SPSS INC - 10-K Annual Report

Back to GetFilings.com

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

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, 2002

COMMISSION FILE NUMBER: 33-64732

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

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 [ ] No [X]

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. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

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
$9.50 on March 14, 2003, and for the purpose of this calculation only, the
assumption that all registrant's directors and executive officers are
affiliates) was approximately $143.5 million.

The number of shares outstanding of the registrant's Common Stock, par
value $0.01, as of March 14, 2003, was 17,293,700.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SPSS INC.

TABLE OF CONTENTS

PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16

PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Consolidated Financial Data........................ 19
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 33
Item 8. Financial Statements and Supplementary Data................. 34
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 71

PART III
Item 10. Directors and Executive Officers of the Registrant.......... 71
Item 11. Executive Compensation...................................... 74
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 83
Item 13. Certain Relationships and Related Transactions.............. 85
Item 14. Controls and Procedures..................................... 87

PART IV
Item 15. Exhibits, Consolidated Financial Statement Schedule, and
Reports on Form 8-K......................................... 88

i

SPSS INC.

FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

PART I

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 global provider of predictive analytic computer software and solutions.

The Company's offerings use predictive analytics to connect data to
effective action by drawing reliable conclusions about current conditions and
future events. Predictive analytics leverages an organization's business
knowledge by applying sophisticated analytic techniques to enterprise data. The
insights gained through the use of these techniques can lead to the development
of programs to increase revenues, reduce costs, improve processes, and prevent
criminal or fraudulent activities.

Many organizations are driven to successfully focus on attracting,
developing, and retaining relationships with people, particularly in their roles
as customers, employees, patients, students, or citizens. To accomplish these
goals, organizations collect and analyze data related to people's attributes,
actions, and attitudes. Since its inception, SPSS has specialized in the
analysis of such "people data" and developed technology and services
incorporating decades of "best practice" predictive analytic processes and
techniques.

SPSS provides three classes of software and service offerings to three
distinct audiences. For research analysts, the Company offers statistical and
data mining software tools to examine a broad range of enterprise data. For
general business users, SPSS supplies easy to use predictive analytic
applications that address key business issues. For independent software vendors,
the Company offers pre-built analytic components that can be readily integrated
into other software applications.

To bring these tools, applications, and components to market worldwide,
SPSS sells its lower-priced offerings through telesales and higher-priced
offerings through field sales organizations configured geographically and by
vertical markets. The Company's primary targeted vertical markets include retail
and consumer packaged goods, financial services, healthcare and pharmaceuticals,
market research, government, and higher education.

Approximately fifty percent 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;

- Facilitating more effective electronic commerce;

- Allocating scarce resources more efficiently across marketing programs;
and

- Detecting and preventing fraud.

Among its government customers SPSS offerings are primarily used to improve
interactions between public sector agencies and their constituents or detect
forms of non-compliance. At colleges and universities SPSS statistical and data
mining tools are often standards for academic research and the teaching of data
analysis techniques.

In August 1993, SPSS completed an initial public offering (IPO) of common
stock at $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. In addition to the
information contained in this report, further information regarding SPSS can be
found on the Company's website at www.spss.com.

1

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 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. SPSS is continuing to provide the Surveycraft technology to firms in
the market research industry.

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 the "SPSS Clementine Data Mining
Workbench" and integrating it into the Company's analytical applications and
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 applications and 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 Dimensions product line 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 iSeries
(AS/400) computing systems. SPSS is further developing the ShowCase technology,
integrating

2

aspects of this technology into its other offerings, and continuing to license
this technology to organizations with IBM iSeries (AS/400) computing systems.

On September 28, 2001, Siebel Systems, Inc. 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 applications 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 is paying AOL $42,000,000 in consideration over
four years and has assumed primary responsibility for servicing the former group
of AOL market research partners. The consideration is comprised of cash of
$30,000,000 and common stock with a fair market value of $12,000,000. Through
DMS, AOL provides SPSS with on-line survey respondents who have been provided
incentives to participate in on-line studies. In addition, SPSS received 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 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 has further developed this
technology to serve as a platform for Web analytical applications.

On January 31, 2002, SPSS acquired all of the outstanding shares of
LexiQuest, S.A., a corporation organized under the laws of France, for a
guaranteed purchase price of $2,500,000 under the terms of a Stock Purchase
Agreement between SPSS, LexiQuest and the shareholders of LexiQuest. SPSS may be
required to make additional payments up to approximately $1,500,000 to the
former owners of LexiQuest based upon the attainment of specific operating
results by LexiQuest through the end of 2003. No such contingent payments have
yet been required. LexiQuest was a developer of technology for the
categorization and mining of unstructured text data. SPSS is further developing
the LexiQuest technology, integrating it into the Company's Clementine data
mining workbench, and incorporating the technology into certain analytical
applications and solutions.

On June 20, 2002, SPSS acquired all of the outstanding shares of stock of
netExs, LLC, a Wisconsin limited liability company, for a guaranteed purchase
price of $1,000,000 under the terms of an Asset Purchase Agreement between SPSS,
netExs and the members of netExs. SPSS may be required to make additional
payments up to approximately $1,450,000 in future years to the former owners of
netExs based upon the attainment of specific operating results by netExs. netExs
was a developer of technology for viewing data stored in the Microsoft Analysis
Services within its SQL Server database. SPSS is further developing the netExs
technology for continued distribution under the name SPSS OLAP Hub, integrating
it into the Company's analytical applications and solutions, and using the
technology internally for budgeting and management reporting.

Beginning in August 2002, the Company reorganized its field operations to
achieve greater productivity and cost effectiveness. Three corporate divisions
were merged and realigned into a telesales force focused on selling lower-priced
software tools and field sales organizations selling higher-priced tools,
applications, and

3

components. In addition, the Company closed its offices in Miami, Florida,
reduced its facilities in Chicago, London, Cambridge, Massachusetts, and Point
Richmond, California, and terminated its investment in Illumitek Corporation.
The Company recorded a restructuring charge of $4,663,000 in the third quarter
of 2002 and $1,182,000 in the fourth quarter of 2002 for expenses related to
this reorganization.

INDUSTRY BACKGROUND

The predictive analytics market developed as organizations across the
commercial, academic, and government sectors discovered and experienced the
benefits of using applied analytics. This market emerged from the convergence of
three different sectors of the software industry: statistical tools, data
mining, and business intelligence. Factors driving growth of the predictive
analytics market include:

- the increasing volumes and complexity of enterprise data;

- competition for attracting new and retaining existing customers; and

- the costs of pervasive fraudulent activity.

In the 1970's, the market for statistical software formed as tools
developed by academics were used with general business data. These early tools
evolved to provide access to data with extensive file and data management
facilities, build predictive models using techniques such as correlation and
regression, and display analytic results through reports. Partially as a result
of its early entrance into this market, SPSS became a leading provider of
statistical software tools and this market remains an integral and profitable
part of the Company's overall business.

In the 1990's, the market for data mining software developed as neural
network and other artificial intelligence techniques built in university
research labs were applied to general business data. Data mining tools extended
predictive analytics by introducing an array of algorithmic techniques for
efficiently characterizing, clustering, and predicting outcomes. SPSS entered
this market in 1998 through its acquisition of Integral Solutions Limited,
providers of the innovative Clementine data mining workbench. SPSS has emerged
as a leader in the market for data mining tools and sees this market as a
long-term growth opportunity for the Company.

Also during the 1990's, the business intelligence market formed. Yet,
unlike the academic roots from which the statistics and data mining markets
grew, business intelligence stemmed from the widespread adoption of database
technology by commercial firms. Facilities to extract, transform, and load data
(ETL) were developed, as were techniques for data warehousing that organized raw
data into more usable structured forms. As organizations better understood the
value inherent in the vast amounts of data at their disposal, new reporting
approaches also emerged to measure results, such as software tools for on-line
analytical processing (OLAP) that offered intuitive ways for business users to
explore data. The business intelligence market effectively broadened the use of
analytic decision-making in many organizations. This increased usage in turn led
to a greater appreciation for the additional benefits provided by more
sophisticated predictive analytical techniques in maintaining the pace of
innovation, growth, and competitive differentiation.

