10-Q 1 c77050e10vq.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 MARCH 31, 2003 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 NO X --- --- INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES X NO --- --- AS OF MAY 1, 2003, THERE WERE 17,267,463 SHARES OF COMMON STOCK OUTSTANDING, PAR VALUE $.01, OF THE REGISTRANT. ================================================================================ SPSS INC. FORM 10-Q QUARTER ENDED MARCH 31, 2003 INDEX
PART I - FINANCIAL INFORMATION PAGE ---- ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002 (AUDITED) AND MARCH 31, 2003 (UNAUDITED) 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) AND 2003 (UNAUDITED) 4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) AND 2003 (UNAUDITED) 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED) AND 2003 (UNAUDITED) 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 ITEM 4. CONTROLS AND PROCEDURES 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 18 ITEM 5. OTHER INFORMATION 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
2 ITEM 1. FINANCIAL STATEMENTS SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, MARCH 31, 2002 2003 ----------- --------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 15,589 $ 23,024 Accounts receivable, net of allowances 49,917 40,853 Inventories, net 2,775 2,373 Deferred income taxes 13,962 13,134 Prepaid expenses and other current assets 14,146 15,434 --------- --------- Total current assets 96,389 94,818 --------- --------- EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost: Land and building 2,594 2,545 Furniture, fixtures, and office equipment 15,375 15,183 Computer equipment and software 65,877 66,377 Leasehold improvements 13,144 13,139 --------- --------- 96,990 97,244 Less accumulated depreciation and amortization 59,360 60,720 --------- --------- Net property, equipment and leasehold improvements 37,630 36,524 --------- --------- Restricted cash 1,594 1,584 Capitalized software development costs, net of accumulated amortization 27,629 28,290 Goodwill, net of accumulated amortization 53,560 53,562 Intangibles, net 14,153 13,310 Deferred income taxes 11,116 11,150 Other assets 6,665 6,094 --------- --------- $ 248,736 $ 245,332 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 2,500 $ 2,500 Accounts payable 11,764 13,451 Accrued royalties 1,437 1,277 Accrued rent 1,356 1,369 Merger consideration 7,250 7,250 Other accrued liabilities 22,425 18,987 Income taxes and value added taxes payable 6,680 4,993 Customer advances 1,920 1,331 Deferred revenues 43,603 44,043 --------- --------- Total current liabilities 98,935 95,201 --------- --------- Merger consideration 11,484 9,905 Other non-current liabilities 781 725 Non-current notes payable 6,000 6,000 STOCKHOLDERS' EQUITY: Common Stock, $.01 par value; 50,000,000 shares authorized; 17,214,515 and 17,258,741 shares issued and outstanding in 2002 and 2003, respectively 172 173 Additional paid-in capital 147,926 148,261 Accumulated other comprehensive loss (2,981) (2,713) Accumulated deficit (13,581) (12,220) --------- --------- Total stockholders' equity 131,536 133,501 --------- --------- $ 248,736 $ 245,332 ========= =========
See accompanying notes to consolidated financial statements. 3 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR NET LOSS PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ------------------------------ 2002 2003 ------------ ------------ Net revenues: License fees $ 21,604 $ 19,188 Maintenance 19,783 21,427 Services 8,223 8,435 ------------ ------------ Net revenues 49,610 49,050 Operating expenses: Cost of license and maintenance revenues 5,848 3,822 Sales and marketing 30,754 28,354 Research and development 8,108 10,927 General and administrative 5,960 3,954 Special general and administrative charges 1,655 -- Merger-related 1,903 -- Acquired in-process technology 150 -- ------------ ------------ Operating expenses 54,378 47,057 ------------ ------------ Operating income (loss) (4,768) 1,933 ------------ ------------ Other income: Net interest and investment income 94 3 Other income 7 131 ------------ ------------ Other income 101 134 ------------ ------------ Income (loss) before income taxes and minority interest (4,667) 2,127 Income tax expense (benefit) (1,680) 766 ------------ ------------ Income (loss) before minority interest (2,987) 1,361 Minority interest 439 -- ------------ ------------ Net income (loss) $ (2,548) $ 1,361 ============ ============ Basic net income (loss) per share $ (0.15) $ 0.08 ============ ============ Shares used in computing basic net income (loss) per share 16,781,511 17,227,817 ============ ============ Diluted net income (loss) per share $ (0.15) $ 0.08 ============ ============ Shares used in computing diluted net income (loss) per share 16,781,511 17,281,003 ============ ============
See accompanying notes to consolidated financial statements. 4 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, -------------------- 2002 2003 ------- ------- Net income (loss) $(2,548) $ 1,361 Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (1,432) 268 Unrealized holding gain on marketable securities 11 -- ------- ------- Comprehensive income (loss) $(3,969) $ 1,629 ======= =======
