-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OsSiUBPo3KBO0rRB3Lc5AeBP/l2tDcxKLYhIzLjFVCuwYiUkda6xlTQZHVSiluYM GaTdMgxpKbUWJ0PajXhKMQ== 0000950137-04-006444.txt : 20040809 0000950137-04-006444.hdr.sgml : 20040809 20040809155624 ACCESSION NUMBER: 0000950137-04-006444 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPSS INC CENTRAL INDEX KEY: 0000869570 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 362815480 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22194 FILM NUMBER: 04961363 BUSINESS ADDRESS: STREET 1: 233 S WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3123292400 MAIL ADDRESS: STREET 1: 233 SOUTH WACKER DRIVE CITY: CHICAGO STATE: IL ZIP: 60606 10-Q 1 c87406e10vq.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 COMMISSION FILE NUMBER: 33-64732 SPSS INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 36-2815480 (STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.) OF INCORPORATION OR ORGANIZATION) 233 S. WACKER DRIVE, CHICAGO, ILLINOIS 60606 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (312) 651-3000 INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ] INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES [X] NO [ ] AS OF AUGUST 1, 2004, THERE WERE 17,579,981 SHARES OF COMMON STOCK OUTSTANDING, PAR VALUE $.01, OF THE REGISTRANT. ================================================================================ SPSS INC. FORM 10-Q QUARTER ENDED JUNE 30, 2004 INDEX
PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2003 AND JUNE 30, 2004 (UNAUDITED) 3 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2003 (AS RESTATED) (UNAUDITED) AND 2004 (UNAUDITED) 4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2003 (AS RESTATED) (UNAUDITED) AND 2004 (UNAUDITED) 5 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 (AS RESTATED) (UNAUDITED) AND 2004 (UNAUDITED) 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15 ITEM 4. CONTROLS AND PROCEDURES 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 19 ITEM 5. OTHER INFORMATION 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
2 ITEM 1. FINANCIAL STATEMENTS SPSS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30, 2003 2004 ------------ ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 36,101 $ 36,031 Accounts receivable, net 49,317 36,403 Inventories, net 1,444 626 Deferred income taxes 14,023 14,577 Prepaid income taxes 3,996 12,744 Prepaid expenses and other current assets 7,931 4,705 ------------ ----------- Total current assets 112,812 105,086 ------------ ----------- Property, equipment and leasehold improvements, net 27,771 25,199 Restricted cash 190 190 Capitalized software development costs, net 26,826 28,125 Goodwill 44,020 43,800 Intangibles, net 3,380 3,219 Noncurrent deferred income taxes 11,375 11,309 Other assets 2,633 2,420 ------------ ----------- $ 229,007 $ 219,348 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable $ 2,500 $ 2,500 Accounts payable 7,169 5,602 Income taxes payable 2,863 1,817 Deferred revenues 59,379 55,098 Other accrued liabilities 24,600 24,707 ------------ ----------- Total current liabilities 96,511 89,724 ------------ ----------- Noncurrent notes payable 5,951 4,645 Noncurrent deferred income taxes 632 632 Other noncurrent liabilities 853 1,296 Common stock subject to repurchase 5,421 -- STOCKHOLDERS' EQUITY: Common Stock, $.01 par value; 50,000,000 shares authorized; 17,426,097 and 17,571,517 shares issued and outstanding in 2003 and 2004, respectively 173 176 Additional paid-in capital 148,202 150,439 Deferred compensation (385) (265) Accumulated other comprehensive loss (6,576) (6,660) Accumulated deficit (21,775) (20,639) ------------ ----------- Total stockholders' equity 119,639 123,051 ------------ ----------- Total liabilities and stockholders' equity $ 229,007 $ 219,348 ============ ===========
See accompanying notes to consolidated financial statements. 3 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- --------------------------- 2003 2004 2003 2004 ------------- --------- ------------- --------- (AS RESTATED) (AS RESTATED) Net revenues: License fees $ 21,110 $ 20,952 $ 42,505 $ 45,778 Maintenance 20,462 24,246 38,786 48,087 Services 8,331 7,806 16,766 16,249 ------------- --------- ------------- --------- Total net revenues 49,903 53,004 98,057 110,114 Operating expenses: Cost of license and maintenance revenues 3,081 3,240 6,087 7,176 Sales, marketing and services 30,464 34,658 61,193 67,045 Research and development 10,999 11,690 21,926 23,677 General and administrative 4,716 5,688 8,767 10,562 ------------- --------- ------------- --------- Operating expenses 49,260 55,276 97,973 108,460 ------------- --------- ------------- --------- Operating income (loss) 643 (2,272) 84 1,654 ------------- --------- ------------- --------- Other income: Net interest and investment income (expense) (181) (29) 55 (104) Other income 216 789 347 187 ------------- --------- ------------- --------- Other income 35 760 402 83 ------------- --------- ------------- --------- Income (loss) before income taxes 678 (1,512) 486 1,737 Income tax expense (benefit) 165 (544) 31 601 ------------- --------- ------------- --------- Net income (loss) $ 513 $ (968) $ 455 $ 1,136 ============= ========= ============= ========= Basic net income (loss) per share $ 0.03 $ (0.05) $ 0.03 $ 0.06 ============= ========= ============= ========= Diluted net income (loss) per share $ 0.03 $ (0.05) $ 0.03 $ 0.06 ============= ========= ============= ========= Share data: Shares used in computing basic net income (loss) per share 17,272 17,702 17,254 17,737 ============= ========= ============= ========= Shares used in computing diluted net income (loss) per share 17,395 17,702 17,347 18,138 ============= ========= ============= =========
See accompanying notes to consolidated financial statements. 4 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, ---------------------------- --------------------------- 2003 2004 2003 2004 ------------- --------- ------------- --------- (AS RESTATED) (AS RESTATED) Net income (loss) $ 513 $ (968) $ 455 $ 1,136 Other comprehensive income (loss): Foreign currency translation adjustment 5 (661) 273 (84) ------------- --------- ------------- --------- Comprehensive income (loss) $ 518 $ (1,629) $ 728 $ 1,052 ============= ========= ============= =========
See accompanying notes to consolidated financial statements. 5 SPSS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ----------------------------- 2003 2004 ------------ ----------- (AS RESTATED) Cash flows from operating activities: Net income $ 455 $ 1,136 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 7,133 8,114 Deferred income taxes (627) (488) Noncash services expenses (recoveries) 1,125 (750) Changes in assets and liabilities: Accounts receivable 5,260 12,485 Inventories 384 821 Prepaid expenses 2,103 213 Restricted cash 733 -- Accounts payable (2,017) (1,616) Accrued expenses (7,056) 625 Accrued income taxes (5,137) (9,748) Deferred revenues 5,185 (4,684) Other, net 2,193 2,445 ------------ ----------- Net cash provided by operating activities 9,734 8,553 ------------ ----------- Cash flows from investing activities: Capital expenditures, net (1,599) (1,726) Capitalized software development costs (4,263) (5,078) Repurchase of common stock issued for acquisition -- (5,421) Proceeds from the divestiture of Sigma-series product line -- 3,000 ------------ ----------- Net cash used in investing activities (5,862) (9,225) ------------ ----------- Cash flows from financing activities: Net borrowings (repayments) under line-of-credit agreements 1,146 (1,306) Proceeds from issuance of common stock 700 2,240 ------------ ----------- Net cash provided by financing activities 1,846 934 ------------ ----------- Effect of exchange rates on cash 566 (332) ------------ ----------- Net change in cash and cash equivalents 6,284 (70) Cash and cash equivalents at beginning of period 14,490 36,101 ------------ ----------- Cash and cash equivalents at end of period $ 20,774 $ 36,031 ============ =========== Supplemental disclosures of cash flow information: Interest paid $ 354 $ 359 Income taxes paid 4,037 11,141 Cash received from income tax refunds 1,419 1,905
See accompanying notes to consolidated financial statements. 6 SPSS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements reflect all adjustments which, in the opinion of the Company's management, are necessary for a fair presentation of the results of the interim periods shown. All such adjustments are of a normal recurring nature. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements of SPSS and notes thereto for the year ended December 31, 2003, included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission. NOTE 2 - RECLASSIFICATIONS Certain revenues, expenses and balances of prior periods have been reclassified to conform to the current presentation. NOTE 3 - STOCK OPTION PLANS The Company maintains one stock incentive plan that is flexible and allows various forms of equity incentives to be issued under it. The Company accounts for this plan using the intrinsic value method under the recognition and measurement principles of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. No compensation is generally recognized for stock option grants to employees. All options granted under the stock incentive plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effects on net income (loss) and income (loss) per share if the Company had applied the fair value recognition provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", to stock-based compensation. The following table also provides the amount of stock-based compensation cost included in net income (loss) as reported.
