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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

Commission File Number: 000-22194

SPSS Inc.

(Exact name of registrant as specified in its charter)


Delaware		36-2815480
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

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 required 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 such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The number of shares outstanding of the registrant’s Common Stock, par value $0.01, as of October 30, 2008, was 18,147,358.

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

(Unaudited)


	December 31,			September 30,
	2007			2008
ASSETS
Current assets:
Cash and cash equivalents	$	306,930		$	307,005
Accounts receivable, net		56,580			40,411
Inventories, net		698			692
Deferred income taxes, net		3,964			4,082
Prepaid income taxes		3,301			3,606
Other current assets		4,162			5,619

Total current assets		375,635			361,415

Property, equipment and leasehold improvements, net		16,429			14,997
Capitalized software development costs, net		34,140			37,075
Goodwill		42,093			41,854
Intangibles, net		3,273			4,038
Deferred income taxes		22,731			21,838
Other noncurrent assets		6,759			6,394

Total assets	$	501,060		$	487,611


LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,759		$	6,887
Income taxes and value added taxes payable		14,737			10,836
Deferred revenues		83,862			81,790
Other accrued liabilities		32,988			22,766

Total current liabilities		139,346			122,279

Long-term debt		150,000			150,000
Noncurrent deferred income taxes, net		784			959
Other noncurrent liabilities		1,577			1,672

Stockholders’ equity:
Common Stock, $.01 par value; 50,000,000 shares authorized; 18,905,933 and 18,135,590 issued at December 31, 2007 and September 30, 2008, respectively		189			182
Additional paid-in capital		175,267			145,921
Treasury Stock; 353,100 shares at December 31, 2007, at cost		(12,680	)		—
Accumulated other comprehensive income		2,696			(5,446	)
Retained earnings		43,881			72,044

Total stockholders’ equity		209,353			212,701

Total liabilities and stockholders’ equity	$	501,060		$	487,611

See accompanying notes to consolidated financial statements.

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


	Nine Months Ended September 30,
	2007			2008
Cash flows from operating activities:
Net income	$	23,714		$	28,163
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		13,137			15,478
Deferred income taxes		7,676			2,390
Excess tax benefit from share-based compensation		(5,361	)		(1,440	)
Amortization of share-based compensation		5,543			6,339
Changes in assets and liabilities:
Accounts receivable		8,208			14,654
Inventories		12			4
Prepaid and other assets		(146	)		(1,533	)
Accounts payable		(39	)		(783	)
Accrued expenses		(1,299	)		(10,073	)
Income taxes		914			(4,029	)
Deferred revenue		296			756
Other, net		(1,116	)		(4,421	)

Net cash provided by operating activities		51,539			45,505


Cash flows from investing activities:
Capital expenditures		(4,600	)		(4,084	)
Capitalized software development costs		(10,540	)		(12,575	)
Purchase of business and intangible assets		—			(1,245	)

Net cash used in investing activities		(15,140	)		(17,904	)


Cash flows from financing activities:
Purchase of common stock		(49,998	)		(27,870	)
Proceeds from stock option exercises and employee stock purchase plan		15,611			6,110
Tax benefit from stock option exercises		5,361			1,440
Proceeds from issuance of long-term debt		150,000			—
Debt issuance costs		(4,281	)		—

Net cash provided by (used in) financing activities		116,693			(20,320	)


Effect of exchange rates on cash		3,779			(7,206	)

Net change in cash and cash equivalents		156,871			75

Cash and cash equivalents at beginning of period		140,203			306,930

Cash and cash equivalents at end of period	$	297,074		$	307,005


Supplemental disclosures of cash flow information:
Interest paid	$	1,887		$	3,775
Income taxes paid		6,894			13,712
Cash received from income tax refunds		1,952			875

See accompanying notes to consolidated financial statements.

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – Basis of Presentation

The accompanying consolidated financial statements of SPSS Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to United States Securities and Exchange Commission Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. It is presumed that the reader has already read the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the fiscal year. For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

NOTE 2 — Share-Based Compensation

Share-based compensation expense, including expense related to restricted share units, deferred share units and stock options under the provision of SFAS No. 123(R) was comprised as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2008		2007		2008
Sales, Marketing and Services	$	4	$	449	$	959	$	1,259
Research and Development		7		267		967		822
General and Administrative		990		1,085		3,617		4,258

Total share-based compensation expense	$	1,001	$	1,801	$	5,543	$	6,339

During the three month period ended September 30, 2007, the Company revised certain accounting estimates related to estimated forfeitures of share-based compensation expense. The adjustment to share-based compensation expense was primarily the result of employee terminations during the second and third quarters of 2007. As a result, the Company decreased its share-based compensation expense by $0.8 million in the quarter ended September 30, 2007. This resulted in lower expense of $0.4 million recorded in each of the “Sales, Marketing and Services” and “Research and Development” line captions on the Company’s Consolidated Statements of Income.