Predictive analytics, like enterprise resource planning (ERP) and customer
relationship management (CRM), is both a business process and a set of related
technologies. The predictive analytics process begins by exploring how specific
business issues relate to data describing people's characteristics, attitudes,
and behavior. These numeric and text data sets, which originate from both
internal systems and third-party providers, are cleansed, transformed, and
evaluated using statistical, mathematical, and other algorithmic techniques.
These techniques generate models for classification, segmentation, forecasting,
pattern recognition, sequence and association detection, anomaly identification,
profiling, propensity scoring, rule induction, text mining, and advanced
visualization.

Combining predictive analytic models with organizational business knowledge
provides insight into such critical issues as customer acquisition and
retention, up-selling and cross-selling, fraud detection, and outcome
improvement. Through measuring uncertainty surrounding these issues, predictive
analytics enables proactive risk management, refining key decision-making
processes through controlled, iterative testing of potential

4

actions and their likely intended -- and unintended -- consequences. These
findings and their corresponding business rules can then be deployed within
front-line operational systems to identify new revenue opportunities, measurable
cost savings, repeatable process improvements, and sustainable competitive
advantages.

Predictive analytics carries strategic and tactical ramifications for
organizations that recognize the inherent value locked within their existing
enterprise data. Strategically, predictive analytics provides a quantitative
foundation for rapidly identifying, objectively evaluating, and confidently
pursuing new market opportunities. Tactically, predictive analytics identifies
precisely whom to target, how to reach them, when to make contact, and what
messages should be communicated.

STRATEGY

Three principles are at the foundation of the Company's strategy:

1. Drive the widespread use of predictive analytics. Because the
markets for its statistical and data mining tools are limited to the
sizable yet finite number of research analysts, SPSS is addressing the
larger potential audience of business users by also providing predictive
analytic capabilities in the form of targeted packaged applications or as
components integrated into other software applications. Essential to these
efforts is the Company's ability to support enterprise environments with
technology that is highly scalable and adaptable to multiple platforms, as
well as its ability to develop plug-and-play components for building future
applications and conceal complex predictive analytic processes within
operational software such as call center, sales force automation and supply
chain management applications.

2. Leverage the Company's expertise in the analysis of "people
data." SPSS software was first used in the examination of survey data and
expanded over time to the analysis of other forms of information about
people's characteristics, attitudes, and behavior. SPSS began as the
"Statistical Package for the Social Sciences." This legacy of providing
technology and services to customers examining people is still at the core
of the Company's expertise and further differentiates SPSS from other
players in the predictive analytics market. Moreover, SPSS will further
develop its capabilities that integrate data about people's attitudes and
behavior to build more powerful predictive models.

3. Deliver recognizable value to customers. SPSS targets its efforts
on identifying opportunities to influence peoples' behavior in ways that
are critical to organizations, such as the most effective means by which
customers can be attracted and retained, how non-compliance by citizens can
be identified and prevented, or the actions healthcare professionals can
take to reduce the length-of-stay of hospital patients. Returns on
investments that organizations make in SPSS technology must be realized
quickly, consistently, and in sufficient size or degree to promote the
development of strategic customer relationships with the Company.

MARKETS

SPSS targets the following markets defined by International Data
Corporation (IDC) in its 2001 Software Tool & Application Sector research
report:

- The global market for statistical and technical analysis software, which
was approximately $372 million in size in 2001 and in which SPSS held a
market share of approximately 22%. IDC estimates that this market will
increase by approximately 1% a year and reach approximately $393 million
in size by 2006.

- The global market for data mining tools, which was approximately $450
million in size in 2001 and in which SPSS held a market share of
approximately 5%. IDC estimates that this market will increase by
approximately 13% a year and reach approximately $823 million in size by
2006.

- The global market for analytical customer relationship management (aCRM)
applications, which was approximately $455 million in size in 2001 and in
which SPSS held a market share of approximately 4%. IDC estimates that
this market will increase by approximately 17% a year and reach
approximately $1.8 billion in size by 2006.

5

- The global market for analytical components, which was approximately $560
million in size in 2001 and in which SPSS held a market share of less
than 1%. IDC estimates that this market will increase by approximately
11% a year and reach approximately $928 million in size by 2006.

These target markets combined to total approximately $2.0 billion in
revenues in 2001 with SPSS holding a share of approximately 10%. IDC estimates
that these SPSS target markets will combine to total approximately $3.2 billion
in revenues by 2006. To more effectively increase its overall market share, SPSS
plans to leverage its strong position in the statistical and technical analysis
software market to increase its presence in the related larger and higher-growth
market sectors. The Company will also focus on providing predictive analytic
tools and applications to the following vertical markets worldwide:

- Retail and consumer packaged goods, including e-commerce applications;

- Financial services, including insurance;

- Healthcare and pharmaceuticals;

- Market research;

- Government, at the federal, state, and local levels; and

- Higher education.

OFFERINGS

SPSS provides its predictive analytical technology as tools for research
analysts, applications for business users, and components for software
developers.

TOOLS

SPSS software tools enable customers to access and prepare data for
analysis, develop and deploy predictive models, and generate reports and graphs
to present the results. In general, the Company's software tools are:

- Comprehensive in function, spanning the entire process of data analysis;

- 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;

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

Statistics Family. The Company's primary statistical tools are part of its
flagship SPSS product line. These tools are modular in nature and designed for
use by research analysts working in a wide variety of commercial, governmental,
and academic organizations.

While varying by version and computing platform, a typical purchase from
the SPSS product line includes an SPSS Base product and related optional add-on
modules. The SPSS Base includes the user interface, data connectivity, data
editing, reporting, graphing, and general statistical capabilities. Add-on
modules require the SPSS Base to operate and become seamlessly integrated with
SPSS Base upon installation. These optional offerings usually provide additional
statistical functionality specific to particular types of analysis. Yet some
products in the SPSS product line are notable because their capabilities provide
value to organizations beyond what is typically realized with general-purpose
statistical products. SmartViewer Web Server, for example, distributes the
results of analysis to decision-makers via the web. SmartScore

6

deploys the results of analyses into operations systems, including call centers
and web sites, as well as into databases or data warehouses. List prices for
perpetual single-user licenses of desktop products are approximately $1,150 for
the SPSS Base and range from $299 to $2,500 for other products. Multi-user
network and site licenses can be significantly higher and require annual
maintenance payments. List prices of annual licenses for the SPSS product line
on mainframes, minicomputers, UNIX workstations, and Windows NT servers range
from $6,100 to $48,000, while perpetual licenses run from $9,200 to $70,000.

SPSS also develops, markets, and licenses statistical tools that are part
of its SigmaPlot product line. These tools are primarily used by scientists and
engineers for data presentation and analysis. Licenses for SigmaPlot products
range from $149 to $1,499.

Data Mining Family. The Data Mining Family consists of the Clementine data
mining workbench, LexiQuest analysis tools for text mining, and AnswerTree for
decision tree analysis. These products are differentiated from the Statistics
Family primarily by their process-oriented visual user interfaces and their
inclusion of artificial intelligence-based algorithms.

The Clementine product line offers advanced analytical capabilities
for a variety of data mining applications in desktop and distributed
computing environments. The user interface of Clementine provides a visual
view of the entire analysis process, enabling the user to easily
incorporate their business knowledge with data to develop predictive models
and capture all of the steps in one picture. This picture can then be used
as a template to build specific business applications (Clementine
Application Template) and predictive models to apply to operational systems
with the Clementine Solution Publisher. The SPSS and Clementine product
lines can be used together to gain additional data transformation and
statistical functionality. Clementine is available under both annual and
perpetual licensing options, with a typical sale ranging from $50,000 to
$150,000.

