-----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, OiOelghE/TyJe4Jhq+0yPLPXyJmmlWPYaU4+B9QXnoYoFlJUNeyHcthHYokAZe5E lhOwPz1RnBO3uVRuO7RR2Q== 0000950137-00-001435.txt : 20000331 0000950137-00-001435.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950137-00-001435 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 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: 10-K SEC ACT: SEC FILE NUMBER: 000-22194 FILM NUMBER: 585660 BUSINESS ADDRESS: STREET 1: 233 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123292400 MAIL ADDRESS: STREET 1: 233 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 10-K 1 FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER: 33-64732 ---------- SPSS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-2815480 (STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.) OF INCORPORATION OR ORGANIZATION) 233 S. WACKER DRIVE, CHICAGO, ILLINOIS 60606 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (312) 651-3000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE (TITLE OF CLASS) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. ( ) THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT (BASED UPON THE PER SHARE CLOSING SALE PRICE OF $31.6875 ON MARCH 17, 2000, AND FOR THE PURPOSE OF THIS CALCULATION ONLY, THE ASSUMPTION THAT ALL REGISTRANT'S DIRECTORS AND EXECUTIVE OFFICERS ARE AFFILIATES) WAS APPROXIMATELY $266 MILLION. THE NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK, PAR VALUE $.01, AS OF MARCH 17, 2000, WAS 9,731,764. ================================================================================ 2 SPSS INC. TABLE OF CONTENTS
PART I Item 1. Business....................................................................... 3 Item 2. Properties..................................................................... 19 Item 3. Legal Proceedings.............................................................. 19 Item 4. Submission of Matters to a Vote of Security Holders............................ 19 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................................................... 20 Item 6. Selected Consolidated Financial Data........................................... 21 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 22 Item 7A. Quantitative and Qualitative Disclosures About Market Risks.................... 28 Item 8. Financial Statements and Supplementary Data.................................... 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 53 PART III Item 10. Directors and Executive Officers of the Registrant............................. 53 Item 11. Executive Compensation......................................................... 56 Item 12. Security Ownership of Certain Beneficial Owners and Management................................................................... 63 Item 13. Certain Relationships and Related Transactions................................. 65 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................................. 66
The following trademarks and service marks appear in this Annual Report: SPSS(R), Clementine(R), Clementine Solution Publisher(TM), AnswerTree(R), Jandel(TM), Quantime(TM), Surveycraft(TM), SmartScore(TM), SYSTAT(R), SigmaPLOT(R), VERBASTAT(TM), VentoMap(TM), Vento(TM), CLEAR(R), and AllCLEAR(R). SPSS has filed a trademark application for the marks DecisionTIME AND SmartViewer. SPSS also has a foreign trademark registration for In2itive Technologies(R) in Denmark. 3 SPSS INC. FORM 10-K ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 FORWARD-LOOKING STATEMENTS This document contains forward-looking statements that involve risks and uncertainties that could cause the results of SPSS Inc. and its subsidiaries to differ materially from those expressed or implied by such forward-looking statements. These risks include the timely development, production, and acceptance of new products and services, market conditions, competition, the flow of products into third-party distribution channels, and other risks detailed from time to time in the Company's Securities and Exchange Commission filings. The words "anticipate," "believe," "estimate," "expect," "plan," "intend," "will," and similar expressions, as they relate to SPSS or its management, may identify forward-looking statements. Such statements reflect the current views of SPSS with respect to future events and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, or expected. SPSS does not intend to update these forward-looking statements. PART I ITEM 1. BUSINESS GENERAL SPSS Inc. was incorporated in Illinois in 1975 under the name "SPSS, Inc." and was reincorporated in Delaware in May 1993 under the name "SPSS Inc." Unless the context otherwise requires, the term "SPSS" or "the Company" refers to SPSS Inc., a Delaware corporation, its Illinois predecessor, and its subsidiaries. SPSS is a multinational company that provides software and professional services for discovering what customers want and predicting what they will do. The Company's products and services, individually and in combination, are primarily used by commercial organizations to integrate and analyze market, customer, and operational data in the process of formulating strategies and programs to interact with their customers more effectively. This process is commonly called "data mining" or "data analysis using advanced analytical techniques." Especially when combined into comprehensive analytical solutions, SPSS products and professional services enable commercial organizations to better target their marketing and sales programs, including: o attracting new customers more efficiently; o increasing sales to existing customers by improving cross-selling, up-selling, and retention; o forecasting and monitoring results, such as sales performance; o facilitating more effective electronic commerce; and o better allocating scarce resources across marketing programs. 3 4 In the public sector, SPSS products and services are primarily used for improving interactions with constituents, the detection of fraud and non-compliance, academic research, and teaching data analysis techniques at colleges and universities. The Company's products offer: o a wide array of data access and data management capabilities; o an extensive range of analytical techniques not found in spreadsheets, query and reporting, or OLAP (On-Line Analytical Processing) software; and o various capabilities for the deployment of the results of analyses to decision-makers or their integration into databases, operational systems, and the worldwide web. The Company's major software products include the SPSS and Clementine product lines for general data mining and analysis (particularly in customer relationship management applications), the Quantime, In2itive, and Surveycraft product lines for professional market research, and the VentoMap product line for business performance measurement. SPSS also markets certain products, most notably SigmaPlot and SYSTAT, primarily for use in scientific research. In its 24 years of operation, SPSS has become a widely recognized name in analytical software. The Company plans to leverage this leadership position to take advantage of the increased demand for software and services that enable organizations to systematically analyze and present data for use in decision-making. This increased demand is particularly apparent in decisions related to developing programs for attracting or retaining customers, as well as forecasting and monitoring the results of such programs. The Company's management believes that growth in the availability of data about, and competition for, customers has substantially expanded the market for its solutions. Further contributing to this increased demand are new versions of certain SPSS products that effectively process large volumes of data, other new products for the deployment of analytical results, and new service offerings for the integration and analysis of customer data, especially information collected at web sites. In summer 1993, SPSS completed an initial public offering of common stock, $.01 par value. The common stock is listed on the Nasdaq National Market under the symbol "SPSS." In early 1995, the Company and some stockholders sold 1,865,203 shares of common stock in a public offering. RECENT DEVELOPMENTS In April 1997, SPSS entered into a 15-year sublease agreement to sublease approximately 100,000 square feet of space in the Sears Tower in Chicago, Illinois. During 1998, this space became the principal office space of the Company. In September 1997, SPSS acquired approximately 97% of the outstanding shares of capital stock of Quantime Limited, a corporation organized under the laws of England in exchange for 863,049 shares of common stock of SPSS. As a result of this transaction, Edward Sherman Ross, formerly a director of Quantime, beneficially acquired 441,635 shares of SPSS common stock. In November 1997, SPSS acquired the remaining shares of capital stock of Quantime in exchange for 28,175 shares of common stock of SPSS. Quantime is a developer of software products for firms in the market research industry. Within SPSS, Quantime is part of a business unit focused exclusively on market research companies worldwide. 4 5 In November 1997, SPSS acquired all of the outstanding shares of capital stock of In2itive Technologies A/S, a corporation organized under the laws of Denmark, in exchange for 140,727 shares of common stock of SPSS. In2itive is a developer of software products for firms in the market research industry. Within SPSS, In2itive joins Quantime as part of a business unit focused exclusively on market research companies worldwide. In November 1998, SPSS acquired all of the outstanding shares of capital stock of Surveycraft Pty Ltd., a corporation organized under the laws of Australia, for approximately $1,700,000. Surveycraft is a developer of software products for firms in the market research industry, and was the first such entity to support Asian languages. Within SPSS, Surveycraft joins In2itive and Quantime as part of a business unit focused exclusively on market research companies worldwide. On December 31, 1998, SPSS acquired all of the outstanding shares of capital stock of Integral Solutions Limited ("ISL"), a corporation organized under the laws of England, for an aggregate purchase price of approximately $7,000,000. SPSS may be required to make additional payments up to approximately $7,000,000 in future years to the former owners of ISL based upon the attainment of specific operating results. An additional payment of approximately $3,900,000 was made in January 2000. The additional payments will be recorded as an adjustment to the purchase price paid by SPSS for the stock of ISL in the periods in which the payments are determinable. ISL is a developer of software products for data mining. SPSS plans to further develop these ISL products to create a comprehensive data mining workbench targeted at large organizations as part of its overall strategy for more enterprise-wide sales of SPSS software and services. On November 29, 1999, SPSS acquired all of the outstanding shares of Vento Software, Inc. in exchange for 546,060 shares of common stock of SPSS. Vento's assets include the VentoMap product line, a series of industry-specific software products for business performance measurement, and a proprietary methodology for the delivery of related professional services. SPSS plans to further develop these Vento products and integrate its data mining capabilities, as well as use the Vento professional services methodology as the basis for expanded consulting activities supporting the implementation of its analytical solutions. On December 24, 1999, SPSS acquired the VerbaStat software program from DataStat, S.A., a corporation organized under the laws of Belgium, for approximately $1,000,000. VerbaStat is a software tool for computer aided coding of open-ended survey questions. SPSS plans to further develop this product and integrate its capabilities into its next-generation solution for firms in the market research industry. INDUSTRY BACKGROUND The analysis of data using advanced analytical techniques, whether traditional statistical methods such as factor analysis and regression, or other methods such as neural networks and decision trees, enables decision-makers to draw reliable conclusions from numerical information about a given subject. Such systematic analysis of numbers goes back to the seventeenth century, when statistics were used in determining insurance and annuity rates, as well as by political leaders in developing more effective economic policies. The fundamental purpose and power of this kind of data analysis remains the same today: to help decision makers understand and resolve problems by uncovering the causes underlying current conditions and predicting future events. Such benefits are particularly apparent in contemporary data mining applications, which often involve the examination of extremely large amounts of data stored 5 6 in specialized databases known as "data warehouses" or "data marts," as well as in analyzing data directly related to activities on the world wide web. SPSS has historically developed and marketed its products and services for a wide range of data analysis applications. Recently, the Company began to focus more specifically upon the analysis of data related to customer attitudes and behavior. SPSS believes that demand for its analytical capabilities will continue to grow as decision-making becomes more complex, as the consequences of decisions (particularly those related to customer requirements) become more significant, and as more data is available for analysis. To meet this demand, colleges and universities are training increasing numbers of people in the use of appropriate analytical methods. In addition, new technology has made more usable and affordable the application of advanced analysis to large data sets, as well as the distribution of analytical results to wider audiences within an organization. Vendors providing spreadsheets, query and reporting tools, and OLAP software serve the largest part of the general market for data analysis software. The widespread use of these tools is due to their effectiveness in providing basic summaries of historical data, such as what sales were by region, how many customers purchased a particular product, or what the default rate was on loans. A smaller yet sizable and growing part of the market uses more advanced analytical capabilities for dealing with issues of causality and prediction. Such capabilities enable corporations to predict sales for the upcoming season, determine the best targets for a new product, or distinguish good and bad credit risks prior to extending credit terms. Spreadsheet, query and reporting, and OLAP software usually lack the advanced analytical capabilities to build the predictive models needed to address these types of questions. SPSS believes the worldwide demand for its analytical solutions will grow as: o competition for customers accelerates dramatically due to the combination of increasingly global markets, deregulation in many industries, and the ubiquity of information on the web; o commercial and public sector organizations demand more accountability for spending and on invoices from suppliers; o organizations require more useful information from the increasing amount of data being collected, organized, and stored; o the number of people with a working knowledge of analytical methods continues to grow significantly; and o easier-to-use software, increases in computing power, and additional options for the deployment of results eliminate many historical barriers to the use of advanced analytical capabilities. MARKETS SPSS customers come from various industries and use SPSS products in a wide range of applications. The Company focuses, however, on the following market areas: Customer Relationship Management. Firms in various industries use SPSS software and services to improve customer interactions, including: 6 7 o targeting promotional campaigns; o test-marketing new products; o identifying changing customer characteristics; o measuring customer satisfaction; o forecasting sales; and o streamlining and personalizing web sites and other applications. Business Intelligence. Firms in various industries use SPSS software and services to analyze information in corporate databases, particularly data warehouses, for an extensive range of applications. The Company's technology extends the capabilities provided by other business intelligence tools such as OLAP software, query and reporting programs, ETL (extraction-transformation-load) products, and multidimensional data stores. Moreover, SPSS software for business performance measurement gives executives the ability to monitor critical day-to-day operations by viewing key performance indicators and drilling down for more information as needed. Market Research. Almost all of the top market research firms worldwide use the Company's software and services to conduct the process of survey research, from designing questionnaires to collecting data through multiple sources (especially telephone and the web) to producing customized tabulations to developing advanced analytical models. Government. SPSS software and services are used in almost every country of the world, at all levels of government, and in civilian as well as defense agencies. The Company's products, for example, are used as part of the efforts of the Internal Revenue Service of the United States to modernize its tracking systems, furnish critical information used by many municipal public safety agencies, have become the standard marketing tools in the recruitment programs of the United States Armed Forces, and are employed as a statistical system for many national census programs. Education. SPSS software is used at virtually every major college and university. In addition to their use in teaching statistics at the undergraduate and graduate levels, the Company's products are used in academic research of all types. Academic administrators also use SPSS software to monitor aspects of their operations, such as attrition rates, changes in the demographic profile of student populations, and the success of fund-raising activities. Scientific Research. SPSS products are used in a wide variety of research and development efforts across academic, government, and corporate institutions. The Company's software provides data analysis and presentation tools in such applications as pharmacology, clinical trials, environmental monitoring, and experimental modeling. ANALYTICAL SOLUTIONS AND SOFTWARE PRODUCTS The Company's software products enable its customers to analyze data, including the generation of reports, graphs, and models, on a wide variety of computing platforms. Many of these software products can be used either stand-alone or as part of an integrated system. SPSS provides services with its products, such as developing plans to align analytical efforts with organizational goals, collecting and storing data, building predictive models, and deploying the results of analyses throughout an organization. Certain combinations of software products and professional services are marketed by SPSS as "analytical solutions." 7 8 In general, SPSS software products are: o comprehensive in function, spanning the process of analysis from data access to advanced predictive techniques; o modular, allowing customers to purchase only the functionality they need; o integrated, enabling the use of multiple SPSS products in combination to tackle particularly complex problems; o embeddable, facilitating the integration of SPSS analytical capabilities into other systems, including web sites; o tailored to desktop operating environments for greater ease-of-use, including browser-based environments for the delivery of results; o available on most popular computing platforms, and o for some products, localized for use in France, Germany, Italy, Poland, Japan, Taiwan, Korea, China, and Spanish-speaking countries. SPSS products are most often used in combination, particularly in customer relationship management applications. Such combinations are required because customers receive different types of value from different types of analysis of the same data. For example, a customer might use the SPSS market research products to collect information about its customers' preferences and integrate this data with operational and purchased demographic information in a data warehouse. The customer might then analyze the data with one or more SPSS data mining and analysis products to create customer profiles for use in marketing programs to attract certain types of prospects. Finally, the customer could monitor the performance of these marketing programs with the SPSS business performance measurement products. There are four categories of SPSS products: 1. Data mining and analysis products, for examining data in databases, data warehouses, and other file types. In customer relationship management applications, these products are primarily used to segment customers by various outcomes, such as the purchase of a product or the renewal of a contract, as well as to predict their future behavior and the actions of prospects with similar profiles. SPSS offerings for data mining and analysis are in either the SPSS or Clementine product lines. o The SPSS product line provides a broad range of statistical methods. Users create tables, graphs, OLAP reports, and predictive models in both desktop and distributed computing environments. While there are some variations according to the version and computing platform, a typical configuration in a customer relationship management application is an SPSS Base and related add-on and stand-alone products. The SPSS Base includes the user interface, data connectivity, data editing, reporting, graphing, and general statistical capabilities. Add-on products require the SPSS Base to operate and become seamlessly integrated with it upon installation. These optional offerings provide additional functionality specific to a particular type of analysis. Stand-alone products do not require the SPSS Base to operate and perform specific applications, such as facilitating certain types of data entry or 8 9 performing certain kinds of advanced analysis. These stand-alone products are developed by SPSS or third parties. See "Business - Reliance on Third Parties." Certain stand-alone products in the SPSS product line are particularly notable because their capabilities provide value to organizations beyond what is typically realized with general-purpose statistical products. AnswerTree, for example, enables highly visual decision-trees to be used for developing customer profiles. DecisionTime creates time-series forecasts, which can then be distributed for review and scenario analysis by managers and executives with its companion product, WhatIf? SmartViewer Web Server distributes the results of analysis to decision-makers via the web. SmartScore deploys the results of analyses into operational systems, including web sites, as well as into databases or data warehouses. o The Clementine product line offers advanced analytical capabilities for a variety of data mining applications in desktop and distributed computing environments. With its unique user interface, Clementine enables operating managers to easily incorporate their business knowledge with data to develop predictive models. Models built in Clementine can then be deployed for use in other software applications with the Clementine Solution Publisher. While the SPSS and Clementine product families are already usable together, the Company plans to more tightly integrate their functionality in the future. 2. Business performance measurement products. The VentoMap product line enables executives to monitor the effectiveness of their operations, particularly with respect to customer relationship management items such as retention rates, the number of new sales, and average account size. Each implementation is based on a data model specific to an industry or application and includes the use of a proprietary process for identifying key performance indicators ("KPIs") appropriate to that business. Executives can easily view these KPIs and then drill down for more detailed information to get a better understanding of what caused the results. 3. Market research products. The Quantime, In2itive, and Surveycraft product lines provide comprehensive solutions for professionals in the market research industry. These sets of offerings have their particular strengths: the Quantime products, for example, are distinguished by their extensive functionality, while the In2itive products feature a more modern user interface, and the Surveycraft products are more easily localized for use in Asian markets. The Company plans to combine the strengths of these product lines, as well as improve their ability to communicate with other SPSS products, in its next-generation solution for market research professionals. 4. Scientific products. Scientists and engineers in various technical applications use the SigmaPlot and SYSTAT product lines for data presentation and analysis. SPSS software products have received numerous favorable reviews from trade and other publications. Some of the analytical capabilities of the products are available as components, which software developers can integrate into their own applications. A full range of services, including consulting, training, and technical support, is available for all products. SOFTWARE PRICING The Company's licensing and pricing alternatives vary widely depending upon the product, platform, and quantities licensed. 9 10 For the SPSS product line, list prices in North America for perpetual single-user licenses of desktop products are approximately $999 for the SPSS Base and range from $299 to $2,499 for other products. Multi-user network and site licenses can be significantly higher and require annual payments. List prices of annual licenses for SPSS product line products on mainframes, minicomputers, UNIX workstations, and Windows NT servers range from $4,500 to $15,000, while perpetual licenses run from $10,000 to over $30,000. SPSS licenses outside of North America are more often sold as annual licenses. Clementine is available under all license types listed above, with a typical sale of between $50,000 and $75,000. VentoMap installations usually involve the combination of a perpetual license for the software and a consulting engagement to determine the KPIs and build the data warehouse. The price of VentoMap installations typically ranges from $500,000 to $1,000,000. Although available on perpetual licenses, the market research products are most often licensed on an annual basis, where the amount of the annual fee depends on the number of modules involved in the customer's configuration and the number of users of each module. Such annual fees range from approximately $1,000 to over $1 million. The rate of renewal of these licenses has historically been very high (over 90%). Science products are usually sold as perpetual licenses for between $500 and $1,300, with discounts for volume purchases. Multi-user and site licenses are also available and require annual payments. PUBLICATIONS AND STUDENT SOFTWARE SPSS authors and regularly updates a number of publications that include user manuals and instructional texts. The Company also develops student versions of its SPSS Base and SYSTAT products, which are designed for classroom use with SPSS textbooks or other instructional materials. Since February 1993, the College Division of Prentice Hall, under the terms of a semi-exclusive, worldwide agreement, has distributed SPSS publications and student software. See "Business-Prentice Hall Agreement." SPSS also has arrangements with other publishers to include the SPSS Student Version in textbooks with data sets specific to the text. TRAINING AND CONSULTING SPSS offers a comprehensive training program with courses covering product operations, data analytical concepts, and particular analytical applications. These courses are regularly scheduled in cities around the world. Organizations may also contract for on-site SPSS training tailored to their specific requirements. The Company offers consulting and customization services, where an engagement may involve the development of plans to align analytical efforts with organizational goals, the collection and organization of data, the building of predictive models, and the deployment of the results of analyses throughout an organization. 