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AvayaUNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549_______________________________Form 10-K(Mark One) þþANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2016ORooTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 001-36056NUANCE COMMUNICATIONS, INC.(Exact name of Registrant as Specified in its Charter)Delaware 94-3156479(State or Other Jurisdiction of (I.R.S. EmployerIncorporation or Organization) Identification No.) 1 Wayside RoadBurlington, Massachusetts 01803(Address of Principal Executive Offices) (Zip Code)Registrant’s telephone number, including area code:(781) 565-5000SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:Title of Each Class Name of Each Exchange on Which RegisteredCommon stock, $0.001 par value NASDAQ Stock Market LLCPreferred share purchase rights NASDAQ Stock Market LLCSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:NoneIndicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No oIndicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þIndicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þNo oIndicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit andpost such files). Yes þ No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of“large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer þAccelerated filer oNon-accelerated filer oSmaller reporting company o (Do not check if a smaller reporting company)Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þThe aggregate market value of the outstanding common equity held by non-affiliates of the Registrant as of the last business day of the Registrant’s most recently completedsecond fiscal quarter was approximately $3.9 billion based upon the last reported sales price on the Nasdaq National Market for such date. For purposes of this disclosure, shares ofCommon Stock held by officers and directors of the Registrant and by persons who hold more than 5% of the outstanding Common Stock have been excluded because suchpersons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive.The number of shares of the Registrant’s Common Stock, outstanding as of October 31, 2016, was 287,789,096.DOCUMENTS INCORPORATED BY REFERENCEPortions of the Registrant’s definitive Proxy Statement to be delivered to stockholders in connection with the Registrant’s 2017 Annual Meeting of Stockholders areincorporated by reference into Part III of this Form 10-K. NUANCE COMMUNICATIONS, INC.TABLE OF CONTENTS PagePART IItem 1.Business1Item 1A.Risk Factors7Item 1B.Unresolved Staff Comments16Item 2.Properties16Item 3.Legal Proceedings16Item 4.Mine Safety Disclosures16 PART IIItem 5.Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities17Item 6.Selected Financial Data18Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations18Item 7A.Quantitative and Qualitative Disclosures about Market Risk47Item 8.Financial Statements and Supplementary Data49Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure97Item 9A.Controls and Procedures97Item 9B.Other Information98 PART IIIItem 10.Directors, Executive Officers and Corporate Governance98Item 11.Executive Compensation98Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters98Item 13.Certain Relationships and Related Transactions, and Director Independence98Item 14.Principal Accountant Fees and Services98 PART IVItem 15.Exhibits and Financial Statement Schedules99 Table of ContentsPART IThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 thatinvolve risks, uncertainties and assumptions that, if they never materialize or if they prove incorrect, could cause our consolidated results to differ materiallyfrom those expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could bedeemed forward-looking, including statements pertaining to: our future revenue, cost of revenue, research and development expense, selling, general andadministrative expenses, amortization of intangible assets and gross margin, earnings, cash flows and liquidity; our strategy relating to our segments; thepotential of future product releases; our product development plans and investments in research and development; future acquisitions and anticipatedbenefits from acquisitions; international operations and localized versions of our products; our contractual commitments; our fiscal year 2017 revenue andexpense expectations and legal proceedings and litigation matters. You can identify these and other forward-looking statements by the use of words such as“may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “continue” or the negative of suchterms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth inItem 1A of this Annual Report under the heading “Risk Factors.” All forward-looking statements included in this document are based on informationavailable to us on the date hereof. The forward-looking statements do not include the potential impact of any mergers, acquisitions, divestitures, securitiesofferings or business combinations that may be announced or closed after the date hereof. We will not undertake and specifically decline any obligation toupdate any forward-looking statements.Item 1.BusinessOverviewWe are a leading provider of voice recognition and natural language understanding solutions. We work with companies around the world, from banksand hospitals to airlines, telecommunications carriers, and automotive manufacturers and suppliers, who use our solutions and technologies to create betterexperiences for their customers and their users by enhancing the users' interaction, increasing productivity and customer satisfaction. We offer our customershigh accuracy in automated speech recognition, capabilities for natural language understanding, dialog and information management, biometric speakerauthentication, text-to-speech, optical character recognition ("OCR") capabilities, and domain knowledge, along with professional services andimplementation support. In addition, our solutions increasingly utilize our innovations in artificial intelligence, cognitive sciences and machine learning tocreate smarter, more natural experiences with technology. Using advanced analytics and algorithms, our technologies create personalized experiences andtransform the way people interact with information and the technology around them. We market and sell our solutions and technologies around the worlddirectly through a dedicated sales force, through our e-commerce website and also through a global network of resellers, including system integrators,independent software vendors, value-added resellers, distributors, hardware vendors, and telecommunications carriers.We are a global organization steeped in research and development. We have 1,800 language scientists, developers, and engineers dedicated tocontinually refining our technologies and advancing our portfolio to better meet our customers’ diverse and changing needs. We have more than 45international operating locations and a sales presence in more than 77 countries. We were incorporated under the laws of the State of Delaware in 1992 andour corporate headquarters is located in Burlington, Massachusetts, with international headquarters in Dublin, Ireland ("EMEA") and Sydney, Australia("APAC"). In fiscal year 2016, our revenue was $1.9 billion.Our website is located at www.nuance.com and we trade under the ticker symbol NUAN. We are not including the information contained in our websiteas part of, or incorporating it by reference into, this annual report on Form 10-K. We make available free of charge through our website our annual reports onForm 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as soon as reasonably practicable after weelectronically file these materials with, or otherwise furnish them to, the Securities and Exchange Commission ("SEC").Our StrategyWe have large addressable vertical markets, and we focus on growth by providing industry-leading, value-add solutions for our customers and partnersthrough a broad set of flexible technologies, solutions, and service offerings available directly and through our channel capabilities. The key elements of ourstrategy include:•Maintain global leadership in all of our major markets and solutions areas. We have historically targeted markets where we benefit from strongtechnology, sales and vertical market differentiation. Today, we enjoy a prominent position in the markets we serve, where we are considered one ofthe leading providers of voice recognition and natural language1 Table of Contentsunderstanding solutions. We invest considerable time and resources to ensure we maintain this position through customer satisfaction, technologyleadership, deep domain experience and market specialization.•Maintain depth in technology, intellectual property and innovation portfolio. We have built a world-class portfolio of intellectual property,technologies, applications and solutions through both internal development and acquisitions. We expect to continue to pursue opportunities toexpand our assets, geographic presence, distribution network and customer base through acquisitions of other businesses and technologies. Wecontinue to strengthen our core technologies in voice and language, and expand our offerings through research and innovations in artificialintelligence, cognitive computing and machine learning.•Continue to expand our extensive network of global operations, distribution and services networks. We market and sell our solutions andtechnologies directly through a dedicated sales force, through our e-commerce website and also through a global network of resellers, includingsystem integrators, independent software vendors, value-added resellers, distributors, hardware vendors, and telecommunications carriers. Inaddition, we continue to expand our presence within our markets, such as mobile operators in our Mobile segment, ambulatory markets in ourHealthcare segment and new customer services channels in our Enterprise segment, and we have expanded initiatives in geographic markets such asChina, Latin America and Southeast Asia.•Continue to expand hosting and transaction-based offerings. We are focused on increasing our hosting and transaction-based offerings. Ourhosting revenues are generated through on-demand models that typically have multi-year terms with pricing based on volume of usage, number oftransactions, number of seats or number of devices. This pricing structure allows customers to use our products at a lower initial cost whencompared to the sale of a perpetual license. This will enable us to deliver applications that our customers use, and pay for, on a repeat basis,providing us with the opportunity to enjoy the benefits of recurring revenue streams.•Maintain significant presence and customer preference in our markets. We specialize in creating large, enterprise-class solutions that are used bymany of the world’s largest companies. By combining our core technology, professional services, local presence and deep domain experience, weare able to deliver these customized offerings for our customers and partners. We have established a trusted position in numerous markets and todaywork with a majority of the Fortune 100 companies.•Strengthen financial profile with improvement in revenue, earnings per share, margin, and cash flow. We are focused on improving our financialperformance, by further executing upon our formal transformation program, further evolving our business toward recurring revenue models, all ofwhich are positioning us for increased future revenue and profitability growth. In fiscal year 2015 we initiated a formal program to focus ourproduct investments on our growth opportunities, increase our operating efficiencies, reduce costs, and further enhance shareholder value throughshare buybacks. Our transformation program has delivered measurable results that can be seen in our financial performance and profitability duringfiscal 2016.Business Segments and Financial InformationWe are organized into four segments: Healthcare, Mobile, Enterprise, and Imaging. See Note 19 to the consolidated financial statements for additionalinformation about our reportable segments. We offer our solutions and technologies to our customers in a variety of ways, including hosted cloud-basedsolution, perpetual licenses, implementation and custom solution development services and maintenance and support. Our product revenues includeembedded original equipment manufacturer ("OEM") royalties, traditional perpetual licensing, term-based licensing and consumer sales. Our hosting, royalty,term license and maintenance and support revenues are recurring in nature as our customers use our products on an ongoing basis to handle their needs inmedical transcription, medical coding and compliance, enterprise customer service and mobile connected services. Our professional services offer a visiblerevenue stream, as we have a backlog of assignments that take time to complete.2 Table of ContentsHealthcare SegmentOur Healthcare segment is a leading provider in clinical speech and clinical language understanding solutions that drive smart, efficient decisions andincrease productivity across healthcare. Our solutions and services improve the clinical documentation process - from capturing the complete patient recordto improving clinical documentation and quality measures for reimbursement. We support clinical documentation workflows and electronic medical record("EMR") adoption through our flexible offerings, including transcription services, dictation software for the EMR, diagnostics workflow, and mobileapplications. These solutions increasingly leverage clinical language understanding and artificial intelligence innovations to help physicians deliver betteroutcomes. In addition, we continue to extend our strong hospital customer franchise into the automation and management of healthcare coding and billingprocesses in order to ensure timely and appropriate reimbursement. These solutions are designed to help healthcare organizations derive additional valuefrom EMR investments and are driven by industry trends such as value-based care, Meaningful Use requirements, which is a program that awards incentivesfor using EMR technology to improve patient care, and government regulations related to medical codes.Today, more than 500,000 clinicians and 10,000 healthcare facilities worldwide leverage our solutions to improve patient care and support thephysician in clinical workflow from many devices. Our Healthcare segment revenues were $973.3 million, $1,000.8 million, and $1,020.4 million in fiscalyears 2016, 2015 and 2014, respectively. As a percentage of total segment revenue, Healthcare segment revenues represented 49.2%, 50.6% and 51.3% infiscal years 2016, 2015 and 2014, respectively.Our principal solutions for the Healthcare segment include the following:•Transcription solutions: Enable physicians in larger and mid-sized healthcare enterprises to streamline clinical documentation with an on-demand, enterprise-wide medical transcription platform, and allow healthcare organizations to outsource transcription services. Ourtranscription solutions are generally offered as an on-demand model.•Dragon Medical: Provide dictation software that empowers physicians to accurately capture and document patient care in real-time from manydevices and without disrupting existing workflows. We have expanded this solution to provide clinical language understanding and cognitiveintelligence that delivers real-time queries to physicians at the point of care, producing measurable clinical, financial and complianceoutcomes. This software has historically been sold under a traditional perpetual software license, however it is now frequently sold as a multi-year cloud-based service.•Clinical document improvement ("CDI") and coding solutions: Ensure patient health information is accurately documented, coded, andevaluated to provide more complete and accurate clinical documentation. These services and offerings assist organizations with regulatorycompliance and coding efficiency to receive appropriate and timely reimbursement and improve quality reporting. The solutions are generallysold under a term-licensing model.•Diagnostic solutions: Allow radiologists to easily document, collaborate, and share medical images and reports, to optimize patient care. Thesolutions are generally sold under a traditional perpetual license model, with accelerated transition to term-licensing and transaction-basedmodels.•Dragon solutions: Provide professional and personal productivity solutions to business users and consumers with the ability to use their voiceto create content, reports and other documents, as well as control their computers and laptops without the use of a keyboard or mouse. Thisdictation software is similar to Dragon Medical and is used in markets such as law, public safety, social services, education and accessibility.Dragon solutions are sold generally through a traditional perpetual software license model and recently we have introduced an on-demandmodel.The channels for distribution in the Healthcare segment utilize a direct sales force to address the market and a professional services organization thatsupports the implementation requirements of the healthcare industry. Direct distribution is supplemented by distributors and partnerships with a variety ofhealthcare IT providers. Our Healthcare customers and partners include Cerner, Epic, McKesson, UPMC, Cleveland Clinic, Siemens, and the Mayo Clinic.Areas of expansion and focus for our Healthcare segment include providing customers deeper integration with our clinical documentation solutions,investing in our cloud-based products and operations, entering new and adjacent markets such as ambulatory care, and expanding our internationalcapabilities.Mobile SegmentOur Mobile segment provides a broad portfolio of specialized virtual assistants and connected services built on voice recognition, text-to-speech,natural language understanding, dialog, and text input technologies. Our mobile platform includes embedded and cloud-based technologies that worktogether through our hybrid (connected and embedded) architecture. As3 Table of Contentsconsumer demands for convenience, ease-of-use, and more personalized experiences increase, companies will need to embrace the Internet of Things ("IoT").Our technologies help leading automotive manufacturers, consumer electronic companies and mobile and cable operators provide the consistent, connected,and more human experience their customers are looking for with the devices and technology around them, including their phones, tablets, computers, autos,wearable devices, TVs, applications, and related services.Mobile segment revenues were $377.3 million, $391.2 million, and $363.3 million in fiscal years 2016, 2015 and 2014, respectively. As a percentageof total segment revenue, the Mobile segment revenues represented 19.1%, 19.8% and 18.3% in fiscal years 2016, 2015 and 2014, respectively.Our principal solutions for the Mobile segment include the following:•Automotive solutions: Provide automotive manufacturers and their suppliers intuitive, personalized, virtual assistants and connected servicesfor cars that are safer, easier, and more enjoyable. Our deep domain experience, integration capabilities and independence make us a preferredvendor to the world’s largest automotive manufacturers and suppliers. Our automotive solutions are generally sold as on-demand models thatare typically priced on a per-unit basis for multi-year service terms. We also have a worldwide professional services team to provide customsolution development services and sell our technologies through a traditional perpetual software license model, including a royalty-basedmodel.•Devices solutions: Provide consumer electronic manufacturers, developers, and within the broad ecosystem around the IoT, with specializedvirtual assistants, virtual keyboards and connected services. Our connected solutions are sold through on-demand models that typically havemulti-year terms with pricing generally based on volume. We provide custom solution development and integration services, and sell ourtechnologies through a traditional perpetual software license model, including a royalty-based model.•Mobile operator services: Provide mobile network operators value added services that assist in creating new, high-profit revenue streams fromtheir subscribers, especially in emerging markets such as Latin American, India and Southeast Asia. Our mobile operator services are soldthrough on-demand models that typically have multi-year terms and a revenue share-based model.In the Mobile segment, we utilize a direct sales force to sell to automotive manufacturers and their suppliers, device makers, and mobile operators.Direct distribution is supplemented by OEM partnerships with electronics suppliers, integrators, and content providers.Areas of expansion and focus for our Mobile segment include: cloud and content expansion of our automotive solutions, expansion across the IoT inour device solutions, and geographic expansion of our mobile operator services.Enterprise SegmentOur Enterprise segment is a leading provider for automated customer solutions and services worldwide. Differentiated by speech and artificialintelligence (“AI”) technologies, and complemented by our large professional services organization, our solutions help enterprises reduce or replace humancontact center agents with conversational systems, across voice, mobile, web and messaging channels. Our intelligent self-service solutions are highlyaccurate and dependable, resulting in increased customer satisfaction levels while simultaneously reducing the costs associated with delivering customerservice for the enterprise. We are transforming this business, leveraging our presence in on-premise interactive voice response ("IVR") solutions and services,and expanding into multichannel, self-service cloud solutions. Our solutions and services portfolio now spans voice, mobile, web and messaging channels,with inbound and outbound customer service and engagement, voice biometrics, and digital virtual assistant capabilities.Enterprise segment revenues were $387.5 million, $349.3 million, and $367.1 million in fiscal years 2016, 2015 and 2014, respectively. As apercentage of total segment revenue, the Enterprise segment revenues represented 19.6%, 17.7% and 18.5% in fiscal years 2016, 2015 and 2014,respectively.Our principal solutions for the Enterprise segment include the following:•On-Premise solutions and services: Provide software that is leveraged to implement automated customer service solutions that are integratedwith a wide range of on-premise third-party IVR and contact center platforms. Our products and technologies include speech recognition, voicebiometrics, transcription, text-to-speech, dialog and analytics. Our global professional services team leverages domain expertise to provideend-to-end services to customers and partners, including business consulting, design, development, and deployment of integrated solutions.4 Table of ContentsOur on-premise licensed products are primarily sold through a traditional perpetual software license model, and our on-premise professionalservices are sold under project-based and multi-year managed services contracts.•On-Demand multichannel cloud: Deliver a platform that provides enterprises with the ability to implement automatic customer service acrossinbound, outbound, and digital customer service channels in the cloud. Our on-demand multichannel cloud leverages our speech, voicebiometrics, text to speech, and virtual assistant technologies, to implement intelligent, conversational self-service applications, includingvoice call steering and self-service, automated verification, account access, virtual chat, proactive SMS, messaging and email, and customerservice for mobile device customers. In addition, the acquisition of TouchCommerce, Inc. will allow us to be able to provide an end-to-endengagement platform that merges intelligent self-service with assisted service to increase customer satisfaction, strengthen customer loyaltyand improve business results. Our on-demand multichannel cloud is sold through sales models that typically have multi-year terms withpricing based on channel and/or volume of usage.The selling models in the Enterprise segment utilize both direct and channel sales, which includes a network of partners such as Avaya, BT, Cisco,DiData, Genesys, Huawei, MoshiMoshi, NICE, Telstra, and Verint. Our customers include, American Airlines, Amtrak, Bank of America, Barclays, Dominos,Delta, Deutsche Telekom, e*trade, ING Bank, Lloyds Banking Group, T-Mobile, Telefonica, Telstra, and Vodafone.Areas of focus and expansion for our Enterprise segment include extending our technology capabilities with intelligent self-service and AI for customerservice; expansion of our on-demand multichannel cloud to international markets; sales and solution expansion for voice biometrics; and expanding our on-premise product and services portfolio.Imaging SegmentOur Imaging segment provides software solutions and expertise that help professionals and organizations to gain optimal control of their document andinformation processes. Our portfolio of products and services helps business customers achieve compliance with information security policies and regulationswhile enabling organizations to streamline and eliminate gaps across their document workflows.We are continuing to grow our business through multi-function printer ("MFP") OEM channels, expanding our scanning and print managementsoftware solutions, and broadening our footprint with end-user customers to become a solution suite provider. We have built on our position in MFP OEMchannels and managed print services space by accelerating the integration of capture and print management technologies. Our intelligent document captureand workflow solutions transform manual, disconnected processes into dynamic, streamlined, and automated workflows. When combined with printmanagement technologies, organizations are also able to control, manage, and monitor their entire print environment. Our business has seen increasedcommitments from key OEMs, a broader number of OEM partners who embed multiple products, and stronger end-user demand in key verticals likehealthcare, legal, and financial services.Imaging segment revenues were $241.6 million, $237.7 million, and $236.3 million in fiscal years 2016, 2015 and 2014, respectively. As a percentageof total segment revenue, the Imaging segment revenues represented 12.2%, 12.0% and 11.9% in fiscal years 2016, 2015 and 2014, respectively.Our principal solutions for the Imaging segment include the following:•MFP Scan automation solutions: Deliver scanning and document management solutions that improve productivity, drive efficiency and assistin enhancing security.•MFP Print automation solutions: Offer printing and document management solutions to capture and automate paper to digital workflows toincrease efficiency.•PDF and OCR software: Provide intuitive technologies that enable the efficient capture, creation, and management of document workflows.The channels for distribution in the Imaging segment include a combination of a global reseller network and direct sales. Our Imaging solutions aregenerally sold under a traditional perpetual software license model with a subset of our offerings sold as term licenses. Our Imaging customers and partnersinclude Ricoh, Xerox, HP, Canon, and Samsung.Areas of expansion and focus in the Imaging segment include investing to merge the scan and print technology platforms improving mobile access toour solutions and technologies, expanding our distribution channels and embedding relationships, and expanding our language coverage for OCR in order todrive a more comprehensive and compelling offering to our partners.5 Table of ContentsResearch and Development/Intellectual PropertyOver our history we have developed and acquired extensive technology assets, intellectual property, and industry expertise in voice recognition,natural language understanding and imaging technologies that provide us with a competitive advantage in our markets. Our technologies are based oncomplex algorithms that require extensive amounts of acoustic and language models, and recognition and understanding techniques. A significantinvestment in capital and time would be necessary to replicate our current capabilities.We continue to invest in technologies to maintain our market-leading position and to develop new applications. We rely on a portfolio of patents,copyrights, trademarks, services marks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our intellectual propertyand proprietary rights. As of September 30, 2016, we held approximately 3,650 patents and 900 patent applications. Our intellectual property is critical to oursuccess and competitive position. We incurred research and development expenses of $271.1 million, $306.9 million, and $333.8 million in fiscal years2016, 2015 and 2014, respectively.CompetitionThe several markets in which we compete are highly competitive and are subject to rapid technology changes. There are a number of companies thatdevelop or may develop solutions and technologies that compete in our target markets; however, currently there is no one company that directly competeswith us across all of our solutions and technologies. While we expect competition to continue to increase both from existing competitors and new marketentrants, we believe that we will compete effectively based on many factors, including:•Specialized Professional Services. Our superior technology, when coupled with the high quality and domain knowledge of our professionalservices organization, allows our customers and partners to place a high degree of confidence and trust in our ability to deliver results. We supportour customers in designing and building powerful innovative applications that specifically address their needs and requirements.•International Coverage. The international reach of our solutions and technologies is due to the broad language coverage of our offerings,including our voice recognition and natural language understanding solutions, which provide recognition for approximately 70 languages anddialects and natural-sounding synthesized speech in over 150 voices, and support a broad range of hardware platforms and operating systems. Ourimaging technology supports more than 120 languages for OCR and document handling, with up to 20 screen language choices, including Asianlanguages.•Technological Superiority. Our voice recognition, natural language understanding and imaging technologies, applications and solutions are oftenrecognized as the most innovative and proficient in their respective categories. Our voice recognition and natural language understandingsolutions have industry-leading recognition accuracy and provide a natural, voice-enabled interaction with systems, devices and applications. OurOCR technology in our Imaging segment is viewed as the most accurate in the industry. Technology publications, analyst research andindependent benchmarks have consistently indicated that our solutions and technologies rank at or above performance levels of alternativesolutions.•Broad Distribution Channels. Our ability to address the needs of specific markets, such as financial, legal, healthcare and government, and tointroduce new solutions and technologies quickly and effectively is provided by our direct sales force, our extensive global network of resellers,comprising system integrators, independent software vendors, value-added resellers, hardware vendors, telecommunications carriers anddistributors, and our e-commerce website.We compete with companies such as Adobe, Google, iFlyTek, LivePerson, M*Modal, Optum and 3M. In addition, a number of smaller companies offersolutions, technologies or products that are competitive with our solutions and technologies in the voice recognition, natural language understanding, textinput and imaging markets. In certain markets, some of our partners such as Avaya, Cisco, Convergys, and Genesys develop and market products and servicesthat might be considered substitutes for our solutions and technologies. Current and potential competitors have established, or may establish, cooperativerelationships among themselves or with third parties to increase the ability of their technologies to address the needs of our prospective customers.Some of our competitors or potential competitors, such as Adobe, Google, and 3M have significantly greater financial, technical and marketingresources than we do. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customerrequirements. They may also devote greater resources to the development, promotion and sale of their products than we do.6 Table of ContentsEmployeesAs of September 30, 2016, we had approximately 13,200 full-time employees, including approximately 1,200 in sales and marketing, approximately2,700 in professional services, approximately 1,800 in research and development, approximately 700 in general and administrative and approximately 6,800who provide transcription and editing services. Approximately 56% of our employees are based outside of the United States, approximately 58% of whomprovide transcription and editing services and are based in India. None of our employees in the United States is represented by a labor union. In certainforeign subsidiaries labor unions or workers’ councils represent some of our employees. We believe that our relationships with our employees are satisfactory.Financial Information About Geographic AreasWe have offices in a number of international locations including Australia, Austria, Belgium, Brazil, Canada, China, Germany, Hungary, India, Ireland,Italy, Japan, and the United Kingdom. The responsibilities of our international operations include research and development, healthcare transcription andediting, customer support, sales and marketing and general and administrative. Additionally, we maintain smaller sales, services and support officesthroughout the world to support our international customers and to expand international revenue opportunities.Geographic revenue classification is based on the geographic areas in which our customers are located. For fiscal years 2016, 2015 and 2014, 71%,73% and 73% of revenue was generated in the United States and 29%, 27% and 27% of revenue was generated by our international customers, respectively.Item 1A.Risk FactorsYou should carefully consider the risks described below when evaluating our company and when deciding whether to invest in our company. Therisks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we do notcurrently believe are important to an investor may also harm our business operations. If any of the events, contingencies, circumstances or conditionsdescribed in the following risks actually occurs, our business, financial condition or our results of operations could be seriously harmed. If that happens,the trading price of our common stock could decline and you may lose part or all of the value of any of our shares held by you.Risks Related to Our BusinessThe markets in which we operate are highly competitive and rapidly changing and we may be unable to compete successfully.There are a number of companies that develop or may develop products that compete in our targeted markets. The markets for our products and servicesare characterized by intense competition, evolving industry standards, emerging business and distribution models, disruptive software and hardwaretechnology developments, short product and service life cycles, price sensitivity on the part of customers, and frequent new product introductions, includingalternatives with limited functionality available at lower costs or free of charge. Within voice recognition and natural language understanding, we competewith Google, iFlyTek and other smaller providers. Within healthcare, we compete with M*Modal, Optum, 3M and other smaller providers. Within imaging,we compete with ABBYY and Adobe. In our enterprise business, some of our partners such as Avaya, Cisco, and Genesys develop and market products thatmight be considered substitutes for our solutions. In addition, a number of smaller companies in voice recognition, natural language understanding, textinput and imaging produce technologies or products that are in some markets competitive with our solutions. Current and potential competitors haveestablished, or may establish, cooperative relationships among themselves or with third parties to increase the ability of their technologies to address theneeds of our prospective customers. Furthermore, there has been a trend toward industry consolidation in our markets for several years. We expect this trendto continue as companies attempt to strengthen or hold their market positions in an evolving industry and as companies are acquired or are unable tocontinue operations.The competition in these markets could adversely affect our operating results by reducing the volume of the products we license or the prices we cancharge. Some of our current or potential competitors, such as Adobe, Google and 3M, have significantly greater financial, technical and marketing resourcesthan we do. These competitors may be able to respond more rapidly than we can to new or emerging technologies or changes in customer requirements. Theymay also devote greater resources to the development, promotion and sale of their products than we do, and in certain cases may be able to include orcombine their competitive products or technologies with other of their products or technologies in a manner whereby the competitive functionality isavailable at lower cost or free of charge within the larger offering. To the extent they do so, market acceptance and penetration of our products, and thereforeour revenue and bookings, may be adversely affected. Our success will depend substantially upon our ability to enhance our products and technologies andto develop and introduce, on a timely and cost-effective basis, new products and features that meet changing customer requirements and incorporatetechnological enhancements. If we are unable7 Table of Contentsto develop new products and enhance functionalities or technologies to adapt to these changes, or if we are unable to realize synergies among our acquiredproducts and technologies, our business will suffer.Our operating results may fluctuate significantly from period to period, and this may cause our stock price to decline.Our revenue, bookings and operating results have fluctuated in the past and are expected to continue to fluctuate in the future. Given these fluctuations,we believe that quarter to quarter comparisons of revenue, bookings and operating results are not necessarily meaningful or an accurate indicator of our futureperformance. As a result, our results of operations may not meet the expectations of securities analysts or investors in the future. If this occurs, the price of ourstock would likely decline. Factors that contribute to fluctuations in operating results include:•volume, timing and fulfillment of customer orders and receipt of royalty reports;•the pace of the transition to an on-demand and transactional revenue model;•slowing sales by our channel partners to their customers;•customers delaying their purchasing decisions in anticipation of new versions of our products;•contractual counterparties are unable to, or do not, meet their contractual commitments to us;•introduction of new products by us or our competitors;•seasonality in purchasing patterns of our customers;•reduction in the prices of our products in response to competition, market conditions or contractual obligations;•returns and allowance charges in excess of accrued amounts;•timing of significant marketing and sales promotions;•impairment charges against goodwill and intangible assets;•delayed realization of synergies resulting from our acquisitions;•accounts receivable that are not collectible and write-offs of excess or obsolete inventory;•increased expenditures incurred pursuing new product or market opportunities;•general economic trends as they affect retail and corporate sales; and•higher than anticipated costs related to fixed-price contracts with our customers.Due to the foregoing factors, among others, our revenue, bookings and operating results are difficult to forecast. Our expense levels are based insignificant part on our expectations of future revenue and we may not be able to reduce our expenses quickly to respond to a shortfall in projected revenue.Therefore, our failure to meet revenue expectations would seriously harm our operating results, financial condition and cash flows.A significant portion of our revenue and bookings are derived, and a significant portion of our research and development activities are based, outsidethe United States. Our results could be harmed by economic, political, regulatory, foreign currency fluctuations and other risks associated with theseinternational regions.Because we operate worldwide, our business is subject to risks associated with doing business internationally. We anticipate that revenue and bookingsfrom international operations could increase in the future. Most of our international revenue and bookings are generated by sales in Europe and Asia. Inaddition, some of our products are developed outside the United States and we have a large number of employees in India that provide transcription services.We also have a large number of employees in Canada, Germany and the United Kingdom that provide professional services. A significant portion of thedevelopment of our voice recognition and natural language understanding solutions is conducted in Canada and Germany, and a significant portion of ourimaging research and development is conducted in Hungary and Canada. We also have significant research and development resources collectively inAustria, Belgium, Italy, and the United Kingdom. In addition, we are exposed to changes in foreign currencies including the euro, British pound, Brazilianreal, Canadian dollar, Japanese yen, Indian rupee and Hungarian forint. Changes in the value of foreign currencies relative to the value of the U.S. dollarcould adversely affect future revenue and operating results. Accordingly, our future results could be harmed by a variety of factors associated withinternational sales and operations, including:•the impact on local and global economies of the United Kingdom leaving the European Union;•changes in foreign currency exchange rates or the lack of ability to hedge certain foreign currencies;•changes in a specific country's or region's economic conditions;8 Table of Contents•compliance with laws and regulations in many countries and any subsequent changes in such laws and regulations;•geopolitical turmoil, including terrorism and war;•trade protection measures and import or export licensing requirements imposed by the United States and/or by other countries;•changes in applicable tax laws;•difficulties in staffing and managing operations in multiple locations in many countries;•longer payment cycles of foreign customers and timing of collections in foreign jurisdictions; and•less effective protection of intellectual property than in the United States.If we are unable to attract and retain key personnel, our business could be harmed.If any of our key employees were to leave, we could face substantial difficulty in hiring qualified successors and could experience a loss in productivitywhile any successor obtains the necessary training and experience. Our employment relationships are generally at-will and we have had key employees leavein the past. We cannot assure you that one or more key employees will not leave in the future. We intend to continue to hire additional highly qualifiedpersonnel, including research and development and operational personnel, but may not be able to attract, assimilate or retain qualified personnel in thefuture. Any failure to attract, integrate, motivate and retain these employees could harm our business.Our business is subject to a variety of domestic and international laws, rules, policies and other obligations regarding data protection.We are subject to federal, state and international laws relating to the collection, use, retention, disclosure, security and transfer of personally identifiableand personal health information. In many cases, these laws apply not only to transfers between third-parties, but also to transfers of information between usand our subsidiaries. Many jurisdictions have passed laws in this area, and other jurisdictions are considering imposing additional restrictions. These lawscontinue to evolve and may be inconsistent from jurisdiction to jurisdiction. For example, in April 2016 the European Commission adopted the General DataProtection Regulation (“GDPR”). The GDPR has a two-year phase-in period. Complying with the GDPR and other emerging and changing requirements maycause us to incur substantial costs or require us to change our business practices. Noncompliance could result in penalties or significant legal liability, andcould affect our ability to retain and attract customers.Any failure by us, our suppliers or other parties with whom we do business to comply with our privacy policy or with other federal, state or internationalprivacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others.Security and privacy breaches may damage client relations and inhibit our growth.The confidentiality and security of our, and third party, information is critical to our business. Our services involve the transmission, use, and storage ofcustomers’ and their customer’s confidential information. A failure of our security or privacy measures or policies could have a material adverse effect on ourfinancial operation and results of operations. These measures may be breached through a variety of means resulting in someone obtaining unauthorizedaccess to our or our customers’ information or to our intellectual property. Because the techniques used to obtain unauthorized access, or to sabotage systems,change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implementadequate preventative measures. Any security or privacy breach may:•cause our customers to lose confidence in our solutions;•harm our reputation;•expose us to litigation and liability; and•increase our expenses from potential remediation costs.Interruptions or delays in service from data center hosting facilities could impair the delivery of our services and harm our business.We currently serve our customers from our, third-party, data center hosting facilities, and third-party public cloud facilities. Any damage to, or failure of,the systems that serve our customers in whole or in part could result in interruptions in our service. Interruptions in our service may reduce our revenue, causeus to issue credits or pay service level agreement penalties, cause customers to terminate their on-demand services and adversely affect our renewal rates andour ability to attract new customers.9 Table of ContentsAs part of our business strategy, we acquire other businesses and technologies, and our ability to realize the anticipated benefits of our acquisitions willdepend on successfully integrating the acquired businesses.As part of our business strategy, we have in the past acquired, and expect to continue to acquire, other businesses and technologies. Our prioracquisitions required, and our recently completed acquisitions continue to require, substantial integration and management efforts, and we expect futureacquisitions to require similar efforts. Successfully realizing the benefits of acquisitions involves a number of risks, including:•difficulty in transitioning and integrating the operations and personnel of the acquired businesses;•potential disruption of our ongoing business and distraction of management;•difficulty in incorporating acquired products and technologies into our products and technologies;•potential difficulties in completing projects associated with in-process research and development;•unanticipated expenses and delays in completing acquired development projects and technology integration and upgrades;•management of geographically remote business units both in the United States and internationally;•impairment of relationships with partners and customers;•assumption of unknown material liabilities of acquired companies;•accurate projection of revenue and bookings plans of the acquired entity in the due diligence process;•customers delaying purchases of our products pending resolution of product integration between our existing and our newlyacquired products;•entering markets or types of businesses in which we have limited experience; and•potential loss of key employees of the acquired business.As a result of these and other risks, if we are unable to successfully integrate acquired businesses, we may not realize the anticipated benefits from ouracquisitions. Any failure to achieve these benefits or failure to successfully integrate acquired businesses and technologies could seriously harm our business.Charges to earnings as a result of our acquisitions may adversely affect our operating results in the foreseeable future, which could have a material andadverse effect on the market value of our common stock.Under accounting principles generally accepted in the United States of America, we record the market value of our common stock or other form ofconsideration issued in connection with an acquisition as the cost of acquiring the company or business. We allocate that cost to the individual assetsacquired and liabilities assumed, including various identifiable intangible assets such as acquired technology, acquired trade names and acquired customerrelationships based on their respective fair values. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherentlyuncertain. After we complete an acquisition, the following factors could result in material charges and may adversely affect our operating results and cashflows:•costs incurred to combine the operations of businesses we acquire, such as transitional employee expenses and employee retention,redeployment or relocation expenses;•impairment of goodwill or intangible assets;•amortization of intangible assets acquired;•a reduction in the useful lives of intangible assets acquired;•identification of or changes to assumed contingent liabilities, both income tax and non-income tax related, after our finaldetermination of the amounts for these contingencies or the conclusion of the measurement period (generally up to one year fromthe acquisition date), whichever comes first;•charges to our operating results to eliminate certain duplicative pre-merger activities, to restructure our operations or to reduce ourcost structure;•charges to our operating results resulting from expenses incurred to effect the acquisition; and•charges to our operating results due to the expensing of certain stock awards assumed in an acquisition.10 Table of ContentsIntangible assets are generally amortized over a five to fifteen year period. Goodwill is not subject to amortization but is subject to an impairmentanalysis, at least annually, which may result in an impairment charge if the carrying value exceeds its implied fair value. As of September 30, 2016, we hadidentified intangible assets of approximately $0.8 billion, net of accumulated amortization, and goodwill of approximately $3.5 billion. In addition,purchase accounting limits our ability to recognize certain revenue that otherwise would have been recognized by the acquired company as an independentbusiness. As a result, the combined company may delay revenue recognition or recognize less revenue than we and the acquired company would haverecognized as independent companies.We have grown, and may continue to grow, through acquisitions, which could dilute our existing stockholders and/or increase our debt levels.In connection with past acquisitions, we issued a substantial number of shares of our common stock as transaction consideration, including contingentconsideration, and also incurred significant debt to finance the cash consideration used for our acquisitions. We may continue to issue equity securities forfuture acquisitions, which would dilute existing stockholders, perhaps significantly, depending on the terms of such acquisitions. We may also incuradditional debt in connection with future acquisitions, which, if available at all, may place additional restrictions on our ability to operate our business.Our strategy to increase cloud services, term licensing and transaction-based recurring revenue may adversely affect our near-term revenue growth andresults of operations.Our ongoing shift from a perpetual software license model to cloud services, term licensing and transaction-based recurring revenue models will create arecurring revenue stream that is more predictable. The transition, however, creates risks related to the timing of revenue recognition. We also incur certainexpenses associated with the infrastructures and selling efforts of our hosting offerings in advance of our ability to recognize the revenues associated withthese offerings, which may adversely affect our near-term reported revenues, results of operations and cash flows. A decline in renewals of recurring revenueofferings in any period may not be immediately reflected in our results for that period but may result in a decline in our revenue and results of operations infuture quarters.We have a history of operating losses, and may incur losses in the future, which may require us to raise additional capital on unfavorable terms.We reported net losses of $12.5 million, $115.0 million and $150.3 million in fiscal years 2016, 2015 and 2014, respectively, and have a totalaccumulated deficit of $429.0 million as of September 30, 2016, which has been retrospectively adjusted to reflect the effect of the accounting changemethod of recognizing the amount paid to repurchase common shares in excess of the par value. If we are unable to return to profitability, the market price forour stock may decline, perhaps substantially. We cannot assure you that our revenue or bookings will grow or that we will return to profitability in the future.If we do not achieve profitability, we may be required to raise additional capital to maintain or grow our operations. Additional capital, if available at all,may be highly dilutive to existing investors or contain other unfavorable terms, such as a high interest rate and restrictive covenants.If our efforts to execute our formal transformation program are not successful, our business could be harmed.We have been executing a formal transformation program to focus our product investments on our growth opportunities, increase our operatingefficiencies, reduce costs, and further enhance shareholder value through share buybacks. There can be no assurance that we will be successful in executingthis transformation program or be able to realize the anticipated benefits of this program, within the expected timeframes, or at all. Additionally, if we are notsuccessful in strategically aligning our product portfolio, we may not be able to achieve the anticipated benefits of this program. A failure to successfullyreduce and re-align our costs could have an adverse effect on our revenue and on our expenses and profitability. As a result, our financial results may notmeet our or the expectations of securities analysts or investors in the future and our business could be harmed.Tax matters may cause significant variability in our financial results.Our businesses are subject to income taxation in the United States, as well as in many tax jurisdictions throughout the world. Tax rates in thesejurisdictions may be subject to significant change. If our effective tax rate increases, our operating results and cash flow could be adversely affected. Oureffective income tax rate can vary significantly between periods due to a number of complex factors including, but not limited to:•projected levels of taxable income;•pre-tax income being lower than anticipated in countries with lower statutory rates or higher than anticipated in countries withhigher statutory rates;11 Table of Contents•increases or decreases to valuation allowances recorded against deferred tax assets;•tax audits conducted and settled by various tax authorities;•adjustments to income taxes upon finalization of income tax returns;•the ability to claim foreign tax credits;•the repatriation of non-U.S. earnings for which we have not previously provided for income taxes; and•changes in tax laws and their interpretations in countries in which we are subject to taxation.During 2014, Ireland enacted changes to the taxation of certain Irish incorporated companies effective as of January 2021. On October 5, 2015, theOrganization for Economic Cooperation and Development released the Final Reports for its Action Plan on Base Erosion and Profit Shifting. Theimplementation of one or more of these reports in jurisdictions in which we operate, together with the 2014 enactment by Ireland, could result in an increaseto our effective tax rate.The failure to successfully maintain the adequacy of our system of internal control over financial reporting could have a material adverse impact on ourability to report our financial results in an accurate and timely manner.Under the Sarbanes-Oxley Act of 2002, we were required to develop and are required to maintain an effective system of disclosure controls and internalcontrol over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. Inaddition, our management is required to assess and certify the adequacy of our controls on a quarterly basis, and our independent auditors must attest onreport on the effectiveness of our internal control over financial reporting on an annual basis. Any failure in the effectiveness of our system of internal controlover financial reporting could have a material adverse impact on our ability to report our financial statements in an accurate and timely manner. Inaccurateand/or untimely financial statements could subject us to regulatory actions, civil or criminal penalties, shareholder litigation, or loss of customer confidence,which could result in an adverse reaction in the financial marketplace and ultimately could negatively impact our stock price due to a loss of investorconfidence in the reliability of our financial statements.Impairment of our intangible assets could result in significant charges that would adversely impact our future operating results.We have significant intangible assets, including goodwill and intangibles with indefinite lives, which are susceptible to valuation adjustments as a resultof changes in various factors or conditions. The most significant intangible assets are customer relationships, patents and core technology, completedtechnology and trademarks. Customer relationships are amortized on an accelerated basis based upon the pattern in which the economic benefits of customerrelationships are being utilized. Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. We assess thepotential impairment of intangible assets on an annual basis, as well as whenever events or changes in circumstances indicate that the carrying value may notbe recoverable. Factors that could trigger an impairment of such assets include the following:•significant underperformance relative to historical or projected future operating results;•significant changes in the manner of or use of the acquired assets or the strategy for our overall business;•significant negative industry or economic trends;•significant decline in our stock price for a sustained period;•changes in our organization or management reporting structure that could result in additional reporting units, which may requirealternative methods of estimating fair values or greater disaggregation or aggregation in our analysis by reporting unit; and•a decline in our market capitalization below net book value.Future adverse changes in these or other unforeseeable factors could result in an impairment charge that would impact our results of operations andfinancial position in the reporting period identified.Our sales to government clients subject us to risks, including early termination, audits, investigations, sanctions and penalties.We derive a portion of our revenues and bookings from contracts with the United States government, as well as various state and local governments, andtheir respective agencies. Government contracts are generally subject to oversight, including audits and investigations which could identify violations ofthese agreements. Government contract violations could result in a range of consequences including, but not limited to, contract price adjustments, civil andcriminal penalties, contract termination, forfeiture of profit and/or suspension of payment, and suspension or debarment from future government contracts.We could also suffer serious harm to our reputation if we were found to have violated the terms of our government contracts.12 Table of ContentsRisks Related to Our Intellectual Property and TechnologyUnauthorized use of our proprietary technology and intellectual property could adversely affect our business and results of operations.Our success and competitive position depend in large part on our ability to obtain and maintain intellectual property rights protecting our products andservices. We rely on a combination of patents, copyrights, trademarks, service marks, trade secrets, confidentiality provisions and licensing arrangements toestablish and protect our intellectual property and proprietary rights. Unauthorized parties may attempt to copy or discover aspects of our products or toobtain, license, sell or otherwise use information that we regard as proprietary. Policing unauthorized use of our products is difficult and we may not be ableto protect our technology from unauthorized use. Additionally, our competitors may independently develop technologies that are substantially the same orsuperior to our technologies and that do not infringe our rights. In these cases, we would be unable to prevent our competitors from selling or licensing thesesimilar or superior technologies. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of theUnited States. Although the source code for our proprietary software is protected both as a trade secret and as a copyrighted work, litigation may be necessaryto enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others, or to defendagainst claims of infringement or invalidity. Litigation, regardless of the outcome, can be very expensive and can divert management efforts.Third parties have claimed and may claim in the future that we are infringing their intellectual property, and we could be exposed to significantlitigation or licensing expenses or be prevented from selling our products if such claims are successful.From time to time, we are subject to claims that we or our customers may be infringing or contributing to the infringement of the intellectual propertyrights of others. We may be unaware of intellectual property rights of others that may cover some of our technologies and products. If it appears necessary ordesirable, we may seek licenses for these intellectual property rights. However, we may not be able to obtain licenses from some or all claimants, the terms ofany offered licenses may not be acceptable to us, and we may not be able to resolve disputes without litigation. Any litigation regarding intellectual propertycould be costly and time-consuming and could divert the attention of our management and key personnel from our business operations. Intellectual propertydisputes could subject us to significant liabilities, require us to enter into royalty and licensing arrangements on unfavorable terms, prevent us frommanufacturing or licensing certain of our products, cause severe disruptions to our operations or the markets in which we compete, or require us to satisfyindemnification commitments with our customers including contractual provisions under various arrangements. Any of these could seriously harm ourbusiness.Our software products may have bugs, which could result in delayed or lost revenue and bookings, expensive correction, liability to our customers andclaims against us.Complex software products such as ours may contain errors, defects or bugs. Defects in the solutions or products that we develop and sell to ourcustomers could require expensive corrections and result in delayed or lost revenue and bookings, adverse customer reaction and negative publicity about usor our products and services. Customers who are not satisfied with any of our products may also bring claims against us for damages, which, even ifunsuccessful, would likely be time-consuming to defend, and could result in costly litigation and payment of damages. Such claims could harm ourreputation, financial results and competitive position.Risks Related to our Corporate Structure, Organization and Common StockOur debt agreements contain covenant restrictions that may limit our ability to operate our business.Our debt agreements contain, and any of our other future debt agreements or arrangements may contain, covenant restrictions that limit our ability tooperate our business, including restrictions on our ability to:•incur additional debt or issue guarantees;•create liens;•make certain investments;•enter into transactions with our affiliates;•sell certain assets;•repurchase capital stock or make other restricted payments;•declare or pay dividends or make other distributions to stockholders; and•merge or consolidate with any entity.13 Table of ContentsOur ability to comply with these limitations is dependent on our future performance, which will be subject to many factors, some of which are beyondour control, including prevailing economic conditions. As a result of these limitations, our ability to respond to changes in business and economicconditions and to obtain additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that mightotherwise be beneficial to us. In addition, our failure to comply with our debt covenants could result in a default under our debt agreements, which couldpermit the holders to accelerate our obligation to repay the debt. If any of our debt is accelerated, we may not have sufficient funds available to repay theaccelerated debt.Our significant debt could adversely affect our financial health and prevent us from fulfilling our obligations under our credit facility and ourconvertible debentures.We have a significant amount of debt. As of September 30, 2016, we had a total of $2,685.9 million face value of debt outstanding, which includes$1,050.0 million of senior notes due in 2020, $300.0 million of senior notes due in 2024, and $1,335.9 million in convertible debentures. Investors mayrequire us to redeem the 2031 Debentures, 1.5% 2035 Debentures, or 1.0% 2035 Debentures, totaling $395.5 million, $263.9 million, and $676.5 million,respectively, in aggregate principal amount in November 2017, November 2021, or December 2022, respectively, or sooner if the closing sale price of ourcommon stock is more than 130% of the then current conversion price for certain specified periods. If a holder elects to convert, we will be required to pay theprincipal amount in cash and any amounts payable in excess of the principal amount will be paid in cash or shares of our common stock, at our election. Wealso have a $242.5 million Revolving Credit Facility under which $4.0 million was committed to backing outstanding letters of credit issued and $238.5million was available for borrowing at September 30, 2016. Our debt level could have important consequences, for example it could:•require us to use a large portion of our cash flow to pay principal and interest on debt, including the convertible debentures and thecredit facility, which will reduce the availability of our cash flow to fund working capital, capital expenditures, acquisitions,research and development, exploiting business opportunities, and other business activities;•place us at a competitive disadvantage compared to our competitors that have less debt; and•limit, along with the financial and other restrictive covenants related to our debt, our ability to borrow additional funds, dispose ofassets or pay cash dividends.Our ability to meet our payment and other obligations under our debt instruments depends on our ability to generate significant cash flow in the future.This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond ourcontrol. We cannot assure you that our business will generate cash flow from operations, or that additional capital will be available to us, in an amountsufficient to enable us to meet our payment obligations under the convertible debentures and our other debt and to fund other liquidity needs. If we are notable to generate sufficient cash flow to service our debt obligations, we may need to refinance or restructure our debt, including the convertible debentures,sell assets, reduce or delay capital investments, or seek to raise additional capital. If we are unable to implement one or more of these alternatives, we may notbe able to meet our payment obligations under the convertible debentures and our other debt.The market price of our common stock has been and may continue to be subject to wide fluctuations, and this may make it difficult for you to resell thecommon stock when you want or at prices you find attractive.Our stock price historically has been, and may continue to be, volatile. Various factors contribute to the volatility of our stock price, including, forexample, quarterly variations in our financial results, new product introductions by us or our competitors and general economic and market conditions. Salesof a substantial number of shares of our common stock by our largest stockholders, or the perception that such sales could occur, could also contribute to thevolatility or our stock price. While we cannot predict the individual effect that any of these factors may have on the market price of our common stock, thesefactors, either individually or in the aggregate, could result in significant volatility in our stock price during any given period of time. Moreover, companiesthat have experienced volatility in the market price of their stock often are subject to securities class action litigation. Any such litigation could result insubstantial costs and divert management's attention and resources.Current uncertainty in the global financial markets and the global economy may negatively affect the value of our investment portfolio.Our investment portfolio, which includes investments in money market funds, bank deposits and a separately managed investment portfolio, is generallysubject to credit, liquidity, counterparty, market and interest rate risks that may be exacerbated by a global financial crisis or by uncertainty surrounding theUnited Kingdom's exit from the European Union. If the banking system or the fixed income, credit or equity markets deteriorate or remain volatile, ourinvestment portfolio may be impacted and the values and liquidity of our investments could be adversely affected.14 Table of ContentsFuture issuances of our common stock could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.Future issuances of substantial amounts of our common stock, whether in the public market or through private placements, including issuances inconnection with acquisition activities, or the perception that such issuances could occur, could adversely affect prevailing trading prices of our commonstock and could impair our ability to raise capital through future offerings of equity or equity-related securities. In connection with past acquisitions, weissued a substantial number of shares of our common stock as transaction consideration or contingent consideration. We may continue to issue equitysecurities for future acquisitions, which would dilute existing stockholders, perhaps significantly depending on the terms of such acquisitions. No predictioncan be made as to the effect, if any, that future sales of shares of common stock, or the availability of shares of common stock for future sale, will have on thetrading price of our common stock.Our business could be negatively affected as a result of the actions of activist stockholders.Responding to actions by activist stockholders can be costly and time-consuming, disrupting our operations and diverting the attention of managementand our employees. Furthermore, any perceived uncertainties as to our future direction could result in the loss of potential business opportunities, and maymake it more difficult to attract and retain qualified personnel and business partners.15 Table of ContentsItem 1B.Unresolved Staff CommentsNone.Item 2.PropertiesOur corporate headquarters are located in Burlington, Massachusetts. As of September 30, 2016, we leased approximately 1.4 million square feet ofbuilding space, primarily in the United States, and to a lesser extent, in Europe, Canada, Japan and the Asia-Pacific regions. Larger leased sites includeproperties located in: Montreal, Canada; Sunnyvale, California; and Bangalore, India. In addition, we own 130,000 square feet of building space located inMelbourne, Florida.We also include in the total square feet leased space leased in specialized data centers in Massachusetts, Texas, Washington, the United Kingdom andsmaller facilities around the world.We believe our existing facilities and equipment, which are used by all of our operating segments, are in good operating condition and are suitable forthe conduct of our business.Item 3.Legal ProceedingsSimilar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arisefrom time to time relating to matters incidental to the ordinary course of our business, including actions with respect to contracts, intellectual property,employment, benefits and securities matters. We have estimated the amount of probable losses that may result from all currently pending matters, and suchamounts are reflected in our consolidated financial statements. These recorded amounts are material neither to our consolidated financial position nor resultsof operations and no additional material losses related to these pending matters are reasonably possible. While it is not possible to predict the outcome ofthese matters with certainty, we do not expect the results of any of these actions to have a material adverse effect on our results of operations or financialposition. However, each of these matters is subject to uncertainties, the actual losses may prove to be larger or smaller than the accruals reflected in ourconsolidated financial statements, and we could incur judgments or enter into settlements of claims that could adversely affect our financial position, resultsof operations or cash flows.Item 4.Mine Safety DisclosuresNot applicable.16 Table of ContentsPART IIItem 5.Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesMarket InformationOur common stock is traded on the NASDAQ Global Select Market under the symbol “NUAN”. The following table sets forth, for our fiscal quartersindicated, the high and low sales prices of our common stock, in each case as reported on the NASDAQ Global Select Market. Low HighFiscal Year 2015: First quarter$13.69 $16.28Second quarter13.20 14.60Third quarter13.78 18.37Fourth quarter14.37 18.96Fiscal Year 2016: First quarter15.97 21.83Second quarter15.86 20.56Third quarter14.56 19.27Fourth quarter13.74 16.41HoldersAs of October 31, 2016, there were 676 stockholders of record of our common stock. Because many of our shares of common stock are held by brokersand other institutions on behalf of stockholders, we are unable to estimate the total number of beneficial owners represented by these record holders.Dividend PolicyWe have never declared or paid any cash dividends on our common stock. We currently expect to retain future earnings, if any, to finance the growthand development of our business, or to purchase common stock under our share repurchase program and do not anticipate paying any cash dividends in theforeseeable future. Furthermore, the terms of our debt agreements place restrictions on our ability to pay dividends, except for stock dividends.Issuer Purchases of Equity SecuritiesOn April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million of our outstanding shares of common stock.On April 29, 2015, our Board of Directors approved an additional $500.0 million under our share repurchase program. The plan has no expiration date. Therewere no repurchases under the program during the three months ended September 30, 2016.For the majority of restricted stock units granted to employees, the number of shares issued on the date the restricted stock units vest is net of a numberof shares equal in value to the minimum statutory income withholding tax requirements. We withhold these shares and pay the applicable withholdingamounts in cash to the applicable taxing authorities on behalf of our employees. We do not consider these transactions to be common stock repurchases.Unregistered Sales of Equity Securities and Use of ProceedsDuring the fourth quarter of fiscal year 2016, we issued 403,325 shares of our common stock to our partner in a healthcare collaboration agreement assettlement for a buy-out option and 5,749,807 shares of our common stock as consideration for our acquisition of TouchCommerce, Inc. All of the precedingshares were issued in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, provided by Section 4(a)(2)thereof because the issuance did not involve a public offering.17 Table of ContentsItem 6.Selected Consolidated Financial DataThe following selected consolidated financial data is not necessarily indicative of the results of future operations and should be read in conjunctionwith “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notesincluded elsewhere in this Annual Report on Form 10-K. Fiscal Year Ended September 30,(Dollars in millions, except per share amounts)2016 2015 2014 2013 2012Operations: Total revenues$1,948.9 $1,931.1 $1,923.5 $1,855.3 $1,651.5Gross profit1,119.4 1,102.6 1,080.9 1,091.1 1,049.1Income (loss) from operations138.5 54.9 (21.4) 48.5 126.2Provision (benefit) for income taxes14.2 34.5 (4.7) 18.6 (141.8)Net (loss) income$(12.5) $(115.0) $(150.3) $(115.2) $207.1Net (Loss) Income Per Share Data: Basic$(0.04) $(0.36) $(0.47) $(0.37) $0.67Diluted$(0.04) $(0.36) $(0.47) $(0.37) $0.65Weighted average common sharesoutstanding: Basic292.1 317.0 316.9 313.6 306.4Diluted292.1 317.0 316.9 313.6 320.8Financial Position: Cash and cash equivalents and marketablesecurities$608.1 $568.8 $588.2 $846.8 $1,129.8Total assets5,661.5 5,511.9 5,738.2 5,854.1 5,685.4Long-term debt, net of current portion2,433.2 2,103.1 2,108.4 2,084.1 1,708.8Total deferred revenue736.2 668.2 548.1 414.6 315.1Total stockholders’ equity1,931.3 2,265.3 2,582.0 2,638.0 2,728.3Selected Data and Ratios: Working capital$347.7 $360.2 $466.5 $529.3 $648.9Depreciation of property and equipment60.6 62.4 51.7 39.8 31.7Amortization of intangible assets170.9 168.3 170.1 168.8 155.5Gross margin percentage57.4% 57.1% 56.2% 58.8% 63.5%Item 7.Management's Discussion and Analysis of Financial Condition and Results of OperationsThe following Management’s Discussion and Analysis is intended to help the reader understand the results of operations and financial condition ofour business. Management’s Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our consolidated financialstatements and the accompanying notes to the consolidated financial statements.Trends in Our BusinessWe are a leading provider of voice recognition and natural language understanding solutions. Our solutions and technologies are used in thehealthcare, mobile, consumer, enterprise customer service, and imaging markets. We are seeing several trends in our markets, including (i) the growingadoption of cloud-based, connected services and highly interactive mobile applications, (ii) deeper integration of virtual assistant capabilities and services,and (iii) the continued expansion of our core technology portfolio from speech recognition to natural language understanding, semantic processing, domain-specific reasoning, dialog management capabilities, artificial intelligence, and biometric speaker authentication.During the first quarter of fiscal year 2016, we reorganized the organizational management and oversight of our Dragon Consumer business, which waspreviously reported within our Mobile segment and has now been moved into our Healthcare segment. During the second quarter of fiscal year 2016, wereclassified certain government payroll incentive credits previously reported in the general and administrative expense to research and development expense,cost of revenue and sales and marketing.18 Table of ContentsAccordingly, the segment results in prior periods have been recast to conform to the current period segment presentation. These changes had no impact onconsolidated net income or cash flows in any period.Confronted by dramatic increases in electronic information, consumers, business personnel and healthcare professionals must use a variety of resourcesto retrieve information, transcribe patient records, conduct transactions and perform other job-related functions. We believe that the power of our solutionscan transform the way people use the Internet, telecommunications systems, electronic medical records ("EMR"), wireless and mobile networks and relatedcorporate infrastructure to conduct business.•Healthcare. Trends in our healthcare business include growing customer preference for hosted solutions and subscription-based license modelsand increased use of mobile devices to access healthcare systems and create clinical documentation within electronic health record systems. Inaddition, we experienced growing demand in bundled arrangements, combining our Dragon Medical and hosted transcription offerings. Thevolume processed in our hosted transcription services has continued to experience erosion as customers adopt electronic medical record systemsand our Dragon Medical solutions. This decline has been partially offset by new customer wins and the increased sale of bundled arrangements ofour transcription and Dragon Medical solutions. We have also experienced some decline in our licensed Dragon Medical product sales ascustomers shift toward Dragon Medical cloud and subscription offerings, and we expect these trends to continue into fiscal year 2017. These cloudofferings are enabling the expansion of our Dragon Medical solutions to include new clinical language understanding and artificial intelligenceinnovations, providing real time queries to the physician at the point of care. We believe an important trend in the healthcare market is the desire toimprove efficiency in the coding and revenue cycle management process. Our solutions reduce costs by increasing automation of this importantworkflow and also enable hospitals to improve documentation used to support billings. The industry’s recent shift in international classification ofdiseases ("ICD") from ICD-9 to ICD-10, together with evolving reimbursement reform that is increasingly focused on clinical outcomes, hasincreased the complexity of the clinical documentation and coding processes. This recent shift is reinforcing our customers’ desire for improvedefficiency. We are investing to expand our product set to address the various opportunities, including deeper integration with our clinicaldocumentation solutions; investing in our cloud-based products and operations; entering new and adjacent markets such as ambulatory care; andexpanding our international capabilities.•Mobile. Trends in our mobile business include automotive OEMs differentiating using voice and content to provide an enhanced experience fordrivers; consumer electronics companies and cable operators competing to develop virtual assistant technologies for the home; geographicexpansion of our mobile operator services; and, the adoption of our technology on a broadening scope of devices, such as televisions, set-topboxes, and third-party applications. The more powerful capabilities within automobiles and mobile devices require us to supply a broader portfolioof specialized virtual assistants and connected services providing voice recognition, content integration, text-to-speech, and natural languageunderstanding capabilities. Within given levels of our technology set, we have seen growth opportunities limited by the consolidation of thehandset market to a small number of customers as well as increased competition in voice recognition and natural language solutions and servicessold to OEMs. We continue to see demand involving the sale and delivery of both software and non-software related services, as well as products tohelp customers define, design and implement increasingly robust and complex custom solutions such as virtual assistants. We continue to see anincreasing proportion of revenue from on-demand and transactional arrangements as opposed to traditional perpetual licensing of our Mobileproducts and solutions. Although this has a negative impact on near-term revenue, we believe this model will build more predictable revenues overtime. We are investing in the expansion of the cloud capabilities and content of our automotive solutions; machine learning technologies,expansion across the IoT in our devices solutions; and go-to market strategies with mobile operators.•Enterprise. Trends in our enterprise business include increasing interest in the use of mobile applications and web sites to access customer caresystems and records, voice-based authentication of users, increasing interest in coordinating actions and data across customer care channels, andthe ability of a broader set of hardware providers and systems integrators to serve the market. In addition, for large enterprise businesses around theworld, customer service interactions are accelerating toward more pervasive digital engagement across web, mobile and social platforms. In order toacquire and retain customers, enterprises need to be able to provide a customer service experience when and how the customer desires. This iscreating a growing market opportunity for our enterprise business, and with the acquisition of TouchCommerce, Inc., which closed during thefourth quarter of fiscal year 2016, we will be able to provide an end-to-end engagement platform that merges intelligent self-service with assistedservice to increase customer satisfaction, strengthen customer loyalty and improve business results. In fiscal year 2016, revenues and bookings fromon-demand solutions continued to increase, as a growing proportion of customers choose our cloud-based solutions for call center, web and mobilecustomer care solutions. We expect these trends to continue in fiscal year 2017. We are investing to extend our technology capabilities withintelligent self-service and artificial intelligence for customer service; expand19 Table of Contentsour on-demand multichannel cloud to international markets; expand our sales and solutions for voice biometrics; and expand our on-premiseproduct and services portfolio.•Imaging. The imaging market is evolving to include more networked solutions to multi-function printing devices, as well as more mobile access tothose networked solutions, and away from packaged software. We are investing to merge the scan and print technology platforms to improvemobile access to our solutions and technologies; expand our distribution channels and embedding relationships; and expand our languagecoverage for OCR in order to drive a more comprehensive and compelling offering to our partners.Key MetricsIn evaluating the financial condition and operating performance of our business, management focuses on revenue, net income, gross margins, operatingmargins, cash flow from operations, and changes in deferred revenue. A summary of these key financial metrics is as follows:For the fiscal year ended September 30, 2016, as compared to the fiscal year ended September 30, 2015:•Total revenue increased by $17.8 million to $1,948.9 million;•Net loss decreased by $102.6 million to a loss of $12.5 million;•Gross margins increased by 0.3 percentage points to 57.4%;•Operating margins increased by 4.3 percentage points to 7.1%;•Cash provided by operating activities for the fiscal year ended September 30, 2016 was $565.8 million, an increase of $78.2 million fromthe prior fiscal year.As of September 30, 2016, as compared to September 30, 2015:•Total deferred revenue increased 10.2% to $736.1 million driven by growth in our on-demand automotive business in our Mobile segmentas well as growth in maintenance and support contracts.In addition to the above key financial metrics, we also focus on certain operating metrics. A summary of these key operating metrics as of and for theyear ended September 30, 2016, as compared to the same period in 2015, is as follows:•Net new bookings increased 3.6% from one year ago to $1.5 billion. The net new booking growth was led by our Healthcare and Enterprisesegments.Bookings represent the estimated gross revenue value of transactions at the time of contract execution, except for maintenance and supportofferings. For fixed price contracts, the bookings value represents the gross total contract value. For contracts where revenue is based on transactionvolume, the bookings value represents the contract price multiplied by the estimated future transaction volume during the contract term, whether ornot such transaction volumes are guaranteed under a minimum commitment clause. Actual results could be different than our initial estimate. Themaintenance and support bookings value represents the amounts the customer is invoiced in the period. Because of the inherent estimates requiredto determine bookings and the fact that the actual resultant revenue may differ from our initial bookings estimates, we consider bookings oneindicator of potential future revenue and not as an arithmetic measure of backlog.Net new bookings represents the estimated revenue value at the time of contract execution from new contractual arrangements or the estimatedrevenue value incremental to the portion of value that will be renewed under pre-existing arrangements.•Segment recurring revenue represented 69.7% and 66.4% of total segment revenue in fiscal years 2016 and 2015, respectively. Segment recurringrevenue represents the sum of recurring product and licensing, on-demand, and maintenance and support revenues as well as the portion ofprofessional services revenue delivered under ongoing contracts. Recurring product and licensing revenue comprises term-based and ratablelicenses as well as revenues from royalty arrangements;•Annualized line run-rate in our healthcare on-demand solutions decreased 9.0% from one year ago to approximately 4.8 billion lines per year. Theannualized line run-rate is determined using billed equivalent line counts in a given quarter, multiplied by four; and20 Table of Contents•Estimated three-year value of total on-demand contracts increased 6.0% from one year ago to approximately $2.4 billion. We determine this valueas of the end of the period reported, by using our estimate of three years of anticipated future revenue streams under signed on-demand contractsthen in place, whether or not they are guaranteed through a minimum commitment clause. Our estimate is based on assumptions used in evaluatingthe contracts and determining sales compensation, adjusted for changes in estimated launch dates, actual volumes achieved and other factorsdeemed relevant. For contracts with an expiration date beyond three years, we include only the value expected within three years. For othercontracts, we assume renewal consistent with historic renewal rates unless there is a known cancellation. Contracts are generally priced by volumeof usage and typically have no or low minimum commitments. Actual revenue could vary from our estimates due to factors such as cancellations,non-renewals or volume fluctuations.RESULTS OF OPERATIONSTotal RevenuesThe following tables show total revenues by product type and revenue by geographic location, based on the location of our customers, in dollars andpercentage change (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Product and licensing$669.2 $696.3 $711.0 (3.9)% (2.1)%Professional services and hosting955.3 919.5 910.9 3.9 % 0.9 %Maintenance and support324.3 315.4 301.5 2.8 % 4.6 %Total Revenues$1,948.9 $1,931.1 $1,923.5 0.9 % 0.4 %United States$1,385.3 $1,407.3 $1,408.2 (1.6)% (0.1)%International563.6 523.9 515.2 7.6 % 1.7 %Total Revenues$1,948.9 $1,931.1 $1,923.5 0.9 % 0.4 %Fiscal Year 2016 Compared with Fiscal Year 2015The geographic split for fiscal year 2016 was 71% of total revenue in the United States and 29% internationally, as compared to 73% of total revenuein the United States and 27% internationally for the same period last year.Fiscal Year 2015 Compared with Fiscal Year 2014The geographic split for fiscal years 2015 and 2014 was 73% of total revenue in the United States and 27% internationally. International revenue wasnegatively impacted by weakening foreign currencies offset by an increase in revenue driven by an acquisition in fiscal year 2015.Product and Licensing RevenueProduct and licensing revenue primarily consists of sales and licenses of our technology. The following table shows product and licensing revenue, indollars and as a percentage of total revenues (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016vs. 2015 % Change 2015vs. 2014Product and licensing revenue$669.2 $696.3 $711.0 (3.9)% (2.1)%As a percentage of total revenues34.3% 36.1% 37.0% Fiscal Year 2016 Compared with Fiscal Year 2015The decrease in product and licensing revenue consisted of a $26.2 million decrease in our Mobile segment and a $24.1 million decrease in ourHealthcare segment, partially offset by a $13.7 million increase in our Enterprise segment and a $9.6 million increase in our Imaging segment. The revenuedecrease in our Mobile business was driven by a decline in handset revenues resulting from deterioration in mature markets, partially offset by revenuegrowth in our automotive business. The revenue decrease in our Healthcare segment was mainly driven by lower revenues from our licensed Dragon Medicalproduct sales as we transition from perpetual to cloud and subscription models. These decreases were partially offset with higher license sales primarilyrelated to our on-premise solutions within our Enterprise segment and our print management and capture products within our Imaging segment.21 Table of ContentsAs a percentage of total revenue, product and licensing revenue decreased from 36.1% to 34.3% for the year ended September 30, 2016. This decreasewas primarily driven by our recent acquisitions which have a higher proportion of professional services and hosting revenue as well as continued transitionfrom perpetual licensing model to term-licensing model, which is recognized over time, and to cloud and subscription models.Fiscal Year 2015 Compared with Fiscal Year 2014The decrease in product and licensing revenue consisted of a $25.5 million decrease in our Healthcare business, partially offset by a $12.6 millionincrease in our Mobile business. The decrease in Healthcare revenue was driven primarily by a $14.5 million decrease in Dragon solutions sales and lowerlicense sales of our clinical documentation solutions as we continue to see a shift toward a term-licensing model. Within our Mobile business, license sales inour automotive business increased $25.2 million, partially offset by a $10.2 million decrease in our handset solutions as the device market continues toconsolidate.As a percentage of total revenue, product and licensing revenue decreased from 37.0% to 36.1% for the year ended September 30, 2015. This decreasewas primarily driven by our recent acquisitions which have a higher proportion of on-demand hosting revenue. Within product and licensing revenue, we arealso seeing transition from perpetual licensing model to term-licensing model which is recognized over time.Professional Services and Hosting RevenueProfessional services revenue primarily consists of consulting, implementation and training services for customers. Hosting revenue primarily relates todelivering on-demand hosted services, such as medical transcription, automated customer care applications, mobile operator services, and mobileinfotainment, search and transcription, over a specified term. The following table shows professional services and hosting revenue, in dollars and as apercentage of total revenues (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Professional services and hosting revenue$955.3 $919.5 $910.9 3.9% 0.9%As a percentage of total revenues49.0% 47.6% 47.4% Fiscal Year 2016 Compared with Fiscal Year 2015The increase in professional services and hosting revenue was driven by a $20.8 million increase in hosting revenue and a $15.1 million increase inprofessional services revenue. In our hosting business, Mobile hosting revenue grew $21.9 million primarily driven by continued trend toward cloud-basedservices in our automotive and devices solutions. Enterprise hosting revenue increased $19.7 million. These increases were partially offset by a $20.8 milliondecrease in the Healthcare hosting revenue as we continue to experience erosion in our transcription services owed in part to the growing penetration of ourDragon Medical cloud and subscription offerings. In our professional services business, the revenue increase was driven primarily by a $13.6 million increasein our Healthcare segment driven by a recent acquisition.Fiscal Year 2015 Compared with Fiscal Year 2014The increase in professional services and hosting revenue was driven by a $19.3 million increase in hosting revenue offset by a $10.7 million decreasein professional services revenue. In our hosting business, Mobile on-demand revenue grew $21.2 million driven by a continued trend toward cloud servicesin our automotive and devices solutions, as well as a recent acquisition in our mobile operator services. Enterprise on-demand revenue grew $7.3 million.These increases were offset by a $9.2 million decrease in Healthcare hosting revenue as we continue to experience some volume erosion in our transcriptionsolutions. In our professional services business, Enterprise professional services revenue decreased $20.2 million driven by lower professional services fromour on-premise solutions, partially offset by a $10.5 million increase in Healthcare professional services driven by our CDI and coding solutions.As a percentage of total revenue, professional services and hosting revenue increased from 47.3% for the year ended September 30, 2014 to 47.6% forthe year ended September 30, 2015. This increase was driven by our recent acquisitions which have a higher proportion of professional services and hostingrevenue. The increase also includes the continuing shift toward on-demand and hosting services in our Mobile segment and Enterprise segment.Maintenance and Support RevenueMaintenance and support revenue primarily consists of technical support and maintenance services. The following table shows maintenance andsupport revenue, in dollars and as a percentage of total revenues (dollars in millions):22 Table of Contents Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Maintenance and support revenue$324.3 $315.4 $301.5 2.8% 4.6%As a percentage of total revenues16.6% 16.3% 15.7% Fiscal Year 2016 Compared with Fiscal Year 2015The increase in maintenance and support revenue was driven primarily by maintenance renewals in our Imaging segment and prior year license sales inour Healthcare segment, partially offset by a decline in maintenance renewals in our Mobile segment.Fiscal Year 2015 Compared with Fiscal Year 2014The increase in maintenance and support revenue was driven by strong maintenance renewals, including an increase of $11.1 million in Healthcaremaintenance and support revenue and an increase of $5.9 million in Imaging maintenance and support revenue.COSTS AND EXPENSESCost of Product and Licensing RevenueCost of product and licensing revenue primarily consists of material and fulfillment costs, manufacturing and operations costs and third-party royaltyexpenses. The following table shows the cost of product and licensing revenue, in dollars and as a percentage of product and licensing revenue (dollars inmillions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Cost of product and licensing revenue$86.4 $91.8 $97.6 (5.9)% (5.9)%As a percentage of product and licensingrevenue12.9% 13.2% 13.7% Fiscal Year 2016 Compared with Fiscal Year 2015The decrease in cost of product and licensing revenue was primarily driven by lower costs in our Mobile and Healthcare segments. Gross marginsincreased 0.3 percentage points, primarily driven by higher revenues from higher margin license products in our Enterprise and Imaging segments.Fiscal Year 2015 Compared to Fiscal Year 2014This decrease in cost of product and licensing revenue was primarily driven by a $3.4 million decrease in costs within our Imaging segment. Grossmargins increased 0.5 percentage points, primarily driven by higher revenues from higher margin license products in our Mobile business.Cost of Professional Services and Hosting RevenueCost of professional services and hosting revenue primarily consists of compensation for services personnel, outside consultants and overhead, as wellas the hardware, infrastructure and communications fees that support our hosting solutions. The following table shows the cost of professional services andhosting revenue, in dollars and as a percentage of professional services and hosting revenue (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Cost of professional services and hostingrevenue$626.2 $618.6 $631.7 1.2% (2.1)%As a percentage of professional services andhosting revenue65.5% 67.3% 69.3% Fiscal Year 2016 Compared with Fiscal Year 2015The increase in cost of professional services and hosting revenue was primarily driven by higher professional services compensation expense in ourHealthcare segment and higher hosting services expenses in our Enterprise segment driven by recent23 Table of Contentsacquisitions. These increases were partially offset by a reduction in medical transcription expense and Mobile cloud-based services expenses as a result of ourcost-savings initiatives including our on-going efforts to move costs and activities to lower-cost countries. Gross margins increased 1.7 percentage pointsprimarily driven by margin expansion in our cloud-based services within our Mobile segment, partially offset by higher professional services revenue in ourHealthcare segment which carries a lower gross margin.Fiscal Year 2015 Compared with Fiscal Year 2014The decrease in cost of professional services and hosting revenue was due to a $8.4 million and a $8.1 million reduction in costs in our Enterprise andHealthcare segments, respectively, driven by lower compensation related expense and our on-going efforts to move costs to lower-cost countries during thefiscal year. These decreases were partially offset by a $3.2 million increase in costs within our Mobile business driven by investment in our connectedservices infrastructure. Gross margins improved 2.1 percentage points primarily driven by our cost-savings initiatives including the impact from our on-goingefforts to move costs to lower-cost countries in our Healthcare business as well as higher revenues from higher margin hosting services in our Mobilebusiness.Cost of Maintenance and Support RevenueCost of maintenance and support revenue primarily consists of compensation for product support personnel and overhead. The following table showscost of maintenance and support revenue, in dollars and as a percentage of maintenance and support revenue (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2015 vs.2014 % Change 2014 vs.2013Cost of maintenance and support revenue$54.1 $54.4 $52.3 (0.6)% 4.0%As a percentage of maintenance and supportrevenue16.7% 17.3% 17.3% Fiscal Year 2016 Compared with Fiscal Year 2015The decrease in cost of maintenance and support revenue was primarily driven by lower compensation related expense. Gross margins increased 0.6percentage points primarily driven by higher maintenance and support revenue in our Healthcare and Imaging segments.Fiscal Year 2015 Compared with Fiscal Year 2014The increase in cost of maintenance and support revenue was related to an acquisition in our Imaging segment that was completed during the fourthquarter of fiscal year 2014. Gross margins were flat.Research and Development ExpenseResearch and development expense primarily consists of salaries, benefits, and overhead relating to engineering staff as well as third party engineeringcosts. The following table shows research and development expense, in dollars and as a percentage of total revenues (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Research and development expense$271.1 $306.9 $333.8 (11.7)% (8.1)%As a percentage of total revenues13.9% 15.9% 17.4% Fiscal Year 2016 Compared with Fiscal Year 2015The decrease in research and development expense was primarily attributable to a reduction of $26.7 million in total compensation costs, includingstock-based compensation, as we benefited from our cost-savings initiatives including our restructuring plans executed during the period and our on-goingefforts to move costs and activities to lower-cost countries during the fiscal year.24 Table of ContentsFiscal Year 2015 Compared with Fiscal Year 2014The decrease in research and development expense was primarily attributable to a reduction of $17.2 million in costs associated with the expiration ofcollaboration agreements. In addition, compensation costs, including stock-based compensation, decreased $6.5 million as we benefited from our cost-savings initiatives including the impact from our restructuring plan executed during the third quarter of fiscal year 2015 and our on-going efforts to movecosts to lower-cost countries during the fiscal year.Sales and Marketing ExpenseSales and marketing expense includes salaries and benefits, commissions, advertising, direct mail, public relations, tradeshow costs and other costs ofmarketing programs, travel expenses associated with our sales organization and overhead. The following table shows sales and marketing expense, in dollarsand as a percentage of total revenues (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Sales and marketing expense$390.9 $410.9 $424.5 (4.9)% (3.2)%As a percentage of total revenues20.1% 21.3% 22.1% Fiscal Year 2016 Compared with Fiscal Year 2015The decrease in sales and marketing expense was primarily attributable to a $6.1 million decrease in marketing and channel program spending, a $4.6million decrease in travel related expenses, and a $3.8 million decrease in total compensation costs, including stock-based compensation expense, as webenefited from our cost-saving initiatives including our restructuring plans executed during the period. In addition, sales and marketing expense decreased$4.0 million as a result of the conclusion of exclusive commercialization rights under a collaboration agreement during the second quarter of fiscal year2016.Fiscal Year 2015 Compared with Fiscal Year 2014The decrease in sales and marketing expense was primarily attributable to a $19.7 million decrease in marketing and channel program spending and a$3.1 million decrease in stock-based compensation expense driven by lower headcount. These decreases were partially offset by an increase of $8.0 millionin expense for exclusive commercialization rights under a collaboration agreement.General and Administrative ExpenseGeneral and administrative expense primarily consists of personnel costs for administration, finance, human resources, general management, fees forexternal professional advisers including accountants and attorneys, and provisions for doubtful accounts. The following table shows general andadministrative expense, in dollars and as a percentage of total revenues (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014General and administrative expense$168.5 $187.3 $191.3 (10.0)% (2.1)%As a percentage of total revenues8.6% 9.7% 9.9% Fiscal Year 2016 Compared with Fiscal Year 2015The decrease in general and administrative expense was primarily attributable to a $15.8 million decrease in total compensation costs, includingstock-based compensation, as we benefited from our cost-savings initiatives including the impact from our restructuring plans executed during the period aswell as our on-going efforts to move costs and activities to lower-cost countries during the fiscal year.Fiscal Year 2015 Compared with Fiscal Year 2014The decrease in general and administrative expense was primarily attributable to a $9.5 million decrease in compensation costs, including stock-basedcompensation, as we benefited from our cost-savings initiatives including the impact from our restructuring plan executed during the third quarter of fiscalyear 2015 as well as our on-going efforts to move costs to lower-cost countries during the fiscal year. The decrease in expense was partially offset by a $5.8million increase in consulting and professional services fees.25 Table of ContentsAmortization of Intangible AssetsAmortization of acquired patents and core and completed technology are included in cost of revenue and the amortization of acquired customer andcontractual relationships, non-compete agreements, acquired trade names and trademarks, and other intangibles are included in operating expenses. Customerrelationships are amortized on an accelerated basis based upon the pattern in which the economic benefits of the customer relationships are being realized.Other identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense was recorded as follows(dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Cost of revenue$62.9 $63.6 $61.0 (1.1)% 4.3 %Operating expense108.0 104.6 109.1 3.3 % (4.1)%Total amortization expense$170.9 $168.3 $170.1 1.5 % (1.1)%As a percentage of total revenues8.8% 8.7% 8.8% Fiscal Year 2016 Compared with Fiscal Year 2015Amortization of intangible assets expense for fiscal year 2016 increased $2.6 million, as compared to fiscal year 2015. The increase was primarilyattributable to acquired customer relationship assets from recent acquisitions.Based on our balance of amortizable intangible assets as of September 30, 2016, and assuming no impairment or change in useful lives, we expectamortization of intangible assets for fiscal year 2017 to be approximately $164.0 million.Fiscal Year 2015 Compared with Fiscal Year 2014Amortization of intangible assets expense for fiscal year 2015 decreased $1.8 million, as compared to fiscal year 2014. The decrease in amortization ofintangible assets during fiscal year 2015 was primarily attributable to certain intangible assets becoming fully amortized in the period, partially offset by anincrease in amortization attributable to acquired patent and technology assets during fiscal year 2015.Acquisition-Related Costs, NetAcquisition-related costs include costs related to business and other acquisitions, including potential acquisitions. These costs consist of (i) transitionand integration costs, including retention payments, transitional employee costs and earn-out payments treated as compensation expense, as well as the costsof integration-related activities, including services provided by third-parties; (ii) professional service fees and expenses, including financial advisory, legal,accounting, and other outside services incurred in connection with acquisition activities, and disputes and regulatory matters related to acquired entities; and(iii) adjustments to acquisition-related items that are required to be marked to fair value each reporting period, such as contingent consideration, and otheritems related to acquisitions for which the measurement period has ended, such as gains or losses on settlements of pre-acquisition contingencies.Acquisition-related costs were recorded as follows (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014% Change 2016 vs.2015% Change 2015 vs.2014Transition and integration costs$6.1 $10.1 $25.3 (39.6)% (60.1)%Professional service fees10.9 8.4 9.9 29.8 % (15.2)%Acquisition-related adjustments0.2 (4.1) (11.0) (104.9)% (62.7)%Total Acquisition-related costs, net$17.2 $14.4 $24.2 19.4 % (40.5)%As a percentage of total revenue0.9% 0.7% 1.3% Fiscal Year 2016 Compared with Fiscal Year 2015Transition and integration costs, net for fiscal year 2016 decreased $4.0 million as compared to fiscal year 2015. Fiscal year 2015 transition andintegration costs included $6.1 million of contingent payments that were accounted for as compensation expense. Acquisition-related adjustments for fiscalyear 2015 was income of $4.1 million, which included fair value adjustment for contingent acquisition payments and other items related to acquisitions forwhich the measurement period has ended.26 Table of ContentsFiscal Year 2015 Compared with Fiscal Year 2014Acquisition-related costs, net for fiscal year 2015 decreased $9.8 million, as compared to fiscal year 2014. Fiscal year 2014 transition and integrationcosts include acquisition related contingent payments that were accounted for as compensation expense. In addition, fiscal year 2014 acquisition-relatedadjustments includes income of $7.7 million related to the elimination of contingent liabilities established in the original allocation of purchase price foracquisitions closed in fiscal years 2008 and 2007 following the expiration of the applicable statute of limitations.Restructuring and Other Charges, NetRestructuring and other charges, net include restructuring expenses together with other charges that are unusual in nature and are the result ofunplanned events, and arise outside of the ordinary course of continuing operations. Restructuring expenses consist of employee severance costs and mayalso include charges for excess facility space and other contract termination costs. Other charges may include gains or losses on non-controlling strategicequity interests, litigation contingency reserves and gains or losses on the sale or disposition of certain non-strategic assets or product lines.Restructuring and other charges, net by component and segment for fiscal years 2016, 2015 and 2014 are as follows (dollars in thousands): Personnel Facilities Total Restructuring Other Charges TotalFiscal Year 2016 Healthcare$3,531 $1,398 $4,929 $— $4,929Mobile5,837 1,557 7,394 (486) 6,908Enterprise1,214 2,782 3,996 — 3,996Imaging284 478 762 — 762Corporate2,267 5,391 7,658 971 8,629Total fiscal year 2016$13,133 $11,606 $24,739 $485 $25,224 Fiscal Year 2015 Healthcare$452 $636 $1,088 $— $1,088Mobile2,960 2,863 5,823 3,322 9,145Enterprise1,144 95 1,239 — 1,239Imaging2,047 1,814 3,861 — 3,861Corporate1,868 4,168 6,036 2,300 8,336Total fiscal year 2015$8,471 $9,576 $18,047 $5,622 $23,669 Fiscal Year 2014 Healthcare$2,357 $11 $2,368 $(78) $2,290Mobile1,447 622 2,069 — 2,069Enterprise5,557 — 5,557 — 5,557Imaging2,733 107 2,840 — 2,840Corporate1,224 2,463 3,687 3,000 6,687Total fiscal year 2014$13,318 $3,203 $16,521 $2,922 $19,443Fiscal Year 2016For fiscal year 2016, we recorded restructuring charges of $24.7 million. The restructuring charges included $13.1 million for severance related to thereduction of approximately 452 employees as part of our initiatives to reduce costs and optimize processes. The restructuring charges also included an $11.6million charge for the closure of certain excess facility space. We expect that the remaining severance payments of $2.7 million will be substantially paid bythe end of fiscal year 2017. We expect that the remaining payments of $11.1 million for the closure of excess facility space will be paid through fiscal year2025, in accordance with the terms of the applicable leases.27 Table of ContentsIn addition, during fiscal year 2016, we have recorded certain other charges that totaled $0.5 million for litigation contingency reserves.Fiscal Year 2015For fiscal year 2015, we recorded restructuring charges of $18.0 million, which included $8.5 million for severance related to the reduction ofapproximately 200 employees as part of our initiatives to reduce costs and optimize processes as well as the reduction of approximately 60 employees thateliminated duplicative positions resulting from acquisitions in fiscal year 2014. The restructuring charges also included $9.6 million charge for the closure ofcertain excess facility space, including facilities acquired from acquisitions.In addition, during fiscal year 2015, we have recorded certain other charges that totaled $5.6 million for the impairment of certain long-lived assets asa result of our strategic realignment of our product portfolio and litigation contingency reserves.Fiscal Year 2014For fiscal year 2014, we recorded net restructuring charges of $16.5 million, which included a $13.3 million severance charge related to the reductionof headcount by approximately 250 employees across multiple functions including the impact of eliminating duplicative positions resulting fromacquisitions, and $3.2 million primarily resulting from the restructuring of facilities that will no longer be utilized.In addition, during fiscal year 2014, we have recorded certain other charges that totaled $2.9 million primarily for litigation contingency reserves.Other Expense, NetOther expense, net consists of interest income, interest expense, gain (loss) from security price guarantee derivatives, gain (loss) from foreign exchange,and gain (loss) from other non-operating activities. The following table shows other expense, net, in dollars and as a percentage of total revenues (dollars inmillions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Interest income$4.4 $2.6 $2.3 69.2 % 13.0 %Interest expense(132.7) (118.6) (132.7) 11.9 % (10.6)%Other expense, net(8.5) (19.5) (3.3) (56.4)% 490.9 %Total other expense, net$(136.8) $(135.4) $(133.7) As a percentage of total revenue7.0% 7.0% 6.9% Fiscal Year 2016 Compared with Fiscal Year 2015Interest expense for fiscal year 2016 increased $14.1 million, as compared to fiscal year 2015, primarily driven by the issuance of the $676.5 million1.00% convertible senior debentures in the first quarter of fiscal year 2016. Other expense, net for fiscal year 2016 decreased $11.0 million primarily due to a$17.7 million loss on extinguishment of debt resulting from the partial exchange of our 2031 debentures in the third quarter of fiscal year 2015.Fiscal Year 2015 Compared with Fiscal Year 2014Total other expense for fiscal year 2015 increased $1.8 million, as compared to fiscal year 2014. The net increase in expense was driven by a $17.7million loss on extinguishment of debt resulting from the partial exchange of our 2031 debentures in fiscal year 2015, offset by the reduction in interestexpense due to the redemption of the $250.0 million 2.75% convertible debentures in the fourth quarter of fiscal year 2014.Provision (Benefit) for Income TaxesThe following table shows the provision (benefit) for income taxes and the effective income tax rate (dollars in millions): Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015 vs.2014Provision (benefit) for income taxes$14.2 $34.5 $(4.7) (58.9)% (838.5)%Effective income tax rate816.4% (42.9)% 3.0% 28 Table of ContentsOur effective income tax rate is influenced by the level and mix of earnings and losses by taxing jurisdiction in combination with the applicabledifferences between U.S. and foreign tax rates. Accordingly, changes in the jurisdictional mix of pre-tax income in the current year can result in pre-taxincome being higher or lower than the prior year in countries with lower statutory tax rates, which causes our effective income tax rate to fluctuate. Theimpact of such changes could be meaningful in countries with statutory income tax rates that are significantly lower than the U.S. statutory income tax rate of35%. Our international headquarters is located in Dublin, Ireland and is our principal entity selling to customers in countries outside of North America andJapan. The international right to use U.S.