- Income taxes payable ~~..................................... 6~~14,~~513~~333 64,~~513~~154 ~~Note~~Notes payable, long-term ~~debt ............................. 5~~8,~~000~~766 514,~~000~~533 Long-term debt ~~...........................................~~ 201,250 201,250 ~~Post-retirement~~Postretirement benefits ~~obligations~~obligation, ~~.....................~~long-term ~~104~~67,~~268~~232 ~~103~~77,~~815~~734 Environmental obligation ~~.................................~~ 1,~~386~~187 1,~~392~~198 Other long-term liabilities ~~..............................~~29 4840 55 Shareholders' equity: Preferred shares, par value $1 per share, authorized 500,000 shares ~~.....................................~~ -- -- Common shares, par value $1 per share, authorized 50,000,000 shares, 2021,~~470~~451,~~095~~588 issued in ~~2006~~2007 and 2021,~~305~~177,~~815~~072 issued in ~~2005~~2006 ~~.......................... 20~~21,~~470~~452 2021,~~306~~177 Additional paid-in capital ~~............................ 168~~191,~~636~~134 ~~167~~177,~~219~~117 Retained earnings ~~..................................... 124~~148,~~331~~131 ~~120~~129,~~103~~444 Accumulated other comprehensive loss, net of income tax benefit (32$24,~~496~~229 in ~~2006~~2007 and 32$25,~~711~~814 in ~~2005~~2006) ~~........~~ (4635,~~762~~088) (4737,~~072~~319) Treasury shares at cost (~~112~~129,~~614~~074 shares in ~~2006~~2007 and 111,~~317~~499 shares in ~~2005~~2006) ~~............................~~ (12,~~950~~444) (1,~~868~~966) Unearned Employee Stock Ownership Plan shares ~~.........~~ (1412,~~163~~558) (1413,~~789~~537) ~~Deferred compensation under Long~~-~~Term Incentive Plan ..~~ -- ~~(3,866) Management group receivables ..........................~~ -- ~~(140)~~ ---------- ---------------- Total shareholders' equity ~~......................... 250~~310,~~562~~627 ~~239~~274,~~893~~916 --------------- ---------------- $~~689~~ 953,~~277~~530 $~~687~~ 949,~~399~~822 =============== ================

See accompanying Notes to Consolidated Financial Statements. 3

EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE THREE MONTHS ENDED ------------------------------------ ~~JUNE~~SEPTEMBER 2429, ~~JUNE~~SEPTEMBER 2530, 2007 2006 ~~2005~~ --------------- ---------------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET SALES ~~............................................~~ $~~152~~ 256,~~398~~782 $~~156~~ 184,~~112~~393 --------------- ---------------- COSTS AND EXPENSES Cost of sales ~~..................................... 119~~200,~~657~~009 ~~118~~144,~~360~~586 Selling, general and administrative ~~............... 23~~35,~~903~~741 2030,~~014~~207 Research and development ~~.......................... 3~~2,~~006~~907 34,~~994~~701 ~~Environmental~~Acquisition-related ~~cost~~costs ~~provision~~2,011 ~~Deer~~1,008 ~~Park~~Impairment ~~facility~~loss ..on other intangible assets -- 1,~~250~~487 --------------- ---------------- ~~146~~240,~~566~~668 ~~143~~181,~~618~~989 --------------- ---------------- OPERATING EARNINGS ~~................................... 5~~16,~~832~~114 122,~~494~~404 NON-OPERATING INCOME (EXPENSE) Interest income ~~...................................~~180 1,~~101~~096 ~~294~~ Interest expense ~~..................................~~ (25,~~237~~017) (23,~~274~~624) Other, net ~~........................................~~ (~~111~~37) ~~(15)~~113 --------------- ---------------- (14,~~247~~874) (12,~~995~~415) --------------- ---------------- Earnings (loss) before income taxes ~~...................... 4~~11,~~585~~240 ~~10,499~~(11) Income tax ~~benefit~~ (expense) ~~......................~~benefit ~~1,686~~ (~~4,410~~42) 2,076 --------------- ---------------- NET EARNINGS ~~......................................~~ $ 611,~~271~~198 $ 62,~~089~~065 =============== ================ NET EARNINGS PER COMMON SHARE: Basic: ~~............................................~~ $ 0.3560 $ 0.3411 =============== ================ Diluted: ~~..........................................~~ $ 0.3049 $ 0.3111 =============== ================ Weighted-average common shares outstanding: Basic ~~.............................................~~ 18,~~099~~771 18,~~065~~205 =============== ================ Diluted ~~........................................... 24~~25,~~467~~438 2218,~~741~~598 =============== ================ Dividends declared per common share ~~...............~~ $ 0.03 $ 0.03 =============== ================

See accompanying Notes to Consolidated Financial Statements. 4

EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS FOR THE ~~SIX~~NINE MONTHS ENDED ------------------------------------ ~~JUNE~~SEPTEMBER 2429, ~~JUNE~~SEPTEMBER 2530, 2007 2006 ~~2005~~ --------------- ---------------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NET SALES ~~............................................~~ $~~272~~ 758,~~107~~218 $~~272~~ 456,~~620~~500 --------------- ---------------- COSTS AND EXPENSES Cost of sales ~~..................................... 210~~592,~~901~~329 ~~203~~355,~~414~~487 Selling, general and administrative ~~............... 49~~105,~~261~~068 4079,~~302~~021 Research and development ~~.......................... 6~~7,~~212~~437 810,~~412~~913 ~~Environmental~~Acquisition-related ~~cost~~costs ~~provision~~6,314 ~~Deer~~1,455 ~~Park~~Impairment ~~facility~~loss ..on other intangible assets -- 1,~~250~~487 --------------- ---------------- ~~266~~711,~~374~~148 ~~253~~448,~~378~~363 --------------- ---------------- OPERATING EARNINGS ~~................................... 5~~47,~~733~~070 198,~~242~~137 NON-OPERATING INCOME (EXPENSE) Interest income ~~...................................~~531 23,~~122~~218 ~~795~~ Interest expense ~~..................................~~ (416,~~661~~793) (48,~~465~~285) Other, net ~~........................................~~ (~~257~~49) (60144) --------------- ---------------- (216,~~796~~311) (35,~~730~~211) --------------- ---------------- Earnings before income taxes ~~.........................~~30,759 2,~~937~~926 ~~15,512~~ Income tax ~~benefit~~ (expense) ~~.........................~~benefit ~~2,395~~ (67,~~515~~861) 4,471 --------------- ---------------- NET EARNINGS ~~.........................................~~ $ 522,~~332~~898 $ 87,~~997~~397 =============== ================ NET EARNINGS PER COMMON SHARE: Basic: ~~.............................................~~ $ 01.3023 $ 0.5041 =============== ================ Diluted: ~~...........................................~~ $ 01.2905 $ 0.4940 =============== ================ Weighted-average common shares outstanding: Basic ~~.............................................~~ 18,~~055~~657 1718,~~998~~105 =============== ================ Diluted ~~...........................................~~25,178 18,~~538~~563 ~~22,690~~ =============== ================ Dividends declared per common share ~~...............~~ $ 0.0609 $ 0.0609 =============== ================

See accompanying Notes to Consolidated Financial Statements 5

EDO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE ~~SIX~~NINE MONTHS ENDED ------------------------------------ ~~JUNE~~SEPTEMBER 2429, ~~JUNE~~SEPTEMBER 2530, 2007 2006 ~~2005~~ ---------------- ----------------- (UNAUDITED) (IN THOUSANDS) OPERATING ACTIVITIES: Earnings from operations ~~...............................................~~ $ 522,~~332~~898 $ 87,~~997~~397 Adjustments to earnings to arrive at cash provided ~~(used)~~ by operations: Depreciation ~~........................................................ 5~~10,~~736~~694 48,~~942~~865 Amortization ~~........................................................~~7,713 35,~~414~~121 2Impairment loss on other intangible assets -- 1,~~621~~487 Bad debt expense (recovery) ~~expense~~54 ~~.........................................~~ (686) ~~824~~ Deferred tax provision ~~..............................................~~880 15 ~~113~~ Loss (gain) on disposal of property, plant and equipment ~~...................~~162 33(59) -- Long-Term Incentive Plan compensation expense ~~.......................~~5,184 12,~~599~~261 ~~866~~ Stock option compensation expense ~~...................................~~970 ~~877~~838 ~~-- Environmental cost provision, Deer Park facility .................... -- 1,250~~ Employee Stock Ownership Plan compensation expense ~~.................. 2~~4,~~335~~209 23,~~550~~310 Dividends on unallocated Employee Stock Ownership Plan shares ~~.......~~156 ~~116~~172 ~~128~~ Common shares issued for directors' fees ~~............................~~159 ~~110~~162 98 Changes in operating assets and liabilities, excluding effects of acquisitions: Accounts receivable ~~.............................................. 21~~32,~~243~~128 ~~(13~~23,~~994)~~065 Inventories ~~......................................................~~ (1462,~~194~~469) (2112,~~616~~336) Prepayments and other assets ~~..................................... (8~~14,~~655)~~444 1,~~929~~630 Accounts payable, accrued liabilities and other ~~..................~~6,243 (1123,~~142~~831) Contribution to defined benefit pension plan (~~638~~9,200) (6,000) Contract advances and deposits ~~................................... 3~~4,~~161~~683 41,~~043~~194 ---------------- ----------------- Cash provided ~~(used)~~ by operations ~~........................................ 9~~38,~~912~~908 (713,~~887)~~285 ---------------- ----------------- INVESTING ACTIVITIES: ~~Settlement~~Purchase of ~~purchase~~property, ~~price~~plant onand ~~2005~~equipment ~~acquisitions~~(12,246) ~~......................~~ (~~800~~14,216) --Proceeds ~~Purchase~~from the sale of property, plant and equipment ~~........................................~~-- ~~(8,841)~~633 ~~(13,089)~~ Payments received on notes receivable ~~..................................~~-- 100 ~~150~~ Cash paid for acquisitions, net of cash acquired ~~.......................~~(9,327) -- (35265,~~072~~318) ---------------- ----------------- Cash used by investing activities ~~.........................................~~ (921,~~541~~573) (48278,~~011~~801) ---------------- ----------------- FINANCING ACTIVITIES: Short-term borrowings under revolver 80,000 200,000 Repayment of revolving debt (116,000) -- Payment of short-term notes (5,767) -- Proceeds from exercise of stock options ~~................................~~3,029 ~~741~~852 ~~593~~ Excess income tax benefit from stock options and Long-Term Incentive Plan ~~......................................................~~1,408 ~~329~~429 ~~435~~ Proceeds from management group receivables ~~............................. 140~~ -- ~~Repayments~~140 ~~of acquired debt ............................................ -- (4,877)~~ Payment of common share cash dividends ~~.................................~~ (1,~~220~~909) (1,~~209~~830) ---------------- ----------------- Cash (used) provided by financing activities ~~.........................................~~ (1039,239) (5199,~~058)~~591 ---------------- ----------------- Net ~~increase (~~decrease) in cash and cash equivalents ~~......................~~(21,904) ~~361~~ (6065,~~956~~925) Cash and cash equivalents at beginning of year ~~............................~~25,322 108,731 ~~98,884~~ ---------------- ----------------- ~~CASH~~Cash ~~AND~~and ~~CASH~~cash ~~EQUIVALENTS~~equivalents ATat ~~END~~end OFof ~~PERIOD~~period ~~................................~~ $~~109~~ 3,~~092~~418 $ 3742,~~928~~806 ================ ================= Supplemental disclosures: Cash paid for: Interest ~~............................................................~~ $ 314,~~891~~516 $ 3,~~617~~891 ================ ================= Income taxes ~~........................................................~~ $ 104,~~838~~866 $ 710,~~393~~937 ================ =================

