-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GMY1AliIJ0llPhQlkSydlVu67YzFvx7BmcPOnRqN4ksTfZ3d5a+jwB2kSWklQzmK zy2pYWmK6fT/EJ1EKxuLkw== 0000869570-97-000006.txt : 19970222 0000869570-97-000006.hdr.sgml : 19970222 ACCESSION NUMBER: 0000869570-97-000006 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19970218 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPSS INC CENTRAL INDEX KEY: 0000869570 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 362815480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-21025 FILM NUMBER: 97536569 BUSINESS ADDRESS: STREET 1: 444 NORTH MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 BUSINESS PHONE: 3123292400 MAIL ADDRESS: STREET 1: 444 N MICHIGAN AVE CITY: CHICAGO STATE: IL ZIP: 60611 424B2 1 PROSPECTUS As filed with the Securities and Exchange Commission on February 14, 1997. Filed pursuant to 424(b)(2) Registration No. 333-21025 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 SPSS INC. (Exact name of registrant as specified in its charter) DELAWARE 7372 (State or other jurisdiction of (Primary Standard Industrial Incorporation or organization) Classification Code Number) 36-2815480 (I.R.S. Employer Identification Number) 444 North Michigan Avenue, Chicago, Illinois 60611 (312) 329-2400 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) Edward Hamburg Senior Vice President, Corporate Operations Chief Financial Officer, and Secretary SPSS Inc. 444 North Michigan Avenue Chicago, Illinois 60611 (312) 329-2400 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to: T. Stephen Dyer, Esq. Ross & Hardies 150 N. Michigan Avenue Chicago, Illinois 60601 (312) 558-1000 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. |X| CALCULATION OF REGISTRATION FEE Proposed Proposed Maximum Maximum Offering Aggregate Amount of Title of Each of Price Offering Registration Securities to be Registered Per Share(1) Price(1) Fee Common Stock, $.01 par value $31.00 $5,698,823 $1,966 (1) Solely for the purpose of calculating the registration fee, the offering price per share, the aggregate offering price and the amount of the registration fee have been computed in accordance with Rule 457(c) under the Securities Act of 1933, as amended. Accordingly, the price per share of Common Stock has been calculated to be equal to the average of the high and low prices for a share of Common Stock as reported by the Nasdaq National Market on January 29, 1997, which is a specified date within five business days prior to the original date of filing of this Registration Statement. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - 1 - INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. PROSPECTUS 183,833 Shares SPSS INC. Common Stock ($.01 Par Value) This Prospectus relates to the offer and sale of up to 183,833 shares of the common stock, $.01 par value (the "Common Shares" or "Common Stock"), of SPSS Inc. (the "Company"). The Common Shares may be offered by particular stockholders of the Company (the "Selling Stockholders") from time to time in transactions on the Nasdaq National Market, in negotiated transactions, or a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Selling Stockholders may effect such transactions by the sale of the Common Shares to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders and/or the purchasers of the Common Shares for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). The Selling Stockholders and any broker-dealer who acts in connection with the sale of Common Shares hereunder may be deemed to be "underwriters" as that term is defined in the Securities Act of 1933, as amended (the "Securities Act"), and any commission received by them and profit on any resale of the Common Shares as principal might be deemed to be underwriting discounts and commissions under the Securities Act. See "Selling Stockholders" elsewhere in this Prospectus. The Company will not receive any of the proceeds from the sale of the Common Shares by the Selling Stockholders. The Company's Common Stock is traded and quoted on the Nasdaq National Market under the symbol "SPSS." On January 29, 1997, the last sale price of the Common Stock, as reported on the Nasdaq National Market, was $31.00 per share. The Company will bear all expenses (other than underwriting discounts and selling commissions, and fees and expenses of counsel or other advisors to the Selling Stockholders) in connection with the registration of the shares of Common Stock being offered hereby, which expenses are estimated to be approximately $81,966. See "Selling Stockholders" elsewhere in this Prospectus. SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK. - 2 - THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------------------ The date of this Prospectus is February 14, 1997 - 3 - AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company, and the Registration Statement of which this Prospectus forms a part, the exhibits and schedules thereto and amendments thereof, may be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The Company's Common Stock is quoted on the Nasdaq National Market, and therefore such reports, proxy statements and other information can also be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., 3rd Floor, Washington, D.C. 20006. Additional information regarding the Company and the shares offered hereby is contained in the Registration Statement on Form S-3 and the exhibits thereto (collectively, the "Registration Statement") filed with the Commission under the Securities Act of 1933, as amended (the "Securities Act"). As permitted by the rules and regulations of the Commission, this Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto, to which reference is hereby made. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is hereby made to the exhibit for a more complete description of the matter involved, and each such statement will be deemed qualified in its entirety by such reference. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is hereby made to the Registration Statement, and the exhibits thereto. SPSS(R), Categories(R), SYSTAT(R), Jandel Scientific, SigmaPlot, SigmaStat, SigmaScan and SigmaGel are registered trademarks of the Company. SPSS/PC + SPSS Real Stats. Real Easy.(TM), BMDP(TM), Jandel and CLEAR are unregistered trademarks of the Company, and the trademark QI Analyst(TM) is subject to a pending application for registration. This Prospectus also includes trade names and marks of companies other than SPSS Inc. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company hereby incorporates by reference the following documents previously filed with the Commission: (a) The Company's Quarterly Report on Form 10-Q, filed May 15, 1996 for the fiscal quarter ended March 31, 1996. (b) The Company's Quarterly Report on Form 10-Q filed August 14, 1996 for the fiscal quarter ended June 30, 1996. (c) The Company's Quarterly Report on Form 10-Q filed November 13, 1996 for the fiscal quarter ended September 30, 1996. (d) The Company's Current Report on Form 8-K and amendments thereto filed with the Commission on October 11, 1996 (acquisition of Clear Software). - 4 - (e) The Company's Current Report on Form 8-K and amendments thereto filed with the Commission on December 4, 1996 (acquisition of Jandel Corporation). (f) The description of the Company's Common Stock, $.01 par value (the "Common Stock"), contained in the Company's Registration Statement on Form 8-A filed with Commission on August 4, 1993, pursuant to Section 12 of the Exchange Act. (g) The Company's Proxy Statement, filed with the Commission on May 16, 1996, for its annual meeting of stockholders held on June 19, 1996, except for the report of the Compensation Committee contained therein. (h) The Company's Registration Statement on Form S-4 and Amendment Number One to Form S-4 and attachments thereto filed with the Commission on November 1, 1996 and November 7, 1996 respectively (acquisition of Jandel Corporation). All reports and other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior to the filing of a post-effective amendment to the Registration Statement, shall be deemed to be incorporated by reference in the Registration Statement and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein, or in any subsequently filed document which also is or is deemed to be incorporated by reference herein, modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, to each person (including any beneficial owner) to whom this Prospectus is delivered, upon written or oral request of such person, a copy of any and all of the information that has been incorporated by reference in this Prospectus (not including exhibits to such information unless such exhibits are specifically incorporated by reference into such information). Such requests should be directed to: Edward Hamburg, Senior Vice President, Corporate Operations, Chief Financial Officer and Secretary, at the Company's principal executive offices at 444 North Michigan Avenue, Chicago, Illinois 60611, telephone (312) 329-2400. - 5 - UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO "SPSS" AND THE "COMPANY" SHALL MEAN SPSS INC. A DELAWARE CORPORATION, ITS ILLINOIS PREDECESSOR AND ITS SUBSIDIARIES, COLLECTIVELY; AND REFERENCES TO THE "COMMON STOCK" SHALL MEAN SPSS INC.'S COMMON STOCK, PAR VALUE $ .01 PER SHARE. THE COMPANY GENERAL SPSS Inc. ("the Company") was incorporated in Illinois in 1975 under the name "SPSS, Inc." and was reincorporated in Delaware in May 1993 under the name "SPSS Inc." The Company develops, markets and supports an integrated line of statistical software products that enable users to effectively bring marketplace and enterprise data to bear on decision-making. The primary users of the Company's software are managers and data analysts in corporate settings, government agencies and academic institutions. In addition to its widespread use in survey analysis, SPSS software also performs other types of market research, as well as quality improvement analyses, scientific and engineering applications and data reporting. The current generation of SPSS Desktop products (as defined herein) features a windows-based point-and-click graphical user interface, sophisticated statistical procedures, data access and management capabilities, report writing and integrated graphics. The Company's products provide extensive analytical capabilities not found in spreadsheets, database management systems or graphics packages. In its 21 years of operation, SPSS has become a widely recognized name in statistical software. The Company plans to leverage its current position to take advantage of the increased demand for software applications that not only provide ready access to the data that organizations collect and store, but also enable users to systematically analyze, interpret and present such information for use in decision-making. Management believes that ease-of-use of the Company's current generation products, combined with the greater processing speed and storage capacity of the latest desktop computers, has substantially expanded the market for SPSS statistical software. In summer 1993, the Company completed an initial public offering (the "IPO") of common stock, $.01 par value (the "Common Stock"). The Common Stock is listed on the Nasdaq National Market under the symbol "SPSS". In early 1995, the Company and certain selling stockholders sold 1,865,203 shares of Common Stock in a public offering. The Company is a Delaware corporation. The Company's principal executive offices are located at 444 N. Michigan Avenue, Chicago, Illinois 60611, and its telephone number at its principal executive offices is (312) 329-2400. SAFE HARBOR "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: With the exception of historical information, the matters discussed in this Prospectus are forward-looking statements that involve risks and uncertainties including, but not limited to, market conditions, competition and other risks indicated in the Registration Statement of which this Prospectus forms a part, and the Company's other filings with the Securities and Exchange Commission. RECENT DEVELOPMENTS On September 26, 1996, SPSS acquired Clear Software, Inc., a Massachusetts corporation ("Clear Software"), for SPSS Common Stock valued at approximately $4.5 million in a merger accounted for as a pooling of interests. Clear Software is a developer and marketer of process management, analysis and documentation software products, including allCLEAR, a software package used primarily for describing complex business processes using flowcharts and other types of diagrams. Clear Software has more than 120,000 users, and its 1995 - 6 - revenues were approximately $2.8 million. SPSS will continue to operate the Clear Software business from the Clear Software offices in Newton, Massachusetts. On November 20, 1996, SPSS acquired the outstanding shares of capital stock of Jandel Corporation, a California corporation ("Jandel"), for SPSS Common Stock valued at approximately $9.0 million, in a merger accounted for as a pooling of interests. Jandel is a developer and marketer of graphical and statistical software products used mainly in scientific applications. SPSS will continue to operate the Jandel business from the Jandel offices in San Rafael, California. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The following table sets forth supplemental financial information (see the supplemental consolidated financial statements included elsewhere herein) about foreign and domestic operations. Such information may not necessarily be indicative of trends for future periods.
Year Ended December 31, Sales to unaffiliated customers 1993 1994 1995 customers: United States $30,936,000 $34,201,000 $36,851,000 Europe & India 18,358,000 21,124,000 26,158,000 Pacific Rim 2,880,000 7,269,000 10,785,000 ----------- ----------- ----------- Total $52,174,000 $62,594,000 $73,794,000 =========== =========== =========== Sales or transfers between geographic areas: United States $ 9,060,000 $12,080,000 $15,003,000 Europe & India (7,899,000) (9,082,000) (10,931,000) Pacific Rim (1,161,000) (2,998,000) (4,072,000) ----------- ----------- ------------ Total $ - $ - $ - =========== =========== ============ Operating income (loss): United States $ 6,039,000 $ 6,072,000 $ 4,687,000 Europe & India 1,153,000 380,000 604,000 Pacific Rim (43,000) 53,000 1,245,000 ----------- ----------- ----------- Total $ 7,149,000 $ 6,505,000 $ 6,536,000 =========== ============ ============ Identifiable assets: United States $18,024,000 $24,225,000 $33,471,000 Europe & India 5,476,000 7,010,000 8,083,000 Pacific Rim 496,000 3,082,000 2,463,000 ----------- ----------- ----------- Total $23,996,000 $ 34,317,000 $44,017,000 =========== ============ ===========
- 7 - Results of Operations The following table sets forth certain supplemental statement of operations data (see the supplemental consolidated financial statements included elsewhere herein) as a percentage of net revenues for the periods indicated.
