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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
COMMISSION FILE NUMBER: 33-64732
SPSS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2815480
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
233 S. WACKER DRIVE, CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (312) 651-3000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES X NO
--- ---
AS OF AUGUST 1, 2002, THERE WERE 16,840,868 SHARES OF COMMON STOCK
OUTSTANDING, PAR VALUE $.01, OF THE REGISTRANT.
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SPSS INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2002
INDEX
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF
DECEMBER 31, 2001 AND JUNE 30, 2002 (UNAUDITED) 3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED) AND 2002 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(LOSS) FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001
(UNAUDITED) AND 2002 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX
MONTHS ENDED JUNE 30, 2001 (UNAUDITED) AND
2002 (UNAUDITED) 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 20
ITEM 5. OTHER INFORMATION 20
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
ITEM 1. FINANCIAL STATEMENTS
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, JUNE 30,
2001 2002
------------ ---------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 21,400 $ 20,001
Marketable securities 9,792 -
Accounts receivable, net of allowances 50,086 44,740
Inventories 3,217 2,939
Deferred income taxes 22,200 25,038
Prepaid expenses and other current assets 11,800 11,825
--------- ---------
Total current assets 118,495 104,543
PROPERTY AND EQUIPMENT, at cost:
Land and building 2,311 2,430
Furniture, fixtures, and office equipment 11,403 15,485
Computer equipment and software 55,896 62,275
Leasehold improvements 12,225 13,068
--------- ---------
81,835 93,258
Less accumulated depreciation and amortization 48,453 55,228
--------- ---------
Net property and equipment 33,382 38,030
Restricted cash 2,080 2,052
Capitalized software development costs, net of accumulated amortization 28,271 31,055
Goodwill, net of accumulated amortization 45,110 51,966
Intangibles, net 18,825 17,157
Other assets 5,847 6,666
--------- ---------
$ 252,010 $ 251,469
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 1,175 $ 7,750
Accounts payable 9,786 9,680
Accrued royalties 1,380 1,544
Accrued rent 1,410 1,311
Merger consideration 3,379 3,506
Other accrued liabilities 23,133 24,413
Income taxes and value added taxes payable 4,597 4,134
Customer advances 872 849
Deferred revenues 47,145 41,165
--------- ---------
Total current liabilities 92,877 94,352
Deferred income taxes 1,943 1,943
Merger consideration 21,587 18,282
Other non-current liabilities 1,833 3,084
Minority interest 497 -
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000,000 shares authorized; 16,716,481
and 16,831,116 shares issued and outstanding in 2001 and
2002, respectively 167 168
Additional paid-in capital 146,099 146,930
Accumulated other comprehensive loss (7,311) (4,801)
Retained earnings (deficit) (5,682) (8,489)
--------- ---------
Total stockholders' equity 133,273 133,808
--------- ---------
$ 252,010 $ 251,469
========= =========
See accompanying notes to consolidated financial statements.
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
2001 2002 2001 2002
------------ ------------ ------------ ------------
Net revenues:
Analytical solutions $ 6,993 $ 10,228 $ 11,251 $ 20,565
Market research 7,552 11,298 10,891 19,630
Statistics 18,626 19,946 37,208 41,246
ShowCase 10,847 11,521 21,130 21,162
------------ ------------ ------------ ------------
Net revenues 44,018 52,993 80,480 102,603
Operating expenses:
Cost of revenues 3,508 5,419 8,246 11,267
Sales and marketing 29,480 30,627 58,304 61,381
Research and development 8,837 11,994 16,017 20,102
General and administrative 3,879 4,384 7,181 10,344
Special general and administrative charges 1,806 1,537 3,773 3,192
Merger-related - 357 6,337 2,260
Acquired in-process technology - - - 150
------------ ------------ ------------ ------------
Operating expenses 47,510 54,318 99,858 108,696
Operating loss (3,492) (1,325) (19,378) (6,093)
Other income (expense)
Net interest and investment income (expense) (121) (42) (181) 52
Other income (expense) (426) 872 (1,181) 879
------------ ------------ ------------ ------------
Other income (expense) (547) 830 (1,362) 931
Loss before income taxes and minority interest (4,039) (495) (20,740) (5,162)
Income tax benefit (1,292) (178) (7,466) (1,858)
------------ ------------ ------------ ------------
Loss before minority interest (2,747) (317) (13,274) (3,304)
Minority interest - 58 - 497
------------ ------------ ------------ ------------
Net loss $ (2,747) $ (259) $ (13,274) $ (2,807)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.20) $ (0.02) $ (0.97) $ (0.17)
Shares used in computing basic net loss per share 13,720,689 16,820,707 13,688,734 16,801,291
Shares used in computing diluted net loss per share 13,720,689 16,820,707 13,688,734 16,801,291
See accompanying notes to consolidated financial statements.
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (INCOME) LOSS
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
2001 2002 2001 2002
-------- -------- -------- --------
Net loss $ (2,747) $ (259) $(13,274) $ (2,807)
Other comprehensive income (loss):
Foreign currency translation adjustment (1,036) 3,931 (1,970) 2,499
Unrealized holding gain on marketable securities - - - 11
-------- -------- -------- --------
Comprehensive income (loss) $ (3,783) $ 3,672 $(15,244) $ (297)
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
----------------------
JUNE 30, JUNE 30,
2001 2002
-------- --------
Cash flows from operating activities:
Net loss $(13,274) $ (2,807)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) activities:
Depreciation and amortization 7,072 8,896
Deferred income taxes (8,727) (2,837)
Write-off of acquired in-process technology costs - 150
Write-off of software development costs 397 -
Write-off of purchased software 1,047 -
Stock compensation expense 399 -
Changes in assets and liabilities:
Accounts receivable 12,191 7,827
Inventories (43) 309
Prepaid expenses and other current assets - 54
Restricted cash - 28
Accounts payable (1,079) 280
Accrued royalties (173) 164
Accrued expenses (1,062) 2,451
Accrued income taxes (3,851) (240)
Deferred revenues 6,641 (5,805)
Other (2,055) (7,084)
-------- --------
Net cash provided by (used in) operating activities (359) 1,386
Cash flows from investing activities:
Capital expenditures, net (10,355) (8,777)
Capitalized software development costs (4,270) (6,095)
Acquisition earn-out payments (2,827) -
Write down of cost-based investment 782
Acquisition of LexiQuest - (2,500)
Proceeds from maturities and sale of marketable securities - 9,792
Consideration for AOL/DMS transaction - (3,625)
Other financing activity - (497)
-------- --------
Net cash used in investing activities (16,670) (11,702)
Cash flows from financing activities:
Net borrowings (repayments) under borrowing agreements (8,000) 5,575
Proceeds from issuance of common stock 745 832
-------- --------
Net cash provided by (used in) financing activities (7,255) 6,407
Effect of exchange rate on cash (1,970) 2,510
Net change in cash and cash equivalents (26,254) (1,399)
Cash and cash equivalents at beginning of period 38,736 21,400
-------- --------
Cash and cash equivalents at end of period $ 12,482 $ 20,001
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 617 $ 228
Income taxes paid 2,588 2,349
Cash received for income taxes refunds - 2,080
Supplemental disclosures of noncash investing activities -
Common stock issued in merger with ShowCase - shares 3,275 -
Note payable recorded for netExs acquisition - $ 1,000
See accompanying notes to consolidated financial statements.
SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements reflect all
adjustments, which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented. All such
adjustments are of a normal recurring nature. These consolidated financial
statements should be read in conjunction with SPSS's audited consolidated
financial statements and notes thereto for the year ended December 31, 2001,
included in SPSS's Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission.
NOTE 2 - RECLASSIFICATIONS
Certain operating expenses and balances of prior periods have been reclassified
to conform to the current presentation.
NOTE 3 - SHOWCASE MERGER
On February 26, 2001, SPSS Inc. issued approximately 3,725,000 shares of its
common stock in exchange for substantially all of the outstanding common stock
of ShowCase Corporation. The merger was accounted for as a pooling of interests.
NOTE 4 - MERGER-RELATED EXPENSES
SPSS incurred merger-related costs of approximately $6,337,000 during the three
months ended March 31, 2001 related to the ShowCase acquisition discussed above.
The costs are primarily related to professional fees, severance costs, and
bonuses. Severance costs for 28 employees totaled approximately $940,000 during
the three months ended March 31, 2001 related to the merger, the majority of
which related to officers of ShowCase whose positions were eliminated. No
merger-related costs were incurred in the three months ended June 30, 2001.
Merger-related expenses of $357,000 were incurred in the three months ended June
30, 2002 related to the acquisition of netExs (see Note 7), primarily for
professional fees and merger-related bonuses. Merger-related expenses of
$2,260,000 were incurred in the six months ended June 30, 2002 related to the
acquisitions of NetGenesis, LexiQuest, S.A., and netExs (see Note 7), primarily
for professional fees, merger-related bonuses, and other costs that did not meet
the definition of capitalizable merger expenses.
NOTE 5 - SPECIAL GENERAL AND ADMINISTRATIVE CHARGES
Special general and administrative charges were $1,806,000 for the three months
ended June 30, 2001 and $1,537,000 for the three months ended June 30, 2002.
Special general and administrative charges were $3,773,000 for the six months
ended June 30, 2001 and $3,192,000 for the six months ended June 30, 2002.
Special general and administrative charges include costs associated with
integrating the NetGenesis, LexiQuest and netExs (see Note 7) transactions in
the three and six months ended June 30, 2002, such as severance payments,
retention and other bonuses, related travel and meeting expenses and other
costs. Special general and administrative charges in the three and six months
ended June 30, 2001 include costs associated with the ShowCase acquisition,
accounted for as a pooling of interests, including similar charges for the three
and six months ended June 30, 2001.
NOTE 6 -GOODWILL AND INTANGIBLE ASSETS
During the three months ended June 30, 2002, the Company implemented SFAS No.
142, Goodwill and Other Intangible Assets, which replaces the requirements to
amortize intangible assets with indefinite lives and goodwill with a requirement
for an annual impairment test. Because SFAS No. 142 also establishes
requirements for identifiable intangible assets, during the three months ended
March 31, 2002, the Company reclassified $1,520,000 of intangible assets
(workforce and customer lists) into goodwill. Operating income for the three and
six months ended June 30, 2001 included $433,000 and $865,000, respectively, of
amortization of goodwill and other intangible assets that are not included in
2002 results due to the implementation of SFAS No. 142. The Company evaluated
its goodwill and other intangible assets during the second quarter of 2002 and
determined that no impairment occurred under SFAS No. 142.
Intangible asset data are as follows (in thousands):
As of June 30, 2002
--------------------------
Gross
Carrying Accumulated
Amount Amortization
-------- ------------
Amortizable intangible assets:
Other intangible assets - AOL/DMS Sample $15,200 $(1,667)
Other intangible assets - ISL Trademark 400 (140)
Unamortizable intangible assets:
Goodwill $51,966
Other intangible assets 3,346
Aggregate amortization expense:
For the three months ended June 30, 2002 $ 843
For the six months ended June 30, 2002 1,807
Estimated amortization expense:
For the year ended December 31, 2002 $ 3,292
For the year ended December 31, 2003 3,879
For the year ended December 31, 2004 4,454
For the year ended December 31, 2005 3,845
Net loss, basic loss per share, and diluted loss per share would have been
$2,470,000, $0.18, and $0.18, respectively, for the three months ended June 30,
2001 and $12,740,000, $0.93, and $0.93 for the six months ended June 30, 2001,
if adjusted for the impact of the implementation of SFAS No. 142.
NOTE 7 - NETEXS ACQUISITION
On June 20, 2002, SPSS acquired the assets described below from netExs LLC, a
Wisconsin limited liability company. The terms and conditions of the asset
purchase are specified in an Asset Purchase Agreement, dated June 20, 2002, by
and among SPSS, netExs and the members of netExs listed as signatories thereto.
The assets purchased by SPSS include: (i) all ownership rights in netExs
software and related documentation, copyrights, trademarks, service marks, brand
names, trade names, trade dress, commercial symbols and other indications of
origin, patents and applications for patents, proprietary information and trade
secrets and other proprietary rights; (ii) identified tangible personal property
of netExs; (iii) identified accounts and accounts receivable; and (iv)
identified contracts.
The technology acquired from netExs consists of zero-client Web-enabled user
interface technology for query and reporting functions that are tightly
integrated with Microsoft SQL Server 2000 Analysis Services. SPSS considers the
acquired technology important to serving the analytical reporting needs of the
sizeable number of its customers and prospects that it believes are adopting
this Microsoft platform.
The aggregate purchase price for the netExs assets was determined by the parties
in arms-length negotiations and consisted of guaranteed and contingent payments.
The guaranteed portion of the purchase price in the amount of $1,000,000 was
delivered by SPSS to netExs.