10 11 SALES AND MARKETING The SPSS sales and marketing strategy emphasizes its ability to deliver high value products and analytical solutions, particularly for customer relationship management, business intelligence, market research, and business performance measurement applications. The Company's management believes its data mining and advanced analysis capabilities are the keys to differentiating SPSS from its competitors. SPSS markets and sells its products and services primarily through a well-developed, worldwide direct sales and telesales organization. Historically, advertising, direct mail, tradeshow attendance, and customer references have proven the most effective ways of generating new sales for the telesales organization. Although varying widely, sales made by the telesales organization are typically completed within 30 days and average about $1,400. The Company's database of existing customers provides an effective source for selling add-on products, upgrades, and training or consulting services. Customers regularly receive direct mail from SPSS on its products and services. As SPSS increases its emphasis on the sale of higher-priced products and analytical solutions, the Company is increasing the size of its direct sales force along with its pre-sales support staff and consulting personnel. Most of this direct sales force is now organized by industry to better understand the business issues facing executives in that industry and more effectively relate SPSS products and analytical solutions to their needs. For large sales opportunities, SPSS sales representatives and technical sales personnel personally visit prospects to make presentations, give product demonstrations, and provide pre-sales consulting. SPSS also has partner relationships with other leading companies, which represent additional channels for sales and leads for the Company's higher-priced offerings. In addition to its headquarters in Chicago, SPSS has sales offices across the United States, including the Washington D.C. area, New York, San Francisco, Cincinnati, Denver, and Miami. The SPSS international sales operation consists of thirteen sales offices in Europe and the Pacific Rim, as well as over 60 licensed distributors. Overall, SPSS is represented in over 50 countries. Transactions are customarily made in local currencies. Student versions are published by Prentice Hall and sold by more than 300 Prentice Hall sales representatives working directly with faculty on college campuses worldwide. The arrangement also permits Prentice Hall to bundle its various textbooks on statistics, market research, and quality improvement with SPSS student versions. Current users of SPSS products comprise a significant source of new sales leads. Also important are the expert reviews of SPSS software in trade and market-specific publications. The Company's marketing communications program includes advertising in trade and market-specific publications, advertising on the worldwide web, direct mail, exhibiting at trade shows, participating in and speaking at professional association meetings, sponsoring seminars for prospects and customers, publishing its customer magazine and conducting user group meetings. CUSTOMER SERVICE AND TECHNICAL SUPPORT SPSS provides extensive customer service and technical support by telephone, fax, mail and the worldwide web, promoting customer satisfaction and obtaining feedback on new products. Technical support services provided to all licensees include assistance in product installation and operation, as well 11 12 as limited consulting in the selection of different analytical methods and the interpretation of results. Additional technical support services are available on a fee basis. PRODUCT DEVELOPMENT SPSS plans to continue expanding its product offerings through the development of new software products, the enhancement of existing products, the acquisition of technologies and businesses complementary to the Company's existing product lines, and the formation of partnerships with value-added resellers or other third parties serving selected markets. The Company's product development strategy is primarily focused on improving: o improving the scalability of its products to work with larger data sets; o expanding the ability of its products to integrate with other applications and be tailored to customer-specific requirements; and o enhancing the ways results of analyses can be deployed throughout an organization, making them readily accessible to decision-makers as well as used in various operational systems and web sites; and o extending the formidable analytical capacity already available in its products. The Company's specialists in user interface design, software engineering, quality assurance, product documentation, and the development of analytical algorithms are responsible for maintaining and enhancing the quality, usability, and accuracy of all SPSS software. The product development organization is also responsible for authoring and updating all user documentation and other publications. In addition, SPSS maintains ongoing relationships with third-party software developers for the development of specialized software products and the acquisition of technology that can be embedded in SPSS products. Most statistical algorithms used by SPSS in its products are published for the convenience of its customers. SPSS employs full-time statisticians who regularly research and evaluate new algorithms and statistical techniques for inclusion in the Company's products. SPSS also employs statistically-trained professionals in its documentation, quality assurance, software design and software engineering groups. SPSS intends to continue to invest in product development. In particular, the Company's 2000 development plan includes additional server versions of offerings in the SPSS product line and updates to the SPSS product line and related server versions, Clementine, SmartViewer Web Server, Quantime, In2itive, SYSTAT, SigmaPlot, and other products. SPSS also intends to further develop analytical components, which are products designed for use by software developers for integration into other applications. In the past, SPSS has experienced delays in the introduction of new products and product enhancements, primarily due to difficulties with particular operating environments and problems with technology provided by third parties. These delays have varied depending upon the size and scope of the project and the nature of the problems encountered. From time to time SPSS discovers "bugs" in its products, which are resolved through maintenance releases or periodic updates, depending on the seriousness of the defect. The SPSS product development staff currently includes approximately 193 professionals organized into groups for software design, algorithm development, software engineering, documentation, quality assurance, and product localization. The Company's expenditures for product development, 12 13 including capitalized software, were approximately $19.6 million in 1997, $22.8 million in 1998, and $27.6 million in 1999. SPSS also uses independent contractors in its product development efforts. Sometimes the Company uses these contractors to obtain technical knowledge and capability that it lacks internally. For example, contractors are engaged to perform conversions of SPSS products to computing platforms with which SPSS is unfamiliar or which are too costly to acquire for development purposes. SPSS has outsourced maintenance, conversion, and new programming for some products to enable its internal development staff to focus on products that are of greater strategic significance. The Company sometimes uses independent contractors to augment its development capacity at a lower cost. MANUFACTURING AND ORDER FULFILLMENT To assure speed and efficiency in the manufacturing, order fulfillment, and delivery of its products, SPSS entered into an agreement with IBM in February 1993. From April 1993 to December 1996, IBM performed all diskette and CD-ROM duplication, documentation printing, packaging, warehousing, fulfillment, and shipping of SPSS products in the Western Hemisphere for SPSS. In January 1997, the IBM agreement was replaced with a similar agreement with Banta Global Turnkey. These services were recently expanded worldwide. SPSS believes that, because of the capacity of these third party distribution centers and their around-the-clock operation, it can easily adapt to peak period demand, quickly manufacture new products for distribution, and effectively respond to anticipated sales volumes. COMPETITION The Company's traditional market for statistical software is both highly competitive and fragmented. SPSS is among the largest companies in the statistical software market and, based upon sales and comparative assessments in trade publications, the Company believes that it competes effectively against its competitors, particularly on desktop computing platforms. SPSS considers its primary worldwide competitor to be the larger and better financed SAS Institute. StatSoft Inc., Mathsoft, and Minitab, Inc. are also competitors, although their annual revenues from statistical products are believed to be considerably less than the revenues of SPSS. In addition to competition from other statistical software companies, SPSS also faces competition from providers of software for specific statistical applications. In the data mining, customer relationship management, and business performance measurement markets, SPSS faces competition from many larger and better funded companies, including SAS, IBM, HNC, NCR, Oracle, and others, as well as recent entrants, such as Attune, E.piphany, and Net Perceptions, many of whom specialize in customer relationship management in e-commerce settings. With the exception of SAS, the Company believes that these competitors do not currently offer the range of analytical capability available from SPSS and, as a result, are both competitors and potential partners for the Company's technology. SPSS holds a dominant position in the market for solutions to the market research industry. The Company believes that there are no competitors in this market who are larger and better financed; the annual revenues of such vendors as Sawtooth Software, Computers for Marketing Corporation, and Pulse Train Technology are estimated to be considerably less than the Company's revenues from its market research products and services. 13 14 In all markets, SPSS competes primarily on the basis of the usability, functionality, performance, reliability, and connectivity of its software products. The significance of each of these factors varies depending upon the anticipated use of the software and the analytical training and expertise of the customer. To a lesser extent, SPSS competes on the basis of price and thus maintains pricing and licensing policies to meet market demand. The Company believes it is able to compete successfully due to the graphical user interface, comprehensive analytical capabilities, efficient performance characteristics, local language versions, consistent quality, and connectivity features of its software products, as well as its worldwide distribution capabilities and widely recognized name. In the future, SPSS may face competition from other new entrants into its markets. SPSS could also experience competition from companies in other sectors of the broader market for business intelligence software, such as providers of OLAP and analytical application software, as well as from companies in other sectors of the broader market for customer relationship management applications, such as providers of sales force automation and collaborative software, who could add enhanced analytical functionality to their existing products. Some of these potential competitors have significantly more capital resources, marketing experience, and research and development capabilities than SPSS. Competitive pressures from the introduction of new products by these companies or other companies could have a material adverse effect on SPSS. INTELLECTUAL PROPERTY SPSS attempts to protect its proprietary software with trade secret laws and internal nondisclosure safeguards, as well as copyrights and contractual restrictions on copying, disclosure and transferability that are incorporated into its software license agreements. SPSS 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, SPSS licenses its products to end-users by use of a "shrink-wrap" license, as is customary in the industry. It is uncertain whether these 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, SPSS has entered into confidentiality and nondisclosure agreements with its key employees. Despite these restrictions, the possibility exists for competitors or users to copy aspects of the Company's products or to obtain information which SPSS regards as a trade secret. SPSS has no patents, and judicial enforcement of copyright laws and trade secrets 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. SPSS uses a variety of trademarks with its products. Management believes the following are material to its business: o SPSS is a registered trademark used in connection with virtually all of the Company's products o Clementine is a registered trademark used in connection with the Company's acquired product line from Integral Solutions Limited; o WhatIf? and DecisionTime are the subject of pending applications for registration. o AnswerTree is a registered trademark and is an add on product to the SPSS product family; 14 15 o SmartViewer is a registered trademark and is an add on product to the SPSS product family; o Vento and VentoMap are registered trademarks used in connection with the Company's acquired Vento products on all platforms; o Quantime is an unregistered trademark used in connection with the Company's acquired Quantime products on all platforms; o In2itive Technologies is a registered trademark in Denmark and is used in connection with the Company's acquired In2itive products on all platforms; o Surveycraft is an unregistered trademark used in connection with the Company's acquired Surveycraft products; o SYSTAT is a registered trademark used in connection with the Company's SYSTAT products on all platforms; o SigmaPlot is a registered trademark used in connection with the Company's acquired products on all platforms; and o allclear is a registered trademark used in connection with the Company's acquired Clear products on all platforms. Some of these trademarks comprise portions of other SPSS trademarks. SPSS has registered some of its trademarks in the United States and some of its trademarks in a number of other countries, including the Benelux countries, France, Germany, the United Kingdom, Japan, Singapore and Spain. Registration of a trademark confers a number of advantages over reliance on common law rights. Registration of a trademark generally presumes the validity of the mark and the registrant's ownership of and exclusive right to use the mark and, in some jurisdictions, constitutes constructive notice of ownership sufficient to eliminate any defense of good faith adoption or use after the date of registration. Due to the rapid pace of technological change in the software industry, SPSS believes that patent, trade secret, and copyright protection are less significant to its competitive position than factors such as the knowledge, ability, and experience of the Company's personnel, new product development, frequent product enhancements, name recognition, and ongoing reliable product maintenance and support. SPSS believes that its products and trademarks and other proprietary rights do not infringe the proprietary rights of third parties. There can be no assurance, however, that third parties will not assert infringement claims in the future. RELIANCE ON THIRD PARTIES SPSS entered into a perpetual nonexclusive license agreement, the HOOPS agreement, with Autodesk Inc. that permits SPSS to incorporate a graphics software program known as the HOOPS Graphics System into the Company's products. Under the terms of the HOOPS agreement, SPSS is required to pay royalties to Autodesk based on the amount of revenues received by SPSS from products that incorporate the HOOPS Graphics System. SPSS may terminate the HOOPS agreement at any time. 15 16 Autodesk may terminate the HOOPS agreement on the occurrence of a material, uncured breach of the HOOPS agreement by SPSS. SPSS also licenses certain other software programs from third-party developers and incorporates them into its products. Many of these licenses are exclusive worldwide agreements that terminate on various dates. SPSS believes that it will be able to renew non-perpetual licenses or obtain substitute products if needed. BANTA GLOBAL TURNKEY SOFTWARE DISTRIBUTION AGREEMENT In January 1997, SPSS entered into an agreement with Banta Global Turnkey (Banta) under which Banta manufactures, packages, and distributes SPSS software products to its customers worldwide. The Banta agreement had an initial three-year term, and automatically renews thereafter for successive periods of one year. The Banta agreement was renewed in January 2000. Either party may terminate this agreement with 180 days written notice. If Banta terminates the agreement for convenience or for any reason other than for cause, then during the 180-day notice period Banta will assist SPSS in finding a new vendor. If either party materially breaches its obligations, the other party may terminate the Banta agreement for cause by written notice. This termination notice for cause must specifically identify the breach or breaches, upon which the termination based and will be effective 180 days after the notice is received by the other party, unless the breach(es) is (are) corrected during the 180 days. PRENTICE HALL AGREEMENT SPSS entered into an agreement with Prentice Hall in February 1993. Under this agreement, SPSS granted to Prentice Hall the exclusive, worldwide right to publish and distribute all SPSS publications, including student versions of SPSS for DOS and Windows. The initial agreement had a five-year term which ended in 1998. SPSS entered into a new five-year contract with Prentice Hall in April 1998. Prentice Hall has an option to renew this contract for five additional years if it pays SPSS $2,750,000 or more during the term of this agreement. If Prentice Hall does not pay SPSS $1,100,000 by the end of the second year of the contract, SPSS has the option to make Prentice Hall's right to distribute Student Versions non-exclusive. The key differences in the new contract are: 1) Prentice Hall may only operate in certain geographic territories instead of having worldwide rights; 2) Prentice Hall only has rights to certain books and SPSS may sell any book (previously SPSS had to purchase the books from Prentice Hall); and (3) SPSS can, within certain guidelines, license other publishers to bundle versions of the SPSS Student Version with their textbooks. COMPUTER SOFTWARE DEVELOPMENT COMPANY In 1981, SPSS entered into a software development agreement with the Computer Software Development Company to obtain funding of approximately $2 million for development of software including two large system products, SPSS Graphics and SPSS Tables, and one desktop product, SPSS/PC+ Tables. SPSS entered into two software purchase agreements with Computer Software Development under which SPSS is required to pay Computer Software Development royalties through the year 2001 based on a percentage of "net revenues" (as defined in the agreements) from large system software products developed with Computer Software Development funds. Under these agreements, SPSS incurred royalties payable of approximately $249,000 in 1997, $234,000 in 1998 and $237,000 in 16 17 1999 to Computer Software Development. Norman Nie, the Chairman of the Board of SPSS, is a limited partner of Computer Software Development. SEASONALITY The Company's quarterly operating results fluctuate due to several factors, including: o the number and timing of product updates and new product introductions; o delays in product development and introduction; o purchasing schedules of its customers; o changes in foreign currency exchange rates; o product and market development expenditures; o the timing of product shipments; o changes in product mix; and o timing and cost of acquisitions and general economic conditions. If forecasts of future revenues fall below expectations, operating results may be adversely affected because the Company's expense levels are to a large extent based on these forecasts. Accordingly, SPSS 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. SPSS 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. SPSS has experienced a seasonal pattern in its operating results, with the fourth quarter typically having the highest operating income. For example, excluding special general and administrative, merger-related, and acquired in-process technology charges, the percentage of the Company's operating income realized in the fourth quarter was 36% in 1997, 35% in 1998 and 38% in 1999. In addition, the timing and amount of the Company's revenues are affected by 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 is 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. If SPSS fails to achieve these fourth quarter revenue increases, then a material reduction in net income for the fourth quarter and the full year could result. Generally, if revenues do not meet the Company's expectations in any given quarter, operating results will be adversely affected. SPSS cannot provide assurance that profitability on a quarterly or annual basis in the future. EMPLOYEES SPSS has approximately 919 employees, approximately 520 domestically, and 399 internationally. Of the approximate 919 employees, there are approximately 561 in sales and marketing, 193 in product development and 166 in general and administrative. SPSS believes it has generally good relationships with its employees. None of the Company's employees are members of labor unions. 17 18 FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES The following table sets forth financial information about foreign and domestic operations. This information may not necessarily be indicative of trends for future periods.
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1997 1998 1999 -------------- -------------- -------------- Sales to unaffiliated customers: United States $ 56,014,000 $ 64,870,000 $ 70,409,000 Europe & India 41,680,000 45,337,000 52,341,000 Pacific Rim 13,412,000 13,265,000 19,180,000 -------------- -------------- -------------- Total $ 111,106,000 $ 123,472,000 $ 141,930,000 ============== ============== ============== Sales or transfers between geographic areas: United States $ 18,261,000 $ 18,365,000 $ 22,707,000 Europe & India (12,613,000) (12,714,000) (14,296,000) Pacific Rim (5,648,000) (5,651,000) (8,411,000) -------------- -------------- -------------- Total $ -- $ -- $ -- ============== ============== ============== Operating income (loss) United States $ 5,025,000 $ 4,581,000 $ 7,272,000 Europe & India (232,000) 10,799,000 12,747,000 Pacific Rim 1,268,000 1,397,000 4,476,000 -------------- -------------- -------------- Total $ 6,061,000 $ 16,777,000 $ 24,495,000 ============== ============== ============== ------------------------------------------------------ 1997 1998 1999 -------------- -------------- -------------- Identifiable assets: United States $ 44,054,000 $ 67,014,000 $ 70,792,000 Europe & India 16,227,000 21,694,000 28,250,000 Pacific Rim 4,908,000 5,595,000 7,673,000 -------------- -------------- -------------- Total $ 65,189,000 $ 94,303,000 $ 106,715,000 ============== ============== ==============
The Company's revenues from operations outside of North America accounted for approximately 50%, in 1997, 47% in 1998 and 50% in 1999. SPSS 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 continues to translate its products into additional languages. Various risks may affect international operations, 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. SPSS also believes that it is exposed to greater levels of software piracy in international markets because of the weaker protection afforded intellectual property in some foreign jurisdictions. As SPSS expands its international operations, the risks described above could increase and have a material adverse effect on SPSS. See "Business - Sales and Marketing," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Note 2, Domestic and Foreign Operations, of the "Notes to Consolidated Financial Statements." 18 19 ITEM 2. PROPERTIES The Company's principal administrative, marketing, training and product development and support facilities are located in Chicago, Illinois. During 1997, SPSS entered into a 15-year sublease agreement to sublease approximately 100,000 square feet of office space in the Sears Tower. This space became the principal Chicago offices of SPSS in 1998. The aggregate annual gross rental payment on this lease was approximately $1,749,000 in 1999. In addition, SPSS leases office space in California, Colorado, Massachusetts, Virginia, New York, Pennsylvania, Ohio, Florida, The Netherlands, The United Kingdom, Germany, Sweden, France, Singapore, Australia, Japan, Denmark, and India. SPSS believes its facilities are suitable and adequate for its present needs. The Company plans to expand its facilities in 2000 in Chicago, the United Kingdom, Denmark, and Australia. ITEM 3. LEGAL PROCEEDINGS Currently, there is no material pending legal proceeding to which SPSS or any of its subsidiaries is a party or to which any of their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 19 20 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is traded on the over-the-counter market on the Nasdaq National Market under the symbol "SPSS." The following table shows, for the periods indicated, the high and low closing sale prices for the Company's common stock.
YEAR ENDED DECEMBER 31, 1997 HIGH LOW ------------------------------------------ ------- ------- First Quarter $32 7/8 $24 3/8 Second Quarter 32 3/4 24 5/8 Third Quarter 34 1/4 27 1/4 Fourth Quarter 28 5/8 17 1/2 YEAR ENDED DECEMBER 31, 1998 ------------------------------------------ First Quarter $24 $19 1/2 Second Quarter 25 1/8 18 1/2 Third Quarter 26 3/8 18 Fourth Quarter 22 11/16 17 YEAR ENDED DECEMBER 31, 1999 ------------------------------------------ First Quarter $22 $16 3/8 Second Quarter 25 11/16 16 3/8 Third Quarter 26 5/8 18 Fourth Quarter 25 3/4 16 5/16 YEAR ENDED DECEMBER 31, 2000 ------------------------------------------ First Quarter (through March 17, 2000) $33 3/4 $23 1/2
As of March 17, 2000, there were 458 holders of record of the Company's common stock. SPSS has never declared or paid any cash dividends on its capital stock. The Company currently intends to retain its earnings to fund future ongoing operations and future capital requirements of its businesses. SPSS does not anticipate paying any cash dividends in the foreseeable future. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations -- Liquidity and Capital Resources." RECENT SALES OF UNREGISTERED SECURITIES On November 29, 1999, SPSS acquired Vento Software, Inc., a Florida corporation, in exchange for 546,060 shares of SPSS common stock in an acquisition accounted for as a pooling of interests, pursuant to an acquisition agreement among SPSS, Vento and the shareholders of Vento. The sale of stock to the Vento shareholders was exempt from registration pursuant to Section 4(2) of the Securities Act because the sale did not involve a public offering of stock. A Registration Statement on Form S-3 was subsequently filed and became effective on February 24, 2000. 20 21 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data presented below for each of the years in the five-year period ended December 31, 1999 are derived from the Consolidated Financial Statements of SPSS. The Consolidated Financial Statements as of December 31, 1998 and 1999, and for each of the years in the three-year period ended December 31, 1999, and the report thereon of KPMG LLP, are included elsewhere in this Form 10-K.
----------------------------------------------------------------- 1995 1996 1997 1998 1999 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT NET INCOME PER SHARE DATA) Net revenues: Analytical solutions (1) $ 818 $ 3,298 $ 3,982 $ 8,836 $ 17,540 Market research (2) 15,264 18,327 21,687 25,551 32,674 Statistics (3) 71,710 79,318 85,437 89,085 91,716 ---------- ---------- ---------- ---------- ---------- Net revenues 87,792 100,943 111,106 123,472 141,930 Operating expenses: Cost of revenues 8,789 9,738 9,835 10,048 12,663 Sales and marketing 44,839 48,792 54,503 60,413 68,277 Product development 13,059 16,116 18,081 20,862 24,983 General and administrative 10,917 12,139 12,283 9,427 9,773 Special general and administrative charges (4) 2,794 -- 5,616 445 -- Merger-related (5) 530 3,636 4,306 1,948 1,611 Acquired in-process technology (6) 411 -- 421 3,552 128 ---------- ---------- ---------- ---------- ---------- Operating expenses 81,339 90,421 105,045 106,695 117,435 ---------- ---------- ---------- ---------- ---------- Operating income 6,453 10,522 6,061 16,777 24,495 Net interest income (expense) 49 296 375 333 (529) Other income (expense) 132 (134) (503) (128) 157 ---------- ---------- ---------- ---------- ---------- Income before income taxes 6,634 10,684 5,933 16,982 24,123 Provision for income taxes 3,407 3,854 3,189 8,404 8,621 ---------- ---------- ---------- ---------- ---------- Net income $ 3,227 $ 6,830 $ 2,744 $ 8,578 $ 15,502 ========== ========== ========== ========== ========== Basic net income per share $ 0.36 $ 0.74 $ 0.29 $ 0.90 $ 1.61 ========== ========== ========== ========== ========== Shares used in basic per share calculation 8,987 9,226 9,333 9,515 9,601 ========== ========== ========== ========== ========== Diluted net income per share $ 0.34 $ 0.69 $ 0.27 $ 0.85 $ 1.52 ========== ========== ========== ========== ========== Shares used in diluted per share calculation 9,573 9,928 10,172 10,104 10,192 ========== ========== ========== ========== ==========
---------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- (IN THOUSANDS) Balance Sheet Data: Working capital $ 3,571 $ 8,964 $ 13,988 $ 12,408 $ 28,672 Total assets 53,234 63,840 65,189 94,303 106,715 Long-term obligations, less current portion 3,590 3,680 3,194 3,860 5,404 Total stockholders' equity 20,647 29,051 32,321 44,317 61,542
(1) Analytical solutions include products and services, sold separately or in combination, for customer relationship management, business intelligence, and business performance measurement applications. (2) Market research includes products and services, sold separately or in combination, for survey design, implementation, and analysis in the market research industry (3) Statistics includes products and services, sold separately or in combination, for general purpose statistical analysis. 21 22 (4) Write-off principally of particular software assets capitalized more than two years prior to 1995, charges principally from the revaluation of some assets associated with the Company's Macintosh and BMDP product lines in 1997 and write-off principally of software assets associated with the Company's Unix and Open VMS products duplicated through the acquisitions of Surveycraft and Integral Solutions in 1998. (5) Includes costs related to acquisitions accounted for as poolings-of-interests, such as investment banking and other professional fees, management and sales force restructuring, employee sign-on bonuses, employee severance and costs of closing excess office facilities and certain expenses associated with the closing of other acquisitions. (6) Includes costs relating to acquired in-process technology. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The original Statistical Package for the Social Sciences was introduced in 1969, and SPSS was incorporated in 1975. The first SPSS products were almost exclusively used by academic researchers working on mainframe systems. SPSS 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, acquired ten corporate entities and product offerings, and adapted its products to changing hardware and software technologies. Approximately 68% of 1999 revenues came from sales to customers in corporate settings, with another 18% in academic institutions and 14% in government agencies. In recent years, SPSS has experienced a significant shift in the sources of its revenues. Between 1995 and 1999, revenues from its analytical solutions increased from less than 1% to over 12% of total net revenues and market research revenues rose from 17% to 23%. In contrast, revenue from SPSS statistical products and services declined from 82% to 65% of net revenues. Management expects these trends to continue in 2000. 22 23 RESULTS OF OPERATIONS The following table shows select statement of income data as a percentage of net revenues for the years indicated.
