-----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, Gnaeps2aAqzWQ9b42z+ACFWr/hLEW/el8Z3swuiVKQOYwWHJh6ldG9za6j3LjWv/ f1LSEnOZS5lo9IL3SkY5Hg== 0000950137-01-504726.txt : 20020410 0000950137-01-504726.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950137-01-504726 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22194 FILM NUMBER: 1791552 BUSINESS ADDRESS: STREET 1: 233 S WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123292400 MAIL ADDRESS: STREET 1: 233 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 10-Q 1 c66164e10-q.txt QUARTERLY REPORT =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 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 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 ----- ----- As of November 5, 2001, there were 14,313,330 shares of common stock outstanding, par value $.01, of the registrant. =============================================================================== SPSS INC. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2001 INDEX PART I - FINANCIAL INFORMATION PAGE ---- ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 (UNAUDITED) AND SEPTEMBER 30, 2001 (UNAUDITED) 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND 2001 (UNAUDITED) 4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND 2001 (UNAUDITED) 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND 2001 (UNAUDITED) 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 16 ITEM 2. CHANGES IN SECURITIES 16 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 16 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) DECEMBER 31, SEPTEMBER 30, 2000 2001 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 38,736 $ 22,051 Accounts receivable, net of allowances 72,611 55,032 Inventories 3,936 3,909 Deferred income taxes 10,334 16,854 Prepaid income taxes -- 7,203 Prepaid expenses and other current assets 7,336 6,447 ------------- ------------- Total current assets 132,953 111,496 ------------- ------------- PROPERTY AND EQUIPMENT, at cost: Land and building 1,551 2,831 Furniture, fixtures, and office equipment 9,141 11,039 Computer equipment and software 38,431 46,832 Leasehold improvements 8,916 10,786 ------------- ------------- 58,039 71,488 Less accumulated depreciation and amortization 32,931 38,211 ------------- ------------- Net property and equipment 25,108 33,277 ------------- ------------- Capitalized software development costs, net of accumulated amortization 16,142 20,059 Goodwill, net of accumulated amortization 8,106 9,833 Other assets 7,190 8,380 ------------- ------------- $ 189,499 $ 183,045 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 16,000 $ 14,600 Accounts payable 9,901 8,022 Accrued royalties 986 721 Accrued rent 1,438 1,384 Other accrued liabilities 13,388 12,058 Income taxes and value added taxes payable 3,245 3,559 Customer advances 442 1,450 Deferred revenues 42,183 46,625 ------------- ------------- Total current liabilities 87,583 88,419 ------------- ------------- Deferred income taxes 749 749 Other non-current liabilities 1,967 1,770 STOCKHOLDERS' EQUITY: Common Stock, $.01 par value; 50,000,000 shares authorized; 13,632,445 and 14,114,233 shares issued and outstanding in 2000 and 2001, respectively 136 141 Additional paid-in capital 86,960 92,993 Accumulated other comprehensive income (3,108) (5,985) Deferred compensation (338) -- Retained earnings 15,550 4,958 ------------- ------------- Total stockholders' equity 99,200 92,107 ------------- ------------- $ 189,499 $ 183,045 ============= ============= See accompanying notes to consolidated financial statements. 3 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2000 2001 2000 2001 ----------- ----------- ----------- ----------- Net revenues: Analytical solutions $ 6,447 $ 11,025 $ 21,320 $ 22,276 Market research 9,927 8,303 25,791 19,194 Statistics 21,730 18,694 65,951 55,902 ShowCase 12,522 9,891 34,315 31,021 ----------- ----------- ----------- ----------- Total net revenues 50,626 47,913 147,377 128,393 Operating expenses: Cost of revenues 3,939 3,895 11,764 10,697 Sales, marketing and services 29,295 27,322 84,873 85,626 Research and development 8,264 8,204 24,318 24,221 General and administrative 2,998 3,374 10,349 10,555 Special general and administrative charges -- 924 -- 4,697 Merger-related -- -- -- 7,781 ----------- ----------- ----------- ----------- Operating expenses 44,496 43,719 131,304 143,577 Operating income (loss) 6,130 4,194 16,073 (15,184) ----------- ----------- ----------- ----------- Other income (expense): Net interest income (expense) 281 (75) 811 (256) Other income (expense) 3 400 740 (781) ----------- ----------- ----------- ----------- Other income (expense) 284 325 1,551 (1,037) ----------- ----------- ----------- ----------- Income (loss) before income taxes 6,414 4,519 17,624 (16,221) Income tax expense (benefit) 2,925 1,879 8,239 (5,587) ----------- ----------- ----------- ----------- Net income (loss) $ 3,489 $ 2,640 $ 9,385 $ (10,634) =========== =========== =========== =========== Basic net income (loss) per share $ 0.26 $ 0.19 $ 0.71 $ (0.77) =========== =========== =========== =========== Shares used in computing basic net income (loss) per share 13,445,936 13,781,975 13,297,048 13,727,536 =========== =========== =========== =========== Diluted net income (loss) per share $ 0.24 $ 0.19 $ 0.66 $ (0.77) =========== =========== =========== =========== Shares used in computing diluted net income (loss) per share 14,418,710 14,141,536 14,129,081 13,727,536 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. 4 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2000 2001 2000 2001 ----------- ----------- ----------- ----------- Net income (loss) $ 3,489 $ 2,640 $ 9,385 $ (10,634) Other comprehensive loss: Foreign currency translation adjustment (1,829) (907) (4,828) (2,877) ----------- ----------- ----------- ----------- Comprehensive income (loss) $ 1,660 $ 1,733 $ 4,557 $ (13,511) =========== =========== =========== ===========