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2003 2004 2003 2004 ------------- --------- ------------ -------- (AS RESTATED) (AS RESTATED) Net income (loss), as reported $ 513 $ (968) $ 455 $ 1,136 Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of related taxes (1,122) (1,118) (2,485) (2,241) ------------- --------- ------------ -------- Pro forma net income (loss) $ (609) $ (2,086) $ (2,030) $ (1,105) ============= ========= ============ ======== Income (loss) per share: Basic-- as reported $ 0.03 $ (0.05) $ 0.03 $ 0.06 Basic-- pro forma $ (0.03) $ (0.12) $ (0.12) $ (0.06) Diluted-- as reported $ 0.03 $ (0.05) $ 0.03 $ 0.06 Diluted-- pro forma $ (0.03) $ (0.12) $ (0.12) $ (0.06)
7 NOTE 4 - DOMESTIC AND FOREIGN OPERATIONS Net revenues per geographic region are summarized as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2003 2004 2003 2004 ------------- --------- ------------- --------- (AS RESTATED) (AS RESTATED) United States $ 25,073 $ 25,001 $ 46,120 $ 48,246 United Kingdom 5,481 7,377 12,835 16,207 Other 19,349 20,626 39,102 45,661 ------------- --------- ------------- --------- Total $ 49,903 $ 53,004 $ 98,057 $ 110,114 ============= ========= ============= =========
NOTE 5 - EARNINGS PER COMMON SHARE Earnings per common share (EPS) are computed by dividing net income by the weighted average number of shares of common stock (basic) plus common stock equivalents outstanding (diluted) during the period. Common stock equivalents consist of contingently issuable shares and stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method. Basic weighted average shares reconciles to diluted weighted average shares as follows:
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30, --------------------------- ------------------------- 2003 2004 2003 2004 ------------- ------ ------------- ------ (AS RESTATED) (AS RESTATED) Basic weighted average common shares outstanding 17,272 17,702 17,254 17,737 Dilutive effect of stock options 123 -- 93 401 ------ ------ ------ ------ Diluted weighted average common shares outstanding 17,395 17,702 17,347 18,138 ====== ====== ====== ======
In 2004, potentially dilutive securities excluded from the earnings per share calculation due to the Company's net loss position consisted of stock options of 245 for the three months ended June 30, 2004. NOTE 6 - REPURCHASE OF COMMON STOCK RELATED TO THE DATA DISTILLERIES ACQUISITION Under the terms of the November 4, 2003 Stock Purchase Agreement with Data Distilleries, the Company was obligated to file a Registration Statement on Form S-3 to register the 281,830 shares issued to Data Distilleries shareholders in April 2004. Because the Company's 2003 10-K was not timely filed, SPSS became ineligible to use Form S-3 and was not able to register the shares by the required April 2004 filing date. The Company fulfilled its obligation under the Stock Purchase Agreement by repurchasing from each former Data Distilleries shareholder the number of shares of SPSS common stock received by such shareholder in connection with this transaction. During April 2004, SPSS notified the former shareholders of the Company's inability to properly register these shares and through June 30, 2004, the Company has repurchased 282 shares at a cost of $5.4 million. 8 NOTE 7 - CONTINGENCIES The Company has been named as a defendant in a lawsuit filed on or about May 14, 2004 in the United States District Court for the Northern District of Illinois, under the caption Fred Davis, Individually and On Behalf of All Others Similarly Situated v. SPSS Inc., Jack Noonan and Edward Hamburg, Case No. 04C3427. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The complaint alleges that the defendants failed to disclose and misrepresented a series of material adverse facts regarding the Company's revenues. The complaint seeks to recover unspecified compensatory damages, reasonable attorney fees, experts' witness fees and other costs and any other relief deemed proper by the court on behalf of all purchasers of the Company's securities between May 2, 2001 and March 30, 2004, although no court has determined that such persons constitute a proper class. Neither SPSS nor the individual defendants have responded to the complaint as of the date of this filing. SPSS and the other defendants believe that the suit is without merit and intend to defend vigorously against the allegations contained in the complaint. NOTE 8 - NASDAQ LISTING STATUS On April 1, 2004, SPSS received a Nasdaq Staff Determination relating to the Company's failure to file its Annual Report on Form 10-K for fiscal year 2003 with the SEC on or before the March 30, 2004 filing deadline. On June 7, 2004, SPSS received an additional notice from the Nasdaq indicating its failure to file its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004 with the SEC on or before the May 10, 2004 filing deadline. These notices informed the Company that it had failed to comply with the filing requirements for continued listing set forth in Marketplace Rule 4310(c)(14), and that its common stock is, therefore, subject to delisting from the Nasdaq National Market. Following these notices, the Company received correspondence from the Nasdaq granting SPSS extensions of time to file its periodic reports. On July 29, 2004, the Company filed with the SEC its Annual Report on Form 10-K for fiscal year 2003 and its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2004. On August 4, 2004, the Company received notification from the Nasdaq that the SPSS common stock will continue to be listed on the Nasdaq National Market, subject to the Company's continued compliance with all of the standards for continued listing on the NASDAQ National Market and the Company's timely filing with the SEC, and delivery to NASDAQ, of its periodic reports for all reporting periods ending on or before June 30, 2005. As of August 5, 2004, the symbol for the Company's common stock was changed from "SPSSE" back to "SPSS." 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES EXCHANGE ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE SIGNIFIED BY THE WORDS "EXPECTS," "ANTICIPATES," "INTENDS," "BELIEVES," "ESTIMATES" OR SIMILAR LANGUAGE. ALL FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO SPSS ON THE DATE HEREOF. SPSS CAUTIONS INVESTORS THAT ITS BUSINESS AND FINANCIAL PERFORMANCE AND THE MATTERS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO SUBSTANTIAL RISKS AND UNCERTAINTIES. BECAUSE OF THESE RIGHTS AND UNCERTAINTIES, SOME OF WHICH MAY NOT BE CURRENTLY ASCERTAINABLE AND MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL, ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. DEVIATIONS BETWEEN ACTUAL AND FUTURE EVENTS AND THE COMPANY'S ESTIMATES AND ASSUMPTIONS COULD LEAD TO RESULTS THAT ARE MATERIALLY DIFFERENT FORM THOSE EXPRESSED IN OR IMPLIED BY THE FORWARD-LOOKING STATEMENTS. SPSS DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL FUTURE EVENTS. The following discussion should be read in conjunction with the Company's financial statements and accompanying notes, which appear elsewhere in this quarterly report on Form 10-Q. COMPARISON OF THREE MONTHS ENDED JUNE 30, 2003 TO THREE MONTHS ENDED JUNE 30, 2004, AND COMPARISON OF SIX MONTHS ENDED JUNE 30, 2003 TO SIX MONTHS ENDED JUNE 30, 2004 The Company has restated its financial statements for fiscal years 2001 and 2002, including the corresponding interim periods for 2001 and 2002, and the interim periods ended in March, June and September 2003. Please refer to the Company's annual report on Form 10-K for the year ended December 31, 2003 for additional information. The results for the three and six month periods ended June 30, 2003 set forth in this section reflect these restated numbers. TOTAL NET REVENUES.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- -------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $49,903 $ 53,004 6% 100% 100% SIX MONTHS ENDED JUNE 30, $98,057 $110,114 12% 100% 100%
