Nuance to Acquire Dictaphone, Accelerating Strategy to Eliminate Manual Transcription in Healthcare; Acquisition Greatly Expands Nuance Speech Solutions and Channels for Healthcare

The acquisition of Dictaphone expands Nuance's product portfolio,market reach and revenue streams within the large and rapidly growinghealthcare vertical. One of the most respected technology solutionsvendors in the healthcare industry, Dictaphone has an installed baseof dictation and transcription software systems serving over 4,000hospital and outpatient facilities and approximately 400,000physicians.

"Improvements in speech technology and pressures on the healthcareindustry create a compelling opportunity for our companies totransform manual transcription through speech-enabled solutions," saidPaul Ricci, chairman and CEO at Nuance. "The combined resources,experience and talents of Nuance and Dictaphone will help acceleratethe adoption of speech recognition to eliminate most manualtranscription for healthcare in North America this decade, deliveringover $5 billion in savings to care facilities and transcriptionservice organizations."

Nuance expects the acquisition to add between $80 million and $85million in revenue in fiscal year 2006 and between $180 million and$200 million in fiscal year 2007. The transaction is expected togenerate cost synergies between $20 million and $25 million per year.The acquisition is expected to be dilutive to earnings on a GAAP basisby approximately $(0.12) to $(0.11) cents per share in fiscal year2006 and $(0.05) to $(0.02) cents per share in fiscal year 2007. On anon-GAAP basis, the acquisition is expected to be accretive toearnings, excluding amortization, acquisition-related costs andstock-based compensation, by approximately $0.02 to $0.03 cents pershare in fiscal year 2006 and $0.06 to $0.09 cents per share in fiscalyear 2007.

Under the terms of the agreement, consideration for thetransaction is $357 million in cash, subject to adjustments. Nuancehas obtained a commitment for a new senior secured credit facilityfrom UBS Investment Bank, Credit Suisse, Citigroup and Bank of Americato finance the transaction. The facility comprises a $355 million termloan and a $75 million revolving credit facility. Closing of thiscommitment is subject to customary conditions.

"We are pleased that the strong cash flows we expect to generatefrom the synergies of the recent Nuance merger, as well as those fromDictaphone, allowed us to obtain an attractive financing packagewithout issuing additional equity," added Mr. Ricci.

The acquisition has been approved by both companies' Boards ofDirectors and is expected to close by March 31, 2006 subject toregulatory approvals and customary conditions. Nuance and Dictaphonewere represented by Evercore Partners and UBS Investment Bank,respectively.

Dictaphone Brings Extensive Products, Penetration and Expertisefor Healthcare

Through the companies' strong partnerships with leading electronicmedical records (EMR) vendors, systems integrators, medicaltranscription service organizations (MTSOs) and Nuance's establishednetwork of Dragon Dictation Solutions VARs, the combined organizationwill be better positioned to effectively serve this market through anexpansive portfolio of technologies and applications, and a deep setof services and capabilities.

"We share with Nuance the strong belief that speech recognition isnot only at an inflection point in healthcare, it is also becoming anessential component of the industry's drive toward cost reduction andclinical automation," said Rob Schwager, chairman and CEO ofDictaphone. "By combining Dictaphone's software application skills,understanding of physician documentation needs and workflows, andsubstantial market presence with Nuance's deep expertise andinnovation in speech recognition technologies, the combined company isextremely well-positioned to lead the market."

Benefits of the transaction include:

-- Enhanced Revenue Streams from Complementary Product Lines - Dictaphone adds significant and stable recurring revenue streams from many of its products and services, including ichart(R) Web-based speech recognition editing outsourcing service, PowerScribe(R) speech recognition system for radiology and pathology, EXSpeech(R) enterprise-level speech recognition platform, and Enterprise Express(R) voice/text workflow management solution. Further, Dictaphone's product portfolio complements Nuance's Dragon Dictation Solutions, with a complete solution set for automating the capture and processing of patient data and clinical documentation.