See accompanying Notes to Consolidated Financial Statements. 6 EDO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS The accompanying unaudited consolidated financial statements have been prepared in accordance with instructions to Form 10-Q and, therefore, do not include all information and footnotes normally included in consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States. They should be read in conjunction with the consolidated financial statements and notes thereto of EDO Corporation and Subsidiaries (the "Company") for the year ended December 31, 2006 filed by the Company on Form 10-K with the Securities and Exchange Commission. The accompanying consolidated financial statements include all adjustments (consisting of normal recurring adjustments) that management considers necessary for a fair presentation of its consolidated financial position and results of operations for the interim periods presented. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year. Certain reclassifications have been made to prior year's presentations to conform to current year's presentations. (2) PROPOSED SALE OF THE COMPANY On September 16, 2007, the Company entered into a definitive Agreement and Plan of Merger (the "Merger Agreement") with ITT Corporation, an Indiana corporation ("ITT"), and Donatello Acquisition Corp., a New York corporation and a wholly-owned subsidiary of ITT ("Merger Sub"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company continuing as a surviving corporation and a wholly-owned subsidiary of ITT. Pursuant to the Merger Agreement, each common share of the Company issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive $56.00 in cash, without interest, on the terms set forth in the Merger Agreement. The Merger is expected to close in early 2008. Consummation of the Merger is subject to customary conditions, including approval by the shareholders of the Company, expiration or termination of the applicable Hart-Scott-Rodino waiting period and receipt of certain other regulatory approvals, the absence of any Material Adverse Effect (as defined in the Merger Agreement) with respect to the Company's business, and certain other customary closing conditions. The Merger Agreement also contains certain termination rights for both the Company and ITT upon termination of the Merger Agreement under specified circumstances, a termination initiated by EDO could require the Company to pay ITT a termination fee of $47.0 million and reimburse ITT for up to $3.0 million in transaction-related expenses. (3) ACQUISITIONS On September 15, 2006, the Company acquired all of the stock of Impact Science and Technology Inc., (IST) for $123.7 million, consisting of a cash payment of $106.4 million and a $17.3 million promissory note to be paid over three years. In addition, certain key IST employees received retention payments in the form of 405,103 restricted EDO Common Shares valued at $9 million. We also incurred $0.6 million of transaction costs. Also, there was a subsequent determination of the final purchase price, resulting in a $9.2 million accrual at December 31, 2006 and payment in January 2007. IST is a privately-held company providing signals intelligence (SIGINT) systems and analysis support to the intelligence community, and advanced countermeasures and electronic-attack systems to the U.S. Department of Defense (DoD) and other government agencies. The acquisition strengthened our position in specialized communication products and expanded the Company's business in the intelligence community. The acquired company became part of the Company's Electronic Systems and Communications segment. The excess of the purchase price over the net assets acquired related to IST is not deductible for income tax purposes. During the first quarter of 2007, the Company finalized its valuation for the allocation of the purchase price and acquired intangible assets. The final allocation did not change amortization expense materially from the amounts reported as of December 31, 2006. On September 6, 2006, the Company acquired all of the stock of CAS Inc., (CAS) for $178.1 million, consisting of a cash payment of $173.2 million and 214,574 EDO common shares valued at $4.9 million. We also incurred $1.6 million in transaction costs. In addition, there was a subsequent determination of the final purchase price, resulting in a $0.1 million payment in the first quarter of 2007. During the three months ended June 30, 2007, the Company recorded an adjustment to increase goodwill by $0.2 million related to the resolution of contingencies at the acquisition date. CAS is a privately-held company providing engineering services, logistics support, and weapon-systems analysis to the DoD. This acquisition has strengthened and expanded our range of professional and engineering services. The acquired company became part of the Company's Engineered Systems and Services segment. The excess of the purchase price over the net assets acquired recorded as goodwill and other intangible assets in the amount of $168.5 million are deductible for income tax purposes over 15 years. During the first quarter of 2007, the Company finalized its valuation for the allocation of the purchase price and acquired intangible assets. The final allocation did not change amortization expense materially from the amounts reported as of December 31, 2006. 7 (4) STOCK-BASED COMPENSATION The Company has granted non-qualified stock options and restricted shares under the 2002 Long-Term Incentive Plan (LTIP), the 2002 Non-Employee Director Stock Option Plan (NEDSOP) and in connection with the CAS and IST acquisitions. These plans are described in Note 12 to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2006. The Company records stock-based compensation in accordance with the provisions of Statement of Financial Accounting Standards No. 123 (Revised 10/04), "Share-Based Payment" ("FAS 123R"). The Company did not grant any options during the three months ended September 29, 2007. During the nine months ended September 29, 2007, the Company granted 65,000 options to its Board of Directors that were fully vested upon grant. The stock-based compensation expense related to stock option plans included in operating expenses for the three months ended September 29, 2007 and September 30, 2006 were $0 and $37 thousand, respectively, and $1.0 million and $0.8 million for the nine months ended September 29, 2007 and September 30, 2006, respectively. Tax benefits related to this expense for the three months ended September 29, 2007 and September 30, 2006 were $0 and $15 thousand, respectively. Tax benefits related to this expense for the nine months ended September 29, 2007 and September 30, 2006 were $0.4 million and $0.3 million, respectively. The net effect of stock based compensation expense related to stock option plans resulted in a reduction in net income of $0 and $22 thousand for the three months ended September 29, 2007 and September 30, 2006, respectively. The net effect of stock based compensation expense related to stock option plans resulted in a reduction in net income of $0.6 million and $0.5 million for the nine months ended September 29, 2007 and September 30, 2006, respectively. The significant weighted average assumptions used for the valuation of the Company's stock options using the Black-Scholes option pricing model for the nine months ended September 29, 2007 were as follows: expected dividend yield of 1%, risk free interest rate of 5.09%, expected volatility of 33.91% and an expected option life of 7 years. As of September 29, 2007, there was no future compensation expense related to non-vested stock options. The Company did not issue any stock-settled appreciation right options (SSAR) for the three months ended September 29, 2007. During the nine months ended September 29, 2007, the Company issued 243,775 SSAR to select employees. Stock based compensation expense recognized for stock-settled appreciation rights awards for the three and nine months ended September 29, 2007 was $0.2 million and $0.5 million, respectively. There were no SSARs granted during the three and nine months ended September 30, 2006. The significant weighted average assumptions relating to the valuation of the Company's SSARs using the Black-Scholes option pricing model for the nine months ended September 29, 2007: expected dividend yield of 1%, risk free interest rate of 4.60%, expected volatility of 34.79% and an expected option life of 5 years. As of September 29, 2007, there was $2.1 million of unrecognized future compensation expense related to non-vested SSARs not yet recognized in the consolidated statement of earnings. Stock-based compensation expense recognized for restricted/performance share awards for the three and nine months ended September 29, 2007 was $1.3 million and $4.6 million, respectively, compared to $0.7 million and $2.3 million for the three and nine months ended September 30, 2006, respectively. The unrecognized compensation cost related to the unvested restricted/performance shares at September 29, 2007 was approximately $9.9 million and will be recognized over a weighted-average period of 1.8 years. (5) BUSINESS COMBINATIONS AND GOODWILL AND OTHER INTANGIBLE ASSETS Statement of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations," 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, "Goodwill and Other Intangible Assets," prohibits the amortization of goodwill and other intangible assets with indefinite useful lives and requires that those assets be reviewed for impairment at least annually. Other intangible assets with definite lives are amortized over their estimated useful lives. 8 In accordance with SFAS No. 142, goodwill must be tested at least annually for impairment at the reporting unit level. If an indication of impairment exists, the Company is required to determine if such goodwill's implied fair value is less than the carrying value in order to determine the amount, if any, of the impairment loss required to be recorded. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profits, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset and/or a material decrease in the fair value of some or all of the assets. The Company performs the required impairment tests of goodwill as of October 1, each year. The changes in the carrying amount of goodwill by segment during the nine months ended September 29, 2007 were as follows:

~~WEIGHTED-~~ENGINEERED ~~WEIGHTED-AVERAGE~~ELECTRONIC ~~AGGREGATE~~SYSTEMS ~~AVERAGE~~SYSTEMS ~~REMAINING~~AND ~~INTRINSIC~~AND ~~OPTIONS~~COMMUNICATIONS ~~EXERCISE~~SERVICES ~~CONTRACTUAL~~TOTAL ~~TERM VALUE (IN THOUSANDS) PRICE (IN YEARS) (IN THOUSANDS)~~ -------------- -~~--------~~ ---------------- ---------------- ~~Outstanding~~(IN onTHOUSANDS) Balance as of January 1, ~~2006....~~2007 1$ 186,~~045~~460 $~~17.25~~ ~~Options~~199,466 ~~granted...................~~$ 55385,926 ~~27.39~~Purchase ~~Options~~price ~~exercised.................~~adjustments ~~(53)~~333 ~~13.93~~2 ~~Options~~335 ~~expired/cancelled.........~~Reclassification ~~(4)~~from ~~13.29~~other intangibles based on final purchase price allocation 7,410 1,208 8,618 --------------- ---------------- ~~Outstanding~~---------------- onBalance ~~June~~as 24of September 29, ~~2006......~~2007 1$ 194,~~043~~203 $~~17.96~~ ~~5.33~~200,676 $9 394,~~976~~879 ===== ========== ================ ================ ~~Exercisable~~Summarized onbelow ~~June~~are 24other intangible assets: SEPTEMBER 29, DECEMBER 31, LIFE 2007 2006~~......~~ 1---------------- ---------------- --------------- (IN THOUSANDS) Other intangible assets subject to amortization: Capitalized non-compete agreements related to acquisitions $ 2,~~038~~738 $~~17.95~~ 2,738 1-5~~.57~~ years Purchased technologies related to acquisitions 27,213 28,083 8-25 years Customer contracts and relationships related to acquisitions 81,422 87,186 6-20 years Trade name related to acquisitions 5,498 8,464 3-10 years ---------------- ---------------- 116,871 126,471 Less accumulated amortization (30,808) (23,095) ---------------- ---------------- $9 86,~~933~~063 $ 103,376 Other intangible assets not subject to amortization: Trade name related to acquisitions 400 400 ---------------- ---------------- $ 86,463 $ 103,776 ===== ====== ===== ================

The amortization expense for the three months ended September 29, 2007 and September 30, 2006 amounted to $2.6 million and $1.7 million, respectively. The amortization expense for the nine months ended September 29, 2007 and September 30, 2006 amounted to $7.7 million and $5.1 million, respectively. Total remaining amortization expense for 2007, 2008, 2009, 2010, 2011 and thereafter related to these other intangible assets is estimated to be $2.6 million, $9.6 million, $9.4 million, $8.7 million, $7.0 million and $48.8 million, respectively. For the three and nine months ended September 30, 2006, the Company incurred an impairment charge of approximately $1.5 million related to certain other intangible assets associated with the Company's rugged computer product line. As sales and orders were not materializing to expected levels, the Company tested for impairment and it was determined that the future undiscounted cash flows associated with these assets were insufficient to recover their carrying values. These assets were written down to zero, which was determined on the basis of future discounted cash flows. (6) INVENTORIES Inventories are summarized by major classification as follows: SEPTEMBER 29, DECEMBER 31, 2007 2006 ------------- ------------- (IN THOUSANDS) Raw material and supplies $ 34,890 $ 14,881 Work-in-process 47,804 52,742 Finished goods 39,143 15,045 Less: Unliquidated progress payments (3,113) (26,413) ------------- ------------- $ 118,724 $ 56,255 ============= ============= 9 (7) INCOME TAXES The Company adopted FASB Interpretation 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes, at the beginning of fiscal year 2007. FIN 48 creates a single model to address accounting for uncertainty in tax positions. FIN 48 clarifies the accounting for income taxes, by prescribing a minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation, the Company recognized a $2.5 million net increase to reserves for uncertain tax positions. This increase was accounted for as an adjustment to the beginning balance of retained earnings on the balance sheet. As of September 29, 2007, the Company had approximately $12.5 million of total gross unrecognized tax benefits. Of this total, approximately $5.1 million represents the amount of net unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in any future periods. For the three months ended September 29, 2007, the gross unrecognized tax benefit decreased by $2.5 million. This decrease resulted from favorable settlements with taxing authorities and the expiration of the statute of limitations net of increases related to unrecognized tax benefits resulting from tax positions taken during the current period. The net favorable effect to the effective income tax rate was $2.3 million. For the nine months ended September 29, 2007, the gross unrecognized tax benefit decreased by $3.0 million. The net favorable effect to the effective income tax rate was $2.6 million. The Company is subject to U.S. federal income tax as well as income tax of multiple state jurisdictions. The Company has substantially concluded all U.S. federal income tax matters for years through 2003, except as it relates to the Company's amended return for 2002 claiming a federal research and development credit which is currently under audit. Substantially all material state and local matters have been concluded for years through 2003. In addition, the Company is subject to income tax in various foreign jurisdictions. The Company has substantially concluded all material tax matters in foreign jurisdictions for years through 2004. While it is reasonably possible that a reduction in the unrecognized tax benefit may occur, based on audit process protocol from the various taxing authorities, it is not possible to estimate the impact of any amount of such changes that may occur within the next twelve months. The Company's continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had $4.0 million accrued for interest and penalties as of September 29, 2007. For the three months ended September 29, 2007, the gross interest and penalties decreased by $2.2 million as a result of favorable settlements with taxing authorities and the expiration of the statue of limitations net of additional accrued interest and penalties. For the three months ended September 29, 2007, the net favorable effect to the effective income tax rate was $1.5 million. For the nine months ended September 29, 2007, the gross interest and penalties decreased by $1.6 million. For the nine months ended September 29, 2007, the net favorable effect to the effective income tax rate was $1.1 million. (8) EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per share:

~~WEIGHTED~~FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED --------------------------------------------------------------------------- ~~AVERAGE~~SEPTEMBER ~~SHARES~~29, ~~GRANT~~SEPTEMBER ~~DATE~~30, SEPTEMBER 29, SEPTEMBER 30, 2007 2006 2007 2006 --------------- ---------------- ---------------- ---------------- (IN THOUSANDS) ~~FAIR~~Numerator: ~~PRICE~~Earnings for basic calculation $ 11,198 $ 2,065 $ 22,898 $ 7,397 Effect of dilutive securities: Convertible Notes 1,187 -- 3,562 -- --------------- ---------------- ~~Outstanding~~---------------- on---------------- ~~January~~Numerator 1,for ~~2006....~~diluted ~~219~~calculation $ ~~27.78~~12,385 ~~Granted...........................~~$ ~~111~~2,065 $ 26~~.61~~,460 ~~Vested............................~~$ 7,397 =============== ================ ================ ================ Denominator: Denominator for basic calculation 18,771 18,205 18,657 18,105 Effect of dilutive securities: Stock based awards 781 393 635 458 Convertible Notes 5,886 -- 5,886 -- ~~Forfeited/Canceled................~~--------------- ~~(5)~~---------------- ~~28.28~~ ---------------- ---------------- ~~Outstanding~~Denominator onfor ~~June~~diluted 24calculation 25,438 ~~2006......~~18,598 ~~325~~25,178 $18,563 ~~27.38~~=============== ================ ================ ================

10 The assumed conversion of the Convertible Notes was dilutive for the three and nine months ended September 29, 2007 and anti-dilutive for the three months and nine months ended September 30, 2006. The following table summarizes, for each year presented, the number of shares excluded from the computation of diluted earnings per share, as their effect upon potential issuance was anti-dilutive: FOR THE NINE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, 2007 2006 ------------- ------------- (IN THOUSANDS) Convertible Subordinated Notes -- 5,886 Unexercised stock options -- 399 ------------- ------------- -- 6,285 ============= ============= (9) DEFINED BENEFIT PLAN The Company maintains a qualified noncontributory defined benefit pension plan covering approximately twenty five percent of its employees. In November 2002, the plan was amended whereby 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. For the three and nine months ended September 29, 2007, the Company contributed $9.2 million to the plan. For the three and nine months ended September 30, 2006, the Company contributed $6.0 million to the plan. For the three months ended September 29, 2007 and September 30, 2006, the Company recorded pension expense of $0.6 million and $1.2 million, respectively. For the nine months ended September 29, 2007 and September 30, 2006, the Company recorded pension expense of $2.2 million and $3.6 million, respectively. Summarized below are the components of the expense for each period presented:

FOR THE THREE MONTHS ~~SIX~~ENDED FOR THE NINE MONTHS ENDED ~~ENDED~~------------------------------ ~~JUNE~~----------------------------- 25SEPTEMBER 29, ~~JUNE~~SEPTEMBER 2530, ~~2005~~SEPTEMBER ~~2005~~29, SEPTEMBER 30, 2007 2006 2007 2006 ------------- ------------- ~~Earnings:~~----------------------------- As(IN ~~reported~~THOUSANDS) ~~.........................................~~Interest cost $6 3,~~089~~078 $ 83,~~997~~038 ~~Deferred~~$ ~~compensation expense~~9,234 ~~net~~$ of9,115 ~~tax~~Expected ~~...........~~return ~~277~~on ~~511~~plan ~~Stock~~assets ~~option~~(3,544) ~~compensation~~(3,209) ~~expense~~(10,230) ~~based~~(9,628) onAmortization ~~fair~~of ~~value~~unrecognized ~~method,~~ net ofloss ~~tax~~1,076 ~~...............................~~1,365 ~~(389)~~3,229 (14,~~354)~~095 ------------- ------------- ~~Pro~~------------- ~~forma~~------------- ~~...........................................~~$ 610 $5 1,~~977~~194 $ 82,~~154~~233 $ 3,582 ============= ============= Basic earnings per common share: As reported ......................................... $ 0.34 $ 0.50 Pro forma ........................................... $ 0.33 $ 0.45 Diluted earnings per common share: As reported ......................................... $ 0.31 $ 0.49 Pro forma ........................................... $ 0.31 $ 0.44 ============= =============

(10) EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST The Company sponsors an employee stock ownership plan (ESOP) which provides retirement benefits to substantially all employees. The cost basis of the unearned/unallocated shares was 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 quarterly, as payments are made under the related indirect loan. The difference between the market value and the cost basis of the shares was recorded as additional paid-in capital. Dividends on unallocated shares are recorded as compensation expense. (11) COMPREHENSIVE INCOME As of September 29, 2007, accumulated other comprehensive loss included in shareholders' equity in the accompanying consolidated balance sheets primarily represents additional minimum liabilities on benefit plans and the effect of adopting FASB Statement No. 158 (SFAS 158), Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans, on December 31, 2006. Comprehensive income for the three months ended September 29, 2007 was $11.3 million compared to comprehensive income for the three months ended September 30, 2006 of $2.1 million. Comprehensive income for the nine months ended September 29, 2007 was $23.0 million compared to comprehensive income for the nine months ended September 30, 2006 of $7.8 million. 11 (12) BUSINESS SEGMENTS The Company determines its operating segments based upon an analysis of its products and services, production processes, types of customers, economic characteristics and the related regulatory environment, which is consistent with how management operates the Company. The Company's operations are reflected in two business segments: Engineered Systems and Services and Electronic Systems and Communications. The Engineered Systems and Services segment addresses the Integrated Systems and Structures, Undersea Warfare, and Professional Services markets. Primary products include aircraft armament systems, integrated composite structures, mine countermeasure systems, sonar systems and components, and flight line products. This segment also includes a wide range of professional and engineering services. The Electronic Systems and Communications segment includes products that serve the Electronic Warfare, C4 (Command, Control, Communications and Computers) products and systems, and Intelligence and Information Warfare markets. Primary products include electronic force protection systems, interference cancellation technology, airborne electronic warfare systems, electronic intelligence (ELINT) and electronic support measure (ESM) systems, intelligence and information warfare systems, C4 products and services, and antenna products. The following table sets forth net sales, operating earnings, and earnings before income taxes for each period presented.

~~ENGINEERED~~FOR ~~SYSTEMS~~THE ~~ELECTRONIC~~THREE ~~AND~~MONTHS ~~SYSTEMS~~ENDED ~~AND~~FOR ~~SERVICES~~THE ~~COMMUNICATIONS~~NINE ~~TOTAL~~MONTHS ENDED ------------------------------ ----------------------------- SEPTEMBER 29, SEPTEMBER 30, SEPTEMBER 29, SEPTEMBER 30, 2007 2006 2007 2006 ------------- ------------- ------------- ------------- (IN THOUSANDS) ~~Balance~~Net asSales: ofEngineered ~~January~~Systems 1& Services..........$ 117,974 ~~2006~~$ 79,409 $ 353,954 $ 204,462 Electronic Systems & Communications.... 138,808 104,984 404,264 252,038 ------------- ------------- ------------- ------------- $43 256,~~846~~782 $~~108~~ 184,~~501~~393 $~~152~~ 758,~~347~~218 ~~Purchase~~$ ~~price~~456,500 ~~adjustments~~------------- ------------- ------------- ------------- Operating earnings: Engineered Systems & Services.......... ~~328~~7,335 646 25,902 4,069 Electronic Systems & Communications.... 8,779 1,758 21,168 4,068 ------------- ------------- ------------- ------------- 16,114 2,404 47,070 8,137 Net interest expense................... (34,~~256~~837) (2,~~928~~528) (16,262) (5,067) Other, net............................. (37) 113 (49) (144) ------------- ------------- ------------- ~~Balance~~------------- asEarnings of(loss) ~~June~~before ~~24,~~income ~~2006~~taxes.... $44 11,~~174~~240 $~~105~~ (11) $ 30,~~245~~759 $~~149~~ 2,~~419~~926 ============= ============= ============= =============

(13) RECENT ACCOUNTING PRONOUNCEMENTS In September 2006, the Financial Accounting Standards Board ("FASB") issued Statement No. 157, "Fair Value Measurements" (SFAS 157). SFAS 157 defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosure requirements about fair value measurements. SFAS 157 is effective for fiscal years beginning after November 15, 2007, and early application is permitted. SFAS 157 becomes effective for the Company on January 1, 2008. The Company does not believe SFAS 157 will have a material impact on our results from operations or financial position. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." SFAS No. 159 permits entities to choose to measure eligible items at fair value at specified election dates and report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact of adopting this Statement; however, the adoption is not expected to have an effect on EDO's consolidated results of operations or financial position. (14) GUARANTOR AND NON-GUARANTOR SUBSIDIARIES The Company may, from time to time, issue indebtedness, a condition of which would be the guarantee of this indebtedness by certain of its subsidiaries. Presented below is condensed consolidating financial information for the Company and the contemplated subsidiary guarantors and non-guarantors at September 29, 2007 and December 31, 2006 and for the three and nine month periods ended September 29, 2007 and September 30, 2006. Each contemplated subsidiary guarantor is 100% owned, directly or indirectly, by the Company. Any guarantees that may be issued will be full and unconditional, as well as joint and several. In connection with the Company's credit facility, the Company cannot declare or pay any dividend on its outstanding common stock in an amount that exceeds fifty percent of its consolidated net income for the immediately preceding four quarters. 12

~~JUNE~~EDO ~~24,~~CORPORATION ~~DECEMBER~~CONDENSED 31CONSOLIDATING BALANCE SHEET SEPTEMBER 29, ~~2006~~2007 ~~2005~~(IN ~~LIFE~~THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated -------- ------------ -------------------------------------------------------- ~~(IN~~ASSETS ~~THOUSANDS)~~Current ~~Intangible~~ assets: ~~subject~~Cash toand ~~amortization:~~cash ~~Capitalized~~equivalents ~~non-compete~~$ ~~agreements~~1,409 ~~related~~$ to(3641) ~~acquisitions.~~ $ 25,~~888~~650 $ -- $ 3,418 Accounts receivable, net 48,747 179,886 4,483 -- 233,116 Inventories 12,203 102,367 4,154 -- 118,724 1Deferred income tax asset, net 12,159 -- -- -- 12,159 Prepayments and other 5,100 ~~years~~4,020 ~~Purchased~~322 ~~technologies~~-- ~~related~~9,442 to---------------------------------------------------------------------------- ~~acquisitions................~~Total 23current assets 79,~~002~~618 21282,~~103~~632 814,609 -25- ~~years~~376,859 ~~Customer~~Investment ~~contracts~~in subsidiaries 658,009 -- -- (658,009) -- Property, plant and ~~relationships~~equipment, ~~related~~net to29,298 ~~acquisitions..~~27,814 493,~~498~~387 45-- 60,~~698~~499 Goodwill -- 386,169 8,710 -- 394,879 Other intangible assets, net -- 77,854 8,609 -- 86,463 Deferred income tax asset, net 16,295 -- -- -- 16,295 Other assets 16,209 2,326 -- -- 18,535 ---------------------------------------------------------------------------- $ 799,429 776,795 35,315 (658,009) 953,530 ---------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 22,203 $ 118,477 $ 6,142 $ -- $ 146,822 Contract advances and deposits 20,398 ~~years~~28,608 ~~Tradename~~-- ~~related~~-- to49,006 ~~acquisitions.............................~~Postretirement benefits obligation, short-term 2,~~069~~512 -- -- -- 2,~~069~~512 5Short-10term ~~years~~borrowing under revolver 144,000 -- -- -- 144,000 Notes payable 7,766 -- -- -- 7,766 ---------------------------------------------------------------------------- 77Total current liabilities 196,~~457~~879 71147,~~988~~085 ~~Less~~6,142 ~~accumulated~~-- ~~amortization..............................~~350,106 ~~(19~~Income taxes payable 14,~~646)~~333 ~~(16~~-- -- -- 14,~~463)~~333 Notes payable, long-term 8,766 -- -- -- 8,766 Deferred income taxes (438) -- 438 -- -- Long-term debt 201,250 -- -- $-- 57201,~~811~~250 $Postretirement 55benefits obligation,~~525~~ long-term 67,232 -- -- -- 67,232 Environmental obligation 1,187 -- -- -- 1,187 Other long-term liabilities 29 -- -- ~~Intangible~~-- ~~assets~~29 ~~not~~Intercompany ~~subject~~accounts to-- ~~amortization~~464,808 20,667 (485,475) -- Shareholders' equity: ~~Tradename~~Preferred ~~related~~shares to-- ~~acquisitions.............................~~-- ~~400~~-- ~~400~~-- -- Common shares 21,452 98 -- (98) 21,452 Additional paid-in capital 191,134 60,152 6,418 (66,570) 191,134 Retained earnings 148,131 108,703 1,214 (109,917) 148,131 Accumulated other comprehensive (loss) income, net of income tax benefit (35,524) -- 436 -- (35,088) Treasury shares (2,444) (4,051) -- 4,051 (2,444) Unearned ESOP shares (12,558) -- -- -- (12,558) ---------------------------------------------------------------------------- Total shareholders' equity 310,191 164,902 8,068 (172,534) 310,627 ---------------------------------------------------------------------------- $ 58799,~~211~~429 $ 55776,~~925~~795 $ 35,315 $ (658,009) $ 953,530 ======== ====================================================================