Total net revenues increased $3.1 million from the second quarter of 2003 to the second quarter of 2004, and increased $12.1 million for the six months ended June 30, 2004 compared to the six months ended June 30, 2003 primarily due to increases in maintenance revenues, revenues related to the Company's November 2003 acquisition of Data Distilleries and changes in currency exchange rates. This increase was partially offset by the divestiture of the Company's Sigma-series products in December 2003, lower new revenues from SPSS applications for market research, and a drop in revenues from consulting services. Noticeable increases in revenues occurred in the United Kingdom, France and the Netherlands. Total net revenues were positively affected by revenues from acquisitions and changes in currency exchange rates of approximately $0.4 million and $2.4 million, respectively, for the three month period ending June 30, 2004, and approximately $2.0 million and $7.4 million for the six month period ending June 30, 2004. Total net revenues were negatively affected by the Sigma-series divestiture of approximately $2.4 million for the three month period ended June 30, 2004, and approximately $3.1 million for the six month period ending June 30, 2004. 10 LICENSE FEES.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $21,110 $20,952 (1%) 42% 40% SIX MONTHS ENDED JUNE 30, $42,505 $45,778 8% 43% 42%
License fee revenues decreased $0.2 million and increased $3.3 million, respectively, in 2004 from the three and six month periods ended June 30, 2003. The $0.2 million decrease in the quarter was primarily driven by lower new revenues from SPSS applications for market research and the effects of the Company's divestiture of its Sigma-series products in December 2003. The decrease was offset by higher sales of SPSS data mining and desktop statistical analysis tools, sales of predictive analytic applications from the Company's Data Distilleries acquisition and changes in currency exchange rates. New license fees from the applications acquired with Data Distilleries were approximately $0.2 million in the three month period ended June 30, 2004. The $3.3 million increase for the first six months of 2004 was primarily driven by increased sales of SPSS data mining and desktop statistical analysis tools, sales of predictive analytic applications from the Company's Data Distilleries acquisition and changes in currency exchange rates. This increase was partially offset by the effects of the Company's divestiture of its Sigma-series products in December 2003. New license fees from the applications acquired with Data Distilleries were approximately $0.4 million in the six month period ended June 30, 2004. MAINTENANCE REVENUES.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 20,462 $24,246 18% 41% 46% SIX MONTHS ENDED JUNE 30, $ 38,786 $48,087 24% 40% 44%
Maintenance revenues increased $3.8 million and $9.3 million, respectively, in 2004 from the three and six month periods ended June 30, 2003 primarily due to higher renewal rates for the Company's major offerings, maintenance from Data Distilleries applications and changes in currency exchange rates. SERVICES REVENUES.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 8,331 $ 7,806 (6%) 17% 14% SIX MONTHS ENDED JUNE 30, $ 16,766 $16,249 (3%) 17% 14%
Services revenues decreased $0.5 million in 2004 from both the three and six month periods ended June 30, 2003 due to fewer data mining and ShowCase-related consulting projects. This decrease was partially offset by consulting related to implementations of Data Distilleries applications. 11 COST OF LICENSE AND MAINTENANCE REVENUES.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 3,081 $ 3,240 5% 6% 6% SIX MONTHS ENDED JUNE 30, $ 6,087 $ 7,176 18% 7% 6%
Cost of license and maintenance revenues consists of costs of goods sold, amortization of capitalized software development costs, and royalties paid to third parties. These costs increased $0.2 million and $1.1 million, respectively, in 2004 from the three and six month periods ended June 30, 2003, primarily due to higher costs associated with the increase in license revenues and higher amortization of capitalized and acquired technology assets with the release of new products and the acquisition of Data Distilleries. Cost of license and maintenance revenues should remain relatively constant as a percentage of total revenues in the remaining quarters of the 2004 fiscal year. SALES, MARKETING AND SERVICES.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 30,464 $34,658 14% 61% 65% SIX MONTHS ENDED JUNE 30, $ 61,193 $67,045 10% 62% 61%
Sales, marketing and services expenses increased $4.2 million and $5.8 million, in 2004 from the three and six month periods ended June 30, 2003, respectively, primarily due to compensation increases, other staff additions, one-time severance costs of $1.2 million associated with personnel changes in the Company's sales and professional services organizations and changes, the addition of employees with the acquisition of Data Distilleries, and changes in currency exchange rates. Such expenses should increase in subsequent quarters consistent with expected increases in license fees and services revenue. RESEARCH AND DEVELOPMENT.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 10,999 $11,690 6% 22% 22% SIX MONTHS ENDED JUNE 30, $ 21,926 $23,677 8% 22% 22%
Research and development costs increased $0.7 million and $1.8 million, respectively, in 2004 from the three and six month periods ended June 30, 2003, primarily due to the addition of Data Distilleries development personnel and changes in currency exchange rates. Such costs are expected to remain relatively constant in the remaining quarters of 2004. GENERAL AND ADMINISTRATIVE.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 4,716 $ 5,688 21% 10% 11% SIX MONTHS ENDED JUNE 30, $ 8,767 $10,562 20% 9% 9%
General and administrative expenses increased $1.0 million and $1.8 million, respectively, in 2004 from the three and six month periods ended June 30, 2003 primarily due to higher legal and accounting expenses related to the Company's completed review and restatement of its financial results. Related to the review and restatements, legal and accounting expenses are expected to total approximately $2.0 million, of which $1.2 million and $1.6 million, respectively, were expensed in the three and six month periods ended June 30, 2004. 12 NET INTEREST AND INVESTMENT INCOME (EXPENSE).
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $(181) $ (29) (84%) --% --% SIX MONTHS ENDED JUNE 30, $ 55 $ (104) NM --% --%
Net interest and investment income (expense) in the three and six month periods ended June 30, 2004, was due to the interest expense related to the Company's financing arrangement with Wells Fargo. Net interest expense for the three months ended June 30, 2004 decreased $0.1 million from the comparable period of 2003 primarily due to lower debt levels. Net interest income in the six months ended June 30, 2003 was earned on line-of-credit deposits which did not repeat in 2004. OTHER INCOME.
PERCENT OF TOTAL REVENUES PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ---- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 216 $789 265% --% 1% SIX MONTHS ENDED JUNE 30, $ 347 $187 (46%) 1% --%
Other income in the three and six month periods ended June 30, 2003 was primarily due to gains from foreign currency transactions from the weakening of the U.S. dollar against other major currencies, partially offset by the decline in value of U.S. dollar-denominated receivables held overseas. Conversely, in the same periods in 2004 the strengthening of the dollar led to losses from currency transactions due to the decline in value of U.S. dollar-denominated receivables held overseas. Additionally in the first fiscal quarter of 2004 was a charge of $0.2 million due to the write-off the Company's 2001 investment in e-intelligence Corporation. These losses were offset by a $1.0 million European research and development incentive credit received in the second quarter of 2004 relating to expenditures accumulated through 1999. INCOME TAX EXPENSE (BENEFIT).