================================================================================ Nine months ended Year ended December 31, September 30, -------------------------------------------------------------------------------- 1993 1994 1995 1995 1996 Net revenues: Desktop products 68.1% 73.4% 77.1% 76.1% 78.4% Large System products 22.6% 17.3% 14.5% 14.9% 13.4% Other products and services 9.3% 9.3% 8.4% 9.0% 8.2% -------------------------------------------------------------------------------- Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues 12.8% 11.6% 10.4% 10.4% 10.3% -------------------------------------------------------------------------------- Gross profit 87.2% 88.4% 89.6% 89.6% 89.7% -------------------------------------------------------------------------------- Operating expenses: Sales and marketing 47.4% 51.3% 52.7% 54.4% 50.3% Product development 16.0% 14.7% 14.7% 15.5% 16.2% General and administrative 10.1% 8.9% 8.5% 8.7% 8.7% Nonrecurring items - - 3.4% - - Acquisition-related charges - 3.1% 1.4% - - -------------------------------------------------------------------------------- Operating expenses 73.5% 78.0% 80.7% 78.6% 75.2% -------------------------------------------------------------------------------- Operating income 13.7% 10.4% 8.9% 11.0% 14.5% -------------------------------------------------------------------------------- Net interest income (expense) (3.2%) (0.4%) 0.2% 0.2% 0.5% Merger costs - - - - (1.6%) Other income (expense) (0.8%) (0.2%) 0.2% 0.3% (0.3%) -------------------------------------------------------------------------------- Income before income taxes 9.7% 9.8% 9.3% 11.5% 13.1% Provision for income taxes 2.6% 3.5% 4.0% 4.2% 4.5% -------------------------------------------------------------------------------- Net income 7.1% 6.3% 5.3% 7.3% 8.6% ================================================================================
- 8 - SPSS INC. SELECTED SUPPLEMENTAL AND HISTORICAL FINANCIAL DATA The following selected supplemental financial data of SPSS have been derived from the supplemental consolidated financial statements and should be read in conjunction with the supplemental consolidated financial statements and notes thereto included elsewhere herein. The selected historical financial data of SPSS have been derived from the consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto incorporated herein by reference. The selected historical financial data of Jandel have been derived from the consolidated financial statements and should be read in conjunction with the consolidated financial statements and notes thereto incorporated herein by reference. The SPSS and Jandel statement of operations data for the nine months ended September 30, 1995 and 1996, and the balance sheet data as of September 30, 1996 are unaudited but have been prepared on the same basis as the audited financial statements and, in the opinion of management of the respective companies, contain all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the respective companies' financial position and results of operations as of and for such periods. - 9 - SPSS INC. SELECTED SUPPLEMENTAL FINANCIAL DATA (1) (in thousands, except share and per share data)
Nine Months Year Ended December 31, Ended September 30, --------------------------------------------------------------- --------------------- 1991 1992 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- ---- ---- STATEMENT OF OPERATIONS (unaudited) DATA: Net revenues $41,737 $46,206 $52,174 $62,594 $73,794 $52,914 $60,833 Operating income 970 308 (2) 7,149 6,505(3) 6,536(4) 5,838 8,821 Net income (loss) (1,583) (4,122) (2) 3,720 3,956(3) 3,875(4) 3,857 5,258 Net income (loss) per share ($0.37) ($0.96) (2) $0.70 $0.56(3) $0.48(4) 0.48 0.63 Shares used in per share calculation 4,302,343 4,307,156 5,306,152 7,034,586 8,085,459 8,013,414 8,350,701 December 31, September 30, ------------------------------------------------------------------- ------------- 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- BALANCE SHEET DATA: (unaudited) Working capital ($11,406) ($13,983) ($9,396) ($8,676) $4,995 $9,439 Total assets 21,524 17,324 23,996 34,317 44,017 47,964 Total stockholders' equity (deficit) (14,838) (19,804) 32 5,430 18,488 23,667
(1) The selected supplemental consolidated financial data gives retroactive effect to the acquisition of Jandel Corporation and Subsidiary as of November 20, 1996, which has been accounted for as a pooling of interests for financial reporting purposes, and as a result, the financial position and results of operations are presented as if the combining company had been consolidated for all periods presented. The financial data as of and for the years ended December 31, 1991 and 1992 as well as the balance sheet data as of December 31, 1993, are derived from unaudited supplemental consolidated financial statements and include in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for the periods. The selected supplemental consolidated financial data should be read in conjunction with the other financial information included or incorporated by reference in this Prospectus. (2) Includes pre-tax write-off of software purchased as part of the 1990 recapitalization of the Company amounting to $3,071. (3) Includes pre-tax write-off of acquired in-process technology and other acquisition-related charges amounting to $1,928. (4) Includes pre-tax write-off of acquired in-process technology and other acquisition-related charges amounting to $1,051 and write-off principally of certain software assets capitalized more than two years ago amounting to $2,466. - 10 - SPSS INC. SELECTED HISTORICAL FINANCIAL DATA (1) (in thousands, except share and per share data)
Nine Months Year Ended December 31, Ended September 30, --------------------------------------------------------------------- --------------------- 1991 1992 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- ---- ---- STATEMENT OF (unaudited) OPERATIONS DATA: Net revenues $36,143 $39,557 $44,591 $54,498 $65,784 $47,421 $54,874 Operating income 1,235 619 (2) 6,608 6,145 (3) 7,047 (4) 6,490 8,993 Net income (loss) (1,492) (3,488) (2) 3,210 3,596 (3) 4,382 (4) 4,504 5,428 Net income (loss) per share ($0.37) ($0.87) (2) $0.65 $0.54(3) $0.56 (4) $0.59 $0.68 Shares used in per share calculation 4,013,325 4,013,325 4,958,089 6,696,604 7,768,740 7,697,217 8,031,684 December 31, September 30, ------------------------------------------------------------------------ ------------- 1991 1992 1993 1994 1995 1996 ---- ---- ---- ---- ---- ---- (unaudited) BALANCE SHEET DATA: Working capital ($11,647) ($14,104) ($10,083) ($9,502) $4,702 $9,254 Total assets 19,654 15,573 21,855 31,794 41,843 46,191 Total stockholders' equity (deficit) (15,666) (20,166) (892) 4,122 17,692 22,983
(1) The selected historical consolidated financial data gives retroactive effect to the acquisition of Clear Software, as of September 26, 1996, which has been accounted for as a pooling of interests for financial reporting purposes, and as a result, the financial position and results of operations are presented as if the combining company had been consolidated for all periods presented. The financial data as of and for the years ended December 31, 1991 and 1992, as well as the balance sheet data as of December 31, 1993 are derived from unaudited historical consolidated financial statements and include in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the data for the periods. The selected historical consolidated financial data should be read in conjunction with the other financial information included or incorporated by reference in this Prospectus. (2) Includes pre-tax write-off of software purchased as part of the 1990 recapitalization of the Company amounting to $3,071. (3) Includes pre-tax write-off of acquired in-process technology and other acquisition-related charges amounting to $1,928. (4) Includes pre-tax write-off of acquired in-process technology and other acquisition-related charges amounting to $1,051 and write-off principally of certain software assets capitalized more than two years ago amounting to $2,466. - 11 - JANDEL CORPORATION SELECTED HISTORICAL FINANCIAL DATA (in thousands, except share and per share data)
Nine Months Year Ended December 31, Ended September 30, ------------------------------------------------------------------------- --------------------- 1991 (1) 1992 (1) 1993 (1) 1994 1995 1995 1996 -------- -------- -------- ---- ---- ---- ---- STATEMENT OF (unaudited) OPERATIONS DATA: Net revenues $5,594 $6,649 $7,583 $8,096 $8,010 $5,493 $5,959 Operating income (265) (311) 541 360 (511) (652) (172) Net income (loss) (91) (634) 510 360 (507) (647) (170) Net income (loss) per share ($0.29) ($1.98) $1.35 $0.98 ($1.47) (1.88) (0.49) Shares used in per share calculation 314,842 319,882 378,922 367,948 344,800 344,231 347,301
December 31, September 30, ------------------------------------------------------------------------- ------------- 1991 (1) 1992 (1) 1993 (1) 1994 1995 1996 -------- -------- -------- ---- ---- ---- (unaudited) BALANCE SHEET DATA: Working capital $241 $121 $687 $826 $293 $185 Total assets 1,870 1,751 2,141 2,523 2,174 1,773 Total stockholders' equity 828 362 924 1,308 796 684
(1) The financial data presented as of and for the years ended December 31, 1991, 1992 and 1993 has been derived from unaudited financial statements. - 12 - RISK FACTORS In addition to the other information in this Prospectus, the following risk factors should be considered carefully by potential purchasers in evaluating an investment in the Common Stock offered hereby. Fluctuations in Quarterly Operating Results. The Company's quarterly operating results can be subject to fluctuation due to several factors, including the number and timing of product updates and new product introductions, delays in product development and introduction, purchasing schedules of its customers, changes in foreign currency exchange rates, product and market development expenditures, the timing of product shipments, changes in product mix, timing and cost of acquisitions and general economic conditions. Because the Company's expense levels are to a large extent based on its forecasts of future revenues, operating results may be adversely affected if such revenues fall below expectations. Accordingly, the Company believes that quarter-to-quarter comparisons of its results of operations may not be meaningful and should not be relied upon as an indication of future performance. The Company has historically operated with very little backlog because its products are generally shipped as orders are received. As a result, revenues in any quarter are dependent on orders shipped and licenses renewed in that quarter. The Company has experienced a seasonal pattern in its operating results with the fourth quarter typically having the highest operating income. For example, excluding acquisition and other non-recurring charges, the percentage of the Company's operating income realized in the fourth quarter was 40% in 1993, 41% in 1994 and 41% in 1995. In addition, the timing and amount of the Company's revenues are subject to a number of factors that make estimation of operating results prior to the end of a quarter uncertain. A significant portion of the Company's operating expenses are relatively fixed, and planned expenditures are based primarily on revenue forecasts. More specifically, in the fourth quarter, the variable profit margins on modest increases in sales volume at the end of the quarter are significant. Should the Company fail to achieve such fourth quarter revenue increases, net income for the fourth quarter and the full year could be materially affected. Generally, if revenues do not meet the Company's expectations in any given quarter, operating results will be adversely affected. Although the Company had been profitable in each of the seven quarters up to and including the quarter ending June 30, 1994, the Company experienced a net loss of $137,000 in the third quarter of 1994 due to a one-time write-off of $1,928,000 for acquired and in-process technology and other acquisition-related charges recorded in connection with the Company's acquisition of SYSTAT, Inc. ("SYSTAT"). The Company has been profitable in the eight quarters ending December 31, 1994 through September 30, 1996. However, there can be no assurance that profitability on a quarterly or annual basis can be achieved or sustained in the future. Dependence on a Single Product Category; Declining Sales of Certain Products. The Company derives substantially all of its product revenues from licenses of statistical software. Accordingly, any decline in revenues from licenses of the Company's statistical software, or reduction in demand for statistical software generally, could have a material adverse effect on the Company. In recent years SPSS has experienced a significant shift in the sources of its revenues. Historically, the Company derived a large portion of its revenues from licenses of its mainframe and minicomputer ("Large Systems") products. As a result of the general shift by computer users from Large Systems to desktop computers, the Company has experienced an ongoing decline in revenues from Large Systems products in the last several years, although this decline has generally lessened in recent quarters. Revenues from Large Systems licenses declined from approximately $15.6 million in 1991 to $10.7 million in 1995, while sales of desktop products increased from $21.8 million in 1991 to $56.9 million in 1995, although revenues from Large Systems licenses only declined from $10.8 million to $10.7 million from 1994 to 1995. Management is unable to predict the continuing rate of decline on Large Systems licenses, if any. Revenues from the Company's products for desktop computers ("Desktop products") now account for nearly three-quarters of the Company's revenues and this percentage may continue to increase. - 13 - Rapid Technological Change. The computer software industry is characterized by rapid technological advances, changes in customer requirements, frequent product enhancements and new product introductions. The Company's future success will depend upon its ability to enhance its existing products and introduce new products that keep pace with technological developments, respond to evolving customer requirements and achieve market acceptance. In particular, the Company believes it must continue to respond quickly to users' needs for greater functionality, improved usability and support for new hardware and operating systems. Any failure by the Company to respond adequately to technological developments and customer requirements, or any significant delays in product development or introduction, could result in loss of revenues. In the past, the Company has, on occasion, experienced delays in the introduction of new products and product enhancements, primarily due to difficulties with particular operating environments and problems with software provided by third parties. The extent of these delays has varied depending upon the size and scope of the project and the nature of the problems encountered. Such delays have most often resulted from "bugs" encountered in working with new and/or beta-stage versions of operating systems and other third party software, and bugs or unexpected difficulties in existing third party software which complicate integration with the Company's software. From time to time, the Company has discovered bugs in its products which are resolved through maintenance releases or through periodic updates depending upon the seriousness of the defect. There can be no assurance that the Company will be successful