The contingent portion of the purchase price will be paid to netExs if the net
revenues generated by the assets acquired during the annual periods (as defined
in the Asset Purchase Agreement) equals or exceeds certain targeted projections.
SPSS's obligation to make the earn out payments will depend on the cumulative
net revenue generated by the netExs products. The earn out payments, which are
capped at a total of $1,450,000 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 netExs
shareholders' resale of the shares of SPSS common stock issued to them in
satisfaction of that earn out payment.
Taken in its entirety, this asset purchase is not deemed to be material to the
business of SPSS.
Jonathan Otterstatter, the Executive Vice President and Chief Technology Officer
of SPSS, is also a member of the board of managers of netExs. Before SPSS's
board of directors voted to approve the purchase of the netExs assets, Mr.
Otterstatter fully disclosed his relationship with netExs and his interest in
the transaction to SPSS's board of directors as required under Section 144 of
the Delaware General Corporation Law. After considering the relevant factors
concerning the assets, business and operations of netExs, including Mr.
Otterstatter's relationship with netExs, SPSS's board of directors voted to
approve and authorize the purchase of the netExs assets. Mr. Otterstatter has
not received and will not receive any remuneration in connection with the
transaction.
The following summary presents information concerning the purchase price
allocation for the netExs acquisition accounted for under the purchase method.
COMPANY PURCHASED OTHER PURCHASE
NAME SOFTWARE TRADEMARKS GOODWILL ASSETS PRICE
- ------------- ------------- ---------------- ------------- ---------------- ---------------
netExs LLC $242,000 $19,000 $691,000 $48,000 $1,000,000
The pro forma impact of this acquisition is not material to the results of
operations during the three months ended June 30, 2002.
NOTE 8 - SUBSEQUENT EVENTS
On August 8, 2002, SPSS announced a restructuring of its sales, marketing and
services organizations which was undertaken to respond to changes in the market
and, in part, to make the organization more cost effective. In addition to
eliminating between 5% and 10% of its workforce, SPSS announced the closure of
its Miami office, previously dedicated to sales and support of the company's
technology to independent software vendors. These activities will now be
performed by a group in the Chicago headquarters location.
While SPSS has not yet quantified all costs related to this reorganization, it
expects to take a restructuring charge of $7 to $8 million in the three months
ended September 30, 2002, including all related severance costs. Reduced salary
expense is expected for the remainder of 2002.
SPSS has entered into a new borrowing arrangement with its bank, American
National Bank and Trust Company of Chicago. Under the terms of this new
arrangement, SPSS's bank borrowings are secured by domestic accounts receivable.
The bank has waived the technical default under the prior line-of-credit
arrangement as of March 31, 2002 and June 30, 2002.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following table sets forth the percentages that selected items in the
Consolidated Statements of Operations bear to net revenues.
SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
PERCENTAGE OF NET REVENUES
------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2001 2002 2001 2002
------ ------ ------ ------
Net revenues:
Analytical solutions 16% 19% 14% 20%
Market research 17% 21% 14% 19%
Statistics 42% 38% 46% 40%
ShowCase 25% 22% 26% 21%
------ ------ ------ ------
Net revenues 100% 100% 100% 100%
Operating expenses:
Cost of revenues 8% 10% 10% 11%
Sales and marketing 67% 58% 72% 60%
Research and development 20% 23% 20% 20%
General and administrative 9% 8% 9% 10%
Special general and administrative charges 4% 3% 5% 3%
Merger-related 0% 1% 8% 2%
Acquired in-process technology 0% 0% 0% 0%
------ ------ ------ ------
Operating expenses 108% 103% 124% 106%
Operating loss (8%) (3%) (24%) (6%)
Other income (expense)
Net interest and investment income (expense) 0% 0% 0% 0%
Other income (expense) (1%) 2% (1%) 1%
------ ------ ------ ------
Other income (expense) (1%) 2% (1%) 1%
Loss before income taxes and minority interest (9%) (1%) (25%) (5%)
Income tax expense (benefit) (3%) 0% (9%) (2%)
------ ------ ------ ------
Loss before income taxes and minority interest (6%) (1%) (16%) (3%)
Minority interest 0% 0% 0% 0%
------ ------ ------ ------
Net loss (6%) (1%) (16%) (3%)
====== ====== ====== ======
COMPARISON OF THREE MONTHS ENDED JUNE 30, 2002 TO THREE MONTHS ENDED JUNE 30,
2001.
Net Revenues. Net revenues increased from $44,018,000 in the three months ended
June 30, 2001 to $52,993,000 in the three months ended June 30, 2002, an
increase of 20%. The increase is primarily due to the differential effects in
2001 and 2002 of the application of accounting pronouncements in 2000 described
below, as well as revenues from the AOL, NetGenesis, and LexiQuest transactions.
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 (post-contract customer support or maintenance) 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 ratably over the term of the contract.
Revenue from training and consulting services was $5,620,000 of the total of
$44,018,000 in net revenues for the three months ended June 30, 2001, and
$7,630,000 of the total of $52,993,000 in net revenues for the three months
ended June 30, 2002.
Analytical Solutions. Analytical solutions revenues increased from $6,993,000 in
the three months ended June 30, 2001, to $10,228,000 in the three months ended
June 30, 2002, an increase of 46%. This increase is primarily due to the
differential effects of the revenue deferrals discussed above, as well as
revenues from the NetGenesis and Lexiquest transactions. With the implementation
of the TPA's in the fourth quarter of 2000, a greater number of historical
periods in which revenues were deferred are now being recorded as revenue in
current periods (i.e. six months of deferrals in 2001 versus twelve months of
deferrals in 2002). Such increases were partially offset by lower revenues in
this category from international markets and a decrease of approximately $1.4
million in revenues received from OEM transactions. Yet many customers continued
to purchase services rather than software, a result of customers tending to
enhance existing products rather than purchasing new ones.
Market Research. Market research revenues increased from $7,552,000 in the three
months ended June 30, 2001 to $11,298,000 in the three months ended June 30,
2002, an increase of 50%. This increase is primarily due to the differential
effects the revenue deferrals discussed above, as well as revenues of
approximately $1.7 million related to the AOL transaction in September 2001.
With the implementation of the TPA's in the fourth quarter of 2000, a greater
number of historical periods in which revenues were deferred are now being
recorded as revenue in current periods. Market research revenues also increased
from the same period last year due to a contract with Procter & Gamble.