See accompanying notes to consolidated financial statements. 5 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, --------------------------- 2002 2003 ---------- ------------ Cash flows from operating activities: Net income (loss) $ (2,548) $ 1,361 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 4,364 4,369 Deferred income taxes (2,358) 794 Write-off of acquired in-process technology costs 150 -- Concurrent purchase and sale of software (4) -- Changes in assets and liabilities, net of acquisition: Accounts receivable 3,274 9,152 Inventories (20) 402 Prepaid expenses and other current assets 652 (742) Restricted cash (28) 10 Accounts payable (419) 1,709 Accrued royalties (679) (160) Accrued expenses 1,766 (3,097) Accrued income taxes (611) (1,784) Deferred revenues (1,569) 396 Other (366) (14) -------- -------- Net cash provided by operating activities 1,604 12,396 -------- -------- Cash flows from investing activities: Capital expenditures, net (3,374) (1,165) Capitalized software development costs (3,919) (2,458) Acquisition of LexiQuest (2,500) -- Proceeds from maturities and sales of marketable securities 7,779 -- Payment to AOL for Direct Marketing Services (1,812) (1,812) Other investing activity (439) -- -------- -------- Net cash used in investing activities (4,265) (5,435) Cash flows from financing activities: Net borrowings under line-of-credit agreements 825 -- Proceeds from issuance of common stock 492 336 -------- -------- Net cash provided by financing activities 1,317 336 -------- -------- Effect of exchange rates on cash (236) 138 -------- -------- Net change in cash and cash equivalents (1,584) 7,435 Cash and cash equivalents at beginning of period 21,400 15,589 -------- -------- Cash and cash equivalents at end of period $ 19,816 $ 23,024 ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 128 $ 147 Income taxes paid 1,335 2,669 Cash received from income tax refunds 232 1,160
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 the Company's 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 the audited consolidated financial statements of SPSS and notes thereto for the year ended December 31, 2002, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. NOTE 2 - RECLASSIFICATIONS Certain revenues, expenses and balances of prior periods have been reclassified to conform to the current presentation. Also, in 2003 and on a going-forward basis, SPSS will report and discuss its revenues in three categories used by most enterprise software companies: - License fees, representing new sales of the company's tools, applications, and components on a perpetual, annual, or ASP (applications services provider) basis; - Maintenance, representing recurring revenues recognized by the company from renewals of maintenance agreements associated with perpetual licenses or renewals of annual licenses; - Services, representing revenues recognized from professional services engagements and training activities. NOTE 3 - STOCK OPTION PLANS The Company maintains one stock incentive plan that is flexible and allows various forms of equity incentives to be issued under it. The Company accounts for this plan using the intrinsic value method under the recognition and measurement principles of Accounting Principles Board Opinion ("APB") 25, Accounting for Stock Issued to Employees, and related interpretations. In prior years, the company has recognized compensation cost for restricted stock and restricted stock units to employees. No compensation is recognized for stock option grants to employees. All options granted under the stock incentive plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effects on net income (loss) and income (loss) per share if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, to stock-based compensation. The following table also provides the amount of stock-based compensation cost included in net income (loss) as reported.
THREE MONTHS ENDED MARCH 31, 2002 2003 ------------ ---------- Net income (loss), as reported $ (2,548) $ 1,361 Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related taxes (1,082) (1,065) ----------- ----------- Pro forma net income (loss) $ (3,630) $ 296 =========== =========== Income (loss) per share: Basic-- as reported $ (0.15) $ 0.08 Basic-- pro forma $ (0.21) $ 0.02 Diluted-- as reported $ (0.15) $ 0.08 Diluted-- pro forma $ (0.21) $ 0.02
7 Under the stock incentive plan, 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 the three months ended March 31, 2002 and 2003, respectively: no expected dividend yield; expected volatility of 37 percent in the three months ended March 31, 2002 and 38 percent in the three months ended March 31, 2003; risk-free interest rates of 5.24% in the three months ended March 31, 2002 and 1.70% in the three months ended March 31, 2003; and expected lives of 4-8 years in each quarterly period. The weighted average fair value of options granted in the three months ended March 31, 2002 and in the three months ended March 31, 2003 was $9.56 and $4.63, respectively. NOTE 4 - SPECIAL GENERAL AND ADMINISTRATIVE CHARGES Special general and administrative charges were $1,655,000 for the three months ended March 31, 2002. These charges included costs associated with the NetGenesis and LexiQuest acquisitions, including professional fees of $700,000, severance payments and retention and other bonuses of $250,000, as well as related travel and meeting expenses and other costs of $700,000. No special general and administrative charges were incurred in the three months ended March 31, 2003. NOTE 5 - MERGER-RELATED EXPENSES Merger-related expenses were $1,900,000 for the three months ended March 31, 2002. These expenses included approximately $900,000 for professional fees, approximately $500,000 for merger-related bonuses to employees, and approximately $500,000 of other merger costs. No merger-related expenses were incurred in the three months ended