SPSS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

COMMISSION FILE NUMBER: 33-64732

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SPSS INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-2815480
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE

(Title of Class)

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 if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (based upon the per share closing sale price of
$16.85 on March 15, 2002, and for the purpose of this calculation only, the
assumption that all registrant's directors and executive officers are
affiliates) was approximately $157 million.

The number of shares outstanding of the registrant's Common Stock, par
value $0.01, as of March 15, 2002, was 16,877,721.
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SPSS INC.

TABLE OF CONTENTS

PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 16
Item 6. Selected Consolidated Financial Data........................ 17
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 29
Item 8. Financial Statements and Supplementary Data................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 62

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 62
Item 11. Executive Compensation...................................... 65
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 74
Item 13. Certain Relationships and Related Transactions.............. 76

PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedule, and
Reports on Form 8-K......................................... 77

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SPSS INC.

FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

PART 1

ITEM 1. BUSINESS

SPSS Inc. was incorporated in Illinois in 1975 under the name SPSS, Inc.
and was reincorporated in Delaware in May 1993 under the name "SPSS Inc." SPSS
is a multinational computer software company providing technology that
transforms data into insight through the use of predictive analytics and other
data mining techniques. The company's solutions and products enable
organizations to improve decision-making by learning from the past,
understanding the present, as well as anticipating future problems and
opportunities. Approximately two-thirds of the company's customers are
commercial firms, many of which use SPSS technology to better target their
marketing and sales programs, including:

- Attracting new customers more efficiently;

- Increasing sales to existing customers by improving cross-selling,
up-selling, and retention;

- Forecasting and monitoring results, like sales performance;

- Facilitating more effective electronic commerce; and

- Allocating scarce resources more efficiently across marketing programs.

Among its customers in the public sector, SPSS's offerings are primarily
used to improve interactions between government agencies and their constituents
as well as detect fraud and other forms of non-compliance. SPSS products are
often a standard at colleges and universities throughout the world as tools for
academic research and the teaching of data analysis techniques.

SPSS technology offers:

- A wide array of data access and data management capabilities;

- An extensive range of advanced data analytical techniques for use in what
is known as "data mining" in many contemporary business settings; and

- Various capabilities for the delivery of the results of analyses to
executives and managers in organizations, the integration of these
results into databases and operational systems like call-center software
and sales force automation programs, as well as the use of these results
by automated decision-making systems operating on the Web.

SPSS's major offerings include:

- CustomerCentric, the SPSS branded analytical solution specifically for
customer relationship management (aCRM) applications, particularly in the
retail, telecommunications and financial services industries.
CustomerCentric now also includes NetGenesis, a suite of software
applications that collects and stores web site and e-customer data,
integrates offline customer information and enables businesses to analyze
this information to improve their ability to market, sell support
products, services and content online.

- The SPSS and Clementine product lines for general data mining and data
analysis across a range of industries;

- The MR Dimensions solution and Quantime product line for use by
professional market research firms;

- The Strategy product line for a broad range of data analysis applications
on IBM I-Series (AS/400) computing systems; and

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- SPSS MR Online, a unique one-stop shop where market researchers can get
both the tools and the sample (online survey respondents) they need to
conduct effective on-line customer market research.

In its 27 years of operation, SPSS has become a widely recognized name in
analytical technology. SPSS is continuing to leverage this leadership position
to take advantage of the increased demand for software and services that enable
organizations to systematically analyze and present data for use in
decision-making. This increased demand is particularly apparent in decisions
related to developing programs for attracting or retaining customers, as well as
forecasting and monitoring the results of these programs. SPSS's management
believes that growth in the availability of data about, and competition for,
customers has substantially expanded the market for its analytical solutions and
products. Further contributing to this increased market potential are new
developments in SPSS technology that more effectively process large volumes of
data as well as distribute analytical results in real-time to decision makers
and web-based decision-making systems. SPSS also recently introduced offerings
that enable its technology to be integrated into analytical applications
developed and marketed by other independent software vendors, opening additional
channels of distribution for SPSS.

In August 1993, SPSS completed an initial public offering of common stock,
$0.01 par value. The common stock is listed on the NASDAQ National Market under
the symbol SPSS. In early 1995, SPSS and some stockholders sold 1,865,203 shares
of common stock in a public offering.

FORWARD-LOOKING STATEMENTS

THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING SPSS'S
EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE STRATEGIES THAT ARE SIGNIFIED BY THE
WORDS "EXPECTS", "ANTICIPATES", "INTENDS", "BELIEVES", OR SIMILAR LANGUAGE. ALL
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION
AVAILABLE TO SPSS ON THE DATE HEREOF, AND SPSS ASSUMES NO OBLIGATION TO UPDATE
ANY SUCH FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM
THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. 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.

RECENT DEVELOPMENTS AND BUSINESS COMBINATIONS

In September 1997, SPSS acquired approximately 97% of the outstanding
shares of capital stock of Quantime Limited, a corporation organized under the
laws of England in exchange for 863,049 shares of common stock of SPSS. As a
result of this transaction, Edward Sherman Ross, formerly a director of
Quantime, beneficially acquired 441,635 shares of SPSS common stock. In November
1997, SPSS acquired the remaining shares of capital stock of Quantime in
exchange for 28,175 shares of common stock of SPSS. Quantime was a developer of
market research software products. Within SPSS, Quantime is a part of a business
unit focused exclusively on market research companies worldwide.

In November 1997, SPSS acquired all of the outstanding shares of capital
stock of In2itive Technologies A/S, a corporation organized under the laws of
Denmark, in exchange for 140,727 shares of common stock of SPSS. In2itive was a
computer software company specializing in market research software. Within SPSS,
In2itive joins Quantime as part of a business unit focused exclusively on market
research companies worldwide.

In November 1998, SPSS acquired all of the outstanding shares of capital
stock of Surveycraft Pty Ltd., a corporation organized under the laws of
Australia, for approximately $1,700,000. Surveycraft developed products for
market research and was the first global research software to support Asian
languages. Within

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SPSS, Surveycraft joins In2itive and Quantime as part of a business unit focused
exclusively on market research companies worldwide.

On December 31, 1998, SPSS acquired all of the outstanding shares of
capital stock of Integral Solutions Limited, a corporation organized under the
laws of England, for an aggregate purchase price of approximately $7,000,000.
SPSS was required to make additional payments up to approximately $7,000,000 in
future years to the former owners of Integral Solutions based upon the
attainment of specific operating results by Integral Solutions. Additional
payments of approximately $3,900,000 and $2,900,000 were made in January 2000
and February 2001, respectively. The additional payments were recorded as
adjustments to the purchase price paid by SPSS for the stock of Integral
Solutions in the periods in which the payments were determinable. Integral
Solutions was a developer of technology for data mining, including its flagship
Clementine product. SPSS is further developing this Integral Solutions
technology for continued distribution as analysis products as well as
integrating it into more comprehensive analytical solutions.

On November 29, 1999, SPSS acquired all of the outstanding shares of Vento
Software, Inc. in exchange for 546,060 shares of common stock of SPSS. Vento's
assets include the VentoMap product line, a series of industry-specific software
products for business performance measurement, and a proprietary methodology for
the delivery of related professional services. SPSS is further developing the
Vento technology and using the Vento professional services methodology for
supporting the implementation of its analytical solutions.

On December 24, 1999, SPSS acquired the VerbaStat software program from
DataStat, S.A., a corporation organized under the laws of Belgium, for
approximately $1,000,000. VerbaStat is a software tool for computer aided coding
of open-ended survey questions. SPSS is further developing this product and
integrating its capabilities into its MR Dimensions solution for professional
market research firms.

On November 6, 2000, SPSS Inc. and SPSS Acquisition Sub Corp., each
Delaware corporations, and ShowCase Corporation, a Minnesota corporation,
entered into an Agreement and Plan of Merger under which ShowCase shareholders
would receive 0.333 shares of SPSS common stock for each share of ShowCase
common stock after the closing of the transaction. This share exchange ratio for
the merger was established through negotiations between SPSS and ShowCase. The
closing of the merger occurred on February 26, 2001 with SPSS issuing
approximately 3,725,000 shares of common stock for substantially all the
outstanding shares of ShowCase. The merger was accounted for as a pooling of
interests. ShowCase was a leading provider of business intelligence software and
services, and was the dominant supplier of these capabilities for IBM I-Series
(AS/400) computing systems. SPSS is further developing the ShowCase technology
and operating part of the ShowCase entity as a business unit focused exclusively
on organizations with IBM I-series (AS/400) computing systems.

On September 28, 2001, Siebel Systems, Inc. made a $5 million equity
investment in SPSS under the terms of a Stock Purchase Agreement, dated as of
September 28, 2001, by and between the parties. Before Siebel's investment in
SPSS, SPSS joined the Siebel Alliance Program as a Strategic Software Partner in
July 2001. As part of the alliance, SPSS is pursuing further integration and
validation of its analytical solutions and products with Siebel eBusiness
Applications to support enhanced customer segmentation and more effective
targeting in marketing campaigns, either off-line or in real-time environments
like call centers and web sites.

On October 22, 2001, SPSS entered into a strategic alliance with America
Online, Inc. (AOL) through its Digital Marketing Services (DMS) subsidiary, in
which SPSS acquired certain operating assets and the exclusive rights to
distribute survey sample data drawn from AOL members and users of AOL's other
interactive properties. SPSS will pay AOL $42 million in consideration over four
years and assume primary responsibility for servicing the current group of AOL
market research partners. The consideration is comprised of cash of $30 million
and common stock with a fair market value of $12 million. Through DMS, AOL will
provide SPSS with online survey respondents who have been provided incentives to
participate in online studies as well as transfer to SPSS the software and other
assets essential to operating the business.

On October 26, 2001, SPSS and Red Sox Acquisition Corp., each Delaware
corporations, and NetGenesis Corp., a Delaware corporation, entered into an
Agreement and Plan of Merger under which NetGenesis shareholders would receive
0.097 shares of SPSS common stock for each share of NetGenesis common stock upon
the closing of the transaction. This share exchange ratio for the merger was
established

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through negotiations between SPSS and NetGenesis. The closing of the merger
occurred on December 21, 2001 with SPSS issuing approximately 2,294,065 shares
of common stock for substantially all the outstanding shares of NetGenesis. The
merger was accounted for as a purchase. Prior to the merger with SPSS,
NetGenesis was the leading provider of E-Metrics solutions for Global 2000
companies. The combination of SPSS and NetGenesis technology and expertise
expands SPSS's offerings to include a new, more powerful set of on-line
analytical capabilities, combining on-line and off-line data analysis in one
comprehensive offering, from one organization. SPSS plans to integrate
NetGenesis into and operate it as part of its CustomerCentric Solutions
organization.

INDUSTRY BACKGROUND

The analysis of data using advanced analytical techniques, whether
traditional statistical methods like factor analysis and regression, or other
methods, like neural networks and decision trees, enables decision-makers to
draw reliable conclusions from numerical information. The systematic analysis of
numbers goes back to the seventeenth century, when political leaders used
statistics to develop and implement more effective public policy. The
fundamental purpose and power of this kind of data analysis remains the same
today: to help decision makers understand and resolve problems by uncovering the
causes underlying current conditions and predicting future events. These
benefits are particularly apparent in contemporary data mining applications,
which often involve the examination of extremely large amounts of data stored in
specialized databases known as "data warehouses" or "data marts", as well as in
analyzing data directly related to activities on the world wide web.

SPSS has historically developed and marketed its software and services for
a wide range of data analysis applications. Recently, SPSS began to focus more
specifically upon the analysis of data related to customer attitudes and
behavior. SPSS believes that demand for its analytical capabilities will
continue to grow as decision-making becomes more complex, as the consequences of
decisions (particularly those related to customer requirements) become more
significant, and as more data is available for analysis. To meet this demand,
colleges and universities are training increasing numbers of people in the use
of appropriate analytical methods. In addition, new technology has made more
usable and affordable the application of advanced analysis to extremely large
data sets as well as the distribution of analytical results to wider audiences
within an organization.

Vendors providing spreadsheets, query and reporting tools, and what is
known in the software industry as OLAP (On-Line Analytical Processing)
capability serve the largest part of the general market for data analysis
software. The widespread use of these tools is due to their effectiveness in
providing basic summaries of historical data, such as what sales were by region,
how many customers purchased a particular product, or what the default rate was
on loans.

A smaller yet sizable and growing part of the market uses more advanced
analytical capabilities for dealing with issues of causality and prediction.
These capabilities enable corporations to predict sales for the upcoming season,
determine the best targets for a new product, or distinguish good and bad credit
risks before extending credit terms. Spreadsheet, query and reporting, and OLAP
software usually lack the advanced analytical capabilities to build the
predictive models needed to address these types of questions.

SPSS believes the demand for its analytical solutions and products will
grow as:

- Competition for customers accelerates dramatically due to the combination
of increasingly global markets, deregulation in many industries, and the
ubiquity of information on the web;

- Organizations require more useful information from the increasing amount
of data being collected, organized, and stored;

- The number of people with a working knowledge of analytical methods
continues to grow significantly; and

- Easier-to-use software, increases in computing power, and additional
options for delivering results to decision-makers eliminate many
historical barriers to the use of advanced analytical capabilities.

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MARKETS

SPSS customers come from various industries and use SPSS software in a wide
range of applications. SPSS focuses, however, on the following market areas:

Customer Relationship Management. Firms in various industries use SPSS
software and services to improve customer interactions, including:

- Targeting promotional campaigns;

- Test-marketing new products;

- Identifying changing customer characteristics;

- Measuring customer satisfaction;

- Forecasting sales; and

- Streamlining and personalizing web sites and other applications.

Business Intelligence. Firms in various industries use SPSS software and
services to analyze information in corporate databases, particularly data
warehouses, for an extensive range of applications. SPSS technology extends the
capabilities provided by other business intelligence tools like OLAP software,
query and reporting programs, ETL (extraction-transformation-load) products, and
database systems. Moreover, SPSS software for business performance measurement
gives executives the ability to monitor critical day-to-day operations by
viewing key performance indicators and drilling down for more information as
needed.

Market Research. Almost all of the top market research firms worldwide use
SPSS's software and services to conduct the process of survey research, from
designing questionnaires to collecting data through multiple sources (especially
telephone and the web) to producing customized tabulations to developing
advanced analytical models.

Government. SPSS software and services are used in almost every country of
the world, at all levels of government, in civilian as well as defense agencies.
SPSS software, for example, is used as part of the efforts of the Internal
Revenue Service of the United States to modernize their tracking systems,
provides critical information used by many municipal public safety agencies, has
become the standard marketing tools in the recruitment programs of the United
States Armed Forces, and is employed by many national census programs.

Education. SPSS software is used at virtually every major college and
university. In addition to their use in teaching statistics at the undergraduate
and graduate levels, SPSS software is used in academic research of all types.
Academic administrators also use SPSS software to monitor similar aspects of
their operations such as attrition rates, changes in the demographic profile of
student populations, and the success of fund-raising activities.

Scientific Research. SPSS products are used in a wide variety of research
and development efforts across academic, government, and corporate institutions.
SPSS software provides data analysis and presentation tools in applications like
pharmacology, clinical trials, environmental monitoring, and experimental
modeling.

SPSS ANALYTICAL SOLUTIONS AND SOFTWARE PRODUCTS

SPSS's software enables its customers to analyze data, including the
generation of reports, graphs, and models, on a wide variety of computing
platforms. This technology can be used as stand-alone products or as part of
integrated analytical solutions. SPSS also provides professional services along
with its products and solutions, like developing plans to align analytical
efforts with organizational goals, collecting and storing data, building
predictive models, and deploying the results of analyses throughout an
organization.

In general, SPSS software is:

- Comprehensive in function, spanning the process of analysis from data
access to advanced predictive techniques;

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- Modular, allowing customers to purchase only the functionality they need;

- Integrated, enabling the use of various parts of the SPSS technology in
combination to tackle particularly complex problems;

- Embeddable, facilitating the integration of SPSS analytical capabilities
into other systems, including web sites;

- Tailored to desktop operating environments for greater ease-of-use,
including browser-based environments for the delivery of results;

- Available on most popular computing platforms, and

- For some products, localized for use in France, Germany, Italy, Poland,
Japan, Taiwan, Korea, China, and Spanish-speaking countries.

SPSS currently offers CustomerCentric, a comprehensive analytical CRM
solution that applies data mining techniques in delivering customer intelligence
to personnel throughout an organization. CustomerCentric uses automated scoring
engines to integrate this information into web sites and various operational
systems, like call-center software and sales force automation programs, driving
personalized customer interactions. CustomerCentric also applies data mining
techniques for improving the effectiveness of web sites not only measuring web
site performance, but also detecting critical traffic patterns and identifying
different visitor types.

For clients with more limited requirements, SPSS also provides a variety of
targeted analytical solutions, including those for:

- Business performance measurement, giving executives the ability to
monitor the effectiveness of their operations by viewing different key
performance indicators and then drilling down for more detailed
information.

- Clickstream analysis, the analysis of activity data from a web site,
typically to develop more personalized interactions or improve the
overall organization of the site.

- Scoring and deployment, offering application developers components to be
plugged into other software applications that enable real-time or batch
scoring of customers, like applicants for loans before extending credit
or insurance claims before their evaluation by investigators.

- Forecasting and scenarios, allowing managers as well as analysts to use
their business knowledge in making better forecasts; and

- Automated web surveys, a powerful solution for conducting surveys on the
web and reporting the results of these surveys in real-time.

There are three categories of SPSS analytical products:

(1) Data mining and analysis products, for examining data in
databases, data warehouses, and other file types. In customer relationship
management applications, these products are primarily used to segment
customers by various outcomes, like the purchase of a product or the
renewal of a contract, as well as to predict their future behavior and the
actions of prospects with similar profiles. SPSS offerings for data mining
and analysis are in either the SPSS or Clementine product lines.

The SPSS product line provides a broad range of statistical
methods. Users create tables, graphs, OLAP reports, and predictive
models in both desktop and distributed computing environments. While
there are some variations according to the version and computing
platform, a typical configuration in a customer relationship management
application is an SPSS Base and related add-on and other optional
products. The SPSS Base includes the user interface, data connectivity,
data editing, reporting, graphing, and general statistical capabilities.
Add-on products require the SPSS Base to operate and become seamlessly
integrated with it upon installation. These offerings provide additional
functionality specific to a particular type of analysis. Other optional
products

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do not require the SPSS Base to operate and perform specific
applications, like facilitating certain types of data entry or
performing certain kinds of advanced analysis. Some of these other
optional products in the SPSS product line are particularly notable
because their capabilities provide value to organizations beyond what is
typically realized with general-purpose statistical products.
AnswerTree, for example, enables highly visual decision-trees to be used
for developing customer profiles. DecisionTime creates time-series
forecasts, which can then be distributed for review and scenario
analysis by managers and executives with its companion product, WhatIf?
SmartViewer Web Server distributes the results of analysis to
decision-makers via the web. SmartScore deploys the results of analyses
into operational systems, including call centers and web sites, as well
as into databases or data warehouses.

The Clementine product line offers advanced analytical capabilities
for a variety of data mining applications in desktop and distributed
computing environments. With its unique user interface, Clementine
enables operating managers to easily incorporate their business
knowledge with data to develop predictive models. Models built in
Clementine can then be deployed for use in other software applications
with the Clementine Solution Publisher. While the SPSS and Clementine
product families are already usable together, SPSS plans to more tightly
integrate their functionality in the future.

(2) Market research products. The Quantime, In2itive, and Surveycraft
product lines provide comprehensive solutions for professionals in the
market research industry. These sets of offerings have their particular
strengths. The Quantime products, for example, are distinguished by their
extensive functionality, while the In2itive products feature more modern
user interfaces and the Surveycraft products are more easily localized for
use in Asian markets. SPSS is combining the strengths of these product
lines, as well as improving their ability to communicate with other SPSS
products, in the MR Dimensions solution for market research professionals.

(3) Scientific products. Scientists and engineers in various
technical applications use the SigmaPlot and SYSTAT product lines for data
presentation and analysis.

SOFTWARE PRICING

SPSS's licensing and pricing alternatives vary widely depending upon the
analytical solution or product required as well as the computing platform
involved and the number of users licensed.

Initial implementations of CustomerCentric usually cost between $750,000
and $1.5 million, while those of more targeted analytical solutions usually vary
between $100,000 and $300,000. All implementations carry additional maintenance
fees providing for updates to the technologies included.

For the SPSS product line, list prices in North America for perpetual
single-user licenses of desktop products are approximately $999 for the SPSS
Base and range from $299 to $2,499 for other products. Multi-user network and
site licenses can be significantly higher and require annual payments. List
prices of annual licenses for SPSS product line products on mainframes,
minicomputers, UNIX workstations, and Windows NT servers range from $4,500 to
$15,000, while perpetual licenses run from $10,000 to over $30,000.

Clementine is available under all license types listed above, with a
typical sale of between $50,000 and $100,000.

The market research products are licensed on an annual basis and perpetual
basis, where the amount of the annual or perpetual fee depends on the number of
modules involved in the customer's configuration and the number of users of each
module. The license fees for market research products range from approximately
$1,000 to over $1 million. The rate of renewal of these licenses has
historically been very high (over 90%).

Science products are usually sold as perpetual licenses for between $500
and $1,300, with discounts for volume purchases. Multi-user and site licenses
are also available and require annual payments.

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PUBLICATIONS AND STUDENT SOFTWARE

SPSS authors and regularly updates a number of publications that include
user manuals and instructional texts. SPSS also develops student versions of its
SPSS Base and SYSTAT products, which are designed for classroom use with SPSS
textbooks or other instructional materials. Since February 1993, the College
Division of Prentice Hall, under the terms of a semi-exclusive, worldwide
agreement, has arrangements with other publishers to include the SPSS Student
Version in textbooks with data sets specific to the text.