~~JUNE~~EDO 24CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED SEPTEMBER 29, ~~DECEMBER~~2007 31(IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Company Subsidiary Only Guarantors Non-Guarantors Eliminations Consolidated ----------------------------------------------------------------------- Net Sales $ 55,284 ~~2006~~$ ~~2005~~198,059 $ 8,676 $ (5,237) $ 256,782 ----------------------------------------------------------------------- Costs and expenses: Cost of sales 44,220 155,648 5,378 (5,237) 200,009 Selling, general and administrative 4,833 28,910 1,998 -- 35,741 Research and development 932 1,922 53 -- 2,907 Acquisition-related costs -- 2,011 -- -- 2,011 ----------------------------------------------------------------------- 49,985 188,491 7,429 (IN5,237) ~~THOUSANDS~~240,668 Operating earnings 5,299 9,568 1,247 -- 16,114 Non-operating income (expense): ~~Raw~~Interest ~~material~~income ~~and~~54 ~~supplies................~~60 66 -- 180 Interest expense (5,010) -- (7) -- (5,017) Other, net (82) 45 -- -- (37) ----------------------------------------------------------------------- (5,038) 105 59 -- (4,874) Earnings before income taxes 261 9,673 1,306 -- 11,240 Income tax benefit (expense) 5,160 (4,785) (417) -- (42) ----------------------------------------------------------------------- Earnings after income taxes 5,421 4,888 889 -- 11,198 Equity in undistributed earnings of subsidiaries 5,777 -- -- (5,777) -- ----------------------------------------------------------------------- Net earnings $ 11,~~715~~198 $ 4,888 $ 889 $ (5,777) $ 11,~~976~~198 ~~Work~~======================================================================= EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 29, 2007 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-inGuarantors Eliminations Consolidated -~~process...........................~~----------------------------------------------------------------------- 70Net Sales $ 166,~~587~~772 49$ 576,~~829~~227 ~~Finished~~$ ~~goods............................~~24,651 1$ (9,~~861~~432) 1$ 758,~~690~~218 ~~Less~~------------------------------------------------------------------------ Costs and expenses: ~~Unliquidated~~Cost ~~progress~~of ~~payments...~~sales 132,874 452,412 16,475 (9,432) 592,329 Selling, general and administrative 13,~~402~~619 85,948 5,501 -- 105,068 Research and development 2,231 5,032 174 -- 7,437 Acquisition-related costs -- 6,314 -- -- 6,314 ------------------------------------------------------------------------ 148,724 549,706 22,150 (9,432) 711,148 Operating earnings 18,048 26,521 2,501 -- 47,070 Non-operating income (6expense): Interest income 173 184 174 -- 531 Interest expense (16,~~928~~748) (38) (7) -- (16,793) Other, net (245) 126 70 -- (49) ------------------------------------------------------------------------ (16,820) 272 237 -- (16,311) Earnings before income taxes 1,228 26,793 2,738 -- 30,759 Income tax benefit (expense) 5,549 (12,392) (1,018) -- (7,861) ------------------------------------------------------------------------ Earnings after income taxes 6,777 14,401 1,720 -- 22,898 Equity in undistributed earnings of subsidiaries 16,121 -- -- (16,121) -- ------------------------------------------------------------------------ Net earnings $ 7022,~~761~~898 $56 14,~~567~~401 $ 1,720 $ (16,121) $ 22,898 ======== ================================================================

~~FOR~~EDO ~~THE~~CORPORATION ~~THREE~~CONDENSED ~~MONTHS~~CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE ~~SIX~~NINE MONTHS ENDED ~~ENDED~~SEPTEMBER 29, 2007 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-GuarantorsEliminations Consolidated ------------------- --------------------------------------------------- ~~JUNE~~OPERATING 24ACTIVITIES: Earnings from operations $ 22,898 ~~JUNE~~$ 2514,401 ~~JUNE~~$ 241,720 ~~JUNE~~$ 25(16,121) ~~2006~~$ ~~2005~~22,898 ~~2006~~Adjustments ~~2005~~to earnings to arrive at cash (used) provided by operations: Depreciation 3,915 6,153 626 -- 10,694 Amortization -- 7,140 573 -- 7,713 Bad debt expense 7 47 -- -- 54 Deferred tax provision 880 -- -- -- 880 Loss on sale of property, plant and equipment 8 154 -- -- 162 Long-term Incentive Plan compensation expense 5,184 -- -- -- 5,184 Stock option compensation expense 970 -- -- -- ~~(IN~~970 ~~THOUSANDS)~~Employee ~~Numerator:~~Stock ~~Earnings~~Ownership Plan compensation expense 4,209 -- -- -- 4,209 Dividends on unallocated Employee Stock Ownership Plan shares 156 -- -- -- 156 Common shares issued for ~~basic~~directors' fees 159 -- -- -- 159 Changes in operating assets and ~~diluted~~liabilities, ~~calculation...~~excluding $effects 6of acquisitions: Equity in earnings of subsidiaries (16,~~271~~121) $-- 6-- 16,~~089~~121 $-- 5Intercompany 39,~~332~~402 $(38,818) 8(584) -- -- Accounts receivable (513) 32,~~997~~258 ~~Effect~~383 of-- ~~dilutive~~32,128 ~~securities:~~Inventories ~~Convertible~~(1,387) ~~notes.........................~~(60,347) (735) -- (62,469) Prepayments and other assets 13,400 1,~~187~~060 (16) -- 14,444 Accounts payable, accrued liabilities and other (30,369) 35,006 1,~~067~~606 -- 6,243 Contribution to defined benefit pension plan (9,200) -- -- -- (9,200) Contract advances and deposits 6,817 (2,134) -- -- 4,683 --- ------- ------------------------------------------------------------ Cash (used) provided by operations 40,415 (5,080) 3,573 -- 38,908 ---------------------------------------------------------------------- ~~Numerator~~INVESTING ACTIVITIES: Purchase of property, plant and equipment (5,745) (6,149) (352) -- (12,246) Cash paid for ~~diluted~~acquisitions, ~~calculation............~~net $of 7cash acquired (9,~~458~~327) $-- 7-- -- (9,~~156~~327) $---------------------------------------------------------------------- 5Cash used by investing activities (15,~~332~~072) ~~$11~~(6,~~131~~149) ~~=======~~(352) ~~=======~~-- ~~=======~~(21,573) ~~=======~~---------------------------------------------------------------------- ~~Denominator~~FINANCING ACTIVITIES: ~~Denominator~~Proceeds ~~for~~from ~~basic~~exercise ~~calculation............~~of 18stock options 3,~~099~~029 18-- -- -- 3,~~065~~029 18Excess income tax benefit from stock options and Long-term Incentive Plan 1,~~055~~408 17-- -- -- 1,~~998~~408 ~~Effect~~Short-term borrowings under revolver 80,000 -- -- -- 80,000 Repayment of ~~dilutive~~revolving ~~securities:~~debt ~~Stock~~(116,000) ~~options.............................~~-- ~~483~~-- ~~268~~-- ~~483~~(116,000) ~~284~~Payment ~~Convertible~~of short-term notes~~.........................~~ (5,~~886~~767) 4-- -- -- (5,~~408~~767) Payment of common share cash dividends (1,909) -- 4-- -- (1,~~408~~909) ------- --------------------------------------------------------------- Cash used by financing activities (39,239) -- -- -- (39,239) ---------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (13,896) (11,229) 3,221 -- (21,904) Cash and cash equivalents at beginning of period 15,305 7,588 2,429 -- 25,322 ---------------------------------------------------------------------- ~~Denominator~~Cash ~~for~~and ~~diluted~~cash ~~calculation..........~~equivalents 24at end of period $ 1,~~468~~409 22$ (3,~~741~~641) 18$ 5,~~538~~650 22$ -- $ 3,~~690~~418 ======= ======= ======= =================================================

~~FOR~~EDO ~~THE~~CORPORATION ~~SIX~~CONDENSED ~~MONTHS~~CONSOLIDATING ~~ENDED~~BALANCE SHEET DECEMBER 31, 2006 (IN THOUSANDS) EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ---------------------------------------------------------------------------- ~~JUNE~~ASSETS 24Current assets: Cash and cash equivalents $ 15,305 ~~JUNE~~$ 7,588 $ 2,429 -- $ 25,322 ~~2006~~Accounts ~~2005~~receivable, net 48,241 212,191 4,866 -- 265,298 Inventories 10,816 42,020 3,419 -- 56,255 Deferred income tax asset, net 12,160 -- -- -- 12,160 Prepayments and other 10,312 3,064 306 -- 13,682 ---------------------------------------------------------------------------- Total current assets 96,834 264,863 11,020 -- 372,717 Investment in subsidiaries 678,997 -- -- (678,997) -- Property, plant and equipment, net 27,476 27,974 3,659 -- 59,109 Goodwill -- 377,216 8,710 -- 385,926 Other intangible assets, net -- 94,594 9,182 -- 103,776 Deferred income tax asset, net 8,291 -- -- -- 8,291 Other assets 17,387 2,616 -- -- 20,003 ---------------------------------------------------------------------------- $ 828,985 $ 767,263 $ 32,571 $ (678,997) $ 949,822 ---------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 52,769 $ 84,685 $ 4~~.00%~~,660 ~~Convertible~~-- ~~Subordinated~~$ 142,114 Contract advances and deposits 13,581 30,742 -- -- 44,323 Postretirement benefits obligation, short-term 1,794 -- -- -- 1,794 Short-term borrowing under revolver 180,000 -- -- -- 180,000 Notes~~...~~ 5payable 7,~~586~~766 -- ~~Unexercised~~-- ~~stock~~-- ~~options..............~~7,766 ---------------------------------------------------------------------------- Total current liabilities 255,910 115,427 4,660 -- 375,997 Income taxes payable 4,154 -- -- -- 4,154 Notes payable 14,533 -- -- -- 14,533 Deferred income tax (427) -- 427 -- -- Long-term debt 201,250 -- -- -- 201,250 Postretirement benefits obligation 77,734 -- -- -- 77,734 Environmental obligation 1,198 -- -- -- 1,198 Other long-term liabilities 40 -- -- -- 40 Inter-company accounts -- 501,335 21,249 (522,584) -- Shareholders' equity: Preferred shares -- -- -- -- -- Common shares 21,177 98 -- (98) 21,177 Additional paid-in capital 177,117 60,403 6,418 (66,821) 177,117 Retained earnings 129,444 6794,052 (506) (93,546) 129,444 Accumulated other comprehensive loss, net of income tax benefit (37,642) -- 323 -- (37,319) Treasury shares (1,966) (4,052) -- 4,052 (1,966) Unearned Employee Stock Ownership Plan shares (13,537) -- -- 5-- (13,~~715~~537) 67---------------------------------------------------------------------------- Total shareholders' equity 274,593 150,501 6,235 (156,413) 274,916 ---------------------------------------------------------------------------- $ 828,985 $ 767,263 $ 32,571 $ (678,997) $ 949,822 ===== =======================================================================

EDO CORPORATION CONDENSED CONSOLIDATING STATEMENT OF EARNINGS FOR THE THREE MONTHS ENDED ~~FOR~~SEPTEMBER ~~THE~~30, ~~SIX~~2006 ~~MONTHS~~(IN ~~ENDED~~THOUSANDS) (UNAUDITED) EDO Corporation Parent Company Subsidiary Only Guarantors Non-Guarantors Eliminations Consolidated ----------------------------------------------------------------------- Net Sales $ 53,878 $ 126,808 $ 6,687 $ (2,980) $ 184,393 ----------------------------------------------------------------------- ~~JUNE~~Costs 24and expenses: Cost of sales 43,901 ~~JUNE~~99,740 253,925 ~~JUNE~~(2,980) 24144,586 ~~JUNE~~Selling, 25general and administrative 7,513 ~~2006~~20,658 ~~2005~~2,036 ~~2006~~-- ~~2005~~30,207 Research and development 1,076 3,446 179 -- 4,701 Acquisition-related costs -- 1,008 -- -- 1,008 Impairment loss on other intangible assets -- -- 1,487 -- 1,487 ----------------------------------------------------------------------- 52,490 124,852 7,627 (2,980) 181,989 Operating earnings (loss) 1,388 1,956 (940) -- 2,404 Non-operating income (expense): Interest income 918 103 75 -- 1,096 Interest expense (3,590) (34) -- -- (3,624) Other, net (1) 167 (53) -- 113 ----------------------------------------------------------------------- (IN2,673) ~~THOUSANDS~~236 22 -- (2,415) ~~Interest~~(Loss) ~~cost...........................~~earnings before income taxes (1,285) 2,192 (918) -- (11) Income tax benefit (expense) 4,066 (1,723) (267) -- 2,076 ----------------------------------------------------------------------- Earnings (loss) after income taxes 2,781 469 (1,185) -- 2,065 Equity in undistributed earnings of subsidiaries (716) -- -- 716 -- ----------------------------------------------------------------------- Net earnings (loss) $ 32,~~038~~065 $ 3469 $ (1,~~088~~185) $ 6716 $ 2,~~077~~065 ======================================================================= EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------------------------------------------------------------------- Net Sales $ 151,218 $ 294,779 $ 19,098 $ (8,595) $ 456,500 ------------------------------------------------------------------------- Costs and expenses: Cost of sales 125,091 226,766 12,225 (8,595) 355,487 Selling, general and administrative 17,206 55,169 6,~~177~~646 ~~Expected~~-- ~~return~~79,021 Research and development 2,891 7,565 457 -- 10,913 Acquisition-related costs -- 1,455 -- -- 1,455 Impairment loss on ~~plan~~other intangible assets~~..........~~ -- -- 1,487 -- 1,487 ------------------------------------------------------------------------- 145,188 290,955 20,815 (8,595) 448,363 Operating earnings (loss) 6,030 3,~~209~~824 (1,717) -- 8,137 Non-operating income (expense): Interest income 2,933 103 182 -- 3,~~181~~218 Interest expense (8,285) -- -- -- (68,~~419~~285) Other, net (623) 15 (136) -- (144) ------------------------------------------------------------------------- (5,~~362~~375) ~~Amortization~~118 of46 ~~unrecognized~~-- ~~net~~(5,211) Earnings (loss~~...~~) 1before income taxes 655 3,~~365~~942 (1,~~162~~671) -- 2,~~730~~926 2Income tax benefit (expense) 8,~~324~~610 (3,940) (199) -- 4,471 ----- -------------------------------------------------------------------- Earnings (loss) after income taxes 9,265 2 (1,870) -- 7,397 Equity in undistributed earnings of subsidiaries (1,868) -- -- 1,868 -- ------------------------------------------------------------------------- Net earnings (loss) $ 17,~~194~~397 $ 2 $ (1,~~069~~870) $ 21,~~388~~868 $ 27,~~139~~397 ======= ======= ======= ====================================================

