Analogic 10Q/A 2004 Q2 Quarterly report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 1 on

Form 10-Q/A


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

		For the period ended January 31, 2004

		or

o		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

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)

(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. Yesþ Noo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yesþ Noo

The number of shares of Common Stock outstanding at February 27, 2004 was 13,599,572.

ANALOGIC CORPORATION

QUARTERLY REPORT ON FORM 10-Q/A
FOR THE QUARTER ENDED JANUARY 31, 2004
INTRODUCTORY NOTE
(in thousands, except per share data)

Pursuant to Rule 12b-15 of the Rules and Regulations under the Securities Exchange Act of 1934, this Amendment No. 1 on Form 10-Q/A to the Quarterly Report on Form 10-Q of Analogic Corporation (the “Company”) for the quarter ended January 31, 2004 is being filed to (i) restate the Company’s Condensed Consolidated Financial Statements (Unaudited) for the quarter ended January 31, 2004 and (ii) revise related disclosures included in the Quarterly Report on Form 10-Q.

On December 13, 2004, the Company announced that it would restate its quarterly financial statements for the quarters ended October 31, 2003, January 31, 2004 and April 30, 2004. On January 14, 2005, the Company announced that it would restate its financial statements for the fiscal years ended July 31, 2002 and 2003 and each of the interim periods within those years. The purpose of this restatement is to reflect the application of the appropriate accounting principles to (1) the recognition of software revenue and related costs by Camtronics Medical Systems, Ltd. (“Camtronics”) a wholly owned U.S. subsidiary of the Company during the periods covered by the restatement, and (2) the treatment of a license of intellectual property sold by the Company to its affiliate Shenzhen Anke High-Tech Co. Ltd (“SAHCO”) during each of the first three quarters of fiscal 2004. The restatement primarily involves a deferral of Camtronics’ revenues and associated costs from the fiscal period in which they were originally recorded to subsequent fiscal periods, and the recognition of revenue under the SAHCO license as payments are received rather than upon execution of the SAHCO license in the first quarter of fiscal 2004. As restated, the Company’s financial results for the quarter ended January 31, 2004 reflect a reduction in revenues of $2,621 and an increase in net income of $53 and basic and diluted earnings per share of $0.01; and for the six months ended January 31, 2004 reflect a reduction in revenues of $5,881, net income of $2,179, and basic and diluted earnings per share of $0.16. See Note 2, “Restatement,” of the Notes to Unaudited Condensed Consolidated Financial Statements for a more complete discussion of the restatement.

This Amendment No. 1 amends Part I, Items 1, 2, 3, and 4, Part II, Item 6 of the Quarterly Report of Form 10-Q for the quarter ended January 31, 2004. This Amendment No. 1 continues to reflect circumstances as of the date of the original filing of the Quarterly Report on Form 10-Q, and the Company has not updated the disclosures contained therein to reflect events that occurred at a later date, except for items relating to the restatement.

ANALOGIC CORPORATION

TABLE OF CONTENTS


	Page No.
Part I. Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets as of January 31, 2004 (Restated) and July 31, 2003		4
Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended January 31, 2004 (Restated) and 2003 (Restated)		5
Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended January 31, 2004 (Restated) and 2003 (Restated)		6
Notes to Unaudited Condensed Consolidated Financial Statements		7-20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		20-28
Item 3. Quantitative and Qualitative Disclosures about Market Risk		28
Item 4. Controls and Procedures		28-30
Part II. Other Information
Item 6. Exhibits		31
Signatures		32
Exhibit Index		33
Certifications		34-37
EX-31.1 Section 302 Certification of CEO
EX-31.2 Section 302 Certification of CFO
EX-32.1 Section 906 Certification of CEO
EX-32.2 Section 906 Certification of CFO

Part 1. FINANCIAL INFORMATION

Item 1.Financial Statements

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share data)


	January 31,			July 31,
	2004			2003
	Restated
ASSETS
Current assets:
Cash and cash equivalents	$	130,132		$	136,806
Marketable securities, at market		34,220			41,155
Accounts and notes receivable, net of allowance for doubtful accounts of $2,711 at January 31, 2004 and $4,189 at July 31, 2003		54,949			53,875
Inventories		70,871			69,548
Costs related to deferred revenue		16,390			15,227
Refundable and deferred income taxes		11,036			13,223
Other current assets		8,245			6,069

Total current assets		325,843			335,903
Property, plant and equipment, net		92,207			83,926
Investments in and advances to affiliated companies		12,029			14,050
Capitalized software, net		7,315			6,339
Goodwill		2,306			2,306
Intangible assets, net		12,012			11,708
Costs related to deferred revenue		206			652
Other assets		1,881			2,533

Total Assets	$	453,799		$	457,417

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Mortgage and other notes payable	$	1,017		$	1,277
Obligations under capital leases		162			180
Accounts payable, trade		17,720			21,384
Accrued liabilities		19,581			24,412
Deferred revenue		29,182			30,632
Advance payments		8,382			5,798
Accrued income taxes		5,648			5,909

Total current liabilities		81,692			89,592

Long-term liabilities:
Mortgage and other notes payable		3,718			3,837
Obligations under capital leases		249			327
Deferred revenue		1,522			2,288
Deferred income taxes		4,248			5,175

Total long-term liabilities		9,737			11,627

Commitments and guarantees (Note 14)
Stockholders’ equity:
Common stock, $.05 par value		710			710
Capital in excess of par value		48,456			47,229
Retained earnings		321,162			320,013
Accumulated other comprehensive income		3,302			709
Treasury stock, at cost		(6,380	)		(6,777	)
Unearned compensation		(4,880	)		(5,686	)

Total stockholders’ equity		362,370			356,198

Total Liabilities and Stockholders’ Equity	$	453,799		$	457,417

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

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2004			2003			2004			2003
	Restated			Restated			Restated			Restated
Net revenue:
Product	$	86,896		$	149,806		$	149,573		$	272,983
Engineering		4,000			5,475			10,596			11,855
Other		1,745			1,690			4,181			4,366

Total net revenue		92,641			156,971			164,350			289,204

Cost of sales:
Product		49,833			87,965			88,508			155,587
Engineering		2,132			3,507			4,936			8,403
Other		1,140			1,125			2,349			2,366

Total cost of sales		53,105			92,597			95,793			166,356

Gross margin		39,536			64,374			68,557			122,848

Operating expenses:
Research and product development		14,482			14,571			29,785			25,948
Selling and marketing		9,795			8,448			17,819			16,380
General and administrative		10,081			8,595			18,554			16,428

Total operating expenses		34,358			31,614			66,158			58,756

Income from operations		5,178			32,760			2,399			64,092

Other (income) expense:
Interest income		(962	)		(1,221	)		(2,086	)		(2,509	)
Interest expense		119			82			192			151
Equity in unconsolidated affiliates		(158	)		855			(1	)		2,093
Other		101			(1,301	)		(5	)		(1,644	)

Total other (income) expense		(900	)		(1,585	)		(1,900	)		(1,909	)

Income before income taxes		6,078			34,345			4,299			66,001
Provision for income taxes		1,167			13,080			989			25,109

