Lipman Electronic Engineering Ltd (LPMA) (LPMA)

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Lipman Electronic Engineering Ltd. Reports First Quarter 2006 Financial Results

Monday May 8, 2:00 am ET

ROSH HAAYIN, Israel--(BUSINESS WIRE)--May 8, 2006--Lipman Electronic Engineering Ltd. (Nasdaq, TASE: LPMA), a leading provider of electronic transaction systems and solutions, today announced financial results for the first quarter ended March 31, 2006.

For the first quarter of 2006, revenues were $57.6 million, an increase of 6.3% over revenues of $54.2 million for the first quarter of 2005. Excluding revenues from its Dione subsidiary, Lipman's revenues in the first quarter of 2006 increased 22.6% compared to the same period in 2005.

Net income for the quarter before cumulative effect of an accounting change was $6.6 million, or $0.24 per diluted share, compared to net income of $5.3 million, or $0.19 per diluted share, in the first quarter of 2005.

Prior to January 1, 2006, the Company recognized stock-based compensation expense based on the provisions of FAS 123. Effective January 1, 2006, recognition of this expense is based on FAS 123R which amended FAS 123. FAS 123R provides that in determining the amount of stock-based compensation expense a company must take into account an estimate of outstanding options that will be forfeited prior to vesting. Prior to the effectiveness of FAS 123R, the Company did not estimate forfeitures in determining stock-based compensation expense. FAS 123R requires the Company to recognize the cumulative effect of the change in these accounting principles to reverse compensation cost recognized in the financial statements in periods prior to January 1, 2006 for those options that are not expected to vest. As a result, $1.3 million is added to net income in the consolidated statement of operations for the quarter ended March 31, 2006 to reflect the cumulative effect of this accounting change, net of taxes. The Company's net income for the quarter after the cumulative effect of this accounting change, net of taxes, was $8.0 million, or $0.29 per diluted share.

Non-GAAP net income for the three months ended March 31, 2006, which excludes $801,000 of non-cash stock-based compensation expenses and the cumulative effect of the accounting change, was $7.4 million, or $0.27 per diluted share, compared to $6.6 million, or $0.24 per diluted share, for the comparable period of 2005. Non-cash stock-based compensation expenses for the three months ended March 31, 2005 totaled $1.3 million.

Gross profit for the quarter was $24.5 million, or 42.5% of revenues, compared to $22.9 million, or 42.2% of revenues, for the first quarter of 2005.

Cash flow from operating activities for the three months ended March 31, 2006 was $4.8 million compared to $1.9 million for the comparable period in 2005.

During the first quarter of 2006, the Company purchased 343,600 of its ordinary shares for an aggregate amount of $8.7 million in accordance with its previously announced share buyback program.

As of March 31, 2006, the Company had cash and cash equivalents of $120.0 million compared to $124.4 million as of December 31, 2005.

Recent highlights included:

Lipman and VeriFone entered into a definitive agreement for VeriFone to acquire Lipman in a transaction valued at $793 million, based on VeriFone's share price at the close of trading on April 7, 2006. The acquisition is expected to close by October 31, 2006 and is subject to approval by shareholders of both companies and customary regulatory approvals.
Lipman received a $3.2 million follow-on order for its Dione Secura(TM) PIN Entry Devices from a leading Mexican bank.
Commenting on the results, Isaac Angel, President and CEO of Lipman, said, "Our first quarter results were in line with expectations. The results reflected strength in emerging markets such as Eastern Europe and Mexico, as well as the continued improvement at Dione. Following the closing of our recently announced agreement with VeriFone, we will work to leverage our technological and geographic synergies and believe the combined company will be well positioned to lead the electronic payment industry as it continues to grow."

About Lipman

Lipman is a leading worldwide provider of electronic transaction systems and solutions. Lipman develops, manufactures and markets a variety of handheld, wireless and landline POS terminals, electronic cash registers, retail ATM units, PIN pads and smart card readers, as well as integrated PIN and smart card ("Chip & PIN") solutions. In addition, Lipman develops technologically advanced software platforms that offer comprehensive and customized transaction processing solutions for its customers, as well as managed professional services such as on-site and call-center support with remote terminal management.

Lipman's corporate headquarters and R&D facilities are located in Israel. Lipman also maintains offices in the US, United Kingdom, Turkey, China, Spain, Finland, Russia, Italy, Canada, Brazil, Argentina, Mexico, Australia and India. For more information visit www.lipman.biz

Statements concerning Lipman's business outlook or future economic performance; product introductions and plans and objectives related thereto; and statements concerning assumptions made or expectations as to any future events, conditions, performance or other matters, are "forward-looking statements" as that term is defined under U.S. Federal securities laws. Forward-looking statements are subject to various risks, uncertainties and other factors that could cause actual results to differ materially from those stated in such statements. These risks, uncertainties and factors include, but are not limited to: the risk that the transaction with VeriFone will not close; our dependence on distributors and customers; the competitive market for our products; market acceptance of new products and continuing products; timely product and technology development/upgrades and the ability to manage changing market conditions; manufacturing in Israel; compliance with industry and government standards and regulations; dependence on key personnel; possible business disruption from acquisitions; and other factors detailed in Lipman's filings with the U.S. Securities and Exchange Commission. Lipman assumes no obligation to update the information in this release.