The LexiQuest product line is designed to organize and mine
unstructured text data. The LexiQuest product line consists of LexiQuest
Categorize and LexiQuest Mine. LexiQuest Categorize automates the tedious
process of organizing documents into logical categories and is currently
used as a navigation tool on the internet or to quickly organize
information delivered through web portals. LexiQuest Mine is a
linguistics-based text mining tool that creates new insights by rapidly
identifying key concepts and the relationships between them across
thousands of sources, such as documents, news feeds, and the Internet. The
LexiQuest Mine technology is now integrated with the Clementine product
line to provide the combination of data and text mining capabilities. List
prices for the LexiQuest products range from $30,000 to $120,000, and can
be licensed on both an annual or perpetual basis.

The AnswerTree product line reveals distinctive segments in data using
decision tree algorithms. AnswerTree is available in both a single-user
desktop version as well as the highly scalable client-server
implementation. The North American list price for the single user version
is approximately $1,500; its multi-user client-server version is available
in both perpetual and annual licenses for between $15,000 and $50,000.

Business Intelligence Family. The Business Intelligence Family consists of
the Strategy product line and OLAP/Hub offering. Strategy products support
information access, data warehousing, data management, on-line analytical
processing (OLAP), and other analytical applications for the IBM eServer iSeries
(AS/400) computer market. License fees for the Strategy product line range from
approximately $7,500 to over $250,000. OLAP/Hub is a zero-client on-line
analytical processing (OLAP) product technology for viewing data stored in the
Microsoft Analysis Services within its SQL Server database.

APPLICATIONS

Analytical applications provide pre-defined access to the data required for
particular business problems and interfaces that guide users through the related
analysis processes. SPSS analytical applications include:

PredictiveMarketing, which seamlessly integrates with marketing automation
software from other vendors to provide predictive capability to business
professionals in their management of marketing campaigns. PredictiveMarketing
has pre-packaged data mining models designed for specific tasks, such as
customer
7

acquisition or retention, and allows the user to modify these models and then
put the calculated predictive scores into the customer's data warehouse. The
first version of PredictiveMarketing was developed for integration with the
Siebel Marketing product; a stand-alone version is now also available and
versions integrating with other marketing automation products are being
developed. Typical pricing for PredictiveMarketing ranges from $100,000 to
$300,000.

NetGenesis is an analytical application that helps interpret and explain
visitor behavior on Web sites. By processing on-line information through its
rule-based importer to create a customer behavioral data mart, NetGenesis
identifies content that brings visitors the most value and measures the site's
overall effectiveness. List pricing for NetGenesis ranges from $35,000 to
$90,000, depending on configuration.

Dimensions is a robust technology platform that supports the complete
end-to-end survey process for firms in the market research industry. Dimensions
provides seamless and efficient work processes around surveys, easier analysis
of data, and more dynamic means of delivering results to clients. To develop
Dimensions, SPSS has combined the strengths of the Quantime, In2itive, and
Surveycraft product lines, while building an entirely new code base. Dimensions
will gradually replace Quantime, In2itive, and Surveycraft. Major parts of the
Dimensions offering include mrInterview, a Web survey system, mrPaper, for
managing paper surveys, mrTables, to develop interactive analytical tabular
reports, and mrTranslate, which manages translations of surveys and reports. The
Dimensions offerings 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 Dimensions range from approximately $1,000 to over
$1,000,000.

COMPONENTS

SPSS has developed a modular software architecture to support its internal
development of applications and its continued cost-effective development and
maintenance of analytical tools. This architecture is designed as sets of basic
functions packaged as common services in reusable component form, including
predictive modeling algorithms, data transformation services, a common engine
for data visualization and exploration, a common Web-based distribution service
for analytical output, and a common mechanism for deploying the results of
predictive models into operational software. SPSS now licenses these services to
independent software companies on an original equipment manufacturer (OEM)
basis. SPSS components enable software developers to rapidly add powerful
analytical capabilities in a plug-and-play format to new and existing
applications as an alternative to developing such capabilities themselves.
Typical licensing fees for SPSS components range from $100,000 to $500,000 and
involve ongoing payments of royalties.

SALES AND MARKETING

The Company has a long-established worldwide telesales organization that
primarily sells its tools to research analysts. Sales made by the telesales
organization, while varying widely, are typically driven by direct mail
campaigns and customer references, completed within 30 days, and average about
$1,500. The database of existing SPSS customers provides an efficient source for
selling add-on products, upgrades and training services. The Company also has an
e-commerce infrastructure through which it sells its lower-priced products and
maintains a network of over forty distributors around the world to increase its
penetration into smaller international markets.

SPSS has built a field sales force to sell its tools, applications and
components to enterprise customers and independent software vendors. This field
sales force is organized by the Company's primary targeted vertical markets,
including retail and consumer packaged goods, financial services, healthcare and
pharmaceuticals, market research, and the public sector. SPSS field sales
personnel engage with line-of-business executives to identify organizational
problems that SPSS offerings can address. In many situations, SPSS professional
services personnel are involved to consult with information technology
executives to complete procurements and plan implementations. The field sales
force also has partnering relationships with other leading companies to
participate in mutually beneficial joint sales opportunities or provide
additional

8

application implementation capabilities. Transactions completed by the field
organization typically take from six to nine months and range in value from
$100,000 to $500,000.

SPSS maintains a worldwide infrastructure to support these sales
organizations. In addition to its headquarters in Chicago, SPSS has offices
across the United States, including New York City, Cambridge, Massachusetts, the
Washington D.C. area, Cincinnati, Dallas, Rochester, Minnesota, and San
Francisco. The SPSS international sales operation consists of fourteen sales
offices in Europe and the Pacific Rim. Transactions are customarily made in
local currencies.

SPSS field marketing organization is charged with generating qualified
leads for the Company's tools and applications through direct mail, e-mail,
prospect seminars, advertising in trade and market-specific publications, and
exhibiting at trade shows. This organization also continually analyzes the SPSS
customer database to identify likely prospects for the Company's new offerings.

The Company's product management organization consists of two business
centers, one devoted to tools and components and the other to applications. Each
business center is charged with understanding the current and future needs of
customers, translating these needs into clear directives to the research and
development organization for specific product development projects, and working
with the research and development organization to develop "roadmaps" that chart
the future direction of each tool and application offering.

SPSS also has a corporate marketing group that is responsible for the broad
visibility of the Company. To increase visibility, this group works with the
trade and financial press, industry analysts and financial analysts to establish
the identity and presence of the Company as an industry leader. This group
supports the investor relations function, providing information to investors,
both current and potential. SPSS corporate marketing also supports other
important areas of visibility generation, including the development of expert
reviews of SPSS tools and applications which appear in trade and market-specific
publications, participation in and speaking at professional association
meetings, and conducting user group meetings.

SERVICES

To support its statistical and data mining tools, SPSS offers a
comprehensive training program with courses covering product operations, general
data analytical concepts and processes, as well as how statistical and data
mining techniques can be applied to address particular business problems. These
courses are regularly scheduled in cities around the world or organizations can
contract with the Company for on-site training tailored to their specific
requirements.

To support its analytical applications, SPSS offers consulting and
customization services to assist in new implementations or configure existing
applications to particular customer requirements. SPSS consultants also help
organizations to develop plans that align analytical efforts with organizational
goals, assist with the collection and structuring of data for analysis, and
facilitate the building of predictive analytical models.

To support its analytical components, SPSS provides developer-level support
to the programming staffs of OEM partners to assist in the implementation of
these components. If appropriate, SPSS research and development or consulting
personnel may also implement the embedded offering for OEM partners.

SPSS has a worldwide customer service and technical support infrastructure
that engages with customers on-site or by telephone, fax, mail, e-mail and the
Web. Technical support is provided to all licensees and includes assistance in
software installation and operations as well as limited guidance in the
selection of analytical methods and the interpretation of results. Additional
technical support services are available on a time-and-materials basis.