Net income	$	4,911		$	21,265		$	3,310		$	40,892

Net income per common share:
Basic	$	0.37		$	1.61		$	0.25		$	3.10
Diluted		0.37			1.59			0.25			3.07
Weighted average shares outstanding:
Basic		13,412			13,215			13,397			13,194
Diluted		13,464			13,412			13,505			13,332

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

ANALOGIC CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)


	Six Months Ended
	January 31,
	2004			2003
	Restated			Restated
OPERATING ACTIVITIES:
Net income	$	3,310		$	40,892
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Deferred income taxes		543			2,595
Depreciation and amortization		10,508			9,332
Allowance for doubtful accounts		2			988
Loss (gain) on sale of property, plant, and equipment		(46	)		8
Equity loss in unconsolidated affiliates		(1	)		2,093
Equity loss in unconsolidated affiliate classified as research and product development expense		2,040			—
Non-cash compensation expense from stock grants		806			577
Net changes in operating assets and liabilities (Note 11)		(10,875	)		(30,632	)

NET CASH PROVIDED BY OPERATING ACTIVITIES:		6,287			25,853

INVESTING ACTIVITIES:
Investments in and advances to affiliated companies		(19	)		—
Return of investment from affiliated company		—			516
Acquisition of businesses, net of cash acquired		(141	)		(2,851	)
Acquisition of assets		(1,750	)		(10,149	)
Additions to property, plant and equipment		(14,483	)		(9,191	)
Capitalized software		(1,653	)		(1,071	)
Proceeds from sale of property, plant and equipment		156			94
Maturities of marketable securities		6,485			10,225

NET CASH USED FOR INVESTING ACTIVITIES		(11,405	)		(12,427	)

FINANCING ACTIVITIES:
Payments on debt and capital lease obligations		(1,159	)		(234	)
Issuances of stock pursuant to exercise of stock options and employee stock purchase plan		1,445			2,451
Dividends paid to shareholders		(2,161	)		(2,126	)

NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		(1,875	)		91

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		319			(1,555	)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(6,674	)		11,962

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		136,806			123,168

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	130,132		$	135,130

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

ANALOGIC CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars 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 (“SEC”) for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles 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 the operations for the three and six months ended January 31, 2004, are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2004, 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, 2003, included in the Company’s Annual Report on Form 10-K for the fiscal year ended July 31, 2004 as filed with the February 1, 2005.

The financial statements have not been audited by independent certified public accountants. The condensed consolidated balance sheet as of July 31, 2003, contains data derived from audited financial statements.

Certain financial statement items in the prior fiscal year have been reclassified to conform to the current year’s financial presentation format.

2. Restatement:

The Company is restating its condensed financial statements for the fiscal years ended July 31, 2002 and 2003 and each of the interim periods within these fiscal years and for the quarters ended October 31, 2003, January 31, 2004 and April 30, 2004 to reflect the application of the appropriate accounting principles to (1) the recognition of software revenue by its 100% owned U.S. subsidiary Camtronics Medical Systems, Ltd. (“Camtronics”) during all periods covered by the restatement and (2) the treatment of a license of intellectual property sold by the Company to its affiliate Shenzhen Anke High Tech Co. Ltd. (“SAHCO”) during each of the first three quarters of fiscal 2004. As restated, the Company’s financial results for the quarter ended January 31, 2004 reflect a reduction in revenues of $2,621 and an increase in net income of $53 and basic and diluted earnings per share of $0.01; and for the six months ended January 31, 2004 reflect a reduction in revenues of $5,881, net income of $2,179, and basic and diluted earnings per share of $0.16, in each case as compared to the Company’s financial results previously reported for the three and six months ended January 31, 2004. There are also resulting changes to the captions within the net cash provided by operating activities on the Statement of Cash Flows.

Summarized below is a more detailed discussion of the restatement affecting the quarter and six months ended January 31, 2004 and a comparison of the amounts previously reported in the unaudited condensed consolidated balance sheets and statements of operations in the Company’s Quarterly Report on Form 10-Q for the three and six months ended January 31, 2004.

Software Revenue

Camtronics’ revenues are derived primarily from the sales of Digital Cardiac Information Systems. System sales revenues consist of the following components: computer software licenses, computer hardware, installation support, and sublicensed software. In addition, Camtronics generates revenues related to system sales for software support, hardware maintenance, training, consulting and other professional services.

Camtronics recognizes revenue in accordance with the provisions of American Institute of Certified Public Accountants (“AICPA”) Statement of Position 97-2, “Software Recognition” (“SOP 97-2”). SOP 97-2 requires revenue earned on software arrangements involving multiple-elements to be allocated to each element based on the fair values of those elements or by use of the residual method. Under the residual method, revenue is recognized in a multiple-element arrangement when vendor-specific objective evidence (“VSOE”) of fair value exists for all the undelivered elements in the arrangement, which is determined by the price charged when that element is sold separately (i.e. professional services, software support, hardware maintenance, hardware and sublicensed software), but does not exist for one or more of the delivered elements in the arrangement (i.e. software solutions). Specifically, Camtronics determines the VSOE of fair value of the maintenance portion of the arrangement based on the renewal price of the maintenance charged to clients; determines the VSOE of fair value of the professional services portion of the arrangement, other than installation services, based on hourly rates which Camtronics charges for these service when sold apart from a software license; and determines the VSOE of fair value of the hardware and software sublicenses based on the prices for these elements when they are sold separately from the software. If evidence of the VSOE of fair value cannot be established for the undelivered elements of a license agreement, the entire amount of revenue under the arrangement is deferred until these elements have been delivered or the VSOE of fair value for the remaining undelivered elements is established.

Inherent in the revenue recognition process are significant management estimates and judgments, which influence the timing and amount of revenue recognition. In particular, the application of SOP 97-2 requires judgment concerning whether a software arrangement includes multiple elements; if so, whether all such elements have been delivered; and if not, whether VSOE of fair value exists for the undelivered elements.

The restatements are required due to the incorrect application of software revenue recognition procedures with respect to certain Camtronic’s transactions. Under software revenue recognition rules, revenue cannot be recognized on a multiple-element software arrangement until such time as Camtronics has delivered or performed all elements of the arrangement or has VSOE of fair value for each undelivered or non-performed element of the arrangement. In the majority of the transactions underlying the restatement, Camtronics has delivered and the customer has paid for the software. However, revenue cannot be recognized from the transactions because some element of the transaction – such as the delivery of a software upgrade or the performance of customization services – has not been delivered or performed and VSOE of fair value for those elements cannot be determined.

License of intellectual property

During the first quarter of fiscal 2004, the Company recorded engineering revenue of $2,775 in connection with the sale of a license of intellectual property to the Company’s affiliate SAHCO. The contract agreement between the Company and SAHCO provided for extended payment terms whereby SAHCO was required to make a payment of $500 within the first 30 days from the date of the contract and the balance over the next twelve months. Upon further review of the agreement, the Company has determined that this license revenue should have been recorded as the payments were received from SAHCO and not in its entirety at the date of the contract because collectibility was not reasonably assured. The Company received a total of $1,750 from SAHCO during fiscal 2004, and received an additional $750 during the quarter ended October 31, 2004.