TRAINING AND CONSULTING

SPSS offers a comprehensive training program with courses covering product
operations, data analytical concepts, and particular analytical applications.
These courses are regularly scheduled in cities around the world. Organizations
may also contract for on-site SPSS training tailored to their specific
requirements.

SPSS offers consulting and customization services, where an engagement may
involve the development of plans to align analytical efforts with organizational
goals, the collection and organization of data, the building of predictive
models, and the deployment of the results of analyses throughout an
organization.

SALES AND MARKETING

The SPSS sales and marketing strategy emphasizes its ability to deliver
high value products and analytical solutions, particularly for customer
relationship management, business intelligence, and market research
applications. SPSS's management believes its data mining and other advanced
analysis capabilities are the key to differentiating SPSS from its competitors.

SPSS markets and sells its solutions, products, and services primarily
through worldwide field sales and telesales organizations. Historically, product
sales have been made by the telesales organizations from leads driven by
advertising, direct mail, tradeshow attendance, and customer references.
Although varying widely, sales made by the telesales organization are typically
completed within 30 days and average about $1,400. SPSS's database of existing
customers provides an effective source for selling add-on products, upgrades,
and training or consulting services.

As SPSS increases its emphasis on the sale of higher-priced products and
analytical solutions, SPSS is increasing the size of its field sales force along
with its pre-sales support staff and consulting personnel. Most of this field
sales force is now organized by industry to better understand the business
issues facing executives in that industry and more effectively relate SPSS
products and analytical solutions to their needs. For large sales opportunities,
SPSS sales representatives and technical sales personnel visit prospects to make
presentations, give product demonstrations, and provide pre-sales consulting.
SPSS also has partner relationships with other leading companies, which
represent additional channels for sales and leads for SPSS's higher-priced
offerings.

In addition to its headquarters in Chicago, SPSS has sales offices across
the United States, including New York City, Cambridge, Massachusetts, the
Washington D.C. area, Miami, Cincinnati, Dallas, Rochester and San Francisco.
The SPSS international sales operation consists of fourteen sales offices in
Europe and the Pacific Rim, as well as over 60 licensed distributors. Overall,
SPSS is represented in over 50 countries. Transactions are customarily made in
local currencies.

Student versions of SPSS products are published by Prentice Hall and sold
by more than 300 Prentice Hall sales representatives working directly with
faculty on college campuses worldwide. The arrangement also permits Prentice
Hall to bundle its various textbooks on statistics, market research, and quality
improvement with student versions of SPSS products.

Current users of SPSS products comprise a significant source of new sales
leads. Also important are the expert reviews of SPSS software in trade and
market-specific publications. SPSS's marketing communications program includes
advertising in trade and market-specific publications, advertising on the Web,
direct mail, exhibiting at trade shows, participating in and speaking at
professional association meetings, sponsoring seminars for prospects and
customers, and conducting user group meetings.

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CUSTOMER SERVICE AND TECHNICAL SUPPORT

SPSS provides extensive customer service and technical support either
on-site or by telephone, fax, mail and the Web, promoting customer satisfaction
and obtaining feedback on new software. Technical support services provided to
all licensees include assistance in software installation and operation, as well
as limited consulting in the selection of different analytical methods and the
interpretation of results. Additional technical support services are available
on a fee basis.

RESEARCH AND DEVELOPMENT

SPSS plans to continue expanding its software offerings through the
development of new software technologies and products, the enhancement of
existing software technologies and products, the acquisition of complementary
technologies, and the formation of partnerships with value-added resellers or
other third parties serving selected markets. SPSS's research and development
strategy is primarily focused on:

- Improving the scalability of its software to work with larger data sets;

- Expanding the ability of its software to integrate with other
applications and be tailored to customer-specific requirements;

- Enhancing the ways results of analyses can be deployed throughout an
organization, making them readily accessible to decision-makers as well
as usable in various operational systems and web sites; and

- Extending the analytical capacity already available in its software.

SPSS specialists in user interface design, software engineering, quality
assurance, product documentation, and the development of analytical algorithms
are responsible for maintaining and enhancing the quality, usability, and
statistical accuracy of all SPSS software. The research and development
organization is also responsible for authoring and updating all user
documentation and other publications. In addition, SPSS maintains ongoing
relationships with third-party software developers for the development of
specialized software products and the acquisition of technology that can be
embedded in SPSS software.

Most statistical algorithms used by SPSS in its software are published for
the convenience of its customers. SPSS employs full-time statisticians who
regularly research and evaluate new algorithms and statistical techniques for
inclusion in its software. SPSS also employs statistically-trained professionals
in its documentation, quality assurance, software design and software
engineering groups.

SPSS intends to continue to invest in research and development. In
particular, SPSS's 2002 development plan includes the Scenario Manager System, a
template-driven application-specific embeddable modeling solution accompanied by
a real-time scoring engine. In the data mining area, the acquisition of
LexiQuest and its integrated use with Clementine will permit analysis of textual
information along with demographic and customer data. See Note 18, Subsequent
Events, of the "Notes to Consolidated Financial Statements," for a more detailed
discussion of the LexiQuest acquisition. SPSS's development plan also includes
updates and new releases of Clementine and SPSS 12.0 and a new version of the
recently acquired NetGenesis product. The JZEE-based SPSS Web Deployment
Framework (SWDF) will expand support provided by integrated SPSS solutions and
products including SPSS WebApp, KPI Viewer, Enterprise Reporting, new model
visualizers and a Clementine equivalent to SPSS WebApp. A new SWDF graphing
service will permit the rendering and editing of charts regardless of what SPSS
applications originally generated them.

In the past, SPSS has experienced delays in the introduction and
enhancement of products and technologies primarily due to difficulties with
particular operating environments and problems with technology provided by third
parties. These delays have varied depending upon the size and scope of the
project and the nature of the problems encountered. From time to time, SPSS
discovers bugs in its products, which are resolved through maintenance releases
or periodic updates, depending on the seriousness of the defect.

The SPSS research and development staff currently includes approximately
365 professionals organized into groups for software design, algorithm
development, software engineering, documentation, quality

9

assurance, and product localization. SPSS's expenditures for research and
development, including capitalized software, were approximately $33.1 million in
1999, $37.8 million in 2000, and $38.8 million in 2001.

SPSS also uses independent contractors in its research and development
efforts. Sometimes SPSS uses these contractors to obtain technical knowledge and
capability that it lacks internally. SPSS has also outsourced maintenance,
conversion, and new programming for some products to enable its internal
development staff to focus on products that are of greater strategic
significance. SPSS sometimes uses independent contractors to augment its
development capacity at a lower cost.

MANUFACTURING AND ORDER FULFILLMENT

To assure speed and efficiency in the manufacturing, order fulfillment, and
delivery of its products, SPSS entered into an agreement with Banta Global
Turnkey in January 1997. Banta performs all diskette and CD-ROM duplication,
documentation printing, packaging, warehousing, fulfillment, and shipping of
SPSS products worldwide. SPSS believes that, because of the capacity of these
third-party distribution centers and their around-the-clock operation, SPSS can
easily adapt to peak period demand, quickly manufacture new products for
distribution, and effectively respond to anticipated sales volumes.

COMPETITION

The historical market for SPSS statistical software is both highly
competitive and fragmented. SPSS is among the largest companies in the
statistical software market, and, based upon sales and comparative assessments
in trade publications, SPSS believes that it competes effectively against its
competitors, particularly on desktop computing platforms. SPSS considers its
primary worldwide competitor to be the larger and better-financed SAS Institute,
although SPSS believes that revenues of SAS are derived principally from
products for purposes other than statistical analysis that operate primarily on
large computing platforms. StatSoft Inc. and Minitab, Inc. are also competitors,
although their annual revenues from statistical products are believed to be
considerably less than the revenues of SPSS. In addition to competition from
other statistical software companies, SPSS also faces competition from providers
of software for specific statistical applications.

In the data mining, customer relationship management and business
performance measurement markets, SPSS faces competition from many larger and
more well-funded companies. These include SAS, IBM, HNC Corporation, NCR,
Oracle, and others, and recent entrants, like Broadbase, E.piphany and
NetPerceptions, many of which specialize in customer relationship management in
e-commerce settings. With the exception of SAS, these competitors do not
currently offer the range of analytical capability SPSS offers, and as a result
are both competitors and potential partners for SPSS technology.

SPSS holds a dominant position in the market for solutions to the market
research industry. SPSS believes that there are no competitors in this market
who are larger and better financed; the annual revenues of vendors like Sawtooth
Software, Computers for Marketing Corporation, and Pulse Train Technology are
estimated to be considerably less than SPSS revenues from its market research
products and services.

In all markets, SPSS competes primarily on the basis of the usability,
functionality, performance, reliability, and connectivity of its software. The
significance of each of these factors varies depending upon the anticipated use
of the software and the analytical training and expertise of the customer. To a
lesser extent, SPSS competes on the basis of price and thus maintains pricing
and licensing policies to meet market demand. SPSS believes it is able to
compete successfully because of its highly usable interfaces, comprehensive
analytical capabilities, efficient performance characteristics, local language
versions, consistent quality, and connectivity features of its software, as well
as its worldwide distribution capabilities and widely recognized name.

In the future, SPSS may face competition from other new entrants into its
markets. SPSS could also experience competition from companies in other sectors
of the broader market for business intelligence software, like providers of OLAP
and analytical application software, as well as from companies in other sectors
of the broader market for customer relationship management applications, like
providers of sales force

10

automation and collaborative software, who could add enhanced analytical
functionality to their existing products. Some of these potential competitors
have significantly more capital resources, marketing experience, and research
and development capabilities than SPSS. Competitive pressures from the
introduction of new products by these companies or other companies could have a
material adverse effect on SPSS.

INTELLECTUAL PROPERTY

SPSS attempts to protect its proprietary software with trade secret laws
and internal nondisclosure safeguards, as well as copyrights and contractual
restrictions on copying, disclosure and transferability that are incorporated
into its software license agreements. SPSS licenses its software only in the
form of executable code, with contractual restrictions on copying, disclosures
and transferability. Except for licenses of its products to users of large
system products and annual licenses of its desktop products, SPSS licenses its
products to end-users by use of a "shrink-wrap" license, as is customary in the
industry. It is uncertain whether these license agreements are legally
enforceable. The source code for all SPSS products is protected as a trade
secret and as unpublished copyrighted work. In addition, SPSS has entered into
confidentiality and nondisclosure agreements with its key employees. Despite
these restrictions, the possibility exists for competitors or users to copy
aspects of SPSS products or to obtain information which SPSS regards as a trade
secret. SPSS has no patents, and judicial enforcement of copyright laws and
trade secrets may be uncertain, particularly outside of North America.
Preventing unauthorized use of computer software is difficult, and software
piracy is expected to be a persistent problem for the packaged software
industry. These problems may be particularly acute in international markets.

SPSS uses a variety of trademarks with its products. Management believes
the following are material to its business:

- SPSS is a registered trademark used in connection with virtually all of
SPSS's technology, solutions, and products;

- CustomerCentric is a registered trademark and is used in connection with
SPSS's comprehensive analytical CRM solution;

- Clementine is a registered trademark and is used in connection with
SPSS's acquired product line from Integral Solutions;

- WhatIf? and DecisionTime are the subject of pending applications for
registration;

- AnswerTree is a registered trademark and is an add-on product to the SPSS
product family;

- SmartViewer is a registered trademark and is an add-on product to the
SPSS product family;

- Quantime is an unregistered trademark used in connection with SPSS's
acquired Quantime products on all platforms;

- Strategy is an unregistered trademark used with a product licensed by
SPSS's ShowCase division;

- SYSTAT is a registered trademark used in connection with SPSS's SYSTAT
products on all platforms; and

- SigmaPlot is a registered trademark used in connection with SPSS's
acquired Jandel products on all platforms.

Some of these trademarks comprise portions of other SPSS trademarks. SPSS
has registered some of its trademarks in the United States and some of its
trademarks in a number of other countries, including the Benelux countries,
France, Germany, the United Kingdom, Japan, Singapore and Spain.

Due to the rapid pace of technological change in the software industry,
SPSS believes that patent, trade secret, and copyright protection are less
significant to its competitive position than factors such as the knowledge,
ability, and experience of SPSS's personnel, new research and development,
frequent technology and product enhancements, name recognition and ongoing
reliable technology maintenance and support.

11

SPSS believes that its solutions, products, and trademarks and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future.

RELIANCE ON THIRD PARTIES

HOOPS

SPSS entered into a perpetual nonexclusive license agreement, the HOOPS
agreement, with Autodesk, Inc. that permits SPSS to incorporate a graphics
software program known as the HOOPS Graphics System into SPSS products. Under
the terms of the HOOPS agreement, SPSS is required to pay royalties in a minimum
amount of $100,000 to Autodesk based on the amount of revenues received by SPSS
from products that incorporate the HOOPS Graphics System. SPSS may terminate the
HOOPS agreement at any time. Autodesk may terminate the HOOPS agreement upon the
occurrence of a material, uncured breach of the HOOPS agreement by SPSS.

SPSS also licenses other software programs from third-party developers and
incorporates them into SPSS's products. Many of these are exclusive worldwide
licenses that terminate on various dates. SPSS believes that it will be able to
renew non-perpetual licenses or obtain substitute products if needed.

BANTA GLOBAL TURNKEY SOFTWARE DISTRIBUTION AGREEMENT

In January 1997, SPSS entered into an agreement with Banta under which
Banta manufactures, packages, and distributes SPSS software products to its
customers worldwide. The Banta agreement had an initial three-year term, and
automatically renews thereafter for successive periods of one year. The Banta
agreement was renewed in January 2002. Either party may terminate this agreement
with 180 days written notice. If Banta terminates the agreement for convenience
or for any reason other than for cause, then during the 180-day notice period
Banta will assist SPSS in finding a new vendor. If either party materially
breaches its obligations, the other party may terminate the Banta agreement for
cause by written notice. This termination notice for cause must specifically
identify the breach or breaches, upon which the termination is based and will be
effective 180 days after the notice is received by the other party, unless the
breach(es) is (are) corrected during the 180 days.

PRENTICE HALL AGREEMENT

SPSS entered into an agreement with Prentice Hall in February 1993. Under
this agreement, SPSS granted to Prentice Hall the exclusive, worldwide right to
publish and distribute all SPSS publications, including student versions of SPSS
for DOS and Windows. The initial agreement had a five-year term which ended in
1998.

SPSS entered into a new five-year contract with Prentice Hall in April
1998. Prentice Hall has an option to renew this contract for five additional
years if it pays SPSS $2,750,000 or more during the term of this agreement. The
key differences in the new contract vis-a-vis the old contract are: (1) Prentice
Hall may publish and distribute SPSS publications in agreed-upon geographic
territories only, instead of worldwide; (2) Prentice Hall has rights only to
specified books and SPSS may sell any book (rather than SPSS having to purchase
the books from Prentice Hall); and (3) SPSS can, within specified guidelines,
license other publishers to bundle versions of the SPSS Student Version with
their textbooks.

IBM

Prior to ShowCase's merger with SPSS in February 2001, ShowCase maintained
a strategic relationship with IBM in sales and marketing and research and
development, which enabled ShowCase to quickly leverage new AS/400 capabilities
and influence the future direction of the AS/400 for the benefit of its clients.
That strategic relationship has resulted in ShowCase products being recognized
as a standard business intelligence

12

technology on the AS/400. ShowCase entered into an expanded agreement with IBM
in December 1998, which was amended in February 2000, under which certain
products will be marketed and sold as OEM products by IBM. This agreement has a
term of seven years, and expanded the scope of the reseller relationship with
IBM. Under this agreement, ShowCase has agreed to perform several development
enhancements to the Essbase/400 software. SPSS has delivered several versions of
these enhancements and continues to provide updates on an ongoing basis.

HYPERION SOLUTIONS

Through its strategic relationship with Hyperion Solutions, SPSS has the
exclusive right to distribute the Essbase/400 software through its ShowCase
division. Hyperion Solutions still maintains some limited distribution rights
under the terms of the strategic relationship. The inclusion of the Essbase/400
software in ShowCase's product line enables SPSS to reach a broader customer
base, including users of multidimensional analyses, and offers SPSS numerous
partnering opportunities by extending the Essbase/400 software to the AS/400
platform.

ShowCase's exclusive Essbase/400 distribution rights are conditioned upon
payment of minimum royalties. Hyperion Solutions also has the right to buy-back
the distribution rights so long as it gives SPSS 12 months prior written notice
of its intent to exercise the buy-back right. If SPSS does not make the minimum
royalty payments, SPSS has the option of paying the remaining balance of the
royalty payments to retain exclusive distribution rights. Further, if SPSS does
not retain its exclusive distribution rights, SPSS must pay Hyperion Solutions
minimum royalty payments to retain non-exclusive distribution rights to the
Essbase/400 software.

MICROSTRATEGY SERVICE CORPORATION

SPSS incorporates software products owned by Microstrategy Service
Corporation into its NetGenesis product line. Under the terms of a Software
License (OEM) Agreement with Microstrategy Service Corporation, SPSS has a
non-exclusive, non-transferable right to use and incorporate these products and
related documentation into its NetGenesis product line, and has the ability to
create derivative works from those products.

Under the terms of the Software License Agreement, SPSS is obligated to pay
a royalty to Microstrategy Service Corporation in the amount of 5% of the
revenue generated from the sale of products in the NetGenesis product line. SPSS
is also obligated to pay additional fees for larger product installations, and
those fees are calculated on a "per seat" basis. The Software License Agreement
terminates on October 5, 2004, and renews automatically for successive five-year
terms unless sooner terminated. Either party may terminate the agreement for
convenience at the end of a term by giving notice of non-renewal at least 90
days prior to the expiration of the then-current term.

SEASONALITY

SPSS quarterly operating results fluctuate due to several factors,
including:

- The number and timing of product updates and new product introductions;

- Delays in product development and introduction of new technologies;

- Purchasing schedules of its customers;

- Changes in foreign currency exchange rates;

- Research and development as well as market development expenditures;

- The timing of product shipments and solution implementations;

- Changes in mix of product and solutions revenues; and

- Timing and cost of acquisitions and general economic conditions.

13

If forecasts of future revenues fall below expectations, operating results
may be adversely affected because SPSS's expense levels are to a large extent
based on these forecasts. Accordingly, SPSS believes that quarter-to-quarter
comparisons of its results of operations may not be meaningful and should not be
relied upon as an indication of future performance. SPSS has historically
operated with very little backlog because its products are generally shipped as
orders are received. As a result, revenues in any quarter are dependent on
orders received and licenses renewed in that quarter. In addition, the timing
and amount of SPSS's revenues are affected by a number of factors that make
estimation of operating results before the end of a quarter uncertain. A
significant portion of SPSS's operating expenses is relatively fixed, and
planned expenditures are based primarily on revenue forecasts. If SPSS fails to
achieve these revenue forecasts, then a material reduction in net income for the
given quarter and fiscal year could result. SPSS cannot provide assurance that
profitability will be achieved on a quarterly or annual basis in the future.

EMPLOYEES

As of December 31, 2001, SPSS has approximately 1,385 employees,
approximately 827 domestically and 558 internationally. Of the approximate 1,385
employees, there are approximately 808 in sales, marketing and professional
services, 365 in research and development, and 212 in general and
administrative. SPSS believes it has generally good relationships with its
employees. None of SPSS's employees are members of labor unions.

FINANCIAL INFORMATION ABOUT SPSS's FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES

The following table sets forth financial information about foreign and
domestic operations. This information may not necessarily be indicative of
trends for future periods.

14

SPSS revenues from operations outside of North America accounted for
approximately 46% in 1999, 43% in 2000 and 50% in 2001. SPSS expects that
revenues from international operations will continue to represent a large
percentage of its net revenues and that this percentage may increase,
particularly as the Company further localizes the SPSS product line by
translating its products into additional languages. Various risks impact
international operations. Those risks include greater difficulties in accounts
receivable collection, longer payment cycles, exposure to currency fluctuations,
political and economic instability and the burdens of complying with a wide
variety of foreign laws and regulatory requirements. SPSS also believes that it
is exposed to greater levels of software piracy in international markets because
of the weaker protection afforded intellectual property in some foreign
jurisdictions. As SPSS expands its international operations, the risks described
above could increase and could have a material adverse effect on SPSS. See
"Business -- Sales and Marketing," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Note 2, Domestic and Foreign
Operations, of the "Notes to Consolidated Financial Statements."

ITEM 2. PROPERTIES

The Company's principal administrative, marketing, training and product
development and support facilities are located in Chicago, Illinois. In April
1997, SPSS entered into a 15-year sublease agreement to sublease approximately
100,000 square feet of office space in the Sears Tower in Chicago, Illinois.
This space became the principal Chicago offices of SPSS in 1998. In April 2000,
SPSS entered into a 6-year sublease for an additional 41,577 square feet of
office space in the Sears Tower in Chicago, Illinois. The aggregate annual gross
rental payments on these leases were approximately $2,672,000 for the year 2001.

In addition, SPSS leases office space in California, Virginia, New York,
Pennsylvania, Ohio, Massachusetts, Florida, Texas and Minnesota in the United
States, and in the Netherlands, the United Kingdom, Germany, Sweden, France,
Singapore, Australia, Japan, Malaysia, Denmark and Spain.

The Company plans to expand its facilities in the United Kingdom, France,
Germany and Malaysia on an as-needed basis. SPSS does not expect this expansion
to materially affect its real estate holdings. Other than this expansion, SPSS
believes its facilities are suitable and adequate for its present needs.

ITEM 3. LEGAL PROCEEDINGS

SPSS is not a party to any material legal proceedings. SPSS may become a
party to various claims and legal actions arising in the ordinary course of
business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders in the fourth
quarter of 2001.

15

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the over-the-counter market on the
NASDAQ National Market under the symbol "SPSS." The following table shows, for
the periods indicated, the high and low closing sale price of the Company's
Common Stock.

As of March 15, 2002, there were 720 holders of record of the Company's
common stock.

