[SCANSOFT LOGO]
Filed by ScanSoft, Inc. Pursuant to Rule 425
Under the Securities Act of 1933
And Deemed Filed Pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: SpeechWorks International, Inc.
Commission File No.: 000-31097
NEWS RELEASE
FROM SCANSOFT, INC.
FOR IMMEDIATE RELEASE
CONTACTS:
RICHARD MACK JONNA SCHUYLER
Director, Corporate Communications Corporate Communications
ScanSoft, Inc. ScanSoft, Inc.
Tel: 978-977-2175 Tel: 978-977-2038
Email: richard.mack@scansoft.com Email: jonna.schuyler@scansoft.com
SCANSOFT POSTS RECORD FIRST QUARTER REVENUE
Strong International Performance and Record Speech Revenue in All Products
Drive 17% Year-Over-Year Growth
PEABODY, MASS., MAY 6, 2002 - ScanSoft, Inc. (Nasdaq: SSFT), a leading supplier
of digital imaging, speech and language solutions, today announced financial
results for the first quarter ended March 31, 2003.
ScanSoft reported first quarter 2003 revenue of $27.8 million, a 17 percent
increase over first quarter 2002 revenue of $23.8 million. Net income before
amortization of acquisition-related intangible assets and restructuring charges
was $3.0 million, or $0.04 per diluted share, compared with $2.7 million, or
$0.04 per diluted share, for the first quarter of 2002. After including
amortization of acquisition-related intangibles and restructuring charges,
ScanSoft reported first-quarter 2003 net income of $0.1 million, or breakeven
per diluted share, compared with a first-quarter 2002 net loss of $2.9 million,
or $0.05 per diluted share.
During the first quarter, the company substantially completed the consolidation
of facilities and personnel following the closing of the Philips Speech
Processing acquisition. As a result, in the first quarter of 2003, ScanSoft
recorded associated restructuring charges totaling approximately $0.5 million.
COMMENTS ON THE FIRST QUARTER
"ScanSoft began 2003 with record first quarter revenue, driven by strong
performance throughout our speech business and continued growth across
international channels, which offset some weakness in our North American capture
business," said Paul Ricci, ScanSoft's chairman and CEO. "In the first quarter
we continued to see the benefits of our performance in on-time product delivery,
our investments in international sales channels and our broadening portfolio of
speech solutions."
During the quarter, ScanSoft experienced robust growth in each of its speech
segments, including dictation, network telephony and embedded solutions. The
company launched new versions of the Dragon NaturallySpeaking product family in
domestic and international channels. The Dragon NaturallySpeaking launch will
continue as the company introduces solutions for medical and legal markets and
international editions for six languages. In addition, ScanSoft continued to
enhance its
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
Page 2 of 9
award-winning RealSpeak product offerings and speech recognition engines with
additional language and platform support. During the quarter, the company signed
a host of agreements for its telephony-based speech solutions, particularly in
international markets, with partners and customers including Belgacom, KPN,
InterTel and NTT DoCoMo.
In addition, the company signed a series of agreements with IBM that extend the
companies' speech technology and applications across enterprise, desktop and
multimodal environments. The agreements encompass dictation, text-to-speech and
telephony applications through which IBM will assist ScanSoft in porting its
telephony-based applications to the IBM WebSphere Platform; IBM has expanded its
license agreement for ScanSoft RealSpeak TTS to include 20 languages; and IBM
has awarded ScanSoft global distribution rights for IBM ViaVoice desktop
dictation products.
Within imaging, ScanSoft launched new versions of its award-winning digital
paper management product, PaperPort, adding PDF creation and other valuable
document automation features. With the new release, ScanSoft now offers two
versions - an Office edition designed to optimize the capabilities of networked
MFP devices and address growing demand for distributed paper management
solutions; and a Deluxe edition designed specifically for small office users and
consumers. Even though the company launched PaperPort near the end of the
quarter, ScanSoft achieved a record quarter for PaperPort and completed its most
successful upgrade program ever. Also in the first quarter, the company signed
new or expanded license agreements with companies such as Freedom Scientific,
Kyocera Mita, Lexmark and Xerox and expanded relationships with a number of
federal agencies, including several defense organizations.
International sales accounted for approximately 33 percent of total company
revenue for the first quarter 2003. ScanSoft ended the quarter with cash
balances of $20.3 million.
COMMENTS ON THE PHILIPS SPEECH PROCESSING ACQUISITION
On January 30, 2003, ScanSoft closed the acquisition of the Speech Processing
Telephony and Voice Control business units and related intellectual property
from Royal Philips Electronics (NYSE: PHG, AEX: PHI). With the acquisition of
the Philips business units complete, ScanSoft will leverage this technology into
broader penetration and increased market share in the high-growth automotive,
embedded and telephony markets.
