8-K/A 1 c82140a1e8vkza.txt AMENDMENT TO CURRENT REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K/A Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of report (Date of earliest event reported) November 5, 2003 SPSS INC. -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 000-22194 36-2815480 -------------------------------------------------------------------------------- (State or Other Jurisdiction of (Commission (I.R.S. Employer Incorporation) File Number) Identification No.) 233 South Wacker Drive, Chicago, Illinois 60606 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (312) 651-3000 -------------------------------------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Not Applicable -------------------------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) Explanatory Statement On November 18, 2003, SPSS Inc. ("SPSS") filed a Current Report on Form 8-K to report the Company's acquisition, through its wholly-owned subsidiary, SPSS International B.V. ("SPSS International"), of all the issued and outstanding shares of capital stock of Data Distilleries B.V. SPSS undertook to file the financial information required by Item 7 of the Form 8-K within sixty (60) days of its filing. SPSS is filing this amendment to its Current Report on Form 8-K filed with the Securities and Exchange Commission on November 18, 2003 to amend Item 7 "Financial Statements, Pro Forma Financial Information and Exhibits" to replace the current language with the financial statements of the business acquired as set forth below. 2 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired (i) Data Distilleries B.V. Audited Financial Statements for the years ended December 31, 2002 and 2001. [PRICEWATERHOUSECOOPERS PWC LOGO] PRICEWATERHOUSECOOPERS ACCOUNTANTS N.V. Prins Bernhardplein 200 1097 JB Amsterdam P.O. Box 94071 1090 GB Amsterdam The Netherlands TO THE BOARD OF MANAGEMENT AND SHAREHOLDERS OF Telephone +31 (20) 568 66 66 DATA DISTILLERIES B.V. Facsimile +31 (20) 568 68 88 REPORT OF INDEPENDENT AUDITORS Introduction We have audited the accompanying consolidated balance sheets of Data Distilleries B.V. and its subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of income and of cash flows for each of the two years then ended . These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audits. Scope We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Opinion In our opinion, these consolidated financial statements referred to above present fairly, in all material respects, the financial position of Data Distilleries B.V. and its subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the two years then ended in conformity with accounting principles generally accepted in The Netherlands. Accounting principles generally accepted in The Netherlands vary in certain respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in Note 17 to the consolidated financial statements. 3 [PRICEWATERHOUSECOOPERS PWC LOGO] Emphasis of matter The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and incurred negative cash flows that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. PricewaterhouseCoopers Accountants N.V. April 17, 2003, except for Note 17 and 18 to these Financial Statements, for which the date is December 17, 2003 PricewaterhouseCoopers is the trade name of amongst others the following companies: PricewaterhouseCoopers Accountants N.V. (registered with the Trade Register under number 34180285), PricewaterhouseCoopers Belastingadviseurs N.V. (registered with the Trade Register under number 34180284), PricewaterhouseCoopers Corporate Finance & Recovery N.V. (registered with the Trade Register under number 34180287) and PricewaterhouseCoopers B.V. (registered with the Trade Register under number 34180289). The services rendered by these companies are governed by General Terms & Conditions, which include provisions regarding our liability. These General Terms & Conditions are filed with the Amsterdam Chamber of Commerce and can also be viewed at www.pwcglobal.com/nl. 4 CONSOLIDATED BALANCE SHEETS OF DATA DISTILLERIES B.V.
DECEMBER 31, 2002 DECEMBER 31, 2001 ---------------------------- --------------------------- E E E E ASSETS FIXED ASSETS Tangible fixed assets [4] 289.035 635.839 Financial fixed assets [5] 65.399 155.003 ------------ ------------ Total fixed assets 354.434 790.842 CURRENT ASSETS Trade accounts receivable 1.132.881 2.846.157 Other receivables [6] 250.811 148.330 Cash and bank balances [7] 202.682 4.332.153 ------------ ------------ Total current assets 1.586.374 7.326.640 ----------- ----------- TOTAL ASSETS 1.940.808 8.117.482 =========== =========== EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY [8] Issued and paid up share capital 66.083 66.083 Additional paid in capital 21.096.186 21.096.186 Accumulated translation difference (87.106) (40.066) Other reserves (16.573.271) (2.433.223) Result for the year (3.864.601) (14.035.526) ------------ ------------ 637.291 4.653.454 CURRENT LIABILITIES Trade accounts payable 218.082 939.060 Taxes payable [9] 64.811 648.011 Other liabilities and accruals [10] 1.020.624 1.876.957 ------------ ------------ Total current liabilities 1.303.517 3.464.028 ----------- ----------- Total equity and liabilities 1.940.808 8.117.482 =========== ===========
The accompanying notes form an integral part of these financial statements 5 CONSOLIDATED STATEMENTS OF INCOME OF DATA DISTILLERIES B.V.
2002 2001 ------------------------- --------------------------- E E E E NET REVENUES [13] 3.716.655 4.007.650 --------- --------- Personnel expenses [14] 5.120.644 12.107.226 Depreciation expenses 291.750 280.586 Other operating expenses [15] 2.086.864 6.467.180 ---------- ----------- 7.499.258 18.854.992 ---------- ----------- (3.782.603) (14.847.342) OPERATING RESULT Financial cost / income [16] (81.998) 811.816 ---------- ----------- RESULT BEFORE TAXATION (3.864.601) (14.035.526) Taxation on result - - ---------- ----------- NET LOSS (3.864.601) (14.035.526) ========== ===========
The accompanying notes form an integral part of these financial statements 6 CONSOLIDATED CASH FLOW STATEMENTS OF DATA DISTILLERIES B.V.
2002 2001 ----------- ------------ E E CASH FLOW FROM OPERATING ACTIVITIES Net loss for the year (3.864.601) (14.035.526) Adjustments to reconcile net loss to cash used in operating activities Depreciation 291.750 280.586 Loss on disposal of tangible fixed assets 29.532 - Realized foreign currency results 110.205 (136.911) Changes in operating assets and liabilities Accounts receivable 1.713.276 1.700.486 Other receivables (108.693) 212.660 Accounts payable (726.371) (153.111) Other liabilities and accruals (1.478.118) 43.113 ---------- ----------- NET CASH USED IN OPERATING ACTIVITIES (4.033.020) (12.088.703) CASH FLOW FROM INVESTING ACTIVITIES Investments in tangible fixed assets (14.792) (511.174) Sale of assets 35.292 - ---------- ----------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 20.500 (511.174) CASH FLOW FROM FINANCING ACTIVITIES Rent deposit reimbursement 91.981 (59.556) ---------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 91.981 (59.556) Effect of exchange rate changes on cash and bank balances (208.932) 100.671 ---------- ----------- Net decrease in cash and bank balances (4.129.471) (12.558.762) Cash and bank balances, beginning of year 4.332.153 16.890.915 ---------- ----------- CASH AND BANK BALANCES, END OF YEAR 202.682 4.332.153 ========== ===========
The accompanying notes form an integral part of these financial statements 7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL Data Distilleries B.V., hereafter referred as "the Company" was established in Amsterdam on August 17, 1995. The principal activities of the Company are the development and selling of analytical customer relationship management ("CRM") software, as well as providing related maintenance and consultancy. 2. BASIS OF PRESENTATION These financial statements have been prepared under the historical cost convention and in accordance with Accounting Principles Generally Accepted in The Netherlands ("Dutch GAAP"). Dutch GAAP differs in certain respects from those generally accepted in the US and the effects of these differences in the determination of net results and shareholders' equity are shown in note 17 to the financial statements. These financial statements are not intended to and do not represent the statutory accounts or annual report of the Company pursuant to the provisions of Title 9, Book 2 of the Netherlands Civil Code. Such accounts and report have been filed with and can be directly obtained from the Chamber of Commerce within the Netherlands. GOING CONCERN The Company has incurred substantial losses and negative cash flows from operations since its inception that raise substantial doubt about its ability to continue as a going concern. The operating environment confronting the Company raises uncertainty about the Company's ability to continue as a going concern. The principal conditions giving rise to that uncertainty are the following: 8 - The decline in the software market in general and the CRM market specifically - Continuing cost containment initiatives by companies in our two major target markets, telecommunications and financial institutions - The Company has not fully succeeded in its business model of increasing its international market share - During 2002 the cash position decreased to 0,2 million Euro As a result of these developments, management has taken the following actions to reduce costs and position the Company for break-even results: - The Company employed 72 people at the beginning of 2002, the number of employees has been reduced to 43 by the end of 2002 - The subsidiaries in France and the United States were closed by the end of 2002 The Company will take further measures to bring the cost base in line with current revenue levels. Headcount and overall spending will be reduced further to achieve this. The Company aims to protect its product development capability and its international sales operations to support its strategy. As part of this strategy the Company will continue to seek partnerships and alliances with CRM vendors and system integrators. Management believes that there will be sufficient cash (and cash equivalents) available to secure continuity for the Company if the Company is able to generate as a minimum approximately the same levels of new license deals as in the past two years. Consequently, the Company has applied accounting principles based on going concern. However there remains uncertainty about the Company's ability to continue as a going concern given the recurring operating losses and therefore about its ability to realize its assets and discharge its liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets amounts or to amounts and classification of liabilities that may be necessary if the entity is unable to continue as a going concern. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION PRINCIPLES The consolidated financial statements incorporate the accounts of the Company and its wholly owned subsidiaries: - Data Distilleries France SAS, Paris (France) - Data Distilleries United Kingdom Ltd., Chertsey (United Kingdom) - Data Distilleries Germany GmbH, Goldbach (Germany) - Data Distilleries United States Inc, New York (United States of America) 9 The Company has decided on various grounds to wind up both the French entity as well as the US entity as per December 31, 2002. Primarily all operations from these entities have been transferred to the parent company. Transactions between the companies included in the consolidation have been eliminated. FOREIGN CURRENCY TRANSLATION Assets and liabilities of operations whose functional currency is other than the Euro are translated using the exchange rate on the balance sheet date. Revenues and expenses of those operations are translated at average exchange rate prevailing during the year. Translation differences arising from the translation of foreign currency amounts are charged or credited to equity. ACCOUNTING POLICIES RELATING TO BALANCE SHEET General The accounting policies are based on historical cost principles. All amounts are recorded at cost unless otherwise stated. 10 Tangible fixed assets Tangible fixed assets are stated at the acquisition cost, less straight-line depreciation. The depreciation is calculated on the basis of the acquisition cost and the estimated economic life of the related asset. Accounts receivable Accounts receivable are due within one year and are stated at face value. A provision is deducted where necessary. ACCOUNTING POLICIES RELATING TO THE STATEMENT OF INCOME Determination of result Results represent the difference between the realisable value of the software, consultancy or training delivered/rendered and the cost and other charges for the year. The results on transactions are recognised in the year in which they are realised; losses are taken as soon as they are probable and reasonably estimable. Revenues Revenues represent the amounts charged to third parties for software delivered and services rendered in the reporting year less discounts, resellers' fee and exclusive of VAT. Revenues are mainly derived from software licensing fees, consulting and maintenance support services. License revenue is recognised when a signed license agreement exists, the software has been shipped or electronically delivered, the license fee is fixed and determinable, there is no continuing obligation, and collection of the resulting receivable is probable. Maintenance revenues are amortised over the maintenance period involved. Pre invoiced and not yet recognised maintenance fees are accounted for as deferred revenues. Operating expenses Operating expenses represent the total of cost related to the reporting year insofar as these have not been included as financial expenses. Product development All expenses related to product development are directly charged to the statement of income. Income tax The corporate income tax is calculated on the basis of the result for financial statement purposes and the prevailing regulations and rates. NEW ANNUAL REPORTING GUIDELINES Dutch GAAP In November 2002 the Dutch Council for Annual Reporting has issued the 2002 edition of the Guidelines for Annual Reporting. The following changes have been made to the guidelines 11 and have had no impact to these financial statements but may impact Data Distilleries' accounting policies and results in 2003: - A change in method of estimation is not a change in accounting principle, but a change in estimate (RJ 140). The cumulative effect of a change in estimate may therefore no longer be accounted for as an adjustment to the opening balance of equity, but should be accounted for in line with RJ 145 (see below); - Retroactive treatment of changes in accounting estimates is no longer allowed. These changes should be accounted for in current or future periods that are impacted (RJ 145); - Additional detailed guidance and examples have been provided with regard to revenue recognition for several categories of revenue (RJ 270). 4. TANGIBLE FIXED ASSETS The movement in tangible fixed assets can be summarised as follows:
2002 2001 ---------- ---------- E E January 1 Cost 1.145.926 634.752 Accumulated depreciation (510.087) (229.501) --------- --------- Book value 635.839 405.251 ========= ========= Changes during the year Investments 14.703 497.747 Disposals (costs) (164.117) - Depreciation (291.750) (280.586) Disposals (accumulated depreciation) 99.293 - Currency changes during the year (4.933) 13.427 --------- --------- Total changes during the year (346.804) 230.588 ========= ========= December 31 Cost 991.579 1.145.926 Accumulated depreciation (702.544) (510.087) --------- --------- Book value 289.035 635.839 ========= =========
The depreciation period for all tangible fixed assets is three years. Tangible fixed assets comprise of furniture, fixtures and computer hardware. 12 5. FINANCIAL FIXED ASSETS
2002 2001 ---------- ---------- E E Deposit rent 65.399 155.003 ========= =========
The rent deposit amount relates to security given in relation to rental agreements for buildings rented by the Company. 6. OTHER RECEIVABLES
2002 2001 ---------- ---------- E E VAT 223.006 - Interest - 1.810 Other receivables and prepayments 27.805 146.520 --------- --------- 250.811 148.330 ========= =========
7. CASH AND BANK BALANCES
2002 2001 ---------- ---------- E E Unrestricted cash 202.682 1.844.978 Restricted cash - 2.487.175 --------- --------- 202.682 4.332.153 ========= =========
The restricted cash relates to an amount included in a deposit account at the bank. 13 8. SHAREHOLDERS' EQUITY Movements in the shareholders' equity can be summarised as follows:
2001 Movement Liquidation 2002 ------------ ------------ ------------ ------------ E E E E Share capital 66.083 - - 66.083 Additional paid in capital 21.096.186 - - 21.096.186 Translation adjustment (40.066) (151.562) 104.522 (87.106) Other reserves (2.433.223) (14.035.526) (104.522) (16.573.271) Result for the year (14.035.526) 10.170.925 - (3.864.601) ----------- ----------- ----------- ----------- Total 4.653.454 (4.016.163) - 637.291 =========== =========== =========== ===========
Liquidation consists of the cumulative translation adjustments relating to the liquidated companies, which has been added to the other reserves upon liquidation. On July 19, 2000, the Company approved an increase in the number of authorised shares of its common stock and preferred stock to 28.000.000 and 4.000.003, respectively. In connection with this approval, the authorised shares of preferred stock were designated as follows: Non-cumulative preference shares A 4.000.000 Non-cumulative preference shares B 10.000.000 Non-cumulative preference shares C 1 Non-cumulative preference shares D 1 Non-cumulative preference shares E 1
On July 19, 2000, a total number of 1.934.690 ordinary shares are transferred from several private investors to a venture capital company. At the time of the transfer these shares were converted into Series B Convertible Preferred Stock. On July 19, 2000, several venture capital companies and one private investor acquired 5.546.560 Series B Convertible Preferred Stock for an amount of USD 17.748.992. This has resulted in a share premium of USD 17.693.526 (2000: approximately E 20 million). During 2000 a shareholder has exercised its right for conversion of a subordinated convertible loan of E 340.335 (that had been concluded on July 27, 1999) into 105.310 Series B Convertible Preferred Stock at a conversion price of USD 3.20 per share. This resulted in an increase of shareholders equity of approximately E 0,4 million. 14 The issued and fully paid share capital per December 31, 2002 can be specified as follows (nominal par value per share E 0,0045378):
2002 2001 -------- -------- E E Ordinary shares 18.448 18.448 Preference A shares 13.209 13.209 Preference B shares 34.426 34.426 ------- ------- Total 66.083 66.083 ======= =======
In addition to Ordinary shares, Series A Convertible Preferred Stock and Series B Convertible Stock, the Company has issued 1 share of Series C, D and E Convertible Preferred Stock each (at a nominal value per share of E 0,0045378). These shares give the holder the right to a seat in the Board of Supervisory Directors. Warrants On July 27, 1999 a Convertible Loan Agreement was concluded with an investor for an amount of E 340.335. In connection with this agreement, on July 19, 2000, the Company issued warrants to purchase 33.670 shares of Series B Convertible Preferred Stock at a purchase price of USD 3.20 per share. These warrants were exercisable immediately for a period of four years. In July 2000, the Company issued 582.180 (20% of the then outstanding shares of that investor) warrants to purchase shares of Series A Convertible Preferred Stock at a price of E 0.38979 per share. The warrants are exercisable through 20 January 2002 and had been contingently granted as part of the first financing round in January 1998. The investor has not exercised its rights under this warrant agreement and therefore these warrants have been cancelled. In July 2000, the Company committed to issuing up to 550.000 warrants to an investor in exchange for lead generation. The number of warrants depends on the software license sales that occur before December 31, 2001 as a result of the investor's involvement. The warrants entitle the holder to purchase shares of Series B Convertible Preferred Stock at USD 3,20 per share. As a result of investors' activities in 2001, a number of 11.000 warrants have been granted. These warrants have expired in the year 2002, as they have not been exercised before expiration date September 1, 2002. Redemption right The holders of Series B Convertible Preferred Stock, unless converted, have the right to demand that the Company redeems the Preferred Shares at a price equal to their original Issue 15 Price at any time after the fifth anniversary of this Agreement (five years after July 19, 2000). The redemption value of these shares is approximately USD 24,3 million at December 31, 2002. Additional Series B Convertible Preferred Stock that will be issued by the Company in the future as result of the exercise of warrants will also include this redemption feature. Liquidation preferences The shareholders shall procure and shall take any and all action possible to ensure that the aggregate consideration to be received by the shareholders as a result of a liquidation of the Company shall be distributed in the following order: - First, the holders of Series B Convertible Preferred Stock, - Secondly, the holders of Series A Convertible Preferred Stock, - Thereafter, any remaining consideration will be distributed to all shareholders on a pro-rata and as-converted basis. Stock options In September 1999 the shareholders approved a Stock Option Plan ("SOP") for the employees and the Board members of the Company. Under this SOP, the Board, at its own discretion, may grant options to acquire depository receipts of shares in the capital of the Company. Holders of depository receipts will be entitled to convert their depository receipts to common shares upon Initial Public Offering or other specific events. The maximum number of options to be granted under this SOP shall not exceed the number corresponding with 2.240.100 of ordinary shares, par value of E 0,0045378 per share. No options may be granted under this SOP after December 31, 2004. In August 2001 the shareholders approved a similar Stock Option Plan (SOP) for the employees and the Board members of the Company. The maximum number of options to be granted under this SOP shall not exceed the number corresponding with 1.838.150 of ordinary shares, par value of E 0,0045378 per share. No options may be granted under this SOP after December 31, 2010. 16 In 2002 a number of 802.490 options has been issued against an exercise price of $1, which management believes is equivalent to the fair value.