SPSS has never declared a dividend or paid any cash dividends on its
capital stock. SPSS does not anticipate paying any dividends on SPSS common
stock in the foreseeable future because SPSS expects to retain future earnings
for use in the operation and expansion of its business. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

RECENT SALES OF UNREGISTERED SECURITIES

On September 28, 2001, SPSS issued 300,300 shares of its common stock to
Siebel Systems, Inc. under the terms of a stock purchase agreement. The
aggregate purchase price for the 300,300 shares of SPSS common stock was $5
million. The purchase and sale of shares of SPSS common stock was exempt from
securities registration under Rule 506 of Regulation D as promulgated by the SEC
under the Securities Act of 1933, as amended, and/or Section 4(2) of the 1933
Act. SPSS subsequently filed a registration statement on Form S-3 registering
Siebel's resale of the shares of SPSS common stock issued to it.

On October 22, 2001, SPSS issued 173,724 shares of its common stock to
America Online, Inc. (AOL) under the terms of a stock purchase agreement.
Concurrent with the consummation of the stock purchase agreement, SPSS and AOL
entered into a strategic online research services agreement. As part of the
consideration to be paid by SPSS to AOL in exchange for SPSS's acquisition of
certain operating assets and exclusive rights to distribute survey sample data
drawn from AOL members under the research services agreement, SPSS is obligated
to issue $3,000,000 of SPSS common stock to AOL each year from October 2001
through October 2004. Until issued, shares are accrued as merger consideration
in the Company's consolidated balance sheet at December 31, 2001. The 173,724
shares of SPSS common stock issued to AOL in October 2001 represented the first
$3,000,000 installment of shares of SPSS common stock. The purchase and sale of
shares of SPSS common stock was exempt from securities registration under Rule
506 of Regulation D as promulgated by the SEC under the 1933 Act. SPSS
subsequently filed a registration statement on Form S-3 registering AOL's resale
of 158,228 shares of SPSS common stock issued to it. Under the terms of the
stock purchase agreement, the number of shares of SPSS common stock was reduced
from 173,724 to 158,228 to account for the then current market price of SPSS
common stock as of the time of the effectiveness of the registration statement.

16

10B5-1 STOCK TRADING PLANS

Jonathan Otterstatter, SPSS's Executive Vice President, Chief Technology
Officer, and Kenneth Holec, a member of the SPSS Board of Directors, entered
into and engaged in transactions pursuant to 10b5-1 Stock Trading Plans during
2001. These trading plans were adopted pursuant to Rule 10b5-1 promulgated under
the Securities Exchange Act of 1934. In accordance with Rule 10b5-1, both Mr.
Otterstatter and Mr. Holec entered into their respective plans prior to becoming
aware of any material nonpublic information about SPSS. An authorized
independent broker effected the periodic sales of a pre-determined number of
shares of SPSS common stock on behalf of each of Mr. Otterstatter and Mr. Holec
solely in accordance with the terms of their respective plans.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for each of the
years in the five-year period ended December 31, 2001 are derived from the
Consolidated Financial Statements of SPSS. The Consolidated Financial Statements
as of December 31, 2000 and 2001, and for each of the years in the three-year
period ended December 31, 2001, and the report thereon of KPMG LLP, are included
elsewhere in this Form 10-K. All data has been restated to include the financial
position and results of operations of ShowCase as a result of the consummation
of the pooling-of-interest business combination with SPSS in 2001.

- ---------------

(1) Analytical Solutions includes products and services, sold separately or in
combination, for customer relationship management, business intelligence,
and business performance measurement applications, except in the IBM AS/400
market.

(2) Market Research includes products and services, sold separately or in
combination, for survey design, implementation, and analysis in the market
research industry.

(3) Statistics includes products and services, sold separately or in
combination, for general purpose statistical analysis.

(4) ShowCase includes products and services, sold separately or in combination,
for customer relationship management, business intelligence, and business
performance measurement applications in the IBM AS/400 market.

(5) Includes costs primarily related to professional fees associated with
acquisitions that did not meet the definition of merger costs under
established guidelines, costs associated with the reduction in workforce and
the writedown of obsolete internal use software.

(6) Includes costs related to acquisitions accounted for as
poolings-of-interests, such as investment banking and other professional
fees, employee severance and costs of closing excess office facilities and
certain expenses associated with the closing of other acquisitions.

(7) Includes costs related to acquired in-process technology in conjunction with
business combinations accounted for as purchases.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The original Statistical Package for the Social Sciences was introduced in
1969, and SPSS was incorporated in 1975. The first SPSS products were almost
exclusively used by academic researchers working on mainframe computing systems.
SPSS subsequently transformed and enhanced its core product technology,
broadened its customer base into the corporate and government sectors,
significantly expanded its sales and marketing capabilities and product
offerings, and adapted its products to changing hardware and software
technologies. SPSS has evolved in this manner through a combination of internal
reorganization and acquisitions (see "Business -- Recent Developments and
Business Combinations" for a description of each of SPSS's recent acquisitions).
Approximately 72% of 2001 revenues came from sales to customers in corporate
settings, with another 12% in academic institutions, 11% in government agencies
and 5% from other sources.

In recent years, SPSS has experienced a significant shift in the sources of
its revenues. Between 1997 and 2001, revenues from its analytical solutions
increased from 3% to more than 17% of total net revenues and
18

ShowCase increased from 18% to 23% of total net revenues, while in contrast,
revenue from SPSS statistical products and services declined from 63% to 42% of
net revenues. Management expects these trends to continue in 2002.

The following information should be read in conjunction with the
consolidated historical financial information and the notes thereto included
elsewhere in this document.

RESULTS OF OPERATIONS

The following table shows select statements of income data as a percentage
of net revenues for the years indicated.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

Net Revenues. Net revenues increased from $181,453,000 in 1999 to
$186,114,000 in 2000, an increase of 3% from 1999, and decreased to $176,556,000
in 2001, an overall decrease of 5% from 2000. The 2000 increase was primarily
due to (a) growth in analytical solutions revenues of 78%, as a result of
increases in data mining products and sales, and (b) increases in ShowCase
revenues of 17%, primarily due to increases in new license revenues largely
attributable to the expansion of the direct sales force and increases in
maintenance and support revenues. Revenues in 2000 were negatively impacted by
the deferral of revenues as required by AICPA Technical Practice Aids regarding
software revenue recognition that went into effect during the year. The
accounting change, as described in the following paragraph, resulted in a
$16,975,000 reduction in net revenues in 2000. Market research revenues declined
9% in 2000 primarily due to the negative

19

effects of the deferred revenue adjustment. Statistics revenue decreased 14% in
2000 due to the deferred revenue adjustment and a lower overall growth rate in
the market for general-purpose statistical products. The overall decrease in
2001 was made up of decreases in Analytical Solutions, Statistics and ShowCase
by 3%, 5% and 12%, respectively, partially offset by a 2% increase in Market
Research revenues. The decreases in Analytical Solutions, Statistics and
ShowCase were due to the general decline in business-related IT spending and a
trend towards smaller transaction sizes, driven primarily by the downturn in the
world economy, offset partially by increased revenues from server versions of
SPSS products. The decrease in Statistics was primarily due to the divestiture
of specific products and reduced demand driven by the economic downturn. The
increase in Market Research revenues resulted from new revenues related to the
transaction with AOL completed in the third quarter. Revenues in all categories
were adversely affected by foreign currency exchange rates for each of the three
years described.

As noted above, during 2000, the AICPA staff released several Technical
Practice Aids (TPA) for the software industry, consisting of questions and
answers related to the financial accounting and reporting issues of Statement of
Position 97-2, Software Revenue Recognition. As a result of the issuance of
these TPA's, SPSS performed a comprehensive review of its revenue recognition
policies to ensure compliance with recent authoritative literature. On a
prospective basis from the fourth quarter of 2000, SPSS applied the standards in
TPA 5100.53 -- Fair value of PCS in a short-term time-based license and software
revenue recognition and TPA 5100.68 -- Fair value of PCS in perpetual and
multi-year time-based licenses and software revenue recognition. As a result of
the application of the TPA's, SPSS began to recognize the revenue from
short-term time-based licenses and perpetual licenses with multi-year
maintenance terms ratable over the term of the contract. SPSS recorded a
one-time adjustment of approximately $16,975,000 to defer revenue for contracts
entered into during the fourth quarter of 2000.

Cost of Revenues. Cost of revenues consists of costs of goods sold,
amortization of capitalized software development costs, and royalties paid to
third parties. Cost of revenues decreased from $16,500,000 in 1999 to
$16,268,000 in 2000, and increased to $19,835,000 in 2001. The 2001 increase was
due to write offs of $3,637,000 of obsolete and redundant technology resulting
from the ShowCase and NetGenesis mergers which were required under GAAP to be
included in cost of revenue. As a percentage of net revenues, cost of revenues
were steady at 9% in 1999 and 2000, and increased to 11% in 2001.

Sales and Marketing. Sales and marketing expenses increased from
$98,824,000 in 1999 to $115,074,000 in 2000 an increase of 16%, and decreased to
$112,027,000 in 2001, a decrease of 3%. As a percentage of net revenues, sales
and marketing expenses increased from 54% in 1999 to 62% in 2000, and increased
to 64% in 2001. Full implementation of the Company's strategy of expanding sales
management, recruiting additional, more senior sales representatives, and hiring
more professional services personnel was limited in 2001 by the need to control
costs due to the decrease in revenue, caused primarily by the downturn in the
world economy, but is expected to continue to the extent economic conditions
improve. Sales and marketing expense increases were partially offset by the
effects of changes in foreign currency exchange rates in 2000 and 2001.

Research and Development. Research and development expenses increased from
$30,465,000 in 1999 to $32,896,000 in 2000 and decreased to $32,305,000 in 2001
(net of capitalized software development costs of $2,593,000 in 1999, $4,930,000
in 2000 and $6,537,000 in 2001) an increase of 8% in 2000 and a decrease of 2%
in 2001. In the same periods, the Company's expense for amortization of
capitalized software and product translations, included in cost of revenues, was
$3,182,000 in 1999, $4,161,000 in 2000 and $4,137,000 in 2001. As a percentage
of net revenues, research and development expenses were 17% in 1999, 18% in 2000
and 18% in 2001. The 2000 increase was due primarily to staff additions, salary
increases, and recruiting expenses, while the 2001 decrease (excluding amounts
capitalized) in research and development expenses was primarily due to ongoing
cost control efforts, including limitations on hiring, travel, and other
spending. Capitalization of software development costs increased during 2001 due
to ShowCase related development projects.

General and Administrative. General and administrative expenses decreased
from $14,239,000 in 1999 to $14,045,000 in 2000, and to $13,580,000 in 2001, a
decrease of 1% in 2000 and 3% in 2001. The decrease in 2000 was due to reduced
costs by consolidating the United States accounting functions and lower bad debt

20

expense, and the 2001 decrease was due to ongoing cost control efforts,
including limitations on hiring, travel, and other spending. This expense was
steady as a percentage of net revenues at 8% in 1999, 2000 and 2001.

Special General and Administrative Charges. Special general and
administrative charges were $14,739,000 for 2001, or 8% of revenues.

Special general and administrative charges includes $4.2 million of charges
dating to the writedown of internal use software, $3.5 million related to
reductions in workforce, $2.0 million for obsolete software writeoffs and other
costs that did not meet the definition of merger costs, under established
guidelines. There were no special general and administrative charges in 1999 or
2000.

Merger-related. SPSS incurred merger-related costs of $1,611,000 in 1999
and $10,139,000 in 2001.

Merger related expenses relate to several acquisitions during 2001 (see
Note 5). Expenses included $2.5 million paid for investment banking and other
professional fees, $2.7 million of deal related bonuses paid to employees, $2.0
million of several costs and costs of closing excess office facilities and $1.7
million for redundant software write-offs. Included in 1999 merger-related costs
was a recovery of $803,000 against a previously taken charge related to a plan
for consolidation of the Company's facilities in the United Kingdom.

Acquired In-Process Technology. Acquired in-process technology costs were
$128,000 in 1999 related to an acquisition of the VerbaStat software product
from DataStat, and $2,288,000 in 2001 related to the acquisition of NetGenesis
Corp.

In December 1999, SPSS acquired the VerbaStat software program, a software
tool for computer aided coding of open-ended survey questions, from DataStat. A
portion of the purchase price was attributable to acquired in-process
technology, as the development work associated with the program had not reached
technological feasibility and was believed to have no alternative future use.
SPSS assessed the fair value of the acquired in-process technology using an
income approach. Future cash flows were projected over five years discounted to
present value using a discount rate of 20% based on the project and the market
risks associated with the research and development project and resulting
product. Specific consideration was given to the stage of development of the
research and development effort, which was 75% complete, both in terms of costs
invested as of the acquisition date relative to completion costs and technical
achievements. In projecting future revenue streams from the project, SPSS
considered many factors including competition, market growth estimates, time to
market and additional sales and marketing leverage that SPSS could provide to
the VerbaStat product.

In December 2001, SPSS completed a merger with NetGenesis Corp. A portion
of the purchase price was attributable to acquired in-process technology, as the
development work associated with NetGenesis version 6.0 had not reached
technological feasibility and was believed to have no alternative future use.
SPSS assessed the fair value of the acquired in-process technology using an
income approach. Future cash flows were projected over five years discounted to
present value using a discount rate of 19% based on the project and the market
risks associated with the research and development project and resulting
product. Specific consideration was given to the stage of development of the
research and development effort, which was 60% complete, both in terms of costs
invested as of the acquisition date relative to completion costs and technical
achievements. In projecting future revenue streams from the project, SPSS
considered many factors including competition, market growth estimates, time to
market and additional sales and marketing leverage that SPSS could provide to
the NetGenesis suite of products.

Net Interest and Investment Income (Expense). Net interest and investment
income was $739,000 in 1999, $1,096,000 in 2000 and $(400,000) in 2001. The net
income in 1999 and 2000 was primarily due to interest earned on short-term
investments, partially offset by interest expense incurred on line-of-credit
borrowings. The expense in 2001 was due primarily to interest expense that was
only partially offset by lower interest income due to lower average balances in
cash and short term investments.

Other Income (Expense). Other income was $304,000 in 1999 and $1,222,000
in 2000, and other expense was $821,000 in 2001. The large increase in 2000 was
due primarily to the $1,397,000 gain on the divestiture of the statistical
quality control product line, offset partially by foreign exchange transactions.
The expense in 2001 was due primarily to foreign transaction exchange losses.

21

Provision for Income Taxes. The provision for income taxes was $7,492,000
in 1999, $4,234,000 in 2000 and $(7,986,000) in 2001. During 1999, the provision
for income taxes represented a tax rate of approximately 36%, excluding the
effect of Japanese monies transferred out of Japan in 1999. During 2000, the
provision for income taxes represented a tax rate of approximately 29%,
excluding the effect of Japanese monies transferred out of Japan in 2000. The
2000 tax rate benefited from the reduction of the deferred tax valuation
allowance. During 2001, the provision for income taxes represented a tax rate of
approximately 27%, excluding the effect of Japanese monies transferred out of
Japan in 2001. The effective rate was lower than the statutory rate primarily
due to an increase in the valuation allowance and nondeductible in-process
research and development charges.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2001, SPSS had approximately $31,192,000 of unrestricted
cash and marketable securities. Cash received as part of the mergers with
ShowCase and NetGenesis were used to pay down the line-of-credit, accrued income
taxes, the final installment to the former Integral Solutions shareholders,
merger-related costs and capital expenditures. Proceeds of approximately $5
million were received from the issuance of common stock to Siebel Systems, Inc.
in September 2001.

SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table reflects a summary of SPSS's contractual cash
obligations:

SUMMARY DISCLOSURES REGARDING RELATED PARTIES

SPSS maintains a consulting agreement with Norman H. Nie Consulting L.L.C.
whereby SPSS receives consulting services on various business related matters.
Annual compensation under the agreement is $80,800 plus expenses. Norman Nie is
the Chairman of the Board of Directors of SPSS. The agreement contains automatic
one-year extensions unless terminated by either party.

As described in Note 18, SPSS purchased LexiQuest in February 2002. Norman
Nie was the Chairman of the Board of Directors of LexiQuest and owned less than
1% of LexiQuest common stock at the date of the acquisition.

Bernard Goldstein, a member of the Board of Directors of SPSS, serves as a
director of Broadview International, LLC. In 2001, SPSS paid Broadview a total
of $80,000 as a retainer for investment banking services provided by Broadview
to SPSS. In addition, SPSS paid Broadview an additional $1,000,000 for services
provided by Broadview in connection with the merger of SPSS and NetGenesis. This
$1,000,000 payment was made on January 18, 2002.

We generated $6.1 million in cash from operations in 1999 compared to $7.0
million in 2000 and $18.2 million in 2001. The 1999 and 2000 cash came primarily
from our net income of $13.2 million and $5.9 million, respectively; while 2001
cash came primarily from collections of open accounts receivable of $22.9
million, which was partially offset by the net operating loss.

22

Investing activities resulted in the net use of $28.8 million in cash in
1999, $17.4 million in 2000 and $16.7 million in 2001. In 1999, $13.7 million in
cash was primarily used for the expenditures for marketable securities, along
with net capital expenditures of $5.2 million and capitalized software
development costs of $5.6 million. During 2000, $12.7 million in cash was used
in net capital expenditures, along with $7.6 million for capitalized software
development costs and $3.9 million in earn-out payments to the former owners of
ISL; offset by $7.5 million provided by net proceeds from marketable securities.
In 2001, $17.4 million in cash was used in net capital expenditures, along with
$18.6 million for capitalized software development costs and $2.8 million in
earn-out payments to the former owners of ISL and $2.8 million related to the
AOL transaction; offset by $10.9 million provided by net proceeds from
marketable securities. In addition, SPSS acquired cash of $13.9 million as a
result of its acquisition of NetGenesis in December 2001.

The Company's capital expenditures, primarily for computer equipment and
software, leasehold improvements and office furniture totaled approximately
$16,700,000 in 2001, and are projected to total approximately $10,000,000 in
2002 and $12,000,000 in 2003. SPSS expects capital expenditures during 2002 to
include new computers, primarily for use in internal product development and
systems for sales, accounting and order entry. SPSS does not believe that the
implementation of its business strategy will require substantial additional
capital expenditures in comparison with historical capital expenditure levels
which had consisted primarily of product development costs and other expenses.

Cash provided by financing activities was $25.3 million in 1999 and $11.7
million in 2000, while in 2001 $9.3 million in cash was used in financing
activities. In 1999, $24.4 million was provided by the ShowCase initial public
offering of common stock. In 2000, $7.0 million was provided by borrowings under
line-of-credit agreements and $4.8 million was provided by issuances of common
stock, mainly through employee exercises of stock options. During 2001, $14.8
million in cash was used to repay borrowings under line-of-credit agreements,
partially offset by $5.5 million provided by issuances of common stock through
sales to Siebel and AOL, and through employee exercises of stock options.

The Company's accounts receivable balance increased $9,774,000 million in
1999 and $20.9 million in 2000. The increase in 1999 related primarily to the
12% increase in net revenues. During 2001, the Company made considerable efforts
to collect outstanding receivables including hiring additional collections
personnel. This, coupled with decreasing revenues, contributed to the
significant decrease in net accounts receivable in 2001. The Company's deferred
revenue balance increased $18.3 million in 2000 due primarily to the
aforementioned $16,975,000 adjustment upon the implementation of the AICPA
Technical Practice Aids. The relationship of the 40% increase in accounts
receivable in 2000 to the revenue decrease of 1% in 2000 was caused by a
combination of factors. The first factor was the deferring of revenues in
accordance with AICPA Technical Practices Aids regarding software revenue
recognition. This application resulted in a $16,975,000 reduction in net
revenues with no parallel reduction in accounts receivable. The second factor
was the timing of sales at the end of 2000. In the last month of 2000, $28
million was billed, compared to $21 million in the same period of 1999.

In May 2000, SPSS revised its loan agreement with American National Bank
and Trust Company of Chicago. Under the new loan agreement, SPSS has an
available $20,000,000 unsecured line of credit with American National, under
which borrowings bear interest at either the prime interest rate or the
Eurodollar Rate, depending on the circumstances. As of December 31, 2001, SPSS
had $1,175,000 outstanding under this line of credit. The Company's agreement
with American National requires SPSS to comply with certain specified financial
ratios and tests, and, among other things, restricts 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.

23

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 for the
foreseeable future. However, no assurance can be given that changing business
circumstances will not require additional capital for reasons that are not
currently anticipated or that the necessary additional capital will then be
available to SPSS on favorable terms or at all.

INTERNATIONAL OPERATIONS

Significant growth in the Company's international operations also occurred
from 1999 to 2001. Revenues from international operations comprised
approximately 46% to 43% of total net revenues between 1999 and 2000, and were
approximately 50% of total net revenues in 2001.

Following the reorganization of its international operations in 1990, SPSS
has maintained substantially the same direct sales and telesales organizations
worldwide. The international sales organization uses more independent
distributors than the domestic sales organization, primarily in countries
without an SPSS sales office. Management believes the profit margins associated
with the Company's domestic and international operations are essentially the
same.

As international revenues increase, SPSS may experience additional foreign
currency exchange risk. To mitigate these effects, SPSS from time-to-time hedges
its transaction exposure (i.e., the effect on earnings and cash flows of changes
in foreign exchange rates on receivables and payables denominated in foreign
currencies) through the use of foreign currency options, primarily yen. SPSS
does not hedge its foreign currency exposure in a manner that would entirely
eliminate the effects of changes in foreign exchange rates on the Company's
consolidated net income. Accordingly, the Company's reported revenues and net
income have been and in the future may be affected by the changes in foreign
exchange rates.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

SPSS's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.

On an on-going basis, management evaluates its estimates and judgments,
including those related to revenue recognition, capitalized software development
costs, and the valuation of accounts receivable, long-lived assets and deferred
income taxes. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities. Actual results may differ
from these estimates under different assumptions or conditions. Management
believes the following critical accounting policies, among others, affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.

