ANALOGIC CORP - 10-Q Quarterly Report

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

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FORM 10-Q

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

FOR THE PERIOD ENDED JANUARY 31, 2003

OR

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

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-6715

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

MASSACHUSETTS 04-2454372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8 CENTENNIAL DRIVE, 01960
PEABODY, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)

(978) 977-3000
(Registrant's telephone number, including area code)

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(Former name, former address and former fiscal year, if changed since last
report.)

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

The number of shares of Common Stock outstanding at March 6, 2003 was
13,362,501.
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ANALOGIC CORPORATION

INDEX

1

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)

The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
2

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
3

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)

The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
4

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE DATA)

1. BASIS OF PRESENTATION:

The unaudited condensed consolidated financial statements of Analogic
Corporation (the "Company") presented herein have been prepared pursuant to the
rules of the Securities and Exchange Commission for quarterly reports on Form
10-Q and do not include all of the information and note disclosures required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, the accompanying
unaudited condensed consolidated financial statements contain all adjustments
(consisting solely of normal recurring adjustments) necessary for a fair
presentation of the results for all periods presented. The results of operations
for the three and six months ended January 31, 2003, are not necessarily
indicative of the results to be expected for the fiscal year ending July 31,
2003, or any other interim period.

These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended July 31, 2002,
included in the Company's Form 10-K as filed with the Securities and Exchange
Commission on October 25, 2002.

The financial statements have not been audited by independent certified
public accountants. The condensed consolidated balance sheet as of July 31,
2002, contains data derived from audited financial statements.

Certain financial statement items have been reclassified to conform to the
current year's financial presentation format.

2. BALANCE SHEET INFORMATION:

Additional information for certain balance sheet accounts is as follows for
the dates indicated:

5

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

3. BUSINESS COMBINATIONS:

During October 2002, Anrad Corporation, the Company's wholly owned
subsidiary located in Saint-Laurent, Quebec, purchased the remaining 52% of the
outstanding common stock of FTNI, Inc. ("FTNI") for $2,407 in cash. FTNI was
founded by three Canadian companies in April 1997 to develop products for
medical and industrial applications. Noranda Advanced Materials, which was one
of the FTNI founders with a 48% ownership interest, was acquired by the Company
in 1999 and renamed Anrad. With the purchase of the remaining shares of FTNI,
Anrad has full ownership rights and access to FTNI's basic technology and
intellectual property. Upon completion of this transaction, Anrad's total
investment in FTNI amounted to approximately $2,746 of which approximately
$2,019 was determined to be intellectual property and $727 represented the fair
value of tangible net assets, primarily cash. The intellectual property will be
amortized over its estimated useful life of five years. The supplemental
pro-forma information disclosing the results of operations has not been
presented due to its immateriality.

On November 6, 2002, the Company's newly formed subsidiary, Sound
Technology, Inc. ("STI"), acquired certain assets and liabilities of the Sound
Technology business unit, located in State College, PA, from Acuson Corporation,
a wholly owned subsidiary of Siemens Corporation, for approximately $10,100 in
cash. STI produces linear and tightly curved array ultrasound transducers and
probes for a broad range of clinical applications that are supplied to medical
equipment companies worldwide. The Company's acquisition cost of $10,100 was
subsequently reduced by approximately $200 reflecting estimated post-closing
purchase price adjustments. As a result, the net investment of $9,900 consists
of approximately $2,800 of tangible net assets acquired and approximately $7,100
of intellectual property and other intangible assets. The intellectual property
and other intangible assets will be amortized over their estimated useful life
of five years. The supplemental pro-forma information disclosing the results of
operations has not been presented due to their immateriality.

Also, on November 6, 2002, the Company's subsidiary, Camtronics Medical
Systems, Ltd., acquired all the shares of VMI Medical, Inc. ("VMI"), of Ottawa,
Canada. VMI is a medical information software company specializing in clinical
database, workflow automation and business improvement solutions for children's
heart centers. VMI was acquired for approximately $2,000 in cash, payable over a
two year period, and future contingent consideration, which will be based upon
the combined companies achieving certain performance criteria over specific time
periods. The future contingent purchase price consideration at the date of
acquisition was estimated to range from $5,000-$7,000. The Company has not
recognized this future contingent purchase price consideration on its books as
an investment or future liability. Once the contingency is resolved and the
consideration is determinable, the Company will then record this purchase price
adjustment. The Company paid $2,000 in cash related to the acquisition, assumed
approximately $1,400 in net liabilities and acquired intellectual property
valued at $3,400. The supplemental pro-forma information disclosing the results
of operations has not been presented due to its immateriality.

4. INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES:

Summarized results of operations of the Company's partially owned equity
affiliates are as follows:

6

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

5. GOODWILL AND INTANGIBLE ASSETS:

As of August 1, 2002, Analogic adopted Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" ("SFAS No.
142"). Under SFAS No. 142, goodwill and certain other intangible assets with
indefinite lives are no longer amortized, but instead are reviewed for
impairment annually, or more frequently if impairment indicators arise. In
connection with the adoption of SFAS No. 142, the Company was required to
perform a transitional impairment assessment of goodwill within six months of
adoption of this standard. SFAS No. 142 requires that the Company identify its
reporting units and determine the carrying value of each of those reporting
units by assigning assets and liabilities, including existing goodwill and
intangible assets, to those reporting units. The Company assigned the entire
balance of goodwill to Imaging Technology Products for the purpose of performing
the transitional impairment test. The Company completed its transitional
impairment assessment of goodwill during the first quarter ended October 31,
2002, and determined that goodwill was not impaired.

Goodwill increased from $258 at July 31, 2002 to $6,090 at January 31, 2003
due to the Company paying a premium in connection with the acquisition of VMI
and FTNI and other intangible assets. The entire goodwill balance is included
within the Imaging Technology Products segment. None of the goodwill is
deductible for tax purposes.

The following table reflects the unaudited net income, as adjusted, of the
Company, giving effect to SFAS No. 142 as if it were adopted on August 1, 2001:

Intangible assets at January 31, 2003 and July 2002, which will continue to
be amortized, consisted of the following:

Intellectual property increased by approximately $9,200 since July 31,
2002. This increase relates to the acquisition of intellectual property from STI
of approximately $7,100 and FTNI of approximately $2,100.

7

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

The estimated amortization expense of intangible assets for the six months
remaining in the current fiscal year, and each of the five succeeding years, is
expected to be as follows:

2003 (Remaining 6 months)................................... $1,644
2004........................................................ 3,246
2005........................................................ 3,240
2006........................................................ 3,240
2007........................................................ 2,005
2008........................................................ 521

6. NET INCOME (LOSS) PER SHARE:

Basic earnings per share are computed using the weighted average number of
common shares outstanding during the period. Diluted earnings per share are
computed using the sum of the weighted average number of common stock
outstanding during the period and, if dilutive, the weighted average number of
potential shares of common stock including invested restricted stock and from
the assumed exercise of stock options using the treasury stock method.