----------------------------------------------------------- 1995 1996 1997 1998 1999 -------- -------- -------- -------- -------- Net revenues: Analytic solutions 0.9% 3.3% 3.6% 7.2% 12.4% Market research 17.4% 18.1% 19.5% 20.7% 23.0% Statistics 81.7% 78.6% 76.9% 72.1% 64.6% -------- -------- -------- -------- -------- Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% Operating expenses: Cost of revenues 10.0% 9.6% 8.9% 8.1% 8.9% Sales and marketing 51.1% 48.3% 49.0% 48.9% 48.1% Product development 14.9% 16.0% 16.3% 16.9% 17.6% General and administrative 12.4% 12.0% 11.0% 7.6% 6.9% Special general and administrative charges 3.2% -- 5.1% 0.4% -- Merger-related 0.6% 3.6% 3.9% 1.6% 1.1% Acquired in-process technology 0.4% -- 0.4% 2.9% 0.1% -------- -------- -------- -------- -------- Operating expenses 92.6% 89.5% 94.6% 86.4% 82.7% -------- -------- -------- -------- -------- Operating income 7.4% 10.5% 5.4% 13.6% 17.3% Net interest income (expense) 0.1% 0.2% 0.3% 0.3% (0.4)% Other income (expense) 0.2% (0.1)% (0.4)% (0.1)% 0.1% -------- -------- -------- -------- -------- Income before income taxes 7.7% 10.6% 5.3% 13.8% 17.0% Provision for income taxes 3.9% 3.8% 2.8% 6.8% 6.1% -------- -------- -------- -------- -------- Net income 3.8% 6.8% 2.5% 7.0% 10.9% ======== ======== ======== ======== ========
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1997, 1998 AND 1999. Net Revenues. Net revenues increased from $111,106,000 in 1997 to $123,472,000 in 1998, an increase of 11% from 1997, and to $141,930,000 in 1999, and an increase of 15% from 1998. These increases were primarily due to growth in analytical solutions revenues of 122% in 1998 and 99% in 1999, as well as increases in market research revenues of 18% in 1998 and 28% in 1999. Growth in analytical solutions revenues in 1998 was primarily due to the introduction of new data mining products, while such increases in 1999 were primarily due to additional new data mining products and sales of the newly acquired Clementine products. Growth in market research revenues in 1998 was primarily due to sales of the telephony product for data collection, while such increases in 1999 were primarily due to the introduction of a new web data collection product, revenues from the newly acquired Surveycraft products and an increased number of large transactions with major customers. Offsetting this revenue growth were increases in statistics revenue of 4% in 1998 and 3% in 1999, primarily due to shifts in sales and marketing resources toward developing the higher-growth markets for analytical solutions, as well as reflecting the lower overall growth rate in the market for general-purpose statistical products. Revenues were adversely affected by foreign currency exchange rates for the three years described. 23 24 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 $9,835,000 in 1997, to $10,048,000 in 1998 and to $12,663,000 in 1999. These costs increased 2% in 1998 due to higher sales levels and 26% in 1999 due to higher sales levels and higher amounts of capitalized software amortized. As a percentage of net revenues, cost of revenues decreased from 9% in 1997 to 8% in 1998 and increased to 9% in 1999. Sales and Marketing. Sales and marketing expenses increased from $54,503,000 in 1997 to $60,413,000 in 1998 and to $68,277,000 in 1999, an increase of 11% in 1998 and 13% in 1999. These increases were due to expansion of the domestic and international sales and marketing organizations, as well as increased salary, commission and payroll-related expenses. Sales and marketing expenses were partially offset by the effects of changes in foreign currency exchange rates each year. As a percentage of net revenues, sales and marketing expenses decreased from 49% in 1997 and 1998 to 48% in 1999. Product Development. Product development expenses increased from $18,081,000 in 1997 to $20,862,000 in 1998 and to $24,983,000 in 1999 (net of the effect of capitalized software development costs of $1,564,000 in 1997, $1,933,000 in 1998 and $2,593,000 in 1999) an increase of 15% in 1998 and an increase of 20% in 1999. In the same periods, the Company's expense for amortization of capitalized software and product translations, included in cost of revenues was $1,703,000 in 1997, $1,892,000 in 1998 and $3,182,000 in 1999. The increases in product development expenses were primarily due to staff increases, salary increases and recruiting fees. As a percentage of net revenues, product development expenses increased from 16% in 1997 to 17% in 1998 and to 18% in 1999. General and Administrative. General and administrative expenses decreased from $12,283,000 in 1997 to $9,427,000 in 1998 and increased to $9,773,000 in 1999, a decrease of 23% in 1998 and an increase of 4% in 1999. The decrease in 1998 was primarily attributable to reductions in costs and personnel in the acquired Clear, Jandel, and Quantime entities. The increase in 1999 was due to additional administrative staff, primarily information systems personnel. This expense decreased as a percentage of net revenues from 11% in 1997 to 8% in 1998 to 7% in 1999. Special General and Administrative Charges. Special general and administrative charges related to the write-off of certain assets in connection with integration procedures associated with the acquisitions of DeltaGraph, Quantime, and In2itive were $5,616,000 in 1997. SPSS evaluated the fair value of assets recorded through prior acquisitions and identified certain intangible assets which had no future value. The respective balances of these assets were written off during 1997. SPSS also re-evaluated the fair value of assets acquired through prior acquisitions and identified certain intangible assets which had a reduced future value. The respective balances of these assets were also written down during 1997. Special general and administrative charges were $445,000 in 1998 and represented the write-off of duplicate capitalized software development costs on platforms such as UNIX and Open VMS products as a result of the acquisitions of Surveycraft and Integral Solutions. Merger-related. SPSS incurred merger-related costs of $4,306,000 in 1997, $1,948,000 in 1998 and $1,611,000 in 1999 related to acquisitions accounted for as poolings of interests, which costs include professional fees, employee severance payments, facility costs and various other expenses. SPSS incurred merger-related costs of $1,948,000 in 1998 related to acquisitions accounted for under the purchase method, which costs include employee sign-on bonuses, employee severance, facility costs, and various other expenses. Included in these costs is a charge for the consolidation of the Company's United Kingdom facilities of $1,307,000 in 1997 and a recovery of $280,000 in 1998 when the plan was revised based on the acquisition of Integral Solutions. The United Kingdom facility consolidation plan 24 25 was established to achieve cost efficiencies through the elimination of redundant facilities and includes accruals of $526,000 for estimated lease charges, $286,000 for estimated property tax charges, $207,000 for the write-off of leasehold improvements and $8,000 for dilapidation charges. The United Kingdom facility consolidation plan was revised in 1999 when SPSS was unable to secure suitable facilities in a competitive London real estate market. This led to a recovery of $803,000 in 1999. Included in 1999 merger-related costs were expenses related to management and sales force restructuring, employee sign-on bonuses, professional fees, and various other expenses. Acquired In-Process Technology. Acquired in-process technology costs were $421,000 in 1997 and related to an acquisition of a software product from DeltaPoint. Acquired in-process technology costs were $3,552,000 in 1998 and related to the acquisitions of Surveycraft and Integral Solutions accounted for under the purchase method. Acquired in-process technology costs were $128,000 in 1999 and related to an acquisition of the VerbaStat software product from DataStat. In November 1998, SPSS acquired all of the outstanding capital stock of Surveycraft, a provider of market research software in the Pacific Rim. A portion of the purchase price was attributable to acquired in-process technology, as the development work associated with the project had not reached technological feasibility and was believed to have no alternative future use other than as market research software. SPSS carefully assessed the fair value of the acquired in-process technology using an income approach. Future cash flows were projected over five years discounted to present value using a discount rate of 18%. SPSS believes the discount rate is appropriate given the level of risk of unsuccessful completion of the technology as it was estimated to be approximately 85% complete, both in terms of costs invested as of the acquisition date relative to completion costs and technical achievements. In projecting the future revenue streams from the project, SPSS considered many factors including competition, market growth estimates, time to market and additional sales and marketing leverage which SPSS could provide to the Surveycraft products. In December 1998, SPSS acquired all of the outstanding capital stock of Integral Solutions, a leading provider of data mining software. A portion of the purchase price was attributable to acquired in-process technology, as the development work associated with several projects had not reached technological feasibility and were believed to have no alternative future use other than as data mining tools. SPSS carefully assessed the fair value of the acquired in-process technology using an income approach. Future cash flows were projected over five years discounted to present value using discount rates ranging from 34% to 37% depending on the project and the market risks associated with each of the research and development projects and resulting products. Specific consideration was given to the stage of development of each research and development effort, which ranged from 23% to 82% complete, both in terms of costs invested as of the acquisition date relative to completion costs and technical achievements. In projecting the future revenue streams from the projects, SPSS considered many factors including competition, market growth estimates, time to market and additional sales and marketing leverage which SPSS could provide to the Integral Solutions products. In December 1999, SPSS acquired the VerbaStat software program, a software tool for computer aided coding of open-ended survey questions, from DataStat. A portion of the purchase price was attributable to acquired in-process technology, as the development work associated with the program had not reached technological feasibility and were believed to have no alternative future use. SPSS carefully assessed the fair value of the acquired in-process technology using an income approach. Future cash flows were projected over five years discounted to present value using a discount rate of 20% based on the project and the market risks associated with the research and development project and resulting product. Specific consideration was given to the stage of development of the research and development effort, 25 26 which was 75% complete, both in terms of costs invested as of the acquisition date relative to completion costs and technical achievements. SPSS anticipates incurring approximately $25,000 of additional research and development costs over a short time frame with anticipated completion date in 2000. In projecting the future revenue streams from the project, SPSS considered many factors including competition, market growth estimates, time to market and additional sales and marketing and leverage which SPSS could provide to the VerbaStat product. Net Interest Income (Expense). Net interest income was $375,000 in 1997 and $333,000 in 1998 primarily due to interest earned on short-term investments. Net interest expense was ($529,000) in 1999 primarily due to interest expense incurred on the line-of-credit. Other Income (Expense). Other income (expense) consists mainly of foreign exchange transactions. The foreign exchange amounts were ($488,000) in 1997, ($238,000) in 1998 and $119,000 in 1999. Provision for Income Taxes. The provision for income taxes consisted of $3,189,000 in 1997, $8,404,000 in 1998 and $8,621,000 in 1999. During 1997, the provision for income taxes represented a tax rate of 44%, excluding the effect of Japanese withholding taxes on monies transferred out of Japan in 1997, and the non-deductibility of some Quantime expenses. During 1998, the provision for income taxes represented a tax rate of approximately 38%, excluding the effect of Japanese withholding taxes on monies transferred out of Japan in 1998, and certain expenses related to the Surveycraft and Integral Solutions acquisitions. During 1999, the provision for income taxes represented a tax rate of approximately 36%, excluding the effect of Japanese monies transferred out of Japan in 1999. LIQUIDITY AND CAPITAL RESOURCES The Company's long-term debt as of December 31, 1999 is a mortgage on property in the United Kingdom, and the balance of the purchase price due to DataStat, S.A. for the acquisition of the VerbaStat product. As of December 31, 1999, SPSS held approximately $16,770,000 of cash. Funds in 1998 were used primarily for payments related to the Company's acquisitions, as well as for capital expenditures including, new computer systems for use in internal product development, and leasehold improvements and furnishings for the Company's new office space in the Sears Tower in Chicago, Illinois. Funds in 1999 were used primarily for payments related to SPSS' acquisitions, as well as new computer systems for use in internal product development and expenditures made for an office move in Sweden. In June 1999, SPSS revised its loan agreement with American National Bank and Trust Company of Chicago. Under the new loan agreement, SPSS has an available $10,000,000 unsecured line of credit with American National, under which borrowings bear interest at either the prime interest rate or the Eurodollar Rate, depending on the circumstances. As of December 31, 1999, SPSS had $9,000,000 outstanding under this line of credit. The Company's agreement with American National requires SPSS to comply with certain specified financial ratios and tests, and, among other things, restricts the Company's ability to: o incur additional indebtedness; o create liens on assets; o make investments; o engage in mergers, acquisitions or consolidations where SPSS is not the surviving entity; 26 27 o sell assets; o engage in select transactions with affiliates; and o amend its organizational documents or make changes in its capital structure, and also requires SPSS to be Year 2000 compliant in software and other information processing capabilities. Also in June 1999, SPSS entered into an amendment to the loan agreement with American National. This amendment makes an additional $10,000,000 available to SPSS for the acquisition of assets and further requires that SPSS meet all original requirements of the loan agreement and give American National the opportunity to use any proceeds from a public offering of equity or debt securities to retire outstanding amounts on the line of credit. SPSS anticipates the amounts available from cash and cash equivalents 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 SPSS on favorable terms or at all. The Company's capital expenditures, primarily for computer systems and office furniture totaled approximately $4,400,000 in 1999 and are projected to total approximately $8,500,000 in 2000 and $5,500,000 in 2001. Capital expenditures during 2000 will include new computers, primarily for use in internal product development, replacement of its systems for accounting and order entry, as well as furnishings and other equipment related to the move of the Company's facilities in Kilburn, UK, and expansion of facilities in Chicago, Miami, Woking, UK, Denmark, and Australia. SPSS 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 1995 to 1999. Revenues from international operations comprised approximately 47% to 52% of total net revenues between 1995 and 1999. They were approximately 50% of total net revenues in 1999. Following the reorganization of its international operations in 1990, SPSS has maintained substantially the same direct sales and telesales organizations worldwide. The international sales organization uses more independent distributors than does the domestic sales organization, primarily in countries without an SPSS sales office. Management believes the profit margins associated with the Company's domestic and international operations are essentially the same. As international revenues increase, SPSS may experience additional foreign currency exchange risk. To mitigate these effects, SPSS hedges its transaction exposure (i.e., the effect on earnings and cash flows of changes in foreign exchange rates on receivables and payables denominated in foreign currencies). SPSS does not hedge its foreign currency exposure in a manner that would entirely eliminate the effects of changes in foreign exchange rates on the Company's consolidated net income. Accordingly, the Company's reported revenues and net income have been and in the future may be affected by the changes in foreign exchange rates. 27 28 YEAR 2000 The Company spent approximately $1.5 million to address issues with the year 2000 date change. The Company has not experienced business disruption or incurred significant expenses in 2000 related to the date change. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISKS The Company's market risk disclosures pursuant to item 7A are not material and are therefore not required. 28 29 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA SPSS INC. AND SUBSIDIARIES INDEX
PAGE Independent Auditors' Report............................................................ 30 Consolidated Balance Sheets as of December 31, 1998 and 1999............................ 31 Consolidated Statements of Income for the years ended December 31, 1997, 1998 and 1999.................................................... 32 Consolidated Statements of Comprehensive Income for the years ended December 31, 1997, 1998 and 1999................................................... 33 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999.................................................... 34 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999.................................................... 35 Notes to Consolidated Financial Statements.............................................. 36 Financial Statement Schedule: Schedule II Valuation and qualifying accounts........................................... 52
Schedules not filed All schedules other than that indicated in the index have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. 29 30 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders SPSS Inc.: We have audited the consolidated financial statements of SPSS Inc. and subsidiaries (the "Company") as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule 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. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SPSS Inc. and subsidiaries as of December 31, 1998 and 1999, and the results of their operations, and their cash flows for each of the years in the three-year period ended December 31, 1999, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP Chicago, Illinois March 17, 2000 30 31 SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, 1998 1999 ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 16,297 $ 16,770 Accounts receivable, net of allowances of $2,106 in 1998 and $2,510 in 1999 34,815 42,901 Inventories 2,871 2,895 Deferred income tax assets 2,245 3,042 Prepaid expenses and other current assets 2,306 2,833 ---------- ---------- Total current assets 58,534 68,441 ---------- ---------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost: Land and building 1,721 1,671 Furniture, fixtures, and office equipment 7,407 7,617 Computer equipment and software 23,227 25,982 Leasehold improvements 6,474 6,480 ---------- ---------- 38,829 41,750 Less accumulated depreciation and amortization 22,932 25,639 ---------- ---------- Net equipment and leasehold improvements 15,897 16,111 ---------- ---------- Capitalized software development costs, net of accumulated amortization 10,658 13,078 Goodwill, net of accumulated amortization 5,110 5,339 Other assets 4,104 3,746 ---------- ---------- $ 94,303 $ 106,715 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 9,043 $ 9,000 Accounts payable 6,262 5,670 Accrued royalties 571 488 Accrued rent 847 1,050 Other accrued liabilities 10,431 8,270 Income taxes and value added taxes payable 5,877 3,664 Customer advances 579 529 Deferred revenues 12,516 11,098 ---------- ---------- Total current liabilities 46,126 39,769 ---------- ---------- Deferred income taxes 2,638 3,809 Other non-current liabilities 1,222 1,595 STOCKHOLDERS' EQUITY: Common Stock, $.01 par value; 50,000,000 shares authorized; 9,029,326 and 9,652,665 shares issued and outstanding in 1998 and 1999, respectively 95 96 Additional paid-in capital 47,605 48,569 Accumulated other comprehensive income (877) (119) Retained earnings (accumulated deficit) (2,506) 12,996 ---------- ---------- Total stockholders' equity 44,317 61,542 ---------- ---------- $ 94,303 $ 106,715 ========== ==========
The accompanying notes are an integral part of these consolidated financial statements. 31 32 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1998 1999 ------------ ------------ ------------ Net revenues: Analytical solutions $ 3,982 $ 8,836 $ 17,540 Market research 21,687 25,551 32,674 Statistics 85,437 89,085 91,716 ------------ ------------ ------------ Net revenues 111,106 123,472 141,930 Operating expenses: Cost of revenues 9,835 10,048 12,663 Sales and marketing 54,503 60,413 68,277 Product development 18,081 20,862 24,983 General and administrative 12,283 9,427 9,773 Special general and administrative charges 5,616 445 -- Merger-related 4,306 1,948 1,611 Acquired in-process technology 421 3,552 128 ------------ ------------ ------------ Operating expenses 105,045 106,695 117,435 ------------ ------------ ------------ Operating income 6,061 16,777 24,495 ------------ ------------ ------------ Other income (expense): Interest income 585 1,087 193 Interest expense (210) (754) (722) Other (503) (128) 157 ------------ ------------ ------------ Other income (expense) (128) 205 (372) ------------ ------------ ------------ Income before income taxes 5,933 16,982 24,123 Income tax expense 3,189 8,404 8,621 ------------ ------------ ------------ Net income $ 2,744 $ 8,578 $ 15,502 ============ ============ ============ Basic net income per share $ 0.29 $ 0.90 $ 1.61 ============ ============ ============ Shares used in computing basic net income per share 9,333,463 9,515,191 9,600,983 ============ ============ ============ Diluted net income per share $ 0.27 $ 0.85 $ 1.52 ============ ============ ============ Shares used in computing diluted net income per share 10,172,174 10,104,015 10,191,674 ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. 32 33 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ----------------------------------- 1997 1998 1999 -------- -------- -------- Net income $ 2,744 $ 8,578 $ 15,502 Other comprehensive income (loss): Foreign currency translation adjustment (687) 188 758 -------- -------- -------- Comprehensive income $ 2,057 $ 8,766 $ 16,260 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 33 34 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1998 1999 -------- -------- -------- Common stock, $.01 par value: Balance at beginning of period $ 92 $ 93 $ 95 Issuance of 26,081 shares of common stock in 1997 -- -- -- Sale of 11,256, 18,663 and 18,249 shares of common stock to the Employee Stock Purchase Plan in 1997, 1998 and 1999, respectively -- -- -- Exercise of stock options and other 1 2 1 -------- -------- -------- Balance at end of period $ 93 $ 95 $ 96 -------- -------- -------- Additional paid in capital: Balance at beginning of period $ 43,259 $ 44,376 $ 47,605 Issuance of 26,081 shares of common stock in 1997 322 -- -- Sale of 11,256, 18,663 and 18,249 shares of common stock to the Employee Stock Purchase Plan in 1997, 1998 and 1999, respectively 297 410 365 Sale of 54,606 shares of common stock in 1998 -- 488 -- Exercise of stock options and other 148 1,323 248 Income tax benefit related to stock options 350 1,008 351 -------- -------- -------- Balance at end of period $ 44,376 $ 47,605 $ 48,569 -------- -------- -------- Accumulated other comprehensive income: Balance at beginning of period $ (378) $ (1,065) $ (877) Translation adjustment (687) 188 758 -------- -------- -------- Balance at end of period $ (1,065) $ (877) $ (119) -------- -------- -------- Retained earnings (accumulated deficit) Balance at beginning of period $(13,828) $(11,084) $ (2,506) Net income 2,744 8,578 15,502 -------- -------- -------- Balance at end of period $(11,084) $ (2,506) $ 12,996 -------- -------- -------- Total stockholders' equity $ 32,320 $ 44,317 $ 61,542 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 34 35 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED DECEMBER 31, ------------------------------------ 1997 1998 1999 -------- -------- -------- Cash flows from operating activities: Net income $ 2,744 $ 8,578 $ 15,502 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,775 6,807 8,703 Deferred income taxes (1,701) (546) 374 Write-off of software development costs and other assets 3,862 445 -- Write-off of acquired in-process technology 421 3,552 128 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable (6,006) (5,771) (8,086) Inventories (376) (164) (24) Accounts payable 527 960 (592) Accrued royalties (38) 89 (83) Accrued expenses (1,671) (1,494) (2,208) Accrued income taxes (2,618) 4,423 (2,213) Deferred revenue 2,408 (208) (1,418) Other (1,617) 149 (470) -------- -------- -------- Net cash provided by operating activities 2,710 16,820 9,613 -------- -------- -------- Cash flows from investing activities: Capital expenditures (2,735) (10,319) (4,382) Capitalized software development costs (3,791) (4,070) (5,597) Net payments related to acquisitions (1,006) (8,404) (83) -------- -------- -------- Net cash used in investing activities (7,532) (22,793) (10,062) -------- -------- -------- Cash flows from financing activities: Net borrowings (repayments) under line-of-credit agreements 71 8,972 (43) Proceeds from issuance of common stock 864 2,223 614 Income tax benefit from stock option exercises 350 1,008 351 -------- -------- -------- Net cash provided by financing activities 1,285 12,203 922 -------- -------- -------- Net change in cash and cash equivalents (3,537) 6,230 473 Cash and cash equivalents at beginning of period 13,604 10,067 16,297 -------- -------- -------- Cash and cash equivalents at end of period $ 10,067 $ 16,297 $ 16,770 ======== ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 215 $ 199 $ 938 Income taxes paid $ 7,064 $ 5,642 $ 11,271 ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 35 36 SPSS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Description of Business SPSS Inc. ("SPSS" or the "Company") is a multinational company that provides software and professional services for discovering what customers want and predicting what they will do. The Company's products and services, individually and in combination, are primarily used by commercial organizations to integrate and analyze market, customer, and operational data in the process of formulating strategies and programs to interact with their customers more effectively. This process is commonly called "data mining" or "data analysis using advanced analytical techniques." Analytical solutions include products and services, sold separately or in combination, for customer relationship management, business intelligence, and business performance measurement applications. Market research includes products and services, sold separately or in combination, for survey design, implementation, and analysis in the market research industry. Statistics include products and services, sold separately or in combination, for general purpose statistical analysis. (b) Principles of Consolidation The 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 SPSS 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 SPSS primarily recognizes revenue from product licenses, net of an allowance for estimated returns and cancellations, at the time the software is delivered. Revenue from certain 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 product licenses, is recognized ratably over the term of the related PCS agreements. Some product licenses include commitments for insignificant obligations, such as technical and other support, for which an accrual is provided. Revenue from training, consulting, publications, and other items is recognized as the related products or services are delivered or rendered. On January 1, 1998, SPSS adopted AICPA Statement of Position ("SOP") 97-2, Software Revenue Recognition, which specifies the criteria that must be met prior to SPSS recognizing revenues from software sales. The adoption of SOP 97-2 in 1998 has not had a material impact on the Company's financial position or results of operations. 36 37 (e) Software Development Costs Software development costs incurred by SPSS in connection with the Company's long-term development projects are capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. SPSS 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. SPSS reviews capitalized software development costs each period and, if necessary, reduces the carrying value of each product to its net realizable value. (f) Earnings per Share In the fourth quarter of 1997, SPSS adopted SFAS No. 128, Earnings Per Share, which established new methods for computing and presenting earnings per share ("EPS") and replaced the presentation of primary and fully-diluted EPS. Basic earnings per share is based on the weighted average number of shares outstanding and excludes the dilutive effect of unexercised common stock equivalents. Diluted earnings per share is based on the weighted average number of shares outstanding and includes the dilutive effect of unexercised common stock equivalents.
1997 1998 1999 ------------ ------------ ------------ BASIC EPS Income Available to Common Shareholders $ 2,744,000 $ 8,578,000 $ 15,502,000 Weighted-Average Number of Common Shares Outstanding 9,333,463 9,515,191 9,600,983 Basic EPS $ 0.29 $ 0.90 $ 1.61 DILUTED EPS Income Available to Common Shareholders $ 2,744,000 $ 8,578,000 $ 15,502,000 Weighted-Average Number of Common Shares Outstanding 9,333,463 9,515,191 9,600,983 Effect of dilutive securities: Employee and director stock options 838,711 588,824 590,691 ------------ ------------ ------------ Weighted-Average Number of Common Shares and Common Share Options that would be issued upon exercise 10,172,174 10,104,015 10,191,674 ------------ ------------ ------------ Diluted EPS $ 0.27 $ 0.85 $ 1.52 Anti-dilutive shares 2,163 191,014 157,753 ============ ============ ============
(g) Depreciation and Amortization Depreciation of buildings is provided over thirty years on a straight-line method. Furniture and equipment is depreciated 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 of each product. This method 37 38 results in greater amortization than the method based upon the ratio of current year gross product revenue to current and anticipated future gross product revenue. As of January 1, 1998, SPSS adopted SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. This standard requires that certain costs related to the development or purchase of internal-use software be capitalized and amortized over the estimated useful life of the software. SOP 98-1 also requires that costs related to the preliminary project stage and post-implementation/operations stage of an internal-use computer software development project be expensed as incurred. During 1998 and 1999, SPSS capitalized $873,000 and $739,000 and amortized $6,000 and $23,000, respectively, of internal-use computer software. (h) Income Taxes SPSS follows SFAS No. 109, Accounting for Income Taxes. SFAS No. 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 assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets 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 SFAS No. 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) Stock Option Plans Prior to January 1, 1996, SPSS accounted for its stock option plans in accordance with the provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying shares exceeded the exercise price. On January 1, 1996, SPSS adopted SFAS No. 123, Accounting for Stock-Based Compensation, which permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB No. 25 and provide pro forma net income disclosures for employee stock option grants made in 1995 and future years as if the fair-value based method defined in SFAS No. 123 had been applied. SPSS has elected to continue to apply the provisions of APB Opinion No. 25 and provide the pro forma disclosures required by SFAS No. 123. (j) 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. (k) 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 10 to 15 years. Accumulated amortization was $793,000 and $1,331,000 as of December 31, 1998 and 1999, respectively. 38 39 (l) 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 rates 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. (m) Fair Value of Financial Instruments The fair values of financial instruments were not materially different from their carrying values. (n) Cash and Cash Equivalents Cash and cash equivalents are comprised of highly liquid investments with original maturity dates of less than three months. (o) Long-Lived Assets Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount should be evaluated. Impairment is measured by comparing the carrying value to the estimated and undiscounted future cash flows expected to result from the use of the assets and their eventual disposition. SPSS has determined that as of December 31, 1999, there has been no impairment in the carrying values of the long-lived assets. (p) Reclassifications Where appropriate, some items relating to the prior years have been reclassified to conform to the presentation in the current year. 39 40 (2) DOMESTIC AND FOREIGN OPERATIONS The net assets, net revenues and net earnings of international subsidiaries as of and for the years ended December 31, 1997, 1998 and 1999 included in the consolidated financial statements are summarized as follows:
DECEMBER 31, ----------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Working capital (deficit) $ (334,000) $ 7,752,000 $ 18,042,000 ============ ============ ============ Excess of noncurrent assets over Noncurrent liabilities $ 3,353,000 $ 3,468,000 $ 3,996,000 ============ ============ ============ Net revenues $ 55,092,000 $ 58,602,000 $ 71,521,000 ============ ============ ============ Net earnings (loss) $ (860,000) $ 7,017,000 $ 4,655,000 ============ ============ ============
Net revenues(1) per geographic region are summarized as follows:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ United States $ 56,014,000 $ 64,870,000 $ 70,409,000 United Kingdom 18,853,000 22,499,000 24,038,000 The Netherlands 10,880,000 11,978,000 13,505,000 Japan 9,621,000 9,750,000 11,900,000 Germany 7,587,000 7,651,000 8,691,000 Other 8,151,000 6,724,000 13,387,000 ------------ ------------ ------------ $111,106,000 $123,472,000 $141,930,000 ============ ============ ============
(1) Revenues are attributed to countries based on point-of-sale. Long-lived assets per geographic region are summarized as follows:
DECEMBER 31, ---------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ United States $ 17,312,000 $ 31,455,000 $ 33,912,000 United Kingdom 2,212,000 2,122,000 1,968,000 The Netherlands 448,000 318,000 224,000 Japan 978,000 1,049,000 1,066,000 Germany 274,000 269,000 211,000 Other 303,000 556,000 893,000 ------------ ------------ ------------ $ 21,527,000 $ 35,769,000 $ 38,274,000 ============ ============ ============
40 41 (3) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE Activity in capitalized software is summarized as follows:
DECEMBER 31, ------------------------------------------------ 1997 1998 1999 ------------ ------------ ------------ Balance, net -- beginning of year $ 7,036,000 $ 6,703,000 $ 10,658,000 Additions 3,191,000 5,500,000 3,961,000 Product translations 1,210,000 792,000 1,641,000 Write-down to net realizable value (3,031,000) (445,000) -- Amortization expense charged to cost of revenues (1,703,000) (1,892,000) (3,182,000) ------------ ------------ ------------ Balance, net -- end of year $ 6,703,000 $ 10,658,000 $ 13,078,000 ============ ============ ============
The components of net capitalized software are summarized as follows:
DECEMBER 31, ----------------------------- 1998 1999 ------------ ------------ Product translations $ 1,883,000 $ 2,798,000 Acquired software technology 4,310,000 4,720,000 Capitalized software development costs 4,465,000 5,560,000 ------------ ------------ Balance, net - end of year $ 10,658,000 $ 13,078,000 ============ ============
Total software development costs, including amounts expensed as incurred, amounted to approximately $21,872,000, $24,932,000 and $30,580,000 for the years ended December 31, 1997, 1998 and 1999, respectively. Included in acquired software technology at December 31, 1998 and 1999 is $126,000 and $88,000 of technology resulting from the purchase of the DeltaGraph product. (See Note 4) Included in acquired software technology at December 31, 1998 and 1999 is $202,000 and $161,000 of technology resulting from the purchase of Surveycraft Pty Ltd. (See Note 4) Included in acquired software technology at December 31, 1998 and 1999 is $2,020,000 and $1,616,000 of technology resulting from the purchase of Integral Solutions Ltd. (See Note 4) Included in acquired software technology at December 31, 1999 is $5,000 of technology resulting from the purchase of the VerbaStat product. (See Note 4) 41 42 (4) ACQUISITIONS In May 1997, SPSS purchased all of DeltaPoint Inc.'s assets primarily relating to and comprising DeltaGraph computer software products for $910,000. The transaction was accounted for as an asset purchase, and, accordingly the acquired assets were recorded at their estimated fair market values. The $8,000 excess of the purchase price over the fair market values of the assets was recorded as goodwill. In September 1997, SPSS acquired approximately 97% of the outstanding shares of capital stock of Quantime Limited ("Quantime"), a corporation organized under the laws of England, in exchange for 863,049 shares of Common Stock. In November 1997, SPSS acquired the remaining shares of capital stock of Quantime in exchange for 28,175 shares of Common Stock. The acquisition was accounted for as a pooling of interests and, accordingly, the consolidated financial statements have been restated as if SPSS and Quantime had been combined for all periods presented. Quantime is a developer of market research products. In November 1997, SPSS acquired the outstanding shares of capital stock of In2itive Technologies A/S ("In2itive"), a corporation organized under the laws of Denmark, in exchange for 140,727 shares of Common Stock in a merger accounted for as a pooling of interests and, accordingly, the consolidated financial statements have been restated as if SPSS and In2itive had been combined for all periods presented. In2itive is a computer software company specializing in market research software. SPSS will continue to operate the In2itive business principally from the In2itive headquarters in Copenhagen, Denmark. In November 1998, SPSS acquired all of the outstanding shares of capital stock of Surveycraft Pty. Ltd. ("Surveycraft") for an aggregate purchase price of approximately $1,700,000. The Surveycraft acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values. In the fourth quarter of 1998, SPSS recorded charges of approximately $863,000 representing a one-time write-off of acquired in-process technology and other merger-related costs. Surveycraft is a computer software company specializing in market research software. In 1999 SPSS consolidated the Surveycraft business into its Australia and Cincinnati offices. Also in 1999, some assumed liabilities were revalued, and goodwill was decreased by $371,000. On December 31, 1998, SPSS acquired all of the outstanding shares of capital stock of Integral Solutions Limited ("Integral Solutions"), a corporation incorporated under the laws of England, from the shareholders of Integral Solutions (the "Shareholders"). The stock purchase occurred pursuant to the Stock Purchase Agreement between SPSS and the Shareholders in the United Kingdom (the "Agreement") dated as of December 31, 1998. SPSS acquired Integral Solutions from the Shareholders for approximately $7,000,000 plus some Contingent Payments (as defined in the Agreement) of up to approximately $7,000,000 based on future results of the acquired business (the "Purchase Price"). An additional payment of approximately $3,900,000 was made in January 2000. Additional payments will be recorded as an adjustment to purchase price in the periods in which such payments are determinable. The Integral Solutions acquisition was accounted for as a purchase and, accordingly, the acquired assets and liabilities have been recorded at their estimated fair values. In the fourth quarter of 1998, SPSS recorded charges of approximately $5,053,000 representing a one-time write-off of acquired in-process technology and other merger-related costs. Integral Solutions is a leading full-service data mining company, supplying consultancy and training. In 1999 Integral Solutions office lease expired 42 43 and personnel were moved to the existing SPSS UK Ltd offices in Woking, England. Also in 1999, some assumed liabilities were revalued, and goodwill was increased by $227,000. The following summary presents information concerning the purchase price allocations for the acquisitions accounted for under the purchase method for the year ended December 31, 1998.