The following tables show the effect of the restatements on the Company’s Statements of Operations and Balance Sheets.

Statements of Operations:


	Three Months Ended January 31, 2004
	(Unaudited)
	Previously
	Reported			Restated			Change
Net revenue:
Product	$	90,017		$	86,896		$	(3,121	)(a)
Engineering		3,500			4,000			500	(b)
Other		1,745			1,745


Total net revenue		95,262			92,641			(2,621	)


Cost of sales:
Product		51,642			49,833			(1,809	)(c)
Engineering		2,132			2,132
Other		1,140			1,140


Total cost of sales		54,914			53,105			(1,809	)


Gross margin		40,348			39,536			(1,809	)


Operating expenses:
Research and product development		14,482			14,482
Selling and marketing		9,955			9,795			(160	)(d)
General and administrative		10,081			10,081


Total operating expenses		34,518			34,358			(160	)
							��

Income from operations		5,830			5,178			652


Other (income) expense:
Interest income		(962	)		(962	)
Interest expense		119			119
Equity in unconsolidated affiliates		(158	)		(158	)
Other		101			101


Total other (income) expense		(900	)		(900	)


Income before income taxes		6,730			6,078			652
Provision for income taxes		1,872			1,167			(705	)(e)


Net income	$	4,858		$	4,911		$	53


Net income per common share:
Basic	$	0.36		$	0.37			.01	(f)
Diluted		0.36			0.37			.01	(g)
Weighted average shares outstanding:
Basic		13,412			13,412
Diluted		13,464			13,464

Statements of Operations components increased (decreased) as a result of the following:


(a)	Net revenue: Product Adjust recognition of revenue for application of SOP97-2	$	(3,121	)


(b)	Net revenue: Engineering License revenue recognized as the payments were received from SAHCO	$	500


(c)	Cost of sales: Product Adjust cost of sales related to transactions for which revenue has been deferred	$	(1,809	)


(d)	Selling and marketing Adjust commission expense related to transaction for which revenue has been deferred	$	(160	)


(e)	Provision for income taxes Net decrease to provision due to above adjustments	$	(705	)


(f)	Net income per common share: Basic Net effect to basic earnings per share due to above adjustments	$	0.01


(g)	Net income per common share: Diluted Net effect to diluted earnings per share due to above adjustments	$	0.01

Statements of Operations:


	Six Months Ended January 31, 2004
	(Unaudited)
	Previously
	Reported			Restated			Change
Net revenue:
Product	$	153,929		$	149,573		$	(4,356	)(a)
Engineering		12,121			10,596			(1,525	)(b)
Other		4,181			4,181


Total net revenue		170,231			164,350			(5,881	)


Cost of sales:
Product		90,950			88,508			(2,442	)(c)
Engineering		4,936			4,936
Other		2,349			2,349


Total cost of sales		98,235			95,793			(2,442	)


Gross margin		71,996			68,557			(3,439	)


Operating expenses:
Research and product development		29,785			29,785
Selling and marketing		18,038			17,819			(219	)(d)
General and administrative		18,554			18,554


Total operating expenses		66,377			66,158			(219	)


Income from operations		5,619			2,399			(3,220	)


Other (income) expense:
Interest income		(2,086	)		(2,086	)
Interest expense		192			192
Equity in unconsolidated affiliates		(1	)		(1	)
Other		(5	)		(5	)

Total other (income) expense		(1,900	)		(1,900	)


Income before income taxes		7,519			4,299			(3,220	)
Provision for income taxes		2,030			989			(1,041	)(e)


Net income	$	5,489		$	3,310		$	(2,179	)


Net income per common share:
Basic	$	0.41		$	0.25		$	(0.16	)(f)
Diluted		0.41			0.25			(0.16	)(g)
Weighted average shares outstanding:
Basic		13,397			13,397
Diluted		13,505			13,505

Statements of Operations components increased (decreased) as a result of the following:


(a)	Net revenue:
	ProductAdjust recognition of revenue for application of SOP97-2	$	(4,356	)


(b)	Net revenue: Engineering
	Adjustment to revenue for the sale of a license to SAHCO	$	(2,775	)
	License revenue recognized as the payments were received from SAHCO		1,250

	Net decrease	$	(1,525	)


(c)	Cost of sales: Product
	Adjust cost of sales related to transactions for which revenue has been deferred	$	(2,442	)


(d)	Selling and marketing
	Adjust commission expense related to transaction for which revenue has been deferred	$	(219	)


(e)	Provision for income taxes
	Net decrease to provision due to above adjustments	$	(1,041	)


(f)	Net loss per common share: Basic
	Net effect to basic earnings per share due to above adjustments	$	(0.16	)


(g)	Net loss per common share: Diluted
	Net effect to diluted earnings per share due to above adjustments	$	(0.16	)

Balance Sheets:


	January 31, 2004
	(Unaudited)
	Previously
	Reported			Restated			Change
ASSETS
Current assets:
Cash and cash equivalents	$	130,132		$	130,132
Marketable securities, at market		34,220			34,220
Accounts and notes receivable, net of allowance for doubtful accounts of $2,711 at January 31, 2004		56,474			54,949		$	(1,525	)(a)
Inventories		70,871			70,871
Costs related to deferred revenue		12,780			16,390			3,610	(b)
Refundable and deferred income taxes		10,230			11,036			806	(c)
Other current assets		8,245			8,245

Total current assets		322,952			325,843			2,891

Property, plant and equipment, net		92,207			92,207
Investments in and advances to affiliated companies		12,029			12,029
Capitalized software, net		7,315			7,315
Goodwill		2,306			2,306
Intangible assets, net		12,012			12,012
Costs related to deferred revenue		206			206
Other assets		1,881			1,881


Total Assets	$	450,908		$	453,799		$	2,891


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Mortgage and other notes payable	$	1,017		$	1,017
Obligations under capital leases		162			162
Accounts payable, trade		17,426			17,720		$	294	(d)
Accrued liabilities		19,581			19,581
Deferred revenue		23,733			29,182			5,449	(e)
Advance payments		8,382			8,382
Accrued income taxes		6,006			5,648			(358	)(f)


Total current liabilities		76,307			81,692			5,385


Long-term liabilities:
Mortgage and other notes payable		3,718			3,718
Obligations under capital leases		249			249
Deferred revenue		1,522			1,522
Deferred income taxes		4,248			4,248


Total long-term liabilities		9,737			9,737


Commitments and guarantees (Note 13)
Stockholders’ equity:
Common stock, $.05 par value		710			710
Capital in excess of par value		48,456			48,456
Retained earnings		323,656			321,162		$	(2,494	)(g)
Accumulated other comprehensive income		3,302			3,302
Treasury stock, at cost		(6,380	)		(6,380	)
Unearned compensation		(4,880	)		(4,880	)


Total stockholders’ equity		364,864			362,370			(2,494	)


Total Liabilities and Stockholders’ Equity	$	450,908		$	453,799		$	2,891

The increases (decreases) to the balance sheet components are due to (1) current period recognition of the effect of current period restatement for deferral of revenue and related costs, and the effect of current period revenue related to the license sale; and (2) the cumulative effect at the beginning of the quarter of the restatement of prior periods for similar matters. On a net basis the balance sheet components increased (decreased) due to the following:


