ORBK Orbotech Ltd. - Ordinary Shares

ORBOTECH LTD. (NASDAQ/GSM SYMBOL: ORBK) today announced its consolidated financial results for the third quarter and nine months ended September 30, 2010.

Revenues for the third quarter of 2010 totaled $158.1 million, compared to $145.8 million recorded in the second quarter of 2010 and $91.8 million in the third quarter a year ago. GAAP (U. S. generally accepted accounting principles) net income for the third quarter of 2010 was $16.1 million, or $0.45 per share (diluted), compared to GAAP net income of $12.4 million, or $0.35 per share (diluted) for the second quarter of 2010 and a GAAP net loss of $5.5 million, or $0.16 per share, in the third quarter of 2009.

Revenues for the first nine months of 2010 totaled $405.0 million, compared to $275.3 million recorded during the corresponding period in 2009. GAAP net income for the first nine months of 2010 was $30.2 million, or $0.84 per share (diluted), compared to a GAAP net loss of $14.6 million, or $0.42 per share in the first nine months of 2009.

Non-GAAP net income for the third quarter of 2010 was $22.9 million, or $0.64 per share (diluted), compared to non-GAAP net income of $2.3 million, or $0.06 per share (diluted), in the third quarter of 2009. Non-GAAP net income for the first nine months of 2010 was $48.4 million, or $1.35 per share (diluted), compared to non-GAAP net income of $4.7 million, or $0.13 per share (diluted), in the first nine months of 2009.

The Company’s GAAP results for the third quarter of 2010 included an impairment charge of $1.5 million (net of taxes) relating to a write-down of the remaining goodwill and intellectual property of Orbotech Medical Denmark A/S. This item is explained in more detail in the description of the non-GAAP adjustments in the accompanying reconciliation of GAAP to non-GAAP results (the “Reconciliation”).

Commenting on the results, Rani Cohen, President and Chief Executive Officer, said: “We are very pleased with the Company’s results for the quarter, posting a second consecutive quarter of record revenues, with strong positive cash flow and net income. The introduction during the quarter of new and innovative products to both our PCB and FPD manufacturing customers is the result of our consistent investments in research and development, with which we will continue to press forward. As we approach 2011, we are encouraged by the current healthy PCB and FPD business environments combined with our strong product portfolio and industry leadership position.”

On October 31, 2010, the Company entered into an agreement (the “Purchase Agreement”) with General Electric Company (NYSE:GE) pursuant to which a subsidiary of GE will acquire the assets of Orbotech Medical Systems Ltd. (“OMS”), a wholly-owned subsidiary of the Company, which develops and manufactures solid state gamma radiation detector modules composed of Cadmium Zinc Telluride (CZT), for imaging applications, for approximately U.S. $9 million in cash at closing and up to an additional U.S. $5 million in cash, subject to the achievement of certain agreed performance-based milestones. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close during the first quarter of 2011. Because of the Purchase Agreement, OMS results have been presented in the financial information disclosed herein as a discontinued operation. Results from continuing operations have been adjusted to exclude results from OMS in all periods. In addition, the sale of OMS is not expected to impact the Company’s cash flow from operating activities in any material respect.

The Purchase Agreement also provides for the settlement of the Company’s outstanding litigation with GE as described in the Company’s Annual Report on Form 20F for the year ended December 31, 2009, and its subsequent SEC filings. If closing occurs, the parties will release each other from all claims, including with respect to the claims made in the litigation and agree to dismiss such litigation with prejudice. Until the closing of the transaction or the earlier termination of the Purchase Agreement, the parties have agreed, subject to compliance by OMS with certain obligations as set forth in the Purchase Agreement, to stay the litigation and not initiate any new proceedings relating to the subject matter of the litigation. The parties have agreed to file a joint application to the court in this regard. In the event the court denies this request, the parties have agreed to alternative procedures which will have substantially the same effect.