Statistics. Statistics revenues increased from $18,626,000 in the three months
ended June 30, 2001 to $19,946,000 in the three months ended June 30, 2002, an
increase of 7%. This increase is primarily due to the differential effects the
revenue deferrals discussed above, as well as to the steady demand for
comparatively low-priced, shrink-wrapped products between the periods and a
contract with the national healthcare organization in France in the current
quarter. As a percentage of net revenues, statistics revenues decreased from 42%
in the three months ended June 30, 2001 to 38% in the three months ended June
30, 2002, reflecting the addition of revenues in the other categories from the
AOL, NetGenesis, and LexiQuest transactions.
ShowCase. ShowCase revenues increased from $10,847,000 in the three months ended
June 30, 2001 to $11,521,000 in the three months ended June 30, 2002, an
increase of 6%. This increase reflects improved sales in North America and the
closing of a contract with a French retail and manufacturing concern. As a
percentage of net revenues, ShowCase revenues decreased from 25% in the three
months ended June 30, 2001 to 22% in the three months ended June 30, 2002,
reflecting the differential effects of the revenue deferrals discussed above and
the addition of revenues in the other categories from the AOL, NetGenesis, and
LexiQuest transactions.
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 increased from $3,508,000 in the three months ended June 30,
2001 to $5,419,000 in the three months ended June 30, 2002, an increase of 54%.
The increase was due to AOL sample costs, Hyperion Solutions royalties, the
amortization of acquired technology assets, and royalties from NetGenesis
products. As a percentage of net revenues, cost of revenues increased from 8% in
the three months ended June 30, 2001 to 10% in the three months ended June 30,
2002.
Sales and Marketing. Sales and marketing expenses, which also include service
costs, increased from $29,480,000 in the three months ended June 30, 2001 to
$30,627,000 in the three months ended June 30, 2002, an increase of 4%. As a
percentage of net revenues, sales and marketing expenses decreased from 67% in
the three months ended June 30, 2001 to 58% in the three months ended June 30,
2002, as a result of the revenue increases discussed above. The expense increase
primarily reflects the addition of staff from the AOL, NetGenesis, and LexiQuest
transactions. The increase was partially offset by reductions in the number of
sales and professional services personnel, mostly related to ShowCase
activities.
Research and Development. Research and development expenses increased from
$8,837,000 in the three months ended June 30, 2001 to $11,994,000 in the three
months ended June 30, 2002 (net of capitalized software development costs of
$1,399,000 in the three months ended June 30, 2001 and $1,500,000 in the three
months ended June 30, 2002), an increase of 36%. In the same periods, the
Company's expense for amortization of capitalized software and product
translations, included in cost of revenues, was $917,000 in the three months
ended June 30, 2001 and $1,526,000 in the three months ended June 30, 2002. As a
percentage of net revenues, research and development expenses were 20% in the
three months ended June 30, 2001 and 23% in the three months ended June 30,
2002. These increases were due primarily to the addition of staff from the
NetGenesis and LexiQuest acquisitions, as well as compensation increases
throughout the last six months of 2001.
General and Administrative. General and administrative expenses increased from
$3,879,000 in the three months ended June 30, 2001 to $4,384,000 in three months
ended June 30, 2002, an increase of 13%. As a percentage of net revenues,
general and administrative expenses decreased from 9% in the three months ended
June 30, 2001 to 8% in three months ended June 30, 2002. The expense increase
was due primarily to the addition of staff from the NetGenesis acquisition and
the expansion of SPSS's corporate executive group. These expense increases were
partially offset by the elimination of goodwill amortization of $433,000
following the implementation of SFAS No. 142, "Goodwill and Other Intangible
Assets" on January 1, 2002.
Special General and Administrative Charges. Special general and administrative
charges decreased from $1,806,000 in the three months ended June 30, 2001 to
$1,537,000 in the three months ended June 30, 2002, a decrease of 15%. As a
percentage of net revenues, special general and administrative expenses
decreased from 4% in the three months ended June 30, 2001 to 3% in three months
ended June 30, 2002. Special general and administrative charges include costs
associated with the NetGenesis, LexiQuest and netExs acquisitions, such as
severance payments, retention and other bonuses, related travel and meeting
expenses and other costs that did not meet the definition of capitalizable
merger costs under established guidelines. Special general and administrative
charges in the three months ended June 30, 2001 include costs associated with
the ShowCase acquisition, accounted for as a pooling of interests.
Merger-related. SPSS incurred merger-related costs of $357,000 in the three
months ended June 30, 2002. SPSS did not incur any merger-related costs in the
three months ended June 30, 2001. Merger-related expenses relate to
acquisitions made during 2001 and 2002 (see Notes 4 and 7).
Net Interest and Investment Income (Expense). Net interest and investment income
(expense) was ($121,000) in the three months ended June 30, 2001 and ($42,000)
in three months ended June 30, 2002, a decrease of 65%. The expense in 2001 and
2002 was due primarily to interest expense that was only partially offset by
interest income which was lower in 2002 due to reduced average balances in
cash and short-term investments.
Other Income (Expense). Other income (expense) was ($426,000) in the three
months ended June 30, 2001 and $872,000 in the three months ended June 30,
2002, a change of 305%. The expense in the three months ended June 30, 2001
was due primarily to foreign transaction exchange losses, while the gain in
the three months ended June 30, 2002 was due to foreign transaction exchange
gains, reflecting the weakening of the dollar against other major currencies.
Income Tax Benefit. The provision for income taxes decreased from a net benefit
of $1,292,000 in the three months ended June 30, 2001 to a net benefit of
$178,000 in the three months ended June 30, 2002, a change of 86%. The income
tax benefit represents an effective tax rate of approximately 32% in the three
months ended June 30, 2001 and approximately 36% in the three months ended June
30, 2002.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2002 TO SIX MONTHS ENDED JUNE 30, 2001.
Net Revenues. Net revenues increased from $80,480,000 in the six months ended
June 30, 2001 to $102,603,000 in the six months ended June 30, 2002, an increase
of 27%. The increase is primarily due to the differential effects in 2001 and
2002 of the application of accounting pronouncements in 2000 described below, as
well as revenues from the AOL, NetGenesis, and LexiQuest transactions.
During 2000, the AICPA staff released several Technical Practice Aids (TPA's)
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 (post-contract customer support or maintenance) 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 ratably over the term of the contract.
Revenue from training and consulting services was $10,118,000 of the total of
$80,480,000 in net revenues for the six months ended June 30, 2001, and
$13,374,000 of the total of $102,603,000 in net revenues for the six months
ended June 30, 2002.
