8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported)

May 9, 2005

SCANSOFT, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	000-27038	94-3156479
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

9 Centennial Drive
Peabody, Massachusetts 01960
(Address of Principal Executive Offices, including Zip Code)

(978) 977-2000
(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-99.1 Press Release dated May 9, 2005

Item 2.02. Results of Operations and Financial Condition.

     On May 9, 2005, ScanSoft, Inc. announced its financial results for the fiscal quarter ended March 31, 2005. The press release and the reconciliation contained therein, which have been attached as Exhibit 99.1 and incorporated herein, disclose certain financial measures that may be considered non-GAAP financial measures because they exclude the amortization of intangible assets, non-cash stock-based compensation and restructuring charges. Generally, a non-GAAP financial measure is a numerical measure of a company’s performance, financial position or cash flows that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles in the United States. These non-GAAP financial measures are provided to enhance the user’s overall understanding of ScanSoft’s current financial performance and ScanSoft’s prospects for the future. Management believes that these non-GAAP financial measures present a useful measure of ScanSoft’s operating performance because they exclude identified non-cash and restructuring charges. Management uses these measures for evaluating historical performance and for forecasting and planning for future periods. These measures, however, should be considered in addition to, and not as a substitute for, or superior to, other measures of financial performance prepared in accordance with generally accepted accounting principles. The non-GAAP measures included in ScanSoft’s press release have been reconciled to the nearest GAAP measure.

     The information in this Form 8-K and the Exhibit attached hereto is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, regardless of any general incorporation language in such filing.

Item 9.01. Financial Statements and Exhibits.

(c) Exhibits

99.1  Press Release dated May 9, 2005 by ScanSoft, Inc.

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	ScanSoft, Inc.
By:	/s/ James R. Arnold, Jr.
	James R. Arnold, Jr.
	Senior Vice President and Chief Financial Officer

Date: May 9, 2005

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated May 9, 2005 by ScanSoft, Inc.

EX-99.1

Exhibit 99.1

News Release
From ScanSoft, Inc.

Contacts:
Richard Mack	Jonna Schuyler
ScanSoft, Inc.	ScanSoft, Inc.
Tel: 978-977-2175	Tel: 617-428-4444
Email: richard.mack@scansoft.com	Email: jonna.schuyler@scansoft.com

ScanSoft Announces Second Quarter Results for Fiscal Year 2005

Strong Performance Across Speech Drives Revenue Growth of 24% Year Over Year; Improved
Operating Efficiency Generates Earnings above Expectations

PEABODY, Mass., May 9, 2005 – ScanSoft, Inc. (Nasdaq: SSFT), a global leader of speech and imaging solutions, today announced financial results for the second fiscal quarter of 2005 ended March 31, 2005. ScanSoft reported revenue of $53.1 million for the quarter ended March 31, 2005, a 24 percent increase over revenue of $42.8 million for the quarter ended March 31, 2004.

On a GAAP basis, ScanSoft recognized a net loss of $1.0 million, or $0.01 per share, in the second quarter of fiscal 2005, compared with a net loss of $2.8 million, or $0.03 per share, in the quarter ended March 31, 2004.

In addition to using GAAP results in evaluating ScanSoft’s business, management also believes it is useful to measure results using a non-GAAP measure of net income (loss), which excludes, as applicable, non-cash taxes, non-cash interest expense, amortization of intangible assets, non-cash stock-based compensation and restructuring charges. See “GAAP to non-GAAP Reconciliation” below for further information on ScanSoft’s non-GAAP measure.

Using this non-GAAP measure, ScanSoft recognized non-GAAP net income for the second quarter of fiscal 2005 of $3.5 million, or $0.03 per diluted share, compared with non-GAAP net income of $1.9 million, or $0.02 per diluted share, for the quarter ended March 31, 2004.

“Our second quarter performance was driven by strong revenues within dictation and network speech,” said Paul Ricci, ScanSoft chairman and CEO. “In addition, our sustained focus on expense control and productivity throughout the business yielded improved operating margins. These results are further indication of the growth, success and benefits afforded by our diverse product families and ongoing technology investments.”

Highlights from ScanSoft’s second quarter of fiscal 2005 include:

•   Achievement in Speech – ScanSoft is delivering on its strategy to enable natural, human conversations as a preferred way that people retrieve information and interact with automated systems. Throughout the quarter, leading organizations across the globe turned to ScanSoft and its portfolio of speech technologies, applications and services to manage and improve customer interactions.

•   Continued Adoption within Network Speech – The company signed new or expanded agreements with partners and customers such as Cigna, United and XM Radio. Revenue was particularly strong within ScanSoft’s international operations, with new or expanded agreements with customers and partners including Caisse d’Epargne, Volkswagen, Vodafone Australia and Xerox.