PERCENT OF PRE-TAX INCOME PERCENTAGE ------------------------- PERIOD 2003 2004 CHANGE 2003 2004 - ------ ------------- ------- ---------- ---- ---- (AS RESTATED) THREE MONTHS ENDED JUNE 30, $ 165 $ (544) NM 24% 36% SIX MONTHS ENDED JUNE 30, $ 31 $ 601 1839% 6% 35%
The income tax provision changed in the three and six month periods ended June 30, 2004 compared to the same periods in 2003 due primarily to a change in earnings. The Company's effective tax rate should remain at or near 35 percent for the remainder of the 2004 fiscal year. LIQUIDITY AND CAPITAL RESOURCES As of June 30 2004, working capital was $15.4 million with a current ratio of 1.2 to 1. Excluding current deferred revenue, working capital was $70.5 million with a current ratio of 3.0 to 1. Cash flows from operating activities were $8.6 million in the six months ended June 30, 2004 compared with $9.7 in the six months ended June 30, 2003. The decrease in cash from operations in 2004 was mainly due to higher tax payments and lower deferred revenue balances, partially offset by improved accounts receivable collections. In the first six months of 2004 cash from operations came primarily from net operating activities and receivable collections, partially offset by income tax payments and reduction to deferred revenues. Average days sales outstanding were 70 days at June 30, 2004, compared to 78 days at December 31, 2003 and 78 days at June 30, 2003. 13 Cash flows from operating activities were more than adequate to fund capital expenditures and software development costs of $5.9 million and $6.8 million in 2003 and 2004, respectively. Capital spending was generally for software development to enhance future business system technology. Management believes that SPSS has ample capacity in its plant and equipment to meet expected needs for future growth in the intermediate term. In the six months ended June 30, 2004, SPSS received scheduled payments totaling $3.0 million on the sale of its Sigma-series product line consummated in December 2003 and repurchased common stock related to its acquisition of Data Distilleries of $5.4 million. Cash provided by financing activities was $1.8 million and $0.9 million in the six months ended June 30, 2003 and June 30, 2004, respectively. In the six months ended June 30, 2004, financing activities provided cash proceeds of $2.2 million from the issuance of common stock, primarily through the exercise of stock options and employee stock purchases through the employee stock purchase plan. These proceeds were partially decreased by net repayments of $1.3 million under its line of credit agreements. On March 31, 2003, SPSS entered into a four (4) year, $25 million credit facility with Wells Fargo Foothill, Inc. (f/k/a Foothill Capital Corporation). The Wells Fargo Foothill facility includes a four (4) year term loan in the amount of $10.0 million and a revolving line of credit. The Company had borrowings of $7.1 million under the term loan as of June 30, 2004. The maximum amount SPSS may borrow under the revolving line of credit portion of the facility will depend upon the value of the Company's eligible accounts receivable generated within the United States. Additionally, the Company had immediate availability of $2.5 million under the revolving line of credit. There are no borrowings under the revolving line of credit as of June 30, 2004. The terms and conditions of the Wells Fargo Foothill credit facility are specified in a Loan and Security Agreement, dated as of March 31, 2003, by and between Wells Fargo Foothill and SPSS. The term loan portion of the facility bears interest at a rate of 2.5% above prime, with potential future reductions of up to 0.5% in the interest rate based upon achievement of specified EBITDA targets. One component of the revolving line of credit will bear interest at a rate of prime plus 3.0%. On the remainder of the revolving line of credit, SPSS may select interest rates of either prime plus 0.25% or LIBOR plus 2.5% with respect to each advance made by Wells Fargo Foothill. The term loan of $10 million will be paid down evenly over the four (4) year period (i.e., $2.5 million per year. The Wells Fargo Foothill facility requires SPSS to meet certain financial covenants including minimum EBITDA targets and includes additional requirements concerning, among other things, the Company's ability to incur additional indebtedness, create liens on assets, make investments, engage in mergers, acquisitions or consolidations where SPSS is not the surviving entity, sell assets, engage in certain transactions with affiliates, and amend its organizational documents or make changes in capital structure. Due to the restatement, during the fiscal quarter ended June 30, 2004, the Company was not in compliance with certain covenants related to timely delivery of financial statements. SPSS has obtained all appropriate waivers from Wells Fargo Foothill. The Wells Fargo Foothill facility is secured by all of the Company's assets located in the United States. ShowCase Corporation, a Minnesota corporation and wholly owned subsidiary of SPSS, and NetGenesis Corp., a Delaware corporation and wholly owned subsidiary of SPSS, have guaranteed the obligations of SPSS under the Loan and Security Agreement. This guaranty is secured by all of the assets of ShowCase and NetGenesis. 14 On November 4, 2003, SPSS, through SPSS International B.V., its wholly owned subsidiary, acquired Data Distilleries B.V., a Netherlands-based developer of analytic applications. The terms and conditions of the acquisition are specified in a Stock Purchase Agreement, dated as of November 4, 2003, by and among SPSS, SPSS International B.V. and the owners of all of the issued and outstanding shares of the capital stock of Data Distilleries. The aggregate purchase price for all of the issued and outstanding capital stock of Data Distilleries consists of guaranteed and contingent payments. The guaranteed portion of the purchase price was paid at closing and consisted of $1.0 million in cash and 281,830 shares of SPSS common stock valued at $5.31 million for purposes of this transaction. The contingent portion of the purchase price will be paid, if at all, at the end of the first and second years following the closing and may total up to $4.4 million at current approximate exchange rates. The Company's obligation to make the contingent payments will depend on the achievement of certain growth targets for license and maintenance revenues from the Data Distilleries applications. Under the terms of the Stock Purchase Agreement, SPSS was obligated to file a Registration Statement on Form S-3 to register the potential resale of the 281,830 shares issued in this transaction. Because its Form 10-K for fiscal year 2003 was not timely filed and, therefore, SPSS was not eligible to use Form S-3, SPSS has fulfilled its obligations under the Stock Purchase Agreement by repurchasing from each former Data Distilleries shareholder that number of shares of SPSS common stock received by such shareholder in connection with this transaction. SPSS repurchased all of the shares previously issued in this transaction at a total cost of $5.4 million. SPSS intends to fund its future capital needs through operating cash flows and borrowings on our credit facility. SPSS anticipates that amounts available from cash and cash equivalents on hand, under its line of credit, and cash flows generated from operations, will be sufficient to fund the Company's operations and capital requirements at the current level of operations. However, no assurance can be given that changing business circumstances will not require additional capital for reasons that are not currently anticipated or that the necessary additional capital will then be available to SPSS on favorable terms or at all. CRITICAL ACCOUNTING POLICIES The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. As such, SPSS makes certain estimates, judgments and assumptions that it believes are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. The Company's critical accounting policies include revenue recognition, capitalization of software development costs, impairment of long-lived assets, the estimation of credit losses on accounts receivable and the valuation of deferred tax assets. For a discussion of these critical accounting policies, see "Critical Accounting Policies and Estimates" in the SPSS Annual Report on Form 10-K for the year ended December 31, 2003, filed with the Securities and Exchange Commission. INTERNATIONAL OPERATIONS Revenues from international operations were 50% and 53%, respectively, of total net revenues in the three and six month periods ended June 30, 2003 and 53% and 56%, respectively in the three and six month periods ended June 30, 2004. RECENT ACCOUNTING PRONOUNCEMENTS In December 2003, the FASB issued Interpretation 46R (FIN 46R), a revision to Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R is effective at the end of the first interim period ending after March 15, 2004. Entities that have adopted FIN 46 prior to this effective date can continue to apply the provisions of FIN 46 until the effective date of FIN 46R. SPSS adopted FIN 46 on July 1, 2003 and FIN 46R on January 1, 2004 and these pronouncements did not have a material impact on the Company's financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. SPSS is exposed to market risk from fluctuations in interest rates on borrowings under its borrowing arrangement that bears interest at either the prime rate or the Eurodollar rate. As of June 30, 2004, the Company had $7,145,000 outstanding under this line of credit. A 100 basis point increase in interest rates would result in an additional $71,000 of annual interest expense, assuming the same level of borrowing. 