Analytical Solutions. Analytical solutions revenues increased from $11,251,000
in the six months ended June 30, 2001 to $20,565,000 in the six months ended
June 30, 2002, an increase of 83%. As a percentage of net revenues, analytical
solutions revenues increased from 14% in the six months ended June 30, 2001 to
20% in six months ended June 30, 2002. This increase is primarily due to the
differential effects of the revenue deferrals discussed above, as well as
revenues from the NetGenesis and Lexiquest transactions. With the implementation
of the TPA's in the fourth quarter of 2000, a greater number of historical
periods in which revenues were deferred are now being recorded as revenue in
current periods (i.e. six months of deferrals in 2001 versus twelve months of
deferrals in 2002). Such increases were partially offset by a decrease of
approximately $2.1 million in revenues received from OEM transactions.
Market Research. Market research revenues increased from $10,891,000 in the six
months ended June 30, 2001 to $19,630,000 in the six months ended June 30, 2002,
an increase of 80%. This increase is primarily due to the differential effects
the revenue deferrals discussed above, as well as revenues of approximately
$3.4 million related to the AOL transaction in September 2001. With the
implementation of the TPA's in the fourth quarter of 2000, a greater number of
historical periods in which revenues were deferred are now being recorded as
revenue in current periods. Market research revenues also increased from the
same period last year due to a contract with Procter & Gamble.
Statistics. Statistics net revenues increased from $37,208,000 in the six months
ended June 30, 2001 to $41,246,000 in the six months ended June 30, 2002, an
increase of 11%. This increase is primarily due to the differential effects the
revenue deferrals discussed above, as well as to the steady demand for
comparatively low-priced, shrink-wrapped products between the periods and a
contract with the national healthcare organization in France. As a percentage of
net revenues, statistics revenues decreased from 46% in the six months ended
June 30, 2001 to 40% in the six months ended June 30, 2002, reflecting the
addition of revenues in the other categories from the AOL, NetGenesis, and
LexiQuest transactions.
ShowCase. ShowCase revenues were relatively constant between the six-month
periods, moving from $21,130,000 in the six months ended June 30, 2001 to
$21,162,000 in the six months ended June 30, 2002. As a percentage of net
revenues, ShowCase revenues decreased from 26% in the six months ended June 30,
2001, to 21% in the six months ended June 30, 2002, reflecting the differential
effects of the revenue deferrals discussed above and the addition of revenues in
the other categories from the AOL, NetGenesis, and LexiQuest transactions.
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 increased from $8,246,000 in the six months
ended June 30, 2001 to $11,267,000 in the six months ended June 30, 2002, an
increase of 37%. The increase was due to AOL sample costs, Hyperion Solutions
royalties, the amortization of acquired technology assets, and royalties from
NetGenesis products. As a percentage of net revenues, cost of revenues were
relatively constant at 10% in the six months ended June 30, 2001 and June 30,
2002.
Sales and Marketing. Sales and marketing expenses which also include service
costs increased from $58,304,000 in the six months ended June 30, 2001 to
$61,381,000 in the six months ended June 30, 2002, an increase of 5%. As a
percentage of net revenues, sales and marketing expenses decreased from 72% in
the six months ended June 30, 2001 to 60% in the six months ended June 30, 2002,
as a result of the revenue increases discussed above. The expense increase
primarily reflects the addition of staff from the AOL, NetGenesis, and LexiQuest
transactions. The staff additions from the transactions were partially offset by
reductions in the number of sales and professional services personnel, mostly
related to ShowCase activities.
Research and Development. Research and development expenses increased from
$16,017,000 in the six months ended June 30, 2001 to $20,102,000 in the six
months ended June 30, 2002 (net of capitalized software development costs of
$2,939,000 in the six months ended June 30, 2001 and $3,312,000 in the six
months ended June 30, 2002), an increase of 26%. In the same periods, the
Company's expense for amortization of capitalized software and product
translations, included in cost of revenues, was $1,932,000 in the six months
ended June 30, 2001 and $3,165,000 in the six months ended June 30, 2002. As a
percentage of net revenues, research and development expenses were 20% in the
six months ended June 30, 2001 and June 30, 2002. The expense increase was due
primarily to the addition of staff from the NetGenesis and LexiQuest
acquisitions, as well as compensation increases throughout the last six months
of 2001.
General and Administrative. General and administrative expenses increased from
$7,181,000 in the six months ended June 30, 2001 to $10,344,000 in six months
ended June 30, 2002, an increase of 44%. As a percentage of net revenues,
general and administrative expenses increased from 9% in the six months ended
June 30, 2001 to 10% in six months ended June 30, 2002. The expense was due
primarily to the addition of staff from the NetGenesis acquisition and the
expansion of SPSS's corporate executive group. These expense increases were
partially offset by the elimination of goodwill amortization of $865,000
following the implementation of SFAS No. 142, "Goodwill and Other Intangible
Assets" on January 1, 2002.
Special General and Administrative Charges. Special general and administrative
charges decreased from $3,773,000 in the six months ended June 30, 2001 to
$3,192,000 in six months ended June 30, 2002, a decrease of 15%. As a percentage
of net revenues, special general and administrative expenses decreased from 5%
in the six months ended June 30, 2001 to 3% in six months ended June 30, 2002.
Special general and administrative charges include costs associated with the
NetGenesis and LexiQuest acquisitions, such as severance payments, retention and
other bonuses, related travel and meeting expenses and other costs that did not
meet the definition of capitalizable merger costs, under established guidelines.
Special general and administrative charges in the six months ended June 30, 2001
include costs associated with the ShowCase acquisition, accounted for as a
pooling of interests.
Merger-related. Merger-related costs decreased from $6,337,000 in the six months
ended June 30, 2001 to $2,260,000 in six months ended June 30, 2002, a decrease
of 64%. As a percentage of net revenues, merger-related costs decreased from 8%
in the six months ended June 30, 2001 to 2% in six months ended June 30, 2002.
Merger-related expenses relate to acquisitions made during 2001 and 2002 (see
Notes 4 and 7).
Acquired In-Process Technology. Acquired in-process technology costs were
$150,000 in the six months ended June 30, 2002 related to the LexiQuest
acquisition.
Net Interest and Investment Income (Expense). Net interest and investment income
(expense) was ($181,000) in the six months ended June 30, 2001 and $52,000 in
six months ended June 30, 2002, a change of 129%. 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. The
income in 2002 was primarily due to interest earned on short-term investments,
partially offset by interest expense incurred on line-of-credit borrowings.
