PEABODY, Mass., July 30, 2002 - ScanSoft, Inc. (Nasdaq: SSFT), a leading supplier of digital imaging, speech and language solutions, today announced financial results for the second quarter ended June 30, 2002.

ScanSoft reported second quarter 2002 revenues of $26.2 million, a 76 percent increase over second quarter 2001 revenues of $14.9 million. Income from operations before acquisition-related intangibles for the second quarter of 2002 was $3.6 million, a $0.9 million increase from $2.7 million reported for the second quarter of 2001. Net income before acquisition-related intangibles was $4.2 million, or $0.05 per diluted share, compared to $2.4 million, or $0.05 per diluted share, in the second quarter of 2001. After including acquisition-related intangibles, ScanSoft reported net income of $1.9 million, or $0.03 per diluted share, in the second quarter of 2002, compared with a net loss of $4.4 million, or $0.09 per share, for the second quarter of 2001.

For the first six months of 2002, ScanSoft reported total revenues of $49.9 million, up 83 percent from revenues of $27.4 million in the first half of 2001. Income from operations before acquisition-related intangibles was $6.5 million, compared with $2.8 million in 2001. Net income before acquisition-related intangibles and restructuring charges was $6.8 million, or $0.09 per diluted share, versus $2.4 million, or $0.05 per diluted share, for the six months ended June 30, 2001. After including acquisition-related intangibles and restructuring charges, ScanSoft reported a net loss of $0.9 million, or $0.01 per share, in the first six months of 2002 compared with a net loss of $11.3 million, or $0.24 per share, for the first six months of 2001.

Comments on the Second Quarter

"ScanSoft's fifth consecutive quarter of strong revenue growth results from a sustained focus on broadening our product lines, deepening our sales channels and expanding our international presence," said Paul Ricci, chairman and CEO of ScanSoft. "Despite today's challenging environment, ScanSoft continued to strengthen its competitive position through outstanding performance from its North American channels and market share gains for RealSpeak and Dragon NaturallySpeaking products."

During the second quarter, ScanSoft enjoyed robust revenues for its speech and language solutions in both North American and international markets. The company launched new versions of the Dragon NaturallySpeaking product line into domestic and international channels, building on the continued success of a broad reseller community. In addition, on the strength of RealSpeak 3.0, ScanSoft secured more than 100 new, expanded or pre-commercial agreements to further extend its leading share of the global text-to-speech (TTS) market. The company signed agreements with leading systems providers including Cisco, Comverse, Edify, ESNA, Glenayre, and Syntellect, and was featured in high-profile applications for the FIFA World Cup and Le Mans car race.

In imaging, ScanSoft signed new or expanded distribution agreements with Corel, Freedom Scientific, Fuji Xerox, Panasonic and Xerox, capitalizing on continued demand for digital paper and networked scanning solutions. The company expanded its presence in corporate environments through agreements with CopyMax, Proctor & Gamble and several federal government agencies. In addition, late in the quarter, ScanSoft introduced its new Capture Development System that brings new OCR and PDF conversion capabilities to OEM partners and application developers.

The company's international revenue increased to 34 percent of total revenue, owing to the strength of ScanSoft's RealSpeak TTS solutions, the introduction of Dragon NaturallySpeaking XP in Europe and significant contributions from the Asia Pacific region. During the second quarter, ScanSoft recorded a non-recurring tax benefit, which was largely offset by legal expenses associated with speech and language acquisition-related activities. ScanSoft ended the quarter with cash balances of $18.3 million.

Business Outlook

"By all measures, the benefits of the speech and language business have exceeded our expectations. The number of customer contracts and strength of our revenues attest to the market's acceptance of our leading speech technologies. The sustained flow of new product releases from our speech business confirms the success of our integration efforts," added Ricci. "Though we are in the midst of a challenging business environment, the continued strong performance of our speech and language business and forthcoming product releases in our digital imaging business give us the confidence to affirm our full-year guidance of $110 million in revenue and pro forma earnings per share of $0.26."

Effect of Accounting Change

As disclosed in its most recent Form 10-K and Form 10-Q filings, ScanSoft has been in discussions with the SEC staff to determine the required historical financial statements of L&H to be filed for ScanSoft's acquisition of the L&H Speech and Language operations. Following these discussions, the company has concluded, that for purposes of Rule 3-05 of Regulation S-X, the L&H transaction was an acquisition of a business and not an acquisition of assets. Accordingly, the company will file audited, pre-acquisition financial statements for L&H Speech and Language operations.

In connection with these discussions, and also as disclosed in its most recent Form 10-K and Form 10-Q filings, the company, with concurrence from its independent auditors, has also concluded that the appropriate accounting for the transaction is an acquisition of a business. The result of this accounting change will be an increase in goodwill of approximately $23 million coupled with a similar decrease in intangible assets. The P&L impact will be a quarterly increase of $0.6 million in net income after amortization of intangible assets. The Company's financial results reported today reflect these changes.

Investor Call

In conjunction with this announcement, the company will conduct its quarterly conference call at 10:00 a.m. (ET) today, July 30, 2002. To listen to the call, please telephone (888) 855-5428 or (719) 457-2665 five minutes prior to the call. A replay of the call will be available from 1:00 p.m. ET on Tuesday, July 30 through 11:30 p.m. ET Monday, August 5. To access the replay, dial (888) 203-1112 or (719) 457-0820 and refer to confirmation code 785336.

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.scansoft.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.scansoft.com.

Trademark reference: ScanSoft, the ScanSoft logo, Dragon NaturallySpeaking, OmniPage Pro, Productivity Without Boundaries, RealSpeak, AudioMining and PaperPort Deluxe 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 those regarding the future performance of the speech and language business; the outlook for the digital imaging business; future revenue and earnings per share; and future prospects regarding product lines, sales channels and international operations. These statements are based on ScanSoft's current expectations; 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 United States and abroad, the ability to complete and 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, 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.

ScanSoft's consolidated statements of operations and balance sheet highlights follow.

ScanSoft, Inc.
Supplemental Condensed Consolidated Statements of Operations
Excluding amortization of intangible assets and restructuring charges
(in 000's, except per share amounts)
Unaudited

ScanSoft, Inc.
Condensed Consolidated Statements of Operations
Including amortization of intangible assets and restructuring charges
(in 000's, except per share amounts)
Unaudited

ScanSoft, Inc.
Balance Sheet Highlights

Contact Information

ScanSoft's Second Quarter Revenue Increases 76 Percent to $26.2 Million

Results Exceed Consensus Estimates on Strength of Speech Solutions; Company Affirms Full-Year Guidance