This Item 5 should be read in conjunction with, and is qualified by, the information included in Item 3 - Key Information - Risk Factors.

5.A Operating Results

(a) General

Orbotech Ltd. is an Israeli corporation. On August 7, 2014, the Company completed the SPTS Acquisition. Accordingly, the results of operations of SPTS were included in the Company’s consolidated results of operations beginning August 7, 2014. The Company has three reportable segments:

(i) Production Solutions for the Electronics Industry, which comprises the design, development, manufacture, marketing and servicing of cutting-edge solutions designed to enable the production of innovative, next generation electronic products and improve the cost effectiveness of existing and future electronics production processes. The Company’s products in this segment include AOI, AOR, imaging, laser drilling and pre-production systems used in the manufacture of PCBs, AOI, test, repair and yield management systems used in the manufacture of FPDs and etch, PVD, CVD and thermal processing equipment for use in the manufacture of MEMS, Advanced Packaging, power and RF devices and HBLED devices. The Company also markets CAM and engineering solutions for PCB production.

(ii) Solar Energy, which comprises the design, development, manufacture and marketing of solar photovoltaic energy systems that produce electricity directly from sunlight; and

(iii) Recognition Software, which comprises the development and marketing of check processing and healthcare revenue cycle management solutions to banks, financial and other payment processing institutions by Orbograph.

The Company derives revenues from two sources: (i) sales of the Company’s products; and (ii) services provided with respect to the Company’s products. In 2014, 2013 and 2012, revenues derived from sales of the Company’s products constituted approximately 69%, 67% and 62%, respectively, of the Company’s total revenues, with the remaining revenues being derived from service for product support. During 2014, 2013 and 2012, approximately 96%, 97% and 96%, respectively, of revenues from both product sales and service were derived from product lines related to the Company’s yield-enhancement and production solutions for the electronics industry, approximately 2%, 0% and 0%, respectively, were derived from product lines related to solar energy and approximately 2%, 3% and 4%, respectively, were derived from product lines related to recognition software. The Company expects that revenues from its Production Solutions for the Electronics Industry segment will continue to account for a predominant portion of product revenues and service revenues in the near future. A significant portion of the Company’s revenues is derived from repeat product sales to existing customers, and the Company expects that repeat product sales will continue to account for a significant portion of such revenues in the future. As the Company’s installed base of products grows, service revenues are also expected to increase. See Note 14a to the Financial Statements for a description of each reportable segment and information as to segment revenues, operating income or loss, assets and related data.

The currency of the primary economic environment in which the operations of the Company and virtually all of its subsidiaries are conducted is the U.S. Dollar. Virtually all of the Company’s sales are made outside Israel in non-Israeli currencies, mainly the U.S. Dollar, and most of its purchases of materials and components are made in non-Israeli currencies, primarily the U.S. Dollar. Thus, the functional currency of the Company and its subsidiaries is the U.S. Dollar.

(b) Matters Affecting the Comparability of Results

On the SPTS Closing Date the Company completed its acquisition of SPTS for $375.1 million in cash and entered into a new term loan credit facility in an aggregate principal amount of $300.0 million to finance the SPTS Acquisition. As of December 31, 2014, the Company had $299.25 million of principal outstanding

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indebtedness under the Credit Agreement and its anticipated fiscal year 2015 debt service payment obligations are $3.0 million of principal and, based on the applicable interest rate at December 31, 2014, approximately $15.0 million in interest. The Company is required to make amortization payments in quarterly installments. The amount of the quarterly installments is equal to $0.75 million for the first 12 quarterly amortization payments. Subsequently, the amount of the quarterly amortization payments will be $5.625 million for the next 11 quarterly amortization payments, and the balance of the principal amount will be due at final maturity. The first amortization payment was made on December 31, 2014. For additional information regarding the term loan facility, see Item 5 - Operating and Financial Review and Prospects - Liquidity and Capital Resources - Senior Secured Term Loans.

The SPTS Acquisition, which is the largest acquisition by the Company to date, is a major element of Orbotech’s strategic move into the high growth areas of Advanced Packaging and MEMS. The inclusion of the financial results of the operations of SPTS from the SPTS Closing Date had a significant effect on consolidated results of operations of the Company for the year ended December 31, 2014, with $110.6 million of the Company’s 2014 revenues being attributable to SPTS reflected in the results for the Company’s semiconductor device business. In addition, the Company’s consolidated results for 2014 reflected: $6.8 million of acquisition-related fees and expenses related to the SPTS Acquisition; a $6.2 million year-over-year increase in interest expense related to the incremental indebtedness incurred under the Credit Agreement to finance the SPTS Acquisition; an increase of $15.2 million in amortization of intangibles and an income tax benefit of $1.8 million related to the net deferred tax liabilities acquired in the SPTS Acquisition. The Company’s results for the years ended December 31, 2013 and 2012 do not include results of operations of SPTS. For additional information regarding the impact of the SPTS Acquisition, see Note 3 to the Financial Statements.

(c) Critical Accounting Policies and Estimates

To improve understanding of the Financial Statements, it is important to obtain some degree of familiarity with the Company’s principal or significant accounting policies. These policies are described in Note 1 to the Financial Statements. The Company reviews its financial reporting, disclosure practices and accounting policies at least annually to ensure that the Financial Statements, which are developed on the basis of these accounting policies, provide in all material respects complete, accurate and transparent information concerning the financial position and results of operations of the Company. As part of this process, the Company has reviewed the selection and application of its critical accounting policies and financial disclosures and it believes that the Financial Statements present fairly, in all material respects, the consolidated financial position of the Company as at that date and the operating results for the year then ended.

In preparing the Financial Statements in accordance with U.S. GAAP, the Company’s management must often make judgments, estimates and assumptions, which may affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures as at the date of the Financial Statements and during the reporting period. Some of those judgments can be subjective and complex, and consequently actual results may differ materially from those estimates and assumptions. In the current economic environment, the risks and uncertainties associated with those estimates and assumptions are exacerbated. For any given individual estimate or assumption made by the Company, there may be alternative estimates or assumptions that are also reasonable. However, the Company believes that, given the facts and circumstances before it at the time of making the relevant judgments, estimates or assumptions, it is unlikely that applying any such other reasonable approach would cause a material adverse effect on the Company’s consolidated results of operations, financial position or liquidity for the periods presented in the Financial Statements.

The Company is also subject to risks and uncertainties that may cause actual results to differ from estimates and assumptions, such as cyclicality in the industries in which the Company operates, a deterioration in worldwide economic conditions, 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

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currency fluctuations, inflation and consumer confidence, on a global, regional or national basis. Certain of these risks, uncertainties and assumptions are discussed under the heading Cautionary Statement Regarding Forward-Looking Information and in Item 3 - Key Information - Risk Factors.

The Company considers its most significant accounting policies to be those discussed below.

(i) Revenue Recognition

The Company recognizes revenue from sale of non-software products to end users upon delivery, provided that appropriate signed documentation of the arrangement, such as a signed contract, purchase order or letter of agreement has been received by the Company, the fee is fixed or determinable and collectability is reasonably assured. If the Company determines that any of these criteria have not been met, revenue recognition is deferred until all of these criteria have been met. The Company does not, in the normal course of business, provide a right of return to its customers.

An arrangement involving multiple deliverables is divided into separate units of accounting. In such situations, revenue is recognized upon delivery of the separate elements, based on their relative fair value. The selling price for a deliverable is based on its vendor specific objective evidence (“ VSOE ”), if available, and otherwise is based on third party evidence (“ TPE ”) or on the estimated selling price (“ ESP ”) if neither VSOE nor TPE is available. Because of the nature of its products, the Company generally utilizes the ESP.

The determination of ESP involves consideration of several factors based on the specific facts and circumstances of the arrangement. Specifically, the Company evaluates the cost to produce the deliverable, the anticipated margin on that deliverable, the selling price and profit margin for similar parts in different geographical regions, its ongoing pricing strategy and policies and other economic conditions and trends.

This accounting treatment is applied if the delivered elements have value on a stand-alone basis, the arrangement does not include a general right of return with respect to delivered items and delivery or performance of undelivered items is considered probable and is substantially within the Company’s control. The maximum revenue recognized on a delivered element is limited to the amount that is not contingent upon the delivery of additional items.

Installation and training are not considered essential to the product capabilities since they do not require specialized skills and can be performed by other vendors. Accordingly, upon delivery, the Company defers revenue in an amount equivalent to the fair value of installation and training and recognizes those deferred revenues once installation and training has been completed.

The Company’s revenue arrangements contain multiple elements, as it grants its customers installation services and, on some of its products, a warranty on products sold, which includes the provision of post-sale service and maintenance, usually for a period of six to twelve months. Upon meeting the revenue recognition criteria of the product, the Company records a portion of the sale price that relates to the fair value of the services and maintenance expected to be performed during the aforementioned period as deferred income, and recognizes it as service revenue ratably over such period. The cost to the Company of warranting that the product will perform according to certain specifications and that the Company will repair or replace the product if it ceases to work properly is insignificant and is treated according to accounting principles for contingencies. After the warranty period, service revenue in respect of the Company’s systems is recognized ratably over the contractual period or as services are performed. Annual service fees are generally based on the list price of the Company’s products. It has been the Company’s experience that many of its customers elect to receive maintenance services from the Company on a continuing contractual basis after the conclusion of the warranty period.