NOTE 3 – Domestic and Foreign Operations

Net revenues per geographic region are summarized as follows (in thousands):


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2008		2007		2008
Americas	$	30,864	$	31,399	$	87,204	$	92,605


United Kingdom		9,709		8,381		27,766		27,943
The Netherlands		9,167		9,535		27,467		31,080
Other		13,059		14,361		37,427		41,437

Total Europe		31,935		32,277		92,660		100,460


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2007		2008		2007		2008
Japan		5,177		6,442		18,518		21,768
Other		4,304		4,764		12,986		13,991

Total Pacific Rim		9,481		11,206		31,504		35,759


Total International		41,416		43,483		124,164		136,219


Total revenues	$	72,280	$	74,882	$	211,368	$	228,824

NOTE 4 – 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, stock options and common shares issuable on conversion of the Company’s convertible notes. The Company computes the diluted weighted average shares outstanding using the treasury stock method. Basic weighted average shares reconciles to diluted weighted average shares as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2007		2008		2007		2008
Basic weighted average common shares outstanding		19,071		18,117		19,152		17,988
Dilutive effect of stock options and other equity		1,233		1,097		1,360		1,201

Diluted weighted average common shares outstanding		20,304		19,214		20,512		19,189

Anti-dilutive shares not included in the diluted EPS calculation for the three and nine month periods ended September 30, 2007 and September 30, 2008 were as follows (in thousands):

NOTE 5 – Cost Management Programs

During 2007, the Company incurred expenses totaling $4.6 million related to a management reorganization and a planned consolidation of certain research and development facilities. These costs principally included employee severance costs, lease exit costs and the write-off of leasehold improvements. These costs were primarily recorded during the last three quarters of 2007 as a component of Research and Development expense in the Consolidated Statements of Income. As of September 30, 2008, the Company has remaining approximately $0.8 million in other accrued liabilities and $0.5 million in other noncurrent liabilities related to these expenses and expects the liabilities to be paid by 2010.

NOTE 6 – Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for fiscal years beginning after November 15, 2007. On February 14, 2008 the FASB issued FSP FAS No. 157-1 “Application of FASB Statement No. 157 to FASB Statement 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13” that amends SFAS No. 157 to exclude its application for purposes of lease classification or measurement under SFAS13. On February 12. 2008, the FASB issued Staff Position Financial Accounting Standard (FSP FAS) No. 157-2 “Effective Date of FASB Statement No. 157” that amends SFAS No. 157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years beginning after November 15, 2008. The Company adopted the required provisions of SFAS No. 157-1 effective January 1, 2008 and there was no material effect on its consolidated financial statements. The Company has adopted SFAS 157-2 to delay the adoption effects related to non-financial assets and does not anticipate there will be a material effect on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (SFAS 141R). SFAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS 141R also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact of adoption of SFAS 141R on its consolidated financial statements. However, the Company does not expect the adoption of SFAS 141R to have a material effect on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160. “Noncontrolling Interests in Consolidated Financial Statements-an Amendment of ARB No. 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. This statement also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the potential impact of adoption of SFAS 160 on its consolidated financial statements. However, the Company does not expect the adoption of SFAS 160 to have a material effect on its consolidated financial statements.

In December 2007, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 110 Share-Based Payment (SAB 110). SAB 110 establishes the continued use of the simplified method for estimating the expected term of equity based compensation. The simplified method was intended to be eliminated for any equity based compensation arrangements granted after December 31, 2007. SAB 110 is being published to help companies that may not have adequate exercise history to estimate expected terms for future grants. The Company does not expect the adoption of SAB 110 to have a material effect on its consolidated financial statements.

In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. FAS 142-3”). FSP No. FAS 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for SFAS No. 142’s, Goodwill and Other Intangible Assets, entity-specific factors. FSP No. FAS 142-3 will be effective for fiscal years beginning after December 15, 2008. The Company is currently evaluating the potential impact of adoption of FSP No. FAS 142-3 on its consolidated financial statements. However, the Company does not expect the adoption of FSP No. FAS 142-3 to have a material effect on its consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles. SFAS No. 162 becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect that the adoption of SFAS No. 162 to have a material effect on its consolidated financial statements.