15 SPSS is exposed to market risk from fluctuations in foreign currency exchange rates. Since a substantial portion of its operations and revenue occur outside the United States and in currencies other than the U.S. dollar, the Company's results can be significantly affected by changes in foreign currency exchange rates. To manage this exposure to fluctuations to currency exchange rates, SPSS may enter into various financial instruments, such as options, which generally mature within 12 months. Gains and losses on these instruments are recognized in other income or expense. Were the foreign currency exchange rates to depreciate immediately and uniformly against the U.S. dollar by 10 percent from levels at June 30, 2004, management expects this would have a materially adverse effect on the Company's financial results. At June 30, 2004, SPSS did not have any option contracts outstanding. The Company's derivative instruments did not qualify for hedge accounting treatment under Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." Accordingly, gains and losses related to changes in the fair value of these instruments were recognized in income in each accounting period. ITEM 4. CONTROLS AND PROCEDURES. Disclosure controls and procedures. SPSS maintains disclosure controls and procedures that have been designed to ensure that information related to the Company is recorded, processed, summarized and reported on a timely basis. SPSS has reviewed its internal control structure and these disclosure controls and procedures. In connection with this review, SPSS has established a compliance committee that is responsible for accumulating potentially material information regarding its activities and considering the materiality of this information. The compliance committee (or a subcommittee) is also responsible for making recommendations regarding disclosure and communicating this information to the Company's chief executive officer and chief financial officer to allow timely decisions regarding required disclosure. The SPSS compliance committee is comprised of the Company's senior legal official, principal accounting officer, chief investor relations officer, principal risk management officer, and certain other members of the SPSS senior management. The Company's disclosure controls and procedures are not capable of preventing all instances of error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be attained. The Company's disclosure controls and procedures can be circumvented by the individual acts of some persons, by collusion or two or more people or by management override of the control. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected on a timely basis. CEO and CFO certifications. Attached as Exhibit 31.1 and 31.2 to this Quarterly Report on Form 10-Q are certifications by the Company's CEO and CFO. These certificates are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications"). This portion of the Company's Quarterly Report on Form 10-Q describes the results of the Company's controls evaluation referred to in the Section 302 Certifications. Evaluation of the Company's disclosure controls and procedures. SPSS Chief Executive Officer, Jack Noonan, and Chief Financial Officer, Edward Hamburg, with the participation of the compliance committee, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, as required by Rule 13a-15 of the Securities Exchange Act of 1934. This evaluation included a review of findings from KPMG arising in conjunction with their audits recently completed that included the restatement of previously issued financial information, and an independent investigation initiated by the Company's Audit Committee, each of which is described below. In connection with its audits of the Company's financial statements for 2003, 2002 and 2001, KPMG assessed the internal controls of the Company and its subsidiaries and advised the Company's Audit Committee that certain identified deficiencies collectively constituted a material control weakness (as defined by standards established by the Public Company Accounting Oversight Board (United States)). In its communications with the SPSS Audit Committee, KPMG stated that these deficiencies were related to: 16 - Certain account reconciliation and review procedures; - Specific procedures in accounting for capitalized software and development costs; - Revenue recognition policies and certain processes; - Certain processes in and documentation of accounting for income taxes; - The complex consolidation process and reconciliation of intercompany accounts; - Accounting and finance resources at two subsidiaries; - Segregation of duties in certain cash application tasks; - Timely completion of statutory filings in two foreign countries; - Document retention policies and procedures; and - Timely approval of stock option grants. The Company's management and Audit Committee have taken a leadership role in assessing the underlying issues giving rise to the restatement and in ensuring proper steps have been and are being taken to improve the Company's control environment. The Company's management and Audit Committee took these actions in consultation with KPMG. Independent legal counsel to the Audit Committee and a forensic accounting firm performed an independent investigation into accounting issues with regard to accounting for deferred revenue that arose prior to and in connection with the restatement. That investigation found and concluded that the Company's finance and accounting personnel had made a number of accounting and arithmetic errors, and that there was no evidence of any fraud, intentional misconduct or concealment on the part of SPSS, its officers or its employees. That investigation also concluded that several of the accounting issues that arose in connection with the restatement were exacerbated by a difficult, three-year conversion of the Company's accounting and reporting software (including the Company's legacy general ledger system) to an Oracle Financials system, and several acquisition transactions accounted for using the purchase method of accounting, that taxed the Company's finance and accounting resources and personnel. The Audit Committee, however, also concluded that the Company's accounting, financial reporting and internal control functions needed improvement, including the Company's system of documenting transactions. The Audit Committee found that the Company's management has proactively identified a number of these issues during the past two years and has already addressed or is appropriately taking steps to address them. Actions taken in response to the evaluation. As a result of the findings described above, in 2003 and 2004 the Company began implementing and continues to implement the following actions to address the issues it identified in its evaluation of controls and procedures: - SPSS has sought to thoroughly understand the nature of the issues through discussions with KPMG and the independent counsel and forensic accountants engaged by the SPSS Audit Committee; - The Company's Audit Committee has exercised increased oversight over management's assessment of internal controls and response to control weaknesses in the above assessments; - SPSS has recruited and is recruiting new personnel to the finance organization who have expertise in financial controls, financial reporting and income tax to improve the quality and level of experience of the Company's finance organization; - SPSS is continuing to assess the adequacy of the accounting and financial reporting competence and leadership capabilities of management personnel who have accounting and finance responsibilities; - SPSS has hired a tax manager with U.S. and international tax experience, including eight years of service on the tax staff of a Big-Four accounting firm, to strengthen the Company's accounting and documentation for income taxes; - SPSS has adopted and is implementing formal standard financial policies and procedures and