~~FOR~~EDO ~~THE~~CORPORATION ~~THREE~~CONDENSED ~~MONTHS~~CONSOLIDATING ~~ENDED~~STATEMENT OF EARNINGS FOR THE ~~SIX~~NINE MONTHS ENDED SEPTEMBER 30, 2006 (IN THOUSANDS) (UNAUDITED) EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------------------- ------------------------------------------------ ~~JUNE~~OPERATING 24ACTIVITIES: Earnings (loss) from operations $ 7,397 ~~JUNE~~$ 252 $ (1,870) ~~JUNE~~$ 241,868 ~~JUNE~~$ 257,397 ~~2006~~Adjustments ~~2005~~to ~~2006~~earnings ~~2005~~(loss) to arrive at cash (used) provided by operations: Depreciation 3,722 4,454 689 -- 8,865 Amortization -- 4,370 751 -- 5,121 Impairment loss on other intangible assets -- -- 1,487 -- 1,487 Bad (recovery) debt expense (75) 69 -- -- (6) Deferred tax provision (2,591) 2,606 -- -- 15 Loss (gain) on sale of property, plant and equipment 15 (74) -- -- (59) Long-term Incentive Plan compensation expense 2,261 -- -- -- 2,261 Stock option compensation expense 838 -- ~~(IN~~-- ~~THOUSANDS)~~-- ~~Net~~838 ~~Sales~~Employee Stock Ownership Plan compensation expense 3,310 -- -- -- 3,310 Dividends on unallocated Employee Stock Ownership Plan shares 172 -- -- -- 172 Common shares issued for directors' fees 162 -- -- -- 162 Changes in operating assets and liabilities, excluding effects of acquisitions: ~~Engineered~~Equity ~~Systems~~in &earnings ~~Services~~of ~~..................~~subsidiaries ~~$62~~1,~~164~~868 ~~$61~~-- -- (1,~~638~~868) ~~$121~~-- Intercompany (36,~~430~~188) ~~$112~~36,~~661~~053 ~~Electronic~~135 ~~Systems~~-- &-- ~~Communications~~Accounts ~~............~~receivable 9016,~~234~~110 947,~~474~~079 ~~150~~(124) -- 23,~~677~~065 ~~159~~Inventories 6,~~959~~300 (17,744) (892) -- (12,336) Prepayments and other assets 8,454 (6,831) 7 -- 1,630 Accounts payable, accrued liabilities and other (18,561) (6,285) 1,015 -- (23,831) Contribution to defined benefit pension plan (6,000) -- -- -- (6,000) Contract advances and deposits 9,885 (8,691) -- -- 1,194 -------- ----------------------------------------------------------------- ~~152~~Cash (used) provided by operations (2,~~398~~921) ~~156~~15,~~112~~008 ~~272~~1,~~107~~198 ~~272~~-- 13,~~620~~285 ------- ------- -------- --------------------------------------------------- ~~Operating~~INVESTING ~~earnings~~ACTIVITIES: ~~Engineered~~Purchase ~~Systems~~of &property, ~~Services~~plant ~~..................~~and $equipment 1(5,~~589~~221) ~~$ 2~~(8,~~396~~048) $(947) 3-- (14,~~217~~216) $Payments ~~6,163~~received ~~Electronic~~on ~~Systems~~notes &receivable ~~Communications~~100 ~~............~~-- ~~4,243~~-- ~~11,348~~-- ~~2,516~~100 ~~14,329~~Proceeds ~~Environmental~~from ~~cost~~sale ~~provision~~of property, ~~Deer~~plant ~~Park~~and ~~facility~~equipment -- 633 -- -- 633 Cash paid for acquisitions, net of cash acquired (1265,~~250~~318) -- -- -- (1265,~~250~~318) ------- ------- -------- --------------------------------------------------- ~~5,832~~Cash 12used by investing activities (270,~~494~~439) 5(7,~~733~~415) 19(947) -- (278,~~242~~801) ------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from exercise of stock options 842 10 -- -- 852 Excess income tax benefit from stock options and Long-term Incentive Plan 429 -- -- -- 429 Proceeds from management group receivables 140 -- -- -- 140 Short-term borrowings under revolver 200,000 -- -- -- ~~Net~~200,000 ~~interest~~Payment ~~expense~~of ~~...........................~~common share cash dividends (1,~~136~~830) -- -- -- (1,~~980~~830) ~~(2,539)~~------------------------------------------------------------------------- (3Cash provided by financing activities 199,~~670)~~581 ~~Other~~10 -- -- 199,591 ~~net~~------------------------------------------------------------------------- ~~.....................................~~Net (~~111~~decrease) ~~(15)~~increase in cash and cash equivalents (~~257~~73,779) 7,603 251 -- (6065,925) Cash and cash equivalents at beginning of period 99,067 4,232 5,432 -- 108,731 ----- ------- -------- ----------------------------------------------------- ~~Earnings~~Cash ~~before~~and ~~income~~cash ~~taxes~~equivalents ~~...................~~at end of period $ 425,~~585~~288 $10 11,~~499~~835 $ 25,~~937~~683 $ 15-- $ 42,~~512~~806 ======= ======= ======== ===================================================

18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION EDO Corporation (the "Company") designs and manufactures a diverse range of products with core competencies in critical defense areas. We are a leading supplier of sophisticated, highly engineered products and systems for defense, aerospace and intelligence applications. We believe our advanced systems are mission-critical on a wide range of military programs and are at the core of transforming defense capabilities. We have two reporting segments: Engineered Systems and Services and Electronic Systems and Communications. Our Engineered Systems and Services segment comprises of aircraft armament systems, integrated composite structures, undersea warfare sonar systems, and professional engineering services. Our Electronic Systems and Communications segment provides highly-engineered electronic systems and equipment including electronic warfare systems, reconnaissance and surveillance systems, and command, control, communications, and computers (C4) products and systems. The Company has a disciplined acquisition program which is diversifying its base of major platforms and customers. The Company's Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports, and the Proxy Statement for its Annual Meeting of Shareholders are made available, free of charge, on its Web site www.edocorp.com, as soon as reasonably practicable after such reports have been filed with or furnished to the Securities and Exchange Commission. Additional Information and Where to Find It On September 17, EDO announced that it has entered into a definitive merger agreement with ITT Corporation, pursuant to which ITT will acquire all of the outstanding shares of EDO for $56.00 per share in cash. In connection with the proposed merger, EDO filed with the SEC a definitive proxy statement and other relevant materials on November 5, 2007. The definitive proxy statement will be mailed to EDO's shareholders of record at the close of business on November 2, 2007, the record date for the special meeting of our shareholders to consider and vote on a proposal to approve and adopt the merger agreement. EDO's shareholders are urged to read the definitive proxy statement and other relevant materials carefully because they will contain important information about EDO and the merger. Shareholders, investors and other interested parties may obtain a free copy of the definitive proxy statement and any other relevant documents (when they become available) that EDO files with the SEC at the SEC's web site at www.sec.gov. The definitive proxy statement and any other relevant documents may also be accessed at www.edocorp.com or obtained free from the Company by directing a request to EDO Corporation, 60 East 42nd Street, 42nd Floor, New York, NY 10165, Attn: Investor Relations. 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. Except for the treatment of tax contingency accruals, there have been no material changes from the methodology applied by management for critical estimates previously disclosed in the Company's most recent Annual Report on Form 10-K. Effective January 1, 2007, the company began to measure and record tax contingency accruals in accordance with FIN 48 - Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109. The expanded disclosure requirements of FIN 48 are presented in Note 6 of this report. FIN 48 prescribes a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Only tax positions meeting the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of this Interpretation. FIN 48 also provides guidance on accounting for de-recognition, interest and penalties, and classification and disclosure of matters related to uncertainty in income taxes. The following is a brief discussion of the critical accounting policies employed by us: REVENUE RECOGNITION Sales under long-term, fixed-price contracts, including pro-rata profits, are generally recorded based on the relationship of costs incurred to date to total projected final costs or, alternatively, as deliveries and other milestones are achieved or services are provided. These projections are revised throughout the lives of the contracts. Adjustments to profits resulting from such revisions are made cumulative to the date of change and may affect current period earnings. Sales on other than long-term contract orders (principally commercial products) are recorded as shipments are made. Our gross profit is affected by a variety of factors, including the mix of products, systems and services sold production efficiencies, price competition and general economic conditions. Estimated losses on long-term contracts are recorded when identified. 19 INVENTORIES Inventories under long-term contracts and programs reflect all accumulated production costs, including factory overhead, initial tooling and other related costs (including general and administrative expenses relating to certain of our defense contracts), less the portion of such costs charged to cost of sales. All other inventories are stated at the lower of cost (principally first-in, first-out method) or market. Inventory costs in excess of amounts recoverable under contracts and which relate to a specific technology or application and which may not have alternative uses are charged to cost of sales when such circumstances are identified. From time to time, we manufacture certain products prior to receiving firm contracts in anticipation of future demand. Such costs are inventoried and are incurred to help maintain stable and efficient production schedules. Several factors may influence the sale and use of our inventories, including our decision to exit a product line, technological change, new product development and/or revised estimates of future product demand. If inventory is determined to be overvalued due to one or more of the above factors, we would be required to recognize such loss in value at the time of such determination. Under the contractual arrangements by which progress payments are received, the United States Government has a title to or a security interest in the inventories identified with related contracts. PROPERTY, PLANT AND EQUIPMENT AND OTHER LONG-LIVED ASSETS Property, plant and equipment is recorded at cost and is depreciated on a straight-line basis over the estimated useful lives of such assets. Leasehold improvements are amortized over the shorter of their estimated useful lives or their respective lease periods. In those cases where we determine that the useful life of property, plant and equipment should be shortened, we depreciate the net book value in excess of salvage value over its revised remaining useful life thereby increasing depreciation expense. Factors such as technological advances, changes to our business model, changes in our capital strategy, changes in the planned use of equipment, fixtures, software or changes in the planned use of facilities could result in shortened useful lives. Long-lived assets, other than goodwill, are reviewed by us for impairment whenever events or changes in circumstances indicate that the carrying amount of any such asset may not be recoverable. The estimate of cash flow, which is used to determine recoverability, is based upon, among other things, certain assumptions about future operating performance. Our estimates of undiscounted cash flow may differ from actual cash flow due to such factors including technological advances, changes to our business model, or changes in our capital strategy or planned use of long-lived assets. If the sum of the undiscounted cash flows, excluding interest, is less than the carrying value, we would recognize an impairment loss, measured as the amount by which the carrying value exceeds the fair value of the asset. In accordance with SFAS No. 142, goodwill must be tested at least annually for impairment at the reporting unit level. If an indication of impairment exists, we are required to determine if such goodwill's implied fair value is less than the unit carrying value in order to determine the amount, if any, of the impairment loss required to be recorded. Impairment indicators include, among other conditions, cash flow deficits, an historic or anticipated decline in revenue or operating profits, adverse legal or regulatory developments, accumulation of costs significantly in excess of amounts originally expected to acquire the asset and/or a material decrease in the fair value of some or all of the assets. To determine the fair value of our reporting units, we generally use a present value technique (discounted cash flow) corroborated by market multiples when available and as appropriate, for all of the reporting units. The discounted cash flow method measures intrinsic value by reference to an enterprise's or an asset's expected annual free cash flows. We applied what we believe to be the most appropriate valuation methodology for each of the reporting units. If we had established different reporting units or utilized different valuation methodologies, the impairment test results could differ. PENSION AND POST-RETIREMENT BENEFITS OBLIGATIONS We sponsor defined benefit pension and other retirement plans in various forms covering all eligible employees. Several statistical and other factors which attempt to anticipate future events are used in calculating the expense and liability related to the plans. These factors include assumptions about the discount rate and expected return on plan assets within certain guidelines and in conjunction with our actuarial consultants. In addition, our actuarial consultants also use subjective factors such as withdrawal and mortality rates to estimate the expense and liability related to these plans. The actuarial assumptions used by us may differ significantly, either favorably or unfavorably, from actual results due to changing market, economic or regulatory conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. 20 We used the building block approach to the estimation of the long-term rate of return on assets. Under this approach, we reviewed the publicly available common source data for the range of returns on basic types of equity and fixed income instruments and the differential to those rates provided by active investment management. In consultation with our actuarial and active asset management consultants and taking into account the funds' actual performance and expected asset allocation going forward, we selected an overall return rate within the resulting range. RESULTS OF OPERATIONS The following information should be read in conjunction with the Consolidated Financial Statements as of September 29, 2007.

