NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in thousands, except share and per share data)

1. Basis of presentation:

Company

Analogic Corporation and its subsidiaries (“Analogic” or the “Company”) are engaged primarily in the design, manufacture, and sale of high performance data acquisition and signal processing instruments to Original Equipment Manufacturers (“OEMs”) for use in advanced health and security systems and subsystems. One of Analogic’s subsidiaries sells products under its own name directly to niche clinical ultrasound end-user markets. Analogic’s top ten customers combined for approximately 68% and 67% of the Company’s total product and engineering revenue for the three months ended January 31, 2009 and 2008, respectively, and 69% and 68% for the six months ended January 31, 2009 and 2008, respectively. Two customers, Philips and Toshiba, also accounted for 16% and 12%, respectively, of net accounts receivable at January 31, 2009.

The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Investments in companies in which ownership interests range from 20% to 50% and the Company exercises significant influence over operating and financial policies, are accounted for using the equity method. Other investments are accounted for using the cost method.

General

The unaudited consolidated financial statements of the Company presented herein have been prepared pursuant to the rules of the United States Securities and Exchange Commission (the “SEC”) 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 (“GAAP”) for complete financial statements. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting solely of normal recurring adjustments) necessary for a fair statement of the results for all interim periods presented. The results of operations for the three and six months ended January 31, 2009 are not necessarily indicative of the results to be expected for the fiscal year ending July 31, 2009 (“fiscal year 2009”), or any other interim period. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended July 31, 2008 (“fiscal year 2008”) included in the Company’s Annual Report on Form 10-K as filed with the SEC on September 29, 2008. The accompanying Consolidated Balance Sheet as of July 31, 2008 contains data derived from audited financial statements.

2. Recent accounting pronouncements:

The Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 157, “ Fair Value Measurements ”, on August 1, 2008. SFAS No. 157 defines fair value, establishes a methodology for measuring fair value and expands the required disclosure for fair value measurements. During calendar year 2008, the Financial Accounting Standards Board (“FASB”) issued the following amendments to SFAS No. 157:

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The Company adopted FSP No. FAS 157-1 and FSP No. FAS 157-3 in the first quarter of fiscal year 2009 concurrent with the adoption of SFAS No. 157. The adoption of SFAS No. 157, as amended, did not have an impact on the Company’s financial position or results of operations. See Note 4 for additional SFAS No. 157 disclosures.

In February 2007, the FASB issued SFAS No. 159, “ The Fair Value Option for Financial Assets and Financial Liabilities-including an amendment of SFAS No. 115 ”. The new statement allows entities to choose, at specified election dates, to measure eligible financial assets and liabilities at fair value that are not otherwise required to be measured at fair value. If a company elects the fair value option for an eligible item, changes in that item’s fair value in subsequent reporting periods must be recognized in current earnings. The Company adopted SFAS No. 159 on August 1, 2008 concurrent with its adoption of SFAS No. 157. The adoption of SFAS No. 159 did not have an impact on the Company’s financial position or results of operations.

In December 2007, the FASB issued SFAS No. 141(R), “ Business Combinations ”. SFAS No. 141(R) requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition date fair values, changes the recognition of assets acquired and liabilities assumed arising from contingencies, changes the recognition and measurement of contingent consideration, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141(R) also requires additional disclosure of information surrounding a business combination, such that users of the entity’s financial statements can fully understand the nature and financial impact of the business combination. SFAS No. 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008, which will be the Company’s fiscal year ending July 31, 2010. An entity may not apply it before that date. The provisions of SFAS No. 141(R) will only impact the Company if the Company is a party to a business combination after July 31, 2009.

In December 2007, the FASB issued SFAS No. 160, “ Noncontrolling Interests in Consolidated Financial Statements—an amendment of Accounting Research Bulletin No. 51 ”. SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. This statement is effective for the Company beginning on August 1, 2009. The Company is currently evaluating the potential impact of the adoption of SFAS No. 160 on its consolidated financial position, results of operations, and cash flows.