-- Talented and Accomplished Employees - Dictaphone brings a dedicated, talented team of professionals whose healthcare knowledge and expertise has established Dictaphone as the premier provider of dictation and transcription solutions. Part of this employee base includes more than 200 sales and professional services staff that have forged customer relationships with a majority of care facilities in North America. The result is a robust, experienced sales, support and services organization focused on delivering highly accurate speech-enabled solutions to the healthcare industry.

-- Strong Customer Relationships - Dictaphone has a track record of selling systems to a wide range of healthcare institutions and has an installed base of approximately 4,000 hospitals, clinics and physician groups, including virtually all of the Top 100 and honors-winning hospitals in the U.S. In addition, Dictaphone's solutions are currently used by approximately two out of every three physicians in North America. Following the acquisition, Nuance will have one of the industry's most extensive rosters of IT system deployments.

-- Extensive Healthcare Research and Development Resources - Dictaphone has a rich history with more than 75 years of experience and a team of engineers and scientists with years of domain expertise in developing the most innovative and effective speech solutions for healthcare. Following the transaction, Nuance will gain approximately 100 patents and patents pending from Dictaphone, expanding its portfolio of intellectual property to comprise approximately 500 patents protecting the investments made within its range of speech technologies and products.

-- Strong Partner and Channel Networks - Nuance and Dictaphone intend to leverage a strong network of product and channel partners to rapidly deliver the benefits of speech recognition throughout the healthcare industry - from healthcare IT and EMR vendors and systems integrators to dictation workflow providers and MTSOs. The combined organization will deliver the most widely used speech technology within healthcare, integrated with solutions from industry leaders such as Cerner, GE/IDX, McKesson, and Misys Healthcare Systems.

Since 2004, Nuance has steadily increased its investments withinhealthcare, putting substantial resources in product development,sales, business development and marketing behind this effort. Thecompany has continually enhanced its medical version of DragonNaturallySpeaking, formed a dedicated sales and business developmentorganization and recently acquired MedRemote to broaden its solutionsportfolio and expand its presence in healthcare. These investmentsproduced record dictation revenues for Nuance in 2005. The successthat Nuance has experienced through its healthcare initiatives furthervalidates a compelling opportunity for growth and leadership.

Favorable Industry Environment

Today, the healthcare industry is under pressure to streamlineoperations and reduce costs while at the same time find new ways toimprove patient care. Analysts predict that clinical automation willbecome an essential component of healthcare delivery to address thesemounting pressures. Gartner, a leading independent research andadvisory firm, believes that self-edit or "once and done" speech-basedtranscription will achieve mainstream market acceptance in two to fiveyears, in which time the benefits of the technology will have beendemonstrated.(1) Gartner predicts that care delivery organizationsthat implement speech-to-text supplementation of transcriptions willsave up to 30 percent or more on transcriptions, and in radiology andpathology departments, the savings could be in excess of 50percent.(2)

To that end, Nuance sees a significant opportunity based onindustry dynamics that include:

-- Large Addressable Market - An estimated $10 billion per year in North America and $15 billion worldwide is spent by healthcare organizations to manually convert recorded dictation into electronic transcripts. Unprecedented speech recognition accuracy achieved in recent years has proven the ability of speech-based solutions to generate significant productivity gains compared to manual processing of recorded dictation. The company believes that speech-based transcription technology has penetrated only five to 10 percent of the healthcare market in North America.

-- Increasing Electronic Patient Data - An estimated one billion patient records are created each year in North America alone, a volume that is expected to increase as the population ages. The industry's move to EMRs demands the creation of robust clinical data repositories of patient information. Dictaphone's natural language processing technology permits extraction of key data from the large volume of narrative medical reports produced every year, offering customers the ability to enrich their data repositories significantly.

-- Accelerating Adoption - The ability of speech recognition to deliver real benefits in automating the processing of recorded dictation comes at an ideal time - when organizations have increasing patient reporting requirements, IT spending within healthcare is increasing, and the industry drivers for solutions that promote EMRs and patient safety are strong and growing. In recent years, hospitals, clinics, medical groups, physicians' offices, insurance providers and service organizations have increasingly turned to speech solutions to automate manual processes and accelerate the adoption of EMRs.