See accompanying notes to consolidated financial statements. 5 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 2000 2001 ----------- ----------- Cash flows from operating activities: Net income (loss) $ 9,385 $ (10,634) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 8,774 9,603 Stock compensation expense -- 399 Deferred income taxes 3,044 (6,520) Gain on sale of product line (1,397) -- Write-off of software development costs -- 397 Write-off of purchased software -- 1,047 Income tax benefit from stock option exercise 1,705 -- Changes in assets and liabilities: Accounts receivable (8,906) 17,579 Inventories (1,319) 27 Accounts payable 1,627 (1,879) Accrued royalties (583) (265) Accrued expenses 2,023 (1,384) Income taxes 742 (6,889) Deferred revenues (1,336) 4,442 Other (2,578) (407) ----------- ----------- Net cash provided by operating activities 11,181 5,516 ----------- ----------- Cash flows from investing activities: Capital expenditures, net (10,606) (13,534) Capitalized software development costs (4,480) (7,985) Purchase of cost based investment (1,450) -- Write down of cost based investment -- 783 Divesture of product line 1,700 -- Acquisition earn-out payments (3,882) (2,827) ----------- ----------- Net cash used in investing activities (18,718) (23,563) ----------- ----------- Cash flows from financing activities: Net borrowings (repayments) under line-of-credit agreements 250 (1,400) Proceeds from issuance of common stock 2,193 5,639 Principal repayment under capital lease obligations (195) -- ----------- ----------- Net cash provided by financing activities 2,248 4,239 ----------- ----------- Effect of exchange rate on cash (4,828) (2,877) Net change in cash and cash equivalents (10,117) (16,685) Cash and cash equivalents at beginning of period 46,834 38,736 ----------- ----------- Cash and cash equivalents at end of period $ 36,717 $ 22,051 =========== =========== Supplemental disclosures of cash flow information: Interest paid $ 263 $ 800 Income taxes paid 5,087 4,293 =========== =========== Supplemental disclosures of noncash investing activities - Common stock issued in merger with ShowCase - shares -- 3,725 =========== =========== See accompanying notes to consolidated financial statements. 6 SPSS Inc. and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods presented. All such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with SPSS' audited consolidated financial statements and notes thereto for the year ended December 31, 2000, included in SPSS' Report on Form 8-K filed with the Securities and Exchange Commission on November 13, 2001. NOTE 2 - RECLASSIFICATIONS Certain operating expenses of prior periods have been reclassified to conform to the current presentation. NOTE 3 - SHOWCASE MERGER On February 26, 2001, SPSS Inc. issued approximately 3,725,000 shares of its common stock in exchange for substantially all of the outstanding common stock of ShowCase Corporation (ShowCase). The merger was accounted for as a pooling of interests. The financial data for 2000 included in the financial statements reflects the presentation as if the transaction had been consummated as of the earliest period presented. Previously reported revenue and net income of $39,571,000 and $4,445,000 for the three months ended September 30, 2000 and $114,529,000 and $12,626,000, respectively, for the nine months ended September 30, 2000, differed from currently reported amounts due to the merger with ShowCase, as discussed above. NOTE 4 - MERGER-RELATED EXPENSES SPSS incurred merger-related costs of approximately $7,781,000 during the first quarter of 2001 related to the ShowCase acquisition discussed above. The costs are primarily related to professional fees, severance costs, write-off of duplicate capitalized software and inventory, and bonuses. Severance costs for 28 employees totaled approximately $940,000 during the first quarter related to the merger, the majority of which relate to officers of ShowCase whose positions were eliminated. 7 NOTE 5 - SPECIAL GENERAL AND ADMINISTRATIVE CHARGES Special general and administrative charges were $924,000 for the three months ended September 30, 2001 and $4,697,000 for the nine months ended September 30, 2001 and were primarily related to the write-off of obsolete capitalized software development costs, training, marketing and professional fees associated with combining ShowCase that did not meet the definition accruable of merger costs under established guidelines, and additional reduction in workforce and the issuance of restricted vested common stock to certain officers. NOTE 6 - RECENT DEVELOPMENTS SPSS settled its dispute with Ms. Norusis without significant liability. Under the terms of the settlement, SPSS received ownership rights to materials produced by Ms. Norusis prior to the settlement for approximately $1.7 million and Ms. Norusis received exclusive rights to draft three statistical manuals for SPSS software for a 10-year term, with a 10-year renewal right. On September 28, 2001, Siebel Systems, Inc. made a $5 million equity investment in SPSS under the terms of a stock purchase agreement, dated as of September 28, 2001, by and between the parties. Before Siebel's investment in SPSS, SPSS joined the Siebel Alliance Program as a Strategic Software Partner in July 2001. As part of the alliance, SPSS is pursuing further integration and validation of its analytical solutions