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

Options to purchase 7 and 367 shares of common stock with exercise prices
greater than the average market price of the Company's common stock during the
three months ended January 31, 2003 and 2002 were outstanding as of January 31,
2003 and 2002, respectively, and were not included in the computation of diluted
earnings per share because their inclusion would have been antidilutive.

Options to purchase 830 and 802 shares of common stock with exercise prices
greater than the average market price of the Company's common stock during the
six months ended January 31, 2003 and 2002, were outstanding as of January 31,
2003 and 2002, respectively, were not included in the computation of diluted
earnings per share because their inclusion would have been antidilutive. In
addition, 147 shares of unvested restricted common stock were excluded from the
computation of diluted earnings per share for the six months ended January 31,
2002, because their inclusion would have been antidilutive.

8

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

7. DIVIDENDS:

The Company declared dividends of $.08 per common share on December 11,
2002, payable January 7, 2003 to shareholders of record on December 24, 2002;
and $.08 per common share on October 15, 2002 payable November 12, 2002 to
shareholders of record on October 29, 2002.

8. COMPREHENSIVE INCOME (LOSS):

The following table presents the calculation of total comprehensive income
(loss) and its components:

9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

Changes in operating assets and liabilities, net of the impact due to
acquisitions, are as follows:

10. TAXES:

The effective tax rate for the three and six months ended January 31, 2003
was 38% as compared to 20% for the same periods last year. This increase in the
effective tax rate was due primarily to the less significant

9

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

impact of the benefit of both tax exempt interest and the extraterritorial
income exclusion as a percentage of pre-tax income.

11. SEGMENT INFORMATION:

The Company operates primarily within two segments within the electronics
industry: Imaging Technology Products (consisting of medical and security
imaging products) and Signal Processing Technology Products. Imaging Technology
Products consist primarily of electronic systems and subsystems for medical
imaging equipment and advanced explosive detection systems. Signal Processing
Technology Products consist of Analog to Digital (A/D) converters and supporting
modules, and high-speed digital signal processors. The Company's Corporate and
Other represents the Company's hotel business and net interest income. Assets of
Corporate and Other consist primarily of the Company's cash equivalents,
marketable securities, fixed and other assets, not specifically identifiable.
The table below presents information about the Company's reportable segments:

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(A) Includes asset impairment charges on a pre-tax basis of $8,883 during the
six months ended January 31, 2002.
(B) Includes cash equivalents and marketable securities of $171,978 and $174,336
at January 31, 2003, and July 31, 2002, respectively.

12. GUARANTOR ARRANGEMENTS:

In November 2002, the Financial Accounting Standard Board ("FASB") issued
FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness

10

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

of Others", an interpretation of FASB Statements No. 5, 57, and 107 and
rescission of FASB Interpretation No. 34 ("FIN 45"). Fin 45 requires a guarantor
to recognize, at the inception of a guarantee, a liability for the fair value of
the obligation undertaken by issuing the guarantee. Fin 45 also requires
additional disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under certain guarantees it has
issued. The accounting requirements for the initial recognition of guarantees
are applicable on a prospective basis for guarantees issued or modified after
December 31, 2002. The disclosure requirements are effective for all guarantees
outstanding, regardless of when they were issued or modified, for financial
statements of interim or annual periods ending after December 15, 2002. The
adoption of FIN 45 did not have a material effect on the Company's consolidated
financial statements. The following is a summary of agreements that the Company
determined are within the scope of FIN 45.

The Company has agreements whereby it indemnifies its officers and
directors for certain events or occurrences while the officer or director is, or
was serving, at the Company's request in such capacity. The term of the
indemnification period is for the officer's or director's lifetime. The
potential amount of future payments the Company could be required to make under
these indemnification agreements is unlimited. Also, to the extent permitted by
Massachusetts law, the Company's Articles of Organization, require the Company
to indemnify directors of the Company and the Company's By-laws require the
Company to indemnify the present or former directors and officers of the
Company, and also permit indemnification of other employees and agents of the
Company for whom the Board of Directors from time to time authorizes
indemnification. In no instance, however, will indemnification be granted to a
director otherwise entitled thereto who is determined to have (a) committed a
breach of loyalty to the Company or its stockholders, (b) committed acts or
omissions not in good faith or which involved intentional misconduct or a
knowing violation of the law, or (c) derived any improper personal benefit in
connection with a particular transaction. Because no claim for indemnification
has been made by any person covered by said agreements, and/or the relevant
provisions of the Company's Articles or By-laws, the Company believes that its
estimated exposure for these indemnification obligations is currently minimal.
Accordingly, the Company has no liabilities recorded for these indemnity
agreements and requirements as of January 31, 2003.

The Company's standard original equipment manufacturing and supply
agreements entered in the Company's ordinary course of business typically
contain an indemnification provision pursuant to which the Company indemnifies,
holds harmless, and agrees to reimburse the indemnified party for losses
suffered or incurred by the indemnified party in connection with any United
States patent, or any copyright or other intellectual property infringement
claim by any third party with respect to the Company's products. Such provisions
generally survive termination or expiration of the agreements. The potential
amount of future payments the Company could be required to make under these
indemnification provisions is, in some instances, unlimited. The Company has
never incurred costs to defend lawsuits or settle claims related to these
indemnification agreements. As a result, the Company believes that its estimated
exposure on these agreements is currently minimal. Accordingly, the Company has
no liabilities recorded for these agreements as of January 31, 2003.

In fiscal 2002, the Company acquired a 19% interest in Cedara Software
Corporation ("Cedara") of Mississauga, Ontario, Canada. As part of the Company's
investment agreement, the Company has guaranteed certain debt owed by Cedara to
its bank lender through the provision of a credit facility with the Company's
principal bank for approximately $6,300. During December 2002, the Company
agreed to further guarantee an increase in the credit facility from
approximately $6,300 to $9,800 based upon Cedara's funding requirements. To
date, no claims have been asserted against the Company in connection with the
guarantee of Cedara's debt. Accordingly, the Company has no liabilities recorded
in connection with the Cedara guarantee as of January 31, 2003.

11

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

The Company warrants that its products will perform in all material
respects in accordance with its standard published specification in effect at
the time of delivery of the products to the customer for a period ranging from
12 to 18 months from the date of delivery. The Company provides for the
estimated cost of product and service warranties based on specific warranty
claims, claim history and engineering estimates, where applicable.

The following table presents the Company's product warranty liability for
the reporting periods:

13. EXPLOSIVE ASSESSMENT COMPUTED TOMOGRAPHY ("EXACT") SYSTEMS AGREEMENT:

The Company announced in April 2002 that it had entered into an agreement
to supply up to 1,000 of its EXACT systems to L-3 Communications' Security and
Detection System division ("L-3"). The EXACT is the core system of L-3's
Examiner 3DX6000 certified Explosive Detection System that is being purchased by
the United States Transportation Security Administration ("TSA") and installed
at major airports across the United States.