COMMENTS ON THE SPEECHWORKS ACQUISITION
Subsequent to the close of the first quarter, on April 24, 2003, ScanSoft and
SpeechWorks International (NASDAQ: SPWX) announced a definitive agreement for
ScanSoft to purchase all of the outstanding common stock of SpeechWorks. The
combination of ScanSoft and SpeechWorks will result in a global organization
with the broadest portfolio of speech technologies, applications and services in
the industry. The transaction has been approved unanimously by both Boards of
Directors and is expected to close by August 1, 2003, pending regulatory and
shareholder approvals.
BUSINESS OUTLOOK
"ScanSoft's early success in 2003 is largely the result of our continued
emphasis on product delivery and international expansion," added Ricci.
"Notwithstanding the ongoing weakness in general IT and corporate spending, the
strength of our speech business and growth in international markets gives us
confidence to affirm our 2003 guidance."
In 2003, the company expects revenue in the range of $135 million to $140
million in revenue. Earnings per diluted share, before acquisition-related
amortization and restructuring charges, are expected to be in the range of $0.33
to $0.35. After acquisition-related amortization and restructuring charges, the
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
Page 3 of 9
company expects 2003 earnings per diluted share to be in the range of $0.20 to
$0.22. The company will provide additional estimates associated with the
SpeechWorks agreement upon closing the transaction.
INVESTOR CALL
In conjunction with this announcement, the company will conduct its quarterly
conference call at 8:30 a.m. (ET) today, May 6, 2003. ScanSoft's first-quarter
conference call also can be heard live by dialing (719) 457-2617 or (800)
231-9012 five minutes prior to the call. A replay of the call will be available
beginning at 2:00 p.m. ET on Tuesday, May 6, 2003, through 11:30 p.m. ET on
Monday, May 12, 2003. To access the replay, dial (888) 203-1112 or (719)
457-0820 and refer to confirmation code 649137.
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, RealSpeak, and PaperPort 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.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
In connection with ScanSoft's proposed acquisition of SpeechWorks, ScanSoft
intends to file a registration statement on Form S-4. Further, ScanSoft and
SpeechWorks intend to file with the SEC and mail to their respective
stockholders a joint proxy statement/prospectus in connection with the
transaction. Investors and security holders are urged to read the joint proxy
statement/prospectus when it becomes available because it will contain important
information about ScanSoft, SpeechWorks and the transaction. Investors and
security holders may obtain a free copy of the joint proxy statement/prospectus
(when it is available) at the Securities and Exchange Commission's web site at
www.sec.gov. A free copy of the joint proxy statement/prospectus may also be
obtained by contacting ScanSoft or SpeechWorks
ScanSoft and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders of ScanSoft
and SpeechWorks 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 2003 Annual Meeting of Stockholders, which was filed with the Securities
and Exchange Commission on or about April 30, 2003. This document is available
free of charge at the Securities and Exchange Commission's web site at
www.sec.gov and from ScanSoft.
SpeechWorks and its directors and executive officers also may be deemed to be
participants in the solicitation of proxies from the stockholders of ScanSoft
and SpeechWorks 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 SpeechWorks' proxy
statement for its 2003 Annual Meeting of Stockholders, which was filed with the
Securities and Exchange Commission on or about April 25, 2003. This document is
available free of charge at the Securities and Exchange Commission's web site at
www.sec.gov and from SpeechWorks.
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
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SAFE HARBOR STATEMENT
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 future
revenues, earnings and earnings per share; existing products and services as
well as the introduction of new products and services; the future performance of
the speech and language business and the digital imaging business; the ability
of ScanSoft to realize the anticipated benefits from the acquisition of the
Philips Speech Processing Voice Control and Telephony business units; the
ability of ScanSoft to close the acquisition of the SpeechWorks International
and to realize the anticipated benefits from the acquisition; 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; economic
conditions in the United States and abroad; ScanSoft's ability to control and
successfully manage its expenses, inventory and cash position; fluctuations in
demand for ScanSoft's existing and future products; the effects of competition,
including pricing pressure; possible defects in products and technologies;
ScanSoft's dependence on OEM customers; and difficulties obtaining the approvals
necessary to complete the proposed merger with SpeechWorks. 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 for the fiscal year ended December 31,
2002, its most recent quarterly reports on Form 10-Q, and its 424(b)(1)
Prospectus, filed on February 11, 2003. ScanSoft undertakes no obligation to
update forward-looking statements to reflect events or circumstances occurring
after the date of this document.
ScanSoft's consolidated statements of operations and condensed balance sheet
follow.
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
Page 5 of 9
ScanSoft, Inc.