In May 2008, the FASB issued FASB Staff Position No. APB 14-1 (“FSP” or “FSP No. APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP No. APB 14-1 requires that issuers of convertible debt instruments that may be settled in cash upon conversion separately account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. FSP No. APB 14-1 will be effective for fiscal years beginning after December 15, 2008. The Company expects the implementation of FSP No. APB 14-1 to increase interest expense and decrease long-term debt. Based on current information, the estimated annual impact of adoption will decrease reported diluted earnings per share by approxmitely $0.17 through the life of the notes from 2007 through 2012.

NOTE 7 – Contingencies

Basu Litigation

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 December 31, 2001, 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.

Trademark Litigation

On January 3, 2008, the Company filed a complaint for declaratory judgment in the U.S. District Court for the Northern District of Illinois against Norman H. Nie and C. Hadlai Hull. The filing of the complaint was in response to recent assertions by Dr. Nie that the Company’s use of the SPSS trademark is subject to a License Agreement (the “Agreement”) dated September 30, 1976 between a predecessor of the Company, as licensee, and Norman H. Nie and C. Hadlai Hull, as licensors. Dr. Nie has stated his desire to enforce his alleged rights under the Agreement, which he claims include the right to inspect and approve products sold under the SPSS trademark and to obtain other information regarding those products. The complaint seeks a declaratory judgment that Dr. Nie and Mr. Hull are estopped from enforcing any rights under the Agreement and that the Company shall be deemed to have an irrevocable, assignable and exclusive license to use the SPSS trademark.

On January 28, 2008, Dr. Nie and Mr. Hull filed a counterclaim against the Company. The counterclaim asserts that the Company has repudiated the Agreement and that the Company’s use of the SPSS trademark is unauthorized and constitutes an infringement on their rights as owners of the trademark. The counterclaim seeks an injunction prohibiting the Company from continuing to use the SPSS trademark and an award of damages, costs and attorneys fees.

On February 15, 2008, the Company filed its answer to the counterclaim. In its answer, the Company denies liability for trademark infringement and asserts that Dr. Nie and Mr. Hull are barred from asserting the counterclaim on several grounds, including but not limited to the doctrines of estoppel, laches and waiver.

In May 2008, Dr. Nie filed an amended counterclaim to reflect that Mr. Hull had subsequently assigned his claims to Dr. Nie. Fact discovery was completed on September 30, 2008. The Court has set November 10, 2008 as the date by which the parties must file their motions for summary judgment, if any, and May 11, 2009 as the trial date.

NOTE 8 — Subsequent Events

Cost Management Initiatives

During the fourth quarter of 2008, the Company is implementing cost management and staff reduction initiatives which the Company expects to result in a charge of between $3.5 and $4.5 million. These costs principally include employee severance costs and are expected to be paid during the fourth quarter. The annual savings from these initiatives are expected to exceed $10.0 million.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, this Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities 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 the Company on the date hereof. The Company 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 risks 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 expressed in or implied by the forward-looking statements. The potential risks and uncertainties that could cause results to differ materially include, but are not limited to: the Company’s ability to predict revenue, the Company’s ability to respond to rapid technological changes, a potential loss of relationships with third parties from whom the Company licenses certain software, fluctuations in currency exchange rates, the impact of new accounting pronouncements, increased competition and risks associated with product performance and market acceptance of new products. A detailed discussion of these and other risk factors that affect the Company’s business is contained in the Company’s Annual Reports on form 10-K, particularly under the heading “Risk Factors.” The Company 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 SEPTEMBER 30, 2007 TO THREE MONTHS ENDED SEPTEMBER 30, 2008, AND COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2007 TO NINE MONTHS ENDED SEPTEMBER 30, 2008 .