Board of Supervisory Stock options issued Employees Directors Board Total ----------- ----------- ----------- ----------- E E E E January 1, 2001 1.077.340 1.604.676 99.000 2.781.016 ---------- ---------- ---------- ---------- Grants 853.850 90.000 - 943.850 Cancellations of grants (455.650) (639.675) - (1.095.325) Exercised - - - - ---------- ---------- ---------- ---------- December 31, 2001 1.475.540 1.055.001 99.000 2.629.541 ---------- ---------- ---------- ---------- Grants 802.490 - - 802.490 Cancellations of grants (554.000) - - (554.000) Exercised (20) - - (20) ---------- ---------- ---------- ---------- December 31, 2002 1.724.010 1.055.001 99.000 2.878.011 ========== ========== ========== ==========
The exercise price of the stock options outstanding at December 31, 2002 range from E 0,39 to E 3,48 per depository receipt. 9. TAXES PAYABLE
2002 2001 ---------- ---------- E E Wage tax payable 64.811 511.492 VAT payable - 136.519 ---------- ---------- 64.811 648.011 ========== ==========
10. OTHER LIABILITIES AND ACCRUALS
2002 2001 ---------- ---------- E E Bonus employees 126.000 235.143 Accrued holiday allowance 116.830 158.282 Accrued operating expenses 34.845 68.855 Deferred revenue 570.013 1.127.877 Other liabilities 172.936 286.800 ---------- ---------- 1.020.624 1.876.957 ========== ==========
17 11. CONTINGENCIES AND COMMITMENTS NOT INCLUDED IN THE BALANCE SHEET The Company has entered into long term commitments with regard to office rent and lease cars. The future commitments can be specified as follows; they include an annual 5% price index adjustment.
Office rent Car lease ----------- ---------- E E 2003 35.300 164.200 2004 - 140.500 2005 and thereafter - 101.200 ---------- ---------- Total 35.300 405.900 ========== ==========
12. TAXATION Due to accumulated losses there is no income tax payable. No recognition is given to the potential tax benefit of these losses due to uncertainty about the realisability of the net operating losses carried forward. The accumulated losses can be specified as follows:
2002 ----------- E Data Distilleries B.V. 15.393.846 Data Distilleries United Kingdom Ltd. 3.623.675 Data Distilleries Germany GmbH 1.021.959 ----------- 20.039.480 ===========
Data Distilleries France SAS and Data Distilleries United States Inc. have been liquidated as per December 31, 2002, therefore the Company has incurred losses on the loan and original share capital (E 2.302.606 and E 2.932.303 respectively) and has included these losses in the operating losses to be carried forward by Data Distilleries B.V. These operating losses can be carried forward indefinitely. 18 13. REVENUES The Company has sales in the Netherlands, various European countries and the United States.
2002 2001 --------- --------- E E Products (licenses) 972.347 2.471.749 Consultancy 1.345.132 371.334 Maintenance 1.277.783 1.050.495 Training 102.420 76.225 Other revenues 18.973 37.847 --------- --------- 3.716.655 4.007.650 ========= =========
14. PERSONNEL EXPENSES
2002 2001 --------- ---------- E E Salary expenses 3.740.907 6.987.531 Bonus personnel 235.795 456.886 Social charges 398.401 875.931 Pension premiums 155.880 301.119 Recruitment 1.660 1.074.313 Temporary staff 300.103 1.894.368 Subsidy on wages (104.319) (1.427) Lease cars 247.081 366.247 Various personnel expenses 145.136 152.258 --------- ---------- 5.120.644 12.107.226 ========= ==========
Included in salary expenses is an amount of approximately E 1.108.000 relating to personnel restructuring 2002. The entire amount was charged and paid out in 2002. 19 15. OTHER OPERATING EXPENSES
2002 2001 --------- --------- E E Office rent 389.427 788.010 Service expenses 31.725 44.551 Office expenses 188.764 296.281 Rent office equipment 12.794 24.823 Subscriptions 34.152 101.117 Telephone 124.498 185.363 Selling expenses 448.607 2.770.916 Legal 151.403 320.030 Advisory 323.942 545.285 Travelling 202.073 898.769 Other expenses 179.479 492.035 --------- --------- 2.086.864 6.467.180 ========= =========
Personnel The average number of Dutch staff plus affiliates during this year was approximately 45 (2001: 72). Remuneration of the Board of Directors and the Board of Supervisory Directors The Board of Directors consists of one member in 2002. The Company therefore makes use of the exemption in article 2:383.1 of the Netherlands Civil Code. The members of the Board of Supervisory Directors in the aggregate received a remuneration in total of E 27.227 in 2002. 16. FINANCIAL COST / INCOME
2002 2001 --------- --------- E E Interest income 28.207 605.952 Interest expenses - (48.399) Foreign currency results (110.205) 254.263 -------- --------- (81.998) 811.816 ======== =========
20 17. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The financial statements are prepared in accordance with accounting principles generally accepted in the Netherlands (Dutch GAAP), which differ in certain respects from the accounting principles generally accepted in the United States of America (US GAAP). The following note summarizes the adjustments to Data Distilleries net results and total shareholders' equity that would have to be made if Data Distilleries B.V. was to report under US GAAP. Reconciliation of net result to US GAAP
2002 2001 --------- --------- E'000 E'000 NET RESULT UNDER DUTCH GAAP (3.865) (14.036) Adjustments for: G. Stock based compensation - (107) H. Issuance of warrants on Series B Preferred Stock - (13) I. Release CTA as result of liquidation subsidiaries (105) - --------- --------- NET RESULT UNDER US GAAP (3.970) (14.156) --------- ---------
21 Reconciliation of shareholders' equity to US GAAP
2002 2001 --------- --------- E E SHAREHOLDERS' EQUITY AS REPORTED UNDER DUTCH GAAP 637 4.653 Adjustments for: A. Series A Preferred Stock (1.134) (1.134) B. Series B Preferred Stock (26.857) (26.857) C. Issuance costs 175 243 D. Issuance warrants on series B preferred stock 306 306 E. Accretion to redemption value related to warrants (75) (44) F. Accretion to redemption value related to beneficial conversion features of warrants (75) (44) G. Stock based compensation - 107 G. Compensation expenses - (107) H. Issuance of warrants on Series B Preferred Stock (13) (13) I. Release CTA as result of liquidation subsidiaries 105 - I. Foreign currency result (105) - --------- --------- SHAREHOLDERS' EQUITY UNDER US GAAP (27.036) (22.890) ========= =========
22 Under US GAAP the shareholders' equity movement schedule is as follows: (in E'000)
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK --------------------------- ------------------ --------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT BALANCE, DECEMBER 31, 2000 10.497.450 27.400 3 - 4.065.310 18 ========== ====== = = ========= == Accretion to redemption value of mandatorily preferred stock - 130 - - - - Issuance of warrants - 13 - - - - Currency translation adjustment - - - - - - Stockbased compensation - - - - - - Net loss - - - - - - ---------- ------ - - --------- -- BALANCE, DECEMBER 31, 2001 10.497.450 27.543 3 - 4.065.310 18 ========== ====== = = ========= == Accretion to redemption value of mandatorily preferred stock - 130 - - - - Currency translation adjustment - - - - - - Currency translation adjustment as result of liquidation subsidiaries Net loss - - - - - - ---------- ------ - - --------- -- BALANCE, DECEMBER 31, 2002 10.497.450 27.673 3 - 4.065.310 18 ========== ====== = = ========= == ADDITIONAL OTHER PAID-IN COMPREHENSIVE ACCUMULATED CAPITAL INCOME DEFICIT TOTAL BALANCE, DECEMBER 31, 2000 (6.599) (4) (2.090) (8.675) ------ -- ------ ------ Accretion to redemption value of mandatorily preferred stock (130) - - (130) Issuance of warrants - - - - Currency translation adjustment - (36) - (36) Stockbased compensation 107 - - 107 Net loss - - (14.156) (14.156) ------ --- ------- ------- BALANCE, DECEMBER 31, 2001 (6.622) (40) (16.246) (22.890) ====== === ======= ======= Accretion to redemption value of mandatorily preferred stock (130) - - (130) Currency translation adjustment - (151) - (151) Currency translation adjustment as result of liquidation subsidiaries 105 - 105 Net loss - - (3.970) (3.970) ------ --- ------- ------- BALANCE, DECEMBER 31, 2002 (6.752) (86) (20.216) (27.036) ====== === ======= =======
23 In addition to the reconciliation of Dutch GAAP to US GAAP for net results and shareholders' equity, US GAAP requires a statement of comprehensive income be presented in accordance with SFAS 130 "Reporting Comprehensive Income". Comprehensive income reflects all changes in shareholders' equity during a certain period, with the exception of payments by and distributions to shareholders. Comprehensive income
2002 2001 --------- --------- E'000 E'000 NET LOSS UNDER US GAAP (3.970) (14.156) OTHER COMPREHENSIVE INCOME ITEMS Exchange rate differences through shareholders' equity (151) (36) --------- ---------- COMPREHENSIVE INCOME (4.121) (14.192) ========= ==========
RECONCILING ITEMS AND EXPLANATION OF CERTAIN DIFFERENCES BETWEEN DUTCH GAAP AND US GAAP A. SERIES A PREFERRED STOCK During 1999 the Company completed a round of Series A Mandatorily Redeemable Preferred Stock. Under the shareholders agreement related to the issuance of Series A Preferred Stock, a merger, consolidation, reorganisation or sale of all, or substantially all, of the Company's assets shall be deemed a liquidation event. Also under the agreement, upon a liquidation event, the investors have a preferred liquidation right equal to their original investment. Since under US GAAP, the events as described above, are outside the control of the Company and the preferred liquidation right equals a redemption right, the Series A Preferred Stock have been classified as a Mezzanine. Under Dutch GAAP the investment has been classified as shareholders equity. B. SERIES B PREFERRED STOCK During 2000 the Company completed a round of Series B Mandatorily Redeemable Preferred Stock. Under the shareholders agreement related to the issuance of Series B Preferred Stock the holders of at least a majority of the outstanding Series B Preferred Stock may, by written request, delivered after July 19, 2005, require the Company to redeem the preferred stock by paying in cash a sum equal to their original Issue Price of USD 3,20 per share. As a result, the Series B Preferred Stock is classified as a Mezzanine. Under Dutch GAAP the investment has been classified as shareholders equity. C. ACCRETION ON ISSUANCE COSTS Under US GAAP, the expenses related to the issuance of Stock of EUR 342,000 need to be accounted for as a reduction in the proceeds of the stock issuance. As result of the fact that the issuance during 2000 concerned mandatorily redeemable preferred stock with mandatory 24 redemption 5 years after issuance, the issuance costs need to be accreted up to the redemption value over this period. Under Dutch GAAP issuance costs are recorded in the Statement of Income. D. ISSUANCE WARRANTS ON SERIES B PREFERRED STOCK In July 1999, the Company issued a EUR 340,000 contingently Convertible Subordinated note. Upon occurrence of a second financing round, the principal and accrued interest were to become convertible into the new shares of Series A Preferred Stock, provided such event occurred or was reasonably negotiated by June 30, 2000. However if the event had not occurred at that