and products with Siebel eBusiness Applications to support enhanced customer segmentation and more effective targeting in marketing campaigns, either offline or in real-time environments like call centers and Web sites. NOTE 7 - SUBSEQUENT EVENTS On October 23, 2001, the Company announced that it had entered into an agreement with America Online to purchase certain operating assets and maintain a strategic relationship for a four year period. Payments for assets and ongoing sample access fees will aggregate $42 million of cash and stock, and will be paid over the four year period. The acquired assets will be accounted for as a purchase by the Company. On October 28, 2001, the Company entered into an agreement and plan of merger to acquire all of the outstanding shares of NetGenesis Corp., a leading provider of E-Metrics solutions for global 2000 companies. The Company plans to issue approximately 2.4 million shares of common stock to NetGenesis approximating $44 million and will treat the transaction as a purchase. 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following table sets forth the percentages that selected items in the Consolidated Statements of Operations bear to net revenues. The percentages reflect the presentation as if the ShowCase pooling transaction had been consummated as of the earliest period presented. SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
PERCENTAGE OF NET REVENUES PERCENTAGE OF NET REVENUES -------------------------- -------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2000 2001 2000 2001 ----------- ----------- ----------- ----------- Statements of Operations Data: Net revenues: Analytical solutions 13% 23% 14% 17% Market research 19% 17% 18% 15% Statistics 43% 39% 45% 44% ShowCase 25% 21% 23% 24% ----------- ----------- ----------- ----------- Net revenues 100% 100% 100% 100% Operating expenses: Cost of revenues 8% 8% 8% 8% Sales, marketing and services 58% 57% 58% 67% Research and development 16% 17% 16% 19% General and administrative 6% 7% 7% 8% Special general and administrative charges 0% 2% 0% 4% Merger-related 0% 0% 0% 6% ----------- ----------- ----------- ----------- Operating expenses 88% 91% 89% 112% ----------- ----------- ----------- ----------- Operating income (loss) 12% 9% 11% (12%) ----------- ----------- ----------- ----------- Other income (expense): Net interest income (expense) 1% 0% 1% 0% Other income (expense) 0% 1% 0% 0% ----------- ----------- ----------- ----------- Other income (expense) 1% 1% 1% 0% ----------- ----------- ----------- ----------- Income (loss) before income taxes 13% 10% 12% (12%) Income tax expense (benefit) 6% 4% 6% (4%) ----------- ----------- ----------- ----------- Net income (loss) 7% 6% 6% (8%) =========== =========== =========== ===========
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THREE MONTHS ENDED SEPTEMBER 30, 2001. Net Revenues. Net revenues were $50,626,000 in the three months ended September 30, 2000 and $47,913,000 in the three months ended September 30, 2001, a decrease of 5%. This decrease was primarily due to implementation of recent accounting interpretations as well as an overall decline in software sales and services. During 2000, the AICPA staff released several Technical Practice Aids ("TPA") for the software industry, consisting of questions and answers related to the financial accounting and reporting issues of Statement of Position 97-2, Software Revenue Recognition. As a result of the issuance of these TPA's, SPSS performed a comprehensive review of their revenue recognition policies to 9 ensure compliance with recent authoritative literature. On a prospective basis from the fourth quarter of 2000, SPSS applied the standards set forth in TPA 5100.53 - Fair value of PCS in a short-term time-based license and software revenue recognition and TPA 5100.68 - Fair value of PCS in a perpetual and multi-year time-based licenses and software revenue recognition. As a result of the application of the TPAs, SPSS began to recognize the revenue from short-term time-based licenses and perpetual licenses with multi-year maintenance terms ratable over the term of the contract. Analytical solutions revenues increased 71% due to increased demand for the Clementine data mining product and higher sales of server versions and other enterprise deployments of SPSS products. Market research revenues declined 16% due to currency effects, the deferral of more revenues from time-based licenses and a decline in high-ticket sales to information technology departments in market research firms. Statistics revenues declined 14% due to foreign currency exchange rates, the deferral of more revenues from time-based licenses and the absence of two product lines divested in 2000. ShowCase revenues decreased 21% from the September 2000 quarter due to the general decline in software sales and services, as well as foreign currency rates. 