in developing and marketing new products or product enhancements on a timely basis or that the Company will not experience significant delays or defects in its products in the future, which could have a material adverse effect on the Company. In addition, there can be no assurance that new products or product enhancements developed by the Company will achieve market acceptance or that developments by others will not render the Company's products or technologies obsolete or noncompetitive. International Operations. The Company's revenues from operations outside of North America accounted for approximately 40%, 45% and 50% of the Company's net revenues in 1993, 1994 and 1995, respectively. The Company expects that revenues from international operations will continue to represent a large percentage of its net revenues and that this percentage may increase, particularly as the Company further "localizes" the SPSS product line by translating its products into additional languages. International revenues are subject to a number of risks, including greater difficulties in accounts receivable collection, longer payment cycles, exposure to currency fluctuations, political and economic instability and the burdens of complying with a wide variety of foreign laws and regulatory requirements. The Company also believes that it is exposed to greater levels of software piracy in international markets because of the weaker protection afforded to intellectual property in some foreign jurisdictions. As the Company expands its international operations, the risks described above could increase and, could have a material adverse effect on the Company. Potential Volatility of Stock Price. There has been significant volatility in the market prices of securities of technology companies and in some instances, such volatility has been unrelated to the operating performance of such companies. Market fluctuations may adversely affect the price of the Common Stock. The Company also believes factors such as announcements of new products by the Company or its competitors, quarterly variations in financial results, recommendations and reports of analysts and other factors beyond the Company's control could cause the market price of the Common Stock to fluctuate substantially. Reliance on Relationships with Third Parties. The Company licenses certain software from third parties. Some of this licensed software is embedded in the Company's products, and some is offered as add-on products. If such licenses are discontinued, or become invalid or unenforceable, there can be no assurance that the Company will be able to develop substitutes for this software independently or to obtain alternative sources in a timely manner. Any delays in obtaining or developing substitutes for licensed software could have a material adverse effect on the Company. In February 1993, the Company entered into an exclusive, worldwide agreement (the "Prentice Hall Agreement") with Prentice Hall, Inc. ("Prentice Hall") under which Prentice Hall publishes and distributes the student version of the Company's software and all of the Company's publications. As a result, the Company is - 14 - dependent on Prentice Hall for the development and support of the markets for student software and its publications. The failure of Prentice Hall to perform its obligations under the Prentice Hall Agreement adequately could have a material adverse effect on the Company. In February 1993, the Company entered into a Software Distribution Agreement (the "IBM Software Distribution Agreement") with International Business Machines Corporation ("IBM") under which IBM is responsible for manufacturing and packaging the Company's products and distributing them to the Company's domestic and European customers. If IBM fails to adequately perform its obligations under this agreement, or if the agreement is terminated, the Company's operating results could be materially adversely effected. Changes in Public Expenditures and Overall Economic Activity Levels. A significant portion of the Company's revenues comes from licenses of its products directly to foreign and domestic government entities. In addition, significant amounts of the Company's revenues come from licenses to academic institutions, healthcare organizations and private businesses which contract with or are funded by government entities. Government appropriations processes are often slow, unpredictable and subject to factors outside the Company's control. In addition, proposals are currently being made in certain countries to reduce government spending. Reductions in government expenditures and termination or renegotiation of government-funded programs or contracts could have a material adverse effect on the Company. In addition, declines in overall levels of economic activity could also have a material adverse impact on the Company. Competition. The market for the statistical software is both highly competitive and fragmented. The Company primarily competes with one general statistical software provider which is larger and has greater resources than the Company, as well as with numerous other companies offering statistical applications software, many of which offer products focused on specific statistical applications. The Company considers its primary worldwide competitor to be the larger and better-financed SAS Institute ("SAS"), although the Company believes that SAS's revenues are derived principally from products that are used for purposes other than statistics and operate on large systems platforms. StatSoft Inc., developers of the Statistica product ("Statistica"), Manugistics Group, Inc., distributors of the Statgraphics Plus product ("Statgraphics"), and Minitab, Inc. ("Minitab") are also competitors, although their annual revenues from these statistical products are believed to be considerably less than the revenues of SPSS. In the future, SPSS may face competition from new entrants into the statistical software market. The Company could also experience competition from companies in other sectors of the broader market for data management, analysis and presentation software, such as providers of spreadsheets, database management systems, report writers and executive information systems. These companies have added, or in the future may add, statistical analysis capabilities to their products. Many of these companies have significant name recognition, as well as substantially greater capital resources, marketing experience and research and development capabilities than the Company. There can be no assurance that the Company will have sufficient resources to make the necessary investment in research and development and sales and marketing, or that the Company will otherwise be able to make the technological advances necessary to maintain or enhance its competitive position. The Company's future success will also depend significantly upon its ability to continue to sell its Desktop products, to attract new customers looking for more sophisticated or powerful software and to introduce additional add-on products to existing customers. There can be no assurance that the Company will be able to compete successfully in the future. Dependence on Key Personnel. The Company is dependent on the efforts of certain executives and key employees, including its President and Chief Executive Officer, Jack Noonan. The Company's continued success will depend in part on its ability to attract and retain highly qualified technical, managerial, sales, marketing and other personnel. Competition for such personnel is intense. There can be no assurance that the Company will be able to continue to attract or retain such highly qualified personnel. No life insurance policies are maintained on the Company's key personnel. - 15 - Intellectual Property; Proprietary Rights. The statistical algorithms incorporated in the Company's software are not proprietary. The Company believes that the proprietary technology constituting a portion of the Company's software determines the speed and quality of displaying the results of computations, the connectivity of the Company's products with third party software and the ease of use of its products. The Company's success will depend, in part, on its ability to protect the proprietary aspects of its products. The Company attempts to protect its proprietary software with trade secret laws and internal nondisclosure safeguards, as well as copyright and trademark laws and contractual restrictions on copying, disclosure and transferability that are incorporated into its software license agreements. The Company licenses its software only in the form of executable code, with contractual restrictions on copying, disclosures and transferability. Except for licenses of its products to users of Large System products and annual licenses of its Desktop products, the Company licenses its products to end-users by use of a "shrink-wrap" license that is not signed by licensees, as is customary in the industry. It is uncertain whether such license agreements are legally enforceable. The source code for all of the Company's products is protected as a trade secret and as unpublished copyrighted work. In addition, the Company has entered into confidentiality and nondisclosure agreements with its key employees. Despite these restrictions, it may be possible for competitors or users to copy aspects of the Company's products or to obtain information which the Company regards as a trade secret. The Company has no patents, and judicial enforcement of copyright laws may be uncertain, particularly outside of North America. Preventing unauthorized use of computer software is difficult, and software piracy is expected to be a persistent problem for the packaged software industry. These problems may be particularly acute in international markets. In addition, the laws of certain countries in which the Company's products are or may be licensed do not protect the Company's products and intellectual property rights to the same extent as the laws of the United States. Despite the precautions taken by the Company, it may be possible for unauthorized third parties to reverse engineer or copy the Company's products or obtain and use information that the Company regards as proprietary. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology. Although the Company's products have never been the subject of an infringement claim, there can be no assurance that third parties will not assert infringement claims against the Company in the future or that any such assertion will not result in costly litigation or require the Company to obtain a license to use the intellectual property of third parties. There can be no assurance that such licenses will be available on reasonable terms, or at all. There can also be no assurance that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. Control by Existing Stockholders; Antitakeover Effects. As of December 31, 1996, the Company's executive officers and directors owned beneficially approximately 22.2% of the outstanding shares of Common Stock. The Norman H. Nie Revocable Trust Dated March 15, 1991 (the "Nie Trust") and affiliates of the Nie Trust, are entitled to nominate a director for inclusion in the management slate for election to the Board so long as the Nie Trust continues to own no less than 12.5% of the outstanding shares of Common Stock. As of December 31, 1996, the Nie Trust and affiliates of the Nie Trust beneficially owned approximately 15.9% of the outstanding shares of Common Stock. The Company's Certificate of Incorporation and Bylaws contain a number of provisions, including provisions requiring an 80% super majority stockholder approval of certain actions and provisions for a classified Board of Directors, which would make the acquisition of the Company, by means of an unsolicited tender offer, a proxy contest or otherwise, more difficult or impossible. Shares Eligible for Future Sale. As of December 31, 1996, there were vested options outstanding held by management to purchase approximately an additional 536,573 shares of SPSS Common Stock and unvested options to purchase approximately an additional 140,370 shares of SPSS Common Stock, with an average exercise price of $5.81 per share. The Company has also established a stock purchase plan available to employees of the Company, which permits employees to acquire shares of SPSS Common Stock at the end of each quarter at 85% of the market price of SPSS Common Stock as of such date. - 16 - In addition to the Company's currently outstanding shares and those issuable to employees as described above, the Company has issued approximately 339,000 shares of SPSS Common Stock to Jandel's shareholders. Such shares of SPSS Common Stock will generally be available for resale. No prediction can be made as to the effect, if any, that future sales, or the availability of shares of Common Stock for future sales, will have on the market price prevailing from time to time. Sales of substantial amounts of SPSS Common Stock by the Company or by shareholders, or the perception that such sales may occur, could adversely affect prevailing market prices for SPSS Common Stock. Accumulated Deficit. The Company had an accumulated deficit of $16,235,000 as of September 30, 1996. - 17 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF SPSS' FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following Management's Discussion and Analysis has been prepared on the basis of the Supplemental Consolidated Financial Statements included elsewhere herein. Overview The original Statistical Package for the Social Sciences was introduced in 1969, and the Company was incorporated in 1975. The first SPSS products were almost exclusively used by academic researchers working on mainframe systems. The Company has subsequently transformed and enhanced its core product technology, broadened its customer base into the corporate and government sectors, significantly expanded its sales and marketing capabilities and adapted its products to changing hardware and software technologies. SPSS software was adapted to minicomputers in the late 1970s and to desktop platforms, including high-end workstations and personal computers, in the mid-1980s. In June 1992, the Company introduced its first windows-based graphical user interface product, SPSS for Windows, which it has since updated three times, and released versions for Macintosh computers and major UNIX/Motif platforms. Approximately 52% of the current SPSS customer base works in corporate settings, with another 31% in academic institutions and 17% in government agencies. The SPSS sales and marketing force now numbers more than 280 professionals in 10 Company offices worldwide. In recent years SPSS has experienced a significant shift in the sources of its revenues. Between 1991 and 1995, Desktop product license revenues increased from approximately 50% to 77% of total net revenues, while Large Systems software license revenues declined from approximately 39% to 15%. Gross margins associated with the Company's Desktop products are slightly lower than those associated with its Large Systems products. Shifts in the product mix may, as a result, cause fluctuations in gross margins. In addition, the portion of the Company's net revenues derived from international operations increased from 40% to 50% between 1993 and 1995. This trend continued in 1996. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF SPSS FINANCIAL CONDITION AND RESULTS OF OPERATIONS - International Operations." Results of Operations The following table sets forth certain statement of operations data as a percentage of net revenues for the periods indicated.