date, the lender had the right to convert the note and accrued interest into shares of Series A Convertible Preferred Stock at a price per share of EUR 0,39. In connection with the debt offering, the Company committed to issuing warrants in the total amount of EUR 113,000. The warrants were contingently exercisable upon occurrence of both events: a second round of financing and conversion of the contingently convertible subordinated note into Series A Preferred Stock. At the time of the second round of financing in July 2000, the contingently convertible subordinated note was converted into Series B Preferred Stock. In conjunction with this round of financing and conversion of the note, the contingencies of the warrants were resolved. The warrants gave the holder the right to purchase 33,670 shares of Series B Preferred Stock at a purchase price of USD 3,20 per share. These warrants are exercisable for a period of four years commencing on July 19, 2000. The proceeds from this transaction must be allocated between the preferred stock and the detachable warrant using the relative fair value. The fair value of the warrants at the date of grant was EUR 255.000 using the Black Scholes model (risk-free interest rate 5,91%, volatility 100%, term 4 years, dividend zero, stock price USD 3,20, exercise price USD 3,20). The preferred stock had the fair value of EUR 336.000 using the following assumptions interest rate 5,5%, term 5 years, repayment amount EUR 355.000. As a result the relative fair value of the warrant was EUR 153.000. For US GAAP the embedded beneficial conversion feature was recognized and measured by allocation of a portion of the proceeds equal to the intrinsic value of the feature to additional paid in capital. The amount was calculated at the commitment date as the difference between the conversion price EUR 1,91 and the fair value of the preferred stock, EUR 3,37 multiplied by the number of preferred shares, 105.310 which resulted in EUR 153.000. Under US GAAP the EUR 306.000 has been added to additional paid-in capital. Under Dutch GAAP the warrant has not been valued. E. ACCRETION TO REDEMPTION VALUE RELATED TO WARRANTS Since the underlying preferred stock of the warrants, described by D, becomes mandatorily redeemable after July 2005, the value allocated to the warrants of EURO 153,000 must be accreted over a period of five years. Under Dutch GAAP, the fair value of warrants and beneficial conversion features is not recorded. 25 F. ACCRETION TO REDEMPTION VALUE RELATED TO BENEFICIAL CONVERSION FEATURES ON WARRANTS The warrants, described by D, was given to the shareholders with a discount of EURO 153,000, which is accreted over a period of five years under US GAAP. Under Dutch GAAP, the fair value of warrants and beneficial conversion features is not recorded. G. STOCK BASED COMPENSATION The Company's first stock option plan includes the following provisions (summary) regarding non vested stock options and termination of employment: "Stock options that have not vested upon termination of employment do not forfeit upon termination. However, these stock options continue to vest according to the original vesting schedule included in the individual's stock option agreement. The reason for this clause is that this makes the stock options "unconditional" for tax purposes and therefore will receive a favourable tax treatment. If a former-employee exercises stock options after termination of employment that were non-vested on the moment that he/she left the Company, the shares that were acquired as a result of this exercise must be offered, first to the shareholders of the Company and secondly, if no buyer is found, the Board may appoint a purchaser, which could be a third party. Options vested and exercised after the termination date shall be offered at the original grant date price. The Board may, at its own discretion, waive such obligation." These provisions do not result in variable plan accounting for all stock options under APB 25 prior to a change in status from an employee to a non-employee. In substance the above provisions are a cancellation clause as employees can not earn any money by exercising stock options that vested subsequent to termination of employment. It seems therefore unlikely that employees will exercise stock options that vested after termination. However, under APB 25, when an employee leaves the Company a new measurement date occurs due to a change in the employees status, as technically spoken the unvested stock options continue to vest while the owner is no longer employee. This measurement results in compensation expense. At December 31, 2001 the accumulated compensation expense amounts to EUR 107.000. The amount for December 31, 2002 was insignificant. Under Dutch GAAP compensation expenses is not recognized. H. ISSUANCE OF WARRANTS ON SERIES B PREFERRED STOCK In July 2000, the Company committed to issuing up to 550,000 warrants to an investor in exchange for consulting services. The number of warrants depends on the software license sales that occur on or before December 31, 2001 as a result of the consultant's involvement. Revenues have been generated through December 31, 2001 for which 11.000 performance warrants have been granted to the shareholder pursuant to this agreement. These warrants were valued by the Company at EURO 13.000 which have been added to cost of revenue product licenses. These warrants expired in the year 2002, as they have not been exercised before expiration date September 1, 2002. Under Dutch GAAP the warrants were not valued. 26 I. RELEASE OF CTA AS RESULT OF LIQUIDATION OF SUBSIDIARIES The Company has liquidated its French and US entity as of December 31, 2002. The cumulative translation adjustment recorded for these entities within equity was EURO 105.000. Under US GAAP the cumulative translation adjustment relating to the liquidated entities should be charged to income. Under Dutch GAAP the cumulative translation adjustment is transferred to the other reserves from accumulated translation difference. J. OTHER DIFFERENCES Cash flow statement Data Distilleries compiles its cash flow statement in accordance with Dutch GAAP, which corresponds with International Accounting Standards (IAS 7). The SEC's rules applicable to the Financial Statements permit the compilation of cash flow statements under IAS 7. Restricted cash The restricted cash disclosed in note 7 would not apply for restricted cash under US GAAP as the restriction matures within approximately one month. Therefore restricted cash is considered cash and cash equivalents for US GAAP. RECENT US GAAP ACCOUNTING PRONOUNCEMENTS In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognised and measured initially at its fair value in the period in which the liability is incurred. Previously a liability for an exit cost was required to be recognised at the date of an entity's commitment to an exit plan, however this does not, by itself, create a present obligation to others that meets the definition of a liability. SFAS 146 will be effective for any exit or disposal activities that are initiated after December 31, 2002. The Company has initiated no such exit or disposal activities after December 31, 2002. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how companies classify and measure certain financial instruments with characteristics of both liabilities and equity. It requires companies classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) as defined in SFAS 150. SFAS 150 is effective for the Company for fiscal periods beginning after December 15, 2003. For financial instruments created before the issuance date of this Statement and still existing at the beginning of the interim period of adoption, transition shall be achieved by reporting the cumulative effect of a change in an accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by the Statement. Upon adoption the Company's series A and series B Preferred Stock will be classified as a liability. 27 In November 2002, the EITF reached a consensus on Issue No. 00-21, "Multiple Deliverable Revenue Arrangement" ("EITF 00-21"). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early application permitted. The Company has assessed it's current accounting for multiple element arrangements and the impact of adoption of EITF 00-21 will be immaterial for the Companies consolidated financial statements. In November 2001, the FASB discussed Topic D-103, recharacterized as EITF Issue No. 01-14, "Income Statement Characterization of Reimbursements Received for `Out-of-Pocket' Expenses Incurred." This issue deals with classification in the statement of operations of incidental expenses, that in practice are commonly referred to as "out-of-pocket" expenses, incurred by entities that provide services as part of their central on-going operations. The EITF reached a consensus that reimbursements received for out-of-pocket expenses incurred should be characterized as revenue in the statement of operations. This issue is effective for fiscal years which began after December 15, 2001. During 2002, the Company adopted EITF 01-14 which did not have a material impact on the consolidated financial position, result of operations, or cash flows. In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 requires that a liability (at fair value) be recorded in the guarantor's balance sheet upon issuance of a guarantee or indemnification. In addition, FIN 45 requires disclosures about the guarantees and indemnifications that an entity has issued, including a reconciliation of changes in the entity's product warranty liabilities. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees and indemnifications issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The Company has adopted FIN 45, which did not have a material impact on its consolidated financial position, results of operations, or cash flows. In January 2003, the FASB issued FASB Interpretation No. 46 , "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 " ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity. The company does not have variable interest entities as defined in FIN 46. 18. SUBSEQUENT EVENTS A shareholder has decided in 2003 to sell its share to the company for a total amount of USD 48.000. The amount will be paid to the shareholder in terms ending on November 2003. On November 4, 2003 the Company entered into a stock purchase agreement with SPSS in which SPSS acquired all outstanding capital stock of the Company for approximately $6.3 million. This consideration includes $1.0 million in cash and 281,830 shares of SPSS common stock valued at $5.3 million for purposes of this transaction. Over the next two years, the shareholders of the Company can also receive additional cash payments totalling $4.1 million at current approximate exchange rates, contingent on the achievement of certain growth targets for license and maintenance revenues from the Company's applications. SPSS is a multinational computer software company providing technology that transforms data into insight through the use of predictive analytics and other data mining techniques. 28 (ii) Data Distilleries B.V. Unaudited Financial Statements for the Nine Months Ended September 30, 2003 and 2002. CONSOLIDATED BALANCE SHEETS OF DATA DISTILLERIES B.V.