SOFTWARE REVENUE RECOGNITION

The Company applies AICPA Statement of Position ("SOP") 97-2, Software
Revenue Recognition, which specifies the criteria that must be met prior to SPSS
recognizing revenues from software sales.

SPSS's policy is to record revenue only when the following criteria are
met:

(a) Persuasive evidence of an arrangement exists -- SPSS and the
customer have executed a written agreement, contract or other evidence of
an arrangement.

(b) Delivery has occurred -- Product has been shipped or delivered to
customer, depending on the applicable terms. SPSS's standard contract does
not contain acceptance clauses. In the event that SPSS modifies the terms
of its standard contract to provide that final delivery is contingent upon
the customer

24

accepting the applicable product, SPSS does not recognize revenue for that
product until the customer has accepted the product.

(c) The vendor's fee is fixed or determinable -- The arrangement
indicates the price of the license and the number of users, and the related
payment terms are within one year of delivery of the software.

(d) Collectibility is probable -- SPSS sells to customers it deems
creditworthy. Standard terms for payment are 30 days. SPSS periodically
extends payment terms to three to six months, but does not extend payment
terms past one year.

SPSS primarily recognizes revenue from product licenses, net of an
allowance for estimated returns and cancellations, at the time the software is
delivered. Revenue from certain product license agreements is recognized upon
contract execution, product delivery, and customer acceptance.

Revenue from postcontract customer support ("PCS" or "maintenance")
agreements, including PCS bundled with product licenses, is recognized ratably
over the term of the related PCS agreements. Some product licenses include
commitments for insignificant obligations, such as technical and other support,
for which an accrual is provided.

Revenue from training, consulting, publications, and other items is
recognized as the related products or services are delivered or rendered.

Revenues from fixed-price contracts are recognized using the
percentage-of-completion method of contract accounting as services are performed
to develop, customize and install the Company's software products. The
percentage completed is measured by the percentage of labor hours incurred to
date in relation to estimated total labor hours for each contract. Management
considers labor hours to be the best available measure of progress on these
contracts.

SPSS enters into arrangements which may consist of the sale of (a) licenses
of the Company's software, (b) professional services and maintenance or (c)
various combinations of each element. Revenues are recognized based on the
residual method under SOP 98-9, Modification of SOP 97-2 Software Revenue
Recognition, when an agreement has been signed by both parties, delivery of the
product has occurred, the fees are fixed or determinable, collection of the fees
is probable and no other significant obligations remain. Historically, the
Company has not experienced significant returns or offered exchanges of its
products.

For multiple element arrangements, each element of the arrangement is
analyzed and SPSS allocates a portion of the total fee under the arrangement to
the undelivered elements, such as professional services, training and
maintenance based on vender-specific objective evidence of fair value. Revenues
allocated to the undelivered elements are deferred using vendor-specific
objective evidence of fair value of the elements and the remaining portion of
the fee is allocated to the delivered elements (generally the software license),
under the residual method. Vendor-specific objective evidence of fair value is
based on the price the customer is required to pay when the element is sold
separately (i.e. hourly time and material rates charged for consulting services
when sold separately from a software license and the optional renewal rates
charged by the Company for maintenance arrangements).

If an element of the license agreement has not been delivered, revenue for
the element is deferred based on its vendor-specific objective evidence of fair
value. If vendor-specific objective evidence of fair value does not exist, all
revenue is deferred until sufficient objective evidence exists or all elements
have been delivered. If the fee due from the customer is not fixed or
determinable, revenue is recognized as payments become due. If collectibility is
not considered probable, revenue is recognized when the fee is collected.

Amounts allocated to license revenues under the residual method are
recognized at the time of delivery of the software when vendor-specific
objective evidence of fair value exists for the undelivered elements, if any,
and all the other revenue recognition criteria discussed above have been met.

Revenues from professional services are comprised of consulting,
implementation services and training. Consulting services are generally sold on
a time-and-materials basis and include services such as installation and
building non-complex interfaces to allow the software to operate in customized
environments. Services are

25

generally separable from the other elements under the arrangement since the
performance of the services is not essential to the functionality (i.e. the
services do not involve significant production, modification or customization of
the software or building complex interfaces) of any other element of the
transaction. Revenues for professional services and training are recognized when
the services are performed.

Maintenance revenues consist primarily of fees for providing
when-and-if-available unspecified software upgrades and technical support over a
specified term. Maintenance revenues are recognized on a straight-line basis
over the term of the contract.

SPSS offers (a) annual licenses with maintenance renewable annually, (b)
perpetual licenses with both annual and multi-year maintenance, and (c)
multi-year licenses with multi-year maintenance. Vendor-specific objective
evidence does not exist for annual licenses with one year of maintenance. For
perpetual license arrangements with one year of maintenance, vendor-specific
objective evidence is established based on the renewal rate of maintenance
(which is a set percentage of the total contract price, in accordance with
Technical Practice Aids (TPA) 5100.55, Fair Value of PCS with a Consistent
Renewal Percentage, But Varying Dollar Amounts, and Software Revenue
Recognition). Vendor-specific objective evidence of fair value is not
determinable for perpetual and multi-year arrangements with multi-year
maintenance.

SPSS licenses software, primarily to end users, on a perpetual basis and on
an annual and multi-year basis. Under a perpetual license, the customer is
granted an indefinite right to use the software. SPSS has a 60-day return policy
for these types of licenses and the Company calculates its return allowance
using a 12-month rolling average based on actual returns during the prior 12
months. Under an annual license, the customer is granted the right to use the
software for one year and may not return or cancel during the first year.

For each type of license, postcontract customer support (maintenance) is
offered. Under perpetual licenses, it is the customer's option to renew
maintenance each year. Under an annual license, the customer must renew the
license and maintenance to continue to use the software. In both cases, SPSS
contacts the customer two months before the scheduled renewal date to determine
the customer's renewal intentions. If the customer indicates that it intends to
renew the license, SPSS will issue a new invoice. In some cases, customers
ultimately cancel a license even though they initially indicated a willingness
to renew. These cancellations are tracked in a 12-month rolling average to
determine the cancellation percentage that SPSS will accrue as its cancellation
allowance.

CAPITALIZATION OF CERTAIN SOFTWARE DEVELOPMENT COSTS

Software development costs incurred by SPSS in connection with the
Company's long-term development projects are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. SPSS has
not capitalized software development costs relating to development projects
where the net realizable value is of short duration, as the effect would be
immaterial. SPSS reviews capitalized software development costs each period and,
if necessary, reduces the carrying value of each product to its net realizable
value.

As of January 1, 1998, SPSS adopted SOP 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. This standard requires
that certain costs related to the development or purchase of internal-use
software be capitalized and amortized over the estimated useful life of the
software. SOP 98-1 also requires that costs related to the preliminary project
stage and post-implementation/operations stage of an internal-use computer
software development project be expensed as incurred. During 1999, 2000 and
2001, SPSS capitalized $739,000, $1,229,000 and $2,024,000, respectively, and
amortized $23,000, $40,000 and $438,000, respectively, of internal-use computer
software.

ACCOUNTS RECEIVABLE

SPSS's management must make estimates of accounts receivable that will not
be collected. SPSS performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customer's credit
worthiness, as determined by SPSS's review of their current credit information.
SPSS

26

continuously monitors collections and payments from its customers and maintains
a provision for estimated credit losses based upon historical experience and any
specific customer collection issues that it has identified. While such credit
losses have historically been within management's expectations and the
provisions established, SPSS cannot guarantee that it will continue to
experience the same credit loss rates as in the past. If the financial condition
of SPSS's customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

LONG-LIVED ASSETS

SPSS assesses the impairment of identifiable intangibles, long-lived assets
and related goodwill and enterprise level goodwill whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
SPSS considers important which could trigger an impairment review include
significant underperformance relative to expected historical or projected future
operating results, significant changes in the manner of use of the acquired
assets or the strategy for SPSS's overall business and significant negative
industry or economic trends.

When SPSS determines that the carrying value of intangibles, long-lived
assets and related goodwill may not be recoverable based upon the existence of
one or more of the above indicators of impairment, SPSS would use an estimate of
undiscounted future cash flows to measure whether the asset is recoverable over
its estimated useful life. If estimated undiscounted future cash flows are less
than the carrying amount of the asset, the asset is considered impaired and an
expense is recorded in an amount required to reduced the carrying amount of the
asset to its then fair value.

INCOME TAXES

SPSS recognizes deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. SPSS regularly reviews its deferred tax assets for
recoverability and establishes a valuation allowance based on historical taxable
income, projected future taxable income, and the expected timing of the
reversals of existing temporary differences to reduce its deferred tax assets to
the amount that it believes is more likely than not to be realized. While SPSS
has considered future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event SPSS were to determine that it would not be able to realize all or part of
its net deferred tax assets in the future, an adjustment to the net deferred tax
assets would be charged to income in the period such determination was made.
Likewise, should SPSS ascertain in the future that it is more likely than not
that deferred tax assets will be realized in excess of the net deferred tax
assets recorded, all or a portion of the $5,981,000 million valuation allowance
would be reversed as a benefit to the provision for income taxes in the period
such determination was made.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, Business Combinations, (SFAS No. 141) and SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142). SFAS No. 141 requires that the purchase
method of accounting be used for all business combinations. SFAS No. 141
specifies criteria that intangible assets acquired in a business combination
must meet to be recognized and reported separately from goodwill. SFAS No. 142
will require that goodwill and intangible assets with indefinite useful lives no
longer be amortized, but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. SFAS No. 142 also requires that
intangible assets with estimable useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121 and subsequently, SFAS No. 144 after
its adoption. The Company adopted the provisions of SFAS No. 141 as of July 1,
2001, and SFAS No. 142 is effective January 1, 2002. Goodwill and intangible
assets determined to have an indefinite useful life acquired in a purchase
business combination completed after June 30, 2001, but before SFAS No. 142 is
adopted in full, are not amortized. Goodwill and intangible assets acquired in
business combinations completed before July 1, 2001 continued to be amortized
and tested for impairment prior to the full adoption of SFAS No. 142.

27

Upon adoption of SFAS No. 142, the Company is required to evaluate its
existing intangible assets and goodwill that were acquired in purchase business
combinations, and to make any necessary reclassifications in order to conform
with the new classification criteria in SFAS No. 141 for recognition separate
from goodwill. The Company will be required to reassess the useful lives and
residual values of all intangible assets acquired, and make any necessary
amortization period adjustments by the end of the first interim period after
adoption. If an intangible asset is identified as having an indefinite useful
life, the Company will be required to test the intangible asset for impairment
in accordance with the provisions of SFAS No. 142 within the first interim
period. Impairment is measured as the excess of carrying value over the fair
value of an intangible asset with an indefinite life. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative effect
of a change in accounting principle in the first interim period.

In connection with SFAS No. 142's transitional goodwill impairment
evaluation, the Statement requires the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date of
adoption. To accomplish this, the Company must identify its reporting units and
determine the carrying value of each reporting unit by assigning the assets and
liabilities, including the existing goodwill and intangible assets, to those
reporting units as of January 1, 2002. The Company will then have up to six
months from January 1, 2002 to determine the fair value of each reporting unit
and compare it to the carrying amount of the reporting unit. To the extent the
carrying amount of a reporting unit exceeds the fair value of the reporting
unit, an indication exists that the reporting unit goodwill may be impaired and
the Company must perform the second step of the transitional impairment test.
The second step is required to be completed as soon as possible, but no later
than the end of the year of adoption. In the second step, the Company must
compare the implied fair value of the reporting unit goodwill with the carrying
amount of the reporting unit goodwill, both of which would be measured as of the
date of adoption. The implied fair value of goodwill is determined by allocating
the fair value of the reporting unit to all of the assets (recognized and
unrecognized) and liabilities of the reporting unit in a manner similar to a
purchase price allocation, in accordance with SFAS No. 141. The residual fair
value after this allocation is the implied fair value of the reporting unit
goodwill. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
operations.

As of the date of adoption of SFAS No. 142, the Company expects to have
unamortized goodwill in the amount of $45,579,000 (including workforce of
$469,000) and unamortized identifiable intangible assets in the amount of
$18,825,000, all of which will be subject to the transition provisions of SFAS
No. 142. Amortization expense related to goodwill was $659,000, $1,143,000 and
$1,451,000 for the years ended December 31, 1999, 2000 and 2001, respectively.
Because of the extensive effort needed to comply with adopting SFAS No. 141 and
No. 142, it is not practicable to reasonably estimate the impact of adopting the
Statements on the Company's financial statements at the date of this report,
including whether it will be required to recognize any transitional impairment
losses as the cumulative effect of a change in accounting principle.

In August 2001, the FASB issued Statement No. 143, Accounting for Asset
Retirement Obligations, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. This Statement applies to all entities that
have legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development or normal use of a
long-lived asset. Statement No. 143 also requires an enterprise to record the
fair value of an asset retirement obligation as a liability in the period in
which it incurs a legal obligation associated with the retirement of a tangible
long lived asset. Enterprises are required to adopt Statement No. 143 for fiscal
years beginning after June 15, 2002. Early adoption is encouraged. The Company
has not yet determined the impact of the new accounting standard on its
financial reporting.

In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144 (SFAS No. 144), Accounting for Impairment of Long-Lived Assets. The new
standard supercedes FASB Statement No. 121 (SFAS No. 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
Although retaining many of the fundamental recognition and measurement
provisions of SFAS No. 121, the new rules significantly change the criteria that
would have to be met to classify an asset as held-for-sale. The new standard
also supercedes the provisions of Accounting Principles Board Opinion No. 30
28

(APB 30), Reporting the Results of Operations -- Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, and will require expected future operating
losses from discontinued operations to be displayed in discontinued operations
in the period(s) in which the losses are incurred rather than as of the
measurement date as presently required by APB 30. The provisions of SFAS No. 144
are effective for financial statements beginning after December 15, 2001, but
allow for early application. The provisions of SFAS No. 144 generally are to be
applied prospectively, therefore, the adoption of this standard will not affect
previously reported financial information. The Company does not expect the
adoption of the new accounting standard to have a material effect on its
financial reporting.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from fluctuations in interest rates
on borrowings under our unsecured line of credit that bears interest at either
the prime rate or the Eurodollar rate. As of December 31, 2001, the Company had
$1,175,000 outstanding under this line of credit. A 100 basis point increase in
interest rates would result in an additional $11,750 of annual interest expense,
assuming the same level of borrowing.

The Company is exposed to market risk from fluctuations in foreign currency
exchange rates. Since a substantial portion of the Company's operations and
revenue occur outside the United States, and in currencies other than the U.S.
dollar, the Company's results can be significantly impacted by changes in
foreign currency exchange rates. To manage the Company's exposure to
fluctuations to currency exchange rates, the Company, from time-to-time, enters
into various financial instruments, such as options. These instruments generally
mature within 12 months. Gains and losses on these instruments are recognized in
other income or expense. Were the foreign currency exchange rates to depreciate
immediately and uniformly against the U.S. dollar by 10 percent from levels at
December 31, 2001, management expects this would have a material adverse effect
on the Company's financial results.

The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates. From time to time, the Company
utilizes option contracts to minimize the impact of currency movements on
receivables from its foreign subsidiaries. The terms of these contracts are
generally less than one year. At December 31, 2001, the Company's outstanding
option contracts were insignificant.

The Company's derivative instruments do not qualify for hedge accounting
treatment under FAS No. 133. Accordingly, gains and losses related to changes in
the fair value of these instruments are recognized in income in each financial
reporting period.

29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SPSS INC. AND SUBSIDIARIES

INDEX

Schedules not filed

All schedules other than that indicated in the index have been omitted as the
required information is inapplicable or the information is presented in the
consolidated financial statements or related notes.

30

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
SPSS Inc.:

We have audited the consolidated financial statements of SPSS Inc. and
subsidiaries (the "Company") as listed in the accompanying index. In connection
with our audits of the consolidated financial statements, we also have audited
the consolidated financial statement schedule as listed in the accompanying
index. These consolidated financial statements and the consolidated financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the consolidated financial statement schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SPSS Inc.
and subsidiaries as of December 31, 2000 and 2001, and the results of their
operations, and their cash flows for each of the years in the three-year period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the related
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective
July 1, 2001, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 141, "Business Combinations," and certain
provisions of SFAS No. 142, "Goodwill and Other Intangible Assets," as required
for goodwill and intangible assets resulting from business combinations
consummated after June 30, 2001.

/s/ KPMG LLP

Chicago, Illinois
March 28, 2002

31

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.
32

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.

33

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial
statements.

34

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.
35

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
36

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) DESCRIPTION OF BUSINESS

SPSS Inc. ("SPSS" or the "Company") is a multinational company that
provides software and professional services for discovering what customers want
and predicting what they will do. The Company's products and services,
individually and in combination, are primarily used by commercial organizations
to integrate and analyze market, customer, and operational data in the process
of formulating strategies and programs to interact with their customers more
effectively. This process is commonly called "data mining" or "data analysis
using advanced analytical techniques."

In connection with the merger with ShowCase Corporation ("ShowCase") in
2001, the Company introduced a Windows-based query tool for the IBM AS/400,
ShowCase Vista. ShowCase has subsequently introduced additional products and
services to support an end-to-end business intelligence solution for IBM AS/400
customers. ShowCase's product suite is sold under the name ShowCase Strategy.

Analytical solutions include products and services, sold separately or in
combination, for customer relationship management, business intelligence, and
business performance measurement applications. Market research includes products
and services, sold separately or in combination, for survey design,
implementation, and analysis in the market research industry. Statistics include
products and services, sold separately or in combination, for general purpose
statistical analysis.

(b) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of SPSS Inc. and
its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. In addition, the
consolidated financial statements include the operating results of Illumitek,
Inc., a 50% owned joint-venture, from October 1, 2001 (see Note 6).

(c) USE OF ESTIMATES

Management of SPSS has made a number of estimates and assumptions relating
to the reporting of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.

(d) SOFTWARE REVENUE RECOGNITION

The Company applies AICPA Statement of Position ("SOP") 97-2, Software
Revenue Recognition, which specifies the criteria that must be met prior to SPSS
recognizing revenues from software sales.

SPSS's policy is to record revenue only when these criteria are met:

(a) Persuasive evidence of an arrangement exists -- SPSS and the
customer have executed a written agreement, contract or other evidence of
an arrangement.

(b) Delivery has occurred -- Product has been shipped or delivered to
customer, depending on the applicable terms. SPSS's standard contract does
not contain acceptance clauses. In the event that SPSS modifies the terms
of its standard contract to provide that final delivery is contingent upon
the customer accepting the applicable product, SPSS does not recognize
revenue for that product until the customer has accepted the product.

(c) The vendor's fee is fixed or determinable -- The arrangement
indicates the price of the license and the number of users, and the related
payment terms are within one year of delivery of the software.

37

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(d) Collectibility is probable -- SPSS sells to customers it deems
creditworthy. Standard terms for payment are 30 days. SPSS periodically
extends payment terms to three to six months, but does not extend payment
terms past one year.

SPSS primarily recognizes revenue from product licenses, net of an
allowance for estimated returns and cancellations, at the time the software is
delivered. Revenue from certain product license agreements is recognized upon
contract execution, product delivery, and customer acceptance.

Revenue from postcontract customer support ("PCS" or "maintenance")
agreements, including PCS bundled with product licenses, is recognized ratably
over the term of the related PCS agreements. Some product licenses include
commitments for insignificant obligations, such as technical and other support,
for which an accrual is provided.

Revenue from training, consulting, publications, and other items is
recognized as the related products or services are delivered or rendered.

Revenues from fixed-price contracts are recognized using the
percentage-of-completion method of contract accounting as services are performed
to develop, customize and install the Company's software products. The
percentage completed is measured by the percentage of labor hours incurred to
date in relation to estimated total labor hours for each contract. Management
considers labor hours to be the best available measure of progress on these
contracts.

SPSS enters into arrangements which may consist of the sale of (a) licenses
of the Company's software, (b) professional services and maintenance or (c)
various combinations of each element. Revenues are recognized based on the
residual method under SOP 98-9, Modification of SOP 97-2 Software Revenue
Recognition, when an agreement has been signed by both parties, delivery of the
product has occurred, the fees are fixed or determinable, collection of the fees
is probable and no other significant obligations remain. Historically, the
Company has not experienced significant returns or offered exchanges of its
products.

For multiple element arrangements, each element of the arrangement is
analyzed and SPSS allocates a portion of the total fee under the arrangement to
the undelivered elements, such as professional services, training and
maintenance based on vendor-specific objective evidence of fair value. Revenues
allocated to the undelivered elements are deferred using vendor-specific
objective evidence of fair value of the elements and the remaining portion of
the fee is allocated to the delivered elements (generally the software license),
under the residual method. Vendor-specific objective evidence of fair value is
based on the price the customer is required to pay when the element is sold
separately (i.e. hourly time and material rates charged for consulting services
when sold separately from a software license and the optional renewal rates
charged by the Company for maintenance arrangements).

If an element of the license agreement has not been delivered, revenue for
the element is deferred based on its vendor-specific objective evidence of fair
value. If vendor-specific objective evidence of fair value does not exist, all
revenue is deferred until sufficient objective evidence exists or all elements
have been delivered. If the fee due from the customer is not fixed or
determinable, revenue is recognized as payments become due. If collectibility is
not considered probable, revenue is recognized when the fee is collected.

Amounts allocated to license revenues under the residual method are
recognized at the time of delivery of the software when vendor-specific
objective evidence of fair value exists for the undelivered elements, if any,
and all the other revenue recognition criteria discussed above have been met.

Revenues from professional services are comprised of consulting,
implementation services and training. Consulting services are generally sold on
a time-and-materials basis and include services such as installation and
building non-complex interfaces to allow the software to operate in customized
environments. Services are generally separable from the other elements under the
arrangement since the performance of the services is not essential to the
functionality (i.e. the services do not involve significant production,
modification or

38

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

customization of the software or building complex interfaces) of any other
element of the transaction. Revenues for professional services and training are
recognized when the services are performed.

