Orbotech Announces Second Quarter 2009 Results

Revenues for the second quarter of 2009 totaled $94.0 million, compared to $91.9 million recorded in the first quarter of 2009 and $105.1 million in the second quarter a year ago. GAAP (U.S. generally accepted accounting principles) net loss for the second quarter of 2009 was $1.2 million, or $0.03 per share, compared to GAAP net loss of $7.9 million, or $0.23 per share for the first quarter of 2009 and GAAP net income of $5.3 million, or $0.16 per share (diluted), in the second quarter of 2008.

Revenues for the first six months of 2009 totaled $185.9 million, compared to $205.6 million recorded in the first half of 2008. GAAP net loss for the first six months of 2009 was $9.1 million, or $0.26 per share, compared to GAAP net income of $9.0 million, or $0.27 per share (diluted) in the first six months of 2008.

Non-GAAP net income for the second quarter of 2009 was $2.5 million, or $0.07 per share (diluted), compared to non-GAAP net income of $7.4 million, or $0.22 per share (diluted), in the second quarter of 2008. Non-GAAP net income for the first six months of 2009 was $1.1 million, or $0.03 per share (diluted), compared to non-GAAP net income of $13.5 million, or $0.40 per share (diluted), in the first six months of 2008. The Company's GAAP results for the second quarter of 2009 included $3.3 million of income from the Salvador transaction, which is explained in the detailed description of the non-GAAP adjustments in the accompanying reconciliation of GAAP to non-GAAP results (the "Reconciliation").

Sales of equipment to the printed circuit board ("PCB") industry were $16.8 million in the second quarter of 2009, compared to $10.6 million in the first quarter of 2009, and $34.5 million in the second quarter of 2008. Sales of equipment to the flat panel display ("FPD") industry were $41.4 million, compared to $50.0 million in the first quarter of 2009, and $29.8 million in the second quarter of last year. Sales of character recognition products were $2.0 million in the second quarter of 2009, compared to $1.4 million in the first quarter of 2009, and $2.7 million recorded in the second quarter of 2008. Sales of medical imaging equipment were $6.2 million in the second quarter of 2009, compared to $3.7 million in the first quarter of 2009, and $4.4 million in the second quarter of 2008. In addition, service revenue for the second quarter of 2009 increased to $27.3 million from $25.5 million in the first quarter of 2009, and $26.2 million in the second quarter of 2008. The financial data, including revenue data, presented in respect of the second quarter of 2008 does not include results attributable to the business of Photon Dynamics, Inc. ("PDI"), which was acquired on October 2, 2008. The impact of currency rates in the second quarter of 2009 was similar to that in the first quarter of 2009.

The Company completed the quarter with cash, cash equivalents and marketable securities of approximately $140 million, compared with approximately $119 million at the end of the first quarter of 2009, and $160 million in debt. The Company's marketable securities included approximately $19 million of auction rate securities primarily tied to student loans.

During the second quarter of 2009, certain PCB manufacturers have reported increased fabrication plant utilization and this has had a positive effect on the Company's sales of PCB equipment. As the Company previously reported, beginning from the fourth quarter of 2008, it experienced a significant decline in new FPD equipment orders, which continued through the first half of 2009. However, more recently, FPD manufacturers are reporting close to full capacity utilization, as well as restarting planned expansions in fabrication facilities to meet increased demand for panels, particularly for use in LCD televisions and touch screen panels. The Company expects the continued depletion of inventory buildup together with higher levels of demand for panels to lead to increased FPD order activity during the coming quarters. The positive indicators for mid-to-long term growth in the FPD industry remain unchanged.