-owned intellectual property resides with our Irish headquarters entity. While our Ireland subsidiaries make royaltyand other payments to the United States, the majority of profits earned by the Irish entities are retained offshore to fund our future growth in Europe, theMiddle East, Africa and the Asia Pacific regions. In future periods, if our foreign profits grow, we expect substantially all of our income before income taxesfrom foreign operations will be earned in Ireland. The statutory rate related to our Ireland profits is lower than the U.S., statutory rate and as a result we wouldexpect our effective tax rate to decrease as profits in Ireland increase.Fiscal Year 2016 Compared with Fiscal Year 2015Our effective income tax rate was approximately 816.4% in fiscal year 2016, compared to approximately (42.9)% in fiscal year 2015. Provision forincome taxes decreased $20.3 million in fiscal year 2016 as compared to fiscal year 2015 due to our subsidiaries in Ireland, and a $22.1 million release ofdomestic valuation allowance as a result of tax benefits recorded in connection with our acquisitions during the period for which a deferred tax liability wasestablished in purchase accounting.The Board approved an agreement with the Icahn Group to repurchase 26.3 million shares of our common stock, for a total purchase price of $500.0million (the “Repurchase”), which was funded with domestic and foreign cash. As a result of the repatriation, we have recorded a $0.7 million increase to ourprovision for income taxes, net of benefit from the use of U.S. Federal net operating losses and credit carryforwards.Fiscal Year 2015 Compared with Fiscal Year 2014Our effective income tax rate was approximately (42.9)% in fiscal year 2015, compared to approximately 3.0% in fiscal year 2014. Provision forincome taxes increased $39.2 million in fiscal year 2015 as compared to fiscal year 2014 due to a non-recurring release of domestic valuation allowancetotaling $31.2 million recorded in fiscal year 2014 in connection with our recording of acquired deferred tax liabilities established in purchase accounting. Inaddition, our mix of pre-tax income in each year impacts our provision for income taxes.SEGMENT ANALYSISWe operate in, and report financial information for, the following four reportable segments: Healthcare, Mobile, Enterprise, and Imaging. Segmentprofit is an important measure used for evaluating performance and for decision-making purposes and reflects the direct controllable costs of each segmenttogether with an allocation of sales and corporate marketing expenses, and certain research and development project costs that benefit multiple productofferings. Segment profit represents income (loss) from operations excluding stock-based compensation, amortization of intangible assets, acquisition-relatedcosts, net, restructuring and other charges, net, costs associated with intellectual property collaboration agreements, other expense, net and certainunallocated corporate expenses. We believe that these adjustments allow for more complete comparisons to the financial results of the historical operations.During the first quarter of fiscal year 2016, we reorganized the organizational management and oversight of our Dragon Consumer business, which waspreviously reported within our Mobile segment and has now been moved into our Healthcare segment. During the second quarter of fiscal year 2016, wereclassified certain government payroll incentive credits previously reported in the general and administrative expense to research and development expense,cost of revenue and sales and marketing. Accordingly, the segment results in prior periods have been recast to conform to the current period segmentreporting presentation.29 Table of ContentsThe following table presents segment results (dollars in millions):Fiscal Year 2016 Fiscal Year 2015 Fiscal Year 2014 % Change 2016 vs.2015 % Change 2015vs. 2014Segment Revenues(a) Healthcare$973.3 $1,000.8 $1,020.4 (2.7)% (1.9)%Mobile377.3 391.2 363.3 (3.6)% 7.7 %Enterprise387.5 349.3 367.1 10.9 % (4.8)%Imaging241.6 237.7 236.3 1.6 % 0.6 %Total segment revenues$1,979.6 $1,979.1 $1,987.1 — % (0.4)%Less: acquisition related revenue adjustments(30.7) (47.9) (63.6) (36.0)% (24.7)%Total revenues$1,948.9 $1,931.1 $1,923.5 0.9 % 0.4 %Segment Profit Healthcare$313.5 $343.4 $346.6 (8.7)% (0.9)%Mobile133.4 108.2 73.0 23.2 % 48.2 %Enterprise130.0 94.4 91.0 37.8 % 3.7 %Imaging100.8 89.3 89.1 12.9 % 0.3 %Total segment profit$677.6 $635.3 $599.7 6.7 % 5.9 %Segment Profit Margin Healthcare32.2% 34.3% 34.0% (2.1) 0.3Mobile35.4% 27.7% 20.1% 7.7 7.6Enterprise33.5% 27.0% 24.8% 6.5 2.2Imaging41.7% 37.6% 37.7% 4.2 (0.1)Total segment profit margin34.2% 32.1% 30.2% 2.1 1.9(a) Segment revenues differ from reported revenues due to certain revenue adjustments related to acquisitions that would otherwise have been recognizedbut for the purchase accounting treatment of the business combinations. These revenues are included to allow for more complete comparisons to thefinancial results of historical operations and in evaluating management performance.Segment RevenuesFiscal Year 2016 Compared with Fiscal Year 2015•Healthcare segment revenues decreased $27.5 million for the year ended September 30, 2016, as compared to the year ended September 30, 2015.Product and licensing revenues decreased $24.8 million driven by lower revenues from our licensed Dragon Medical product sales as we transitionfrom perpetual to cloud and subscription models. Professional services and hosting revenues decreased $8.4 million primarily driven by a decreaseof $21.7 million in hosting revenues as we continue to experience some erosion of revenue in our transcription services owed in part to the growingpenetration of our Dragon Medical cloud and subscription offerings, partially offset by an increase of $13.2 million in professional servicesprimarily from a recent acquisition. Maintenance and support revenues increased $5.8 million driven by prior year license sales.•Mobile segment revenues decreased $14.0 million for the year ended September 30, 2016, as compared to the year ended September 30, 2015.Product and licensing revenues decreased $25.5 million and maintenance and support revenue decreased $5.0 million, owing to a decline inhandset revenues from deterioration in mature markets, partially offset by the growth in recurring product and licensing revenue in our automotivebusiness. Professional services and hosting revenues increased $16.5 million driven primarily by a continued trend toward cloud-based services inour automotive and devices solutions.•Enterprise segment revenues increased $38.1 million for the year ended September 30, 2016, as compared to the year ended September 30, 2015.Professional services and hosting revenues increased $23.3 million driven by higher on-demand revenue. Product and licensing revenues increased$14.0 million with strong on-premise solutions sales during the period.30 Table of Contents•Imaging segment revenues increased $3.8 million for the year ended September 30, 2016, as compared to the year ended September 30, 2015,primarily driven by strong growth in our print management and capture products, partially offset by lower imaging desktop consumer product sales.Fiscal Year 2015 Compared with Fiscal Year 2014•Healthcare segment revenues decreased $19.6 million for the year ended September 30, 2015, as compared to the year ended September 30, 2014.Maintenance and support revenue increased $11.1 million driven by strong renewals in Dragon Medical. Product and licensing revenue decreased$29.7 million driven by lower revenue from our Dragon Medical solutions as we continue to see a shift toward a term-licensing model anddecreased sales from Dragon desktop consumer solutions. Professional services and hosting revenue decreased $1.0 million primarily driven by anincrease of $7.3 million in professional services from both of our CDI and coding solutions and Diagnostic solutions, offset by a $8.3 milliondecrease in hosting revenue as we continue to experience some erosion of revenue in our transcription services.•Mobile segment revenues increased $27.9 million for the year ended September 30, 2015, as compared to the year ended September 30, 2014.Professional services and hosting revenue increased $18.7 million driven primarily by growth in our mobile connected services. Product andlicensing revenue increased $12.6 million driven by sales increase of automotive business. Maintenance and support revenue decreased $3.4million resulting from a decrease in sales of our embedded licenses as the device market continues to consolidate.•Enterprise segment revenues decreased $17.8 million for the year ended September 30, 2015, as compared to the year ended September 30, 2014.Professional services and hosting revenues decreased $17.5 million driven by lower sales in customer care on-premise implementations which hasbeen challenged by customers' growing preference for on-demand implementation.•Imaging segment revenues increased $1.4 million for the year ended September 30, 2015, as compared to the year ended September 30, 2014,primarily driven by revenues from a recent acquisition, partially offset by continued declines in our desktop product sales.Segment ProfitFiscal Year 2016 Compared with Fiscal Year 2015•Healthcare segment profit for the year ended September 30, 2016 decreased 8.7% from the same period last year, primarily driven by lower grossprofit. Segment profit margin decreased 2.1 percentage points, from 34.3% for the same period last year to 32.2% during the current period. Thedecrease in segment profit margin was primarily driven by lower gross margins of 2.0 percentage points due to a shift in mix towards a higherpercentage of professional services revenue.•Mobile segment profit for the year ended September 30, 2016 increased 23.2% from the same period last year, primarily driven by lower expenses.Segment profit margin increased 7.7 percentage points, from 27.7% for the same period last year to 35.4% during the current period. The increase insegment profit margin was primarily driven by our cost savings and process optimization initiatives with improvements of 6.4 percentage pointsdue to lower operating expenses and a 1.3 percentage points improvement in gross margin driven by margin expansion in our cloud-based services.•Enterprise segment profit for the year ended September 30, 2016 increased 37.8% from the same period last year, primarily driven by increasedgross profit. Segment profit margin increased 6.5 percentage points, from 27.0% for the same period last year to 33.5% in the current period. Theincrease in segment profit margin was primarily driven by our cost savings and process optimization initiatives with improvements of 3.7percentage points due to lower operating expenses and a 2.9 percentage point improvement in gross margin due to improved operationalefficiencies within our professional services and hosting services.•Imaging segment profit for the year ended September 30, 2016 increased 12.9% from the same period last year, primarily driven by lower expensesand increased gross profit. Segment profit margin increased 4.2 percentage points, from 37.6% for the same period last year to of 41.7% during thecurrent period. The increase in segment profit margin was primarily driven by our cost savings and process optimization initiatives withimprovements of 3.0 percentage points due to operating expenses and 1.2 percentage points due to improved gross margin.31 Table of ContentsFiscal Year 2015 Compared with Fiscal Year 2014•Healthcare segment profit for the year ended September 30, 2015 decreased 0.9% from the same period last year, primarily driven by increasedresearch and development. Segment profit margin increased 0.3 percentage points, from 34.0% for the same period last year to 34.3% during thecurrent period. The increase in segment profit margin was primarily driven by a 1.0 percentage point margin improvement resulting from lowersales and marketing expense offset by a decrease of 0.7 percentage points in margin due to increased research and development spending driven byincremental costs associated with a collaboration agreement.•Mobile segment profit for the year ended September 30, 2015 increased 48.2% from the same period last year, primarily driven by increasedrevenues and lower operating expenses. Segment profit margin increased 7.6 percentage points, from 20.1% for the same period last year to 27.7%during the current period. The increase in segment profit margin was primarily driven by our cost savings and process optimization initiatives withimprovements of 3.7 percentage points related to decreased research and development spending, 1.9 percentage points related to lower sales andmarketing expenses, and 1.8 percentage points in gross margin improvement.•Enterprise segment profit for the year ended September 30, 2015 increased 3.7% from the same period last year, driven by lower operating expensepartially offset by impact from lower revenues. Segment profit margin increased 2.2 percentage points, from 24.8% for the same period last year to27.0% in the current period. The increase in segment profit margin was primarily driven by our cost savings and process optimization initiativeswith improvements of 0.9 percentage point due to higher segment gross margins, 0.9 percentage point due to lower sales and marketing expensesand 0.4 percentage point due to decreased research and development spending.•Imaging segment profit for the year ended September 30, 2015 increased 0.3% from the same period last year, driven by improved gross profitpartially offset by higher sales and marketing expenses. Segment profit margin decreased 0.1 percentage point, from 37.7% for the same period lastyear to of 37.6% during the current period.LIQUIDITY AND CAPITAL RESOURCESCash and cash equivalents and marketable securities totaled $608.1 million as of September 30, 2016, an increase of $39.3 million as compared to$568.8 million as of September 30, 2015. Our working capital was $347.7 million as of September 30, 2016 compared to $360.2 million of working capital asof September 30, 2015. As of September 30, 2016, our total accumulated deficit was $429.0 million. We do not expect our accumulated deficit to impact ourfuture ability to operate the business given our cash and strong operating cash flow positions.Cash and cash equivalents and marketable securities held by our international operations totaled $116.5 million and $164.2 million at September 30,2016 and 2015, respectively. We utilize a variety of financing strategies to ensure that our worldwide cash is available in the locations in which it is needed.We have authorized the repatriation of $250.0 million foreign earnings previously considered indefinitely reinvested to fund the Board approved sharerepurchase transaction from the Icahn Group, of which $189.0 million was repatriated in fiscal year 2016 and $61.0 million remains available for repatriationin the future. This one-time event does not change our ability or intent to indefinitely reinvest unremitted earnings of our foreign subsidiaries and we expectthe cash held overseas will continue to be used for our international operations. We will meet U.S. liquidity needs through future cash flows, use of U.S. cashbalances, external borrowings, or some combination of these sources and therefore do not anticipate repatriating additional funds beyond the aboveexpectation for this one-time repurchase transaction from the Icahn Group.As we begin fiscal year 2017, our plans incorporate the use of $100.0 million in cash to repurchase shares of our common stock and $100.0 million incash to repurchase or call outstanding debt securities. Our actual actions will depend upon various factors, foremost among them being our share price,interest rates, organic and inorganic investment opportunities, and our cash flow generation.We believe our current cash and cash equivalents, marketable securities, and cash flow from operations are sufficient to meet our operating needs for atleast the next twelve months.32 Table of ContentsCash provided by operating activitiesFiscal Year 2016 Compared with Fiscal Year 2015Cash provided by operating activities for fiscal year 2016 was $565.8 million, an increase of $78.2 million, or 16%, as compared to cash provided byoperating activities of $487.6 million for fiscal year 2015. The net increase was primarily driven by the following factors:•An increase of $56.2 million in cash flows resulting from a lower net loss, exclusive of non-cash adjustment items;•An increase of $95.4 million in cash flows generated by changes in working capital excluding deferred revenue; and•Partially offset by a decrease in cash inflows of $73.4 million from deferred revenue. Deferred revenue contributed cash inflow of $61.7 million infiscal year 2016, as compared to $135.2 million in fiscal year 2015. The deferred revenue growth in fiscal year 2016 was driven primarily by ouron-demand automotive business in our Mobile segment as well as growth in maintenance and support contracts.Fiscal Year 2015 Compared to Fiscal Year 2014Cash provided by operating activities for fiscal year 2015 was $487.6 million, an increase of $129.5 million, or 36%, as compared to cash provided byoperating activities of $358.1 million for fiscal year 2014. The net increase was primarily driven by the following factors:•An increase of $94.8 million in cash flows resulting from a lower net loss, exclusive of non-cash adjustment items;•An increase of $41.3 million in cash flows generated by changes in working capital excluding deferred revenue. The increase in cash inflows wasdriven cash generation from accounts receivables due to 9 days of DSO improvement; and•Offset by a decrease in cash inflows of $6.7 million from deferred revenue. Deferred revenue continues to grow contributing cash inflow of $135.2million in fiscal year 2015, as compared to $141.8 million in fiscal year 2014. The deferred revenue growth in fiscal year 2015 was driven primarilyby mobile connected services and maintenance and support contracts.Cash used in investing activitiesFiscal Year 2016 Compared with Fiscal Year 2015Cash used in investing activities for fiscal year 2016 was $263.0 million, an increase of $56.9 million, or 28%, as compared to cash used in investingactivities of $206.1 million for fiscal year 2015. The net increase was primarily driven by the following factors:•An increase in cash outflows of $89.5 million for business and technology acquisitions; and•Partially offset by a decrease in cash outflows of $31.1 million for purchases of marketable securities and other investments.Fiscal Year 2015 Compared to Fiscal Year 2014Cash used in investing activities for fiscal year 2015 was $206.1 million, a decrease of $104.9 million, or 34%, as compared to cash used in investingactivities of $311.0 million for fiscal year 2014. The net decrease was primarily driven by the following factors:•A decrease in cash outflows of $169.7 million for business and technology acquisitions;•An increase in cash inflows of $18.9 million from the sales and maturities of marketable securities and other investments; and•Offset by an increase in cash outflows of $86.1 million for purchases of marketable securities and other investments.33 Table of ContentsCash used in financing activitiesFiscal Year 2016 Compared with Fiscal Year 2015Cash used in financing activities for fiscal year 2016 was $305.1 million, a decrease of $36.1 million, or 11%, as compared to cash used in financingactivities of $341.2 million for fiscal year 2015. The net decrease was primarily driven by the following factors:•An increase in cash inflows of $297.0 million from the new senior note debt issuance in June 2016. We issued $300.0 million aggregate principalamount of 6.000% Senior Notes due on July 1, 2024 in a private placement, net of issuance costs;•An increase in net cash inflows of $151.9 million from the new convertible debt issuance net of the repayment of long-term debt. The fiscal year2016 activity included proceeds of $663.8 million, net of issuance costs, from the issuance of our 1.0% 2035 Debentures offset by the repurchase of$38.3 million in aggregate principal on our 2.75% Senior Convertible Debentures due in 2031 (the “2031 Debentures”) and repayment of theaggregate principal balance of $472.5 million on our term loan under the amended and restated credit agreement. The fiscal year 2015 activityincluded extinguishment on part of our 2031 Debentures for $256.2 million in exchange for $263.9 million of our new 1.5% 2035 Debentures;•A decrease in cash outflows of $99.7 million related to our share repurchase program. We repurchased 9.4 million shares of our common stock fortotal cash outflows of $198.6 million in fiscal year 2016 as compared to 19.8 million shares of our common stock for total cash outflows of $298.3million in fiscal year 2015;•Partially offset by an increase in cash outflows of $500.9 million related to the repurchase of 26.3 million shares of our common stock from theIcahn Group, inclusive of fees associated with the transaction; and•An increase in cash outflows of $11.1 million as a result of higher cash payments required to net share settle employee equity awards due to anincrease in the intrinsic value of shares vested during fiscal year 2016 as compared to fiscal year 2015.Fiscal Year 2015 Compared to Fiscal Year 2014Cash used in financing activities for fiscal year 2015 was $341.2 million, an increase of $34.0 million, or 11%, as compared to cash used in financingactivities of $307.2 million for fiscal year 2014. The net increase was primarily driven by the following factors:•An increase in cash outflows of $271.8 million related to our share repurchase program. We repurchased 19.8 million shares of our common stockfor total cash outflows of $298.3 million in fiscal year 2015 as compared to 1.6 million shares of our common stock for total cash outflows of $26.5million in fiscal year 2014;•An increase in cash outflows of $17.4 million as a result of higher cash payments required to net share settle employee equity awards due to anincrease in vesting during fiscal year 2015 as compared to fiscal year 2014;•An increase in cash outflows of $6.0 million for the payment of long-term debt. The fiscal year 2015 activity included extinguishment on part ofour 2031 Debentures for $256.2 million in exchange for $263.9 million of our 1.5% 2035 Debentures. The fiscal year 2014 activity included theredemption of the 2027 Debentures for $250.0 million; and•Offset by an increase in cash inflows of $253.2 million from the issuance of the 1.5% 2035 Debentures, net of issuance costs in fiscal year 2015.Debt and Credit Facilities5.375% Senior Notes due 2020On August 14, 2012, we issued $700.0 million aggregate principal amount of 5.375% Senior Notes due on August 15, 2020 in a private placement. Thenet proceeds were approximately $689.1 million, net of issuance costs, and bear interest at 5.375% per year, payable in cash semi-annually in arrears. OnOctober 22, 2012, we issued, in a private placement, an additional $350.0 million aggregate principal amount of our 5.375% Senior Notes due 2020(collectively the "Notes"). The Notes were issued pursuant to the indenture agreement dated August 14, 2012, relating to our existing $700.0 millionaggregate principal amount of 5.375% Senior Notes due in 2020. Total proceeds received, net of issuance costs, were $351.7 million.The Notes are our unsecured senior obligations and are guaranteed (the “Guarantees”) on an unsecured senior basis by certain34 Table of Contentsof our domestic subsidiaries, (the “Subsidiary Guarantors”). The Notes and Guarantees rank equally in right of payment with all of our and the SubsidiaryGuarantors' existing and future unsecured senior debt and rank senior in right of payment to all of our and the Subsidiary Guarantors' future unsecuredsubordinated debt. The Notes and Guarantees effectively rank junior to all secured debt of our and the Subsidiary Guarantors to the extent of the value of thecollateral securing such debt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the Notes.At any time on or after August 15, 2016, we may redeem all or a portion of the Notes at certain redemption prices expressed as percentages of theprincipal amount, plus accrued and unpaid interest to, but excluding, the redemption date.Upon the occurrence of certain asset sales or a change in control, we must offer to repurchase the Notes at a price equal to 100%, in the case of an assetsale, or 101%, in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.6.0% Senior Notes due 2024In June 2016, we issued $300.0 million aggregate principal amount of 6.0% Senior Notes due on July 1, 2024 (the "2024 Senior Notes") in a privateplacement. The proceeds from the 2024 Senior Notes were approximately $297.5 million, net of issuance costs. The 2024 Senior Notes bear interest at 6.0%per year, payable in cash semi-annually in arrears.The 2024 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by our Subsidiary Guarantors. The 2024 SeniorNotes and the guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors’ existing and future unsecured senior debt, includingour obligations and those of each such Subsidiary Guarantor under our senior credit facility, and rank senior in right of payment to all of our and theSubsidiary Guarantors’ future unsecured subordinated debt. The 2024 Senior Notes and guarantees effectively rank junior to all our secured debt and that ofthe Subsidiary Guarantors to the extent of the value of the collateral securing such debt and to all liabilities, including trade payables, of our subsidiaries thathave not guaranteed the 2024 Senior Notes.At any time before July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at a redemption price equal to 100% of the aggregate principalamount of the 2024 Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest to, but excluding, the redemption date. Atany time on or after July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at certain redemption prices expressed as percentages of theprincipal amount, plus accrued and unpaid interest to, but excluding, the redemption date. At any time and from time to time before July 1, 2019, we mayredeem up to 35% of the aggregate outstanding principal amount of the 2024 Senior Notes with the net cash proceeds received by us from certain equityofferings at a price equal to 106% of the aggregate principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided thatthe redemption occurs no later than 120 days after the closing of the related equity offering, and at least 50% of the original aggregate principal amount ofthe 2024 Senior Notes remains outstanding immediately thereafter.Upon the occurrence of certain asset sales or a change in control, we must offer to repurchase the 2024 Senior Notes at a price equal to 100% in the caseof an asset sale, or 101% in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.1.0% Convertible Debentures due 2035In December 2015, we issued $676.5 million in aggregate principal amount of 1.0% Senior Convertible Debentures due in 2035 (the “1.0% 2035Debentures”). Total proceeds were $663.8 million, net of issuance costs, and we used a portion to repurchase $38.3 million in aggregate principal on our2.75% Senior Convertible Debentures due in 2031 (the “2031 Debentures”) and to repay the aggregate principal balance of $472.5 million on our term loanunder the amended and restated credit agreement. The 1.0% 2035 Debentures bear interest at 1.0% per year, payable in cash semi-annually in arrears,beginning on June 15, 2016. In addition to ordinary interest and default additional interest, beginning with the semi-annual interest period commencing onDecember 15, 2022, contingent interest will accrue during any regular semi-annual interest period where the average trading price of our 1.0% 2035Debentures for the ten trading day period immediately preceding the first day of such semi-annual period is greater than or equal to $1,200 per $1,000principal amount of our 1.0% 2035 Debentures, in which case, contingent interest will accrue at a rate of 0.50% per annum of such average trading price. The1.0% 2035 Debentures mature on December 15, 2035, subject to the right of the holders to require us to redeem the 1.0% 2035 Debentures on December 15,2022, 2027, or 2032. The 1.0% 2035 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing andfuture unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.0% 2035Debentures. The 1.0% 2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries.We account separately for the liability and equity components of the 1.0% 2035 Debentures in accordance with authoritative guidance for convertibledebt instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated bymeasuring the fair value of a similar liability that does not have an associated35 Table of Contentsconversion feature and record the remainder in stockholders’ equity. At issuance, we allocated $495.4 million to long-term debt, and $181.1 million has beenrecorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through December 2022.If converted, the principal amount of the 1.0% 2035 Debentures is payable in cash and any amounts payable in excess of the principal amount will(based on an initial conversion rate, which represents an initial conversion price of approximately $27.22 per share, subject to adjustment) be paid in cash orshares of our common stock, at our election, only in the following circumstances and to the following extent: (i) prior to June 15, 2035, on any date duringany fiscal quarter beginning after March 31, 2016 (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% ofthe then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previousfiscal quarter; (ii) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for $1,000principal amount of the 1.0% 2035 Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our commonstock multiplied by the then current conversion rate; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.0%2035 Debentures; or (iv) at the option of the holder at any time on or after June 15, 2035. Additionally, we may redeem the 1.0% 2035 Debentures, in wholeor in part, on or after December 20, 2022 for cash at a price equal to 100% of the principal amount of the 1.0% 2035 Debentures to be purchased plus anyaccrued and unpaid interest, including any additional interest to, but excluding, the repurchase date. Each holder shall have the right, at such holder’s option,to require us to repurchase all or any portion of the 1.0% 2035 Debentures held by such holder on December 15, 2022, December 15, 2027, or December 15,2032 at par plus accrued and unpaid interest. If we undergo a fundamental change or non-stock change of control (as described in the indenture for the 1.0%2035 Debentures) prior to maturity, holders will have the option to require us to repurchase all or any portion of their debentures for cash at a price equal to100% of the principal amount of the 1.0% 2035 Debentures to be purchased plus any accrued and unpaid interest, including any additional interest to, butexcluding, the repurchase date. As of September 30, 2016, none of the conversion criteria were met for the 1.0% 2035 Debentures. If the conversion criteriawere met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.2.75% Convertible Debentures due 2031On October 24, 2011, we sold $690.0 million of 2.75% Convertible Debentures due in 2031 in a private placement. Total proceeds, net of issuancecosts, were $676.1 million. The 2031 Debentures bear interest at 2.75% per year, payable in cash semi-annually in arrears. The 2031 Debentures mature onNovember 1, 2031, subject to the right of the holders to require us to redeem the 2031 Debentures on November 1, 2017, 2021, and 2026. The 2031Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinatedindebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 2031 Debentures. The 2031 Debentures will beeffectively subordinated to indebtedness and other liabilities of our subsidiaries.We account separately for the liability and equity components of the 2031 Debentures in accordance with authoritative guidance for convertible debtinstruments that may be settled in cash upon conversion. At issuance, we allocated $533.6 million to long-term debt, and $156.4 million has been recorded asadditional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2017.In June 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to exchange, in a privateplacement, $256.2 million in aggregate principal amount of our 2031 Debentures for approximately $263.9 million in aggregate principal amount of our1.5% 2035 Debentures. Upon repurchase we recorded an extinguishment loss of $17.7 million in other expense, net, in the accompanying consolidatedstatements of operations. In December 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures torepurchase $38.3 million in aggregate principal with proceeds received from the issuance of our 1.0% 2035 Debentures. Upon repurchase we recorded anextinguishment loss of $2.4 million in other expense, net, in the accompanying consolidated statements of operations. In accordance with the authoritativeguidance for convertible debt instruments, a loss on extinguishment is equal to the difference between the reacquisition price and the net carrying amount ofthe extinguished debt for our 2031 Debentures, including any unamortized debt discount or issuance costs. Following this activity, $395.5 million inaggregate principal amount of our 2031 Debentures remain outstanding. The aggregate debt discount is being amortized to interest expense using theeffective interest rate method through November 2017.If converted, the principal amount of the 2031 Debentures is payable in cash and any amounts payable in excess of the principal amount will (based onan initial conversion rate, which represents an initial conversion price of approximately $32.30 per share, subject to adjustment) be paid in cash or shares ofour common stock, at our election, only in the following circumstances and to the following extent: (i) on any date during any fiscal quarter (and only duringsuch fiscal quarter) if the closing sale price of our common stock was more than 130% of the then current conversion price for at least 20 trading days in theperiod of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; (ii) during the five consecutive business-36 Table of Contentsday period following any five consecutive trading-day period in which the trading price for $1,000 principal amount of the 2031 Debentures for each dayduring such five trading-day period was less than 98% of the closing sale price of our common stock multiplied by the then current conversion rate; (iii) uponthe occurrence of specified corporate transactions, as described in the indenture for the 2031 Debentures; or (iv) at the option of the holder at any time on orafter May 1, 2031. Additionally, we may redeem the 2031 Debentures, in whole or in part, on or after November 6, 2017 at par plus accrued and unpaidinterest. Each holder shall have the right, at such holder's option, to require us to repurchase all or any portion of the 2031 Debentures held by such holder onNovember 1, 2017, November 1, 2021, and November 1, 2026 at par plus accrued and unpaid interest. If we undergo a fundamental change (as described inthe indenture for the 2031 Debentures) prior to maturity, holders will have the option to require us to repurchase all or any portion of their debentures for cashat a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest, including any additional interest to,but excluding, the repurchase date. As of September 30, 2016 and 2015, no conversion triggers were met. If the conversion triggers were met, we could berequired to repay all or some of the aggregate principal amount in cash prior to the maturity date.1.50% Convertible Debentures due 2035In June 2015, we issued $263.9 million in aggregate principal amount of 1.50% Senior Convertible Debentures due in 2035 (the “1.5% 2035Debentures”) in exchange for $256.2 million in aggregate principal amount of our 2031 Debentures. Total proceeds, net of issuance costs, were $253.2million. The 1.5% 2035 Debentures were issued at 97.09% of the principal amount, which resulted in a discount of $7.7 million. The 1.5% 2035 Debenturesbear interest at 1.50% per year, payable in cash semi-annually in arrears, beginning on November 1, 2015. In addition to ordinary interest and defaultadditional interest, beginning with the semi-annual interest period commencing on November 1, 2021, contingent interest will accrue during any regularsemi-annual interest period where the average trading price of our 1.5% 2035 Debentures for the ten trading day period immediately preceding the first day ofsuch semi-annual period is greater than or equal to $1,200 per $1,000 principal amount of our 1.5% 2035 Debentures, in which case, contingent interest willaccrue at a rate of 0.50% per annum of such average trading price. The 1.5% 2035 Debentures mature on November 1, 2035, subject to the right of the holdersto require us to redeem the 1.5% 2035 Debentures on November 1, 2021, 2026, or 2031. The 1.5% 2035 Debentures are general senior unsecured obligationsand rank equally in right of payment with all of our existing and future unsecured, unsubordinated indebtedness and senior in right of payment to anyindebtedness that is contractually subordinated to the 1.5% 2035 Debentures. The 1.5% 2035 Debentures will be effectively subordinated to indebtednessand other liabilities of our subsidiaries.We account separately for the liability and equity components of the 1.5% 2035 Debentures in accordance with authoritative guidance for convertibledebt instruments that may be settled in cash upon conversion. At issuance, we allocated $208.6 million to long-term debt, and $55.3 million has beenrecorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2021.If converted, the principal amount of the 1.5% 2035 Debentures is payable in cash and any amounts payable in excess of the principal amount, will(based on an initial conversion rate, which represents an initial conversion price of approximately $23.26 per share, subject to adjustment) be paid in cash orshares of our common stock, at our election, only in the following circumstances and to the following extent: (i) prior to May 1, 2035, on any date during anyfiscal quarter beginning after September 30, 2015 (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% ofthe then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previousfiscal quarter; (ii) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for $1,000principal amount of the 1.5% 2035 Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our commonstock multiplied by the then current conversion rate; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.5%2035 Debentures; or (iv) at the option of the holder at any time on or after May 1, 2035. Additionally, we may redeem the 1.5% 2035 Debentures, in whole orin part, on or after November 5, 2021 for cash at a price equal to 100% of the principal amount of the 1.5% 2035 Debentures to be purchased plus any accruedand unpaid interest, including any additional interest to, but excluding, the repurchase date. Each holder shall have the right, at such holder’s option, torequire us to repurchase all or any portion of the 1.5% 2035 Debentures held by such holder on November 1, 2021, November 1, 2026, or November 1, 2031at par plus accrued and unpaid interest. Upon repurchase, we will pay the principal amount in cash and any amounts payable in excess of the principalamount will be paid in cash or shares of our common stock, at our election, with the exception that we may not elect to pay cash in lieu of more than 80% ofthe number of our common shares we would be obligated to deliver. If we undergo a fundamental change (as described in the indenture for the 1.5% 2035Debentures) prior to maturity, holders will have the option to require us to repurchase all or any portion of their debentures for cash at a price equal to 100%of the principal amount of the 1.5% 2035 Debentures to be purchased plus any accrued and unpaid interest, including any additional interest to, butexcluding, the repurchase date. As of September 30, 2016 and 2015, none of the conversion criteria were met for the 1.5% 2035 Debentures. If the conversioncriteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.37 Table of ContentsRevolving Credit FacilityIn April 2016, we entered into a credit agreement that provides for a $242.5 million revolving credit line, including letters of credit (together, the“Revolving Credit Facility”). The Revolving Credit Facility matures on April 15, 2021. As of September 30, 2016, issued letters of credit in the aggregateamount of $4.0 million were treated as issued and outstanding when calculating the borrowing availability under the Revolving Credit Facility. As ofSeptember 30, 2016, we had $238.5 million available for additional borrowing under the Revolving Credit Facility. Any amounts outstanding under theRevolving Credit Facility will bear interest, at either (i) LIBOR plus an applicable margin of 1.50% or 1.75%, or (ii) the alternative base rate plus anapplicable margin of 0.50% or 0.75%. The Revolving Credit Facility is secured by substantially all assets of ours and our Subsidiary Guarantors. TheRevolving Credit Facility contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default.Credit FacilityThe amended and restated credit agreement, entered into on August 7, 2013, includes a term loan and a $75.0 million revolving credit agreement,inclusive of any issued letters of credit (together, the "Credit Facility"). In December 2015, we repaid the aggregate principal balance of $472.5 million on theterm loan with proceeds received from the issuance of our 1.0% 2035 Debentures. We recorded a loss of $2.5 million on the extinguishment, representing theunamortized debt discount and issuance costs, in other expense, net, in the accompanying consolidated statements of operations. In connection with enteringinto the Revolving Credit Facility on April 15, 2016, we terminated our $75.0 million revolving credit agreement.Share Repurchase ProgramOn April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million of our outstanding shares of common stock. OnApril 29, 2015, our Board of Directors approved an additional $500.0 million under our share repurchase program. We repurchased 9.4 million shares for$197.5 million during the fiscal year ended September 30, 2016 under the program. These shares were retired upon repurchase. Since the commencement ofthe program, we have repurchased 40.7 million shares for $707.5 million, including 1.0 million shares repurchased from our Chief Executive Officer in fiscalyear 2016. Approximately $292.5 million remained available for share repurchases as of September 30, 2016 pursuant to our share repurchase program. Underthe terms of the share repurchase program, we have the ability to repurchase shares from time to time through a variety of methods, which may include openmarket purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, or any combination of such methods. The sharerepurchase program does not require us to acquire any specific number of shares and may be modified, suspended, extended or terminated by us at any timewithout prior notice. The timing and the amount of any purchases will be determined by management based on an evaluation of market conditions, capitalallocation alternatives, and other factors.In December 2015, as part of our share repurchase program, we repurchased 1.0 million shares from our Chief Executive Officer, composed of 649,649outstanding shares and 800,000 vested stock options with a net share equivalent of 350,351 shares, for an aggregate purchase price of $21.4 million.In March 2016, our Board of Directors approved a repurchase agreement with the Icahn Group to repurchase 26.3 million shares of our common stockat a price of $19.00 per share, for a total purchase price of $500.0 million.During fiscal year 2016, we changed our method of recognizing the amount paid to repurchase common shares in excess of the par value. Historicallywe allocated any excess of cost over par value between accumulated deficit and additional paid-in capital. Under our new method of accounting, werecognize any excess of cost over par value in additional paid-in capital. The resulting reclassification is not considered material as there is no impact to totalshareholders’ equity and only represents a reclassification between individual equity line items. Accordingly, the financial data for all periods presented hasbeen retrospectively adjusted to reflect the effect of this accounting change. The cumulative effect of the change on additional paid-in capital as ofSeptember 30, 2016, 2015, 2014 and 2013 was a decrease of approximately $672.7 million, $333.8 million, $229.0 million and $218.2 million, respectively,with an offsetting adjustment to accumulated deficit.38 Table of ContentsOff-Balance Sheet Arrangements, Contractual Obligations, Contingent Liabilities and CommitmentsContractual ObligationsThe following table outlines our contractual payment obligations as of September 30, 2016 (dollars in millions): Payments Due by Fiscal Year Ended September 30,Contractual Obligations Total 2017 2018 and 2019 2020 and 2021 ThereafterConvertible Debentures(1) 1,335.9 — 395.5 — 940.4Senior Notes 1,350.0 — — 1,050.0 300.0Interest payable on long-term debt(2) 452.2 96.4 175.8 113.9 66.1Letter of Credit(3) 4.0 3.1 0.9 — —Lease obligations and other liabilities: Operating leases 172.0 23.7 36.7 26.9 84.7Operating leases under restructuring(4) 57.6 10.4 15.8 11.3 20.1Purchase commitments for inventory, property andequipment(5) 5.1 5.1 — — —Total contractual cash obligations $3,376.8 $138.7 $624.7 $1,202.1 $1,411.3(1) Holders of the 1.0% 2035 Debentures have the right to require us to redeem the debentures on December 15, 2022, 2027 and 2032. Holders of the 2031Debentures have the right to require us to redeem the debentures on November 1, 2017, 2021, and 2026. Holders of the 1.5% 2035 Debentures have theright to require us to redeem the debentures on November 1, 2021, 2026, and 2031.(2) Interest per annum is due and payable semi-annually under 1.0% 2035 Debentures at a rate of 1.0%, under 2031 Debentures at a rate of 2.75%, and under1.5% 2035 Debentures at a rate of 1.5%. Interest per annum is due and payable semi-annually on the 5.375% Senior Notes at a rate of 5.375% and 6.0%Senior Notes at a rate of 6.0%.(3) Letters of Credit are in place primarily to secure future operating lease payments.(4) Obligations include contractual lease commitments related to facilities that were part of restructuring plans. As of September 30, 2016, we havesubleased certain of the facilities with total sublease income of $58.1 million through fiscal year 2025.