-----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, NPGPjL6wsMEQ7CG30P/aBkoKJ88PYX5iOrr/rvHohI4idHIPrIo119G1CrYF0ZMG iHgaavAu0f9GWxN6CY9qiw== 0000950137-03-005797.txt : 20031110 0000950137-03-005797.hdr.sgml : 20031110 20031110171647 ACCESSION NUMBER: 0000950137-03-005797 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031110 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: 03989462 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 c80779e10vq.txt QUARTERLY REPORT FOR PERIOD END SEPTEMBER 30, 2003 ================================================================================ 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, 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 X NO --- --- INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN EXCHANGE ACT RULE 12b-2.) YES X NO --- --- AS OF OCTOBER 31, 2003, THERE WERE 17,387,046 SHARES OF COMMON STOCK OUTSTANDING, PAR VALUE $.01, OF THE REGISTRANT. SPSS INC. FORM 10-Q QUARTER ENDED SEPTEMBER 30, 2003 INDEX
PART I - FINANCIAL INFORMATION PAGE ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2002 (AUDITED) AND SEPTEMBER 30, 2003 (UNAUDITED) 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) AND 2003 (UNAUDITED) 4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2002 (UNAUDITED) AND 2003 (UNAUDITED) 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22 ITEM 4. CONTROLS AND PROCEDURES 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 24 ITEM 5. OTHER INFORMATION 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 25
2 ITEM 1. FINANCIAL STATEMENTS SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30, 2002 2003 ------------ ------------- ASSETS (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 15,589 $ 22,910 Accounts receivable, net of allowances 49,917 43,191 Inventories, net of allowances 2,775 2,558 Other current assets 28,108 27,011 --------- --------- Total current assets 96,389 95,670 --------- --------- Property, equipment, and leasehold improvements, at cost 96,990 99,391 Less accumulated depreciation and amortization 59,360 65,901 --------- --------- Net property, equipment, and leasehold improvements 37,630 33,490 --------- --------- Restricted cash 1,594 200 Capitalized software development costs, net of accumulated amortization 27,629 29,616 Goodwill, net of accumulated amortization 53,560 53,560 Intangibles, net of accumulated amortization 14,153 11,622 Other noncurrent assets 17,781 14,919 --------- --------- Total assets $ 248,736 $ 239,077 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 2,500 $ 2,500 Accounts payable 11,764 8,677 Merger consideration 7,250 7,250 Other accrued liabilities 27,138 19,155 Income taxes and value added taxes payable 6,680 6,137 Deferred revenues 43,603 40,176 --------- --------- Total current liabilities 98,935 83,895 --------- --------- Noncurrent notes payable 6,000 6,458 Noncurrent merger consideration 11,484 6,671 Other noncurrent liabilities 781 728 STOCKHOLDERS' EQUITY: Common Stock, $.01 par value; 50,000,000 shares authorized; 17,214,515 and 17,375,259 shares issued and outstanding in 2002 and 2003, respectively 172 174 Additional paid-in capital 147,926 149,426 Accumulated other comprehensive loss (2,981) (1,651) Accumulated deficit (13,581) (6,624) --------- --------- Total stockholders' equity 131,536 141,325 --------- --------- Total liabilities and stockholders' equity $ 248,736 $ 239,077 ========= =========
See accompanying notes to consolidated financial statements. 3 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ---------------------- ----------------------------- 2002 2003 2002 2003 -------- -------- --------- --------- Net revenues: License fees $ 21,809 $ 21,483 $ 66,111 $ 62,708 Maintenance 22,216 22,397 62,830 64,765 Services 8,641 8,227 26,328 25,011 -------- -------- --------- --------- Total net revenues 52,666 52,107 155,269 152,484 -------- -------- --------- --------- Operating expenses: Cost of license and maintenance revenues 4,185 4,040 15,452 11,802 Cost of license and maintenance revenues - software write-offs 5,751 -- 5,751 -- Sales, marketing, and services 30,567 28,287 91,948 84,730 Research and development 11,322 10,537 31,424 32,463 General and administrative 3,063 4,691 13,407 13,264 Special general and administrative 4,663 -- 7,855 -- Merger-related -- -- 2,260 -- Illumitek shut-down charges 518 -- 518 -- Acquired in-process technology -- -- 150 -- -------- -------- --------- --------- Operating expenses 60,069 47,555 168,765 142,259 -------- -------- --------- --------- Operating income (loss) (7,403) 4,552 (13,496) 10,225 -------- -------- --------- --------- Other income (expense): Net interest income (expense) (36) (349) 16 (735) Other income 225 1,031 1,104 1,378 -------- -------- --------- --------- Other income (expense) 189 682 1,120 643 -------- -------- --------- --------- Income (loss) before income taxes and minority interest (7,214) 5,234 (12,376) 10,868 Income tax expense (benefit) (2,897) 1,883 (4,755) 3,911 -------- -------- --------- --------- Income (loss) after income taxes before minority interest (4,317) 3,351 (7,621) 6,957 Minority interest -- -- 497 -- Net income (loss) $ (4,317) $ 3,351 $ (7,124) $ 6,957 ======== ======== ========= ========= Basic net income (loss) per share $ (0.26) $ 0.19 $ (0.42) $ 0.40 ======== ======== ========= ========= Diluted net income (loss) per share $ (0.26) $ 0.19 $ (0.42) $ 0.39 ======== ======== ========= ========= Share data: Shares used in basic per share computation 16,840 17,331 16,791 17,276 ======== ======== ========= ========= Shares used in diluted per share computation 16,840 18,058 16,791 17,797 ======== ======== ========= =========
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, ----------------------------- ----------------------------- 2002 2003 2002 2003 --------- --------- --------- --------- Net income (loss) $ (4,317) $ 3,351 $ (7,124) $ 6,957 Other comprehensive income (net of tax): Foreign currency translation adjustment 992 1,057 3,491 1,330 Unrealized holding gain on marketable securities -- -- 11 -- --------- --------- --------- --------- Comprehensive income (loss) $ (3,325) $ 4,408 $ (3,622) $ 8,287 ========= ========= ========= =========
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, --------------------------- 2002 2003 -------- -------- Cash flows from operating activities: Net income (loss) $ (7,124) $ 6,957 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 13,039 13,652 Deferred income taxes (6,851) 824 Write-off of software costs 5,751 -- Illumitek shut-down charges 518 -- Write-off of acquired technology 150 -- Changes in assets and liabilities, net of impact of acquisitions: Accounts receivable 12,206 7,981 Inventories 497 233 Restricted cash 528 1,394 Accounts payable (1,247) (3,265) Accrued expenses (3,322) (8,599) Accrued income taxes (1,424) (846) Deferred revenues (9,374) (3,669) Other (4,851) 4,113 -------- -------- Net cash provided by (used in) operating activities (1,504) 18,775 -------- -------- Cash flows from investing activities: Capital expenditures (9,611) (1,934) Capitalized software development costs (7,173) (6,769) Consideration for AOL transaction (5,438) (5,438) Consideration for LexiQuest (2,500) -- Consideration for netExs (1,000) -- Proceeds from maturities and sales of marketable securities 9,792 -- Other investing activity (497) -- -------- -------- Net cash used in investing activities (16,427) (14,141) -------- -------- Cash flows from financing activities: Net borrowings under line-of-credit agreements 10,329 458 Proceeds from issuance of common stock 1,199 1,502 Other financing activity 11 -- -------- -------- Net cash provided by financing activities 11,539 1,960 -------- -------- Effect of exchange rate on cash 1,544 727 -------- -------- Net change in cash and cash equivalents (4,848) 7,321 Cash and cash equivalents at beginning of period 21,400 15,589 -------- -------- Cash and cash equivalents at end of period $ 16,552 $ 22,910 ======== ======== Supplemental disclosures of cash flow information: Interest paid $ 441 $ 637 Income taxes paid 4,324 6,311 Cash received from income tax refunds 2,389 2,514
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 the Company's audited consolidated financial statements and notes thereto for the year ended December 31, 2002, included in the SPSS Annual Report on Form 10-K filed with the Securities and Exchange Commission. NOTE 2 - RECLASSIFICATIONS Effective in the first quarter of 2003, SPSS began reporting revenues in three categories used by most enterprise software companies: o License fees, representing new sales of the Company's tools, applications, and components on a perpetual, annual, or ASP (applications services provider) basis; o Maintenance, representing recurring revenues recognized by the Company from renewals of maintenance agreements associated with perpetual licenses or renewals of annual licenses; o Services, representing revenues recognized from professional services engagements, training, and other activities such as publication sales and providing respondents to online surveys. SPSS has reclassified prior period revenue to conform to this new reporting classification. NOTE 3 - EARNINGS PER COMMON SHARE Earnings per common share (EPS) are computed by dividing net income by the weighted average number of shares of common stock (basic) plus common stock equivalents outstanding (diluted) during the period. Common stock equivalents consist of contingently issuable shares and stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method. Basic weighted average shares reconciles to diluted weighted average shares as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2002 2003 2002 2003 ------ ------ ------ ------ Basic weighted average common shares outstanding 16,840 17,331 16,791 17,276 Dilutive effect of stock options and contingently issuable shares -- 727 -- 521 ------ ------ ------ ------ Diluted weighted average common shares outstanding 16,840 18,058 16,791 17,797 ====== ====== ====== ======
7 In 2002, potentially dilutive securities excluded from the earnings per share calculation due to the Company's net loss position consisted of contingently issuable shares and stock options of 985,000 and 1,030,000 for the three and nine months ended September 30, 2002 respectively. NOTE 4 - 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, as 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 net 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.