In the case of delivery of newly developed products, revenue is deferred until acceptance is received.

The Company recognizes revenue from sale of software to end users upon delivery, provided that appropriate signed documentation of the arrangement, such as a signed contract, purchase order or letter of

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agreement, has been received by the Company, the fee is fixed or determinable, and collectability is reasonably assured. When software is made available to customers electronically, it is deemed to have been delivered once the Company has provided the customer with the access codes necessary to enable immediate possession of the software. If collectability is in question, revenue is recognized when the fee is collected.

Maintenance revenues are comprised of revenue from support arrangements that include technical support and the right to unspecified upgrades on an if-and-when-available basis. Revenues from these services are deferred and recognized on a straight-line basis, over the life of the related agreement, which is typically one year.

(ii) Inventory Valuation

Inventories are valued at the lower of cost or market value. Cost is determined as follows: components, products in process and finished products - on the weighted average basis; and labor and overhead - on the basis of actual manufacturing costs. Periodically, or when certain events or changes in circumstances occur that trigger an assessment, the Company assesses the value of its inventory based on a combination of factors including, but not limited to: forecasted sales and usage; historical usage rates; engineering changes; estimated service period; product end-of-life dates; alternative uses for the inventory; and current and future market values. Inventories are written down for estimated excess and obsolescence and such write-down reduces net income in the period in which it occurs. Once such inventory is written down, a new (lower) cost basis for that inventory is established and it is not written up to reflect a subsequent favorable change in market conditions. However, unexpected favorable future demand and market conditions could positively impact future operating results and gross profit if inventory that has been written down is sold for more than its carrying value. Determinations of future demand for the Company’s products are based on the estimates included in the Company’s multi-year plans. The Company’s historical experience has been that its estimates of future demand have been reasonably reliable. Monitoring and administration of inventory is an important area of management focus, given the need to balance, on the one hand, the requirement to maintain prudent inventory levels as part of the Company’s efforts to assure competitive product delivery lead times, with the risk of inventory obsolescence, on the other.

(iii) Concentration of Credit Risks and Allowance for Doubtful Accounts

The Company performs ongoing credit evaluations of its customers for the purpose of determining the appropriate allowance for doubtful accounts. In respect of sales to customers in certain countries, the Company generally requires letters of credit from banks. The allowance for doubtful accounts is determined for specific debts the collection of which is doubtful. While the Company believes that its valuations are appropriate, in times of adverse and unstable economic conditions, the Company’s credit evaluations may not be accurate or may be based on historical information that does not adequately reflect the severity of the economic downturn. These factors could lead to collection of accounts receivable at lower rates than in the past or than have been reserved.

(iv) Long-lived and Intangible Assets

The Company’s acquired intangible assets, other than goodwill, are comprised primarily of intellectual property and customer relations and are amortized on a straight-line basis over periods of five to seven and, in some cases, up to twelve, years, depending on the estimated useful life of such intangible assets. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets (or asset group) may not be recoverable. These indicators may include, but are not limited to, significant decreases in the market value of an asset and significant changes in the extent or manner in which an asset is used.

At September 30, 2012, in light of the extended downturn in the FPD industry, the Company tested whether the intangible assets acquired as part of the PDI Acquisition should be impaired based on an undiscounted cash flow analysis of the cash generating unit. The determination of the future cash flow was based on the Company’s

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budget, strategic plans and long-range planning forecasts, each of which required the Company’s management to make judgments about industry conditions, technological changes, competitive pressures and other matters related to its business. The growth rates used were developed by management based on information received from sources in the industry and Company-specific data. The profit margin assumptions included in the plans were based on the Company’s cost structure and its anticipated cost changes based on its cost savings initiatives at the time of testing. For assets where impairment was indicated - primarily existing technology and customer relationships allocated to the FPD division - the fair value was estimated using the ‘Relief from Royalty’ and ‘Multi-period Excess Earnings’ methodologies, respectively, both variations on the income approach. The Relief from Royalty methodology values an asset based on the assumed royalty rate which an enterprise would be prepared to pay to achieve the revenues associated with that asset and, for that reason, was considered by management to be the most useful methodology by which to value the technology intangible asset. The Multi-period Excess Earnings methodology develops assumptions, through revenue attribution and contributory asset charges, regarding what portion of a company’s earnings are attributable to a specific asset and, for that reason, was selected by management to be the most useful methodology by which to value the customer relationships intangible asset. For each of these methods, management estimated an after-tax cash flow stream associated with each intangible asset and then discounted that asset’s estimated required rate of return. The discount rate was based on a calculation of the internal rate of return, the weighted-average cost of capital and a weighted average return on assets, as well as the nature of those assets. The Company also applied a tax amortization benefit. As a result of these evaluations, the Company determined that the carrying amount of these assets exceeded their fair value by $30.1 million; and an impairment charge in that amount was therefore recorded in the third quarter of 2012. The evaluation of amounts recoverable in connection with intangible assets is a process that requires considerable exercise of judgment. Had different estimates and assumptions been used in this process, the measured impairments may have been different.

(v) Taxes on Income

Taxes on income are calculated using the assets and liabilities approach. Management judgment is required in determining provision for income taxes in each of the jurisdictions in which the Company operates. The provision for income tax is calculated based on assumptions as to the Company’s entitlement to various benefits under the applicable tax laws in the jurisdictions in which it operates. The entitlement to such benefits depends upon the Company’s compliance with the terms and conditions set out in these laws. See Item 5 - Operating and Financial Review and Prospects - Effective Corporate Tax Rate.

Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax bases of assets and liabilities and their reported amounts using enacted tax rates in effect for the year the differences are expected to reverse under the applicable tax laws.

Deferred income tax provisions and benefits are based on the changes in the deferred tax asset or tax liability from period to period. Valuation allowance is included in respect of deferred tax assets when it is considered more likely than not that such assets will not be realized. In making this determination, the Company considers factors and evidence that both support and indicate against recording a valuation allowance, and will refrain from recording a valuation allowance if the former outweigh the latter. In the event that the tax assets are not realized, income tax expense would increase or, conversely, if the valuation allowance is overestimated, the Company would benefit from a future tax credit.

The Company may incur additional tax liability in the event of intercompany dividend distributions by its subsidiaries. Such additional tax liability in respect of non-Israeli subsidiaries has not been provided for in the Financial Statements, as it is the Company’s policy permanently to reinvest the subsidiaries’ earnings and to consider distributing dividends only when this can be facilitated in connection with a specific tax opportunity that may arise.

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Taxes that would apply in the event of disposal of investments in subsidiaries have not been taken into account in computing deferred income taxes, as it is the Company’s intention to hold, and not to realize, these investments.

The Company may incur additional tax liability in the event of distribution of dividends from its tax-exempt income. The Company intends permanently to reinvest the amounts of tax-exempt income of its Approved Enterprises and Benefiting Enterprises and does not intend to distribute dividends from such income. Therefore, no deferred taxes have been provided in respect of such tax-exempt income as the undistributed tax-exempt income is essentially permanent in duration.

The Company implements the applicable accounting guidance dealing with: how tax benefits for uncertain tax positions are to be recognized, measured and de-recognized in financial statements; certain disclosures of uncertain tax positions; how reserves for uncertain tax positions should be classified on the balance sheet; and transition and interim-period guidance, among other matters. Only tax positions that meet the ‘more likely than not’ recognition threshold at the effective date may be recognized or continue to be recognized according to this accounting guidance.

Accounting for tax positions requires judgments, including estimating reserves for potential uncertainties. While the Company believes the resulting tax balances are appropriately accounted, as applicable, the ultimate outcome of such matters could result in favorable or unfavorable adjustments to its consolidated financial statements, which could be material.

The Company has filed and/or is in the process of filing local and foreign tax returns that are subject to audit by the respective tax authorities. The amount of income tax the Company pays is subject to ongoing audits by the tax authorities, which often result in proposed assessments. Any estimation of the potential outcome of an uncertain tax issue is a matter for judgment, which can be subjective and highly complex. The Company believes that it has provided adequately for any reasonably foreseeable outcomes related to tax audits and settlement. However, future results may include favorable or unfavorable adjustments to estimated tax liabilities in the period when the assessments are made or resolved, audits are closed or statutes of limitation on potential assessments expire.

(vi) Business Combinations

From time to time, the Company may engage in business combinations. The Company accounts for business combinations using the purchase method of accounting. Allocation of purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed, is based on their estimated fair values as of the closing date of any such acquisition. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets.

Critical estimates in valuing intangible assets include but are not limited to: future expected cash flows from customer contracts, customer lists, distribution agreements and acquired developed technologies and patents; and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and difficult to predict and, as a result, actual results may differ from estimates.

On August 7, 2014, the Company completed the SPTS Acquisition for a total consideration of $375.1 million. The SPTS Acquisition was accounted for utilizing the purchase method of accounting, which required the Company to establish a new basis for the assets and liabilities of the acquired entity on the date of the acquisition. The purchase price allocation for SPTS takes into account the information management believes is reasonable. Nevertheless, the Company has one year from the SPTS Closing Date to make a final determination of purchase accounting allocations; and, accordingly, adjustments may be made to the foregoing allocations for SPTS. Although the final allocation of the purchase price for the SPTS Acquisition could differ significantly from the foregoing amounts, the Company does not expect any changes to the final allocation of the purchase price to impact its future operations or have a material adverse impact on its liquidity.