(a)	Accounts and notes receivable, net
	Adjustment related to the license sale	$	(1,525	)


(b)	Cost related to deferred revenue (short-term)
	Deferred costs related to deferred revenue	$	3,610


(c)	Refundable and deferred income taxes
	Deferred income tax related to deferred costs and revenue	$	806


(d)	Accounts payable, trade
	Accrued license related to deferred revenue	$	294


(e)	Deferred revenue (short-term)
	Deferred revenue classified as short-term	$	5,449


(f)	Accrued income taxes
	Tax provision adjusted for the change to net income	$	(358	)


(g)	Retained earnings
	Net effect to retained earnings from above adjustments:
	Cumulative effect through July 31, 2003	$	(315	)
	Effect for the six months ended January 31,2004	$	(2,179	)

	Net decrease	$	(2,494	)

3. Stock-based compensation:

As permitted by Statement of Financial Accounting Standards No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB statement No. 123,” and Statement of Financial Accounting Standards No. 123 (“SFAS 123”) “Accounting for Stock-Based Compensation,” the Company continues to apply the accounting provisions of the Accounting Principle Board (“APB”) No. 25, and related interpretations, with regard to the measurement of compensation cost for options granted under the Company’s equity compensation plans.

If the Company had adopted the fair value method described in SFAS 123, the results of operations would have been reported as follows:


	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2004			2003			2004			2003
	Restated			Restated			Restated			Restated
Net income, as reported	$	4,911		$	21,265		$	3,310		$	40,892
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		318			184			688			358
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(993	)		(967	)		(2,099	)		(1,844	)

Pro forma net income	$	4,236		$	20,482		$	1,899		$	39,406

Earnings per share:
Basic — as reported	$	0.37		$	1.61		$	0.25		$	3.10
Basic — pro forma		0.32			1.55			0.14			2.99
Diluted — as reported	$	0.37		$	1.59		$	0.25		$	3.07
Diluted — pro forma		0.31			1.53			0.14			2.96

4. Balance sheet information:

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


	January 31,		July 31,
	2004		2003
Inventories:
Raw materials	$	35,985	$	37,155
Work-in-process		12,218		15,003
Finished goods		22,668		17,390

	$	70,871	$	69,548


Accrued liabilities:
Accrued employee compensation and benefits	$	9,606	$	13,203
Accrued warranty		5,981		7,302
Other		3,994		3,907

	$	19,581	$	24,412


Advance payments and other:
Ramp-up funds	$	2,343	$	3,650
Customer deposits		6,039		2,148

	$	8,382	$	5,798

5. Acquisition of assets:

On October 20, 2003, Analogic’s 100% owned subsidiary Camtronics Medical Systems Ltd. (“Camtronics”) acquired certain assets and liabilities from Quinton, Inc. (“QTN”), a Washington corporation, primarily related to intellectual property rights and interests associated with QTN’s Q-Cath hemodynamics and monitoring system business. Camtronics decision to acquire these assets and liabilities was based on its desire to expand its current product offerings and gain access to QTN’s existing customer base. The Company’s total investment amounted to $1,750, with payments of $1,000 due at closing and $750 due one year from the closing date. In connection with the above transaction, the parties also entered into a Transition Service Agreement and a Cooperative Marketing Agreement. Under the terms of the Transition Service Agreement, QTN has agreed to provide maintenance service

to existing and new customers for a period of six months from the closing date. The Cooperative Marketing Agreement, which has a term of four years, provides for QTN to earn up to an additional $1,500 in commissions upon the successful conversion of QTN Q-Cath systems to Camtronics Physiolog and Vericis products. In addition QTN will market the electronic medical records products of Camtronics through its specialized sales force in the primary care market. The Company allocated the purchase price of $1,750 to the acquired assets, $250 to inventory and $1,500 to the customer list, based on their relative fair value. The customer list will be amortized over the estimated useful life of four years, commencing in November 2003.

6. Investments in and advances to affiliated companies:

During the second quarter of fiscal year 2004 the Company’s investment in Cedara as a percentage of Cedara’s total shares outstanding decreased from 19% to 17.6%. The reduction in the investment was a result of the Company’s decision not to exercise its preemptive right to maintain its ownership interest of 19% at the time Cedara converted its outstanding convertible debentures into common shares and issued common shares on the exercise of employees stock options.

Summarized results of operations of the Company’s partially-owned unconsolidated affiliates are as follows:


	Three Months Ended					Six Months Ended
	January 31,					January 31,
	2004		2003			2004		2003
Net revenue	$	12,093	$	9,584		$	23,651	$	15,201
Gross margin		8,643		4,932			15,530		7,698
Income(loss) from operations		1,898		(1,671	)		1,536		(5,586	)
Net income(loss)		1,839		(1,725	)		1,362		(5,567	)

7. Goodwill and Other Intangible Assets:

As of August 1, 2002, Analogic adopted Statement of Financial Accounting Standards 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. 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 performed its annual goodwill impairment test during the quarter ended October 31, 2003, and determined that goodwill was not impaired. The Company will continue to perform its annual goodwill impairment test during the first quarter of each fiscal year, as well as on an event-driven basis, as required under SFAS No. 142.

Acquired amortizable intangible assets consist of the following:


	January 31, 2004						July 31, 2003
			Accumulated						Accumulated
	Cost		Amortization		Net		Cost		Amortization		Net
Amortizable Intangible Assets:
Software Technology	$	4,946	$	1,503	$	3,443	$	4,805	$	1,118	$	3,687
Intellectual Property		9,346		2,161		7,185		9,346		1,325		8,021
Customer List		1,476		92		1,384		—		—		—

	$	15,768	$	3,756	$	12,012	$	14,151	$	2,443	$	11,708

The increase of $1,617 in intangible assets relates primarily to the customer list acquired as part of the acquisition of certain assets from Quinton.

Amortization of acquired intangible assets was $1,568 and $681 for the six months ended January 31, 2004 and 2003, respectively.

The estimated future amortization expense related to acquired intangible assets in the current fiscal year, and each of the five succeeding fiscal years, is expected to be as follows:


2004 (Remaining six months)	$	1,617
2005		3,228
2006		3,177
2007		2,724
2008		652
2009		614

	$	12,012

8. Net income 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 shares outstanding during the period, and, if dilutive, the weighted average number of potential shares of common stock, including unvested restricted stock and 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:


	Three Months Ended				Six Months Ended
	January 31,				January 31,
	2004		2003		2004		2003
	Restated		Restated		Restated		Restated
Net income	$	4,911	$	21,265	$	3,310	$	40,892

Weighted average number of common shares outstanding- basic		13,412		13,215		13,397		13,194
Effect of dilutive securities:
Stock options and restricted stock		52		197		108		138

Weighted average number of common shares outstanding- diluted		13,464		13,412		13,505		13,332

Net income per common share:
Basic	$	0.37	$	1.61	$	0.25	$	3.10
Diluted		0.37		1.59		0.25		3.07
Anti-dilutive shares related to outstanding stock options		249		7		142		135

9. Dividends:

The Company declared dividends of $.08 per common share on December 8, 2003, payable on January 5, 2004 to shareholders of record on December 22, 2003 and $.08 per common share on October 14, 2003, payable November 11, 2003 to shareholders of record on October 28, 2003.