Other Income (Expense). Other income (expense) was ($1,181,000) in the six
months ended June 30, 2001 and $879,000 in the three months ended June 30, 2002,
a change of 174%. The expense in the three months ended June 30, 2001 was due
primarily to foreign transaction exchange losses, while the income in the three
months ended June 30, 2002 was due to foreign transaction exchange gains,
reflecting the weakening of the dollar against other major currencies.
Income Tax Benefit. The provision for income taxes decreased from a net benefit
of $7,466,000 in the three months ended June 30, 2001 to a net benefit of
$1,858,000 in the six months ended June 30, 2002, a change of 75%. The income
tax benefit represents an effective tax rate of approximately 36% in both the
six months ended June 30, 2001 and June 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2002, SPSS had approximately $20,001,000 of unrestricted cash.
Cash received as part of the merger with NetGenesis was used in the six months
ended June 30, 2002 to pay $2.5 million and $2.0 million related to the
LexiQuest and NetGenesis transactions, respectively, as well as merger
consideration to AOL for $3.65 million, capital expenditures of $8.8 million,
and capitalized software development costs of $6.1 million.
SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS
The following table reflects a summary of SPSS's contractual cash obligations as
of June 30, 2002:
LESS THAN
TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS
----- ------ --------- --------- -------------
United Kingdom mortgage $ 640,800 $ 73,500 $ 146,400 $ 146,400 $ 274,500
Litigation settlement 1,195,000 595,000 600,000 - -
Merger consideration -- AOL 21,787,000 3,506,000 16,270,000 2,011,000 -
Capital lease commitments 589,000 578,000 11,000 - -
Other 490,000 2,000 488,000 - -
SPSS used $359,000 of cash flow from operations in the six months ended June 30,
2001 and generated $1,386,000 of cash flow from operations in the six months
ended June 30, 2002. Cash flows in both periods were largely due to collections
of accounts receivable, which more than offset the operating loss in the six
months ended June 30, 2002, but only partially offset the larger operating loss
in the six months ended June 30, 2001.
Investing activities resulted in the use of $16,670,000 in the six months ended
June 30, 2001 and $11,702,000 in the six months ended June 30, 2002. In the six
months ended June 30, 2001, cash was primarily used for capital expenditures of
$10.4 million and capitalized software development costs of $4.3 million. SPSS
also paid $2.8 million in its final earn-out payment to the former owners of
Integral Solutions. In the six months ended June 30, 2002, cash was primarily
used for capital expenditures of $8.8 million, capitalized software development
costs of $6.1 million, $2.5 million to acquire LexiQuest, and scheduled payments
totaling $3.65 million to AOL. Proceeds of $9.8 million were received from the
maturities and sales of marketable securities.
Financing activities used cash of $7,255,000 in the six months ended June 30,
2001, primarily to repay $8,000,000 under the line-of-credit agreements,
partially offset by $745,000 in proceeds from common stock issuances. Financing
activities generated cash of $6,407,000 in the six months ended June 30, 2002
primarily from $5,575,000 of borrowing under the line-of-credit agreements and
proceeds of $832,000 from the issuance of common stock.
In May 2002, SPSS entered into a new borrowing arrangement with its bank,
American National Bank and Trust Company of Chicago. As of June 30, 2002, SPSS
had $7,750,000 available under the terms of this new borrowing arrangement.
Under the terms of this new arrangement, SPSS's bank borrowings are secured by
domestic accounts receivable. The bank has waived the technical default under
SPSS's prior line-of-credit arrangement with the bank as of March 31, 2002 and
June 30, 2002.
INTERNATIONAL OPERATIONS
Revenues from international operations were 56% and 49% of total net revenues in
the three months ended June 30, 2001 and June 30, 2002, respectively, and 52%
and 48% of total revenues in the six months ended June 30, 2001 and 2002,
respectively. The percentage differences are the result of revenues increasing
at a higher rate in the United States than in Europe and the Pacific Rim
compared to 2001. The portion of revenues attributable to international
operations was positively affected by changes in foreign currency exchange rates
for the three months ended June 30, 2002 but negatively affected by changes in
foreign currency exchange rates in the other periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS 146 requires that a
liability for costs associated with an exit or disposal activity be recognized
when the liability is incurred rather than when a company commits to such an
activity, and also establishes fair value as the objective for initial
measurement of the liability. SFAS No. 146 will be adopted by the Company for
exit or disposal activities that are initiated after December 31, 2002.
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that involve risks and
uncertainties that could cause the results of SPSS Inc. and its subsidiaries to
differ materially from those expressed or implied by such forward-looking
statements. These risks include the timely development, production, and
acceptance of new products and services, market conditions, competition, the
flow of products into third-party distribution channels, currency fluctuations
and other risks detailed from time to time in the Company's Securities and
Exchange Commission filings. The words "anticipate," "believe," "estimate,"
"expect," "plan," "intend," "will," and similar expressions, as they relate to
SPSS or its management, may identify forward-looking statements. Such statements
reflect the current views of SPSS with respect to future events and are subject
to certain risks, uncertainties, and assumptions. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, or expected. SPSS does not intend to update
these forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from fluctuations in interest rates on
borrowings under our borrowing arrangements bears interest at either the prime
rate or the Eurodollar rate. As of June 30, 2002, the Company had $7,750,000
outstanding under this borrowing arrangement. A 100 basis point increase in
interest rates would result in an additional $77,500 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 may enter 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 June 30, 2002, management expects this would
have a materially 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. On June 30, 2002, the Company did not have any option contracts
outstanding.
The Company's derivative instruments do not qualify for hedge accounting
treatment under SFAS No. 133. Accordingly, gains and losses related to changes
in the fair value of these instruments are recognized in income in each
accounting period.
PART II - OTHER INFORMATION
ITEM 1. 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
The Company's Annual Meeting of Shareholders was held on June 12, 2002. The
following persons were nominated and elected to serve as Directors of the
Company for a term of three years or until their successors have been duly
elected and qualified:
Nominee For Withheld
- ------- --- --------
Norman Nie 13,163,511 2,071,763
Bernard Goldstein 14,957,114 278,160
William Binch 14,959,092 276,182
In addition, Jack Noonan, Promod Haque, Michael Blair, Kenneth Holec and Merritt
Lutz remained as directors of the Company after the meeting.
Furthermore, the Company's stockholders approved the adoption of the SPSS Inc.
2002 Equity Incentive Plan at the meeting by the following votes:
For Against Abstain
--- ------- -------
7,944,089 6,600,383 690,802
Finally, the Company's stockholders ratified the appointment of KPMG LLP to
serve as the Company's independent auditor for fiscal year 2002 at the meeting
by the following votes:
For Against Abstain
--- ------- -------
14,490,612 725,066 19,596
ITEM 5. OTHER INFORMATION.