-- Government Investments and Mandates - Facing rising healthcare costs and aging populations, government agencies worldwide are increasing their investments in healthcare technology, including HealthConnect in Australia, the National Programme for IT in the NHS within the United Kingdom, and the United States National Health Information Infrastructure initiative.

Investor Conference Call Information

In conjunction with this announcement Nuance will broadcast aconference call over the Internet today at 8:30 a.m. ET. Those whowish to listen to the live broadcast should visit the InvestorRelations section of the Nuance Web site (www.nuance.com) at least 15minutes prior to the event and follow the instructions provided toensure that the necessary audio applications are downloaded andinstalled. The conference call can be heard live by dialing (800)230-1092 or (651) 224-7558, five minutes prior to the call andreference conference code 818371. A replay of the call will beavailable within 24 hours of the announcement. To access the replay,dial (800) 475-6701 or (320) 365-3844 and refer to access code 818371.

About Dictaphone

Dictaphone, ranked 31st in Healthcare Informatics ranking of top100 companies by healthcare revenue, is the leading provider ofdictation, transcription, speech recognition and natural languageprocessing systems in the healthcare market. Dictaphone's IntegratedVoice Systems division is the leading provider of highly scalabledictation systems focused upon the public safety and legal markets.Dictaphone is headquartered in Stratford, Connecticut, and hasworldwide marketing, sales, service and support organizationsthroughout United States, the United Kingdom, Canada and Europe.

Nuance Communications, Inc.

Nuance (Nasdaq: NUAN) is the leading provider of speech andimaging solutions for businesses and consumers around the world. Itstechnologies, applications and services make the user experience morecompelling by transforming the way people interact with informationand how they create, share and use documents. Every day, millions ofusers and thousands of businesses experience Nuance's provenapplications. For more information, please visit nuance.com.

Nuance, the Nuance logo, Dragon and NaturallySpeaking aretrademarks or registered trademarks of Nuance Communications, Inc. orits affiliates in the United States and/or other countries. All othercompany names or product names may be the trademarks of theirrespective owners.

(1) Gartner Research, "Hype Cycle for Healthcare ProviderTechnologies," by Barry Runyon, James Gabler, Thomas J. Handler, M.D.,Barry R. Hieb, M.D., John-David Lovelock, Wes Rishel, Vi Shaffer. July14, 2005.

(2) Gartner Research, "Underlying Information Technologies inHealthcare in 2004," by Joanne Galimi, Cynthia E. Burghard, JaniceYoung. April 16, 2004.

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS

Statements in this document regarding the proposed transactionbetween Nuance and Dictaphone, amounts spent on manual transcriptionin the North American healthcare industry, benefits and synergies ofthe transaction, the expected timetable for completing thetransaction, future financial and operating results, expectations thatthe merger will be accretive to Nuance's results, the method forfinancing the transaction, future opportunities for the combinedcompany, the product portfolio of the combined company, theintellectual property portfolio of the combined company, theopportunity for automated speech solutions in the healthcare industry,and any other statements about Nuance or Dictaphone managements'future expectations, beliefs, goals, plans or prospects constituteforward looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Any statements that are notstatements of historical fact (including statements containing thewords "believes," "plans," "anticipates," "expects," estimates andsimilar expressions) should also be considered to be forward lookingstatements. There are a number of important factors that could causeactual results or events to differ materially from those indicated bysuch forward looking statements, including: the ability to consummatethe transaction; the ability of Nuance to successfully integrateDictaphone's operations and employees; the ability to realizeanticipated synergies and cost savings; the failure to retaincustomers; and the other factors described in Nuance's Annual Reporton Form 10 K/A for the year ended September 30, 2005. Nuance disclaimsany intention or obligation to update any forward looking statementsas a result of developments occurring after the date of this document.