Supplemental Condensed Consolidated Statements of Operations
Excluding amortization of intangible assets and restructuring charges
(in 000's, except per share amounts)
Unaudited
Three months ended
March 31,
--------------------
2003 2002
-------- --------
Revenue $ 27,836 $ 23,765
Costs and expenses:
Cost of revenue 4,302 4,129
Research and development 7,177 6,986
Selling, general and administrative 13,261 9,711
-------- --------
Total costs and expenses 24,740 20,826
Income from operations 3,096 2,939
Other income (expense), net 22 (75)
-------- --------
Income before income taxes 3,118 2,864
Provision for income taxes 95 206
-------- --------
Net income $ 3,023 $ 2,658
======== ========
Net income per share: basic $ 0.04 $ 0.04
======== ========
Net income per share: diluted $ 0.04 $ 0.04
======== ========
Weighted average common shares: basic 67,689 65,866
======== ========
Weighted average common and
common equivalent shares: diluted 77,220 72,661
======== ========
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
Page 6 of 9
ScanSoft, Inc.
Condensed Consolidated Statements of Operations
Including amortization of intangible assets and restructuring charges
(in 000's, except per share amounts)
Unaudited
Three months ended
March 31,
---------------------
2003 2002
-------- --------
Revenue $ 27,836 $ 23,765
Costs and expenses:
Cost of revenue 4,302 4,129
Cost of revenue from amortization of intangible assets 2,057 3,542
Research and development 7,177 6,986
Selling, general and administrative 13,261 9,711
Restructuring and other charges 529 1,041
Amortization of intangible assets 361 957
-------- --------
Total costs and expenses 27,687 26,366
Income (loss) from operations 149 (2,601)
Other income (expense), net 22 (75)
-------- --------
Income (loss) before income taxes 171 (2,676)
Provision for income taxes 95 206
-------- --------
Net income (loss) $ 76 $ (2,882)
======== ========
Net income (loss) per share: basic $ 0.00 $ (0.05)
======== ========
Net income (loss) per share: diluted $ 0.00 $ (0.05)
======== ========
Weighted average common shares: basic 67,689 62,304
======== ========
Weighted average common shares: diluted 77,220 62,304
======== ========
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
Page 7 of 9
ScanSoft, Inc.
Condensed Consolidated Balance Sheet
(Unaudited, in thousands)
Assets March 31, 2003 December 31, 2002
Current assets:
Cash and cash equivalents $ 20,277 $ 18,853
Accounts receivable, net 19,482 15,650
Receivable from related party 1,231 1,518
Prepaid expenses and other current assets 5,486 4,408
-------- --------
Total current assets 46,476 40,429
Goodwill, net 97,117 63,059
Other intangible assets, net 49,569 33,823
Property and equipment, net 3,387 2,846
Other assets 1,207 3,533
-------- --------
Total assets $197,756 $143,690
======== ========
Liabilities and stockholders' equity
Current liabilities:
Short term note payable $ 5,468 $ 3,273
Accounts payable and accrued expenses 20,770 16,858
Deferred revenue 2,782 1,790
Other current liabilities 9,057 1,666
-------- --------
Total current liabilities 38,077 23,587
-------- --------
Long term portion of deferred revenue 209 244
Long term note payable 27,524 --
Other long term liabilities 6,321 481
-------- --------
Total liabilities 72,131 24,312
Stockholders' equity: 125,625 119,378
-------- --------
Total liabilities and stockholders' equity $197,756 $143,690
======== ========
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
Page 8 of 9
ScanSoft, Inc.
Reconciliation of Supplemental Financial Information
(in 000's, except per share amounts)
Unaudited
Three months ended
March 31,
----------------------
2003 2002
-------- --------
NON-GAAP FINANCIAL MEASURES:
GAAP GROSS MARGIN 77% 68%
Cost of revenue from amortization of intangible assets 8% 15%
-------- --------
Non-GAAP gross margin 85% 83%
======== ========
GAAP NET INCOME (LOSS) $ 76 $ (2,882)
Cost of revenue from amortization of intangible assets 2,057 3,542
Amortization of intangible assets 361 957
Restructuring and other charges 529 1,041
-------- --------
Net income excluding acquisition related amortization
and restructuring charges $ 3,023 $ 2,658
======== ========
Net income per share, excluding acquisition related
amortization and restructuring charges: basic $ 0.04 $ 0.04
======== ========
Net income per share, excluding acquisition related
amortization and restructuring charges: diluted $ 0.04 $ 0.04
======== ========
Shares used in computing net income per share, excluding
acquisition related amortization and restructuring charges:
Weighted average common shares: basic 67,689 65,866
======== ========
Weighted average common and
common equivalent shares: diluted 77,220 72,661
======== ========
Low High
GAAP ANNUAL EPS GUIDANCE $ 0.20 $ 0.22
Impact of amortization of intangible assets and
restructuring charges $ 0.13 $ 0.13
----------------------
NON-GAAP Annual EPS Guidance $ 0.33 $ 0.35
======================
ScanSoft Posts Record First Quarter Revenue
May 6, 2003
Page 9 of 9
This press release and the reconciliation contained herein, disclose certain
financial measures that exclude acquisition-related amortization and
restructuring charges that may be considered non-GAAP financial measures.
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 measures present a more representative measure of
ScanSoft's operating performance because they exclude the impact of
acquisition-related amortization and restructuring charges. 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 our
press release have been reconciled to the nearest GAAP measure.