9

RESEARCH AND DEVELOPMENT

SPSS plans to develop new software technologies and products, enhance
existing software technologies and products, acquire complementary technologies,
and form partnerships with third parties providing particular software
functionality or with domain expertise essential to serving selected vertical
markets. SPSS research and development initiatives will primarily focus on:

- Enhancing its primary statistical and data mining tools;

- Extending the capabilities of its analytical applications and developing
new versions of PredictiveMarketing;

- Improving the interoperability of various SPSS tools and applications;

- Continuing to build reusable components for use in developing new
analytical tools and applications as well as for licensing to other
independent software vendors; and

- Establishing directions concerning future platforms and deployment,
including J2EE and .NET, data visualization, in-database modeling and
scoring, support of other in-database services such as OLAP, the
embedding of analytical functionality, and the adoption of emergent
standards such as XML/A for OLAP and data mining.

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 of the 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 professionals
trained in the use of predictive analytics in its documentation, quality
assurance, software design and software engineering groups.

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 298
professionals organized into groups for software design, algorithm development,
software engineering, documentation, quality assurance, and product
localization. Expenditures by SPSS for research and development, including
capitalized software, were approximately $37,800,000 in 2000, $38,800,000 in
2001, and $48,500,000 in 2002.

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.

COMPETITION

In selling its analytical tools, applications, or components, 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 policies to meet
market demand. The Company also offers flexible licensing arrangements to
satisfy customer requirements.

10

Historically, the Company's success has been driven by highly usable
interfaces, comprehensive analytical capabilities, efficient performance
characteristics, local language versions, consistent quality, connectivity
capabilities, worldwide distribution, and widely recognized brand names.

SPSS considers its primary worldwide competitor in each of its targeted
markets to be the larger and better-financed SAS Institute, although SPSS
believes that approximately seventy-five percent of the revenues of SAS is
derived from offerings in areas other than predictive analytics.

In the market for statistical tools, the Company also competes with
StatSoft Inc., Minitab, Inc., Insightful and Stata, although their annual
revenues from statistical products are believed to be considerably less than the
revenues of SPSS. SPSS also faces competition from providers of software for
specific statistical applications.

In the market for data mining tools, the Company also competes with
offerings from IBM, Oracle, NCR, Angoss, and Quadstone.

In the market for analytic applications, SPSS also faces competition from
well-financed companies such as Fair, Isaacs-HNC Corporation and E.piphany.

Because the market for analytical components is highly fragmented, SPSS
competes with a wide range of companies, from providers of specific algorithms
like Visual Numerics and Numerical Algorithms Group (NAG), to data mining
vendors such as Angoss, to large systems vendors like SAS.

With the exception of SAS, none of the Company's competitors are believed
to currently offer the range of analytical capability provided by SPSS.

SPSS holds a dominant position in the market for analytical applications 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
competitors such as Sawtooth Software, Computers for Marketing Corporation, and
Pulse Train Technology are thought to be considerably less than the market
research revenues of SPSS.

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 automation and collaborative software, who could add
enhanced analytical functionality to their existing products. Some of these
potential competitors have significant capital resources, marketing experience,
and research and development capabilities. New competitive offerings 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. Although SPSS holds four patents and has one patent in registration,
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.

11

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;

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

- PredictiveMarketing is a registered trademark used in connection with the
SPSS analytical application for customer relationship management;

- WhatIf? and DecisionTime are registered trademarks used in connection
with the SPSS offerings for time series analysis;

- NetGenesis is a registered trademark used in connection with the SPSS Web
analysis application;

- 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 products licensed by SPSS
in its Business Intelligence Family of products;

- CustomerCentric is a registered trademark and is used in connection with
SPSS's analytical applications for CRM; 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 the Company's personnel, new research and
development, frequent technology and product enhancements, name recognition and
ongoing reliable technology maintenance and support.

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 or that the claim will not have a material
adverse affect on SPSS if it is decided adversely to SPSS.

RELIANCE ON THIRD PARTIES

SPSS licenses various software programs from third-party developers and
incorporates them into SPSS 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.

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.

12

Autodesk may terminate the HOOPS agreement upon the occurrence of a material,
uncured breach of the HOOPS agreement by SPSS.

BANTA GLOBAL TURNKEY SOFTWARE DISTRIBUTION AGREEMENT

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. Under this agreement, 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.
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 2003. 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 day period.

PRENTICE HALL AGREEMENT

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 Clementine products, which are designed for classroom use with
SPSS textbooks or other instructional materials. To facilitate more efficient
printing and distribution of these publications, SPSS entered into a five-year
agreement with Prentice Hall in February 1993. SPSS then entered into a new
five-year contract with Prentice Hall in April 1998 in which Prentice Hall has
the option to renew for an additional five years if it pays SPSS $2,750,000 or
more during the term of this agreement. The new contract limits Prentice Hall to
publishing and distributing SPSS publications to specific geographic territories
and enables SPSS to, 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 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
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. Hyperion Solutions still
maintains some limited distribution rights under the terms of the strategic
relationship. Essbase/400 enables SPSS to reach a broader customer base,
including users of multidimensional analyses, and offers SPSS new partnering
opportunities.

SPSS'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 twelve months prior written
notice of its intent to exercise the buy-back right. If SPSS does not make the
minimum

13

royalty payments, SPSS has the option of paying the remaining balance of the
royalty payments to retain exclusive distribution rights.

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 five percent 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.

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, 2002, SPSS has 1,263 employees, 731 domestically and 532
internationally. Of the 1,263 employees, there are 739 in sales, marketing and
professional services, 298 in research and development, and 226 in general and
administrative. SPSS believes it has generally good relationships with its
employees. None of SPSS's employees are members of labor unions.

14

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.

SPSS revenues from operations outside of North America accounted for
approximately 43% in 2000, 50% in 2001 and 49% in 2002. 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 at 233 S. Wacker Drive, the Sears
Tower, 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

15

Chicago, Illinois. The aggregate annual gross rental payments on these leases
were approximately $3,282,000 for the year 2002. SPSS believes that these office
spaces are adequate to fulfill the Company's needs for the foreseeable future.

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 Inc. has been named as a defendant in a lawsuit filed on December 6,
2002 in the United States District Court for the Southern District of New York,
under the caption Basu v. SPSS Inc., et al., Case No. 02CV9694. The complaint
alleges that, in connection with the issuance and initial public offering of
shares of common stock of NetGenesis Corp., the registration statement and
prospectus filed with the Securities and Exchange Commission in connection with
the IPO contained material misrepresentations and/or omissions. The alleged
violations of the federal securities laws took place prior to the effective date
of the merger in which SPSS's acquisition subsidiary merged with and into
NetGenesis Corp. NetGenesis Corp. is now a wholly owned subsidiary of SPSS.
Other defendants to this action include the former officers and directors of
NetGenesis Corp. and the investment banking firms that acted as underwriters in
connection with the IPO. The plaintiff is seeking unspecified compensatory
damages, prejudgment and post-judgment interest, reasonable attorney fees,
experts' witness fees and other costs and any other relief deemed proper by the
Court. The Company intends to vigorously defend itself against the claims set
forth in the complaint.

SPSS may also become 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 2002.

16

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 14, 2003, there were 746 holders of record of the Company's
common stock. This number includes all holders of record by the SPSS transfer
agent, Computershare Investor Services, and does not include an estimate of the
number of stockholders whose shares are held in the name of brokerage firms or
other financial institutions.

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."

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

SPSS has one equity based compensation plan, the SPSS Inc. 2002 Equity
Incentive Plan (the "2002 Plan"). The following table sets forth information as
of December 31, 2002 concerning the 2002 Plan, which was approved by the
stockholders at the 2002 Annual Meeting of Stockholders. SPSS does not have any

17

equity compensation plans under which shares of its common stock are authorized
for issuance that were not approved by stockholders.

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

(1) Pursuant to the terms of the 2002 Plan, the SPSS Board of Directors may
amend the 2002 Plan as the Board deems advisable, including an increase in
the number of shares reserved for issuance pursuant to the exercise of
nonqualified stock options under the 2002 Plan. On December 18, 2002, the
Board amended the 2002 Plan by increasing the number of shares of SPSS
common stock that may be issued under the 2002 Plan upon the exercise of
option rights that qualify as nonqualified stock options from 500,000 to
1,000,000.