•   Demand for Dictation Solutions – ScanSoft sustained momentum from the launch of Dragon NaturallySpeaking 8, as awareness of its high level of accuracy and expanded capabilities grew among customers and partners. The healthcare market continued to be a significant source of increased demand, especially within medical institutions, such as St. John’s Heath System, and medical transcription organizations such as Cymed.

•   Expanded Opportunity for Business PDF– Throughout the quarter, ScanSoft benefited from sales of its PDF products, as a host of organizations selected ScanSoft PDF solutions for their business needs. During the quarter, the company signed new or expanded volume licensing agreements with large organizations and institutions including Paris Metro and Skadden, Arps.

•   Enhanced Operational Capabilities– The company improved operating margins through continued focus on budgetary discipline and cost synergies from acquisitions.

For the quarter ended March 31, 2005, ScanSoft generated $9.9 million in cash flow from operations and exited the quarter with cash and marketable securities of approximately $29.7 million.

In a separate announcement, ScanSoft and Nuance Communications, Inc. (Nasdaq: NUAN) today announced a definitive agreement whereby ScanSoft will acquire all of the outstanding common stock of Nuance, merging the two organizations into a single company with the expertise and resources required to satisfy the increasing demand for powerful speech solutions. See today’s press release titled, ScanSoft and Nuance to Merge, Creating Comprehensive Portfolio of Enterprise Speech Solutions and Expertise.

Investor Call
In conjunction with this announcement, the Company will broadcast its quarterly conference call over the Internet this afternoon at 5:00 p.m. ET.

Those who wish to listen to the live broadcast should visit the Investor Relations section of the Company’s Web site at www.scansoft.com at least 15 minutes prior to the event and follow the instructions provided to ensure that the necessary audio applications are downloaded and installed.

The conference call can be heard live by dialing (800) 230-1766 or (612) 332-0637, five minutes prior to the call and reference conference code 780664. A replay of the call will be available within 24 hours of the announcement. To access the replay, dial (800) 475-6701 or (320) 365-3844 and refer to access code 780664.

About ScanSoft, Inc.
ScanSoft, Inc. (Nasdaq: SSFT) is a global leader of speech and imaging 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 and the ScanSoft logo 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.

This press release contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements relating to the future demand for, performance of, and opportunities for growth in ScanSoft’s speech solutions and productivity applications; the growth of the speech industry and the demand for speech solutions; future revenue contributions from relationships with ScanSoft’s partners; the continued strength of existing products, services and relationships as well as the introduction of new products, services and relationships; ScanSoft’s strategic and operational plan; the ability to consummate the Nuance merger; and future prospects regarding product lines, sales channels and international operations. Such statements are based on current expectations that are subject to a number of risks and uncertainties, and actual results may differ materially. These risks and uncertainties include, without limitation, the following: difficulties with integrating product plans and operations of acquired businesses and the accounting effects of such acquisitions on ScanSoft’s operating and financial results; fluctuations in demand for ScanSoft’s existing and future products; economic conditions in the United States and abroad; ScanSoft’s ability to control and successfully manage its expenses, inventory and cash position; the effects of competition, including pricing pressure; possible defects in ScanSoft’s products and technologies; failure to obtain and retain expected synergies from acquired businesses; and ScanSoft’s dependence on OEM customers. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in ScanSoft’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K/T for the fiscal year ended September 30, 2004, and its most recent quarterly reports on Form 10-Q. ScanSoft undertakes no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this document.

IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC

ScanSoft plans to file with the SEC a Registration Statement on Form S-4 in connection with the transaction and ScanSoft and Nuance plan to file with the SEC and mail to their respective stockholders a Joint Proxy Statement/Prospectus in connection with the transaction. The Registration Statement and the Joint Proxy Statement/Prospectus will contain important information about ScanSoft, Nuance, the transaction and related matters. Investors and security holders are urged to read the Registration Statement and the Joint Proxy Statement/Prospectus carefully when they are available. Investors and security holders will be able to obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus and other documents filed with the SEC by ScanSoft and Nuance through the web site maintained by the SEC at www.sec.gov. In addition, investors and security holders will be able to obtain free copies of the Registration Statement and the Joint Proxy Statement/Prospectus from ScanSoft by contacting ScanSoft Investor Relations at (978) 977-2000 or from Nuance by contacting Nuance Investor Relations at (650) 847-0000.

ScanSoft and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the stockholders of ScanSoft and Nuance in connection with the transaction described herein. Information regarding the special interests of these directors and executive officers in the transaction described herein will be included in the Joint Proxy Statement/Prospectus described above. Additional information regarding these directors and executive officers is also included in ScanSoft’s proxy statement for its 2005 Annual Meeting of Stockholders, which was filed with the SEC on January 28, 2005. This document is available free of charge at the SEC’s web site at www.sec.gov and from ScanSoft by contacting ScanSoft Investor Relations at (978) 977-2000.