The Company recognizes product revenue upon shipment of EXACT systems and
spare parts to L-3, at which time all revenue recognition criteria have been
met. During the first quarter of fiscal 2003, the Company received firm orders
from L-3 for 245 additional systems. These orders brought the total number of
systems that had been ordered by L-3 for delivery to the TSA to 425. The Company
shipped all 425 EXACT systems by December 31, 2002.

In December 2002, the Company received a purchase order from L-3 to deliver
an additional 75 EXACT systems during the first four months of calendar 2003 for
foreign and other anticipated orders. The Company believes that additional
orders for EXACT systems should be forthcoming. At this time, the Company does
not know when such orders will be placed or the quantities that will be
required. The Company therefore expects that security imaging revenues may vary
significantly from quarter to quarter.

The Company recorded cash received from L-3 for the purchase of
long-lead-time inventory components in the advance payments and deferred revenue
account within the liabilities section of the balance sheet. These payments are
not recognized as revenue until the systems to which the inventory components
relate have been shipped. As of January 31, 2003, the Company had a remaining
balance of $8,850 recorded within the advance payments and deferred revenue
account related to long-lead purchases.

The agreement also provided for the Company to receive $22,000 of ramp-up
funds for the purpose of leasing and fitting up a facility and ensuring the
availability of key critical raw material and inventory components from
suppliers to meet the production and volume requirements of this contract. These
costs incurred and assets purchased are fully reimbursed by L-3. The Company has
not recorded any revenues, costs or assets related to these ramp-up funds. All
cash received for ramp-up activities is recorded within the advance payments and
deferred revenue account within the liability section of the balance sheet.
These

12

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)

liabilities are reduced as the cash is spent on these activities. As of January
31, 2003, the Company had a balance of $7,210 of unexpended ramp-up funds
recorded within the advance payments and deferred revenue account.

In addition to the $22,000 of ramp-up funds provided by L-3 on behalf of
the TSA, the Company has spent approximately $5,700 of its own funds for the
purchase of manufacturing and office equipment, which was capitalized during the
six months ended January 31, 2003.

14. RECENT ACCOUNTING PRONOUNCEMENTS:

In December 2002, the Financial Accounting Standard Board ("FASB") issued
SFAS No. 148, "Accounting for Stock Based Compensation -- Transition and
Disclosure -- an amendment of FASB Statement No. 123" ("SFAS 148"). SAFS 148
provides for alternative methods of voluntary transition to the fair value based
method of accounting for stock-based employee compensation, and it requires more
prominent disclosures, in both interim and annual financial statements, about
the method of accounting for stock-based employee compensation and the effect of
the method used on reported financial results. SFAS 148 is effective for interim
periods beginning after December 15, 2002, and for annual periods ending after
December 15, 2002. As provided for in FAS No. 123, the Company has elected to
apply Accounting Principals Board ("APB") No. 25 "Accounting for Stock Issued to
Employees" and related interpretations in accounting for the Company's stock
based compensation plans. APB No. 25 does not require options to be expensed
when granted with an exercise price equal to fair market value. We intend to
continue to apply the provisions of APB No. 25. The Company plans to make the
required disclosures in the quarter ending April 30, 2003.

In November 2002, the EITF reached a consensus on issue 00-21, "Revenue
Arrangements with Multiple Deliverables" ("EITF 00-21"). EITF 00-21 addresses
revenue recognition on arrangements encompassing multiple elements that are
delivered at different points in time, defining criteria that must be met for
elements to be considered to be a separate unit of accounting. If an element is
determined to be a separate unit of accounting, the revenue for the element is
recognized at the time of delivery. The Company does not expect that the
pronouncement will have a material impact on its financial position or results
of operations.

In January 2003, the Financial Accounting Standards Board ("FASB") issued
Financial Accounting Standards Board Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). FIN 46 requires that if an entity has a
controlling financial interest in a variable interest entity, the assets,
liabilities and results of activities of the variable interest entity should be
included in the consolidated financial statements of the entity. FIN 46 is
effective immediately for all new variable interest entities created or acquired
after January 31, 2003. For variable interest entities created or acquired prior
to January 31, 2003, the provisions of FIN 46 must be applied for the first
interim or annual period beginning after June 15, 2003. The Company is in the
process of assessing what effect, if any, the adoption of FIN 46 will have on
its financial position or results of operations.

15. SUBSEQUENT EVENTS:

On February 3, 2003, the Company announced that it is planning to construct
a 100,000 square foot addition to its headquarters in Peabody, Massachusetts.
This two-story addition will enable the Company to further consolidate its
existing Massachusetts operations and to expand production capacity for its
medical and security imaging system business.

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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion provides an analysis of the Company's financial
condition and results of operations and should be read in conjunction with the
Unaudited Condensed Consolidated Financial Statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q. The discussion below contains
forward-looking statements within the meaning of the Securities Exchange Act of
1934. All statements, other than statements of historical fact, the Company
makes in this document or in any document incorporated by reference are
forward-looking. Such forward-looking statements involve known and unknown
risks, uncertainties, and other factors, which may cause the actual results,
performance, or achievements of the Company to differ from the projected
results. See "Business Environment and Risk Factors" beginning on page 20.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATES:

REVENUE RECOGNITION

The Company recognizes revenue in accordance with SEC Staff Accounting
Bulletin No. 101 "Revenue Recognition in Financial Statements" ("SAB 101").
Revenue related to product sales is recognized upon shipment provided that title
and risk of loss has passed to the customer, there is persuasive evidence of an
arrangement, the sales price is fixed or determinable, collection of the related
receivable is reasonably assured and customer acceptance criteria, if any, have
been successfully demonstrated. For product sales with acceptance criteria that
are not successfully demonstrated prior to shipment, revenue is recognized upon
customer acceptance provided all other revenue recognition criteria have been
met. Hardware maintenance revenues are recognized ratably over the life of the
contracts. For business units that sell software licenses, the Company
recognizes revenue in accordance with the AICPA's Statement of Position 97-2,
"Software Revenue Recognition." The application of SOP 97-2 requires judgment,
including whether a software arrangement includes multiple elements, and if so,
whether vendor-specific objective evidence (VSOE) of fair value exists for those
elements. License revenue is recognized upon delivery, provided that persuasive
evidence of an arrangement exists, no significant obligations with regards to
installation or implementation of the software remain, fees are fixed or
determinable, collectibility is reasonably assured and customer acceptance, when
applicable, is obtained. Software maintenance revenues are recognized ratably
over the life of the contracts. Service revenues are recognized at the time the
services are rendered. The Company provides engineering services to some of its
customers on a contractual basis and recognizes revenue using the percentage of
completion method. The Company estimates the percentage of completion on
contracts with fixed fees on a monthly basis utilizing hours incurred to date as
a percentage of total estimated hours to complete the project. If the Company
does not have a sufficient basis to measure progress towards completion, revenue
is recognized upon completion of the contract. When total cost estimates exceed
revenues, the Company accrues for the estimated losses immediately. Revenue
related to the hotel operations is recognized as services are performed.