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Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The $167.0 million of goodwill was assigned to the SD reporting unit. The existing technology consists mainly of etch and PVD/CVD technologies used in the manufacturing of SD products.

The Company capitalized in-process research and development of $6.9 million upon completion of the SPTS Acquisition. The in-process research and development that was capitalized related to the acquired intellectual property for the dicing area, for which technological feasibility had not been established at the acquisition date and no future alternative uses had been identified at that time.

The results of operations of SPTS are included in the Financial Statements from the SPTS Closing Date. Pro forma unaudited revenue and net income data are presented in Note 3 to the Financial Statements.

For more information about allocation of purchase price, refer to Note 3 in the Financial Statements.

(vii) Goodwill

Goodwill is not amortized, but rather tested for impairment annually, as at September 30 of each year, or whenever events or circumstances present an indication of impairment by assessing the fair value of the Company’s various reporting units.

The goodwill impairment test is applied by performing a qualitative assessment before calculating the fair value of the reporting unit. If, on the basis of qualitative factors, it is not considered more likely than not that the fair value of the reporting unit is less than the carrying amount, further testing of goodwill for impairment would not be required. Otherwise, goodwill impairment is tested using a two-step approach.

The first step involves comparing the fair value of a company’s reporting units to their carrying amount. If the fair value of the reporting unit is determined to be greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount is determined to be greater than the fair value, the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible assets, excluding goodwill, of the reporting unit from the fair value of the reporting unit as determined in step one. The implied fair value of the goodwill in this step is compared to the carrying value of goodwill. If the implied fair value of the goodwill is less than the carrying value of the goodwill, an impairment loss equivalent to the difference is recorded.

In 2014, 2013 and 2012, the Company elected to perform a qualitative assessment for the annual goodwill impairment test. As a result of performing the annual impairment tests, on September 30, 2014, 2013 and 2012, the Company determined that there was no impairment with respect to goodwill.

(viii) Share-based Compensation

In accordance with applicable accounting guidance, the Company accounts for employees’ awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as an expense over the requisite service period net of estimated forfeitures. The Company estimates forfeitures based on historical experience and anticipated future conditions.

Share-based payment expenses are classified in the same expense line items as cash compensation.

The Company elected to recognize compensation cost for awards with only service conditions that have a graded vesting schedule using the accelerated multiple-option approach.

Certain equity awards are subject to forfeiture should the Company fail to attain specified performance goals. The fair value of these awards is estimated on the date of grant using the same option valuation model used by the Company for non-performance equity awards. For so long as the Company assumes that performance

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goals will be achieved, compensation cost is recorded with respect thereto. If and when a point in time is reached that the Company believes the performance goals will not be achieved, it will then reverse the share-based compensation expenses recorded up to that point in time for all vesting periods completed through such date.

Compensation expense relating to future equity awards will depend on a variety of factors including the level and type of future awards and their terms; valuation considerations such as expected option life, volatility of the market price of the Ordinary Shares and applicable risk-free interest rates; and future levels of forfeitures of such awards. The Company is not currently able to estimate the additional compensation expense from future grants but will examine carefully this expense and its relation to net income (loss) when making such grants.

For a discussion of the Company’s equity remuneration plans, including the equity remuneration plans assumed by the Company in connection with the PDI Acquisition, see Item 6 - Directors, Senior Management and Employees - Share Ownership - Equity Plans.

(ix) Contingencies

From time to time, the Company is subject to claims arising in the conduct of its business, including claims relating to product liability, employees, suppliers and public authorities. In determining whether liabilities should be recorded for pending litigation claims, an assessment of the claims is made and the likelihood that the Company will be able to defend itself successfully against such claims is evaluated. When it is believed probable that the Company will not prevail in a particular matter, an estimate is made of the amount of liability based, in part, on advice of legal counsel. For a discussion of the Company’s contingencies, see Item 8 - Financial Information - Legal Proceedings and Note 9b(ii) to the Financial Statements.

(d) Newly Issued Accounting Pronouncements

For information with respect to recent accounting pronouncements, see Note 1w to the Financial Statements.

(e) Geographical Analysis; Worldwide Economic Situation; Cost of Revenues

(i) Geographical Analysis and Worldwide Economic Situation

The following table sets forth the Company’s product and service revenues by geographic area for the periods indicated:

During 2014, revenues from product sales in China continued to increase, as a result of the continued capital expenditures during the year by FPD manufacturers in that country. The increase in the proportion of sales generated outside Asia reflects the impact of the SPTS Acquisition on the Company’s geographical diversification.

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During 2013, the Company recorded significantly higher revenues from product sales in China, mainly reflecting increased capital expenditures during the year by FPD manufacturers in that country. The increase in revenues from product sales in Korea is attributable primarily to the Company’s PCB and additional adjacent electronics component manufacturing solutions and mainly reflects the need on the part of Korean PCB manufacturers for LDI solutions for use in the manufacture of advanced HDI for smartphones.

During 2012, the Company recorded significantly reduced revenues from China, Korea and Japan compared with the previous year, which was primarily a function of the reduced demand for the Company’s FPD systems stemming, in turn, from the substantially lower levels of capital expenditures by FPD manufacturers in those countries. The decrease in revenues from North America and Europe was a reflection of the general downturn in the global electronics industry, as a result of which PCB manufacturers reduced their investments in manufacturing facilities in those regions.

The Company’s ability to foresee future changes in the total volume of orders for its products and services remains limited, particularly, but not only, with respect to its PCB products. The inherent uncertainties associated with the global economic environment and the financial markets and economies of those countries in which the Company markets its products, together with the related possible changes in demand for its products, means that past operating results may not necessarily be indicative of the future. See Item 5 - Operating and Financial Review and Prospects - Trend Information.

(ii) Cost of Revenues

(f) Effective Corporate Tax Rate

The Company’s income tax obligations consist of those of the Company in Israel and those of each of its subsidiaries in their respective taxing jurisdictions.

The corporate tax rate in Israel, effective as of January 1, 2015, is 26.5%, unchanged from 2014 and compared with 25% in 2013. However, Orbotech’s effective tax rate in 2014 was 8.7% due to the combination of the factors described below.

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The effective tax rate of Orbotech is primarily influenced by: (a) the split of taxable income between the various tax jurisdictions; (b) the availability of tax loss carryforwards and the extent to which valuation allowance has been recorded against deferred tax assets; (c) the portion of the Company’s income in Israel which is entitled to tax benefits pursuant to the Investment Law; (d) the portion of the Company’s income which is entitled to reduced tax rates under a United Kingdom tax incentive (known as the ‘Patent Box’ regime) which is designed to encourage companies to make profits from their patents by reducing the tax payable on those profits; and (e) the changes in the exchange rate of the Dollar to the NIS.

Orbotech elected the alternative benefits route under the Investment Law with respect to its Approved Enterprises. Under this route the Company waived government grants in return for a tax exemption on undistributed income. Due to the geographic location of the Company’s facilities, such tax exemption on undistributed income applied for a limited period of two years. In the event that such tax exempt income is distributed as a dividend or a deemed dividend, the Company will be required to pay the applicable corporate tax that would otherwise have been payable on such income. During the remainder of the applicable benefits period, a corporate tax rate not exceeding 25% applied. The Company’s entitlement to such benefits was conditioned upon its compliance with the terms and conditions prescribed in the Investment Law. During 2013, the benefits period applicable to the last of the Company’s Approved Enterprises expired.

In April 2005, substantive amendments to the Investment Law came into effect. Under these amendments, eligible investment programs of the type in which the Company participated prior to the amendment were eligible to qualify for substantially similar benefits as a ‘Benefiting Enterprise’, subject to meeting certain criteria. This replaced the previous terminology of ‘Approved Enterprise’, which required pre-approval from the Investment Center of the Ministry of the Economy of the State of Israel. As a result of these amendments, tax-exempt income generated from Benefiting Enterprises under the provisions of the amended law will, if distributed upon liquidation or if paid to a shareholder for the purchase of his or her shares, be deemed distributed as a dividend and will subject the Company to the applicable corporate tax that would otherwise have been payable on such income. Therefore, the Company could be required to record deferred tax liability with respect to such tax-exempt income, which would have an adverse effect on its results of operations. To date, Orbotech Ltd. has not generated tax exempt income from Benefiting Enterprises.

Dividends distributed from taxable income derived from Orbotech Ltd.’s Approved Enterprises or Benefiting Enterprises during the applicable benefits period would subject the recipient to a 15% tax (or lower, if so provided under an applicable tax treaty), which would generally be withheld by the distributing company.