================================================================================ Nine months ended Year ended December 31, September 30, -------------------------------------------------------------------------------- 1993 1994 1995 1995 1996 Net revenues: Desktop products 68.1% 73.4% 77.1% 76.1% 78.4% Large System products 22.6% 17.3% 14.5% 14.9% 13.4% Other products and services 9.3% 9.3% 8.4% 9.0% 8.2% -------------------------------------------------------------------------------- Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% Cost of revenues 12.8% 11.6% 10.4% 10.4% 10.3% -------------------------------------------------------------------------------- Gross profit 87.2% 88.4% 89.6% 89.6% 89.7%
- 18 -
-------------------------------------------------------------------------------- Operating expenses: Sales and marketing 47.4% 51.3% 52.7% 54.4% 50.3% Product development 16.0% 14.7% 14.7% 15.5% 16.2% General and administrative 10.1% 8.9% 8.5% 8.7% 8.7% Nonrecurring items - - 3.4% - - Acquisition-related charges - 3.1% 1.4% - - -------------------------------------------------------------------------------- Operating expenses 73.5% 78.0% 80.7% 78.6% 75.2% -------------------------------------------------------------------------------- Operating income 13.7% 10.4% 8.9% 11.0% 14.5% -------------------------------------------------------------------------------- Net interest income (expense) (3.2%) (0.4%) 0.2% 0.2% 0.5% Merger costs - - - - (1.6%) Other income (expense) (0.8%) (0.2%) 0.2% 0.3% (0.3%) -------------------------------------------------------------------------------- Income before income taxes 9.7% 9.8% 9.3% 11.5% 13.1% Provision for income taxes 2.6% 3.5% 4.0% 4.2% 4.5% -------------------------------------------------------------------------------- Net income 7.1% 6.3% 5.3% 7.3% 8.6% ================================================================================
Comparison of Twelve Months Ended December 31, 1993, 1994 and 1995. Net Revenues. Net revenues increased from $52,174,000 in 1993 to $62,594,000 in 1994 and to $73,794,000 in 1995, increases of 20% and 18%, respectively. These increases were primarily due to an increase in Desktop revenues of 29% in 1994 and 24% in 1995, partially offset by a decline in Large System revenues of 8% and 1%, respectively. In addition, in 1994 and 1995, the increase in net revenues was due in part to the acquisition by the Company of the remaining 50% portion of SPSS Japan, its Japanese joint venture, which was effective in the first quarter of 1994, and the September 1994 acquisition of SYSTAT. When compared to 1993, the SPSS Japan acquisition accounted for approximately $3,758,000 of the Company's increase in sales in 1994 and $6,898,000 in 1995. The Company's acquisition of SYSTAT accounted for approximately $668,000 of the Company's increase in sales in the fourth quarter of 1994 and $1,704,000 in 1995 when compared to 1993. The increase in Desktop revenues reflected $24,032,000 in 1994 and $31,438,000 in 1995 of new revenues from licenses of SPSS for Windows. In addition, revenues from annual license renewals of Desktop products reflected a $1,692,000 and $3,203,000 increase in annual license revenues for SPSS for Windows in 1994 and 1995, respectively. The decline in Large Systems revenues was primarily due to the nonrenewal of product licenses on mainframe platforms, as well as the deferral into future periods of revenues from renewal licenses, which exceeded the amount recognized from prior periods. Revenues from other products and services increased by 20% in 1994 due to an increase of 60% in revenues from training and consulting services, partially offset by a 34% decrease in revenues from publications and student products due to the shift of the sales of SPSS publications and student products under the Prentice Hall Agreement. In 1995, revenues from other products and services increased by 7% due to an increase of 30% in revenues from training and consulting services, partially offset by a 49% decrease in revenues previously received from publications and student products due to the end of the payment of guaranteed royalties from the Prentice Hall - 19 - Agreement in July 1995. The Company is no longer entitled to such guaranteed royalties under the Agreement between the Company and Prentice Hall and now only receives actual royalties under the Prentice Hall Agreement. Revenues were aided by changes in foreign currency exchange rates in 1994 and 1995. Cost of Revenues. Cost of revenues consists of costs of goods sold, amortization of capitalized software development costs, and royalties paid to third parties. Cost of revenues increased from $6,663,000 in 1993 to $7,243,000 in 1994, to $7,709,000 in 1995. Such costs increased 9% in 1994 and 6% in 1995 due to higher sales levels, higher amounts of capitalized software amortized and, in 1994, higher royalties paid to third parties. As a percentage of net revenues, cost of revenues decreased from 13% in 1993 to 12% in 1994 and to 10% in 1995. Sales and Marketing. Sales and marketing expenses increased from $24,743,000 in 1993 to $32,109,000 in 1994 and to $38,892,000 in 1995, an increase of 30% in 1994 and 21% in 1995. These increases were due to expansion of the domestic and international sales organizations, salary and commission increases, increased marketing expenses associated with SPSS for Windows, in 1994 the inclusion of all the sales and marketing expenses of SPSS Japan, in the fourth quarter of 1994 and 1995 the incorporation of the SYSTAT sales organization into the Company, and in 1995 the negative effects of changes in foreign currency exchange rates. As a percentage of net revenues, sales and marketing expenses increased from 47% in 1993 to 51% in 1994 and to 53% in 1995. Product Development. Product development expenses increased from $8,330,000 in 1993 to $9,215,000 in 1994 and to $10,863,000 in 1995 (net of capitalized software development costs of $1,341,000, $1,639,000 and $1,630,000, respectively) an increase of 11% in 1994 and an increase of 18% in 1995. In the same periods, the Company's expense for amortization of capitalized software and product translations, included in cost of revenues, was $1,006,000, $1,239,000 and $1,592,000, respectively. The increases in product development expenses were primarily due to salary increases, the addition of technical personnel from the SYSTAT acquisition into the Company, and higher depreciation expense related to the purchase of capital equipment used in product development. As a percentage of net revenues, product development expenses declined from 16% in 1993 to 15% in 1994 and 1995 primarily as a result of the increase in net revenues. General and Administrative. General and administrative expenses increased from $5,289,000 in 1993 to $5,594,000 in 1994 and to $6,277,000 in 1995, an increase of 6% in 1994 and 12% in 1995. These increases were primarily attributable to increases in general insurance as a result of being a publicly-held company, higher professional fees and the amortization of goodwill associated with the 1994 acquisitions of SPSS Japan and SYSTAT, and in 1995 higher professional fees and charges for bad debts. Such expense decreased as a percentage of net revenues from 10% in 1993 to 9% in 1994 and 1995. Nonrecurring Items. A nonrecurring charge of $2,466,000 was recorded in 1995 primarily related to the revaluation of certain assets capitalized prior to the Company's IPO in August 1993. Approximately $1,343,000 of this charge related to the development of UNIX products, approximately $178,000 to the initial development of QI Analyst, and approximately $347,000 related to the Japanese translation of SPSS and DOS. In addition, approximately $200,000 of the charge related to the out-dated software purchased for the Company's customer information system. The remainder primarily related to shut down and moving costs at subsidiary locations. Acquisition-related Charges. Charges related to the acquisition of SYSTAT in 1994 and BMDP in 1995 totaled $1,928,000 and $1,051,000, respectively, and represented one-time write-offs of acquired and in-process technology and other acquisition-related charges. Net Interest Income (Expense). Net interest income (expense) was ($1,682,000) in 1993 and ($229,000) in 1994, reflecting a decrease of 86% due to the elimination of interest expense related to the Company's long-term debt, which the Company prepaid through the use of net proceeds from the Company's initial public offering of stock in August 1993. Net interest income was $176,000 in 1995 due to interest earned on short-term investments as well - 20 - as the elimination of interest expense related to the Company's line of credit, which the Company repaid with the net proceeds from the Company's February 1995 public offering of stock. Other Income (Expense). Other income (expense) consists mainly of the amortization of fees incurred in connection with the Recapitalization, expenses related to the stock appraisal action, and foreign exchange transactions. Such other items were ($390,000) in 1993, ($128,000) in 1994 and $132,000 in 1995. The 1993 decrease was due to decreased legal expenses resulting from the completion of the trial of the stock appraisal action in December 1992, partially offset by the write-off of the unamortized balance of fees incurred in connection with the Recapitalization due to the elimination of the Company's long-term debt which had been incurred in connection with the Recapitalization. The 1994 net amount consisted of expenses of $248,000 related to foreign exchange transactions, offset by $186,000 in proceeds from a Japanese insurance claim settlement. The 1995 net amount was primarily foreign currency transaction gains. Provision for Income Taxes. The provision for income taxes consisted of $1,357,000 in 1993, $2,192,000 in 1994 and $2,969,000 in 1995. During 1993, the provision for income taxes was the result of pretax income of $5,077,000, which includes both domestic and international operations, reduced by a one-time tax credit of $511,000 due to the recognition of a fully reserved (but previously unrealized) deferred tax asset realized upon the payment of accrued but previously unpaid ownership payments to the Company's founders. These payments were made in 1993 through the use of a portion of the net proceeds from the Company's August 1993 initial public offering. During 1994, the provision for income taxes was the result of pretax income of $6,148,000 and represented a tax rate of approximately 36% of pretax income. During 1995, the provision for income taxes was the result of pre-tax income of $6,844,000, reflecting a tax rate of approximately 38% of pre-tax income, excluding the effect of Japanese withholding taxes of $336,000 on monies transferred out of Japan in 1995. Comparison of Nine Months Ended September 30, 1995 to Nine Months Ended September 30, 1996. Net Revenues. Net revenues were $52,914,000 and $60,833,000 in the nine months ended September 30, 1995 and 1996, respectively, an increase of 15%. This increase in revenue was influenced, in part, by the acquisition of BMDP, effective December 29, 1995. Net of BMDP revenue of approximately $1,055,000, the Company's increase in sales was 13%. Revenues from Desktop products increased 18% over the corresponding period in 1995 and revenues from Large System products increased 3%. The increase in revenues from Desktop products reflected $4,491,000 in new revenues from SPSS for Windows. In addition, revenues from annual license renewals of Desktop products resulted in a net increase of $2,390,000, reflecting a $2,945,000 increase in annual license renewals of SPSS for Windows. The increase in revenues from Large System products was primarily due to an increase in revenues from new UNIX licenses as a result of the BMDP acquisition. Other products and services revenues increased 5% primarily due to the increase in training and consulting revenues. This increase was partially offset by the decrease in revenues previously received from publications and student products due to the end of the payment of guaranteed royalty payments related to the Prentice Hall Agreement in July 1995. Revenues for the first nine months of 1996 were adversely affected by changes in foreign currency exchange rates. Cost of Revenues. Cost of revenues were $5,511,000 and $6,238,000 for the nine months ended September 30, 1995 and 1996, respectively, an increase of 13%. Such costs increased due to higher sales levels and higher royalty expense paid to third parties. As a percentage of net revenues, such expenses remained constant at 10%. Sales and Marketing. Sales and marketing expenses were $28,746,000 and $30,596,000 in the nine months ended September 30, 1995 and 1996, respectively, an increase of 6%. This increase was due to expansion of the domestic and international sales organizations, and salary and commission increases. As a percentage of net revenues, such expenses decreased from 54% to 50%. Product Developments. Product development expenses were $8,215,000 and $9,841,000 (net of capitalized software development costs of $1,218,000 and $716,000) for the nine months ended September 30, 1995 and 1996, - 21 - respectively, an increase of 20%. In the corresponding periods in 1995 and 1996, the Company's expense for amortization of capitalized software and product translations, included in cost of revenues, was $1,194,000 and $1,067,000, respectively. The increase in product development expenses was primarily due to salary and recruiting fee increases, depreciation expense, and other additions to the product development staff. As a percentage of net revenues, such expenses remained constant at 16%. General and Administrative. General and administrative expenses were $4,604,000 and $5,337,000 in the nine months ended September 30, 1995 and 1996, respectively, an increase of 16%. Such expenses increased primarily due to increases in bad debt expense, employment taxes, employee insurance, and temporary employment and rent expenses. As a percentage of net revenues, general and administrative expenses remained constant at 9%. Net Interest Income. Net interest income was $85,000 and $310,000 for the nine months ended September 30, 1995 and 1996, respectively. This favorable variance can be attributed to the elimination of interest expense related to the line of credit, which was repaid with the net proceeds from the Company's follow-on public offering of common stock, in February 1995. Other Income (Expense). Other income (expense) was $141,000 and $(190,000) for the nine months ended September 30, 1995 and 1996, respectively. These amounts are comprised primarily of foreign currency gains (losses) in the corresponding nine month periods. Merger Costs. Charges related to the merger of CLEAR totaled $980,000 and represented professional fees, severance pay, and other related costs. Provision for Income Taxes. The provision for income taxes was $2,207,000 and $2,703,000 in the nine months ended September 30, 1995 and 1996, respectively, reflecting an approximate effective tax rate of 36% and 34%, respectively. Liquidity and Capital Resources The Company had no long-term debt as of September 30, 1996 and held approximately $12,528,000 of cash and short term investments. Funds in 1994 and 1995 were used in operations, for acquisitions and to finance capital expenditures incurred in connection with staff additions, which required additional office space, furniture and computers. Capital expenditures were also made for additional computer hardware and software associated with software development. The Company currently has a $5,000,000 unsecured line of credit under a Credit Agreement with Bank of America N.T.S.A. ("B of A") under which borrowings bear interest at B of A's reference rate under the Credit Agreement. The Company used the net proceeds from the February 1995 public offering of Common Stock to repay its borrowings under the Credit Agreement and $5 million of unused credit is available thereunder. The credit Agreement requires the Company to comply with certain specified financial ratios and tests, and restricts the Company's ability to, among other things: (i) pay dividends or make distributions, (ii) incur additional indebtedness, (iii) create liens on assets, (iv) make investments, (v) engage in mergers, acquisitions or consolidations, (vi) sell assets, and (vii) engage in certain transactions with affiliates. The Company anticipates the amounts available from cash and short term investments on hand, under its line of credit, and cash flows generated from operations, will be sufficient to fund the Company's operations and capital requirements for the foreseeable future. However, no assurance can be given that changing business circumstances will not require additional capital for reasons that are not currently anticipated or that the necessary additional capital will then be available to the Company on favorable terms or at all. - 22 - The Company's capital expenditures, primarily for computer equipment, totaled approximately $2,600,000 in 1995 and are projected to total approximately $3,200,000 and $3,500,000 in 1996 and 1997, respectively. Capital expenditures during 1995, included, among other things, new computer systems for use in internal product development. Capital expenditures during 1996 will include, among other things, new computers primarily for use in internal product development, replacement of the customer information system software, furnishings and other equipment related to the move of the Company's facility in the United Kingdom. The Company does not believe that the implementation of its business strategy will require substantial additional capital expenditures in comparison with historical levels of product development costs and other expenses. International Operations Significant growth in the Company's international operations also occurred from 1993 to 1995. Revenues from international operations comprised approximately 40% of total net revenues in 1993, whereas revenues from international operations contributed 50% of total net revenues in 1995. Following the reorganization of its international operations in 1990, the Company has maintained substantially the same telesales and direct response organization worldwide. The international sales organization uses more independent distributors than the domestic sales organization, primarily in countries without an SPSS sales office. Management believes the profit margins associated with SPSS's domestic and international operations are essentially the same. As international revenues increase, the Company may experience additional foreign currency exchange risk. Recently Issued Accounting Standards Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for Long-Lived Assets and for Long-Lived Assets to Be Disposed of," was issued in 1995. Implementation of SFAS No. 121 is required in fiscal year 1996. SFAS No. 121 established accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill relating to those assets to be held and used for long-lived assets and certain identifiable intangibles to be disposed of. SFAS No. 121 is not expected to have a significant impact on the Company's consolidated financial statements. SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in 1995. Implementations is required in fiscal year 1996. SFAS No. 123 established financial accounting and reporting standards for stock based employee compensation plans. The Company is currently evaluating the impact this statement will have on the Company's consolidated financial statements, and intends to provide pro forma disclosures of net income as if the fair value-based method prescribed by SFAS No. 123 had been applied in measuring compensation expense. - 23 - SELLING STOCKHOLDERS The following table sets forth the number of shares of Common Stock beneficially owned by each Selling Stockholder as of December 31, 1996, the number of shares of Common Stock that may be offered for the Selling Stockholder's account and based on the number of shares of Common Stock beneficially owned as of December 31, 1996, the percentage of the shares of Common Stock to be beneficially owned by such Selling Stockholder if they elect to sell all of their Shares of Common Stock that are available for sale.