SPSS does not have non-fixed price multiple element arrangements that
include software and consulting arrangements. These are typically "time and
materials" arrangements that list expected total cost for the services. The
services typically consist of assisting the customer in "cleaning" and
organizing its data prior to the use of the software, or creating customized
reports for the customer. These services may be performed by any number of firms
and have no direct bearing on the customer's use of the software. If the
customer chooses, it does not have to have SPSS perform any work on its data
prior to installation and it does not have to have any additional reports
created for its business.

Maintenance revenues consist primarily of fees for providing
when-and-if-available unspecified software upgrades and technical support over a
specified term. Maintenance revenues are recognized on a straight-line basis
over the term of the contract.

SPSS offers (a) annual licenses with maintenance renewable annually, (b)
perpetual licenses with both annual and multi-year maintenance, and (c)
multi-year licenses with multi-year maintenance. Vendor-specific objective
evidence does not exist for annual licenses with one year of maintenance. For
perpetual license arrangements with one year of maintenance, vendor-specific
objective evidence is established based on the renewal rate of maintenance
(which is a set percentage of the total contract price, in accordance with
Technical Practice Aids (TPA) 5100.55, Fair Value of PCS with a Consistent
Renewal Percentage, but Varying Dollar Amounts, and Software Revenue
Recognition). Vendor-specific objective evidence of fair value is not
determinable for perpetual and multi-year arrangements with multi-year
maintenance.

SPSS licenses software, primarily to end users, on a perpetual basis and on
an annual and multi-year basis. Under a perpetual license, the customer is
granted an indefinite right to use the software. SPSS has a 60-day return policy
for these types of licenses and the Company calculates its return allowance
using a 12-month rolling average based on actual returns during the prior 12
months. Under an annual license, the customer is granted the right to use the
software for one year and may not return or cancel during the first year.

For each type of license, postcontract customer support (maintenance) is
offered. Under perpetual licenses, it is the customer's option to renew
maintenance each year. Under an annual license, the customer must renew the
license and maintenance to continue to use the software. In both cases, SPSS
contacts the customer two months before the scheduled renewal date to determine
the customer's renewal intentions. If the customer indicates that it intends to
renew the license, SPSS will issue a new invoice. In some cases, customers
ultimately cancel a license even though they initially indicated a willingness
to renew. These cancellations are tracked in a 12-month rolling average to
determine the cancellation percentage that SPSS will accrue as its cancellation
allowance.

During 2000 and 2001, the Company concurrently purchased software licenses
from and sold software licenses to several customers. The Company utilizes the
purchased technology internally and had the ability to determine the fair value
of the licenses sold. The Company recorded revenues of $1,130,000 and $2,680,000
during 2000 and 2001, respectively, related to these sales.

During 2000, the AICPA staff released several TPA's for the software
industry, consisting of questions and answers related to the financial
accounting and reporting issues of SOP 97-2. As a result of the issuance of
these TPA's, SPSS performed a comprehensive review of their revenue recognition
policies to ensure compliance with recent authoritative literature. On a
prospective basis beginning in the fourth quarter of 2000, SPSS applied the
standards set forth in TPA 5100.53 -- Fair value of PCS in a short-term
time-based license and software revenue recognition and TPA 5100.68 -- Fair
value of PCS in perpetual and multi-year time-based licenses and software
revenue recognition. As a result of the application of the TPA's, SPSS
recognized the revenue from short-term time-based licenses and perpetual
licenses with multi-year maintenance terms

39

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

ratable over the term of the contract. The Company recorded a one-time
adjustment of approximately $16,975,000 to defer revenue for contracts entered
into during the fourth quarter of 2000.

(e) SOFTWARE DEVELOPMENT COSTS

Software development costs incurred by SPSS in connection with the
Company's long-term development projects are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed. SPSS has
not capitalized software development costs relating to development projects
where the net realizable value is of short duration, as the effect would be
immaterial. SPSS reviews capitalized software development costs each period and,
if necessary, reduces the carrying value of each product to its net realizable
value.

SPSS applies SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This standard requires that certain
costs related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software. SOP
98-1 also requires that costs related to the preliminary project stage and
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred. During 1999, 2000 and 2001 SPSS
capitalized $739,000, $1,229,000 and $2,024,000, respectively, and amortized
$23,000, $40,000 and $438,000, respectively, of internal-use computer software.

(f) EARNINGS PER SHARE

Basic earnings per share ("EPS") is based on the weighted average number of
shares outstanding and excludes the dilutive effect of unexercised common stock
equivalents. Diluted EPS is based on the weighted average number of shares
outstanding and includes the dilutive effect of unexercised common stock
equivalents.

Had SPSS recorded net income during 2001, 1,324,991 stock options would
have been included in the total weighted-average number of shares outstanding.

(g) DEPRECIATION AND AMORTIZATION

Depreciation of buildings is provided over thirty years on a straight-line
method. Furniture and equipment is depreciated using the straight-line method
over the estimated useful lives of the assets, which range from

40

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

three to eight years. Leasehold improvements are amortized on the straight-line
method over the remaining terms of the respective leases. Capitalized software
costs are amortized on a straight-line method over three to five years based
upon the expected life of each product. This method results in greater
amortization than the method based upon the ratio of current year gross product
revenue to current and anticipated future gross product revenue.

(h) INCOME TAXES

SPSS applies the asset and liability method of accounting for income taxes
in which deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

(i) STOCK OPTION PLANS

The Company accounts for its stock options under the provisions of SFAS
123, Accounting for Stock-Based Compensation. SFAS 123 permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of grant. Alternatively, SFAS 123 also allows entities to
apply the provisions of Accounting Principles Board Opinion ("APB") 25,
Accounting for Stock Issued to Employees and provide pro forma net income (loss)
disclosures for employee stock option grants made as if the fair value-based
method defined in SFAS 123 had been applied. Under APB 25, compensation expense
would be recorded on the date of the grant only if the current market price of
the underlying stock exceeded the exercise price. The Company has elected to
apply the provisions of APB 25 and provide the pro forma disclosures required by
SFAS 123.

(j) INVENTORIES

Inventories, consisting of finished goods, are stated at the lower of cost
or market. Cost is determined using the first-in, first-out method.

(k) GOODWILL AND INTANGIBLE ASSETS

The excess of the cost over the fair value of net assets acquired is
recorded as goodwill and amortized on a straight-line basis over 10 to 15 years.
Accumulated amortization was $2,718,000 and $3,880,000 as of December 31, 2000
and 2001, respectively.

Beginning July 1, 2001, the Company adopted SFAS 141, Business
Combinations. Accordingly, goodwill arising from business combinations completed
prior to July 1, 2001 will be amortized through December 31, 2001 and beginning
January 1, 2002, will no longer be amortized but will be tested for impairment
at least annually. Goodwill arising from the acquisitions of a business from
America Online, Inc. and NetGenesis Corp. completed subsequent to July 1, 2001
will not be amortized but will be tested for impairment at least annually. See
(t) below.

(l) FOREIGN CURRENCY TRANSLATION

The translation of the applicable foreign currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using the average
exchange rates during the period. The gains or losses resulting from such
translation are

41

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

included in stockholders' equity. Gains or losses resulting from foreign
currency transactions are included in "other income and expense" in the
consolidated statement of operations.

(m) FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of financial instruments were not materially different from
their carrying values.

(n) CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised of highly liquid investments with
original maturity dates of three months or less.

(o) RESTRICTED CASH

Restricted cash consists of deposits held at major financial institutions
as collateral for letters of credit that secure the Company's office leases and
leases of certain of the Company's fixed assets.

(p) MARKETABLE SECURITIES

All marketable securities are classified as available-for-sale and
available to support current operations or to take advantage of other investment
opportunities. These securities are stated at estimated fair values based upon
market quotes with unrealized holding gains or losses reported as a separate
component of accumulated other comprehensive income (loss) within stockholders'
equity. Realized gains and losses are included in other income (expense). The
cost of securities sold is based on the specific identification method. The cost
of debt securities is adjusted for amortization of premiums and accretion of
discounts to maturity. This amortization and accretion is included in net
interest and investment income (expense).

(q) LONG-LIVED ASSETS

Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount should be
evaluated. Factors leading to impairment include a combination of significant
underperformance relative to expected historical or projected future operating
results, significant changes in the manner of use of the acquired assets or the
strategy for SPSS's overall business and significant negative industry or
economic trends. The assessment of recoverability is based on management's
estimate. Impairment is measured by comparing the carrying value to the
estimated and undiscounted future cash flows expected to result from the use of
the assets and their eventual disposition. SPSS has determined that as of
December 31, 2001, there has been no impairment in the carrying values of
long-lived assets.

(r) ADVERTISING EXPENSES

Advertising expenses are charged to operations during the year in which
they are incurred. The total amount of advertising expenses charged to
operations was $3,557,000, $2,623,000 and $2,565,000 for the years ended
December 31, 1999, 2000 and 2001, respectively.

(s) RECLASSIFICATIONS

Where appropriate, some items relating to the prior years have been
reclassified to conform to the presentation in the current year.

42

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(t) RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the FASB issued SFAS 141, Business Combinations, (SFAS 141)
and SFAS 142, Goodwill and Other Intangible Assets (SFAS 142). SFAS 141 requires
that the purchase method of accounting be used for all business combinations.
SFAS 141 specifies criteria that intangible assets acquired in a business
combination must meet to be recognized and reported separately from goodwill.
SFAS 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS 142. SFAS 142 also requires
that intangible assets with estimable useful lives be amortized over their
respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with SFAS 121 and subsequently, SFAS 144
after its adoption. The Company adopted the provisions of SFAS 141 as of July 1,
2001, and SFAS 142 is effective January 1, 2002. Goodwill and intangible assets
determined to have an indefinite useful life acquired in a purchase business
combination completed after June 30, 2001, but before SFAS 142 is adopted in
full, are not amortized. Goodwill and intangible assets acquired in business
combinations completed before July 1, 2001 continued to be amortized and tested
for impairment prior to the full adoption of SFAS 142.

Upon adoption of SFAS 142, the Company is required to evaluate its existing
intangible assets and goodwill that were acquired in purchase business
combinations, and to make any necessary reclassifications in order to conform
with the new classification criteria in SFAS 141 for recognition separate from
goodwill. The Company will be required to reassess the useful lives and residual
values of all intangible assets acquired, and make any necessary amortization
period adjustments by the end of the first interim period after adoption. If an
intangible asset is identified as having an indefinite useful life, the Company
will be required to test the intangible asset for impairment in accordance with
the provisions of SFAS 142 within the first interim period. Impairment is
measured as the excess of carrying value over the fair value of an intangible
asset with an indefinite life. Any impairment loss will be measured as of the
date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period.

In connection with SFAS 142's transitional goodwill impairment evaluation,
the Statement requires the Company to perform an assessment of whether there is
an indication that goodwill is impaired as of the date of adoption. To
accomplish this, the Company must identify its reporting units and determine the
carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units
as of January 1, 2002. The Company will then have up to six months from January
1, 2002 to determine the fair value of each reporting unit and compare it to the
carrying amount of the reporting unit. To the extent the carrying amount of a
reporting unit exceeds the fair value of the reporting unit, an indication
exists that the reporting unit goodwill may be impaired and the Company must
perform the second step of the transitional impairment test. The second step is
required to be completed as soon as possible, but no later than the end of the
year of adoption. In the second step, the Company must compare the implied fair
value of the reporting unit goodwill with the carrying amount of the reporting
unit goodwill, both of which would be measured as of the date of adoption. The
implied fair value of goodwill is determined by allocating the fair value of the
reporting unit to all of the assets (recognized and unrecognized) and
liabilities of the reporting unit in a manner similar to a purchase price
allocation, in accordance with SFAS 141. The residual fair value after this
allocation is the implied fair value of the reporting unit goodwill. Any
transitional impairment loss will be recognized as the cumulative effect of a
change in accounting principle in the Company's statement of operations.

As of the date of adoption of SFAS 142, the Company expects to have
unamortized goodwill in the amount of $45,579,000 (including workforce of
$469,000) and unamortized identifiable intangible assets in the amount of
$18,825,000, all of which will be subject to the transition provisions of SFAS
142. Amortization expense related to goodwill was $659,000, $1,143,000 and
$1,451,000 for the years ended December 31, 1999, 2000 and 2001, respectively.
Because of the extensive effort needed to comply with adopting SFAS 141 and

43

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

142, it is not practicable to reasonably estimate the impact of adopting the
Statements on the Company's financial statements at the date of this report,
including whether it will be required to recognize any transitional impairment
losses as the cumulative effect of a change in accounting principle.

In August 2001, the Financial Accounting Standards Board issued Statement
143, Accounting for Asset Retirement Obligations, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. This
Statement applies to all entities that have legal obligations associated with
the retirement of long-lived assets that result from the acquisition,
construction, development or normal use of a long-lived asset. Statement 143
also requires an enterprise to record the fair value of an asset retirement
obligation as a liability in the period in which it incurs a legal obligation
associated with the retirement of a tangible long lived asset. Enterprises are
required to adopt Statement 143 for fiscal years beginning after June 15, 2002.
Early adoption is encouraged. The Company has not yet determined the impact of
the new accounting standard on its financial reporting.

In August 2001, the FASB issued SFAS 144 (SFAS 144), Accounting for
Impairment of Long-Lived Assets. The new standard supercedes FASB Statement 121
(SFAS 121), Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS 121, the new rules significantly
change the criteria that would have to be met to classify as asset as
held-for-sale. The new standard also supercedes the provisions of Accounting
Principles Board Opinion No. 30 (APB 30), Reporting the Results of
Operations -- Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions, and
will require expected future operating losses from discontinued operations to be
displayed in discontinued operations in the period(s) in which the losses are
incurred rather than as of the measurement date as presently required by APB 30.
The provisions of SFAS 144 are effective for financial statements beginning
after December 15, 2001, but allow for early application. The provisions of SFAS
144 generally are to be applied prospectively, therefore, the adoption of this
standard will not affect previously reported financial information. The Company
has not yet determined the impact of the new accounting standard on its
financial reporting.

(2) DOMESTIC AND FOREIGN OPERATIONS

The net assets, net revenues and net income of international subsidiaries
as of and for the years ended December 31, 1999, 2000 and 2001 included in the
consolidated financial statements are summarized as follows:

44

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Net revenues(1) per geographic region are summarized as follows:

- ---------------

(1) Revenues are attributed to countries based on point-of-sale.

Long-lived assets per geographic region are summarized as follows:

(3) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE

Activity in capitalized software is summarized as follows:

45

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of net capitalized software are summarized as follows:

Total software development expenditures, including amounts expensed as
incurred, amounted to approximately $36,062,000, $40,498,000 and $48,609,000,
for the years ended December 31, 1999, 2000 and 2001, respectively.

Included in acquired software technology at December 31, 2000 and 2001 is
$1,337,000 and $892,000, respectively, of technology resulting from the purchase
of Surveycraft Party Ltd. and Integral Solutions Ltd. (both of which occurred in
1998) and the VerbaStat product, respectively (see Note 5).

Included in acquired software technology at December 31, 2001 is $5,141,000
of technology net of accumulated amortization resulting from the merger with
NetGenesis Corp. and the acquisition of AOL/DMS technology (see Note 5) and the
investment in Illumitek (see Note 6).

(4) INTANGIBLE ASSETS

Intangible assets consist of the following at December 31,:

On January 1, 2002, workforce will be included in goodwill in accordance
with SFAS 142.

(5) ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

On November 29, 1999, SPSS acquired all of the outstanding shares of
capital stock of Vento Software, Inc. ("Vento"), a corporation incorporated
under the laws of Florida, from the shareholders of Vento in exchange for
546,060 shares of Common Stock in a stock acquisition accounted for as a pooling
of interests and, accordingly, the consolidated financial statements have been
restated as if SPSS and Vento had been combined for all periods presented. In
the fourth quarter of 1999, SPSS recorded charges of approximately $1,611,000
representing merger-related costs for expenses relating to management and sales
force restructuring, employee sign-on bonuses, professional fees and various
other expenses. Vento was an analytical solutions company whose assets include
the VentoMap product line, a series of industry-specific software products for
business performance measurement, and a proprietary methodology for the delivery
of related professional services.

46

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On December 24, 1999, SPSS acquired certain assets related to the VerbaStat
software program from DataStat, S.A., a corporation organized under the laws of
Belgium, for approximately $1,000,000 plus transaction costs. VerbaStat is a
software tool for computer aided coding of open-ended survey questions.

The following summary presents information concerning the purchase price
allocation for the VerbaStat acquisition accounted for under the purchase price
method for the year ended December 31, 1999.

On February 26, 2001, the Company acquired all of the outstanding shares of
capital stock of ShowCase Corporation (ShowCase), in exchange for approximately
3,725,000 shares of common stock, which had a market value of approximately
$63,958,000 at the time of the acquisition. The transaction was accounted for as
a pooling of interests, and accordingly, the consolidated financial statements
have been restated as if the combining companies had been combined for all
periods presented. Merger costs relating to the acquisition amounted to
approximately $10.5 million. These costs included investment banking fees, legal
and other professional fees, employee severance payments and various other
expenses.

The consolidated statement of income for the year ended December 31, 2000,
reflects the impact of ShowCase operating results for the three months ended
March 31, 2000, which are also included in the year ended December 31, 1999
consolidated statement of income due to differences in reporting periods
reflective to SPSS. The revenues and net loss of ShowCase included more than
once were $10,865,000 and ($1,209,000), respectively.

On October 22, 2001, SPSS entered into a strategic alliance with America
Online, Inc. (AOL) through its Digital Marketing Services (DMS) subsidiary, in
which SPSS has acquired certain operating assets and the exclusive rights to
distribute survey sample data drawn from AOL members and users of AOL's other
interactive properties. The agreement will provide SPSS additional opportunities
to market its products to market research partners and provide revenues from
services provided to current and future customers. SPSS will pay AOL $42 million
in consideration over four years and assume primary responsibility for servicing
the current group of AOL market research partners. Consideration due to AOL will
be in the form of $12 million of SPSS common stock and $30 million in cash. The
cash portion is payable in 15 equal quarterly installments of $1,812,500 over a
four year period with the initial payment being $2,812,500, which was paid in
October 2001. The common stock consideration will be paid in annual installments
of $3 million of SPSS common stock based upon the then current fair value. The
first installment, calculated to be 158,228 shares, was issued in October 2001.
Subsequent issuances of common stock will result in a transfer of the par value
of shares issued from additional paid-in capital to common stock. Through DMS,
AOL will provide SPSS with online survey respondents ("Sample") who have been
provided incentives to participate in online studies as well as transfer to SPSS
the software and other assets essential to operating the business. Sample
provided by AOL will be expensed as incurred. Sample provided by AOL in excess
of committed annual thresholds established in the agreement will be paid by SPSS
at the completion of the annual period. The original term of the agreement to
provide Sample exclusively to SPSS is four years and is subject to renewal.
Either party may terminate this portion of the agreement upon certain events as
described in the agreement. The purchase price was allocated to the estimated
fair value of the assets received based upon a third party valuation and are
summarized as follows:

Pro forma adjustments and results were not significant to the SPSS results
of operations.

47

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On October 26, 2001, SPSS Inc., Red Sox Acquisition Corp., and NetGenesis
Corp., each Delaware corporations, entered into an Agreement and Plan of Merger
under which NetGenesis shareholders would receive 0.097 shares of SPSS common
stock for each share of NetGenesis common stock upon the closing of the
transaction. This share exchange ratio for the merger was established through
negotiations between SPSS and NetGenesis. The closing of the merger occurred on
December 21, 2001 with SPSS issuing approximately 2,294,065 shares of common
stock for substantially all the outstanding shares of NetGenesis. The merger was
accounted for as a purchase. Prior to the merger with SPSS, NetGenesis was the
leading provider of E-Metrics solutions for Global 2000 companies. The
combination of SPSS Inc. and NetGenesis technology and expertise expands SPSS's
offerings to include a new, more powerful set of online analytical capabilities,
combining online and offline data analysis in one comprehensive offering, from
one organization. SPSS plans to integrate NetGenesis into and operate it as part
of its CustomerCentric Solutions organization. The purchase price was allocated
to the estimated fair value of the assets received and liabilities assumed based
upon a third party valuation and are summarized as follows:

The following unaudited pro forma financial information presents the
combined net revenues and net income (loss) of SPSS and NetGenesis as if the
acquisition had occurred as of the beginning of 2000 and reflects the NetGenesis
results up to the acquisition in 2001. The pro forma financial information does
not necessarily reflect the results of operations that would have occurred had
SPSS and NetGenesis constituted a single entity during such periods.

Merger costs of approximately $3,802,000 were recorded as a result of
fourth quarter acquisitions. These costs include employee severance, consulting
and finder fee expenses and various other expenses (See note 12).

DIVESTITURES

On May 11, 2000, SPSS sold substantially all of the assets of its QI
Analyst business to Wonderware Corporation for approximately $2,000,000,
recording a gain in other income of $1,397,000.

48

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) INVESTMENT IN CONSOLIDATED SUBSIDIARY

On March 30, 2001, SPSS purchased 50% of the outstanding shares of common
stock of Illumitek, Inc. (Illumitek) for $2,000,000. Subsequent to SPSS's
initial investment, SPSS issued Illumitek a note receivable of $3,250,000 which
is due on December 31, 2004. At its option, Illumitek may make payment under the
note in the form of cash or by issuing additional shares of common stock to
SPSS. SPSS accounted for this investment under the equity method of accounting
from the date of purchase through September 30, 2001. The Company recorded its
share of Illumitek's losses for the six months ended September 30, 2001 of
$1,121,000 in the consolidated statements of operations. In the fourth quarter
of 2001, SPSS began advancing Illumitek funds to meet ongoing obligations, took
a more active role in day-to-day management of Illumitek and directed Illumitek
management to implement various cost-cutting and restructuring measures. As a
result, in the fourth quarter of 2001, SPSS changed the accounting for the
investment in Illumitek from the equity method to consolidation. The
consolidation of Illumitek increased revenues and reduced operating income by
$71,000 and $681,000, respectively, during 2001.