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 was $3,939,000 in the three months ended September 30, 2000 and $3,895,000 in the three months ended September 30, 2001, a decrease of 1%. Such costs decreased due to reduced cost of goods sold resulting from lower revenues and lower royalty expense on third party products resulting from a decline in the growth rate in the market for general-purpose statistical products. As a percentage of net revenues, cost of revenues remained constant at 8%. Sales, Marketing and Services Expenses. Sales, marketing and services expenses were $29,295,000 in the three months ended September 30, 2000 and $27,322,000 in the three months ended September 30, 2001, a decrease of 7%. This decrease reflects the expense controls implemented during the first three quarters of 2001, including reductions in the number of sales and professional services personnel resulting from the reductions in force implemented in April and July 2001, cuts in marketing expenses and changes in foreign currency exchange rates. As a percentage of net revenues, such expenses decreased from 58% to 57%. Research and Development. Research and development expenses were $8,264,000 (net of capitalized software development costs of $1,264,000) in the three months ended September 30, 2000 and $8,204,000 (net of capitalized software development costs of $1,563,000) in the three months ended September 30, 2001, a decrease of 1%, due to expense controls implemented during the first three quarters of 2001. SPSS' expense for amortization of capitalized software and product translations, included in cost of revenues, was $957,000 in the three months ended September 30, 2000 and $775,000 in the three months ended September 30, 2001. As a percentage of net revenues, product development expenses increased from 16% to 17% from September 30, 2000 to September 30, 2001. General and Administrative. General and administrative expenses were $2,998,000 in the three months ended September 30, 2000 and $3,374,000 in the three months ended September 30, 2001, an increase of 13%. The increase was due primarily to additional bad debt expense. As a percentage of net revenues, general and administrative expenses increased from 6% to 7%. 10 Special General and Administrative Charges. Special general and administrative charges were $924,000 in the three months ended September 30, 2001 and primarily related to the July 2001 reduction in force. Net Interest Income (Expense). Net interest income was $281,000 in the three months ended September 30, 2000 due to interest income earned on cash and marketable securities held by ShowCase, partially offset by interest expense on borrowings against SPSS' line of credit. Net interest expense was $75,000 in the three months ended September 30, 2001, primarily due to debt service on borrowings against SPSS' line-of-credit offset partially by interest and investment income. Other Income (Expense). Other income was $3,000 in the three months ended September 30, 2000 and $400,000 in the three months ended September 30, 2001 due to gains on foreign currency transactions. Provision for Income Taxes. The provision for income taxes was $2,925,000 in the three months ended September 30, 2000 and $1,879,000 in the three months ended September 30, 2001. During the quarter ended September 30, 2000 the provision for income taxes represented an effective tax rate of approximately 46%. In the three months ended September 30, 2001, the effective tax rate is approximately 42%. The difference in the effective tax rates is the result of the ShowCase merger and foreign tax credits in 2001. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE MONTHS ENDED SEPTEMBER 30, 2001. Net Revenues. Net revenues were $147,377,000 in the nine months ended September 30, 2000 and $128,393,000 in the nine months ended September 30, 2001, a decrease of 13%. This decrease was primarily due to implementation of recent accounting interpretations as well as an overall decline in software sales and services. During 2000, the AICPA staff released several Technical Practice Aids ("TPA") for the software industry, consisting of questions and answers related to the financial accounting and reporting issues of Statement of Position 97-2, Software Revenue Recognition. As a result of the issuance of these TPA's, SPSS performed a comprehensive review of their revenue recognition policies to ensure compliance with recent authoritative literature. On a prospective basis from the fourth quarter of 2000, SPSS applied the standards set forth in TPA 5100.53 - Fair value of PCS in a short-term time-based license and software revenue recognition and TPA 5100.68 - Fair value of PCS in a perpetual and multi-year time-based licenses and software revenue recognition. As a result of the application of the TPAs, SPSS began to recognize the revenue from short-term time-based licenses and perpetual licenses with multi-year maintenance terms ratable over the term of the contract. Analytical solutions revenues increased 4% due to increased demand for the Clementine data mining product and higher sales of server versions and other enterprise deployments of SPSS products. Market research revenues declined 26% due to currency effects and the deferral of more revenues from time-based licenses. Statistics revenues declined 15% due to foreign currency exchange rates, the deferral of more revenues from time-based licenses and the absence 11 of two product lines divested in 2000. ShowCase revenues decreased 10% from the September 2000 nine month period due to a general decline in software sales and services, as well as foreign currency rates. 