In April 2008, the FASB issued FSP No. FAS 142-3, “ Determining the Useful Life of Intangible Assets .” FSP No. FAS 142-3 amends the factors an entity should consider in developing renewal or extension assumptions used in determining the useful lives of recognized intangible assets. FSP No. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company does not believe the adoption of FSP No. FAS 142-3 will have a material impact on its consolidated results of operations, financial position, or cash flows.

In May 2008, the FASB issued SFAS No. 162, “ The Hierarchy of Generally Accepted Accounting Principles ”, which will provide a framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. Prior to the issuance of SFAS No. 162, the GAAP hierarchy was defined in the American Institute of Certified Public Accountants’ (AICPA) Statement on Auditing Standards No. 69, “ The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles ”. With the issuance of SFAS No. 162, the GAAP hierarchy for nongovernmental entities will move from auditing literature to accounting literature. SFAS No. 162 became effective 60 days following the SEC’s approval on September 16, 2008 of the Public Company Accounting Oversight Board amendments to AU Section 411, “ The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles ”. This statement became effective during the second quarter of fiscal year 2009 and did not have an impact on the Company’s financial position or results of operations.

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In June 2008, the FASB issued FSP No. EITF 03-6-1, “ Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities ”, which classifies unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities and requires them to be included in the computation of earnings per share pursuant to the two-class method described in SFAS No. 128, “ Earnings per Share ”. This FSP is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years. All prior-period earnings per share data presented are to be adjusted retrospectively (including interim financial statements, summaries of earnings, and selected financial data) to conform with the provisions of this FSP, with early application not permitted. The Company is currently evaluating the effect, if any, that the adoption of FSP No. EITF 03-6-1 will have on its financial position, results of operations and cash flows.

3. Share-based payment:

The Company accounts for share-based compensation expense in accordance with SFAS No. 123(R), “Share-Based Payment”,  which establishes accounting for equity instruments exchanged for employee and director services. Under the provisions of SFAS No. 123(R), share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the employee’s or director’s requisite service period (generally the vesting period of the equity grant).

The following table presents share-based compensation expenses included in the Company’s unaudited Consolidated Statements of Operations:

Beginning in fiscal year 2008, the Company’s Compensation Committee (the “Committee”) began granting performance contingent restricted stock awards. From August 1, 2007 through January 31, 2009, the Committee granted awards for a target of 143,248 performance contingent restricted stock shares (“performance awards”) under the Company’s 2007 Restricted Stock Plan, of which 2,744 shares have been forfeited. These shares will vest if specific pre-established levels of performance are achieved at the end of a three-year performance cycle, which is July 31, 2010 for 97,572 shares granted in fiscal year 2008 and July 31, 2011 for 42,932 shares granted in fiscal year 2009. The performance goal for the performance awards is based solely on the cumulative growth of an adjusted earnings per share metric. The actual number of shares to be issued will be determined at the end of each three-year performance cycle and can range from zero to, in most cases, 200% of the target award, or up to 273,869 shares. The actual number of shares to be issued will also include the payment of dividends on the actual number of shares earned. The maximum compensation expense for the performance awards is $16,348 based on a weighted-average grant date fair value of $59.70 per share. Compensation expense is being recognized over the performance period based on the number of shares that is deemed to be probable of vesting at the end of each three-year performance cycle. As of January 31, 2009, the Company estimated that total awards covering 48,278 shares with a value of $2,855 were deemed probable of vesting out of total awards covering 140,504 outstanding shares. During the three months ended January 31, 2009 and 2008, compensation expense of $0 and $196, respectively, was recognized for the performance awards based on the amount of shares deemed probable of vesting. During the six months ended January 31, 2009 and 2008, compensation expense of $420 and $196, respectively, was recognized for the performance awards based on the amount of shares deemed probable of vesting.

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The Company estimates the fair value of stock options using the Black-Scholes valuation model. Key input assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s Common Stock over the option’s expected term, and the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s outstanding stock options. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive equity-based awards.