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
$5,000,000. 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 and 2002. 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 AOL. 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. SPSS issued 291,828 shares of SPSS common stock to AOL in October
2002 as the second $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.

10B5-1 STOCK TRADING PLANS

Norman Nie, the Chairman of the SPSS Board of Directors, entered into and
engaged in transactions pursuant to a 10b5-1 Stock Trading Plan during 2002 and
Kenneth Holec, a member of the SPSS Board of

18

Directors, had, but did not engage in transactions pursuant to a 10b5-1 Stock
Trading Plan during 2002. 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 Dr. Nie 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 Dr. Nie 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, 2002 are derived from the
Consolidated Financial Statements of SPSS. The Consolidated Financial Statements
as of December 31, 2001 and 2002, and for each of the years in the three-year
period ended December 31, 2002, 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.

19

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

(1) Analytical Solutions includes technology and services, sold separately or in
combination, related to SPSS data mining tools, applications and components.

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

(3) Statistics includes technology and services, sold separately or in
combination, related to SPSS statistical tools.

(4) ShowCase includes products and services, sold separately or in combination,
related to SPSS business intelligence tools for IBM iSeries (IBM AS/400)
computers.

(5) Includes costs associated with acquisitions that did not meet the definition
of merger costs under established guidelines, as well as costs associated
with the reduction in workforce and the write-down of obsolete internal use
software.

(6) Includes costs related to acquisitions, such as investment banking and other
professional fees, employee severance, merger-related bonuses, and costs
associated with closing excess office space and write-off of redundant
assets.

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

(8) Includes provision for doubtful accounts.

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 50% of 2002 revenues came from sales to customers in corporate
settings, with another 20% in academic institutions, 20% in government agencies
and 10% from other sources.

In recent years, SPSS has experienced a significant shift in the sources of
its revenues. Between 1998 and 2002, revenues from its analytical solutions
increased from approximately 6% to approximately 19% of total net revenues and
market research revenues increased from approximately 16% to approximately 19%
of total net revenues, while in contrast, revenue from SPSS statistical products
and services declined from approximately 56% to approximately 43% of net
revenues and ShowCase revenues decreased from approximately 22% to approximately
19% of total net revenues over the same period. Management expects these trends
to continue in 2003.

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

20

RESULTS OF OPERATIONS

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

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

Net Revenues. Net revenues decreased from $186,114,000 in 2000 to
$176,556,000 in 2001, a decrease of 5%, and increased from $176,556,000 in 2001
to $209,300,000 in 2002, an increase of 19%.

The 2002 increase in revenues reflects the higher demand for SPSS data
mining and statistical tools and the addition of revenues from the NetGenesis,
America Online (AOL) and LexiQuest transactions. As a percentage of net
revenues, Analytical Solutions revenues increased from 17% in 2001 to 19% in
2002, due to revenues from the NetGenesis and LexiQuest transactions as well as
higher revenues in the fourth quarter of 2002 primarily from increased sales to
commercial organizations worldwide and the United States Federal Government. As
a percentage of net revenues, Market Research revenues increased from 17% in
2001 to 19% in 2002, reflecting approximately $6,200,000 from the AOL
transaction and a sizable contract with Proctor & Gamble. Although Statistics
revenues were relatively flat as a percentage of net revenues from 2001 to 2002,
Statistics revenues increased by 19% primarily due to consistent demand for SPSS
statistical tools, particularly in the higher education market. ShowCase
revenues decreased as a percentage of net revenues from 23% in

21

2001 to 19% in 2002, reflecting continued weakness in demand for business
intelligence tools specifically designed for IBM(R) i-Series (A/S 400) computer
systems.

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 started 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. SPSS recorded a one-time adjustment of approximately $16,975,000
to defer revenue for contracts entered into during the fourth quarter of 2000.
This adjustment primarily caused a 9% decline in Market Research revenues and
14% decline in Statistics revenue in 2000.

The overall decrease in revenues in 2001 from 2000 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 revenues were
primarily due to the general decline in business-related information technology
spending and the trend towards smaller transaction sizes driven by the downturn
in the world economy. The decrease in Statistics revenues was also caused by the
divestiture of certain products. The increase in Market Research revenues was
primarily due to revenues related to the transaction with AOL completed in the
third quarter of 2001.

Revenues from training and consulting was $18,628,000 of the total of
$186,114,000 in net revenues in 2000, $21,624,000 of the total of $176,556,000
in net revenues in 2001, and $24,277,000 of the total of $209,300,000 in net
revenues in 2002.

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 $16,268,000 in 2000 to
$16,198,000 in 2001 and increased to $21,200,000 in 2002. As a percentage of net
revenues, cost of revenues was constant at 9% in both 2000 and 2001 and
increased to 10% in 2002, reflecting the amortization of AOL sample costs,
Hyperion Solutions royalties, as well as the amortization of acquired technology
assets and royalties from NetGenesis products.

Cost of Revenues -- Software Write-offs. Cost of revenues was charged for
software write-offs of $3,637,000 in 2001 and $5,751,000 in 2002. In 2002, these
write-offs included $4,151,000 for the write-down of the Illumitek technology as
part of the related shutdown (see Note 7) and a $1,600,000 write-off of
technology acquired in the AOL transaction due to its replacement with SPSS
technology. In 2001, SPSS wrote off $3,637,000 worth 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 -- software write-offs was 2.1% in 2001 and 2.8% in
2002.

Sales and Marketing. Sales and marketing expenses decreased from
$115,074,000 in 2000 to $112,027,000 in 2001, a decrease of 3%, and increased to
$120,803,000 in 2002, an increase of 8%. The increase in 2002 primarily reflects
the addition of staff from the AOL, NetGenesis and LexiQuest transactions. These
additions were partially offset by reductions in the number of field sales,
marketing, and professional services personnel as a result of the restructuring
of SPSS field operations implemented in August 2002. In 2001, implementation of
the Company's strategy of expanding sales management, recruiting additional
senior sales representatives, and hiring more professional services personnel
was limited by the need to control costs due to the decrease in revenue caused
primarily by the downturn in the world economy. Sales and marketing expenses
were partially decreased by the effects of changes in foreign currency exchange
rates in 2000, 2001 and 2002. As a percentage of net revenues, sales and
marketing expenses increased from 63% in 2000 to 64% in 2001, and decreased to
58% in 2002, as a result of the August 2002 restructuring discussed above.

22

Research and Development. Research and development expenses decreased from
$32,896,000 in 2000 to $32,305,000 in 2001 and increased to $41,624,000 in 2002
(net of capitalized software development costs of $4,930,000 in 2000, $6,537,000
in 2001 and $6,920,000 in 2002). In the same periods, the SPSS expense for the
amortization of capitalized software and product translations, included in cost
of revenues, was $4,161,000 in 2000, $4,137,000 in 2001 and $5,754,000 in 2002.
The 2002 expense increase was primarily due to the addition of staff from the
NetGenesis, LexiQuest and netExs transactions. 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. As a percentage of net revenues, research and development expenses
were 18% in 2000, 18% in 2001 and 20% in 2002.

General and Administrative. General and administrative expenses decreased
from $13,208,000 in 2000 to $11,208,000 in 2001 and increased to $16,382,000 in
2002, a decrease of 18% in 2001 and an increase of 46% in 2002. The 2002
increase was primarily due to the addition of staff from the NetGenesis
transaction and the expansion of the SPSS corporate executive group. These
expense increases were partially offset by the cost reductions implemented in
August 2002 and the elimination of goodwill amortization of $1,462,000 following
the implementation of SFAS No. 142, "Goodwill and Other Intangible Assets," on
January 1, 2002. The 2001 decrease was primarily due to ongoing cost control
efforts, including limitations on hiring, travel, and other spending. Expenses
in this category as a percentage of net revenues decreased from 7% in 2000 to 6%
in 2001 and increased to 8% in 2002.

Provision for Doubtful Accounts. Provision for doubtful accounts was
$837,000 in 2000, $2,372,000 in 2001 and $869,000 in 2002. The 2001 increase
represents the considerable efforts undertaken to collect outstanding
receivables and provide for uncollectable accounts.