Additional amendments to the Investment Law became effective in January 2011 and were further amended in August 2013 (the “ 2011 Amendment ”). Under the 2011 Amendment, income derived by ‘Preferred Companies’ from ‘Preferred Enterprises’ (both as defined in the 2011 Amendment) would be subject to a uniform rate of corporate tax for an unlimited period as opposed to the incentives prior to the 2011 Amendment that were limited to income from Approved or Benefiting Enterprises during their benefits period. According to the 2011 Amendment, the uniform tax rate on such income, referred to as ‘Preferred Income’, would be 10% in areas in Israel that are designated as Development Zone A and 15% elsewhere in Israel during 2011-2012, 7% and 12.5%, respectively, in 2013, and 9% and 16%, respectively, thereafter. Income derived by a Preferred Company from a ‘Special Preferred Enterprise’ (as defined in the Investment Law) would enjoy further reduced tax rates for a period of ten years of 5% in Development Zone A and 8% elsewhere. As of January 1, 2014, dividends distributed from Preferred Income would subject the recipient to a 20% tax (or lower, if so provided under an applicable tax treaty), which would generally be withheld by the distributing company, provided however that dividends distributed from ‘Preferred Income’ from one Israeli corporation to another, would not be subject to tax. Under the transitional provisions of the 2011 Amendment, companies may elect to irrevocably implement the 2011 Amendment with respect to their existing Approved and Benefiting Enterprises while waiving benefits provided under the legislation prior to the 2011 Amendment or keep implementing the legislation prior to the 2011 Amendment. Should a company elect to implement the 2011 Amendment with respect to its existing Approved and Benefiting Enterprises prior to June 30, 2015, dividends distributed from

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taxable income derived from Approved Enterprises or Benefiting Enterprises to another Israeli company would also not be subject to tax. Orbotech Ltd. has not elected to implement the 2011 Amendment. While the Company may incur additional tax liability in the event of distribution of dividends from tax exempt income generated from its Approved and Benefiting Enterprises as previously described, no additional tax liability will be incurred by the Company in the event of distribution of dividends from Preferred Income.

The 2011 Amendment had no material effect on the tax payable in respect of the Company’s Israeli operations during 2014.

The combination of the factors described above produced effective tax rates of 8.7%, 15.0% and 0% for the years 2014, 2013 and 2012, respectively.

See Item 4 - Information on the Company - Business Overview - Additional Considerations Relating to the Company’s Operations in Israel; Note 11 to the Financial Statements; and Critical Accounting Policies and Estimates - Taxes on Income.

(g) Impact of Currency Fluctuations

Because the Company’s results are reported in Dollars, changes in the rate of exchange between the Dollar and local currencies in those countries in which the Company operates (primarily the NIS, the GBP, the Euro, the Japanese Yen and the Chinese Renminbi) will affect the Company’s results of operations. During 2014, on a comparative annual average basis as against 2013, the main currencies relevant to the Company’s operations strengthened (weakened) against the Dollar, as follows: the NIS by (1)%, the GBP by (5)%, the Japanese Yen by (8)%, the Chinese Renminbi by 0.2% and the Euro by 0.5%.

For information with respect to currency hedging programs maintained by the Company, see Item 11 - Quantitative and Qualitative Disclosures About Market Risk.

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(h) Results of Operations

The following table sets forth certain financial data as a percentage of revenues for the periods indicated.

(i) Year Ended December 31, 2014 Compared To Year Ended December 31, 2013

During 2014, the Company took an important step towards implementing its strategy of expanding into the high growth areas of Advanced Packaging and MEMS with the SPTS Acquisition. As a result of the SPTS Acquisition, the Company has become significantly larger, further diversified and more geographically balanced. The Company’s financial results for the year reflect the effects, on and from the SPTS Closing Date, of this significant acquisition, as well as a further improvement in demand for its FPD equipment, offset by a modest decrease in PCB equipment sales, primarily reflecting the slowdown in Korea.

Revenues from the sale and service of the Company’s equipment and software in 2014 totaled $582.7 million, compared with $440.0 million in 2013, an increase of approximately 32.4%. The inclusion of revenues from SPTS following the SPTS Acquisition increased consolidated revenue by $110.6 million. Service revenues in 2014 were $178.8 million, compared with $146.0 million in 2013, an increase of approximately $32.8 million, which reflected the inclusion of service revenues of SPTS, but was also a function of increase in service business generated in the Company’s PCB division.

Revenues from the sale and service of PCB-related equipment in 2014 were $286.2 million, compared with $295.3 million in 2013. This slight decrease reflects the slowdown of business in Korea, offset, in part, by the increase in service revenues and demands from China for the Company PCB-related equipment.

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Revenues from the sale and service of FPD-related equipment in 2014 were $160.7 million, compared with $131.6 million in 2013. This increase is primarily the result of continued fabrication facility expansions by LCD manufacturers in China to meet the growing demand for LCD televisions, tablets and mobile devices.

Revenues from the sale and service of SD equipment in 2014 were $110.6 million. SPTS recorded revenues of $186.0 million for the full year of 2014, $75.4 million of which were attributable to the period prior to its acquisition by the Company on August 7, 2014.

Revenues from the sale and service of the Company’s Solar Energy segment in 2014 were $11.9 million. 2014 was the first year in which the Company recognized revenues from sales of its products for the deposition of anti-reflective coating on crystalline silicon photovoltaic wafers for solar energy panels.

Revenues from the sale and service of the Company’s Recognition Software segment in 2014 were $13.2 million, unchanged from the $13.2 million recorded in 2013.

The increase in the cost of products sold in 2014 of $67.3 million, or 43%, resulted from the increase in revenues from products sold of $110.0 million, or 37.4%. This primarily reflected the higher expenditures on materials and components labor costs, overhead and other expenses as a result of the increased volume of products sold.

The increase in the cost of services rendered in 2014 of $13.8 million, or 15.1%, is primarily the result of the consolidation of the financial results of SPTS from the SPTS Closing Date.

Gross profit for 2014 was $253.2 million, or 43.4% of revenues, compared with $191.5 million, or 43.5% of revenues, in 2013. The Company preserved similar gross margins in 2014 as in 2013. Gross profit for 2014 from sales of equipment was $180.0 million, or 44.6% of product sales, compared to $137.3 million, or 46.7% of product sales, during 2013. The lower gross margin is a result of the change in the mix of products sold over this period. Gross profit for 2014 from services rendered was $73.2 million, or 41%, of service revenues, compared with $54.2 million, or 37.1%, of service revenues, during 2013. The higher gross margins on service revenues in 2014 compared to 2013, is a function of the Company’s increasing ability to generate additional service revenues while utilizing only a partially increased level of resources.

Research and development costs net increased to $88.7 million in 2014 from $69.6 million in 2013, due primarily to the inclusion of the financial results of SPTS from the SPTS Closing Date in the amount of $9.5 million and increased investment in research and development projects. During 2014, the Company received $2.7 million (compared with $3.2 million received in 2013) in royalty-free participations in its research and development expenditures, primarily from the Israeli Government and European sponsored sources.

Selling, general and administrative expenses were $95.7 million (which excludes $0.5 million expenses associated with the Korean Matter after taking into account receipts from the Company’s insurance carriers), compared to $77.5 million in 2013 (which excludes $1.6 million income associated with the Korean Matter after taking into account receipts from the Company’s insurance carriers). This increase was principally attributable to the inclusion of the financial results of SPTS from the SPTS Closing Date in the amount of $11.5 million and additional sales and marketing expenses as a result of the increase of equipment sales in 2014. The costs associated with the Korean Matter were $2.2 million, net of $1.7 million in recoveries from insurance companies, and were recorded in selling, general and administrative expenses.

Equity earnings in Frontline in 2014 were $5.8 million compared with $5.6 million in 2013.

The amortization of other intangible assets, primarily attributable to the SPTS and PDI Acquisitions, increased during 2014 to $19.2 million from $4.0 million in 2013. For further information concerning amortization expenses for 2014, 2013 and 2012, see Item 5 - Operating and Financial Review and Prospects - Critical Accounting Policies and Estimates - Long-lived and Intangible Assets.

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Net financial expenses totaled $9.0 million in 2014, compared with $1.2 million in 2013. This increase reflects the new term loan facility entered to finance the SPTS Acquisition.

Income tax expense for 2014 was $3.4 million, compared with $6.9 million in 2013. The Company’s effective tax rate for 2014 was 8.7% compared to 15.0% in 2013. Generally, the Company’s effective tax rate varies largely as a function of income (loss), benefits received from the State of Israel, particularly those relating to Approved Enterprises, Benefiting Enterprises or Preferred Enterprises, the split of taxable income between jurisdictions, reduced tax rates and other incentives in non-Israeli jurisdictions and the changes in various exchange rates to the NIS. See Item 5 - Operating and Financial Review and Prospects - Operating Results - Effective Corporate Tax Rate.

The net loss attributable to the non-controlling interests was $0.1 million for 2014 compared to net loss of $0.8 million in 2013. These non-controlling interests are comprised of the minority share in the losses of OLTS as well as the approximately 6% minority interest in Orbograph.

GAAP net income attributable to Orbotech Ltd. for the year ended December 31, 2014 was $35.4 million, or $0.83 per share (diluted), compared with $40.0 million, or $0.92 per share (diluted), for the year ended December 31, 2013.