INVENTORIES

The Company values inventory at the lower of cost or market using the
first-in, first-out (FIFO) method. Management assesses the recoverability of
inventory based on types and levels of inventory held, forecasted demand and
changes in technology. These assessments require management judgments and
estimates, and valuation adjustments for excess and obsolete inventory may be
recorded based on these assessments.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
marketable securities and accounts receivable. The Company places its cash
investments and marketable securities in high credit quality financial
instruments and, by policy, limits the amount of credit exposure to any one
financial institution. The Company grants credit to domestic and foreign
original equipment manufacturers, distributors and end users, performs ongoing
credit evaluations and adjusts credit limits based upon payment history and the
customer's current creditworthiness. The Company

14

continuously monitors collections and payments from its customers and maintains
a provision for estimated credit losses based upon historical experience and any
specific customer collections issues that have been identified. While such
credit losses have historically been within expectations and provisions
established, there is no guarantee that the Company will continue to experience
the same credit loss rates as in the past. Since the accounts receivable are
concentrated in a relatively few number of customers, a significant change in
liquidity or financial position of any one of these customers could have a
material adverse impact on the collectability of accounts receivables and future
operating results.

WARRANTY RESERVE

The Company provides for the estimated cost of product warranties at the
time products are shipped. Although the Company engages in extensive product
quality programs and processes, its warranty obligation is affected by product
failure rates and service delivery costs incurred in correcting a product
failure. Should actual product failure rates or service costs differ from the
Company's estimates, which are based on specific warranty claims, historical
data and engineering estimates, where applicable, revisions to the estimated
warranty liability would be required. Such revisions could adversely affect the
Company's operating results.

INVESTMENTS IN AND ADVANCES TO AFFILIATED COMPANIES

The Company has several investments in affiliated companies related to
areas of the Company's strategic focus. The Company accounts for these
investments using the equity method of accounting. In assessing the
recoverability of these investments, the Company must make certain assumptions
and judgments based on changes in the Company's overall business strategy, the
financial condition of the affiliated companies, market conditions and the
industry and economic environment in which the entity operates. Adverse changes
in market conditions or poor operating results of affiliated companies could
result in losses or an inability to recover the carrying value of the
investments, thereby requiring an impairment charge in the future.

INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

Intangible assets consist of goodwill, intellectual property, licenses, and
capitalized software. Other long-lived assets consist primarily of property,
plant, and equipment. Intangible assets and property, plant, and equipment,
excluding goodwill, are amortized using the straight-line method over their
estimated useful life. The carrying value of goodwill and other intangible
assets is reviewed on a quarterly basis for the existence of facts and
circumstances both internally and externally that may suggest impairment. The
Company determines whether impairment has occurred based on gross expected
future cash flows, and measures the amount of impairment based on the related
future discounted cash flows. To date, no such impairment has occurred. Factors
which the Company considers important and that could trigger an impairment
review include significant underperformance relative to expected historical or
projected future operating results and significant negative industry or economic
trends. The cash flow estimates used to determine impairment, if any, contain
management's best estimates, using appropriate and customary assumptions and
projections at the time. In accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets," the Company has ceased amortizing goodwill as of August 1,
2002 and will annually review the goodwill for potential impairment as well as
on an event-driven basis, using a fair value approach.

INCOME TAXES

As part of the process of preparing the Company's financial statements, the
Company is required to estimate its income taxes in each of the jurisdictions in
which it operates. This process involves estimating actual current tax exposure
together with assessing temporary differences resulting from different treatment
of items for tax and accounting purposes. These differences result in deferred
tax assets and liabilities, which are included within the balance sheet. The
Company must then assess the likelihood that the deferred tax assets will be
recovered from future taxable income and, to the extent that recovery is not
likely, a valuation allowance must be established. To the extent a valuation
allowance is established, the Company must include

15

an expense within the tax provision in the statement of operations. In the event
that actual results differ from these estimates, the provision for income taxes
could be materially impacted.

RESULTS OF OPERATIONS

SIX MONTHS FISCAL 2003 (01/31/03) VS. SIX MONTHS FISCAL 2002 (01/31/02)

Product revenue for the six months ended January 31, 2003 was $280,048 as
compared to $131,750 for the same period last year, an increase of 113%. The
increase of $148,298 was primarily due to an increase of $156,525 in sales of
Medical and Security Imaging Products, offset by a reduction in sales of Signal
Processing Technology Products in the amount of $8,227 due primarily to lower
demand for embedded multiprocessing equipment. Of the increased sales amount,
$160,815 represents sales of EXACT systems and spare parts, $5,074 represents
sales by Sound Technology Inc. ("STI"), and $9,364 represents sales due to
increased demand for the Company's Data Acquisitions Systems. These revenues
were partially offset by a decrease of $18,728 primarily due to a reduction in
sales of mid-range Computed Tomography ("CT") medical systems previously
supplied to Philips. The Company believes that additional orders for EXACT
systems should be forthcoming. At this time, the Company does not know when such
orders will be placed or the quantities that will be required. The Company
therefore expects that security imaging revenues may vary significantly quarter
to quarter.

Engineering revenue for the six months ended January 31, 2003 was $11,855
compared to $11,738 for the same period last years, an increase of 1%.

Other revenue of $4,366 and $4,924 represents revenue from the Hotel
operation for the six months ended January 31, 2003 and 2002, respectively. The
decrease in revenue is attributable to lower occupancy due to the economic
decline in the travel and lodging industries.

Cost of product sales was $160,261 and $83,686 for the six months ended
January 31, 2003 and 2002, respectively. Cost of product sales, as a percentage
of product revenue was 57% for the six months ended January 31, 2003 compared to
64% for the same period last year. The decrease in the cost of product sales
percentage over the prior year was primarily attributable to the increased sales
of security imaging technology products, which have lower cost of sales than
most of the Company's other products.

Cost of engineering sales was $8,403 for the six months ended January 31,
2003 compared to $11,854 for the same period least year. The total cost of
engineering sales as a percentage of engineering revenue decreased to 71% for
the six months ended January 31, 2003 from 101% for the six months ended January
31, 2002. This percentage decrease was primarily attributable to license revenue
recognized in the six months ended January 31, 2003 for which there was no
associated cost.