March 31, 2003. NOTE 6 - GOODWILL AND INTANGIBLE ASSETS On January 1, 2002, the Company implemented SFAS No. 142, Goodwill and Other Intangible Assets. Under the provisions of SFAS No. 142, goodwill is no longer subject to amortization over its estimated useful life, but instead is subject to at least annual assessments for impairment by applying a fair-value based test. SFAS No. 142 also requires that an acquired intangible asset be separately recognized if the benefit of the intangible asset is obtained through contractual or other legal rights, or if the asset can be sold, transferred, licensed, rented or exchanged, regardless of the acquirer's intent to do so. Based on an analysis of economic characteristics and how the Company operates its business, the Company concluded it has a single reporting unit. The Company determined that no transitional impairment loss was required at January 1, 2002. The Company's policy is to conduct an impairment test under SFAS No. 142 at December 31 of each year or when other impairment indicators are present. As of December 31, 2002, the Company determined that no impairment loss was required. 8 Intangible asset data are as follows (in thousands):
MARCH 31, -------------------------------------------------- 2002 2003 ----------------------- ------------------------ GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION -------- ------------ -------- ------------ Amortizable intangible assets: Other intangible assets-- AOL/DMS sample $ 15,200 $ (834) $ 15,200 $ (3,965) Other intangible assets-- ISL trademark 400 (130) 400 (170) Unamortizable intangible assets: Goodwill $ 52,572 $ 53,562 Other intangible assets 1,825 1,845 Aggregate amortization expense: For the three months ended March 31, 2002 and 2003 $ 844 $ 844 Estimated amortization expense: For the year ended December 31, 2003 $ 3,799 For the year ended December 31, 2004 4,464 For the year ended December 31, 2005 3,925 For the year ended December 31, 2006 40 For the year ended December 31, 2007 40
9 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. SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
PERCENTAGE OF NET REVENUES --------------------------- THREE MONTHS ENDED MARCH 31, --------------------------- 2002 2003 ---------- ------------- Statement of Operations Data: Net revenues: License fees 43% 39% Maintenance 40% 44% Services 17% 17% --- --- Net revenues 100% 100% Operating expenses: Cost of license and maintenance revenues 12% 8% Sales and marketing 62% 58% Research and development 16% 22% General and administrative 12% 8% Special general and administrative charges 3% -- Merger-related 4% -- Acquired in-process technology -- -- --- --- Operating expenses 109% 96% --- --- Operating income (loss) (9%) 4% --- --- Other income (expense): Net interest and investment income (expense) -- -- Other income (expense) -- -- --- --- Other income (expense) -- -- --- --- Income (loss) before income taxes and minority interest (9%) 4% Income tax expense (benefit) (3%) 1% --- --- Income (loss) before minority interest (6%) 3% Minority interest 1% -- --- --- Net income (loss) (5%) 3% === ====
10 COMPARISON OF THREE MONTHS ENDED MARCH 31, 2002 TO THREE MONTHS ENDED MARCH 31, 2003. Net Revenues. Net revenues decreased 1% from $49,610,000 in the three months ended March 31, 2002 to $49,050,000 in the three months ended March 31, 2003. In 2003 and on a going-forward basis, SPSS will report and discuss its revenues in three categories used by most enterprise software companies: - License fees, representing new sales of the company's tools, applications, and components on a perpetual, annual, or ASP (application services provider) basis; - Maintenance, representing recurring revenues recognized by the company from renewals of maintenance agreements associated with perpetual licenses or renewals of annual licenses; - Services, representing revenues recognized from professional services engagements and training activities. License Fees. Revenue from new software licenses declined 11% from $21,604,000 in the three months ended March 31, 2002 to $19,188,000 in the three months ended March 31, 2003. These results were primarily due to the decrease in demand for high-priced analytical tools, applications, and components, partially offset by an increase in sales of lower-priced statistical analysis tools. New license revenue from SPSS statistical analysis tools increased from higher sales in the corporate, higher education, and state and local government markets in the United States. Several European markets also showed growth, including France, Spain, Sweden, and countries managed through indirect distribution. Revenues from statistical tools declined in the United Kingdom and were flat in other international markets. As a percentage of net revenues, software license revenues decreased from 43% in the three months ended March 31, 2002 to 39% in the three months ended March 31, 2003. Maintenance. Revenue from maintenance agreements and renewals of annual licenses increased by 8% from $19,783,000 in the three months ended March 31, 2002 to $21,427,000 in the three months ended March 31, 2003. This increase was largely attributable to higher renewal rates across almost every SPSS product line, particularly among the installed base using its statistical analysis and business intelligence tools. As a percentage of net revenues, maintenance revenues increased from 40% in the three months ended March 31, 2002 to 44% in the three months ended March 31, 2003. Services. Revenue from professional services engagements, training, and other sources were $8,435,000 in the three months ended March 31, 2003 compared to $8,223,000 in the same period last year. These results reflect a fall off in implementation services associated with the lower number of new licenses signed in the quarter for ShowCase products as well as flat revenues from training and the SPSS Online (AOL) business; partially offset by sizable customer retention and fraud detection consulting engagements completed in the quarter. Cost of license and maintenance revenues. Cost of license and maintenance revenues consists of costs of goods sold, amortization of capitalized software development costs, and royalties paid to third parties. These costs decreased by 35% from $5,848,000 in the three months ended March 31, 2002 to $3,822,000 in the three months ended March 31, 2003. 