In the printed circuit board (“PCB”) industry, continuing strong demand for sophisticated consumer electronic devices, primarily smart phones and other hand held devices, has led to a shortage in high-end PCBs. This has resulted in better-than-expected orders in the third quarter for the Company’s PCB inspection and production solutions. As previously announced, at the TPCA trade show in Taiwan, the Company introduced its latest solutions for the PCB manufacturing industry, including the new Fusion Series Automated Optical Inspection (“AOI”) system and the Sprint-100 inkjet legend printer and a broad range of new models for its PCB product lines.

In the flat panel display (“FPD”) industry, while certain leading manufacturers have initiated a temporary leveling-off in existing plant utilization rates, investments in new plants continued through the third quarter, especially in China, and the Company saw continued booking of new equipment orders from countries across the Asia Pacific region in the third quarter. The strong third quarter revenues in this part of the Company’s business resulted from the expedited deliveries of FPD products for both new and existing fabrication plants. During the third quarter, the Company also introduced and made initial deliveries of its high performance EVision AOI inspection system for Generation 7.5 to Generation 8.5 substrates.

As a result of these recent industry trends, the Company is today announcing that it is updating its revenue guidance for the full year of 2010 from a range of $500 - $510 million to approximately $525 million.

Sales of equipment to the PCB industry were $42.4 million in the third quarter of 2010, compared to $41.4 million in the second quarter of 2010, and $20.3 million in the third quarter of 2009. Sales of equipment to the FPD industry were $80.5 million, compared to $72.5 million in the second quarter of 2010, and $37.6 million in the third quarter of last year. Sales of character recognition products were $2.1 million in the third quarter of 2010, compared to $1.6 million in the second quarter of 2010, and $2.4 million recorded in the third quarter of 2009. Sales of medical imaging equipment were $1.6 million in the third quarter of 2010, compared to $0.7 million in the second quarter of 2010, and $3.6 million in the third quarter of 2009. In addition, service revenue for the third quarter of 2010 was $31.5 million, compared to $29.7 million in the second quarter of 2009, and $27.9 million in the third quarter of 2009

The Company completed the quarter with cash, cash equivalents and marketable securities of approximately $176.3 million and debt of $136 million, compared with cash, cash equivalents and marketable securities of approximately $162.7 million and debt of $144 million at the end of the second quarter of 2010.

An earnings conference call for the Company’s third quarter 2010 results is scheduled for Monday, November 1, 2010, at 9:00 a.m. EST. The dial-in number for the conference call is 212-287-1850, and a replay will be available on telephone number 203-369-2039 until November 15, 2010. The pass code is Q3. A live web cast of the conference call and a replay can also be heard by accessing the investor relations section on the Company’s website at www.orbotech.com.

About Orbotech Ltd.

Orbotech is principally engaged in the design, development, manufacture, marketing and service of yield-enhancing and production solutions for specialized applications in the supply chain of the electronics industry. The Company’s products include automated optical inspection (AOI), production and process control systems for printed circuit boards (PCBs) and AOI, test and repair systems for flat panel displays (FPDs). The Company also markets computer-aided manufacturing (CAM) and engineering solutions for PCB production. In addition, through its subsidiary, Orbograph Ltd., the Company develops and markets character recognition solutions to banks and other financial institutions, and has developed a proprietary technology for use, among other things, in web-based, location-independent data entry for check and forms processing; and, through its subsidiaries, Orbotech Medical Denmark A/S and Orbotech Medical Solutions Ltd., is engaged in the research and development, manufacture and sale of specialized products for application in medical nuclear imaging. Of Orbotech’s employees, more than one quarter are scientists and engineers, who integrate their multi-disciplinary knowledge, talents and skills to develop and provide sophisticated solutions and technologies designed to meet customers’ long-term needs. Orbotech maintains its corporate headquarters, executive and registered offices and principal research and development, engineering and manufacturing facilities in Israel. The Company’s extensive network of marketing, sales and customer support teams, located in over 35 offices throughout North America, Europe, the Pacific Rim, China and Japan, delivers its knowledge and expertise directly to customers the world over. For more information visit www.orbotech.com.