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2002 2003 2002 2003 ---------- ---------- ---------- ---------- Net income (loss), as reported $ (4,317) $ 3,351 $ (7,124) $ 6,957 Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related taxes (1,158) (1,406) (3,954) (4,112) ---------- ---------- ---------- ---------- Pro forma net income (loss) $ (5,475) $ 1,945 $ (11,078) $ 2,845 ========== ========== ========== ========== Net income (loss) per share: Basic -- as reported $ (0.26) $ 0.19 $ (0.42) $ 0.40 Basic -- pro forma $ (0.33) $ 0.11 $ (0.66) $ 0.16 Diluted -- as reported $ (0.26) $ 0.19 $ (0.42) $ 0.39 Diluted -- pro forma $ (0.33) $ 0.11 $ (0.66) $ 0.16
NOTE 5 - DOMESTIC AND FOREIGN OPERATIONS Net revenues per geographic region are summarized as follows:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- ------------------------------- 2002 2003 2002 2003 -------- -------- -------- -------- United States $ 29,208 $ 29,736 $ 82,491 $ 78,177 United Kingdom 7,148 6,835 20,403 19,670 Other 16,310 15,536 52,375 54,637 -------- -------- -------- -------- Total $ 52,666 $ 52,107 $155,269 $152,484 ======== ======== ======== ========
8 NOTE 6 - SOFTWARE WRITE-OFF AND ILLUMITEK SHUT-DOWN CHARGES Cost of license and maintenance revenues - software write-offs were $5,751,000 in the three months ended September 30, 2002. These write-offs include $4,151,000 for the write-down of the Illumitek Inc. technology as part of the related shut-down costs and a $1,600,000 write-off of technology acquired in the AOL transaction due to its replacement with SPSS technology. Illumitek was a non-core investment of SPSS Inc. SPSS incurred shut-down costs, asset write-offs and other charges of $518,000 in the three months ended September 30, 2002, related to the termination of its investment in Illumitek Inc. Of that sum, approximately $500,000 represented cash expenditures to liquidate the operations. No software write-offs were incurred in the three and nine month periods ended September 30, 2003. NOTE 7 - SPECIAL GENERAL AND ADMINISTRATIVE CHARGES Special general and administrative charges were $4,663,000 in the three months ended September 30, 2002 and $7,855,000 in the nine months ended September 30, 2002. In the nine months ended September 30, 2002, these charges were associated with the acquisitions of NetGenesis and LexiQuest and included restructuring charges and other charges that did not meet the definition of "merger-related" costs under established guidelines. Restructuring charges included professional fees of approximately $1,922,000, severance payments as well as retention and other bonuses of approximately $3,999,000 and lease cancellation charges of approximately $615,000. The Company also incurred travel, meeting, and other costs of approximately $1,319,000 that did not meet the definition of "merger-related" costs under established guidelines. No special general and administrative charges were incurred in the three and nine month periods ended September 30, 2003. NOTE 8 - MERGER-RELATED EXPENSES Merger-related costs were $2,260,000 in the nine months ended September 30, 2002. Merger-related expenses were associated with the NetGenesis and netExs acquisitions, including $1,464,000 of severance and merger-related employee bonuses, $596,000 of professional fees, and $200,000 of other costs. No merger-related costs were incurred in the nine months ended September 30, 2003. 9 NOTE 9 - SUBSEQUENT EVENTS On October 14, 2003, the Company entered into a new agreement with AOL, effective as of October 1, 2003. Under this new agreement, SPSS retains exclusive rights to provide researchers with survey respondents drawn from the millions of Opinionplace.com visitors throughout AOL's interactive properties. The primary amendments reduce the remaining term of the agreement from two years to one year and make the following adjustments to the financial obligations of SPSS to AOL (dollars in millions):
NEW ORIGINAL AGREEMENT AGREEMENT ---------------------------------------------------------------- Total Paid Remaining Remaining Obligations Obligations Obligations Obligations ----------- ----------- ----------- ----------- Cash payments $ 30.0 $ 15.5 $ 14.5 $ 4.4 Stock payments $ 12.0 $ 6.0 $ 6.0 $ 0
Other provisions specify conditions for subsequent extensions of the agreement, enable stronger joint management oversight, strengthen SPSS marketing efforts, and improve the experience of survey participants. As a result of the new agreement, SPSS will adjust its preliminary purchase accounting related to the transaction to reflect the adjusted consideration in the fourth quarter of 2003. The new agreement will result in the following adjustments to the SPSS consolidated balance sheet: o In current liabilities, a reduction of merger consideration of $2.9 million; o In non-current liabilities, a reduction in merger consideration of $6.7 million; o In additional paid-in capital, a reduction of $6 million; o In intangible assets, a reduction of $5.2 million; and o In goodwill, a reduction of $10.4 million. The new agreement does not change the SPSS consolidated statement of operations for the three and nine month periods ending on September 30, 2003. The new agreement between SPSS and AOL replaces the original one concluded between the parties on October 22, 2001. SPSS acquired certain operating assets and the exclusive rights to distribute survey respondents drawn from the millions of Opinion Place.com visitors by AOL's Digital Marketing Services ("DMS") subsidiary. AOL agreed to provide SPSS with potential online survey respondents under tightly managed rules, as well as transfer to SPSS the software and other assets essential to operating the business. 10 SPSS, through SPSS International BV, its wholly owned subsidiary, acquired Data Distilleries, a Netherlands-based developer of analytic applications. The terms and conditions of the acquisition are specified in a Stock Purchase Agreement, dated as of November 1, 2003, by and among SPSS, SPSS International B.V. and the owners of all of the issued and outstanding shares of the capital stock of Data Distilleries. The aggregate purchase price for all of the issued and outstanding capital stock of Data Distilleries consists of guaranteed and contingent payments. The guaranteed portion of the purchase price was paid at closing and consisted of a payment of $1.0 million in cash and 281,830 shares of SPSS common stock valued at $5.4 million for purposes of this transaction. The contingent portion which will be paid, if at all, at the end of the first and second years following the closing, may total up to $4.1 million at current approximate exchange rates. The Company's obligation to make the contingent payments will depend on the achievement of certain growth targets for license and maintenance revenues from the Data Distilleries applications. Additional information on this transaction will be available in the Form 8-K to be filed by SPSS with the United States Securities Exchange Commission. NOTE 10 - RECENT ACCOUNTING PRONOUNCEMENTS In November 2002, the FASB reached a consensus on EITF Issue 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" (the Issue). The guidance in this Issue is effective for revenue arrangements entered into for fiscal periods beginning after June 15, 2003. The Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, the Issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one earnings process and, if it does, how to divide the arrangement into separate units of accounting consistent with the identified earnings processes for revenue recognition purposes. The Issue also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. The implementation of EITF 00-21 did not have a material impact to the Company on its financial position and results of operations as of and for the three and nine month periods ended September 30, 2003. 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 implementation of SFAS No. 149 did not have a material impact to the Company on its financial position and results of operations as of and for the three and nine month periods ended September 30, 2003. 11 In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of SFAS No. 150 did not have a material impact to the Company on its financial position and results of operations as of and for the three and nine month periods ended September 30, 2003. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Results of Operations The following table shows select statements of operations data as a percentage of net revenues for the periods indicated. SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