NET REVENUES


	Three Months Ended
	September 30,		September 30,		Amount			Percentage			Percent of Total Revenues
	2007		2008		Change			Change			2007			2008
	(In thousands)
License	$	34,477	$	33,736	$	(741	)		(2	)%		48	%		45	%
Maintenance		28,475		33,519		5,044			18	%		39	%		45	%
Services		9,328		7,627		(1,701	)		(18	)%		13	%		10	%

Net revenues	$	72,280	$	74,882	$	2,602			4	%		100	%		100	%


	Nine Months Ended
	September 30,		September 30,		Amount		Percentage			Percent of Total Revenues
	2007		2008		Change		Change			2007			2008
	(In thousands)
License	$	101,815	$	106,976	$	5,161		5	%		48	%		47	%
Maintenance		87,850		98,850		11,000		13	%		42	%		43	%
Services		21,703		22,998		1,295		6	%		10	%		10	%

Net revenues	$	211,368	$	228,824	$	17,456		8	%		100	%		100	%

From the three month period ended September 30, 2007 to the three month period ended September 30, 2008, license revenues increased by $0.2 million in the United States, increased by $0.8 million in the Pacific Rim and decreased by $1.8 million in Europe. The overall decrease in license revenues during the three month period was primarily driven by lower sales of predictive applications in the United States and lower sales of desktop statistical tools in Europe. From the three month period ended September 30, 2007 to the three month period ended September 30, 2008, the lower sales of predictive applications in the United States and lower desktop statistical tools in Europe were driven by fewer significant deals in 2008 compared with 2007. For the three month period ended September 30, 2008, the Company closed 6 deals individually exceeding $250,000 totaling $2.5 million compared with 11 deals individually exceeding $250,000 totaling $5.5 million for the comparable period in 2007. The decrease in significant deals in 2008 generally reflected the longer sales cycle of significant deals, sales staff turnover and a more challenging economic environment in 2008. These decreases were partially offset by foreign currancy and higher sales of market research products and desktop statistical tools in the United States. Changes in foreign currency exchange rates increased license revenues by $1.1 million in the three month period ended September 30, 2008.

From the nine month period ended September 30, 2007 to the nine month period ended September 30, 2008, license revenues increased by $3.4 million in the United States, increased by $2.3 million in the Pacific Rim and decreased by $0.6 million in Europe. The overall increase in license revenues during the nine month period resulted from higher product demand including higher sales of certain market research and desktop statistical analysis tools in the United States and higher sales of desktop statistical analysis tools in the Pacific Rim region. Changes in foreign currency exchange rates increased license revenues by $5.9 million in the nine month period ended September 30, 2008.

The increase in maintenance revenues was primarily due to higher renewal rates in the United States, Europe and the Pacific Rim. From the three month period ended September 30, 2007 to the three month period ended September 30, 2008, maintenance revenues increased by $2.1 million in the United States, increased by $2.2 million in Europe and increased by $0.7 million in the Pacific Rim. From the nine month period ended September 30, 2007 to the nine month period ended September 30, 2008, maintenance revenues increased by $2.0 million in the United States, increased by $6.7 million in Europe and increased by $2.3 million in the Pacific Rim. Changes in foreign currency exchange rates increased maintenance revenues by $0.8 million and $4.8 million in the three and nine month periods ended September 30, 2008.

Service revenues decreased from the three month period ended September 30, 2007 to the comparable period in 2008 primarily due to a decreased number of consulting projects as a result of lower license revenues. From the three month period ended September 30, 2007 to the three month period ended September 30, 2008, service revenues decreased by $1.8 million in the United States, decreased by $0.1 million in Europe and increased by $0.2 million in the Pacific Rim. From the nine month period ended September 30, 2007 to the nine month period ended September 30, 2008, service revenues increased by $1.6 million in Europe, were unchanged in the United States and decreased by $0.3 million in the Pacific Rim. Changes in foreign currency exchange rates increased service revenues by $0.1 million and $1.0 million in the three and nine month periods ended September 30, 2008.

Net revenues per geographic region, percent changes and percent of total revenues for the three and nine month periods ended September 30, 2007 and September 30, 2008 were as follows:


	Three Months Ended
	September 30,		September 30,		Amount			Percentage			Percent of Total Revenues
	2007		2008		Change			Change			2007			2008
	(In thousands)
Americas	$	30,864	$	31,399	$	535			2	%		43	%		42	%


United Kingdom		9,709		8,381		(1,328	)		(14	)%		13	%		11	%
The Netherlands		9,167		9,535		368			4	%		13	%		13	%
Other		13,059		14,361		1,302			10	%		18	%		19	%

Total Europe		31,935		32,277		342			1	%		44	%		43	%


Japan		5,177		6,442		1,265			24	%		7	%		9	%
Other		4,304		4,764		460			11	%		6	%		6	%