SEPTEMBER 30, 2003 (UNAUDITED) DECEMBER 31, 2002 -------------------------------- -------------------------------- E E E E ASSETS FIXED ASSETS Tangible fixed assets [4] 122.105 289.035 Financial fixed assets [5] 35.700 65.399 ----------- ----------- Total fixed assets 157.805 354.434 CURRENT ASSETS Trade accounts receivable 491.513 1.132.881 Other receivables [6] 179.978 250.811 Cash and bank balances [7] 597.183 202.682 ----------- ----------- Total current assets 1.268.674 1.586.374 --------- --------- TOTAL ASSETS 1.426.479 1.940.808 --------- --------- EQUITY AND LIABILITIES SHAREHOLDERS' EQUITY [8] Issued and paid up share capital 66.083 66.083 Additional paid in capital 21.096.186 21.096.186 Accumulated translation difference (66.158) (87.106) Other reserves (20.478.899) (16.573.271) Result for the period 10.687 (3.864.601) ----------- ----------- 627.899 637.291 CURRENT LIABILITIES Trade accounts payable 102.950 218.082 Taxes payable [9] 62.345 64.811 Other liabilities and accruals [10] 633.285 1.020.624 ----------- ----------- Total current liabilities 798.580 1.303.517 --------- --------- Total equity and liabilities 1.426.479 1.940.808 --------- ---------
The accompanying notes form an integral part of these financial statements 29 CONSOLIDATED STATEMENTS OF INCOME OF DATA DISTILLERIES B.V.
JANUARY - SEPTEMBER 2003 JANUARY - SEPTEMBER 2002 (UNAUDITED) (UNAUDITED) --------------------------- --------------------------- E E E E REVENUES [13] 2.844.076 2.413.409 --------- ---------- Personnel expenses [14] 2.154.469 4.330.407 Depreciation expenses 166.930 221.267 Other operating expenses [15] 500.443 1.684.538 --------- --------- 2.821.842 6.236.212 --------- ---------- OPERATING RESULT 22.234 (3.822.803) Other (cost) / income [16] (11.547) (69.689) --------- ---------- RESULT BEFORE TAXATION 10.687 (3.892.492) Taxation on result - - --------- ---------- NET PROFIT (LOSS) 10.687 (3.892.492) --------- ----------
The accompanying notes form an integral part of these financial statements 30 CONSOLIDATED CASH FLOW STATEMENTS OF DATA DISTILLERIES B.V.
JANUARY - JANUARY - SEPTEMBER 2003 SEPTEMBER 2002 (UNAUDITED) (UNAUDITED) -------------- -------------- E E CASH FLOW FROM OPERATING ACTIVITIES Net profit (loss) for the 9 months period 10.687 (3.892.492) Adjustments to reconcile net profit / (loss) to cash used in operating activities Depreciation 166.930 221.267 Loss on disposal of tangible fixed assets - 2.940 Realized foreign currency results 16.836 97.682 Changes in operating assets and liabilities Accounts receivable 641.368 2.194.727 Other receivables 70.833 (147.033) Accounts payable (115.132) (792.279) Other liabilities and accruals (389.805) (1.039.999) -------- ---------- NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES 401.717 (3.355.187) CASH FLOW FROM INVESTING ACTIVITIES Investment / sale of tangible fixed assets - - -------- ---------- NET CASH USED IN INVESTING ACTIVITIES - - CASH FLOW FROM FINANCING ACTIVITIES Rent deposit reimbursement 29.699 10.314 Cost of Treasury Stock (41.027) - -------- ---------- NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES (11.328) 10.314 Effect of exchange rate changes on cash and bank balances 4.112 (185.418) -------- ---------- Net increase / (decrease) in cash and bank balances 394.501 (3.530.291) Cash and bank balances, beginning of period 202.682 4.332.153 -------- ---------- CASH AND BANK BALANCES, END OF PERIOD 597.183 801.862 -------- ----------
The accompanying notes form an integral part of these financial statements 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL Data Distilleries B.V., hereafter referred as "the Company" was established in Amsterdam on August 17, 1995. The principal activities of the Company are the development and selling of analytical customer relationship management ("CRM") software, as well as providing related maintenance and consultancy. 2. BASIS OF PRESENTATION These financial statements have been prepared under the historical cost convention and in accordance with Accounting Principles Generally Accepted in The Netherlands ("Dutch GAAP"). Dutch GAAP differs in certain respects from those generally accepted in the US and the effects of these differences in the determination of net results and shareholders' equity are shown in note 17 to the financial statements. These financial statements are not intended to and do not represent the statutory accounts or annual report of the Company pursuant to the provisions of Title 9, Book 2 of the Netherlands Civil Code. Such accounts and report have been filed with and can be directly obtained from the Chamber of Commerce within the Netherlands. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION PRINCIPLES The consolidated financial statements incorporate the accounts of the Company and its wholly owned subsidiaries: - Data Distilleries United Kingdom Ltd., Chertsey (United Kingdom) - Data Distilleries Germany GmbH, Goldbach (Germany) The 2002 consolidation included the US and French subsidiary. The Company has decided on various grounds to wind up both the French entity as well as the US entity as per December 31, 2002. Primarily all operations from these entities have been transferred to the parent company. Transactions between the companies included in the consolidation have been eliminated. FOREIGN CURRENCY TRANSLATION Assets and liabilities of operations whose functional currency is other than the Euro are translated using the exchange rate on the balance sheet date. Revenues and expenses of those operations are translated at 32 average exchange rate prevailing during the year. Translation differences arising from the translation of foreign currency amounts are charged or credited to equity. ACCOUNTING POLICIES RELATING TO BALANCE SHEET General The accounting policies are based on historical cost principles. All amounts are recorded at cost unless otherwise stated. Tangible fixed assets Tangible fixed assets are stated at the acquisition cost, less straight-line depreciation. The depreciation is calculated on the basis of the acquisition cost and the estimated economic life of the related asset. Accounts receivable Accounts receivable are due within the year and are stated at face value. A provision is deducted where necessary. ACCOUNTING POLICIES RELATING TO THE STATEMENT OF INCOME Determination of result Results represent the difference between the realisable value of the software, consultancy or training delivered/rendered and the cost and other charges for the period. The results on transactions are recognised in the period in which they are realised; losses are taken as soon as they are probable and reasonably estimable. Revenues Revenues represent the amounts charged to third parties for software delivered and services rendered in the reporting period less discounts, resellers' fee and exclusive of VAT. Revenues are mainly derived from software licensing fees, consulting and maintenance support services. License revenue is recognised when a signed license agreement exists, the software has been shipped or electronically delivered, the license fee is fixed and determinable, there is no continuing obligation and collection of the resulting receivable is probable. Maintenance revenues are amortised over the maintenance period involved. Pre invoiced and not yet recognised maintenance fees are accounted for as deferred revenues. Operating expenses Operating expenses represent the total of cost related to the reporting period insofar as these have not been included as financial expenses. 33 Product development All expenses related to product development are directly charged to the statement of income. Income tax The corporate income tax is calculated on the basis of the result for financial statement purposes and the prevailing regulations and rates. NEW ANNUAL REPORTING GUIDELINES Dutch GAAP In November 2002 the Dutch Council for Annual Reporting has issued the 2002 edition of the Guidelines for Annual Reporting. The following changes have been made to the guidelines, which have had no impact on these financial statements: - A change in method of estimation is not a change in accounting principle, but a change in estimate (RJ 140). The cumulative effect of a change in estimate may therefore no longer be accounted for as an adjustment to the opening balance of equity, but should be accounted for in line with RJ 145 (see below); - Retroactive treatment of changes in accounting estimates is no longer allowed. These changes should be accounted for in current or future periods that are impacted (RJ 145); - Additional detailed guidance and examples have been provided with regard to revenue recognition for several categories of revenue (RJ 270). 4. TANGIBLE FIXED ASSETS The movement in tangible fixed assets can be summarised as follows:
January - January - September December 2003 2002 (unaudited) ----------- --------- E E Cost 991.579 1.145.926 Accumulated depreciation (702.544) (510.087) -------- --------- Book value 289.035 635.839 -------- ---------
34 Changes during the period Investments 14.703 Depreciation (166.930) (291.750) Disposal costs (29.559) (164.117) Disposal accumulated depreciation 29.559 99.293 Currency exchange changes during the year - (4.933) -------- -------- Total changes during the year (166.930) (346.804) -------- -------- September 30 Cost 962.020 991.579 Accumulated depreciation (839.915) (702.544) -------- -------- Book value 122.105 289.035 -------- --------
The depreciation period for all tangible fixed assets is three years. Tangible fixed assets comprise of furniture, fixtures and computer hardware. 5. FINANCIAL FIXED ASSETS The financial fixed assets relate to security given in relation to rental agreements for buildings rented by the Company. 6. OTHER RECEIVABLES
September December 30, 2003 31, 2002 (unaudited) ----------- -------- E E VAT 82.555 223.006 Social security premiums receivable 23.532 - Other receivables and prepayments 73.891 27.805 ------- ------- 179.978 250.811 ------- -------
35 7. CASH AND BANK BALANCES All cash and bank balances included in this caption are unrestricted. 8. SHAREHOLDERS' EQUITY Movements in the shareholder's equity can be summarised as follows:
December 31, Movement for September 30, 2002 the 9 months 2003 period (unaudited) (unaudited) ------------ ------------ ------------- E E Share capital 66.083 - 66.083 Additional paid in capital 21.096.186 - 21.096.186 Translation adjustment (87.106) 20.948 (66.158) Other reserves (16.573.271) (3.905.628) (20.478.899) Result for the period (3.864.601) 3.875.288 10.687 ----------- ---------- ----------- Total 637.291 (9.392) 627.899 ----------- ---------- -----------
The movement in other reserves includes the purchase price for acquired own shares from one of the Company's shareholders for an amount of E 41.027. On July 19, 2000, the Company approved an increase in the number of authorised shares of its common stock and preferred stock to 28.000.000 and 4.000.003, respectively. In connection with this approval, the authorised shares of preferred stock were designated as follows: Non-cumulative preference shares A 4.000.000 Non-cumulative preference shares B 10.000.000 Non-cumulative preference shares C 1 Non-cumulative preference shares D 1 Non-cumulative preference shares E 1