ACQUIRED PURCHASED IN-PROCESS PURCHASE COMPANY NAME SOFTWARE TECHNOLOGY GOODWILL OTHER PRICE (1) ------------ ------------ ------------ ------------ ------------ ------------ Surveycraft $ 202,000 $ 312,000 $ 1,974,000 $ 533,000 $ 3,021,000 Integral Solutions 2,020,000 3,240,000 2,239,000 1,741,000 9,240,000 ------------ ------------ ------------ ------------ ------------ $ 2,222,000 $ 3,552,000 $ 4,213,000 $ 2,274,000 $ 12,261,000 ============ ============ ============ ============ ============
- ------------------ (1) Purchase price included costs associated with the acquisition and acquired deferred tax liabilities. SPSS incurred significant costs and expenses in connection with these acquisitions, including professional fees, employees' severance and various other expenses. Such expenses were recorded as part of the purchase price in connection with the Surveycraft and Integral Solutions acquisitions accounted for as purchases. On November 29, 1999, SPSS acquired all of the outstanding shares of capital stock of Vento Software, Inc. ("Vento"), a corporation incorporated under the laws of Florida, from the shareholders of Vento in exchange for 546,060 shares of Common Stock in a stock acquisition accounted for as a pooling of interests and, accordingly, the consolidated financial statements have been restated as if SPSS and Vento had been combined for all periods presented. In the fourth quarter of 1999, SPSS recorded charges of approximately $1,948,000 representing merger-related costs for expenses relating to management and sales force restructuring, employee sign-on bonuses, professional fees and various other expenses. Vento is an analytical solutions software company whose assets include the VentoMap product line, a series of industry-specific software products for business performance measurement, and a proprietary methodology for the delivery of related professional services. SPSS plans to further develop these Vento products and integrate its data mining capabilities, as well as use the Vento professional services methodology as a basis for expanded consulting activities supporting the implementation of its analytical solutions. 43 44 The following information reconciles net revenues and net income of SPSS as previously reported with the amounts presented in the accompanying consolidated statements of income for the years ended December 31, 1997 and 1998, as well as the results of operations for 1999 for Vento during the period preceding the acquisition. The 1999 results presented for Vento represent the eleven months ended November 30, 1999.
1997 1998 1999 -------------- -------------- -------------- Net revenues: SPSS (1) $ 110,644,000 $ 121,387,000 -- Vento 462,000 2,085,000 $ 1,507,000 -------------- -------------- Total $ 111,106,000 $ 123,472,000 ============== ============== Net income (loss): SPSS (1) $ 3,582,000 $ 8,330,000 -- Vento (838,000) 248,000 $ (633,000) -------------- -------------- Total $ 2,744,000 $ 8,578,000 ============== ==============
(1) Represents the historical results of SPSS without considering the effect of the Vento pooling of interests transaction. On December 24, 1999, SPSS acquired certain assets related to the VerbaStat software program from DataStat, S.A., a corporation organized under the laws of Belgium, for approximately $1,000,000. VerbaStat is a software tool for computer aided coding of open-ended survey questions. SPSS plans to further develop this product and integrate its capabilities into its next-generation solution for firms in the market research industry. The following summary presents information concerning the purchase price allocation for the VerbaStat acquisition accounted for under the purchase method for the year ended December 31, 1999.
ACQUIRED PURCHASED IN-PROCESS PURCHASE COMPANY NAME SOFTWARE TECHNOLOGY GOODWILL OTHER PRICE ------------ -------- ---------- -------- ----- -------- VerbaStat $5,000 $ 128,000 $883,000 $ 138,000 $1,154,000
(5) COMMITMENTS AND CONTINGENCIES OPERATING LEASES SPSS leases its office facilities, storage space, and some data processing equipment under lease agreements expiring through the year 2012. Minimum lease payments indicated below do not include costs such as property taxes, maintenance, and insurance. 44 45 The following is a schedule of future noncancellable minimum lease payments required under operating leases as of December 31, 1999:
YEAR ENDING DECEMBER 31, AMOUNT ------------------------ ------------- 2000 $ 4,975,000 2001 3,838,000 2002 3,254,000 2003 2,990,000 2004 2,533,000 Thereafter 17,315,000 ------------- $ 34,905,000 =============
Rent expense related to operating leases was approximately $4,682,000, $5,210,000 and $5,262,000 during the years ended December 31, 1997, 1998, and 1999, respectively. LITIGATION SPSS is subject to certain legal proceedings and claims that have arisen in the ordinary course of business and have not been adjudicated. Management currently believes the ultimate outcome of these matters will not have a material adverse effect on the Company's results of operations or financial position. (6) OTHER NON-CURRENT LIABILITIES SPSS has a mortgage on its freehold property which houses the SPSS Limited offices in London, England. The mortgage is held by Norwich Union Investment Management of Norwich, England and is a fixed 12.04%, 30-year mortgage expiring in January 2010. The annual principal and interest payments total British Pounds Sterling (GBP) 109,692 (approximately $177,000). The current portion of this debt is GBP 29,453 (approximately $53,000), and is included in "Other accrued liabilities". The non-current balance as of December 31, 1999 is GBP 575,056 (approximately $929,000). In December 1999, SPSS entered into an asset purchase agreement with DataStat, S.A. for the purchase of the VerbaStat product. Under the terms of the agreement, SPSS will pay DataStat twelve quarterly installment payments of $83,333. The current portion of this debt is approximately $250,000, and is included in "Other accrued liabilities." (7) FINANCING ARRANGEMENTS In May 1998, SPSS entered into a loan agreement with American National Bank and Trust Company of Chicago. Under the agreement, SPSS has an available $10,000,000 unsecured line of credit. At December 31, 1999, SPSS had $9,000,000 in borrowings under this credit agreement. In June 1999, SPSS entered into a second loan agreement with American National, under which SPSS has available an additional $10,000,000 unsecured line of credit. At December 31, 1999, SPSS had no borrowings under its second credit agreement. Borrowings against each agreement bear 45 46 interest at either the prime rate or the Eurodollar Rate (varying between 7.96% and 8.21% at December 31, 1999), depending on the circumstances. (8) OTHER INCOME (EXPENSE) Other income (expense) consists of the following:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1998 1999 ------------ ------------ ------------ Interest income $ 585,000 $ 1,087,000 $ 193,000 Interest expense (210,000) (754,000) (722,000) Exchange gain (loss) on foreign currency Transactions (488,000) (238,000) 119,000 Other (15,000) 110,000 38,000 ------------ ------------ ------------ Total other income (expense) $ (128,000) $ 205,000 $ (372,000) ============ ============ ============
(9) INCOME TAXES Income before income tax consists of the following:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Domestic $ 5,569,000 $ 5,391,000 $ 7,347,000 Foreign 364,000 11,591,000 16,776,000 ------------ ------------ ------------ $ 5,933,000 $ 16,982,000 $ 24,123,000 ============ ============ ============
Income tax expense consists of the following:
CURRENT DEFERRED TOTAL ------------ ------------ ------------ Year ended December 31, 1997 U.S. Federal $ 2,056,000 $ (609,000) $ 1,447,000 State 627,000 (83,000) 544,000 Foreign 2,207,000 (1,009,000) 1,198,000 ------------ ------------ ------------ $ 4,890,000 $ (1,701,000) $ 3,189,000 ============ ============ ============ Year ended December 31, 1998 U.S. Federal $ 4,029,000 $ (1,141,000) $ 2,888,000 State 884,000 (161,000) 723,000 Foreign 4,037,000 756,000 4,793,000 ------------ ------------ ------------ $ 8,950,000 $ (546,000) $ 8,404,000 ============ ============ ============ Year ended December 31, 1999 U.S. Federal $ 2,549,000 $178,000 $ 2,727,000 State 495,000 19,000 514,000 Foreign 5,203,000 177,000 5,380,000 ------------ ------------ ------------ $ 8,247,000 $374,000 $ 8,621,000 ============ ============ ============
46 47 For the years ended December 31, 1997, 1998 and 1999, the reconciliation of statutory to effective income taxes is as follows:
YEAR ENDED DECEMBER 31, ------------------------------------------------ 1997 1998 1999 ------------ ------------ ------------ Income taxes using the Federal statutory rate of 34% $ 2,018,000 $ 5,774,000 $ 8,202,000 State income taxes, net of Federal tax Benefit 359,000 477,000 339,000 Foreign taxes at net rates different from U.S. Federal rates 1,096,000 524,000 (324,000) Foreign tax credit (273,000) (642,000) -- Nondeductible write-off of in-process research and development -- 1,208,000 128,000 Acquisition costs 592,000 785,000 404,000 Other, net (603,000) 278,000 (128,000) ------------ ------------ ------------ $ 3,189,000 $ 8,404,000 $ 8,621,000 ============ ============ ============
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 1998 and 1999, are presented below:
1998 1999 ------------ ------------ Deferred tax assets: Accounts receivable principally due to allowance for doubtful accounts $ 431,000 $ 428,000 Inventories, principally due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 103,000 51,000 Compensated absences, principally due to accrual for financial reporting purposes 223,000 161,000 Research and experimentation credit carryforwards 491,000 523,000 Deferred rent 455,000 550,000 Plant and equipment, principally due to differences in depreciation and capitalized interest 577,000 -- Deferred revenues 1,925,000 2,272,000 Foreign currency loss 107,000 66,000 Acquisition-related items 1,953,000 2,345,000 State deferred tax asset 15,000 2,000 U.S. net operating loss carryforwards 231,000 110,000 Non-U.S. net operating loss carryforwards 1,092,000 915,000 Other 142,000 244,000 ------------ ------------ Total gross deferred tax assets 7,745,000 7,667,000 Less valuation allowance (3,637,000) (2,770,000) ------------ ------------ Net deferred tax assets 4,108,000 4,897,000 ------------ ------------ Deferred tax liabilities: Capitalized software costs 2,826,000 3,413,000 Acquisition-related items 1,675,000 1,389,000 Post-retirement benefits -- 544,000 Plant and equipment -- 204,000 Other -- 114,000 ------------ ------------ Net deferred tax liability $ (393,000) $ (767,000) ============ ============
47 48 The valuation allowance decreased $1,256,000 in 1997, remained unchanged in 1998, and decreased $867,000 in 1999. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of December 31, 1999, Jandel had net operating loss carryforwards of approximately $285,000 for Federal purposes, expiring in the year 2010. Due to the merger with SPSS, Jandel's ability to utilize net operating loss carryforwards may be affected. As of December 31, 1999, SPSS A/S had a Denmark net operating loss carryforward of approximately $2,692,000, which begins to expire in 2000. As of December 31, 1999, SPSS had a Federal research and experimentation credit carryforward of approximately $523,000, which begins to expire in 2000. (10) EMPLOYEE BENEFIT PLANS Effective February 1, 1995, SPSS amended its 401(k) savings plan. Qualified employees may participate in the savings plan by contributing up to the lesser of 15% of eligible compensation or $9,240 in a calendar year. Beginning in 1999, SPSS made a matching contribution of $500 for employees in the plan the entire year, which resulted in a $192,000 contribution by SPSS recorded as compensation expense. Also in 1999, the plan year was amended to begin on December 31 of each year and end on December 30. In 1993, SPSS implemented an employee stock purchase plan. The SPSS purchase plan provides that eligible employees may contribute up to 10% of their base salary per quarter towards the quarterly purchase of SPSS common stock. The employee's purchase price is 85% of the fair market value of the stock at the close of the first business day after the quarterly offering period. The total number of shares issuable under the purchase plan is 100,000. During 1997, 11,256 shares were issued under the purchase plan at market prices ranging from $24.25 to $29.875. During 1998, 18,663 shares were issued under the purchase plan at market prices ranging from $19.25 to $23.75. During 1999, 18,249 shares were issued under the purchase plan at market prices ranging from $16.75 to $25.50. SPSS recorded $47,000, $54,000 and $52,000 in compensation expense related to the purchase of these shares in 1997, 1998 and 1999, respectively. (11) RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIPS SPSS 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 SPSS and under these agreements, SPSS incurred royalty expense to the partnerships of $319,000, $235,000 and $237,000, for the years ended December 31, 1997, 1998 and 1999. (12) STOCK OPTIONS On January 16, 1992, SPSS adopted a Stock Option Plan for some key employees. Options vest either immediately or over a four-year period. In September 1994, SPSS granted options to purchase 150,000 shares of common stock to the principal owners of SYSTAT. In addition, in June 1995, the stockholders of SPSS adopted the 1995 Equity Incentive Plan which authorizes the Board of Directors, 48 49 under some conditions, to grant stock options and shares of restricted stock to directors, officers, other key executives, employees and independent contractors. SPSS applies APB Opinion No. 25 and related interpretations in accounting for its plans. All options under the plans have been granted at exercise prices not less than the market value at the date of the grant. Accordingly, no compensation cost has been recognized for its fixed stock option plans. Had compensation cost for the Company's stock option plans been determined consistent with SFAS No. 123, the Company's net income available to stockholders would have been decreased to the pro forma amounts indicated below:
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1997 1998 1999 ------------ ------------ ------------ Net income: As reported $ 2,744,000 $ 8,578,000 $ 15,502,000 Pro forma 1,008,000 5,957,000 12,296,000 Net earnings per share: Basic as reported 0.29 0.90 1.61 Basic pro forma 0.11 0.63 1.28 Diluted as reported 0.27 0.85 1.52 Diluted pro forma 0.10 0.59 1.21
Under the stock option plans, the exercise price of each option equals the market value of the Company's stock on the date of grant. For purposes of calculating the compensation costs consistent with SFAS No. 123, the fair value of each grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal 1997, 1998 and 1999, respectively; no expected dividend yield; expected volatility of 25% in 1997 and 1998, and 39 percent in 1999; risk free interest rates of 5.57%, 5.30% and 6.43%, respectively, and expected lives of 8 years. Additional information regarding options is as follows:
1997 1998 1999 ---------------------- ----------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE ---------- -------- ---------- -------- --------- -------- Outstanding at beginning of year 1,379,076 $10.39 1,699,106 $13.99 1,861,093 $16.43 Granted 392,500 28.15 413,500 21.36 478,468 18.80 Forfeited (29,990) 21.28 (52,494) 26.21 (32,367) 24.49 Exercised (42,480) 3.65 (199,019) 6.66 (59,030) 4.21 ---------- ------ ---------- ------ ---------- ------ Outstanding at end of year 1,699,106 13.99 1,861,093 16.43 2,248,164 17.11 Options exercisable at year end 984,115 12.58 1,115,749 12.21 1,413,790 14.89
The weighted average fair value of options granted during 1997, 1998 and 1999 was $28.15, $21.36 and $18.80, respectively. 49 50 The following table summarizes information about stock options outstanding at December 31, 1999:
WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE OPTIONS CONTRACTUAL EXERCISE OPTIONS EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ------------------------ ----------- ----------- -------- ----------- -------- $ 1.05 259,087 2.01 $ 1.05 259,087 $ 1.05 8.00-9.125 179,382 4.04 8.61 179,382 8.61 12.875-14.75 481,746 5.66 14.04 473,508 14.03 17.50-23.25 868,054 8.96 19.93 169,708 21.00 25.125-29.00 459,895 7.13 27.34 332,105 27.16 ---------- ------ ------ ---------- ------ 2,248,164 6.69 $17.11 1,413,790 $14.89
50 51 (15) UNAUDITED QUARTERLY FINANCIAL INFORMATION The following is a summary of the unaudited interim results of operations for each of the quarters ended in 1998 and 1999.
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1998 1998 1998 1998 1999 1999 1999 1999 -------- -------- --------- -------- -------- -------- --------- -------- Net revenues: Analytical solutions $ 1,737 $ 1,714 $ 2,592 $ 2,793 $ 3,680 $ 3,597 $ 4,189 $ 6,074 Market research 5,814 6,264 6,054 7,419 7,030 7,199 7,667 10,778 Statistics 21,424 21,518 21,811 24,332 22,287 22,850 22,763 23,816 -------- -------- -------- -------- -------- -------- -------- -------- Net revenues 28,975 29,496 30,457 34,544 32,997 33,646 34,619 40,668 Operating expenses: Cost of revenues 2,435 2,574 2,516 2,523 2,683 3,126 3,253 3,601 Sales and marketing 14,428 15,408 14,241 16,336 16,904 16,357 16,109 18,907 Product development 5,045 4,886 5,394 5,537 5,709 6,215 6,581 6,478 General and administrative 2,008 2,483 2,807 2,129 2,415 2,985 2,607 1,766 Special general and administrative (a) -- -- -- 445 -- -- -- -- Merger-related (b) -- -- -- 1,948 -- -- -- 1,611 Acquired in-process technology (c) -- -- -- 3,552 -- -- -- 128 -------- -------- -------- -------- -------- -------- -------- -------- Operating expenses 23,916 25,351 24,958 32,470 27,711 28,683 28,550 32,491 -------- -------- -------- -------- -------- -------- -------- -------- Operating income 5,059 4,145 5,499 2,074 5,286 4,963 6,069 8,177 Net interest income (expense) 50 76 95 112 (65) (86) (332) (46) Other income (expenses) (169) (24) 205 (140) (115) (204) 539 (63) -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes 4,940 4,197 5,799 2,046 5,106 4,673 6,276 8,068 Income tax expense 1,661 1,488 1,854 3,401 1,766 1,774 2,195 2,886 -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) $ 3,279 $ 2,709 $ 3,945 ($ 1,355) $ 3,340 $ 2,899 $ 4,081 $ 5,182 ======== ======== ======== ======== ======== ======== ======== ======== Basic net earnings per share $ 0.35 $ 0.28 $ 0.41 ($ 0.14) $ 0.35 $ 0.30 $ 0.42 $ 0.54 ======== ======== ======== ======== ======== ======== ======== ======== Shares used in basic per share 9,390 9,525 9,569 9,575 9,581 9,596 9,606 9,621 ======== ======== ======== ======== ======== ======== ======== ======== Diluted net earnings per share $ 0.33 $ 0.27 $ 0.39 ($ 0.14) $ 0.33 $ 0.28 $ 0.40 $ 0.51 ======== ======== ======== ======== ======== ======== ======== ======== Shares used in diluted per share 10,063 10,128 10,137 9,575 10,091 10,145 10,283 10,227 ======== ======== ======== ======== ======== ======== ======== ========
------------------------------------------------------------------------------------------------ MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, 1998 1998 1998 1998 1999 1999 1999 1999 -------- -------- -------- -------- -------- -------- --------- -------- Net revenues: Analytical solutions 6% 6% 8% 8% 11% 11% 12% 15% Market research 20% 21% 20% 22% 21% 21% 22% 26% Statistics 74% 73% 72% 70% 68% 68% 66% 59% -------- -------- -------- -------- -------- -------- -------- -------- Net revenues 100% 100% 100% 100% 100% 100% 100% 100% Operating expenses: Cost of revenues 8% 9% 8% 8% 8% 9% 9% 9% Sales and marketing 50% 52% 47% 47% 51% 49% 47% 47% Product development 18% 17% 18% 16% 17% 18% 19% 16% General and administrative 7% 8% 9% 6% 8% 9% 7% 4% Special general and administrative (a) -- -- -- 1% -- -- -- -- Merger-related (b) -- -- -- 6% -- -- -- 4% Acquired in-process technology (c) -- -- -- 10% -- -- -- -- -------- -------- -------- -------- -------- -------- -------- -------- Operating expenses 83% 86% 82% 94% 84% 85% 82% 80% -------- -------- -------- -------- -------- -------- -------- -------- Operating income 17% 14% 18% 6% 16% 15% 18% 20% Net interest income (expense) -- -- -- -- -- -- (1)% -- Other income (expense) -- -- 1% -- (1)% (1)% 1% -- -------- -------- -------- -------- -------- -------- -------- -------- Income before income taxes 17% 14% 19% 6% 15% 14% 18% 20% Income tax expense 6% 5% 6% 10% 5% 5% 6% 7% -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) 11% 9% 13% (4)% 10% 9% 12% 13% ======== ======== ======== ======== ======== ======== ======== ========
(a) Write-off principally of some software assets associated with the Company's Unix and Open VMS products duplicated through the acquisitions of Surveycraft and Integral Solutions in 1998. (b) Includes costs related to acquisitions accounted for as poolings of interests, such as investment banking and other professional fees, employee severance and costs of closing excess office facilities and certain expenses associated with the closing of other acquisitions. (c) Includes costs related to acquired in-process technology, in conjunction with business combinations accounted for as purchases. 51 52 SCHEDULE II SPSS INC. VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
ADDITIONS ------------------------ BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ------------ ---------- ---------- ---------- ---------- 1997 Allowance for doubtful accounts, product returns, and cancellations $ 1,706,000 $ 447,000 $ 1,606,000 $ 2,045,000 $ 1,714,000 Inventory obsolescence reserve 232,000 100,000 (50,000) 215,000 67,000 1998 Allowance for doubtful accounts, product returns, and cancellations $ 1,714,000 $ 724,000 $ 1,867,000 $ 2,199,000 $ 2,106,000 Inventory obsolescence reserve 67,000 50,000 -- 102,000 15,000 1999 Allowance for doubtful accounts, product returns, and cancellations $ 2,106,000 $ 1,768,000 $ 1,124,000 $ 2,488,000 $ 2,510,000 Inventory obsolescence reserve 15,000 25,000 -- 23,000 17,000
52 53 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no changes in or disagreements with accountants during fiscal year 1999. PART III ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS The following table shows information as of March 17, 2000 with respect to each person who is an executive officer or director of SPSS.