Research and product development expenses were $25,948 for the six months
ended January 31, 2003, or 9% of total revenue, as compared to $20,544 for the
same period last year, or 14% of total revenue. The increase of $5,404 was due
to the Company continuing to focus substantial resources in developing new
generations of medical imaging equipment, including innovative CT systems for
niche markets, advanced digital X-ray systems and subsystems for general
radiography and mammography, and an extended family of multislice CT Data
Acquisition Systems for both medical and security markets. In addition, the
Company is developing security imaging systems for a variety of applications.
The Company is in the initial stages of testing prototypes of an automated,
CT-based portal screening system that can scan carry-on baggage at airports,
"carry-in" baggage at public buildings, and parcels for corporations and
delivery services. In addition, the Company continues to increase its investment
in a number of other development projects to meet diverse, evolving security
needs in the United States and abroad.

Selling and marketing expenses were $16,792 for the six months ended
January 31, 2003, or 6% of the total revenue, as compared to $16,441 or 11% of
total revenue for the same period last year. The increase of $351 is primarily
associated with additional selling and marketing efforts by the Company's
subsidiaries, Camtronics Medical Systems, Ltd. and B-K Medical Systems A/S.

16

General and administrative expenses were $16,932, or 6% of total revenue,
for the six months ended January 31, 2003 as compared to $14,776, or 10% of
total revenue, for the same period last year. The increase of $2,156 was due
primarily attributable to increased salaries, bonuses paid and accrued,
provisions made for the 401(k)/profit sharing plan of approximately $800, bad
debt expenses of approximately $600 primarily related to an unsecured note
receivable, amortization of approximately $700 related to acquired intangible
assets, and approximately $300 related to incremental costs due to the
acquisition of Sound Technology Inc., partially offset by a reduction of
approximately $300 in outside consulting services.

Interest income was $2,509 for the six months ended January 31, 2003 as
compared with $2,270 for the same period last year. The increase of $239 was
primarily the result of higher invested cash balances partially offset by lower
effective interest rates on short-term investments.

The Company recorded a loss of $1,589 related to equity in unconsolidated
affiliates for the six months ended January 31, 2003 as compared to a gain of
$1,369 for the same period last year. The equity loss consists primarily of $790
and $932 reflecting the Company's share of losses in Shenzhen Anke High-Tech
Co., Ltd. ("SAHCO") and Cedara Software Corp., respectively, for the six months
ended January 31, 2003, compared with gains from these companies of $333 and
$227, respectively, for the same period last year. For the six months ended
January 31, 2003 and 2002, the Company also recorded a gain in equity of $160
and $825, respectively, reflecting the Company's share of profit in Enhanced CT
Technology LLC.

Other income was $481 for the six months ended January 31, 2003 compared to
a loss of $114 for the same period last year. Other income for the first six
months of fiscal 2003 represents primarily currency exchange gains from the
Company's Canadian subsidiary, versus currency exchange losses for the same
period last year for the Company's Canadian and Danish subsidiaries.

The effective tax rate for the six months ended January 31, 2003 was 38%
versus 20% for the same period last year. This increase in the effective tax
rate was due primarily to the less significant impact of the benefit of both
tax-exempt interest and extraterritorial income exclusion as percentage of
pretax income.

Net income for the six months ended January 31, 2003 was $41,427 or $3.14
per basic share and $3.11 per diluted share as compared to a net loss of $5,765
or $ 0.44 per basic and diluted share for the same period last year. The
increase in net income over the prior year was primarily the result of increased
revenue and profit derived from the sale of EXACT systems. The prior year's loss
included a pre-tax asset impairment charge of $8,883 related to certain assets
of the Company's Anatel subsidiary and its Test and Measurement division.

RESULTS OF OPERATIONS

SECOND QUARTER FISCAL 2003 (01/31/03) VS. SECOND QUARTER FISCAL 2002
(01/31/02)

Product revenue for the three months ended January 31, 2003 was $153,402 as
compared to $66,397 for the same period last year, an increase of $87,005 or
131%. The increase was primarily due to $90,644 in sales of Medical and Security
Imaging Products offset by a decrease of $3,639 of sales of Signal Processing
Technology Products due to lower demand for embedded multiprocessing equipment.
Of the increased sales amount $87,961 represents sales of EXACT systems and
spare parts, and $5,074 represents sales by STI. These increases were partially
offset by a decrease of $8,073 primarily due to a reduction of sales of
mid-range Computed Tomography ("CT") medical systems previously supplied to
Philips and, to a lesser extent, a decline in sales of Direct Digital
Radiography systems. The Company believes that additional orders for EXACT
systems should be forthcoming. At this time, the Company does not know when such
orders will be placed or the quantities that will be required. The Company
therefore expects that security imaging revenues may vary significantly from
quarter to quarter.

Engineering revenue for the three months ended January 31, 2003 was $5,475
compared to $4,261 for the same period last year, an increase of $1,214. The
increase in engineering revenue was primarily due to an increase in funding for
projects for developing medical and security imaging equipment.

17

Other revenues of $1,690 and $1,952 represent revenue from the Hotel
operation for the three months ended January 31, 2003 and 2002, respectively.
The decrease in revenues was attributable to lower occupancy due to the decline
in the travel and lodging business.

Cost of product sales was $90,392 for the quarter ended January 31, 2003,
compared to $41,619 for the same period last year. Cost of product sales as a
percentage of product revenue was 59% and 63% for the three months ended January
31, 2003 and 2002, respectively. The decrease in the cost of product sales
percentage over the prior year was primarily attributable to the sale of
security imaging technology products, which have lower cost of sales than most
of the Company's other products.

Cost of engineering sales was $3,507 for the three months ended January 31,
2003, compared to $5,231 for the same period last year. The total cost of
engineering sales as a percentage of engineering revenue decreased to 64% for
the three months ended January 31, 2003, from 123% for the same period last
year. The decrease in cost as a percentage of engineering revenue for the three
months ended January 31, 2003 was primarily attributable to improved cost
management related to customer funded projects. In the previous year's quarter,
the Company had several projects, which incurred cost overruns that were not
reimbursable from its customers, resulting in costs exceeding revenues for the
period.

Research and product development expenses were $14,571 for the three months
ended January 31, 2003, or 9% of total revenue, compared to $10,382 for the same
period last year, or 14% of total revenue. The increase of $4,189 was due to the
Company continuing to focus substantial resources in developing new generations
of medical imaging equipment, including innovative CT systems for niche markets,
advanced digital X-ray systems and subsystems for general radiography and
mammography, and an extended family of multislice CT Data Acquisition Systems
for both medical and security markets. In addition, the Company is developing
security imaging systems for a variety of applications. The Company is in the
initial stages of testing prototypes of an automated, CT-based portal screening
system that can scan carry-on baggage at airports, "carry-in" baggage at public
buildings, and parcels for corporations and delivery services. In addition, the
Company continues to increase its investment in a number of other development
projects to meet diverse, evolving security needs in the United States and
abroad.

Selling and marketing expenses were $8,661 for the three months ended
January 31, 2003, or 5% of total revenue, compared to $8,089 or 11% of total
revenue for the same period last year. The increase of $572, was primarily
associated with additional selling and marketing efforts by the Company's
subsidiaries, Camtronics Medical Systems, Ltd. and B-K Medical Systems S/A.