(5) These amounts include non-cancelable purchase commitments for property and equipment as well as inventory in the normal course of business to fulfillcustomers’ orders currently scheduled in our backlog.The gross liability for unrecognized tax benefits as of September 30, 2016 was $27.3 million. We do not expect a significant change in the amount ofunrecognized tax benefits within the next 12 months. We estimate that none of this amount will be paid within the next year and we are currently unable toreasonably estimate the timing of payments for the remainder of the liability.Contingent Liabilities and CommitmentsIn connection with certain acquisitions, we may agree to make contingent cash payments to the selling shareholders of the acquired companies asdeferred acquisition consideration or upon the achievement of specified objectives. As of September 30, 2016, we may be required to make up to $20.1million of deferred acquisition consideration upon the conclusion of an indemnity period in November 2017. As of September 30, 2016, we may be requiredto make up to $17.2 million of additional payments to the selling shareholders contingent upon the achievement of specified objectives, including theachievement of future bookings and sales targets related to the products of the acquired entities. In addition, there are deferred payment obligations to certainformer shareholders, contingent upon their continued employment. These deferred payment obligations, totaling $20.5 million as of September 30, 2016, arerecorded as compensation expense over the applicable employment period.Financial InstrumentsWe use financial instruments to manage our foreign exchange risk. We operate our business in countries throughout the world and transact business invarious foreign currencies. Our foreign currency exposures typically arise from transactions denominated in currencies other than the functional currency ofour operations. We have a program that primarily utilizes foreign currency forward contracts to offset the risks associated with the effect of certain foreigncurrency exposures. Our program is designed so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreigncurrency forward contracts in order to mitigate the risks and volatility associated with our foreign currency transactions. Generally, we enter39 Table of Contentsinto such contracts for less than 90 days and have no cash requirements until maturity. At September 30, 2016 and 2015, we had outstanding contracts with atotal notional value of $215.2 million and $138.5 million, respectively.From time to time we enter into agreements that allow us to issue shares of our common stock as part or all of the consideration related to businessacquisitions, partnering and technology acquisition activities. Some of these shares are issued subject to security price guarantees, which are accounted for asderivatives. We have determined that these instruments would not be considered equity instruments if they were freestanding. Certain of the security priceguarantees require payment from either us to a third party, or from a third party to us, based upon the difference between the price of our common stock on theissue date and an average price of our common stock approximately six months following the issue date. We have also issued minimum price guarantees thatmay require payments from us to a third party based on the average share price of our common stock approximately six months following the issue date if ourstock price falls below the minimum price guarantee. Changes in the fair value of these security price guarantees are reported in other expense, net in ourconsolidated statements of operations. We have no outstanding shares subject to security price guarantees at September 30, 2016. During the years endedSeptember 30, 2015 and 2014, we recorded $0.2 million and $4.4 million, respectively, of losses associated with these contracts and we paid cash totaling$0.3 million and $5.3 million, respectively, upon the settlement of the agreements.Pension PlansWe sponsor certain defined benefit pension plans that are offered primarily by certain of our foreign subsidiaries. Many of these plans were assumedthrough our acquisitions or are required by local regulatory requirements. We may deposit funds for these plans with insurance companies, third partytrustees, or into government-managed accounts consistent with local regulatory requirements, as applicable. Our total defined benefit plan pension expenseswere $0.1 million, $0.3 million and $0.2 million for fiscal years 2016, 2015 and 2014, respectively. The aggregate projected benefit obligation and aggregatenet liability of our defined benefit plans as of September 30, 2016 was $32.1 million and $8.2 million, respectively, and as of September 30, 2015 was $35.5million and $7.3 million, respectively.Off-Balance Sheet ArrangementsThrough September 30, 2016, we have not entered into any off-balance sheet arrangements or material transactions with unconsolidated entities orother persons.CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATESThe preparation of financial statements in conformity with U.S. generally accepted accounting principles, requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, assumptions andjudgments, including those related to revenue recognition; allowance for doubtful accounts and sales returns; accounting for deferred costs; accounting forinternally developed software; the valuation of goodwill and intangible assets; accounting for business combinations, including contingent consideration;accounting for stock-based compensation; accounting for derivative instruments; accounting for income taxes and related valuation allowances; and losscontingencies. Our management bases its estimates on historical experience, market participant fair value considerations, projected future cash flows andvarious other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates.We believe the following critical accounting policies most significantly affect the portrayal of our financial condition and results of operations andrequire our most difficult and subjective judgments.Revenue Recognition. We derive revenue from the following sources: (1) software license agreements, including royalty and other usage-basedarrangements, (2) professional services, (3) hosting services and (4) post-contract customer support ("PCS"). Our hosting services are generally providedthrough on-demand, usage-based or per transaction fee arrangements. Our revenue recognition policies for these revenue streams are discussed below.The sale and/or license of software solutions and technology is deemed to have occurred when a customer either has taken possession of or has accessto take immediate possession of the software or technology. In select situations, we sell or license intellectual property in conjunction with, or in place of,embedding our intellectual property in software. We also have non-software arrangements including hosting services where the customer does not takepossession of the software at the outset of the arrangement either because they have no contractual right to do so or because significant penalties precludethem from doing so. Generally we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed ordeterminable and (iv) collectability is probable.40 Table of ContentsRevenue from royalties on sales of our software products by original equipment manufacturers (“OEMs”), where no services are included, is recognizedin the quarter earned so long as we have been notified by the OEM that such royalties are due, and provided that all other revenue recognition criteria aremet.Software arrangements generally include PCS, which includes telephone support and the right to receive unspecified upgrades/enhancements on awhen-and-if-available basis, typically for one to five years. Revenue from PCS is recognized ratably on a straight-line basis over the term that themaintenance service is provided. When PCS renews automatically, we provide a reserve based on historical experience for contracts expected to be canceledfor non-payment. All known and estimated cancellations are recorded as a reduction to revenue and accounts receivable.For our software and software-related multiple element arrangements, where customers purchase both software related products and software relatedservices, we use vendor-specific objective evidence (“VSOE”) of fair value for software and software-related services to separate the elements and account forthem separately. VSOE exists when a company can support what the fair value of its software and/or software-related services is based on evidence of theprices charged when the same elements are sold separately. For the undelivered elements, VSOE of fair value is required in order to separate the accountingfor various elements in a software and related services arrangement. We have established VSOE of fair value for the majority of our PCS, professional services,and training.When we provide professional services considered essential to the functionality of the software, we recognize revenue from the professional services aswell as any related software licenses on a percentage-of-completion basis whereby the arrangement consideration is recognized as the services are performed,as measured by an observable input. In these circumstances, we separate license revenue from professional service revenue for income statement presentationby allocating VSOE of fair value of the professional services as professional services and hosting revenue and the residual portion as product and licensingrevenue. We generally determine the percentage-of-completion by comparing the labor hours incurred to-date to the estimated total labor hours required tocomplete the project. We consider labor hours to be the most reliable, available measure of progress on these projects. Adjustments to estimates to completeare made in the periods in which facts resulting in a change become known. When the estimate indicates that a loss will be incurred, such loss is recorded inthe period identified. Significant judgments and estimates are involved in determining the percent complete of each contract. Different assumptions couldyield materially different results.We offer some of our products via a Software-as-a-Service ("SaaS") model also known as a hosted model. In this type of arrangement, we arecompensated in three ways: (1) fees for up-front set-up of the service environment (2) fees charged on a usage or per transaction basis, and (3) fees charged foron-demand service. Our up-front set-up fees are nonrefundable. We recognize the up-front set-up fees ratably over the longer of the contract lives, or theexpected lives of the customer relationships. The usage-based or per transaction fees are due and payable as each individual transaction is processed throughthe hosted service and is recognized as revenue in the period the services are provided. The on-demand service fees are recognized ratably over our estimateof the useful life of devices on which the hosted service is provided.We enter into multiple-element arrangements that may include a combination of our various software related and non-software related products andservices offerings including software licenses, PCS, professional services, and our hosting services. In such arrangements, we allocate total arrangementconsideration to software or software-related elements and any non-software element separately based on the selling price hierarchy group following ourpolicies. We determine the selling price for each deliverable using VSOE of selling price, if it exists, or Third Party Evidence (“TPE”) of selling price.Typically, we are unable to determine TPE of selling price. Therefore, when neither VSOE nor TPE of selling price exist for a deliverable, we use our Estimateof Selling Price (“ESP”) for the purposes of allocating the arrangement consideration. We determine ESP for a product or service by considering multiplefactors including, but not limited to, major project groupings, market conditions, competitive landscape, price list and discounting practices. Revenueallocated to each element is then recognized when the basic revenue recognition criteria are met for each element.When products are sold through distributors or resellers, title and risk of loss generally passes upon shipment, at which time the transaction is invoicedand payment is due. Shipments to distributors and resellers without right of return are recognized as revenue upon shipment, provided all other revenuerecognition criteria are met. Certain distributors and resellers have been granted rights of return for as long as the distributors or resellers hold the inventory.We cannot estimate historical returns from these distributors and resellers; and therefore, cannot use such estimates as the basis upon which to estimate futuresales returns. As a result, we recognize revenue from sales to these distributors and resellers when the products are sold through to retailers and end-users.When products are sold directly to retailers or end-users, we make an estimate of sales returns based on historical experience. The provision for theseestimated returns is recorded as a reduction of revenue and accounts receivable at the time that the related41 Table of Contentsrevenue is recorded. If actual returns differ significantly from our estimates, such differences could have a material impact on our results of operations for theperiod in which the actual returns become known.We record consideration given to a reseller as a reduction of revenue to the extent we have recorded cumulative revenue from the customer or reseller.However, when we receive an identifiable benefit in exchange for the consideration, and can reasonably estimate the fair value of the benefit received, theconsideration is recorded as an operating expense.We record reimbursements received for out-of-pocket expenses as revenue, with offsetting costs recorded as cost of revenue. Out-of-pocket expensesgenerally include, but are not limited to, expenses related to transportation, lodging and meals. We record shipping and handling costs billed to customers asrevenue with offsetting costs recorded as cost of revenue.Our revenue recognition policies require management to make significant estimates. Management analyzes various factors, including a review ofspecific transactions, historical experience, creditworthiness of customers and current market and economic conditions. Changes in judgments based uponthese factors could impact the timing and amount of revenue and cost recognized and thus affects our results of operations and financial condition.Business Combinations. We determine and allocate the purchase price of an acquired company to the tangible and intangible assets acquired andliabilities assumed as of the business combination date. The purchase price allocation process requires us to use significant estimates and assumptions,including fair value estimates, as of the business acquisition date, including:•estimated fair values of intangible assets;•estimated fair market values of legal performance commitments to customers, assumed from the acquiree under existing contractual obligations(classified as deferred revenue) at the date of acquisition;•estimated fair market values of stock awards assumed from the acquiree that are included in the purchase price;•estimated fair market value of required payments under contingent consideration provisions;•estimated income tax assets and liabilities assumed from the acquiree; and•estimated fair value of pre-acquisition contingencies assumed from the acquiree.While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilitiesassumed at the business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchaseprice allocation period, which is generally one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed,with the corresponding offset to goodwill. For adjustments to provisional amounts that are identified during the purchase price allocation period, werecognize the adjustment in the reporting period in which the adjustment amounts are determined. Subsequent to the purchase price allocation period anyadjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined.Although we believe the assumptions and estimates we have made in the past have been reasonable and appropriate, they are based in part on historicalexperience and information obtained from the management of the acquired companies and are inherently uncertain. Examples of critical estimates in valuingcertain of the intangible assets we have acquired or may acquire in the future include but are not limited to:•future expected cash flows from software license sales, support agreements, consulting contracts, hosting services, other customer contracts andacquired developed technologies and patents;•expected costs to develop in-process research and development projects into commercially viable products and the estimated cash flows from theprojects when completed;•the acquired company’s brand and competitive position, as well as assumptions about the period of time the acquired brand will continue to beused in the combined company’s product portfolio; and•discount rates.Unanticipated events and circumstances may occur which may affect the accuracy or validity of such assumptions, estimates or actual results.42 Table of ContentsIn connection with the purchase price allocations for our acquisitions, we estimate the fair market value of legal performance commitments tocustomers, which are classified as deferred revenue. The estimated fair market value of these obligations is determined and recorded as of the acquisition date.For a given acquisition, we may identify certain pre-acquisition contingencies. If, during the purchase price allocation period, we are able to determinethe fair value of a pre-acquisition contingency, we will include that amount in the purchase price allocation. If we are unable to determine the fair value of apre-acquisition contingency at the end of the purchase price allocation period, we will evaluate whether to include an amount in the purchase priceallocation based on whether it is probable a liability had been incurred and whether an amount can be reasonably estimated. After the end of the purchaseprice allocation period, any adjustment to amounts recorded for a pre-acquisition contingency will be included in our operating results as acquisition-relatedcost, net in the period in which the adjustment is determined.Goodwill, Intangible and Other Long-Lived Assets and Impairment Assessments. We have significant long-lived tangible and intangible assets,including goodwill with indefinite lives, which are susceptible to valuation adjustments as a result of changes in various factors or conditions. The mostsignificant finite-lived tangible and intangible assets are customer relationships, licensed technology, patents and core technology, completed technology,fixed assets and trade names. All finite-lived intangible assets are amortized over the estimated economic lives of the assets, generally using the straight-linemethod except where the pattern of the expected economic benefit is readily identifiable, primarily customer relationship intangibles, whereby amortizationfollows that pattern. The values of intangible assets determined in connection with a business combination, with the exception of goodwill, were initiallydetermined by a risk-adjusted, discounted cash flow approach. Goodwill and intangible assets with indefinite lives are not amortized, but rather the carryingamounts of these assets are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of theseassets may not be recoverable. Goodwill is tested for impairment based on a comparison of the fair value of our reporting units to their recorded carryingvalues. The test consists of a two-step process. The first step is the comparison of the fair value to the carrying value of the reporting unit to determine if thecarrying value exceeds the fair value. The second step measures the amount of an impairment loss and is only performed if the carrying value exceeds the fairvalue of the reporting unit. Our annual impairment assessment date is July 1 of each fiscal year. As of July 1, 2016 we had six reporting units based on thelevel of information provided to, and review thereof, by our segment management. We continuously evaluate our operating segments and one level belowour operating segments to determine the correct reporting units for our goodwill impairment testing. Factors we consider important, which could trigger animpairment of such assets, include the following:•significant underperformance relative to historical or projected future operating results;•significant changes in the manner of or use of the acquired assets or the strategy for our overall business;•significant negative industry or economic trends;•significant decline in our stock price for a sustained period; and•a decline in our market capitalization below net book value.We determine fair values for each of the reporting units based on consideration of the income approach, the market comparable approach and the markettransaction approach. For purposes of the income approach, fair value is determined based on the present value of estimated future after-tax cash flows,discounted at an appropriate risk adjusted rate. We use our internal forecasts to estimate future after-tax cash flows and include an estimate of long-term futuregrowth rates based on our most recent views of the long-term outlook for each reporting unit, which we believe are consistent with other market participants.Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzing published ratesfor industries relevant to our reporting units to estimate the weighted average cost of capital. We use discount rates that are commensurate with the risks anduncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unit valuations ranged from9.5% to 14.5%. For purposes of the market approach, we use a valuation technique in which values are derived based on market prices of comparablepublicly traded companies. We also use a market based valuation technique in which values are determined based on relevant observable informationgenerated by market transactions involving comparable businesses. Compared to the market approach, the income approach more closely aligns eachreporting unit valuation to our business profile, including geographic markets served and product offerings. Required rates of return, along with uncertaintyinherent in the forecasts of future cash flows, are reflected in the selection of the discount rate. Equally important, under this approach, reasonably likelyscenarios and associated sensitivities can be developed for alternative future states that may not be reflected in an observable market price. A marketapproach allows for comparison to actual market transactions and multiples. It can be somewhat more limited in its application because the population ofpotential comparable entities is often limited to publicly-traded companies where the characteristics of the comparative business and ours can besignificantly different, market data is usually not available for divisions within larger conglomerates or non-public subsidiaries that could otherwise qualifyas comparable, and the specific circumstances surrounding a market transaction (e.g., synergies between the parties, terms and conditions of the transaction,etc.) may be different or irrelevant with respect to our business. It can also be difficult, under certain market conditions, to identify orderly transactionsbetween market participants in similar43 Table of Contentsbusinesses. We assess each valuation methodology based upon the relevance and availability of the data at the time we perform the valuation and weight themethodologies appropriately.The carrying values of the reporting units were determined based on an allocation of our assets and liabilities, through specific allocation of certainassets and liabilities, to the reporting units and an apportionment method based on relative size of the reporting units’ revenues and operating expensescompared to our total revenues and operating expenses. Goodwill was initially allocated to our reporting units based on the relative fair value of the units atthe date we implemented the current reporting unit structure. Goodwill subsequently acquired through acquisitions is allocated to the applicable reportingunit based upon the relative fair value of the acquired business. Certain corporate assets and liabilities that are not instrumental to the reporting units’operations and would not be transferred to hypothetical purchasers of the reporting units were excluded from the reporting units’ carrying values.As of our annual impairment assessment date for fiscal year 2016, our estimated fair values of our reporting units exceeded their carrying values and weconcluded, based on the first step of the process, that there was no impairment of goodwill. The fair value substantially exceeded the carrying value by morethan 120% for each of our reporting units, with the exception of our Mobile and Dragon Consumer ("DNS") reporting units. The fair value exceeded thecarrying value of our Mobile reporting unit by approximately 18%. Goodwill allocated to our Mobile reporting unit is approximately $1.1 billion as ofJuly 1, 2016 and September 30, 2016. Our Mobile reporting unit, specifically our handset business, has experienced a decline in fair value as a result ofweakening handset revenues from a deterioration in mature markets. The operating plans and projections, which are the basis for the reporting unit fair value,anticipate these weakening conditions for the handset business and include continued revenue growth from cloud-based services in our automotive businessand revenue from TV solutions and IoT are expected to offset this weakness in handset revenue over time. The fair value exceeded the carrying value of ourDNS reporting unit by approximately 15%. Goodwill allocated to our DNS reporting unit is approximately $66.8 million as of July 1, 2016 andSeptember 30, 2016. Our DNS reporting unit has experienced a decline in fair value as a result of a weakening revenue stream from sales of our dictationsoftware to business users and consumers due to an overall weakness in desktop software sales. The operating plans and projections, which are the basis forthe reporting unit fair value, anticipate these weakening conditions.Determining the fair value of a reporting unit or asset group involves the use of significant estimates and assumptions, which we believe to bereasonable, that are unpredictable and inherently uncertain. These estimates and assumptions include revenue growth rates and operating margins used tocalculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, our ability to launch new product and new marketpenetrations, and determination of appropriate market comparables. Significant adverse changes in our future revenues and/or operating margins, significantdegradation in the enterprise values of comparable companies for our reporting units, changes in our organization or management reporting structure, as wellas other events and circumstances, including but not limited to technological advances, increased competition and changing economic or market conditions,could result in (a) shorter estimated useful lives, (b) changes to reporting units or asset groups, which may require alternative methods of estimating fairvalues or greater disaggregation or aggregation in our analysis by reporting unit, and/or (c) other changes in previous assumptions or estimates, could resultin the determination that all or a portion of our goodwill is impaired that could materially impact future results of operations and financial position in thereporting period identified.We periodically review long-lived assets other than goodwill for impairment whenever events or changes in business circumstances indicate that thecarrying amount of the assets may not be fully recoverable or that the useful lives of those assets are no longer appropriate. Each impairment test is based on acomparison of the undiscounted cash flows to the recorded carrying value for the asset or asset group. Asset groups utilized in this analysis are identified asthe lowest level grouping of assets for which largely independent cash flows can be identified. If impairment is indicated, the asset or asset group is writtendown to its estimated fair value.Accounting for Stock-Based Compensation. We account for share-based awards to employees and directors, including grants of employee stockoptions, purchases under employee stock purchase plans, and restricted awards through recognition of the fair value of the share-based awards as a chargeagainst earnings in the form of stock-based compensation expense. We recognize stock-based compensation expense over the requisite service period, net ofestimated forfeitures. We recognize benefits from stock-based compensation in equity using the with-and-without approach for the utilization of taxattributes. Determining the fair value of share-based awards at the grant date requires judgment, including estimating expected dividends, share pricevolatility and the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-basedcompensation expense and our results of operations could be materially impacted.Income Taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between thefinancial statement carrying amounts of assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefitssuch as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not after consideration of all available evidence. Asthe income tax returns are not due and filed until after the completion of our annual financial reporting requirements, the amounts recorded for the currentperiod reflect estimates for the tax-based activity for the period. In addition, estimates are often required with respect to, among other things, the appropriate44 Table of Contentsstate and foreign income tax rates to use, the potential utilization of operating loss carry-forwards and valuation allowances required, if any, for tax assets thatmay not be realizable in the future. Tax laws and tax rates vary substantially in these jurisdictions, and are subject to change given the political andeconomic climate. We report and pay income tax based on operational results and applicable law. Our tax provision contemplates tax rates currently in effectto determine both our current and deferred tax provisions.Any significant fluctuation in rates or changes in tax laws could cause our estimates of taxes we anticipate either paying or recovering in the future tochange. Such changes could lead to either increases or decreases in our effective tax rate.We have historically estimated the future tax consequence of certain items, including bad debts, inventory valuation, and accruals that cannot bededucted for income tax purposes until such expenses are actually paid or disposed. We believe the procedures and estimates used in our accounting forincome taxes are reasonable and in accordance with established tax law. The income tax estimates used have not resulted in material adjustments to incometax expense in subsequent periods when the estimates are adjusted to the actual filed tax return amounts.Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporarydifferences are expected to be recovered or settled. With respect to earnings expected to be indefinitely reinvested offshore, we do not accrue tax for therepatriation of such foreign earnings.We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timingof the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive andnegative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensuratewith the extent to which the evidence may be objectively verified. If positive evidence regarding projected future taxable income, exclusive of reversingtaxable temporary differences, existed it would be difficult for it to outweigh objective negative evidence of recent financial reporting losses. Generally,cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is notneeded.As of September 30, 2016, we have $110.2 million of valuation allowances recorded against all U.S. deferred tax assets and certain foreign deferred taxassets. If we are subsequently able to utilize all or a portion of the deferred tax assets for which the remaining valuation allowance has been established, thenwe may be required to recognize these deferred tax assets through the reduction of the valuation allowance which could result in a material benefit to ourresults of operations in the period in which the benefit is determined.We establish reserves for tax uncertainties that reflect the use of the comprehensive model for the recognition and measurement of uncertain taxpositions. Under the comprehensive model, when the minimum threshold for recognition is not met, no tax benefit can be recorded. When the minimumthreshold for recognition is met, a tax position is recorded as the largest amount that is more than fifty percent likely of being realized upon ultimatesettlement.Loss Contingencies. We are subject to legal proceedings, lawsuits and other claims relating to labor, service and other matters arising in the ordinarycourse of business, as discussed in Note 16 of Notes to our Consolidated Financial Statements. Quarterly, we review the status of each significant matter andassess our potential financial exposure. If the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonablyestimated, we accrue a liability for the estimated loss. Significant judgment is required in both the determination of probability and the determination as towhether an exposure is reasonably estimable. Because of uncertainties related to these matters, accruals are based only on the best information available atthe time. As additional information becomes available, we reassess the potential liability related to our pending claims and litigation and may revise ourestimates. Such revisions in the estimates of the potential liabilities could have a material impact on our results of operations and financial position.RECENTLY ADOPTED ACCOUNTING STANDARDSIn fiscal year 2016, we early adopted, and retroactively implemented Accounting Standards Update ("ASU") No. 2015-17, "Balance SheetClassification of Deferred Taxes." Under this new guidance, we are required to present deferred tax assets and deferred tax liabilities, and any relatedvaluation allowances, as noncurrent on our consolidated balance sheet. The cumulative effect of the change as of September 30, 2015 on current and long-term deferred tax assets was a decrease of approximately $57.3 million and $0.4 million, respectively, with an offsetting adjustment to long-term deferred taxliabilities, and had no impact on our shareholders' equity, results of operations or cash flows. Current deferred tax assets were included in prepaid expensesand other current assets and long-term deferred tax assets were included in other assets within our consolidated balance sheet.In fiscal year 2016, we implemented ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of anEntity." Under this new guidance, we are required to change the criteria for determining which disposals45 Table of Contentscan be presented as discontinued operations and requires enhanced disclosures. The implementation had no impact on our consolidated financial statements.In fiscal year 2016, we early adopted, and retroactively implemented ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." Underthis new guidance, we are required to present debt issuance costs as a direct deduction from the related debt liability on our consolidated balance sheet. Thecumulative effect of the change as of September 30, 2015 on other assets was a decrease of approximately $15.7 million with an offsetting adjustment tolong-term portion of debt, and had no impact on our shareholders' equity, results of operations or cash flows.In fiscal year 2016, we early adopted ASU No. 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"). Theamendments in the ASU 2015-16 require an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period inthe reporting period in which the adjustment amounts are determined and set forth new disclosure requirements related to the adjustments. Theimplementation had no impact on our consolidated financial statements.RECENTLY ISSUED ACCOUNTING STANDARDSFrom time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board and are adopted by us as of the specifiedeffective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on our consolidated financial position,results of operations and cash flows or do not apply to our operations.In August 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification ofCertain Cash Receipts and Cash Payments ("ASC 2016-15"), which provides guidance on the classification of certain specific cash flow issues including debtprepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceedsfrom the settlement of certain insurance claims and distributions received from equity method investees. The standard requires the use of a retrospectiveapproach to all periods presented, but may be applied prospectively if retrospective application would be impracticable. ASU 2016-15 is effective for us inthe first quarter of fiscal year 2019, and early application is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-15 onour consolidated financial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based PaymentAccounting ("ASU 2016-09"), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income taxconsequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for us in thefirst quarter of fiscal year 2018, and early application is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-09 on ourconsolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize on the balance sheet aright-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. Theguidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. Thestandard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect toapply. ASU 2016-02 is effective for us in the first quarter of fiscal year 2020, and early application is permitted. We are currently evaluating the impact of ourpending adoption of ASU 2016-02 on our consolidated financial statements.In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01").ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Although ASU 2016-01 retains many currentrequirements, it significantly revises accounting related to the classification and measurement of investments in equity securities and the presentation ofcertain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fairvalue of financial instruments and is effective for us in the first quarter of fiscal year 2019. We do not believe that ASU 2016-01 will have a material impacton our consolidated financial statements.In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Amendments to the Consolidation Analysis” ("ASU 2015-02"). Theamendments in ASU 2015-02 provide guidance on evaluating whether a company should consolidate certain legal entities. In accordance with the guidance,all legal entities are subject to reevaluation under the revised consolidation model. ASU 2015-02 is effective for us in the first quarter of fiscal year 2017 withearly adoption permitted. We do not believe that ASU 2015-02 will have a material impact on our consolidated financial statements.In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as aGoing Concern" ("ASU 2014-15"), to provide guidance on management's responsibility in evaluating46 Table of Contentswhether there is substantial doubt about a company's ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 iseffective for us in the first quarter of fiscal year 2017, with early adoption permitted. We do not believe that ASU 2014-15 will have a material impact on ourconsolidated financial statements.In June 2014, the FASB issued Accounting Standards Update No. 2014-12, "Accounting for Share-Based Payments When the Terms of an AwardProvide That a Performance Target Could Be Achieved after the Requisite Service Period" ("ASU 2014-12"). ASU 2014-12 requires that a performance targetthat affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existingguidance in ASC 718, "Compensation - Stock Compensation," as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal year2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospectiveto all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to allnew or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of thebeginning of the earliest annual period presented in the financial statements. We do not believe that ASU 2014-12 will have a material impact on ourconsolidated financial statements.In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASU 2014-09"), tosupersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promisedgoods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within therevenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount ofvariable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 iseffective for us in our first quarter of fiscal year 2019 using either of two methods: (i) retrospective to each prior reporting period presented with the option toelect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the impactof our pending adoption of ASU 2014-09 on our consolidated financial statements.Item 7A.Quantitative and Qualitative Disclosures about Market RiskWe are exposed to market risk from changes in foreign currency exchange rates, interest rates and equity prices which could affect operating results,financial position and cash flows. We manage our exposure to these market risks through our regular operating and financing activities and, whenappropriate, through the use of derivative financial instruments.Exchange Rate SensitivityWe are exposed to changes in foreign currency exchange rates. Any foreign currency transaction, defined as a transaction denominated in a currencyother than the local functional currency, will be reported in the functional currency at the applicable exchange rate in effect at the time of the transaction. Achange in the value of the functional currency compared to the foreign currency of the transaction will have either a positive or negative impact on ourfinancial position and results of operations.Assets and liabilities of our foreign entities are translated into U.S. dollars at exchange rates in effect at the balance sheet date and income and expenseitems are translated at average rates for the applicable period. Therefore, the change in the value of the U.S. dollar compared to foreign currencies will haveeither a positive or negative effect on our financial position and results of operations. Historically, our primary exposure has related to transactionsdenominated in the euro, British pound, Brazilian real, Canadian dollar, Japanese yen, Indian rupee and Hungarian forint.A hypothetical change of 10% in appreciation or depreciation in foreign currency exchange rates from the quoted foreign currency exchange rates atSeptember 30, 2016 would not have a material impact on our revenue, operating results or cash flows in the coming year.Periodically, we enter into forward exchange contracts to hedge against foreign currency fluctuations. These contracts may or may not be designated ascash flow hedges for accounting purposes. We have in place a program which primarily uses forward contracts to offset the risks associated with foreigncurrency exposures that arise from transactions denominated in currencies other than the functional currencies of our worldwide operations. The program isdesigned so that increases or decreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts. Theoutstanding contracts are not designated as accounting hedges and generally are for periods less than 90 days. The notional contract amount of outstandingforeign currency exchange contracts not designated as cash flow hedges was $215.2 million at September 30, 2016. Based on the nature of the transactionsfor which the contracts were purchased, a hypothetical change of 10% in exchange rates would not have a material impact on our financial results.47 Table of ContentsInterest Rate SensitivityWe are exposed to interest rate risk as a result of our cash and cash equivalents and marketable securities.At September 30, 2016, we held approximately $608.1 million of cash and cash equivalents and marketable securities consisting of cash, money-market funds, bank deposits and a separately managed investment portfolio. Assuming a one percentage point increase in interest rates, our interest incomeon our investments classified as cash and cash equivalents and marketable securities would increase by approximately $4.6 million per annum, based on theSeptember 30, 2016 reported balances of our investment accounts.At September 30, 2016, we had no outstanding debt exposed to variable interest rates.Equity Price RiskWe are exposed to equity price risk as a result of security price guarantees that we enter into from time to time. Generally, these price guarantees are fora period of six months or less, and require payment from either us to a third party, or from the third party to us, based upon changes in our stock price duringthe contract term. As of September 30, 2016, we have no security price guarantees outstanding.2031 Debentures, 1.5% 2035 Debentures, and 1.0% 2035 DebenturesThe fair values of our 2031 Debentures, 1.5% 2035 Debentures, and 1.0% 2035 Debentures are dependent on the price and volatility of our commonstock as well as movements in interest rates. The fair market values of these debentures will generally increase as the market price of our common stockincreases and will decrease as the market price of our common stock decreases. The fair market values of these debentures will generally increase as interestrates fall and decrease as interest rates rise. The market value and interest rate changes affect the fair market values of these debentures, but do not impact ourfinancial position, results of operations or cash flows due to the fixed nature of the debt obligations. However, increases in the value of our common stockabove the stated trigger price for each issuance for a specified period of time may provide the holders of these debentures the right to convert each bond usinga conversion ratio and payment method as defined in the debenture agreement.Our debentures trade in the financial markets, and the fair value at September 30, 2016 was $398.2 million for the 2031 Debentures, based on anaverage of the bid and ask prices on that day. The conversion value on September 30, 2016 was approximately $177.6 million. A 10% increase in the stockprice over the September 30, 2016 closing price of $14.50 would cause an estimated $0.6 million increase to the fair value and a $17.8 million increase to theconversion value of the debentures. The fair value at September 30, 2016 was $247.7 million for the 1.5% 2035 Debentures, based on an average of the bidand ask prices on that day. The conversion value on September 30, 2016 was approximately $164.5 million. A 10% increase in the stock price over theSeptember 30, 2016 closing price of $14.50 would cause an estimated $8.8 million increase to the fair value and a $16.4 million increase to the conversionvalue of the debentures.The fair value at September 30, 2016 was $589.6 million for the 1.0% 2035 Debentures, based on an average of the bid and ask priceson that day. The conversion value on September 30, 2016 was approximately $360.2 million. A 10% increase in the stock price over the September 30, 2016closing price of $14.50 would cause an estimated $18.9 million increase to the fair value and a $36.0 million increase to the conversion value of thedebentures.48 Table of ContentsItem 8.Financial Statements and Supplementary DataNuance Communications, Inc. Consolidated Financial StatementsNUANCE COMMUNICATIONS, INC.INDEX TO FINANCIAL STATEMENTS PageReports of Independent Registered Public Accounting Firm50Consolidated Statements of Operations52Consolidated Statements of Comprehensive Loss53Consolidated Balance Sheets54Consolidated Statements of Stockholders’ Equity55Consolidated Statements of Cash Flows56Notes to Consolidated Financial Statements5749 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersNuance Communications, Inc.Burlington, MassachusettsWe have audited the accompanying consolidated balance sheets of Nuance Communications, Inc. as of September 30, 2016 and 2015, and the relatedconsolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended September 30,2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NuanceCommunications, Inc. at September 30, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period endedSeptember 30, 2016, in conformity with accounting principles generally accepted in the United States of America.As discussed in Notes 2 and 18 to the consolidated financial statements, the Company has elected to change its method to present deferred tax assetsand deferred tax liabilities, and any related valuation allowances, as noncurrent on its consolidated balance sheet as of September 30, 2016 and 2015 due tothe early adoption of Accounting Standards Update ("ASU") No. 2015-17, "Balance Sheet Classification of Deferred Taxes."As discussed in Notes 2 and 14 to the consolidated financial statements, the Company has elected to change its method of recognizing the amountpaid to repurchase common shares in excess of the par value on its consolidated balance sheet as of September 30, 2016 and 2015. Historically the Companyallocated any excess of cost over par value between accumulated deficit and additional paid-in capital. Under the new method of accounting, the Companyrecognize any excess of cost over par value in additional paid-in capital. The resulting reclassification is not considered material as there is no impact to totalshareholders’ equity and only represents a reclassification between individual equity line items.As discussed in Notes 2 and 9 to the consolidated financial statements, the Company has elected to change its method to present deferred debt issuancecosts as a direct deduction from the carrying amount of that debt liability on its consolidated balance sheet as of September 30, 2016 and 2015 due to theearly adoption of Accounting Standards Update ("ASU") No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs."We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Nuance Communications,Inc.’s internal control over financial reporting as of September 30, 2016, based on criteria established in Internal Control — Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 22, 2016 expressed anunqualified opinion thereon. /s/ BDO USA, LLP BDO USA, LLPBoston, MassachusettsNovember 22, 201650 Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMBoard of Directors and StockholdersNuance Communications, Inc.Burlington, MassachusettsWe have audited Nuance Communications, Inc.’s internal control over financial reporting as of September 30, 2016, based on criteria established inInternal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria).Nuance Communications, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control Over FinancialReporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of thecompany are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on thefinancial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projectionsof any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.As indicated in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting, management’s assessment of andconclusion on the effectiveness of internal control over financial reporting did not include the internal controls of TouchCommerce, Inc., which was acquiredon August 16, 2016, and which is included in the consolidated balance sheets of Nuance Communications, Inc. as of September 30, 2016, and the relatedconsolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year then ended. TouchCommerce, Inc. constituted0.3% and 0.4% of total assets and net assets, respectively, as of September 30, 2016, and 0.3% and 21.7% of revenues and net loss, respectively, for the yearthen ended. Management did not assess the effectiveness of internal control over financial reporting of TouchCommerce, Inc. because of the timing of theacquisition which was completed on August 16, 2016. Our audit of internal control over financial reporting of Nuance Communications, Inc. also did notinclude an evaluation of the internal control over financial reporting of TouchCommerce, Inc.In our opinion, Nuance Communications, Inc. maintained, in all material respects, effective internal control over financial reporting as of September 30,2016, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balancesheets of Nuance Communications, Inc. as of September 30, 2016 and 2015, and the related consolidated statements of operations, comprehensive loss,stockholders’ equity and cash flows for each of the three years in the period ended September 30, 2016 and our report dated November 22, 2016 expressed anunqualified opinion thereon. /s/ BDO USA, LLP BDO USA, LLPBoston, MassachusettsNovember 22, 201651 Table of ContentsNUANCE COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended September 30, 2016 2015 2014 (In thousands, except per share amounts)Revenues: Product and licensing$669,227 $696,290 $710,988Professional services and hosting955,329 919,479 910,916Maintenance and support324,347 315,367 301,547Total revenues1,948,903 1,931,136 1,923,451Cost of revenues: Product and licensing86,379 91,839 97,550Professional services and hosting626,168 618,633 631,689Maintenance and support54,077 54,424 52,278Amortization of intangible assets62,876 63,646 60,989Total cost of revenues829,500 828,542 842,506Gross profit1,119,403 1,102,594 1,080,945Operating expenses: Research and development271,130 306,867 333,775Sales and marketing390,866 410,877 424,530General and administrative168,473 187,263 191,279Amortization of intangible assets108,021 104,630 109,063Acquisition-related costs, net17,166 14,379 24,218Restructuring and other charges, net25,224 23,669 19,443Total operating expenses980,880 1,047,685 1,102,308Income (loss) from operations138,523 54,909 (21,363)Other income (expense): Interest income4,438 2,635 2,345Interest expense(132,732) (118,564) (132,675)Other expense, net(8,490) (19,452) (3,327)Income (loss) before income taxes1,739 (80,472) (155,020)Provision (benefit) for income taxes14,197 34,538 (4,677)Net loss$(12,458) $(115,010) $(150,343)Net loss per share: Basic$(0.04) $(0.36) $(0.47)Diluted$(0.04) $(0.36) $(0.47)Weighted average common shares outstanding: Basic292,129 317,028 316,936Diluted292,129 317,028 316,936See accompanying notes.52 Table of ContentsNUANCE COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS Year Ended September 30, 2016 2015 2014 (In thousands)Net loss$(12,458) $(115,010) $(150,343)Other comprehensive income (loss): Foreign currency translation adjustment2,421 (89,844) (27,639)Pension adjustments(1,741) (3,041) (3,189)Unrealized gain (loss) on marketable securities131 (45) —Total other comprehensive income (loss), net811 (92,930) (30,828)Comprehensive loss$(11,647) $(207,940) $(181,171)See accompanying notes. 