~~EDO~~THREE ~~Corporation~~MONTHS ~~Parent~~ENDED ~~Subsidiary~~SEPTEMBER ~~Company~~29, ~~Only~~2007 ~~Guarantors~~COMPARED ~~Non-Guarantors~~WITH ~~Eliminations~~THREE ~~Consolidated~~MONTHS ~~------------~~ENDED ~~----------~~SEPTEMBER 30, 2006 Net sales by segment were as follows: THREE MONTHS ENDED INCREASE/ -------------- ------------ ----~~--------~~ ~~ASSETS~~(DECREASE) ~~Current~~SEPTEMBER ~~assets: Cash and cash equivalents $102~~29,~~193~~ $SEPTEMBER ~~520 $ 6~~30,~~379~~ --FROM ~~$109,092~~SEGMENT ~~Accounts~~2007 ~~receivable,~~2006 ~~net~~PRIOR ~~56,187~~PERIOD ~~108,725 3,103~~ -- ~~168,015 Inventories 13,389 53,856 3,516~~ -- ~~70,761 Deferred income tax asset, net 9,090~~ -- -- -- ~~9,090 Notes receivable 7,000~~ -- -- -- ~~7,000 Prepayments and other 11,125 1,807 227~~ -- ~~13,159~~ -------- -------- ------- --------- -----~~---~~ ~~Total~~(IN ~~current~~THOUSANDS) ~~assets~~Engineered ~~198,984~~Systems ~~164,908~~& ~~13,225~~Services --$ ~~377,~~117 ~~Investment in subsidiaries 330~~,~~850~~974 --$ ~~-- (330~~79,~~850)~~409 --48.6% ~~Property,~~Electronic ~~plant~~Systems ~~and~~& ~~equipment,~~Communications ~~net 26~~138,~~577~~808 21104,~~992~~984 ~~3,444 -- 52,013 Goodwill -- 140,709 8,710 -- 149,419 Other intangible assets, net -- 47,094 11,117 -- 58,211 Deferred income tax asset, net 29,637 (~~32.2~~,337)~~% -- -- ~~27,300 Other assets 23,440 1,777~~ -- -- ~~25,217~~ -------- -------- ------- --------- -------- ~~$609,488~~Total $~~374,143~~ ~~$36~~256,~~496~~782 $~~(330,850)~~ ~~$689~~184,~~277~~393 39.3% ===============================================

In the Engineered Systems and Services segment, the increase in sales is attributable primarily to the contribution of sales of CAS which was acquired on September 6, 2006, and higher sales on aircraft armament products. This increase was partially offset by lower sales in our flight-line test systems product and various undersea warfare programs. In the Electronic Systems and Communications segment, the increase in sales is attributable to deliveries associated with the Transition Switch Module (TSM) program, sales contributed by IST which was acquired on September 15, 2006, increased sales on our force protection systems as well as spares related to ESM systems. Operating earnings by segment were as follows: THREE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, SEGMENT 2007 2006 ------------------------------ (IN THOUSANDS) Engineered Systems & Services $ 7,335 $ 646 Electronic Systems & Communications 8,779 1,758 ------------------------------ Total $ 16,114 $ 2,404 ============================== Operating earnings for the three months ended September 29, 2007 were $16.1 million or 6.3% of net sales. This compares to operating earnings for the three months ended September 30, 2006 of $2.4 million or 1.3% of net sales. Items of note affecting operating earnings are summarized here to help clarify the comparison of results. THREE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, 2007 2006 -------------------------------- (IN THOUSANDS) Pension $ 610 $ 1,194 ESOP Compensation expense $ 1,725 $ 975 Other intangible asset amortization $ 2,562 $ 1,707 ------------------------------ $ 4,897 $ 3,876 ============================== 21 The decrease in pension expense in 2007 compared to 2006 is attributable to changes in actuarial assumptions such as discount rate and return on plan assets as well as the contributions made by the Company in 2007 for the 2006 plan year. The higher ESOP compensation expense for the three months ended September 29, 2007 is attributable to our higher average stock price compared to the three months ended September 30, 2006. The increase in other intangible asset amortization expense is attributable to the acquisitions of CAS and IST in the third quarter of 2006. The Engineered Systems and Services segment's operating earnings for the three months ended September 29, 2007 were $7.3 million or 6.2% of this segment's net sales compared to operating earnings of $0.6 million or 0.8% of this segment's net sales for the three months ended September 30, 2006. The increase is attributable the increased sales on aircraft armament programs, the mix of programs in our services division, and the contributions of CAS, which was acquired on September 6, 2006. These increases were partially offset by a $3.2 million cost growth on the ALOFTS sonar program and the aforementioned lower sales on flight line test systems. For the three months ended September 30, 2006, operating earnings in the Engineering Systems and Services segment were negatively impacted by a $2.2 million cost growth on an aircraft armament systems program and a $0.4 million cost growth on an undersea warfare program as well as lower margins due to lower sales volume of composite structures, primarily the Joint Air to Surface Standoff Missile units (JASSM) and the attendant higher absorption of overhead costs. In addition, operating earnings for Engineered Systems and Services were impacted by a write-down of unamortized other intangible assets of $1.5 million related to the Company's rugged computer product line. The Electronic Systems and Communications segment's operating earnings for the three months ended September 29, 2007 were $8.8 million or 6.3% of this segment's net sales compared to operating earnings of $1.8 million or 1.7% of this segment's net sales for the three months ended September 30, 2006. This increase is mainly attributable to sales on our TSM program, increased sale of our Antenna Products, and higher sales of ESM systems. This increase is partially offset by unabsorbed overhead costs at two of our facilities as we prepare for increased production of force protection systems. For the three months ended September 30, 2006, operating earnings in the Electronic Systems and Communications segment were negatively impacted by the significantly lower sales volume of electronic force protection systems. In addition, earnings were negatively impacted by a charge of approximately $2.1 million related to the settlement of a contract dispute during the third quarter of 2006. Selling, general and administrative expenses for the three months ended September 29, 2007 were $35.7 million or 13.9% of net sales compared to $30.2 million or 16.4% of net sales for the three months ended September 30, 2006. The increase is primarily attributable to the acquisitions of CAS and IST made in the third quarter of 2006 and includes the other intangible assets amortization expense associated with these acquisitions. During the three months ended September 29, 2007, the Company recorded acquisition-related costs of $2.0 million for "stay-pay" related to the acquisitions in 2005 and 2006 compared to $1.0 million for the three months ended September 30, 2006. We expect to incur similar amounts related primarily to the CAS and IST acquisitions over the next 2 years. Research and development expense for the three months ended September 29, 2007 decreased to $2.9 million or 1.1% of net sales from $4.7 million or 2.5% of net sales for the three months ended September 30, 2006, during which time there was higher than usual spending on electronic force protection and ESM Systems. Interest expense, net of interest income, for the three months ended September 29, 2007 increased to $4.8 million from $2.5 million for the three months ended September 30, 2006, primarily due to interest on borrowings under our credit facility. Also included in interest expense is interest on our 4.0% Convertible Subordinated Notes ("Notes") which were issued in November 2005 and due in 2025, interest on the promissory note associated with the IST acquisition made in September 2006 and due in 2009, interest on the promissory note associated with the NexGen acquisition made in 2005 and due in 2008, and the amortization of deferred debt issuance costs associated with the offering of the Notes and amortization of deferred financing costs associated with our credit facility. For the three months ended September 29, 2007 we recorded a discrete net income tax benefit of $4.7 million primarily related to changes in tax contingencies and the claim for the federal research and development credit for 2003 not previously claimed This compares to a $2.3 million discrete net income tax benefit recorded for the three months ended September 30, 2006 related primarily to claims for the federal research and development credit and extraterritorial income (ETI) exclusion tax benefits not previously claimed. 22 For the three months ended September 29, 2007, net earnings were $11.2 million or $0.49 per diluted common share on 25.4 million diluted shares compared to net earnings of $2.1 million or $0.11 per diluted common share on 18.6 million diluted shares for the three months ended September 30, 2006. The convertible Notes were dilutive for the third quarter of 2007 and anti-dilutive in the third quarter of 2006.

~~EDO~~NINE ~~Corporation~~MONTHS ~~Parent~~ENDED ~~Subsidiary~~SEPTEMBER ~~Company~~29, ~~Only~~2007 ~~Guarantors~~COMPARED ~~Non-Guarantors~~WITH ~~Eliminations~~NINE ~~Consolidated~~MONTHS ~~------------~~ENDED ~~----------~~SEPTEMBER ~~--------------~~30, ~~------------~~2006 ~~------------~~ Net ~~Sales~~sales ~~$50,353~~by ~~$98,885~~segment ~~$6,057~~were ~~$(2,897)~~as ~~$152,398 Costs and expenses~~follows: ~~Cost~~NINE ofMONTHS ~~sales~~ENDED ~~42,355~~INCREASE/ ~~76,317 3,882 (2,897) 119,657 Selling, general and administrative 4,185 17,816 1,902~~ -- ~~23,903 Research and development 933 1,982 91~~ -- ~~3,006~~ ------- ------- ------ ------- ~~--------~~(DECREASE) ~~47,473~~SEPTEMBER 9629,~~115~~ ~~5,875~~SEPTEMBER (230,~~897)~~ ~~146,566~~FROM ~~-------~~SEGMENT ~~-------~~2007 ~~------~~2006 ~~-------~~PRIOR ~~--------~~PERIOD ~~Operating Earnings 2,880 2,770 182~~ -- ~~5,832 Non~~-~~operating income (expense) Interest income 1,048~~ -- 53 -- ~~1,101 Interest expense (2,255) 18~~ -- -- ~~(2,237) Other, net (6) (66) (39)~~ -- ~~(111)~~ ------- ------- ------ ------- -------- (~~1,213)~~IN ~~(48~~THOUSANDS) 14Engineered --Systems ~~(1,247)~~& ~~Earnings~~Services ~~before~~$ ~~income taxes 1~~353,~~667~~954 ~~2,722~~$ ~~196 -- 4~~204,~~585~~462 ~~Income~~73.1% ~~tax~~Electronic ~~benefit~~Systems ~~(expense)~~& ~~3,439~~Communications (1404,~~614)~~264 ~~(139) -- 1~~252,~~686~~038 ~~-------~~60.4% ------- ------ ------- -------- ~~Earnings after income taxes 5,106 1,108 57~~ -- ~~6,271 Equity in undistributed earnings of subsidiaries 1,165~~ -- -- ~~(1,165)~~ -- ------- ------- ~~------~~Total ~~------- -------- Net earnings~~ $ 6758,~~271~~218 $ 1456,~~108~~500 ~~$ 57 $(~~66.1~~,165)~~% ~~$ 6,271~~ ======= ======= ====== ======= =====================