Name Age Position - ---- --- -------- Norman Nie......................................... 56 Chairman of the Board of Directors Jack Noonan........................................ 52 Director, President and Chief Executive Officer Edward Hamburg..................................... 48 Executive Vice President, Corporate Operations, Chief Financial Officer, and Secretary Louise Rehling..................................... 56 Executive Vice President, Product Development Mark Battaglia..................................... 40 Executive Vice President, Corporate Marketing Ian Durrell........................................ 57 Executive Vice President, SPSS Market Research Susan Phelan....................................... 43 Executive Vice President, SPSS Business Intelligence Bernard Goldstein (1)(2)........................... 69 Director Merritt Lutz (1)................................... 57 Director Michael Blair (1)(2)............................... 55 Director
- --------------------------- (1) Member of the Compensation Committee (2) Member of the Audit Committee Norman Nie, Chairman of the Board and co-founder of SPSS, designed the Company's original statistical software beginning in 1967 and has been a Director and Chairman of the Board since the Company's inception in 1975. He served as Chief Executive Officer of SPSS from 1975 to 1991. In addition to his current responsibilities as Chairman of the Board, Dr. Nie is a research professor at Stanford University and a professor emeritus in the Political Science Department at the University of Chicago. His research specialties include public opinion, voting behavior and citizen participation. He has received three national awards for his books in these areas. During 1998, he became a technology partner in Oak Investment Partners and is a director of several privately-held companies. Dr. Nie received his Ph.D. from Stanford University. 53 54 Jack Noonan has served as Director as well as President and Chief Executive Officer since joining SPSS in January 1992. Mr. Noonan was President and Chief Executive Officer of Microrim Corp., a developer of database software products, from 1990 until December 1991. Mr. Noonan served as Vice President of the Product Group of Candle Corporation, a developer of IBM mainframe system software, from 1985 to 1990. Mr. Noonan is a Director of ShowCase Corporation, Morningstar, Inc. and Repository Technologies, Inc. Mr. Noonan is a member of the advisory committee to Napersoft. Inc. Edward Hamburg, Executive Vice President, Corporate Operations, Chief Financial Officer and Secretary, was elected Senior Vice President, Corporate Operations in July 1992, Chief Financial Officer in June 1993 and Secretary in June 1994. Dr. Hamburg previously served as Senior Vice President, Business Development, and was responsible for product and technology acquisitions as well as joint venture opportunities. Dr. Hamburg first joined SPSS in 1978 and served in a variety of marketing and product management capacities. He joined the faculty at the University of Illinois at Chicago in 1982, and returned to SPSS in 1986. Dr. Hamburg received his Ph.D. from the University of Chicago. Louise Rehling, Executive Vice President, Product Development, oversees management of all stages of product development. Ms. Rehling joined SPSS in 1982 as Vice President of Development and Services and has served in her current position since 1987. Ms. Rehling received her BS in Mathematics from the University of Illinois and her MS in Information Sciences and MA in Psychology from the University of Chicago. Mark Battaglia, Executive Vice President, Corporate Marketing, joined SPSS in October 1988. Mr. Battaglia served as Vice President of Marketing at London House, a publisher in the Maxwell Communications family, from June 1987 until joining SPSS. Mr. Battaglia received his MBA in 1984 from the University of Chicago. Ian Durrell, Executive Vice President, SPSS Market Research, joined SPSS in February 1991. Before that time, he served as head of European marketing for Unify Corporation, a supplier of relational database management systems, and was a partner of Partner Development International, a strategic partnering firm from 1987 to 1989. Mr. Durrell graduated from the Royal Military Academy, Sandhurst, in the United Kingdom. Susan Phelan, Executive Vice President, SPSS Business Intelligence, joined SPSS in 1980 as a sales representative. She assumed her current position in 1987. Ms. Phelan received her MBA from the University of Illinois at Chicago. Bernard Goldstein has been a Director of SPSS since 1987. He is a Director of Broadview International, LLC, which he joined in 1979. He is a past President of the Information Technology Association of America, the industry trade association of the computer service industry, and past Chairman of the Information Technology Foundation. Mr. Goldstein was a Director of Apple Computer Inc. until August 1997, and is currently a Director of Sungard Data Systems, Inc., Giga Information Group, Inc, and several privately held companies. He is a graduate of both the Wharton School of the University of Pennsylvania and the Columbia University Graduate School of Business. Merritt Lutz has been a Director of SPSS since 1988. He is currently a Managing Director of Morgan Stanley Dean Witter & Co. managing the its strategic technology investments and partnerships. Previously, he was President of Candle Corporation, a worldwide supplier of systems software from 54 55 1989 to November 1993. Mr. Lutz is a Director of Interlink Electronics, Inc. and three privately held software companies: Algorithmics, Persistence Software, and MicroFrame Technologies. Mr. Lutz serves on the Board of Managers at the University of Rochester-Eastman School of Music and Michigan State University College of Arts and Letters National Advisory Council. He is a former Director of Information Technology Association of American and the NASD Industry Advisory Committee. He holds a bachelors and masters degree from Michigan State University. Michael D. Blair has been a Director of SPSS since July 1997. Since April 1974, he has been Chairman, Chief Executive, and founder of Cyborg Systems, Inc., a human resource management software company. Mr. Blair is a Director of Praxis International, Computer Corporation of America, and Repository Technologies, Inc. He is a board member of Information Technology Association of America, President of the Chicago Software Association, a board member of the American Software Association, and a board member of Benefits & Compensation Magazine. Mr. Blair holds a bachelor's degree in mathematics and physics from the University of Missouri. The Company's Board of Directors is divided into three classes serving staggered three-year terms. Mr. Noonan and Mr. Blair are serving three-year terms expiring at the 2000 annual meeting. Mr. Lutz is serving a three-year term expiring at the 2001 annual meeting. Mr. Goldstein and Dr. Nie are serving three-year terms expiring at the 2002 annual meeting. For a discussion of the nomination rights granted to specific stockholders of SPSS, see "Related Transactions-Stockholders Agreement." The executive officers named herein have terms expiring at the next annual meeting or when their successors are duly elected and qualified. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires our directors, executive officers and holders of more than 10% of our common stock to file with the Securities and Exchange Commission reports regarding their ownership and changes in ownership of our securities. SPSS believes that, during fiscal year 1999, its directors, executive officers and 10% shareowners complied with all Section 16(a) filing requirements with the following exception: a late report on Form 5 filed by Dr. Norman H. Nie regarding an exercise of 35,000 options. In making this statement, SPSS has relied upon examination of the copies of Forms 3, 4 and 5 provided to SPSS and the written representations of its directors, executive officers and 10% shareowners. 55 56 ITEM 11. EXECUTIVE COMPENSATION The following tables show (a) the compensation paid or accrued by SPSS to the Chief Executive Officer, and each of the five most highly compensated officers of SPSS, other than the CEO, serving on December 31, 1999 (the "named executive officers") for services rendered to SPSS in all capacities during 1997, 1998, and 1999, (b) information relating to option grants made to the named executive officers in 1999 and (c) certain information relating to options held by the named executive officers. SPSS made no grants of freestanding stock appreciation rights ("SARs") in 1997, 1998, or 1999, nor did SPSS make any awards in 1997, 1998 or 1999 under any long-term incentive plan. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION --------------------------------------- -------------------------------------------- AWARDS PAYOUTS ------------------------- ------- OTHER RESTRICTED SECURITIES SALARY ANNUAL STOCK UNDERLYING LTIP ALL COMPENSATION BONUS COMPENSATION AWARD(S) OPTIONS/SARS PAYOUTS OTHER NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($)((1) (#)(2) ($) ($) - --------------------------- ---- ------------ ----- ------------ ---------- ------------ ------- ----- Jack Noonan,......................... 1999 $256,500 $ 96,125 None None 50,000 None None President and Chief 1998 $242,500 $185,679 None None 50,000 None None Executive Officer 1997 $235,000 $132,656 None None 50,000 None None Ian Durrell,......................... 1999 $197,000 $141,500 None None 25,000 None None Executive Vice President, 1998 $197,000 $ 27,229 None None 25,000 None None SPSS Market Research(3) 1997 $197,000 $ 30,933 None None 25,000 None None Edward Hamburg,...................... 1999 $156,000 $ 46,375 None None 25,000 None None Executive Vice President, 1998 $156,000 $ 82,922 None None 25,000 None None Corporate Operations and 1997 $156,000 $ 58,027 None None 25,000 None None Chief Financial Officer Louise Rehling,...................... 1999 $135,200 $ 73,875 None None 25,000 None None Executive Vice President, 1998 $135,200 $ 66,645 None None 25,000 None None Product Development 1997 $135,200 $ 91,357 None None 25,000 None None Mark Battaglia,...................... 1999 $127,000 $ 41,375 None None 25,000 None None Executive Vice President, 1998 $110,000 $ 70,262 None None 25,000 None None Corporate Marketing 1997 $110,000 $ 54,342 None None 25,000 None None Susan Phelan,........................ 1999 $127,000 $ 84,080 None None 25,000 None None Executive Vice President, 1998 $120,000 $ 83,419 None None 25,000 None None SPSS Business Intelligence 1997 $110,300 $ 57,743 None None 25,000 None None
For the year ended December 31, 1999, non-employee directors of SPSS were entitled to receive 5,000 options. Each director was also reimbursed by SPSS for reasonable expenses incurred in connection with services provided as a director. During 1999, Dr. Nie received compensation of $80,800 for consultant work on a part-time basis. - ------------------------------------------------ (1) On December 31, 1999, Dr. Hamburg held 8,800 shares, Ms. Rehling held 2,915 shares and Ms. Phelan held 1,986 shares of restricted common stock having a market value, based on the closing price of the common stock on that date, of $222,200 for Dr. Hamburg's shares, $73,603.75 for Ms. Rehling's shares and $50,146.50 for Ms. Phelan's shares. (2) Amounts reflected in this column are for grants of stock options for the common stock of SPSS. No stock appreciation rights have been issued by SPSS. (3) Payments and options shown in the table for Mr. Durrell reflect payments and option grants to Valletta Investments Limited, a consulting company controlled by Mr. Durrell. Mr. Durrell does not receive any personal benefits or perquisities, payments of salary and bonus, awards of options or other compensation from SPSS in his individual capacity. 56 57 The following table shows the number of options to purchase common stock granted to each of the named executive officers during 1999. 1999 OPTION/STOCK APPRECIATION RIGHTS GRANTS(1)
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE AT ASSUMED PERCENT OF ANNUAL NUMBER OF TOTAL RATES OF STOCK PRICE SECURITIES OPTIONS/SARS EXERCISE LATEST APPRECIATION FOR UNDERLYING GRANTED TO OR BASE POSSIBLE OPTION TERM (2) OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION ----------------------- NAME GRANTED(#) 1999 ($/SH) DATE 5% ($) 10% ($) --------------------------- ------------ ------------ -------- ---------- -------- ---------- Jack Noonan................ 50,000 10.59% $20.500 01/03/09 $644,617 $1,633,586 Ian Durrell(3)............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793 Edward Hamburg............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793 Louise Rehling............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793 Mark Battaglia............. 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793 Susan Phelan............... 25,000 5.30% $20.500 01/03/09 $322,308 $ 816,793
- ---------------------------------- (1) The Board of Directors of SPSS may, at its discretion, grant additional options to the option holders in the event the option holders pay for the exercise price of the options by tendering by attestation SPSS common stock. In that case, the Board could grant these "reload" options in an amount equal to the number of shares of SPSS common stock that the option holder tendered by attestation. (2) In satisfaction of applicable SEC regulations, the table shows the potential realizable values of these options, upon their latest possible expiration date, at arbitrarily assumed annualized rates of stock price appreciation of five and ten percent over the term of the options. The potential realizable value columns of the table illustrate values that might be realized upon exercise of the options at the end of the ten-year period starting with their vesting commencement dates, based on the assumptions shown above. Because actual gains will depend upon the actual dates of exercise of the options and the future performance of the common stock in the market, the amounts shown in this table may not reflect the values actually realized. No gain to the named executive officers is possible without an increase in stock price which will benefit all stockholders proportionately. Actual gains, if any, on option exercises and common stock holdings are dependent on the future performance of the common stock and general stock market conditions. There can be no assurance that the potential realizable values shown in this table will be achieved, or that the stock price will not be lower or higher than projected at five and ten percent assumed annualized rates of appreciation. (3) Options shown in the table for Mr. Durrell are options granted to Valletta. 57 58 AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN 1999 AND YEAR-END OPTION/STOCK APPRECIATION RIGHT VALUES
Value of Number of Unexercised Unexercised In-the-Money Options/SARs at Options/SARs at Year-End Year-End (#)(1) ($)(1)(2) Shares --------------- --------------------- Acquired on Value Exercise Realized Exercisable/ Exercisable/ Name (#) ($)(1)(4) Unexercisable Unexercisable - ---- ----------- --------- --------------- --------------------- Jack Noonan.................... None N/A 291,439/92,228 $7,358,835/$2,328,757 Ian Durrell (3)................ None N/A 79,281/45,719 $2,001,845/$1,154,405 Edward Hamburg................. 4,100 81,879 145,914/45,719 $3,684,329/$1,154,405 Louise Rehling................. None N/A 126,947/45,719 $3,205,412/$1,154,405 Mark Battaglia................. None N/A 133,614/45,719 $3,373,754/$1,154,405 Susan Phelan................... 6,500 152,425 115,448/45,719 $2,915,062/$1,154,405
- ---------------------------------- (1) All information provided is with respect to stock options. No stock appreciation rights have been issued by SPSS. (2) These amounts have been determined by multiplying the aggregate number of options by the difference between $25.25, the closing price of the common stock on the Nasdaq National Market on December 31, 1999, and the exercise price for that option. (3) Options shown in the table for Mr. Durrell are options granted to Valletta. (4) These amounts have been determined by multiplying the aggregate number of options exercised by the difference between the closing price of the common stock on the Nasdaq National Market on the date of exercise and the exercise price for that option. EMPLOYMENT AGREEMENTS SPSS entered into an employment agreement with Jack Noonan on January 14, 1992. This employment agreement provides for a one-year term with automatic one-year extensions unless Mr. Noonan or SPSS gives a written termination notice at least 90 days before the expiration of the initial term or any extension. It also provides for a base salary of $225,000 during the initial term, together with the same benefits provided to other employees of SPSS. The Board of Directors annually reviews Mr. Noonan's base compensation and increased it to $235,000 for 1993, 1994, 1995, 1996 and 1997, to $242,500 in 1998, and to $256,500 in 1999. If SPSS terminates Mr. Noonan's employment without cause, SPSS must pay Mr. Noonan an amount equal to 50% of Mr. Noonan's annual base salary in effect at the time of termination. This amount is payable in 12 equal monthly installments. However, if Mr. Noonan finds other employment at a comparable salary, the Company's obligation to make these payments ceases. The employment agreement requires Mr. Noonan to refrain from disclosing confidential information of SPSS and to abstain from competing with SPSS during his employment and for a period of one year after employment ceases. Only Mr. Noonan and Mr. Durrell, through a management services agreement with Valletta described in "Management Services Agreement" below, are employed through an employment or 58 59 similar agreement. However, SPSS does have confidentiality and work-for-hire agreements with many of its key management and technical personnel. MANAGEMENT SERVICES AGREEMENT SPSS has entered into a management services agreement with Valletta, which requires that Ian Durrell's services are provided to SPSS. Either Valletta or SPSS may terminate the agreement at any time upon 30 days' written notice. If SPSS terminates the agreement under the 30-day notice provision without cause, Valletta is entitled to termination payments equal to 50% of its annual compensation then in effect in six equal monthly installments. The agreement further provides that if specified performance standards are satisfied, Valletta is to receive annual compensation at a rate established by the Board of Directors plus incentive compensation. For 1999, Valletta's aggregate compensation, including bonus, was $338,500. The management services agreement requires Valletta to refrain from disclosing confidential information about SPSS and to abstain from competing with SPSS during the term of the management services agreement and for a period of eighteen months thereafter. Mr. Durrell has agreed to be bound by the terms and conditions of the management services agreement and to act as Vice-President, International and to head the Company's non-western hemisphere operations. CONSULTING AGREEMENT SPSS has entered into a consulting agreement, dated as of January 1, 1997, with Norman H. Nie Consulting L.L.C., an Illinois Limited Liability Company. Nie Consulting is to provide thirty (30) hours per month of consulting services on various matters relating to the business of SPSS. This consulting agreement provides for a one-year term with automatic one-year extensions unless Nie Consulting or SPSS gives a written notice of termination at least 30 days prior to the expiration of the initial term or any extension. SPSS may terminate this consulting agreement for cause, in which event SPSS shall pay Nie Consulting all accrued but unpaid compensation. The agreement also provides that Nie Consulting is to receive annual compensation of $80,800 and reimbursement of reasonable out of pocket expenses incurred in performing services under the consulting agreement. The consulting agreement requires that the Nie Consulting refrain from disclosing confidential information about SPSS during the term of the consulting agreement and for a period of five years after its expiration. In addition, the consulting agreement requires that Nie Consulting abstain from competing with SPSS during his consultancy and for a period of one-year after the consultancy ceases. CHANGE OF CONTROL AGREEMENTS On May 1, 1998, SPSS entered into change of control agreements with its named executive officers. These agreements provide certain benefits to any one or more officers who is terminated or constructively terminated following a change of control. The agreements provide that, if the executive is terminated without cause or constructively terminated within two years following a change of control, then the executive may receive benefits including a severance package equal to the greater of (a) the aggregate cash compensation received in the immediately preceding fiscal year, or (b) two times the executive's base salary received in the immediately preceding fiscal year; the accelerated vesting of all previously unvested options; and participation in the same health and welfare benefits he or she received at any time within 120 days of the change of control for eighteen months following that date of such termination. 59 60 COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Messrs. Goldstein, Blair and Lutz were directors and members of the Compensation Committee during the last fiscal year. None of the members of the Compensation Committee has ever been an officer or employee of SPSS or any of its subsidiaries. REPORT OF THE COMPENSATION COMMITTEE To: The Board of Directors The Compensation Committee of the Board of Directors is composed entirely of directors who have never served as officers of SPSS. The Compensation Committee develops and administers the compensation programs for the Company's executive officers. After consideration of the Compensation Committee's recommendations, the entire Board of Directors reviews and approves the base salaries, bonuses and the stock option and benefit programs for the Company's executive officers. In 1999, the Board approved the Compensation Committee's recommendations in all material respects. Compensation Philosophy. SPSS has three principal objectives in its executive compensation programs: 1. It strives to relate its total compensation for senior management to the achievement of financial benchmarks designed to build shareholder value. 2. It rewards outstanding individual performance. 3. It strives to structure its entire compensation package in a manner which is competitive with other executive compensation packages in the software industry, so that it will attract and retain highly capable key executives responsible for the success of SPSS and provide fair compensation for the responsibilities undertaken by those executives. These goals are met through a combination of salary, bonuses, stock options and other benefits. SPSS is committed to increasing the proportion of the senior executives' compensation which is performance-based, and therefore variable, and to focus on building shareholder value as the primary measure of performance. To the extent practicable, the Compensation Committee's objective is to align the executive officers' financial interests with those of shareholders by focusing on specific financial objectives that the Compensation Committee believes will enhance shareholder value and through the grant of additional options pursuant to the Company's option plan, the opportunity for management to purchase additional shares on advantageous terms under the Company's Employee Stock Purchase Plan and through present stock ownership and options. The Compensation Committee focuses principally on the Company's financial performance--specifically operating and net income--in determining the amount of bonuses for the executive officers. Therefore, bonuses for these officers are a function of the Company's overall financial performance relative to budgeted goals. In keeping with the Company's commitment to increasing the proportion of the senior executives' compensation which is performance-based, base salary levels are designed to increase in comparatively small amounts and bonus compensation is designed so that it can increase or decrease significantly depending on the Company's overall financial performance. 60 61 The Compensation Committee works with the Chief Executive Officer (the "CEO") to determine the base salary of the other executive officers, to establish targets for the annual bonus program and to allocate the bonus pool among the executive officers. Consistent with the Compensation Committee's philosophy of shifting the proportion of compensation away from fixed to variable types of compensation, the Compensation Committee has targeted growth in total compensation to come from the bonus and other incentive forms of compensation. At the beginning of each year, the Compensation Committee establishes certain budgeted objectives for operating income. The total amount allocated to the annual bonus pool is dependent upon the degree to which budgeted goals are achieved. Under the Company's Third Amended and Restated 1995 Equity Incentive Plan, the Compensation Committee is authorized to make grants of stock options to executive officers. The Compensation Committee normally approves grants once a year and occasionally in connection with significant corporate events. During 1999, the Compensation Committee awarded stock options to executive officers. In determining the size of the option grants, the Compensation Committee considers the impact of the grants on existing shareholders' stock ownership positions and the prospective value of the options as a performance incentive. The number of options previously awarded to and held by executive officers is reviewed and is one factor in determining the size of current option grants. The Compensation Committee has established a stock option program for which only policy-making senior executives of SPSS are eligible. Acceleration of the vesting of the options granted to the executive officers as of January, 1999 was contingent upon SPSS achieving certain 1999 revenue and profit levels established by the Board of Directors. Such options are customarily granted in the first half of the calendar year after budgetary targets have been established. The acceleration of these options is earned only if SPSS exceeds, by a significant percentage established by the Compensation Committee, the budgeted performance goals for SPSS operating and net income approved by the Board. In the event of a major corporate event, the Compensation Committee may change these goals. In addition to SPSS performance, the Compensation Committee also takes into account exceptional individual performance in determining bonus awards, although it does not assign a specified percentage of senior executive bonus compensation to this. Chief Executive Officer Compensation. The Compensation Committee also determines the CEO's base salary and bonus, employing largely the same principles described above, except that the amount of the CEO's bonus is purely a function of the financial performance of SPSS measured against the operating and net income goals established by the Compensation Committee and approved by the Board at the beginning of each year. The Compensation Committee believes that it has established a total compensation package which compares favorably to industry standards. The Compensation Committee considers the total salary and incentive compensation provided to chief executives of similar companies, although it does not target a specific percentile range within this group of similar companies' chief executive compensation in determining the CEO's compensation. The Compensation Committee recommends stock option grants reflecting the importance of Mr. Noonan's contribution to SPSS and the importance of aligning Mr. Noonan's interest in SPSS with that of stockholders. In 1999, Mr. Noonan received twice the number of stock options received by the other policy-making senior executives. The Compensation Committee recommended grants to Mr. Noonan of stock options to acquire 50,000 shares of common stock at $20.50 per share effective January 4, 1999. These options vest in the same manner as the stock options for the other senior executives. 61 62 Mr. Noonan's bonus is determined in the same manner as the other policy-making senior executives, except that no portion of Mr. Noonan's bonus is based on exceptional individual performance. It is the Compensation Committee's view that the CEO's compensation should be based solely on the financial performance of SPSS and that, for the CEO, exceptional individual performance is so closely aligned with SPSS financial performance that the CEO's bonus should be based solely on overall SPSS financial performance. Tax Considerations. To the extent readily determinable and as one of the factors in its consideration of compensation matters, the Compensation Committee considers the anticipated tax treatment to SPSS and to the executive officers of various payments and benefits. Some types of compensation payments and their deductibility (e.g., the spread on exercise of non-qualified options) depend upon the timing of an executive's vesting or exercise of previously granted rights. Interpretations of and changes in the tax laws and other factors beyond the Compensation Committee's control also affect the deductibility of compensation. For these and other reasons, SPSS will not necessarily and in all circumstances limit executive compensation to the amount which is permitted to be deductible as an expense of SPSS under Section 162(m) of the Internal Revenue Code. The Compensation Committee will consider various alternatives to preserving the deductibility of compensation payments and benefits to the extent reasonably practicable and to the extent consistent with its other compensation objectives. Compensation Committee of SPSS Inc. Bernard Goldstein Michael Blair Merritt Lutz 62 63 PERFORMANCE GRAPH The following graph shows the changes in $100 invested since December 31, 1994, in the Company's common stock, the Nasdaq 100 Stocks Index and S&P Computer Software and Services Index, a specialized industry focus group, assuming that all dividends were reinvested. [GRAPH]
12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99 -------------------------------------------------------------------- SPSS (NASDAQ: SPSS) $100.00 $213.70 $305.48 $210.96 $206.85 $276.71 NASDAQ 100 Stock Index $100.00 $144.67 $270.48 $248.77 $460.98 $930.95 S&P Computer Software & Services Index $100.00 $165.44 $195.81 $357.88 $648.29 $981.98
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table shows, as of March 17, 2000, the number and percentage of shares of common stock beneficially owned by: o each person known by SPSS to own beneficially more than 5% of the outstanding shares of the common stock; o each director of SPSS; o each named executive officer of SPSS; and o all directors and executive officers of SPSS as a group. Unless otherwise indicated in a footnote, each person possesses sole voting and investment power with respect to the shares indicated as beneficially owned. The business address for Mr. Lutz is the office of Morgan Stanley Dean Witter & Co. at 750 Seventh Avenue, 16th floor, New York, New York 10019. The business address of Mr. Goldstein is the 63 64 office of Broadview Associates, L.P., One Bridge Plaza, Fort Lee, New Jersey 07024. The business address for Michael Blair is the office of Cyborg Systems, Inc., Two North Riverside Plaza, 12th floor, Chicago, Illinois 60606. The business address of Fidelity Management & Research Company is 82 Devonshire Street, Boston, Massachusetts 02109. The business address for the T. Rowe Price Associates, Inc. is 100 East Pratt Street, Baltimore, Maryland 21202. The business address for Daruma Asset Management, Inc. is 60 East 42nd Street, Suite 1111, New York, New York 10165. The business address for Brown Capital Management, Inc. is 1201 N. Calvest Street, Baltimore, Maryland 21202. The business address of each other person listed below is 233 South Wacker Drive, Chicago, Illinois 60606.