(7) COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

SPSS leases its office facilities, storage space, and some data processing
equipment under lease agreements expiring through the year 2012. Minimum lease
payments indicated below do not include costs such as property taxes,
maintenance, and insurance.

The following is a schedule of future noncancellable minimum lease payments
required under operating leases as of December 31, 2001:

Rent expense related to operating leases was approximately $7,422,000,
$8,500,000 and $9,081,000 during the years ended December 31, 1999, 2000 and
2001, respectively.

HYPERION SOLUTIONS

Through its strategic relationship with Hyperion Solutions, SPSS has the
exclusive right to distribute the Essbase/400 software through its ShowCase
division. Hyperion Solutions still maintains some limited distribution rights
under the terms of the strategic relationship.

ShowCase's exclusive Essbase/400 distribution rights are conditioned upon
payment of minimum royalties. Hyperion Solutions also has the right to buy-back
the distribution rights so long as it gives SPSS 12 months prior written notice
of its intent to exercise the buy-back right. If SPSS does not make the minimum
royalty payments, SPSS has the option of paying the remaining balance of the
royalty payments to retain exclusive distribution rights. Further, if SPSS does
not retain its exclusive distribution rights, SPSS must pay Hyperion Solutions
minimum royalty payments to retain non-exclusive distribution rights to the
Essbase/400 software.

49

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LITIGATION

SPSS is not a party to any material legal proceedings. SPSS may become a
party to various claims and legal actions arising in the ordinary course of
business.

(8) MARKETABLE SECURITIES

The Company invests its excess cash primarily in short and long-term
investments which are classified as available-for-sale marketable securities. Of
these investments, $1.7 million is restricted in connection with our leased
facilities in Cambridge, MA. This restricted investment is classified as a
long-term other asset. In calculating realized gains and losses, cost is
determined using specific identification. We recorded no realized gains in 2000
or 2001. Unrealized gains and losses on short-term investments and marketable
securities are excluded from earnings and reported in a separate component of
stockholders' equity. At December 31, 2000 and 2001, unrealized gains on
short-term investments and marketable securities were $4,000 and $165,000,
respectively.

The following is a summary of marketable securities as of December 31,
2000:

The following is a summary of marketable securities as of December 31,
2001:

(9) OTHER ASSETS

Other assets consist of the following at December 31,

50

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Payments, reflecting principal and interest under the note receivable at
December 31, 2001, are as follows: $110,000 in 2002; $120,000 in 2003; $240,000
in 2004; $360,000 in 2005 and the balance in 2006. The note carries interest at
a rate of 100 basis points over the five year U.S. swap rate.

(10) OTHER NON-CURRENT LIABILITIES

Significant components of the other non-current liabilities include the
following:

SPSS has a mortgage on its freehold property, which houses the SPSS Limited
Quantime offices in London, England. The mortgage is held by Norwich Union
Investment Management of Norwich, England and is a fixed 12.04%, 30-year
mortgage expiring in January 2010. The annual principal and interest payments
total British Pounds Sterling (GBP) 109,692 (approximately $160,000). The
current portion of this debt is GBP 41,827 (approximately $61,000) and is
included in "Other Accrued Liabilities" as of December 31, 2001. The non-current
balance as of December 31, 2001 is GBP 509,165 (approximately $728,000).

During August 2001, the Company entered into a settlement agreement related
to a dispute over publication rights. Payments due under the settlement include
a 2003 payment of $600,000.

(11) FINANCING ARRANGEMENTS

The Company has a loan agreement with American National Bank and Trust
Company of Chicago. Under the agreement, SPSS has an available $20,000,000
unsecured line of credit expiring on May 31, 2003. At December 31, 2001, SPSS
had $1,175,000 in borrowings under this credit agreement. Borrowings against the
line of credit bear interest at either the prime interest rate or the Eurodollar
Rate (3.43% at December 31, 2001), depending on the circumstances. As of January
26, 2001, the Company amended its June 1, 2000 line of credit to make an
additional $5,000,000 available until April 30, 2001.

The Company had a $3,000,000 revolving line of credit agreement with a bank
through August 30, 2001, bearing interest at the bank's base rate plus 0.25%.
Borrowings were limited to 75% of eligible accounts receivable and are payable
on demand. The revolving line of credit note was secured by substantially all of
the Company's assets and contained certain restrictive financial covenants,
including liquidity, profitability and the maintenance of prescribed tangible
net worth and debt to tangible net worth ratios. The line of credit was not
renewed.

On October 23, 2001, the Company entered into a $3,000,000 Standby Letter
of Credit, expiring on April 30, 2002. No borrowings were outstanding under the
Standby Letter of Credit as of December 31, 2001, and the letter was returned
for cancellation on February 25, 2002.

(12) OTHER INCOME (EXPENSE) SPECIAL GENERAL AND ADMINISTRATIVE CHARGES, AND
MERGER RELATED COSTS

Other income (expense) consists of the following:

51

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Special general and administrative charges includes $4.2 million of charges
dating to the writedown of internal use software, $3.5 million related to
reductions in workforce, $2.0 million for obsolete software writeoffs and other
costs that did not meet the definition of merger costs, under established
guidelines.

Merger related expenses relate to several acquisitions during 2001 (see
Note 5). Expenses included $2.5 million paid for investment banking and other
professional fees, $2.7 million of deal related bonuses paid to employees, $2.0
million of several costs and costs of closing excess office facilities and $1.7
million for redundant software write-offs.

(11) INCOME TAXES

Income (loss) before income taxes and minority interest consists of the
following:

Income tax expense (benefit) consists of the following:

52

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For the years ended December 31, 1999, 2000 and 2001, the reconciliation of
statutory to effective income tax expense (benefit) is as follows:

53

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 2000 and
2001, are presented below:

Acquisition related items included in deferred tax liabilities include
approximately $2 million related to the acquisition of NetGenesis Corp.

The valuation allowance decreased by $855,000 in 2000 and increased by
$3,366,000 in 2001. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversals of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making this
assessment.

As of December 31, 2001, SPSS had a net operating loss carryforward of
approximately $24,952,000, the majority of which begin to expire in 2021.

54

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2001, SPSS A/S, a Danish subsidiary, had a net operating
loss carryforward of approximately $1,306,000, which began to expire in 2001.

As of December 31, 2001, SPSS had a Federal research and experimentation
credit carryforward and a foreign tax credit carryforward of approximately
$1,369,000 and $2,144,000, respectively, which begin to expire in 2002 and 2004,
respectively.

(14) EMPLOYEE BENEFIT PLANS

Effective February 1, 1995, SPSS amended its 401(k) savings plan. Qualified
employees may participate in the savings plan by contributing up to the lesser
of 15% of eligible compensation or limits imposed by the U.S. Internal Revenue
Code in a calendar year. Beginning in 1999, SPSS made a matching contribution of
$500 for employees in the plan the entire year, which resulted in a $288,000
contribution by SPSS recorded as compensation expense. Also in 1999, the plan
year was changed to begin on December 31 of each year and end on December 30.

In 1993, SPSS implemented an employee stock purchase plan. The SPSS
purchase plan provides that eligible employees may contribute up to 10% of their
base salary per quarter towards the quarterly purchase of SPSS common stock. The
employee's purchase price is 85% of the fair market value of the stock at the
close of the first business day after the quarterly offering period. The total
number of shares issuable under the purchase plan is 100,000. Effective October
2000, the plan was amended to calculate the share price as 85% of the lower of
i) the closing market price of the stock on the first trading day of the
quarter, or ii) the closing market price for the stock on the last trading day
after the end of the quarter. During 1999, 18,249 shares were issued under the
purchase plan at market prices ranging from $16.75 to $25.50. During 2000,
16,545 shares were issued under the purchase plan at market prices ranging from
$22.06 to $31.00. During 2001, 28,832 shares were issued under the purchase plan
at market prices ranging from $15.56 to $22.06.

Under the ShowCase 1999 Employee Stock Purchase plan, which became
effective upon consummation of the ShowCase initial public offering,
substantially all employees may purchase shares of common stock at the end of
semiannual purchase periods at a price equal to the lower of 85% of the stock's
fair market value on the first day or the last day of that period. Plan funding
occurs throughout the purchase period by pre-elected payroll deductions of up to
15% of pay. No compensation expense results from the plan. During 1999, 11,882
shares were issued under the purchase plan at market prices averaging $4.91 per
share. During 2000, 13,493 shares were issued under the purchase plan at market
prices averaging $4.94 per share. During 2001, the ShowCase Employee Stock
Purchase Plan was terminated and merged with the SPSS Employee Stock Purchase
Plan.

During April 2001, the ShowCase profit sharing plan was merged into the
SPSS 401(k) savings plan. This plan allowed ShowCase employees to defer a
portion of their income through contributions to the plan. At ShowCase's board
of director's discretion, ShowCase matched a percentage of employees' voluntary
contributions, or made additional contributions. Employer contributions to the
plan were $193,000 and $216,000 for the years ended December 31, 1999 and 2000,
respectively.

(15) RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIPS

SPSS entered into agreements with limited partnerships in 1981, 1982 and
1985 to perform research and development for new and existing computer software.
Certain of the general and limited partners of these partnerships are officers
of SPSS and under these agreements, SPSS incurred royalty expense to the
partnerships of $237,000 and $252,000, for the years ended December 31, 1999 and
2000, respectively. SPSS incurred no royalty expense related to these
partnerships in 2001 and there are no future payments or other obligations.

55

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(16) STOCK OPTIONS AND EQUITY TRANSACTIONS

On January 16, 1992, SPSS adopted a Stock Option Plan for some key
employees. Options vest either immediately or over a four-year period. In
September 1994, SPSS granted options to purchase 150,000 shares of common stock
to the principal owners of SYSTAT. In addition, in June 1995, the stockholders
of SPSS adopted the 1995 Equity Incentive Plan which authorizes the Board of
Directors, under some conditions, to grant stock options and shares of
restricted stock to directors, officers, other key executives, employees and
independent contractors.

At the 1996 meeting of SPSS shareholders, the shareholders ratified the
Second Amended and Restated 1995 Equity Incentive Plan, which was amended, among
other things, to increase the shares allowed to be granted under the Plan from
600,000 to 1,050,000. In May 1999, SPSS approved the Third Amended and Restated
1995 Equity Incentive Plan, which was amended to clarify the rules governing the
treatment of attestation of shares given to SPSS for the exercise price of
options.

In February 2001, the stockholders of SPSS adopted the 2000 Equity
Incentive Plan which authorizes the Board of Directors, under some conditions,
to grant stock options and shares of restricted stock to directors, officers,
other key executives, employees and independent contractors. There are 500,000
shares reserved for issuance under this plan.

In connection with the grant to employees of options to purchase 81,000
shares of common stock in 1999, the Company recorded deferred compensation of
$152,000. This represents the difference between the deemed value of the common
stock for accounting purposes and the option exercise price of such options on
the date of grant based upon the intrinsic value method in accordance with APB
25. The Company recognized expense of approximately $108,000, $88,000 and
$388,000 for the fiscal years ended December 31, 1999, 2000 and 2001,
respectively related to stock option grants when the exercise price was less
than the fair market value on the dates of grants.

In May 1999, SPSS adopted the 1999 Employee Equity Incentive Plan, which
authorizes the Board, under some conditions, to grant stock options and shares
of restricted stock to non-executive officer employees and independent
contractors of SPSS.

The Company recognized compensation expense of $304,000 during 2000 related
to accelerated vesting of options and change of employee status in accordance
with FASB Interpretation 44, Accounting for Certain Transactions involving Stock
Compensation -- an interpretation of APB 25.

SPSS applies APB 25 and related interpretations in accounting for its
plans. All options under the plans have been granted at exercise prices not less
than the market value at the date of the grant. Had compensation cost for SPSS's
stock option plans been determined consistent with SFAS 123, SPSS's net income
would have been decreased and net loss increased to the pro forma amounts
indicated below:

56

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Under the stock option plans, the exercise price of each option equals the
market value of the Company's stock on the date of grant. For purposes of
calculating the compensation costs consistent with SFAS 123, the fair value of
each grant is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 1999, 2000 and 2001, respectively; no expected dividend yield;
expected volatility of 39 percent in 1999, 38 percent in 2000 and 37 percent in
2001; risk free interest rates of 5.65%-6.43%, 4.90%-5.65% and 5.39%,
respectively, and expected lives of 4-8 years. Additional information regarding
options is as follows:

The weighted average fair value of options granted during 1999, 2000 and
2001 was $17.95, $21.86 and $23.97, respectively.

The following table summarizes information about stock options outstanding
at December 31, 2001:

On September 28, 2001, Siebel Systems, Inc. (Siebel) made a $5,000,000
equity investment in SPSS under the terms of a Stock Purchase Agreement, dated
as of September 28, 2001, by and between the parties. Before Siebel's investment
in SPSS, SPSS joined the Siebel Alliance Program as a Strategic Software Partner
in July 2001. As part of the alliance, SPSS is pursuing further integration and
validation of its analytical solutions and products with Siebel eBusiness
Applications to support enhanced customer segmentation and more effective
targeting in marketing campaigns, either off-line or in real-time environments
like call centers and web sites.

57

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(17) RELATED PARTY TRANSACTIONS

SPSS maintains a consulting agreement with Norman H. Nie Consulting L.L.C.
whereby SPSS receives consulting services on various business related matters.
Annual compensation under the agreement is $80,800 plus expenses. Norman Nie is
the Chairman of the Board of Directors of SPSS. The agreement contains automatic
one-year extensions unless terminated by either party

As described in Note 18, SPSS purchased LexiQuest in February 2002. Norman
Nie was the Chairman of the Board of Directors of LexiQuest and owned less than
1% of LexiQuest common stock at the date of the acquisition.

Bernard Goldstein, a member of the Board of Directors of SPSS, serves as a
director of Broadview International, LLC. In 2001, SPSS paid Broadview a total
of $80,000 as a retainer for investment banking services provided by Broadview
to SPSS. In addition, SPSS paid Broadview an additional $1,000,000 for services
provided by Broadview in connection with the merger of SPSS and NetGenesis. This
$1,000,000 payment was made on January 18, 2002.

(18) SUBSEQUENT EVENTS

On February 6, 2002, SPSS acquired all of the issued and outstanding shares
of capital stock of LexiQuest, S.A., a corporation organized under the laws of
France. The terms and conditions of the acquisition are specified in a Stock
Purchase Agreement, dated as of January 31, 2002 and amended as of March 16,
2002, by and among SPSS, LexiQuest and the owners of all of the issued and
outstanding shares of capital stock of LexiQuest. Under French law, LexiQuest
employees retained options to purchase shares of LexiQuest capital stock which
could be exercised in the future to acquire a de minimis percentage of
LexiQuest's issued and outstanding shares of capital stock.

The aggregate purchase price for all of the issued and outstanding shares
of capital stock of LexiQuest was determined by the parties in arms-length
negotiations and consisted of guaranteed and contingent components. The
guaranteed portion of the purchase price consisted of a payment of $2,500,000.
The contingent portion of the purchase price will be paid, if at all, in the
first and second quarters of each of 2003 and 2004. SPSS's obligation to make
the contingent payments will depend on the contribution generated by the
LexiQuest assets during the preceding fiscal year. The contingent payments,
which are capped at a total of $1,500,000 if fully earned, may at SPSS's option
be paid in cash or shares of SPSS common stock. Shares of SPSS common stock used
to satisfy any purchase price obligation will be valued at a per share price
equal to the average of the closing prices of one share of SPSS common stock, as
quoted on the NASDAQ National Market, for the five day period ending on the
trading day preceding the date on which the payment is made. In addition, if
SPSS elects to make any purchase price payment by delivery of shares of SPSS
common stock, SPSS will be obligated to file a registration statement with the
SEC within thirty days on which that payment is made to register the LexiQuest
shareholders' resale of the shares of SPSS common stock issued to them in
satisfaction of that purchase price payment.

Under the terms of the stock purchase agreement and a separate escrow
agreement, the guaranteed portion of the purchase price was deposited with
American National Bank and Trust Company of Chicago as escrow agent. The parties
entered into the separate escrow agreement to establish an escrow fund to
compensate SPSS for any losses it might incur by reason of any breach of (a) the
representations and warranties of LexiQuest or (b) any covenant or obligation of
LexiQuest or the former shareholders of LexiQuest, identified in the stock
purchase agreement. The guaranteed portion of the purchase price will remain in
escrow until January 30, 2003, or until all of the conditions for its release
have been satisfied under the terms of the stock purchase agreement and the
escrow agreement.

58

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(19) UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following is a summary of the unaudited interim results of operations
for each of the quarters ended in 2000 and 2001.

59

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- ---------------

(a) Includes costs primarily related to professional fees associated with the
ShowCase and NetGenesis acquisitions that did not meet the definition of
merger costs under established guidelines, costs associated with the
reduction in workforce and the writedown of obsolete internal use software.

(b) Includes costs related to acquisitions accounted for as
poolings-of-interests, such as investment banking and other professional
fees, employee severance and costs of closing excess office facilities and
certain expenses associated with the closing of other acquisitions.

(c) Includes costs related to acquired in-process technology in conjunction with
business combinations accounted for as purchases.

(d) Significant portion of net loss in quarterly period is related to impact of
business combinations as discussed in (a), (b) and (c) above.

60

SCHEDULE II
SPSS INC.

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 2000 AND 2001

See accompanying independent auditors' report.
61

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants during fiscal
year 2001.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS AND MANAGEMENT OF SPSS

OFFICES AND DIRECTORS

The following table shows information as of March 15, 2002 with respect to
each person who is an executive officer or director of SPSS.

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(1) Member of the Compensation Committee

(2) Member of the Audit Committee

Norman Nie, Chairman of the Board and co-founder of SPSS, designed SPSS's
original statistical software beginning in 1967 and has been a Director and
Chairman of the Board since SPSS's inception in 1975. He served as Chief
Executive Officer of SPSS from 1975 to 1991. In addition to his current
responsibilities as Chairman of the Board, Dr. Nie is a research professor at
Stanford University and a professor emeritus in the Political Science Department
at the University of Chicago. His research specialties include public opinion,
voting behavior and citizen participation. He has received three national awards
for his books in these areas. During 1997, he became a technology partner in Oak
Investment Partners and, in his role at Oak, is a director of several
privately-held companies. Dr. Nie received his Ph.D. from Stanford University.

Jack Noonan has served as Director as well as President and Chief Executive
Officer since joining SPSS in January 1992. Mr. Noonan was President and Chief
Executive Officer of Microrim Corp., a developer of database software products,
from 1990 until December 1991. Mr. Noonan served as Vice President of the
Product Group of Candle Corporation, a developer of IBM mainframe system
software, from 1985 to 1990. Mr. Noonan is a Director of Morningstar, Inc., and
Repository Technologies, Inc. Mr. Noonan is a member of the advisory committee
to Napersoft, Inc.

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Edward Hamburg, Executive Vice President, Corporate Operations, Chief
Financial Officer and Secretary, was elected Senior Vice President, Corporate
Operations in July 1992, Chief Financial Officer in June 1993 and Secretary in
June 1994. Dr. Hamburg previously served as Senior Vice President, Business
Development, and was responsible for product and technology acquisitions as well
as joint venture opportunities. Dr. Hamburg first joined SPSS in 1978 and served
in a variety of marketing and product management capacities. He joined the
faculty at the University of Illinois at Chicago in 1982, and returned to SPSS
in 1986. Dr. Hamburg received his Ph.D. from the University of Chicago.

Brian Zanghi, Executive Vice President, Chief Operating Officer, joined
SPSS following the merger with NetGenesis Corp. in December, 2001. Mr. Zanghi
was Executive Vice President and Chief Operating Officer of NetGenesis until the
merger with SPSS. Before joining NetGenesis, Mr. Zanghi served as Executive Vice
President at Instinctive Technologies. Prior to that time, he served as the
President of PC DOCS, Inc. Mr. Zanghi received his B.A. in economics/business
administration from Assumption College.

Jonathan Otterstatter, Executive Vice President, Chief Technology Officer,
joined SPSS following the merger with ShowCase Corporation in February 2001. Mr.
Otterstatter was Senior Vice President, Technology and Services and a member of
the executive committee of ShowCase until the merger with SPSS. Mr. Otterstatter
joined ShowCase as Vice President, Development in May 1994 and was promoted to
Senior Vice President, Technology and Services in May 1999. From 1983 to May
1994, Mr. Otterstatter was employed by IBM where his last position was senior
development manager. Mr. Otterstatter holds a B.S. degree in computer science
from the University of Wisconsin at LaCrosse and a M.S. degree in management of
technology from the Massachusetts Institute of Technology.

Mark Battaglia, President, SPSS Business Intelligence, joined SPSS in
October 1988. Mr. Battaglia assumed his current position in January 1, 2001. He
previously served as the Executive Vice President, Corporate Marketing, from
June, 1997 to December, 2000. Before that time, Mr. Battaglia served as Vice
President of Marketing at London House, a publisher in the Maxwell
Communications family, from June 1987 until joining SPSS. Mr. Battaglia received
his MBA in 1984 from the University of Chicago.

Ian Durrell, President, SPSS Market Research, joined SPSS in February 1991.
Before that time, he served as head of European marketing for Unify Corporation,
a supplier of relational database management systems, and was a partner of
Partner Development International, a strategic partnering firm from 1987 to
1989. Mr. Durrell graduated from the Royal Military Academy, Sandhurst, in the
United Kingdom.

Susan Phelan, President, CustomerCentric Solutions, a division of SPSS,
joined SPSS in 1980 as a sales representative. She assumed her current position
in January 2001. Ms. Phelan received her MBA from the University of Illinois at
Chicago.