10. Comprehensive Income:

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


	Three Months Ended					Six Months Ended
	January 31,					January 31,
	2004			2003		2004			2003
	Restated			Restated		Restated			Restated
Net income	$	4,911		$	21,265	$	3,310		$	40,892
Other comprehensive income (loss) net of taxes:
Unrealized gains (losses) from marketable securities net of taxes of $86 and $96, for the three months ended January 31, 2004, and 2003, and $178 and $71 for the six months ended January 31, 2004 and 2003, respectively		(130	)		146		(273	)		(108	)
Foreign currency translation adjustment, net of taxes of $1,132 and $517, for the three months ended January 31, 2004 and 2003, and $1,876 and $579 for the six months ended January 31, 2004 and 2003, respectively		1,730			789		2,866			1,000

Total comprehensive income	$	6,511		$	22,200	$	5,903		$	41,784

11. Supplemental disclosure of cash flow information:

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


	Six Months Ended
	January 31,
	2004			2003
	Restated			Restated
Accounts and notes receivable	$	(1,404	)	$	2,878
Accounts receivable from affiliates		915			601
Inventories		26			2,462
Costs related to deferred revenue		(717	)		(5,020	)
Other current assets		(2,002	)		(635	)
Other assets		2,171			(3,198	)
Accounts payable, trade		(4,038	)		(7,643	)
Accrued liabilities		(1,129	)		3,951
Advance payments and deferred revenue		(4,316	)		(37,430	)
Accrued income taxes		(381	)		13,402

Net changes in operating assets and liabilities	$	(10,875	)	$	(30,632	)

12. Taxes:

The effective tax rate for the three and six months ended January 31, 2004 was 19% and 23%, respectively, as compared to 38% for the same periods last year. The decrease in the effective tax rates from the prior year was due primarily to a relative increase in the estimated benefits from tax exempt interest and research and development credits as a result of a lower dollar base of pre-tax income.

13. Segment information:

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


	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2004			2003			2004			2003
	Restated			Restated			Restated			Restated
Revenues from external customers:
Imaging technology products	$	83,192		$	150,763		$	146,333		$	272,667
Signal processing technology products		7,704			4,518			13,836			12,171
Corporate and other		1,745			1,690			4,181			4,366

Total	$	92,641		$	156,971		$	164,350		$	289,204

Income (loss) before income taxes:
Imaging technology products	$	5,276		$	35,309		$	2,216		$	64,805
Signal processing technology products		(39	)		(2,359	)		(331	)		(1,971	)
Corporate and other		841			1,395			2,414			3,167

Total	$	6,078		$	34,345		$	4,299		$	66,001


	January 31, 2004		July 31, 2003
	Restated
Identifiable assets:
Imaging technology products	$	234,475	$	223,841
Signal processing technology products		12,113		13,105
Corporate and other(A)		207,211		220,471

Total	$	453,799	$	457,417

(A)

Includes cash equivalents and marketable securities of $147,066 and $167,229 at January 31, 2004, and July 31, 2003, respectively.

14. Commitments and guarantees:

The Company’s standard original equipment manufacturing and supply agreements entered into in the 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, 2004.

In the fiscal year 2002, the Company acquired a 19% interest in 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 $11,300 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, 2004.

Generally, 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 24 months from the date of delivery. The Company provides for the estimated cost of product and service warranties based on specific warranty claims, claims history and engineering estimates, where applicable.

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


	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2004			2003			2004			2003
Balance at the beginning of the period	$	6,837		$	4,704		$	7,302		$	3,235
Accrual for warranties issued during the period		1,513			3,643			2,248			6,396
Accrual related to pre-existing warranties (including changes in estimate)		(1,818	)		—			(1,589	)		(87	)
Settlements made in cash or in kind during the period		(551	)		(1,420	)		(1,980	)		(2,617	)

Balance at the end of the period	$	5,981		$	6,927		$	5,981		$	6,927

15. New accounting pronouncements

In January 2003, the Financial Accounting Standards Board issued Financial Accounting Standards Board Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” 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. The Company did not acquire any variable interest entities after this date. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 must be applied for the first interim or annual period beginning after December 15, 2003. The Company will adopt the provisions of FIN 46 in the third quarter of fiscal 2004 and is uncertain at this time if the adoption will have a material impact on its financial position or results of operations.

16. Subsequent events:

On March 12, 2004, the Company announced that its Board of Directors, on March 11, 2004, declared dividends of $0.08 per common share payable on April 9, 2004 to shareholders of record on March 25, 2004.

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

All dollar amounts in this Item 2 are in thousands except per share data.

The following information has been amended to reflect the revisions made to the Condensed Consolidated Financial Statements as further discussed in Note 2, “Restatement.” This information should be read in conjunction with the information contained in the Unaudited Condensed Consolidated Financial Statements, and Notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q/A.

Summary

The following is a summary of the areas that management believes are important in understanding the results of the periods indicated. This summary is not a substitute for the detail provided in the following pages or for the unaudited condensed consolidated financial statements and notes that appear elsewhere in this document.

Net sales for the six months ended January 31, 2004 were $124,854 lower than the same period last year. Net sales for the three months ended January 31, 2004 were $64,330 lower than the same period last year. The sales decrease in these periods was primarily the result of the number of EXACT systems sold to L-3 Communications. The short fall in the EXACT systems sales was partially offset by higher demand for ultrasound, data acquisition systems and high speed computers products, the recognition of the prior years Camtronics deferred revenue of $7,500, the sale of a license of intellectual property for $1,250, and revenue of $2,500 resulting from a multi-year, multi-million dollar Original Equipment Manufacturer’s (“OEM”) agreement, in which a level of margin based on a certain amount of revenue per year is guaranteed annually for the next three years.

Gross margin for the six months ended January 31, 2004 decreased slightly to 41.7% from 42.5% the same period last year. Gross margin for the three months ended January 31, 2004 improved to 42.7% from 41.0% from the same period last year, mainly the result of the benefit of $2,500 of margin guaranteed by an OEM customer.

Total operating expenses increased $7,402 for the six months ended January 31, 2004 over the same period last year, and $2,744 for the quarter ended January 31, 2004 over the same period last year. The increase in operating expenses is primarily the result of increased research and product development expenses related to the Company’s continued focus on developing new generations of medical imaging equipment and security systems and subsystems. Sales and marketing expenses increased primarily as a result of salaries, related expenses, and other operating expenses for the Company’s newly established subsidiary, Anexa. General and administrative expenses increased mainly due to incremental costs of certain recently acquired businesses and increased accounting and legal costs.

Diluted earnings per share declined to $0.25 per share for the six months ended January 31, 2004 from $3.07 per share for the six months ended January 31, 2003. Diluted earnings per share declined for the quarter ended January 31, 2004 to $0.37 from $1.59 for the same period last year. In both periods the decline in earnings per share over the same periods in the prior year was primarily the result of lower sales of the EXACT systems and associated spare parts.