The weighted-average grant-date fair values of options granted were $11.83 and $19.71 per share during the three months ended January 31, 2009 and 2008, respectively, and $19.70 and $21.58 per share during the six months ended January 31, 2009 and 2008, respectively. The fair value of options at date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions:

The weighted-average fair values of the options granted under the employee stock purchase plan was $5.80 per share for each of the three and six months ended January 31, 2009 and $15.13 per share during each of the three and six months ended January 31, 2008. The fair value of options at date of grant was estimated using the Black-Scholes option-pricing model with the following assumptions:

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The following table sets forth the stock option and restricted stock transactions from July 31, 2008 to January 31, 2009:

4. Marketable securities and fair value:

Effective August 1, 2008, the Company adopted SFAS No. 157 for its financial assets and liabilities that are re-measured at fair value at each reporting period. In February 2008, the FASB issued FSP No. FAS 157-2, which provides a one-year deferral of the effective date of SFAS No. 157 for non-financial assets and non-financial liabilities, except those that are recognized or disclosed in the financial statements at fair value at least annually. The adoption of SFAS No. 157 with respect to financial assets and liabilities and non-financial assets and liabilities that are measured at fair value at least annually did not have an impact on the financial position or results of operations of the Company. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and requires enhanced disclosures about fair value measurements. Fair value is defined under SFAS No. 157 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under SFAS No. 157 must maximize the use of observable inputs and minimize the use of unobservable inputs. SFAS No. 157 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value:

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The Company’s cash equivalents and marketable securities are comprised primarily of certificates of deposits and U.S. government and agency discount notes. In accordance with SFAS No. 157, the following table represents the Company’s fair value hierarchy for its financial assets measured at fair value as January 31, 2009:

The Company did not have any financial liabilities measured at fair value under SFAS No. 157 at January 31, 2009 or July 31, 2008.

The following tables summarize the composition of the Company’s marketable securities at January 31, 2009 and July 31, 2008.

All marketable securities held at January 31, 2009 mature within one year of that date.

There are no realized gains or losses on marketable securities, as the cost has approximated fair value.

5. Business combination

On April 14, 2008, the Company acquired all of the outstanding capital stock of Copley Controls Corporation (“Copley”). Copley is a supplier of gradient amplifiers for Magnetic Resonance Imaging (“MRI”) and precision motion control systems used in computer-controlled automation systems. This acquisition has enabled the Company to expand its product offerings to its OEM customers, pursue new opportunities in Asia, enhance its position as a provider of medical subsystems for MRI scanners, and provide additional opportunities in the high-technology automation market.

The estimated purchase price, net of cash acquired, was approximately $74,032, which consisted of $76,875 of cash paid upon closing, $734 of transaction costs, which primarily consisted of fees incurred by the Company for financial advisory, legal and accounting services, $1,066 for estimated working capital adjustment payments, of which the entire amount was paid prior to July 31, 2008, and $350 due to the former stockholders of Copley to reimburse them for the additional tax costs of making an election to treat the acquisition as an asset sale for tax purposes, net of cash acquired of $4,993. The total amount paid through January 31 2009, net of cash acquired, was $73,682.

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The Company’s consolidated financial statements include the results of Copley from the date of acquisition. The purchase price has been allocated to the assets acquired and the liabilities assumed based on estimated fair values as of the acquisition date.

The following represents the purchase price allocation:

In determining the purchase price allocation, the Company considered, among other factors, its intention to use the acquired assets and the historical and estimated future demand for Copley products and services. The fair value of developed technology and tradename intangible assets were based upon the relief from royalty approach while the customer relationship and backlog intangible assets were based on the income approach. The rate used to discount the estimated future net cash flows to their present values for each intangible asset was based upon a weighted average cost of capital ranging from 15.5% to 20.0%. The discount rate was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales related to the technology and assets acquired from Copley.

The total weighted average amortization period for the intangible assets is approximately 12 years. The intangible assets are being amortized on a straight-line basis, which is consistent with the pattern that the economic benefits of the intangible assets are expected to be utilized based upon estimated cash flows generated from such assets. The goodwill is classified within the Company’s Medical Imaging Products segment.