Patrick Dauga, President, ShowCase, a division of SPSS, joined SPSS
following the merger with ShowCase Corporation in February 2001. Mr. Dauga was
Executive Vice President, Worldwide Field Operations of ShowCase until the
merger with SPSS. Mr. Dauga joined ShowCase as Vice President, European
Operations in June 1997 and was promoted to Vice President, International in
March 1998. From 1986 to 1997, Mr. Dauga worked at Comshare, Inc., a software
company specializing in decision support systems, where his last position was
vice president for southern Europe. Mr. Dauga holds a degree from Sup de Co
Bordeaux, a business school in France.

David Blyer, President, SPSS Enabling Technologies, joined SPSS following
SPSS's acquisition of Vento Software, Inc. in November 1999. Mr. Blyer
previously served as a vice president at SPSS managing the Vento Software Group,
a group created after SPSS acquired Vento. Before that time, Mr. Blyer was the
co-founding president and chief executive officer of Vento until the merger with
SPSS. Before starting Vento, Mr. Blyer held sales, marketing and management
positions throughout the technology industry at companies such as NCR, Tandem
Computers and Graphical Information Inc. Mr. Blyer received his MBA from Nova
Southeastern University and a B.A. from the University of South Florida.

Bernard Goldstein has been a Director of SPSS since 1987. He is a Director
of Broadview International, LLC, which he joined in 1979. He is a past President
of the Information Technology Association of America, the industry trade
association of the computer service industry, and past Chairman of the
Information
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Technology Foundation. Mr. Goldstein was a Director of Apple Computer Inc. until
August 1997, and is currently a Director of Sungard Data Systems, Inc.,
Allscipts Inc., and several privately held companies. He is a graduate of both
the Wharton School of the University of Pennsylvania and the Columbia University
Graduate School of Business.

Merritt Lutz has been a Director of SPSS since 1988. He is currently a
Advisory Director of Morgan Stanley, managing its strategic technology
investments and partnerships. Previously, he was President of Candle
Corporation, a worldwide supplier of systems software from 1989 to November
1993. Mr. Lutz is a Director of Interlink Electronics, Inc. and three privately
held software companies: Algorithmics, Business Engine Software, and ThruPoint,
Inc. He is a former Director of Information Technology Association of America
and the NASDQ Industry Advisory Committee. He holds a bachelors and masters
degree from Michigan State University.

Michael Blair has been a Director of SPSS since July 1997. Since April
1974, he has been Chairman, Chief Executive, and founder of Cyborg Systems,
Inc., a human resource management software company. Mr. Blair is a Director of
Computer Corporation of America, Delaware Place Bank and Repository
Technologies, Inc. He is a board member of the Chicago Software Association and
a board member of Benefits & Compensation Magazine. Mr. Blair holds a bachelor's
degree in mathematics and physics from the University of Missouri.

Promod Haque has been a director of SPSS since the merger with ShowCase
Corporation on February 26, 2001. Mr. Haque was a director of ShowCase from
March 1992 until the merger with SPSS. Mr. Haque joined Norwest Venture
Partners, a venture capital firm, in November 1990 and is currently Managing
Partner of Norwest Venture Partners VII and Norwest Venture Partners VIII and
General Partner of Norwest Venture Partners VI, Norwest Venture Partners V and
Norwest Equity Partners IV. Mr. Haque is a director of Extreme Networks, Inc.,
Primus Knowledge Solutions, Redback Networks, Inc. and several privately held
companies. Mr. Haque holds a M.S. and a Ph.D. in electrical engineering and a
M.M. from Northwestern University and a B.S. in electrical engineering from the
University of New Dehli, India.

William Binch has been a director of SPSS since the merger with ShowCase
Corporation on February 26, 2001. Mr. Binch was a director of ShowCase from 1999
until the merger with SPSS. Mr. Binch was senior vice president of worldwide
operations for Hyperion Solutions from July 1997 to May 1999. Prior to Hyperion,
he was a senior executive for Business Objects and Prism, two business
intelligence and data-warehousing companies. In addition, Mr. Binch served as
vice president of strategic accounts at Oracle Corporation. Mr. Binch has held
sales and management positions at IBM, Intel and Fortune. He also is a director
of three other technology companies: Ventaso, Inc., seeCommerce, and Saama
Technologies, Inc.

Kenneth Holec has been a director of SPSS since the merger with ShowCase
Corporation on February 26, 2001. Mr. Holec was the president and chief
executive officer and a member of the board of directors of ShowCase from
November 1993 until the merger with SPSS. From 1985 to 1993, Mr. Holec was
president and chief executive officer of Lawson Software, a provider of high-end
financial and human resource management software solutions. Currently, Mr. Holec
is a director of Stellent, Inc., a maker of Web-based content management
products for corporate intranets, Cysive, a provider of multi-channel software
and services, and three other private companies.

SPSS's Board of Directors is divided into three classes serving staggered
three-year terms. Mr. Goldstein, Mr. Binch and Dr. Nie are each serving a
three-year term expiring at the 2002 annual meeting. Mr. Noonan, Dr. Haque and
Mr. Blair are each serving a three-year term expiring at the 2003 annual
meeting. Mr. Lutz and Mr. Holec are each serving a three-year term expiring at
the 2004 annual meeting. For a discussion of the nomination rights granted to
specific stockholders of SPSS, see "Related Transactions-Stockholders
Agreement." The executive officers named herein have terms expiring at the next
annual meeting or when their successors are duly elected and qualified.

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SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires our
directors, executive officers and holders of more than 10% of our common stock
to file with the Securities and Exchange Commission reports regarding their
ownership and changes in ownership of our equity securities. SPSS believes,
during fiscal year 2001, that its directors, executive officers and 10%
stockholders complied with all Section 16(a) filing requirements, with the
following exceptions: (i) a late report on Form 3 filed by Jonathan P.
Otterstatter regarding his initial beneficial ownership of SPSS common stock
upon being elected as an executive officer of SPSS; (ii) a late report on From 3
filed by David Blyer regarding his initial beneficial ownership of SPSS common
stock upon being elected as an executive officer of SPSS; (iii) two late reports
filed by Patrick Dauga, the first of which is a late report on Form 3 regarding
his initial beneficial ownership of SPSS common stock upon being elected as an
executive officers of SPSS and the second of which is a late report on Form 4
regarding two purchases of shares of SPSS common stock on November 5, 2001; (iv)
a late report on Form 5 by Michael Blair of the acquisition of shares of SPSS
stock on February 26, 2001; (v) a late report on Form 5 filed by Merritt Lutz
regarding three sales of shares of SPSS common stock in May 2001; (vi) a late
report on Form 5 by Jack Noonan of the conversion of ShowCase Corporation
options to SPSS options upon the consummation of the merger of SPSS and
ShowCase; and (vii) a late report on Form 5 by Edward Hamburg of the acquisition
of restricted shares of SPSS common stock on May 15, 2001. In making this
statement, SPSS has relied upon examination of the copies of Forms 3, 4 and 5
provided to SPSS and the written representations of its directors, officers and
10% stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The following tables show (a) the compensation paid or accrued by SPSS to
the Chief Executive Officer, and each of the four most highly compensated
officers of SPSS, other than the CEO, serving on December 31, 2001 (the "named
executive officers") for services rendered to SPSS in all capacities during
1999, 2000 and 2001, (b) information relating to option grants made to the named
executive officers in 2001 and (c) certain information relating to options held
by the named executive officers. SPSS made no grants of freestanding stock
appreciation rights ("SARs") in 1999, 2000 or 2001, nor did SPSS make any awards
in 1999, 2000 or 2001 under any long-term incentive plan.

SUMMARY COMPENSATION TABLE

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For the year ended December 31, 2001, non-employee directors of SPSS were
entitled to receive 5,000 options. Each director was also reimbursed by SPSS for
reasonable expenses incurred in connection with services provided as a director.
During 2001, Dr. Nie received compensation of $80,800 for consultant work on a
part-time basis.
- ---------------

(1) On December 31, 2001, Mr. Hamburg held 37,195 shares of restricted common
stock having a market value, based on the closing price of the common stock
on that date, of $660,211.

(2) Amounts reflected in this column are for grants of stock options for the
common stock of SPSS. No stock appreciation rights have been issued by SPSS.

(3) Securities Underlying Options/SARs for Mr. Noonan include 41,077 "reload"
options granted to Mr. Noonan after Mr. Noonan surrendered shares of SPSS
common stock to pay the exercise price of his options.

(4) Mr. Zanghi joined SPSS following the merger of SPSS and NetGenesis Corp. in
December, 2001. Compensation for Mr. Zanghi reflects amounts paid to Mr.
Zanghi by NetGenesis Corp. before the effective date of the merger.

(5) During 2001, NetGenesis made a salary advance to Mr. Zanghi in the amount of
$38,531. This indebtedness has been forgiven by NetGenesis.

(6) As of December 31, 2001, Mr. Zanghi held zero shares of restricted stock and
the aggregate value of his restricted share holdings was $0. On June 25,
2001, prior to the close of the December 2001 merger of SPSS and NetGenesis,
NetGenesis granted to Mr. Zanghi 330,000 restricted shares of NetGenesis
common stock. Instead of using the closing price of NetGenesis stock on July
25, 2001 to value Mr. Zanghi's restricted stock award, the value set forth
above was calculated using both the closing price of SPSS stock on July 25,
2001 ($16.19) and the conversion ratio used in exchanging NetGenesis shares
for SPSS shares (0.097). Despite the value of this grant, the aggregate
value of Mr. Zanghi's restricted share holdings was $0 on December 31, 2001
because all of Mr. Zanghi's restricted shares vested immediately upon the
consummation of the merger.

(7) Salary Compensation for Mr. Otterstatter reflects $175,000 in base salary
received from ShowCase Corporation from January to March 2001 for services
rendered prior to the merger of SPSS and ShowCase and $177,500 in base
salary received from SPSS from April to December 2001 for services rendered
as an officer of SPSS following the merger. Bonus Compensation for Mr.
Otterstatter reflects $73,000 in cash bonuses received from ShowCase for
services rendered prior to the merger of SPSS and ShowCase and $15,303 in
cash bonuses received from SPSS for services rendered as an officer of SPSS
following the merger.

(8) Payments and options shown in the table for Mr. Durrell reflect payments and
option grants to Valletta Investments Limited, a consulting company
controlled by Mr. Durrell. Mr. Durrell does not receive any personal
benefits or perquisites, payments of salary and bonus, awards of options or
other compensation from SPSS in his individual capacity.

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The following table shows the number of options to purchase common stock
granted to each of the named executive officers during 2001.

2001 OPTION/STOCK APPRECIATION RIGHTS GRANTS(1)

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(1) The options that expire on January 1, 2011 were granted as of January 2,
2001, and had a seven-year cliff-vesting provision. However, that vesting
period has been accelerated to four-year vesting, which acceleration was
contingent upon achievement of certain performance conditions for the year
ended December 31, 2001. The options that expire on February 28, 2011 were
granted as of March 1, 2001, and have a seven-year cliff-vesting provision.
The options that expire on February 25, 2011 were granted on February 26,
2001, and had a seven-year cliff vesting provision. However, the vesting
period has been accelerated to four-year vesting, which acceleration was
contingent upon achievement of certain performance conditions for the year
ended December 31, 2001. The Board of Directors of SPSS may, at its
discretion, grant additional options to the option holders in the event the
option holders pay the exercise price of their options or any applicable
withholding taxes by surrendering shares of SPSS common stock. In that case,
the Board could grant "reload" options at the then current market price in
an amount equal to the number of shares of SPSS common stock that the option
holder surrendered.

(2) In satisfaction of applicable SEC regulations, the table shows the potential
realizable values of these options, upon their latest possible expiration
date, at arbitrarily assumed annualized rates of stock price appreciation of
five and ten percent over the term of the options. The potential realizable
value columns of the table illustrate values that might be realized upon
exercise of the options at the end of the ten-year period starting with
their vesting commencement dates, based on the assumptions shown above.
Because actual gains will depend upon the actual dates of exercise of the
options and the future performance of the common stock in the market, the
amounts shown in this table may not reflect the values actually realized. No
gain to the named executive officers is possible without an increase in
stock price which will benefit all stockholders proportionately. Actual
gains, if any, on option exercises and common stock holdings are dependent
on the future performance of the common stock and general stock market
conditions. There can be no assurance that the potential realizable values
shown in this table will be achieved, or that the stock price will not be
lower or higher than projected at five and ten percent assumed annualized
rates of appreciation.

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(3) The four option grants in the amount of 14,971 shares, 7,938 shares, 6,462
shares and 11,706 shares, respectively, granted to Mr. Noonan at the
exercise price of $16.40 per share were granted pursuant to SPSS's "reload"
program. On December 26, 2001, Mr. Noonan exercised options and paid for the
exercise price of such options by surrendering shares of SPSS common stock.
The Board of Directors of SPSS granted to Mr. Noonan a total of 41,077
"reload" options in an amount equal to the number of shares of SPSS common
stock that Mr. Noonan surrendered.

(4) Options shown in the table for Mr. Durrell are options granted to Valletta.

AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN 2001 AND
YEAR-END OPTION/STOCK APPRECIATION RIGHT VALUES

- ---------------

(1) All information provided is with respect to stock options. No stock
appreciation rights have been issued by SPSS.

(2) These amounts have been determined by multiplying the aggregate number of
options by the difference between $17.75, the closing price of the common
stock on the Nasdaq National Market on December 31, 2001, and the exercise
price for that option.

(3) Options shown in the table for Mr. Durrell are options granted to Valletta.

(4) These amounts have been determined by multiplying the aggregate number of
options exercised by the difference between the closing price of the common
stock on the Nasdaq National Market on the date of exercise and the exercise
price for that option.

EMPLOYMENT AGREEMENTS

SPSS entered into an employment agreement with Jack Noonan on January 14,
1992. This employment agreement provided for a one-year term with automatic
one-year extensions unless Mr. Noonan or SPSS gives a written termination notice
at least 90 days before the expiration of the initial term or any extension. It
also provides for a base salary of $225,000 during the initial term, together
with the same benefits provided to other employees of SPSS. The Board of
Directors annually reviews Mr. Noonan's base compensation and increased it to
$235,000 for 1993, 1994, 1995, 1996 and 1997 and to $242,500 in 1998, $256,500
in 1999, $275,000 in 2000 and $310,000 in 2001. If SPSS terminates Mr. Noonan's
employment without cause, SPSS must pay Mr. Noonan an amount equal to 50% of Mr.
Noonan's annual base salary in effect at the time of termination. This amount is
payable in 12 equal monthly installments. However, if Mr. Noonan finds other
employment at a comparable salary, the Company's obligation to make these
payments ceases. The employment agreement requires Mr. Noonan to refrain from
disclosing confidential information of SPSS and to abstain from competing with
SPSS during his employment and for a period of one year after employment ceases.
Only Mr. Noonan and Mr. Durrell, through a management services agreement with
Valletta described in "Management Services Agreement" below, are employed
through an employment or similar agreement with SPSS. However, SPSS does have
confidentiality and work-for-hire agreements with many of its key management and
technical personnel.

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MANAGEMENT SERVICES AGREEMENT

SPSS has entered into a management services agreement with Valletta, which
requires that Ian Durrell's services are provided to SPSS. Either Valletta or
SPSS may terminate the agreement at any time upon 30 days' written notice. If
SPSS terminates the agreement under the 30-day notice provision without cause,
Valletta is entitled to termination payments equal to 50% of its annual
compensation then in effect in six equal monthly installments. The agreement
further provides that if specified performance standards are satisfied, Valletta
is to receive annual compensation at a rate established by the Board of
Directors plus incentive compensation. For 2001, Valletta's aggregate
compensation, including bonus, was $223,588. The management services agreement
requires Valletta to refrain from disclosing confidential information about SPSS
and to abstain from competing with SPSS during the term of the management
services agreement and for a period of eighteen months thereafter. Mr. Durrell
has agreed to be bound by the terms and conditions of the management services
agreement and to act as President, SPSS Market Research and to head the
Company's non-western hemisphere operations.

CONSULTING AGREEMENT

SPSS has entered into a consulting agreement, dated as of January 1, 1997,
with Norman H. Nie Consulting L.L.C., an Illinois Limited Liability Company. Nie
Consulting is to provide thirty (30) hours per month of consulting services on
various matters relating to the business of SPSS. This consulting agreement
provides for a one-year term with automatic one-year extensions unless Nie
Consulting or SPSS gives a written notice of termination at least 30 days prior
to the expiration of the initial term or any extension. SPSS may terminate this
consulting agreement for cause, in which event SPSS shall pay Nie Consulting all
accrued but unpaid compensation. The agreement also provides that Nie Consulting
is to receive annual compensation of $80,800 and reimbursement of reasonable out
of pocket expenses incurred in performing services under the consulting
agreement. The consulting agreement requires that the Nie Consulting refrain
from disclosing confidential information about SPSS during the term of the
consulting agreement and for a period of five years after its expiration. In
addition, the consulting agreement requires that Nie Consulting abstain from
competing with SPSS during his consultancy and for a period of one-year after
the consultancy ceases.

CHANGE OF CONTROL AGREEMENTS

On November 30, 2000, SPSS entered into revised change of control
agreements with Edward Hamburg and Ian Durrell. These agreements provide certain
benefits to any one or more officers who is terminated or constructively
terminated following a change of control. The agreements provide that, if the
executive is terminated without cause or constructively terminated within two
years following a change of control, then the executive may receive benefits
including a severance package equal to the greater of (a) the aggregate cash
compensation received in the immediately preceding fiscal year, or (b) the
aggregate cost compensation scheduled to be received during the current fiscal
year; the accelerated vesting of all previously unvested options; and
participation in the same health and welfare benefits he or she received at any
time within 120 days of the change of control for eighteen months following that
date of such termination.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Binch, Blair and Lutz were directors and members of the
Compensation Committee during the last fiscal year. None of the members of the
Compensation Committee has ever been an officer or employee of SPSS or any of
its subsidiaries. Mr. Binch performs part-time consulting services for SPSS.

REPORT OF THE SPSS COMPENSATION COMMITTEE

To: The Board of Directors

The Compensation Committee of the Board of Directors is composed entirely
of directors who have never served as officers of SPSS. The Compensation
Committee develops recommended compensation programs for SPSS's senior executive
officers which are reviewed with and approved by the entire Board of Directors.
Such compensation programs encompass base salary, cash bonuses and other
incentive compensation, stock options

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and other equity-based compensation as well as other benefit programs. In 2001,
the Board approved the Compensation Committee's recommendations in all material
respects. The Board of Directors and the Compensation Committee have delegated
authority to make compensation decisions regarding other officers and employees
to the Company's Chief Executive Officer, although such decisions remain subject
to review and approval by the Compensation Committee.

The primary objective of SPSS's executive compensation program is to help
SPSS attract and retain talented executives while at the same time promoting the
interests of SPSS's stockholders through compensation programs that reward the
achievement of business results. To meet this objective, SPSS has adopted a
compensation program which places a substantial portion of each officer's
potential compensation at risk and dependant on SPSS's performance. Following is
a brief description of each of the components of SPSS's executive compensation
program.

BASE SALARY

Base salary is intended to provide a fixed level of compensation reflecting
the scope and nature of basic job responsibilities. The Committee grants salary
increases, if appropriate, after a review of individual performance and an
assessment of the relative competitiveness of the current salary. In keeping
with the goal of unifying the interests of SPSS's senior executives and its
shareholders, base salary is designed to represent a relatively small portion of
the total compensation which the senior executives have the potential to earn
each year. However, depending upon (i) success in achieving the performance
goals which govern the senior executives' right to receive bonuses, and (ii) the
extent to which enhanced performance has enhanced the value of equity-based
compensation, base salary could represent a majority of the compensation
actually received by a senior executive in any given year.

ANNUAL BONUS

Annual bonus awards recognize an executive's contribution to each year's
actual operating results as measured against a specified performance objective.
The performance objectives for each individual frequently have two components:
objectives relating specifically to the individual's job performance and
objectives relating to the Company's overall performance. The relative weight
given to each component may vary. When establishing performance objectives
relating to the Company's overall performance, the Compensation Committee
focuses primarily on financial performance -- specifically operating and net
income. The amount of bonus compensation paid to the executive each year is
determined by comparing actual results to a performance objective established by
the Compensation Committee based upon the operating budget approved by SPSS's
Board of Directors for that year. The maximum potential bonus is generally
established as a percentage of the executive's base salary. The actual
percentage of base salary which the executive is entitled to receive as bonus
compensation will increase (but not above the maximum) or decrease depending on
the extent to which the performance objective is achieved. In keeping with
SPSS's commitment to increasing the proportion of the senior executives'
compensation which is performance-based, base salary levels are designed to
increase in comparatively small amounts and bonus compensation is designed so
that it can increase or decrease significantly depending on SPSS's overall
financial performance. In addition to regular annual bonuses the amount of which
are determined in whole or in part by SPSS's financial performance, the
Compensation Committee from time-to-time makes special bonus awards to
individuals based upon exceptional performance. These special bonuses are not
intended to be recurring in nature and they were not taken into account in the
design of SPSS's executive compensation plan and no specific percentage of any
employee's compensation has been allocated to this form of bonus.

STOCK OPTION PLAN

Stock options are considered an important component of SPSS's incentive
compensation. Stock options provide the right to purchase, at fair market value
on the date of grant, a fixed number of shares of SPSS's common stock during the
term of the option, which is typically ten years from the date of grant. Options
are also typically subject to vesting provisions which require the recipients
continued employment by SPSS for a period of three to five years from the date
of grant in order for the recipient to be entitled to the full benefit of
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the option, although certain options granted to executives with policy-making
responsibility provide for accelerated vesting (typically one year) if the
Company significantly exceeds its budget projections. In determining the size of
the option grants, the Compensation Committee considers the impact of the grants
on existing shareholders' stock ownership positions and the prospective value of
the options as a performance incentive. The number of options previously awarded
to and held by executive officers is reviewed and is also considered as a factor
in determining the size of current option grants.