General and administrative expenses were $8,847, or 6% of total revenue,
for the three months ended January 31, 2003, as compared to $6,827 or 9% of
total revenue, for the same period last year. The increase of $2,020 was
primarily attributable to increased salaries, bonuses paid and accrued,
provisions made for the 401(k)/profit-sharing plan of approximately $900,
approximately $500 in amortization related to acquired intangible assets, and
approximately $300 related to incremental costs due to the acquisition of Sound
Technology Inc.

Interest income was $1,221 for the three months ended January 31, 2003,
compared to $1,031 for the same period last year. The increase of $190 was due
to higher invested cash balances partially offset by lower effective interest
rates.

The Company recorded a loss of $603 related to equity in unconsolidated
affiliates for the three months ended January 31, 2003, as compared to a gain of
$631 for the same period last year. The equity loss consists primarily of $321
and $437 reflecting the Company's share of losses in SAHCO and Cedara Software
Corporation, respectively, partially offset by a gain in equity of $160 for the
Company's share of profit in Enhanced CT Technologies LLC. For the three months
ended January 31, 2002, the Company recorded a gain in equity of $227 and $418
reflecting the Company's share of profit in Cedara Software Corporation and
Enhanced CT Technology LLC, respectively.

Other income was $283 for the three months ended January 31, 2003, compared
to a gain of $52 for the same period last year. Other income for the current
quarter primarily represents currency exchange gains from

18

the Company's Canadian subsidiary, versus currency exchange gain for the same
period last year from the Company's Canadian and Danish subsidiaries.

The effective tax rate for the three months ended January 31, 2003 was 38%
versus 20% for the same period last year. This increase in the effective tax
rate was due primarily to the less significant impact of the benefit of both
tax-exempt interest and the extraterritorial income exclusion as a percentage of
pretax income.

Net income for the three months ended January 31, 2003, was $21,256 or
$1.61 per basic share and $1.59 per diluted share as compared to a net income of
$605 or $0.05 per basic and diluted share for the same period last year. The
increase in net income over the prior year was primarily the result of increased
revenue and profit derived from the sales of EXACT systems.

LIQUIDITY AND CAPITAL RESOURCES

The Company's balance sheet reflects a current ratio of 4.0 to 1 at January
31, 2003, and 2.9 to 1 at July 31, 2002. Liquidity is sustained principally
through funds provided from operations, with short-term deposits and marketable
securities available to provide additional sources of cash. The Company places
its cash investments in high credit quality financial instruments and, by
policy, limits the amount of credit exposure to any one financial institution.
The Company's debt to equity ratio was .26 to 1 at January 31, 2003, and .39 to
1 at July 31, 2002. The Company believes that its balances of cash and cash
equivalents, marketable securities and cash flows expected to be generated by
future operating activities will be sufficient to meet its cash requirements
over the next twelve months.

The Company faces limited exposure to financial market risks, including
adverse movements in foreign currency exchange rates and changes in interest
rates. These exposures may change over time as business practices evolve and
could have a material adverse impact on the Company's financial results. The
Company's primary exposure has been related to local currency revenue and
operating expenses in Canada and Europe.

The carrying amounts reflected in the unaudited condensed consolidated
balance sheets of cash and cash equivalents, trade receivables, and trade
payables approximate fair value at January 31, 2003, due to the short maturities
of these instruments.

The Company maintains a bond investment portfolio of various issuers,
types, and maturities. This portfolio is classified on the balance sheet as
either cash and cash equivalents or marketable securities, depending on the
lengths of time to maturity from original purchase. Cash equivalents include all
highly liquid investments with maturities of three months or less from the time
of purchase. Investments having maturities from the time of purchase in excess
of three months are stated at amortized cost, which approximates fair value, and
are classified as available for sale. A rise in interest rates could have an
adverse impact on the fair value of the Company's investment portfolio. The
Company does not currently hedge these interest rate exposures.

Cash flow provided from operations was $25,150 for the first six months of
fiscal 2003 compared to $13,256 during the same period of the prior year. The
increase in cash flows from operations of $11,894 during the first six months of
fiscal 2003 over the prior year period resulted primarily from increases in net
income of $47,192, offset by a significant reduction in advance payments and
deferred revenue of $45,178 primarily related to the EXACT contract with L-3.

Net cash used in investing activities was $12,427 for the first six months
of fiscal 2003 compared to $13,205 for the same period last year. The decrease
in net cash used of $778 was primarily due to reduced capital spending of $4,196
and $2,750 maturities of marketable securities which matured that the Company
decided not to reinvest, offset by increased spending related to business
acquisitions of $5,500.

Net cash flow from financing activities was $91 for the first six months of
fiscal 2003 versus a use of $2,422 for the prior year period. The increase in
financing activities of $2,513 was primarily the result of issuance of stock
pursuant to employee stock option and employee stock purchase plans.

19

The Company's contractual obligations at January 31, 2003, and the effect
such obligations are expected to have on liquidity and cash flows in future
periods are as follows:

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

(A) Includes approximately $3.1 million of lease costs associated with the
Haverhill facility funded by ramp-up monies received by the Company in
connection with the EXACT system order.

(B) Includes approximately $3.0 million of commitments to suppliers for the
production of raw materials and inventory components funded by ramp-up
monies received by the Company in connection with the EXACT system order.

The Company currently has approximately $30,000 in revolving credit
facilities with various banks available for direct borrowings. As of January 31,
2003, there were no direct borrowings. However, the Company has guaranteed
through a provision of a credit facility with its principal bank the debt owed
by Cedara to its bank lender through a provision of a credit facility for
approximately $9,800.

BUSINESS ENVIRONMENT AND RISK FACTORS

FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains statements, which, to the
extent that they are not recitation of historical facts, constitute
"forward-looking statements" pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
all forward-looking statements, including statements about product development,
market and industry trends, strategic initiatives, regulatory approvals, sales,
profits, expenses, price trends, research and development expenses and trends,
and capital expenditures involve risk and uncertainties, and actual events and
results may differ significantly from those indicated in any forward-looking
statements as a result of a number of important factors, including those
discussed below and elsewhere herein.

RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING AN
INVESTMENT DECISION WITH RESPECT TO ANALOGIC COMMON STOCK. ADDITIONAL RISKS NOT
PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL, MAY ALSO IMPAIR OUR
BUSINESS. ANY OF THESE COULD HAVE A MATERIAL AND NEGATIVE EFFECT ON OUR
BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS. BECAUSE A SIGNIFICANT
PORTION OF OUR REVENUE CURRENTLY COMES FROM A SMALL NUMBER OF CUSTOMERS, ANY
DECREASE IN REVENUE FROM THESE CUSTOMERS COULD HARM OUR OPERATING RESULTS.