education and training of employees on policies and procedures in an effort to constantly improve internal controls and the control environment; - SPSS is formalizing all review and reconciliation processes by having reviewers timely sign their work as well as aggregate and file all reconciliations in a central file repository; - SPSS has established a committee to improve the Company's policies and procedures related to the documentation of criteria to support the technological feasibility of products; - SPSS began monitoring net realizable value calculations of capitalized software development costs on a quarterly basis (such monitoring had previously been done on an annual basis) through reviews by a person with knowledge of the Company's products and opportunities of product sales, including secondary products, to evaluate the appropriateness of capitalized software balances; 17 - SPSS is in the process of improving and standardizing policies and procedures for revenue recognition across all Company locations; - SPSS had enhanced internal control mechanisms related to accounting for deferred revenue, which played a significant role in the discovery of the errors related to the Company's restatememt of its financial statements; - SPSS has adopted a formal process consisting of an in-depth review of the tax provision, including deferred tax accounts, on a quarterly basis; - SPSS has adopted a formal process to provide for a more controlled and organized consolidation, including a review of adjustments to ensure that prior period consolidating entries have been either properly carried forward or eliminated in the consolidation for the current period; - SPSS has implemented intercompany reconciliation procedures and is working to further validate, support and document the effects of changes in foreign currency on intercompany balances; - SPSS has transferred accounting responsibilities for the Company's market research business in the United States from the Company's Kilburn-United Kingdom office to its Chicago office to improve controls and the efficiency of monthly closings; - SPSS has implemented the SPSS Inc. Code of Business Conduct & Ethics (the "Code of Ethics") which is applicable to all of the SPSS directors, officers and employees, including the Company's Chief Executive Officer, Chief Financial Officer, Controller and other senior financial officers performing similar functions. The Code of Ethics satisfies, and in many respects exceeds, all of the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated by the Securities and Exchange Commission pursuant to the Sarbanes-Oxley Act. The Code of Ethics also satisfies, and in many respects exceeds, the listing standards established by the NASDAQ National Market, the exchange on which the Company's stock is listed. The Company has posted the Code of Ethics on its website at http://www.spss.com; - SPSS has made changes to the Company's organizational structure to provide a clearer segregation of responsibilities in connection with account reconciliations, manual journal entries, and the preparation and review of documentation to support the Company's quarterly and annual statements; and - SPSS is implementing an account reconciliation policy, which requires the monthly reconciliation of all balance sheet accounts and the use of standard methodology and templates for account reconciliations. SPSS believes that its disclosure controls and procedures have improved due to the scrutiny of such matters by its management and Audit Committee, its external auditors, and other persons the Company has engaged to assist it in assessing and improving its system of internal controls. SPSS believes that its controls and procedures will continue to improve as it completes the implementation of the actions described above. Based in part upon these changes, Mr. Noonan and Dr. Hamburg believe that as of the filing date of this Quarterly Report on Form 10-Q, the Company's disclosure controls and procedures are reasonably designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC. Other than as described above, there have been no changes in the Company's internal control over financial reporting identified in the evaluation that occurred during the Company's second quarter of fiscal year 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 18 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS SPSS Inc. has been named as a defendant in a lawsuit filed on December 6, 2002 in the United States District Court for the Southern District of New York, under the caption Basu v. SPSS Inc., et al., Case No. 02CV9694. The complaint alleges that, in connection with the issuance and initial public offering of shares of common stock of NetGenesis Corp., the registration statement and prospectus filed with the Securities and Exchange Commission in connection with the IPO contained material misrepresentations and/or omissions. The alleged violations of the federal securities laws took place prior to the effective date of the merger in which the Company's acquisition subsidiary merged with and into NetGenesis Corp. NetGenesis Corp. is now a wholly owned subsidiary of SPSS. Other defendants to this action include the former officers and directors of NetGenesis Corp. and the investment banking firms that acted as underwriters in connection with the IPO. The plaintiff is seeking unspecified compensatory damages, prejudgment and post-judgment interest, reasonable attorney fees, experts' witness fees and other costs and any other relief deemed proper by the Court. The Company is aggressively defending itself, and plans to continue to aggressively defend itself against the claims set forth in the complaint. The Company and the named officers and directors filed an answer to the complaint on July 14, 2003. At this time, the Company believes the lawsuit will be settled with no material adverse effect on its results of operations, financial condition, or cash flows. The Company has been named as a defendant in a lawsuit filed on or about May 14, 2004 in the United States District Court for the Northern District of Illinois, under the caption Fred Davis, Individually and On Behalf of All Others Similarly Situated v. SPSS Inc., Jack Noonan and Edward Hamburg, Case No. 04C3427. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The complaint alleges that the defendants failed to disclose and misrepresented a series of material adverse facts regarding the Company's revenues. The complaint seeks to recover unspecified compensatory damages, reasonable attorney fees, experts' witness fees and other costs and any other relief deemed proper by the court on behalf of all purchasers of the Company's securities between May 2, 2001 and March 30, 2004, although no court has determined that such persons constitute a proper class. Neither SPSS nor the individual defendants have responded to the complaint as of the date of this filing. SPSS and the other defendants believe that the suit is without merit and intend to defend vigorously against the allegations contained in the complaint. SPSS may also become party to various claims and legal actions arising in the ordinary course of business. ITEM 5. OTHER INFORMATION Audit Committee Pre Approval of Non-Audit Related Services The audit committee of the Company's board of directors approved certain non-audit related services provided to SPSS by KPMG LLP, the Company's auditors. The audit committee pre-approved these non-audit related services pursuant to the pre-approval procedure previously established by the audit committee. During the fiscal quarter ended June 30, 2004, the audit committee pre-approved the following: - - $27,000 to be paid to KPMG as compensation for tax compliance services related to SPSS UK - - $6,000 to be paid to KPMG as compensation for tax compliance services related to SPSS Asia Pacific - - $1,000 to be paid to KPMG as compensation for employee services related to SPSS Australia - - $1,000 to be paid to KPMG as compensation for tax compliance services related to ShowCase - - $15,000 to be paid to KPMG as compensation for tax compliance services related to SPSS UK - - $4,000 to be paid to KPMG as compensation for assistance with expatriation of visa applications performed by KPMG Migration - - $7,000 to be paid to KPMG as compensation for tax compliance services related to SPSS France - - $11,000 to be paid to KPMG as compensation for tax compliance services for SPSS UK and dealings with Inland Revenue's enquiry into ShowCase UK Limited's 2001 return (initial request) 19 - - $40,000 to be paid to KPMG as compensation for tax compliance services for SPSS UK and further dealings with Inland Revenue's enquiry into ShowCase UK Limited's 2001 return - - $32,000 to be paid to KPMG as compensation for tax compliance services for ShowCase Benelux SA for 2003 - - $9,000 to be paid to KPMG as compensation for tax compliance services in connection with the completion of the statutory audit The aggregate compensation paid to KPMG for the above non-audit related services was $153,000. The Audit Committee has determined that the fees paid to KPMG and nature of services provided during the fiscal quarter ended June 30, 2004 impair the independence of KPMG. 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits (Note: Management contracts and compensatory plans or arrangements are identified with a "+" in the following list.)