Nuance and its directors and executive officers also may be deemed to be participants in the solicitation of proxies from the stockholders of ScanSoft and Nuance in connection with the transaction described herein. Information regarding the special interests of these directors and executive officers in the transaction described herein will be included in the Joint Proxy Statement/Prospectus described above. Additional information regarding these directors and executive officers is also included in Nuance’s proxy statement for its 2005 Annual Meeting of Stockholders, which was filed with the SEC on May 2, 2005. This document is available free of charge at the SEC’s web site at www.sec.gov and from Nuance by contacting Nuance Investor Relations at (650) 847-0000.

ScanSoft, Inc.
Condensed Consolidated Statements of Operations
(in 000’s, except per share amounts)
Unaudited

	Three months ended						Six months ended
	March 31,						March 31,
	2005			2004			2005			2004
Product licenses	$	37,929		$	30,856		$	84,763		$	67,320
Professional services		15,184			10,008			28,928			18,010
Related parties		—			1,912			—			4,316
Total revenue		53,113			42,776			113,691			89,646
Costs and expenses:
Cost of product licenses		4,467			3,476			9,983			8,045
Cost of professional services		9,678			6,726			19,270			12,637
Cost of revenue from amortization of intangible assets		2,683			2,816			5,508			5,851
Total costs of revenue		16,828			13,018			34,761			26,533
Gross Margin		36,285			29,758			78,930			63,113
Research and development		10,126			9,218			19,236			18,087
Selling and marketing		19,575			16,867			38,126			34,351
General and administrative		6,392			4,848			13,259			9,625
Amortization of other intangible assets		979			668			1,648			1,519
Stock based compensation		656			319			1,354			494
Restructuring and other charges		—			801			659			1,428
Total operating expenses		37,728			32,721			74,282			65,504
Income (loss) from operations		(1,443	)		(2,963	)		4,648			(2,391	)
Other income (expense), net		324			449			(566	)		465
Income (loss) before income taxes		(1,119	)		(2,514	)		4,082			(1,926	)
Provision (benefit) for income taxes		(117	)		299			1,943			(443	)
Net income (loss)	$	(1,002	)	$	(2,813	)	$	2,139		$	(1,483	)
Net Income (loss) per share: basic	$	(0.01	)	$	(0.03	)	$	0.02		$	(0.01	)
Net income (loss) per share: diluted	$	(0.01	)	$	(0.03	)	$	0.02		$	(0.01	)
Weighted average common shares: basic		105,563			102,847			105,264			101,213
Weighted average common shares: diluted		105,563			102,847			112,812			101,213

ScanSoft, Inc.
Condensed Consolidated Balance Sheet
(Unaudited, in thousands)

Assets	March 31, 2005		September 30, 2004
Current assets:
Cash and cash equivalents	$	25,882	$	22,963
Marketable Securities		2,691		7,373
Accounts receivable, net		45,540		36,523
Prepaid expenses and other current assets		6,667		6,629
Total current assets		80,780		73,488
Goodwill, net		300,818		246,424
Long term marketable securities		1,167		17,355
Other intangible assets, net		54,390		43,898
Property and equipment, net		9,944		7,985
Other assets		5,591		3,503
Total assets	$	452,690	$	392,653
Liabilities and stockholders’ equity
Current liabilities:
Short term note payable	$	27,895	$	457
Accounts payable and accrued expenses		40,817		28,135
Deferred revenue		16,418		10,529
Other current liabilities		24,919		6,427
Total current liabilities		110,049		45,548
Long term portion of deferred revenue		110		147
Long term note payable		45		27,700
Other long term liabilities		33,477		17,513
Total liabilities		143,681		90,908
Stockholders’ equity:		309,009		301,745
Total liabilities and stockholders’ equity	$	452,690	$	392,653

ScanSoft, Inc.
Reconciliation of Supplemental Financial Information
(in 000’s, except per share amounts)
Unaudited

	Three months ended						Six months ended
	March 31,						March 31,
	2005			2004			2005		2004
GAAP net income (loss)	$	(1,002	)	$	(2,813	)	$	2,139	$	(1,483	)
Cost of revenue from amortization of intangible assets		2,683			2,816			5,508		5,851
Amortization of other intangible assets		979			668			1,648		1,519
Restructuring and other charges		—			801			659		1,428
Stock based compensation		656			319			1,354		494
Non-cash interest expense		286			89			352		67
Non-cash taxes		(68	)		42			1,024		362
Non-GAAP net income (loss)	$	3,534		$	1,922		$	12,684	$	8,238
Non-GAAP net income (loss) basic:	$	0.03		$	0.02		$	0.12	$	0.08
Non-GAAP net income (loss) diluted:	$	0.03		$	0.02		$	0.11	$	0.07
Shares used in computing non-gaap net income (loss) per share:
Weighted average common shares: basic		105,563			102,847			105,264		101,213
Weighted average common and common equivalent shares: diluted		113,279			113,421			112,812		112,167