53 Table of ContentsNUANCE COMMUNICATIONS, INC.CONSOLIDATED BALANCE SHEETS September 30, 2016 September 30, 2015 (In thousands, exceptper share amounts)ASSETSCurrent assets: Cash and cash equivalents$481,620 $479,449Marketable securities98,840 57,237Accounts receivable, less allowances for doubtful accounts of $11,038 and $9,184380,004 373,162Prepaid expenses and other current assets78,126 76,777Total current assets1,038,590 986,625Marketable securities27,632 32,099Land, building and equipment, net185,169 186,007Goodwill3,508,879 3,378,334Intangible assets, net762,220 796,285Other assets138,980 132,559Total assets$5,661,470 $5,511,909LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities: Current portion of long-term debt$— $4,834Contingent and deferred acquisition payments9,468 15,651Accounts payable94,599 56,581Accrued expenses and other current liabilities237,659 224,609Deferred revenue349,173 324,709Total current liabilities690,899 626,384Long-term portion of debt2,433,152 2,103,079Deferred revenue, net of current portion386,960 343,452Deferred tax liabilities115,435 104,782Other liabilities103,694 68,960Total liabilities3,730,140 3,246,657Commitments and contingencies (Note 16) Stockholders’ equity: Common stock, $0.001 par value per share; 560,000 shares authorized; 291,384 and 313,531 shares issued and287,633 and 309,781 shares outstanding, respectively291 314Additional paid-in capital (as adjusted)2,492,992 2,815,244Treasury stock, at cost (3,751 shares)(16,788) (16,788)Accumulated other comprehensive loss(116,134) (116,945)Accumulated deficit (as adjusted)(429,031) (416,573)Total stockholders’ equity1,931,330 2,265,252Total liabilities and stockholders’ equity$5,661,470 $5,511,909See accompanying notes.54 Table of ContentsNUANCE COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY Accumulated Common Stock AdditionalPaid-InCapital Treasury Stock OtherComprehensiveIncome (Loss) AccumulatedDeficit TotalStockholders'Equity Shares Amount Shares Amount (In thousands)Balance at September 30, 2013 (as adjusted)319,365 $319 $2,798,890 3,751 $(16,788) $6,813 $(151,220) $2,638,014Issuance of common stock under employeestock plans9,339 9 22,643 22,652Cancellation of restricted stock, andrepurchase of common stock at cost foremployee tax withholding(2,678) (1) (40,993) (40,994)Stock-based compensation 166,224 166,224Repurchase and retirement of common stock(as adjusted)(1,639) (2) (26,481) (26,483)Issuance of common stock in connection withacquisitions and collaboration agreements234 — 3,750 3,750Net loss (150,343) (150,343)Other comprehensive loss (30,828) (30,828)Balance at September 30, 2014 (as adjusted)324,621 325 2,924,033 3,751 (16,788) (24,015) (301,563) 2,581,992Issuance of common stock under employeestock plans12,322 12 25,764 25,776Cancellation of restricted stock, andrepurchase of common stock at cost foremployee tax withholding(3,917) (4) (59,904) (59,908)Stock-based compensation 175,714 175,714Repurchase and retirement of common stock(as adjusted)(19,783) (19) (299,190) (299,209)Issuance of common stock in connection withacquisitions288 — 4,469 4,469Equity portion of convertible debtissuance/retirement, net of tax effect 44,358 44,358Net loss (115,010) (115,010)Other comprehensive loss (92,930) (92,930)Balance at September 30, 2015 (as adjusted)313,531 314 2,815,244 3,751 (16,788) (116,945) (416,573) 2,265,252Issuance of common stock under employeestock plans11,131 11 16,839 16,850Cancellation of restricted stock, andrepurchase of common stock at cost foremployee tax withholding(3,619) (4) (68,666) (68,670)Stock-based compensation 162,884 162,884Repurchase and retirement of common stock(35,753) (36) (698,658) (698,694)Net issuance of common stock in connectionwith acquisitions and collaborationagreements6,094 6 89,785 89,791Equity portion of convertible debtissuance/retirement, net of tax effect 175,564 175,564Net loss (12,458) (12,458)Other comprehensive income 811 811Balance at September 30, 2016291,384 $291 $2,492,992 3,751 $(16,788) $(116,134) $(429,031) $1,931,330See accompanying notes.55 Table of ContentsNUANCE COMMUNICATIONS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended September 30, 2016 2015 2014 (In thousands)Cash flows from operating activities Net loss$(12,458) $(115,010) $(150,343)Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization231,474 230,645 221,776Stock-based compensation163,828 176,776 192,964Non-cash interest expense47,105 29,378 36,719Deferred tax (benefit) provision(12,014) 16,690 (22,172)Loss on extinguishment of debt4,851 17,714 —Other(575) 9,843 (7,726)Changes in operating assets and liabilities, net of effects from acquisitions: Accounts receivable25,450 41,657 (39,502)Prepaid expenses and other assets(9,645) (3,931) (396)Accounts payable38,206 (3,218) (28,617)Accrued expenses and other liabilities27,826 (48,118) 13,617Deferred revenue61,747 135,151 141,827Net cash provided by operating activities565,795 487,577 358,147Cash flows from investing activities Capital expenditures(54,883) (58,039) (60,287)Payments for business and technology acquisitions, net of cash acquired(172,763) (83,278) (253,000)Purchases of marketable securities and other investments(117,640) (148,697) (62,639)Proceeds from sales and maturities of marketable securities and other investments82,285 83,867 64,975Net cash used in investing activities(263,001) (206,147) (310,951)Cash flows from financing activities Payments of debt(511,844) (261,051) (255,038)Proceeds from issuance of long-term debt, net of issuance costs959,358 253,224 —Payments for repurchase of common stock(699,472) (298,279) (26,483)Net payments on other long-term liabilities(1,371) (3,003) (2,890)Payments for settlement of other share-based derivatives, net— (340) (5,286)Proceeds from issuance of common stock from employee stock plans16,850 25,776 22,652Cash used to net share settle employee equity awards(68,636) (57,560) (40,121)Net cash used in financing activities(305,115) (341,233) (307,166)Effects of exchange rate changes on cash and cash equivalents4,492 (7,978) (918)Net increase (decrease) in cash and cash equivalents2,171 (67,781) (260,888)Cash and cash equivalents at beginning of year479,449 547,230 808,118Cash and cash equivalents at end of year$481,620 $479,449 $547,230See accompanying notes.56 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Organization and PresentationNuance Communications, Inc. (“we,” “Nuance,” or “the Company”) is a leading provider of voice recognition and natural language understandingsolutions. We work with companies around the world, from banks and hospitals to airlines, telecommunications carriers, and automotive manufacturers andsuppliers, who use our solutions and technologies to create better experiences for their customers and their users by enhancing the users' experience,increasing productivity and customer satisfaction. We offer our customers high accuracy in automated speech recognition, capabilities for natural languageunderstanding, dialog and information management, biometric speaker authentication, text-to-speech, optical character recognition capabilities, and domainknowledge, along with professional services and implementation support. Using advanced analytics and algorithms, our technologies create personalizedexperiences and transform the way people interact with information and the technology around them. We market and sell our solutions and technologiesaround the world directly through a dedicated sales force, through our e-commerce website and also through a global network of resellers, including systemintegrators, independent software vendors, value-added resellers, distributors, hardware vendors, and telecommunications carriers.We operate in four reportable segments: Healthcare, Mobile, Enterprise, and Imaging. See Note 19 for a description of each of these segments. We havecompleted several business acquisitions during the three years ended September 30, 2016, including TouchCommerce, Inc. ("TouchCommerce") on August16, 2016 and numerous immaterial acquisitions. The results of operations from these acquired businesses have been included in our consolidated financialstatements from their respective acquisition dates. See Note 3 for additional disclosure related to these acquisitions.We have evaluated subsequent events from September 30, 2016 through the date of the issuance of these consolidated financial statements and havedetermined that no material subsequent events have occurred that would affect the information presented in these consolidated financial statements.2.Summary of Significant Accounting PoliciesUse of EstimatesThe preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financialstatements, and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, assumptions andjudgments. The most important of these relate to revenue recognition; the allowances for doubtful accounts and sales returns; accounting for deferred costs;accounting for internally developed software; the valuation of goodwill and intangible assets; accounting for business combinations, including contingentconsideration; accounting for stock-based compensation; accounting for derivative instruments; accounting for income taxes and related valuationallowances; and loss contingencies. We base our estimates on historical experience, market participant fair value considerations, projected future cash flows,and various other factors that are believed to be reasonable under the circumstances. Actual amounts could differ significantly from these estimates.Basis of ConsolidationThe consolidated financial statements include our accounts and those of our wholly-owned domestic and foreign subsidiaries. Intercompanytransactions and balances have been eliminated.Recasting of Prior Period Financial Information and Change in Accounting PolicyDuring the first quarter of fiscal year 2016, we reorganized the organizational management and oversight of our Dragon Consumer business, which waspreviously reported within our Mobile segment and has now been moved into our Healthcare segment. During the second quarter of fiscal year 2016, wereclassified certain government payroll incentive credits previously reported in the general and administrative expense to research and development expense,cost of revenue, and sales and marketing. Accordingly, the segment results in prior periods have been recast to conform to the current period segmentpresentation. These changes had no impact on consolidated net income or cash flows in any period.During fiscal year 2016, we changed our method of recognizing the amount paid to repurchase common shares in excess of the par value. Historicallywe allocated any excess of cost over par value between accumulated deficit and additional paid-in capital. Under our new method of accounting, werecognize any excess of cost over par value in additional paid-in capital. The resulting reclassification is not considered material as there is no impact to totalshareholders’ equity and only represents a reclassification between individual equity line items. Accordingly, the financial data for all periods presented hasbeen57 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)retrospectively adjusted to reflect the effect of this accounting change. The cumulative effect of the change on additional paid-in capital as of September 30,2016, 2015, 2014 and 2013 was a decrease of approximately $672.7 million, $333.8 million, $229.0 million and $218.2 million, respectively, with anoffsetting adjustment to accumulated deficit.Revenue RecognitionWe derive revenue from the following sources: (1) software license agreements, including royalty and other usage-based arrangements, (2) professionalservices, (3) hosting services and (4) post-contract customer support ("PCS"). Our hosting services are generally provided through on-demand, usage-based orper transaction fee arrangements. Generally, we recognize revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) thefee is fixed or determinable and (iv) collectability is probable. Our revenue recognition policies for these revenue streams are discussed below.The sale and/or license of software solutions and technology is deemed to have occurred when a customer either has taken possession of or has access totake immediate possession of the software or technology. In select situations, we sell or license intellectual property in conjunction with, or in place of,embedding our intellectual property in software. We also have non-software arrangements including hosting services where the customer does not takepossession of the software at the outset of the arrangement either because they have no contractual right to do so or because significant penalties precludethem from doing so.Revenue from royalties on sales of our software products by original equipment manufacturers (“OEMs”), where no services are included, is recognizedin the quarter earned so long as we have been notified by the OEM that such royalties are due, and provided that all other revenue recognition criteria aremet.Software arrangements generally include PCS, which includes telephone support and the right to receive unspecified upgrades/enhancements on awhen-and-if-available basis, typically for one to five years. Revenue from PCS is generally recognized ratably on a straight-line basis over the term that themaintenance service is provided. When PCS renews automatically, we provide a reserve based on historical experience for contracts expected to be canceledfor non-payment. All known and estimated cancellations are recorded as a reduction to revenue and accounts receivable.For our software and software-related multiple element arrangements, where customers purchase both software related products and software relatedservices, we use vendor-specific objective evidence (“VSOE”) of fair value for software and software-related services to separate the elements and account forthem separately. VSOE exists when a company can support what the fair value of its software and/or software-related services is based on evidence of theprices charged when the same elements are sold separately. For the undelivered elements, VSOE of fair value is required in order to separate the accountingfor various elements in a software and related services arrangement. We have established VSOE of fair value for the majority of our PCS, professional services,and training.When we provide professional services considered essential to the functionality of the software, we recognize revenue from the professional services aswell as any related software licenses on a percentage-of-completion basis whereby the arrangement consideration is recognized as the services are performed,as measured by an observable input. In these circumstances, we separate license revenue from professional service revenue for income statement presentationby allocating VSOE of fair value of the professional services as professional services and hosting revenue and the residual portion as product and licensingrevenue. We generally determine the percentage-of-completion by comparing the labor hours incurred to-date to the estimated total labor hours required tocomplete the project. We consider labor hours to be the most reliable, available measure of progress on these projects. Adjustments to estimates to completeare made in the periods in which facts resulting in a change become known. When the estimate indicates that a loss will be incurred, such loss is recorded inthe period identified. Significant judgments and estimates are involved in determining the percent complete of each contract. Different assumptions couldyield materially different results.We offer some of our products via a Software-as-a-Service ("SaaS") model also known as a hosted model. In this type of arrangement, we arecompensated in three ways: (1) fees for up-front set-up of the service environment (2) fees charged on a usage or per transaction basis, and (3) fees charged foron-demand service. Our up-front set-up fees are nonrefundable. We recognize the up-front set-up fees ratably over the longer of the contract lives or theexpected lives of the customer relationships. The usage-based or per transaction fees are due and payable as each individual transaction is processed throughthe hosted service and is recognized as revenue in the period the services are provided. The on-demand service fees are recognized ratably over our estimateof the useful life of devices on which the hosted service is provided.We enter into multiple-element arrangements that may include a combination of our various software related and non-software related products andservices offerings including software licenses, PCS, professional services, and our hosting services. In such58 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)arrangements, we allocate total arrangement consideration to software or software-related elements and any non-software element separately based on theselling price hierarchy group following our policies. We determine the selling price for each deliverable using VSOE of selling price, if it exists, or ThirdParty Evidence (“TPE”) of selling price. Typically, we are unable to determine TPE of selling price. Therefore, when neither VSOE nor TPE of selling priceexist for a deliverable, we use our Estimate of Selling Price (“ESP”) for the purposes of allocating the arrangement consideration. We determine ESP for aproduct or service by considering multiple factors including, but not limited to, major project groupings, market conditions, competitive landscape, price listand discounting practices. Revenue allocated to each element is then recognized when the basic revenue recognition criteria are met for each element.When products are sold through distributors or resellers, title and risk of loss generally passes upon shipment, at which time the transaction is invoicedand payment is due. Shipments to distributors and resellers without right of return are recognized as revenue upon shipment, provided all other revenuerecognition criteria are met. Certain distributors and resellers have been granted rights of return for as long as the distributors or resellers hold the inventory.We cannot use historical returns from these distributors and resellers as a basis upon which to estimate future sales returns. As a result, we recognize revenuefrom sales to these distributors and resellers when the products are sold through to retailers and end-users.When products are sold directly to retailers or end-users, we make an estimate of sales returns based on historical experience. The provision for theseestimated returns is recorded as a reduction of revenue and accounts receivable at the time that the related revenue is recorded. If actual returns differsignificantly from our estimates, such differences could have a material impact on our results of operations for the period in which the actual returns becomeknown.We record consideration given to a reseller as a reduction of revenue to the extent we have recorded cumulative revenue from the customer or reseller.However, when we receive an identifiable benefit in exchange for the consideration, and can reasonably estimate the fair value of the benefit received, theconsideration is recorded as an operating expense.We record reimbursements received for out-of-pocket expenses as revenue, with offsetting costs recorded as cost of revenue. Out-of-pocket expensesgenerally include, but are not limited to, expenses related to transportation, lodging and meals. We record shipping and handling costs billed to customers asrevenue with offsetting costs recorded as cost of revenue.Business CombinationsWe determine and allocate the purchase price of an acquired company to the tangible and intangible assets acquired and liabilities assumed as of thebusiness combination date. Results of operations and cash flows of acquired companies are included in our operating results from the date of acquisition. Thepurchase price allocation process requires us to use significant estimates and assumptions, including fair value estimates, as of the business combination dateincluding:•estimated fair values of intangible assets;•estimated fair values of legal performance commitments to customers, assumed from the acquiree under existing contractual obligations (classified asdeferred revenue);•estimated fair values of stock awards assumed from the acquiree that are included in the purchase price;•estimated fair value of required payments under contingent consideration provisions;•estimated income tax assets and liabilities assumed from the acquiree; and•estimated fair value of pre-acquisition contingencies assumed from the acquiree.The fair value of any contingent consideration is established at the acquisition date and included in the total purchase price. The contingentconsideration is then adjusted to fair value as an increase or decrease in current earnings included in acquisition-related costs, net in each reporting period.While we use our best estimates and assumptions as part of the purchase price allocation process to accurately value assets acquired and liabilitiesassumed at the business combination date, our estimates and assumptions are inherently uncertain and subject to refinement. As a result, during the purchaseprice allocation period, which is generally one year from the business combination date, we record adjustments to the assets acquired and liabilities assumed,with the corresponding offset to goodwill. For adjustments to provisional amounts that are identified during the purchase price allocation period, werecognize the adjustment in the reporting period in which the adjustment amounts are determined. Subsequent to the purchase price allocation period, any59 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)adjustment to assets acquired or liabilities assumed is included in operating results in the period in which the adjustment is determined.Goodwill and Long-Lived AssetsGoodwill represents the excess of the purchase price in a business combination over the fair value of net tangible and intangible assets acquired.Goodwill and intangible assets with indefinite lives are not amortized, but rather the carrying amounts of these assets are reviewed for impairment at leastannually or whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Goodwill is tested forimpairment based on a comparison of the fair value of our reporting units to their recorded carrying values. The test consists of a two-step process. The firststep is the comparison of the fair value to the carrying value of the reporting unit to determine if the carrying value exceeds the fair value. The second stepmeasures the amount of an impairment loss and is only performed if the carrying value exceeds the fair value of the reporting unit. Our annual impairmentassessment date is July 1 of each fiscal year. As of July 1, 2016 we had six reporting units based on the level of information provided to, and review thereof,by our segment management. We continuously evaluate our operating segments and one level below our operating segments to determine the correctreporting units for our goodwill impairment testing.We determine fair values for each of the reporting units based on consideration of the income approach, the market comparable approach and themarket transaction approach. For purposes of the income approach, fair value is determined based on the present value of estimated future after-tax cashflows, discounted at an appropriate risk adjusted rate. We use our internal forecasts to estimate future after-tax cash flows and include an estimate of long-termfuture growth rates based on our most recent views of the long-term outlook for each reporting unit, which we believe are consistent with other marketparticipants. Actual results may differ from those assumed in our forecasts. We derive our discount rates using a capital asset pricing model and analyzingpublished rates for industries relevant to our reporting units to estimate the weighted average cost of capital. We use discount rates that are commensuratewith the risks and uncertainty inherent in the respective businesses and in our internally developed forecasts. Discount rates used in our reporting unitvaluations ranged from 9.5% to 14.5%. For purposes of the market approach, we use a valuation technique in which values are derived based on market pricesof comparable publicly traded companies. We also use a market based valuation technique in which values are determined based on relevant observableinformation generated by market transactions involving comparable businesses. We assess each valuation methodology based upon the relevance andavailability of the data at the time we perform the valuation and weight the methodologies appropriately.The carrying values of the reporting units were determined based on an allocation of our assets and liabilities, through specific allocation of certainassets and liabilities, to the reporting units and an apportionment method based on relative size of the reporting units’ revenues and operating expensescompared to our total revenues and operating expenses. Goodwill was initially allocated to our reporting units based on the relative fair value of the units atthe date we implemented the current reporting unit structure. Goodwill subsequently acquired through acquisitions is allocated to the applicable reportingunit based upon the relative fair value of the acquired business. Certain corporate assets and liabilities that are not instrumental to the reporting units’operations and would not be transferred to hypothetical purchasers of the reporting units were excluded from the reporting units’ carrying values.As of our annual impairment assessment date for fiscal year 2016, our estimated fair values of our reporting units exceeded their carrying values and weconcluded, based on the first step of the process, that there was no impairment of goodwill. The fair value substantially exceeded the carrying value by morethan 120% for each of our reporting units, with the exception of our Mobile and Dragon Consumer ("DNS") reporting units. The fair value exceeded thecarrying value of our Mobile reporting unit by approximately 18%. Goodwill allocated to our Mobile reporting unit is approximately $1.1 billion as ofJuly 1, 2016 and September 30, 2016. Our Mobile reporting unit, specifically our handset business, has experienced a decline in fair value as a result ofweakening handset revenues from a deterioration in mature markets. The operating plans and projections, which are the basis for the reporting unit fair value,anticipate these weakening conditions for the handset business and include continued revenue growth from cloud-based services in our automotive businessand revenue from TV solutions and IoT are expected to offset this weakness in handset revenue. The fair value exceeded the carrying value of our DNSreporting unit by approximately 15%. Goodwill allocated to our DNS reporting unit is approximately $66.8 million as of July 1, 2016 and September 30,2016. Our DNS reporting unit has experienced a decline in fair value as a result of a weakening revenue stream from sales of our dictation software to businessusers and consumers due to an overall weakness in desktop software sales. The operating plans and projections, which are the basis for the reporting unit fairvalue, anticipate these weakening conditions.60 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Our long-lived assets consist principally of acquired intangible assets, internally developed software, land, and building and equipment. Intangibleassets acquired in our business and asset acquisitions, including certain technology that is licensed from third parties. We amortize acquired intangible assetswith finite lives over the estimated economic lives of the assets, generally using the straight-line method except where the pattern of the expected economicbenefit is readily identifiable, primarily customer relationship intangibles, whereby amortization follows that pattern. Internally developed software consistsof capitalized costs incurred during the application development stage, which include costs to design the software configuration and interfaces, coding,installation and testing. Costs incurred during the preliminary project stage, along with post-implementation stages of internally developed software, areexpensed as incurred. Internally developed software costs that have been capitalized are typically amortized over the estimated useful life, beginning withthe date that an asset is ready for its intended use. Land, building and equipment are stated at cost. Building and equipment are depreciated over theirestimated useful lives. Leasehold improvements are depreciated over the shorter of the related lease term or the estimated useful life. Depreciation iscomputed using the straight-line method. Repair and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of sold orretired assets are removed from the accounts and any gain or loss is included in operations.We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset or asset group maynot be recoverable. In addition, each reporting period we evaluate the estimated remaining useful life of acquired and licensed intangible assets, as well asland, buildings and equipment, to determine whether events or changes in circumstances warrant a revision to the remaining period of depreciation oramortization. We assess the recoverability of the asset or asset group based on the undiscounted future cash flows the assets are expected to generate andrecognize an impairment loss when estimated undiscounted future cash flows expected to result from the use of the assets plus net proceeds expected fromdisposition of the assets, if any, are less than the carrying value of the assets. If an asset or asset group is deemed to be impaired, the amount of the impairmentloss, if any, represents the excess of the asset or asset group’s carrying value compared to its estimated fair value.Determining the fair value of a reporting unit or asset group involves the use of significant estimates and assumptions, which we believe to bereasonable, that are unpredictable and inherently uncertain. These estimates and assumptions include revenue growth rates and operating margins used tocalculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, our ability to launch new product and new marketpenetrations, and determination of appropriate market comparables. Significant adverse changes in our future revenues and/or operating margins, significantdegradation in the enterprise values of comparable companies for our reporting units, changes in our organization or management reporting structure, as wellas other events and circumstances, including but not limited to technological advances, increased competition and changing economic or market conditions,could result in (a) shorter estimated useful lives, (b) changes to reporting units or asset groups, which may require alternative methods of estimating fairvalues or greater disaggregation or aggregation in our analysis by reporting unit, and/or (c) other changes in previous assumptions or estimates, could resultin the determination that all or a portion of our goodwill is impaired that could materially impact future results of operations and financial position in thereporting period identified.Cash and Cash EquivalentsCash and cash equivalents consists of cash on hand, including money market funds and time deposits with original maturities of 90 days or less.Marketable Securities and Minority InvestmentsMarketable Securities: Marketable securities consist of time deposits and high-quality corporate debt instruments with stated maturities of more than90 days. Investments are classified as available-for-sale and are recorded on the balance sheet at fair value with unrealized gains or losses reported as aseparate component of accumulated other comprehensive income (loss), net of tax. As of September 30, 2016, the total cost basis of our marketable securitieswas $126.5 million.Minority Investment: We record investments in other companies, where we do not have a controlling interest or significant influence in the equityinvestment, at cost within other assets in our consolidated balance sheet. We review our investments for impairment whenever declines in estimated fair valueare deemed to be other-than-temporary.Accounts Receivable AllowancesAllowances for Doubtful Accounts: We maintain an allowance for doubtful accounts for the estimated probable losses on uncollectible accountsreceivable. The allowance is based upon the credit worthiness of our customers, our historical experience, the age of the receivable and current market andeconomic conditions. Receivables are written off against these allowances in the period they are determined to be uncollectible.61 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Allowances for Sales Returns: We maintain an allowance for sales returns from customers for which we have the ability to estimate returns based onhistorical experience. The returns allowance is recorded as a reduction in revenue and accounts receivable at the time the related revenue is recorded.Receivables are written off against the allowance in the period the return is received.For the years ended September 30, 2016, 2015 and 2014, the activity related to accounts receivable allowances was as follows (dollars in thousands): Allowance forDoubtful Accounts Allowancefor SalesReturnsBalance at September 30, 2013$8,529 $5,660Bad debt provision3,917 —Write-offs, net of recoveries(955) —Revenue adjustments, net— 4,268Balance at September 30, 201411,491 9,928Bad debt provisions3,397 —Write-offs, net of recoveries(5,704) —Revenue adjustments, net— (1,756)Balance at September 30, 20159,184 8,172Bad debt provisions3,103 —Write-offs, net of recoveries(1,249) —Revenue adjustments, net— (616)Balance at September 30, 2016$11,038 $7,556InventoriesInventories are stated at the lower of cost, computed using the first-in, first-out method, or market value and are included in other current assets. Weregularly review inventory quantities on hand and record a provision for excess and/or obsolete inventory primarily based on future purchase commitmentswith our suppliers, and the estimated utility of our inventory as well as other factors including technological changes and new product development.Inventories, net of allowances, consisted of the following (dollars in thousands): September 30, 2016 September 30, 2015Components and parts$9,994 $6,850Finished products1,648 2,144Total Inventories$11,642 $8,99462 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Accounting for Collaboration AgreementsHealthcare Collaboration AgreementWe have a collaboration agreement with a large healthcare provider and under the terms of the agreement we have been reimbursed for certain researchand development costs related to specified product development projects with the objective of commercializing the resulting products. All intellectualproperty derived from these research and development efforts will be owned by us. Upon product introduction, we will pay royalties to this party based on theactual sales. During fiscal year 2016, the party could elect to continue with the arrangement, receiving royalties on future sales, or receive a buy-out paymentfrom us and forgo future royalties. Royalties paid to this party upon commercialization of any products from these development efforts will be recorded as areduction to revenue. The buy-out payment is calculated based on a number of factors including the net cash flows received and paid by the parties, as well asa minimum return on those net cash flows. As of September 30, 2015 and September 30, 2014, we expected our partner to elect to receive a buy-out at theoption date and recorded $3.9 million and $2.6 million, respectively, as research and development expenses in our consolidated financial statements. Infiscal year 2016, our partner elected to receive the buy-out option and we issued 403,325 shares of our common stock to our partner as settlement for the $6.5million buy-out option.Intellectual Property Collaboration AgreementsWe entered into collaboration agreements in order to gain access to a third party’s extensive speech recognition technology, natural languagetechnology, and semantic processing technology. Depending on the agreement, some or all intellectual property derived from these collaborations will bejointly owned by the two parties. For the majority of the developed intellectual property, we will have sole rights to commercialize such intellectual propertyfor periods ranging between two to six years, depending on the agreement. Generally, the agreements call for annual payments in cash or shares of ourcommon stock, at our election. We issued 0.2 million and 1.1 million shares of our common stock for payments totaling $3.8 million and $22.5 million in thefiscal years ending in 2014 and 2013, respectively with final payments in fiscal year 2014. The payments are recorded as a prepaid asset when made and areexpensed ratably over the contractual period. For the years ended September 30, 2015 and 2014, we have recognized $2.5 million and $19.7 million asresearch and development expense, respectively, related to these agreements in our consolidated statements of operations. For the year ended September 30,2016 and 2015, we have also recognized $4.0 million and $8.0 million, respectively, as sales and marketing expense for the exclusive commercializationrights related to one of these collaboration agreements in our consolidated statements of operations. As of September 30, 2016, the prepaid asset wascompletely amortized.Research and Development CostsResearch and development costs related to software that is or will be sold or licensed externally to third-parties, or for which a substantive plan exists tosell or license such software in the future, incurred subsequent to the establishment of technological feasibility, but prior to the general release of the product,are capitalized and amortized to cost of revenue over the estimated useful life of the related products. We have determined that technological feasibility isreached shortly before the general release of our software products. Costs incurred after technological feasibility is established have not been material. Weexpense research and development costs as incurred.Acquisition-Related Costs, netAcquisition-related costs include costs related to business and other acquisitions, including potential acquisitions. These costs consist of (i) transitionand integration costs, including retention payments, transitional employee costs and earn-out payments treated as compensation expense, as well as the costsof integration-related activities, including services provided by third-parties; (ii) professional service fees and expenses, including financial advisory, legal,accounting, and other outside services incurred in connection with acquisition activities, and disputes and regulatory matters related to acquired entities; and(iii) adjustments to acquisition-related items that are required to be marked to fair value each reporting period, such as contingent consideration, and otheritems related to acquisitions for which the measurement period has ended, such as gains or losses on settlements of pre-acquisition contingencies.63 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The components of acquisition-related costs, net are as follows (dollars in thousands): 2016 2015 2014Transition and integration costs$6,070 $10,071 $25,290Professional service fees10,876 8,441 9,929Acquisition-related adjustments220 (4,133) (11,001)Total$17,166 $14,379 $24,218Advertising CostsAdvertising costs are expensed as incurred and are classified as sales and marketing expenses. Cooperative advertising programs reimburse customersfor marketing activities for certain of our products, subject to defined criteria. Cooperative advertising obligations are accrued and expensed at the same timethe related revenue is recognized. Cooperative advertising expenses are recorded as expense to the extent that an advertising benefit separate from therevenue transaction can be identified and the cash paid does not exceed the fair value of that advertising benefit received. Any excess of cash paid over thefair value of the advertising benefit received is recorded as a reduction in revenue. We incurred advertising costs of $27.8 million, $32.1 million and $49.4million for fiscal years 2016, 2015 and 2014, respectively.Convertible DebtWe separately account for the liability (debt) and equity (conversion option) components of our convertible debt instruments that require or permitsettlement in cash upon conversion in a manner that reflects our nonconvertible debt borrowing rate at the time of issuance. The equity components of ourconvertible debt instruments are recorded to stockholders’ equity with an offsetting debt discount. The debt discount created is amortized to interest expensein our consolidated statement of operations using the effective interest method over the expected term of the convertible debt.Income TaxesDeferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statementcarrying amounts of assets and liabilities and their respective tax bases. This method also requires the recognition of future tax benefits such as net operatingloss carryforwards, to the extent that realization of such benefits is more likely than not after consideration of all available evidence. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected tobe recovered or settled. We do not accrue tax for the repatriation of foreign earnings expected to be indefinitely reinvested offshore.We regularly review our deferred tax assets for recoverability considering historical profitability, projected future taxable income, the expected timingof the reversals of existing temporary differences and tax planning strategies. In assessing the need for a valuation allowance, we consider both positive andnegative evidence related to the likelihood of realization of the deferred tax assets. The weight given to the positive and negative evidence is commensuratewith the extent to which the evidence may be objectively verified. If positive evidence regarding projected future taxable income, exclusive of reversingtaxable temporary differences, existed it would be difficult for it to outweigh objective negative evidence of recent financial reporting losses. Generally,cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is notneeded.As of September 30, 2016 and 2015, valuation allowances have been established for all U.S. and for certain foreign deferred tax assets which we believedo not meet the “more likely than not” criteria for recognition. If we are subsequently able to utilize all or a portion of the deferred tax assets for which avaluation allowance has been established, then we may be required to recognize these deferred tax assets through the reduction of the valuation allowancewhich could result in a material benefit to our results of operations in the period in which the benefit is determined.64 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Comprehensive LossFor the purposes of comprehensive loss disclosures, we do not record tax provisions or benefits for the net changes in the foreign currency translationadjustment, as we intend to indefinitely reinvest undistributed earnings in our foreign subsidiaries.The components of accumulated other comprehensive loss, reflected in the consolidated statements of stockholders’ equity, consisted of the following(dollars in thousands): 2016 2015 2014Foreign currency translation adjustment$(107,274) $(109,695) $(19,851)Unrealized losses on marketable securities86 (45) —Net unrealized losses on post-retirement benefits(8,946) (7,205) (4,164)Accumulated other comprehensive loss$(116,134) $(116,945) $(24,015)Concentration of RiskFinancial instruments that potentially subject us to significant concentrations of credit risk principally consist of cash, cash equivalents, marketablesecurities and trade accounts receivable. We place our cash and cash equivalents and marketable securities with financial institutions with high credit ratings.As part of our cash and investment management processes, we perform periodic evaluations of the credit standing of the financial institutions with whom wemaintain deposits, and have not recorded any credit losses to-date. For trade accounts receivable, we perform ongoing credit evaluations of our customers’financial condition and limit the amount of credit extended when deemed appropriate. No customer accounted for greater than 10% of our net accountsreceivable balance at September 30, 2016 and 2015 or 10% of our revenue for fiscal years 2016, 2015 or 2014.Fair Value of Financial InstrumentsFinancial instruments including cash equivalents, accounts receivable, and accounts payable are carried in the financial statements at amounts thatapproximate their fair value based on the short maturities of those instruments. Marketable securities and derivative instruments are carried at fair value. Referto Note 9 for discussion of the fair value of our long-term debt.Foreign Currency TranslationWe have significant foreign operations and transact business in various foreign currencies. In general, the functional currency of a foreign operation isthe local country’s currency. Non-functional currency monetary balances are re-measured into the functional currency of the subsidiary with any related gainor loss recorded in other expense, net, in the accompanying consolidated statements of operations. Assets and liabilities of operations outside the UnitedStates ("U.S."), for which the functional currency is the local currency, are translated into United States dollars using period-end exchange rates. Revenuesand expenses are translated at the average exchange rates in effect during each fiscal month during the year. The effects of foreign currency translationadjustments are included as a component of accumulated other comprehensive loss in the accompanying consolidated balance sheets. Foreign currencytransaction (losses) gains included in other expense, net for fiscal years 2016, 2015 and 2014 were $(1.5) million, $0.02 million, and $0.9 million,respectively.Financial Instruments and Hedging ActivitiesWe utilize derivative instruments to hedge specific financial risks including foreign exchange risk. We do not engage in speculative hedging activity.In order for us to account for a derivative instrument as a hedge, specific criteria must be met, including: (i) ensuring at the inception of the hedge that formaldocumentation exists for both the hedging relationship and the entity’s risk management objective and strategy for undertaking the hedge and (ii) at theinception of the hedge and on an ongoing basis, the hedging relationship is expected to be highly effective in achieving offsetting changes in fair valueattributed to the hedged risk during the period that the hedge is designated. Further, an assessment of effectiveness is required whenever financial statementsor earnings are reported. Absent meeting these criteria, changes in fair value are recognized in other expense, net, in the consolidated statements ofoperations. Once the underlying forecasted transaction is realized, the gain or loss from the derivative designated as a hedge of the transaction is reclassifiedfrom accumulated other comprehensive loss to the statement of operations, in the appropriate revenue or expense caption. Any ineffective portion of thederivatives designated as cash flow hedges is recognized in current earnings. We report cash flows arising from derivative financial instruments designated asfair value or cash flow hedges consistent with the classification of the cash flows from the underlying hedged items that these derivatives are hedging. Cashflows from derivatives that do not qualify as hedges are generally reported in cash flows from investing activities. Cash payments or65 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)cash receipts on security price guarantees related to changes in the price of our own stock as discussed in Note 10, are reported as cash flows from financingactivities.Accounting for Stock-Based CompensationWe account for stock-based compensation to employees and directors, including grants of employee stock options, purchases under employee stockpurchase plans, and restricted awards through recognition of the fair value of the share-based awards as a charge against earnings in the form of stock-basedcompensation. We recognize stock-based compensation expense over the requisite service period, net of estimated forfeitures. We recognize benefits fromstock-based compensation in equity using the with-and-without approach for the utilization of tax attributes.Net Loss Per ShareThe weighted-average number of common shares outstanding gives effect to all potentially dilutive common equivalent shares, including outstandingstock options and restricted stock, shares held in escrow, contingently issuable shares under earn-out agreements once earned, warrants, and potentialissuance of stock upon conversion of our 1.0%, 2.75%, and 1.50% Convertible Debentures. The convertible debentures are considered Instrument Csecurities due to the fact that only the excess of the conversion value on the date of conversion can be paid in our common shares; the principal portion of theconversion must be paid in cash. Therefore, only the shares of common stock potentially issuable with respect to the excess of the conversion value over itsprincipal amount, if any, is considered as dilutive to the weighted average common shares calculation.As of September 30, 2016, 2015 and 2014, diluted weighted average common shares outstanding is equal to basic weighted average common sharesdue to our net loss position. Common equivalent shares are excluded from the computation of diluted net loss per share if their effect is anti-dilutive.Potentially dilutive common equivalent shares aggregating to 8.8 million shares, 10.7 million shares and 10.9 million shares for the years endedSeptember 30, 2016, 2015 and 2014, respectively, have been excluded from the computation of diluted net loss per share because their inclusion would beanti-dilutive.Recently Adopted Accounting StandardsIn fiscal year 2016, we early adopted, and retroactively implemented Accounting Standards Update ("ASU") No. 2015-17, "Balance SheetClassification of Deferred Taxes." Under this new guidance, we are required to present deferred tax assets and deferred tax liabilities, and any relatedvaluation allowances, as noncurrent on our consolidated balance sheet. The cumulative effect of the change as of September 30, 2015 on current and long-term deferred tax assets was a decrease of approximately $57.3 million and $0.4 million, respectively, with an offsetting adjustment to long-term deferred taxliabilities, and had no impact on our shareholders' equity, results of operations or cash flows. Current deferred tax assets were included in prepaid expensesand other current assets and long-term deferred tax assets were included in other assets within our consolidated balance sheet.In fiscal year 2016, we implemented ASU No. 2014-08, "Reporting Discontinued Operations and Disclosures of Disposals of Components of anEntity." Under this new guidance, we are required to change the criteria for determining which disposals can be presented as discontinued operations andrequires enhanced disclosures. The implementation had no impact on our consolidated financial statements.In fiscal year 2016, we early adopted, and retroactively implemented ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." Underthis new guidance, we are required to present debt issuance costs as a direct deduction from the related debt liability on our consolidated balance sheet. Thecumulative effect of the change as of September 30, 2015 on other assets was a decrease of approximately $15.7 million with an offsetting adjustment tolong-term portion of debt, and had no impact on our shareholders' equity, results of operations or cash flows.In fiscal year 2016, we early adopted ASU No. 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"). Theamendments in the ASU 2015-16 require an acquirer to recognize adjustments to provisional amounts that are identified during the measurement period inthe reporting period in which the adjustment amounts are determined and set forth new disclosure requirements related to the adjustments. Theimplementation had no impact on our consolidated financial statements.66 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Recently Issued Accounting StandardsFrom time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board and are adopted by us as of the specifiedeffective dates. Unless otherwise discussed, such pronouncements did not have or will not have a significant impact on our consolidated financial position,results of operations and cash flows or do not apply to our operations.In August 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification ofCertain Cash Receipts and Cash Payments ("ASC 2016-15"), which provides guidance on the classification of certain specific cash flow issues including debtprepayment or extinguishment costs, settlement of certain debt instruments, contingent consideration payments made after a business combination, proceedsfrom the settlement of certain insurance claims and distributions received from equity method investees. The standard requires the use of a retrospectiveapproach to all periods presented, but may be applied prospectively if retrospective application would be impracticable. ASU 2016-15 is effective for us inthe first quarter of fiscal year 2019, and early application is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-15 onour consolidated financial statements.In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based PaymentAccounting ("ASU 2016-09"), which is intended to simplify several aspects of the accounting for share-based payment transactions, including the income taxconsequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for us in thefirst quarter of fiscal year 2018, and early application is permitted. We are currently evaluating the impact of our pending adoption of ASU 2016-09 on ourconsolidated financial statements.In February 2016, the FASB issued ASU No. 2016-02, "Leases" ("ASU 2016-02"). ASU 2016-02 requires lessees to recognize on the balance sheet aright-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. Theguidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. Thestandard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect toapply. ASU 2016-02 is effective for us in the first quarter of fiscal year 2020, and early application is permitted. We are currently evaluating the impact of ourpending adoption of ASU 2016-02 on our consolidated financial statements.In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities" ("ASU 2016-01").ASU 2016-01 amends the guidance on the classification and measurement of financial instruments. Although ASU 2016-01 retains many currentrequirements, it significantly revises accounting related to the classification and measurement of investments in equity securities and the presentation ofcertain fair value changes for financial liabilities measured at fair value. ASU 2016-01 also amends certain disclosure requirements associated with the fairvalue of financial instruments and is effective for us in the first quarter of fiscal year 2019. We do not believe that ASU 2016-01 will have a material impacton our consolidated financial statements.In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Amendments to the Consolidation Analysis” ("ASU 2015-02"). Theamendments in ASU 2015-02 provide guidance on evaluating whether a company should consolidate certain legal entities. In accordance with the guidance,all legal entities are subject to reevaluation under the revised consolidation model. ASU 2015-02 is effective for us in the first quarter of fiscal year 2017 withearly adoption permitted. We do not believe that ASU 2015-02 will have a material impact on our consolidated financial statements.In August 2014, the FASB issued Accounting Standards Update No. 2014-15, "Disclosure of Uncertainties about an Entity's Ability to Continue as aGoing Concern" ("ASU 2014-15"), to provide guidance on management's responsibility in evaluating whether there is substantial doubt about a company'sability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for us in the first quarter of fiscal year 2017, withearly adoption permitted. We do not believe that ASU 2014-15 will have a material impact on our consolidated financial statements.In June 2014, the FASB issued Accounting Standards Update No. 2014-12, "Accounting for Share-Based Payments When the Terms of an AwardProvide That a Performance Target Could Be Achieved after the Requisite Service Period" ("ASU 2014-12"). ASU 2014-12 requires that a performance targetthat affects vesting and could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existingguidance in ASC 718, "Compensation - Stock Compensation," as it relates to such awards. ASU 2014-12 is effective for us in our first quarter of fiscal year2017 with early adoption permitted using either of two methods: (i) prospective to all awards granted or modified after the effective date; or (ii) retrospectiveto all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to allnew or modified awards thereafter, with the cumulative effect of applying ASU 2014-12 as an adjustment to the opening retained earnings balance as of thebeginning of the earliest annual period presented in67 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)the financial statements. We do not believe that ASU 2014-12 will have a material impact on our consolidated financial statements.In May 2014, the FASB issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers: Topic 606" ("ASU 2014-09"), tosupersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promisedgoods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within therevenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount ofvariable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 iseffective for us in our first quarter of fiscal year 2019 using either of two methods: (i) retrospective to each prior reporting period presented with the option toelect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the impactof our pending adoption of ASU 2014-09 on our consolidated financial statements.3.Business AcquisitionsAs part of our business strategy, we have acquired, and may acquire in the future, certain businesses and technologies primarily to expand our productsand service offerings.Fiscal Year 2016 AcquisitionsAcquisition of TouchCommerce, Inc. In August 2016, we acquired all of the outstanding stock of TouchCommerce. TouchCommerce is a provider of omni-channel solutions to engage theircustomers on any device through online chat, guides, personalized content, and other automated tools, resulting in enhanced customer experience, increasedrevenue and reduced support costs. We expect this acquisition to expand our customer care solutions with a range of new digital engagement offerings,including live chat, customer analytics and personalization solutions within our Enterprise segment. We expect to be able to provide an end-to-endengagement platform that merges intelligent self-service with assisted service to increase customer satisfaction, strengthen customer loyalty and improvebusiness results. The aggregate consideration for this transaction was $218.1 million, and included $113.0 million paid in cash and $85.0 million paid in ourcommon stock. The remaining $20.1 million is expected to be paid in November 2017 at the conclusion of an indemnity period in either cash or our commonstock, at our election. The acquisition is a stock purchase and the goodwill resulting from this acquisition is not deductible for tax purposes. The results ofoperations of this acquisition have been included in our Enterprise segment from the acquisition date.68 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)A summary of the preliminary allocation of the purchase consideration for our TouchCommerce acquisition is as follows (dollars in thousands): Touch-CommercePurchase consideration: Cash$113,008Common stock(a)85,000Deferred acquisition payment20,141Total purchase consideration$218,149 Allocation of the purchase consideration: Cash$137Accounts receivable(b)14,782Goodwill118,040Identifiable intangible assets(c)110,800Other assets1,521Total assets acquired245,280Current liabilities(4,198)Deferred tax liability(19,515)Deferred revenue(2,784)Other long term liabilities(634)Total liabilities assumed(27,131)Net assets acquired$218,149(a) 5,749,807 shares of our common stock valued at $14.78 per share were issued at closing.(b) Accounts receivable have been recorded at their estimated fair values and the fair value reserve was not material.