Lernout & Hauspie Reports Record Revenues of Approximately $155 Million for Q2, 2000 and Earnings of $0.05 Before Goodwill Amortization and Exceptional Items.

Business Editors

IEPER, Belgium and BURLINGTON, Mass.--(BUSINESS WIRE)--Aug. 8, 2000

Lernout & Hauspie (Nasdaq: LHSP, Easdaq: LHSP) (L&H), a worldwide market leader in speech and language technologies, products and services, today announced financial results for the second quarter ended June 30, 2000.

L&H's total revenues were approximately $155 million, an increase of 104% over reported revenues of $76 million for the second quarter of 1999. Thirty-one million dollars of the company's second quarter 2000 revenues came from Dictaphone and Dragon. Excluding Dictaphone and Dragon, L&H's second quarter revenues were $124 million, a 63% increase from revenues of $76 million in the second quarter of 1999. The company attributes 72% of this increase to organic growth.

Net income before goodwill and exceptional items for the second quarter of 2000 were $7.1 million, or $0.05 per share on approximately 140 million average diluted shares outstanding as compared to $7.6 million, or $0.15 per share during the second quarter of 1999 on approximately 119 million average diluted shares outstanding.

Goodwill amortization and exceptional items for the second quarter of 2000 were $44.5 million, $35.5 million of which was attributable to goodwill amortization, $8.6 million to in process R&D write-off associated with the acquisition of Dragon Systems and the remainder attributable to unrealized functional currency exchange losses. During the second quarter of 1999, goodwill amortization and exceptional items were $7.7 million, $7.2 million of which was ascribed to goodwill amortization and the balance was attributable primarily to unrealized functional currency exchange losses.

L&H's second quarter 2000 financial results reflected the acquisitions of both Dragon Systems and Dictaphone Corporation, which initially have an overall negative effect on L&H's net income. Dragon's and Dictaphone's revenues were adversely impacted in the second quarter by their adoption of L&H's more conservative revenue recognition policies. Furthermore, Dragon and Dictaphone revenues are reflected for only the post-acquisition portion of the quarter. Net income was also impacted by $xx million of interest expense associated with the assumption of approximately $430 million of obligations in connection with the Dictaphone acquisition.

Revenue for the second quarter 2000 consisted of:

Technology and Solutions Division - approximately $78.9 million,

-- $11.2 million from Dictaphone's CRS business;

Applications Division - approximately $50.4 million,

-- $11.2 million from Dictaphone's Healthcare unit,

-- $7.9 million from Dictaphone's Integrated Voice Solutions unit,

-- $1.7 million from Dragon Systems;

Globalization and Internet Translation Division - approximately $25.5 million

-- $7.4 million, or 29% of which was Internet-related revenue.

Geographical Analysis of Revenues in the Second Quarter

-- European revenues were approximately $36.4 million or 23% of total revenues compared to $29.3 million or 39% in the second quarter of 1999.

-- Revenues for North America were approximately $48.2 million or 31% of total revenues compared to $18.7 million or 25% of total revenues for the second quarter 1999. The increase in U.S. revenue is largly attributable the Dictaphone and Dragon acquisitions.

-- Korea contributed approximately $68 million or 44% of total company revenues.

Currently, L&H has over 150 corporate customers in Korea including Art Lab, Digital Life, Digital Sei Young Ltd, EPC, Hanvit Bank, Hanvit Securities, Hung Chang, Hyundi Securities, Koscom, LG Electronics, Samsung Electronics, and Terrasoft. Its second quarter 2000 revenues continued to be strong in Korea.

The increase in U.S. revenue is largely attributable to the Dictaphone and Dragon acquisitions.

"The combination of Dragon and Dictaphone with L&H and the retention of the talented executive management from both companies provide us with an organization and resources that are unquestionably the strongest and finest in this industry," said Gaston Bastiaens, president and CEO of L&H. "We are very excited to apply these resources to tackle the ever growing opportunities in healthcare, enterprise and telephony, applications, globalization and the Internet. There has never been a more exciting or promising period in the speech and language technology industry."