On August 8, 2002, SPSS announced a restructuring of is sales, marketing, and
services organizations, which was undertaken to respond to changes in the market
and, in part, to make the organization more cost effective. In addition to
eliminating between 5% and 10% of is workforce, SPSS announced the closure of
its Miami office, previously dedicated to sales and support of the company's
technology to independent software vendors. These activities will now be
performed by a group in the Chicago headquarters location.
While SPSS has not yet quantified all costs related to this reorganization, it
expects to take a restructuring charge of $7 to $8 million in the three months
ended September 30, 2002, including all related severance costs. Reduced salary
expense is expected for the remainder of 2002.
SPSS is required under the rules applicable to companies traded on the NASDAQ
National Market to disclose that one of the members of its Audit Committee,
Kenneth Holec, is serving on the Audit Committee pursuant to Rule 4350(d)(2)(B).
NASDAQ Marketplace Rule 4350(d)(2)(A) requires that the audit committee of all
NASDAQ-listed companies be composed of at least three directors and that, except
as otherwise specifically permitted by the rules, all of
the members of the Audit Committee be "independent" as defined by NASDAQ
Marketplace Rule 4200(a)(14). NASDAQ Marketplace Rule 4350(d)(2)(B) sets forth
an exception to this rule by allowing an audit committee to have one director
who is not "independent" and not a current employee (or immediate family member
of an employee) if the board of directors determines, in exceptional limited
circumstances, that such director's membership on the audit committee is
required by the best interests of the company and its stockholders.
Mr. Holec does not qualify as an "independent" director under NASDAQ Marketplace
Rule 4200(a)(14) as a result of his previous employment relationship with SPSS
and his accompanying compensation arrangement. At present, Mr. Holec maintains a
consulting relationship with SPSS, but he is no longer an employee or an
immediate family member of an employee of SPSS. On June 12, 2002, SPSS's board
of directors adopted a resolution determining that Kenneth Holec satisfies the
exception provided by NASDAQ Marketplace Rule 4350(d)(2)(B). In making this
determination, the board considered the fact that Mr. Holec has held various
upper-level and executive positions in the software and technology industry, and
has an extensive background in accounting and financial analysis. Mr. Holec's
input is highly valued by SPSS. Therefore, the SPSS board of directors
determined that the membership of Mr. Holec on the Audit Committee of the board
is required by the best interests of SPSS and its stockholders pursuant to
NASDAQ Marketplace Rule 4350(d)(2)(B).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits (Note: Management contracts and compensatory plans or
arrangements are identified with a "+" in the following list).
Incorporation
Exhibit by Reference
Number Description of Document (if applicable)
- ------- ----------------------- ---------------
2.1 Agreement and Plan of Merger among SPSS Inc., SPSS (1), Ex. 2.1
ACSUB, Inc., Clear Software, Inc. and the
shareholders named therein, dated September 23, 1996.
2.2 Agreement and Plan of Merger among SPSS Inc., SPSS (2), Annex A
Acquisition Inc. and Jandel Corporation, dated
October 30, 1996.
2.3 Asset Purchase Agreement by and between SPSS Inc. (16), Ex. 2.3
and DeltaPoint, Inc., dated as of May 1, 1997.
2.4 Stock Purchase Agreement among the Registrant, (3), Ex. 2.1
Edward Ross, Richard Kottler, Norman Grunbaum,
Louis Davidson and certain U.K.-Connected
Shareholders or warrant holders of Quantime
Limited named therein, dated as of September 30,
1997, together with a list briefly identifying the
contents of omitted schedules.
2.5 Stock Purchase Agreement among the Registrant, (3), Ex. 2.2
Edward Ross, Richard Kottler, Norman Grunbaum,
Louis Davidson and certain Non-U.K. Shareholders
or warrant holders of Quantime Limited named
therein, dated as of September 30, 1997, together
with a list briefly identifying the contents of
omitted schedules.
2.6 Stock Purchase Agreement by and among SPSS Inc. (4), Ex. 2.1
and certain Shareholders of Quantime Limited
listed on the signature pages thereto, dated
November 21, 1997.
2.7 Stock Purchase Agreement by and among Jens (4), Ex. 2.2
Nielsen, Henrik Rosendahl, Ole Stangegaard, Lars
Thinggaard, Edward O'Hara, Bjorn Haugland, 2M
Invest and the Shareholders listed on Exhibit A
thereto, dated November 21, 1997.
2.8 Stock Purchase Agreement by and among SPSS Inc. (18), Ex. 2.1
and the Shareholders of Integral Solutions Limited
listed on the signature pages hereof, dated as of
December 31, 1998.
2.9 Share Purchase Agreement by and among SPSS Inc., (20), Ex. 2.9
Surveycraft Pty Ltd. and Jens Meinecke and
Microtab Systems Pty Ltd., dated as of November 1,
1998.
2.10 Stock Acquisition Agreement by and among SPSS Inc. (21), Ex. 2.1
Vento Software, Inc. and David Blyer, John Gomez
and John Pappajohn, dated as of November 29, 1999.
2.11 Asset Purchase Agreement by and between SPSS Inc. (24), Ex. 2.11
and DataStat, S.A., dated as of December 23, 1999.
2.12 Agreement and Plan of Merger dated as of November (25), Ex. 2.1
6, 2000, among SPSS Inc., SPSS Acquisition Sub
Corp., and ShowCase Corporation.
2.13 Agreement and Plan of Merger dated as of October (29), Ex. 99.1
28, 2001, among SPSS Inc., Red Sox Acquisition
Corp. and NetGenesis Corp.
2.14 Stock Purchase Agreement by and among SPSS Inc., (33), Ex 2.14
LexiQuest, S.A. and the owners of all of the
issued and outstanding shares of capital stock of
LexiQuest, S.A., dated as of January 31, 2002.