Commenting on the results, Rani Cohen, President and Chief Executive Officer, said: "We are pleased with our financial results for the quarter. While the current global recession continues to impact upon capital equipment expenditures, our customers are beginning to report some signs of inventory depletion, and we stand ready to help them meet their production requirements with our expansive portfolio of products. With the operational integration of PDI now successfully completed, we are also poised to introduce improved FPD offerings for our customers in anticipation of the next wave of investments and capacity expansions in the LCD industry. Our continued ability during the quarter to align our organization to the current level of business has allowed us to generate cash while continuing to provide our customers with the best support and new and innovative solutions. This will also enable us to be ready for the ramp-up of PCB and FPD production once business conditions improve. We remain positive as to the short and long term demand for our principal products."

An earnings conference call for the Company's second quarter 2009 results is scheduled for Monday, August 3, 2009, at 9:00 a.m. EDT. The dial-in number for the conference call is 210-795-2680, and a replay will be available on telephone number 203-369-0197 until August 17, 2009. The pass code is Q2. 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. Orbotech'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 and engineering (CAM) 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 web-based, location-independent data entry for check processing 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 headquarters and its primary research, development and manufacturing facilities in Israel, and more than 30 offices worldwide. Orbotech's extensive network of marketing, sales and customer support teams throughout North America, Europe, the Pacific Rim, China and Japan deliver 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 cyclicality in the industries in which the Company operates, a sustained continuation or worsening of the worldwide economic slowdown, 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, 2008. 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.

ORBOTECH LTD.
CONDENSED CONSOLIDATED BALANCE SHEET
AT JUNE 30, 2009
                                                     June 30    December 31
                                                     2009       2008
                                                     U. S. dollars in thousands
Assets
CURRENT ASSETS:
Cash and cash equivalents                            120,934    105,127
Marketable securities                                262        320
Accounts receivable:
Trade                                                157,250    180,701
Other                                                30,513     27,106
Deferred income taxes                                4,075      5,222
Inventories                                          104,765    122,152
Total current assets                                 417,799    440,628
INVESTMENTS AND NON-CURRENT ASSETS:
Marketable securities                                19,091     19,241
Other long-term Investments                          29         29
Funds in respect of employee rights upon retirement  10,673     12,521
Deferred income taxes                                11,715     8,795
                                                     41,508     40,586
PROPERTY, PLANT AND EQUIPMENT,                       33,598     39,325
net of
accumulated depreciation and amortization
GOODWILL                                             12,725     12,747
OTHER INTANGIBLE ASSETS, net                         91,550     101,575
of
accumulated amortization
                                                     597,180    634,861
Liabilities and equity
CURRENT LIABILITIES:
Short-term loan                                      160,000    160,000
Accounts payable and accruals:
Trade                                                20,548     36,377
Other                                                41,097     56,428
Deferred income                                      17,764     22,473
Total current liabilities                            239,409    275,278
LONG-TERM LIABILITIES:
Liability for employee rights upon retirement        24,735     27,678
Tax liabilities                                      15,266     16,208
Other long-term liability                                       2,667
Total long-term liabilities                          40,001     46,553
Total liabilities                                    279,410    321,831
EQUITY:
Share capital                                        1,744      1,727
Additional paid-in capital                           166,125    161,914
Retained earnings                                    203,517    211,142
Accumulated other comprehensive income (loss)        1,981      (6,123  )
                                                     373,367    368,660
Less treasury stock, at cost                         (57,192 )  (57,192 )
Total Orbotech Ltd. shareholders' equity             316,175    311,468
Non-controlling interest  1,595     1,562
Total equity              317,770   313,030
                          597,180   634,861