SHARES BENEFICIALLY OWNED ------------------ Name NUMBER PERCENT - ---- ------- ------- Norman H. Nie, individually, as Trustee of the Nie Trust and as a Director and President of the Norman and Carol Nie Foundation, Inc.(1) ........ 1,030,343 10.5% Brown Capital Management, Inc. (2) ......................... 933,900 9.6% T. Rowe Price Associates, Inc. (3) ......................... 906,400 8.8% Fidelity Management & Research Company (4) ................. 861,100 9.3% Daruma Asset Management, Inc. (5) .......................... 549,400 5.6% Jack Noonan (6) ............................................ 331,574 3.3% Bernard Goldstein(7) ....................................... 54,210 * Louise Rehling(8) .......................................... 144,411 1.5% Edward Hamburg(9) .......................................... 169,263 1.7% Mark Battaglia(10) ......................................... 148,546 1.5% Susan Phelan(11) ........................................... 131,983 1.3% Ian Durrell(12) ............................................ 93,830 1.0% Merritt M. Lutz(13) ........................................ 32,099 * Michael D. Blair (14) ...................................... 11,479 * All directors and executive officers as a group (10 persons)(15) ................................. 10,829,761
- ---------------------------------- * The percentage of shares beneficially owned does not exceed 1% of the Common Stock. (1) Includes 53,710 shares which are through options exercisable within 60 days; 90,433 shares held of record by the Norman and Carol Nie Foundation, Inc.; and 851,200 shares held by the Nie Trust and 35,000 shares held individually. Dr. Nie shares voting and investment power over the 90,433 shares held by the Nie Foundation with Carol Nie. (2) Brown Capital Management, Inc., is the beneficial owner of 933,900 shares of SPSS common stock and an investment advisor in accordance with Section 203 of the Investment Advisor Act. This information was taken from Brown's Schedule 13G dated February 10, 2000. (3) T. Rowe Price Associates, Inc. is the beneficial owner of 906,400 shares of SPSS common stock and an investment advisor registered under Section 203 of the Investment Advisors Act of 1940. This information was taken from T. Rowe Price's Schedule 13G dated February 8, 2000. (4) Fidelity Management & Research Company, a wholly-owned subsidiary of FMR Corp. and an investment 64 65 adviser registered under Section 203 of the Investment Advisers Act of 1940, is the beneficial owner of 861,100 shares of SPSS common stock as a result of acting as investment adviser to several investment companies registered under Section 8 of the Investment Company Act of 1940. The ownership of one investment company, Fidelity Low-Priced Stock Fund, amounted to 861,100 shares of SPSS common stock. FMR Corp. has the power to dispose of the shares of SPSS common stock. The Board of Trustees directs the voting of the shares of SPSS common stock. This information was taken from FMR Corporation's Schedule 13G, filed on February 14, 2000. (5) Daruma Asset Management, Inc. is the beneficial owner of 549,400 shares of SPSS common stock and an investment advisor in accordance with Section 203 of the Investment Advisor Act. This information was taken from Daruma's Schedule 13G dated February 10, 2000. (6) Includes 321,327 shares through options exercisable within 60 days. (7) Includes 18,766 shares through options exercisable within 60 days. (8) Includes 200 shares held in the Stella S. Hechtman Trust. Ms. Rehling is the Trustee and has the voting and investment power over the 200 shares held in the trust. She disclaims beneficial ownership of these shares. Includes 141,496 shares through options exercisable within 60 days. (9) Includes 160,463 shares through options exercisable within 60 days. (10) Includes 148,163 shares through options exercisable within 60 days. (11) Includes 129,997 shares through options exercisable within 60 days. (12) Mr. Durrell is the beneficial owner of these shares, which consist solely of 93,830 shares through options exercisable within 60 days held of record by Valletta. (13) Includes 18,766 shares through options exercisable within 60 days. (14) Includes 11,479 shares through options exercisable within 60 days. (15) Includes 1,099,983 shares through options exercisable within 60 days. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS TRANSACTIONS WITH NORMAN NIE Dr. Nie received 5,000 options for his services as Chairman of the Board in 1999 and $80,800 for product development work on a part-time basis. Dr. Nie is a limited partner in Computer Software Development Company, a research and development limited partnership to which SPSS incurred royalty expense of $249,000 in 1997, $234,000 in 1998 and $237,000 in 1999. STOCKHOLDERS AGREEMENT In connection with the Company's initial public offering, SPSS and the individuals and entities who were stockholders before the initial public offering entered into an agreement containing registration rights with respect to outstanding capital stock of SPSS and granting to each of the Nie Trust and Morgan Stanley Venture Capital Fund, so long as they own beneficially more than 12.5% of the capital stock of SPSS, the right to designate one nominee (as part of the management slate) in each election of directors at which directors of the class specified for the holder are to be elected. Since the completion of the February 1995 65 66 offering, Morgan Stanley Venture Capital Fund owned less than 12.5% and currently owns no capital stock of SPSS. Currently, the Nie Trust owns less than 12.5% of the Capital Stock of SPSS. As required by the stockholders agreement, the holders of restricted securities constituting more than seven percent of the outstanding shares at any time may require SPSS to register under the Securities Act all or any portion of the restricted securities held by the requesting holder or holders for sale in the manner specified in the notice. SPSS is not bound to honor the request unless the proceeds from the registered sale can reasonably be expected to exceed $5,000,000. SPSS estimates that the cost of complying with demand registration rights would be approximately $50,000 for a single registration. All of the stockholders who acquired their shares before the initial public offering have piggyback registration rights, which entitle them to seek inclusion of their common stock in any registration by SPSS, whether for its own account or for the account of other security holders or both (except with respect to registration on Forms S-4 or S-8 or another form not available for registering restricted securities for sale to the public). In the event of a request to have shares included in a registration statement filed by SPSS for its own account, the Company's underwriters may generally reduce, pro rata, the amount of common stock to be sold by the stockholders if the inclusion of all such securities would be materially detrimental to the Company's offering. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K (a) (1) Financial statements commence on page 31: Independent Auditors' Report Consolidated Balance Sheets as of December 31, 1998 and 1999 Consolidated Statements of Income for the years ended December 31, 1997, 1998 and 1999 Consolidated Statements of Comprehensive Income for the years ended December 31, 1997, 1998 and 1999 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1998 and 1999 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1998 and 1999 Notes to Consolidated Financial Statements (2) Financial Statement Schedule -- see page 52: Schedule II Valuation and qualifying accounts 66 67 Schedules not filed: All schedules other than that indicated in the index have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. (3) Exhibits required by Item 601 of Regulation S-K. (Note: Management contracts and compensatory plans or arrangements are underlined in the following list.) 67 68
Incorporation Exhibit by Reference Number Description of Document (if applicable) - ------ ----------------------- --------------- 2.1 Agreement and Plan of Merger among SPSS Inc., @2.1 SPSS ACSUB, Inc., Clear Software, Inc. and the shareholders named therein, dated September 23, 1996. 2.2 Agreement and Plan of Merger among SPSS Inc., @@Annex A SPSS Acquisition Inc. and Jandel Corporation, dated October 30, 1996. 2.3 Asset Purchase Agreement by and between SPSS Inc. ##2.3 and DeltaPoint, Inc., dated as of May 1, 1997 2.4 Stock Purchase Agreement among the Registrant, @@@2.1 Edward Ross, Richard Kottler, Norman Grunbaum, Louis Davidson and certain U.K.-Connected Shareholders or warrant holders of Quantime Limited named therein, dated as of September 30, 1997, together with a list briefly identifying the contents of omitted schedules. 2.5 Stock Purchase Agreement among the Registrant, @@@2.2 Edward Ross, Richard Kottler, Norman Grunbaum, Louis Davidson and certain Non-U.K. Shareholders or warrant holders of Quantime Limited named therein, dated as of September 30, 1997, together with a list briefly identifying the contents of omitted schedules. 2.6 Stock Purchase Agreement by and among SPSS Inc. and @@@@2.1 certain Shareholders of Quantime Limited listed on the signature pages thereto, dated November 21, 1997. 2.7 Stock Purchase Agreement by and among Jens Nielsen, @@@@2.2 Henrik Rosendahl, Ole Stangegaard, Lars Thinggaard, Edward O'Hara, Bjorn Haugland, 2M Invest and the Shareholders listed on Exhibit A thereto, dated November 21, 1997. 2.8 Stock Purchase Agreement by and among SPSS Inc. and #### 2.1 the Shareholders of Integral Solutions Limited listed on the signature pages hereof, dated as of December 31, 1998. 2.9 Share Purchase Agreement by and among SPSS Inc., $ 2.9 Surveycraft Pty Ltd. and Jens Meinecke and Microtab Systems Pty Ltd., dated as of November 1, 1998.
68 69 2.10 Stock Acquisition Agreement by and among SPSS Inc. $$ 2.1 Vento Software, Inc. and David Blyer, John Gomez and John Pappajohn, dated as of November 29, 1999. 2.11 Asset Purchase Agreement by and between SPSS Inc. and DataStat, S.A., dated as of December 23, 1999. 3.1 Certificate of Incorporation of SPSS * 3.2 3.2 By-Laws of SPSS * 3.4 10.1 Employment Agreement with Jack Noonan + 10.1 10.2 Agreement with Valletta ** 10.2 10.3 Agreement between SPSS and ** 10.5 Prentice Hall 10.4 Software Distribution Agreement between ** 10.6 SPSS and IBM 10.5 HOOPS Agreement ** 10.7 10.6 Stockholders Agreement * 10.8 10.7 Agreements with CSDC * 10.9 10.8 Amended 1991 Stock Option Plan * 10.10 10.9 SYSTAT Asset Purchase Agreement ++10.9 10.10 1994 Bonus Compensation +++10.11 10.11 Lease for Chicago, Illinois Office +++10.12 10.12 Amendment to Lease for Chicago, Illinois Office +++10.13 10.13 1995 Equity Incentive Plan x 10.14 10.14 1995 Bonus Compensation xx 10.15 10.15 Lease for Chicago, Illinois Office xx 10.16 10.16 Amended and Restated 1995 Equity Incentive Plan xxx 10.17 10.17 1996 Bonus Compensation xxxx 10.18
69 70 10.18 Software Distribution Agreement between the xxxx 10.19 Company and Banta Global Turnkey 10.19 Lease for Chicago, Illinois in Sears Tower # 10.20 10.20 1997 Bonus Compensation ### 10.21 10.21 Norman H. Nie Consulting L.L.C. Agreement ### 10.22 10.22 Second Amended and Restated 1995 Equity &A Incentive Plan 10.23 1998 Bonus Compensation 10.24 Third Amended and Restated 1995 Equity $$$ 10.1 Incentive Plan 10.25 Loan Agreement dated June 1, 1999 between $$$$ 10.1 SPSS and American National Bank and Trust Company of Chicago 10.26 First Amendment to Loan Agreement dated $$$$ 10.2 June 1, 1999, between SPSS and American National Bank and Trust Company of Chicago 10.27 1999 Bonus Compensation 21.1 Subsidiaries of SPSS 23.1 Consent of Independent Certified Public Accountants 27.1 Financial Data Schedule 27.1a Financial Data Schedule (Restated) 27.1b Financial Data Schedule (Restated)
- ------------------------------- @ Previously filed with SPSS Inc.'s Report on Form 8-K, dated September 26, 1996, filed on October 11, 1996, as amended on Form 8-K/A-1, filed November 1, 1996. (File No. 000-22194) @@ Previously filed with Amendment No. 1 to Form S-4 Registration Statement of SPSS Inc. filed on November 7, 1996. (File No. 333-15427) @@@ Previously filed with SPSS Inc.'s Report on Form 8-K, dated September 30, 1997, filed on October 15, 1997. (File No. 000-22194) 70 71 @@@@ Previously filed with the Form S-3 Registration Statement of SPSS Inc. filed on November 26, 1997. (File No. 333-41207) * Previously filed with Amendment No. 2 to Form S-1 Registration Statement of SPSS Inc. filed on August 4, 1993. (File No. 33-64732) ** Previously filed with Amendment No. 1 to Form S-1 Registration Statement of SPSS Inc. filed on July 23, 1993. (File No. 33-64732) *** Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the Quarterly period ended September 30, 1993. (File No. 000-22194) + Previously filed with the Form S-1 Registration Statement of SPSS Inc. filed on June 22, 1993. (File No. 33-64732) ++ Previously filed with the Form S-1 Registration Statement of SPSS Inc. filed on December 5, 1994. (File No. 33-86858) +++ Previously cited with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1994. (File No. 000-22194) x Previously filed with SPSS Inc.'s 1995 Proxy Statement. (File No. 000-22194) xx Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1995. (File No. 000-22194) xxx Previously filed with SPSS Inc.'s 1996 Proxy Statement. (File No. 000-22194) xxxx Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1996. (File No. 000-22194) # Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended March 31, 1997. (File No. 000-22194) ## Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended June 30, 1997. (File No. 000-22194) ### Previously filed with Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1997. (File No. 000-22194) #### Previously filed with SPSS Inc.'s Report on Form 8-K, dated December 31, 1998, filed on January 15, 1999, as amended on Form 8-K/A filed March 12, 1999. (File No. 000-22194) & Previously filed with SPSS Inc.'s 1998 Proxy Statement. (File No. 000-22194) 71 72 $ Previously filed with Forum 10-K Annual Report of SPSS Inc. for the year ended December 31, 1998. (File No. 000-22194) $$ Previously filed with SPSS Inc. Report on Form 8-K, dated November 29, 1999, filed December 10, 1999. (File No. 000-22194) $$$ Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended June 30, 1999. (File No. 000-22194) $$$$ Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended September 30, 1999. (File No. 000-22194) (b) SPSS filed the following reports on Form 8-K during the fourth quarter of fiscal year 1997. (i) Report on Form 8-K dated November 29, 1999, filed December 10, 1999. The Report on Form 8-K reported that on November 29, 1999, SPSS Inc. acquired 100% of the outstanding capital shares of Vento Software, Inc., a Florida corporation, from the shareholders of Vento (the "Shareholders"), for 546,060 shares of SPSS common stock, $.01 par value per share, valued at approximately $12.3 million. The acquisition, accounted for as a pooling of interests, occurred pursuant to the Stock Acquisition Agreement between SPSS, Vento and the Shareholders dated as of November 29, 1999. Vento is a leader in providing business performance management solutions for business executives in the telecommunications, banking, health care and retail industries. The Report on Form 8-K was filed under Item 2. 72 73 SIGNATURES Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 30, 2000. SPSS Inc. By: /s/ Jack Noonan ------------------------------------- Jack Noonan President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on March 30, 2000.
Signature Title(s) - --------- -------- /s/ Norman H. Nie Chairman of the Board of - ------------------------------------------- Directors Norman H. Nie /s/ Jack Noonan President, Chief Executive - ------------------------------------------- Officer and Director Jack Noonan /s/ Edward Hamburg Executive Vice President, - ------------------------------------------- Corporate Operations, Edward Hamburg Chief Financial Officer and Secretary /s/ Robert Brinkmann Vice President, Finance and - ------------------------------------------- Controller Robert Brinkmann
73 74 /s/ Bernard Goldstein Director - ------------------------------------------- Bernard Goldstein /s/ Merritt Lutz Director - ------------------------------------------- Merritt Lutz /s/ Michael Blair Director - ------------------------------------------- Michael Blair 74 75 EXHIBIT INDEX
EXHIBIT NUMBER DOCUMENT DESCRIPTION - ------ -------------------- 2.11 Asset Purchase Agreement by and between SPSS Inc. and DataStat, S.A., dated as of December 23, 1999 10.27 1999 Bonus Compensation 21.1 Subsidiaries of the Company 23.1 Consent of Independent Public Accountants 27.1 Financial Data Schedule 27.1a Financial Data Schedule (Restated) 27.1b Financial Data Schedule (Restated)
EX-2.11 2 ASSET PURCHASE AGREEMENT 1 ================================================================================ ASSET PURCHASE AGREEMENT By and Between SPSS INC. and DATASTAT, S.A. Dated as of December 23, 1999 ================================================================================ 2 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of December 23, 1999 (the "Agreement"), by and between DataStat, S.A., a corporation organized under the laws of Luxembourg ("DataStat") and SPSS Inc., a Delaware corporation ("SPSS"). W I T N E S S E T H: WHEREAS, DataStat is engaged in the business of developing and distributing software, including its VerbaStat computer software products ("VStat"); and WHEREAS, SPSS also is engaged in the business of developing and distributing software; and WHEREAS, DataStat desires to sell to SPSS, and SPSS desires to purchase from DataStat, certain of DataStat's assets relating to Vstat exclusively; NOW, THEREFORE, in consideration of the premises, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in reliance upon the representations and warranties contained herein, the parties hereto agree as follows: ARTICLE I TERMS OF PURCHASE AND SALE 1.1 Purchase and Sale. Except as set forth below or in Section 1.4 and subject to the terms and conditions of this Agreement, on the Closing Date (as defined herein), DataStat hereby agrees to sell, convey, assign, transfer and deliver to SPSS, and SPSS hereby agrees to purchase and accept from DataStat, all of DataStat's assets exclusively relating to and comprising VStat, namely a software package for data entry, classification and coding of open-ended responses in the framework of the survey process, including, but not limited to all intellectual property related to its current and future development, sales and related cash and accounts receivable generated from and after the effective date of this Agreement as contemplated in Section 1.2 hereof (the "Effective Date"), assets, software, deposits and properties of every kind, character and description, whether tangible, intangible, or personal, and wherever located (collectively, the "Assets"). SPSS hereby grants to DataStat, for no additional consideration, one three-user license to use the VStat software or any upgraded versions thereof, which use shall be limited to DataStat's in-house survey tabulation business, and shall in no circumstances include any right to sell the VStat software or include or incorporate the VStat Software (except for the "Keyword Search" methodology) in any product or application sold, leased or licensed by DataStat to any third party, and DataStat shall not assign or convey any such rights, in whole or in part, to any third party. The Assets shall include, but not be limited to, the following: 3 (a) all computer program code (in all media) and VStat materials and program documentation, and all technical and descriptive materials relating to the acquisition, design, development, use or maintenance of VStat computer code and VStat program documentation and materials in any and all languages (the "Technical Documentation"); provided, however, that on the Closing Date, DataStat shall deliver versions 4.1 and 5 of the VStat computer program code and related technical manuals, and all other Technical Documentation shall be delivered by DataStat to SPSS within 30 days of the Closing Date; (b) with respect to VStat, all of DataStat's rights and benefits (but excluding, unless otherwise specifically provided herein, all duties and obligations arising prior to the Closing Date) relating to contractual rights, sales representative agreements, distributor agreements, OEM agreements, license agreements, vendors' warranties on VStat inventory, orders on the books and work-in- process existing on the Closing Date with respect to VStat, and other commitments or arrangements, oral or written, with any person or entity respecting the ownership, license, acquisition, design, development, distribution, marketing, use or maintenance of VStat computer program code and related technical or user documentation (the "Contracts"). (c) the name "VerbaStat" and any trade names, trademarks and service marks related thereto (including registrations, licenses and applications pertaining thereto), whether registered or at common law, together with all goodwill associated therewith with the exception of the same relating to the name "DataStat"; (d) with respect to VStat, all of DataStat's parts lists, vendor lists, customer lists, catalogues, promotion lists and marketing data and other compilations of names and requirements, and trade secrets and other material information used by DataStat with respect to VStat; provided, however, that prior to the Closing Date, DataStat delivered to SPSS its lists of current and prospective customers, and all other information referenced in this subsection 1.1(d) shall be delivered by DataStat to SPSS within 30 days of the Closing Date; (e) with respect to VStat, all of DataStat's computer programs, designs, processes, drawings, schematics, blueprints, copyrights, copyright applications, inventions, processes, know-how, or trade - 2 - 4 secrets or proprietary information related to VStat with the exception of all rights, including rights in patents and patent applications, in a data extraction method used in VStat more precisely described in the Belgian patent application of November 25, 1999, n(degree)09900767 and generally referred to as the "Keyword Search" methodology; provided, however, that DataStat hereby grants to SPSS, for no additional consideration, a perpetual, non- exclusive license to use the source code of "Keyword Search" and such methodology in any way SPSS desires, including, without limitation, the modification or enhancement thereof or the inclusion or incorporation of such source code or methodology in any current or future products or applications of SPSS or its subsidiaries or affiliates. Notwithstanding anything herein to the contrary, SPSS has the right to transfer or assign such license to any third party that acquires the VStat business from SPSS or acquires all or substantially all of the stock of SPSS without the consent of DataStat, it being understood and agreed that such license shall be binding upon DataStat and its successors and assigns, and shall inure to the benefit of SPSS and its successors and assigns. Notwithstanding the foregoing, SPSS shall not sell the "Keyword Search" methodology as a stand-alone product without DataStat's consent. 1.2 Time and Place of Closing. Subject to the terms and conditions of this Agreement, the consummation of the transactions contemplated hereby (the "Closing") shall take place at the offices of Ross & Hardies, 150 N. Michigan Avenue, Chicago, Illinois on December 23, 1999 (the "Closing Date") or at such other place or time as the parties may agree and, for all purposes, shall be deemed to be effective as of the close of business on December 23, 1999. Signatures delivered by facsimile transmission shall be deemed original. 1.3 Purchase Price. Upon satisfaction of all of the terms and conditions set forth in this Agreement, SPSS shall deliver the Purchase Price consisting of ONE MILLION AND NO/100 U.S. DOLLARS (U.S.$1,000,000.00), to be paid in twelve quarterly installments the first eleven of which shall be EIGHTY THREE THOUSAND THREE HUNDRED THIRTY-THREE AND 33/100 U.S. DOLLARS (U.S.$83,333.33) and the twelfth of which shall be EIGHTY THREE THOUSAND THREE HUNDRED THIRTY-THREE AND 40/100 U.S. DOLLARS (U.S.$83,333.40). SPSS shall pay an installment on the last day of each of January, April, July and October of each calendar year following the Closing Date (each, a "Payment Date"), until the Purchase Price is paid in full; provided, however, that the first installment shall be paid in advance on the Closing Date. In no event shall SPSS pay any installment later than fifteen days after any Payment Date. SPSS shall make such payments by check payable to "DataStat" at the DataStat address in Section 11.4 or to the order of any other payee designated by DataStat; provided, however, - 3 - 5 that payments made at DataStat's request to any payee other than DataStat shall be deemed payment to DataStat. 1.4 Assumption of Liabilities and Obligations. SPSS agrees that, effective upon the Closing, it shall assume no liabilities and obligations of DataStat related to the Assets except those accruing after the Closing Date relating to contracts set forth in SCHEDULE 2.12 which are actually assumed by SPSS (collectively, the "Assumed Liabilities"). SPSS shall assume only those duties and obligations of DataStat arising or accruing thereunder after the Closing Date and SPSS shall have no other duty or obligations. It is expressly understood and agreed that, except for the Assumed Liabilities, SPSS shall not be liable for any of the liabilities of DataStat or the VStat business not constituting Assumed Liabilities (hereinafter, collectively, the "Excluded Liabilities"). Unless specifically stated to the contrary, this Agreement shall not constitute an agreement or an attempted agreement to transfer, sublease or assign any Assumed Liability or any claim or right arising thereunder or resulting therefrom if any such attempted transfer, sublease or assignment, without the consent of any other party thereto, would constitute a breach of such Assumed Liability or in any way affect the rights of SPSS thereunder. DataStat shall, between the date hereof and the Closing and, if requested by SPSS, after the Closing, use all reasonable efforts to obtain the consent of any such party to the transfer, sublease or assignment thereof by DataStat to SPSS hereunder in all cases in which such consent is required for transfer, sublease or assignment. If any such consent is not obtained, or if any attempted assignment thereof would be ineffective or would affect the rights of DataStat thereunder such that SPSS would not in fact receive all rights related to an Assumed Liability, DataStat shall, with the reasonable assistance of SPSS, at DataStat's expense, perform such Assumed Liability for the account of SPSS or otherwise cooperate with SPSS at DataStat's expense in any arrangement necessary or desirable to provide for SPSS the benefits under any such Assumed Liability, including, without limitation, enforcement for the benefit of SPSS of any and all rights of DataStat against the other party thereto arising out of the breach, termination or cancellation of such Assumed Liability by such other party or otherwise. With respect to those Assumed Liabilities that are license agreements as to which licensee consent is required for DataStat to assign such license agreements to SPSS, (i) SPSS shall and hereby does grant DataStat such licenses as DataStat requires to be in compliance with such license agreements and (ii) DataStat and SPSS shall enter into good faith negotiations with such licensee for the assignment of such license agreement to SPSS. 1.5 Liabilities Not Assumed. Pursuant to Article X, DataStat shall indemnify, defend and hold SPSS harmless from all Excluded Liabilities and DataStat's legal fees and other expenses incurred in connection with the transactions contemplated hereby, and all claims, suits, actions, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees) arising therefrom or from any failure by DataStat to pay or discharge such liabilities and obligations as and when they become due. 1.6 Taxes. SPSS shall not be responsible for, or suffer a reduction in assets to be received by it for, any income, sales, use, value added, excise or other taxes of any kind - 4 - 6 whether arising before, after or as a result of this purchase, relating solely to DataStat's ownership of the Assets or the consummation of the transactions contemplated hereby; provided, however, that SPSS shall be responsible for all U.S. federal and state taxes which are imposed on SPSS as a result of the consummation of the transactions contemplated hereby (but not including any U.S. federal or state taxes imposed on DataStat for activities of DataStat prior to the Closing Date). ARTICLE II REPRESENTATIONS AND WARRANTIES OF DATASTAT As of the date hereof and as of the Closing Date, DataStat represents and warrants to SPSS as follows: 2.1 Organization and Qualification. DataStat is a corporation duly organized, validly existing and in good standing under the laws of Luxembourg and has the corporate power and authority to enter into this Agreement, to consummate the transactions contemplated hereby, to own or lease the Assets which it presently owns or leases and to carry on its business as presently conducted. DataStat is duly licensed or qualified to do business as a foreign corporation, and is in good standing in every foreign jurisdiction in which it is required to be so licensed or qualified. 