Special General and Administrative Charges. Special general and
administrative charges were $14,739,000 in 2001 and $9,037,000 in 2002, or 8%
and 4% of net revenues in 2001 and 2002, respectively. Special general and
administrative charges in 2002 include costs related to the restructuring of the
Company's field operations implemented in August 2002 and costs related to the
NetGenesis, LexiQuest and netExs transactions, such as severance payments,
retention and other bonuses, related travel expenses, and other costs. Special
general and administrative charges in 2001 included $4,200,000 of charges
relating to the write-down of internal-use software, $3,500,000 related to
reductions in workforce, $2,000,000 for obsolete software write-offs, and other
costs that did not meet the definition of "merger-related" costs under
established guidelines. Special general and administrative charges in 2002
included $3,400,000 related to integration costs, $3,300,000 related to
reductions in workforce and $1,300,000 related to costs of vacated facilities.

Merger-related. SPSS incurred merger-related costs of $10,139,000 in 2001
and $2,260,000 in 2002. Merger-related expenses relate to the Company's
acquisitions made during 2001 and 2002 (see Note 6). Expenses in 2001 included
$2,500,000 paid for investment banking and other professional fees, $2,700,000
for transaction-related bonuses paid to employees, $2,000,000 for severance
costs and costs of closing excess office facilities and $1,700,000 related to
write-offs of redundant software. Expenses in 2002 included professional fees of
approximately $900,000, severance of $200,000 and other costs of $1,100,000.
These expenses were incurred subsequent to the consummation of the transactions.
Certain other costs incurred prior to the consummation of the transactions were
capitalized as part of the purchases.

Illumitek Shut-down Charges. SPSS incurred shut-down costs of $518,000
related to the termination of its investment in Illumitek. Of this sum,
approximately $500,000 represents cash expenditures to liquidate the operation.

Acquired In-Process Technology. Acquired in-process technology costs were
$150,000 in 2002 related to the LexiQuest transaction and $2,288,000 in 2001
related to the NetGenesis Corp. transaction.

In December 2001, SPSS completed the acquisition of NetGenesis Corp. (See
Note 6). 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

23

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.

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. Approximately $150,000 of the purchase price was attributable to
acquired in-process technology, that had not reached technological feasibility
and was believed to have no alternative future use.

Net Interest and Investment Income (Expense). Net interest and investment
income (expense) was $1,096,000 in 2000, $(400,000) in 2001 and $(1,082,000) in
2002. The net interest and investment expense in 2001 and 2002 was primarily due
to interest expense that was only partially offset by lower interest income due
to lower average balances in cash and, in 2001, short term investments. The net
interest and investment income in 2000 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 was $1,222,000 in 2000, other expense
of $(821,000) in 2001 and other income of $752,000 in 2002. The income in 2002
was due to gains in foreign currency transactions, reflecting the weakening of
the dollar against other major currencies. The expense in 2001 was due primarily
to losses from foreign currency transactions. The income in 2000 was due
primarily to the $1,397,000 gain on the divestiture of the statistical quality
control product line, offset partially by losses from foreign currency
transactions.

Provision for Income Taxes. The provision for income taxes was $4,234,000
in 2000, $(7,986,000) in 2001 and $(1,228,000) in 2002. During 2002, the
provision for income taxes represented a tax rate of approximately 13%. The
expected benefit in 2002 was lowered by a nondeductible loss arising from a
consolidated subsidiary. During 2001, the provision for income taxes represented
a tax rate of approximately 27%. The effective rate for the income tax benefit
was lower than the statutory rate primarily due to an increase in the valuation
allowance and nondeductible in-process research and development charges. During
2000, the provision for income taxes represented a tax rate of approximately
29%, excluding the effect of monies transferred out of Japan in 2000. The 2000
tax rate benefited from the reduction of the deferred tax valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

SPSS generated $5,844,000 in cash from operations in 2000 compared to
$15,508,000 in 2001 and $7,220,000 in 2002. Cash from operations in 2002 came
primarily from collections of open accounts receivable of $1,296,000, delayed
trade payable payments of $1,578,000, and income tax accruals of $2,083,000.
These amounts were offset by a reduction of accrued expenses of $3,722,000 and
deferred revenue of $3,207,000. Operating results in the fourth quarter
benefited from cost reductions related to the restructuring of the Company's
field operations in the third quarter. This restructuring reduced the SPSS sales
force by 25%, total staff by 7%, and total payroll by 8%. In addition, the
Company closed its offices in Miami, Florida, and reduced its facilities in
Chicago, Illinois; London, England; Cambridge, Massachusetts; and Point
Richmond, California. These and other cost reductions combined with higher
revenues to increase the Company's cash from operations to $7,220,000 for the
twelve months ended December 31, 2002, from a cash usage from operations of
$(1,799,000) in the nine months ended September 30, 2002. The overall net loss
in 2002 was largely the result of noncash charges for software write-offs and
increased depreciation and amortization expense. Cash from operations in 2001
came primarily from collections of open accounts receivable of $23,085,000,
which was partially offset by the net operating loss. Cash from operations in
2000 came primarily from the Company's net income of $5,915,000.

24

Investing activities resulted in the net use of $16,246,000 in 2000,
$14,058,000 in 2001 and $24,388,000 in 2002. In 2002, cash was primarily used
for capital expenditures of $12,859,000 and capitalized software development
costs of $10,085,000. SPSS also paid $2,500,000 to acquire LexiQuest, $1,000,000
to acquire netExs, and made scheduled payments totaling $7,250,000 to AOL.
Proceeds of $9,792,000 were received from the maturities and sales of marketable
securities. In 2001, $14,743,000 in cash was used in net capital expenditures,
along with $18,592,000 for capitalized software development costs, $2,827,000 in
earn-out payments to the former shareholders of Integrated Solutions Limited
(ISL), and $2,813,000 related to the AOL transaction; offset by $10,856,000
provided by net proceeds from marketable securities. In addition, SPSS acquired
cash of $13,908,000 as a result of its acquisition of NetGenesis in December
2001. In 2000, $12,554,000 in cash was used in net capital expenditures, along
with $7,602,000 for capitalized software development costs and $3,882,000 in
earn-out payments to the former shareholders of ISL, offset by $7,542,000
provided by net proceeds from marketable securities.

The Company's capital expenditures, primarily for computer equipment and
software, leasehold improvements and office furniture, were approximately
$12,859,000 in 2002, and are projected to be approximately $10,000,000 in 2003
and $12,000,000 in 2004. SPSS expects capital expenditures during 2003 to
include computers and software, primarily for use in internal product
development and systems for sales 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
that had consisted primarily of product development costs and other expenses.

Cash provided by financing activities was $11,740,000 in 2000, while, in
2001, $7,538,000 in cash was used in financing activities. In 2002, financing
activities provided cash of $9,007,000. In 2002, net borrowings under
line-of-credit agreements totaled $7,325,000 and proceeds from the issuance of
common stock were $1,682,000, primarily through the exercise of stock options
and employee purchases through the employee stock purchase plan. During 2001,
$14,825,000 in cash was used to repay borrowings under line-of-credit
agreements, partially offset by $5,000,000 raised through the issuance of common
stock to Siebel Systems and through employee exercises of stock options. In
2000, $7,000,000 was provided by borrowings under line-of-credit agreements and
$4,820,000 by issuances of common stock, mainly through employee exercises of
stock options.

The Company's accounts receivable balance increased $20,862,000 in 2000.
During 2001, the Company made considerable efforts to collect outstanding
receivables, including hiring additional collections personnel. These actions
and decreased revenues contributed to the decrease of $23,085,000 in net
accounts receivable in 2001. The Company's deferred revenue balance increased
$18,307,000 in 2000 due primarily to the aforementioned $16,975,000 adjustment
recorded in connection with 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: 1) the deferring of revenues in
accordance with AICPA Technical Practices Aids regarding software revenue
recognition, reducing net revenues by $16,975,000 with no corresponding
reduction in accounts receivable; and 2) the timing of sales at the end of 2000,
when approximately $28,000,000 was billed in the last month. In 2002, the
accounts receivables balance decreased $1,296,000 while net revenues increased
$32,744,000 in 2002 over 2001, reflecting the Company's continued focus on
collections.