PERCENTAGE OF NET REVENUES ---------------------------------------------------------- THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- 2002 2003 2002 2003 ----- ----- ----- ----- Net revenues: License fees 42% 41% 43% 41% Maintenance 42% 43% 40% 42% Services 16% 16% 17% 17% ----- ----- ----- ----- Net revenues 100% 100% 100% 100% ----- ----- ----- ----- Operating expenses: Cost of license and maintenance revenues 8% 8% 10% 8% Cost of license and maintenance revenues - software write-offs 11% -- 4% -- Sales, marketing, and services 58% 54% 59% 55% Research and development 21% 20% 20% 21% General and administrative 6% 9% 9% 9% Special general and administrative 9% -- 5% -- Merger-related -- -- 2% -- Illumitek shut-down charges 1% -- -- -- Acquired in-process technology -- -- -- -- ----- ----- ----- ----- Operating expenses 114% 91% 109% 93% ----- ----- ----- ----- Operating income (loss) (14)% 9% (9)% 7% ----- ----- ----- ----- Other income (expense): Net interest income (expense) -- -- -- -1% Other income -- 1% 1% 1% ----- ----- ----- ----- Other income (expense) -- 1% 1% -- ----- ----- ----- ----- Income (loss) before income taxes and minority interest (14)% 10% (8)% 7% Income tax expense (benefit) (6)% 4% (3)% 2% ----- ----- ----- ----- Income (loss) after income taxes and before minority interest (8)% 6% (5)% 5% Minority interest -- -- -- -- ----- ----- ----- ----- Net income (loss) (8)% 6% (5)% 5% ===== ===== ===== =====
13 COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2002 TO THREE MONTHS ENDED SEPTEMBER 30, 2003. Net Revenues. Net revenues decreased 1% from $52,666,000 in the three months ended September 30, 2002 to $52,107,000 in the three months ended September 30, 2003. Effective in the first quarter 2003, SPSS began reporting its revenues in the following three categories used by most enterprise software companies. o License fees, representing new sales of the Company's tools, applications, and components on a perpetual, annual, or ASP (application services provider) basis; o Maintenance, representing recurring revenues recognized by the Company from renewals of maintenance agreements associated with perpetual licenses or renewals of annual licenses; o Services, representing revenues recognized from professional services engagements, training, and other activities such as publication sales and providing respondents to online surveys. SPSS has reclassified prior period revenues to conform to this new reporting classification. License Fees. Revenue from new software licenses declined 1% from $21,809,000 in the three months ended September 30, 2002 to $21,483,000 in the three months ended September 30, 2003. As a percentage of net revenues, software license revenues decreased from 42% in the three months ended September 30, 2002 to 41% in the three months ended September 30, 2003. This decrease was primarily due to lower sales of desktop products for scientific analysis, the impact of a decline in new sales of certain discontinued products, and declines in revenues from the Company's NetGenesis web analytics application and ShowCase business intelligence tools. Partially offsetting this decline were higher sales of SPSS data mining tools, applications for market research, and desktop statistical analysis tools, as well as changes in currency exchange rates. Maintenance. Revenue from maintenance agreements and renewals of annual licenses increased by 1% from $22,216,000 in the three months ended September 30, 2002 to $22,397,000 in the three months ended September 30, 2003. As a percentage of net revenues, maintenance revenues increased from 42% in the three months ended September 30, 2002 to 43% in the three months ended September 30, 2003. This increase was due to steady renewal rates for the Company's major offerings as well as changes in currency exchange rates. Services. Revenue from professional services engagements and training decreased by 5% from $8,641,000 in the three months ended September 30, 2002 to $8,227,000 in the three months ended September 30, 2003. This decrease was primarily due to the decline in implementation services associated with the lower number of new licenses of ShowCase products as well as a decline in training revenues. Revenues from the SPSS Online (AOL) business were up sequentially and compared to the three months ended September 30, 2002. As a percentage of net revenues, services revenues were constant at 16% in both the three month periods ended September 30, 2002 and September 30, 2003. 14 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. Cost of license and maintenance revenues decreased 3% from $4,185,000 in the three months ended September 30, 2002 to $4,040,000 in the three months ended September 30, 2003. This decrease was due to the decline in license revenues, lower Hyperion Solutions royalties and lower amortization of acquired technology assets. As a percentage of net revenues, cost of license and maintenance revenues were constant at 8% in both the three month periods ended September 30, 2002 and September 30, 2003. Cost of License and Maintenance Revenues - Software Write-offs. Cost of revenues for software write-offs was $5,751,000 in the three months ended September 30, 2002, and 11% of net revenues. These write-offs included $4,151,000 for the write-down of the Illumitek technology as part of the Illumitek shutdown and $1,600,000 for the write-off of technology acquired in the AOL transaction due to its replacement with SPSS technology. No cost of revenues for software write-offs were incurred in the three months ended September 30, 2003. Sales, Marketing, and Services. Sales, marketing, and services expenses decreased 7% from $30,567,000 in the three months ended September 30, 2002 to $28,287,000 in the three months ended September 30, 2003. As a percentage of net revenues, sales, marketing and services expenses decreased from 58% in the three months ended September 30, 2002 to 54% in the three months ended September 30, 2003. This decrease was primarily due to the reduction in the number of sales and professional services personnel as a result of the field reorganization implemented in August 2002, partially offset by increases due to changes in foreign currency exchange rates. Research and Development. Research and development expenses decreased by 7% from $11,322,000 in the three months ended September 30, 2002 to $10,537,000 in the three months ended September 30, 2003. As a percentage of net revenues, research and development expenses were 21% in the three months ended September 30, 2002 and 20% in the three months ended September 30, 2003. This decrease in research and development expenses was primarily due to the reduction in the number of LexiQuest development personnel and lower consulting costs for internal software development projects, partially offset by increases due to changes in currency foreign exchange rates. General and Administrative. General and administrative expenses increased by 53% from $3,063,000 in the three months ended September 30, 2002 to $4,691,000 in the three months ended September 30, 2003. As a percentage of net revenues, general and administrative expenses increased from 6% in three months ended September 30, 2002 to 9% in the three months ended September 30, 2003. This increase was primarily due to the addition of finance professionals and costs associated with further ensuring and monitoring compliance with the Sarbanes-Oxley Act and changes in foreign currency rates. 15 Special General and Administrative. Special general and administrative were $4,663,000 in the three months ended September 30, 2002 and 9% of net revenues. These charges were associated with the acquisition of NetGenesis and LexiQuest and included restructuring charges and other charges that did not meet the definition of "merger-related" costs under established guidelines. Restructuring charges included professional fees of approximately $704,000, severance payments as well as retention and other bonuses of approximately $2,307,000 and lease cancellation charges of approximately $615,000. The Company also incurred other costs of approximately $1,037,000 that did not meet the definition of "merger-related" costs under established guidelines. No special general and administrative charges were incurred in the three months ended September 30, 2003. Illumitek Shut-down Charges. Illumitek shut-down charges were $518,000 in the three months ended September 30, 2002 and 1% of net revenues. These costs related to asset write-offs and other shut-down costs related to the termination of the Company's investment in Illumitek. No Illumitek shut-down charges were incurred in the three months ended September 30, 2003. Net Interest Income (Expense). Net interest expense increased from $36,000 in the three months ended September 30, 2002 to $349,000 in the three months ended September 30, 2003. This increase was primarily due to higher net debt levels and imputed interest related to the Company's transaction with AOL. Other Income. Other income was $225,000 in the three months ended September 30, 2002 and $1,031,000 in the three months ended September 30, 2003. This increase was primarily due to higher gains from foreign currency transactions. Income Tax Expense (Benefit). The provision for income taxes increased from a net benefit of $2,897,000 in the three months ended September 30, 2002 to a tax expense of $1,883,000 in the three months ended September 30, 2003. This increase resulted from the increase in pre-tax income. The income tax provision represents an effective tax rate of approximately 40% and 36% in 2002 and 2003, respectively. The 2002 effective tax rate was impacted by a $300,000 adjustment to the tax valuation reserve related to the net operating loss carryforward generated by the pre-merger ShowCase operations. COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2002 TO NINE MONTHS ENDED SEPTEMBER 30, 2003. Net Revenues. Net revenues decreased by 2% from $155,269,000 in the nine months ended September 30, 2002 to $152,484,000 in the nine months ended September 30, 2003. License Fees. Revenue from new software licenses declined 5% from $66,111,000 in the nine months ended September 30, 2002 to $62,708,000 in the nine months ended September 30, 2003. This decrease was primarily due to lower sales of desktop products for scientific analysis, the impact of a decline in new sales of certain discontinued products, and declines in revenues from the Company's ShowCase business intelligence tools. Partially offsetting this decline were higher sales of SPSS data mining and statistical analysis tools, as well as changes in currency exchange rates. As a percentage of net revenues, software license revenues decreased from 43% in the nine months ended September 30, 2002 to 41% in the nine months ended September 30, 2003. 