Cash, cash equivalents and marketable securities decreased $13,609 to $164,352 at January 31, 2004 from $177,961 at July 31, 2003. The decrease was primarily due to capital expenditures of $14,483 of which $8,121 relates to the Company’s new addition to its headquarters facility in Peabody, MA, dividends paid to shareholders of $2,161 and the acquisition of businesses and assets of $1,891, offset by $6,287 of cash generated by operating activities.

Critical Accounting Policies, Judgments, and Estimates

The U.S. Securities and Exchange Commission (“SEC”) has suggested that companies provide additional disclosure and commentary on their critical accounting policies. The SEC considers critical accounting policies to be the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. In the case of the Company’s critical accounting policies, these judgments are based on its historical experience, terms of existing contracts, the Company’s observance of trends in the industry, information provided by its customers and information available from other outside sources, as appropriate. The Company’s critical accounting policies, judgments, and estimates include:

Revenue Recognition

The Company recognizes the majority of its revenue in accordance with SEC Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements”. Revenue related to product sales is recognized upon shipment provided that title and risk of loss have 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. Our sales contracts generally provide for the customer to accept title and risk of loss when the product leaves our facilities. When shipping terms or local laws do not allow for passage of title and risk of loss at shipping point, we defer recognizing revenue until title and risk of loss transfer to the customer.

For business units that sell software licenses, the Company recognizes revenue in accordance with the American Institute of Certified Public Accountants (“AICPA”)’s Statement of Position 97-2, “Software Revenue Recognition” (“SOP 97-2”). 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 remain, fees are fixed or determinable, collectibility is reasonably assured and customer acceptance, when applicable, is obtained. Hardware and software maintenance is marketed under annual and multi-year arrangements and revenue is recognized ratably over the contracted maintenance term. Service revenues are recognized ratably over the life of the contracts.

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.

Inherent in the revenue recognition process are significant management estimates and judgments, which influence the timing and the amount of revenue recognition. Camtronics, one of the Company’s subsidiaries, provides several models for the procurement of its digital cardiac information systems and for each model, its management must make significant estimates and judgments regarding revenue recognition. The predominant model includes a perpetual software license agreement, project-related installation services, professional consulting services, computer hardware and sub-licensed software and software support.

Camtronics provides installation services, which include project-scoping services, conducting pre-installation audits, detailed installation plans, actual installation of hardware components, and testing of all hardware and software installed at the customer site. Because installation services are deemed to be essential to the functionality of the software, software license and installation service revenues are recognized upon completion of installation.

Camtronics also provides professional consulting services, which include consulting activities that fall outside of the scope of the standard installation services. These services vary depending on the scope and complexity requested by the client. Examples of such services include additional database consulting, system configuration, project management, interfacing to existing systems, and network consulting. Professional consulting services generally are not deemed to be essential to the functionality of the software. If Camtronics has VSOE for the consulting services, the timing of the software license revenue is not impacted. However, Camtronics commonly performs consulting services for which the Company does not have VSOE; accordingly, the software license revenue is deferred until the services are completed. If VSOE exists, professional consulting service revenue is recognized as the services are performed.

Deferred revenue is comprised of 1) license fee, maintenance and other service revenues for which payment has been received and for which services have not yet been performed and 2) revenues related to delivered components of a multiple-element arrangement for which VSOE of fair value has not been determined for components not yet delivered or accepted by the customer. Deferred costs represent costs related to these revenues; for example, costs of goods sold and services provided and sales commission expenses.

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, and performs ongoing credit evaluations on its customer’s financial condition. The Company 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. The Company warrants that its products will perform in all material respects in accordance with its standard published specifications in effect at the time of delivery of the products to the customer for a period ranging for 12 to 24 months from the date of delivery.

Investments in and Advances to Affiliated Companies

The Company has 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 entities operate. 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.

Goodwill, 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. 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 Company determines whether an impairment has occurred based on gross expected future cash flows, and measures the amount of the impairment based on the related future discounted cash flows. 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 goodwill for potential impairment during the first quarter of each fiscal year, 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 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 more likely than not, a valuation allowance must be established. To the extent a valuation allowance is established, the Company must include 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 2004 (01/31/04) vs. Six Months Fiscal 2003 (01/31/03)

Product revenue for the six months ended January 31, 2004 was $149,573 compared to $272,983 for the same period last year, a decrease of $123,410 or 45%. The decrease in product revenue was primarily due to sales of Imaging Technology Products which decreased $127,574 or 48% to $136,019 for the six months ended January 31, 2004 from $263,593 for the six months ended January 31, 2003. This was primarily the result of reduced sales of the EXACT systems and spare parts which the Company supplied to L-3 Communications from $161,054 for the six months ended January 31, 2003 to $9,756 for the six months ended January 31, 2004. This was partially offset by increased sales of $23,724, or 23% over prior year sales, of systems and subsystems for medical imaging equipment due to increased demand of ultrasound and data acquisition systems. This increase also includes approximately $7,500 of prior years’ deferred revenue which was recognized in the current period, and approximately $2,500 of revenue resulting from a multi-year, multi-million dollar OEM agreement, in which a level of margin based on a certain amount of revenue per year is guaranteed annually for the next three years.

Engineering revenue for the six months ended January 31, 2004 was $10,596 compared to $11,855 for the same period last year, an decrease of $1,259 or 11%. This decrease was primarily due to a reduction in certain funded projects partially offset by the sale of a license of intellectual property for $1,250 to the Company’s affiliate Shenzhen Anke High-Tech Co., Ltd. (“SAHCO”).

Other revenue of $4,181 and $4,366 represents revenue for the hotel operation for the six months ended January 31, 2004 and 2003, respectively.

Product gross margin was $61,065 for the six months ended January 31, 2004 compared to $117,396 for the same period last year. Product gross margin as a percentage of product revenue was 41% and 43% for the six months ended January 31, 2004 and 2003, respectively. The decrease in product gross margin percentage over the prior year was primarily attributable to lower sales of security imaging technology products, which have higher gross margin than most of the Company’s other products, partially offset by the benefit of $2,500 of margin guaranteed by an OEM customer.

Engineering gross margin was $5,660 for the six months ended January 31, 2004 compared to $3,452 for the same period last year. Engineering gross margin as a percentage of engineering revenue was 53% and 29% for the six months ended January 31, 2004 and 2003, respectively. The increase in engineering gross margin as a percentage of revenue over the prior year was primarily due to the sale of a license of intellectual property to the Company’s affiliate SAHCO for $1,250 with no corresponding cost and lower costs related to customer funded projects.

Research and product development expenses were $29,785 for the six months ended January 31, 2004 or 18% of total revenue, compared to $25,948, or 9% of total revenue for the same period last year. The increase of $3,837 was primarily due to the Company continuing to focus substantial resources on 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. 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 for security imaging systems to meet diverse, evolving security needs in the United States and abroad.

Selling and marketing expenses were $17,819 or 11% of total revenue for the six months ended January 31, 2004, as compared to $16,380 or 6% of total revenue for the same period last year. The increase in selling expenses was primarily the result of salaries, related expenses and other operating expenses for the Company’s newly established subsidiary, Anexa, to sell the next generation of digital imaging solutions to select end-user markets in the United States.

