ORBK Orbotech Ltd. - Ordinary Shares

ORBOTECH LTD. (NASDAQ/NM SYMBOL: ORBK) today announced its consolidated financial results for the third quarter and nine months ended September 30, 2008. Revenues for the third quarter of 2008 were $94.8 million, compared to $105.1 million recorded in the second quarter of 2008 and $82.3 million in the third quarter a year ago. Net loss for the third quarter of 2008 was $43.1 million, or $1.29 per share (diluted), compared to net income of $5.3 million, or $0.16 per share (diluted), in the second quarter of 2008, and net income of $0.4 million, or $0.01 per share (diluted), in the third quarter of 2007. Net loss for the third quarter of 2008 reflects: (a) an impairment charge of $38.5 million ($32.8 million net of taxes) relating to a write-down of substantially all of the goodwill and intellectual property of Orbotech Medical Denmark A/S following a determination that the carrying value of that goodwill and intellectual property exceeded its fair value. This followed an updated forecasted discounted cash flow analysis which was based on a decline in the Company�s business outlook in Orbotech�s medical imaging segment; (b) an impairment charge of $5.4 million relating to a write-off of the remaining goodwill of the Company�s assembled PCB business; and (c) a restructuring charge of $3.7 million ($3.3 million net of taxes) in connection with the first phase of the Company�s 2008 cost reduction program. An additional restructuring charge will be recorded in the fourth quarter of 2008 for the second phase of this program. Revenues for the first nine months of 2008 totaled $300.3 million, compared to $257.0 million recorded during the corresponding period in 2007. Net loss for the first nine months of 2008 was $34.1 million, or $1.02 per share (diluted), compared to net income of $2.6 million, or $0.08 per share (diluted), for the corresponding period last year. Net loss for the first nine months of 2008 includes the impairment and restructuring charges mentioned above. Sales of equipment to the printed circuit board (�PCB�) industry relating to bare PCBs were $27.7 million in the third quarter of 2008, compared to $34.5 million in the second quarter of 2008, and $37.2 million in the third quarter of 2007. Sales of flat panel display (�FPD�) inspection equipment were $31.7 million, compared to $29.8 million in the second quarter of 2008, and $8.8 million in the third quarter of last year. Sales of equipment to the PCB industry relating to assembled PCBs were $3.9 million, compared to $7.5 million in the second quarter this year, and $5.7 million in the third quarter of 2007. Sales of automatic check reading products were $2.0 million in the third quarter of 2008, compared to $2.7 million in the second quarter of 2008, and $2.9 million recorded in the third quarter of 2007. Sales of medical imaging equipment were $3.4 million in the third quarter of 2008, compared to $4.4 million in the second quarter of 2008, and $3.4 million in the third quarter of 2007 (the Company acquired this business on August 6, 2007). In addition, service revenue for the third quarter of 2008 was $26.0 million, a slight decrease compared to the $26.2 million recorded in the second quarter of 2008. Service revenue in the third quarter of 2007 was $24.3 million. The Company completed the quarter with cash, cash equivalents and marketable securities, net of indebtedness, of approximately $181.6 million, compared to approximately $196.0 million at the end of the second quarter. The Company�s marketable securities at the end of the quarter included approximately $27.6 million of auction-rate securities (ARS) tied to student loans, of which $8.5 million have since been redeemed at par value during October 2008. The Company believes that there is no credit risk attached to its remaining ARS portfolio. In connection with the closing of Orbotech�s acquisition of Photon Dynamics, Inc. (�PDI�) on October 2, 2008, the Company borrowed $160 million. This loan is for an initial term of one year, extendable at the Company�s option for up to 5 years, and currently bears interest at three-month LIBOR + 1.45%. After the closing of this transaction the Company�s cash, cash equivalents and marketable securities totaled