16 Maintenance. Revenue from maintenance agreements and renewals of annual licenses increased by 3% from $62,830,000 in the nine months ended September 30, 2002 to $64,765,000 in the nine months ended September 30, 2003. As a percentage of net revenues, maintenance revenues increased from 40% in the nine months ended September 30, 2002 to 42% in the nine months ended September 30, 2003. This increase was due to steady renewal rates for the Company's major offerings as well as changes in currency exchange rates. Services. Revenue from professional service engagements and training decreased by 5% from $26,328,000 in the nine months ended September 30, 2002 to $25,011,000 in the nine months ended September 30, 2003. This decrease was primarily due to the decline in implementation services associated with the lower number of new licenses of ShowCase products as well as a decline in training revenues. Revenues from the SPSS Online (AOL) business remained relatively constant in the nine months ended September 30, 2003, compared to the comparable period of the prior year. As a percentage of net revenues, services revenues remained constant at 17% in both the nine month periods ended September 30, 2002 and September 30, 2003. 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. Cost of license and maintenance revenues decreased 24% from $15,452,000 in the nine months ended September 30, 2002 to $11,802,000 in the nine months ended September 30, 2003. The decrease was due to the decline in license revenues, lower Hyperion Solutions royalties, and lower amortization of acquired technology assets. As a percentage of net revenues, cost of license and maintenance revenues decreased from 10% in the nine months ended September 30, 2002 to 8% in the nine months ended September 30, 2003. Cost of License and Maintenance Revenues - Software Write-offs. Cost of revenues for software write-offs was $5,751,000 in the nine months ended September 30, 2002, and 4% of net revenues. These write-offs included $4,151,000 for the write-down of the Illumitek technology as part of the Illumitek shutdown and $1,600,000 for the write-off of technology acquired in the AOL transaction due to its replacement with SPSS technology. No cost of revenues for software write-offs were incurred in the nine months ended September 30, 2003. Sales, Marketing, and Services. Sales, marketing, and services expenses decreased 8% from $91,948,000 in the nine months ended September 30, 2002 to $84,730,000 in the nine months ended September 30, 2003. As a percentage of net revenues, sales, marketing, and services expenses decreased from 59% in the nine months ended September 30, 2002 to 55% in the nine months ended September 30, 2003. This decrease was primarily a result of the reduction in the number of sales and professional services personnel as a result of the field reorganization implemented in August 2002, partially offset by increases due to changes in foreign currency exchange rates. 17 Research and Development. Research and development expenses increased by 3% from $31,424,000 in the nine months ended September 30, 2002 to $32,463,000 in the nine months ended September 30, 2003. As a percentage of net revenues, research and development expenses were 20% in the nine months ended September 30, 2002 and 21% in the nine months ended September 30, 2003. This increase in research and development expenses is primarily due to the addition of LexiQuest development personnel and changes in currency exchange rates, partially offset by subsequent reductions in the number of LexiQuest developers and lower consulting costs for internal software development projects. General and Administrative. General and administrative expenses decreased by 1% from $13,407,000 in the nine months ended September 30, 2002 to $13,264,000 in the nine months ended September 30, 2003. This decrease was primarily due to cost reduction programs associated with the field reorganization implemented in August 2002 and lower administrative costs associated with the NetGenesis and LexiQuest acquisitions, partially offset by the addition of finance professionals, costs related to further ensuring and monitoring compliance with the Sarbanes-Oxley Act and changes in foreign currency rates. As a percentage of net revenues, general and administrative expenses remained unchanged at 9% in both the nine month periods ended September 30, 2002 and September 30, 2003. Special General and Administrative. Special general and administrative charges were $7,855,000 in nine months ended September 30, 2002 and 5% of net revenues. These charges were associated with the acquisitions of NetGenesis and LexiQuest and included restructuring charges and other charges that did not meet the definition of "merger-related" costs under established guidelines. Restructuring charges included professional fees of approximately $1,922,000, severance payments as well as retention and other bonuses of approximately $3,999,000 and lease cancellation charges in closing the Miami office of approximately $615,000. The Company also incurred other costs of approximately $1,319,000 that did not meet the definition of "merger-related" costs under established guidelines. No special general and administrative charges were incurred in the nine months ended September 30, 2003. Merger-related Costs. Merger-related costs were $2,260,000 in the nine months ended September 30, 2002 and 2% of net revenues. Merger-related expenses were associated with the NetGenesis and netExs acquisitions, including $1,464,000 of severance and merger-related employee bonuses, $596,000 of professional fees, and $200,000 of other costs. No merger-related costs were incurred in the nine months ended September 30, 2003. Illumitek Shut-down Charges. Illumitek shut-down charges were $518,000 in the nine months ended September 30, 2002. These costs related to asset write-offs and other shut-down costs related to the termination of the Company's investment in Illumitek. No Illumitek shut-down charges were incurred in the nine months ended September 30, 2003. Acquired In-Process Technology. Acquired in-process technology costs were $150,000 in the nine months ended September 30, 2002 related to the Company's acquisition of netExs. No acquired in-process technology costs were incurred in the nine months ended September 30, 2003. Net Interest Income (Expense). Net interest income was income of $16,000 in the nine months ended September 30, 2002 and an expense of $735,000 in the nine months ended September 30, 2003. The change was primarily due to higher net debt levels and imputed interest related to the Company's transaction with AOL. 18 Other Income. Other income was $1,104,000 in the nine months ended September 30, 2002 and $1,378,000 in the nine months ended September 30, 2003. This increase was primarily due to higher gains from foreign currency transactions. Income Tax Expense (Benefit). The provision for income taxes increased from a net benefit of $4,755,000 in the nine months ended September 30, 2002 to a tax expense of $3,911,000 in the nine months ended September 30, 2003. This increase was due to the increase in pre-tax income. The income tax provision represents an effective tax rate of approximately 38% and 36% in 2002 and 2003, respectively. The 2002 effective tax rate was impacted by a $300,000 adjustment to the tax valuation reserve related to the net operating loss carryforward generated by the pre-merger ShowCase operations. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2003, working capital was $11,775,000 with a current ratio of 1.1 to 1. Excluding current deferred revenue, working capital was $51,951,000 with a current ratio of 2.2 to 1. Cash flow from operations totaled $18,775,000 in the nine months ended September 30, 2003. In the first nine months of 2003, cash from operations came primarily from net operating activities ($20,609,000) including net income of $6,957,000 and depreciation/amortization of $13,652,000) and decreases in accounts receivable of $7,981,000, partially offset by a decrease in deferred revenues of $3,669,000 and reductions in accrued expenses of ($8,599,000) and accounts payable of ($3,265,000). Average Days Sales Outstanding was 79 for the quarter ending September 30, 2003, compared to 79 in the quarter ending December 31, 2002. Cash flow from operations increased $20,279,000 from $1,504,000 utilized in the nine months ended September 30, 2002 to $18,775,000 provided in the nine months ended September 30, 2003. This increase primarily reflected improved profitability of $14,081,000 resulting from the decrease in operating expenses associated with the cost reduction programs implemented in August 2002 as well as the timing of deferred revenue ($5,705,000). The cost reduction programs 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 improvements were partially offset by reduction in accrued expenses including royalty payments and the payment of certain acquisition and special general and administrative charges established in 2002. Investing activities resulted in the net use of $16,427,000 in the nine months ended September 30, 2002 and the net use of $14,141,000 in the nine months ended September 30, 2003. In the nine months ended September 30, 2003, $1,934,000 in cash was used for capital expenditures, along with $6,769,000 for capitalized software development costs, and scheduled payments totaling $5,438,000 related to the AOL transaction. 