General and administrative expenses were $18,554, or 11% of total revenue, for the six months ended January 31, 2004, as compared to $16,428 or 6% of total revenue for the same period last year. The increase of $2,126 was

due to amortization related to acquired intangible assets of $887, incremental costs of approximately $700 related to recently acquired subsidiaries, Sound Technology Inc. and VMI Medical Inc., which were not included in the same period last year, approximately $200 related to programs initiated by the Company to comply with Sarbanes-Oxley Act of 2002, and approximately $550 in accounting and legal expenses related to the restatement of the Company’s financial statements for fiscal years 2001, 2002 and the first three quarters of fiscal 2003, partially offset by lower bad debt expenses of approximately $600 primarily related to an unsecured note receivable in the prior year.

Interest income was $2,086 for the six months ended January 31, 2004, compared to $2,509 for the same period last year. The decrease was due to lower invested cash balances resulting primarily for payments made for the construction of the new building and effective interest rates.

The Company recorded equity income of $1 and a loss of $2,093 related to equity in unconsolidated affiliates for the six months ended January 31, 2004, and 2003, respectively. The equity income of $1 for the six months ended January 31, 2004 was primarily due to a gain of $304 reflecting the Company’s share of profit in Cedara Software Corporation primarily offset by the Company’s share of losses of $262 in SAHCO. The equity loss of $2,093 for the six months ended January 31, 2003 was primarily due to the Company’s share of losses of $790 in SAHCO and $1,436 in Cedara, partially offset by an equity gain of $160 reflecting the Company’s share of profit in Enhanced CT Technology LLC.

Other income, consisting primarily of currency exchange gain, was $5 and $1,644 for the six months ended January 31, 2004 and 2003, respectively. The currency exchange gain for the six months ended January 31, 2003 was the result of the weakening US dollar on the US dollar denominated intercompany loans from the Company’s Danish and Canadian subsidiaries. The Company converted to equity the Danish and Canadian subsidiaries’ intercompany loans which were outstanding during July 2003.

The effective tax rate for the six months of fiscal 2004 was 23% as compared to 38% for the same period last year. The decrease of 15% was primarily due to a relative increase in the estimated benefits from tax exempt interest and research and development credits as a result of a lower dollar base of pre tax income for fiscal 2004 when compared to the same period for fiscal 2003.

Net income for the six months ended January 31, 2004 was $3,310 or $0.25 per basic and diluted earnings per share, as compared to $40,892 or $3.10 per basic earnings per share and $3.07 per diluted earnings per share for the same period last year. The decrease in net income over the prior year was primarily the result of lower sales of the EXACT systems and associated spare parts.

Results of Operations

Second Quarter Fiscal 2004 (01/31/04) vs. Second Quarter Fiscal 2003 (01/31/03)

Product revenue for the three months ended January 31, 2004 was $86,896 compared to $149,806 for the same period last year, a decrease of $62,910 or 42%. The decrease in product revenue was primarily due to sales of Imaging Technology Products which decreased $66,594 or 46% to $79,402 for the quarter ended January 31, 2004 from $145,996 for the quarter ended January 31, 2003. This was primarily the result of reduced sales of the EXACT systems and spare parts which the Company supplied to L-3 Communications from $88,088 for the quarter ended January 31, 2003 to $6,456 for the quarter ended January 31, 2004. This was partially offset by increased sales of $15,038, or 26% over prior year sales, of systems and subsystems for medical imaging equipment due to increased demand of ultrasound and data acquisition systems. This increase also includes approximately $7,000 of prior years’ deferred revenue which was recognized in the current period, and approximately $2,500 of revenue resulting from a multi-year, multi-million dollar OEM agreement, in which a level of margin based on a certain amount of revenue per year is guaranteed annually for the next three years.

Engineering revenue for the three months ended January 31, 2004 was $4,000 compared to $5,475 for the same period last year, a decrease of $1,475 or 27%. This decrease in engineering revenue was primarily due to a decrease in funding projects for developing medical and security imaging equipment, partially offset by a license sale of $500 to the Company’s affiliate SAHCO.

Other revenue of $1,745 and $1,690 represents revenue for the hotel operation for the three months ended January 31, 2004 and 2003, respectively.

Product gross margin was $37,063 for the quarter ended January 31, 2004 compared to $61,841 for the same period last year. Product gross margin as a percentage of product revenue was 43% and 41% for the three months ended January 31, 2004 and 2003, respectively. The increase in product gross margin percentage over the prior year quarter was primarily attributable to the benefit of $2,500 of margin guaranteed by an OEM customer.

Engineering gross margin was $1,868 for the three months ended January 31, 2004 compared to $1,968 for the same period last year. Engineering gross margin as a percentage of engineering revenue was 47% and 36% for the three months ended January 31, 2004 and 2003, respectively. The increase in gross margin percentage was mainly due to the sale of a license of intellectual propriety of $500 to the Company’s affiliate SAHCO, with no corresponding cost.

Research and product development expenses were $14,482 for the three months ended January 31, 2004 or 15% of total revenue, compared to $14,571, or 9% of total revenue for the same period last year. The increase in research and product development as a percentage of revenue was primarily the result of lower EXACT revenue from a year ago.

Selling and marketing expenses were $9,795 or 11% of total revenue for the three months ended January 31, 2004, as compared to $8,448 or 5% of total revenue for the same period last year. The increase was primarily due to salaries and related expenses including other operating expenses for the Company’s newly established subsidiary, Anexa, to sell the next generation of digital imaging solutions to select end-user markets in the United States.

General and administrative expenses were $10,081, or 11% of total revenue, for the three months ended January 31, 2004, as compared to $8,595 or 6% of total revenue for the same period last year. The increase of $1,486 was due to amortization related to acquired intangible assets of $264, approximately $200 related to programs initiated by the Company to comply with Sarbanes-Oxley Act of 2002, and approximately $550 in accounting and legal expenses related to the restatement of the Company’s financial statements for fiscal years 2001, 2002 and the first three quarters of fiscal 2003.

Interest income was $962 for the three months ended January 31, 2004, compared to $1,221 for the same period last year. The decrease was due to lower invested cash balances resulting primarily for payments made for the construction of the new building and effective interest rates.

The Company recorded equity income of $158 and a loss of $855 related to equity in unconsolidated affiliates for the three months ended January 31, 2004, and 2003, respectively. The equity income of $158 for the three months ended January 31, 2004 was primarily due to a gain of $312 reflecting the Company’s share of profit in Cedara Software Corporation partially offset by a loss of $134 for the Company’s share of losses in SAHCO. The equity loss of $855 for the prior year’s period was primarily due to a loss of $689 and $321, representing the Company’s share of losses in Cedara and SAHCO, respectively, partially offset by an equity gain of $160 reflecting the Company’s share of profit in Enhanced CT Technology LLC.

Other loss was $101 for the three months ended January 31, 2004 compared to other income of $1,301 for the same period last year. Other income and loss consist primarily of foreign currency exchange. The currency gain last year was primarily the result of the weakening US dollar on the US dollar denominated intercompany loans from the Company’s Danish and Canadian subsidiaries. The Company converted to equity the Danish and Canadian subsidiaries’ intercompany loans which were outstanding during July 2003.