Discussion of non-GAAP Financial Measures

Management utilizes a number of different financial measures, bothGAAP and non-GAAP, in analyzing and assessing the overall performanceof our business, for making operating decisions and for forecastingand planning for future periods. We consider the use of non-GAAPearnings per share particularly helpful in assessing the organicperformance of our business from a cash perspective. While ourmanagement uses this non-GAAP financial measure as a tool to enhancetheir understanding of certain aspects of our financial performanceand prospects for the future, our management does not consider thismeasure to be a substitute for, or superior to, the informationprovided by GAAP earnings per share. When evaluating the prospects ofa transaction, one factor our management considers is the impact on,accretion or dilution of, our GAAP and non-GAAP earnings per share.Consistent with this approach, we believe that disclosingAccretion/Dilution of non-GAAP earnings per share provides usefulsupplemental data that, while not a substitute for Accretion/Dilutionof GAAP earnings per share, allows for greater transparency in thereview of our prospective financial and operational performance. Inassessing the impact of the Dictaphone acquisition, our management hasexcluded certain acquisition related expenses, each of which aredescribed below.

We excluded certain expense items resulting from acquisitions toallow more accurate comparisons of our financial results to ourhistorical operations, forward looking guidance and the financialresults of our peer companies. These items include the following: (i)amortization of intangible assets associated with the acquisition;(ii) acquisition-related costs; and (iii) stock-based compensation.The acquisition of Dictaphone will result in non-continuing operatingexpenses which would not otherwise have been incurred. We believe thatproviding non-GAAP information for certain expenses related to thisacquisition allows the users of our financial statements to reviewboth the impact of this transaction from a GAAP perspective, as wellas from a non-GAAP perspective, thus providing for enhancedunderstanding of our future financial results. Additionally, had weinternally developed the products acquired from Dictaphone, theamortization of intangible assets would have been expensedhistorically, and we believe the assessment of our operationsexcluding these costs is relevant to our assessment of internaloperations and comparisons to industry performance.

The non-GAAP financial measures described above, and used in thispress release, should not be considered in isolation from, or as asubstitute for, measures of financial performance prepared inaccordance with GAAP. Further, investors are cautioned that there arematerial limitations associated with the use of non-GAAP financialmeasures as an analytical tool. In particular, many of the adjustmentsto the Company's GAAP financial measures reflect the exclusion ofitems that are recurring and will be reflected in the Company'sfinancial results for the foreseeable future. In addition, othercompanies, including other companies in the Company's industry, maycalculate non-GAAP net income (loss) differently than the Company,limiting its usefulness as a comparative tool. Management compensatesfor these limitations by providing specific information regarding theGAAP amounts excluded from the non-GAAP financial measures. Inaddition, as noted above, the Company's management evaluates thenon-GAAP financial measures together with the most directly comparableGAAP financial information.
Nuance Communications, Inc.
Reconciliation of Supplemental Financial Information
(in 000's, except per share amounts)
Unaudited

Estimated Per Share Impact of Dictaphone Acquisition

Twelve months ended Twelve months ended
September 30, 2006 September 30, 2007

Low High Low High
--------- --------- --------- ---------
Estimated Additional Total
revenue $ 80,000 $ 85,000 $180,000 $200,000

Accretion/Dilution of GAAP net
income (loss), per share $ (0.12) $ (0.11) $ (0.05) $ (0.02)
Amortization of intangible
assets, per share $ 0.05 $ 0.05 $ 0.09 $ 0.09
Acquisition-related costs, per
share $ 0.08 $ 0.08 $ -- $ --
Stock-based compensation, per
share $ 0.02 $ 0.02 $ 0.02 $ 0.02
---------------------------------------

Accretion/Dilution of Non-GAAP
net income (loss), per share $ 0.02 $ 0.03 $ 0.06 $ 0.09

Shares used in computing
Accretion/Dilution of non-
GAAP net income (loss) per
share:
Weighted average common
shares: basic 173,800 173,800 178,500 178,500
Weighted average common
and common equivalent
shares: diluted 173,800 173,800 178,500 178,500