11 This decrease was due to lower cost of license and maintenance revenues related to the decline in license revenues, lower Hyperion Solutions royalties, lower amortization of acquired technology assets, and a favorable book-to-physical inventory adjustment. As a percentage of net revenues, cost of license and maintenance revenues decreased from 12% in the three months ended March 31, 2002 to 8% in the three months ended March 31, 2003. Sales and marketing. Sales and marketing expenses decreased by 8% from $30,754,000 in the three months ended March 31, 2002 to $28,354,000 in the first three months of 2003. This decrease was primarily due to the reduction in the number of sales and professional services personnel as a result of the restructuring of the Company's field operations implemented in August 2002, partially offset by increases due to changes in foreign currency exchange rates. As a percentage of net revenues, sales and marketing expenses decreased from 62% in the three months ended March 31, 2002 to 58% in the three months ended March 31, 2003. Research and development. Research and development expenses increased 35% from $8,108,000 in the three months ended March 31, 2002 to $10,927,000 in the three months ended March 31, 2003 (net of capitalized internal software development costs of $1,812,000 in the three months ended March 31, 2002 and $1,551,000 in the three months ended March 31, 2003). In the same periods, the Company's expense for amortization of capitalized software and product translations, included in cost of revenues, was $1,639,000 in the three months ended March 31, 2002 and $1,255,000 in the three months ended March 31, 2003. The increase in research and development expenses was primarily due to the addition of LexiQuest(TM) development personnel, and the unfavorable impact of foreign exchange rates. As a percentage of net revenues, research and development expenses were 16% in the three months ended March 31, 2002 and 22% in the three months ended March 31, 2003. General and administrative. General and administrative expenses decreased 34% from $5,960,000 in the three months ended March 31, 2002 to $3,954,000 in the three months ended March 31, 2003. This decrease was primarily due to cost reduction programs associated with the restructuring of the Company's field operations implemented in August 2002 and lower administrative costs related to the integration of the NetGenesis and LexiQuest acquisitions, partially offset by increases due to changes in foreign currency exchange rates. As a percentage of net revenues, general and administrative expenses decreased from 12% in three months ended March 31, 2002 to 8% in the three months ended March 31, 2003. Special general and administrative charges. Special general and administrative charges were $1,655,000 in three months ended March 31, 2002. These charges included costs associated with the NetGenesis and LexiQuest acquisitions, such as professional fees of $700,000, severance payments and retention and other bonuses of $250,000, as well as related travel and meeting expenses and other costs of $700,000. No special general and administrative charges were incurred in the three months ended March 31, 2003. As a percentage of net revenues, special general and administrative expenses were 3% in the three months ended March 31, 2002. Merger-related. Merger-related costs were $1,903,000 in three months ended March 31, 2002. These expenses related to acquisitions completed between October and December 2001 and the LexiQuest acquisition in 2002, and included approximately $900,000 for professional fees, approximately $500,000 for merger-related bonuses paid to employees, and 12 approximately $500,000 for other merger costs. No merger-related costs were incurred in the three months ended March 31, 2003. As a percentage of net revenues, merger-related costs were 4% in the three months ended March 31, 2002. Acquired in-process technology. Acquired in-process technology costs were $150,000 in the three months ended March 31, 2002, related to the LexiQuest acquisition. Net interest and investment income. Net interest and investment income decreased by 97% from $94,000 in the three months ended March 31, 2002 to $3,000 in the three months ended March 31, 2003. The income in 2002 was primarily due to interest earned on short-term investments, partially offset by interest expense incurred on line-of-credit borrowings. The net income in the three months ended March 31, 2003 was due primarily due to interest income of $332,000 due to interest earned on line-of-credit deposits, almost entirely offset by imputed (noncash) interest expense on the merger consideration payable related to the Company's October 2001 transaction with AOL Time