In connection with the acquisition of Copley, the Company commenced integration activities which have resulted in recognizing $1,276 in liabilities for personnel-related costs and $150 for idle facility space. The Company expects to pay a substantial amount of the liabilities associated with the personnel-related costs and idle facility space through fiscal year 2009. Approximately $514 has been paid as of January 31, 2009.

The following pro forma information gives effect to the acquisition of Copley as if the acquisition occurred at the beginning of the prior year comparative period for which pro forma results have been shown. The pro forma results are not necessarily indicative of what actually would have occurred had the acquisition been in effect for the period presented:

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The pro forma results for the three months ended January 31, 2008 included $1,031 and $1,598 of expenses related to the amortization of both the backlog intangible asset and the inventory fair value adjustment from the purchase accounting, respectively, and pro forma results for the six months ended January 31, 2008 included $2,063 and $1,598 of expenses related to the amortization of both the backlog intangible asset and the inventory fair value adjustment from the purchase accounting, respectively. The backlog and inventory valuation adjustment were completely amortized over six and three months, respectively, from the date of acquisition.

6. Goodwill and other intangible assets:

The carrying amount of the goodwill at January 31, 2009 and July 31, 2008 of $2,418 and $3,534, respectively, is from the acquisition of Copley. The decrease in goodwill of $1,116 from July 31, 2008 to January 31, 2009 is due primarily to an adjustment to the purchase price of $650 for the amount due to the former stockholders of Copley to reimburse them for the additional tax costs of making an election to treat the acquisition as an asset sale for tax purposes. Also contributing to the decrease was an adjustment to deferred taxes of $466 in the purchase price allocation.

Intangible assets at January 31, 2009 and July 31, 2008 consisted of the following:

Amortization expense related to acquired intangible assets was $737 and $9 for the three months ended January 31, 2009 and 2008, respectively, and $2,332 and $356 for the six months ended January 31, 2009 and 2008, respectively.

The estimated future amortization expenses related to intangible assets for each of the five succeeding fiscal years is expected to be as follows:

SFAS No. 142, “ Goodwill and Other Intangible Assets ,” requires that goodwill and indefinite lived intangible assets be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed by the Company in connection with the acquisition of Copley on April 14, 2008. The tradename represents the value allocated to the Copley tradename in connection with the acquisition of Copley. The goodwill and Copley tradename are part of the OEM reporting unit (the “Reporting Unit”), which the Company tests for goodwill impairment during the second quarter of each fiscal year.

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The Company performed the first step of the two-step impairment test under SFAS No. 142 and compared the fair value of the Reporting Unit to its carrying value during the second quarter of fiscal year 2009. The Company’s approach considered both the market approach and income approach. Under the market approach, the fair value of the Reporting Unit is based on trading and acquisition multiples. In the trading multiple approach, the Company assumed a control premium of 25% for the Reporting Unit, which was determined based on a range of control premiums for relevant recent acquisitions. Under the income approach, the fair value of the Reporting Unit is based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including estimates of future sales, future gross margin percentage, and discount rates. The discount rate of 14.5% was determined after consideration of market rates of return on debt and equity capital, the weighted average return on invested capital and the risk associated with achieving forecasted sales for the Reporting Unit. Due to current market conditions, greater weighting was attributed to the market approach, which was weighted 60% while the income approach was weighted 40% in arriving at the fair value of the Reporting Unit. The Company determined that the fair value of the Reporting Unit was more than the carrying value of the net assets of the Reporting Unit, and thus it was not necessary for the Company to perform step two of the impairment test.