19 Cash provided by financing activities was $11,539,000 in the nine months ended September 30, 2002 and $1,960,000 in the nine months ended September 30, 2003. In the nine months ended September 30, 2002, financing activities provided cash of $10,329,000 from net borrowings under the line-of-credit agreement and proceeds of $1,199,000 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 nine months ended September 30, 2003, financing activities provided proceeds of $1,960,000, including $458,000 from net borrowings under the line-of-credit agreement and $1,502,000 from the issuance of common stock, primarily through stock issued through stock option exercises and employee stock purchases through the employee stock purchase plan. At September 30, 2003, the Company's Borrowing Base under its credit facility with Foothill Capital Corporation was $10,000,000 of which $8,958,000 was borrowed at an annual interest rate of 6.25% per annum. In addition, SPSS has a revolving line of credit with Foothill Capital Corporation, the maximum amount under which SPSS may borrow depends upon the value of the Company's eligible accounts receivable generated within the United States. At September 30, 2003, the amount available under the revolving line of credit was $2,500,000, of which $65,833 was borrowed. The term loan portion of the facility bears interest at a rate of 2.5% above prime, with potential future reductions of up to 0.5% in the interest rate based upon SPSS achieving 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). SPSS intends to fund its future capital needs through operating cash flows and borrowings on its credit facility. The Company 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 its 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. SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS The following table reflects a summary of the Company's significant contractual cash obligations (in thousands):
LESS THAN TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS ------- ------- --------- --------- ------------- United Kingdom mortgage ...... $ 776 $ 85 $ 202 $ 255 $ 234 Notes payable ................ 8,958 2,500 6,458 -- -- Merger consideration ......... 13,921 7,250 6,671 -- --
20 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, SPSS 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 SPSS 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 45% and 43% of total net revenues in the three months ended September 30, 2002 and September 30, 2003, respectively, and 47% and 49% of total revenues in the nine months ended September 30, 2002 and 2003, respectively. RECENT ACCOUNTING PRONOUNCEMENTS In November 2002, the FASB reached a consensus on EITF Issue 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables" (the Issue). The guidance in this Issue is effective for revenue arrangements entered into for fiscal periods beginning after June 15, 2003. The Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. Specifically, the Issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one earnings process and, if it does, how to divide the arrangement into separate units of accounting consistent with the identified earnings processes for revenue recognition purposes. The Issue also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. The implementation of EITF 00-21 did not have a material impact to the Company on its financial position and results of operations as of and for the three and nine month periods ended September 30, 2003. 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 implementation of SFAS No. 149 did not have a material impact to the Company on its financial position and results of operations as of and for the three and nine month periods ended September 30, 2003. 21 In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 applies specifically to a number of financial instruments that companies have historically presented within their financial statements either as equity or between the liabilities section and the equity section, rather than as liabilities. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The implementation of SFAS No. 150 did not have a material impact to the Company on its financial position and results of operations as of and for the three and nine month periods ended September 30, 2003. 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. SPSS is exposed to market risk from fluctuations in interest rates on borrowings under its borrowing arrangement that bears interest at 2.5% above the prime rate. As of September 30, 2003, the Company had $8,958,000 outstanding under this line of credit. A 100 basis point increase in interest rates would result in an additional $89,600 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, its results can be significantly affected by changes in foreign currency exchange rates. To manage the Company's exposure to fluctuations in currency exchange rates, SPSS may enter into various financial instruments, such as options. These instruments generally mature within 12 months. 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 the consolidated statement of operations in each accounting period. Were the foreign currency exchange rates to depreciate immediately and uniformly against the U.S. dollar by 10 percent from levels at September 30, 2003, SPSS management expects this change would have a materially adverse effect on its financial results. 22 At September 30, 2003, SPSS did not have any option contracts outstanding. 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 the Company 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 its activities 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. As of the end of the period covered by this quarterly report, the Company'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 the Company's disclosure controls and procedures. Based upon this evaluation, Mr. Noonan and Mr. Hamburg concluded that the disclosure controls and procedures of SPSS are effective in causing material information to be recorded, processed, summarized, and reported by the Company's management 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 over the financial reporting of SPSS during the period covered by this quarterly report or in other factors that could materially affect, or reasonably likely to materially affect, these internal controls over financial reporting after the date of the most recent evaluation. 23 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 the acquisition subsidiary of SPSS 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. SPSS 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. ITEM 5. OTHER INFORMATION The audit committee of the Company's board of directors approved certain non-audit related services provided to SPSS by KPMG LLP, the Company's auditors. The audit committee pre-approved the Company's retention of KPMG LLP to perform services related to due diligence including the review of the workpapers of potential target companies' auditors and certain tax matters in the amount of $50,000. SPSS, through SPSS International BV, its wholly owned subsidiary, acquired Data Distilleries, a Netherlands-based developer of analytic applications. The terms and conditions of the acquisition are specified in a Stock Purchase Agreement, dated as of November 1, 2003, by and among SPSS, SPSS International B.V. and the owners of all of the issued and outstanding shares of the capital stock of Data Distilleries. The aggregate purchase price for all of the issued and outstanding capital stock of Data Distilleries consists of guaranteed and contingent payments. The guaranteed portion of the purchase price was paid at closing and consisted of a payment of $1.0 million in cash and 281,830 shares of SPSS common stock valued at $5.4 million for purposes of this transaction. The contingent portion which will be paid, if at all, at the end of the first and second years following the closing, may total up to $4.1 million at current approximate exchange rates. The Company's obligation to make the contingent payments will depend on the achievement of certain growth targets for license and maintenance revenues from the Data Distilleries applications. Additional information on this transaction will be available in the Form 8-K to be filed by SPSS with the United States Securities Exchange Commission. 24 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.)