"The second quarter of 2000 was filled with successes that we believe we can replicate in other areas of our business," said Jo Lernout, co-founder and chairman of L&H. "During the second quarter we continued to move toward a solutions oriented approach, as evidenced by the introduction of our healthcare solutions, our consumer applications and our NAK prototype solution. We also had numerous solutions sales in Asia. We believe these achievements can serve as a model for additional growth in the U.S. and Europe."

Highlights of the Quarter

During the second quarter, L&H stockholders approved the company's proposed two-for-one stock split. The record date for the stock split was April 28, 2000 and the distribution date was May 12, 2000.

Technologies & Solutions

During the second quarter of 2000, L&H's Technologies and Solutions Division experienced significant successes in the telephony and enterprise markets, including the burgeoning voice for Web market and in the Asian market overall. In the fast-growth voice for web and Web portal industry Earth9.com, Tellme Networks, Inc., InternetSpeech, and Webversant were among the vendors that licensed L&H(TM) RealSpeak(TM) natural sounding text-to-speech (TTS) technologies for use in their services. L&H's RealSpeak was also selected during Q2 for use in the world's first virtual newscaster, "Ananova", a service that plans to broadcast on demand personalized news and information via the Internet.

While at PC Expo in June, L&H demonstrated for the first time L&H(TM) AudioMining(TM) technology. L&H(TM) AudioMining(TM) is a revolutionary new digital media management solution that employs a speech recognition engine to provide indexing of streaming multimedia content over the Internet. It uses an award-winning speech recognition engine to quickly capture and manage information contained in a wide variety of audio materials including: recorded video footage, radio broadcasts, telephone conversations, call center dialogues, help desk recordings, and more.

In the automotive market, L&H and Visteon Corporation, a leading automotive supplier, announced their intent to create a joint venture dedicated to advancing and accelerating the speech interface in automotive applications. This joint venture is expected to include automotive Internet speech portal services and solutions. It will also develop voice-enabled solutions for automobile equipment manufacturers and the aftermarket.

Additional second quarter Technology and Solutions Division contracts included those with Cisco, Ericsson, iBasis, Lucent, MailVision, Mastermind, Price Interactive, VoiceLogix and VoiceTel.

Applications Division

Healthcare Solutions Group Announces New Offerings

While at the HIMSS trade show in April, L&H demonstrated for the first time L&H(TM) iChart Service, a healthcare clinical documentation system that integrates large vocabulary speech recognition over the telephone, advanced digital dictation, natural language technology and transcription capabilities, all conveniently delivered via the Internet using an application service provider (ASP) model. The L&H(TM) iChart Service is expected to be an outsourced solution for a wide variety of healthcare organizations and builds on L&H's existing complement of product offerings.

Healthcare Contracts

During the second quarter, the following healthcare organizations signed contracts with L&H's Healthcare Solutions Group for its PowerScribe(R)Radiology solution: Wyoming Valley Health Systems, Wiles-Barr, Wy.; St. Luke's Hospital, Bethlehem, Penn.; and Boca Raton, Florida. Contracts for L&H Dictaphone Enterprise Express Systems during the 2nd Quarter included Dana Farber Cancer Institute (Partners Healthcare Systems), Boston, Mass.; Indiana Heart Physicians/Physicians Partner Group, Indianaplis, Ind.; University of Texas, M.D. Anderson Cancer Center, Houston, Texas; and St. Margaret Mercy Healthcare Centers, Hammond, Ind. and others. Community Hospital, Boca Raton, Fla.. Dana Farber Cancer Institute (Partners Healthcare System), Boston, Mass.; Indiana Heart Physicians/Physicians Partner Group, Indianapolis, Ind.; University of Texas, M.D. Anderson Cancer Center, Houston, Texas; and St. Margaret Mercy Healthcare Centers, Hammond, Ind. and others.

PC Applications Group Expands Enterprise Offerings

While at PC Expo in June L&H demonstrated for the first time the Enterprise Version of L&H(TM) Dragon Naturally Speaking(R). The new offering is a true networked solution for the enterprise market that allows the transfer of speech files from the network to laptop PCs and gives users access to their speech files from any PC on the network. Thesolution, which provides support for hundreds of users, also allows users to dictate from any properly configured PC on the network.

During the second quarter of 2000 L&H's PC Applications Group also shipped L&H Voice Xpress version 5, which includes significantly improved accuracy and usability as well as enhanced support for Web-based applications such as e-mail, Internet browsing and chat.