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 was $11,764,000 in the nine months ended September 30, 2000 and $10,697,000 in the nine months ended September 30, 2001, a decrease of 9%. Such costs decreased due to reduced cost of goods sold resulting from lower revenues and lower royalty expense on third party products resulting from a decline in the growth rate in the market for general-purpose statistical products. As a percentage of net revenues, cost of revenues remained constant at 8%. Sales, Marketing and Services Expenses. Sales, marketing and services expenses were $84,873,000 in the nine months ended September 30, 2000 and $85,626,000 in the nine months ended September 30, 2001, an increase of 1%. This increase reflects the expansion in sales management and expenses related to hiring additional professional services personnel in 2000. This increase was partially offset by the reduction in force implemented in April and July 2001 and changes in foreign currency exchange rates. As a percentage of net revenues, such expenses increased from 58% to 67%. Research and Development. Research and development expenses were $24,318,000 (net of capitalized software development costs of $3,133,000) in the nine months ended September 30, 2000 and $24,221,000 (net of capitalized software development costs of $4,502,000) in the nine months ended September 30, 2001, remaining relatively flat on a year-to-year comparison. SPSS' expense for amortization of capitalized software and product translations, included in cost of revenues, was $2,844,000 in the nine months ended September 30, 2000 and $2,707,000 in the nine months ended September 30, 2001. As a percentage of net revenues, product development expenses increased from 16% to 19% from September 30, 2000 to September 30, 2001. General and Administrative. General and administrative expenses were $10,349,000 in the nine months ended September 30, 2000 and $10,555,000 in the nine months ended September 30, 2001, an increase of 2%. The increase was due to increased bad debt expense. As a percentage of net revenues, general and administrative expenses increased from 7% to 8%. Special General and Administrative Charges. Special general and administrative charges were $4,697,000 in the nine months ended September 30, 2001 and primarily related to the expenses associated with the April and July 2001 reduction in workforce, additional integration costs from the ShowCase acquisition, and issuance of restricted vested common stock to certain officers. Merger-related. SPSS incurred merger-related costs of approximately $7,781,000 during the first quarter of 2001 related to the ShowCase acquisition discussed above. The costs are primarily related to professional fees, severance costs, write-off of duplicate capitalized software and inventory, and bonuses. Severance costs for 28 employees totaled approximately $940,000 during the first quarter related to the merger, the majority of which relate to officers of ShowCase whose positions were eliminated. 12 Net Interest Income (Expense). Net interest income was $811,000 in the nine months ended September 30, 2000 due to interest income earned on cash and marketable securities held by ShowCase, partially offset by interest expense on borrowings against SPSS' line of credit. Net interest expense was $256,000 in the nine months ended September 30, 2001, primarily due to debt service on borrowings against SPSS' line-of-credit offset partially by interest and investment income. Other Income (Expense). Other income was $740,000 in the nine months ended September 30, 2000 due primarily to the $1,398,000 gain from the sale of the QI Analyst product line to Wonderware Corporation, offset by losses on foreign currency translations. Other expense was $781,000 in the nine months ended September 30, 2001, due primarily to the revaluation of the Company's investment in e-Intelligence. Provision for Income Taxes. The provision for income taxes was $8,239,000 in the nine months ended September 30, 2000 and a $5,587,000 benefit in the nine months ended September 30, 2001. During the nine months ended September 30, 2000 the provision for income taxes represented an effective tax rate of approximately 47%. In the nine months ended September 30, 2001, the effective tax rate is approximately 34%. The difference in the effective tax rates is the result of the ShowCase merger and foreign tax credits in 2001. LIQUIDITY AND CAPITAL RESOURCES The Company's long-term debt as of September 30, 2001 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 September 30, 2001, SPSS had approximately $22,051,000 of cash. Funds were used in investing activities and provided by financing activities in the first nine months of 2001. Cash received as part of the merger with ShowCase was used to pay down the line-of-credit, accrued income taxes, the final installment to the former Integral Solutions shareholders, merger-related costs and capital expenditures. Proceeds of approximately $5 million were received from the issuance of common stock to Siebel Systems, Inc. In May 2000, SPSS revised its loan agreement with American National Bank and Trust Company of Chicago. Under the new loan agreement, SPSS has an available $20,000,000 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 September 30, 2001, SPSS had $14,600,000 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: - incur additional indebtedness, - create liens on assets, - make investments, - engage in mergers, acquisitions or consolidations where SPSS is not the surviving entity, - sell assets, - engage in certain transactions with affiliates and - amend its organizational documents or make changes in capital structure. 