Maximum Shares of Common Number Stock To Be Shares of of Shares Beneficially Owned Common Stock Available Assuming Sale of All Beneficially To Be Sold Shares Available For Name and Address of Owned As of Pursuant Sale Hereunder Selling Stockholder December 31, 1996 Hereto Number Percent - ------------------------------------------------------------------------------------------- Ella Kroll 75,419 75,419 0 0%* Marina Goldberg 39,279 39,279 0 0%* Vadim Yasinovsky 42,424 42,424 0 0%* Adam Green 8,327 8,327 0 0%* Sandow Ruby 943 943 0 0%* Dan Bricklin 943 943 0 0%* Simon Pogrebinsky 3,928 3,928 0 0%* Eugene Palagashvili 6,285 6,285 0 0%* Colleen Terry 6,285 6,285 0 0%*
* The percentage of shares beneficially owned does not exceed 1% of the class. The Company has agreed to register the shares of Common Stock of the Selling Stockholders offered hereby under the Securities Act. In this connection, the selling stockholders are required to pay the underwriting discounts and commissions and transfer taxes, if any, associated with the sale of their shares of Common Stock, and the Company will pay substantially all of the expenses directly associated with the registration of such shares of Common Stock hereunder. USE OF PROCEEDS The Company will not receive any proceeds from the registration or sale of the shares of Common Stock offered hereby. DIVIDEND POLICY AND RESTRICTIONS The Company has never declared any cash dividends or distributions on its capital stock and does not anticipate paying cash dividends in the foreseeable future. The Company currently intends to retain its future earnings to fund ongoing operations and future capital requirements of its business. PLAN OF DISTRIBUTION The Common Stock may be offered by the Selling Stockholders from time to time in transactions on the Nasdaq National Market, in negotiated transactions, or a combination of such methods of sale, at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Selling Stockholders may effect such transactions by the sale of the Common Stock - 24 - to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling Stockholders and/or the purchasers of the Common Stock for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). The Selling Stockholders and any broker-dealer who acts in connection with the sale of Common Stock hereunder may be deemed to be "underwriters" as that term is defined in the Securities Act, and any commission received by them and profit on any resale of the Common Stock as principal might be deemed to be underwriting discounts and commissions under the Securities Act. No prediction can be made as to the effect, if any, that future sales, or the availability of shares of Common Stock for future sales, will have on the market price prevailing from time to time. See "RISK FACTORS -- Shares Eligible for Future Sale" elsewhere in this Prospectus. LEGAL MATTERS The validity of the shares of Common Stock is being passed upon for the Company by Ross & Hardies, Chicago, Illinois. EXPERTS The supplemental consolidated financial statements of SPSS Inc. and subsidiaries as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, have been included herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of SPSS Inc. and subsidiaries as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm in accounting and auditing. With respect to SPSS Inc.'s unaudited interim financial information as of March 31, 1996, June 30, 1996 and September 30, 1996 and for the three months ended March 31, 1995 and 1996, the six months ended June 30, 1995 and 1996 and the nine months ended September 30, 1995 and 1996, incorporated by reference herein, the independent certified public accountants have reported that they applied limited procedures in accordance with professional standards for a review of such information. However, their separate reports included in the Company's quarterly reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, and incorporated by reference herein, state that they did not audit and they do not express an opinion on that interim financial information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of the limited nature of the review procedures applied. The accountants are not subject to the liability provisions of section 11 of the Securities Act of 1933 for their reports on the unaudited interim financial information because these reports are not a "report" or a "part" of the registration statement prepared or certified by the accountants within the meaning of sections 7 and 11 of the Act. The financial statements of Clear Software, Inc. as of December 31, 1995 and for the year then ended, have been incorporated by reference herein in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. The consolidated financial statements of Jandel Corporation and Subsidiary as of December 31, 1995 and 1994 and for each of the years then ended, have been incorporated by reference herein in reliance upon the report of KPMG Peat - 25 - Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. - 26 - INDEX TO FINANCIAL STATEMENTS
SPSS INC. AND SUBSIDIARIES Independent Auditors' Report....................................................................................29 Supplemental Consolidated Balance Sheets as of December 31, 1994 and 1995.......................................30 Supplemental Consolidated Statements of Income for the years ended December 31, 1993, 1994, and 1995............31 Supplemental Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994 and 1995......................................................................32 Supplemental Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994, and 1995.....................................................................33 Notes to 1995 Supplemental Consolidated Financial Statements....................................................34 Supplemental Consolidated Balance Sheet as of September 30, 1996 (unaudited)....................................47 Supplemental Consolidated Statements of Income for the nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)...................................................48 Supplemental Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)...................................................49 Notes to Supplemental Consolidated Financial Statements (unaudited).............................................50 JANDEL CORPORATION AND SUBSIDIARY Balance Sheet as of September 30, 1996 (unaudited)..............................................................51 Consolidated Statements of Operations Earnings for the nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)...................................................52 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 (unaudited) and 1996 (unaudited)...................................................53 Notes to the Unaudited Financial Statements.....................................................................54
- 27 - SPSS INC. AND SUBSIDIARIES SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS - 28 - INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders SPSS Inc.: We have audited the accompanying supplemental consolidated balance sheets of SPSS Inc. and subsidiaries as of December 31, 1994 and 1995 and the related supplemental consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These supplemental consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these supplemental consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. The supplemental consolidated financial statements give retroactive effect to the merger of SPSS Inc. and Jandel Corporation and Subsidiaries on November 20, 1996, which has been accounted for as a pooling of interests as described in note 6 to the supplemental consolidated financial statements. Generally accepted accounting principles proscribe giving effect to a consummated business combination accounted for by the pooling-of-interests method in financial statements that do not include the date of consummation. These financial statements do not extend through the date of consummation. However, they will become the historical consolidated financial statements of SPSS Inc. and subsidiaries after financial statements covering the date of consummation of the business combination are issued. In our opinion, the supplemental consolidated financial statements referred to above present fairly, in all material respects, the financial position of SPSS Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles applicable after financial statements are issued for a period which includes the date of consummation of the business combination. KPMG PEAT MARWICK LLP Chicago, Illinois November 20, 1996 - 29 - SPSS INC. AND SUBSIDIARIES Supplemental Consolidated Balance Sheets December 31, 1994 and 1995 (In thousands, except share data)
ASSETS 1994 1995 Current assets: Cash and cash equivalents $2,410 11,175 Accounts receivable, net of allowances of $566 in 1994 and $911 in 1995 11,732 13,694 Inventories 1,698 1,763 Prepaid expenses and other current assets 1,520 1,558 ------ ------ Total current assets 17,360 28,190 ------ ------ Equipment and leasehold improvements, at cost: Furniture, fixtures, and office equipment 3,495 3,785 Computer equipment and software 8,170 9,870 Leasehold improvements 1,326 1,413 ----- ------ 12,991 15,068 Less accumulated depreciation and amortization 8,679 10,335 ------ ------ Net equipment and leasehold improvements 4,312 4,733 ------ ------ Capitalization software development costs, net of accumulated amortization 7,207 6,839 Goodwill, net of accumulated amortization 2,331 2,213 Other assets 3,107 2,042 ------ ------ $34,317 44,017 LIABILITIES AND STOCKHOLDERS' EQUITY ======= ====== Current liabilities: Notes payable and current portion of long-term debt 2,921 75 Accounts payable 4,889 3,277 Accrued royalties 519 496 Accrued rent 1,202 921 Other accrued liabilities 7,020 9,255 Income taxes and value added taxes payable 2,599 2,262 Customer advances 504 295 Deferred revenues 6,382 6,614 ----- ----- Total current liabilities 26,036 23,195 ------ ------ Deferred income taxes 2,191 2,015 Long-term debt 51 - Other non-current liabilities 609 319 Stockholders' equity: Common Stock, $.01 par value; 50,000,000 shares authorized; 6,692,153 and 7,633,131 shares issued and outstanding at December 31, 1994 and 1995, respectively 67 76 Additional paid-in capital 30,929 40,352 Cumulative foreign currency translation adjustments (463) (699) Accumulated deficit (25,103) (21,241) -------- -------- Total stockholders' equity 5,430 18,488 ----- ------ Commitments (note 7) - - $ 34,317 44,017 ======== ======
See accompanying notes to supplemental consolidated financial statements - 30 - SPSS INC. AND SUBSIDIARIES Supplemental Consolidated Statements of Income Years ended December 31, 1993, 1994 and 1995 (In thousands, except share and per share data)
1993 1994 1995 Net revenues: ---- ---- ---- Desktop products $ 35,536 45,942 56,866 Large System products 11,785 10,835 10,694 Other products and services 4,853 5,817 6,234 ------ ------ ------ Net revenues 52,174 62,594 73,794 Cost of revenues 6,663 7,243 7,709 ------ ------ ------ Gross profit 45,511 55,351 66,085 ------ ------ ------ Operating expenses: Sales and marketing 24,743 32,109 38,892 Product development 8,330 9,215 10,863 General and administrative 5,289 5,594 6,277 Nonrecurring items - - 2,466 Acquisition-related charges - 1,928 1,051 ------ ------ ------ Operating expenses 38,362 48,846 59,549 ------ ------ ------ Operating income 7,149 6,505 6,536 ------ ------ ------ Other income (expense): Interest income 44 132 305 Interest expense (1,726) (361) (129) Other (390) (128) 132 ------- ------ ------ Other income (expense) (2,072) (357) 308 -------- ------ ------ Income before income taxes 5,077 6,148 6,844 Income tax expense 1,357 2,192 2,969 ------ ----- ----- Net income $ 3,720 3,956 3,875 ===== ===== ===== Net earnings per share $ 0.70 0.56 0.48 ===== ===== ===== Weighted average common stock and common stock equivalent shares outstanding 5,306,152 7,034,586 8,085,459 ========= ========= =========
See accompanying notes to supplemental consolidated financial statements. - 31 - SPSS INC. AND SUBSIDIARIES Supplemental Consolidated Statements of Stockholders' Equity Years ended December 31, 1993, 1994 and 1995 (In thousands, except share data)
1993 1994 1995 Preferred stock Series A convertible, $.01 par value: ---- ---- ---- Balance at beginning of period $ 1 - - Conversion of 52,650 shares of preferred stock to common stock (1) - - --------- -------- ------- Balance at end of period - - - --------- -------- ------- Preferred stock Series B convertible, $.01 par value: Balance at beginning of period 1 - - Conversion of 60,000 shares of preferred stock to common stock (1) - - --------- -------- ------- Balance at end of period - - - --------- -------- ------- Common stock, $.01 par value: Balance at beginning of period 5 65 67 Conversion of 52,650 shares of Series A convertible preferred stock to 1,755,000 shares of common stock 18 - - Conversion of 60,000 shares of Series B convertible preferred stock to 2,000,000 shares of common stock 20 - - Initial public offering of 2,266,667 shares of common - stock 22 - Issuance of 150,000 and 2,334 shares of common stock in 1994 and 1995, respectively - 2 - Public offering of 908,287 shares of common stock - - 9 --------- -------- ------- Balance at end of period 65 67 76 Additional paid-in capital: Balance at beginning of period 13,736 29,322 30,929 Conversion of 52,650 shares of Series A convertible preferred stock (17) - - Conversion of 60,000 shares of Series B convertible preferred stock (19) - - Initial public offering of 2,266,667 shares of common stock 15,569 - - Issuance of 150,000 and 2,334 shares of common stock in 1994 and 1995, respectively - 1,226 6 Public offering of 908,287 shares of common stock - - 9,118 Sale of 30,330 and 9,892 shares of common stock to the Employee Stock Purchase and 401(k) Plans in 1994 and 1995, respectively - 265 141 Exercise of stock options and other 52 36 40 Income tax benefit related to stock options and Employee Stock Purchase Plan - 44 117 Undistributed earnings related to business combination 1 36 1 --------- ------ ------ Balance at end of period $ 29,322 30,929 40,352 --------- ------ ------ Foreign currency translation adjustment: Balance at beginning of period $ (805) (332) (463) Translation adjustment 473 (131) (236) ---------- ------- ------- Balance at end of period (332) (463) (699) Accumulated deficit: ---------- ------- ------- Balance at beginning of period (32,742) (29,023) (25,103) Net income 3,720 3,956 3,875 Undistributed earnings related to business combination (1) (36) (1) Dividends declared - - (12) ---------- ------- ------- Balance at end of period (29,023) (25,103) (21,241) ---------- ------- ------- Total Stockholders' equity $ 32 5,430 18,488 ========== ======= =======
See accompanying notes to supplemental consolidated financial statements. - 32 - SPSS INC. AND SUBSIDIARIES Supplemental Consolidated Statements of Cash Flows Years ended December 31, 1993, 1994 and 1995 (In thousands)