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Globalization & Internet Translation

L&H's Globalization & Internet Translation Division signed several agreements during the second quarter, including one with Worldmine, one of the world's fastest growing travel Web sites. The agreement calls for L&H to provide translation and localization services for the Singapore-based company's on-line travel Web site content. The project is a large and complex agreement calling for extensive human translation, machine translation and linguistic expertise. L&H will initially translate and localize Worldmine's Web pages into Japanese and German followed by Asian languages such as Mandarin and Korean and then European languages.

Additional contracts signed during the second quarter included Webbe, Inc. -- in which L&H's iTranslator machine translation engine will provide instant foreign language translation in the chat module of Webbe -as well as Loral Cyberstar and British Telecom.

New organization

During the second quarter of 2000, L&H finalized its acquisition of Dragon Systems, significantly increasing the company's consumer market speech and language offerings and giving it the assets to further accelerate its development efforts in telephony and healthcare and to pursue emerging market opportunities. It integrated the Dragon and Dictaphone organization into its own, retaining the key management of both acquired companies, and creating a new company structure leveraging the strengths of each organization.

L&H's new company structure creates divisions that are even more focused on customer and market specific solutions. These new divisions, which also reflect important growth areas for L&H, are as follows:

-- The Healthcare Solutions Division includes offerings from Dictaphone's former Integrated Healthcare Solutions (IHS) group as well as the many solutions and services for the healthcare market from Dragon and L&H. John Duerden, who was previously Chairman and CEO of Dictaphone, will serve as president and CEO of the Healthcare Solutions Division.

-- The Enterprise and Telephony Solutions Division will include L&H technologies and solutions for enterprise and telephony markets, as well as Dictaphone Communications Recording Services (CRS) offerings. John Seo will serve as president of this new division.

-- L&H's Globalization and Internet Translation Division will remain largely unchanged, with responsibilities for translation and globalization of Web content and services. Florita Mendez serves as president of the division.

-- The Application Division is comprised of end user vertical and horizontal market applications, including those from Dragon Systems as well as some Dictaphone products. John Shagoury, formerly president of Dragon, will serve as president of the division.

About Lernout & Hauspie

Lernout & Hauspie (L&H) is a global leader in advanced speech and language solutions for vertical markets, computers, automobiles, telecommunications, embedded products, consumer goods and the Internet. The company is making the speech user interface (SUI) the keystone of simple, convenient interaction between humans and technology, and is using advanced translation technology to break down language barriers. The company provides a wide range of offerings, including: customized solutions for corporations; core speech technologies marketed to OEMs; end user and retail applications for continuous speech products in horizontal and vertical markets; and document creation, human and machine translation services, Internet translation offerings, and linguistic tools. L&H's products and services originate in four basic areas: automatic speech recognition (ASR), text-to-speech (TTS), digital speech and music compression (SMC) and text-to-text (translation). For more information, please visit Lernout & Hauspie on the World Wide Web at www.lhs.com or www.lhsl.com.

This News Release contains forward-looking information that involves risks and uncertainties, including statements about the company's plans, objectives, expectations and intentions. Such statements include, without limitation, discussions concerning the company's strategic direction, new product introductions and developments and market growth. Readers are cautioned forward looking statements include known and unknown risks, including uncertainty of new product development, the risk that newly introduced products may contain undetected errors or defects or otherwise not perform as anticipated, early stage of development of the speech, language and medical information technology markets, the ability of L&H's customers to successfully integrate and commercialize L&H's technology, the company's ability to predict accurately the demand for its products in these emerging markets and to develop strategies to address these markets successfully, the company's ability to manage its growth and changing business, the company's ability to successfully integrate the operations of Dictaphone, the retention of key technical and other personnel, risks associated with the financial leverage associated with the company's assumption and/or repayment of Dictaphone indebtedness, currency and other risks related to international operations, rapid technological change and intense competition, as well as other risks set forth in L&H's filings with the Securities and Exchange Commission. The forward-looking statements contained herein speak only as of the date of this News Release. The company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statement to reflect any change in the company's expectations or any change in events, conditions or circumstance on which any such statement is based.

All product names and trademarks mentioned herein are trademarks of L&H or their respective owners.