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE) - ------- ---------------------------------------------------------------------------------- --------------- 2.1 Agreement and Plan of Merger among SPSS Inc., SPSS ACSUB, Inc., Clear Software, (1), Ex. 2.1 Inc. and the shareholders named therein, dated September 23, 1996. 2.2 Agreement and Plan of Merger among SPSS Inc., SPSS Acquisition Inc. and Jandel (2), Annex A Corporation, dated October 30, 1996. 2.3 Asset Purchase Agreement by and between SPSS Inc. and DeltaPoint, Inc., dated as (16), Ex. 2.3 of May 1, 1997. 2.4 Stock Purchase Agreement among the Registrant, Edward Ross, Richard Kottler, (3), Ex. 2.1 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 Kottler, (3), Ex. 2.2 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 Shareholders of (4), Ex. 2.1 Quantime Limited listed on the signature pages thereto, dated November 21, 1997. 2.7 Stock Purchase Agreement by and among Jens Nielsen, Henrik Rosendahl, Ole (4), Ex. 2.2 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 Shareholders of Integral (18), Ex. 2.1 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 Ltd. and Jens (20), Ex. 2.9 Meinecke and Microtab Systems Pty Ltd., dated as of November 1, 1998.
25 2.10 Stock Acquisition Agreement by and among SPSS Inc., Vento Software, Inc. and David (21), Ex. 2.1 Blyer, John Gomez and John Pappajohn, dated as of November 29, 1999. 2.11 Asset Purchase Agreement by and between SPSS Inc. and DataStat, S.A., dated as of (24), Ex. 2.11 December 23, 1999. 2.12 Agreement and Plan of Merger dated as of November 6, 2000, among SPSS Inc., SPSS (25), Ex. 2.1 Acquisition Sub Corp., and ShowCase Corporation. 2.13 Agreement and Plan of Merger dated as of October 28, 2001, among SPSS Inc., Red (29), Ex. 99.1 Sox Acquisition Corp. and NetGenesis Corp. 2.14 Stock Purchase Agreement by and among SPSS Inc., LexiQuest, S.A. and the owners of (33), Ex. 2.14 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 Global Turnkey. (14), Ex. 10.19
26 10.18 Lease for Chicago, Illinois in Sears Tower. (15), Ex. 10.20 10.19+ 1997 Bonus Compensation. (17), Ex. 10.21 10.20 Intentionally omitted (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 Systems, Inc. (28), Ex. 10.31 10.32+ 1999 Employee Equity Incentive Plan. (30), Ex. 4.1 10.33 Intentionally omitted (31), Ex. 10.33 10.34 Intentionally omitted (32), Ex. 99.1 10.35+ SPSS Inc. 2002 Equity Incentive Plan (34), Ex. 4.1 10.36 Intentionally omitted 10.37 Intentionally omitted 10.38 Intentionally omitted
27 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, 2002, by and (37), Ex. 10.41 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 between SPSS Inc. (37), Ex. 10.41 and each of SPSS's subsidiaries that may become additional borrowers, as Borrower, and Foothill Capital Corporation, as Lender. 10.44 Amendment to Stock Purchase Agreement, dated as of October 1, 2003, by and between (39), Ex. 10.44 SPSS Inc. and America Online, Inc. 10.45 Amended and Restated Strategic Online Research Services Agreement, dated as of (39), Ex. 10.45 October 1, 2003, by and between SPSS Inc. and America Online, Inc. 10.46 Consulting Agreement, dated as of June 1, 2003, by and between SPSS Inc. and Norman H. Nie Consulting, L.L.C. 31.1 Certification of the Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 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. 32.2 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. 99.1 SPSS Inc. Code of Business Conduct and Ethics (38), Ex. 99.1
28 - ------------ (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 September 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 September 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) 29 (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 September 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 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 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) Intentionally omitted (32) Intentionally omitted (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 September 18, 2002. (File No. 333-90694) (35) Intentionally omitted (36) Intentionally omitted 30 (37) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year ended December 31, 2002. (File No. 000-22194) (38) Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for the quarterly period ended June 30, 2003. (File No. 000-22194) (39) Previously filed with SPSS Inc. Report on Form 8-K, dated October 1, 2003, filed on October 15, 2003. (File No. 000-22194) (b) Reports on Form 8-K SPSS filed the following reports on Form 8-K during the three months ended September 30, 2003 The current report of SPSS Inc. on Form 8-K, dated July 29, 2003, filed with the SEC on July 31, 2003. The Form 8-K reported that SPSS had issued a press release announcing its results for its fiscal quarter ended June 30, 2003 and attached a copy of the 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 July 30, 2003, filed with the SEC on August 1, 2003. The Form 8-K reported that SPSS had held its Second Quarter 2003 Earnings Release Conference Call on July 30, 2003. The Form 8-K report attached a transcript of the conference call as an exhibit. The current report of SPSS Inc. on Form 8-K, dated October 1, 2003, filed with the SEC on October 15, 2003. The Form 8-K reported that SPSS had entered into an amended agreement with AOL. The terms of the amended agreement are specified in an Amendment to Stock Purchase Agreement by and between SPSS and AOL and an Amended and Restated Strategic Online Research Services Agreement. The current report of SPSS Inc. on Form 8-K, dated October 23, 2003, filed with the SEC on October 24, 2003. The Form 8-K reported the retirement of Mr. Bernard Goldstein from the Company's Board of Directors. The Form 8-K also reported the appointment of Mr. Charles R. Whitchurch to fill the vacant board seat left by Mr. Goldstein and to serve as the Chairman of the Audit Committee of the Board. The current report of SPSS Inc. on Form 8-K, dated October 28, 2003, filed with the SEC on October 30, 2003. The Form 8-K reported that SPSS had issued a press release announcing its results for its fiscal quarter ended September 30, 2003 and attached a copy of the 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 October 29, 2003, filed with the SEC on November 3, 2003. The Form 8-K reported that SPSS had held its Third Quarter 2003 Earnings Release Conference Call on October 29, 2003. The Form 8-K report attached a transcript of the conference call as an exhibit. 31 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 10, 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: NOVEMBER 10, 2003 BY: /s/ EDWARD HAMBURG ------------------------------------------- EDWARD HAMBURG EXECUTIVE VICE-PRESIDENT, CORPORATE OPERATIONS AND CHIEF FINANCIAL OFFICER 32 SPSS INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 10.46 Consulting Agreement, dated as of June 1, 2003, by and between SPSS Inc. and Norman H. Nie Consulting, L.L.C. 31.1 Certification of the Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 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. 32.2 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.