(c) The following are the identifiable intangible assets acquired and their respective weighted average useful lives, as determined based onpreliminary valuations (dollars in thousands): TouchCommerce Amount WeightedAverageLife(Years)Core and completed technology$26,000 7.0Customer relationships81,600 10.0Trade names3,200 3.0Total$110,800 Other Fiscal Year 2016 AcquisitionsDuring fiscal year 2016, we acquired several other businesses, in our Healthcare segment that were not significant individually or in the aggregate. Thetotal aggregate cash consideration for these acquisitions was $50.0 million including an estimated fair value for future contingent payments. The results ofoperations of these acquisitions have been included in our financial results since their respective acquisition dates.Pro forma results of operations have not been presented because the effects of the business combinations completed in fiscal year 2016, individuallyand in aggregate, were not material to our consolidated financial results. We have also not presented revenue or the results of operations for each of thesebusiness combinations, from the date of acquisition, as they were not material to our consolidated financial results.69 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The fair value estimates for the assets acquired and liabilities assumed for acquisitions completed during fiscal year 2016 were based upon preliminarycalculations and valuations, and our estimates and assumptions for each of these acquisitions are subject to change as we obtain additional informationduring the respective measurement periods (up to one year from the respective acquisition dates). The primary areas of preliminary estimates that were not yetfinalized related to certain assets and liabilities acquired. There were no significant changes to the fair value estimates during the current year.Fiscal Year 2015 AcquisitionsDuring fiscal year 2015, we acquired several businesses in our Mobile and Healthcare segments that were not significant individually or in theaggregate. The total aggregate cash consideration for these acquisitions was $64.9 million, including an estimated fair value for future contingent payments.The results of operations of these acquisitions have been included in our consolidated financial results since their respective acquisition dates.Fiscal Year 2014 AcquisitionsDuring fiscal year 2014, we acquired several businesses in our Imaging, Healthcare and Enterprise segments that were not significant individually or inthe aggregate. The total aggregate cash consideration for these acquisitions was $266.0 million, including an estimated fair value for future contingentpayments. The results of operations of these acquisitions have been included in our consolidated financial results since their respective acquisition dates.4.Goodwill and Intangible AssetsThe changes in the carrying amount of goodwill for our reportable segments for fiscal years 2016 and 2015 were as follows (dollars in thousands): Healthcare Mobile Enterprise Imaging TotalBalance as of September 30, 2014$1,304,099 $1,309,325 $536,201 $261,268 $3,410,893Acquisitions— 23,286 — — 23,286Purchase accounting adjustments275 — — (2,215) (1,940)Product realignment— (10,521) 10,521 — —Effect of foreign currency translation(9,856) (34,562) (7,415) (2,072) (53,905)Balance as of September 30, 20151,294,518 1,287,528 539,307 256,981 3,378,334Acquisitions19,302 — 118,040 — 137,342Product realignment67,626 (67,626) — — —Effect of foreign currency translation(370) (2,505) (3,979) 57 (6,797)Balance as of September 30, 2016$1,381,076 $1,217,397 $653,368 $257,038 $3,508,879In the first quarter of fiscal year 2016, we reorganized the organizational management and oversight of our Dragon Consumer business, represented byour DNS reporting unit, which was previously reported within our Mobile segment and was moved into our Healthcare segment. Based on this reorganization,$67.6 million of goodwill related to our DNS reporting unit moved from our Mobile segment into our Healthcare segment during the first quarter of fiscalyear 2016. As a result of this change, we performed an analysis and determined that we did not have a triggering event requiring us to perform an impairmenttest on our DNS and Healthcare reporting units.70 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)In the first quarter of fiscal year 2015, we realigned our product portfolio which resulted in a change in the composition of our Mobile and Enterprisereporting units. We have reallocated goodwill among the affected reporting units, based on their relative fair value, and we reallocated $29.9 million ofgoodwill from our DNS reporting unit into our Mobile reporting unit, and we reallocated $10.5 million of goodwill from our Mobile reporting unit into ourEnterprise reporting unit. The DNS and Mobile reporting units were both included in our Mobile reportable segment. As a result of this change, wedetermined that we had a triggering event requiring us to perform an impairment test on our DNS, Mobile, and Enterprise reporting units. We completed ourimpairment test during the first quarter of fiscal year 2015, and the fair value of the reorganized reporting units, both before and after the product realignment,substantially exceeded their carrying values.Intangible assets consist of the following as of September 30, 2016 and 2015, which includes licensed technology with a net book value of $59.1million and $80.5 million, respectively (dollars in thousands): September 30, 2016 Gross CarryingAmount AccumulatedAmortization Net CarryingAmount Weighted AverageRemaining Life(Years)Customer relationships$969,267 $(424,940) $544,327 8.2Technology and patents444,078 (258,897) 185,181 4.7Trade names, trademarks, and other61,358 (28,663) 32,695 5.9Non-competition agreements206 (189) 17 0.2Total$1,474,909 $(712,689) $762,220 7.3 September 30, 2015 Gross CarryingAmount AccumulatedAmortization Net CarryingAmount Weighted AverageRemaining Life(Years)Customer relationships$1,028,197 $(474,518) $553,679 8.4Technology and patents451,669 (245,191) 206,478 4.6Trade names, trademarks, and other61,006 (24,983) 36,023 6.7Non-competition agreements597 (492) 105 1.0Total$1,541,469 $(745,184) $796,285 7.4Amortization expense for acquired technology and patents is included in the cost of revenue in the accompanying statements of operations andamounted to $62.9 million, $63.6 million and $61.0 million in fiscal 2016, 2015 and 2014, respectively. Amortization expense for customer relationships,trade names, trademarks, and other, and non-competition agreements is included in operating expenses and amounted to $108.0 million, $104.6 million and$109.1 million in fiscal 2016, 2015 and 2014, respectively.Estimated amortization expense for each of the five succeeding years as of September 30, 2016, is as follows (dollars in thousands):Year Ending September 30, Cost of Revenue Other OperatingExpenses Total2017 $56,049 $107,999 $164,0482018 43,942 80,494 124,4362019 28,063 73,333 101,3962020 23,290 66,758 90,0482021 14,955 63,263 78,218Thereafter 18,882 185,192 204,074Total $185,181 $577,039 $762,22071 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)5.Accounts ReceivableAccounts receivable, net consisted of the following (dollars in thousands): September 30, 2016 September 30, 2015Trade accounts receivable$383,714 $377,695Unbilled accounts receivable under long-term contracts14,884 12,823Gross accounts receivable398,598 390,518Less — allowance for doubtful accounts(11,038) (9,184)Less — allowance for sales returns(7,556) (8,172)Accounts receivable, net$380,004 $373,1626.Land, Building and Equipment, NetLand, building and equipment, net consisted of the following (dollars in thousands): Useful Life (InYears) September 30, 2016 September 30, 2015Land— $2,400 $2,400Building30 5,456 5,456Machinery and equipment3-5 121,676 100,838Computers, software and equipment3-5 219,556 213,897Leasehold improvements2-15 34,051 26,689Furniture and fixtures5-7 16,780 15,879Construction in progress— 7,804 5,363Subtotal 407,723 370,522Less: accumulated depreciation (222,554) (184,515)Land, building and equipment, net $185,169 $186,007At September 30, 2016 and 2015, capitalized internally developed software costs, net were $42.6 million and $43.7 million, respectively, which areincluded in computers, software and equipment and construction in progress.Depreciation expense for fiscal years 2016, 2015 and 2014 was $60.6 million, $62.4 million and $51.7 million, respectively, which includedamortization expense of $12.7 million, $13.6 million and $7.9 million, respectively, for internally developed software costs.7.Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consisted of the following (dollars in thousands): September 30, 2016 September 30, 2015Compensation$154,028 $142,150Accrued interest payable20,409 11,793Cost of revenue related liabilities19,351 25,584Consulting and professional fees18,001 11,939Facilities related liabilities7,382 6,312Sales and marketing incentives6,508 6,845Sales and other taxes payable2,708 6,026Other9,272 13,960Total$237,659 $224,60972 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)8.Deferred RevenueDeferred maintenance revenue consists of prepaid fees received for post-contract customer support for our products, including telephone support andthe right to receive unspecified upgrades/updates on a when-and-if-available basis. Unearned revenue includes fees for up-front set-up of the serviceenvironment; fees charged for on-demand service; certain software arrangements for which we do not have fair value of post-contract customer support,resulting in ratable revenue recognition for the entire arrangement on a straight-line basis; and fees in excess of estimated earnings on percentage-of-completion service contracts.Deferred revenue consisted of the following (dollars in thousands): September 30, 2016 September 30, 2015Current Liabilities: Deferred maintenance revenue$165,902 $155,967Unearned revenue183,271 168,742Total current deferred revenue$349,173 $324,709Long-term Liabilities: Deferred maintenance revenue$59,955 $62,201Unearned revenue327,005 281,251Total long-term deferred revenue$386,960 $343,4529.Debt and Credit FacilitiesAt September 30, 2016 and 2015, we had the following borrowing obligations (dollars in thousands): September 30, 2016 September 30, 20155.375% Senior Notes due 2020, net of unamortized premium of $3.0 million and $3.8 million, respectively,and deferred issuance costs of $7.3 million and $9.2 million, respectively. Effective interest rate 5.28%.$1,046,851 $1,044,5166.000% Senior Notes due 2024, net of deferred issuance costs of $2.4 million. Effective interest rate 6.00%.297,601 —1.00% Convertible Debentures due 2035, net of unamortized discount of $163.5 million and deferred issuancecosts of $8.2 million. Effective interest rate 5.62%.504,712 —2.75% Convertible Debentures due 2031, net of unamortized discount of $19.2 million and $39.1 million,respectively, and deferred issuance costs of $1.1 million and $2.3 million, respectively. Effective interestrate 7.43%.375,208 392,3601.50% Convertible Debentures due 2035, net of unamortized discount of $51.7 million and $60.5 million,respectively, and deferred issuance costs of $1.9 million and $2.3 million, respectively. Effective interestrate 5.39%.210,286 201,117Deferred issuance costs related to our Revolving Credit Facility(1,506) —Credit Facility, net of unamortized original issue discount of $0.8 million and deferred issuance costs of $1.8million.— 469,920Total long-term debt2,433,152 2,107,913Less: current portion— 4,834Non-current portion of long-term debt$2,433,152 $2,103,079In fiscal year 2016, we early adopted, and retroactively implemented ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." Underthis new guidance, we are required to present debt issuance costs as a direct deduction from the related debt liability on our consolidated balance sheet. Thecumulative effect of the change as of September 30, 2015 on other assets was a decrease of approximately $15.7 million with an offsetting adjustment tolong-term portion of debt.The following table summarizes the maturities of our borrowing obligations as of September 30, 2016 (dollars in thousands):73 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ConvertibleDebentures(1) Senior Notes Total2017 $— $— $—2018 395,534 — 395,5342019 — — —2020 — 1,050,000 1,050,0002021 — — —Thereafter 940,383 300,000 1,240,383Total before unamortized discount 1,335,917 1,350,0002,685,917Less: unamortized discount and issuance costs (245,711) (7,054) (252,765)Total long-term debt $1,090,206 $1,342,946$2,433,152(1) Holders of the 1.0% 2035 Debentures have the right to require us to redeem the debentures on December 15, 2022, 2027 and 2032. Holders of the 2031Debentures have the right to require us to redeem the debentures on November 1, 2017, 2021, and 2026. Holders of the 1.5% 2035 Debentures have theright to require us to redeem the debentures on November 1, 2021, 2026, and 2031.The estimated fair value of our long-term debt approximated $2,630.3 million (face value $2,687.1 million) and $2,249.1 million (face value $2,220.2million) at September 30, 2016 and 2015, respectively. These fair value amounts represent the value at which our lenders could trade our debt within thefinancial markets and do not represent the settlement value of these long-term debt liabilities to us at each reporting date. The fair value of the long-term debtwill continue to vary each period based on fluctuations in market interest rates, as well as changes to our credit ratings. The Senior Notes and the ConvertibleDebentures are traded and the fair values of each borrowing was estimated using the averages of the bid and ask trading quotes at each respective reportingdate. We had no outstanding balance on the Revolving Credit Facility at September 30, 2016, and no outstanding balance on the revolving credit agreementportion of our Credit Facility at September 30, 2015.5.375% Senior Notes due 2020On August 14, 2012, we issued $700.0 million aggregate principal amount of 5.375% Senior Notes due on August 15, 2020 in a private placement. Thenet proceeds were approximately $689.1 million, net of issuance costs, and bear interest at 5.375% per year, payable in cash semi-annually in arrears. OnOctober 22, 2012, we issued, in a private placement, an additional $350.0 million aggregate principal amount of our 5.375% Senior Notes due 2020(collectively the "Notes"). The Notes were issued pursuant to the indenture agreement dated August 14, 2012, relating to our existing $700.0 millionaggregate principal amount of 5.375% Senior Notes due in 2020. Total proceeds received, net of issuance costs, were $351.7 million.The Notes are our unsecured senior obligations and are guaranteed (the “Guarantees”) on an unsecured senior basis by certain of our domesticsubsidiaries, (the “Subsidiary Guarantors”). The Notes and Guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors' existingand future unsecured senior debt and rank senior in right of payment to all of our and the Subsidiary Guarantors' future unsecured subordinated debt. TheNotes and Guarantees effectively rank junior to all secured debt of our and the Subsidiary Guarantors to the extent of the value of the collateral securing suchdebt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the Notes.At any time on or after August 15, 2016, we may redeem all or a portion of the Notes at certain redemption prices expressed as percentages of theprincipal amount, plus accrued and unpaid interest to, but excluding, the redemption date.Upon the occurrence of certain asset sales or a change in control, we must offer to repurchase the Notes at a price equal to 100%, in the case of an assetsale, or 101%, in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.6.0% Senior Notes due 2024In June 2016, we issued $300.0 million aggregate principal amount of 6.0% Senior Notes due on July 1, 2024 (the "2024 Senior Notes") in a privateplacement. The proceeds from the 2024 Senior Notes were approximately $297.5 million, net of issuance costs. The 2024 Senior Notes bear interest at 6.0%per year, payable in cash semi-annually in arrears.The 2024 Senior Notes are unsecured senior obligations and are guaranteed on an unsecured senior basis by our Subsidiary Guarantors. The 2024 SeniorNotes and the guarantees rank equally in right of payment with all of our and the Subsidiary Guarantors’ existing and future unsecured senior debt, includingour obligations and those of each such Subsidiary Guarantor under our senior74 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)credit facility, and rank senior in right of payment to all of our and the Subsidiary Guarantors’ future unsecured subordinated debt. The 2024 Senior Notesand guarantees effectively rank junior to all our secured debt and that of the Subsidiary Guarantors to the extent of the value of the collateral securing suchdebt and to all liabilities, including trade payables, of our subsidiaries that have not guaranteed the 2024 Senior Notes.At any time before July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at a redemption price equal to 100% of the aggregate principalamount of the 2024 Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest to, but excluding, the redemption date. Atany time on or after July 1, 2019, we may redeem all or a portion of the 2024 Senior Notes at certain redemption prices expressed as percentages of theprincipal amount, plus accrued and unpaid interest to, but excluding, the redemption date. At any time and from time to time before July 1, 2019, we mayredeem up to 35% of the aggregate outstanding principal amount of the 2024 Senior Notes with the net cash proceeds received by us from certain equityofferings at a price equal to 106% of the aggregate principal amount, plus accrued and unpaid interest to, but excluding, the redemption date, provided thatthe redemption occurs no later than 120 days after the closing of the related equity offering, and at least 50% of the original aggregate principal amount ofthe 2024 Senior Notes remains outstanding immediately thereafter.Upon the occurrence of certain asset sales or a change in control, we must offer to repurchase the 2024 Senior Notes at a price equal to 100% in the caseof an asset sale, or 101% in the case of a change of control, of the principal amount plus accrued and unpaid interest to, but excluding, the repurchase date.1.0% Convertible Debentures due 2035In December 2015, we issued $676.5 million in aggregate principal amount of 1.0% Senior Convertible Debentures due in 2035 (the “1.0% 2035Debentures”). Total proceeds were $663.8 million, net of issuance costs, and we used a portion to repurchase $38.3 million in aggregate principal on our2.75% Senior Convertible Debentures due in 2031 (the “2031 Debentures”) and to repay the aggregate principal balance of $472.5 million on our term loanunder the amended and restated credit agreement. The 1.0% 2035 Debentures bear interest at 1.0% per year, payable in cash semi-annually in arrears,beginning on June 15, 2016. In addition to ordinary interest and default additional interest, beginning with the semi-annual interest period commencing onDecember 15, 2022, contingent interest will accrue during any regular semi-annual interest period where the average trading price of our 1.0% 2035Debentures for the ten trading day period immediately preceding the first day of such semi-annual period is greater than or equal to $1,200 per $1,000principal amount of our 1.0% 2035 Debentures, in which case, contingent interest will accrue at a rate of 0.50% per annum of such average trading price. The1.0% 2035 Debentures mature on December 15, 2035, subject to the right of the holders to require us to redeem the 1.0% 2035 Debentures on December 15,2022, 2027, or 2032. The 1.0% 2035 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing andfuture unsecured, unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.0% 2035Debentures. The 1.0% 2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries.We account separately for the liability and equity components of the 1.0% 2035 Debentures in accordance with authoritative guidance for convertibledebt instruments that may be settled in cash upon conversion. The guidance requires the carrying amount of the liability component to be estimated bymeasuring the fair value of a similar liability that does not have an associated conversion feature and record the remainder in stockholders’ equity. Atissuance, we allocated $495.4 million to long-term debt, and $181.1 million has been recorded as additional paid-in capital, which is being amortized tointerest expense using the effective interest rate method through December 2022.If converted, the principal amount of the 1.0% 2035 Debentures is payable in cash and any amounts payable in excess of the principal amount will(based on an initial conversion rate, which represents an initial conversion price of approximately $27.22 per share, subject to adjustment) be paid in cash orshares of our common stock, at our election, only in the following circumstances and to the following extent: (i) prior to June 15, 2035, on any date duringany fiscal quarter beginning after March 31, 2016 (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% ofthe then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previousfiscal quarter; (ii) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for $1,000principal amount of the 1.0% 2035 Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our commonstock multiplied by the then current conversion rate; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.0%2035 Debentures; or (iv) at the option of the holder at any time on or after June 15, 2035. Additionally, we may redeem the 1.0% 2035 Debentures, in wholeor in part, on or after December 20, 2022 for cash at a price equal to 100% of the principal amount of the 1.0% 2035 Debentures to be purchased plus anyaccrued and unpaid interest, including any additional interest to, but excluding, the repurchase date. Each holder shall have the right, at such holder’s option,to require us to repurchase all or any portion of the 1.0% 2035 Debentures held by such holder on December 15, 2022, December 15, 2027, or December 15,2032 at par plus accrued and unpaid interest. If we undergo a75 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)fundamental change or non-stock change of control (as described in the indenture for the 1.0% 2035 Debentures) prior to maturity, holders will have theoption to require us to repurchase all or any portion of their debentures for cash at a price equal to 100% of the principal amount of the 1.0% 2035Debentures to be purchased plus any accrued and unpaid interest, including any additional interest to, but excluding, the repurchase date. As ofSeptember 30, 2016, none of the conversion criteria were met for the 1.0% 2035 Debentures. If the conversion criteria were met, we could be required to repayall or some of the aggregate principal amount in cash prior to the maturity date.2.75% Convertible Debentures due 2031On October 24, 2011, we sold $690.0 million of 2.75% Convertible Debentures due in 2031 in a private placement. Total proceeds, net of issuancecosts, were $676.1 million. The 2031 Debentures bear interest at 2.75% per year, payable in cash semi-annually in arrears. The 2031 Debentures mature onNovember 1, 2031, subject to the right of the holders to require us to redeem the 2031 Debentures on November 1, 2017, 2021, and 2026. The 2031Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured, unsubordinatedindebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 2031 Debentures. The 2031 Debentures will beeffectively subordinated to indebtedness and other liabilities of our subsidiaries.We account separately for the liability and equity components of the 2031 Debentures in accordance with authoritative guidance for convertible debtinstruments that may be settled in cash upon conversion. At issuance, we allocated $533.6 million to long-term debt, and $156.4 million has been recorded asadditional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2017.In June 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures to exchange, in a privateplacement, $256.2 million in aggregate principal amount of our 2031 Debentures for approximately $263.9 million in aggregate principal amount of our1.5% 2035 Debentures. Upon repurchase we recorded an extinguishment loss of $17.7 million in other expense, net, in the accompanying consolidatedstatements of operations. In December 2015, we entered into separate privately negotiated agreements with certain holders of our 2031 Debentures torepurchase $38.3 million in aggregate principal with proceeds received from the issuance of our 1.0% 2035 Debentures. Upon repurchase we recorded anextinguishment loss of $2.4 million in other expense, net, in the accompanying consolidated statements of operations. In accordance with the authoritativeguidance for convertible debt instruments, a loss on extinguishment is equal to the difference between the reacquisition price and the net carrying amount ofthe extinguished debt for our 2031 Debentures, including any unamortized debt discount or issuance costs. Following this activity, $395.5 million inaggregate principal amount of our 2031 Debentures remain outstanding. The aggregate debt discount is being amortized to interest expense using theeffective interest rate method through November 2017.If converted, the principal amount of the 2031 Debentures is payable in cash and any amounts payable in excess of the principal amount will (based onan initial conversion rate, which represents an initial conversion price of approximately $32.30 per share, subject to adjustment) be paid in cash or shares ofour common stock, at our election, only in the following circumstances and to the following extent: (i) on any date during any fiscal quarter (and only duringsuch fiscal quarter) if the closing sale price of our common stock was more than 130% of the then current conversion price for at least 20 trading days in theperiod of the 30 consecutive trading days ending on the last trading day of the previous fiscal quarter; (ii) during the five consecutive business-day periodfollowing any five consecutive trading-day period in which the trading price for $1,000 principal amount of the 2031 Debentures for each day during suchfive trading-day period was less than 98% of the closing sale price of our common stock multiplied by the then current conversion rate; (iii) upon theoccurrence of specified corporate transactions, as described in the indenture for the 2031 Debentures; or (iv) at the option of the holder at any time on or afterMay 1, 2031. Additionally, we may redeem the 2031 Debentures, in whole or in part, on or after November 6, 2017 at par plus accrued and unpaid interest.Each holder shall have the right, at such holder's option, to require us to repurchase all or any portion of the 2031 Debentures held by such holder onNovember 1, 2017, November 1, 2021, and November 1, 2026 at par plus accrued and unpaid interest. If we undergo a fundamental change (as described inthe indenture for the 2031 Debentures) prior to maturity, holders will have the option to require us to repurchase all or any portion of their debentures for cashat a price equal to 100% of the principal amount of the debentures to be purchased plus any accrued and unpaid interest, including any additional interest to,but excluding, the repurchase date. As of September 30, 2016 and 2015, no conversion triggers were met. If the conversion triggers were met, we could berequired to repay all or some of the aggregate principal amount in cash prior to the maturity date.1.50% Convertible Debentures due 2035In June 2015, we issued $263.9 million in aggregate principal amount of 1.50% Senior Convertible Debentures due in 2035 (the “1.5% 2035Debentures”) in exchange for $256.2 million in aggregate principal amount of our 2031 Debentures. Total proceeds, net of issuance costs, were $253.2million. The 1.5% 2035 Debentures were issued at 97.09% of the principal amount, which76 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)resulted in a discount of $7.7 million. The 1.5% 2035 Debentures bear interest at 1.50% per year, payable in cash semi-annually in arrears, beginning onNovember 1, 2015. In addition to ordinary interest and default additional interest, beginning with the semi-annual interest period commencing on November1, 2021, contingent interest will accrue during any regular semi-annual interest period where the average trading price of our 1.5% 2035 Debentures for theten trading day period immediately preceding the first day of such semi-annual period is greater than or equal to $1,200 per $1,000 principal amount of our1.5% 2035 Debentures, in which case, contingent interest will accrue at a rate of 0.50% per annum of such average trading price. The 1.5% 2035 Debenturesmature on November 1, 2035, subject to the right of the holders to require us to redeem the 1.5% 2035 Debentures on November 1, 2021, 2026, or 2031. The1.5% 2035 Debentures are general senior unsecured obligations and rank equally in right of payment with all of our existing and future unsecured,unsubordinated indebtedness and senior in right of payment to any indebtedness that is contractually subordinated to the 1.5% 2035 Debentures. The 1.5%2035 Debentures will be effectively subordinated to indebtedness and other liabilities of our subsidiaries.We account separately for the liability and equity components of the 1.5% 2035 Debentures in accordance with authoritative guidance for convertibledebt instruments that may be settled in cash upon conversion. At issuance, we allocated $208.6 million to long-term debt, and $55.3 million has beenrecorded as additional paid-in capital, which is being amortized to interest expense using the effective interest rate method through November 2021.If converted, the principal amount of the 1.5% 2035 Debentures is payable in cash and any amounts payable in excess of the principal amount, will(based on an initial conversion rate, which represents an initial conversion price of approximately $23.26 per share, subject to adjustment) be paid in cash orshares of our common stock, at our election, only in the following circumstances and to the following extent: (i) prior to May 1, 2035, on any date during anyfiscal quarter beginning after September 30, 2015 (and only during such fiscal quarter) if the closing sale price of our common stock was more than 130% ofthe then current conversion price for at least 20 trading days in the period of the 30 consecutive trading days ending on the last trading day of the previousfiscal quarter; (ii) during the five consecutive business-day period following any five consecutive trading-day period in which the trading price for $1,000principal amount of the 1.5% 2035 Debentures for each day during such five trading-day period was less than 98% of the closing sale price of our commonstock multiplied by the then current conversion rate; (iii) upon the occurrence of specified corporate transactions, as described in the indenture for the 1.5%2035 Debentures; or (iv) at the option of the holder at any time on or after May 1, 2035. Additionally, we may redeem the 1.5% 2035 Debentures, in whole orin part, on or after November 5, 2021 for cash at a price equal to 100% of the principal amount of the 1.5% 2035 Debentures to be purchased plus any accruedand unpaid interest, including any additional interest to, but excluding, the repurchase date. Each holder shall have the right, at such holder’s option, torequire us to repurchase all or any portion of the 1.5% 2035 Debentures held by such holder on November 1, 2021, November 1, 2026, or November 1, 2031at par plus accrued and unpaid interest. Upon repurchase, we will pay the principal amount in cash and any amounts payable in excess of the principalamount will be paid in cash or shares of our common stock, at our election, with the exception that we may not elect to pay cash in lieu of more than 80% ofthe number of our common shares we would be obligated to deliver. If we undergo a fundamental change (as described in the indenture for the 1.5% 2035Debentures) prior to maturity, holders will have the option to require us to repurchase all or any portion of their debentures for cash at a price equal to 100%of the principal amount of the 1.5% 2035 Debentures to be purchased plus any accrued and unpaid interest, including any additional interest to, butexcluding, the repurchase date. As of September 30, 2016 and 2015, none of the conversion criteria were met for the 1.5% 2035 Debentures. If the conversioncriteria were met, we could be required to repay all or some of the aggregate principal amount in cash prior to the maturity date.Revolving Credit FacilityIn April 2016, we entered into a credit agreement that provides for a $242.5 million revolving credit line, including letters of credit (together, the“Revolving Credit Facility”). The Revolving Credit Facility matures on April 15, 2021. As of September 30, 2016, issued letters of credit in the aggregateamount of $4.0 million were treated as issued and outstanding when calculating the borrowing availability under the Revolving Credit Facility. As ofSeptember 30, 2016, we had $238.5 million available for additional borrowing under the Revolving Credit Facility. Any amounts outstanding under theRevolving Credit Facility will bear interest, at either (i) LIBOR plus an applicable margin of 1.50% or 1.75%, or (ii) the alternative base rate plus anapplicable margin of 0.50% or 0.75%. The Revolving Credit Facility is secured by substantially all assets of ours and our Subsidiary Guarantors. TheRevolving Credit Facility contains customary affirmative and negative covenants and conditions to borrowing, as well as customary events of default.Credit FacilityThe amended and restated credit agreement, entered into on August 7, 2013, includes a term loan and a $75.0 million revolving credit agreement,inclusive of any issued letters of credit (together, the "Credit Facility"). In December 2015, we repaid the aggregate principal balance of $472.5 million on theterm loan with proceeds received from the issuance of our 1.0% 2035 Debentures. We recorded a loss of $2.5 million on the extinguishment, representing theunamortized debt discount and issuance77 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)costs, in other expense, net, in the accompanying consolidated statements of operations. In connection with entering into the Revolving Credit Facility onApril 15, 2016, we terminated our $75.0 million revolving credit agreement.10.Financial Instruments and Hedging ActivitiesDerivatives not Designated as HedgesForward Currency ContractsWe operate our business in countries throughout the world and transact business in various foreign currencies. Our foreign currency exposures typicallyarise from transactions denominated in currencies other than the functional currency of our operations. We have a program that primarily utilizes foreigncurrency forward contracts to offset the risks associated with the effect of certain foreign currency exposures. Our program is designed so that increases ordecreases in our foreign currency exposures are offset by gains or losses on the foreign currency forward contracts in order to mitigate the risks and volatilityassociated with our foreign currency transactions. Generally, we enter into such contracts for less than 90 days and have no cash requirements until maturity.At September 30, 2016 and 2015, we had outstanding contracts with a total notional value of $215.2 million and $138.5 million, respectively.We have not designated these forward contracts as hedging instruments pursuant to the authoritative guidance for derivatives and hedging, andaccordingly, we record the fair value of these contracts at the end of each reporting period in our consolidated balance sheet, with the unrealized gains andlosses recognized immediately in earnings as other expense, net in our consolidated statements of operations. The cash flows related to the settlement of thesecontracts are included in cash flows from investing activities within our consolidated statement of cash flows.Security Price GuaranteesFrom time to time we enter into agreements that allow us to issue shares of our common stock as part or all of the consideration related to businessacquisitions, partnering and technology acquisition activities. Some of these shares are issued subject to security price guarantees, which are accounted for asderivatives. We have determined that these instruments would not be considered equity instruments if they were freestanding. Certain of the security priceguarantees require payment from either us to a third party, or from a third party to us, based upon the difference between the price of our common stock on theissue date and an average price of our common stock approximately six months following the issue date. We have also issued minimum price guarantees thatmay require payments from us to a third party based on the average share price of our common stock approximately six months following the issue date if ourstock price falls below the minimum price guarantee. Changes in the fair value of these security price guarantees are reported in other expense, net in ourconsolidated statements of operations. We have no outstanding shares subject to security price guarantees at September 30, 2016. During the years endedSeptember 30, 2015 and 2014, we paid cash totaling $0.3 million and $5.3 million, respectively, upon the settlement of these agreements.The following table provides a quantitative summary of the fair value of our derivative instruments as of September 30, 2016 and 2015 (dollars inthousands): Fair ValueDerivatives Not Designated as Hedges: Balance Sheet Classification September 30, 2016 September 30, 2015Foreign currency contracts Prepaid expenses and other current assets $335 $260Net fair value of non-hedged derivative instruments $335 $260The following tables summarize the activity of derivative instruments for the fiscal years 2016, 2015 and 2014 (dollars in thousands): Location of Gain (Loss) Recognized in Income Amount of Gain (Loss) Recognized in IncomeDerivatives Not Designated as Hedges: 2016 2015 2014Foreign currency contractsOther expense, net $2,021 $(16,275) $(2,404)Security price guaranteesOther expense, net $— $(204) $(4,358)78 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Other Financial InstrumentsFinancial instruments including cash equivalents, accounts receivable and accounts payable are carried in the consolidated financial statements atamounts that approximate their fair value based on the short maturities of those instruments. Marketable securities and derivative instruments are carried atfair value.11.Fair Value MeasuresFair value is defined as the price that would be received for an asset, or paid to transfer a liability, in an orderly transaction between market participantsat the measurement date. Valuation techniques must maximize the use of observable inputs and minimize the use of unobservable inputs. When determiningthe fair value measurements for assets and liabilities required to be recorded at fair value, we consider the principal or most advantageous market in which wewould transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, andrisk of nonperformance.The following summarizes the three levels of inputs required to measure fair value, of which the first two are considered observable and the third isconsidered unobservable:•Level 1. Quoted prices for identical assets or liabilities in active markets which we can access.•Level 2. Observable inputs other than those described as Level 1.•Level 3. Unobservable inputs based on the best information available, including management’s estimates and assumptions.Assets and liabilities measured at fair value on a recurring basis at September 30, 2016 and 2015 consisted of (dollars in thousands): September 30, 2016 Level 1 Level 2 Level 3 TotalAssets: Money market funds(a)$331,419 $— $— $331,419US government agency securities(a)1,002 — — 1,002Time deposits(b)— 33,794 — 33,794Commercial paper, $38,108 at cost(b)— 38,142 — 38,142Corporate notes and bonds, $54,484 at cost(b)— 54,536 — 54,536Foreign currency exchange contracts(b)— 335 — 335Total assets at fair value$332,421 $126,807 $— $459,228Liabilities: Contingent acquisition payments(c)$— $— $(8,240) $(8,240)Total liabilities at fair value$— $— $(8,240) $(8,240)79 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) September 30, 2015 Level 1 Level 2 Level 3 TotalAssets: Money market funds(a)$334,404 $— $— $334,404US government agency securities(a)1,000 — — 1,000Time deposits(b)— 71,453 — 71,453Commercial paper, $3,491 at cost(b)— 3,493 — 3,493Corporate notes and bonds, $44,581 at cost(b)— 44,533 — 44,533Foreign currency exchange contracts(b)— 260 — 260Total assets at fair value$335,404 $119,739 $— $455,143Liabilities: Contingent acquisition payments(c)$— $— $(15,961) $(15,961)Total liabilities at fair value$— $— $(15,961) $(15,961)(a) Money market funds and U.S. government agency securities, included in cash and cash equivalents in the accompanying balance sheets, are valued atquoted market prices in active markets.(b) The fair values of our time deposits, commercial paper, corporate notes and bonds, and foreign currency exchange contracts are based on the mostrecent observable inputs for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active orare directly or indirectly observable. Time deposits are generally for terms of one year or less. The commercial paper and corporate notes and bondsmature within three years and have a weighted average maturity of 0.88 years as of September 30, 2016.(c) The fair value of our contingent consideration arrangements are determined based on our evaluation as to the probability and amount of any earn-outthat will be achieved based on expected future performance by the acquired entity.The following table provides a summary of changes in fair value of our Level 3 financial instruments for the years ended September 30, 2016 and 2015(dollars in thousands): AmountBalance as of September 30, 2014$6,864Earn-out liability established at time of acquisition17,299Payments and foreign currency translation(7,673)Adjustments to fair value included in acquisition-related costs, net(529)Balance as of September 30, 201515,961Earn-out liability established at time of acquisition4,855Payments and foreign currency translation(14,891)Adjustments to fair value included in acquisition-related costs, net2,315Balance as of September 30, 2016$8,240Our financial liabilities valued based upon Level 3 inputs are composed of contingent consideration arrangements relating to our acquisitions. We arecontractually obligated to pay contingent consideration to the selling shareholders upon the achievement of specified objectives, including the achievementof future bookings and sales targets related to the products of the acquired entities and therefore are recorded as contingent consideration liabilities at thetime of the acquisitions. We update our assumptions each reporting period based on new developments and record such amounts at fair value based on therevised assumptions until the consideration is paid upon the achievement of the specified objectives or eliminated upon failure to achieve the specifiedobjectives.Contingent acquisition payment liabilities are scheduled to be paid in periods through fiscal year 2019. As of September 30, 2016, we could berequired to pay up to $17.2 million for contingent consideration arrangements if the specified objectives are achieved. We have determined the fair value ofthe liabilities for the contingent consideration based on a probability-weighted discounted cash flow analysis. This fair value measurement is based onsignificant inputs not observable in the market and thus represents a Level 3 measurement within the fair value hierarchy. The fair value of the contingentconsideration liability associated80 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)with future payments was based on several factors, the most significant of which are the estimated cash flows projected from future product sales and the riskadjusted discount rate for the fair value measurement.12.Restructuring and Other Charges, NetRestructuring and other charges, net include restructuring expenses together with other charges that are unusual in nature and are the result ofunplanned events, and arise outside of the ordinary course of continuing operations. Restructuring expenses consist of employee severance costs and mayalso include charges for excess facility space and other contract termination costs. Other charges may include gains or losses on non-controlling strategicequity interests, litigation contingency reserves and gains or losses on the sale or disposition of certain non-strategic assets or product lines.The components of restructuring and other charges, net are as follows: 2016 2015 2014Severance costs$13,133 $8,471 $13,318Costs of consolidating duplicate facilities11,606 9,576 3,203Total restructuring charges24,739 18,047 16,521Other charges485 5,622 2,922Total restructuring and other charges, net$25,224 $23,669 $19,443The following table sets forth accrual activity relating to restructuring reserves for fiscal years 2016, 2015 and 2014 (dollars in thousands): Personnel Facilities TotalBalance at September 30, 2013$4,230 $1,191 $5,421Restructuring charges, net13,318 3,203 16,521Non-cash adjustment12 793 805Cash payments(14,302) (3,719) (18,021)Balance at September 30, 20143,258 1,468 4,726Restructuring charges, net8,471 9,576 18,047Non-cash adjustment— (2,538) (2,538)Cash payments(11,094) (2,284) (13,378)Balance at September 30, 2015635 6,222 6,857Restructuring charges, net13,133 11,606 24,739Non-cash adjustment(57) 164 107Cash payments(11,050) (6,860) (17,910)Balance at September 30, 2016$2,661 $11,132 $13,79381 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Restructuring and other charges, net by segment are as follows (dollars in thousands): Personnel Facilities Total Restructuring Other Charges TotalFiscal Year 2016 Healthcare$3,531 $1,398 $4,929 $— $4,929Mobile5,837 1,557 7,394 (486) 6,908Enterprise1,214 2,782 3,996 — 3,996Imaging284 478 762 — 762Corporate2,267 5,391 7,658 971 8,629Total fiscal year 2016$13,133 $11,606 $24,739 $485 $25,224 Fiscal Year 2015 Healthcare$452 $636 $1,088 $— $1,088Mobile2,960 2,863 5,823 3,322 9,145Enterprise1,144 95 1,239 — 1,239Imaging2,047 1,814 3,861 — 3,861Corporate1,868 4,168 6,036 2,300 8,336Total fiscal year 2015$8,471 $9,576 $18,047 $5,622 $23,669 Fiscal Year 2014 Healthcare$2,357 $11 $2,368 $(78) $2,290Mobile1,447 622 2,069 — 2,069Enterprise5,557 — 5,557 — 5,557Imaging2,733 107 2,840 — 2,840Corporate1,224 2,463 3,687 3,000 6,687Total fiscal year 2014$13,318 $3,203 $16,521 $2,922 $19,443Fiscal Year 2016For fiscal year 2016, we recorded restructuring charges of $24.7 million. The restructuring charges included $13.1 million for severance related to thereduction of approximately 452 employees as part of our initiatives to reduce costs and optimize processes. The restructuring charges also included a $11.6million charge for the closure of certain excess facility space. We expect that the remaining severance payments of $2.7 million will be substantially paid bythe end of fiscal year 2017. We expect that the remaining payments of $11.1 million for the closure of excess facility space will be paid through fiscal year2025, in accordance with the terms of the applicable leases.In addition, during fiscal year 2016, we have recorded certain other charges that totaled $0.5 million for litigation contingency reserves.Fiscal Year 2015For fiscal year 2015, we recorded restructuring charges of $18.0 million, which included $8.5 million for severance related to the reduction ofapproximately 200 employees as part of our initiatives to reduce costs and optimize processes as well as the reduction of approximately 60 employees thateliminated duplicative positions resulting from acquisitions in fiscal year 2014. The restructuring charges also included $9.6 million charge for the closure ofcertain excess facility space, including facilities acquired from acquisitions.In addition, during fiscal year 2015, we have recorded certain other charges that totaled $5.6 million for the impairment of certain long-lived assets asa result of our strategic realignment of our product portfolio and litigation contingency reserves.82 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Fiscal Year 2014For fiscal year 2014, we recorded net restructuring charges of $16.5 million, which included a $13.3 million severance charge related to the reductionof headcount by approximately 250 employees across multiple functions including the impact of eliminating duplicative positions resulting fromacquisitions, and $3.2 million primarily resulting from the restructuring of facilities that will no longer be utilized.In addition, during fiscal year 2014, we have recorded certain other charges that totaled $2.9 million primarily for litigation contingency reserves.13.Supplemental Cash Flow InformationCash paid for Interest and Income Taxes: Year Ended September 30, 2016 2015 2014 (Dollars in thousands)Interest paid$77,010 $92,375 $96,743Income taxes paid$21,068 $15,454 $15,591Non Cash Investing and Financing Activities:From time to time, we issue shares of our common stock in connection with our business and asset acquisitions, including shares issued as payment foracquisitions, shares initially held in escrow, and shares issued as payment for contingent consideration, which is discussed in Notes 2 and 3. In addition, inconnection with certain collaboration agreements we have issued shares of our common stock to our partners in satisfaction of our payment obligations underthe terms of the agreements, which is discussed in Notes 2 and 10.14.Stockholders' EquityShare RepurchasesOn April 29, 2013, our Board of Directors approved a share repurchase program for up to $500.0 million of our outstanding shares of common stock. OnApril 29, 2015, our Board of Directors approved an additional $500.0 million under our share repurchase program. We repurchased 9.4 million shares, 19.8million shares and 1.6 million shares for $197.5 million, $299.2 million and $26.4 million during the fiscal years ended September 30, 2016, 2015 and 2014,respectively, under the program. These shares were retired upon repurchase. Since the commencement of the program, we have repurchased 40.7 millionshares for $707.5 million, including 1.0 million shares repurchased from our Chief Executive Officer in fiscal year 2016. Approximately $292.5 millionremained available for share repurchases as of September 30, 2016 pursuant to our share repurchase program. Under the terms of the share repurchase program,we have the ability to repurchase shares from time to time through a variety of methods, which may include open market purchases, privately negotiatedtransactions, block trades, accelerated share repurchase transactions, or any combination of such methods. The share repurchase program does not require usto acquire any specific number of shares and may be modified, suspended, extended or terminated by us at any time without prior notice. The timing and theamount of any purchases will be determined by management based on an evaluation of market conditions, capital allocation alternatives, and other factors.During fiscal year 2016, we changed our method of recognizing the amount paid to repurchase common shares in excess of the par value. Historicallywe allocated any excess of cost over par value between accumulated deficit and additional paid-in capital. Under our new method of accounting, werecognize any excess of cost over par value in additional paid-in capital. The resulting reclassification is not considered material as there is no impact to totalshareholders’ equity and only represents a reclassification between individual equity line items. Accordingly, the financial data for all periods presented hasbeen retrospectively adjusted to reflect the effect of this accounting change. The cumulative effect of the change on additional paid-in capital as ofSeptember 30, 2016, 2015, 2014 and 2013 was a decrease of approximately $672.7 million, $333.8 million, $229.0 million and $218.2 million, respectively,with an offsetting adjustment to accumulated deficit.83 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Related Party Share RepurchasesIn December 2015, as part of our share repurchase program, we repurchased 1.0 million shares from our Chief Executive Officer, composed of 649,649outstanding shares and 800,000 vested stock options with a net share equivalent of 350,351 shares, for an aggregate purchase price of $21.4 million, whichapproximated the fair value of our common stock on the day of the repurchase.In March 2016, our Board of Directors approved a repurchase agreement with the Icahn Group to repurchase 26.3 million shares of our common stockat a price of $19.00 per share, which approximated the fair value of our common stock on the day of the repurchase, for a total purchase price of $500.0million (the "Repurchase"). At the closing of the Repurchase, we paid $375.0 million in cash and issued a promissory note in the amount of $125.0 million.The promissory note bears interest at a rate per annum equal to approximately 2.64% and had a maturity date of June 13, 2016. On April 15, 2016, we fullyrepaid the promissory note. Immediately prior to the Repurchase, the Icahn Group owned approximately 60.8 million shares, or approximately 20%, of ouroutstanding common stock. Based on publicly available information, as of September 30, 2016, the Icahn Group’s holdings of our common stock wasapproximately 19.7 million shares, or 6.8% of our outstanding common stock. In connection with the Repurchase, David Schechter and Brett Icahn, the IcahnGroup representatives on our Board of Directors, resigned from our Board of Directors.Stock IssuancesDuring the year ended September 30, 2016, we issued 403,325 shares of our common stock to our partner in a healthcare collaboration agreement assettlement for a buy-out option and 5,749,807 shares of our common stock as consideration for our acquisition of TouchCommerce, which are discussed inNotes 2 and 3. During the year ended September 30, 2015, we issued 288,148 shares of our common stock as a settlement for a contingent earn-outobligation, which is discussed in Notes 2 and 10. During the years ended September 30, 2014, we issued 234,375 shares, respectively, of our common stockas consideration under our collaboration agreements, which is discussed in Note 2.Preferred StockWe are authorized to issue up to 40,000,000 shares of preferred stock, par value $0.001 per share. The undesignated shares of preferred stock will haverights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences,as shall be determined by the Board of Directors upon issuance of the preferred stock.Series A Preferred StockWe have designated 1,000,000 shares as Series A Preferred Stock, par value $0.001 per share. The Series A Preferred Stock is entitled to receive dividendsequal to the greater of $1.00 and 1,000 times the aggregate per share amount of all dividends declared on our Common Stock. Holders of each share of theSeries A Preferred Stock are entitled to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation, and shall vote as one class. TheSeries A Preferred Stock is not redeemable, and has the right to certain liquidation preferences over our Common Stock. The Series A Preferred Stock ranksjunior to all other series of the Preferred Stock as to the payment of dividends and the distribution of assets.Series B Preferred StockWe have designated 15,000,000 shares as Series B Preferred Stock, par value $0.001 per share. The Series B Preferred Stock is convertible into shares ofcommon stock on a one-for-one basis and has a liquidation preference of $1.30 per share plus all declared but unpaid dividends. The holders of Series BPreferred Stock are entitled to non-cumulative dividends at the rate of $0.05 per annum per share, payable when, and if, declared by the Board of Directors.To date, no dividends have been declared by the Board of Directors. Holders of Series B Preferred Stock have no voting rights, except those rights providedunder Delaware law. As of September 30, 2016, there are no outstanding shares of Series B Preferred Stock.84 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)15.Stock-Based CompensationWe recognize stock-based compensation expense over the requisite service period. Our share-based awards are accounted for as equity instruments. Theamounts included in the consolidated statements of operations relating to stock-based compensation are as follows (dollars in thousands): 2016 2015 2014Cost of product and licensing$376 $516 $724Cost of professional services and hosting31,054 30,968 32,063Cost of maintenance and support4,138 3,989 3,426Research and development35,671 39,038 44,139Selling and marketing49,064 50,310 53,448General and administrative43,525 51,955 59,164Total$163,828 $176,776 $192,964Stock OptionsWe have share-based award plans under which employees, officers and directors may be granted stock options to purchase our common stock, generallyat fair market value. Our plans do not allow for options to be granted at below fair market value, nor can they be re-priced at any time. Options granted underour plans become exercisable over various periods, typically 2 to 4 years and have a maximum term of 10 years. We have also assumed options and optionplans in connection with certain of our acquisitions. These stock options are governed by the plans and agreements that they were originally issued under butare now exercisable for shares of our common stock.85 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The table below summarizes activity relating to stock options for the years ended September 30, 2016, 2015 and 2014: Number ofShares WeightedAverageExercisePrice WeightedAverageRemainingContractualTerm AggregateIntrinsicValue(a)Outstanding at September 30, 20134,184,158 $13.08 Granted100,000 $15.19 Exercised(444,594) $9.41 Forfeited(1,764) $19.36 Expired(114,458) $16.62 Outstanding at September 30, 20143,723,342 $13.46 Granted— $— Exercised(765,408) $11.09 Forfeited(892) $20.04 Expired(33,053) $19.34 Outstanding at September 30, 20152,923,989 $14.01 Granted— $— Exercised/Repurchased(b)(955,060) $11.96 Forfeited— $— Expired(3,103) $10.42 Outstanding at September 30, 20161,965,826 $15.01 0.7 years $1.1 millionExercisable at September 30, 20161,965,817 $15.01 0.7 years $1.1 millionExercisable at September 30, 20152,923,298 Exercisable at September 30, 20143,715,258 _______________________________________(a) The aggregate intrinsic value in this table was calculated based on the positive difference, if any, between the closing market price of our commonstock on September 30, 2016 ($14.50) and the exercise price of the underlying options.