Given the current economic environment and the uncertainties regarding the impact on the Company’s business, there can be no assurance that the Company’s estimates and assumptions regarding the duration of the ongoing economic downturn, or the period or strength of recovery, made for purposes of its goodwill impairment testing during the second quarter of fiscal year 2009 will prove to be accurate predictions of the future. If the Company’s assumptions regarding forecasted revenue or margin growth rates of certain reporting units are not achieved, the Company may be required to record an impairment charge for the goodwill and indefinite lived intangible asset in future periods, whether in connection with the Company’s next annual impairment testing in the second quarter of fiscal year 2010, or prior to that if any such change constitutes a triggering event outside of the quarter from when the annual goodwill impairment test is performed. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

7. Voluntary retirement and other restructuring costs:

In connection with the acquisition of Copley, the Company accrued for restructuring costs of $1,100 and $326 during the third and fourth quarters of fiscal year 2008, respectively. Included in the total of $1,426 were costs of $323 for 29 employees that were terminated by the Company in January 2009. See Note 5 for additional information related to these restructuring accruals.

In May 2008, the Company notified approximately 32 employees in various departments of the organization that they would be terminated by July 31, 2008. The cost associated with these terminations, which included severance and personnel related costs, was $597 and recorded as a voluntary retirement and other restructuring cost in the fourth quarter of fiscal year 2008.

On June 4, 2008, the Company announced a voluntary retirement program for all of its U.S. employees, under which the retirements were substantially completed by September 30, 2008. The total costs under this program for the 52 employees who participated in the program, including severance and personnel related costs, was $3,419 and was recorded as a voluntary retirement and other restructuring cost during the fourth quarter of fiscal year 2008.

On January 28, 2009, the Company announced a plan to reduce its workforce by 116 employees worldwide. The total costs of this plan, including severance and personnel related costs, were $3,488 and were recorded as a restructuring charge during the three and six months ended January 31, 2009.

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The following table summarizes accrued voluntary retirement and other restructuring costs activity from January 31, 2008 through January 31, 2009:

The remaining cash expenditures as of January 31, 2009 consist of approximately $4,333 in employee severance, of which a substantial amount will be paid within the next 12 months.

8. Balance sheet information:

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

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9. Net income per share:

Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Unvested restricted shares, although legally issued and outstanding, are not considered outstanding for purposes of calculating basic net income per share. Diluted net income per share is 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.

10. Dividends:

The Company declared a dividend of $0.10 per share of Common Stock on September 25, 2008, which was paid on October 20, 2008 to stockholders of record on October 6, 2008. The Company also declared a dividend of $0.10 per share of Common Stock on December 4, 2008, which was paid on December 31, 2008 to stockholders of record on December 18, 2008. The Company also declared a dividend of $0.10 per share of Common Stock on March 3, 2009, which will be paid on March 31, 2009 to stockholders of record on March 17, 2009.

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11. Comprehensive income (loss):

Components of comprehensive income (loss) include net income and certain transactions that have generally been reported as a component of Stockholders’ Equity. The following table presents the calculation of total comprehensive income (loss) and its components:

The components of accumulated other comprehensive income, net of taxes, at January 31, 2009 and July 31, 2008 are as follows:

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12. Supplemental disclosure of cash flow information:

The changes in operating assets and liabilities were as follows:

13. Taxes:

The Company’s income tax benefits of $1,695 and $2,158 for the three and six months ended January 31, 2009, respectively, were due primarily to the Internal Revenue Service (“IRS”) income tax refund of $6,459 received in December 2008. The refund, which included $1,065 of interest, was for the carryback of a loss and research and development credits from the fiscal year ended July 31, 2004 and from additional research and development tax credits claimed on amended income tax returns for the fiscal years ended July 31, 2001 through 2003. The impact of this refund and related interest was a reduction of unrecognized tax benefits by approximately $3,280, of which $1,232 was recorded as a tax benefit in both the three and six months ended January 31, 2009. Also contributing to the income tax benefits for the three and six months ended January 31, 2009 were discrete benefits of $391 for previously unrecognized tax benefits resulting from the settlement of the IRS audit, partially offset by additional provisions for agreed federal and state adjustments. The income tax benefit for the six months ended January 31, 2009 also includes a discrete tax benefit of $404 for the reinstatement of the federal research and experimentation credit back to January 1, 2008.