(j) Year Ended December 31, 2013 Compared To Year Ended December 31, 2012

The Company’s financial results for 2013 reflected a year in which the Company experienced renewed demand for its FPD equipment as the industry began to emerge from the cyclical downturn which had prevailed in the industry since the latter part of 2011, and a modest improvement in its PCB and additional adjacent electronics component manufacturing revenues, despite the uncertainty and weakness in global economic conditions which continued to impact this area of the Company’s business. The Company’s shift from a substantial net loss to net income in 2013 resulted in large part from the recovery in the FPD industry and the full year impact of operational efficiency measures adopted; but also reflected the write-down of inventories of $14.3 million and impairment charges of $30.1 million recorded in 2012.

Revenues from the sale and service of the Company’s equipment and software in 2013 totaled $440.0 million, compared with $387.0 million in 2012, an increase of approximately 13.7%. Service revenues in 2013 were $146.0 million, compared with $148.1 million in 2012, a slight decrease of approximately $2.1 million, which was mainly a function of the lower FPD equipment sales in 2012, as a result of which there was virtually no increase in the Company’s installed base of equipment in that year.

Revenues from the sale and service of PCB-related equipment in 2013 were $295.3 million, compared with $275.5 million in 2012. This increase reflected, in part, the growth in revenues from the Company’s additional adjacent electronics component manufacturing business, from approximately $16.4 million in 2012 to approximately $31.7 million in 2013, as well as the higher revenues received from Orbotech’s manufacturing solutions, especially its LDI systems, stemming mainly from strong demand for LDI for HDI PCBs for smartphones.

Revenues from the sale and service of FPD-related equipment in 2013 were $131.6 million, compared with $97.2 million in 2012. This increase, which was weighted towards the latter part of the year, was primarily the result of major manufacturing expansions in China to meet the growing demand for LCD televisions, tablets and mobile devices.

Revenues from the sale and service of the Company’s Recognition Software segment in 2013 were $13.2 million, compared to the $14.3 million recorded in 2012.

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The increase in the cost of products sold in 2013 of $27.1 million, or 20.9%, resulted from the increase in revenues from products sold of $55.1 million, or 23.0%. This primarily reflected the higher expenditures on materials and components labor costs, overhead and other expenses as a result of the increased volume of products sold.

The decrease in the cost of services rendered in 2013 of $12.1 million, or 11.7%, primarily reflected previously-implemented cost saving measures (including more efficient use of spare parts), as well as lower service revenues in the Company’s FPD business which led to less materials being consumed. In addition, the Company allocated less overhead expenses in respect of its customer support operations.

Gross profit for 2013 was $191.5 million, or 43.5% of revenues, compared with $139.3 million, or 36% of revenues, in 2012. Gross profit for 2013 from sales of equipment was $137.3 million, or 46.7% of product sales, compared to $109.3 million, or 45.8% of product sales, during 2012 (excluding write-down of inventories of $14.3 million). Gross profit for 2013 from services rendered was $54.2 million, or 37.1%, of service revenues, compared with $44.2 million, or 29.9%, of service revenues, during 2012.

Research and development costs net increased to $69.6 million in 2013 from $68.7 million in 2012, due primarily to increased employee-related costs and the effect of the strengthened NIS against the Dollar. During 2013, the Company received $3.2 million, compared with $1.8 million received in 2012, in royalty-free participations in its research and development expenditures, primarily from the Israeli Government and European sponsored sources.

Selling, general and administrative expenses were $77.5 million (which excludes $1.6 million income associated with the Korean Matter after taking into account receipts from the Company’s insurance carriers), compared to $69.0 million in 2012 (which excluded $4.0 million costs associated with the Korean Matter after taking into account receipts from the Company’s insurance carriers). This increase was principally attributable to additional allocation of overhead expenses previously included in customer support operations, as well as higher expenses resulting from the growth in sales and increased employee-related costs. The costs associated with the Korean Matter were $3.3 million, net of $4.9 million in recoveries from insurance companies, and were recorded in selling, general and administrative expenses.

Equity earnings in Frontline were $5.6 million compared with $6.8 million in 2012, a decrease of 17.9%, reflecting reduced revenues of approximately $1.0 million in 2013 compared with 2012, as well as higher expenditure on investment in research and development activities during 2013.

At September 30, 2012, in light of the extended downturn in the FPD industry noted above, the Company tested whether the intangible assets acquired as part of the PDI Acquisition should be impaired, based on cash flow projections and fair value estimates. As a result, an impairment charge of $30.1 million was recorded in the third quarter of 2012. For further information concerning the impairment charge, see Item 5 - Critical Accounting Policies and Estimates - Long-lived and Intangible Assets.

The amortization of other intangible assets, primarily attributable to the PDI Acquisition, decreased during 2013 to $4.0 million from $9.9 million in 2012. For further information concerning amortization expenses for 2013 and 2012, see Item 5 - Operating and Financial Review and Prospects - Critical Accounting Policies and Estimates - Long-lived and Intangible Assets.

Net financial expenses totaled $1.2 million in 2013, compared with $5.1 million in 2012. This decrease reflected the lower debt service payment obligations to Discount Bank, which totaled $1.2 million in 2013, compared with $3.4 million in 2012, as well as reduced foreign exchange losses.

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Income tax expense for 2013 was $6.9 million, compared with $0.5 million in 2012. The Company’s effective tax rate for 2013 was 15.0% compared to 0% in 2012. Generally, the Company’s effective tax rate varies largely as a function of income (loss), benefits received from the State of Israel, particularly those relating to Approved Enterprises, Benefiting Enterprises or Preferred Enterprises, the split of taxable income between jurisdictions and the changes in various exchange rates to the NIS. See Item 5 - Operating and Financial Review and Prospects - Operating Results - Effective Corporate Tax Rate.

The net loss attributable to the non-controlling interests was $0.8 million for 2013 compared to $1.0 million in 2012. These non-controlling interests were comprised of the minority share in the losses of OLTS as well as the approximately 9% minority interest in Orbograph.

GAAP net income attributable to Orbotech Ltd. for the year ended December 31, 2013 was $40.0 million, or $0.92 per share (diluted), compared with GAAP net loss attributable to Orbotech Ltd. of $45.6 million, or $1.05 per share, for the year ended December 31, 2012.

5.B Liquidity and Capital Resources

(a) General

The Company’s equity as a percentage of its total assets decreased to 48.1% at December 31, 2014, compared with 73.4% at December 31, 2013.

Cash, cash equivalents, short-term bank deposits and marketable securities decreased to $162.3 million at December 31, 2014 from the $218.2 million recorded at December 31, 2013. The Company had gross debt of $299.25 million at December 31, 2014 and no debt at December 31, 2013.

Cash generated from operating activities in 2014 was approximately $51.4 million. Inventories at December 31, 2014 were $157.0 million, compared with $93.9 million at December 31, 2013. Net trade accounts receivable increased by $49.9 million, to $248.1 million at December 31, 2014 from $198.2 million at year end 2013. The period trade receivables were outstanding at December 31, 2014 (calculated by dividing: (A) the product of: (i) trade receivables at period end; and (ii) 365; by (B) the aggregate of the previous four quarter revenues) decreased to 155 days at December 31, 2014 from 164 days at December 31, 2013. The Company did not record any significant bad debts during 2014 and its allowance for doubtful accounts was $3.4 million or 1.3% of outstanding receivables at December 31, 2014. Aggregate accounts payable and accruals increased to $146.3 million from their December 31, 2013 level of $99.1 million, primarily due to the SPTS Acquisition. Deferred income increased by $13.2 million to $38.0 million at December 31, 2014, primarily reflecting the higher levels of revenues from sales of products.

During 2014, the Company used $12.5 million for capital expenditures and expended approximately $14.6 million for share repurchases and received approximately $8.3 million from the exercise of options.

The Company routinely receives letters of credit or promissory notes in connection with the sale of products in the Far East and Japan. From time to time, it sells some of these letters of credit and promissory notes to third parties at a discount in return for cash. During 2014, the Company sold approximately $39.0 million of these instruments.

The Company uses financial instruments and derivatives in order to limit its exposure to risks arising from changes in foreign currency exchange rates. The use of such instruments does not expose the Company to additional exchange rate risks since the derivatives are held against an asset (for example, excess assets in Japanese Yen). See Item 11 - Quantitative and Qualitative Disclosures About Market Risk. The Company’s policy in utilizing these financial instruments is to protect the Dollar value of its cash, cash equivalent and marketable securities assets rather than to serve as a source of income.

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The Company is not aware of any material commitments for capital expenditures in the future and believes that its cash and cash equivalents available as of December 31, 2014 and funds generated from operations will be sufficient to meet its working capital requirements for the next twelve months.

(b) OLTS Investment

Approximately 16% of OLTS’s equity interest as at December 31, 2014 is held by the two developers of certain of OLTS’s technology. Each of these two developers holds a put option to sell his holdings in OLTS to, at the Company’s election, the Company and/or OLTS. These put options shall become exercisable upon the achievement of a certain financial milestone by OLTS. The purchase price to be paid by the Company upon the exercise of this put option shall be equal to the fair market value of the equity interest being sold, as determined by an external appraiser. There is a limit on the number of equity interest units that the two developers may require the Company to purchase, upon exercise of these put options, each year. These put options shall expire upon the earlier of an initial public offering, merger and acquisition transaction or a third party investment in OLTS that results in such third party holding at least 5% of OLTS’s equity interest.