Except for historical information, the matters discussed in this press release are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements relate to, among other things, future prospects, developments and business strategies and involve certain risks and uncertainties. The words “anticipate,” “believe,” “could,” “will,” “plan,” “expect” and “would” and similar terms and phrases, including references to assumptions, have been used in this press release to identify forward-looking statements. These forward-looking statements are made based on management’s expectations and beliefs concerning future events affecting Orbotech and are subject to uncertainties and factors relating to its operations and business environment, all of which are difficult to predict and many of which are beyond the Company’s control. Many factors could cause the actual results to differ materially from those projected, including the possibility that the transaction with GE will not close within the timeframe anticipated, or at all, and that the litigation with GE referred to above will not be stayed or dismissed, cyclicality in the industries in which the Company operates, the Company’s production capacity, product acceptance, worldwide economic conditions generally, especially in the industries in which the Company operates, the timing and strength of product and service offerings by the Company and its competitors, changes in business or pricing strategies, changes in the prevailing political and regulatory framework in which the relevant parties operate or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis and other risks detailed in the Company’s SEC reports, including the Company’s Annual Report on Form 20-F for the year ended December 31, 2009. The Company assumes no obligation to update the information in this press release to reflect new information, future events or otherwise, except as required by law.

Non-GAAP net income and non-GAAP earnings per share detailed in the Reconciliation exclude charges or income, as applicable, related to one or more of the following: (i) equity-based compensation expenses; (ii) certain items associated with acquisitions, including amortization and impairment of intangibles; and/or (iii) a gain representing additional consideration from the sale of Salvador Imaging, Inc. which was owned by PDI at the time of the PDI acquisition in 2008. Management uses non-GAAP net income and non-GAAP earnings per share to evaluate the Company’s operating and financial performance in light of business objectives and for planning purposes. These measures are not in accordance with GAAP and may differ from non-GAAP methods of accounting and reporting used by other companies. Orbotech believes that these measures enhance investors’ ability to review the Company’s business from the same perspective as the Company’s management and facilitate comparisons with results for prior periods. The presentation of this additional non-GAAP information should not be considered in isolation or as a substitute for net income (loss) or earnings (loss) per share prepared in accordance with GAAP, and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP. For a detailed explanation of the adjustments made to comparable GAAP measures, the reasons why management uses these measures, the usefulness of these measures and the material limitations on the usefulness of these measures please see the Reconciliation.

To supplement the Company’s financial results presented on a GAAP basis, the Company uses the non-GAAP measures indicated in the Reconciliation, which exclude equity based compensation expenses, amortization of intangible assets, in-process research and development charges and impairment and restructuring charges, as well as certain financial expenses and non-recurring income items that are believed to be helpful in understanding and comparing past operating and financial performance with current results. However, the non-GAAP measures presented are subject to limitations as an analytical tool because they do not include certain recurring items as described below and because they do not reflect certain cash expenditures that are required to operate the Company’s business, such as interest expense and taxes. Accordingly, these non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP. Management regularly utilizes supplemental non-GAAP financial measures internally to understand, manage and evaluate the Company’s business and make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. Non-GAAP financial measures reflect adjustments based on the following items, as well as the related income tax effects.

The effect of equity-based compensation expenses has been excluded from the non-GAAP net income measure. Although equity-based compensation is a key incentive offered to employees, and the Company believes such compensation contributed to the revenues earned during the periods presented and also believes it will contribute to the generation of future period revenues, the Company continues to evaluate its business performance excluding equity based compensation expenses. Equity-based compensation expenses will recur in future periods.

The effects of amortization of intangible assets have also been excluded from the non-GAAP net income measure. This item is inconsistent in amount and frequency and is significantly affected by the timing and size of acquisitions. Investors should note that the use of intangible assets contributed to revenues earned during the periods presented and will contribute to future period revenues as well. Amortization of intangible assets will recur in future periods and the Company may be required to record additional impairment charges in the future. The Company believes that it is useful for investors to understand the effects of these items on total operating expenses. For more information about these items, see the Company’s Annual Report on Form 20-F filed with the SEC for the year ended December 31, 2009.