On July 19, 2000, a total number of 1.934.690 ordinary shares are transferred from several private investors to a venture capital company. At the time of the transfer these shares were converted into Series B Convertible Preferred Stock. 36 On July 19, 2000, several venture capital companies and one private investor acquired 5.546.560 Series B Convertible Preferred Stock for an amount of USD 17.748.992. This has resulted in a share premium of USD 17.693.526 (approximately E 20 million). During 2000 a shareholder has exercised its right for conversion of a subordinated convertible loan of E 340.335 (that had been concluded on July 27, 1999) into 105.310 Series B Convertible Preferred Stock at a conversion price of USD 3.20 per share. This resulted in an increase of shareholders equity of approximately E 0,4 million. The issued and fully paid share capital per September 30, 2003 can be specified as follows (nominal par value per share E 0,0045378):
September 2002 2003 (unaudited) ----------- ------ E E Ordinary shares 18.448 18.448 Preference A shares 13.209 13.209 Preference B shares 34.426 34.426 ------ ------ Total 66.083 66.083 ------ ------
In addition to Ordinary shares, Series A Convertible Preferred Stock and Series B Convertible Stock, the Company has issued 1 share of Series C, D and E Convertible Preferred Stock each (at a nominal value per share of E 0,0045378). These shares give the holder the right to a seat in the Board of Supervisory Directors. Warrants On July 27, 1999 a Convertible Loan Agreement was concluded with an investor for an amount of E 340.335. In connection with this agreement, on July 19, 2000, the Company issued warrants to purchase 33.670 shares of Series B Convertible Preferred Stock at a purchase price of USD 3.20 per share. These warrants were exercisable immediately for a period of four years. In July 2000, the Company issued 582.180 (20% of the then outstanding shares of that investor) warrants to purchase shares of Series A Convertible Preferred Stock at a price of E 0.38979 per share. The warrants were exercisable through 20 January 2002 and had been contingently granted as part of the first financing round in January 1998. The investor has not exercised its rights under this warrant agreement and therefore these warrants have been cancelled. 37 In July 2000, the Company committed to issuing up to 550.000 warrants to an investor in exchange for lead generation. The number of warrants depends on the software license sales that occur before December 31, 2001 as a result of the investor's involvement. The warrants entitle the holder to purchase shares of Series B Convertible Preferred Stock at USD 3,20 per share. As a result of investors' activities in 2001, a number of 11.000 warrants have been granted. These warrants have expired in the year 2002, as they have not been exercised before expiration date September 1, 2002. Redemption right The holders of Series B Convertible Preferred Stock, unless converted, have the right to demand that the Company redeems the Preferred Shares at a price equal to their original Issue Price at any time after the fifth anniversary of this Agreement (five years after July 19, 2000). The redemption value of these shares is approximately USD 24,3 million at September 30, 2003. Additional Series B Convertible Preferred Stock that will be issued by the Company in the future as result of the exercise of warrants will also include this redemption feature. Liquidation preferences The shareholders shall procure and shall take any and all action possible to ensure that the aggregate consideration to be received by the shareholders as a result of a liquidation of the Company shall be distributed in the following order: - First, the holders of Series B Convertible Preferred Stock, - Secondly, the holders of Series A Convertible Preferred Stock, - Thereafter, any remaining consideration will be distributed to all shareholders on a pro-rata and as-converted basis. Stock options In September 1999 the shareholders approved a Stock Option Plan ("SOP") for the employees and the Board members of the Company. Under this SOP, the Board, at its own discretion, may grant options to acquire depository receipts of shares in the capital of the Company. Holders of depository receipts will be entitled to convert their depository receipts to common shares upon Initial Public Offering or other specific events. The maximum number of options to be granted under this SOP shall not exceed the number corresponding with 2.240.100 of ordinary shares, par value of E 0,0045378 per share. No options may be granted under this SOP after December 31, 2004. In August 2001 the shareholders approved a similar Stock Option Plan (SOP) for the employees and the Board members of the Company. The maximum number of options to be granted under this SOP shall not exceed the number corresponding with 1.838.150 of ordinary shares, par value of E 0,0045378 per share. No options may be granted under this SOP after December 31, 2010. In 2003 no new options have been issued. 38 The movement of the total number of granted options to employees, members of the Board of Directors and a member of the Supervisory Board for the period January 1 - September 30, 2003 is as follows:
Board of Supervisory Stock options issued Employees Directors Board Total --------- --------- ----------- --------- January 1, 2002 1.475.540 1.055.001 99.000 2.629.541 Grants 802.490 - - 802.490 Cancellations of grants (554.000) - - (554.000) Exercised (20) - - (20) --------- --------- ------ --------- January 1, 2003 1.724.010 1.055.001 99.000 2.878.011 --------- --------- ------ --------- Cancellations of grants (unaudited) (53.250) - - (53.250) --------- --------- ------ --------- September 30, 2003 (unaudited) 1.670.760 1.055.001 99.000 2.824.761 --------- --------- ------ ---------
The exercise price of the stock options outstanding at September 30, 2003 range from E 0,39 to E 3,48 per depository receipt. 9. TAXES PAYABLE This caption reflects wage tax payables. 10. OTHER LIABILITIES AND ACCRUALS
September 30, December 31, 2003 2002 (unaudited) ------------- ------------ E E Bonus employees 31.000 126.000 Accrued holiday allowance 61.705 116.830 Accrued operating expenses 106.170 34.845 Deferred revenue 373.972 570.013 Other liabilities 60.438 172.936 ------- --------- 633.285 1.020.624 ------- ---------
39 11. CONTINGENCIES AND COMMITMENTS NOT INCLUDED IN THE BALANCE SHEET (UNAUDITED) The Company has entered into long term commitments with regard to office rent and lease cars. The future commitments can be specified as follows; they include an annual 5% price index adjustment.
Computer lease Office rent Car lease -------------- ----------- --------- E E Last 3 months of 2003 3.927 35.300 40.902 2004 12.470 - 141.549 2005 and thereafter 12.218 - 131.197 ------ ------ ------- Total 28.615 35.300 313.648 ------ ------ -------
12. TAXATION Due to accumulated losses there is no income tax payable. No recognition is given to the potential tax benefit of these losses due to uncertainty about the realisability of the net operating losses carried forward. The accumulated losses can be specified as follows:
September 30, 2003 (unaudited) ------------- E Data Distilleries B.V. 15.010.350 Data Distilleries United Kingdom Ltd. 3.840.001 Data Distilleries Germany GmbH 1.178.443 ---------- 20.028.794 ----------
Data Distilleries France SAS and Data Distilleries United States Inc. have been liquidated as per December 31, 2002, therefore the Company has incurred losses on the loan and original share capital (E 2.302.606 and E 2.932.303 respectively) and has included these losses in the operating losses to be carried forward from Data Distilleries B.V. The operating losses can be carried forward indefinitely. 40 13. REVENUES The Company has sales in the Netherlands, various European countries and the United States.
January - January - September September 2003 2002 (unaudited) (unaudited) ----------- ----------- E E Products (licenses) 902.795 691.812 Consultancy 817.499 777.776 Maintenance 1.037.422 896.133 Training 77.517 47.688 Other revenues 8.843 - --------- --------- 2.844.076 2.413.409 --------- ---------
14. PERSONNEL EXPENSES
January - January - September September 2003 2002 (unaudited) (unaudited) ----------- ----------- E E Salary expenses 1.466.962 3.196.887 Bonus personnel 120.160 201.363 Social charges 132.212 347.739 Pension premiums 82.094 129.789 Recruitment 1.300 1.357 Temporary staff 180.699 228.440 Subsidy on wages (51.382) (53.623) Lease cars 206.363 184.055 Various personnel expenses 16.061 94.400 --------- --------- 2.154.469 4.330.407 --------- ---------
41 15. OTHER OPERATING EXPENSES
January - January - September September 2003 2002 (unaudited) (unaudited) ----------- ----------- E E Office rent 93.727 351.235 Service expenses 16.307 29.100 Office expenses 36.121 200.191 Rent office equipment 5.794 11.011 Subscriptions 32.757 32.874 Telephone 34.968 121.811 Selling expenses 52.827 274.831 Legal 43.878 128.728 Advisory 81.375 283.622 Travelling 63.691 186.477 Other expenses 38.998 64.658 ------- --------- 500.443 1.684.538 ------- ---------
Personnel The average number of Dutch staff plus affiliates during January to September 2003 was approximately 40 (January to September 2002: 45). Remuneration of the Board of Directors and the Board of Supervisory Directors The Board of Directors consists of one member in the nine months period of 2003. The Company therefore makes use of the exemption in article 2:383.1 of the Netherlands Civil Code. The members of the Board of Supervisory Directors in the aggregate received a remuneration in total of E 11.574 (2002: E 22.500) for the period January through September, 2003 resp. 2002. 42 16. OTHER (COST) / INCOME
January - January - September September 2003 2002 (unaudited) (unaudited) ----------- ----------- E E Interest income 5.487 27.993 Interest expenses (198) - Foreign currency results (16.836) (97.682) ------ ------- (11.547) (69.689) ------ -------
17. RECONCILIATION TO US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The financial statements are prepared in accordance with accounting principles generally accepted in the Netherlands (Dutch GAAP), which differ in certain respects from the accounting principles generally accepted in the United States of America (US GAAP). The following note summarizes the adjustments to Data Distilleries net result and total shareholders' equity that would have to be made if Data Distilleries was to report under US GAAP. Reconciliation of net result to US GAAP There are no reconciling items between Dutch GAAP and US GAAP for the net result for the periods ending September 30, 2002 and 2003. Reconciliation of consolidated shareholders' equity
September, December 31, 30, 2003 2002 (unaudited) ----------- ------------ E000 E000 SHAREHOLDERS' EQUITY AS REPORTED UNDER DUTCH GAAP 628 637 ADJUSTMENTS FOR: A. Series A Preferred Stock (1.134) (1.134) B. Series B Preferred Stock (26.857) (26.857) C. Issuance costs 124 175 D. Issuance warrants on series B preferred stock 306 306 E. Accretion to redemption value related to warrants (98) (75) F. Accretion to redemption value related to BCF warrants (98) (75) G. Issuance of warrants on Series B Preferred Stock (13) (13) H. Release CTA as result of liquidation subsidiaries -- 105 I. Foreign currency results -- (105) ------- ------- SHAREHOLDERS' EQUITY UNDER US GAAP (27.142) (27.036) ------- -------