	Three Months Ended
	September 30,		September 30,		Amount		Percentage			Percent of Total Revenues
	2007		2008		Change		Change			2007			2008
	(In thousands)
Total Pacific Rim		9,481		11,206		1,725		18	%		13	%		15	%


Total International		41,416		43,483		2,067		5	%		57	%		58	%


Net revenues	$	72,280	$	74,882	$	2,602		4	%		100	%		100	%


	Nine Months Ended
	September 30,		September 30,		Amount		Percentage			Percent of Total Revenues
	2007		2008		Change		Change			2007			2008
	(In thousands)
Americas	$	87,204	$	92,605	$	5,401		6	%		41	%		40	%


United Kingdom		27,766		27,943		177		1	%		13	%		12	%
The Netherlands		27,467		31,080		3,613		13	%		13	%		14	%
Other		37,427		41,437		4,010		11	%		18	%		18	%

Total Europe		92,660		100,460		7,800		8	%		44	%		44	%


Japan		18,518		21,768		3,250		18	%		9	%		10	%
Other		12,986		13,991		1,005		8	%		6	%		6	%

Total Pacific Rim		31,504		35,759		4,255		14	%		15	%		16	%


Total International		124,164		136,219		12,055		10	%		59	%		60	%


Net revenues	$	211,368	$	228,824	$	17,456		8	%		100	%		100	%

Net revenue growth in 2008 reflected the impact of foreign currency and increased demand for statistical analysis tools, increased revenue from market research products in the U.S., and a solid renewal base for the Company’s product offerings.

Net revenues derived internationally increased 5% and 10%, respectively, from the three and nine month periods ended September 30, 2007 to the respective three and nine month periods ended September 30, 2008. This increase resulted from higher revenue in certain international markets including the Netherlands, Japan, Germany, France, Spain, Southeast Asia and Australia. Changes in foreign currency exchange rates were a significant factor in the increase in international revenues resulting in a total increase in international revenues of $2.1 million and $11.6 million for the three and nine month periods ended September 30, 2008. International revenue increased in 2008 due to changes in foreign currency exchange rates from the similar periods in 2007 as follows:


	Three Months			Nine Months
	Ended			Ended
	September 30,			September 30,
	2008			2008
Country (Currency)	(In thousands)			(In thousands)
Netherlands (Euro)	$	830		$	3,608
Other Euro-denominated countries		1,038			4,071
United Kingdom (Pound)		(608	)		(569	)
Japan (Yen)		446			2,378
Other currencies		395			2,116

Total	$	2,101		$	11,604

Net revenues derived from the United States increased by 2% and 6%, respectively, from the three and nine month periods ended September 30, 2007 to the respective three and nine month periods ended September 30, 2008.

COST OF LICENSE AND MAINTENANCE REVENUES


	(In thousands)				Amount		Percentage			Percent of Total Revenues
Period	2007		2008		Change		Change			2007			2008
Three months ended September 30,	$	4,277	$	5,716	$	1,439		34	%		6	%		8	%
Nine months ended September 30,	$	13,070	$	16,236	$	3,166		24	%		6	%		7	%

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 from the three and nine month periods ended September 30, 2007 to the three and nine month periods ended September 30, 2008 primarily due to $0.7 million and $1.7 million, respectively, of higher product material and delivery costs related to higher revenues and increased amortization of capitalized software development costs of $0.6 million and $1.3 million for the three and nine month periods of 2008. Cost of license and maintenance revenues should remain relatively constant as a percentage of total revenues at approximately 7% for the remainder of 2008.

SALES, MARKETING AND SERVICES


	(In thousands)				Amount		Percentage			Percent of Total Revenues
Period	2007		2008		Change		Change			2007			2008
Three months ended September 30,	$	35,176	$	37,109	$	1,933		5	%		49	%		50	%
Nine months ended September 30,	$	101,839	$	115,036	$	13,197		13	%		48	%		50	%

Sales, marketing and services expenses increased from the three and nine month periods ended September 30, 2007 to the three and nine month periods ended September 30, 2008 primarily due to annual compensation merit increases, increased compensation costs associated with higher revenues, higher staffing levels and increased investment in marketing programs. Foreign currency contributed $0.9 million and $4.7 million to the increased costs in the three and nine month periods ended September 30, 2008.