Warner and the interest expense related to the financing arrangement with Bank One N.A. Other income. Other income was $7,000 in three months ended March 31, 2002 and $131,000 in the three months ended March 31, 2003. The other income in the three months ended March 31, 2003 was primarily due to gains from foreign currency translations from the weakening of the U.S. dollar against other major currencies, partially offset by the decline in value of U.S. dollar-denominated receivables held overseas. Income tax expense (benefit). The provision for income taxes increased from a benefit of $1,680,000 in the three months ended March 31, 2002 to an expense of $766,000 in the three months ended March 31, 2003. The income tax provision represents an effective tax rate of approximately 36% in both the three month periods ended March 31, 2002 and 2003. 13 LIQUIDITY AND CAPITAL RESOURCES SPSS generated $1,604,000 in cash from operations in the three months ended March 31, 2002 compared to $12,396,000 in the three months ended March 31, 2003. The overall net loss in the three months ended March 31, 2002 was largely the result of noncash charges for increased depreciation and amortization expense. Cash from operations in the three months ended March 31, 2002 came primarily from collections of open accounts receivable of $3,274,000 and an increase in accrued expenses of $1,766,000. These amounts were offset by a reduction of deferred revenues of $1,569,000. Operating results in the three months ended March 31, 2003 benefited from cost reductions related to the restructuring of the Company's field operations implemented in August 2002. This restructuring reduced the SPSS field sales force by 25%, total staff by 7%, and total payroll by 8%. In addition, the Company closed its offices in Miami, Florida, and reduced its facilities in Chicago, Illinois; London, England; Cambridge, Massachusetts; and Point Richmond, California. These and other cost reductions combined with strong collections of open accounts receivable and flat revenues, offset by decreases in accrued expenses related to capital lease obligations, increased the Company's cash from operations to $12,396,000 for the three months ended March 31, 2003. Investing activities reduced cash by $4,265,000 in the three months ended March 31, 2002 and reduced cash by $5,435,000 in the three months ended March 31, 2003. In 2002, cash was primarily used for capital expenditures of $3,374,000 and capitalized software development costs of $3,919,000. SPSS also paid $2,500,000 to acquire LexiQuest and made a scheduled payment of $1,812,500 to AOL. Proceeds of $7,779,000 were received from the maturities and sales of marketable securities. In the three months ended March 31, 2003, $1,165,000 in cash was used for capital expenditures, along with $2,458,000 for capitalized software development costs, and a scheduled payment of $1,812,500 related to the AOL transaction. Cash provided by financing activities was $1,317,000 in the three months ended March 31, 2002 and $336,000 the three months ended March 31, 2003. In the three months ended March 31, 2002, financing activities provided cash of $825,000 from net borrowings under the line-of-credit agreement and proceeds of $492,000 from the issuance of common stock, primarily through the exercise of stock options and employee stock purchases through the employee stock purchase plan. In the three months ended March 31, 2003, financing activities provided proceeds of $336,000 from the issuance of common stock, primarily through the exercise of stock options and employee stock purchases through the employee stock purchase plan. On March 31, 2003, SPSS entered into a four (4) year, $25 million credit facility with Foothill Capital Corporation. This credit facility replaced SPSS's prior banking relationship with Bank One, N.A. The Foothill facility includes a four (4) year term loan in the amount of $10,000,000 and a revolving line of credit. The maximum amount SPSS may borrow under the revolving line of credit portion of the facility will depend upon the value of SPSS's eligible accounts receivable generated within the United States. Additionally, the Company has immediate availability of $2,500,000 under the revolving line of credit. The terms and conditions of the Foothill credit facility are specified in a Loan and Security Agreement, dated as of March 31, 2003, by and between Foothill and SPSS. The term loan portion of the facility bears interest at a rate of 2.5% above prime, with potential future 14 reductions of up to 0.5% in the interest rate based upon SPSS's achievement of specified EBITDA targets. One component of the revolving line of credit will bear interest at a rate of prime plus 3.0%. On the remainder of the revolving line of credit, SPSS may select interest rates of either prime plus 0.25% or LIBOR plus 2.5% with respect to each advance made by Foothill. The term loan of $10,000,000 will be paid down evenly over the four (4) year period (i.e., $2,500,000 per year over the next four years). As a result of the refinancing, $6,000,000 of the Company's line of credit borrowings of $8,500,000 that existed as of December 31, 2002 have been classified as long-term. The Foothill facility requires SPSS to meet certain financial covenants including minimum EBITDA targets and includes additional requirements concerning, among other things, 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. SPSS expects to comply with these covenants for the three months ended March 31, 2003. The facility is secured by all of SPSS's assets located in the United States. ShowCase Corporation, a Minnesota corporation and wholly owned subsidiary of SPSS, and NetGenesis Corp., a Delaware corporation and wholly owned subsidiary of SPSS, have guaranteed the obligations of SPSS under the Loan and Security Agreement. This guaranty is secured by all of the assets of ShowCase and NetGenesis. SPSS intends to fund its future capital needs through operating cash flows and borrowings on our credit facility. 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 at the current level of operations. 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. SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table reflects a summary of SPSS's contractual cash obligations:
LESS THAN TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS ----------------------- ---------- ---------- ------------- United Kingdom mortgage......... $ 804,000 $ 79,000 $ 300,000 $ 267,000 $ 158,000 Litigation settlement........... 595,000 595,000 -- -- -- Notes payable................... 8,500,000 2,500,000 5,000,000 1,000,000 -- Merger consideration-- AOL, undiscounted.................. 16,313,000 7,250,000 9,063,000 -- -- Capital lease commitments....... 30,000 30,000 -- -- --
CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. As such, the Company makes certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company's critical accounting policies include revenue recognition, capitalization of software development costs, impairment of long-lived assets, the estimation of credit losses on accounts receivable and the valuation of deferred tax assets. For a discussion of these critical accounting policies, see "Critical Accounting Policies and Estimates" in the Company's Annual Report on Form 10-K for the year ended December 31, 2002, filed with the Securities and Exchange Commission. INTERNATIONAL OPERATIONS Revenues from international operations were 48% and 55% of total net revenues in the three months ended March 31, 2002 and March 31, 2003, respectively. The percentage differences are the result of revenues increasing at a higher rate in Europe and the Pacific Rim than in the United States compared to the first quarter of 2002, as well as the positive effects of changes in foreign currency exchange rates for the three months ended March 31, 2002 and March 31, 2003. 15 RECENT ACCOUNTING PRONOUNCEMENTS In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. The new Statement amends Statement 133 for decisions made: 1) as part of the Derivatives Implementation Group process that effectively required amendments to Statement 133; 2) in connection with other Board projects dealing with financial instruments; and, 3) regarding implementation issues raised in relation to the application of the definition of a derivative, particularly regarding the meaning of an "underlying" and the characteristics of a derivative that contain financing components. The statement is generally effective for contracts entered into or modified after June 30, 2003 and is to be applied prospectively. The Company is currently reviewing the impact that SFAS No. 149 will have on future results of operations. 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 its borrowing arrangement that bears interest at either the prime rate or the Eurodollar rate. As of March 31, 2003, the Company had $8,500,000 outstanding under this line of credit. A 100 basis point increase in interest rates would result in an additional $85,000 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 currency exchange rates to depreciate immediately and uniformly against the 16 U.S. dollar by 10 percent from levels at March 31, 2003, management expects this would have a materially adverse effect on the Company's financial results. At March 31, 2003, the Company did not have any option contracts outstanding. The Company's derivative instruments do not qualify for hedge accounting treatment under SFAS No. 133. Accordingly, gains and losses related to changes in the fair value of these instruments are recognized in income in each accounting period. ITEM 4. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures SPSS maintains disclosure controls and procedures, which have been designed to ensure that information related to SPSS is recorded, processed, summarized and reported by SPSS on a timely basis. SPSS has reviewed its internal control structure and these disclosure controls and procedures. In connection with the Company's review of its disclosure controls and procedures, SPSS has established a compliance committee that is responsible for accumulating potentially material information regarding SPSS and considering the materiality of this information. The compliance committee (or a subcommittee) is also responsible for making recommendations regarding disclosure and communicating this information to the Company's chief executive officer and chief financial officer to allow timely decisions regarding required disclosure. The SPSS compliance committee is comprised of the Company's senior legal official, principal accounting officer, chief investor relations officer, principal risk management officer, and certain other members of the SPSS senior management. Within 90 days prior to the filing of this report, SPSS's Chief Executive Officer, Jack Noonan, and Chief Financial Officer, Edward Hamburg, with the participation of the compliance committee, carried out an evaluation of the effectiveness of the design and operation of SPSS's disclosure controls and procedures. Based upon this evaluation, Mr. Noonan and Dr. Hamburg concluded that the disclosure controls and procedures of SPSS are effective in causing material information to be recorded, processed, summarized, and reported by management of SPSS on a timely basis and ensuring that the quality and timeliness of public disclosures by SPSS comply with its disclosure obligations under the Securities Exchange Act of 1934. Changes in Internal Controls There were no significant changes in the internal controls of SPSS or in other factors that could significantly affect these internal controls after the date of the most recent evaluation. 