In May 2000, SPSS revised its loan agreement with Bank One, NA (as
successor by merger to American National Bank and Trust Company of Chicago).
Under this loan agreement, SPSS had an available $20,000,000 unsecured line of
credit with Bank One, under which borrowings bear interest at either the prime
interest rate or the Eurodollar Rate, depending on the circumstances. The
Company's agreement with Bank One required SPSS to comply with certain specified
financial ratios and tests, and, among other things, restricted the Company's
ability to:

- incur additional indebtedness;

- create liens on assets;

- make investments;

25

- 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.

SPSS was not in compliance with certain covenants in the loan agreement at
the end of each 2002 fiscal quarter and received a waiver from Bank One as of
the end of each quarter, and as of December 31, 2002. In connection with these
waivers, SPSS agreed to amend the terms of the Bank One borrowing arrangement to
renew the revolving credit facility for an amount not to exceed $8,500,000. In
addition, SPSS agreed to secure its banks borrowings with both its domestic
accounts receivable and general intangibles and the assets of SPSS U.S. Inc., a
wholly owned subsidiary of SPSS.

As of December 31, 2002, SPSS had $8,500,000 outstanding under its line of
credit with Bank One. On March 31, 2003, however, SPSS entered into a new four
(4) year, $25 million credit facility with Foothill Capital Corporation. The
Foothill facility includes a four (4) year term loan in the amount of
$10,000,000 and a revolving line of credit. The maximum amount SPSS may borrow
under the revolving line of credit portion of the facility will depend upon the
value of SPSS's eligible accounts receivable generated within the United States.
On April 1, 2003, SPSS paid all of its outstanding obligations to Bank One and
terminated the Bank One line of credit. Additionally, the Company has immediate
availability of $2,500,000 under the revolving line of credit.

The terms and conditions of the Foothill credit facility are specified in a
Loan and Security Agreement, dated as of March 31, 2003, by and between Foothill
and SPSS. The term loan portion of the facility bears interest at a rate of 2.5%
above prime, with potential future reductions of up to 0.5% in the interest rate
based upon SPSS's achievement of specified EBITDA targets. One component of the
revolving line of credit will bear interest at a rate of prime plus 3.0%. On the
remainder of the revolving line of credit, SPSS may select interest rates of
either prime plus 0.25% or LIBOR plus 2.5% with respect to each advance made by
Foothill. The term loan of $10,000,000 will be paid down evenly over the four
(4) year period (i.e., $2,500,000 per year over the next four years). As a
result of the refinancing, $6,000,000 of the Company's line of credit borrowings
of $8,500,000 that existed as of December 31, 2002 have been classified as
long-term.

The Foothill facility requires SPSS to meet certain financial covenants
including minimum EBITDA targets and includes additional requirements
concerning, among other things, the Company's ability to incur additional
indebtedness, create liens on assets, make investments, engage in mergers,
acquisitions or consolidations where SPSS is not the surviving entity, sell
assets, engage in certain transactions with affiliates, and amend its
organizational documents or make changes in capital structure.

The facility is secured by all of SPSS's assets located in the United
States.

Showcase Corporation, a Minnesota corporation and wholly owned subsidiary
of SPSS, and NetGenesis Corp., a Delaware corporation and wholly owned
subsidiary of SPSS, have guaranteed the obligations of SPSS under the Loan and
Security Agreement. This guaranty is secured by all of the assets of Showcase
and NetGenesis.

SPSS intends to fund its future capital needs through operating cash flows
and borrowings on our new credit facility. SPSS anticipates that amounts
available from cash and cash equivalents on hand, under its line of credit, and
cash flows generated from operations, will be sufficient to fund the Company's
operations and capital requirements 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.

26

SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

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

INTERNATIONAL OPERATIONS

Significant growth in the Company's international operations also occurred
from 2000 to 2002. Revenues from international operations increased from 43% to
50% of total net revenues between 2000 and 2001, and were approximately 49% of
total net revenues in 2002. Management believes that, excluding acquisition-
related expenses, the overall profitability of the Company's North American 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, excluding acquisition-related expenses. On December 31, 2002,
the Company did not have any option contracts outstanding.

During 2002, offsetting $9,294,000 of SPSS consolidated operating losses
was $30,116,000 of operating income generated outside of the United States. Of
the non-U.S. income, approximately 38% was generated in EURO nations and 12% was
generated in GBP nations. The average exchange rate for the currencies of these
countries increased in value to the dollar from 2001 to 2002 by 5.61% and 4.37%,
respectively. These increases positively impacted SPSS's operating income on a
year-to-year rate comparison by approximately $642,000 for EURO nations and
$500,000 for GBP nations.

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 6, SPSS purchased LexiQuest in January 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, served as a
director of Broadview International, LLC during fiscal year 2002. In 2002, SPSS
paid Broadview a total of $50,000 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 December
2001 merger of SPSS and NetGenesis. This $1,000,000 payment was made on January
18, 2002. As of December 31, 2002, Mr. Goldstein is no longer a director of
Broadview.

Other related party transactions are identified in Item 13, "Certain
Relationships and Related Transactions."

27

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The consolidated financial statements of SPSS 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 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.

28

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 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.

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.

29

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, post contract 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. In 2002, the Company
concurrently sold software to and purchased software from a customer. The
purchased software was to be sold in the ordinary course of business and was
recorded at its carryover basis. The Company recorded revenues of $42,000 in
2002 related to this sale.

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 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.

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 2000, 2001 and
2002, SPSS capitalized $1,229,000, $2,024,000 and $5,541,000, respectively, and
amortized $40,000, $438,000 and $461,000 respectively, of internal-use computer
software.

ACCOUNTS RECEIVABLE

The management of SPSS 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
30

the customer's credit worthiness, as determined by SPSS's review of their
current credit information. SPSS 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 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 reduce 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 $4,288,000 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. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the
Company 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 tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. The Company also
records a corresponding asset that is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
The Company is required to adopt SFAS No. 143 on January 1, 2003. The adoption
of SFAS No. 143 is not expected to have a material effect on the Company's
financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4,44 and 64, Amendment to FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishments of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many

31

companies. SFAS No. 145 also amends SFAS No. 13 to require sale-leaseback
accounting for certain lease modifications that have economic effects similar to
sale-leaseback transactions. The provisions of the Statement related to the
rescission of Statement No. 4 is applied in fiscal years beginning after May 15,
2002. Earlier application of these provisions is encouraged. The provisions of
the Statement related to Statement No. 13 were effective for transactions
occurring after May 15, 2002, with early application encouraged. The adoption of
SFAS No. 145 is not expected to have a material effect on the Company's
financial statements.

In June 2002, the FASB issued 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 (EITF) No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The provisions of this Statement require 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. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The adoption of SFAS No. 146 is not expected to have a material
effect on the Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements 5,57,
and 107 and a rescission of FASB Interpretation No. 34. The Interpretation
elaborates on the disclosure to be made by a guarantor in its interim and annual
financial statements about its obligation under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 15, 2002.

In November 2002, the FASB reached a consensus on EITF Issue 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" (the Issue).
The guidance in this Issue is effective for revenue arrangements entered into
for fiscal years beginning after June 15, 2003. The Issue addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. Specifically, the Issue
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one earnings process and, if it does, how to
divide the arrangement into separate units of accounting consistent with the
identified earnings processes for revenue recognition purposes. The Issue also
addresses how arrangement consideration should be measured and allocated to the
separate units of accounting in the arrangement. The Company is currently
reviewing the impact that EITF 00-21 will have on future results of operations.