RESEARCH AND DEVELOPMENT


Period	(In thousands)				Amount			Percentage			Percent of Total Revenues
	2007		2008		Change			Change			2007			2008
Three months ended September 30,	$	11,822	$	10,864	$	(958	)		(8	)%		16	%		15	%
Nine months ended September 30,		36,444		33,550		(2,894	)		(8	)%		17	%		15	%

Research and development costs decreased from the three and nine month periods ended September 30, 2007 to the three and nine month periods ended September 30, 2008 primarily due to decreased project related expenses and improved productivity and rationalization of resources, principally through office consolidation in the United States and Europe during the second half of 2007. The Company expects the research and development costs to remain relatively constant as a percentage of total revenues at 15% for the remainder of 2008.

GENERAL AND ADMINISTRATIVE


	(In thousands)				Amount			Percentage			Percent of Total Revenues
Period	2007		2008		Change			Change			2007			2008
Three months ended September 30,	$	8,555	$	8,390	$	(165	)		(2	)%		12	%		10	%
Nine months ended September 30,		25,245		26,421		1,176			5	%		13	%		12	%

General and administrative expenses decreased from the three month period ended September 30, 2007 to the three month period ended September 30, 2008 primarily due to lower travel costs. General and administrative expenses increased from the nine month period ended September 30, 2007 to the nine month period ended September 30, 2008 primarily due to annual compensation merit increases and higher share-based compensation. Share-based expense increased $0.6 million for the nine month period ended September 30, 2008 compared to the nine month period ended September 30, 2007 principally reflecting the incremental effect of stock awards granted in 2008.

OPERATING INCOME


	(In thousands)				Amount		Percentage			Percent of Total Revenues
Period	2007		2008		Change		Change			2007			2008
Three months ended September 30,	$	12,450	$	12,803	$	353		3	%		17	%		17	%
Nine months ended September 30,		34,770		37,581		2,811		8	%		16	%		16	%

Operating income increased from the three and nine month periods ended September 30, 2007 to the three and nine month periods ended September 30, 2008 primarily due to increased net revenues partially offset by increased operating expenses. The increased operating expenses primarily reflected higher cost of sales and higher compensation associated with higher revenues. See further discussion of these expenses under the caption headings above. As a percentage of total revenues, operating income remained consistent at 17% for the three month periods ended September 30, 2007 and September 30, 2008.

NET INTEREST INCOME


	(In thousands)				Amount			Percentage			Percent of Total Revenues
Period	2007		2008		Change			Change			2007			2008
Three months ended September 30,	$	2,302	$	1,044	$	(1,258	)		(55	)%		3	%		1	%
Nine months ended September 30,		5,557		4,030		(1,527	)		(27	)%		3	%		2	%

Net interest income decreased from the three and nine month periods ended September 30, 2007 to the three and nine month periods ended September 30, 2008 principally due to lower return on investment cash balances due to lower short-term interest rates.

The Company’s interest earnings on the three and nine month periods ending September 30, 2008 decreased relative to the comparative periods of 2007 principally reflecting financial market conditions. The effective interest rate on investments was as follows:


Period	2007			2008
Three months ended September 30,		5.4	%		2.6	%
Nine months ended September 30,		5.3	%		3.2	%

For the nine month period ended September 30 2008, the effects of lower interest rates were partially offset by significantly higher cash balances during the first six months of 2008 compared with the same period of 2007.

OTHER INCOME (EXPENSE)


	(In thousands)						Amount		Percentage			Percent of Total Revenues
Period	2007			2008			Change		Change			2007			2008
Three months ended September 30,	$	(190	)	$	(27	)	$	163		(86	)%		—	%		—	%
Nine months ended September 30,		(1,535	)		(195	)		1,340		(87	)%		(1	)%		—	%

Other income (expense) decreased from the three and nine month periods ended September 30, 2007 to the three and nine month periods ended September 30, 2008 primarily due to lower transactional losses in 2008 in Singapore dollar, Euro, and Japanese Yen, principally due to lower foreign denominated account balances.

INCOME TAX EXPENSE


	(In thousands)				Amount			Percentage			Percent of Pre-Tax Income
Period	2007		2008		Change			Change			2007			2008
Three months ended September 30,	$	6,190	$	3,319	$	(2,871	)		(46	)%		43	%		24	%
Nine months ended September 30,		15,078		13,253		(1,825	)		(12	)%		39	%		32	%

The income tax provision decreased from the nine month period ended September 30, 2007 to the nine month period ended September 30, 2008 due to certain book to tax adjustments recorded in September 2007 in conjunction with the Company’s filing of its 2007 United States tax return, certain research and development tax credits, and a favorable adjustment to certain foreign tax valuation allowances due to improved profitability in certain foreign tax jurisdictions. The income tax provision was 24% and 32% of pretax income, respectively, for the three and nine month period ended September 30, 2008. The Company expects its effective tax rate to be 32% to 34% for 2008.