33 EX-10.46 3 c80779exv10w46.txt CONSULTING AGREEMENT, DATED AS OF JUNE 1, 2003 EXHIBIT 10.46 CONSULTING AGREEMENT CONSULTING AGREEMENT, dated as of June 1, 2003 (the "Agreement"), by and between SPSS Inc., a Delaware corporation ("SPSS"), and Norman H. Nie Consulting L.L.C., an Illinois Limited Liability Company, (the "Consultant"). WITNESSETH: WHEREAS, Consultant previously served as an employee of SPSS and currently has expertise in the areas of software development and marketing; and WHEREAS, SPSS desires Consultants services and Consultant is desirous to enter into this consulting agreement on the terms and conditions provided herein. NOW, THEREFORE, in consideration of the premises, the representations, warranties, covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows: (1)ARTICLE CONSULTING AGREEMENT 1.1 Consultancy. Subject to the terms and conditions of this Agreement, SPSS agrees to retain Consultant, and Consultant agrees to provide consulting services as documented in this Agreement. 1.2 Consulting Services. Consultant shall use its expertise to assist SPSS during its efforts to reengineer the business processes in the SPSS Dallas office, and as SPSS retargets its nationwide sales efforts. Consultant will be an important resource in understanding what SPSS should be selling, to whom SPSS should be selling it, how SPSS should be selling it, and how we can do our job so that it is technically strong and operationally economical. 1.3 Compensation. Except for the five (5) month period set forth in the next sentence, Consultant shall be paid a fee of $10,000 per month for the work set forth in Section 1.2 above. For a period of five (5) months beginning September 2003 and ending January 2004, Consultant shall be paid a fee of $15,000 for the services set forth in Section 1.2. Consultant shall be paid on the first day of each calendar month. If the Agreement is terminated in the middle of the month, Consultant shall return to SPSS a pro-rata portion of the fee paid for such month. 1.4 Term and Termination. This Agreement shall continue until one of the parties sends the other party fifteen (15) days notice that it wishes to terminate this Agreement. The parties agree to discuss on a quarterly basis whether the services being provided by Consultant to SPSS are still needed. 1.5 Expenses. In addition to the compensation payable under Section 1.3 hereof, with the advance approval of the Chief Financial Officer, Consultant shall be entitled to reimbursement for his reasonable out-of-pocket expenses incurred in performing requested services under this Agreement. (2)ARTICLE GENERAL TERMS 2.1 Relationship Between the Parties. The relationship of Consultant acting in his capacity as a consultant pursuant to Article I hereof, to SPSS hereunder is, and shall remain, that of an independent contractor. Nothing in this Agreement shall be deemed to constitute an employee/employer, partnership or fiduciary relationship between the parties. Except as specifically provided herein, nothing in this Agreement shall be deemed to constitute either party as the agent of the other, nor shall either party have the right to bind the other party or make any promises or representations on behalf of the other. 2.2 Confidential Information. The Consultant shall not at any time during or for a period of five after the expiration or termination of this Agreement, except pursuant to an order of any court of competent jurisdiction, administrative agency or other governmental entity having authority to so require, and except for the purposes of any tax return and/or report required to be made to any taxing authority, directly or indirectly, divulge, furnish, or cause to be divulged or furnished to any individual or entity, other than SPSS or any employee of SPSS, or make any use for his own benefit, or for the benefit of any person, firm, corporation or other entity, other than SPSS or an affiliate thereof, any secret or confidential information of SPSS, including but not limited to, the names of customers, customer information, financial information, technical information, supplier information, details or information concerning contracts, trade secrets, marketing information, or any other data, information or proprietary information of or relating to the Business, SPSS or any affiliate thereof, or their respective products or services, to the extent not generally known within the trade or not a matter of public knowledge and which was acquired by the Consultant during his employment with SPSS or obtained in connection with his duties hereunder during the term of this Agreement. 2.3 Non-Competition. The Consultant hereby covenants and agrees that, for the period of the consultancy and for a period of one year thereafter, the Consultant shall not (i) directly or indirectly (whether through a partnership of which the Consultant is a partner or through any other individual or entity in which the Consultant has any interest, legal or equitable), engage in any business competitive with the business of SPSS or its subsidiaries and affiliates, (ii) directly or indirectly (whether through a partnership of which the Consultant is a partner or through any other individual or entity in which the Consultant has any interest, legal or equitable), solicit or otherwise engage with (except pursuant to the Consultant's consultancy with SPSS) any customers or clients of SPSS or its subsidiaries or affiliates, in any transactions which are in direct competition with the business of SPSS or its subsidiaries or affiliates, or (iii) directly or indirectly (whether through a partnership of which the Consultant is a partner or through any other individual or entity in which the Consultant has any interest, legal or equitable), assist any person in the development, programming, servicing, maintenance, manufacture, sale, licensing, distribution or marketing (including, without limitation, giving away software) of software and related products in competition with SPSS or any of its affiliates' products, in each case in the United States of America or any country where SPSS or its subsidiaries or affiliates are doing business, excluding passive investment interests of less than two percent (2%) in corporations whose stock is registered under the Securities Exchange Act of 1934, as amended. (3)ARTICLE INVENTIONS 3.1 Definition of Inventions. "Inventions" mean all systems, programs, algorithms, procedures, techniques, manuals, data bases, plans, lists, inventions, copyrights, patents, trademarks, discoveries, innovations, concepts, ideas and software (including without limitation source and object code and design and user documentation) conceived, compiled or developed by Consultant in the course of the Consultant's engagement by SPSS. 3.2 Consultant shall promptly disclose to SPSS the products of the work performed hereunder, and those products will be deemed to be a "work made for hire"; and SPSS shall be considered to be the person for whom the work was prepared under the copyright laws of the United States. 3.3 Assignment of Inventions. For value received, Consultant hereby assigns to SPSS Consultant's sole and exclusive right, title and interest in and to (a) any Invention developed by the Consultant for SPSS, and (b) any Invention developed, in whole or in part, using Confidential Information of SPSS. 3.4 Further Assurances. Consultant agrees to execute and deliver any instruments or documents and to do all other things (including, without limitation, the giving of testimony) reasonably requested by SPSS (both during and after Consultant's engagement by SPSS) in order to vest more fully in SPSS all ownership rights in the Inventions covered by Section 3.2 hereof (including, without limitation, securing patent and copyright registrations for such Inventions). SPSS will reimburse Consultant for reasonable out-of-pocket expenses incurred by Consultant to comply with the foregoing. 3.5 Notice. During the term of Consultant's engagement and for a period of 12 months thereafter, Consultant will promptly notify SPSS of each Invention and include a reasonably detailed description thereof in order that a determination can be made as to whether the Invention in question is subject to this Agreement. 