43 Under US GAAP the shareholders' equity movement schedule (E000) is as follows:
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK PREFERRED STOCK COMMON STOCK --------------------------- ----------------- ------------------- SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT ---------- ------ ------ ------ --------- ------ ---------- ------ -- -- --------- -- BALANCE, DECEMBER 31, 2001 10,497,450 27,543 3 - 4,065,310 18 ========== ====== == == ========= == Accretion to redemption value of mandatorily preferred stock - 130 - - - - Currency translation adjustment - - - - - - Currency translation adjustment as result of liquidation subsidiaries Net loss - - - - - - ---------- ------ -- -- --------- -- BALANCE, DECEMBER 31, 2002 10,497,450 27,673 3 - 4,065,310 18 ========== ====== == == ========= == Accretion to redemption value of mandatorily preferred stock - 97 - - - - Currency translation adjustment - - - - - - Cost of purchase own shares Net loss - - - - - - ---------- ------ -- -- --------- -- BALANCE, SEPTEMBER 30, 2003 10,497,450 27,770 3 - 4,065,310 18 ========== ====== == == ========= == ADDITIONAL OTHER PAID-IN TREASURY COMPREHENSIVE ACCUMULATED CAPITAL STOCK INCOME DEFICIT TOTAL ---------- -------- ------------- ----------- ------- ------ -- --- ------- ------- BALANCE, DECEMBER 31, 2001 (6,622) - (40) (16,246) (22,890) ====== === === ======= ======= Accretion to redemption value of mandatorily preferred stock (130) - - (130) Currency translation adjustment - - (151) - (151) Currency translation adjustment as result of liquidation subsidiaries 105 - 105 Net loss - - - (3,970) (3,970) ------ -- --- ------- ------- BALANCE, DECEMBER 31, 2002 (6,752) - (86) (20,216) (27,036) ====== === === ======= ======= Accretion to redemption value of mandatorily preferred stock (97) - - (97) Currency translation adjustment - - 21 - 21 Cost of purchase own shares (41) (41) Net loss - - - 11 11 ------ -- --- ------- ------- BALANCE, SEPTEMBER 30, 2003 (6,849) (41) (65) (20,205) (27,142) ====== === === ======= =======
44 In addition to the reconciliation of Dutch GAAP to US GAAP for net result and shareholders' equity, US GAAP requires that a statement of comprehensive income be presented in accordance with SFAS 130 "Reporting Comprehensive Income". Comprehensive income reflects all changes in shareholders' equity during a certain period, with the exception of payments by and distributions to shareholders. Comprehensive income
January - January - September September 2003 2002 (unaudited) (unaudited) ----------- ----------- E000 E000 NET INCOME (LOSS) UNDER US GAAP 11 (3.892) OTHER COMPREHENSIVE INCOME ITEMS Exchange rate differences through shareholders' equity 21 (88) -- ------ COMPREHENSIVE INCOME 32 (3.980) -- ------
RECONCILING ITEMS AND EXPLANATION OF CERTAIN DIFFERENCES BETWEEN DUTCH GAAP AND US GAAP A. SERIES A PREFERRED STOCK During 1999 and 2000 the Company completed a round of Series A Mandatorily Redeemable Preferred Stock. Under the shareholders agreement related to the issuance of Series A Preferred Stock, a merger, consolidation, reorganisation or sale of all, or substantially all, of the Company's assets shall be deemed a liquidation event. Also under the agreement, upon a liquidation event, the investors have a preferred liquidation right equal to their original investment. Since under US GAAP, the events as described above, are outside the control of the Company and the preferred liquidation right equals a redemption right, the Series A Preferred Stock have been classified as a Mezzanine. Under Dutch GAAP the investment has been classified as shareholders' equity. B. SERIES B PREFERRED STOCK During 2000 the Company completed a round of Series B Mandatorily Redeemable Preferred Stock. Under the shareholders agreement related to the issuance of Series B 45 Preferred Stock the holders of at least a majority of the outstanding Series B Preferred Stock may, by written request, delivered after July 19, 2005, require the Company to redeem the preferred stock by paying in cash a sum equal to their original Issue Price of USD 3,20 per share. As a result, the Series B Preferred Stock is classified as a Mezzanine. Under Dutch GAAP the investment has been classified as shareholders' equity. C. ISSUANCE COSTS Under US GAAP, the expenses related to the issuance of Stock of EUR 342,000 need to be accounted for as a reduction in the proceeds of the stock issuance. As result of the fact that the issuance during 2000 concerned mandatorily redeemable preferred stock with mandatory redemption 5 years after issuance, the issuance costs need to be accreted up to the redemption value over this period. Under Dutch GAAP issuance costs are recorded in the Statement of Income. D. ISSUANCE WARRANTS ON SERIES B PREFERRED STOCK In July 1999, the Company issued a EUR 340,000 contingently Convertible Subordinated note. Upon occurrence of a second financing round, the principal and accrued interest were to become convertible into the new shares of Series A Preferred Stock, provided such event occurred or was reasonably negotiated by June 30, 2000. However if the event had not occurred at that date, the lender had the right to convert the note and accrued interest into shares of Series A Convertible Preferred Stock at a price per share of EUR 0,39. In connection with the debt offering, the Company committed to issuing warrants in the total amount of EUR 113,000. The warrants were contingently exercisable upon occurrence of both events: a second round of financing and conversion of the contingently convertible subordinated note into Series A Preferred Stock. At the time of the second round of financing in July 2000, the contingently convertible subordinated note was converted into Series B Preferred Stock. In conjunction with this round of financing and conversion of the note, the contingencies of the warrants were resolved. The warrants gave the holder the right to purchase 33,670 shares of Series B Preferred Stock at a purchase price of USD 3,20 per share. These warrants are exercisable for a period of four years commencing on July 19, 2000. The proceeds from this transaction must be allocated between the preferred stock and the detachable warrant using the relative fair value. The fair value of the warrants at the date of grant was EUR 255.000 using the Black Scholes model (risk-free interest rate 5,91%, volatility 100%, term 4 years, dividend zero, stock price USD 3,20, exercise price USD 3,20). The preferred stock had the fair value of EUR 336.000 using the following assumptions interest rate 5,5%, term 5 years, repayment amount EUR 355.000. As a result the relative fair value of the warrant was EUR 153.000. For US GAAP the embedded beneficial conversion feature was recognized and measured by allocation of a portion of the proceeds equal to the intrinsic value of the feature to additional paid in capital. The amount was calculated at the commitment date as the difference between the conversion price EUR 1,91 and the fair value of the preferred stock, 46 EUR 3,37 multiplied by the number of preferred shares, 105.310 which resulted in EUR 153.000. Under US GAAP the EUR 306.000 has been added to additional paid-in capital. Under Dutch GAAP the warrant has not been valued. E. ACCRETION TO REDEMPTION VALUE RELATED TO WARRANTS Since the underlying preferred stock of the warrants, described by D, becomes mandatorily redeemable after July 2005, the value allocated to the warrants of EUR 153,000 must be accreted over a period of five years. Under Dutch GAAP the fair value of the warrants and beneficial conversion feature is not recorded separately. F. ACCRETION TO REDEMPTION VALUE RELATED TO BENEFICIAL CONVERSION FEATURE ON WARRANTS The warrants, described by D, were given to the shareholders with a discount of EUR 153,000, which is accreted over a period of five years under US GAAP. Under Dutch GAAP the fair value of the warrants and beneficial conversion feature is not recorded separately. G. ISSUANCE OF WARRANTS ON SERIES B PREFERRED STOCK In July 2000, the Company committed to issuing up to 550.000 warrants to an investor in exchange for consulting services. The number of warrants depends on the software license sales that occur before December 31, 2001 as a result of the consultant's involvement. Revenues have been generated through December 31, 2001 for which 11.000 performance warrants have been granted to the shareholder pursuant to this agreement. These warrants were valued by the Company at EUR 13.000 which has been added to cost of revenue product licenses. These warrants expired in the year 2002, as they have not been exercised before expiration date September 1, 2002. Under Dutch GAAP the warrants were not valued. H. RELEASE OF CTA AS RESULT OF LIQUIDATION OF SUBSIDIARIES The Company has liquidated its French and US entity as of December 31, 2002. The cumulative translation adjustment recorded for these entities within equity was EURO 105.000. Under US GAAP the cumulative translation adjustment relating to the liquidated entities should be changed to income. Under Dutch GAAP, the cumulative translation adjustment is transferred to the other reserves. I. OTHER DIFFERENCES Cash flow statement Data Distilleries compiles its cash flow statement in accordance with Dutch GAAP, which corresponds with International Accounting Standards (IAS 7). The SEC rules applicable to the Financial Statements permit the compilation of cash flow statements under IAS 7. RECENT US GAAP ACCOUNTING PRONOUNCEMENTS In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with Exit or Disposal Activities". SFAS 146 requires that a liability for costs associated with an exit or disposal activity be recognised and measured initially at its fair value in the period in 47 which the liability is incurred. Previously a liability for an exit cost was required to be recognised at the date of an entity's commitment to an exit plan, however this does not, by itself, create a present obligation to others that meets the definition of a liability. SFAS 146 is effective for any exit or disposal activities initiated after December 31, 2002. The Company has initiated no such exit or disposal activities after December 31, 2002. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how companies classify and measure certain financial instruments with characteristics of both liabilities and equity. It requires companies classify a financial instrument that is within its scope as a liability (or an asset in some circumstances) as defined in SFAS 150. SFAS 150 is effective for the Company for fiscal periods beginning after December 15, 2003. For financial instruments created before the issuance date of this Statement and still existing at the beginning of the interim period of adoption, transition shall be achieved by reporting the cumulative effect of a change in an accounting principle by initially measuring the financial instruments at fair value or other measurement attribute required by the Statement. Upon adoption the Company's series A and series B Preferred Stock will be classified as a liability. In November 2002, the EITF reached a consensus on Issue No. 00-21, "Multiple Deliverable Revenue Arrangement" ("EITF 00-21"). EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. The guidance in EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with early application permitted. The Company has assessed its current accounting for multiple element arrangements and the impact of adoption of EITF 00-21 was immaterial for the Companies consolidated financial statements. 