13 SPSS anticipates that 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. INTERNATIONAL OPERATIONS Revenues from international operations were 47% and 46% of total net revenues in the three months ended September 30, 2000 and September 30, 2001, respectively. Revenues from international operations were 47% and 50% of total net revenues in the nine months ended September 30, 2000 and September 30, 2001, respectively. The percentage difference is the result of revenues increasing in Europe and Japan, but decreasing in North America compared to 2000. The portion of revenues attributable to international operations was negatively affected by changes in foreign currency exchange rates. RECENT ACCOUNTING PRONOUNCEMENTS On July 20, 2001, the Financial Accounting Standards Board issued SFAS No. 141, Business Combinations and No. 142, Goodwill and Other Intangible Assets. SFAS 141 requires all business combinations initiated after June 30, 2001 to be accounted for using the purchase method. Business combinations accounted for as poolings-of-interests and initiated prior to June 30, 2001 are grandfathered. SFAS 142 replaces the requirement to amortize intangible assets with indefinite lives and goodwill with a requirement for an impairment test. SFAS 142 also requires an evaluation of intangible assets and their useful lives and a transitional impairment test for goodwill and certain intangible assets upon adoption. After transition, the impairment tests will be performed annually. SFAS 142 is effective for fiscal years beginning after December 15, 2001, as of the beginning of the year. The Company has not yet determined the impact of SFAS 142 on its financial reporting. In August 2001, the Financial Accounting Standards Board issued Statement No. 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This Statement applies to all entities that have legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of a long-lived asset. Statement No. 143 also requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of a tangible long lived asset. Enterprises are required to adopt Statement No. 143 for fiscal years beginning after June 15, 2002. Early adoption is encouraged. The Company has not yet determined the impact of the new accounting standard on its financial reporting. In August 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 144 (SFAS 144), Accounting for Impairment of Long-Lived 14 Assets. The new standard supercedes FASB Statement No. 121 (SFAS 121), Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. Although retaining many of the fundamental recognition and measurement provisions of SFAS 121, the new rules significantly change the criteria that would have to be met to classify as asset as held-for-sale. The new standard also supercedes the provisions of Accounting Principles Board Opinion No. 30 (APB 30), Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and will require expected future operating losses from discontinued operations to be displayed in discontinued operations in the period(s) in which the losses are incurred rather than as of the measurement date as presently required by APB 30. The provisions of SFAS 144 are effective for financial statements beginning after December 15, 2001, but allow for early application. The provisions of SFAS 144 generally are to be applied prospectively, therefore, the adoption of this standard will not affect previously reported financial information. The Company has not yet determined the impact of the new accounting standard on its financial reporting. 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, currency fluctuations 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk from fluctuations in interest rates on borrowings under our unsecured line of credit that bears interest at either the prime rate or the Eurodollar rate. As of September 30, 2001, the Company had $14,600,000 outstanding under this line of credit. A 100 basis point increase in interest rates would result in an additional $146,000 of annual interest expense, assuming the same level of borrowing. The Company is exposed to market risk from fluctuations in foreign currency exchange rates. Since a substantial portion of the Company's operations and revenue occur outside the United States, and in currencies other than the U.S. dollar, the Company's results can be significantly impacted by changes in foreign currency exchange rates. To manage the Company's exposure to fluctuations to currency exchange rates, the Company may enter into various financial instruments, such as options. These instruments generally mature within 12 months. Gains and losses on these instruments are recognized in other income or expense. Were the foreign 15 currency exchange rates to depreciate immediately and uniformly against the U.S. dollar by 10 percent from levels at September 30, 2001, management expects this would have a materially adverse effect on the Company's financial results. The Company operates internationally, giving rise to exposure to market risks from changes in foreign exchange rates. From time to time the Company utilizes option contracts to minimize the impact of currency movements on receivables from its foreign subsidiaries. The terms of these contracts are generally less than one year. At September 30, 2001, the Company had no outstanding option contracts. Gains and losses related to changes in the fair value of these instruments are included in the carrying value of those assets and are recognized in income with each financial reporting period. Realized gains and losses related to the agreements are recorded when the related transaction occurs. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SPSS is not a party to any material legal proceedings. SPSS may become a party to various claims and legal actions arising in the ordinary course of business. ITEM 2. CHANGES IN SECURITIES On September 28, 2001, the Company issued 300,300 shares of common stock, $.01 per value per share, to Siebel Systems, Inc. in a previously reported transaction not registered under the Securities Act of 1933. The aggregate purchase price of the 300,300 shares of common stock was $5 million. The Company has relied upon an exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933. The Company has agreed to register the resale of such 300,300 shares of common stock by Siebel Systems. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (Note: Management contracts and compensatory plans or arrangements are underlined in the following list.)
