ScanSoft Announces Record Fourth-Quarter Operating Profit of $4.6 Million on 35% Revenue Growth

Company Outlines 2002 Growth Agenda for Digital Imaging, Speech and Language Solutions

PEABODY, Mass., February 13, 2002 - ScanSoft, Inc. (Nasdaq: SSFT), a leading supplier of digital imaging, speech and language solutions, today announced financial results for the fourth quarter and full year ended December 31, 2001.

Fourth Quarter Results
ScanSoft reported fourth quarter 2001 revenues of $18.9 million, a 35 percent increase over fourth quarter 2000 revenues of $14.0 million. Income from operations for the fourth quarter of 2001 was $4.6 million, a seven-fold increase over operating income of $0.6 million reported during the same period a year ago. Net income before intangibles was $4.7 million, or $0.08 per diluted share, compared with net income before intangibles of $0.4 million, or $0.01 per share, for the fourth quarter of 2000. Income from operations and net income exclude amortization of acquisition-related intangibles. After including this item, ScanSoft reported a net loss of $2.4 million, or $0.04 per share, in the fourth quarter of 2001 compared with a net loss of $6.2 million, or $0.13 per share, for the fourth quarter of 2000. ScanSoft's operational cash flows for the fourth quarter were $4.4 million.

Full Year 2001 Results
For the full year 2001, ScanSoft reported total revenues of $63.9 million, up 30 percent from revenues of $49.1 million in 2000. Income from operations for the full year ended December 31, 2001 was $10.6 million, compared with a loss of $6.8 million for the same period in 2000. Net income was $10.6 million, or $0.19 per share, versus a net loss of $7.6 million, or $0.18 per share, a year ago. In both cases, income (loss) from operations and net income (loss) exclude amortization of acquisition-related intangibles and, in 2000, the effect of a restructuring charge. After including these items, ScanSoft reported a net loss of $16.9 million, or $0.34 per share, for 2001 compared with a net loss of $53.3 million, or $1.26 per share, for 2000. ScanSoft's operational cash flows for the full year were $10.4 million.

Comments on the Fourth Quarter and Full Year
"ScanSoft had an exceptional finish to the year, reporting record earnings that exceeded our expectations and guidance, despite the challenging economic climate," said Paul Ricci, ScanSoft's chairman and CEO. "The successful launch of several new products in our North American and European channels and the sustained strength of OmniPage Pro 11, which is now shipping in 11 languages, contributed to the growth in our revenues. In addition, we continued to enjoy growing OEM and licensing revenues from our extensive partnerships."

In the digital imaging market, ScanSoft marked the fourth quarter with the release of new versions of PaperPort Deluxe and OmniForm Premium. The Company also launched several cooperative marketing initiatives, including an agreement with Oracle Corporation to develop a version of PaperPort software for Oracle 9iFS. During the fourth quarter, the Company signed new or expanded agreements with Bell and Howell, Brother, Canon, FileNET, Fujitsu, HP, Kyocera Mita and Xerox.

In December, within ScanSoft's newly acquired speech and language solutions business, the Company began early shipments of the newest version of Dragon NaturallySpeaking. It signed license agreements for Dragon products with AT&T, Chevron, the Department of Justice and Kodak. Also, the Company signed new or expanded agreements for its embedded speech technologies with Nortel, Teleco and Vodavi Communications.

"Our success in the fourth quarter reflects our sustained focus on operational efficiencies," said Michael Tivnan, ScanSoft's president and chief operating officer. "Productivity initiatives improved gross margins by four points, year-over-year, to 81 percent. Fourth quarter operating expenses were well below expectations, and yielded operating profit margins significantly above our target of 20 percent. Cash flow was positive throughout the year, reaching $4.4 million in the fourth quarter. We exited the year with cash balances of $14.3 million."

Comments on the L&H Acquisition
ScanSoft completed the acquisition of substantially all of the assets of Lernout & Hauspie's Speech and Language Technology business on December 12, 2001. This transaction adds cutting-edge speech and language technologies to ScanSoft's solutions portfolio, enhances the strength of its distribution channels and commits substantial new resources and employees to the worldwide expansion of its business.

"The integration of L&H operations is proceeding on schedule," added Tivnan. "During the final weeks of the fourth quarter, we were able to identify and hire 225 key employees in research and development, sales and marketing. Nearly all those offered positions accepted, allowing us to maintain continuity in new product development and re-engage L&H customers and partners."

Tivnan continued, "We have made substantial progress integrating operations, logistics, finance and marketing within ScanSoft. During the first quarter we plan to consolidate our European sales operations and R&D facilities to further speed integration and accelerate growth in profitability. While we still have much work to do, we are pleased both with the talent and enthusiasm of our new employees."