ORBOTECH LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTH AND THREE MONTH PERIODS ENDED JUNE 30, 2009
                                              6 months ended         3 months ended             12 months
                                                                                                ended
                                              June 30                June 30                    December 31
                                              2009          2008     2009         2008          2008
                                              U.S. dollars in thousands (except per share data)
REVENUES                                      185,875       205,573  94,013       105,089       429,546
COST OF REVENUES:
COST                                          115,092       121,423  57,229       61,802        260,639
WRITE DOWN OF INVENTORY                                                                         3,348
GROSS PROFIT                                  70,783        84,150   36,784       43,287        165,559
RESEARCH AND DEVELOPMENT COSTS                33,227        38,752   16,548       19,598        76,602
- net
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES                                      31,510        35,940   15,584       18,072        73,346
AMORTIZATION OF OTHER INTANGIBLE
ASSETS                                        10,082        2,107    5,041        968           8,099
IN-PROCESS RESEARCH AND DEVELOPMENT                                                             6,537
CHARGES
RESTRUCTURING CHARGES                                                                           8,800
IMPAIRMENT (ADJUSTMENT OF                     (2,280  )              (2,280 )                   110,403
IMPAIRMENT) OF GOODWILL
IMPAIRMENT OF OTHER INTANGIBLE                                                                  21,260
ASSETS
OPERATING INCOME (LOSS)                       (1,756  )     7,351    1,891        4,649         (139,488 )
FINANCIAL INCOME (EXPENSES)-                  (8,828  )     2,925    (3,797 )     1,351         (1,324   )
net
INCOME (LOSS) BEFORE TAXES ON INCOME          (10,584 )     10,276   (1,906 )     6,000         (140,812 )
INCOME TAX EXPENSES (BENEFIT)                 (1,546  )     1,244    (777   )     673           (5,739   )
NET INCOME (LOSS)                             (9,038  )     9,032    (1,129 )     5,327         (135,073 )
LESS: NET INCOME (LOSS)                       33            38       56           (1      )     232
ATTRIBUTABLE TO THE NON-CONTROLLING INTEREST
NET INCOME (LOSS) ATTRIBUTABLE TO             (9,071  )     8,994    (1,185 )     5,328         (135,305 )
ORBOTECH LTD.
EARNINGS (LOSS) ATTRIBUTABLE TO
ORBOTECH LTD.
ORDINARY SHAREHOLDERS PER SHARE:
BASIC                                         ($0.26  )     $0.27    $(0.03 )     $0.16         ($4.04   )
DILUTED                                       ($0.26  )     $0.27    $(0.03 )     $0.16         ($4.04   )
WEIGHTED AVERAGE NUMBER OF SHARES
(IN THOUSANDS)
USED IN COMPUTATION OF EARNINGS PER
SHARE:
BASIC                                         34,406        33,304   34,453       33,333        33,512
DILUTED                                       34,406        33,304   34,453       33,333        33,512

ORBOTECH LTD.
RECONCILIATION OF GAAP TO NON-GAAP RESULTS
FOR THE SIX MONTH AND THREE MONTH PERIODS ENDED JUNE 30, 2009
                                                                  6 months ended          3 months ended          12 months
                                                                                                                  ended
                                                                  June 30                 June 30                 December 31
                                                                  2009        2008        2009        2008        2008
                                                                  U.S. dollars in thousands (except per share data)
Non-GAAP Net Income (Loss)
Reported net income (loss) attributable to Orbotech Ltd. on GAAP  (9,071 )    8,994       (1,185 )    5,328       (135,305 )
basis
Non-operating income (expenses):
Financial income (expenses)                                       (8,828 )    2,925       (3,797 )    1,351       (1,324   )
Income tax benefit (expenses)                                     1,546       (1,244 )    777         (673   )    5,739
Net loss (profit) attributable to the non-controlling interest    (33    )    (38    )    (56    )    1           (232     )
                                                                  (7,315 )    1,643       (3,076 )    679         4,183
Reported operating income (loss) on GAAP basis                    (1,756 )    7,351       1,891       4,649       (139,488 )
Equity based compensation expenses                                3,392       2,355       1,903       1,125       5,275
Amortization of intangibles assets                                10,082      2,107       5,041       968         8,099
In-process research and development charges (1)                                                                   6,537
Restructuring charges (2)                                                                                         8,800
Impairment of goodwill (3)                                                                                        110,403
Impairment of other intangible assets (4)                                                                         21,260
Adjustment of impairment of goodwill (5)                          (3,300 )                (3,300 )
Non-GAAP operating income                                         8,418       11,813      5,535       6,742       20,886
Non-operating income (expenses)                                   (7,315 )    1,643       (3,076 )    679         4,183
Income tax effect of non-GAAP adjustment (6)                                                                      (6,011   )
Non-GAAP net income                                               1,103       13,456      2,459       7,421       19,058
Non-GAAP net income per diluted Share                             $0.03       $0.40       $0.07       $0.22       $0.55
Shares used in diluted shares calculation                         34,725      33,304      34,678      33,333      34,743