The Company ownership percentage in OLTS was approximately 81.2% on a fully diluted basis as of December 31, 2014.

(c) PixCell Investment

From 2011 through 2014, the Company through its venture capital fund, Orbotech Technology Ventures L.P., invested a total of $3.5 million in PixCell Medical Technologies Ltd. (“ PixCell ”) and paid other shareholders of PixCell a total of $0.5 million, in consideration for approximately 35% (on a fully diluted basis) of the share capital of PixCell, an Israeli company developing diagnostic equipment for point-of-care hematology applications, in particular low cost, high speed complete blood count and hemoglobin level tests. In the early part of 2015, the Company invested $1.5 million in PixCell, and was granted an option to purchase additional shares of PixCell in consideration for an aggregate exercise price of $1.0 million, following which the Company holds 45% (on a fully diluted basis) of the share capital of PixCell. Subject to the exercise of the above option, the Company is entitled to invest additional amounts and to purchase additional shares from PixCell’s other shareholders in consideration for an aggregate amount of approximately $6.0 million, following which the Company would be expected to hold approximately 63% (on a fully diluted basis) of the share capital of PixCell and, subject to its continuous investment in PixCell, the Company will also have the right to acquire 100% of the share capital of PixCell. In the event the Company invests the entire $7.0 million as aforesaid, then subject to certain terms and conditions (including the achievement of a certain financial milestone) the Company will be required to acquire 100% of the share capital of PixCell.

(d) Negative Pledges

As part of the Discount Bank Loan and as security for the repayment thereof, Orbotech Ltd. created a floating charge on all of its assets and a fixed charge was created on the shares of PDI held by Orbotech, Inc. In addition, Orbotech Ltd. also has an approved credit risk limit of up to an aggregate amount of $22.0 million granted to it by Bank Hapoalim Ltd. (“ Hapoalim ”). To secure this credit risk, in 2010, Orbotech Ltd. issued a debenture in favor of Hapoalim under which a floating charge was created on all of Orbotech Ltd.’s assets.

In February 2013, Orbotech Ltd. prepaid part of the Discount Bank Loan. In connection with the partial prepayment of the Discount Bank Loan and as a precondition thereto, Orbotech Ltd. entered into letters of agreement with Discount Bank and with Hapoalim pursuant to which the above floating charges and the debenture in favor of Hapoalim were cancelled and replaced with negative pledges to each of Discount Bank and Hapoalim (collectively, the “ Negative Pledges ” and each, a “ Negative Pledge ”). On December 23, 2013, Orbotech Ltd. completed repayment of the entire Discount Bank Loan and on January 22, 2014, the fixed charge created on the shares of PDI held by Orbotech, Inc. was cancelled. Subsequently, and as a result of further agreements with each of Discount Bank and Hapoalim, the Negative Pledges to Discount Bank and to Hapoalim were cancelled on March 27 and May 21, 2014, respectively.

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(e) Senior Secured Term Loans

On August 7, 2014, the Company, and its wholly owned subsidiary Orbotech, Inc. (the “ Borrower ”), entered into a senior secured credit agreement (the “ Credit Agreement ”) with JPMorgan Chase Bank, N.A. as administrative agent, and a syndicate of lenders. Under the Credit Agreement, the Borrower borrowed $300.0 million aggregate principal amount of senior secured term loans (the “ Term Loans ”) on August 7, 2014. The proceeds of the Term Loans were used by the Borrower on August 7, 2014, together with approximately $100.0 million of cash available to the Company, directly or indirectly, (a) to pay the cash consideration in respect of the acquisition of SPTS, (b) to repay indebtedness outstanding under the Senior Facilities Agreement dated as of May 31, 2012, by and among SPTS, Barclays Bank PLC, HSBC Bank PLC and the other parties thereto, (c) to redeem outstanding notes of a subsidiary of SPTS and (d) to pay transaction costs associated with the foregoing. As of February 1, 2015, the outstanding principal amount of the Term Loans was $299.25 million.

(i) Interest and Maturity

The Term Loans bear interest at a floating rate equal to, at Borrower’s option, either (a) a base rate determined by reference to the highest of (1) the interest rate announced from time to time by JPMorgan Chase Bank, N.A. as its prime rate, (2) the federal funds effective rate plus 1/2 of 1.0% and (3) a LIBO rate determined by reference to the costs of funds for Dollar deposits for a one-month interest period adjusted for certain additional costs plus 1.0% or (b) a LIBO rate determined by reference to the costs of funds for Dollar deposits for the interest period relevant to such borrowing adjusted for certain additional costs, in each case plus an applicable margin. For the purpose of determining the interest rate payable on the Term Loans under clauses (a) and (b) of the immediately preceding sentence, the LIBO rate will in no event be less than 1.0%. The applicable interest rate margin will be 3.0% with respect to base rate borrowings and 4.0% with respect to LIBO rate borrowings. The Term Loans will mature on August 7, 2020.

(ii) Amortization and Prepayments

The Company is required to make amortization payments in quarterly installments, which commenced on December 31, 2014. The amount of the quarterly installments will be equal to $0.75 million for the first 12 quarterly amortization payments. After that, the amount of the quarterly amortization payments will be $5.625 million for the next 11 quarterly amortization payments, and the balance of the principal amount will be due at final maturity. Prepayments of all or any portion of the Term Loans of a certain class reduce subsequent scheduled amortization payments of the Term Loans of such class as directed by the Borrower.

The Borrower is permitted to repay outstanding Term Loans or any portion thereof at any time without premium or penalty. Notwithstanding the foregoing, if any Term Loans are prepaid prior to the first anniversary of the funding date thereof with the proceeds of debt having an effective yield lower than the initial effective yield of the Term Loans (taking into account LIBOR floors and original issue discount), then such prepayment will be accompanied by a prepayment fee equal to 1.0% of the Term Loans so prepaid. In addition to permitting voluntary prepayments at any time, the Credit Agreement contains mandatory prepayment provisions. These mandatory prepayment provisions contain certain exceptions and customary thresholds. Subject to these exceptions and thresholds, the Borrower will be required to make mandatory prepayments of the Term Loans under certain circumstances, including from (a) 100% of the net cash proceeds from certain non-ordinary course assets sales (including casualty and condemnation proceeds) in excess of $2.5 million per sale and $5.0 million per year (with a 365-day reinvestment right and other exceptions), (b) 100% of the net cash proceeds from the issuance or incurrence of debt not otherwise permitted under the Credit Agreement and, until the first anniversary of closing, the issuance of equity and hybrid securities and (c) 50% of annual excess cash flow (as defined in the Credit Agreement), with step-downs to 25% and 0% if the ratio of the Company’s total consolidated debt to its trailing four-quarter consolidated EBITDA (as defined) is less than 1.25 to 1.00 and 0.75 to 1.00, respectively. Any mandatory prepayment also reduces subsequent scheduled amortization payments as directed by the Borrower.

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The Company may raise equity capital through the issuance of additional Ordinary Shares, subject to market and other conditions, including its undertakings pursuant to the Credit Agreement. Until August 7, 2015, the net proceeds of any such offering would be required to be used to repay indebtedness under the Credit Agreement. After August 7, 2015, the Company may use the proceeds of an equity offering, if any, for general corporate purposes, including voluntary prepayments of debt.

(iii) Incremental Term Loans

The Credit Agreement provides that the Borrower has the right to incur additional term loans thereunder in an aggregate principal amount not to exceed the greater of: (a) $50.0 million; and (b) the amount that would not cause the Company’s ratio of total consolidated secured debt to trailing four-quarter consolidated EBITDA (as defined in the Credit Agreement) to exceed 1.75 to 1.00, calculated on a pro forma basis (as defined in the Credit Agreement). The lenders under the Credit Agreement are under no obligation to provide any such additional term loans, however. As of December 31, 2014, the Company’s ratio of total consolidated secured debt to trailing four-quarter consolidated EBITDA (as defined in the Credit Agreement) was 3.00.

(iv) Guarantees and Collateral for the Term Loans

The Borrower’s obligations under the Credit Agreement are guaranteed by the Company and by certain existing subsidiaries of the Company that are organized under the laws of Israel, England and Wales, the United States, Hong Kong and Singapore, in each case subject to certain exceptions and limitations. In addition, certain after acquired or organized material subsidiaries of the Company organized under the laws of Israel, England and Wales or the United States will be required to guarantee Borrower’s obligations under the Credit Agreement upon their acquisition or formation. The Credit Agreement and the related guarantees are (or are expected to be) secured by security interests in substantially all tangible and intangible assets of the Borrower and the guarantors (subject to certain exceptions and limitations). The Company also issued the Debenture on August 7, 2014, to create a fixed charge on its goodwill and a floating charge on all of its assets, other than certain Excluded Assets (as defined in the Debenture) to guarantee payment of the Obligations (as defined in the Credit Agreement).

(v) Covenants and Events of Default

The Credit Agreement requires the Company and its subsidiaries on a consolidated basis to maintain compliance with a minimum liquidity amount (as defined) of $40 million tested as of the last day of each month, and places certain restrictions on the ability of the Company, the Borrower or certain of the Company’s subsidiaries to, among other things, incur debt and liens; merge, consolidate or liquidate; make investments; dispose of assets; enter into sale and leaseback transactions; pay dividends and make other restricted payments; undertake transactions with affiliates; enter into restrictive agreements on their ability to grant liens, make dividends and other distributions; amend material documents, change fiscal periods; and designate unrestricted subsidiaries. As of December 31, 2014, the Company was in compliance with all covenants in the Credit Agreement.