2.2 Authority. DataStat has full power, capacity and authority (corporate or otherwise) to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized and approved by all necessary action on the part of the Board of Directors of DataStat and no other proceedings (shareholder, corporate or otherwise) on the part of either DataStat or its shareholders are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement and the other agreements contemplated by this Agreement have been duly and validly executed and delivered by DataStat, and each constitutes a legal, valid and binding agreement of DataStat, enforceable against DataStat in accordance with their respective terms, except as their obligations thereunder may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 2.3 Consents and Approvals. There is no authorization, consent, order or approval of, or notice to or filing with, any individual or entity required to be obtained or given in order for DataStat to consummate the transactions contemplated hereby and fully perform its obligations hereunder. 2.4 Absence of Conflicts. The execution, delivery and performance by DataStat of this Agreement and the consummation by DataStat of the transactions contemplated hereby will not, with or without the giving of notice or lapse of time or both, (i) violate any provision of law, statute, rule or regulation to which DataStat is subject, (ii) violate any order, judgment or - 5 - 7 decree applicable to DataStat, (iii) conflict with or result in a breach or default under any term or condition of the Articles of Incorporation or By-Laws of DataStat, or any agreement or other instrument to which DataStat is a party or by which it is bound, or to which any of the Assets are subject, (iv) result in the creation or imposition of any lien, pledge, claim, security interest or encumbrance of any nature whatsoever on the Assets, (v) have a material adverse effect upon the Assets or the Assumed Liabilities, or (vi) cause, or give any person grounds to cause, the maturity of the Assumed Liabilities to be accelerated. 2.5 Customer List. Schedule 2.12 contains the list of key DataStat customers and license fees associated therewith relating to the Assets as of the Closing Date. DataStat shall provide a complete customer list to SPSS no later than January 31, 2000. DataStat is not in default in respect of any term or condition of any indebtedness or liability relating to the Assets. There are no facts in existence and known to DataStat which might reasonably serve as the basis for any liabilities or obligations of DataStat relating to the Assets not disclosed in this Agreement, other than liabilities incurred or to be incurred in the ordinary course of business. 2.6 Absence of Undisclosed Liabilities. DataStat does not have any liabilities or obligations relating to the Assets, whether accrued, absolute or contingent, determined or undetermined, known or unknown, or whether due or to become due (including, without limitation, obligations as guarantor). DataStat knows of no basis for the assertion of any claim or liability relating to the Assets or the business of DataStat, and is not aware of any occurrence or fact that has or might have an adverse effect upon the Assets or DataStat's business relating thereto. 2.7 Absence of Certain Changes or Events. Since November 30, 1999, there has not been (a) any material damage, destruction or casualty loss to the Assets (whether covered by insurance or not) outside the ordinary course of business; (b) any entry into any transaction, commitment or agreement (including, without limitation, any borrowing) material to the Assets, or relating to the Assets and outside the ordinary course of business of DataStat; (c) any sale, transfer or other disposition of the Assets to any party, except for payment of obligations incurred, and sale of products, in the ordinary course of business consistent with past practices; (d) any amendment or termination of any material contract or agreement relating to the Assets to which DataStat is a party or any termination or waiver of any other rights of value relating to the Assets; (e) any failure by DataStat to pay its accounts payable or other obligations relating to the Assets in the ordinary course of business; (f) any pledge of any of the Assets or any action or inaction which would subject the Assets to any lien, security interest, mortgage, pledge, claim, charge or other encumbrance of any kind; (g) the incurrence of any liability or obligation by DataStat related to the Assets, except for liabilities incurred in the ordinary course of business; (h) any actual or threatened termination or cancellation of, or modification or change in, any business relationship with any customer or customers of DataStat relating to the Assets or other agreement or arrangement involving or related to the Assets; (i) any other event or condition of any character which materially and adversely affects - 6 - 8 the Assets; or (r) any agreement, whether in writing or otherwise, to take any action described in this Section 2.7. 2.8 Personal Property; Inventories. DataStat has good and marketable title to, and is in possession of or has control over, all of the personal property comprising the Assets, none of which is held under or subject to any pledge, lien, lease, encumbrance, conditional sales contract or other security arrangement. 2.9 Patents, Trademarks, Etc. SCHEDULE 2.9 hereto contains an accurate and complete description of all domestic and foreign trademark registrations, copyright registrations and all applications therefor with respect to VStat (the "Registered Intellectual Property"), presently owned or held by DataStat or under which DataStat owns or holds any license, or in which DataStat owns or holds any direct or indirect interest. To the best knowledge of DataStat, no VStat products manufactured, distributed or sold by DataStat, nor any of DataStat's activities, conflict with, infringe or otherwise violate any patents, trademarks or copyrights, or any other rights, of any individual or entity. DataStat has the sole and exclusive right to use, has the right and power to sell, and has taken reasonable measures to maintain and protect the Intellectual Property (as defined herein); no claims have been asserted by any individual or entity with respect thereto or challenging or questioning the validity or effectiveness of any license or agreement with respect thereto, and, to the best knowledge of DataStat, there is no valid basis for any such claim. DataStat is not using confidential information or trade secrets of any former employer of any past or present employees engaged in DataStat's business. The items described in SCHEDULE 2.9 and DataStat's other intellectual property relating to VStat (including, without limitation, trademarks, service marks, logos, trade names, assumed names, trade secrets, know-how, technology, inventions, processes, designs and copyrights) (collectively, "Intellectual Property") are adequate to conduct DataStat's business with respect to VStat as presently conducted. Upon consummation of the transactions contemplated hereby, SPSS will acquire good and marketable title to all of the Intellectual Property and the goodwill associated therewith, subject to the restrictions listed in Section 1.1. 2.10 Employees. All personnel, including employees, agents, consultants and contractors, who have contributed to or participated in the conception and development of the Intellectual Property on behalf of DataStat have executed appropriate instruments of assignment, which are still in full force and effect, in favor of DataStat, as assignee, that have conveyed to DataStat full, effective and exclusive ownership of all intellectual property thereby arising. DataStat does not own or have any right, license or interest, whether as a licensee, licensor or otherwise, in any copyrights, patents, applications for copyrights or patents, trade secrets, inventions, processes and designs or in any trademarks, service marks, trade names, or applications for them related to VStat. 2.11 Source Code. DataStat owns all rights, title and interest in and to the source code for VStat and has not distributed any copies of such source code to any third parties, and DataStat has not agreed to pay to any individual or entity any royalty, commission or other amount - 7 - 9 on account of sales of VStat. DataStat owns all rights, title and interest in and to all localizations and translations of manuals and other technical documentation. 2.12 Contracts and Commitments. (a) Other than standard form customer contracts and verbal contracts, entered into in the ordinary course of business, each as set forth in SCHEDULE 2.12, DataStat is not a party to any agreements, contracts, guarantees, commitments, restrictions or instruments of any kind relating to the Assets ("Contracts"). True and correct copies of all key Contracts have been made available to SPSS at a reasonable time prior to Closing. All of the Contracts are valid and binding obligations of DataStat, enforceable in accordance with their respective terms to the extent permitted by applicable law, and are in full force and effect and DataStat is in compliance therewith. None of the Contracts has, or may to the best of DataStat's knowledge have, a material adverse effect on the Assets. No other party to any of the Contracts is in default or breach thereof. DataStat has not agreed with any customer or distributor to make any variation in any such contract which could have a material adverse effect on the Assets. (b) DataStat is not in default, and there is no basis for any valid claim of default, in any respect under any of the Contracts. 2.13 Licenses and Royalties. DataStat is not a licensee under any license with respect to the Assets, including, without limitation, licenses with respect to source codes used or to be used in VStat, and does not have an obligation to pay royalties to any third party in connection therewith, and DataStat has not granted to any individual or entity any rights with respect to the source codes for VStat. 2.14 Adequacy of Documentation. The Technical Documentation includes the source code, system documentation, statements or principles of operation, and schematics for VStat currently maintained or licensed by DataStat, as well as any pertinent commentary or explanation that may be necessary to render such materials understandable and usable by a trained computer programmer familiar with the relevant compilers, tools and platform. 2.15 Third-Party Components in Software Programs. VStat and the Technical Documentation contain no other programming or materials in which any third party may claim superior, joint or common ownership, including any right or license, and, do not contain derivative works of any programming or materials not owned in their entirety by DataStat. 2.16 Third-Party Interests or Marketing Rights in VStat Software Programs. All of DataStat's standard form customer contracts constitute only end-user agreements, each of which grants the end-user thereunder solely the non-exclusive right and license to use VStat and related user documentation, for internal purposes only. There are no contracts, agreements, licenses or other commitments or arrangements in effect with respect to the development, marketing, distribution, licensing, or promotion of VStat, the Technical Documentation, or DataStat's - 8 - 10 Intellectual Property with any independent salesperson, distributor, sublicensor, or other remarketer or sales organization. 2.17 No Virus Warranties. DataStat represents and warrants that VStat, as delivered to SPSS, shall be free of any passwords, keys, security devices or trap doors, and any computer instructions (including, but not limited to, computer instructions commonly referred to as Trojan Horses, anomalies, worms, self-destruct mechanisms, or time/logic bombs) which are intended to interfere with or frustrate the use of the software products, any portion thereof, or other software or computer hardware, whether or not currently in effect with respect to any copy of DataStat's software products. 2.18 Purchased Software; Physical Media. The software purchased as part of the Assets, other than that currently under development (the "Purchased Software"), will operate in accordance with the Technical Documentation. The Purchased Software and any licenses or other rights connected therewith, express or implied, will not infringe any other person's intellectual property rights and DataStat has full right and authority to sell and assign the Purchased Software, and the rights connected therewith to SPSS. Each copy of Purchased Software delivered by DataStat is and will be free from physical defects in the media that tangibly embodies the copy. 2.19 Product Warranties and Liabilities. DataStat has not given or made any express or implied warranties to third parties with respect to any Assets licensed or sold or services performed by it related thereto, except for the limited warranties stated in DataStat's standard form customer contracts, in the forms attached to SCHEDULE 2.12, with modifications that, in the aggregate, would not have a material adverse effect on the Assets. DataStat does not have any knowledge of any fact or of the occurrence of any event forming the basis of any present or future claim against DataStat relating to the Assets whether or not fully covered by insurance, for liability on account of products liability or on account of any express or implied product warranty, except for warranty obligations and product returns in the ordinary course of business. 2.20 Litigation and Administrative Proceedings. There is no claim, action, suit, proceeding or investigation in any court or before any governmental or regulatory authority pending or threatened against or affecting DataStat relating to the Assets or which seeks to enjoin or obtain damages in respect of the transactions contemplated hereby. DataStat does not know or have reason to know of any basis for any such claim, action, suit, proceeding or investigation. 2.21 Tax Matters. None of the Assets is subject to any lien or other encumbrance as a result of unpaid taxes and SPSS will not become liable for any taxes as a result of this purchase, relating solely to DataStat's ownership of the Assets or the consummation of the transaction contemplated hereunder. Notwithstanding the foregoing, DataStat makes no representation or warranty as to whether SPSS will become liable for any U.S. federal or state taxes as a result of the consummation of the transactions contemplated hereby (but not including any U.S. federal or state taxes imposed on DataStat for activities of DataStat prior to the Closing Date). - 9 - 11 2.22 Licenses and Permits. DataStat has all governmental licenses and permits and other governmental authorizations and approvals required for the conduct of its businesses as presently conducted with respect to the Assets ("Permits"). 2.23 Relations With Suppliers and Customers. DataStat is not required to provide any bonding or other financial security arrangements in connection with any transaction with any customer or supplier with respect to the Assets. DataStat has not received any notice that any customer or supplier of DataStat will not do business with SPSS after the consummation of the transactions contemplated hereby. 2.24 Interests in Competitors, Suppliers and Customers. No officer or director of DataStat or any entity controlled by or under common control with DataStat has any ownership interest in any competitor, supplier or customer of DataStat or any property used in the operation of the business of DataStat, as same may relate to the Assets. 2.25 Brokers and Finders. DataStat has not employed any broker, finder or investment banker, or incurred any liability for any brokerage fees, commissions or finders' fees in connection with this Agreement or the transactions contemplated hereby. 2.26 Title to Assets; No Liens. DataStat has good and marketable title to, and is in possession of or has control over, all of the Assets, free and clear of all liabilities, liens, security interests, mortgages, pledges, claims, judgments, exceptions, charges and encumbrances and obligations of every kind and nature. None of the Assets is held under any lease or conditional sales contract and all of the Assets are in good repair and operating condition, and all of the computer programming will operate in accordance with its documentation at all times and there are no defects or other conditions with respect thereto which would necessitate repairs, reconditioning or replacement thereof. 2.27 Necessary Property. There exists no condition, restriction or reservation affecting the title to or utility of the Assets or the Assumed Liabilities which would prevent SPSS from occupying or utilizing the Assets or the Assumed Liabilities, or any part thereof, to the same full extent that DataStat might continue to do so if the sale and transfer contemplated hereby did not occur. 2.28 Current Products. All of DataStat's software products and user documentation relating to the Assets and currently offered for license or maintained or supported by DataStat (collectively, "Current Products") are listed on SCHEDULE 2.28 hereto. All of the Current Products are included in the Assets and, effective upon consummation of the Closing, SPSS will obtain and hold the complete and exclusive right, title and interest in and to all of the Current Products. 2.29 Year 2000 Compliance. VStat is designed to be used from, into and between the 20th and 21st centuries, including the years 1999 and 2000. VStat will accurately - 10 - 12 receive, provide and process date/time data (including, but not limited to, calculating, comparing and sequencing) during such time periods, and VStat will not malfunction, cease to function, or provide invalid or incorrect results as a result of date/time data or leap year calculations. 2.30 Full Disclosure. No representation or warranty to SPSS contained in this Agreement, and no statement contained in the disclosure schedules, any certificate, list or other writing furnished to SPSS pursuant to the provisions hereof, contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein not misleading. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SPSS As of the date hereof and as of the Closing Date, SPSS represents and warrants to DataStat as follows: 3.1 Organization and Qualification. SPSS is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. 3.2 Authority. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by SPSS, and no other corporate proceedings on the part of SPSS are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by SPSS and constitutes legal, valid and binding agreement of SPSS. 3.3 Consents and Approvals. There is no authorization, consent, order or approval of, or notice to or filing with, any individual or entity required to be obtained or given in order for SPSS to consummate the transactions contemplated hereby and fully perform its obligations hereunder, excluding, however, any authorization, consent, order, approval or filing which DataStat is required to obtain or give. 3.4 Absence of Conflicts. The execution, delivery and performance by SPSS of this Agreement and the consummation by SPSS of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, or both, (i) violate any provision of law, statute, rule or regulation to which SPSS is subject, (ii) violate any order, judgment or decree applicable to SPSS or (iii) conflict with, or result in a breach or default under, any term or condition of the Certificate of Incorporation or By-Laws of SPSS or any agreement or other instrument to which SPSS is a party or by which SPSS is bound. - 11 - 13 3.5 Litigation and Administrative Proceedings. There is no claim, action, suit, proceeding or investigation in any court or before any governmental or regulatory authority pending or threatened against or affecting SPSS which seeks to enjoin or obtain damages in respect of the transactions contemplated hereby. 3.6 Brokers and Finders. SPSS has not employed any broker, finder or investment banker, or incurred any liability for any brokerage fees, commissions or finders' fees in connection with this Agreement or the transactions contemplated by this Agreement. ARTICLE IV COVENANTS OF DATASTAT DataStat covenants as follows: 4.1 Tax Matters. DataStat will timely pay or satisfy all liabilities imposed on DataStat by any taxing authority under any tax statute that may be due by DataStat as a result of the sale of the Assets hereunder. SPSS shall be liable for any tax liability that may be imposed on SPSS solely as a result of SPSS's acquisition of the Assets hereunder; provided, however, that DataStat shall be liable for any taxes accruing or arising prior to the Closing Date and relating to the Assets. 4.2 Post-Closing Access to Information. For a period of three (3) years after the Closing, DataStat shall not dispose of any books, records, documents or information relating in whole or part to the Assets or otherwise to the VStat business of DataStat without first giving notice to SPSS and permitting SPSS to copy, without cost, those portions of such books and records which relate to the Assets or otherwise to the VStat business as SPSS may select. During such three (3)- year period, DataStat shall permit SPSS to examine and make copies, at SPSS's expense, of such books, records, documents or information for any reasonable purpose, including but not limited to any litigation commenced against SPSS or any affiliate of SPSS or the preparation of income or other tax returns or in connection with any administrative or regulatory proceedings or actions. 4.3 Right of Endorsement. Upon the Closing and thereafter, SPSS shall have the right and authority to endorse, without recourse, the name of DataStat on any check or any other evidence of indebtedness received by SPSS and to which it is entitled on account of any receivable or other Asset transferred by DataStat pursuant hereto, and DataStat shall deliver to SPSS at the Closing documents sufficient to permit SPSS to deposit such checks or other evidences of indebtedness in bank accounts in the name of SPSS. 4.4 Accounts Receivable. After the Closing, DataStat shall promptly remit to SPSS all the proceeds of any checks and other payments for accounts receivable belonging to SPSS under this Agreement and coming into the possession of DataStat. DataStat shall also ensure that - 12 - 14 payments received by DataStat on accounts receivables can be identified as for the account of SPSS or for the account of DataStat. 4.5 Further Assurances. After the Closing, DataStat shall within a period of one (1) year, at the request of SPSS and without further cost or expense to SPSS, execute and deliver such other documents and take such other actions as shall be reasonably necessary or appropriate to consummate fully the transactions contemplated hereby. 4.6 Discontinuance of Use. Upon Closing, DataStat will discontinue use of the name "VerbaStat" and of the prefix "Verba" or any confusingly similar part of the name except for purposes of collecting unpaid accounts receivable related to the Assets. 4.7 Consents. DataStat will use all reasonable efforts to obtain the express written consent of all third parties necessary to assign any Contracts included in the Assets. If any third party withholds consent or DataStat receives royalties or payments on account of such Contracts after Closing, DataStat will hold all such amounts in trust for SPSS and promptly pay same to SPSS. DataStat will indemnify and hold SPSS harmless from and against any loss suffered by SPSS as a result of DataStat's failure to obtain any necessary consent to the assignment of such Contracts. 4.8 Non-Competition; Confidentiality. 4.8.1 DataStat understands and agrees that the business of SPSS, among other things, concerns proprietary computer software programs and related documentation which will include, after the acquisition contemplated by this Agreement, the proprietary computer software programs and related documentation constituting a portion of the Assets. DataStat understands that in the course of its dealings with SPSS, SPSS and/or its subsidiaries or affiliates may provide DataStat with, or access to, its software (including, without limitation, source listings therefor), as well as confidential and/or proprietary prospect and customer lists, data, research, specifications, memoranda, files, records, plans, concepts, flow charts, drawings, designs, descriptions, formula tions, trade secrets and other confidential and/or proprietary information and property, including but not limited to, information regarding SPSS operations, businesses, affairs, management and market structure (all of the foregoing collectively referred to as the "Confidential Property"). Confidential Property shall not, however, include any information which (i) was publicly known and made generally available in the public domain prior to the time of disclosure by the disclosing party; (ii) becomes publicly known and made generally available after disclosure by the disclosing party to the receiving party through no action or inaction of the receiving party; (iii) is already in the possession of the receiving party at the time of disclosure by the disclosing party as shown by the receiving party's files and records immediately prior to the time of disclosures; (iv) is obtained by the receiving party from a third party without a breach of such third party's obligations of confidentiality; (v) is independently developed by the receiving party without use of or reference to the disclosing party's Confidential Property, as shown by documents and other competent evidence in the receiving party's possession; or (vi) is required by law to be disclosed by the receiving party, provided that the - 13 - 15 receiving party gives the disclosing party prompt written notice of such requirement prior to such disclosure and assistance in obtaining an order protecting the information from public disclosure. 4.8.2 DataStat will regard and preserve as confidential and as trade secrets all of the Confidential Property. Except as may be required by law, any governmental agency or under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), DataStat will not, directly or indirectly, communicate or divulge to, or use for the benefit of itself or any other person, firm, association or corporation, without the prior written consent of SPSS, any Confidential Property. The Confidential Property shall remain the sole and exclusive property of SPSS, and upon request by SPSS for any reason whatsoever, DataStat shall promptly return any and all Confidential Property in its possession or control to SPSS. 4.8.3 DataStat shall have no right, title or interest of any kind or nature in any of the Confidential Property or any proceeds therefrom. 4.8.4 DataStat hereby further covenants and agrees that during the Non- Compete Period (as hereinafter defined) DataStat will not directly or indirectly (whether through a partnership of which DataStat is a partner or through any other individual or entity in which DataStat has any interest, legal or equitable, or otherwise), engage in the software business being acquired by SPSS pursuant to this Agreement (limited to software for data entry, classification and coding of open-ended responses in the framework of the survey process (the "VStat Business")) as in existence or under development on the Closing Date, and directly or indirectly (whether through a partnership of which DataStat is a partner or through any other individual or entity in which DataStat has any interest, legal or equitable, or otherwise) solicit or otherwise be involved with any customers or clients of SPSS or of the VStat Business existing on the date of acquisition of the VStat Business by SPSS in any transactions which are in competition with the VStat Business at any time during the Non-Compete Period, or directly or indirectly (whether through a partnership of which DataStat is a partner or through any other individual or entity in which DataStat has any interest, legal or equitable, or otherwise), assist any person in the development, programming, servicing, maintenance, manufacture, sale, licensing, distribution or marketing (including, without limitation, giving away software) of statistical software and related products in competition with products of the VStat Business in the United States of America or any other country in which SPSS or any of its affiliates is doing business. As used herein, the term "Non-Compete Period" shall mean a period of two (2) years after the Closing Date. 4.8.5 During the Non-Compete Period, DataStat will not employ, solicit for employment, or advise or recommend to any other person that they employ or solicit for employment, any employee of SPSS. DataStat further agrees that the limitations set forth herein (including, without limitation, any time or territorial limitations) are reasonable and properly required for the adequate - 14 - 16 protection of the VStat Business. In the event any such territorial or time limitation is deemed to be unreasonable by a court of competent jurisdiction, DataStat agrees to the reduction of the territorial or time limitation to the area or period which such court shall have deemed reasonable. It is understood and agreed that the covenants made by DataStat herein relating to confidentiality shall survive the expiration or termination of this Agreement, and that the covenants made by DataStat herein relating to non-competition shall survive the Closing of this Agreement. 4.9 Equitable Relief. DataStat understands that a breach by it of any provision of this Agreement may cause substantial injury to SPSS which may be irreparable and/or in amounts difficult or impossible to ascertain, and that in the event DataStat breaches any provision of this Agreement, SPSS shall have, in addition to all other remedies available in the event of a breach of this Agreement, the right to injunctive or other equitable relief. Further, DataStat acknowledges and agrees that the restrictions and commitments set forth in this Agreement are necessary to protect the legitimate interests of SPSS and are reasonable in scope, area and time, and that if, despite this acknowledgment and agreement, at the time of the enforcement of any provision of this Agreement a court of competent jurisdiction shall hold that the period or scope of such provision is unreasonable under the circumstances then existing, the maximum reasonable period or scope under such circumstances shall be substituted for the period or scope stated in such provision. 