approximately $115 million. The Company continues to place a very high priority on the management of its cash flows and believes that its proven ability to manage cash, including in times of difficulty, will be a critical factor in enabling Orbotech to emerge strongly from the current downturn. Revenues from the PCB industry were significantly lower than expected for the quarter. As noted in its updated guidance issued in October, certain of the Company�s PCB customers have deferred deliveries for the Company�s PCB systems, due to their increased continuing difficulties in securing credit facilities in respect of previously-confirmed orders and in light of the overall economic uncertainty. The Company recorded higher revenues in sales of FPD-AOI equipment as a result of increased capital investments by LCD manufacturers. The Company has not experienced any cancellations of existing orders for its FPD inspection products; however, certain deliveries have been deferred by customers for periods ranging from two to nine months. As mentioned above, on October 2, 2008, the Company consummated its acquisition of PDI. As a result, the Company will begin to record additional FPD revenues during the fourth quarter of 2008. However, given the prevailing, considerable worldwide economic uncertainty and its effect on the electronics industry, the Company is currently unable to estimate reliably revenue levels in this area of its business for periods subsequent to 2008. The integration of PDI is proceeding as scheduled, and the Company expects to realize operational synergies of approximately $15 - 20 million in 2009. In light of the current worldwide economic conditions the Company is re-focusing its strategic plan. Commencing in the third quarter of 2008, the Company began scaling back its activities in the assembled PCB business. This process will continue through the end of the year, after which the Company will no longer develop and market assembled PCB equipment, but will continue to service its installed base of products. Additionally, the Company has adopted certain measures designed to re-align its infrastructure, including: an approximately 15% reduction in the Company�s worldwide workforce in the third and fourth quarters of 2008; a 15% reduction in corporate management salaries; lesser reductions in other employee salaries; and other cost-cutting measures. Rani Cohen, Chief Executive Officer, commented: �The worldwide macro-economic conditions have led to sharply declining consumer demand and a consequent reduction in orders for our products. In addition, the global limitation on access to financing is clearly having an adverse effect on worldwide electronics capital equipment spending. In response to these conditions, and in light of the uncertain overall economic outlook, we are implementing actions designed to re-align our strategic focus and reduce our cost base. Though inevitably impacted to some degree, we will still maintain our program of selective investments in research and development, and we will continue to preserve and improve our customer service and support infrastructure. The active steps we are taking, as well as our exceptional technology, outstanding employees and acknowledged industry leadership, should stand us in good stead during this period of downturn and lay the foundation for growth once the business environment improves.� Commenting on the recent closing of the PDI acquisition Mr. Cohen added: �We believe that our acquisition of Photon Dynamics, Inc. represents a strategically important, stable and long-term investment for the Company that will not only give rise to considerable synergies but will also enable significant enhancements in FPD yield management and process control, and create potential for other exciting new products in the future.