1993 1994 1995 Cash flows from operating activities: Net income $3,720 3,956 3,875 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,229 3,469 4,675 Stock option compensation expense - - 21 Deferred income taxes 62 612 (176) Write-off of software development costs and other assets - - 2,281 Write-off of acquired in-process technology - 1,741 851 Write-off of deferred loan costs 277 - - Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (834) (3,122) (1,578) Inventories (173) 181 (134) Accounts payable 3,009 (1,529) (1,780) Accrued royalties 75 (5) (23) Accrued expenses (1,044) (992) (487) Other (948) (113) 21 ------- ------ ------ Net cash provided by operating activities 6,373 4,198 7,546 ------- ------ ------ Cash flows from investing activities: Capital expenditures, net (1,674) (2,436) (2,838) Capitalized software development costs (2,116) (3,219) (2,504) Shareholder lawsuit appeal bond (1,184) - - Net (payments) receipts related to acquisitions - (149) 46 Net (increase) decrease in other assets (9) (31) 14 ------- ------- ------- Net cash used in investing activities: (4,983) (5,835) (5,282) ------- ------- ------- Cash flows from financing activities: Net borrowings under line-of-credit agreements (923) 1,467 (2,890) Proceeds from issuance of common stock 16,919 301 10,512 Cost of issuance of common stock (1,272) - (1,205) Retired subordinated debt (7,167) - - Retired term loan (7,000) - - Income tax benefit from stock option exercises - 44 117 Principal repayment under capital lease obligation (23) (3) - Repayment of notes payable to related parties (100) (38) - Repurchase of common stock (3) - (14) Other - - (19) ------ ------ ------ Net cash provided by financing activities 431 1,771 6,501 ------ ------ ------ Net change in cash and cash equivalents 1,821 134 8,765 Cash and cash equivalents at beginning of period 455 2,276 2,410 ----- ----- Cash and cash equivalents at end of period 2,276 2,410 11,175 ===== ===== ====== Supplemental disclosures of cash flow information: Interest paid 3,119 237 142 Income taxes paid 58 750 3,459 Supplemental disclosures of non-cash activity: ===== ===== ====== Conversion of Series A convertible preferred stock (18) - - Conversion of Series B convertible preferred stock (20) - - Issuance of common stock for the purchase of SYSTAT, Inc. - (2) - ===== ====== ======
See accompanying notes to supplemental consolidated financial statements. - 33 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements December 31, 1993, 1994 and 1995 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) DESCRIPTION OF BUSINESS SPSS, Inc. (the Company) develops, markets, and supports statistical software products and services that enable the effective use of marketplace and enterprise data in decision making. The primary users of the Company's software are managers and data analysts in corporate settings, government agencies and academic institutions. The Company markets its products and services worldwide. (B) PRINCIPLES OF CONSOLIDATION The supplemental consolidated financial statements include the accounts of SPSS Inc. and its wholly owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. (C) USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (D) SOFTWARE REVENUE RECOGNITION The Company recognizes revenue from Desktop product licenses, net of an allowance for estimated returns and cancellations, at the time the software is delivered. Revenue from Large System product license agreements is recognized upon contract execution, product delivery, and customer acceptance. Revenue from postcontract customer support (PCS or maintenance) agreements, including PCS bundled with Desktop product and Large System product license, is recognized ratably over the term of the related PCS agreements. Certain Desktop product licenses include commitments for insignificant obligations, such as technical and other support, for which an accrual is provided. Revenue from consulting, publications, and other items included in other revenue is recognized as the related products or services are delivered or rendered. (E) SOFTWARE DEVELOPMENT COSTS Software development costs incurred by the Company in connection with the Company's long-term development projects are capitalized in accordance with Statement of Financial Accounting Standards No. 86. The Company has not capitalized software development costs relating to development projects where the net realizable value is of short duration, as the effect would be immaterial. The Company reviews capitalized software development costs each period and, if necessary, reduces the carrying value of each product to its net realizable value. (Continued) - 34 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements (F) COMPUTATION OF NET EARNINGS PER SHARE The net earnings per common and common equivalent share for the years ended December 31, 1993, 1994 and 1995 have been computed using the weighted average number of common and dilutive common equivalent shares outstanding for each year (5,306,152, 7,034,586 and 8,085,459 shares, respectively). Common equivalent shares consist of the shares issuable upon exercise of stock options (using the treasury stock method). Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, options for common stock granted during the 12 months immediately preceding the Company's initial public offering date (using the treasury stock method of the public offering price of $8.00 per share) have been included in the calculation of common and common equivalent shares as if they were outstanding for all periods presented prior to the initial public offering. In addition, the calculation also includes preferred stock as if converted to Common Stock on the original date of issuance for all periods presented prior to the initial public offering (see note 2). (G) DEPRECIATION AND AMORTIZATION Depreciation of furniture and equipment is provided using the straight-line method over the estimated useful lives of the assets, which range from three to eight years. Leasehold improvements are amortized on the straight-line method over the remaining terms of the respective leases. Capitalized software costs are amortized on a straight-line method over three to five years based upon the expected life on each product. This method results in greater amortization that the method based upon the ratio of current year gross product revenue to current and anticipated future gross product revenue. (H) INCOME TAXES The Company follows Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (Statement 109). Statement 109 requires the asset and liability method of accounting for income taxes in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing asset and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax asset and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. (I) INVENTORIES Inventories, consisting of finished goods, are stated at the lower of cost or market. Cost is determined using the first-in, first out method. (Continued) - 35 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements (J) GOODWILL The excess of the cost over the fair value of net assets acquired is recorded as goodwill and amortized on a straight-line basis over ten to fifteen years. Accumulated amortization was $153,000 and $363,000 as of December 31, 1994 and 1995, respectively. (K) FOREIGN CURRENCY TRANSLATION The translation of the applicable foreign currencies into U.S. dollars is performed for balance sheet accounts using current exchange rates in effect at the balance sheet date and for revenue and expense accounts using the average exchange rate during the period. The gains or losses resulting from such translation are included in stockholders' equity. Gains or losses resulting from foreign currency transactions are included in "other income and expense" in the statement of income. (L) FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values of financial instruments were not materially different from their carrying values. (M) CASH AND CASH EQUIVALENTS Cash and cash equivalents are comprised of highly liquid investments with initial maturity dates of less than three months. (N) RECLASSIFICATIONS Where appropriate, certain items relating to the prior years have been reclassified to conform to the presentation in the current year. (2) INITIAL PUBLIC OFFERING In August 1993, the Company completed an initial public offering of Common Stock. The primary purpose of the initial public offering was to repay the note payable, term loan, subordinated debt, and related accrued interest. Upon the effective date of the initial public offering, the Series A and Series B convertible preferred shares were converted into shares of Common Stock and a reverse one-for-three Common Stock split was effected. All common share and per share amounts in the accompanying supplemental consolidated financial statement have been adjusted retroactively to give effect to the reverse stock split. (Continued) - 36 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements (3) INTERNATIONAL SUBSIDIARIES The net assets, net revenues and net earnings of international subsidiaries as of and for the years ended December 31, 1993, 1994 and 1995 included in the supplemental consolidated financial statements are summarized as follows:
December 31, ------------------------------------------------ 1993 1994 1995 ---- ---- ---- Working capital $(2,157,000) $(5,541,000) $(3,407,000) Excess of noncurrent assets over noncurrent liabilities $ 1,238,000 $2,694,000 $2,512,000 Net revenues $21,069,000 $28,393,000 $36,943,000 Net earnings $ 586,000 $270,000 $841,000
Geographic information is disclosed elsewhere in this document. (4) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE Activity in capitalized software is summarized as follows:
December 31, ----------------------------------------------- 1993 1994 1995 ---- ---- ---- Balance, net - beginning of year $3,660,000 $4,768,000 $7,207,000 Additions 1,730,000 2,704,000 2,613,000 Product translations 384,000 516,000 508,000 Acquired Japan product translations - 458,000 - Write-down to net realizable value - - (1,897,000) Amortization expense charged to cost of revenues (1,006,000) (1,239,000) (1,592,000) ------------ ----------- ----------- Balance, net - end of year $ 4,768,000 $7,207,000 $6,839,000 ============ =========== ===========
(Continued) - 37 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements The components of capitalized software are summarized as follows: December 31, ----------------------------- 1994 1995 ---- ---- Product translations $802,000 $ 1,096,000 Acquired Japan product translations 458,000 - Acquired software technology 1,831,000 2,300,000 Capitalized software development costs 4,116,000 3,443,000 ---------- ----------- Balance, net - end of period $7,207,000 $ 6,839,000 ========== =========== Total software development costs, including amounts expensed as incurred, amounted to approximately $10,444,000, $12,435,000 and $13,367,000, for the years ended December 31, 1993, 1994 and 1995, respectively. Included in acquired software technology at December 31, 1994 is $1,000,000 related to the purchase of CHAID for Windows. The future guaranteed obligation related to this purchase, reflected in the supplemental consolidated balance sheet as of December 31, 1995, amounting to $550,000 and is due through 1998. Included in acquired software technology at December 31, 1995 is $618,000 of technology resulting from the acquisition of BMDP Statistical Software, Inc. (see note 6). (5) INVESTMENT IN JOINT VENTURE In October 1988, the Company entered into a joint venture with Japan Systems Engineering Corporation (JSE) and formed SPSS Japan, Inc., owned equally by JSE and the Company. An executive of JSE, the joint venture partner, was also a shareholder in SPSS Inc. The joint venture was created for the purposes of adopting, marketing, selling, licensing and providing technical support and assistance in Japan for the Company's products. The investment in SPSS Japan, Inc. was being accounted for using the equity method. As of January 1, 1994, SPSS Japan, Inc. became a wholly owned subsidiary of SPSS Inc. (see note 6). During the year ended December 31, 1993, the Company recorded $169,000 of royalty revenue from SPSS Japan, Inc. (Continued) - 38 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements (6) ACQUISITIONS During the first quarter of 1994, the Company acquired the remaining capital stock of SPSS Japan, Inc. from its joint venture partner, JSE. Results of SPSS Japan, Inc. are consolidated in the Company's statements of income from January 1, 1994. The purchase price for SPSS Japan, Inc. was approximately $50,000 and approximately $1,600,000 in accrued royalties, cash advances and interest was to be paid by SPSS Japan, Inc. to JSE over the next four years. The acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values. The $961,000 excess of the purchase price over the fair market value of the net assets acquired was recorded as goodwill. During the third quarter of 1994, the Company acquired specific assets and liabilities of SYSTAT, Inc. (SYSTAT). SYSTAT is engaged in the business of statistical software. Results of SYSTAT are included in the Company's statements of income from September 1, 1994. The purchase price for SYSTAT was $1,828,000, consisting of $600,000 in cash and 150,000 shares of Common Stock of the Company valued at $1,228,000. In addition, the Company granted options at $9.00 per share to purchase 150,000 shares of Common Stock to the principal owners of SYSTAT. The SYSTAT acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values. The $1,403,000 excess of the purchase price over the fair market value of the net assets acquired was recorded as goodwill in 1994. During 1995 certain assumed liabilities were revalued, and consequently SYSTAT goodwill was reduced to $1,203,000. As of December 29, 1995, the Company acquired substantially all of the assets of one of its competitors, BMDP Statistical Software, Inc. (BMDP), for $850,000 in cash to BMDP and noncompetition payments to the principal shareholder of BMDP. In addition, the Company agreed to assume approximately $1,400,000 of BMDP's liabilities, consisting of telephone equipment and office machine lease obligations, accounts payable and advertising fees, accrued employment-related expenses, professional fees, and bank loan and line of credit facilities. In the fourth quarter of 1995, the Company recorded charges of approximately of $1,051,000 representing a one-time write-off of acquired and in process technology and other acquisition-related charges. The BMDP acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values. The $301,000 excess of the purchase price over the fair market value of the net assets acquired was recorded as goodwill. The pro forma impact of these acquisitions on the 1993, 1994 and 1995 supplemental consolidated statements of income is not material. On September 26, 1996, the Company acquired all of the outstanding capital stock of Clear Software, Inc. (Clear), a developer and marketer of process management, analysis and documentation software products, in exchange for 183,833 shares of Common Stock. The merger with Clear was accounted for as a pooling of interests and, accordingly, the financial statements have been restated as if the Company and Clear had been combined for all periods presented. (Continued) - 39 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements On November 20, 1996, the Company acquired all of the outstanding capital stock of Jandel Corporation and Subsidiary (Jandel), a developer and marketer of graphical and statistical software products used mainly in scientific applications for 339,427 shares of common stock. The merger with Jandel was accounted for as a pooling of interests and, accordingly, the financial statements have been restated as if the Company and Jandel had been combined for all periods presented. The following information reconciles net revenues and net income of SPSS as previously reported with the amounts presented in the accompanying supplemental consolidated statements of income for the three years ended December 31, 1993, 1994, and 1995.