3.1 Certificate of Incorporation of SPSS. (5), Ex. 3.2
3.2 By-Laws of SPSS. (5), Ex. 3.4
10.1 Employment Agreement with Jack Noonan. + (8), Ex. 10.1
10.2 Agreement with Valletta. + (6), Ex. 10.2
10.3 Agreement between SPSS and Prentice Hall. (6), Ex. 10.5
10.4 Intentionally omitted.
10.5 HOOPS Agreement. (6), Ex. 10.7
10.6 Stockholders Agreement. (5), Ex. 10.8
10.7 Agreements with CSDC. (5), Ex. 10.9
10.8 Amended 1991 Stock Option Plan. + (5), Ex. 10.10
10.9 SYSTAT Asset Purchase Agreement. (9), Ex. 10.9
10.10 1994 Bonus Compensation. + (10), Ex. 10.11
10.11 Lease for Chicago, Illinois Office. (10), Ex. 10.12
10.12 Amendment to Lease for Chicago, Illinois Office. (10), Ex. 10.13
10.13 1995 Equity Incentive Plan. + (11), Ex. 10.14
10.14 1995 Bonus Compensation. + (12), Ex. 10.15
10.15 Amended and Restated 1995 Equity Incentive Plan. + (13), Ex. 10.17
10.16 1996 Bonus Compensation. + (14), Ex. 10.18
10.17 Software Distribution Agreement between the (14), Ex. 10.19
Company and Banta Global Turnkey.
10.18 Lease for Chicago, Illinois in Sears Tower. (15), Ex. 10.20
10.19 1997 Bonus Compensation. + (17), Ex. 10.21
10.20 Norman H. Nie Consulting L.L.C. Agreement with (17), Ex. 10.22
SPSS Inc.
10.21 Second Amended and Restated 1995 Equity Incentive (19), Ex. A
Plan. +
10.22 1998 Bonus Compensation. + (20), Ex.10.23
10.23 Third Amended and Restated 1995 Equity Incentive (22), Ex. 10.1
Plan. +
10.24 Loan Agreement dated June 1, 1999 between SPSS (23), Ex. 10.1
Inc. and American National Bank and Trust Company
of Chicago.
10.25 First Amendment to Loan Agreement dated June 1, (23), Ex. 10.2
1999, between SPSS Inc. and American National Bank
and Trust Company of Chicago.
10.26 1999 Bonus Compensation. + (24), Ex. 10.27
10.27 2000 Equity Incentive Plan. + (26), Ex. 10.45
10.28 SPSS Qualified Employee Stock Purchase Plan. + (26), Ex. 10.46
10.29 SPSS Nonqualified Employee Stock Purchase Plan. + (26), Ex. 10.47
10.30 2000 Bonus Compensation. + (27), Ex. 10.30
10.31 Stock Purchase Agreement by and between SPSS Inc. (28), Ex. 10.31
and Siebel Systems, Inc.
10.32 1999 Employee Equity Incentive Plan. + (30), Ex. 4.1
10.33 Stock Purchase Agreement by and between SPSS Inc. (31), Ex. 10.33
and America Online, Inc.
10.34 Strategic Online Research Services Agreement by (32), Ex. 99.1
and between SPSS Inc. and America Online, Inc.*
10.35 SPSS Inc. 2002 Equity Incentive Plan + (34), Ex. 4.1
- ------------------------------
* 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)
(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 31, 1999. (File No. 000-22194).
(25) Previously filed with SPSS Inc.'s Form 8-K, filed November 15, 2000. (File
No. 000-22194).
(26) Previously filed with SPSS Inc.'s Form S-4, filed December 19, 2000.
(27) Previously filed with SPSS Inc.'s Form 10-K Annual Report 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)
(34) Previously filed with the Form S-8 Registration Statement of SPSS Inc.
filed on June 18, 2002. (File No. 333-90694)
(b) SPSS filed the following reports on Form 8-K during the three months
ended June 30, of fiscal year 2002:
The current report of SPSS Inc. on Form 8-K, filed with the SEC
on February 21, 2002, as amended by (i) the current report of SPSS
Inc. on Form 8-K/A (Amendment No. 1), filed with the SEC on February
27, 2002, (ii) the current report on Form 8-K/A (Amendment No. 2),
filed with the SEC on April 22, 2002 and (iii) the current report of
SPSS Inc. on Form 8-K/A (Amendment No. 3), filed with the SEC on April
23, 2002. The Report on Form 8-K announced that SPSS acquired all the
issued and outstanding shares of 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 by and among SPSS, LexiQuest and the owners of all of the
issued and outstanding shares of capital stock of LexiQuest, attached
as an exhibit thereto. Amendments Nos. 1, 2 and 3 disclosed that
Norman Nie, the chairman of SPSS's board of directors is also both the
chairman of LexiQuest' board of directors and a shareholder of
LexiQuest, disclosed that the transaction was unanimously approved by
the disinterested members of SPSS's board of directors and included
the audited financial statements of LexiQuest and the pro forma
combined financial statements of SPSS and LexiQuest.
The current report of SPSS Inc. on Form 8-K, filed with the SEC
on July 30, 2002. The Report on Form 8-K announced that SPSS acquired
the assets of netExs LLC, a Wisconsin limited liability company, on
June 20, 2002. The terms and conditions of the acquisition are
specified in an Asset Purchase Agreement by and among SPSS, netExs and
the members of netExs listed as signatories thereto. The Report on
Form 8-K discloses that Jonathan Otterstatter, the Executive Vice
President, Chief Technology Officer of SPSS, is also a member of the
board of managers of netExs and that the transaction was unanimously
approved by the members of SPSS's board of directors after the board
of directors considered the relevant factors concerning the assets,
business and operations of netExs, including Mr. Otterstatter's
relationship with netExs. SPSS was not required to file financial
statements in connection with the asset acquisition.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
SPSS INC.
DATE: AUGUST 14, 2002 BY: /s/ JACK NOONAN
---------------------------------
JACK NOONAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BY THE UNDERSIGNED, IN HIS CAPACITY AS THE PRINCIPAL FINANCIAL
OFFICER OF THE REGISTRANT.
DATE: AUGUST 14, 2002 BY: /s/ EDWARD HAMBURG
---------------------------------
EDWARD HAMBURG
EXECUTIVE VICE-PRESIDENT, CORPORATE
OPERATIONS AND CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO
16 U.S.C. SECTION 1350, AS
ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES - OXLEY ACT OF 2002
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned certifies that this Quarterly Report
on Form 10-Q for the period ended June 30, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that the information contained in this Report fairly presents, in all
material respects, the financial condition and results of operations of SPSS
Inc.
Date: August 14, 2002 By: /s/ JACK NOONAN
---------------------------------
Jack Noonan
President and Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned certifies that this Quarterly Report
on Form 10-Q for the period ended June 30, 2002, as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of
1934 and that the information contained in this Report fairly presents, in all
material respects, the financial condition and results of operations of SPSS
Inc.
Date: August 14, 2002 By: /s/ EDWARD HAMBURG
---------------------------------
Edward Hamburg
Executive Vice-President, Corporate
Operations and Chief Financial Officer