We depend on a small number of customers for a large portion of our
business, and changes in our customers' orders may have a significant impact on
our operating results. If a major customer significantly reduces the amount of
business it does with us, there would be an adverse impact on our operating
results. The following table sets forth the percentages of our net product and
engineering revenue for our three largest

20

customers in any of the last three fiscal years and the percentage of our total
net sales to our ten largest customers in those years:

Although we are seeking to broaden our customer base, we will continue to
depend on sales to a relatively small number of major customers. Because it
often takes significant time to replace lost business, it is likely that our
operating results would be adversely affected if one or more of our major
customers were to cancel, delay or reduce significant orders in the future. Our
customer agreements typically permit the customer to discontinue future
purchases after timely notice.

In addition, we generate significant accounts receivable in connection with
the products we sell and the services we provide to our major customers.
Although our major customers are large corporations, if one or more of our
customers were to become insolvent or otherwise be unable to pay for our
services, our operating results and financial condition could be adversely
affected.

COMPETITION FROM EXISTING OR NEW COMPANIES IN THE MEDICAL AND SECURITY
IMAGING TECHNOLOGY INDUSTRY COULD CAUSE US TO EXPERIENCE DOWNWARD PRESSURE ON
PRICES, FEWER CUSTOMER ORDERS, REDUCED MARGINS, THE INABILITY TO TAKE ADVANTAGE
OF NEW BUSINESS OPPORTUNITIES AND THE LOSS OF MARKET SHARE.

We operate in a highly competitive industry. We are subject to competition
based upon product design, performance, pricing, quality and services and we
believe our innovative engineering and product reliability have been important
factors in our growth. While we try to maintain competitive pricing on those
products which are directly comparable to products manufactured by others, in
many instances our products will conform to more exacting specifications and
carry a higher price than analogous products manufactured by others.

Our competitors include divisions of some larger, more diversified
organizations as well as several specialized companies. Some of them have
greater resources and larger staffs than we have.
Many of our OEM customers and potential OEM customers have the capacity to
design and manufacture the products we manufacture for themselves. We face
competition from research and product development groups and the manufacturing
operations of our current and potential customers, who continually evaluate the
benefits of internal research and product development and manufacturing versus
outsourcing.

WE DEPEND ON OUR SUPPLIERS, SOME OF WHICH ARE THE SOLE SOURCE FOR OUR
COMPONENTS, AND OUR PRODUCTION WOULD BE SUBSTANTIALLY CURTAILED IF THESE
SUPPLIERS ARE NOT ABLE TO MEET OUR DEMANDS AND ALTERNATIVE SOURCES ARE NOT
AVAILABLE.

We order raw materials and components to complete our customers' orders,
and some of these raw materials and components are ordered from sole-source
suppliers. Although we work with our customers and suppliers to minimize the
impact of shortages in raw materials and components, we sometimes experience
short-term adverse effects due to price fluctuations and delayed shipments. In
the past, there have been industry-wide shortages of electronics components. If
a significant shortage of raw materials or components were to occur, we may have
to delay shipments or pay premium pricing, which would adversely affect our
operating results. In some cases, supply shortages of particular components will
substantially curtail production of products using these components. We are not
always able to pass on price increases to our customers. Accordingly, some raw
material and component price increases could adversely affect our operating
results. We also depend on a small number of suppliers, some of whom are
affiliated with customers or competitors and others of whom may be small, poorly
financed companies, for many of the other raw materials and components that we
use in our business. If we are unable to continue to purchase these raw

21

materials and components from our suppliers, our operating results would be
adversely affected. Because many of our costs are fixed, our margins depend on
our volume of output at our facilities and a reduction in volume will adversely
affect our margins.

IF WE ARE LEFT WITH EXCESS INVENTORY, OUR OPERATING RESULTS WILL BE
ADVERSELY AFFECTED.

Because of long lead times and specialized product designs, we typically
purchase components and manufacture products for customer orders or in
anticipation of customer orders based on customer forecasts. For a variety of
reasons, such as decreased end-user demand for the products we are
manufacturing, our customers may not purchase all the products we have
manufactured or for which we have purchased components. In either event, we
would attempt to recoup our materials and manufacturing costs by means such as
returning components to our vendors, disposing of excess inventory through other
channels or requiring our OEM customers to purchase or otherwise compensate us
for such excess inventory. Some of our significant customer agreements do not
give us the ability to require our OEM customers to do this. To the extent we
are unsuccessful in recouping our material and manufacturing costs, not only
would our net sales be adversely affected, but also our operating results would
be disproportionately adversely affected. Moreover, carrying excess inventory
would reduce the working capital we have available to continue to operate and
grow our business.

UNCERTAINTIES AND ADVERSE TRENDS AFFECTING OUR INDUSTRY OR ANY OF OUR MAJOR
CUSTOMERS MAY ADVERSELY AFFECT OUR OPERATING RESULTS.

Our business depends primarily on a specific segment of the electronics
industry, medical and security imaging technology products, which is subject to
rapid technological change and pricing and margin pressure. This industry has
historically been cyclical and subject to significant downturns characterized by
diminished product demand, rapid declines in average selling prices and
production over-capacity. In addition, changes in government policy relating to
reimbursement for the purchase and use of medical capital equipment could also
affect our sales. Our customers' markets are also subject to economic cycles and
are likely to experience recessionary periods in the future. The economic
conditions affecting our industry in general, or any of our major customers in
particular, may adversely affect our operating results. Our businesses outside
the medical instrumentation technology product sector are subject to the same or
greater technological and cyclical pressures.

OUR CUSTOMERS' DELAY OR INABILITY TO OBTAIN ANY NECESSARY UNITED STATES OR
FOREIGN REGULATORY CLEARANCES OR APPROVALS FOR THEIR PRODUCTS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

Our products are used by a number of our customers in the production of
medical devices that are the subject of a high level of regulatory oversight. A
delay or inability to obtain any necessary United States or foreign regulatory
clearances or approvals for products could have a material adverse effect on our
business. The process of obtaining clearances and approvals can be costly and
time-consuming. There is a further risk that any approvals or clearances, once
obtained, may be withdrawn or modified. Medical devices cannot be marketed in
the United States without clearance or approval by the FDA. Medical devices sold
in the United States must also be manufactured in compliance with FDA Good
Manufacturing Practices, which regulate the design, manufacture, packing,
storage and installation of medical devices. Moreover, medical devices are
required to comply with FDA regulations relating to investigational research and
labeling. States may also regulate the manufacture, sale and use of medical
devices. Medical device products are also subject to approval and regulation by
foreign regulatory and safety agencies.

OUR BUSINESS STRATEGY INVOLVES THE PURSUIT OF ACQUISITIONS OR BUSINESS
COMBINATIONS, WHICH MAY BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE OR DIVERT MANAGEMENT ATTENTION.

As part of our business strategy, we may consummate additional acquisitions
or business combinations. Acquisitions are typically accompanied by a number of
risks, including the difficulty of integrating the operations and personnel of
the acquired companies, the potential disruption of our ongoing business and
distraction of management, expenses related to the acquisition and potential
unknown liabilities associated with acquired businesses.