4.10 Verbal Agreements. After Closing, DataStat shall assist SPSS in obtaining written contracts between SPSS and those customers referenced in Schedule 2.12 as to which verbal agreements exist. ARTICLE V COVENANTS OF SPSS SPSS covenants as follows: 5.1 Retention of Records. After the Closing, SPSS will retain all of DataStat's books and records relating to the Assets which come into SPSS's possession in accordance with SPSS's policies for retention of its own books and records. SPSS will provide DataStat access to such books and records concerning periods prior to the Closing in SPSS' possession upon reasonable notice, during SPSS's regular business hours and at reasonable intervals. 5.2 Further Assurances. After the Closing, SPSS shall from time to time, at the request of DataStat and without further cost or expense to DataStat, execute and deliver such other documents and take such other actions as shall be reasonably necessary or appropriate to consummate fully the transactions contemplated hereby. - 15 - 17 ARTICLE VI MUTUAL COVENANTS Each of the parties hereto covenants as follows: 6.1 Confidentiality. Except as otherwise required by law or judicial or administrative proceedings, and except for public announcements which, based on the advice of counsel, are required by law, each of the parties agrees not to (i) disclose any proprietary or confidential information of any other party, or the terms of this Agreement (collectively, the "Confidential Information"), to any individual or entity (other than its directors, officers, employees, agents and representatives with a need to know such Confidential Information in order to consummate the transactions contemplated hereby) or (ii) use any Confidential Information for any purpose other than consummating the transactions contemplated hereby and, with respect to SPSS, utilizing the Assets and discharging the Assumed Liabilities after the Closing. 6.2 Cooperation. The parties agree to cooperate for all other reasonable purposes after the Closing, including with respect to any audit by any taxing authority of any of the income tax or other tax returns of DataStat. ARTICLE VII CONDITIONS TO OBLIGATIONS OF DATASTAT The obligation of DataStat to consummate the transactions contemplated hereby is subject to the satisfaction on or prior to the Closing Date of the following conditions: 7.1 Representations and Warranties. The representations and warranties of SPSS shall be true and accurate on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. 7.2 Performance. SPSS shall have performed in all material respects all covenants and agreements required by this Agreement to be performed by it on or before the Closing Date (including, without limitation, the closing deliveries required by Article IX hereof). 7.3 Filings; Consents; Waiting Periods. All registrations, filings, applications, notices, transfers, consents, approvals, orders, qualifications, waivers and other actions shall have been made or obtained and all applicable waiting periods shall have expired or been terminated. - 16 - 18 7.4 No Injunction. At the Closing Date, there shall be no injunction, restraining order or decree of any nature of any court or governmental body in effect which restricts or prohibits the consummation of the transactions contemplated by this Agreement. ARTICLE VIII CONDITIONS TO OBLIGATIONS OF SPSS The obligation of SPSS to consummate the transactions contemplated hereby is subject to the satisfaction on or prior to the Closing Date of the following conditions: 8.1 Representations and Warranties. The representations and warranties of DataStat shall be true and accurate on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of such date. 8.2 Performance. DataStat shall have performed in all material respects all covenants and agreements required by this Agreement to be performed by it on or before the Closing Date (including, without limitation, the closing deliveries required by Article IX hereof). 8.3 Filings; Consents; Waiting Periods. All registrations, filings, applications, notices, transfers, consents, approvals, orders, qualifications, waivers and other actions of any kind required of any persons or governmental authorities or private agencies in connection with the consummation of the transactions contemplated by, and the performance by DataStat of its obliga- tions under, this Agreement shall have been made or obtained and all applicable waiting periods shall have expired or been terminated, in each case upon terms and conditions reasonably satisfactory to SPSS. 8.4 No Litigation. No action, suit or proceeding shall have been instituted by any person or entity, or threatened by any governmental agency or body, before a court or governmental body, to restrain or prevent the consummation of the transactions contemplated by, or the performance by DataStat of its obligations under, this Agreement or which seeks other relief with respect to any of such transactions or which could reasonably be expected to have a materially adverse effect on the VStat business of DataStat. At the Closing Date, there shall be no injunction, restraining order or decree of any nature of any court or governmental agency or body in effect which restrains or prohibits the consummation of the transactions contemplated by this Agreement. 8.5 Legal Opinion. SPSS shall have received the written opinion, dated the Closing Date, of counsel to DataStat, substantially in the form attached hereto as Exhibit A. 8.6 Due Diligence Investigation. SPSS shall have completed a due diligence investigation of the VStat business of DataStat, the results of which shall have been satisfactory to SPSS in its sole discretion. - 17 - 19 8.7 Good Standing Certificates. DataStat shall cause to be delivered to SPSS on December 24, 1999 evidence of the corporate existence and good standing of DataStat. 8.8 Lien Terminations. If applicable, DataStat shall deliver to SPSS termination statements or releases executed by a duly authorized representative of each of any creditor which has a lien or encumbrance on any of the Assets, in good form for filing, terminating or releasing all liens and encumbrances on the Assets. 8.9 Delivery. At the Closing, the documents referenced in Article IX shall be delivered to SPSS. ARTICLE IX CLOSING DELIVERIES The following deliveries shall be made at the Closing: 9.1 Legal Opinion. DataStat shall cause to be delivered the written legal opinion referred to in Section 8.5 hereof. 9.2 Consents. DataStat shall deliver to SPSS all consents and approvals required in connection with the performance by DataStat of its obligations under this Agreement and the consummation by DataStat of the transactions contemplated hereby and thereby. 9.3 Closing Certificates. DataStat shall deliver, or cause to be delivered, to SPSS such closing certificates and documents as SPSS and its counsel shall reasonably request. 9.4 Instruments of Transfer. DataStat shall deliver the following bills of sale and other instruments of conveyance, evidencing the transfer and assignment of the Assets, in a form reasonably satisfactory to SPSS and its counsel: (a) Bills of sale for all tangible personal property included in the Assets; (b) All certificates, and other material permits, licenses, approvals or authorizations relating to VStat issued by any governmental authority that are assignable; all Assets comprising intangible property; and all Contracts included in the Assets that are assignable; (c) Landlord consents, if any, required from landlords and/or sublandlords with respect to the assignments referred to in subparagraph (b) above; (d) Documents satisfactory to assign copyrights and trademarks relating to VStat owned by DataStat to SPSS, such documents to be in recordable form; - 18 - 20 (e) Such other instruments of conveyance, transfer and assignment as may be reasonably required to vest in SPSS all of DataStat's right, title and interest in and to the Assets. 9.5 Charter; Good Standing Certificates. DataStat shall cause to be delivered to SPSS DataStat's Certificates of Incorporation, as amended to the Closing Date, certified by the proper Luxembourg authorities and evidence of good standing as set forth in Section 8.8 hereof. 9.6 Further Assurances. Each party shall deliver, or cause to be delivered, all other documents required to be delivered at the Closing by the other party, including without limitation the documents listed as the responsibility of such party pursuant to the closing memorandum prepared in connection with the closing of the transactions contemplated by this Agreement, and shall take all other actions which the other parties may reasonably determine necessary or appropriate in order to consummate fully the transactions contemplated hereby. ARTICLE X SURVIVAL AND INDEMNIFICATION 10.1 Survival of Representations and Warranties; Covenants. All representations and warranties contained herein or made in writing by any party in connection herewith shall survive the Closing for a period of two (2) years, regardless of any investigation made by or on behalf of any party, except for the representations and warranties contained in Section 2.27, which shall survive indefinitely, and the representations and warranties contained in Sections 2.10, 2.12, 2.23 and 2.24, or a representation or warranty which shall prove to be untrue due to the fraud of DataStat, which in each case shall survive until the expiration of the applicable statute of limitations with respect to the subject matter thereof. All covenants contained herein shall survive until performed fully. 10.2 Indemnification by DataStat. (a) DataStat agrees to indemnify and hold SPSS and its affiliates and the respective officers, directors, employees, agents and representatives of each of the foregoing (collectively, the "Representatives") harmless from and against any and all costs, expenses, losses, claims, damages, penalties, fines, liabilities and obligations whenever arising or incurred (including, without limitation, amounts paid in settlement, costs of investigation and attorneys' fees and expenses) (individually, a "Loss," and collectively, "Losses") arising out of or relating to (i) any breach of any representation or warranty set forth herein or in any related schedule, or set forth in any closing certificate or other document entered into or delivered in connection with this Agreement; (ii) any failure of title to, or any liabilities, liens, security interests, mortgages, pledges, claims, judgments, exceptions, reservations, charges, encumbrances or obligations on or with respect to any of the Assets; (iii) any breach of any covenant or obligation of DataStat contained in this Agreement, or set forth in any closing certificate or other document entered into or delivered in connection with this Agreement; (iv) any liabilities under any applicable bulk sales or transfer law; - 19 - 21 (v) any tax liability as a result of the acquisition of Assets and related transactions hereunder; (vii) any fraudulent representation or intentional misrepresentation on the part of DataStat; (viii) any failure to disclose under this Agreement any material fact concerning DataStat known to DataStat; (vii) any intentional or fraudulent breach by DataStat of any warranty, representation, agreement, covenant or obligation made under this Agreement; (ix) any material misrepresentation contained in, or material omission from, any provisions of this Agreement or instruments furnished or to be furnished hereunder; (x) any suit, action or investigation pending or threatened against or affecting the Assets; (xi) any claim or cause of action by any minority shareholder or employee of DataStat arising out of or related to any act or omission of DataStat prior to the Closing or the transactions contemplated hereby; and (xii) any tax liability or obligation asserted against SPSS and arising out of or related to tax periods ending on or prior to the Closing Date or DataStat's actions or omissions. (b) Without limitation as to indemnification set forth in subparagraph (a) hereof, DataStat agrees to defend, indemnify and hold SPSS and its affiliates and the Representatives harmless from and against any and all claims and causes of action by any third party, known or unknown, that arise out of or are related to an actual or alleged infringement of any other person's intellectual property rights by DataStat's software products or documentation, the Intellectual Property or any action or omission by DataStat. SPSS shall cooperate in such defense, at DataStat's sole cost and expense. 10.3 Undisclosed Liabilities. In the case of any undisclosed liability of the DataStat, as described in Section 2.6 of this Agreement, that liability, including any and all costs or expenses related thereto, is not assumed by SPSS (although SPSS may treat such liability as a claim under Section 10.2 hereof, if a claim with respect to such liability is also made against SPSS) and shall not be paid by SPSS, unless SPSS is required under applicable law, or a court order or decree, to make a payment in respect of such undisclosed liability. SPSS shall give prompt written notice to DataStat of any such undisclosed liability, when and to the extent it has actual knowledge of that liability, and DataStat shall be solely responsible for the satisfaction of the liability. 10.4 Indemnification Procedure. (a) An indemnified party under Section 10.2 of this Agreement shall give prompt written notice to DataStat (when and to the extent that the indemnified party has actual knowledge thereof) of any condition, event or occurrence or the commencement of any action, suit or proceeding for which indemnification may be sought, and DataStat, through counsel reasonably satisfactory to the indemnified party, shall assume the defense thereof or other indemnification obligation with respect thereto; provided, however, that any indemnified party shall be entitled to participate in any such action, suit or proceeding with counsel of its own choice but at its own expense; and provided, further, that any indemnified party shall be entitled to participate in any such action, suit or proceeding with counsel of its own choice at the expense of DataStat, if, under applicable canons of ethics, joint representation of DataStat and SPSS presents a conflict of interest. In any event, if DataStat fails to assume the defense within a reasonable time, the indemnified party may assume such defense or other indemnification obligation and the reasonable fees and expenses of its attorneys will be covered by the indemnity provided for hereunder. No action, suit or proceeding for which indemnification may be sought shall be - 20 - 22 compromised or settled in any manner which might adversely affect the interests of DataStat without the prior written consent of DataStat (which shall not be unreasonably withheld); provided, however, that SPSS may settle any claim or cause of action without DataStat's consent, but in such case DataStat shall not be required to reimburse SPSS for its Losses. Notwithstanding anything in this Section 10.4 to the contrary, DataStat shall not, without the prior written consent of the indemnified party, (i) settle or compromise any action, suit or proceeding or consent to the entry of any judgment which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the indemnified party of a written release from all liability in respect of such action, suit or proceeding or (ii) settle or compromise any action, suit or proceeding in any manner that may materially and adversely affect the indemnified party other than as a result of money damages or other money payments. DataStat shall pay all expenses, including attorneys' fees, that may be incurred by any indemnified party in enforcing the indemnity provided for hereunder. 10.5 Indemnification by SPSS. SPSS agrees to indemnify and hold DataStat and its affiliates and the respective officers, directors, employees, agents and representatives of each of the foregoing harmless from and against any and all Losses relating to (i) any and all of the Assumed Liabilities, except to the extent that the Losses relate to a period prior to the Closing Date; (ii) any breach of any representation or warranty of SPSS set forth in Article III hereof or any related schedule, or set forth in any closing certificate or other document entered into or delivered by SPSS in connection with this Agreement; (iii) any breach of any covenant or obligation of SPSS contained in this Agreement or in any other closing document; (iv) any fraudulent representation or intentional misrepresentation on the part of SPSS; (v) any intentional or fraudulent breach by SPSS, of any warranty, representation, agreement, covenant or obligation made under this Agreement; (vi) any material misrepresentation contained in, or material omission from, any provisions of this Agreement or instruments furnished or to be furnished hereunder; and (vii) any liability or obligation arising out of or related to the Assumed Liabilities after the Closing Date or the use of the Assets after the Closing Date, unless the claim or cause of action with respect thereto arises out of or is related to actions or omissions of DataStat prior to the Closing Date. 10.6 Indemnification Procedure. (a) An indemnified party under Section 10.5 of this Agreement shall give prompt written notice to SPSS (when and to the extent that the indemnified party has actual knowledge thereof) of any condition, event or occurrence or the commencement of any action, suit or proceeding for which indemnification may be sought, and SPSS, through counsel reasonably satisfactory to the indemnified party, shall assume the defense thereof or other indemnification obligation with respect thereto; provided, however, that any indemnified party shall be entitled to participate in any such action, suit or proceeding with counsel of its own choice but at its own expense. In any event, if SPSS fails to assume the defense within a reasonable time, the indemnified party may assume such defense or other indemnification obligation and the reasonable fees and expenses of its attorneys will be covered by the indemnity provided for in Section 10.5. No action, suit or proceeding for which indemnification may be sought shall be compromised or settled in any manner which might adversely affect the interests of SPSS without the prior written consent of SPSS (which shall not be unreasonably withheld). Notwithstanding anything in this Section 10.6 to the contrary, SPSS shall not, without the prior - 21 - 23 written consent of the indemnified party, (i) settle or compromise any action, suit or proceeding or consent to the entry of any judgment which does not include as an unconditional term thereof the delivery by the claimant or plaintiff to the indemnified party of a written release from all liability in respect of such action, suit or proceeding or (ii) settle or compromise any action, suit or proceeding in any manner that may materially and adversely affect the indemnified party other than as a result of money damages or other money payments. SPSS shall pay all expenses, including attorneys' fees, that may be incurred by any indemnified party in enforcing the indemnity provided for in Section 10.5. 10.7 Offset Against Unpaid Amounts. Without limiting such other rights as SPSS may have and subject to the survival period of the representation and warranties contained in Section 10.1, if, prior to the time that any payment of the Purchase Price is to be delivered, SPSS has learned of a breach of any representation, warranty, covenant or agreement of DataStat contained in this Agreement, SPSS in its sole discretion may by written notice deduct from the amount of such payment otherwise owed an amount equal to the aggregate of (a) the amount necessary to cure or make it whole for such breach or (b) the amount of losses, damages and expenses incurred or demonstrably in prospect of being incurred in connection with or caused by such breach. ARTICLE XI MISCELLANEOUS 11.1 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified and supplemented by written agreement of the parties. 11.2 Waiver of Compliance. Any failure of DataStat, on the one hand, or SPSS, on the other, to comply with any obligation herein may be expressly waived hereunder, but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. Any waiver must be in writing and duly executed by the appropriate parties. 11.3 Expenses. Whether or not the transactions contemplated by this Agreement shall be consummated, the parties hereto agree that all fees and expenses incurred by DataStat, on the one hand, and SPSS, on the other, in connection with this Agreement, and the transactions and other actions contemplated thereby or taken in connection therewith, shall be borne by DataStat, and by SPSS, respectively, including, without limitation, all fees of counsel and accountants. 11.4 Notices. All notices, requests, demands and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand or by facsimile transmission (receipt confirmed), one day after being sent by recognized overnight courier or delivery service, freight prepaid, or five days after being mailed, certified or registered mail, postage prepaid, return receipt requested: - 22 - 24 (a) If to DataStat to: DataStat, S.A. Rate d'Arlon 81 8083 Capellen Luxembourg Attention: Nicolas Poncelet Telephone: +32-75-41-04-31 Facsimile: +32-27-36-65-49 with a copy to: Nauta Dutilh Chaussee de la Hulpe, 177/6 1170 Brussels Belgium Attention: Mr. Benoit Strowel Telephone: +32-2-673-00-07 Facsimile: +32-2-672-28-54 or to such other person or address as DataStat shall furnish to SPSS in writing by notice given in the manner set forth in (a) above. (b) If to SPSS, to: SPSS Inc. 233 South Wacker Drive 11th Floor Chicago, Illinois 60606 Attention: Mr. Edward Hamburg Telephone: (312) 329-3528 Facsimile: (312) 329-3558 with a copy to: Ross & Hardies 150 North Michigan Avenue, Suite 2500 Chicago, Illinois 60601 Attention: Lawrence R. Samuels, Esq. Telephone: (312) 558-1000 Facsimile: (312) 750-8600 - 23 - 25 or to such other person or address as SPSS shall furnish to DataStat in writing by notice given in the manner set forth above. 11.5 Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto without the prior written consent of the other parties, except by operation of law and except that the parties may assign their rights and obligations under this Agreement to any other entity wholly owned by them. If such assignment shall be made, the assignee shall be entitled to all of the rights and shall assume all of the obligations of either respective party hereunder, provided, that the assignor shall remain liable for and guarantee the performance of such entity's obligations under this Agreement. 11.6 Publicity. Neither DataStat nor SPSS shall make or issue, or cause to be made or issued, any announcement or written statement concerning this Agreement or the trans actions contemplated hereby for dissemination to the general public, without the prior written consent of the other party. This provision shall not apply, however, to any announcement or written statement required to be made by law, the regulations of any federal or state governmental agency or any stock exchange, except that the party required to make such announcement shall, whenever practicable, consult with the other party concerning the timing and content of such announcement before such announcement is made. 11.7 Headings. The Article and Section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 11.8 Severability. If any provision of this Agreement shall be determined to be contrary to law and unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. 11.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Illinois, without regard to its conflicts of law doctrine. The parties hereto expressly submit themselves to the non-exclusive jurisdictions of the State and Federal Courts of Illinois for the resolution of any disputes which may arise under or with respect to compliance with this Agreement. 11.10 Counterparts. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.11 Third Parties. Nothing herein shall be construed to confer upon or give to any party other than the parties hereto and their successors or permitted assigns, any rights or remedies under or by reason of this Agreement. - 24 - 26 11.12 Employment Agreement. SPSS and Serge Luyens shall enter into an employment agreement in a mutually acceptable form no later than January 1, 2000. 11.13 Entire Agreement. This Agreement, including the Exhibits and Schedules hereto, sets forth the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and supersedes all prior agreements, covenants, representations or warranties, whether oral or written, by any party hereto. - 25 - 27 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first written above. SPSS INC., a Delaware corporation By:_______________________________________________ Name: Edward Hamburg Title: Executive Vice President, Corporate Operations, Chief Financial Officer and Secretary DATASTAT, S.A., a corporation organized under the laws of Luxembourg By:_______________________________________________ Name: Nicolas Poncelet Title: Director and President of Board By:_______________________________________________ Name: Christophe Poncelet Title: Director EX-10.27 3 1999 BONUS COMPENSATION 1 EXHIBIT 10.27 1999 COMPENSATION PLAN Mark Battaglia Focus on worldwide new sales revenue growth, and worldwide Prentice Hall indirect sales. Iran Durrell Focus on sales contribution growth and worldwide profitability of market research products Edward Hamburg Focus on worldwide profitability and the effectiveness of the reporting and control systems. Jack Noonan Focus on worldwide profitability and the effectiveness of the reporting and control systems. Susan Phelan Focus on sales contribution growth and worldwide profitability of SPSS products and services. Louise Rehling Focus on key product deliverables, quality improvement and worldwide profitability.
1998 1999 --------- --------- Mark Battaglia Base $ 110,000 $ 127,000 Bonus 110,000 115,500 --------- --------- $ 220,000 7.3% $ 242,500 10.2% Ian Durrell Base $ 150,000 $ 150,000 Benefits 40,000 120,000 Commission 115,000 115,000 --------- --------- $ 305,000 3.4% $ 385,000 26.2% Edward Hamburg Base $ 156,000 $ 156,000 Bonus 110,000 123,500 --------- --------- $ 266,000 6.0% $ 279,500 5.1% Jack Noonan Base $ 242,500 256,500 Bonus 242,500 242,500 --------- --------- $ 485,000 6.6% $ 499,000 2.9% Susan Phelan Base $ 120,000 127,000 Commission 120,000 127,000 --------- --------- $ 240,000 9.1% $ 254,000 5.8% Louise Rehling Base $ 135,000 135,000 Bonus 105,000 117,000 --------- --------- $ 240,000 6.7% $ 252,000 4.8%
EX-21.1 4 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21.1 SUBSIDIARIES
JURISDICTION OF SUBSIDIARY ORGANIZATION ---------- --------------- 1. SPSS International, BV The Netherlands 2. SPSS Asia Pacific Pte Ltd Singapore 3. SPSS Benelux BV The Netherlands 4. SPSS GmbH Germany 5. SPSS Scandinavia AB Sweden 6. SPSS UK Ltd. England 7. SPSS Japan, Inc. Japan 8. SPSS Australasia Pty Ltd. Australia 9. SPSS UK Ltd., India India 10. SPSS France Sarl France 11. SPSS Science Software GmbH Germany 12. SPSS ASC BV The Netherlands 13. Jandel Corporation California 14. SPSS Ltd. England 15. SPSS A/S Denmark 16. Surveycraft Pty Ltd Australia 17. Integral Solutions Ltd. England 18. Quantime Ltd. England 19. Europe BV The Netherlands 20. Vento Software Inc. Florida
EX-23.1 5 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Shareholders SPSS Inc.: We consent to the incorporation by reference in the registration statements (Nos. 333-41207, 333-21025, 333-10423 and 333-30460) on Form S-3, the registration statements (Nos. 33-73120, 33-73130, 33-74402, 33-80799, 333-63167, and 333-25869) on Form S-8, and the registration statement (No. 333-15427) on Form S-4 of SPSS Inc. of our report dated March 17, 2000, relating to the consolidated balance sheets of SPSS Inc. and subsidiaries as of December 31, 1998 and 1999, and the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999, and the related consolidated financial statement schedule which report appears in the December 31, 1999 annual report on Form 10-K of SPSS Inc. /s/ KPMG LLP Chicago, Illinois March 30, 2000 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1999 AND CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 12-MOS DEC-31-1999 DEC-31-1999 DEC-31-1999 DEC-31-1999 0 16,770 0 0 0 45,411 0 2,510 0 2,895 0 68,441 0 41,750 0 25,639 0 106,715 0 39,769 0 0 0 0 0 0 0 96 0 61,466 0 106,715 40,668 141,930 40,668 141,930 3,601 12,663 3,601 12,663 28,890 104,772 974 1,768 (13) 722 8,068 24,123 2,886 8,621 5,182 15,502 0 0 0 0 0 0 5,182 15,502 0.54 1.61 0.51 1.52
EX-27.1(A) 7 RESTATED FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1998 AND CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 12-MOS DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998 0 16,297 0 0 0 36,921 0 2,106 0 2,871 0 58,534 0 38,829 0 22,932 0 94,303 0 46,126 0 0 0 0 0 0 0 95 0 44,222 0 94,303 34,544 123,472 34,544 123,472 2,523 10,048 2,523 10,048 29,947 96,647 423 724 (9) 754 2,046 16,982 3,401 8,404 (1,355) 8,578 0 0 0 0 0 0 (1,355) 8,578 (0.14) 0.90 (0.14) 0.85
EX-27.1(B) 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1997 AND CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 12-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 0 $10,067 0 0 0 29,974 0 1,776 0 2,520 0 43,663 0 28,557 0 19,059 0 65,189 0 29,675 0 0 0 0 0 0 0 93 0 32,228 0 65,189 30,137 111,106 30,137 111,106 2,568 9,835 2,568 9,835 22,484 95,210 298 447 62 210 4,827 5,933 1,582 3,189 3,245 2,744 0 0 0 0 0 0 3,245 2,744 0.35 0.29 0.32 0.27
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