The Credit Agreement contains customary events of default, such as defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, invalidity of loan documents, certain liens and guarantees and change in control.

The above summary of the Credit Agreement and the brief description of the guarantees and collateral securing the obligations thereunder are each qualified in the entirety by reference to the complete terms and provisions thereof, each of which are incorporated by reference herein.

Certain Non-GAAP Information

Non-GAAP net income for 2014 was $63.2 million, or $1.48 per share (diluted), compared with $47.5 million, or $1.10 per share (diluted) for 2013. The below table (the “ Reconciliation ”) reconciles GAAP to non-GAAP results for the years ended December 31, 2014, 2013 and 2012.

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In this Annual Report, the Company presents certain non-GAAP measures, including non-GAAP net income and non-GAAP earnings per share, which are described in the Reconciliation. Each measure presented below excludes 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 and acquisition costs; (iii) restructuring and asset impairments; (iv) share in losses of associated company; and (v) tax credits relating to the above items, in each case, as described in more detail in the Reconciliation. In addition, the Company presents EBITDA, Adjusted EBITDA and Credit Facility EBITDA, each as defined in the Reconciliation. Credit Facility EBITDA is Adjusted EBITDA as further adjusted to give effect to the other items identified as permitted adjustments pursuant to the terms of the Credit Agreement.

Management regularly uses these non-GAAP measures to evaluate the Company’s operating and financial performance in light of business objectives and for planning purposes. In addition, these non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. None of these non-GAAP measures is prepared in accordance with GAAP and they may differ from non-GAAP measures reported by other companies. The Company believes that these measures enhance investors’ ability to review and understand trends in the Company’s business from the same perspective as management and understand the calculation of covenants under the Credit Agreement. The Company believes its presentation of some of these non-GAAP measures facilitates comparisons between periods because they provide consistency in its financial reporting among periods and exclude certain financial expenses. However, the non-GAAP measures presented are subject to limitations as analytical tools, and are not meant to be considered in isolation or as a substitute for the comparable GAAP measures to which they are reconciled. They should be read only in conjunction with the Consolidated Financial Statements, which are prepared in accordance with GAAP, except as otherwise described therein. Some of the limitations of the Company’s non-GAAP measures are:

The effect of equity-based compensation expenses has been excluded from the non-GAAP net income measure and Adjusted EBITDA. 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 are expected to recur in future periods.

The effects of amortization of intangible assets and impairment charges have also been excluded from the non-GAAP net income measure and EBITDA. These items are inconsistent in amount and frequency and are significantly affected by the timing and size of acquisitions. The use of intangible assets contributed to revenues earned during the periods presented and will also contribute to future period revenues. Amortization of intangible assets will recur in future periods and the Company may be required to record additional impairment charges in

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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 non-recurring with respect to past acquisitions, these types of expenses will generally be incurred in connection with any future acquisitions.

The below table reconciles net income to EBITDA, Adjusted EBITDA and Credit Facility EBITDA as calculated in accordance with the Credit Agreement.

EBITDA, Adjusted EBITDA and Credit Facility EBITDA as determined in accordance with the Credit Agreement for the twelve months ended December 31, 2014

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Although Credit Facility EBITDA is derived from the Financial Statements, the calculation of Credit Facility EBITDA pursuant to the Credit Agreement presented in this Annual Report will permit certain estimates and assumptions that may differ materially from actual results. For example, the Company is permitted to estimate annual net cost synergies as a result of specified actions, including the SPTS Acquisition. Although management is required under the Credit Agreement to use reasonable estimates and assumptions, investors should not place undue reliance upon the calculation of Credit Facility EBITDA given the manner in which it is calculated and the possibility that the underlying estimates and assumptions may ultimately not reflect actual results. The estimated cost synergies, for example, would increase Credit Facility EBITDA by the amount of savings expected to be achievable. No assurance can be given, however, that the Company will be able to realize such cost savings. Also, cash costs incurred by the Company in connection with implementing synergies do not reduce Credit Facility EBITDA. Moreover, cash costs may prove to be greater than estimated. In addition, the Credit Agreement permits the Company to adjust Credit Facility EBITDA for items that would not meet the standards for inclusion in pro forma financial statements under Regulation S-X and other SEC rules. Some of these adjustments may be too speculative to merit adjustment under Regulation S-X; however, the Credit Agreement permits such adjustments for purposes of determining Credit Facility EBITDA. As a result of these adjustments, the Company may be able to incur more debt or pay dividends or make other restricted payments in greater amounts than would otherwise be permitted without such adjustments even if the adjustments ultimately differ materially from actual results.

5.C Research and Development, Patents and Licenses, etc.

(a) Research and Development Policy

The Company places considerable emphasis on research and development projects designed to upgrade its existing product lines and to develop new technologies and additional industrial and service applications of its existing technologies. Research and development expenses are incurred prior to the time that revenue is generated from new products. It may take many years to realize the benefit of research and development expenses, if any is realized at all. As of December 31, 2014, 591 employees were engaged primarily in research and development for the Company.

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The following table shows the total research and development expenditures of the Company and participations in such expenditures (mainly by the Government of Israel) for the periods indicated:

The governmental participations in the year ended December 31, 2014 represent funding of $1.9 million by the OCS through a royalty-free program for the development of generic technologies and of $0.8 million by European sponsored sources.

Israeli Government consent is required to manufacture products developed with OCS participations outside of Israel and to transfer to third parties know-how developed through projects in which the Israeli Government participates. Such restrictions do not apply to the export from Israel of the Company’s products developed with such know-how.

Israeli Government consent for the manufacture of products developed with OCS participations outside of Israel, if granted, is generally conditioned on an increase in the total amount to be repaid to the OCS, up to 300% of the Dollar value of the grant plus applicable interest. The specific increase within this ceiling would depend on the extent of the manufacturing to be conducted outside of Israel. Israeli Government consent for the transfer of know-how developed through projects in which the Israeli Government participates and any right derived therefrom, outside of Israel, if granted, is generally conditioned on a redemption payment which is calculated according to a formula set forth in the Israeli Encouragement of Research and Development in Industry Law, 1984 as amended, and regulations promulgated thereto (the “ Research Law ”), but not more than six times the total amount of grants received under the Research Law and from the OCS in general, plus applicable interest.

(b) Intellectual Property

To safeguard its proprietary product design and technology, the Company relies, in part, on patent, trade secret, trademark and copyright law, as well as technical safeguards. Proprietary software is generally protected under copyright law. Additionally, the Company relies upon trade secrets and regularly enters into non-disclosure agreements with its employees, subcontractors and potential business associates. According to the Company’s records as of January 31, 2015, at that date the Company held 234 United States patents, and 411 corresponding non-United States patents, and had 63 United States patent applications, and 302 non-United States patent applications, pending.

Notwithstanding the above, there can be no assurance that any patent owned or licensed by the Company will not be invalidated, designed around, challenged, infringed or licensed to others, that any of the Company’s pending or future patent applications will be issued with the scope of the claims sought by the Company, if at all, or that non-disclosure agreements will not be breached. In addition, patent coverage may not be extended to all countries, and effective copyright and trade secret protection may be unavailable or limited in certain countries. There can also be no assurance that the steps taken by the Company will prevent misappropriation of its technology. It is also possible that technology developed by the Company may be infringing on patents or other rights held by others. The Company has received in the past, and may in the future receive, communications asserting that the technology used in some of its products requires third-party licenses. Any infringement claims, whether or not meritorious, could result in costly litigation or arbitration and divert the attention of technical and management personnel. Any adverse outcome in any litigation alleging infringement could result in the loss of proprietary rights, require the Company to develop non-infringing technology or enter into royalty or licensing agreements (which it may not be successful in achieving) or prevent the Company from manufacturing or selling its products.

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The Company has in the past received and may receive in the future notifications from customers with respect to possible indemnification or other action by the Company in connection with intellectual property claims resulting from use of the Company’s products. The Company typically undertakes, subject to various contractual conditions and other limitations, to defend intellectual property claims against customers arising from the purchase and use of its products. The Company’s obligations under these agreements generally provide that the Company may, at its option, either obtain the right to continue using the products or modify them and, in some cases, take back the products with a refund to the customer. To date, no demands have been made by customers seeking indemnification against the Company with respect to intellectual property claims, which have had any material effect on the Company’s business and results of operations. However, the Company has agreed to cover the legal costs of certain intellectual property litigation in China. See Item 3 - Key Information - Risk Factors and Item 8 - Financial Information - Legal Proceedings.

Although the Company continues actively to pursue the protection of its intellectual property in the belief that its patents have significant value, it also believes that rapid technological improvement and factors such as the knowledge and experience of the Company’s management personnel and employees and their continued ability to define, develop, enhance and market new products and services afford additional protection which may, in some instances, exceed patent protection.