INCORPORATION EXHIBIT BY REFERENCE NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE) - ----------- ---------------------------------------------------------------------------- --------------- 2.1 Agreement and Plan of Merger among SPSS Inc., SPSS ACSUB, Inc., Clear Software, Inc. and the shareholders named therein, dated September 23, 1996. (1), Ex. 2.1 2.2 Agreement and Plan of Merger among SPSS Inc., SPSS Acquisition Inc. and Jandel Corporation, dated October 30,1996. (2), Annex A 2.3 Asset Purchase Agreement by and between SPSS Inc. and DeltaPoint, Inc., dated as of May 1, 1997. (16), Ex. 2.3 2.4 Stock Purchase Agreement among the Registrant, Edward Ross, Richard Kottler, Norman Grunbaum, Louis Davidson and certain U.K.-Connected Shareholders or warrant holders of Quantime Limited named therein, dated as of September 30, 1997, together with a list briefly identifying the contents of omitted schedules. (3), Ex. 2.1 2.5 Stock Purchase Agreement among the Registrant, Edward Ross, Richard Kottler, Norman Grunbaum, Louis Davidson and certain Non-U.K. Shareholders or warrant holders of Quantime Limited named therein, dated as of September 30, 1997, together with a list briefly identifying the contents of omitted schedules. (3), Ex. 2.2 2.6 Stock Purchase Agreement by and among SPSS Inc. and certain Shareholders of Quantime Limited listed on the signature pages thereto, dated November 21, 1997. (4), Ex. 2.1 2.7 Stock Purchase Agreement by and among Jens Nielsen, Henrik Rosendahl, Ole Stangegaard, Lars Thinggaard, Edward O'Hara, Bjorn Haugland, 2M Invest and the Shareholders listed on Exhibit A thereto, dated November 21, 1997. (4), Ex.2.2 2.8 Stock Purchase Agreement by and among SPSS Inc. and the Shareholders of Integral Solutions Limited listed on the signature pages hereof, dated as of December 31, 1998. (18), Ex. 2.1 2.9 Share Purchase Agreement by and among SPSS Inc., Surveycraft Pty Ltd. and Jens Meinecke and Microtab Systems Pty Ltd., dated as of November 1, 1998. (20), Ex. 2.9 2.10 Stock Acquisition Agreement by and among SPSS Inc., Vento Software, Inc. and David Blyer, John Gomez and John Pappajohn, dated as of November 29, 1999. (21), Ex. 2.1 2.11 Asset Purchase Agreement by and between SPSS Inc. and DataStat, S.A., dated as of December 23, 1999. (24), Ex. 2.11 2.12 Agreement and Plan of Merger dated as of November 6, 2000, among SPSS Inc., SPSS Acquisition Sub Corp., and ShowCase Corporation. (25), Ex. 2.1 2.13 Agreement and Plan of Merger dated as of October 28, 2001, among SPSS Inc., Red Sox Acquisition Corp. and NetGenesis Corp. (29), Ex. 99.1 2.14 Stock Purchase Agreement by and among SPSS Inc., LexiQuest, S.A. and the owners of all of the issued and outstanding shares of capital stock of LexiQuest, S.A., dated as of January 31, 2002. (33), Ex. 2.14 2.15 Stock Purchase Agreement dated as of November 4, 2003, by and among SPSS Inc., SPSS International B.V. and the owners of all of the issued and outstanding shares of Data Distilleries B.V. identified on Exhibit A thereto. (40), Ex. 2.15 3.1 Certificate of Incorporation of SPSS. (5), Ex. 3.2 3.2 By-Laws of SPSS. (5), Ex. 3.4 4.1 Rights Agreement, dated June 18, 1998, between SPSS Inc. and Computershare Investor Services (f/k/a Harris Trust and Savings Bank). (41), Ex.1 10.1 Employment Agreement with Jack Noonan.+ (8), Ex. 10.1 10.2 Agreement with Valletta.+ (6), Ex. 10.2 10.3 Agreement between SPSS and Prentice Hall. (6), Ex. 10.5 10.4 Intentionally omitted. 10.5 HOOPS Agreement. (6), Ex. 10.7 10.6 Stockholders Agreement. (5), Ex. 10.8 10.7 Agreements with CSDC. (5), Ex. 10.9
21
INCORPORATION EXHIBIT BY REFERENCE NUMBER DESCRIPTION OF DOCUMENT (IF APPLICABLE) - ----------- ---------------------------------------------------------------------------- --------------- 10.8 Amended 1991 Stock Option Plan.+ (5), Ex. 10.10 10.9 SYSTAT Asset Purchase Agreement. (9), Ex. 10.9 10.10 1994 Bonus Compensation.+ (10), Ex. 10.11 10.11 Lease for Chicago, Illinois Office. (10), Ex. 10.12 10.12 Amendment to Lease for Chicago, Illinois Office. (10), Ex. 10.13 10.13 1995 Equity Incentive Plan.+ (11), Ex. 10.14 10.14 1995 Bonus Compensation.+ (12), Ex. 10.15 10.15 Amended and Restated 1995 Equity Incentive Plan.+ (13), Ex. 10.17 10.16 1996 Bonus Compensation.+ (14), Ex. 10.18 10.17 Software Distribution Agreement between the Company and Banta Global Turnkey. (14), Ex. 10.19 10.18 Lease for Chicago, Illinois in Sears Tower. (15), Ex. 10.20 10.19 1997 Bonus Compensation.+ (17), Ex. 10.21 10.20 Intentionally omitted. 10.21 Second Amended and Restated 1995 Equity Incentive Plan.+ (19), Ex. A 10.22 1998 Bonus Compensation.+ (20), Ex. 10.23 10.23 Third Amended and Restated 1995 Equity Incentive Plan.+ (22), Ex. 10.1 10.24 Intentionally omitted. 10.25 Intentionally omitted. 10.26 1999 Bonus Compensation+ (24), Ex. 10.27 10.27 2000 Equity Incentive Plan.+ (26), Ex. 10.45 10.28 SPSS Qualified Employee Stock Purchase Plan.+ (26), Ex. 10.46 10.29 SPSS Nonqualified Employee Stock Purchase Plan.+ (26), Ex. 10.47 10.30 2000 Bonus Compensation.+ (27), Ex. 10.30 10.31 Stock Purchase Agreement by and between SPSS Inc. and Siebel Systems, Inc. (28), Ex. 10.31 10.32 1999 Employee Equity Incentive Plan.+ (30), Ex. 4.1 10.33 Intentionally omitted. 10.34 Intentionally omitted. 10.35 SPSS Inc. 2002 Equity Incentive Plan+ (34), Ex. 4.1 10.36 Intentionally omitted. 10.37 Intentionally omitted. 10.38 Intentionally omitted. 10.39 Intentionally omitted. 10.40 Intentionally omitted. 10.41 Intentionally omitted. 10.42 Intentionally omitted. 10.43 Loan and Security Agreement, dated as of March 31, 2003, by and between SPSS Inc. and each SPSS subsidiary that may become additional borrowers, as Borrower, and Foothill Capital Corporation, as Lender. (37), Ex. 10.41 10.44 Amendment to Stock Purchase Agreement, dated as of October 1, 2003, by and between SPSS Inc. and America Online, Inc. (38), Ex. 10.44 10.45 Amended and Restated Strategic Online Research Services Agreement, dated as of October 1, 2003, by and between SPSS Inc. and America Online, Inc. (38), Ex. 10.45 10.46 Consulting Agreement, dated as of June 1, 2003, by and between SPSS Inc. and Norman H. Nie Consulting, L.L.C. (39), Ex. 10.46 14.1 SPSS Code of Business Conduct and Ethics (42), Ex. 14.1 31.1 Certification of the Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of the Chief Executive Officer and President pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 SPSS Inc. Charter of the Audit Committee of the Board of Directors. (42), Ex. 99.1 99.2 Supplement A to the SPSS Inc. Charter of the Audit Committee of the Board of Directors. (42), Ex. 99.2
- ---------- 22 (1) Previously filed with the Report on Form 8-K of SPSS Inc., dated September 26, 1996, filed on October 11, 1996, as amended on Form 8-K/A-1, filed November 1, 1996. (File No. 000-22194) (2) Previously filed with Amendment No. 1 to Form S-4 Registration Statement of SPSS Inc. filed on November 7, 1996. (File No. 333-15427) (3) Previously filed with the Report on Form 8-K of SPSS Inc., dated September 30, 1997, filed on October 15, 1997. (File No. 000-22194) (4) Previously filed with the Form S-3 Registration Statement of SPSS Inc. filed on November 26, 1997. (File No. 333-41207) (5) Previously filed with Amendment No. 2 to Form S-1 Registration Statement of SPSS Inc. filed on August 4, 1993. (File No. 33-64732) (6) Previously filed with Amendment No. 1 to Form S-1 Registration Statement of SPSS Inc. filed on July 23, 1993. (File No. 33-64732) (7) Previously filed with Quarterly Report on Form 10-Q of SPSS Inc. for the quarterly period ended September 30, 1993. (File No. 000-22194) (8) Previously filed with the Form S-1 Registration Statement of SPSS Inc. filed on June 22, 1993. (File No. 33-64732) (9) Previously filed with the Form S-1 Registration Statement of SPSS Inc. filed on December 5, 1994. (File No. 33-86858) (10) Previously cited with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 31, 1994. (File No. 000-22194) (11) Previously filed with 1995 Proxy Statement of SPSS Inc. (File No. 000-22194) (12) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 31, 1995. (File No. 000-22194) (13) Previously filed with 1996 Proxy Statement of SPSS Inc. (File No. 000-22194) (14) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 31, 1996. (File No. 000-22194) (15) Previously filed with the Quarterly