In the Engineered Systems and Services segment, the increase in sales is attributable primarily to the contribution of sales of CAS which was acquired on September 6, 2006, increased sales of our flight line test systems products and higher sales in undersea warfare products. In the Electronic Systems and Communications segment, the increase in sales is attributable to deliveries associated with the Transition Switch Module (TSM) program, deliveries of force protection systems and the sales contributed by IST which was acquired on September 15, 2006. Operating earnings by segment were as follows: NINE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, SEGMENT 2007 2006 ------------------------------ (IN THOUSANDS) Engineered Systems & Services...................$ 25,902 $ 4,069 Electronic Systems & Communications............. 21,168 4,068 ------------------------------ Total...........................................$ 47,070 $ 8,137 ============================== Operating earnings for the nine months ended September 29, 2007 were $47.1 million or 6.2% of net sales. This compares to operating earnings for the nine months ended September 30, 2006 of $8.1 million or 1.8% of net sales. Items of note affecting operating earnings are summarized here to help clarify the comparison of results. NINE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, 2007 2006 -------------------------------- (IN THOUSANDS) Pension.........................................$ 2,233 $ 3,582 ESOP Compensation expense.......................$ 4,209 $ 3,310 Other intangible asset amortization.............$ 7,713 $ 5,121 Stock-based compensation expense re: options....$ 970 $ 838 -------------------------------- $ 15,125 $ 12,851 ================================ The decrease in pension expense in 2007 compared to 2006 is attributable to changes in actuarial assumptions such as discount rate and return on plan assets as well as the contributions made by the Company in 2007 for the 2006 plan year. The higher ESOP compensation expense for the first nine months of 2007 is attributable to our higher average stock price compared to the first nine months of 2006. The increase in other intangible asset amortization expense is attributable to the acquisitions of CAS and IST in the third quarter of 2006. The increase in stock-based compensation expense relates to the higher share price on the dates of grant compared to 2006. 23 The Engineered Systems and Services segment's operating earnings for the nine months ended September 29, 2007 were $25.9 million or 7.3% of this segment's net sales compared to operating earnings of $4.1 million or 2.0% of this segment's net sales for the nine months ended September 30, 2006. This increase is attributable to cost reductions on an aircraft armament program, increased sales on flight line test equipment, the contribution of CAS, which was acquired on September 6, 2006 and the mix of sales in our services business. These increases were partially offset by cost growth on the ALOFTS sonar program and an aircraft armament program. For the nine months ended September 30, 2006, operating earnings in the Engineered Systems Services segment were negatively impacted by a $2.5 million cost growth on ALOFTS, $1.4 million and $2.2 million on two aircraft armament systems programs, $1.2 million related to the conclusion of a legal action as well as a write-off of unamortized other intangible assets of $1.5 million related to the Company's rugged computer product line. In the Electronic Systems and Communications segment, operating earnings for the nine months ended September 29, 2007 were $21.2 million or 5.2% of this segment's net sales compared to operating earnings of $4.1 million or 1.6% of this segment's net sales for the nine months ended September 30, 2006. The increase is attributable to increased sales on our TSM program, electronic warfare products, and antenna products. This was partially offset by unabsorbed overhead costs at two of our facilities as we prepare for increased production of force protection systems, as well as cost growth on a close-out of an open contract issue on a long standing contract that is now complete. For the nine months ended September 30, 2006, operating earnings were negatively impacted by less recovery of overhead expenses due to lower sales volume of electronic force protection systems, cost growth of $2.5 million on an interference cancellation program, lower milestone achievements of reconnaissance and surveillance systems, and approximately $5.0 million in legal costs and provisions for liabilities in respect of concluded legal matters. Selling, general and administrative expenses for the nine months ended September 29, 2007 were $105.1 million or 13.9% of net sales compared to $79.0 million or 17.3% for the nine months ended September 30, 2006. The increase is primarily attributable to the acquisitions of CAS and IST made in 2006 including the other intangible assets amortization expense associated with these acquisitions. During the nine months ended September 29, 2007, the Company recorded acquisition-related costs of $6.3 million for "stay-pay" related to the acquisitions made in 2005 and 2006, compared to $1.5 million for the nine months ended September 30, 2006. We expect to incur similar amounts related primarily to the CAS and IST acquisitions over the next 2 years. Research and development expense for the nine months ended September 29, 2007 decreased to $7.4 million or 1.0% of net sales from $10.9 million or 2.4% of net sales for the nine months ended September 30, 2006, during which time there was higher spending on electronic force protection and aircraft armament systems. Interest expense, net of interest income, for the nine months ended September 29, 2007 increased to $16.3 million from $5.1 million for the nine months ended September 30, 2006 primarily due to interest on borrowings under our credit facility. Also included in interest expense is interest on our 4.0% Convertible Subordinated Notes ("Notes") which were issued in November 2005 and due in 2025, interest on the promissory note associated with the IST acquisition made in September 2006 and due in 2009, interest on the promissory note associated with the NexGen acquisition made in 2005 and due in 2008, and the amortization of deferred debt issuance costs associated with the offering of the Notes and amortization of deferred financing costs associated with our credit facility. For the nine months ended September 29, 2007, we recorded a discrete net income tax benefit of $4.7 million primarily related to changes in tax contingencies and the claim for the federal research and development credit for 2003 not previously claimed, compared to a $6.0 million discrete net income tax benefit recorded for the nine months ended September 30, 2006 related primarily to claims for the federal research and development credit and extraterritorial income (ETI) exclusion tax benefits not previously claimed and changes in tax contingencies. For the nine months ended September 29, 2007, net earnings were $22.9 million or $1.05 per diluted common share on 25.2 million diluted shares compared to net earnings of $7.4 million or $0.40 per diluted common share on 18.6 million diluted shares for the nine months ended September 30, 2006. The Convertible Notes were dilutive for the nine months ended September 29, 2007 and anti-dilutive for the nine months ended September 30. 24 LIQUIDITY AND CAPITAL RESOURCES Balance sheet Cash and cash equivalents decreased 86.5% to $3.4 million at September 29, 2007 from $25.3 million at December 31, 2006. For the nine months ended September 29, 2007, cash provided by operations was $38.9 million, reflecting earnings from operations and collections of billed receivables which were partially offset by increases in inventories and contributions to the defined benefit pension plan. During the nine months ended September 29, 2007, we reduced our borrowings under the credit facility by a net $36.0 million. Furthermore, $9.3 million was used to settle the final purchase prices of CAS and IST, $12.2 million was used for the purchase of plant and equipment, $5.8 million for a scheduled principal payment on our IST promissory note and $1.9 million for the payment of common share dividends. Accounts receivable decreased 12.1% to $233.1 million at September 29, 2007 from $265.3 million at December 31, 2006 due to collections of billed receivables. At September 29, 2007 approximately 90% of billed receivables were in the under-60 days aging category compared with 89% at December 31, 2006. Inventories increased to $118.7 million at September 29, 2007 from $56.3 million at December 31, 2006 due primarily to the efforts expended on work-in-process on major programs such as TSM and Crew 2.1. FINANCING ACTIVITIES Credit Facility We have a five-year credit facility with a consortium of banks, led by Citibank, N.A., as the administrative agent, Bank of America, N.A, as the documentation agent and Wachovia Bank, N.A. as syndication agent. The facility expires in November 2010. The credit agreement provides for a revolving credit facility in an aggregate amount equal to $300 million with sub-limits of $20 million for short-term swing loans and $100 million for letters of credit. The potential cash borrowing under the facility is reduced by the amount of outstanding letters of credit. The Company has the option to select Base Rate or Eurodollar Rate loans under the terms of the Credit Agreement. Any borrowings under the facility would be priced initially at LIBOR plus a predetermined amount depending on our consolidated leverage ratio at the time of the borrowing. At September 29, 2007, LIBOR was approximately 5.13% and the applicable adjustment to LIBOR was 2.00%. The facility requires us to pay each lender in the consortium a commitment fee on the average daily unused portion of their respective commitment at a rate equal to 0.25%. In addition, the agreement provides for potential incremental credit extensions in the form of term loans or revolving credit commitment increases of up to $100 million. At September 29, 2007 there were $21.9 million of letters of credit outstanding and $144.0 million of direct borrowings outstanding under the credit facility, resulting in $134.1 million available for additional borrowings. At December 31, 2006, there were $180.0 million of direct borrowings outstanding under the credit facility. Accrued interest payable related to the credit facility was $0.3 million and $0.8 million at September 29, 2007 and December 31, 2006, respectively. In connection with the credit facility, the Company is required to maintain both financial and non-financial covenants and ratios, including, but not limited to, leverage ratio, fixed charge coverage ratio, and senior secured leverage ratio. As of September 29, 2007, the Company was in compliance with its covenants. The credit facility is secured by the Company's accounts receivable, inventory and machinery and equipment. 4.0% Convertible Subordinated Notes due 2025 ("4.0% Notes") In November 2005, we completed the offering of $201.2 million principal of 4.0% Notes and received proceeds of $195.7 million, net of $5.5 million of commissions. Interest payments are due May 15 and November 15 of each year commencing on May 15, 2006. The Company made its scheduled interest payment of $4.0 million on the 4.0% Notes during the second quarter of 2007. Accrued interest payable, included in accrued liabilities, was $3.1 million and $1.0 million at September 29, 2007 and December 31, 2006, respectively. 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 $34.19 per share, subject to adjustment in certain events. As of September 29, 2007, there had been no such conversions. 25 Shelf Registration At September 29, 2007, our remaining capacity under the universal shelf registration statement that became effective in January 2004 was approximately $298.8 million. We believe that, for the foreseeable future, we have adequate liquidity and sufficient capital to fund our currently anticipated requirements for working capital, capital expenditures, including acquisitions, research and development expenditures, interest payments and funding of our pension and post-retirement benefit obligations. We continue to focus on positioning ourselves to be a significant player in the consolidation of first-tier defense suppliers and, to that end, actively seek 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. COMMITMENT AND CONTINGENCIES We are obligated under building and equipment leases expiring between 2007 and 2019. The aggregate future minimum lease commitments under those obligations with non-cancellable terms in excess of one year are shown below. Our commitments under letters of credit and advance payment and performance bonds relate primarily to advances received on foreign contracts should we fail to perform in accordance with the contract terms. We do not expect to have to make payments under these letters of credit or bonds since these obligations are removed as we perform under the related contracts. The amounts for letters of credit and performance bonds represent the amount of commitment expiration per period. In order to aggregate all commitments and contractual obligations as of September 29, 2007, we have included the following table:

~~EDO~~PAYMENTS ~~Corporation~~DUE ~~Parent~~IN ~~Subsidiary~~(IN ~~Company~~MILLIONS): ~~Only~~---------------------------------------------------------------------- ~~Guarantors~~COMMITMENTS ~~Non-Guarantors~~AND ~~Eliminations~~CONTRACTUAL ~~Consolidated~~OBLIGATIONS: 2012 AND TOTAL 2007 2008 2009 2010 2011 BEYOND ------------ ---------- -------------- ------------ ------------------------------------------------------------------------ ~~Net~~Borrowings ~~Sales~~Under Revolver $ ~~97,340~~144.0 $ ~~167,971~~144.0 $ ~~12,411~~-- $ ~~(5,615)~~-- $ ~~272,107~~-- ~~Costs~~$ ~~and~~-- ~~expenses:~~$ ~~Cost~~-- ofNotes ~~sales~~payable ~~81,190~~16.5 ~~127,026~~2.0 8~~,300~~.8 (5~~,615)~~.7 ~~210,901~~-- ~~Selling,~~-- ~~general~~-- ~~and~~4.0% ~~administrative~~Convertible ~~9,693~~Subordinated ~~34,958~~Notes ~~4,610~~due 2025 (1) 201.2 -- ~~49,261~~-- ~~Research~~-- ~~and~~-- ~~development~~-- ~~1,815~~201.2 ~~4,119~~Operating ~~278~~leases --145.2 5.7 22.4 20.6~~,212~~ 19.3 18.1 59.1 Letters of credit 21.9 2.5 7.0 11.8 -- -- 0.6 Projected pension contributions (2) 33.6 -- 14.7 8.5 8.3 2.1 --- Advance payment and performance bonds 1.7 -- -- 1.7 -- -- -- -------- --------- --------- ~~92,698 166,103 13,188 (5,615) 266,374~~ --------- --------- -------- --------- --------- ~~Operating~~Total ~~Earnings~~$ ~~(loss)~~564.1 ~~4,642~~$ ~~1,868~~154.2 ~~(777)~~$ --52.9 ~~5,733~~$ 48.3 $ 27.6 $ 20.2 $ 260.9 ======================================================================