1993 1994 1995 Net revenues: ---- ---- ---- SPSS (1) $44,591,000 $54,498,000 $65,784,000 Jandel 7,583,000 8,096,000 8,010,000 ----------- ----------- ----------- Total $52,174,000 $62,594,000 $73,794,000 =========== =========== =========== Net income (loss): SPSS (1) 3,210,000 3,596,000 4,382,000 Jandel 510,000 360,000 (507,000) ----------- ----------- ------------ Total $ 3,720,000 $ 3,956,000 $ 3,875,000 =========== =========== ===========
(1) Represents the historical results of SPSS without considering the effect of the Jandel pooling of interests transaction. (7) LEASE COMMITMENTS The Company leases its office facilities, storage space, and certain data processing equipment under lease agreements expiring through the year 2000. Minimum lease payments indicated below do not include costs such as property taxes, maintenance, and insurance. (Continued) - 40 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements The following is a schedule of future noncancelable minimum lease payments required under operating leases as of December 31, 1995: Year ending December 31, Amount 1996 $3,440,000 1997 3,085,000 1998 2,417,000 1999 752,000 2000 226,000 Thereafter - ---------- $9,920,000 Rent expense related to operating leases was approximately $2,983,000, $3,244,000 and $3,618,000 during the years ended December 31, 1993, 1994 and 1995, respectively. (8) FINANCING ARRANGEMENTS At December 31, 1994, the Company had borrowings totaling $2,874,000 under a line of credit bearing interest at prime (8.5% at December 31, 1994 and 1995). As of December 31, 1995, the Company owed no amounts under the line of credit. The line of credit is collateralized by all of the Company's assets and does not require a compensating balance, however, the Company pays a facility fee of one-half of one percent on the unused amount of the line of credit. At December 31, 1995, the entire $5,000,000 of the line of credit was unused. At December 31, 1994, the Company had borrowings totaling $7,000 under a line of credit bearing interest at 2% above the Bank's lending rate (9% at December 31, 1995). As of December 31, 1995, the Company owed no amounts under the line of credit. The $100,000 line of credit agreement is secured by the assets of the Company. At December 31, 1995, the entire $100,000 of the line of credit was unused. At December 31, 1994, the Company had borrowings under two term loans aggregating $90,991 from a bank bearing interest at prime plus 1.75% (10.5% as of December 31, 1994) and 9.5% per annum. On March 31, 1995, the Company fully repaid this long-term debt. At December 31, 1995, the Company has available a bank line of credit that provides for borrowings up to $300,000, bearing interest at the bank's prime rate plus 1.25% per annum (9.75% as of December 31, 1995), expiring January 15, 1997. The credit line is collateralized by the Company's accounts receivable, inventory, and other assets and also requires the maintenance of certain specified ratios and a minimum net worth, with which the Company was in compliance as of December 31, 1995. Amounts outstanding under this line of credit were $75,000 as of December 31, 1995. Effective March 15, 1996, the Company established a $5,000,000 unsecured 364-day revolving credit facility available for advances pursuant to a definitive credit agreement. The Company pays a facility fee of 0.375% on the unused portion of the facility. If the Company does borrow against the facility, interest will be charged at the Bank of America reference rate (8.25% at March 15, 1996). (Continued) - 41 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements (9) OTHER INCOME (EXPENSE) Other income (expense) consists of the following:
December 31, ---------------------------------------------- 1993 1994 1995 ---- ---- ---- Interest income $ 44,000 $132,000 $305,000 Interest expense - subordinated debt to related parties (676,000) - - Other interest expense (1,050,000) (315,000) (129,000) Amortization of deferred loan costs (409,000) - - Exchange gain (loss) on foreign currency transactions (41,000) (248,000) 212,000 Stock appraisal action 60,000 (46,000) (105,000) Japan insurance proceeds - 186,000 - Payments to related parties - (66,000) (45,000) Other - - 70,000 ---------- --------- --------- Total other income (expense) $(2,072,000) (357,000) 308,000 ------------ --------- ---------
(10) INCOME TAXES Income before income taxes consists of the following: Year ended December 31, ----------------------------------------------- 1993 1994 1995 ---- ---- ---- Domestic $3,981,000 5,573,000 4,997,000 Foreign 1,096,000 575,000 1,847,000 ---------- --------- --------- $5,077,000 6,148,000 6,844,000 ---------- --------- --------- (Continued) - 42 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements Income tax expense consists of the following: Current Deferred Total Year ended December 31, 1993: U.S. Federal $ 700,000 $ 89,000 $ 789,000 State 46,000 12,000 58,000 Foreign 549,000 (39,000) 510,000 --------- ---------- ---------- $1,295,000 $ 62,000 $1,357,000 ========== ========== ========== Year ended December 31, 1994: U.S. Federal $ 944,000 $ 500,000 $1,444,000 State 332,000 112,000 444,000 Foreign 304,000 - 304,000 --------- --------- ---------- $1,580,000 $ 612,000 $2,192,000 ========== ========= ========== Year ended December 31, 1995: U.S. Federal $1,616,000 $(144,000) $1,472,000 State 187,000 (32,000) 155,000 Foreign 1,342,000 - 1,342,000 --------- ---------- ---------- $3,145,000 $(176,000) $2,969,000 ========== ========== ========== For the years ended December 31, 1993, 1994 and 1995, the reconciliation of statutory to effective income taxes is as follows:
Year Ended December 31, ---------------------------------------------- 1993 1994 1995 ---- ---- ---- Income taxes using the Federal statutory rate of 34% $1,726,000 $2,077,000 $2,323,000 State income taxes, net of Federal tax benefit 39,000 293,000 103,000 Change in valuation allowance and credit and net operating loss utilization, net (453,000) (394,000) 40,000 Alternative minimum tax 7,000 - - Foreign taxes at net rates different from U.S. Federal rates 157,000 96,000 722,000 Foreign tax credit - - (336,000) Other, net (119,000) 120,000 117,000 ---------- ---------- ---------- $1,357,000 $2,192,000 $2,969,000 ---------- --------- ---------
(Continued) - 43 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1994 and 1995 are presented below:
1994 1995 ---------------- -------------- Deferred tax assets: Accounts receivable principally due to allowance for doubtful accounts $ 40,000 $123,000 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 59,000 47,000 Compensated absences, principally due to accrual for financial reporting purposes 91,000 111,000 Accruals and reserves 201,000 203,000 Research and experimentation credit carryforwards 742,000 610,000 Alternative minimum tax credit carryforwards 171,000 - Deferred rent 390,000 299,000 Plant and equipment, principally due to differences in depreciation and capitalized interest 118,000 175,000 Deferred revenues 1,706,000 1,657,000 Write-off of purchased software asset 207,000 - Foreign currency loss 104,000 59,000 Acquisition-related items 132,000 287,000 State deferred tax assets 653,000 629,000 U.S. net operating loss carryforwards 29,000 165,000 Non-U.S. net operating loss carryforwards 964,000 435,000 Other 42,000 28,000 ---------------- -------------- Total gross deferred tax assets 5,649,000 4,828,000 Less valuation allowance (5,649,000) (4,828,000) ---------------- -------------- Net deferred tax assets - - Deferred tax liabilities: Capitalized software costs 1,641,000 1,496,000 State deferred tax liability 402,000 370,000 Other 148,000 149,000 ---------------- -------------- Net deferred tax liability $2,191,000 $2,015,000 ================ ==============
During the year ended December 31, 1995, the Company's research and experimentation carryforwards were utilized to reduce current income taxes. The valuation allowance decreased $452,000, $846,000 and $821,000 in 1993, 1994 and 1995, respectively. (Continued) - 44 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements As of December 31, 1995, Jandel had net operating loss carryforwards of approximately $398,000 and $200,000 for Federal and state purposes respectively, expiring in years 2000 through 2010. As of December 31, 1995, Jandel also had net operating loss carryforwards for Jandel Scientific GmbH totalling approximately $45,000. Jandel has available as of December 31, 1995, Federal and state research and experimentation tax credit carryforwards of approximately $480,000 and $198,000, respectively, which expire in the years 2004 through 2010. Due to the merger with SPSS, Jandel's ability to utilize net operating loss and credit carryforwards may be affected. (11) CAPITAL STOCK In conjunction with the August 1993 initial public offering, the Company converted 52,650 shares of Series A convertible preferred stock and 60,000 shares of Series B convertible preferred stock into Common Stock at a rate of 100 shares of Common Stock for each share of preferred stock and effected a reverse one-for-three Common Stock split, resulting in 1,755,000 and 2,000,000 shares of Common Stock, respectively. The Company issued 2,000,000 shares of Common Stock on the August 18, 1993 effective date of the initial public offering, with an additional 266,667 shares subsequently issued to the underwriters to cover overallotments, at an initial offering price of $8.00 per share. The Company used the net proceeds of $15,592,000 and part of the new line of credit to retire: (i) term loan of $7,000,000 and accrued interest of $378,000, (ii) subordinated notes of $1,000,000 and accrued interest of $212,000, (iii) subordinated note of $4,367,000 and subordinated obligation of $1,300,000 and accrued interest of $1,188,000, and (iv) subordinated obligation of $375,000 and accrued interest of $61,000, and replaced the existing revolving line of credit by repaying the outstanding balance of $3,671,000. Three former holders of Class B Common Stock of the Company exercised their statutory rights to dissent from the value at which their stock was redeemed. During 1993, the court issued an order valuing the dissenting shareholders' stock at $20.70 per share (or $520,025 for the total stock value, before adjustment for the above one-for-three stock split), plus interest at the rate of 9% per annum from October 10, 1990 until payment, and awarded attorneys fees and costs incurred by the former shareholders. The Company filed an appeal related to this matter to challenge the trial procedure, the courts' valuation of the stock and the award of attorneys' fees and costs. The Company had posted a bond of $1,184,000 during the pendency of the appeal. On February 3, 1995, the Company's Petition for Leave to Appeal was denied by the Illinois Supreme Court. Subsequently, the Company paid the judgment and settled all remaining claims, and on April 16, 1995, the court entered an Agreed order of Dismissal with Prejudice of all pending claims, defenses and counterclaims. In February 1995, the Company and certain Selling Stockholders completed an offering of Common Stock in which the Company sold 700,000 shares of Common Stock and the Selling Stockholders sold 921,916 shares of Common Stock, at a public offering price of $11.375 per share, and each sold an additional 208,287 and 35,000 shares, respectively, when the underwriters exercised their overallotment option in March 1995. After the underwriters' discounts and other offering expenses, the Company received approximately $9,127,000 in net proceeds from its sale of 908,287 shares of Common Stock in the offering. (Continued) - 45 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements (12) RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIP The Company entered into agreements with limited partnerships in 1981, 1982 and 1985 to perform research and development for new and existing computer software. Certain of the general and limited partners of these partnerships are officers of the Company and under these agreements, the Company incurred royalty expense to the partnerships of $342,000, $349,000 and $361,000 for the years ended December 31, 1993, 1994 and 1995, respectively. (13) STOCK OPTIONS On January 16, 1992, the Company adopted a Stock Option Plan for certain key employees. Options vest either immediately or over a four-year period. In September 1994, the Company granted options to purchase 150,000 shares of Common Stock to the principal owners of SYSTAT. In addition, in June 1995, the Shareholders of the Company adopted the 1995 Equity Incentive Plan which authorizes the Board of Directors, under certain conditions, to grant stock options and shares of restricted stock to directors, officers, other key executives, employees and independent contractors. Options for 298,437, 438,980 and 605,808 common shares are vested and exercisable at December 31, 1993, 1994 and 1995, respectively. Stock option transactions are summarized below:
Outstanding Options ---------------------------------------------- Number of Price per Aggregate shares share price ------------------- -------------------- ------------------ Balance, December 31, 1992 419,343 $1.05-11.94 887,935 Options granted 223,760 1.05-10.79 1,110,333 Options terminated (1,000) 1.05 (1,050) Options exercised (18,049) 2.30-5.74 (50,185) ------------------- ------------------ Balance, December 31, 1993 624,054 1.05-11.94 1,947,033 Options granted 231,450 8.625-10.79 2,099,848 Options terminated (7,961) 1.05-8.27 (73,734) Options exercised (14,426) 1.05-8.27 (34,290) ------------------- ------------------ Balance, December 31, 1994 833,117 1.05-11.94 3,938,857 Options granted 305,373 .314-14.75 3,925,591 Options terminated (10,095) 1.05-14.75 (114,766) Options exercised (21,526) 1.05-8.625 (38,933) ------------------- ------------------ Balance, December 31, 1995 1,106,869 $.314-14.75 7,710,749 =================== =========== ==================
- 46 - SPSS INC. AND SUBSIDIARIES Supplemental Consolidated Balance Sheet September 30, 1996 (In thousands, except share data) (Unaudited)
ASSETS Current assets: Cash and cash equivalents $ 12,528 Accounts receivable, net of allowances 15,223 Inventories 1,574 Prepaid expenses and other current assets 2,275 ------------------ Total current assets 31,600 ------------------ Equipment and leasehold improvements, at cost: Furniture, fixtures, and office equipment 4,080 Computer equipment and software 11,832 Leasehold improvements 1,562 ------------------ 17,474 Less accumulated depreciation and amortization 11,684 ------------------ Net equipment and leasehold improvements 5,790 ------------------ Capitalized software development costs, net of accumulated amortization 6,798 Goodwill, net of accumulated amortization 2,021 Other assets 1,755 ------------------ $47,964 ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable 3,202 Accrued royalties 396 Accrued rent 731 Other accrued liabilities 7,937 Income taxes and value added taxes payable 3,499 Customer advances 164 Deferred revenues 6,232 ------------------ Total current liabilities 22,161 ------------------ Deferred income taxes 2,015 Other non-current liabilities 121 Stockholders' equity: Common Stock, $.01 par value; 50,000,000 shares authorized; 7,684,995 shares issued and outstanding 77 Additional paid-in capital 40,943 Cumulative foreign currency translation adjustments (1,118) Accumulated deficit (16,235) Total stockholders' equity 23,667 ------------------ Commitments -- $47,964 ==================
See accompanying notes to the unaudited supplemental consolidated financial statements. - 47 - SPSS INC. AND SUBSIDIARIES Supplemental Consolidated Statements of Income Nine months ended September 30, 1995 and 1996 (In thousands, except share data) (Unaudited)
1995 1996 ------------------- ------------------- Net revenues: Desktop products $ 40,277 $ 47,689 Large System products 7,892 8,141 Other products and services 4,745 5,003 ------------------- ------------------- Net revenues 52,914 60,833 Cost of revenues 5,511 6,238 ------------------- ------------------- Gross profit 47,403 54,595 ------------------- ------------------- Operating expenses: Sales and marketing 28,746 30,596 Product development 8,215 9,841 General and administrative 4,604 5,337 ------------------- ------------------- Operating expenses 41,565 45,774 ------------------- ------------------- Operating income 5,838 8,821 ------------------- ------------------- Other income (expense): Interest income, net 85 310 Merger costs -- (980) Other 141 (190) ------------------- ------------------- Other income (expense) 226 (860) ------------------- ------------------- Income before income taxes 6,064 7,961 Income tax expense 2,207 2,703 ------------------- ------------------- Net income $ 3,857 $ 5,258 =================== =================== Net earnings per share $ 0.48 $ 0.63 =================== =================== Weighted average common stock and common stock equivalent shares outstanding 8,013,414 8,350,701 =================== ===================
See accompanying notes to the unaudited supplemental consolidated financial statements. - 48 - SPSS INC. AND SUBSIDIARIES Supplemental Consolidated Statements of Cash Flows Nine months ended September 30, 1995 and 1996 (In thousands) (Unaudited)
1995 1996 Cash flows from operating activities: Net income $3,857 $5,258 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,243 3,596 Stock option compensation expense - 25 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable 94 (1,530) Inventories 269 189 Accounts payable (1,104) (76) Accrued royalties (113) (100) Accrued expenses (1,433) (1,264) Other 173 (1,158) ---------------- ----------------- Net cash provided by operating activities 4,986 4,940 ---------------- ----------------- Cash flows from investing activities: Capital expenditures, net (1,945) (2,845) Capitalized software development costs (1,799) (995) Net payments related to acquisitions - (244) Net decrease in other assets 11 6 ---------------- ----------------- Net cash used in investing activities (3,733) (4,078) ---------------- ----------------- Cash flows from financing activities: Net repayments under line-of-credit agreements (2,959) (75) Proceeds from issuance of common stock 9,269 378 Income tax benefit from stock option exercises - 188 Repurchase of Common Stock (14) - Other (19) - ---------------- ----------------- Net cash provided by financing activities 6,277 491 ---------------- ----------------- Net change in cash and cash equivalents 7,530 1,353 Cash and cash equivalents at beginning of period 2,410 11,175 Cash and cash equivalents at end of period $9,940 $12,528 ================ ================= Supplemental disclosures of cash flow information: Interest paid $ 131 $ 20 Income taxes paid 2,083 1,281 ================ ================= Supplemental disclosures of noncash activity: Declaration of Clear dividend $ 99 $ - ================ =================
See accompanying notes to the unaudited supplemental consolidated financial statements. - 49 - SPSS INC. AND SUBSIDIARIES Notes to Supplemental Consolidated Financial Statements (unaudited) (1) BASIS OF PRESENTATION The accompanying unaudited interim supplemental consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods presented. All such adjustments are of a normal recurring nature. These supplemental consolidated financial statements should be read in conjunction with the Company's audited supplemental consolidated financial statements and notes thereto for the year ended December 31, 1995 included elsewhere herein. (2) BUSINESS COMBINATION The unaudited supplemental consolidated financial statements give retroactive effect to the merger of SPSS Inc. and Jandel Corporation and Subsidiary on November 20, 1996, which has been accounted for as a pooling of interests. These financial statements do not extend through the date of consummation. However, they will become the historical consolidated financial statements of SPSS Inc. and subsidiaries after financial statements covering the date of consummation of the business combination are issued. - 50 - JANDEL CORPORATION AND SUBSIDIARY Consolidated Balance Sheets September 30, 1996 (Unaudited)
ASSETS 1996 ------------------- Current assets: Cash and cash equivalents 270,218 Accounts receivable, net 697,470 Inventories 218,845 Prepaid expenses and other assets 64,682 ------------------- Total current assets 1,251,215 Property and equipment, net 392,264 Other assets 36,982 Goodwill, net 92,870 Total assets 1,773,331 =================== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 373,627 Accrued liabilities 440,324 Deferred revenue 252,249 ------------------- Total current liabilities 1,066,200 Other liabilities 23,362 ------------------- Total liabilities 1,089,562 =================== Shareholders' equity: Common stock, no par value; 600,000 shares authorized; 351,034 shares issued and outstanding 3,096,204 Accumulated deficit (2,412,435) ------------------- Total shareholders' equity 683,769 ------------------- Commitments - Total liabilities and shareholders' equity 1,773,331 ===================
See accompanying notes to unaudited consolidated financial statements. - 51 - JANDEL CORPORATION AND SUBSIDIARY Consolidated Statements of Operations Nine Months Ended September 30, 1995 and 1996 (Unaudited)
1995 1996 --------------------- --------------------- Net revenues $ 5,493,420 $ 5,958,971 Cost of sales 882,570 1,002,214 --------------------- --------------------- Gross margin 4,610,650 4,956,757 Operating expenses: Sales and marketing 2,721,439 2,776,060 Research and development 1,460,058 1,283,557 General and administrative 1,081,246 1,069,447 --------------------- --------------------- Operating expenses 5,262,743 5,129,064 --------------------- --------------------- Loss from operations (652,093) (172,307) Interest income, net 6,016 3,120 --------------------- --------------------- Loss before income taxes (646,077) (169,187) Income taxes 800 800 --------------------- --------------------- Net loss $ (646,877) $ (169,987) ===================== =====================
See accompanying notes to unaudited consolidated financial statements. - 52 - JANDEL CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows Nine Months Ended September 30, 1995 and 1996 (Unaudited)
1995 1996 ------------------ ------------------ Cash flows from operating activities: Net loss $(646,877) $(169,987) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 164,008 167,845 Compensation expense for issuance of common stock -- 24,500 Changes in operating assets and liabilities: Accounts receivable 253,472 453,499 Inventories 17,004 (70,303) Prepaid expenses and other assets (42,209) 24,347 Accounts payable 219,150 (301,736) Accrued liabilities (166,178) (27,711) Other liabilities (24,433) (8,254) Deferred revenue 34,670 123,644 ------------------ ------------------ Net cash provided by (used in) operating activities (191,393) 215,844 ------------------ ------------------ Cash flows from investing activities: Additions to property and equipment (141,158) (161,289) Decrease in other assets 11,099 5,734 ------------------ ------------------ Net cash used in investing activities (130,059) (155,555) ------------------ ------------------ Cash flows from financing activities: Repayments on notes payable and long-term debt (90,991) (75,000) Proceeds from issuance of common stock upon exercise of options -- 33,490 Repurchase of common stock (13,701) -- ------------------ ------------------ Net cash used in financing activities (104,692) (41,510) ------------------ ------------------ Net increase (decrease) in cash and cash equivalents (426,144) 18,779 Cash and cash equivalents, beginning of year 630,056 251,439 ------------------ ------------------ Cash and cash equivalents, end of year $203,912 $270,218 ================== ================== Supplemental disclosure of cash flow information: Cash paid during the year: Interest $3,325 $1,403 Income taxes $ 800 $ 800 ================== ==================
See accompanying notes to unaudited consolidated financial statements. - 53 - JANDEL CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) (1) BASIS OF PRESENTATION The accompanying unaudited interim financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods presented. All such adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 31, 1995 incorporated herein by reference. - 54 - NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR TABLE OF CONTENTS SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. TABLE OF CONTENTS Page Available Information.............................................4 Incorporation of Certain Documents by Reference...................4 The Company.......................................................6 Risk Factors.....................................................13 Selling Stockholders.............................................24 Use of Proceeds..................................................24 Dividend Policy and Restrictions.................................24 Plan of Distribution.............................................24 Legal Matters....................................................25 Experts..........................................................25 183,833 Shares SPSS INC. COMMON STOCK ($.01 PAR VALUE) Prospectus Dated February 14, 1997 - 55 - -----END PRIVACY-ENHANCED MESSAGE-----