3.6 Copyrights and Patents. In addition to the assignment of Inventions made above, Consultant also assigns to SPSS the entire right, title and interest to any copyrights and any work which may not be deemed "work made for hire" under the copyright laws, but which is produced by Consultant in accordance with the terms of this Agreement. Consultant further agrees to execute any documents which may be necessary or appropriate to allow SPSS to perfect its interest in the copyright for such works. Consultant shall not be entitled to any additional payment or compensation for assisting and cooperating with SPSS in obtaining these copyrights, except for reimbursement of reasonable expenses incurred by Consultant in performing his obligations under the previous sentence. 3.7 SPSS shall have title to any Inventions which are made during the course of work under this Agreement as well as any patents thereon in all countries. If Consultant hires employees or subcontractors to perform his obligations hereunder, if Consultant agrees to enter into agreements with such employees or subcontractors to protect the Confidential Information and Inventions for the benefit of SPSS to the same extent provided for hereunder, and to submit a duplicate original of all such agreements to SPSS prior to the rendering of any services by any employee or subcontractor under this Agreement. Consultant agrees to give SPSS or any party designated by SPSS all assistance reasonably required to perfect the rights described above. (4)ARTICLE MISCELLANEOUS 4.1 Equitable Relief. The Consultant understands that a breach by it of any provision of this Agreement may cause substantial injury to SPSS which may be irreparable and/or in amounts difficult or impossible to ascertain, and that in the event the Consultant breaches any provision of this Agreement, SPSS shall have, in addition to all other remedies available in the event of a breach of this Agreement, the right to injunctive or other equitable relief. Further, the Consultant acknowledges and agrees that the restrictions and commitments set forth in this Agreement are necessary to protect SPSS's legitimate interests and are reasonable in scope, area and time, and that if, despite this acknowledgment and agreement, at the time of the enforcement of any provision of this Agreement a court of competent jurisdiction shall hold that the period or scope of such provision is unreasonable under the circumstances then existing, the maximum reasonable period or scope under such circumstances shall be substituted for the period or scope stated in such provision. 4.2 Notices. Any notice, request, instruction or other document to be given hereunder by one party hereto to the other party hereto shall be in writing and delivered personally (effective upon delivery), sent by overnight courier freight prepaid (effective one day after delivery to such courier during its regular business hours), sent by registered or certified mail, postage prepaid (effective 5 days after deposit in the U.S. Mail) or sent by facsimile transmission (effective upon confirmation of receipt), if to Consultant to: Norman H. Nie Consulting 300 Hyndman Creek Road Hailey, Idaho 83333 Facsimile number: (208) 788-2891 if to SPSS to: SPSS Inc. 233. S. Wacker Chicago, IL 60606 Attention: Chief Financial Officer Facsimile number: (312) 329-3560 or to such other address as shall be provided to the other persons named herein pursuant to notice given pursuant to the provisions of this Section 4.2. 4.3 Arbitration. Any dispute as to termination for Cause under Section 1.5 hereof shall be settled by arbitration in the City of Chicago, Illinois by three arbitrators, one of whom shall be appointed by Consultant, one of whom shall be appointed by SPSS and the third of whom shall be appointed by the first two arbitrators. If either party fails to appoint an arbitrator within 20 days of a request in writing by the other party to do so, or if the first two arbitrators cannot agree on the appointment of a third arbitrator within 20 days of their designation, then such arbitrator shall be appointed by the Chief Judge of the United States District Court for the Northern District of Illinois. Except as to the selection of arbitrators which shall be as set forth above, the arbitration shall be conducted promptly and expeditiously in accordance with the commercial arbitration rules of the American Arbitration Association so as to enable the arbitrators to render an award within 90 days of the commencement of the arbitration proceedings. Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Consultant, on the one hand, and SPSS, on the other hand, shall each bear one-half of the expenses of the arbitration; except that, in the case where the parties are unable to agree on a single arbitrator, each party shall bear the expenses of the arbitrator it selects. 4.4 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties, except by operation of law and except that SPSS may assign its rights and obligations under this Agreement to any affiliate of SPSS. If such assignment shall be made by SPSS, such affiliate shall be entitled to all of the rights and shall assume all of the obligations of SPSS hereunder, provided, that SPSS shall remain liable for the performance of such affiliate's obligations hereunder. 4.5 Effect and Benefit. This Agreement shall be binding upon and inure to the benefit of the heirs and personal representatives of the Consultant and to the successors and assigns of SPSS. 4.6 Governing Law. The validity, interpretation and performance of this Agreement shall be governed and construed in all respects in accordance with the internal substantive laws of the State of Illinois, without regard to its conflicts of law principles. 4.7 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which together shall constitute one and the same agreement. 4.8 Severability. The provisions of this Agreement shall be severable, and the invalidity of any one or more of such provisions shall not affect the validity of any of the other provisions hereof. 4.9 Amendment and Modification. No amendment, modification or alteration, nor any waiver, of the terms and conditions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto. 4.10 Waiver of Breach. The waiver by one party of a breach of any provision of this Agreement by the other party shall not operate or be construed as a waiver of any subsequent breach of the same or any other provision of this Agreement by that party. 4.11 Expenses. Except as otherwise provided, the Consultant and SPSS shall each pay all costs and expenses incurred by him or it or on his or its behalf in connection with this Agreement and the transactions contemplated hereby, including, without limiting the generality of the foregoing, fees and expenses of its own financial consultants, accountants and counsel. IN WITNESS WHEREOF, each of the parties has caused this Consulting Agreement to be duly executed and delivered as of the day and year first above written. SPSS INC. By: /s/ Edward Hamburg ------------------------------------- Its: Executive Vice President, Corporate ------------------------------------- Operations, Chief Financial Officer ------------------------------------- and Secretary ------------------------------------- NORMAN H. NIE CONSULTING, L.L.C. /s/ Norman H. Nie ------------------------------------------- By: Norman H. Nie Its: President EX-31.1 4 c80779exv31w1.txt SEC. 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 10, 2003 By: /s/ Jack Noonan ------------------------------------- Jack Noonan President and Chief Executive Officer EX-31.2 5 c80779exv31w2.txt SEC. 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 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 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 10, 2003 By: /s/ Edward Hamburg ---------------------------------- Edward Hamburg Executive Vice-President, Corporate Operations and Chief Financial Officer EX-32.1 6 c80779exv32w1.txt SEC. 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that: 1. The Quarterly Report on Form 10-Q of SPSS Inc. for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of SPSS Inc. Date: November 10, 2003 By: /s/ Jack Noonan ------------------------------------- Jack Noonan President and Chief Executive Officer EX-32.2 7 c80779exv32w2.txt SEC. 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned certifies that: 1. The Quarterly Report on Form 10-Q of SPSS Inc. for the period ended September 30, 2003, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of SPSS Inc. Date: November 10, 2003 By: /s/ Edward Hamburg -------------------------------------- Edward Hamburg Executive Vice-President, Corporate Operations and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----