(b) We repurchased 1.0 million shares owned directly or indirectly by our Chief Executive Officer, composed of 649,649 outstanding shares and 800,000vested stock options with a net share equivalent of 350,351 shares, for an aggregate purchase price of $21.4 million.As of September 30, 2016, there was no unamortized fair value of stock options. A summary of weighted-average grant-date (including assumedoptions) fair value and intrinsic value of stock options exercised is as follows: 2016 2015 2014Weighted-average grant-date fair value per shareN/A N/A $5.71Total intrinsic value of stock options exercised (in millions)$8.6 $4.4 $3.3We use the Black-Scholes option pricing model to calculate the grant-date fair value of an award. The fair value of the assumed unvested stock optionswas calculated using a lattice model. There were no stock option grants in fiscal years 2016 and 2015. For fiscal year 2014, the fair value of the stock optionsgranted and unvested options assumed from acquisitions were calculated using the following weighted-average assumptions: 2016 2015 2014Dividend yieldN/A N/A 0.0%Expected volatilityN/A N/A 38.2%Average risk-free interest rateN/A N/A 1.1%Expected term (in years)N/A N/A 4.186 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The dividend yield of zero is based on the fact that we have never paid cash dividends and have no present intention to pay cash dividends. Expectedvolatility is based on the historical volatility of our common stock over the period commensurate with the expected life of the options and the historicalimplied volatility from traded options with a term of 180 days or greater. The risk-free interest rate is derived from the average U.S. Treasury STRIPS rateduring the period, which approximates the rate in effect at the time of grant, commensurate with the expected life of the instrument. We estimate the expectedterm of options granted based on historical exercise behavior.Restricted AwardsWe are authorized to issue equity incentive awards in the form of Restricted Awards, including Restricted Units and Restricted Stock, which areindividually discussed below. Unvested Restricted Awards may not be sold, transferred or assigned. The fair value of the Restricted Awards is measured basedupon the market price of the underlying common stock as of the date of grant, reduced by the purchase price of $0.001 per share of the awards. The unvestedRestricted Awards generally are subject to vesting over a period of two to four years. We also issued certain Restricted Awards with vesting solely dependenton the achievement of specified performance targets. The fair value of the Restricted Awards is amortized to expense over the awards’ applicable requisiteservice periods using the straight-line method. In the event that the employees’ employment with us terminates, or in the case of awards with onlyperformance goals, if those goals are not met, any unvested shares are forfeited and revert to us.In order to satisfy our employees’ withholding tax liability as a result of the vesting of Restricted Awards, we have historically repurchased shares uponthe employees’ vesting. In fiscal year 2016, we withheld payroll taxes totaling $68.4 million relating to 3.6 million shares of common stock that wererepurchased or canceled. Based on our estimate of the Restricted Awards that will vest or be released in fiscal year 2017, and further assuming thatapproximately one-third of these Restricted Awards would be repurchased or canceled to satisfy the employee’s withholding tax liability (such amountapproximating the tax rate of our employees), we would have an obligation to pay cash relating to approximately 3.0 million shares during fiscal year 2017.Restricted UnitsRestricted Units are not included in issued and outstanding common stock until the shares are vested and released. The table below summarizes activityrelating to Restricted Units: Number of SharesUnderlyingRestricted Units —Contingent Awards Number of SharesUnderlyingRestricted Units —Time-BasedAwardsOutstanding at September 30, 20135,587,181 9,095,424Granted3,005,069 7,084,572Earned/released(790,189) (6,404,777)Forfeited(2,075,676) (1,426,112)Outstanding at September 30, 20145,726,385 8,349,107Granted1,985,374 7,741,805Earned/released(2,000,408) (8,123,159)Forfeited(1,011,141) (959,914)Outstanding at September 30, 20154,700,210 7,007,839Granted2,533,389 7,146,415Earned/released(2,254,445) (7,243,615)Forfeited(754,666) (1,026,616)Outstanding at September 30, 20164,224,488 5,884,023Weighted average remaining recognition period of outstanding Restricted Units1.3 years 1.8 yearsUnearned stock-based compensation expense of outstanding Restricted Units$39.9 million $72.1 millionAggregate intrinsic value of outstanding Restricted Units(1)$61.3 million $85.4 million(1) The aggregate intrinsic value on this table was calculated based on the positive difference between the closing market value of our common stock onSeptember 30, 2016 ($14.50) and the exercise price of the underlying Restricted Units.87 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)A summary of weighted-average grant-date fair value, including those assumed in respective periods, and intrinsic value of all Restricted Units vestedis as follows: 2016 2015 2014Weighted-average grant-date fair value per share$18.93 $15.47 $15.46Total intrinsic value of shares vested (in millions)$179.7 $154.2 $110.3Restricted Stock AwardsRestricted Stock is included in the issued and outstanding common stock in these financial statements at the date of grant. The table below summarizesactivity relating to Restricted Stock: Number ofSharesUnderlyingRestricted Stock WeightedAverage GrantDate FairValueOutstanding at September 30, 20131,000,000 $24.06Granted250,000 $15.71Vested(500,000) $24.06Outstanding at September 30, 2014750,000 $21.28Granted— $—Vested(500,000) $24.06Outstanding at September 30, 2015250,000 $15.71Granted— $—Vested(250,000) $15.71Outstanding at September 30, 2016— $—A summary of weighted-average grant-date fair value, including those assumed in respective periods, and the intrinsic value of all Restricted Stockvested is as follows: 2016 2015 2014Weighted-average grant-date fair value per shareN/A N/A $15.71Total intrinsic value of shares vested (in millions)$4.3 $7.9 $7.81995 Employee Stock Purchase PlanOur 1995 Employee Stock Purchase Plan (“the Plan”), as amended and restated on January 27, 2015, authorizes the issuance of a maximum of20,000,000 shares of common stock in semi-annual offerings to employees at a price equal to the lower of 85% of the closing price on the applicable offeringcommencement date or 85% of the closing price on the applicable offering termination date. Stock-based compensation expense for the employee stockpurchase plan is recognized for the fair value benefit accorded to participating employees. At September 30, 2016, we have reserved 7,724,427 shares forfuture issuance. A summary of the weighted-average grant-date fair value, shares issued and total stock-based compensation expense recognized related to thePlan are as follows: 2016 2015 2014Weighted-average grant-date fair value per share$3.97 $3.61 $3.98Total shares issued (in millions)1.2 1.4 1.4Total stock-based compensation expense (in millions)$4.8 $4.7 $5.688 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The fair value of the purchase rights granted under this plan was estimated on the date of grant using the Black-Scholes option-pricing model that usesthe following weighted-average assumptions, which were derived in a manner similar to those discussed above relative to stock options: 2016 2015 2014Dividend yield0.0% 0.0% 0.0%Expected volatility34.0% 27.9% 35.9%Average risk-free interest rate0.5% 0.1% 0.1%Expected term (in years)0.5 0.5 0.516.Commitments and ContingenciesOperating LeasesWe have various operating leases for office space around the world. In connection with many of our acquisitions, we assumed facility lease obligations.Among these assumed obligations are lease payments related to office locations that were vacated by certain of the acquired companies prior to theacquisition date. Additionally, certain of our lease obligations have been included in various restructuring charges (Note 12).The following table outlines our gross future minimum payments under all non-cancelable operating leases as of September 30, 2016 (dollars inthousands):Year Ending September 30, Operating Leases Operating leases underrestructuring Total2017 $23,691 $10,375 $34,0662018 19,855 9,423 29,2782019 16,771 6,421 23,1922020 14,376 6,086 20,4622021 12,537 5,226 17,763Thereafter 84,798 20,027 104,825Total $172,028 $57,558 $229,586At September 30, 2016, we have subleased certain office space that is included in the above table to third parties. Total sublease income undercontractual terms for restructured facilities is $58.1 million, and ranges from approximately $5.3 million to $7.7 million on an annual basis through August2025. Sublease income related to other operating facilities is minimal.Total rent expense, including rent expense for our data centers, was approximately $38.3 million, $41.8 million and $47.5 million for the years endedSeptember 30, 2016, 2015 and 2014, respectively.Litigation and Other ClaimsSimilar to many companies in the software industry, we are involved in a variety of claims, demands, suits, investigations and proceedings that arisefrom time to time relating to matters incidental to the ordinary course of our business, including actions with respect to contracts, intellectual property,employment, benefits and securities matters. We have estimated the amount of probable losses that may result from all currently pending matters, and suchamounts are reflected in our consolidated financial statements. These recorded amounts are material neither to our consolidated financial position nor resultsof operations and no additional material losses related to these pending matters are reasonably possible. While it is not possible to predict the outcome ofthese matters with certainty, we do not expect the results of any of these actions to have a material adverse effect on our results of operations or financialposition. However, each of these matters is subject to uncertainties, the actual losses may prove to be larger or smaller than the accruals reflected in ourconsolidated financial statements, and we could incur judgments or enter into settlements of claims that could adversely affect our financial position, resultsof operations or cash flows.89 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)Guarantees and OtherWe include indemnification provisions in the contracts we enter into with customers and business partners. Generally, these provisions require us todefend claims arising out of our products’ infringement of third-party intellectual property rights, breach of contractual obligations and/or unlawful orotherwise culpable conduct. The indemnity obligations generally cover damages, costs and attorneys’ fees arising out of such claims. In most, but not allcases, our total liability under such provisions is limited to either the value of the contract or a specified, agreed upon amount. In some cases our totalliability under such provisions is unlimited. In many, but not all cases, the term of the indemnity provision is perpetual. While the maximum potentialamount of future payments we could be required to make under all the indemnification provisions is unlimited, we believe the estimated fair value of theseprovisions is minimal due to the low frequency with which these provisions have been triggered.We indemnify our directors and officers to the fullest extent permitted by Delaware law, which provides among other things, indemnification todirectors and officers for expenses, judgments, fines, penalties and settlement amounts incurred by such persons in their capacity as a director or officer of thecompany, regardless of whether the individual is serving in any such capacity at the time the liability or expense is incurred. Additionally, in connectionwith certain acquisitions we have agreed to indemnify the former officers and members of the boards of directors of those companies, on similar terms asdescribed above, for a period of six years from the acquisition date. In certain cases we purchase director and officer insurance policies related to theseobligations, which fully cover the six year period. To the extent that we do not purchase a director and officer insurance policy for the full period of anycontractual indemnification, and such directors and officers do not have coverage under separate insurance policies, we would be required to pay for costsincurred, if any, as described above.17.Pension and Other Post-Retirement BenefitsDefined Contribution PlansWe have established a retirement savings plan under Section 401(k) of the Internal Revenue Code (the “401(k) Plan”). The 401(k) Plan coverssubstantially all of our U.S. employees who meet minimum age and service requirements, and allows participants to defer a portion of their annualcompensation on a pre-tax basis. Effective July 1, 2003, a company match of employee’s contributions was established. We match 50% of employeecontributions up to 4% of eligible salary. Employer's contributions vest one-third annually over a three-year period. Our contributions to the 401(k) Plan thatcovers substantially all of our U.S. employees who meet the minimum requirements totaled $6.6 million, $6.9 million and $6.9 million for fiscal years 2016,2015 and 2014, respectively. We make contributions to various other plans in certain of our foreign operations; total contributions to these plans are notmaterial.Defined Benefit Pension PlansWe sponsor certain defined benefit pension plans that are offered primarily by our foreign subsidiaries. Many of these plans were assumed through ouracquisitions or are required by local regulatory requirements. We may deposit funds for these plans with insurance companies, third party trustees, or intogovernment-managed accounts consistent with local regulatory requirements, as applicable. Our total defined benefit plan pension expenses were $0.1million, $0.3 million and $0.2 million for fiscal years 2016, 2015 and 2014, respectively. The aggregate projected benefit obligation and aggregate netliability of our defined benefit plans as of September 30, 2016 was $32.1 million and $8.2 million, respectively, and as of September 30, 2015 was $35.5million and $7.3 million, respectively.18.Income TaxesThe components of income (loss) before income taxes are as follows (dollars in thousands): Year Ended September 30, 2016 2015 2014Domestic$(118,410) $(196,925) $(224,968)Foreign120,149 116,453 69,948Income (loss) before income taxes$1,739 $(80,472) $(155,020)90 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The components of the provision (benefit) for income taxes are as follows (dollars in thousands): Year Ended September 30, 2016 2015 2014Current: Federal$— $82 $(301)State3,230 982 729Foreign22,981 16,784 17,067Total current26,211 17,848 17,495Deferred: Federal(7,235) 15,694 (16,147)State(1,962) 3,278 (720)Foreign(2,817) (2,282) (5,305)Total deferred(12,014) 16,690 (22,172)Provision (benefit) for income taxes$14,197 $34,538 $(4,677)Effective income tax rate816.4% (42.9)% 3.0%The provision (benefit) for income taxes differed from the amount computed by applying the federal statutory rate to our income (loss) before incometaxes as follows (dollars in thousands): 2016 2015 2014Federal tax benefit at statutory rate$609 $(28,165) $(54,129)State tax provision, net of federal benefit137 3,278 416Foreign tax rate and other foreign related tax items(25,976) (30,765) (14,811)Repatriated earnings, net of foreign tax credits71,343 — —Stock-based compensation6,154 10,734 11,254Non-deductible expenditures3,235 (162) 1,630Change in U.S. and foreign valuation allowance(53,079) 71,238 46,273Executive compensation4,749 3,873 1,886Other7,025 4,507 2,804Provision (benefit) for income taxes$14,197 $34,538 $(4,677)The effective income tax rate is based upon the income for the year, the composition of the income in different countries, changes relating to valuationallowances for certain countries if and as necessary, and adjustments, if any, for the potential tax consequences, benefits or resolutions of audits or other taxcontingencies. Our aggregate income tax rate in foreign jurisdictions is lower than our income tax rate in the United States; the majority of our income beforeprovision for income taxes from foreign operations has been earned by subsidiaries in Ireland. Our effective tax rate may be adversely affected by earningsbeing lower than anticipated in countries where we have lower statutory tax rates and higher than anticipated in countries where we have higher statutory taxrates.The effective income tax rate in fiscal year 2016 differs from the U.S. federal statutory rate of 35% primarily due to current period losses in the UnitedStates that require an additional valuation allowance that provide no benefit to the provision, an increase in indefinite lived deferred tax liabilities, and a netincrease in tax related to a one-time repatriation of foreign earnings offset by the utilization of previously unbenefited domestic loss and credit carryforwards.These were partially offset by our earnings in foreign operations that are subject to a significantly lower tax rate than U.S. statutory tax rate, driven primarilyby our subsidiaries in Ireland, and a $22.1 million release of domestic valuation allowance as a result of tax benefits recorded in connection with ouracquisitions during the period for which a deferred tax liability was established in purchase accounting.The effective income tax rates in fiscal year 2015 differs from the U.S. federal statutory rate of 35% primarily due to current period losses in the UnitedStates that require an additional valuation allowance that provide no benefit to the provision and an increase to indefinite lived deferred tax liabilities,partially offset by our earnings in foreign operations that are subject to a significantly lower tax rate than the U.S. statutory tax rate, driven primarily by oursubsidiaries in Ireland.91 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)The effective income tax rate in fiscal 2014 differs from the U.S. federal statutory rate of 35% primarily due to a $31.2 million release of domesticvaluation allowance as a result of tax benefits recorded in connection with our acquisitions during the period for which a deferred tax liability wasestablished in purchase accounting. In addition, the effective income tax rate in fiscal 2014 was impacted by our foreign operations which are subject to asignificantly lower tax rate than the U.S. statutory tax rate, driven primarily by our subsidiaries in Ireland.In March 2016, our Board of Directors approved an agreement with the Icahn Group to repurchase 26.3 million shares of our common stock at a priceof $19.00 per share, for a total purchase price of $500.0 million. The Repurchase was funded with domestic and foreign cash. The Repurchase was initiated bythe Icahn Group in January 2016 and was a one-time, unforeseen event prior to the initiation. We have authorized the repatriation of $250.0 million foreignearnings previously considered indefinitely reinvested to fund the Repurchase, of which $189.0 million was repatriated in fiscal year 2016 and $61.0 millionremains available for repatriation in the future. As a result of the fiscal year 2016 repatriation, we have recorded a $0.7 million increase to our provision forincome taxes, net of benefit from the use of U.S. Federal net operating losses and credit carryforwards. This one-time event does not change our ability orintent to indefinitely reinvest the remaining undistributed earnings of our foreign subsidiaries.As of September 30, 2016, the cumulative amount of undistributed earnings of our foreign subsidiaries amounted to $393.6 million. We have notprovided taxes on $323.2 million of undistributed earnings of our foreign subsidiaries that we consider indefinitely reinvested. Our indefinite reinvestmentdetermination is based on the future operational and capital requirements of our domestic and foreign operations. We expect the cash held by our foreignsubsidiaries of $116.5 million will continue to be used for our foreign operations and therefore do not anticipate repatriating these funds. As of September 30,2016, it is not practical to calculate the unrecognized deferred tax liability on these earnings due to the complexities of the utilization of foreign tax creditsand other tax assets.Deferred tax assets (liabilities) consist of the following at September 30, 2016 and 2015 (dollars in thousands): 2016 2015Deferred tax assets: Net operating loss carryforwards$202,331 $279,624Federal and state credit carryforwards50,927 34,942Accrued expenses and other reserves59,622 50,202Difference in timing of revenue related items59,818 33,489Deferred compensation31,564 38,832Other11,649 17,111Total deferred tax assets415,911 454,200Valuation allowance for deferred tax assets(110,172) (241,782)Net deferred tax assets305,739 212,418Deferred tax liabilities: Depreciation(40,032) (31,621)Convertible debt(101,810) (39,935)Acquired intangibles(237,280) (228,799)Unremitted earnings of foreign subsidiaries(20,788) —Net deferred tax liabilities$(94,171) $(87,937)Reported as: Other assets$21,264 $16,845Long-term deferred tax liabilities(115,435) (104,782)Net deferred tax liabilities$(94,171) $(87,937)In fiscal year 2016, we early adopted, and retroactively implemented ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes." Under this newguidance, we are required to present deferred tax assets and deferred tax liabilities, and any related valuation allowances, as noncurrent on our consolidatedbalance sheet. The cumulative effect of the change as of September 30, 2015 on current and long-term deferred tax assets was a decrease of approximately$57.3 million and $0.4 million, respectively,92 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)with an offsetting adjustment to long-term deferred tax liabilities. Current deferred tax assets were included in prepaid expenses and other current assets andlong-term deferred tax assets were included in other assets within our consolidated balance sheet.Deferred tax assets are reduced by a valuation allowance if, based on the weight of available positive and negative evidence, it is more likely than notthat some portion or all of the deferred tax assets will not be realized. During fiscal year 2016, the valuation allowance for net deferred tax assets decreased by$131.6 million. This decrease mainly relates to the release of valuation allowance against our net domestic deferred tax assets in connection with netoperating losses utilized associated with the one-time repatriation in fiscal year 2016 and the recording of deferred tax liabilities related to the issuance ofconvertible debt as well as acquisitions. As of September 30, 2016, we have $75.1 million and $35.1 million in valuation allowance against our net domesticand foreign deferred tax assets, respectively. As of September 30, 2015, we had $192.5 million and $49.3 million in valuation allowance against our netdomestic and foreign deferred tax assets, respectively.The majority of deferred tax assets relate to net operating losses, the use of which may not be available as a result of limitations on the use of acquiredlosses. With respect to these operating losses, there is no assurance that they will be used given the current assessment of the limitations on their use or ourcurrent projection of future taxable income in the entities for which these losses relate. Based on our analysis, we have concluded that it is not more likelythan not that the majority of our deferred tax assets can be realized and therefore a valuation allowance has been assigned to these deferred tax assets. If weare subsequently able to utilize all or a portion of the deferred tax assets for which a valuation allowance has been established, then we may be required torecognize these deferred tax assets through the reduction of the valuation allowance which could result in a material benefit to our results of operations in theperiod in which the benefit is determined.At September 30, 2016 and 2015, we had U.S. federal net operating loss carryforwards of $627.9 million and $872.1 million, respectively, of which$199.6 million and $186.4 million at September 30, 2016 and September 30, 2015, respectively, relate to tax deductions from stock-based compensationwhich will be recorded as additional paid-in-capital when realized. At September 30, 2016 and 2015, we had state net operating loss carryforwards of $264.8million and $303.4 million, respectively. The net operating loss and credit carryforwards are subject to an annual limitation due to the ownership changelimitations provided by the Internal Revenue Code of 1986 and similar state tax provisions. At September 30, 2016 and 2015, we had foreign net operatingloss carryforwards of $178.2 million and $222.6 million, respectively. These carryforwards will expire at various dates beginning in 2017 and extending upto an unlimited period.At September 30, 2016 and 2015, we had federal research and development carryforwards and foreign tax credit carryforwards of $52.2 million and$34.5 million, respectively. At September 30, 2016 and 2015, we had state research and development credit carryforwards of $7.8 million and $6.2 million,respectively. At September 30, 2016 and 2015, we had foreign investment tax credit carryforwards of $13.1 million and $14.3 million, respectively.Uncertain Tax PositionsWe establish reserves for tax uncertainties that reflect the use of the comprehensive model for the recognition and measurement of uncertain taxpositions. Under the comprehensive model, reserves are established when we have determined that it is more likely than not that a tax position will or will notbe sustained and at the greatest amount for which the result is more likely than not.The aggregate changes in the balance of our gross unrecognized tax benefits were as follows (dollars in thousands): September 30, 2016 2015Balance at beginning of year$22,184 $21,234Increases for tax positions taken during current period3,507 2,935Increases for interest and penalty charges2,187 574Decreases for tax settlements and lapse in statutes(545) (2,559)Balance at end of year$27,333 $22,184As of September 30, 2016, $27.3 million of the unrecognized tax benefits, if recognized, would impact our effective tax rate. We do not expect asignificant change in the amount of unrecognized tax benefits within the next 12 months. We recognized interest and penalties related to uncertain taxpositions in our provision for income taxes and had accrued $2.2 million of such interest and penalties as of September 30, 2016.93 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)We are subject to U.S. federal income tax, various state and local taxes, and international income taxes in numerous jurisdictions. The federal taxreturns for 1999 through 2012 remain subject to examination for the purpose of determining the amount of remaining tax NOL and other carryforwards. The2013 through 2015 years remain open for all purposes of examination by the IRS and other taxing authorities in material jurisdictions.19.Segment and Geographic Information and Significant CustomersWe operate in, and report financial information for, the following four reportable segments: Healthcare, Mobile, Enterprise, and Imaging. Segmentprofit is an important measure used for evaluating performance and for decision-making purposes and reflects the direct controllable costs of each segmenttogether with an allocation of sales and corporate marketing expenses, and certain research and development project costs that benefit multiple productofferings. Segment profit represents income (loss) from operations excluding stock-based compensation, amortization of intangible assets, acquisition-relatedcosts, net, restructuring and other charges, net, costs associated with intellectual property collaboration agreements, other expense, net and certainunallocated corporate expenses. We believe that these adjustments allow for more complete comparisons to the financial results of the historical operations.The Healthcare segment is primarily engaged in clinical speech and clinical language understanding solutions that improve the clinical documentationprocess - from capturing the complete patient record to improving clinical documentation and quality measures for reimbursement. The Mobile segment isprimarily engaged in providing a broad portfolio of specialized virtual assistants and connected services built on voice recognition, text-to-speech, naturallanguage understanding, dialog, and text input technologies. Our Enterprise segment is primarily engaged in using speech, natural language understanding,and artificial intelligence to provide automated customer solutions and services for voice, mobile, web and messaging channels. The Imaging segment isprimarily engaged in software solutions and expertise that help professionals and organizations to gain optimal control of their document and informationprocesses through scanning and print management.During the first quarter of fiscal year 2016, we reorganized the organizational management and oversight of our Dragon Consumer business, which waspreviously reported within our Mobile segment and has now been moved into our Healthcare segment. During the second quarter of fiscal year 2016, wereclassified certain government payroll incentive credits previously reported in the general and administrative expense to research and development expense,cost of revenue, and sales and marketing. Accordingly, the segment results in prior periods have been recast to conform to the current period segmentreporting presentation.94 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)We do not track our assets by operating segment. Consequently, it is not practical to show assets by operating segment or depreciation by operatingsegment. The following table presents segment results along with a reconciliation of segment profit to income (loss) before income taxes (dollars inthousands): Year Ended September 30, 2016 2015 2014Segment revenues(a): Healthcare$973,297 $1,000,773 $1,020,363Mobile377,261 391,228 363,301Enterprise387,466 349,347 367,148Imaging241,569 237,721 236,273Total segment revenues1,979,593 1,979,069 1,987,085Acquisition related revenue adjustments(30,690) (47,933) (63,634)Total consolidated revenue1,948,903 1,931,136 1,923,451Segment profit: Healthcare313,466 343,412 346,621Mobile133,375 108,218 73,024Enterprise129,978 94,352 91,016Imaging100,823 89,286 89,050Total segment profit677,642 635,268 599,711Corporate expenses and other, net(128,239) (141,596) (135,170)Acquisition-related revenues and costs of revenue adjustment(29,765) (45,163) (59,479)Non-cash stock-based compensation(163,828) (176,776) (192,964)Amortization of intangible assets(170,897) (168,276) (170,052)Acquisition-related costs, net(17,166) (14,379) (24,218)Restructuring and other charges, net(25,224) (23,669) (19,443)Costs associated with IP collaboration agreements(4,000) (10,500) (19,748)Other expense, net(136,784) (135,381) (133,657)Income (loss) before income taxes$1,739 $(80,472) $(155,020)(a) Segment revenues differ from reported revenues due to certain revenue adjustments related to acquisitions that would otherwise have been recognizedbut for the purchase accounting treatment of the business combinations. These revenues are included to allow for more complete comparisons to thefinancial results of historical operations and in evaluating management performance.No country outside of the United States provided greater than 10% of our total revenue. Revenue, classified by the major geographic areas in which ourcustomers are located, was as follows (dollars in thousands): 2016 2015 2014United States$1,385,265 $1,407,266 $1,408,227International563,638 523,870 515,224Total$1,948,903 $1,931,136 $1,923,45195 Table of ContentsNUANCE COMMUNICATIONS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)No country outside of the United States held greater than 10% of our long-lived or total assets. Our long-lived assets, including intangible assets andgoodwill, were located as follows (dollars in thousands): September 30, 2016 September 30, 2015United States$3,899,595 $3,782,361International723,285 742,923Total$4,622,880 $4,525,28420.Quarterly Data (Unaudited)The following information has been derived from unaudited consolidated financial statements that, in the opinion of management, include all recurringadjustments necessary for a fair statement of such information (dollars in thousands, except per share amounts): FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Year2016 Total revenue$486,115 $478,733 $477,851 $506,204 $1,948,903Gross profit$280,517 $273,233 $269,973 $295,680 $1,119,403Net (loss) income$(12,065) $(7,046) $(11,821) $18,474 $(12,458)Net (loss) income per share: Basic$(0.04) $(0.02) $(0.04) $0.07 $(0.04)Diluted$(0.04) $(0.02) $(0.04) $0.06 $(0.04)Weighted average common shares outstanding: Basic307,794 298,021 279,373 283,139 292,129Diluted307,794 298,021 279,373 289,371 292,129 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter Year2015 Total revenue$474,019 $475,059 $477,939 $504,119 $1,931,136Gross profit$264,048 $272,083 $273,539 $292,924 $1,102,594Net loss$(50,495) $(14,098) $(39,390) $(11,027) $(115,010)Net loss per share: Basic$(0.16) $(0.04) $(0.13) $(0.04) $(0.36)Diluted$(0.16) $(0.04) $(0.13) $(0.04) $(0.36)Weighted average common shares outstanding: Basic321,751 322,879 312,680 309,281 317,028Diluted321,751 322,879 312,680 309,281 317,02896 Table of ContentsItem 9.Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNot applicable.Item 9A.Controls and ProceduresDisclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosurecontrols and procedures. Our disclosure controls and procedures are designed (i) to ensure that information required to be disclosed by us in the reports thatwe file or submit under the Exchange Act is recorded, processed and summarized and reported within the time periods specified in the SEC’s rules and formsand (ii) to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on thatevaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2016, our disclosure controls and procedures wereeffective.Management Report on Internal Control Over Financial ReportingManagement is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generallyaccepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:•pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;•provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generallyaccepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our managementand directors; and,•provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and that the degreeof compliance with the policies or procedures may deteriorate.Management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2016, utilizing the criteria set forth bythe Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control-Integrated Framework ("2013 framework").Management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls ofTouchCommerce, Inc., which was acquired on August 16, 2016, and which is included in the consolidated balance sheets as of September 30, 2016, and therelated consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for the year then ended. TouchCommerce, Inc.constituted 0.3% and 0.4% of total assets and net assets, respectively, as of September 30, 2016, and 0.3% and 21.7% of revenues and net loss, respectively,for the year then ended. Based on the results of this assessment, management (including our Chief Executive Officer and our Chief Financial Officer) hasconcluded that, as of September 30, 2016, our internal control over financial reporting was effective.The attestation report concerning the effectiveness of our internal control over financial reporting as of September 30, 2016 issued by BDO USA, LLP,an independent registered public accounting firm, appears in Item 8 of this Annual Report on Form 10-K.Changes in Internal Controls Over Financial ReportingThere have been no changes in our internal controls over financial reporting during the fourth quarter of fiscal 2016 that have materially affected, or arereasonably likely to materially affect, our internal controls over financial reporting.97 Table of ContentsItem 9B.Other InformationNone.PART IIICertain information required by Part III is omitted from this Annual Report on Form 10-K since we intend to file our definitive Proxy Statement for ournext Annual Meeting of Stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the “Proxy Statement”), within120 days of the end of the fiscal year covered by this report, and certain information to be included in the Proxy Statement is incorporated herein byreference.Item 10.Directors, Executive Officers and Corporate GovernanceThe information required by this item concerning our directors is incorporated by reference to the information set forth in the section titled “Election ofDirectors” in our Proxy Statement. Information required by this item concerning our executive officers is incorporated by reference to the information setforth in the section entitled “Executive Compensation, Management and Other Information” in our Proxy Statement. Information regarding Section 16reporting compliance is incorporated by reference to the information set forth in the section entitled “Section 16(a) Beneficial Ownership ReportingCompliance” in our Proxy Statement.Our Board of Directors adopted a Code of Business Conduct and Ethics for all of our directors, officers and employees on February 24, 2004. Our Codeof Business Conduct and Ethics can be found at our website: www.nuance.com. We will provide to any person without charge, upon request, a copy of ourCode of Business Conduct and Ethics. Such a request should be made in writing and addressed to Investor Relations, Nuance Communications, Inc., 1Wayside Road, Burlington, MA 01803.To date, there have been no waivers under our Code of Business Conduct and Ethics. We will post any waivers, if and when granted, of our Code ofBusiness Conduct and Ethics on our website at www.nuance.com.Item 11.Executive CompensationThe information required by this item regarding executive compensation is incorporated by reference to the information set forth in the section titled“Executive Compensation, Management and Other Information” in our Proxy Statement.Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholders MattersThe information required by this item regarding security ownership of certain beneficial owners and management is incorporated by reference to theinformation set forth in the sections titled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation PlanInformation” in our Proxy Statement.Item 13.Certain Relationships and Related Transactions, and Director IndependenceIt is the policy of the Board that all transactions required to be reported pursuant to Item 404 of Regulation S-K be subject to approval by the AuditCommittee of the Board. In furtherance of relevant NASDAQ rules and our commitment to corporate governance, the charter of the Audit Committee providesthat the Audit Committee shall review and approve any proposed related party transactions including, transactions required to be reported pursuant toItem 404 of Regulation S-K for potential conflict of interest situations. The Audit Committee reviews the material facts of all transactions that require thecommittee’s approval and either approves or disapproves of the transaction. In determining whether to approve a transaction, the Audit Committee will takeinto account, among other factors it deems appropriate, whether the transaction is on terms no less favorable than terms generally available to an unaffiliatedthird-party under the same or similar circumstances.The additional information required by this item regarding certain relationships and related party transactions is incorporated by reference to theinformation set forth in the sections titled “Transactions with Related Persons” and “Corporate Governance-Board Independence” in our Proxy Statement.Item 14.Principal Accountant Fees and ServicesThe information required by this section is incorporated by reference from the information in the section entitled “Ratification of Appointment ofIndependent Registered Public Accounting Firm” in our Proxy Statement.98 Table of ContentsPART IVItem 15.Exhibits and Financial Statement Schedules(a)The following documents are filed as a part of this Report:(1)Financial Statements — See Index to Financial Statements in Item 8 of this Report.(2)Financial Statement Schedules — All schedules have been omitted as the requested information is inapplicable or the information ispresented in the financial statements or related notes included as part of this Report.(3)Exhibits — See Item 15(b) of this Report below.(b)Exhibits. See Exhibit Index, which is incorporated by reference in this Item. The exhibits listed in the accompanying Exhibit Index are filedherewith or incorporated by reference as part of this annual report.99 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report onForm 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. NUANCE COMMUNICATIONS, INC. By: /s/ Paul A. Ricci Paul A. Ricci Chief Executive Officer and Chairman of the BoardPOWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature appears below constitutes and appoints Paul A. Ricci and DanielD. Tempesta, and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution andresubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form10-K and to file the same with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting untosaid attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to bedone, as fully to all intents and purposes as he or she might or could do in person, and hereby ratifying and confirming all that said attorneys-in-fact andagents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. This power of attorney may be executedin counterparts.Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed by the following persons in thecapacities and on the dates indicated. Table of Contents /s/ Paul A. RicciDate: November 22, 2016 Paul A. Ricci, Chief Executive Officer andChairman of the Board(Principal Executive Officer) /s/ Daniel D. TempestaDate: November 22, 2016 Daniel D. TempestaExecutive Vice President and Chief Financial Officer (Principal Financialand Accounting Officer) /s/ Robert J. Finocchio, Jr.Date: November 22, 2016 Robert J, Finocchio, Jr., Director /s/ Robert J. FrankenbergDate: November 22, 2016 Robert J. Frankenberg, Director /s/ William H. JanewayDate: November 22, 2016 William H. Janeway, Director /s/ Mark R. LaretDate: November 22, 2016 Mark R. Laret, Director /s/ Katharine A. MartinDate: November 22, 2016 Katharine A. Martin, Director /s/ Philip QuigleyDate: November 22, 2016 Philip Quigley, Director Table of ContentsEXHIBIT INDEX Incorporated by ReferenceExhibitIndex # Exhibit Description Form File No. Exhibit Filing Date Filed Herewith3.1 Amended and Restated Certificate of Incorporation of theRegistrant. 10-Q 0-27038 3.2 5/11/2001 3.2 Certificate of Amendment of the Amended and RestatedCertificate of Incorporation of the Registrant. 10-Q 0-27038 3.1 8/9/2004 3.3 Certificate of Ownership and Merger. 8-K 0-27038 3.1 10/19/2005 3.4 Amended and Restated Bylaws of the Registrant. 8-K 0-27038 3.1 11/13/2007 3.5 Certificate of Amendment of the Amended and RestatedCertificate of Incorporation of the Registrant, as amended. S-3 333-142182 3.3 4/18/2007 3.6 Certificate of Elimination of the Series A Participating PreferredStock 8-K 0-27038 3.1 8/20/2013 3.7 Certificate of Designation of Rights, Preferences and Privilegesof Series A Participating Preferred Stock 8-K 0-27038 3.2 8/20/2013 4.1 Specimen Common Stock Certificate. 8-A 0-27038 4.1 12/6/1995 4.2 Indenture, dated as of October 24, 2011, by and between NuanceCommunications, Inc. and U.S. Bank National Association asTrustee relating to 2.75% Convertible Debentures due 2031. 8-K 0-27038 4.1 10/24/2011 4.3 Indenture, dated August 14, 2012, among NuanceCommunications, Inc., the guarantors party thereto and U.S.Bank National Association, relating to 5.375% Senior Notes due2020. 8-K 0-27038 4.1 8/14/2012 4.4 Preferred Shares Rights Agreement, dated as of August 19, 2013,by and between Nuance Communications, Inc. and AmericanStock Transfer & Trust Company, LLC, as rights agent. 8-K 0-27038 4.1 8/20/2013 4.5 First Amendment to Preferred Shares Rights Agreement, dated asof August 18, 2014, by and between Nuance Communications,Inc. and American Stock Transfer & Trust Company, LLC, asrights agent. 8-K 001-36056 4.2 8/18/2014 4.6 Indenture, dated June 16, 2015, between NuanceCommunications, Inc., and U.S. Bank National Association asTrustee, relating to 1.50% Convertible Debentures due 2035. 8-K 001-36056 4.1 6/22/2015 4.7 Indenture, dated December 7, 2015, between NuanceCommunications, Inc., and U.S. Bank National Association asTrustee, relating to 1.00% Senior Convertible Debentures Due2035. 8-K 001-36056 4.1 12/7/2015 4.8 Indenture, dated as of June 21, 2016, among NuanceCommunications, Inc., the guarantors party thereto and U.S.Bank National Association as Trustee relating to 6% SeniorNotes due 2024. 8-K 001-36056 4.1 6/22/2016 10.1 Form of Indemnification Agreement. S-8 333-108767 10.1 9/12/2003 10.2 Amended and Restated 1995 Employee Stock Purchase Plan. S-8 001-36056 4.2 2/6/2015 10.3 Nuance Communications, Inc. 2000 Stock Plan (as amendedJanuary 27, 2016) 10-Q 001-36056 10.1 5/10/2016 Table of Contents Incorporated by ReferenceExhibitIndex # Exhibit Description Form File No. Exhibit Filing Date Filed Herewith10.4 Form of Restricted Stock Purchase Agreement for use underNuance Communications, Inc. 2000 Stock Plan.* 10-K/A 0-27038 10.17 12/15/2006 10.5 Form of Restricted Stock Unit Purchase Agreement for use underNuance Communications, Inc. 2000 Stock Plan.* 10-K/A 0-27038 10.18 12/15/2006 10.6 Form of Stock Option Agreement for use under NuanceCommunications, Inc. 2000 Stock Plan.* 10-K/A 0-27038 10.19 12/15/2006 10.7 Amended and Restated 1995 Directors Stock Plan. S-8 001-36056 4.3 2/6/2015 10.8 Amended & Restated Employment Agreement dated November17, 2016 between the Registrant and Paul Ricci.* 8-K 0-27038 10.1 11/17/2016 10.9 Form of Executive Officer Employment Offer Letter* X10.10 Form of Change of Control and Severance Agreement forExecutive Officers.* X10.11 Purchase Agreement, dated as of December 1, 2015 by andbetween Nuance Communications, Inc. and Barclays Capital Inc.and Morgan Stanley & Co. LLC as representatives of the severalinitial purchasers listed on Schedule I thereto. 8-K 001-36056 10.1 12/2/2015 10.12 Stock Purchase Agreement, dated as of December 1, 2015 by andbetween Nuance Communications, Inc. and Paul Ricci. 8-K 001-36056 10.1 12/7/2015 10.13 Stock Purchase Agreement, dated March 9, 2016, by and amongNuance Communications, Inc. and the other parties thereto(collectively, the “Icahn Group”). 8-K 001-36056 10.1 3/10/2016 10.14 Promissory Note issued by Nuance Communications, Inc. toIcahn Capital LP, dated March 15, 2016. 8-K 001-36056 10.1 3/15/2016 10.15 Revolving Credit Agreement, dated April 15, 2016, amongNuance Communications, Inc., the lenders party thereto andBarclays Bank PLC as Administrative Agent. 8-K 001-36056 10.1 4/19/2016 10.16 Guarantee and Collateral Agreement, dated April 15, 2016among Nuance Communications, Inc., certain Nuancesubsidiaries and Barclays Bank PLC as Administrative Agent. 8-K 001-36056 10.2 4/19/2016 10.17 Purchase Agreement, dated as of June 14, 2016, by and amongNuance Communications, Inc., the subsidiary guarantors partythereto and Morgan Stanley & Co. LLC and Barclays CapitalInc., as representatives of the several initial purchasers namedtherein. 8-K 001-36056 10.1 6/17/2016 10.18 Transition and Severance Agreement between NuanceCommunications, Inc. and Earl H. Devanny III dated August 31,2016. 8-K 001-36056 10.1 9/7/2016 14.1 Registrant’s Code of Business Conduct and Ethics 10-K 001-36056 14.1 11/19/2015 21.1 Subsidiaries of the Registrant. X23.1 Consent of BDO USA, LLP. X24.1 Power of Attorney. (See Signature Page). X31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a). X Table of Contents Incorporated by ReferenceExhibitIndex # Exhibit Description Form File No. Exhibit Filing Date Filed Herewith31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a). X32.1 Certification Pursuant to 18 U.S.C. Section 1350. X101 The following materials from Nuance Communications, Inc.’sAnnual Report on Form 10-K for the fiscal year endedSeptember 30, 2016, formatted in XBRL (Extensible BusinessReporting Language): (i) the Consolidated Statements ofOperations, (ii) the Consolidated Balance Sheets, (iii) theConsolidated Statements of Stockholders’ Equity andComprehensive Loss, (iv) the Consolidated Statements of CashFlows, and (v) Notes to Consolidated Financial Statements. * Denotes management compensation plan or arrangement Exhibit 10.9DATEOFFICER NAMEOFFICER ADDRESS Dear ________:Congratulations! It is with great pleasure that I provide our offer of employment in the position of ______________________________ reporting to PaulRicci, Chief Executive Officer of Nuance Communications, Inc. The anticipated start date for this position will be ________________. Your initial worklocation will be in _______________. At the next Board of Directors meeting following your hire date, scheduled for _____________, I will recommend tothe Board that you be appointed an Executive Officer.Your starting annual base salary will be $_______________ paid on a bi-weekly basis. In addition to your base salary, you will be eligible to participate inthe Fiscal Year Nuance Incentive for Performance (IFP) Bonus Program, which currently pays a target of up to __% of base salary, pro-rated based on yourdate of hire for FYxx.Once you have accepted our offer, I will recommend that the Nuance Communications Compensation Committee grant you the equity awards outlined belowon the first grant cycle following your date of hire:The first, will be a time-based vesting restricted stock award of xxxxxx shares with a three year vesting schedule as follows: xxxxxx shares will vest on9/30/xx, xxxxxxx shares will vest on 9/30/xx and the remaining xxxxxx shares to vest on 9/30/xx, provided you remain an active employee at such time.Details of the restricted stock award will be provided to you when the grants are finalized.The second, a performance-based award will consist of up to xxxxx shares, which will vest, if ever, upon the achievement of certain Board approved financialtargets at the end of each fiscal year as follows: up to xxxxxx shares in FYxx, up to xxxxxx shares in FYxx and up to xxxxxx shares in FYxx If achievementis not met or you terminate employment before date of determination of achievement, you will not vest in the installment for the applicable measurementperiod and that portion of the award will lapse.You will be eligible for annual compensation reviews, normally scheduled in the first quarter of each fiscal year, based on performance, beginning in FYxx.As a full-time employee, you will be eligible for our comprehensive benefits package which goes into effect as of your date of hire. The enclosed materialoutlines all of our benefits to which you are entitled as a Nuance Communications employee. In addition to the standard employee benefits as an executive,you will be entitled to enhanced benefits that include the following:• An annual $5,000 gross tax & financial planning reimbursement allowance.• An individual term life insurance policy valued at $500,000 assuming medical clearance.• An Enhanced annual executive wellness benefit.• An Enhanced executive disability coverage which currently provides for a benefit of up to 60% of eligible earnings, capped at $18,500 per month, whichwill be tax free upon qualification.• An Enhanced separation benefits per the terms and conditions in the Change of Control and Severance Agreement.Your employment with Nuance Communications will be “at will”, meaning that either you or Nuance Communications will be entitled to terminate youremployment at any time and for any reason, with or without cause. Should your employment with the company be involuntarily terminated for any reason other than cause, and you execute a standard severance agreement,you will receive a severance package as outlined in the executive severance plan in effect at the time of departure.Any representations which may have been made to you are superseded by this offer. This, along with the Change of Control and Severance Agreement, is thefull and complete agreement between you and Nuance Communications. Although your job duties, title, compensation and benefits, as well as NuanceCommunications’ personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in anexpress written agreement signed by you and a duly authorized officer of Nuance Communications.This offer is contingent upon your satisfying the conditions of hire, including providing proof of your eligibility to work in the United States and successfulcompletion of a background check. An Employment Eligibility Verification form is attached to this letter. Please read it carefully and call me if you have anyquestions. Also, like all Nuance Communications employees, you will be required, as a condition to your employment, to sign Nuance Communications’standard Non-Compete, Proprietary Information, & Conflict of Interest Agreement, a copy of which is attached hereto.We, at Nuance Communications, are proud of our reputation and we feel confident that you will be a positive addition to the Sr. Management Team, whilethe position will afford you the opportunity to grow your professional skill set.