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SPSS Inc. has been named as a defendant in a lawsuit filed on December 6, 2002 in the United States District Court for the Southern District of New York, under the caption Basu v. SPSS Inc., et al., Case No. 02CV9694. The complaint alleges that, in connection with the issuance and initial public offering of shares of common stock of NetGenesis Corp., the registration statement and prospectus filed with the Securities and Exchange Commission in connection with the IPO contained material misrepresentations and/or omissions. The alleged violations of the federal securities laws took place prior to the effective date of the merger in which SPSS's acquisition subsidiary merged with and into NetGenesis Corp. NetGenesis Corp. is now a wholly owned subsidiary of SPSS. Other defendants to this action include the former officers and directors of NetGenesis Corp. and the investment banking firms that acted as underwriters in connection with the IPO. The plaintiff is seeking unspecified compensatory damages, prejudgment and post-judgment interest, reasonable attorney fees, experts' witness fees and other costs and any other relief deemed proper by the Court. The Company intends to vigorously defend itself against the claims set forth in the complaint. SPSS may also become party to various claims and legal actions arising in the ordinary course of business. 18 ITEM 5. OTHER INFORMATION It has been determined that SPSS should have filed historical and pro forma financial statements with the Securities and Exchange Commission in connection with the AOL transaction. Until these financial statements are filed, SPSS will not be allowed to file any registration statements with the SEC. In addition, SPSS is not eligible to file a registration statement on Form S-3 for one year after the filing deficiency occurred. Audit Committee and Related Issues In keeping with the new relationships intended to be established between publicly-traded companies and their auditors, the audit committee of SPSS's Board of Directors has complete authority over the selection, direction and compensation of the Company's independent auditors, KPMG LLP. The audit committee also has authority and has developed a procedure to pre-approve all non-audit services provided by KPMG and to monitor auditor independence. During the fiscal quarter ended March 31, 2003, the audit committee did not pre-approve any non-audit services as KPMG did not provide any such services. In addition, the audit committee monitors SPSS's adherence to its corporate compliance program and general corporate policies. 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (Note: Management contracts and compensatory plans or arrangements are identified with a "+" in the following list.)
INCORPORATION EXHIBIT BY REFERENCE NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE) ------- ------------------------------------------------------------------- ---------------- 2.1 Agreement and Plan of Merger among SPSS Inc., SPSS ACSUB, Inc., (1), Ex. 2.1 Clear Software, Inc. and the shareholders named therein, dated September 23, 1996. 2.2 Agreement and Plan of Merger among SPSS Inc., SPSS Acquisition Inc. (2), Annex A and Jandel Corporation, dated October 30,1996. 2.3 Asset Purchase Agreement by and between SPSS Inc. and DeltaPoint, (16), Ex. 2.3 Inc., dated as of May 1, 1997. 2.4 Stock Purchase Agreement among the Registrant, Edward Ross, Richard (3), Ex. 2.1 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, Edward Ross, Richard (3), Ex. 2.2 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 certain (4), Ex. 2.1 Shareholders of Quantime Limited listed on the signature pages thereto, dated November 21, 1997. 2.7 Stock Purchase Agreement by and among Jens Nielsen, Henrik (4), Ex.2.2 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 the (18), Ex. 2.1 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., Surveycraft Pty (20), Ex. 2.9 Ltd. and Jens Meinecke and Microtab Systems Pty Ltd., dated as of November 1, 1998.
20 2.10 Stock Acquisition Agreement by and among SPSS Inc., Vento Software, (21), Ex. 2.1 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, (24), Ex. 2.11 S.A., dated as of December 23, 1999. 2.12 Agreement and Plan of Merger dated as of November 6, 2000, among (25), Ex. 2.1 SPSS Inc., SPSS Acquisition Sub Corp., and ShowCase Corporation. 2.13 Agreement and Plan of Merger dated as of October 28, 2001, among (29), Ex. 99.1 SPSS Inc., Red Sox Acquisition Corp. and NetGenesis Corp. 2.14 Stock Purchase Agreement by and among SPSS Inc., LexiQuest, S.A. (33), Ex. 2.14 and the owners of all of the issued and outstanding shares of capital stock of LexiQuest, S.A., dated as of January 31, 2002. 3.1 Certificate of Incorporation of SPSS. (5), Ex. 3.2 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 Prentice Hall. (6), Ex. 10.5 10.4 Intentionally omitted. 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 Company and Banta (14), Ex. 10.19 Global Turnkey.