Incorporation Exhibit by Reference Number Description of Document (if applicable) - ------ ----------------------- --------------- 2.1 Agreement and Plan of Merger among SPSS Inc., (1), Ex. 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., (2), Annex A SPSS Acquisition Inc. and Jandel Corporation, dated October 30, 1996. 2.3 Asset Purchase Agreement by and between SPSS Inc. (16), Ex. 2.3 and DeltaPoint, Inc., dated as of May 1, 1997.
16 2.4 Stock Purchase Agreement among the Registrant, (3), Ex. 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, (3), Ex. 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 (4), Ex. 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, (4), Ex. 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 (18), Ex. 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., (20), Ex. 2.9 Surveycraft Pty Ltd. and Jens Meinecke and Microtab Systems Pty Ltd., dated as of November 1, 1998. 2.10 Stock Acquisition Agreement by and among SPSS Inc. (21), Ex. 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. (24), Ex. 2.11 and DataStat, S.A., dated as of December 23, 1999. 2.12 Agreement and Plan of Merger dated as of November 6, (25), Ex. 2.1 2000, among SPSS, SPSS Acquisition Sub Corp., and ShowCase. 2.13 Agreement and Plan of Merger dated as of (29), Ex. 99.1 October 28, 2001, among SPSS, Red Sox Acquisition Corp. and NetGenesis Corp. 3.1 Certificate of Incorporation of SPSS. (5), Ex. 3.2
17 3.2 By-Laws of SPSS. (5), Ex. 3.4 10.1 Employment Agreement with Jack Noonan. (8), Ex. 10.1 10.2 Agreement with Valletta. (6), Ex. 10.2 10.3 Agreement between SPSS and (6), Ex. 10.5 Prentice Hall. 10.4 Software Distribution Agreement between SPSS and IBM. (6), Ex. 10.6 10.5 HOOPS Agreement. (6), Ex. 10.7 10.6 Stockholders Agreement. (5), Ex. 10.8 10.7 Agreements with CSDC. (5), Ex. 10.9 10.8 Amended 1991 Stock Option Plan. (5), Ex. 10.10 10.9 SYSTAT Asset Purchase Agreement. (9), Ex. 10.9 10.10 1994 Bonus Compensation. (10), Ex. 10.11 10.11 Lease for Chicago, Illinois Office. (10), Ex. 10.12 10.12 Amendment to Lease for Chicago, Illinois Office. (10), Ex. 10.13 10.13 1995 Equity Incentive Plan. (11), Ex. 10.14 10.14 1995 Bonus Compensation. (12), Ex. 10.15 10.15 Amended and Restated 1995 Equity Incentive Plan. (13), Ex. 10.17 10.16 1996 Bonus Compensation. (14), Ex. 10.18 10.17 Software Distribution Agreement between the (14), Ex. 10.19 Company and Banta Global Turnkey. 10.18 Lease for Chicago, Illinois in Sears Tower. (15), Ex. 10.20 10.19 1997 Bonus Compensation. (17), Ex. 10.21 10.20 Norman H. Nie Consulting L.L.C. Agreement with (17), Ex. 10.22 SPSS. 10.21 Second Amended and Restated 1995 Equity (19), Ex. A Incentive Plan. 10.22 1998 Bonus Compensation. (20), Ex. 10.23 10.23 Third Amended and Restated 1995 Equity (22), Ex. 10.1 Incentive Plan.