______, we would appreciate it if you would confirm your acceptance of our employment offer, by signing this offer confirmation letter and returning it tomy attention as soon as possible. If this offer is not executed by ____________ it will expire and no employment commitments as outlined will be honored.If you have further questions regarding our offer, feel free to contact me at _____________. I look forward to our working together and your joining theNuance Communications organization.Sincerely,Dawn HowarthChief Human Resources Officercc: P. RicciEmployee FileEnclosures/Forms: Employment Eligibility Verification form, Benefits Summary, Non-Compete, Proprietary Information, & Conflict of Interest Agreement.I ACCEPT THE OFFER OF EMPLOYMENT AS STATED ABOVE:_________________________________ ______________________New Hire Signature Date of Acceptance Exhibit 10.10[SVP/EVP]NUANCE COMMUNICATIONS, INC.CHANGE OF CONTROL AND SEVERANCE AGREEMENTThis Change of Control and Severance Agreement (the “Agreement”) is made and entered into by and between [_______] (“Executive”) and NuanceCommunications, Inc., a Delaware corporation (the “Company”), effective as of [DATE] (the “Effective Date”).RECITALS1. The Compensation Committee (the “Committee”) of the Board of Directors of the Company (the “Board”) has determined that it is in the best interests ofthe Company and its shareholders to assure that the Company will have the continued dedication and objectivity of Executive, notwithstanding thepossibility, threat, or occurrence of a Change of Control.2. The Committee believes that it is imperative to provide Executive with severance benefits upon Executive’s termination of employment under certaincircumstances to provide Executive with enhanced financial security, incentive and encouragement to remain with the Company.3. The Executive and the Company are party to an employment offer letter or agreement dated on or about [_______] (the “Employment Agreement”).4. Certain capitalized terms used in the Agreement are defined in Section 7 below.AGREEMENTNOW, THEREFORE, in consideration of Executive’s continued employment and the mutual covenants contained herein, the parties hereto agree asfollows:1. Term of Agreement. This Agreement will have an initial term commencing on the Effective Date and ending September 30, 20__ (the “InitialTerm”). At the end of the Initial Term, this Agreement will renew automatically for additional one (1) year terms (each an “Additional Term”), unless eitherparty provides the other party with written notice of non-renewal at least sixty (60) days prior to the date of automatic renewal. Notwithstanding theforegoing provisions of this paragraph, if a Change of Control occurs when there are fewer than twelve (12) months remaining during the Initial Term or anAdditional Term, the term of this Agreement will extend automatically through the date that is twelve (12) months following the effective date of the Changeof Control. If Executive becomes entitled to benefits under Section 3 during the term of this Agreement, the Agreement will not terminate until all of theobligations of the parties hereto with respect to this Agreement have been satisfied. For avoidance of doubt, Executive will not be entitled to severancebenefits under Section 3 due solely to notice of non-renewal or termination of the Agreement due to non-renewal.2. At-Will Employment. The Company and Executive acknowledge that Executive’s employment is and will continue to be at-will, as definedunder applicable law, except as otherwise specifically provided under the terms of a written employment agreement between the Company and Executive.3. Severance Benefits.(a) Termination Other than During Change of Control Period. If Executive’s employment with the Company and its subsidiaries isterminated other than for Cause, and such termination occurs outside the Change of Control Period, then, subject to Section 4, Executive will receive fromthe Company:(i) Severance. A lump sum severance payment equal to one hundred percent (100%) of Executive’s annual base salary as in effectimmediately prior to the termination date.(ii) Continued Employee Benefits. Continuation coverage under the terms of the Company medical benefit plan pursuant to theConsolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”) for Executive and/or Executive’s eligible dependants, subject toExecutive timely electing COBRA coverage. For one year from the date of Executive’s termination the Company will pay directly on Executive’s behalf theCOBRA premiums (at the coverage levels in effect immediately prior to Executive’s termination).(b) Termination Following a Change of Control. If during the Change of Control Period (i) Executive’s employment with the Companyand its subsidiaries is terminated other than for Cause, or (ii) Executive resigns for Good Reason, then, subject to Section 4, Executive will receive from theCompany: (i) Severance. A lump sum severance payment equal to one hundred percent (100%) of Executive’s annual base salary as in effectimmediately prior to the termination date (or, if greater, as in effect immediately prior to the Change of Control).(ii) Target Bonus. A lump sum severance payment equal to one hundred percent (100%) of the greater of (1) Executive’s targetbonus for the year in which Executive’s termination occurs, or (2) Executive’s target bonus in effect immediately prior to the Change of Control.(iii) Continued Employee Benefits. Continuation coverage under the terms of the Company medical benefit plan pursuant toCOBRA for Executive and/or Executive’s eligible dependants, subject to Executive timely electing COBRA coverage. For one year from the date ofExecutive’s termination the Company will pay directly on Executive’s behalf the COBRA premiums (at the coverage levels in effect immediately prior toExecutive’s termination). Notwithstanding the preceding sentence, if the Company determines in its sole discretion that it cannot provide the foregoingbenefit without potentially violating, or being subject to an excise tax under, applicable law (including, without limitation, Section 2716 of the PublicHealth Service Act), the Company will in lieu thereof provide to Executive a taxable lump sum cash payment in an amount equal to the product of (x) twelve(12), multiplied by (y) the monthly COBRA premium that Executive otherwise would be required to pay to continue the group health coverage for Executiveand Executive’s eligible dependents, as applicable, as in effect on the date of Executive’s termination of employment (which amount will be based on thepremium for the first month of COBRA coverage), which payment will be made regardless of whether Executive elects COBRA continuation coverage. Forthe avoidance of doubt, the taxable payment in lieu of COBRA reimbursements may be used for any purpose, including, but not limited to continuationcoverage under COBRA, and will be subject to all applicable tax withholdings.(iv) Vesting of Equity Awards. One hundred percent (100%) of Executive’s outstanding and unvested time-vesting equity awards(excluding any awards vesting based on performance) covering shares of the Company’s common stock will become vested in full.(c) Vesting of Performance Shares. Upon a Change of Control, a number of Executive’s outstanding performance-based restricted stockunits granted under the Company’s 2000 Stock Plan (the “Plan”) that are subject to performance goals for the year in which the Change of Control occurs willbecome eligible for time-based vesting assuming the performance goals had been achieved at 100% of targeted performance (the “Eligible Shares”).Following the Change of Control, the original time-based vesting schedule for the Eligible Shares will cease to apply and the Eligible Shares will insteadvest on the last day of the performance period in which the Change of Control occurs, subject to Executive’s remaining a Service Provider (as defined in thePlan) through such date, or, if earlier, upon Executive’s termination by the Company or its successor other than for Cause or upon Executive’s resignation forGood Reason. Such performance-based restricted stock units will otherwise remain subject to the terms of the Plan and the applicable award agreement.(d) Voluntary Resignation; Termination for Cause. If Executive’s employment with the Company and its subsidiaries terminates in avoluntary resignation (other than for Good Reason during the Change of Control Period), or if the Executive is terminated for Cause, then Executive shall notbe entitled to receive severance or other benefits except as otherwise provided by applicable law or those (if any) as may be available under the Company’sseverance and benefit plans and policies in effect at the time of such termination.(e) Accrued Amounts. Without regard to the reason for, or the timing of, Executive’s termination of employment, the Company shall payExecutive: (i) any unpaid base salary due for periods prior to the date of termination, (ii) accrued and unused vacation, as required under the applicableCompany policy; and (iii) all expenses incurred by Executive in connection with the business of the Company prior to the date of termination in accordancewith the Company’s business expense reimbursement policy. These payments shall be made promptly upon termination and within the period of timemandated by law.(f) Exclusive Remedy. In the event of termination of Executive’s employment as set forth in Section 3 of this Agreement, the provisions ofSection 3 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled,whether at law, tort or contract, in equity, or under this Agreement (other than the payment of accrued but unpaid wages, as required by law, or anyunreimbursed reimbursable expenses). During the term of this Agreement, Executive will be entitled to no benefits, compensation or other payments or rightsupon termination of employment, including under the Employment Agreement or other agreement with the Company, other than those benefits expressly setforth in Section 3 of this Agreement.(g) Transfer between Company and any Subsidiary. For purposes of this Section 3, if Executive’s employment relationship with theCompany or any subsidiary of the Company ceases, Executive will not, solely by virtue thereof, be determined to have been terminated without Cause forpurposes of this Agreement if Executive continues to remain employed by the Company or any subsidiary of the Company immediately thereafter (e.g., upontransfer of Executive’s employment from the Company to a Company subsidiary). 4. Conditions to Receipt of Severance(a) Release of Claims Agreement. The receipt of any severance payments or benefits in Section 3 pursuant to this Agreement is subject toExecutive signing and not revoking a separation agreement and release of claims in substantially the form attached to this Agreement as Exhibit A (the“Release”), which must become effective and irrevocable no later than the sixtieth (60th) day following Executive’s termination of employment (the“Release Deadline”). If the Release does not become effective and irrevocable by the Release Deadline, Executive will forfeit any right to severancepayments or benefits under this Agreement. Any severance payments or benefits otherwise payable to Executive between the termination date and theRelease Deadline will be paid on or within fifteen (15) days following the Release Deadline, or, if later, such time as required by Section 5(a), except thatacceleration of vesting of equity awards not subject to Section 409A will become effective on the date the Release becomes effective. In no event willseverance payments or benefits be paid or provided until the Release actually becomes effective and irrevocable.(b) Proprietary Information and Non-Competition Agreement. Executive’s receipt of any severance payments or benefits under Section 3will be subject to Executive continuing to comply with the terms of any agreements between Executive and the Company concerning inventions,confidentiality and restrictive covenants including, as applicable, post-closing restrictions (the “Confidentiality Agreement”).5. Section 409A.(a) Notwithstanding anything to the contrary in this Agreement, no Deferred Payments will be paid or otherwise provided until Executivehas a “separation from service” within the meaning of Section 409A. Similarly, no severance payable to Executive, if any, pursuant to this Agreement thatotherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A 1(b)(9) will be payable until Executive has a “separationfrom service” within the meaning of Section 409A. In addition, if Executive is a “specified employee” within the meaning of Section 409A at the time ofExecutive’s separation from service (other than due to death), then the Deferred Payments, if any, that are payable within the first six (6) months followingExecutive’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following thedate of Executive’s separation from service. All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable toeach payment or benefit. Notwithstanding anything herein to the contrary, if Executive dies following Executive’s separation from service, but before the six(6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon asadministratively practicable after the date of Executive’s death and all other Deferred Payments will be payable in accordance with the payment scheduleapplicable to each payment or benefit. Each payment and benefit payable under this Agreement is intended to constitute a separate payment under Section1.409A-2(b)(2) of the Treasury Regulations.(b) Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of this Agreement.(c) Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuantto Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit (as defined below) will not constitute DeferredPayments for purposes of this Agreement.(d) The foregoing provisions are intended to comply with, or be exempt from, the requirements of Section 409A so that none of theseverance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities orambiguous terms herein will be interpreted to so comply. Specifically, the payments hereunder are intended to be exempt from the Requirements of Section409A under the “short-term” deferral rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations. The Company and Executive agree to worktogether in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoidimposition of any additional tax or income recognition before actual payment to Executive under Section 409A. In no event will the Company reimburseExecutive for any taxes that may be imposed on Executive as a result of Section 409A.6. Limitation on Payments. In the event that the severance and other benefits provided for in this Agreement or otherwise payable to Executive (i)constitute “parachute payments” within the meaning of Section 280G of the Code, and (ii) would be subject to the excise tax imposed by Section 4999 of theCode (the “Excise Tax”), then Executive’s benefits under this Agreement shall be either(a) delivered in full, or(b) delivered as to such lesser extent which would result in no portion of such benefits being subject to the Excise Tax, whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the Excise Tax, results in the receipt byExecutive on an after-tax basis, of the greatest amount of benefits, notwithstanding that all or some portion of such benefits may be taxable under Section4999 of the Code. If a reduction in severance and other benefits constituting “parachute payments” is necessary so that benefits are delivered to a lesserextent, reduction will occur in the following order: (1) reduction of cash payments, (2) cancellation of equity awards granted within the twelve-month periodprior to a “change of control” (as determined under Code Section 280G) that are deemed to have been granted contingent upon the change of control (asdetermined under Code Section 280G), (3) cancellation of accelerated vesting of equity awards and (4) reduction of continued employee benefits. In theevent that accelerated vesting of equity awards is to be cancelled, such vesting acceleration will be cancelled in the reverse chronological order of the awardgrant dates.Unless the Company and Executive otherwise agree in writing, any determination required under this Section shall be made in writing by theCompany’s independent public accountants (the “Accountants”), whose determination shall be conclusive and binding upon Executive and the Companyfor all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximationsconcerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Section 280G and 4999 of the Code. TheCompany and Executive shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make adetermination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplatedby this Section.7. Definition of Terms. The following terms referred to in this Agreement will have the following meanings:(a) Cause. “Cause” will mean (i) any act of dishonesty or fraud taken by Executive in connection with his or her responsibilities as anemployee; (ii) Executive’s breach of the fiduciary duty or duty of loyalty owed to the Company, or breach of the duty to protect the Company’s confidentialand proprietary information, (iii) Executive’s conviction or plea of nolo contendere to a felony or a crime involving fraud, embezzlement, dishonesty,misappropriation of funds or any other act of moral turpitude, (iv) Executive’s gross negligence or misconduct in the performance of his or her duties, (v)Executive’s breach of this Agreement or written policies of the Company; (vi) Executive’s engagement in conduct or activities that result or will potentiallyresult in negative publicity or public disrespect, contempt or ridicule of the Company; (vii) Executive’s failure to abide by the lawful directives of theCompany, (viii) Executive’s failure to satisfactorily perform the primary duties of Executive’s position after receiving written notice of the issue and theExecutive’s performance has not improved to a satisfactory level within a ninety (90) day period of time following such notice; or (ix) Executive’s death orabsence from work due to a disability for a period in excess of ninety (90) days in any twelve month period that qualifies for benefits under the Company’slong-term disability program.(b) Change of Control. “Change of Control” will mean the occurrence of any of the following events:(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the “beneficial owner” (asdefined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 50% or more of the total voting powerrepresented by the Company's then outstanding voting securities;(ii) the consummation by the Company of a merger or consolidation of the Company with any other corporation that has beenapproved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstandingimmediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) morethan fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately aftersuch merger or consolidation; or(iii) the consummation of the sale or disposition by the Company of all or substantially all of the Company's assets (it beingunderstood that the sale or spinoff of one or more divisions of the Company shall not constitute the sale or disposition of all or substantially all of theCompany’s assets).Further and for the avoidance of doubt, a transaction will not constitute a Change of Control if: (i) its sole purpose is to change the state of the Company’sincorporation, or (ii) its sole purpose is to create a holding company that will be owned in substantially the same proportions by the persons who held theCompany’s securities immediately before such transaction.(c) Change of Control Period. “Change of Control Period” means the period beginning on a Change of Control and ending on the one-year anniversary of the Change of Control.(d) Code. “Code” means the Internal Revenue Code of 1986, as amended.(e) Deferred Payments. “Deferred Payments” means any severance pay or benefits to be paid or provided to Executive, if any, pursuant tothis Agreement that, in each case, when considered together, and any other severance payments or separation benefits that, in each case, when consideredtogether, are considered deferred compensation under Section 409A. (f) Exchange Act. “Exchange Act” means the Securities Exchange Act of 1934, as amended.(g) Good Reason. “Good Reason” means Executive’s termination of employment within thirty (30) days following the expiration of anycure period (discussed below) following the occurrence of one or more of the following, without Executive’s express written consent: (i) a material reductionin Executive’s duties, authority or responsibilities; provided, however, that the following will not constitute “Good Reason”: (1) Executive’s continuedemployment following the Change of Control with substantially the same responsibility with respect to the Company’s business and operations (for example,Executive will not experience a “Good Reason” condition if Executive has substantially the same responsibilities with respect to the business of theCompany as Executive had immediately prior to the Change of Control whether Executive’s title is revised to reflect Executive’s placement within theoverall corporate hierarchy and whether Executive provides services to a subsidiary, affiliate, business unit or otherwise), (2) changes to duties, authority orresponsibilities following and related to a “going-private” transaction with significant management equity participation, or (3) changes to duties, authority orresponsibilities that results solely from the Company’s ceasing to be a stand-alone public corporation; (ii) a material reduction by the Company in the annualbase compensation of the Executive as in effect immediately prior to such reduction, other than a uniform reduction applicable to all executives generally(provided that one or more reductions in base compensation totaling ten percent (10%) or less will not constitute a material reduction for purposes of thisclause (ii)); (iii) the relocation of the Executive to a facility or a location more than fifty (50) miles from the Executive’s then present location; or (iv) thefailure of the Company to obtain the assumption of this agreement by any successors contemplated in Section 8 below. In order for an event to qualify asGood Reason, Executive must not terminate employment with the Company without first providing the Company with written notice of the acts or omissionsconstituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and the Company shall havefailed to cure during a period of thirty (30) days following the date of such notice.(h) Section 409A. “Section 409A” means Section 409A of the Code and the final Treasury Regulations and any official Internal RevenueService guidance promulgated thereunder.(i) Section 409A Limit. “Section 409A Limit” means two (2) times the lesser of: (i) Executive’s annualized compensation based upon theannual rate of pay paid to Executive during the Executive’s taxable year preceding the Executive’s taxable year of Executive’s termination of employment asdetermined under, and with such adjustments as are set forth in, Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidanceissued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Code forthe year in which Executive’s employment is terminated.8. Successors.(a) The Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, consolidation,liquidation or otherwise) to all or substantially all of the Company’s business and/or assets will assume the obligations under this Agreement and agreeexpressly to perform the obligations under this Agreement in the same manner and to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under this Agreement, the term “Company” will include any successor to the Company’s businessand/or assets which executes and delivers the assumption agreement described in this Section 8(a) or which becomes bound by the terms of this Agreementby operation of law.(b) Executive’s Successors. The terms of this Agreement and all rights of Executive hereunder will inure to the benefit of, and beenforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.9. Notice.(a) General. Notices and all other communications contemplated by this Agreement will be in writing and will be deemed to have beenduly given when personally delivered, when mailed by U.S. registered or certified mail, return receipt requested and postage prepaid, or when delivered byprivate courier service such as UPS or Federal Express that has tracking capability. In the case of Executive, mailed notices will be addressed to him or her atthe home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices will be addressed to itscorporate headquarters, and all notices will be directed to the Chief Executive Officer and General Counsel of the Company.(b) Notice of Termination. Any termination by the Company for Cause or by Executive for Good Reason will be communicated by anotice of termination to the other party hereto given in accordance with Section 9(a) of this Agreement. Such notice will indicate the specific terminationprovision in this Agreement relied upon, will set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under theprovision so indicated, and will specify the termination date (which will be not more than thirty (30) days after the giving of such notice or any shorter periodrequired herein). 10. Resignation. Upon the termination of Executive’s employment for any reason, Executive will be deemed to have resigned from all officerand/or director positions held at the Company and its affiliates voluntarily, without any further required action by Executive, as of the end of Executive’semployment and Executive, at the Board’s request, will execute any documents reasonably necessary to reflect Executive’s resignation.11. Miscellaneous Provisions.(a) No Duty to Mitigate. Executive will not be required to mitigate the amount of any payment contemplated by this Agreement (whetherby seeking new employment or in any other manner), nor shall any such payment be reduced by any earnings that Executive may receive from any othersource.(b) Waiver. No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the otherparty will be considered a waiver of any other condition or provision or of the same condition or provision at another time.(c) Headings. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of thisAgreement.(d) Entire Agreement. This Agreement, along with the Confidentiality Agreement, constitutes the entire agreement of the parties heretoand supersedes in their entirety all prior representations, understandings, undertakings or agreements (whether oral or written and whether expressed orimplied) of the parties with respect to the subject matter hereof, during the term of this Agreement. For avoidance of doubt, this Agreement is intended tosupersede all severance or termination payment or benefit provisions of the Employment Agreement during the term of this Agreement, but the EmploymentAgreement will continue in full force and effect independent of this Agreement, except as expressly provided herein. To the extent its terms otherwise apply,the Employment Agreement will survive following termination of this Agreement due to non-renewal of this Agreement, but in no event will Executivereceive severance under the Employment Agreement for a termination of employment that occurs while this Agreement is in effect. No waiver, alteration, ormodification of any of the provisions of this Agreement will be binding unless in writing and signed by duly authorized representatives of the parties heretoand which specifically mention this Agreement.(e) Choice of Law. [FOR MA RESIDENTS:] [This Agreement shall be governed by the internal substantive laws, but not the choice of lawrules, of the Commonwealth of Massachusetts, and the Company and the Executive each consent to personal and exclusive jurisdiction and venue in theCommonwealth of Massachusetts.] [FOR CA RESIDENTS:] [This Agreement shall be governed by the internal substantive laws, but not the choice of lawrules, of the State of California, and the Company and the Executive each consent to personal and exclusive jurisdiction and venue in the State ofCalifornia.].(f) Severability. The invalidity or unenforceability of any provision or provisions of this Agreement will not affect the validity orenforceability of any other provision hereof, which will remain in full force and effect.(g) Withholding. All payments made pursuant to this Agreement will be subject to withholding of applicable income, employment andother taxes.(h) Counterparts. This Agreement may be executed in counterparts, each of which will be deemed an original, but all of which togetherwill constitute one and the same instrument.IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by its duly authorized officer, as of the dayand year set forth below.COMPANY NUANCE COMMUNICATIONS, INC.By: Title: Date: EXECUTIVE Date: EXHIBIT AFORM OF SEPARATION & RELEASE AGREEMENTThis Separation & Release Agreement (the “Agreement”) is made by and between Nuance Communications, Inc., a Delaware corporation (the“Company”) and _______________ (“Executive”). The Company and Executive are sometimes referred to collectively as the “Parties” and individually as a“Party.”WHEREAS, Executive has agreed to enter this Agreement whereby Executive will release any and all claims Executive may have against theCompany and other released parties upon certain events specified in the Change of Control and Severance Agreement by and between Company andExecutive (the “Severance Agreement”).NOW THEREFORE, in consideration of the mutual promises made herein, the Parties hereby agree as follows:1. Termination. Executive’s employment from the Company terminated on ________________ (the “Termination Date”).2. Confidential Information. Subject to Section 13, Executive shall continue to maintain the confidentiality of all confidential and proprietaryinformation of the Company and shall continue to comply with the terms and conditions of the Proprietary Information, Inventions and Non-CompetitionAgreement (the “Confidentiality Agreement”) between Executive and the Company. Executive agrees that the above reaffirmation and agreement with theConfidentiality Agreement shall constitute a new and separately enforceable agreement to abide by the terms of the Confidentiality Agreement, entered andeffective as of the Effective Date. Executive specifically acknowledges and agrees that any violation of the restrictive covenants in the ConfidentialityAgreement shall constitute a material breach of this Agreement. Executive shall return all the Company property and confidential and proprietaryinformation in Executive’s possession to the Company on the Effective Date of this Agreement.3. Payment of Salary and Receipt of All Benefits. Executive acknowledges and represents that, other than the severance and benefits to be paid asset forth in the Severance Agreement, the Company has paid or provided all salary, wages, bonuses, accrued vacation, premiums, leaves, relocation costs,interest, fees, reimbursable expenses, commissions, stock, stock options, vesting, and any and all other benefits and compensation due to Executive.4. Non-Solicitation. In exchange for the severance pay and other consideration under the Severance Agreement to which Executive would nototherwise be entitled, Executive agrees that for a period of one (1) year after the Termination Date, Executive will not, without the express written consent ofthe Company, in its sole discretion, [(a) solicit any business that is competitive with the Company’s business from any client or customer of the Company or(b) either in Executive’s individual capacity or on behalf of or through any other entity, either directly or indirectly, hire, engage, recruit or participate in anyway in the hiring, engagement or recruitment of, or participate in any effort to hire or solicit, any current or future employees of the Company or anysubsidiary thereof.] [Delete bracketed text for employees in California and substitute the following: “directly or indirectly solicit any of the employees of theCompany or any subsidiary thereof to leave their employment with the Company or any subsidiary thereof.”]5. Non-disparagement. In exchange for the severance pay and other consideration under the Severance Agreement to which Executive would nototherwise be entitled, Executive agrees not to disparage the Company, the Company’s officers, directors, employees, shareholders and agents, in any mannerlikely to be harmful to them or the Company’s business, business reputation or personal reputation. Nothing in this Agreement shall prevent either Executiveor the Company employees who are aware of the existence of this Agreement from responding accurately and fully to any question, inquiry or request forinformation when required by legal process, nor prevent Executive from engaging in Protected Activities (as defined below).6. [Non-Compete. In exchange for the severance pay and other consideration under the Severance Agreement to which Executive would nototherwise be entitled, Executive agrees that for a period of one (1) year after the Termination Date, Executive will not, without the express written consent ofthe Company, in its sole discretion, enter, engage in, participate in, or assist, either as an individual on your own or as a partner, joint venturer, employee,agent, consultant, officer, trustee, director, owner, part-owner, shareholder, or in any other capacity, in the United States of America, directly or indirectly, anyother business organization whose activities or products are competitive with the activities or products of the Company then existing or under development.Nothing in this Agreement shall prohibit Executive from working for an employer that is engaged in activities or offers products that are competitive with theactivities and products of the Company so long as Executive does not work for or with the department, division, or group in that employer’s organization thatis engaging in such activities or developing such products. Executive recognizes that these restrictions on competition are reasonable because of theCompany’s investment in goodwill, its customer lists, and other proprietary information and Executive’s knowledge of the Company’s business and businessplans. If any period of time or geographical area should be judged unreasonable in any judicial proceeding, then the period of time or geographical area shallbe reduced to such extent as may be deemed required so as to be reasonable and enforceable. Nothing in this Agreement shall preclude Executive frommaking passive investments of not more than two percent (2%) of a class of securities of any business enterprise registered under the Securities Exchange Act of 1934, as amended.][Deleteparagraph for employees located in California.]7. Release of Claims. Executive agrees that the consideration to be paid in accordance with the terms of the Severance Agreement representssettlement in full of all outstanding obligations owed to Executive by the Company. Executive, on behalf of himself, and his respective heirs, familymembers, executors and assigns, hereby fully and forever releases the Company and its past, present and future officers, agents, directors, employees,investors, shareholders, administrators, affiliates, divisions, subsidiaries, parents, predecessor and successor corporations, and assigns, from, and agrees not tosue or otherwise institute or cause to be instituted any legal or administrative proceedings concerning any claim, duty, obligation or cause of action relatingto any matters of any kind, whether presently known or unknown, suspected or unsuspected, that Executive may possess arising from any omissions, acts orfacts that have occurred up until and including the Effective Date of this Agreement including, without limitation,(a) any and all claims relating to or arising from Executive’s employment relationship with the Company and the termination of that relationship;(b) any and all claims relating to, or arising from, Executive’s right to purchase, or actual purchase of shares of stock of the Company, including,without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable state corporate law, and securities fraudunder any state or federal law;(c) any and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract, bothexpress and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent or intentional infliction ofemotional distress; negligent or intentional misrepresentation; negligent or intentional interference with contract or prospective economic advantage; unfairbusiness practices; defamation; libel; slander; negligence; personal injury; assault; battery; invasion of privacy; false imprisonment; and conversion;(d) any and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil Rights Act of 1964,the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act of 1990, the Fair Labor Standards Act,the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining Notification Act, the California Family Rights Act; theCalifornia Labor Code, the California Workers’ Compensation Act, the California Fair Employment and Housing Act, Massachusetts Law ProhibitingUnlawful Discrimination, as amended, Mass. Gen. Laws ch. 151B, § 1 et seq., Massachusetts Discriminatory Wage Rates Penalized Law (Massachusetts EqualPay Law), as amended, Mass. Gen. Laws ch. 149, § 105A et seq., Massachusetts Right to be Free from Sexual Harassment Law, Mass. Gen. Laws ch. 214, § 1C,Massachusetts Discrimination Against Certain Persons on Account of Age Law, Mass. Gen. Laws ch. 149, § 24A et seq., Massachusetts Equal Rights Law,Mass. Gen. Laws ch. 93, § 102 et seq., Massachusetts Violation of Constitutional Rights Law, Mass. Gen. Laws ch. 12, § 11I, Massachusetts Family andMedical Leave Law, Mass. Gen. Laws ch. 149, § 52D; and the Massachusetts Wage Act, Mass. Gen. Laws ch. 149, § 148, et seq.;(e) any and all claims for violation of the federal, or any state, constitution;(f) any and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and(g) any and all claims for attorneys’ fees and costs.Executive agrees that the release set forth in this section shall be and remain in effect in all respects as a complete general release as to the matters released.This release does not extend to any severance obligations due Executive under the Severance Agreement and does not release claims that cannot be releasedas a matter of law. Nothing in this Agreement waives Executive’s rights to indemnification or any payments under any insurance policy, if any, provided byany act or agreement of the Company, state or federal law or policy of insurance.8. Acknowledgment of Waiver of Claims under ADEA. Executive acknowledges that Executive is waiving and releasing any rights he or she mayhave under the Age Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing and voluntary. Executive and theCompany agree that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the Effective Date of this Agreement.Executive acknowledges that the consideration given for this waiver and release Agreement is in addition to anything of value to which Executive wasalready entitled. Executive further acknowledges that Executive has been advised by this writing that (a) Executive should consult with an attorney prior toexecuting this Agreement; (b) Executive has at least twenty-one (21) days within which to consider this Agreement; (c) Executive has seven (7) daysfollowing the execution of this Agreement by the parties to revoke the Agreement; (d) this Agreement shall not be effective until the revocation period hasexpired; and (e) nothing in this Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of thiswaiver under the ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized by federal law. Any revocation should be in writing and delivered to the General Counsel at the Company by close of business on the seventh dayfrom the date that Executive signs this Agreement. In the event Executive signs this Agreement and returns it to the Company in less than the 21-day periodidentified above, Executive hereby acknowledges that he/she has freely and voluntarily chosen to waive the time period allotted for considering thisAgreement. The parties agree that changes, whether material or immaterial, do not restart the running of the 21-day period.9. California Civil Code Section 1542. Executive acknowledges that Executive has been advised to consult with legal counsel and is familiar withthe provisions of California Civil Code Section 1542, a statute that otherwise prohibits the release of unknown claims, which provides as follows:A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HERFAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS ORHER SETTLEMENT WITH THE DEBTOR.Executive, being aware of said code section, agrees to expressly waive any rights Executive may have thereunder, as well as under any other statuteor common law principles of similar effect.10. No Pending or Future Lawsuits. Executive represents that he or she has no lawsuits, claims, or actions pending in her name, or on behalf of anyother person or entity, against the Company or any other person or entity referred to herein. Executive also represents that Executive does not intend to bringany claims on his/her own behalf or on behalf of any other person or entity against the Company or any other person or entity referred to herein.11. No Cooperation. Subject to Section 13, Executive agrees that he or she will not counsel or assist any attorneys or their clients in thepresentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints by any third party against the Company and/or any officer,director, employee, agent, representative, shareholder or attorney of the Company, unless under a subpoena or other court order to do so or as related directlyto the ADEA waiver in this Agreement.12. No Admission of Liability. Executive understands and acknowledges that this Agreement constitutes a compromise and settlement of disputedclaims. No action taken by the Company, either previously or in connection with this Agreement shall be deemed or construed to be (a) an admission of thetruth or falsity of any claims heretofore made or (b) an acknowledgment or admission by the Company of any fault or liability whatsoever to the Executive orto any third party.13. Protected Activity. Executive understands that nothing in this Agreement or in the Confidentiality Agreement shall in any way limit orprohibit Executive from engaging for a lawful purpose in any Protected Activity. For purposes of this Agreement, “Protected Activity” shall mean filing acharge, complaint or report with, or otherwise communicating with, cooperating with or participating in any investigation or proceeding that may beconducted by any federal, state or local government agency or commission, including the Securities and Exchange Commission, the Equal EmploymentOpportunity Commission, the Occupational Safety and Health Administration, and the National Labor Relations Board (“Government Agencies”). Executiveunderstands that in connection with such Protected Activity, Executive is permitted to disclose documents or other information as permitted by law, andwithout giving notice to, or receiving authorization from, the Company. Executive agrees to take all reasonable precautions to prevent any unauthorized useor disclosure of any information that may constitute Company Proprietary Information under this Agreement or the Confidentiality Agreement to any partiesother than the relevant Government Agencies. Executive further understands that Protected Activity does not include the disclosure of any Companyattorney-client privileged communications14. Miscellaneous.(a) Costs. The Parties shall each bear their own costs, expert fees, attorneys’ fees and other fees incurred in connection with thisAgreement.(b) Authority. Executive represents and warrants that Executive has the capacity to act on his or her own behalf and on behalf of all whomight claim through Executive to bind them to the terms and conditions of this Agreement.(c) No Representations. Executive represents that Executive has had the opportunity to consult with an attorney, and has carefully readand understands the scope and effect of the provisions of this Agreement. Neither Party has relied upon any representations or statements made by the otherParty hereto which are not specifically set forth in this Agreement.(d) Severability. In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal,unenforceable or void, this Agreement shall continue in full force and effect without said provision.(e) Attorneys’ Fees. Except with regard to a legal action challenging or seeking a determination in good faith of the validity of the waiverherein under the ADEA, in the event that either Party brings an action to enforce or effect its rights under this Agreement, the prevailing Party shall be entitled to recover its costs and expenses, including the costs of mediation, arbitration, litigation,court fees, and reasonable attorneys’ fees incurred in connection with such an action.(f) Entire Agreement. This Agreement, along with the Severance Agreement and the Confidentiality Agreement, represents the entireagreement and understanding between the Company and Executive concerning Executive’s separation from the Company.(g) No Oral Modification. This Agreement may only be amended in writing signed by Executive and the Chief Executive Officer of theCompany.(h) Governing Law. [FOR MA RESIDENTS:] [This Agreement shall be governed by the internal substantive laws, but not the choice oflaw rules, of the Commonwealth of Massachusetts, and the Company and the Executive each consent to personal and exclusive jurisdiction and venue in theCommonwealth of Massachusetts.] [FOR CA RESIDENTS:] [This Agreement shall be governed by the internal substantive laws, but not the choice of lawrules, of the State of California, and the Company and the Executive each consent to personal and exclusive jurisdiction and venue in the State of California.](i) Effective Date. This Agreement is effective eight (8) days after it has been signed by both Executive, so long as it has been signed bythe Parties and has not been revoked by either Party before that date (the “Effective Date”).(j) Counterparts. This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an originaland shall constitute an effective, binding agreement on the part of each of the undersigned.(k) Voluntary Execution of Agreement. Executive understands and agrees that Executive is executing this Agreement voluntarily andwithout any duress or undue influence on the part or behalf of the Company or any third party, with the full intent of releasing all of Executive’s claimsagainst the Company and other persons referenced herein. Executive acknowledge that:(i) Executive has read this Agreement;(ii) Executive has been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of Executive’s ownchoice or has voluntarily declined to seek such counsel;(iii) Executive understand the terms and consequences of this Agreement and of the releases it contains; and(iv) Executive is fully aware of the legal and binding effect of this Agreement.Signature Page Follows IN WITNESS WHEREOF, the Parties have executed this Separation & Release Agreement on the respective dates set forth below.COMPANY: NUANCE COMMUNICATIONS, INC.By: Title: Date: EXECUTIVE: Date: Exhibit 21.1 Subsidiary Name Jurisdiction Type ART Advanced Recognition Technologies, Inc. Delaware Domestic Caere Corporation Delaware Domestic Cognition Technologies, Inc. Delaware Domestic Consolidated Enterprise Corporation Delaware Domestic Consolidated Healthcare Corporation Delaware Domestic Consolidated Imaging Corporation Delaware Domestic Consolidated Mobile Corporation Delaware Domestic Dictaphone Corporation Delaware Domestic Ditech Networks, Inc. Delaware Domestic Ditech Networks International, Inc. Delaware Domestic eCopy, LLC Delaware Domestic eScription, Inc. Delaware Domestic Language and Computing, Inc. Delaware Domestic Montage Healthcare Solutions, Inc. Delaware Domestic New England Medical Transcription, Inc. Delaware Domestic Notable Solutions, Inc. Delaware Domestic Nuance Diagnostics Holding, Inc. Delaware Domestic Nuance Transcription Services, Inc. Delaware Domestic PerSay, Inc. Delaware Domestic Phonetic Systems, Inc. Delaware Domestic Physician Technology Partners, LLC Ohio Domestic Quadramed Quantim Corporation Delaware Domestic Ruetli Holding Corporation Delaware Domestic SNAPin Software, LLC Delaware Domestic SVOX U.S.A., Inc. Delaware Domestic Telluride, Inc. Delaware Domestic TouchCommerce, Inc. Delaware Domestic Viecore Federal Systems Division, Inc. Delaware Domestic Viecore, LLC Delaware Domestic VirtuOz, Inc. Delaware Domestic Vlingo Corporation Delaware Domestic Voice Signal Technologies, Inc. Delaware Domestic Zi Holding Corporation Delaware Domestic Nuance Document Imaging, Inc. f/k/aEquitrac Corporation Florida Domestic J.A. Thomas and Associates, Inc. Georgia Domestic Nuance Healthcare Diagnostics Solutions, Inc. Georgia Domestic AMS Solutions Corp. Massachusetts Domestic Accentus U.S., Inc. f/k/a Zylomed Inc. Nevada Domestic Medical Transcription Education Center, Inc. Ohio Domestic Swype, Inc. Washington Domestic Tegic Communications, Inc. Washington Domestic Nuance Enterprise Solutions & Services Corporation f/k/a VaroliiCorporation Washington Domestic Information Technologies Australia Pty Ltd. Australia International ITA Services Pty Ltd. Australia International Nuance Communications Australia Pty. Ltd. Australia International Subsidiary Name Jurisdiction Type OTE Pty Limited Australia International Nuance Communications Austria GmbH Austria International Nuance Communications Services Austria GmbH Austria International SpeechMagic Holdings GmbH Austria International Multi-Corp International Ltd. Barbados International Language and Computing N.V. Belgium International Nuance Communications Belgium Limited Belgium International Nuance Communications International BVBA Belgium International Nuance Communications Ltda. Brazil International Novitech Technologia e Servicos Ltda. Brazil International BlueStar Options Inc. British Virgin Islands International BlueStar Resources Ltd. British Virgin Islands International SpeechWorks BVI Ltd. British Virgin Islands International 1448451 Ontario Inc. Canada International Accentus Inc. f/k/a/ 2350111 Ontario Inc. Canada International 845162 Alberta Ltd. Canada International Ditech Networks Canada, Inc. Canada International Nuance Document Imaging, ULC f/k/a Equitrac Canada ULC Canada International Nuance Acquisition ULC Canada International Nuance Communications Canada, Inc. Canada International Zi Corporation Canada International Zi Corporation of Canada, Inc. Canada International Foxtrot Acquisition Limited Cayman Islands International Foxtrot Acquisition II Limited Cayman Islands International Huayu Zi Software Technology (Beijing) Co., Ltd. China International Nuance Software Technology (Beijing) Co., Ltd. China International SafeCom A/S Denmark International Nuance Communications Finland OY Finland International Voice Signal Technologies Europe OY Finland International Nuance Communications France Sarl France International VirtuOz S.A. France International Communology GmbH Germany International HFN Medien GmbH Germany International Nuance Communications Deutschland GmbH f/k/a Dictaphone DeutschlandGmbH Germany International Nuance Communications Germany GmbH Germany International Nuance Communications Healthcare Germany GmbH Germany International NSi Europe GmbH Germany International SafeCom GmbH Germany International SVOX Deutschland GmbH Germany International Asia Translation & Telecommunications Limited Hong Kong SAR International Huayu Zi Software Technology Limited Hong Kong SAR International Nuance Communications Hong Kong Limited Hong Kong SAR International Telecom Technology Corporation Limited Hong Kong SAR International Zi Corporation (H.K.) Limited Hong Kong SAR International Zi Corporation of Hong Kong Limited Hong Kong SAR International Nuance Recognita Corp. Hungary International Subsidiary Name Jurisdiction Type Ditech Communications India Pvt. Ltd. India International Nuance India Pvt. Ltd. India International Nuance Transcription Services India Private Limited f/k/a/ FocusMT IndiaPrivate Limited India International ServTech Systems India Pvt. Ltd. India International Transcend India Private Limited India International Transcend MT Services Private Ltd. India International Nuance Communications International Holdings Ireland International Nuance Communications Ireland Limited Ireland International Nuance Communications Services Ireland Ltd. Ireland International Voice Signal Ireland Limited Ireland International Nuance Communications Israel, Ltd. f/k/a ART-Advanced RecognitionTechnologies Limited Israel International PerSay Ltd. Israel International Phonetic Systems Ltd. Israel International Loquendo S.p.a. Italy International Nuance Communications Italy Srl Italy International Nuance Communications Japan K.K. Japan International VoiceSignal Japan K.K. Japan International Nuance Communications Netherlands B.V. Netherlands International X-Solutions Group B.V. Netherlands International Heartland Asia (Mauritius) Ltd. Republic of Mauritius International Nuance Communications Asia Pacific Pte. Ltd. Singapore International Nuance Communications Korea Ltd. South Korea International Nuance Communications Iberica SA Spain International Nuance Communications Sweden, A.B. Sweden International Nuance Communications Switzerland AG Switzerland International SVOX AG Switzerland International Nuance Communications Taiwan Taiwan International Nuance Communications Illetism Ltd. Sirketi Turkey International Nuance Turkey Iletisim Hizmetleri Ltd. Sirketi Turkey International Nuance Communications UK Limited United Kingdom International SafeCom UK Limited United Kingdom International SpinVox Limited United Kingdom International EXHIBIT 23.1Consent of Independent Registered Public Accounting FirmNuance Communications, Inc.Burlington, MassachusettsWe hereby consent to the incorporation by reference in Registration Statements on Form S-3 (Nos. 333-142182, 333-147715 and 333-61862) andForm S-8 (Nos. 333-201933, 333-188397, 333-182459, 333-179399, 333-178436, 333-164955, 333-157579, 333-151088, 333-151087, 333‑153911, 333-148684, 333-145971, 333-143465, 333-142183, 333-141819, 333-134687, 333-128396, 333-124856, 333-122718, 333-108767, 333-99729, 333-75406,333-49656, 333-33464, 333-30518, 333-74343, 333-45425 and 333-04131) of Nuance Communications, Inc. of our reports dated November 22, 2016relating to the consolidated financial statements and the effectiveness of Nuance Communications, Inc.’s internal control over financial reporting, whichappear in this Form 10-K./s/ BDO USA, LLPBoston, MassachusettsNovember 22, 2016 Exhibit 31.1CERTIFICATION OF CHIEF EXECUTIVE OFFICERPURSUANT TOSECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002I, Paul A. Ricci, certify that:1. I have reviewed this Annual Report on form 10-K of Nuance Communications, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and in 15d-15(f)) forthe registrant and have:a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlsover financial reporting. By: /s/ Paul A. Ricci Paul A. Ricci Chief Executive Officer and Chairman of the BoardNovember 22, 2016 Exhibit 31.2CERTIFICATION OF CHIEF FINANCIAL OFFICERPURSUANT TOSECTION 302(A) OF THE SARBANES-OXLEY ACT OF 2002I, Daniel D. Tempesta, certify that:1. I have reviewed this Annual Report on form 10-K of Nuance Communications, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and in 15d-15(f)) forthe registrant and have:a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within thoseentities, particularly during the period in which this report is being prepared;b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlsover financial reporting. By: /s/Daniel D. Tempesta Daniel D. Tempesta Executive Vice President and Chief Financial OfficerNovember 22, 2016 Exhibit 32.1CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Paul A. Ricci, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the AnnualReport of Nuance Communications, Inc. on Form 10-K for the period ended September 30, 2016 fully complies with the requirements of Section 13(a) or15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects thefinancial condition and results of operations of Nuance Communications, Inc. By: /s/ Paul A. Ricci Paul A. Ricci Chief Executive Officer and Chairman of the BoardNovember 22, 2016I, Daniel D. Tempesta, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that theAnnual Report of Nuance Communications, Inc. on Form 10-K for the period ended September 30, 2016 fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in allmaterial respects the financial condition and results of operations of Nuance Communications, Inc. By: /s/Daniel D. Tempesta Daniel D. Tempesta Executive Vice President and Chief Financial OfficerNovember 22, 2016
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