(1)  In-process research and development charges in 2008 were associated
     with the PDI acquisition. For more information about the PDI
     acquisition, see the Company's Annual Report on Form 20-F filed with
     the SEC.
(2)  The restructuring charges of $8,800,000 in 2008 relate to reductions
     in the Company's workforce and rationalizations of certain of its
     research and development, manufacturing and operating activities, in
     order to realign the Company's infrastructure. For more information
     about the PDI acquisition, see the Company's Annual Report on Form
     20-F filed with the SEC.
(3)  The impairment charge of $110,403,000 in 2008 is comprised of: a
     write-off of $87,977,000 of goodwill associated with the Company's
     FPD business; a write-down of $17,035,000 of the goodwill Orbotech
     Medical Denmark A/S ("OMD"); and a write-off of $5,391,000 of
     goodwill associated with the Company's assembled PCB business.
(4)  The impairment charge of $21,260,000 in 2008 was related to a
     write-down of the intellectual property of OMD. For more information
     about OMD and the related impairment, see the Company's Annual
     Report on Form 20-F filed with the SEC.
(5)  The adjustment of impairment of goodwill of $3,300,000 in 2009
     represents additional consideration from the sale of Salvador
     Imaging which was owned by PDI at the time of the PDI acquisition in
     2008.
(6)  The income tax effect in 2008 was related to the impairment
     associated with OMD that occurred in the third quarter of 2008. The
     adjustments in the first half of 2008 and 2009 do not have a related
     income tax effect.

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 of intangibles; (iii) restructuring and asset impairments; (iv) a gain representing additional consideration from the sale of Salvador Imaging, Inc. which was owned by PDI at the time of PDI acquisition in 2008; and/or (v) tax credits relating to the above items, in each case as described in more detail in the Reconciliation. 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 or earnings 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 effect of amortization of intangible assets, in-process research and development charges and impairment charges have also been excluded from the non-GAAP net income measure. These items are inconsistent in amount and frequency and are significantly affected by the timing and size of acquisitions. These items were significantly higher in the fourth quarter of 2008 and first and second quarters of 2009 primarily as a result of the Company's acquisitions, including the PDI acquisition in October 2008. 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. Although these expenses are not recurring with respect to past acquisitions, these types of expenses will generally be incurred in connection with any future acquisitions. Restructuring expenses relate to realignment initiatives announced in 2008. 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, 2008.

The effects of income tax expenses (benefit) and financial income (expenses) have also been excluded from the non-GAAP net income measure. Because of fluctuations in the applicable tax rate based on jurisdictional and other factors, as well as the fact that the Company did not have any indebtedness in the first half of 2008, for comparison purposes, the Company's business performance is evaluated excluding income tax expenses (benefit) and financial income (expenses). Both income tax expenses (benefit) and financial income (expenses) will recur in future periods and will fluctuate depending upon the amount and geographic mix of the Company's revenues and the amount of the Company's debt and the interest payable with respect thereto.

SOURCE: Orbotech Ltd.

Orbotech Ltd. 
Adrian Auman, +972-8-942-3560 
Corporate Vice President 
or 
Orbotech, Inc. 
Michelle Harnish, +1-978-901-5120 
Marketing Communications Manager