22

If we are not successful in completing acquisitions that we may pursue in
the future, we may have incurred substantial expenses and devoted significant
management time and resources in seeking to complete proposed acquisitions that
will not generate benefits for us. In addition, with future acquisitions, we
could use substantial portions of our available cash as consideration for these
acquisitions.

OUR ANNUAL AND QUARTERLY OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS,
WHICH COULD AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

Our annual and quarterly results may vary significantly depending on
various factors, many of which are beyond our control, and may not meet the
expectations of securities analysts or investors. If this occurs, the price of
our Common Stock would likely decline.

These factors include:

- variations in the timing and volume of customer orders relative to our
manufacturing capacity;

- introduction and market acceptance of our customers' new products;

- changes in demand for our customers' existing products;

- the timing of our expenditures in anticipation of future orders;

- effectiveness in managing our manufacturing processes;

- changes in competitive and economic conditions generally or in our
customers' markets;

- changes in the cost or availability of components or skilled labor; and

- foreign currency exposure

As is the case with many technology companies, we typically ship a
significant portion of our products in the last month of a quarter. As a result,
any delay in anticipated sales is likely to result in the deferral of the
associated revenue beyond the end of a particular quarter, which would have a
significant effect on our operating results for that quarter. In addition, most
of our operating expenses do not vary directly with net sales and are difficult
to adjust in the short term. As a result, if net sales for a particular quarter
were below our expectations, we could not proportionately reduce operating
expenses for that quarter, and, therefore, that revenue shortfall would have a
disproportionate adverse effect on our operating results for that quarter.

LOSS OF ANY OF OUR KEY PERSONNEL COULD HURT OUR BUSINESS BECAUSE OF THEIR
INDUSTRY EXPERIENCE AND THEIR TECHNOLOGICAL EXPERTISE.

We operate in a highly competitive industry and depend on the services of
our key senior executives and our technological experts. The loss of the
services of one or several of our key employees or an inability to attract,
train and retain qualified and skilled employees, specifically engineering and
operations personnel, could result in the loss of customers or otherwise inhibit
our ability to operate and grow our business successfully.

IF WE ARE UNABLE TO MAINTAIN OUR TECHNOLOGICAL EXPERTISE IN RESEARCH AND
PRODUCT DEVELOPMENT AND MANUFACTURING PROCESSES, WE WILL NOT BE ABLE TO
SUCCESSFULLY COMPETE.

We believe that our future success will depend upon our ability to provide
research and product development and manufacturing services that meet the
changing needs of our customers. This requires that we successfully anticipate
and respond to technological changes in design and manufacturing processes in a
cost-effective and timely manner. As a result, we continually evaluate the
advantages and feasibility of new product design and manufacturing processes. We
cannot, however, be certain that our development efforts will be successful.

ONE STOCKHOLDER HAS A SUBSTANTIAL INTEREST IN ANALOGIC.

As of January 31, 2003, the Bernard M. Gordon Charitable Remainder Unitrust
owned approximately 27% of Analogic's outstanding Common Stock. Bernard M.
Gordon, Chairman of the Board of Directors, Executive Chairman, President and
Chief Executive Officer of Analogic, and Julian Soshnick, Vice President
23

and General Counsel of Analogic, serve as trustees of this trust and have full
power to vote or dispose of the shares held by the trust. The trust, based on
its ownership interest in Analogic, has the ability to exert substantial
influence over the actions of Analogic.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company places its cash investments in high credit quality financial
instruments and, by policy, limits the amount of credit exposure to any one
financial institution. The Company faces limited exposure to financial market
risks, including adverse movements in foreign currency exchange rates and
changes in interest rates. These exposures may change over time as business
practices evolve and could have a material adverse impact on the Company's
financial results. The Company's primary exposure has been related to local
currency revenue and operating expenses in Canada and Europe.

The Company maintains a bond investment portfolio of various issuers,
types, and maturities. The Company's cash and investments include cash
equivalents, which the Company considers to be investments purchased with
original maturities of three months or less. Investments having original
maturities in excess of three months are stated at amortized cost, which
approximates fair value, and are classified as available for sale. Total
interest income, net for the six months ended January 31, 2003 was $2,358. An
interest rate change of 10% would not have a material impact to the fair value
of the portfolio or to future earnings.

The Company's three largest customers for the fiscal year ended July 31,
2002, each of which is a significant and valued customer, were Philips, General
Electric and L-3 Communications, which accounted for approximately 18%, 12%, and
9%, respectively, of product and engineering revenue. For the six months ended
January 31, 2003, these customers, L-3 Communications, General Electric and
Philips accounted for approximately 56%, 7%, and 3%, respectively, of product
and engineering revenue. Loss of any one of these customers would have a
material adverse effect upon the Company's business.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures. Based on their
evaluation of the Company's disclosure controls and procedures, as defined in
Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as of a
date within 90 days of the filing date of this Quarterly Report on Form 10-Q the
Company's chief executive officer and chief financial officer have concluded
that the Company's disclosure controls and procedures are designed to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms and are
operating in an effective manner.

(b) Changes in internal controls. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their most recent evaluation.

PART II -- OTHER INFORMATION

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

At the Company's Annual Meeting of Stockholders held on January 17, 2003,
the following proposals were adopted by the vote specified below:

Please see the Company's Proxy Statement dated December 13, 2002 filed with
the Securities and Exchange Commission in connection with this Annual Meeting
for a description of the matters voted upon.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

(b) The Company did not file any reports on Form 8-K during the quarter
ended January 31, 2003.

25

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 thereunto duly authorized.

ANALOGIC CORPORATION
Registrant

DATE: March 17, 2003 /s/ BERNARD M. GORDON
--------------------------------------------------------
Bernard M. Gordon
Chairman of the Board of Directors, Executive Chairman,
President and Chief Executive Officer (Principal
Executive Officer)

DATE: March 17, 2003 /s/ JOHN J. MILLERICK
--------------------------------------------------------
John J. Millerick
Senior Vice President, Chief Financial Officer
and Treasurer (Principal Financial
and Accounting Officer)

26

CERTIFICATION

I, Bernard M. Gordon, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Analogic
Corporation;

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

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

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

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

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

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

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

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

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

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

/s/ BERNARD M. GORDON
--------------------------------------
Bernard M. Gordon
Chairman of the Board of Directors,
Executive Chairman, President and
Chief Executive Officer (Principal
Executive Officer)

Date: March 17, 2003

27

CERTIFICATION

I, John J. Millerick, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Analogic
Corporation;

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

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

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

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

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

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

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

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

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

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

/s/ JOHN J. MILLERICK
--------------------------------------
John J. Millerick
Senior Vice President, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)

Date: March 17, 2003

28

EXHIBIT INDEX

EXHIBITS