  ORBOTECH LTD. CONDENSED CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2010                 September 30 December 31

2010

2009

U.S. dollars in thousands

Assets

 

CURRENT ASSETS:

Cash and cash equivalents 173,775 167,124 Accounts receivable: Trade 183,430 149,059 Other 32,473 27,683 Deferred income taxes 3,906 4,384 Inventories 119,305 98,874

Total current assets

512,889 447,124  

INVESTMENTS AND NON-CURRENT ASSETS:

Marketable securities 2,552 9,969 Funds in respect of employee rights upon retirement 12,220 11,266 Deferred income taxes 10,635 10,164 Other long-term investment 29 29 25,436 31,428  

PROPERTY, PLANT AND EQUIPMENT, net

23,691 27,452  

GOODWILL

12,034 12,774  

OTHER INTANGIBLE ASSETS, net

69,939 81,516  

ASSETS OF DISCONTINUED OPERATION

5,991 5,468     649,980 605,762    

Liabilities and equity

 

CURRENT LIABILITIES:

Current maturities of long-term bank loan 32,000 32,000 Accounts payable and accruals: Trade 48,492 26,934 Other 56,010 50,302 Deferred income 22,837 17,336

Total current liabilities

159,339 126,572  

LONG-TERM LIABILITIES:

Long-term bank loan 104,000 128,000 Liability for employee rights upon retirement 27,444 24,950 Deferred income tax 2,452 2,010 Other tax liabilities 11,499 10,079

Total long-term liabilities

145,395 165,039  

LIABILITIES OF DISCONTINUED OPERATION

1,556 1,638    

Total liabilities

306,290 293,249  

EQUITY:

Share capital 1,752 1,746 Additional paid-in capital 173,065 169,748 Retained earnings 222,823 192,664 Accumulated other comprehensive income 1,684 3,817 399,324 367,975 Less - treasury shares, at cost (57,192) (57,192)

Total Orbotech Ltd. shareholders' equity

342,132 310,783 Non-controlling interest 1,558 1,730

Total equity

343,690 312,513     649,980 605,762   ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTH AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2010                         12 months

9 months ended

3 months ended

ended

September 30

September 30

December 31

2010

2009

2010

2009

2009

U.S. dollars in thousands (except per share data)  

REVENUES

405,003 275,259 158,083 91,817 373,850  

COST OF REVENUES

236,087 171,256 91,769 58,504 231,740          

GROSS PROFIT

168,916 104,003 66,314 33,313 142,110  

RESEARCH AND DEVELOPMENT COSTS - net

59,082 48,603 20,842 15,782 66,240  

SELLING, GENERAL AND ADMINISTRATIVE

EXPENSES

51,212 47,404 18,227 15,967 65,037  

AMORTIZATION OF INTANGIBLE ASSETS

10,745 15,135 3,544 5,053 20,187  

IMPAIRMENT (ADJUSTMENT OF IMPAIRMENT) OF GOODWILL

698 (3,300) 698 (3,300)  

IMPAIRMENT OF OTHER INTANGIBLE ASSETS

767 767          

OPERATING INCOME (LOSS)

46,412 (3,839) 22,236 (3,489) (6,054)  

FINANCIAL EXPENSES- net

(6,000) (10,427) (1,524) (1,464) (11,065)          

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE    TAXES ON INCOME

40,412 (14,266) 20,712 (4,953) (17,119)  

INCOME TAX EXPENSE (BENEFIT)

7,755 (2,228) 3,822 (682) (411)          

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

32,657 (12,038) 16,890 (4,271) (16,708)  

LOSS FROM DISCONTINUED OPERATION, NET OF TAX

(2,480) (2,423) (688) (1,152) (3,048)          

NET INCOME (LOSS)

30,177 (14,461) 16,202 (5,423) (19,756)  

NET INCOME ATTRIBUTABLE TO

THE NON-CONTROLLING INTEREST

(18) (113) (53) (80) (168)          

NET INCOME (LOSS) ATTRIBUTABLE TO ORBOTECH LTD.