The Company’s effective income tax rates were provisions of 33.2% and 33.1% for the three and six months ended January 31, 2008, respectively. For the three and six months ended January 31, 2008, the effective tax rate varied from the statutory tax rate primarily as a result of the mix of income attributable to foreign versus domestic jurisdictions. The Company’s aggregate income tax rate in foreign jurisdictions is lower than its income tax rate in the United States. During the three months ended January 31, 2008, the Company recognized discrete tax benefits of $33 that resulted from employees’ disqualifying dispositions of qualified incentive stock options. For the six months ended January 31, 2008, the Company recognized discrete net tax benefits of $56 due primarily to the change in tax rate on certain foreign deferred tax assets and the tax benefit from employees’ disqualifying dispositions of qualified incentive stock options.

The Company adopted FASB Interpretation (“FIN”) No. 48, “ Accounting for Uncertainty in Income Taxes ” at the beginning of fiscal year 2008. FIN No. 48 requires management to perform a two-step evaluation of all tax positions, ensuring that these tax return positions meet the “more likely than not” recognition threshold and can be measured with sufficient precision to determine the benefit recognized in the financial statements. These evaluations provide management with a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements certain tax positions that the Company has taken or expects to take on its income tax returns. As a result of the implementation of FIN No. 48, the Company recognized a net increase of $2,239 to the August 1, 2007 retained earnings balance, which consisted of a non-current other asset and accrued income taxes of $3,806 and $1,567, respectively. At July 31, 2008, the total amount of gross unrecognized tax benefits, which excludes interest and penalties discussed below, was approximately $18,296. The unrecognized tax benefits have decreased to $15,066 at January 31, 2009; these benefits, if recognized in a future period, the timing of which is not estimable, would impact the Company’s effective tax rate.

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Analogic and its subsidiaries are subject to U.S. federal income tax as well as the income tax of multiple state and foreign jurisdictions. The Company has concluded all U.S. federal income tax matters for fiscal years through July 31, 2002. As of January 31, 2009, Analogic was under audit by the IRS for the fiscal year ended July 31, 2007.

The Company also has an unresolved state tax audit currently under appeal and one in progress. It is reasonably possible that a reduction in the unrecognized tax benefits may occur as a result of some or all of the matters concluding, but quantification of an estimated range cannot be made at this time. Within the next four fiscal quarters, the statute of limitations may close on the 2005 federal and state income tax returns and it is reasonably expected that net unrecognized tax benefits of $780 from these jurisdictions may be recognized in the next four quarters.

Within the next four fiscal quarters, the statute of limitations will close on the 2003 and 2004 tax returns filed in various foreign jurisdictions. As a result, it is reasonably expected that net unrecognized tax benefits from these foreign jurisdictions may be recognized within the next four quarters. The recognition of these tax benefits is not expected to have a material impact on the Company’s financial statements.

The Company has net operating loss carryforwards in Belgium of approximately $4,200 that are subject to a valuation allowance. It is reasonably possible that the valuation allowance could reverse in the next twelve months.

The Company accrues interest and, if applicable, penalties for any uncertain tax positions. This interest and penalty expense will be a component of income tax expense. At the date of adoption of FIN No. 48 and at January 31, 2009, the Company had approximately $1,025 and $1,161, respectively, accrued for interest on unrecognized tax benefits.

14. Segment information:

The Company operates primarily within two major markets within the electronics industry: Medical Technology Products and Security Technology Products. Medical Technology Products consists of three reporting segments: Medical Imaging Products, which consists primarily of electronic systems and subsystems for medical imaging equipment and patient monitoring; Digital Radiography Products, which consists primarily of x-ray detectors and direct digital radiography systems for diagnostic and interventional applications in mammography, orthopedic, and general radiology applications; and B-K Medical ApS (“B-K Medical”) for ultrasound systems and probes in the urology, surgery, and radiology markets. Security Technology Products consists of advanced weapon and threat detection aviation security systems and subsystems. The Company’s Corporate and Other segment represents the Company’s hotel business and net interest income. The accounting policies of the segments are the same as those described in the summary of Significant Accounting Policies included in Note 1 of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for fiscal year 2008.