Chief Executive Officer Compensation. The Compensation Committee has
established the CEO's base salary and bonus employing largely the same
principles described above, except that the amount of the CEO's bonus is purely
a function of the financial performance of SPSS measured against the operating
and net income goals established by the Compensation Committee and approved by
the Board of Directors at the beginning of each year. The Compensation Committee
believes that it has established a total compensation package which compares
favorably to industry standards. The Compensation Committee considers the total
salary and incentive compensation provided to chief executives of similar
companies, although it does not target a specific percentile range within this
group of similar companies' in determining the CEO's compensation.

Mr. Noonan's bonus is determined in the same manner as the other
policy-making senior executives, except that no portion of Mr. Noonan's bonus is
based on exceptional individual performance. It is the Compensation Committee's
view that the CEO's compensation should be based solely on the financial
performance of SPSS and that, for the CEO, exceptional individual performance is
so closely aligned with SPSS financial performance that the CEO's bonus should
be based solely on overall SPSS financial performance.

In 2001, Mr. Noonan received twice the number of stock options received by
the other policy-making senior executives. The Compensation Committee
recommended grants to Mr. Noonan of stock options to acquire (i) 50,000 shares
of common stock at $20.625 per share effective January 2, 2001 and (ii) 50,000
shares of common stock at $22.375 per share effective March 1, 2001. These
options vest in the same manner as the stock options granted the other senior
executives. The Compensation Committee determined that the level of options
granted to Mr. Noonan was appropriate given the importance of his contributions
to the Company. In recommending these grants, the Compensation Committee also
considered that such grants would further the Company's policy of seeking to
align the interests of its senior executives with those of its stockholders.

Tax Considerations. To the extent readily determinable and as one of the
factors in its consideration of compensation matters, the Compensation Committee
considers the anticipated tax treatment to SPSS and to the executive officers of
various payments and benefits. Some types of compensation payments and their
deductibility (e.g., the spread on exercise of non-qualified options) depend
upon the timing of an executive's vesting or exercise of previously granted
rights. Interpretations of and changes in the tax laws and other factors beyond
the Compensation Committee's control also affect the deductibility of
compensation. For these and other reasons, SPSS will not necessarily and in all
circumstances limit executive compensation to the amount which is permitted to
be deductible as an expense of SPSS under Section 162(m) of the Internal Revenue
Code. The Compensation Committee will consider various alternatives to
preserving the deductibility of compensation payments and benefits to the extent
reasonably practicable and to the extent consistent with its other compensation
objectives.

Compensation Committee of SPSS Inc.

William Binch
Michael Blair
Merritt Lutz

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EQUITY INCENTIVE PLANS

Pursuant to the Third Amended and Restated 1995 Equity Incentive Plan (the
"1995 Equity Incentive Plan") and the 2000 Equity Incentive Plan (the "2000
Equity Incentive Plan"), SPSS may award stock options and a variety of other
equity incentives to directors, executive officers, other key executives,
employees and independent contractors of SPSS and any of its subsidiaries. The
Board is authorized to delegate to the Compensation Committee the administration
of the Equity Incentive Plan. The purpose of both Equity Incentive Plans is to
further the success of SPSS by attracting and retaining key management and other
talent and providing to such persons incentives and rewards tied to SPSS'
business success.

The maximum number of shares of SPSS common stock that may be issued or
transferred to such persons under the 1995 Equity Incentive Plan may not exceed
1,800,000 and may not exceed 500,000 shares under the 2000 Equity Incentive
Plan. In order to encourage executives to exercise vested options and thereby
increase direct ownership of SPSS common stock by management, the Board has
approved the grant of "reload options" at the then-current market price to the
exercising individual in an amount equal to the sum of the number of shares of
SPSS common stock tendered, actually or by attestation, in payment of the
exercise price of the equity incentives or any applicable withholding taxes.

Pursuant to the 1999 Employee Equity Incentive Plan, SPSS may award
nonqualified stock options and a variety of other equity incentives to
non-executive officer, non-director employees and independent contractors of
SPSS and any of its subsidiaries. The Board is authorized to delegate to the
Compensation Committee the administration of the 1999 Employee Equity Incentive
Plan. The purpose of the 1999 Employee Equity Incentive Plan is to further the
success of SPSS by attracting outstanding employees and other talent and
providing to such persons incentives and rewards tied to SPSS' business success.
The maximum number of shares of SPSS common stock that may be issued or
transferred to such persons in any given calendar year is three percent (3%) of
the greatest number of total SPSS common stock outstanding in the previous
calendar year. The Board amended the 1999 Employee Equity Incentive Plan to
increase the number of shares of SPSS common stock that could be issued under
the plan in 2001 by 1,550,000 shares.

72

PERFORMANCE GRAPH

The following graph shows the changes in $100 invested since December 31,
1996, in SPSS's common stock, the Nasdaq 100 Stocks Index and S&P Computer
Software and Services Index, a specialized industry focus group, assuming that
all dividends were reinvested.

[PERFORMANCE GRAPH]

73

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows, as of March 15, 2002, the number and percentage
of shares of common stock beneficially owned by:

- each person known by SPSS to own beneficially more than 5% of the
outstanding shares of the common stock;

- each director of SPSS;

- each named executive officer of SPSS; and

- all directors and executive officers of SPSS as a group.

Unless otherwise indicated in a footnote, each person possesses sole voting
and investment power with respect to the shares indicated as beneficially owned.

- ---------------

* The percentage of shares beneficially owned does not exceed 1% of the
Common Stock.

(1) Includes 38,766 shares through options exercisable within 60 days; 90,433
shares held of record by the Norman and Carol Nie Foundation, Inc.; and
968,644 shares held by the Nie Trust. Dr. Nie shares voting and investment
power over the 90,433 shares held by the Nie Foundation with Carol Nie.

(2) Brown Capital Management, Inc. is the beneficial owner of 1,737,875 shares
of SPSS common stock and an investment advisor in accordance with Section
203 of the Investment Advisor Act. This information was taken from Brown's
Schedule 13G dated February 5, 2002.

(3) T. Rowe Price Associates, Inc. is the beneficial owner of 1,414,850 shares
of SPSS common stock and an investment advisor registered under Section 203
of the Investment Advisors Act of 1940. This information was taken from T.
Rowe Price' Schedule 13G dated February 13, 2002.

74

(4) Daruma Asset Management, Inc. is the beneficial owner of 1,159,400 shares
of SPSS common stock and an investment advisor in accordance with Section
203 of the Investment Advisor Act. This information was taken from Daruma's
Schedule 13G dated January 29, 2002.

(5) Includes 409,544 shares through options exercisable within 60 days.

(6) Includes 38,766 shares through options exercisable within 60 days.

(7) Includes 160,772 shares through options exercisable within 60 days.

(8) Includes 183,362 shares through options exercisable within 60 days.

(9) Includes 185,029 shares through options exercisable within 60 days.

(10) Mr. Durrell is the beneficial owner of these shares, which consist solely
of 124,031 shares through options exercisable within 60 days held of record
by Valletta.

(11) Includes 49,187 shares through options exercisable within 60 days; 333
shares registered in the name of each of Mr. Otterstatter's three minor
children; 915 shares held jointly by Jonathan P. and Pamela J.
Otterstatter; 21,800 shares held by Jonathan P. and Pamela J. Otterstatter
as trustees of the Jonathan P. Otterstatter Revocable Trust dated 12/15/99;
and 3,579 shares held by the Jonathan P. Otterstatter IRA.

(12) Includes 23,334 shares through options exercisable within 60 days.

(13) Includes 15,635 shares through options exercisable within 60 days.

(14) Includes 38,766 shares through options exercisable within 60 days.

(15) Includes 33,766 shares through options exercisable within 60 days.

(16) Includes 12,709 shares through options exercisable within 60 days. Dr.
Haque's beneficial ownership also includes 631,044 shares held by Norwest
Equity Partners IV, L.P. and 305,456 shares held by Norwest Equity Partners
V, L.P. Dr. Haque, one of the Company's directors, is a general partner of
Norwest Equity Partners IV, L.P. and a general partner of Norwest Equity
Partners V, L.P. Dr. Haque shares voting and dispositive power shares held
by the Norwest funds with other general and managing partners of the
Norwest funds.

(17) Includes 12,709 shares through options exercisable within 60 days.

(18) Includes 60,157 options exercisable within 60 days and 3,500 shares
registered in the name of each of Mr. Holec's three minor children.

(19) Includes 1,400,833 shares through options exercisable within 60 days.

(20) The business address of each of Dr. Nie, Mr. Noonan, Mr. Hamburg, Mr.
Zanghi, Mr. Battaglia, Ms. Phelan, Mr. Durrell, Mr. Otterstatter, Mr.
Dauga, Mr. Blyer, Mr. Binch and Mr. Holec is the office of SPSS at 233
South Wacker Drive, Chicago, Illinois 60606. The business address for Mr.
Lutz is the office of Morgan Stanley Dean Witter & Co. at 750 Seventh
Avenue, 16th floor, New York, New York 10019. The business address of Mr.
Goldstein is the office of Broadview Associates, L.P., One Bridge Plaza,
Fort Lee, New Jersey 07024. The business address for Mr. Blair is the
office of Cyborg Systems, Inc., 120 S. Riverside Plaza, 17th Floor,
Chicago, Illinois 60606. The business address for Mr. Haque is Norwest
Venture Partners, 525 University Avenue, Suite 800, Palo Alto, California
94301. The business address for the T. Rowe Price Associates, Inc. is 100
East Pratt Street, Baltimore, Maryland 21202. The business address for
Daruma Asset Management, Inc. is 60 East 42nd Street, Suite 1111, New York,
New York 10165. The business address for Brown Capital Management, Inc. is
1201 N. Calvert Street, Baltimore, Maryland 21202.

75

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH NORMAN NIE

Norman Nie received $80,800 for consulting work on a part-time basis
through Nie Consulting.

TRANSACTIONS WITH ILLUMITEK, INC.

Jack Noonan, President and Chief Executive Officer of SPSS, and Mark
Battaglia, President, SPSS Business Intelligence, serve as directors of
Illumitek, Inc. Mr. Noonan also serves as a member of the Compensation Committee
of the Board of Directors of Illumitek. On March 30, 2001, SPSS purchased 50% of
the then issued and outstanding shares of common stock of Illumitek for
$2,000,000. Subsequent to its initial investment, SPSS issued Illumitek a note
receivable of $3,250,000 which is due on December 31, 2004. At its option,
Illumitek may make payment under the note in the form of cash or by issuing to
SPSS additional shares of common stock of Illumitek. In the fourth quarter of
2001, SPSS began advancing Illumitek funds to meet ongoing obligations and SPSS
took on a more active role and directed Illumitek management to implement
various cost-cutting and restructuring measures.

TRANSACTIONS WITH BROADVIEW INTERNATIONAL, LLC

Bernard Goldstein, a member of the Board of Directors of SPSS, serves as a
director of Broadview International, LLC. In 2001, SPSS paid Broadview a total
of $80,000 as a retainer for investment banking services provided by Broadview
to SPSS. In addition, SPSS paid Broadview an additional $1,000,000 for services
provided by Broadview in connection with the merger of SPSS and NetGenesis. This
$1,000,000 payment was made on January 18, 2002, but was accounted for by SPSS
as an expense in 2001.

STOCKHOLDERS AGREEMENT

In connection with the Company's initial public offering, SPSS and the
individuals and entities who were stockholders before the initial public
offering entered into an agreement containing registration rights with respect
to outstanding capital stock of SPSS and granting to each of the Nie Trust and
Morgan Stanley Venture Capital Fund, so long as they own beneficially more than
12.5% of the capital stock of SPSS, the right to designate one nominee (as part
of the management slate) in each election of directors at which directors of the
class specified for the holder are to be elected. Since the completion of the
February 1995 offering, Morgan Stanley Venture Capital Fund owned less than
12.5% and currently owns no capital stock of SPSS. Currently, the Nie Trust owns
less than 12.5% of the Capital Stock of SPSS.

As required by the stockholders agreement, the holders of restricted
securities constituting more than seven percent of the outstanding shares at any
time may require SPSS to register under the Securities Act all or any portion of
the restricted securities held by the requesting holder or holders for sale in
the manner specified in the notice. SPSS is not bound to honor the request
unless the proceeds from the registered sale can reasonably be expected to
exceed $5,000,000. SPSS estimates that the cost of complying with demand
registration rights would be approximately $50,000 for a single registration.

All of the stockholders who acquired their shares before the initial public
offering have piggyback registration rights, which entitle them to seek
inclusion of their common stock in any registration by SPSS, whether for its own
account or for the account of other security holders or both (except with
respect to registration on Forms S-4 or S-8 or another form not available for
registering restricted securities for sale to the public). In the event of a
request to have shares included in a registration statement filed by SPSS for
its own account, the Company's underwriters may generally reduce, pro rata, the
amount of common stock to be sold by the stockholders if the inclusion of all
such securities would be materially detrimental to the Company's offering.

76

PART IV

ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K

(a) (1) Consolidated Financial statements commence on page 30:

Independent Auditors' Report

Consolidated Balance Sheets as of December 31, 2000 and 2001

Consolidated Statements of Operations for the years ended December
31, 2000 and 2001

Consolidated Statements of Comprehensive Income (Loss) for the
years ended December 31, 1999, 2000 and 2001

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1999, 2000 and 2001

Consolidated Statements of Cash Flows for the years ended December
31, 1999, 2000 and 2001

Notes to Consolidated Financial Statements

(2) Consolidated Financial Statement Schedule -- see page 58:

Schedule II Valuation and qualifying accounts

Schedules not filed:
All schedules other than that indicated in the index have been
omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or
related notes.

(3) Exhibits required by Item 601 of Regulation S-K. (Note: Management
contracts and compensatory plans or arrangements are identified with
a "+" in the following list.)

- ---------------

* Portions of this Exhibit are omitted and have been filed separately with
the Securities and Exchange Commission pursuant to Rule 406 promulgated
under the Securities Act of 1933.

(1) Previously filed with SPSS Inc.'s Report on Form 8-K, dated September 26,
1996, filed on October 11, 1996, as amended on Form 8-K/A-1, filed November
1, 1996. (File No. 000-22194)

(2) Previously filed with Amendment No. 1 to Form S-4 Registration Statement of
SPSS Inc. filed on November 7, 1996. (File No. 333-15427)

(3) Previously filed with SPSS Inc.'s Report on Form 8-K, dated September 30,
1997, filed on October 15, 1997. (File No. 000-22194)

(4) Previously filed with the Form S-3 Registration Statement of SPSS Inc.
filed on November 26, 1997. (File No. 333-41207)

(5) Previously filed with Amendment No. 2 to Form S-1 Registration Statement of
SPSS Inc. filed on August 4, 1993. (File No. 33-64732)

(6) Previously filed with Amendment No. 1 to Form S-1 Registration Statement of
SPSS Inc. filed on July 23, 1993. (File No. 33-64732)

(7) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
Quarterly period ended September 30, 1993. (File No. 000-22194)

(8) Previously filed with the Form S-1 Registration Statement of SPSS Inc.
filed on June 22, 1993.
(File No. 33-64732)

(9) Previously filed with the Form S-1 Registration Statement of SPSS Inc.
filed on December 5, 1994. (File No. 33-86858)

(10) Previously cited with the Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1994. (File No. 000-22194)

(11) Previously filed with SPSS Inc.'s 1995 Proxy Statement. (File No.
000-22194)

(12) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1995. (File No. 000-22194)

(13) Previously filed with SPSS Inc.'s 1996 Proxy Statement. (File No.
000-22194)

(14) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1996. (File No. 000-22194)

79

(15) Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended March 31, 1997. (File No. 000-22194)

(16) Previously filed with the Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended June 30, 1997. (File No. 000-22194)

(17) Previously filed with Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1997. (File No. 000-22194)

(18) Previously filed with SPSS Inc.'s Report on Form 8-K, dated December 31,
1998, filed on January 15, 1999, as amended on Form 8-K/A filed March 12,
1999. (File No. 000-22194)

(19) Previously filed with SPSS Inc.'s 1998 Proxy Statement. (File No.
000-22194)

(20) Previously filed with Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1998. (File No. 000-22194)

(21) Previously filed with SPSS Inc. Report on Form 8-K, dated November 29,
1999, filed December 10, 1999. (File No. 000-22194)

(22) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended June 30, 1999. (File No. 000-22194)

(23) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended September 30, 1999. (File No. 000-22194)

(24) Previously filed with Form 10-K Annual Report of SPSS Inc. for the year
ended December 21, 1999. (File No. 000-22194).

(25) Previously filed with SPSS Inc.'s Form 8-K , filed November 15, 2000. (File
No. 000-22194).

(26) Previously filed with the Form S-4 Registration Statement of SPSS Inc.,
filed on December 19, 2000. (File No. 333-52216)

(27) Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 2000. (File No. 000-22194)

(28) Previously filed with the Form S-3 Registration Statement of SPSS Inc.
filed on October 9, 2001.
(File No. 333-71236)

(29) Previously filed with SPSS Inc. Report on Form 8-K, dated October 28, 2001,
filed on October 29, 2001. (File No. 000-22194)

(30) Previously filed with the Form S-8 Registration Statement of SPSS Inc.
filed on September 15, 2000. (File No. 333-45900)

(31) Previously filed with the Form S-3 Registration Statement of SPSS Inc.
filed on December 12, 2001. (File No. 333-74944)

(32) Previously filed with SPSS Inc. Report on Form 8-K/A (Amendment No. 1)
filed on December 12, 2001. (File No. 000-22194)

(33) Previously filed with SPSS Inc. Report on Form 8-K, dated February 6, 2002,
filed on February 21, 2002. (File No. 000-22194)

(b) SPSS filed the following reports on Form 8-K during the fourth quarter
of fiscal year 2001:

- The current report of SPSS Inc. on Form 8-K, dated October 22, 2001,
filed with the SEC on October 23, 2001. The Report on Form 8-K announced
SPSS's strategic alliance with America Online, Inc. through its Digital
Marketing Services subsidiary, in which SPSS acquired the exclusive
rights to distribute survey sample data drawn from AOL members and users
of AOL's other interactive properties. SPSS did not file any financial
statements with the Report on Form 8-K.

- The current report of SPSS Inc. on Form 8-K, dated October 28, 2001,
filed with the SEC on October 29, 2001. The Report on Form 8-K stated
that on October 28, 2001, SPSS Inc., Red Sox Acquisition Corp., and
NetGenesis Corp., each a Delaware corporation, entered into an Agreement
and Plan of Merger whereby NetGenesis stockholders would receive 0.097
shares of SPSS common stock for each share of NetGenesis common stock
held by them. The closing of the merger was
80

scheduled to occur during the fourth quarter of 2001 and SPSS anticipated
issuing 2.4 million shares of its common stock under the terms of the
merger. NetGenesis provides E-Metric Solutions which is a combination of
software and analytic consulting services that dramatically improve the
financial performance of e-business initiatives.

- The current report of SPSS Inc. on Form 8-K filed with the SEC on
November 13, 2001. The Report on Form 8-K stated that on November 13,
2001, SPSS was filing restated audited consolidated financial statements
and notes related thereto for the years ended December 31, 2000, 1999 and
1998 to reflect SPSS's merger with ShowCase Corporation (consummated in
February 2001), which was accounted for as a pooling-of-interests
transaction. The Report on Form 8-K contained the following financial
information: SPSS's restated audited financial statements and notes
related thereto for the years ended December 31, 2000, 1999 and 1998; and
SPSS's Restated Management's Discussion and Analysis of Financial
Condition and Results of Operation for the three years ended December 31,
2000.

- The current report of SPSS Inc. on Form 8-K/A (Amendment No. 1) filed
with the SEC on December 12, 2001. The Report on Form 8-K/A (Amendment
No. 1) amended the Report on Form 8-K filed with the SEC on October 23,
2001 (see above). In the Report on Form 8-K/A, SPSS included as an
exhibit a redacted version of the Strategic Online Research Services
Agreement under which SPSS consummated its strategic alliance with AOL.
Concurrent with the filing of the Report on Form 8-K/A, SPSS filed a
request for confidential treatment with the SEC requesting that the SEC
grant confidential treatment to the language redacted from the Strategic
Online Research Services Agreement filed as an exhibit to the Form 8-K/A.
SPSS also stated in the Form 8-K/A that its acquisition of the assets
from AOL did not meet the threshold requirements under Rule 3-05 of
Regulation S-X and that no additional financial statement disclosure was
required.

- The current report of SPSS Inc. on Form 8-K filed with the SEC on
December 21, 2001. The Report on Form 8-K stated that on December 21,
2001, SPSS completed its acquisition of all of the outstanding capital
stock of NetGenesis Corp., in accordance with the terms of the Agreement
and Plan of Merger by and among SPSS, NetGenesis and Red Sox Acquisition
Corp., a wholly-owned subsidiary of SPSS. The acquisition was effected
through a merger in which NetGenesis merged with and into Red Sox
Acquisition Corp., with NetGenesis as the surviving corporation and a
wholly-owned subsidiary of SPSS. The shares of NetGenesis common stock
that were outstanding as of December 21, 2001 would be converted into the
right to receive an aggregate of approximately 2.4 million shares of SPSS
common stock at an exchange ratio of 0.097 shares of SPSS common stock
for each outstanding share of NetGenesis common stock. The shares of SPSS
common stock issued in the merger were registered under the Securities
Act. The acquisition was structured as a tax-free reorganization and is
being accounted for by SPSS under the purchase method of accounting.

81

SIGNATURES

Pursuant to requirements of Section 13 or 15(d) 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 as of March 29, 2002.

SPSS Inc.

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 following persons on behalf of the Registrant and
in the capacities indicated as of March 29, 2002.

82

EXHIBIT INDEX