COST MANAGEMENT INITIATIVES

LIQUIDITY AND CAPITAL RESOURCES

During the nine month period ended September 30, 2008, SPSS generated cash in excess of its operating requirements. As of September 30, 2008, SPSS had $307.0 million in cash and cash equivalents compared with $306.9 million at December 31, 2007. The cash balance remained relatively flat, with significant activity consisting of cash used for the purchase of outstanding common stock in the amount of $27.9 million and cash generated from operating activities in the amount of $45.5 million. Factors affecting cash and cash equivalents during the nine month period ended September 30, 2008 include:

Operating Cash Flows:

•

Cash derived from operating activities was $45.5 million. This cash resulted primarily from net income and receivable collections.

	•		Accounts receivable increased operating cash flow by $14.7 million reflecting favorable collections. Average days sales outstanding were 50 days at September 30, 2008, compared to 65 days at December 31, 2007 and 61 days at September 30, 2007.

	•		Accrued expenses, including the timing of purchases of common stock, decreased operating cash flow by $10.1 million.

Investing Activities:

	•		Capital expenditures were $4.1 million.

	•		Capitalized software development costs were $12.6 million.

	•		Purchase of business and intangible assets were $1.2 million.

Financing Activities:

	•		Purchases of outstanding common stock in 2008 used $27.9 million of cash.

	•		Cash proceeds of $6.1 million were received from the issuance of common stock, primarily through the exercise of stock options.

	•		Tax benefits recognized from stock option exercises were $1.4 million.

Cash flows from operating activities were more than adequate to fund capital expenditures and software development costs of $16.7 million. Management believes that cash flows from future operating activities will be more than adequate to meet future capital expenditures and software development costs.

On March 19, 2007, the Company issued $150 million aggregate principal amount of 2.50% Convertible Subordinated Notes due 2012 (the “Convertible Notes”) in a private placement.

The Convertible Notes will be convertible into cash and, if applicable, shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) based on an initial conversion rate of 21.3105 shares of Common Stock per $1,000 principal amount of Convertible Notes (which is equal to an initial conversion price of approximately $46.93 per share) only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter), if the closing sale price of the Common Stock for at least 20 trading days in the 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is more than 120% of the conversion price per share, which is $1,000 divided by the then applicable conversion rate; (2) during any five business day period after any five consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for each day of that period was less than 98% of the product of the closing price of the Common Stock for each day in that period and the conversion rate; (3) if specified distributions to holders of the Common Stock occur; (4) if a fundamental change occurs; or (5) during the period beginning on February 15, 2012 and ending on the close of business on the business day immediately preceding the maturity date. If the Company makes a physical settlement election as described below, the Convertible Notes will become convertible at the option of the holder at any time after the date of such physical settlement election and prior to the close of business on the business day immediately preceding the maturity date of the Convertible Notes.

Unless the Company has made a physical settlement election, upon conversion of each $1,000 principal amount of Convertible Notes, a holder will receive, in lieu of Common Stock, an amount in cash equal to the lesser of (i) $1,000, or (ii) the conversion value of the Convertible Notes. If the conversion value exceeds $1,000 on the conversion date, the Company will also deliver as payment for the excess value, at its election, cash or Common Stock or a combination of cash and Common Stock. At any time prior to maturity, the Company may make a physical settlement election. A physical settlement election is the irrevocable election to provide upon conversion, in lieu of providing cash and Common Stock, shares of Common Stock equal to the conversion rate for each $1,000 principal amount of Convertible Notes converted.

As of September 30, 2008, the Convertible Notes were not convertible and the holders of the Convertible Notes had no right to require the Company to repurchase the Convertible Notes.

On March 27, 2008, the Company entered into a three-year senior revolving credit facility (the “Credit Facility”) that enables the Company to borrow up to $50 million. The Credit Facility was entered into between the Company and LaSalle Bank National Association, as lender (the “Lender”). Borrowings under the Credit Facility may be borrowed by the Company (or one or more subsidiaries designated by the Company) in U.S. dollars, Australian dollars, Euros, Pounds Sterling, Japanese Yen and in other currencies that the Lender may approve from time to time. Borrowings under the Credit Facility bear interest at a rate per annum equal to the applicable eurocurrency rate plus a 0.50% spread. The Company pays a fee of 0.10% of the unused amount of the Credit Facility. The Company has guaranteed the obligations of all subsidiary

borrowers under the Credit Facility. As of September 30, 2008, the Company had not borrowed any funds under this credit facility.