21 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 SPSS. (17), Ex. 10.22 10.21 Second Amended and Restated 1995 Equity Incentive Plan.+ (19), Ex. A 10.22 1998 Bonus Compensation.+ (20), Ex. 10.23 10.23 Third Amended and Restated 1995 Equity Incentive Plan.+ (22), Ex. 10.1 10.24 Intentionally omitted. 10.25 Intentionally omitted. 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 SPSS Inc. and Siebel (28), Ex. 10.31 Systems, Inc. 10.32 1999 Employee Equity Incentive Plan.+ (30), Ex. 4.1 10.33 Stock Purchase Agreement by and between SPSS Inc. and (31), Ex. 10.33 America Online, Inc. 10.34 Strategic Online Research Services Agreement by and between SPSS (32), Ex. 99.1 Inc. and America Online, Inc.* 10.35 SPSS Inc. 2002 Equity Incentive Plan+ (34), Ex. 4.1 10.36 Intentionally omitted. 10.37 Intentionally omitted. 10.38 Intentionally omitted.
22 10.39 Intentionally omitted. 10.40 Intentionally omitted. 10.41 Intentionally omitted. 10.42 Service Agreement dated March 17, 1998, amended as of January 1, (37), Ex. 10.41 2002, by and between SPSS Inc. (as successor by merger to ShowCase Corporation) and Patrick Dauga. 10.43 Loan and Security Agreement, dated as of March 31, 2003, by and (37), Ex. 10.41 between SPSS Inc. and each of SPSS's subsidiaries that may become additional borrowers, as Borrower, and Foothill Capital Corporation, as Lender. 99.1 Certification of the Chief Executive Officer and President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
---------- * Portions of this Exhibit are omitted and have been filed separately with the Securities and Exchange Commission pursuant to Rule 406 promulgated under the Securities Act of 1933. (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) 23 (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) (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) Intentionally omitted. (24) Previously filed with Form 10-K Annual Report of SPSS Inc. for the year ended December 21, 1999. (File No. 000-22194). 24 (25) Previously filed with SPSS Inc.'s Form 8-K, filed November 15, 2000. (File No. 000-22194). (26) Previously filed with the Form S-4 Registration Statement of SPSS Inc., filed on December 19, 2000. (File No. 333-52216) (27) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 2000. (File No. 000-22194) (28) Previously filed 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 on October 29, 2001. (File No. 000-22194) (30) Previously filed with the Form S-8 Registration Statement of SPSS Inc. filed on September 15, 2000. (File No. 333-45900) (31) Previously filed with the Form S-3 Registration Statement of SPSS Inc. filed on December 12, 2001. (File No. 333-74944) (32) Previously filed with SPSS Inc. Report on Form 8-K/A (Amendment No. 1) filed on December 12, 2001. (File No. 000-22194) (33) Previously filed with SPSS Inc. Report on Form 8-K, dated February 6, 2002, filed on February 21, 2002. (File No. 000-22194) (34) Previously filed with the Form S-8 Registration Statement of SPSS Inc. filed on June 18, 2002. (File No. 333-90694) (35) Intentionally omitted. (36) Intentionally omitted. (37) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 2002. (File No. 000-22194) (b) SPSS filed the following reports on Form 8-K during the three months ended March 31, 2003: The current report of SPSS Inc. on Form 8-K, dated April 30, 2003, filed with the SEC on May 2, 2003. In accordance with the new rules issued by the SEC, the Form 8-K reported that SPSS had issued a press release announcing its results for its fiscal quarter ended March 31, 2003 and attached a copy of this press release as an exhibit. The report also described certain non-GAAP financial measures included in the press release. The current report of SPSS Inc. on Form 8-K, dated April 30, 2003, filed with the SEC on May 5, 2003. In accordance with the new rules issued by the SEC, the Form 8-K reported that SPSS had held its First Quarter 2003 Earnings Release Conference Call on April 30, 2003. The Form 8-K attached a transcript of the conference call as an exhibit because SPSS's Form 8-K filed with the SEC on May 2, 2003 was not filed with the SEC before the commencement of the conference call. 25 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: May 15, 2003 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: May 15, 2003 By: /s/ EDWARD HAMBURG ---------------------------------------- Edward Hamburg Executive Vice President, Corporate Operations and Chief Financial Officer 26 CERTIFICATION I, Jack Noonan, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SPSS Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2003 By: /s/ JACK NOONAN ---------------------------------------- Jack Noonan President and Chief Executive Officer 27 CERTIFICATION I, Edward Hamburg, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SPSS Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a. designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c. presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a. all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: May 15, 2002 By: /s/ EDWARD HAMBURG --------------------------------------- Edward Hamburg Executive Vice President, Corporate Operations and Chief Financial Officer 28 SPSS INC. EXHIBIT INDEX Exhibit No. Description ------ ----------- 99.1 Certification of Chief Executive Officer and President pursuant to 18 U.S.C. ss1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. ss1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 29