5.D Trend Information

Industry conditions affecting the Company’s business, in particular the level of FPD investment in China, began to improve in 2013 and continued to do so in 2014. In 2015, continued demand is expected for high-end consumer electronic devices supporting the Company’s belief that there will be further improvement and growth opportunities. The Company’s financial position and results for 2014 were positively affected by the overall economic improvement, the growth in the FPD industry and the SPTS Acquisition. As a result of the SPTS Acquisition, the Company enjoys a stronger and more diversified position in the electronics industry. In addition, the increasing complexity of electronic devices is expected to drive demand for the Company’s production and yield enhancing solutions. As a result, the Company anticipates growth in each of its PCB, FPD and SD businesses in 2015 compared with 2014, which may exceed anticipated overall industry growth. Nevertheless, conditions in the electronics industry, particularly in the Far East, are tied to the global economic climate and any downturn with respect thereto would negatively impact the electronics industry and the Company’s business. In addition, the SPTS Acquisition, as well as the increasing importance to the Company of its solar energy business, means that the Company is now exposed to cyclicality in additional industries such as the automotive industry; and downturns in these industries could also have a negative impact on the Company’s results.

During the second half of 2013 and throughout 2014, the FPD industry experienced expansion in facilities for televisions, tablets and mobile devices, particularly in China. In 2014, there was strong growth in the demand for large area televisions. The Company expects that the majority of capital investment in new facilities during 2015 will continue to occur in China, where the Company is well placed to benefit from its substantial service and support infrastructure. The continuing trend towards constructing FPD facilities covering both mobile devices and televisions and the addition of oxide semiconductor technology in these facilities provides new opportunities for growth, driven by increasing demand for ultra high definition televisions and higher resolution mobile devices. Industry analysts anticipate growth in demand for FPDs and increased levels of investment in capital equipment in 2015 and 2016. Based on industry information, the Company expects that additional production lines will be needed in order to meet capacity requirements for large area televisions and that this, combined with the introduction of new display technologies, will lead to increased opportunities for Orbotech’s equipment to play an even greater role in FPD manufacturing. Manufacturers have continued in early 2015 to make significant investments in LTPS, OLED, oxide semiconductor and flexible display technologies. To meet the demand driven by this trend, the Company intends to offer products designed to enable more efficient mass-production of these advanced displays. Based on the growth in demand for FPDs and recent innovations of new display technologies, the Company anticipates improvement in its FPD business in 2015 as compared with 2014.

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The PCB industry grew by approximately 7% year over year in China, and by approximately 2.4% globally. The Company’s PCB business continues to be driven by demand for its yield-enhancing solutions, including its technologically advanced direct imaging, AOI and AOR products and digital legend printing, some of which are critical in the mass production of HDI and flex PCBs and advanced packaging solutions for IC substrates. In 2014, the weakness in PCB production reflected less favorable industry conditions in Korea driven by the low production rates of smart mobile devices by Korean makers and its effect on the economic environment. This weakness was offset, to some extent, by increased demand in China. The Company anticipates continued growth in the PCB industry in 2015, driven principally by the demand for mobile devices, automotive developments and fourth generation mobile telecommunications (“ 4G ”) technology in China. Sales are expected to be more technology, as opposed to expansion, driven. The Company expects to record additional revenues in 2015 from sales of its new direct imaging product, the Nuvogo™ 800, as PCB manufacturers become increasingly aware of the benefits offered by this highly innovative solution. Based on this and the other factors described above, the Company anticipates an improvement in its PCB business in 2015 as compared with 2014.

The semiconductor industry is poised for growth in 2015, as increasing consumer demand for high product functionality in various industries is expected to drive the need for MEMS, Advanced Packaging, power, RF and HBLED devices. Advanced Packaging is a growing segment and has moved to wafer level packaging faster than expected, creating more opportunities for the Company’s products and solutions. In 2014, the RF driver segment experienced growth as a result of 4G products. The Advanced Packaging and RF driver segments are expected to experience continued growth in 2015 and 2016, largely as a result of ongoing innovations of mobile devices. The Company occupies a strong position in the MEMS segment, which is expected to continue to provide revenues in 2015 as new capacity is installed for the coming generation of smartphones and automotive-related devices. The demand for improvements in battery life, fuel economy and energy efficiency are also expected to lead to growth in power devices. Based on these factors, the Company anticipates that 2015 revenues from its SD business will exceed the $184 million in revenues recorded by SPTS in 2014.

As at December 31, 2014, the Company’s backlog, which consisted principally of orders for its FPD and SD products and included orders for its solar energy products, totaled approximately $170.0 million. Although orders on any particular date are not necessarily indicative of actual sales for any succeeding period, since customers may delay delivery of products or cancel orders prior to shipment, the Company believes it is well positioned to capitalize on existing and future opportunities as manufacturers make investments in capital equipment to meet heightened production challenges in a yield-focused environment. The Company also believes that it will benefit from its positioning as a provider of product and processes innovation solutions designed to meet the production challenges associated with higher-end technology, as production of PCBs and FPDs expands in Asia and shifts to these complex devices in response to the growing local consumer demand for electronic devices. However, as a result of this geographic trend, the Company is increasingly exposed to the risks and complexities inherent in doing business in international markets, some of which, such as those associated with the effective regulation and protection of intellectual property rights, are particularly acute in China. In addition, the Company faces continuing pricing pressure, particularly in China, as a result of competition from local manufacturers of PCB and FPD inspection equipment. The Company believes that the geographic and diversification resulting from the SPTS Acquisition has further improved the overall positioning of the Company.

The Company’s gross profit margin during 2014 was approximately 43.4%. The Company expects to face sustained pricing pressure, stemming mainly from competitive factors; however, it believes that the positive effects of the SPTS Acquisition, as well as its cost reduction steps, its introduction of new products and the increased profitability for certain services, will lead to stable margins in its business during 2015 as compared with 2014. As a result of the growth in sales, the Company’s installed base continues to expand and service revenues are therefore expected to increase.

The Company’s financial results reflect the impact of the strength of the NIS during 2014 as part of its expenses are in NIS while the majority of its revenues are in Dollars. Because the Company’s headquarters, as well as certain of its research and development and manufacturing facilities are in Israel, its financial results will

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continue to be impacted by the relative value of the NIS, principally against the Dollar. The Company is limited in its ability to mitigate the impact of a strong NIS relative to the Dollar. As a result of the SPTS Acquisition, the Company’s financial results will increasingly reflect the impact of the GBP, due to the relatively large facility located in Wales.

The solar energy industry is expected to continue to grow in 2015, particularly in the United States and emerging markets such as South America and the Middle East, while Europe is expected to continue the consolidation trend that began in 2012 and China is expected to continue to show strong growth in this sector. In particular, due to the continued cost reductions of photovoltaic solar power, installation demand is expected to experience strong growth in 2015. Industry analysts expect a surge in projects to be completed by the end of 2016, when the applicable tax credits in the United States will decrease. 2014 was the first year in which OLTS recognized revenues from the sale of its products for the deposition of anti-reflective coating on crystalline silicon photovoltaic wafers for solar energy panels and the Company anticipates OLTS to make further product sales in 2015.

In 2015, the Global Product Organization unit will continue to focus on developing and implementing the Company’s short and long term research and development strategy and on better positioning Orbotech to pursue new business opportunities. In 2014, the Strategy and Business Development unit identified the opportunities presented by the SPTS Acquisition and it will continue in 2015 to identify and pursue strategic initiatives including acquisitions of related businesses and technologies, expansion of product offerings to existing customers, entrance into new industries. Although the Company selectively pursues strategic opportunities, including acquisitions, divestitures of non-core assets and joint ventures, some or all of these transactions may not be announced in the foreseeable future, or at all, and the Company may not consummate these transactions even following their announcement. For a discussion of the risks associated with strategic initiatives, see Item 3 - Key Information - Risk Factor (w).

5.E Off-Balance Sheet Arrangements

The Company does not use off-balance sheet arrangements or transactions with unconsolidated, limited-purpose entities to provide liquidity, financing or credit support or to engage in leasing, hedging or research and development activities or which would expose the Company to liability that is not reflected on the face of its financial statements. The Company is not a party to any ‘off-balance sheet arrangements’ which are required to be disclosed under this Item 5.E of Form 20-F.

5.F Tabular Disclosure of Contractual Obligations

The following table summarizes the Company’s contractual obligations as at December 31, 2014:

Operating lease obligations represent commitments under various commercial facility and vehicle leases. Purchase obligations mainly represent outstanding purchase commitments for inventory components ordered in the normal course of business. Term Loan obligations represent repayment of principal based on the loan

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amortization schedule under the Credit Agreement and do not include interest payments due thereunder. Interest on long term debt is calculated based on the amortization schedule under the Credit Agreement and assuming current interest rates. The Company is not a party to any capital leases.

The total amount of gross unrecognized tax benefits for uncertain tax positions, including positions impacting only the timing of tax benefits, was $19.8 million at December 31, 2014, of which $14.0 million was classified as long-term liabilities and $5.8 million was classified as short-term liabilities. Payment of these obligations would result from settlements with taxing authorities. Due to the difficulty in determining the timing of settlements, these uncertain tax position obligations are not included in the table above.

5.G Safe Harbor

The safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act shall apply to forward-looking information provided pursuant to Items 5.E and F.