Report on Form 10-Q of SPSS Inc. for the quarterly period ended March 31, 1997. (File No. 000-22194) (16) Previously filed with the Quarterly Report on Form 10-Q of SPSS Inc. for the quarterly period ended June 30, 1997. (File No. 000-22194) (17) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 31, 1997. (File No. 000-22194) (18) Previously filed with the Report on Form 8-K of SPSS Inc., dated December 31, 1998, filed on January 15, 1999, as amended on Form 8-K/A filed March 12, 1999. (File No. 000-22194) (19) Previously filed with 1998 Proxy Statement of SPSS Inc. (File No. 000-22194) (20) Previously filed with the Annual Report in Form 10-K of SPSS Inc. for the year ended December 31, 1998. (File No. 000-22194) (21) Previously filed with the Report on Form 8-K SPSS Inc., dated November 29, 1999, filed December 10, 1999. (File No. 000-22194) 23 (22) Previously filed with Quarterly Report on Form 10-Q of SPSS Inc. for the quarterly period ended June 30, 1999. (File No. 000-22194) (23) Intentionally omitted. (24) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 21, 1999. (File No. 000-22194). (25) Previously filed with the Report on Form 8-K of SPSS Inc., filed November 15, 2000. (File No. 000-22194). (26) Previously filed with the Form S-4 Registration Statement on of SPSS Inc., filed on December 19, 2000. (File No. 333-52216) (27) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 31, 2000. (File No. 000-22194) (28) Previously filed with the Form S-3 Registration Statement of SPSS Inc. filed on October 9, 2001. (File No. 333-71236) (29) Previously filed with the Report on Form 8-K of SPSS Inc., dated October 28, 2001, filed on October 29, 2001. (File No. 000-22194) (30) Previously filed with the Registration Statement on Form S-8 of SPSS Inc. filed on September 15, 2000. (File No. 333-45900) (31) Previously filed with the Registration Statement on Form S-3 of SPSS Inc. filed on December 12, 2001. (File No. 333-74944) (32) Previously filed with the Report on Form 8-K/A (Amendment No. 1) of SPSS Inc. filed on December 12, 2001. (File No. 000-22194) (33) Previously filed with the Report on Form 8-K of SPSS Inc., dated February 6, 2002, filed on February 21, 2002. (File No. 000-22194) (34) Previously filed with the Registration Statement on Form S-8 of SPSS Inc. filed on June 18, 2002. (File No. 333-90694) (35) Intentionally omitted. (36) Intentionally omitted. (37) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 31, 2002. (File No. 000-22194) (38) Previously filed with the Report on Form 8-K of SPSS Inc., dated October 1, 2003, filed on October 15, 2003. (File No. 000-22194) (39) Previously filed with the Quarterly Report on Form 10-Q of SPSS Inc. for the quarterly period ended September 30, 2003. (File No. 000-22194) (40) Previously filed with the Report on Form 8-K of SPSS Inc., dated November 15, 2003, filed on November 18, 2003. (File No. 000-22194) (41) Previously filed with the Form 8-A12G of SPSS Inc. filed on June 18, 1998 (File No. 000-22194) (42) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the year ended December 31, 2003 (File No. 000-22194) 24 (b) SPSS filed the following reports on Form 8-K during the three months ended June 30, 2004: The current report of SPSS Inc. on Form 8-K, dated April 7, 2004, filed with the SEC on April 8, 2004. The Form 8-K reported that SPSS had received a Nasdaq staff determination, the impact of this determination and certain information regarding the review being conducted by the Audit Committee. The current report of SPSS Inc. on Form 8-K, dated May 4, 2004, filed with the SEC on May 6, 2004. The Form 8-K reported that SPSS had issued a press release announcing its preliminary results for its fiscal quarter ended March 31, 2004 and attached a copy of the press release as an exhibit. The report also described certain non-GAAP financial measures included in the release. The current report of SPSS Inc. on Form 8-K, dated May 5, 2004, filed with the SEC on May 6, 2004. The Form 8-K reported that SPSS had held its First Quarter 2004 Earnings Release Conference Call on May 5, 2004. The Form 8-K attached a transcript of the conference call as an exhibit. The current report of SPSS Inc. on Form 8-K, dated May 14, 2004, filed with the SEC on May 20, 2004. The Form 8-K reported that a class action lawsuit has been filed against SPSS, Jack Noonan and Edward Hamburg alleging certain violations of the federal securities laws. The Form 8-K also reports that the Company and the other defendants believe that the suit is without merit and intend to defend vigorously against the allegations contained in the complaint. The current report of SPSS Inc. on Form 8-K, dated June 10, 2004, filed with the SEC on June 14, 2004. The Form 8-K reported that SPSS had received a Nasdaq staff determination and the impact of this determination. The current report of SPSS Inc. on Form 8-K, dated June 16, 2004, filed with the SEC on June 18, 2004. The Form 8-K reported the approval by the Board of Directors of amendments to the Company's Rights Agreement. The current report of SPSS Inc. on Form 8-K, dated July 1, 2004, filed with the SEC on July 2, 2004. The Form 8-K reported the resignation of Brian Zanghi as Executive Vice President, Chief Operating Officer. The current report of SPSS Inc. on Form 8-K, dated July 22, 2004, filed with the SEC on July 23, 2004. The Form 8-K reported that SPSS had received a Nasdaq staff determination and the impact of this determination. The current report of SPSS Inc. on Form 8-K, dated July 30, 2004, filed with the SEC on July 30, 2004. The Form 8-K reported that SPSS received a letter from the Nasdaq National Market stating that the Nasdaq Listing Qualifications Panel has determined to stay the delisting of the SPSS common stock that was to have been effective with the open of business on August 2, 2004. The current report of SPSS Inc. on Form 8-K, dated August 4, 2004, filed with the SEC on August 4, 2004. The Form 8-K reported that the Nasdaq will continue the listing of the SPSS common stock and will remove the fifth character "E" from the SPSS ticker symbol. The current report of SPSS Inc. on Form 8-K, dated August 5, 2005, filed with the SEC on August 6, 2004. The Form 8-K reported that SPSS had issued a press release announcing its preliminary results for the fiscal quarter ended June 30, 2004 and attached a copy of the press release as an exhibit. The report also described certain non-GAAP financial measures included in the release. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SPSS Inc. Date: August 9, 2004 By: /s/ Jack Noonan ----------------------------- Jack Noonan President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned, in his capacity as the principal financial officer of the Registrant. Date: August 9, 2004 By: /s/ Edward Hamburg ----------------------------- Edward Hamburg Executive Vice-President, Corporate Operations and Chief Financial Officer 26 SPSS INC. EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------------------------------------------------------------- 31.1 Certification of the Chief Executive Officer and President pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and President pursuant to 18 U.S.C. ss1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. ss1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
27 EX-31.1 2 c87406exv31w1.txt 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, Jack Noonan, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SPSS Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004. By: /s/ Jack Noonan ------------------------------------- Jack Noonan President and Chief Executive Officer EX-31.2 3 c87406exv31w2.txt 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION I, Edward Hamburg, certify that: 1. I have reviewed this quarterly report on Form 10-Q of SPSS Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 9, 2004. By: /s/ Edward Hamburg -------------------------------------- Edward Hamburg Executive Vice-President, Corporate Operations and Chief Financial Officer EX-32.1 4 c87406exv32w1.txt 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, THE UNDERSIGNED CERTIFIES THAT: 1. The Quarterly Report on Form 10-Q of SPSS Inc. for the period ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of SPSS Inc. Date: August 9, 2004. By: /s/ Jack Noonan ------------------------------------- Jack Noonan President and Chief Executive Officer EX-32.2 5 c87406exv32w2.txt 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002, THE UNDERSIGNED CERTIFIES THAT: 1. The Quarterly Report on Form 10-Q of SPSS Inc. for the period ended June 30, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of SPSS Inc. Date: August 9, 2004. By: /s/ Edward Hamburg -------------------------------------- Edward Hamburg Executive Vice-President, Corporate Operations and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----