30,159 (14,574) 16,149 (5,503) (19,924)  

AMOUNTS ATTRIBUTABLE TO ORBOTECH LTD.:

INCOME ( LOSS) FROM CONTINUING OPERATIONS

32,639 (12,151) 16,837 (4,351) (16,876)  

LOSS FROM DISCONTINUED OPERATION, NET OF TAX

(2,480) (2,423) (688) (1,152) (3,048)          

NET INCOME (LOSS) ATTRIBUTABLE TO ORBOTECH LTD.

30,159 (14,574) 16,149 (5,503) (19,924)    

EARNINGS (LOSS) PER SHARE:

INCOME (LOSS) FROM CONTINUING OPERATIONS

BASIC

$0.94 ($0.35) $0.48 ($0.13) ($0.49)  

DILUTED

$0.91 ($0.35) $0.47 ($0.13) ($0.49)  

NET INCOME (LOSS)

BASIC

$0.86 ($0.42) $0.46 ($0.16) ($0.58)  

DILUTED

$0.84 ($0.42) $0.45 ($0.16) ($0.58)    

WEIGHTED AVERAGE NUMBER OF SHARES USED IN COMPUTATION

OF EARNINGS (LOSS) PER SHARE - IN THOUSANDS:

BASIC

34,877 34,548 34,924 34,660 34,501  

DILUTED

35,743 34,548 35,810 34,660 34,501   ORBOTECH LTD. RECONCILIATION OF GAAP TO NON-GAAP RESULTS FOR THE NINE MONTH AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2010                           12 months

9 months ended

3 months ended

ended

September 30

September 30

December 31

2010

2009

2010

2009

2009

U.S. dollars in thousands (except per share data)    

Reported net income (loss) attributable to Orbotech Ltd. on GAAP basis

30,159 (14,574) 16,149 (5,503) (19,924)   Non-operating income (expenses): Financial expenses - net (6,000) (10,427) (1,524) (1,464) (11,065) Income tax benefit (expense) (7,755) 2,228 (3,822) 682 411 Net income attributable to the non-controlling interest (18) (113) (53) (80) (168) Loss from discontinued operation (1) (2,480) (2,423) (688) (1,152) (3,048) (16,253) (10,735) (6,087) (2,014) (13,870)             Reported operating income (loss) on GAAP basis 46,412 (3,839) 22,236 (3,489) (6,054)   Equity based compensation expenses 3,575 4,984 1,011 1,592 6,445 Amortization of intangibles assets 10,745 15,135 3,544 5,053 20,187 Impairment (adjustment of impairment) of goodwill (2) 698 (3,300) 698 (3,300) Impairment of other intangible assets (3) 767   767     Non-GAAP operating income 62,197 12,980 28,256 3,156 17,278   Non-operating expenses (16,253) (10,735) (6,087) (2,014) (13,870) Loss from discontinued operation (1) 2,480 2,423 688 1,152 3,048          

Non-GAAP net income from continuing operations

48,424 4,668 22,857 2,294 6,456   Non-GAAP earnings per diluted share $1.35 $0.13 $0.64 $0.06 $0.18   Shares used in earnings per diluted share calculation-in thousands 35,743 34,710 35,810 35,537 35,076  

(1)

The Company entered into an agreement with General Electric Company ("GE") pursuant to which a subsidiary of GE will acquire the assets of Orbotech Medical Solutions Ltd. ("OMS"). As a result, all the activity related to OMS is recorded as losses from discontinued operation.

(2)

The impairment of goodwill of $0.7 million recorded in September 2010 represents a write-down of the remaining goodwill associated with Orbotech Medical Denmark A/S ("OMD"); and the adjustment of impairment of goodwill of $3.3 million recorded in June 2009 represents additional consideration from the sale of Salvador Imaging which was owned by PDI at the time of the PDI acquisition in 2008.

(3)

The impairment of other intangible assets of $0.8 million recorded in September 2010 represents a write-down of the remaining intellectual property of OMD.