Lernout & Hauspie

Balance Sheet & Cash Flow Highlights, June 30, 2000

-- Cash and Marketable Securities increased to approximately $200 million from $179 million at the end of the previous quarter.

-- Accounts Receivable increased to $238 million from $129 million at the end of the second quarter. The increase was due primarily to the inclusion of Dictaphone and Dragon.

-- Short-term debt was $252 million primarily as a result of the assumption of the debt associated with the acquisition of Dictaphone.

-- Net working capital was approximately $48 million, down primarily as a result of the assumption of the short-term debt associated with the acquisition of Dictaphone.

-- Net goodwill was approximately $1,701 million, an increase of approximately $1,283 versus the first quarter as a result of the acquisition of Dictaphone and Dragon.

-- Long-term debt was approximately $234 million as a result of the assumption of $200 million of Dictaphone senior subordinated notes.

-- Shareholders' equity was $1,531 million

-- Operating cash flow for the quarter was approximately $12 million and $32 million year-to-date.

-- Net cash used from investing activities was approximately $71 million and $145 million year-to-date

-- Net cash provided by investing activities was approximately $83 million and $191 million year-to-date

       LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF OPERATIONS
                           ($ in thousands)

                            (Unaudited)         (Unaudited)
                               Three     Three      Six        Six
                               Months    Months    Months     Months
                               Ended     Ended     Ended      Ended
                              June 30,  June 30,  June 30,   June 30,
                                2000      1999      2000       1999
Total Revenues
 Technologies & Solutions      $78,904   $26,485  $137,790    $51,211
 Applications                  $50,440   $28,984   $78,433    $51,552
 Consulting & Services         $25,562   $20,546   $49,378    $43,960
  Total Net Revenues          $154,906   $76,015  $265,601   $146,723
Cost of Revenues
 Technologies & Solutions      $14,584    $2,554   $20,114     $5,342
 Applications                  $17,700    $4,680   $24,324     $8,541
 Consulting & Services         $15,447   $12,064   $29,141    $26,154
  Total Cost of Revenues       $47,731   $19,298   $73,579    $40,037

Gross Profit                  $107,175   $56,717  $192,022   $106,686

Operating Expenses
 General & Administrative      $18,445    $8,210   $29,049    $17,248
 Marketing & Sales             $36,765   $14,923   $56,876    $27,933
 Research & Development        $23,811   $10,810   $40,090    $20,615
 Amortization of Goodwill and
  Other Business Acquisition
  Intangibles                  $35,490    $7,244   $46,620    $14,419
 Write-off of In-Process R&D     8,600      --       8,600       --
  Total Operating Expenses    $123,111   $41,187  $181,235    $80,215

Operating Income (Loss)       ($15,936)  $15,530   $10,787    $26,471

Other (Income) / Expense
 Share in Loss
  Unconsolidated Affiliates     $2,409      $366    $5,465       $830
 Other (Income)/ Expense        $3,405   ($2,207)  ($2,509)   ($9,167)

Net Income (Loss) before
 Taxes and Minority Interest  ($21,750)  $17,371    $7,831    $34,808

Taxes                          $11,305    $6,654   $23,428    $11,880

Net Income (Loss)
 before Minority Interest     ($33,055)  $10,717  ($15,597)   $22,928

 Minority Interest                $612    $1,131    $1,622     $2,277

Net Income (Loss)             ($33,667)   $9,586  ($17,219)   $20,651

EPS Calculation
 Net Income (Loss)
 Attributable
 to Common Stockholders       ($33,667)   $9,586  ($17,219)   $20,651
 Net Income (Loss )
  per Share - Basic             ($0.26)            ($0.14)
 Average numer of
  Shares - Basic               131,355             124,969
 Net Income (Loss)
  per Share - Diluted                      $0.08               $0.18
 Average Number of
 Shares - Diluted                        118,695             117,531

EPS Calculation before
 one time charges
 and after exchange gain
 Net Income (Loss) before
  one time charges and after
  exchange gain/loss            $7,142   $17,069   $30,480    $30,549
 Number of Shares - Diluted    139,694   118,695   133,309    117,531
 EPS before one-time
  charges  - Diluted             $0.05     $0.14     $0.23      $0.26