On April 10, 2006, VeriFone Holdings, Inc. and Lipman announced that they have entered into a definitive agreement, which provides for VeriFone to acquire Lipman. In connection with the proposed transaction, VeriFone intends to file a registration statement on Form S-4, including a proxy statement/prospectus of VeriFone and Lipman, and VeriFone and Lipman will file other materials with the SEC. Investors and security holders are urged to read the registration statement and the proxy statement/prospectus which will be sent to stockholders in connection with the merger and any other relevant documents filed with the SEC when they become available, as well as any amendments or supplements to those documents, because they will contain important information. Investors and security holders may obtain a free copy of documents filed with the SEC at the SEC's Internet web site at (www.sec.gov). These documents may also be obtained free of charge from VeriFone by directing such request to the investor relations section of verifone.com.

Lipman Electronic Engineering Ltd.
CONSOLIDATED BALANCE SHEETS
U.S. dollars in thousands

December 31, March 31,
2005 2006
(Audited) (Unaudited)
ASSETS

CURRENT ASSETS:
Cash and cash equivalents 124,413 120,039
Trade receivables, net 46,921 44,805
Other receivables and prepaid expenses 13,667 15,147
Inventories 53,906 57,432
-------------- ------------

Total current assets 238,907 237,423



Property, plant and equipment, net 14,969 16,505
Severance pay fund 3,120 3,248
Long term receivable and other 2,192 2,263
Intangible assets, net 26,247 25,618
Goodwill 39,607 40,138

Total assets 325,042 325,195


LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Trade payables 20,864 19,460
Other payables and accrued expenses 28,221 29,267
-------------- ------------

Total current liabilities 49,085 48,727

Other long term liabilities 11,514 11,013
Accrued severance pay 4,394 4,535

Total shareholders' equity 260,049 260,920

Total liabilities and shareholders' equity 325,042 325,195


Lipman Electronic Engineering Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
U.S. dollars in thousands (except share and per share data)

Three Months
Ended March 31,
2005 2006
(Unaudited) (Unaudited)
Revenues 54,208 57,632
Cost of revenues 31,312 33,132
----------- -----------

Gross profit 22,896 24,500

Operating expenses:
Research and development 3,425 3,383
Selling and marketing 7,268 8,663
General and administrative 2,265 2,246
Special legal expenses 421 -
Stock-based compensation 1,337 801
Amortization of intangible assets 873 870
----------- -----------

Total operating expenses 15,589 15,963

Operating income 7,307 8,537
Financial income, net 250 802
Other income (expenses) ,net (31) 19
----------- -----------

Income before taxes on income 7,526 9,358
Taxes on income 2,252 2,732
----------- -----------

Net income 5,274 6,626
=========== ===========

Cumulative effect of accounting change
net of taxes - 1,338

Net Income after cumulative effect of
accounting change 5,274 7,964
=========== ===========

Diluted earnings per share 0.19 0.24

Diluted earnings per share after cumulative
effect of accounting change 0.19 0.29

Number of shares for diluted earnings
per share 27,459,411 27,324,610


Lipman Electronic Engineering Ltd.
CONSOLIDATED STATEMENTS OF CASH FLOWS
U.S. dollars in thousands

Three Months Ended
March 31,
2005 2006
(Unaudited) (Unaudited)
Cash flow from operating activities:
Net income for the period 5,274 7,964
Adjustments required to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 1,343 1,640
Stock-based compensation related to options
issued to employees and others 1,337 801
Decrease (increase) in trade receivables and
other receivables (5,130) 918
Increase in inventories (245) (3,391)
Decrease in trade payables & other
liabilities (1,260) (4,019)
Increase in deferred Income 66 2,997
Deferred income taxes, net 344 (790)
Tax benefit related to exercise of options 296 -
Cumulative effect of accounting change, net of
taxes - (1,338)
----------- -----------
Other (80) 42
----------- -----------
Net cash provided by operating activities 1,945 4,824

Cash flow from investing activities:

Purchase of property, plant and equipment (1,128) (2,317)
Proceed from sales of available-for-sale
marketable securities - 428
Other 34 83
----------- -----------
Net cash used in investing activities (1,094) (1,806)

Cash flow from Financing activities:
Exercise of options granted to employees 210 1,366
Tax benefit related to exercise of options - 80
Purchase of treasury stock at cost - (8,680)
Loan received from minority shareholders in a
subsidiary 156 -
----------- -----------
Net cash provided by (used in) financing
activities 366 (7,234)
Effect of exchange rate differences on cash
and cash equivalents (326) (158)
----------- -----------
Increase (decrease) in cash and cash
equivalents 891 (4,374)

Cash and cash equivalents at the beginning of
the period 117,396 124,413

Cash and cash equivalents at the end of the
period 118,287 120,039
----------- -----------



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