Outlook for 2002
"ScanSoft enters 2002 focused on applying its operational strengths to a broader set of market opportunities," said Ricci. "We have increased our investments in the speech and language business to more fully address the rapid market growth we see available. ScanSoft will extend its current market leadership in text-to-speech by releasing a new family of engines and providing the broadest language coverage available. Using the discipline of our product delivery process, we are working with telematic customers in North America, Europe and Asia to launch new voice-enabled applications in automobiles and mobile devices. The strength of Dragon NaturallySpeaking, Version 6, will accelerate our penetration into corporate, healthcare and legal markets. Within digital imaging, we intend to increase market share in Europe, take advantage of the growing demand for network-enabled scanning, and provide offerings for the mobile market."

"We will continue to expand our sales capacity. We begin the year with more than 70 sales personnel, and robust software channels worldwide. We plan to strengthen our base of value-added resellers and system integrators. As with last year, we will work closely with our largest partners, including Alcatel, AOL/Time Warner, Canon, Cisco, HP, Lucent, Microsoft, Oracle and Xerox, to enable the broadest customer reach for our solutions," added Ricci.

"ScanSoft anticipates another year of strong revenue and earnings growth," continued Ricci. "We expect revenues for the full-year to grow to approximately $105 million, an increase of approximately 65 percent. The expanding opportunities in speech and language solutions will fuel much of this growth. In addition, we expect some assistance in the latter half of the year as our largest imaging systems partners begin to see renewed growth after sluggish sales in 2001."

"We expect EPS before amortization to increase 26 percent to $0.24 for the full year. The process of integrating our speech and language business will require the first two quarters to complete, causing our earnings growth to be weighted toward the second half of the year. As noted earlier, we have decided to defer some short-term earnings growth in order to commit further research and development investments toward the growth opportunities in the speech and language market."

In fiscal 2002 the Company is adopting Statement of Financial Accounting Standards No.142 (SFAS No.142) related to goodwill and other intangible assets. We expect that this will result in the elimination of amortization expenses approximating 40 percent of the amortization expense recognized in 2001. The L&H acquisition will result in additional amortization expenses of approximately $1.1 million per quarter. ScanSoft does not anticipate any goodwill impairment charges.

Investor Call
In conjunction with this announcement, the Company will conduct its quarterly conference call at 10:00 a.m. (ET) today, February 13, 2002. To listen to the call, please telephone (719) 457-2623 or (800) 458-9009 approximately 10 minutes beforehand. For those who are not available to listen to the live conference call, a telephone replay will be available starting at approximately 1:00 p.m. (ET) on February 13 until 11:30 p.m. (ET) on Wednesday, February 20, 2002. The access number for the replay is (719) 457-0820 or (888) 203-1112; the confirmation number is 549578.

The conference call will also be broadcast live over the Internet. Investors interested in listening to the call should log onto the Company's Web site at www.nuance.com at least 10 minutes prior to the broadcast. Investors will also have access to an archived version of the call on the Company's Web site.

About ScanSoft, Inc.
ScanSoft, Inc. (Nasdaq: SSFT) is the leading supplier of imaging, speech and language solutions that are used to automate a wide range of manual processes - saving time, increasing worker productivity and improving customer service. For more information regarding ScanSoft products and technologies, please visit www.nuance.com.

Trademark reference: ScanSoft, the ScanSoft logo and Dragon NaturallySpeaking are registered trademarks or trademarks of ScanSoft, Inc. in the United States and other countries. All other company or product names mentioned may be the trademarks of their respective owners.

Safe Harbor Statement: Except for the historical information contained herein, this press release includes forward-looking statements within the meaning of Section 21(e) of the Securities Exchange Act of 1934. These statements include the Company's expectations: 2002 revenue of approximately $105 million, earnings per share, before intangibles, of $0.24, and the perceived benefits of the agreements between the Company and its customers. These statements are based on ScanSoft's current expectations and estimates as to prospective events and circumstances that may or may not be in ScanSoft's control and as to which there can be no firm assurances given. These forward-looking statements are subject to risks and uncertainties and there can be no assurance that any of these forward-looking statements may prove to be correct and actual results may differ materially. These risks and uncertainties include, but are not limited to, economic conditions in the U.S. and abroad, the ability to complete an deliver products and services within currently estimated time frames and budgets, the ability to effectively manage diverse and geographically dispersed operations, difficulties with integrating product plans, schedules and resources, difficulties in implementing planned cost reductions, potential that the information and estimates used to predict the cost savings were not accurate, market acceptance of ScanSoft's products, competitive products, pricing pressures, maintenance of distribution channels, and other risks detailed from time to time in ScanSoft's SEC reports. ScanSoft disclaims any intent or obligation to update these forward-looking statements.