(1) Excludes interest of approximately $8 million annually. (2) Actual pension contributions may differ from amounts presented above and are contingent on cash flow, liquidity, and actuarial assumptions. 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 is unlikely to 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. 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. For the three and nine months ended September 29, 2007, sales of TSM represented 12.7% and 15.1% of net sales, respectively. For the three and nine months ended September 30, 2006, sales of TSM represented 13.9% and 7.3% of net sales, respectively. 26 The funded backlog of unfilled orders at September 29, 2007 increased to $1,362.3 million from $804.4 million at December 31, 2006. Our backlog consists primarily of current orders under long-lived, mission-critical programs of key defense platforms. "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The statements in this Quarterly report and in oral statements that may be made by representatives of the Company relating to plans, strategies, economic performance and trends and other statements that are not descriptions of historical facts may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27(a) of the Securities Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934. Forward looking statements are inherently subject to risks and uncertainties, and actual results could differ materially from those currently anticipated due to a number of factors, which include, but are not limited to the following for each of the types of information noted below. U.S. and international military program sales, follow-on procurement, contract continuance, and future program awards, upgrades and spares support are subject to: U.S. and international military budget constraints and determinations; U.S. congressional and international legislative body discretion; U.S. and international government administration policies and priorities; changing world military threats, strategies and missions; competition from foreign manufacturers of platforms and equipment; NATO country determinations regarding participation in common programs; changes in U.S. and international government procurement timing, strategies and practices, the general state of world military readiness and deployment; and the ability to obtain export licenses. Commercial product sales are subject to: success of product development programs currently underway or planned; competitiveness of current and future production costs and prices and market and consumer base development of new product programs. Achievement of margins on sales, earnings and cash flow can be affected by: unanticipated technical problems; government termination of contracts for convenience; decline in expected levels of sales; underestimation of anticipated costs on specific programs; the ability to effect acquisitions; and risks inherent in integrating recent acquisitions into our overall structure. Expectations of future income tax rates can be affected by a variety of factors, including statutory changes in Federal and state tax rates, tax treatment of acquisitions, results of tax audits, the amount of the non-deductible portion of our non-cash ESOP compensation expense and other factors detailed under "Special Note Regarding Forward-Looking Statements" in the definitive proxy statement filed by the Company on November 5, 2007 in connection with the proposed sale of the company described in Note 2. The Company has no obligation to update any forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS For quantitative and qualitative disclosures about market risk, see Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of our annual report on Form 10-K for the year ended December 31, 2006. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this Quarterly Report on Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company's senior management, including the Chief Executive Officer and the Chief Financial Officer, as well as the audit committee of the Board of Directors, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on their evaluation, the Chief Executive Officer and the Chief Financial Officer of the Company have concluded that the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are effective to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There were no changes in EDO's internal controls over financial reporting during EDO's last fiscal quarter that have materially affected, or are likely to materially affect internal controls over financial reporting. 27 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 15, 2007, one of our shareholders, the City of Bethlehem Aggregated Pension Fund, filed in the Supreme Court of the State of New York, New York County, a putative shareholder class action against the Company and the individual members of the Board of Directors. The complaint alleges, among other things, that the proposed acquisition of the Company by ITT substantially undervalues our common shares and unfairly benefits the Company's insiders. The plaintiff seeks injunctive relief with regard to the proposed acquisition. On November 1, 2007 plaintiff filed an amended complaint. We believe that the allegations in the complaint are without merit, and we intend to defend against them vigorously. On October 26, 2007, one of our shareholders, Mr. Samuel Pill, filed in the Supreme Court of the State of New York, New York County, a putative shareholder class action against the individual members of our Board of Directors, the Company, ITT and Merger Sub. The complaint alleges, among other things, that the $56.00 per share merger consideration is inadequate and unfair to the public shareholders of the Company and that the preliminary proxy statement filed by the Company on October 23, 2007 failed to disclose material non-public information concerning the financial position and prospects of the Company. The plaintiff seeks injunctive relief with regard to the proposed transaction. We believe that the allegations in the complaint are without merit, and we intend to defend against them vigorously. ITEM 1A. RISK FACTORS There have been no material changes in our risk factors from the risk factors disclosed in our annual report on Form10-K for the year ended December 31, 2006, except for risks related to the proposed sale of the company, as described in Note 2 above. There are no assurances that the proposed merger will be consummated. If the proposed merger is not consummated, under certain circumstances we may be required to pay a termination fee plus reimbursement of out-of-pocket expenses to the proposed acquirer, which amounts could be significant. In addition, the proposed merger may disrupt our current plans and operations and create potential difficulties in customer and employee retention. The effect of the announcement of the proposed merger or any subsequent announcements related to the merger may affect our business relationships. We have incurred and may continue to incur significant amounts of costs and fees associated with the proposed merger. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K 2(d) Agreement and Plan of Merger, dated as of September 16, 2007, by and among ITT Corporation, Donatello Acquisition Corporation and EDO Corporation (File No. 001-03985, Form 8-K dated September 18, 2007, Exhibit 2.1) 2(e) Form of Shareholder Voting Agreement, dated as of September 16, 2007, by and between ITT Corporation and Shareholder ("Shareholder") party thereto. (File No. 001-03985, Form 8-K dated September 18 , 2007, Exhibit 2.2) 10(a)* Extension Agreement to James M. Smith Employment Agreement, dated August 30, 2007 10(b)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Jon A. Anderson 10(c)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Frederic B. Bassett 10(d)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Patricia D. Comiskey 10(e)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Milo Hyde 10(f)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Frank W. Otto 10(g)* Amended and Restated Change in Control Agreement dated June 12, 2007 between the Company and Lisa M. Palumbo 31.1* Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32* Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, its principal financial officer, thereunto duly authorized. EDO CORPORATION (Registrant) Dated: November 5, 2007 By: /s/ FREDERIC B. BASSETT ------------------------------------- Frederic B. Bassett Senior Vice President Finance, Treasurer and Chief Financial Officer 28

EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------ ---------- -------------- ------------ ------------ OPERATING ACTIVITIES: Earnings (loss) from continuing operations $ 5,332 $ (467) $ (685) $ 1,152 $ 5,332 Adjustments to earnings (loss) to arrive at cash provided by continuing operations: Depreciation 2,444 2,839 453 -- 5,736 Amortization -- 2,914 500 -- 3,414 Deferred tax provision 389 (374) -- -- 15 Bad debt recovery (68) -- -- -- (68) Loss on sale of property, plant and equipment 22 11 -- -- 33 Long-Term Incentive Plan compensation expense 1,599 -- -- -- 1,599 Stock option compensation expense 877 -- -- -- 877 Employee Stock Ownership Plan compensation expense 2,335 -- -- -- 2,335 Dividends on unallocated Employee Stock Ownership Plan shares 116 -- -- -- 116 Common shares issued for directors' fees 110 -- -- -- 110 Changes in operating assets and liabilities, excluding effects of acquisitions: Equity in earnings of subsidiaries 1,152 -- -- (1,152) -- Intercompany (13,978) 13,405 573 -- -- Accounts receivable 12,484 8,439 320 -- 21,243 Inventories 3,899 (17,709) (384) -- (14,194) Prepayments and other assets (7,180) (1,582) 107 -- (8,655) Accounts payable, accrued liabilities and other (9,620) (2,234) 712 -- (11,142) Contract advances and deposits 7,644 (4,483) -- -- 3,161 -------- -------- ------ ------- -------- Cash provided by operations 7,557 759 1,596 -- 9,912 -------- -------- ------ ------- -------- INVESTING ACTIVITIES: Settlement of purchase price on 2005 acquisitions (800) -- -- -- (800) Purchase of plant and equipment (3,721) (4,471) (649) -- (8,841) Payments received on notes receivable 100 -- -- -- 100 -------- -------- ------ ------- -------- Cash used by investing activities (4,421) (4,471) (649) -- (9,541) -------- -------- ------ ------- -------- FINANCING ACTIVITIES: Proceeds from exercise of stock options 741 -- -- -- 741 Excess income tax benefit from stock options and Long-Term Incentive Plan 329 -- -- -- 329 Proceeds from management group receivables 140 -- -- -- 140 Payment of common share cash dividends (1,220) -- -- -- (1,220) -------- -------- ------ ------- -------- Cash used by financing activities (10) -- -- -- (10) -------- -------- ------ ------- -------- Net increase (decrease) in cash and cash equivalents 3,126 (3,712) 947 -- 361 Cash and cash equivalents at beginning of year 99,067 4,232 5,432 -- 108,731 -------- -------- ------ ------- -------- Cash and cash equivalents at end of period $102,193 $ 520 $6,379 $ -- $109,092 ======== ======== ====== ======= ========

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

EDO Corporation Parent Subsidiary Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------ ---------- -------------- ------------ ------------ Continuing Operations: Net Sales $50,690 $92,941 $ 6,801 $ 5,680 $156,112 Costs and expenses: Cost of sales 41,914 65,971 4,795 5,680 118,360 Selling, general and administrative 3,806 14,786 1,422 -- 20,014 Research and development 1,639 2,092 263 -- 3,994 Environmental cost provision, Deer Park 1,250 -- -- -- 1,250 ------- ------- ------- ------- -------- 48,609 82,849 6,480 5,680 143,618

EDO Corporation Subsidiary Parent Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------------- ---------- -------------- ------------ ------------ Continuing Operations: Net Sales $86,940 $179,006 $14,205 $(7,531) $272,620 Costs and expenses: Cost of sales 71,604 129,147 10,194 (7,531) 203,414 Selling, general and administrative 7,534 29,754 3,014 -- 40,302 Research and development 3,022 4,861 529 -- 8,412 Environmental provision, Deer Park facility 1,250 -- -- -- 1,250 ------- -------- ------- ------- -------- 83,410 163,762 13,737 (7,531) 253,378 ------- -------- ------- ------- -------- Operating Earnings 3,530 15,244 468 -- 19,242 Non-operating income (expense) Interest income 709 28 58 -- 795 Interest expense (4,465) -- -- -- (4,465) Other, net 11 23 (94) -- (60) ------- -------- ------- ------- -------- (3,745) 51 (36) -- (3,730) (Loss) earnings from income taxes (215) 15,295 432 -- 15,512 Income tax expense (133) (6,085) (297) -- (6,515) ------- -------- ------- ------- -------- (loss) earnings after income taxes (348) 9,210 135 -- 8,997 Equity in undistributed earnings of subsidiaries 9,345 -- -- (9,345) -- ------- -------- ------- ------- -------- Net earnings $ 8,997 $ 9,210 $ 135 $(9,345) $ 8,997 ======= ======== ======= ======= ========

EDO Corporation Subsidiary Parent Company Only Guarantors Non-Guarantors Eliminations Consolidated ------------------- ---------- -------------- ------------ ------------ OPERATING ACTIVITIES: Earnings from continuing operations $ 8,997 $ 9,210 $ 135 $(9,345) $ 8,997 Adjustments to earnings to arrive at cash provided (used) by continuing operations: Depreciation 2,291 2,386 265 -- 4,942 Amortization -- 2,112 509 -- 2,621 Deferred tax benefit 113 -- -- -- 113 Bad debt expense 184 640 -- -- 824 Environmental cost provision, Deer Park facility 1,250 -- -- -- 1,250 Deferred compensation expense 866 -- -- -- 866 Employee Stock Ownership Plan compensation expense 2,550 -- -- -- 2,550 Dividends on unallocated Employee Stock Ownership Plan shares 128 -- -- -- 128

THREE MONTHS ENDED --------------------- INCREASE/(DECREASE) JUNE 24, JUNE 25, FROM SEGMENT 2006 2005 PRIOR PERIOD ------- -------- -------- ------------------- (DOLLARS IN THOUSANDS) Engineered Systems & Services......... $ 62,164 $ 61,638 0.9% Electronic Systems & Communications... 90,234 94,474 (4.5%) -------- -------- ---- Total................................. $152,398 $156,112 (2.4%) ======== ======== ====

THREE MONTHS ENDED --------------------- JUNE 24, JUNE 25, SEGMENT 2006 2005 ------- -------- -------- (DOLLARS IN THOUSANDS) Engineered Systems & Services....................... $1,589 $ 2,396 Electronic Systems & Communications ................ 4,243 11,348 Environmental cost provision, Deer Park facility... -- (1,250) ------ ------- Total............................................... $5,832 $12,494 ====== =======

THREE MONTHS ENDED --------------------- JUNE 24, JUNE 25, 2006 2005 -------- -------- (DOLLARS IN THOUSANDS) Pension......................... $1,194 $1,069 ESOP Compensation expense....... $1,149 $1,236 Intangible asset amortization... $1,802 $1,311 ------ ------ $4,145 $3,616 ====== ======

SIX MONTHS ENDED --------------------- INCREASE/(DECREASE) JUNE 24, JUNE 25, FROM SEGMENT 2006 2005 PRIOR PERIOD ------- -------- -------- ------------------- (DOLLARS IN THOUSANDS) Engineered Systems & Services......... $121,430 $112,661 7.8% Electronic Systems & Communications... 150,677 159,959 (5.8%) -------- -------- ---- Total................................. $272,107 $272,620 (0.2%) ======== ======== ====

SIX MONTHS ENDED ---------------------- JUNE 24, JUNE 25, SEGMENT 2006 2005 ------- -------- ------- (DOLLARS IN THOUSANDS) Engineered Systems & Services ...................... $3,217 $ 6,163 Electronic Systems & Communications ................ 2,516 14,329 Environmental cost provision, Deer Park facility ... -- (1,250) ------ ------- Total .............................................. $5,733 $19,242 ====== =======

SIX MONTHS ENDED ---------------------- JUNE 24, JUNE 25, 2006 2005 -------- -------- (DOLLARS IN THOUSANDS) Pension ......................................... $2,388 $2,139 ESOP compensation expense ....................... $2,335 $2,550 Intangible asset amortization ................... $3,414 $2,621 Stock-based compensation expense for options .... $ 877 $ -- ------ ------ $9,014 $7,310 ====== ======

2011 AND COMMITMENTS AND CONTRACTUAL OBLIGATIONS: TOTAL 2006 2007 2008 2009 2010 BEYOND ---------------------------------------- ------ ---- ---- ---- ---- ---- -------- Note payable ........................... $ 7.0 $2.0 $2.0 $3.0 $-- $-- $ -- 4.0% Convertible Subordinated Notes due 2025(1) ............................. $201.2 -- -- -- -- -- $201.2

Director Votes For Votes Withheld -------- ------------- -------------- Robert E. Allen 16,641,038.00 766,223.00 Robert Alvine 16,904,746.00 503,015.00 Dennis C. Blair 17,265,806.00 141,955.00 Robert M. Hanisee 16,451,666.00 956,095.00 Michael J. Hegarty 16,336,647.00 1,071,114.00 Leslie F. Kenne 17,309,094.00 98,667.00 Paul J. Kern 17,309,008.00 98,753.00 Ronald L. Leach 16,860,866.00 546,895.00 James Roth 17,308,100.00 99,661.00 James M. Smith 16,718,732.00 689,029.00 Robert S. Tyrer 16,861,128.00 546,633.00 Robert Walmsley 16,860,851.00 546,910.00

DATE OF REPORT ITEMS REPORTED -------------- -------------- April 27, 2006 Earnings Release dated April 27, 2006 announcing financial results for the quarter ended March 25, 2006.

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