48 In January 2003, the FASB issued FASB Interpretation No. 46 , "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 " ("FIN 46"). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity. The company does not have variable interest entities as defined in FIN 46. 18. SUBSEQUENT EVENTS - NEW SHAREHOLDERS AGREEMENT In October 2003 a new shareholders agreement was concluded, in which several shareholders have agreed to waive their respective rights to exercise warrants and stock options. On November 4, 2003 the Company entered into a stock purchase agreement with SPSS in which SPSS acquired all outstanding capital stock of the Company for approximately $6.3 million. This consideration includes $1.0 million in cash and 281,830 shares of SPSS common stock, valued at $5.3 million for purposes of this transaction. Over the next two years, the shareholders of the Company can also receive additional cash payments totalling $4.1 million at current approximate exchange rates, contingent on the achievement of certain growth targets for license and maintenance revenues from the Company's applications. SPSS is a multinational computer software company providing technology that transforms data into insight through the use of predictive analytics and other data mining techniques. 49 (b) Pro Forma Financial Information SPSS Inc. Unaudited Pro Forma Condensed Combined Balance Sheet As of September 30, 2003 (In U.S. $ thousands)
(A) Data Pro Forma Pro Forma SPSS Distilleries Adjustments Combined -------- ------------ ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 22,910 $ 692 $ - $ 23,602 Accounts receivable, net 43,191 571 (100) (B) 43,662 Inventories 2,558 - - 2,558 Other current assets 27,011 209 - 27,220 -------- -------- -------- -------- Total current assets 95,670 1,472 (100) 97,042 Property, equipment and leasehold improvements, net 33,490 141 (100) (C) $ 33,531 Capitalized software development costs, net 29,616 - - 29,616 Goodwill 53,560 - 6,409 (D) 59,969 Intangibles, net of accumulated amortization 11,622 - 1,000 (D) 12,622 Other noncurrent assets 15,119 42 - 15,161 -------- -------- -------- -------- Total assets $239,077 $ 1,655 $ 7,209 $247,941 ======== ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable $ 2,500 $ - $ - $ 2,500 Accounts payable 8,677 119 - 8,796 Other current liabilities 32,542 374 1,626 (E) 34,542 Deferred revenues 40,176 434 - 40,610 -------- -------- -------- -------- Total current liabilities 83,895 927 1,626 86,448 Noncurrent liabilities 13,857 - 1,000 (G) 14,857 Mandatorily Redeemable Preferred Stock 32,205 (32,205) (F) - 31,477 (F) Stockholders' equity 141,325 (31,477) 5,311 (G) 146,636 -------- -------- -------- -------- Total liabilities and stockholders' equity $239,077 $ 1,655 $ 7,209 $247,941 ======== ======== ======== ========
See accompanying notes to unaudited pro forma condensed combined financial statements 50 SPSS Inc. Unaudited Pro Forma Condensed Combined Statement of Operations Year ended December 31, 2002 (In U.S. $ thousands, except per share data)
(H) Data Pro Forma Pro Forma SPSS Distilleries Adjustments Combined --------- ------------ ----------- --------- Net revenues $209,300 $ 3,516 $ - $ 212,816 Cost of revenues 26,951 - 479 (I) 27,430 -------- -------- ------- --------- Gross Profit 182,349 3,516 (479) 185,386 Operating expenses 191,643 7,093 (479) (I) 198,257 -------- -------- ------- --------- Operating income (loss) (9,294) (3,577) - (12,871) Other income (expense) (330) (177) (70) (J) (577) -------- -------- ------- --------- Income (loss) before income taxes and minority interest (9,624) (3,754) (70) (13,448) Income tax benefit (1,228) - (1,377) (K) (2,605) -------- -------- ------- --------- Income (loss) before minority interest (8,396) (3,754) 1,307 (10,843) Minority interest 497 - - 497 -------- -------- ------- --------- Net income (loss) $ (7,899) $ (3,754) $ 1,307 $ (10,346) ======== ======== ======= ========= Basic earnings per share $ (0.47) $ (0.60) Diluted earnings per share (0.47) (0.60) Shares used in computing 16,887 282 (L) 17,169 basic earnings per share Shares used in computing 16,887 282 (L) 17,169 diluted earnings per share
See accompanying notes to unaudited pro forma condensed combined financial statements. 51 SPSS Inc. Unaudited Pro Forma Condensed Combined Statement of Operations Nine months ended September 30, 2003 (In U.S. $ thousands, except per share data)
(H) Data Pro Forma Pro Forma SPSS Distilleries Adjustments Combined -------- ------------ ----------- --------- Net revenues $152,484 $ 3,163 $ - $ 155,647 Cost of revenues 11,802 - 220 (I) 12,022 -------- ------- ----- --------- Gross Profit 140,682 3,163 (220) 143,625 Operating expenses 130,457 3,139 (220) (I) 133,376 -------- ------- ----- --------- Operating income (loss) 10,225 24 - 10,249 Other income (expense) 643 (12) (49) (J) 582 -------- ------- ----- --------- Income (loss) before income taxes and minority interest 10,868 12 (49) 10,831 Income tax expense (benefit) 3,911 - (14) (K) 3,897 -------- ------- ----- --------- Income (loss) before minority interest 6,957 12 (35) 6,934 Minority interest - - - - -------- ------- ----- --------- Net income (loss) $ 6,957 $ 12 $ (35) $ 6,934 ======== ======= ===== ========= Basic earnings per share $ 0.40 $ 0.39 Diluted earnings per share 0.39 0.38 Shares used in computing 17,276 282 (L) 17,558 basic earnings per share Shares used in computing 17,797 282 (L) 18,079 diluted earnings per share
See accompanying notes to unaudited pro forma condensed combined financial statements. 52 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS NOTE 1 - DESCRIPTION OF BUSINESS COMBINATION On November 5, 2003, SPSS Inc. ("SPSS"), through its wholly-owned subsidiary, SPSS International B.V. ("SPSS International"), acquired all of the issued and outstanding shares of capital stock of DataDistilleries, B.V. (or "Data Distilleries"). 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 and the former shareholders of Data Distilleries. The aggregate purchase price for all of the issued and outstanding shares of capital stock of Data Distilleries was determined by the parties in arms-length negotiations. The Stock Purchase Agreement provides for a guaranteed payment of $1 million in cash and 281,830 shares of SPSS Common Stock valued at approximately $5.3 million to be made at the closing of the transaction. The Stock Purchase Agreement also provides that, over the next two years, the former shareholders of Data Distilleries can receive additional cash payments totaling $4.1 million at current approximate exchange rates, contingent on the achievement of certain growth targets for license and maintenance revenues from the Data Distilleries applications. The contingent payments will be paid, if at all, at the end of the first and second years following the closing of the transaction. It is not currently possible to calculate the contingent payments due, and, therefore, the payments have not been included in the unaudited condensed combined financial statements. The Common Stock that represents a portion of the guaranteed payment is currently unregistered and cannot be resold by the former Data Distilleries shareholders until a registration statement is filed with respect to these shares. Pursuant to the terms of the Stock Purchase Agreement, SPSS is obligated to file a registration statement with the SEC to register the resale by the former Data Distilleries shareholders of the SPSS common stock issued to them at the closing. The unaudited pro forma condensed combined financial statements combine the balance sheets and results of operations of SPSS and Data Distilleries as of and for the nine month period ended September 30, 2003 and the results of operations of SPSS and Data Distilleries for the year ended December 31, 2002. NOTE 2 - PRO FORMA ADJUSTMENTS The following adjustments are reflected in the unaudited pro forma condensed combined financial statements under the columns headed "Pro Forma Adjustments." Unaudited Pro Forma Condensed Combined Balance Sheet (A) Represents Data Distilleries September 30, 2003 balance sheet translated at the spot rate for the Euro at September 30, 2003. 53 (B) Represents an allowance for uncollectible receivables outstanding on the opening balance sheet date based upon SPSS accounting policy. (C) Represents a write-off of net property, equipment, and leasehold improvements without continuing value to SPSS Inc. (D) The preliminary purchase price allocation includes an estimate of approximately $1.0 million of intangible assets and approximately $6.4 million of goodwill. The final purchase price allocation is subject to change and is not necessarily indicative of the ultimate purchase price allocation. (E) Represents external advisory fees, professional fees and other acquisition related expenses expected to be incurred in conjunction with the acquisition of Data Distilleries. (F) Represents adjustment to eliminate shareholders' equity of Data Distilleries. (G) Represents financing impact of the purchase. The Stock Purchase Agreement provides for a guaranteed payment of $1 million in cash reflected as long-term debt and 281,830 shares of SPSS Common Stock valued at approximately $5.3 million to be issued at the final closing of the transaction recorded to stockholders' equity. Unaudited Pro Forma Condensed Combined Statement of Operations (H) Represents Data Distilleries year ended December 31, 2002 and nine months ended September 30, 2003 statements of operations translated at the average rate for the Euro for the respective period. (I) Represents an adjustment to reclassify certain operating expenses to cost of revenues in the statement of operations based upon SPSS accounting policy. (J) Represents adjustments to increase interest expense related to cash payment for the acquisition at an effective interest rate of 7% for the year ended December 31, 2002 and 6.5% for the nine months ended September 30, 2003. (K) Represents the estimated tax effect of the pro forma adjustments described above and the operating results of Data Distilleries. (L) Represents issuance of 281,830 shares of SPSS Inc. Common Stock to Data Distilleries as purchase consideration. (c) Exhibits 23.1 Consent of PricewaterhouseCoopers 54 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 hereunto duly authorized. SPSS INC. By: /s/ ROBERT BRINKMANN ---------------------------------- Robert Brinkmann, Assistant Secretary and Controller Dated: January 19, 2004 55 SPSS INC. EXHIBIT INDEX Exhibit No. Description 23.1 Consent of PricewaterhouseCoopers 56