The effective tax rate for the second quarter of fiscal 2004 was 19% as compared to 38% for the same period last year. The decrease in the tax rates of 19% was primarily due to a relative increase in the estimated benefits from tax exempt interest and research and development credits as a result of a lower dollar base of pre tax income for fiscal 2004 when compared to the same period for fiscal 2003.

Net income for the three months ended January 31, 2004 was $4,911 or $0.37 per basic and diluted earnings per share, as compared to $21,265 or $1.61 per basic earnings per share and $1.59 per diluted earnings per share for the

same period last year. The decrease in net income over the prior year was primarily the result of lower sales of the EXACT systems and associated spare parts.

Liquidity and Capital Resources

The Company’s balance sheet reflects a current ratio of 4.0 to 1 at January 31, 2004 compared to 3.7 to 1 at July 31, 2003. 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 .25 to 1 at January 31, 2004 and .28 to 1 at July 31, 2003. 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 at least 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, 2004, 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 provided by operations was $6,287 for the six months ended January 31, 2004, compared with cash flow generated of $25,853 for the same period last year. The decrease in cash flows from operations was primarily the result of a decrease in net income of $37,582 and a net decrease in changes in operating assets and liabilities of $19,757.

Net cash used for investing activities was $11,405 for the six months ended January 31, 2004 compared to $12,427 for the same period last year. The decrease in net cash used of $1,022 was primarily due to maturity of marketable securities and a reduction in spending related to business acquisitions. These decreases were partially offset by increased capital expenditures of $14,483 of which $8,121 was related to the Company’s new addition to its headquarters facility in Peabody, Massachusetts.

Net cash used for financing activities was $1,875 for the six months ended January 31, 2004 versus net cash provided of $91 for the prior year period. The increase in net cash used of $1,966 was primarily due to lower proceeds from the issuances of stock pursuant to employee stock option and employee stock purchase plans of $1,006 and a payment of a loan obligation from a business acquisition of $925.

The Company’s contractual obligations at January 31, 2004, and the effect such obligations are expected to have on liquidity and cash flows in future periods are as follows:


			Less						More
			than						than
Contractual Obligations	Total		1 year		1-3 years		4-5 years		5 years
Mortgage and notes payable	$	5,651	$	1,133	$	704	$	704	$	3,110
Capital leases		468		197		231		40		—
Operating leases		9,272		2,837		2,706		1,203		2,526
Other commitments		367		367		—		—		—

	$	15,758	$	4,534	$	3,641	$	1,947	$	5,636

Off-balance sheet arrangements

As of January 31, 2004 the Company had approximately $24,000 in revolving credit facilities with various banks available for direct borrowings. As of January 31, 2004, 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 for approximately $11,300.

New Accounting Pronouncements

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 for the three and six months ended January 31, 2004 was $962,000 and $2,086,000, respectively. 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, 2003, each of which is a significant and valued customer, were L-3 Communications, General Electric and Toshiba, which accounted for approximately 43%, 9% and 7%, respectively, of product and engineering revenue. For the first six months ended January 31, 2004, the Company’s three largest customers, Toshiba, General Electric, and Siemens accounted for approximately 13%, 12% and 9%, 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

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of 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) as of January 31, 2004. The Company’s chief executive officer and chief financial officer believe that the Company’s disclosure controls and procedures were designed to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared.

The Company’s management performed its initial evaluation of its disclosure controls and procedures shortly following the quarter ended January 31, 2004. However, in the course of preparing its Annual Report on Form 10-K

for the fiscal year ended July 31, 2004, the Company further evaluated certain information leading it to question whether appropriate software revenue recognition procedures had been followed in all cases by its Camtronics Medical Systems Ltd. subsidiary. The Company conducted a review of Camtronics transactions and the revenue recognition procedures followed, which has led the Company to restate its financial statements for the first three quarters of the fiscal year ended July 31, 2004 and for the fiscal years ended July 31, 2002 and 2003 and each of the interim periods within those years (see Note 2 of Notes to Unaudited Condensed Consolidated Financial Statements). Based upon this subsequent evaluation of the effectiveness of the Company’s disclosure controls and procedures performed by management, as well as the information learned as a result of its review of Camtronics transactions, the Company’s chief executive officer and chief financial officer have concluded that, as of January 31, 2004, there were a number of significant deficiencies in the controls and procedures relating to the Company’s Camtronics subsidiary that together constitute a material weakness in the Company’s internal control over financial reporting. Accordingly, the Company’s chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were not operating effectively as of January 31, 2004.

The principal internal control issues identified by the Company’s management are:

	•	the software revenue recognition expertise of Company management needs to be improved;

	•	the Company needs to enhance its written accounting policies and procedures related to software revenue recognition;

	•	the Company needs to enhance the training provided to employees with respect to software revenue recognition; and

	•	the business processes and procedures of Camtronics need to be improved to ensure that they do not have unintended consequences with respect to software revenue recognition.

Since identifying these issues, the Company has taken the following steps to improve its disclosure controls and procedures and internal control over financial reporting:

	•	Appointment of an interim President of Camtronics, succeeding the former President who left the employ of the Company, until such time that a full time President has been appointed.

	•	Appointment of a Controller, replacing Camtronics’ Vice President and Controller who left the employ of the Company.

	•	All subsidiary Controllers, who formerly reported to subsidiary General Managers, also now report directly to the Company’s Corporate finance organization.

	•	Detailed quarterly review of all software revenue transactions by the Company’s Corporate finance organization.

In addition, the Company plans to take the following additional actions to further improve its disclosure controls and procedures and internal control over financial reporting:

	•	Review and revise, as required, Camtronics software revenue recognition policies, procedures and processes to ensure compliance with SOP 97-2.

	•	Conduct periodic internal audit reviews of Camtronic’s business practices and software revenue recognition policies and procedures.

	•	Conduct software revenue recognition training for all Camtronics personnel who have responsibility for generating, administering, and recording software revenues.

The Company believes that the above steps taken and the planned additional actions will address and resolve the material weaknesses in the Company’s internal controls over financial reporting at its Camtronics subsidiary. With respect to planned additional actions, the Company will initiate and, where practicable, complete these actions on or before the end of its third quarter ending April 30, 2005.

While there have been significant changes (described above) in the Company’s internal control over financial reporting since October 31, 2004, no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended January 31, 2004

that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The certifications of the Company’s chief executive officer and chief financial officer attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q/A include, in paragraph 4 of such certifications, information concerning the Company’s disclosure controls and procedures and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certifications.

PART II. OTHER INFORMATION

Item 6. Exhibits


Exhibit		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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 1, 2005		/s/ JOHN W. WOOD JR.

		JOHN W. WOOD JR.
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: March 1, 2005		/s/ JOHN J. MILLERICK

		JOHN J. MILLERICK
		Senior Vice President,
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

EXHIBIT INDEX


Exhibit		Description
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Analogic (ALOG) Inactive 10-Q/A2004 Q2 Quarterly report (amended)

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