18 10.24 Loan Agreement dated June 1, 1999 between (23), Ex. 10.1 SPSS and American National Bank and Trust Company of Chicago. 10.25 First Amendment to Loan Agreement dated (23), Ex. 10.2 June 1, 1999, between SPSS and American National Bank and Trust Company of Chicago. 10.26 1999 Bonus Compensation. (24), Ex. 10.27 10.27 2000 Equity Incentive Plan. (26), Ex. 10.45 10.28 SPSS Qualified Employee Stock Purchase Plan (26), Ex. 10.46 10.29 SPSS Nonqualified Employee Stock Purchase Plan (26), Ex. 10.47 10.30 2000 Bonus Compensation (27), Ex. 10.30 10.31 Stock Purchase Agreement by and between (28), Ex. 10.31 SPSS and Siebel Systems, Inc.
- ------------------------------- (1) 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) (2) Previously filed with Amendment No. 1 to Form S-4 Registration Statement of SPSS Inc. filed on November 7, 1996. (File No. 333-15427) (3) Previously filed with SPSS Inc.'s Report on Form 8-K, dated September 30, 1997, filed on October 15, 1997. (File No. 000-22194) (4) Previously filed with the Form S-3 Registration Statement of SPSS Inc. filed on November 26, 1997. (File No. 333-41207) (5) Previously filed with Amendment No. 2 to Form S-1 Registration Statement of SPSS Inc. filed on August 4, 1993. (File No. 33-64732) (6) Previously filed with Amendment No. 1 to Form S-1 Registration Statement of SPSS Inc. filed on July 23, 1993. (File No. 33-64732) (7) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the Quarterly period ended September 30, 1993. (File No. 000-22194) (8) Previously filed with the Form S-1 Registration Statement of SPSS Inc. filed on June 22, 1993. (File No. 33-64732) (9) Previously filed with the Form S-1 Registration Statement of SPSS Inc. filed on December 5, 1994. (File No. 33-86858) 19 (10) Previously cited with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1994. (File No. 000-22194) (11) Previously filed with SPSS Inc.'s 1995 Proxy Statement. (File No. 000-22194) (12) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1995. (File No. 000-22194) (13) Previously filed with SPSS Inc.'s 1996 Proxy Statement. (File No. 000-22194) (14) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1996. (File No. 000-22194) (15) Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended March 31, 1997. (File No. 000-22194) (16) Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended June 30, 1997. (File No. 000-22194) (17) Previously filed with Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1997. (File No. 000-22194) (18) 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) (19) Previously filed with SPSS Inc.'s 1998 Proxy Statement. (File No. 000-22194) (20) Previously filed with Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1998. (File No. 000-22194) (21) Previously filed with SPSS Inc. Report on Form 8-K, dated November 29, 1999, filed December 10, 1999. (File No. 000-22194) (22) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended June 30, 1999. (File No. 000-22194) (23) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended September 30, 1999. (File No. 000-22194) (24) Previously filed with Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 1999. (File No. 000-22194) (25) Previously filed with SPSS Inc.'s Form 8-K , filed November 15, 2000. (File No. 000-22194) (26) Previously filed with SPSS Inc.'s Form S-4, filed December 19, 2000. (File No. 333-52216) 20 (27) Previously filed with SPSS Inc.'s Form 10-K Annual Report for the year ended December 31, 2000 (File No. 000-22194) (28) Previously field with the Form S-3 Registration Statement of SPSS Inc. filed on October 9, 2001. (File No. 333-71236) (29) Previously filed with SPSS Inc. Report on Form 8-K, dated October 28, 2001, filed October 29, 2001. (File No. 000-22194) (b) SPSS filed the following report on Form 8-K during the third quarter of fiscal year 2001: Current Report on Form 8-K, dated September 28, 2001, filed October 12, 2001 (File No. 000-22194), reporting that Siebel Systems, Inc. had made a $5 million equity investment in the Company under the terms of a Stock Purchase Agreement. 21 SIGNATURES PURSUANT TO THE REQUIREMENTS 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. SPSS INC. DATE: NOVEMBER 14, 2001 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 UNDERSIGNED, IN HIS CAPACITY AS THE PRINCIPAL FINANCIAL OFFICER OF THE REGISTRANT. DATE: NOVEMBER 14, 2001 BY: /s/ EDWARD HAMBURG -------------------------------------------- EDWARD HAMBURG EXECUTIVE VICE-PRESIDENT, CORPORATE OPERATIONS AND CHIEF FINANCIAL OFFICER 22 -----END PRIVACY-ENHANCED MESSAGE-----