� An earnings conference call is scheduled for Monday, November 17, 2008, at 9:00 a.m. EST. The dial-in number for the conference call is 210-795-2680, and a replay will be available at 203-369-1509, until December 8, 2008. The pass code is Q3. A live web cast of the conference call 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�) and process control systems for bare and assembled printed circuit boards (�PCB�s), imaging solutions for PCB production and AOI, test and repair systems for flat panel displays (�FPD�s). Orbotech also markets computer-aided manufacturing and engineering (�CAM�) solutions for PCB production. In addition, through its subsidiary, Orbograph Ltd., Orbotech develops and markets automatic check reading 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 that are subject to certain risks and uncertainties which could cause the actual results to differ materially from those projected, including industry trends, the timing and strength of product and service offerings, 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 from time to time in the Company�s SEC reports. The Company assumes no obligation to update the information in this press release. ORBOTECH LTD. CONDENSED CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 2008 � � September 30 December 31 2008 2007 U. S. dollars in thousands Assets � CURRENT ASSETS: Cash and cash equivalents 321,473 120,913 Marketable securities 52,713 Accounts receivable: Trade 144,792 151,173 Other 24,215 22,964 Deferred income taxes 6,170 4,317 Inventories 109,345 � 77,570 � Total current assets 605,995 � 429,650 � � INVESTMENTS AND NON-CURRENT ASSETS: Marketable securities 20,088 32,410 Other long-term Investments 29 780 Funds in respect of employee rights upon retirement 15,043 14,099 Non-current trade receivables 197 231 Deferred income taxes 1,227 � 843 � 36,584 � 48,363 � � PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation and amortization 28,425 � 28,142 � � GOODWILL AND OTHER INTANGIBLE ASSETS, net of accumulated amortization 19,701 � 67,016 � � � 690,705 � 573,171 � � Liabilities and shareholders' equity � CURRENT LIABILITIES: Short term loan 160,000 Accounts payable and accruals: Trade 33,284 34,405 Deferred income 14,026 15,445 Other 29,130 � 37,194 � Total current liabilities 236,440 87,044 � ACCRUED SEVERANCE PAY 30,290 28,610 DEFERRED TAX LIABILITY 13,000 � 16,565 � Total liabilities 279,730 � 132,219 � � MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 1,487 � 1,330 � � SHAREHOLDERS' EQUITY: Share capital 1,704 1,699 Additional paid-in capital 150,841 144,991 Retained earnings 312,322 346,447 Accumulated other comprehensive income 1,813 � 3,677 � 466,680 496,814 Less treasury stock, at cost (57,192 ) (57,192 ) Total shareholders' equity 409,488 � 439,622 � � � 690,705 � 573,171 � ORBOTECH LTD. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTH AND THREE MONTH PERIODS ENDED SEPTEMBER 30, 2008 � 9 months ended September 30 � 3 months ended September 30 � 12 months ended December 31 2008 � 2007 2008 � 2007 2007 U.S. dollars in thousands (except per share data) � REVENUES 300,333 257,041 94,760 82,320 360,662 � COST OF REVENUES: COST 180,103 149,492 58,680 48,910 210,616 WRITE DOWN OF INVENTORY 4,821 4,821 � � � � � GROSS PROFIT 120,230 102,728 36,080 33,410 145,225 � RESEARCH AND DEVELOPMENT COSTS - net 55,860 48,469 17,108 16,489 67,923 � SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 54,265 48,967 17,714 16,257 66,989 � AMORTIZATION OF OTHER INTANGIBLE ASSETS 3,046 2,781 939 2,291 4,728 � RESTRUCTURING CHARGES 3,676 3,676 510 � IMPAIRMENT OF GOODWILL AND INTELLECTUAL PROPERTY 43,844 43,844 4,739 � GAIN (LOSS) ON SALE OF FIXED ASSET 470 � � (141 ) � � � OPERATING INCOME (LOSS) (39,991 ) 2,511 (47,342 ) (1,627 ) 336 � FINANCIAL INCOME (LOSS) - net 1,436 7,481 (1,489 ) 2,490 9,110 � WRITE-DOWN OF LONG-TERM INVESTMENTS � (5,000 ) � � (5,000 ) � INCOME (LOSS) BEFORE TAXES ON INCOME (38,555 ) 4,992 (48,831 ) 863 4,446 � TAXES ON INCOME (4,587 ) 1,825 (5,831 ) 379 2,280 � � � � � INCOME (LOSS) FROM OPERATIONS OF THE COMPANY AND ITS SUBSIDIARIES AND JOINT VENTURE (33,968 ) 3,167 � (43,000 ) 484 � 2,166 � � MINORITY INTEREST IN PROFITS OF CONSOLIDATED SUBSIDIARY (157 ) (174 ) (119 ) (38 ) (416 ) � SHARE IN LOSSES OF AN ASSOCIATED COMPANY � (375 ) � (27 ) (266 ) � NET INCOME (LOSS) (34,125 ) 2,618 � (43,119 ) 419 � 1,484 � � EARNINGS (LOSS) PER SHARE: BASIC ($1.02 ) $0.08 � ($1.29 ) $0.01 � $0.04 � � DILUTED ($1.02 ) $0.08 � ($1.29 ) $0.01 � $0.04 � � � WEIGHTED AVERAGE NUMBER OF SHARES (IN THOUSANDS) USED IN COMPUTATION OF EARNINGS PER SHARE: BASIC 33,402 � 33,141 � 33,427 � 33,010 � 33,091 � � DILUTED 33,402 � 33,141 � 33,427 � 33,010 � 33,190 