Borrowings under the Credit Facility are subject to the Company’s satisfaction of various conditions at the time of borrowing. The Credit Facility contains the following financial covenants:

	•		the Company is required to have consolidated EBITDA of at least $40,000,000 for each period of four consecutive fiscal quarters; and

	•		the Company is required to maintain a ratio of (a) (x) consolidated total debt less (y) cash and cash equivalents to (b) consolidated EBITDA of not greater than 2.50 to 1, with compliance with such covenant to be tested on the last day of each fiscal quarter.

The Credit Facility contains other customary covenants, including restrictions on liens, asset sales, acquisitions and debt permitted to be incurred by subsidiaries, and events of default. The Company was in compliance with all conditions and covenants as of September 30, 2008.

SPSS intends to fund its future capital needs through operating cash flows and cash and cash equivalents on hand. SPSS anticipates that these amounts 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.

The Company’s cash and cash equivalents of $307.0 million as of September 30, 2008, are comprised of highly liquid investments with original maturity dates of three months or less. The Company places temporary cash investments with top-tier institutions of high credit quality. The Company performs periodic evaluations of these institutions for relative credit standing and has not experienced any losses as a result of its cash concentration. Additionally, the money market funds in which the Company invests are participants in the United States Treasury Department’s Temporary Guarantee Program for Money Market Funds. This program provides coverage for amounts held in money market funds as of the close of business on September 19, 2008. The program is designed to address temporary dislocations in credit markets. The program will exist for an initial three month term, after which the Secretary of the United States Treasury (“the Secretary”) will review the need and terms for extending the program. Following the initial three month term, the Secretary has the option to renew the program up to the close of business on September 18, 2009. As of September 19, 2008, the Company had $171.2 million covered under the aforementioned Program. Also, an additional $84.8 million of the Company’s cash and cash equivalents is covered by certain international government insurance programs.

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, impairment of goodwill and intangible 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, 2007, filed with the Securities and Exchange Commission on February 21, 2008.

RECENT ACCOUNTING PRONOUNCEMENTS

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is exposed to market risk from fluctuations in interest rates on cash and cash equivalents. As of September 30, 2008, the Company had $307.0 million of cash and cash equivalents. A 100 basis point decrease in interest rates would result in $3.1 million of lower annual interest income, assuming the same level of cash and cash equivalents.

The Company is exposed to risk from fluctuations in foreign currency exchange rates. Since a substantial portion of the Company’s operations and revenue occur outside of 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. Additionally, these changes can significantly affect intercompany balances that are denominated in different currencies.

Were the foreign currency exchange rates to depreciate immediately and uniformly against the U.S. dollar by 10 percent from levels at September 30, 2008, the reported cash balance would decrease $11.8 million from a reported cash balance of $307.0 million at September 30, 2008.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 6. Exhibits


		Incorporation
Exhibit		by Reference
Number	Description of Document	(if applicable)

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.


	PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2007 AND SEPTEMBER 30, 2008		3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2008		4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2008		5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2007 AND 2008		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		17
ITEM 4. CONTROLS AND PROCEDURES		18

PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		19
ITEM 6. EXHIBITS		19
EX-31.1
EX-31.2
EX-32.1
EX-32.2


	Three Months Ended September 30,					Nine Months Ended September 30,
	2007		2008			2007		2008
Net income	$	8,372	$	10,501		$	23,714	$	28,163

Other comprehensive income:
Foreign currency translation adjustment		2,516		(10,500	)		3,929		(8,142	)


Comprehensive income	$	10,888	$	1		$	27,643	$	20,021


	SPSS Inc.
Date: November 5, 2008	By:	/s/ Jack Noonan
		Jack Noonan
		Chairman of the Board of Directors, Chief Executive Officer and President



Date: November 5, 2008	By:	/s/ Raymond H. Panza
		Raymond H. Panza
		Executive Vice President, Corporate Operations, Chief Financial Officer and Secretary

	(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)		Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

	(c)		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

	(d)		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

Three Months Ended September 30,

Nine Months Ended September 30,


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. Section 1350, 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. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

	(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.

	1.		The Quarterly Report on Form 10-Q of SPSS Inc. for the period ended September 30, 2008, 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.