In December 2002, the FASB issued SFAS No. 148 (SFAS 148), Accounting for
Stock-based Compensation -- Transition and Disclosure, an Amendment to FASB
Statement No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosure in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 ("The
Interpretation"). Variable interest entities have been commonly referred to as
special-purpose entities (SPEs) or off-balance sheet structures, but the
Interpretation applies to a wider group of entities. In general, a variable
interest entity is a corporation, partnership, trust, or other legal structure
used for business purposes that: (a) either does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. A variable
interest entity often holds financial assets, including loans and receivables,
real estate or other

32

property. A variable interest entity may be passive or it may engage in research
and development or other activities.

This Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The Interpretation
applies immediately to variable interests in variable interest entities created
after January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public companies with a variable interest
in a variable interest entity created before February 1, 2003, the
Interpretation applies to that enterprise no later than the beginning of the
first interim and annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.

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 were officers
of SPSS and under these agreements, SPSS incurred royalty expense to the
partnerships of $252,000 for the year ended December 31, 2000. SPSS incurred no
royalty expense related to these partnerships in 2001 and 2002 and there are no
future payments or other obligations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from fluctuations in interest rates
on borrowings under its borrowing arrangement that bears interest at either the
prime rate or the Eurodollar rate. As of December 31, 2002, the Company had
$8,500,000 outstanding under this borrowing arrangement. A 100 basis point
increase in interest rates would result in an additional $85,000 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 affected by changes in
foreign currency exchange rates. To manage its 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 December 31,
2002, SPSS management expects this would have a material adverse effect on the
Company's financial results. On December 31, 2002, the Company did not have any
option contracts outstanding.

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.

33

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.

34

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, 2001 and 2002, and the results of their
operations, and their cash flows for each of the years in the three-year period
ended December 31, 2002, 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 4 to the consolidated financial statements, effective
January 1, 2002, the Company changed its method of accounting for goodwill and
other intangible assets upon adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets."

/s/ KPMG LLP

Chicago, Illinois
March 28, 2003, except as to Note 12,
which is as of April 1, 2003

35

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial
statements.
37

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial
statements.
38

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.
39

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
40

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 global provider of predictive
analytic computer and software solutions. The Company's offerings use predictive
analytics to connect data to effective action by drawing reliable conclusions
about current conditions and future events. Predictive analytics leverage an
organization's business knowledge by applying sophisticated analytic techniques
to enterprise data. The resulting insights can lead to the development of
programs to increase revenues, reduce costs, improve processes, and prevent
criminal or fraudulent activities.

SPSS reports its revenues in four categories:

- "Analytical solutions" include products and services, sold separately or
in combination, for customer relationship management, data mining, and
web analytics;

- "Statistics" include products and services, sold separately or in
combination, for general purpose statistical analysis;

- "Market Research" includes products and services, sold separately or in
combination, for survey design, implementation, and analysis in the
market research industry; and

- "ShowCase" includes products and services, sold separately or in
combination, for business intelligence solutions for IBM eServer iSeries
(AS/400) customers.

(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 7).

(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.

The policy of SPSS is to record revenue only when these criteria are met:

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

(2) 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.

41

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) 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.

(4) 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

42

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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 certain 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. In 2002, the Company
concurrently sold software to and purchased software from one customer. The
purchased software was to be sold in the ordinary course of business and was
recorded at its carryover basis. The Company recorded revenues of $42,000 in
2002 related to this sale.

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
43

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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. Product enhancement costs are capitalized when technology
feasibility has been established. 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, 2000, 2001 and 2002, SPSS
capitalized $1,229,000, $2,024,000 and $5,541,000, respectively, and amortized
$40,000, $438,000 and $461,000, 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.

44

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Had SPSS recorded net income during 2001 and 2002, 201,038 and 36,666 stock
options would have been included in the calculation of 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 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 maintains one active stock incentive plan that is flexible and
allows various forms of equity incentives to be issued under it. See Note 17 for
additional information regarding this plan. The Company accounts for this plan
under the recognition and measurement principles of Accounting Principles Board
Opinion ("APB") 25, Accounting for Stock Issued to Employees, and related
interpretations. In prior years, the Company has recognized compensation cost
for restricted stock and restricted stock units to employees. No compensation is
recognized for stock option grants to employees. All options granted under the
Company plan had an exercise price equal to the market value of the underlying
common stock on the date of grant. The following table illustrates the effects
on net income (loss) and income (loss) per share if the Company had applied the
fair value recognition provisions of Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation, to stock-based compensation. The following table also
provides the amount of stock-based compensation cost included in net income
(loss) as reported.

45

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 2000, 2001 and 2002, respectively; no expected dividend yield;
expected volatility of 38 percent in 2000, 37 percent in 2001 and 37 percent in
2002; risk-free interest rates of 4.90%-5.65%, 5.39% and 4.64%, respectively,
and expected lives of 4-8 years.

The weighted average fair value of options granted during 2000, 2001 and
2002 was $11.73, $9.60 and $8.10, respectively.

(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. Through December 31, 2001, goodwill was amortized on a
straight-line basis over 10 to 15 years. Accumulated amortization was $3,880,000
as of December 31, 2001 and 2002.

Beginning July 1, 2001, the Company adopted SFAS 141, Business
Combinations. Accordingly, goodwill arising from business combinations completed
prior to July 1, 2001 was amortized through December 31, 2001 and beginning
January 1, 2002, was no longer amortized but will be tested for impairment at
least annually. Goodwill arising from the America Online, Inc. and NetGenesis
Corp. transactions completed subsequent to July 1, 2001 was not amortized but
was tested for impairment in 2002 as part of the Company's adoption of SFAS No.
142.

(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

46

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 statements 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, 2002, 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 $2,623,000, $2,565,000 and $2,605,000 for the years ended
December 31, 2000, 2001 and 2002, respectively.

(S) RECLASSIFICATIONS

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

47

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(T) RECENT ACCOUNTING PRONOUNCEMENTS

In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 requires the
Company 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 tangible long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets. The Company also
records a corresponding asset that is depreciated over the life of the asset.
Subsequent to the initial measurement of the asset retirement obligation, the
obligation will be adjusted at the end of each period to reflect the passage of
time and changes in the estimated future cash flows underlying the obligation.
The Company is required to adopt SFAS No. 143 on January 1, 2003. The adoption
of SFAS No. 143 is not expected to have a material effect on the Company's
financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4,44 and 64, Amendment to FASB Statement No. 13, and Technical Corrections.
SFAS No. 145 amends existing guidance on reporting gains and losses on the
extinguishments of debt to prohibit the classification of the gain or loss as
extraordinary, as the use of such extinguishments have become part of the risk
management strategy of many companies. SFAS No. 145 also amends SFAS No. 13 to
require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. Earlier application of these provisions is
encouraged. The provisions of the Statement related to Statement No. 13 were
effective for transactions occurring after May 15, 2002, with early application
encouraged. The adoption of SFAS No. 145 is not expected to have a material
effect on the Company's financial statements.

In June 2002, the FASB issued 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 (EITF) No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity. The provisions of this Statement require 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. The provisions of this Statement are effective for exit or disposal
activities that are initiated after December 31, 2002, with early application
encouraged. The adoption of SFAS No. 146 is not expected to have a material
effect on the Company's financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements 5,57,
and 107 and a rescission of FASB Interpretation No. 34. The Interpretation
elaborates on the disclosure to be made by a guarantor in its interim and annual
financial statements about its obligation under guarantees issued. The
Interpretation also clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and are not expected to have a material effect on the Company's
financial statements. The disclosure requirements are effective for financial
statements of interim and annual periods ending after December 15, 2002.

In November 2002, the FASB reached a consensus on EITF Issue 00-21,
"Accounting for Revenue Arrangements with Multiple Deliverables" (the Issue).
The guidance in this Issue is effective for revenue arrangements entered into
for fiscal years beginning after June 15, 2003. The Issue addresses certain
aspects of the accounting by a vendor for arrangements under which it will
perform multiple revenue-generating activities. Specifically, the Issue
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one earnings process and, if it does, how to
divide the arrangement into separate units of accounting consistent with the
identified earnings processes for revenue recognition purposes.
48

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Issue also addresses how arrangement consideration should be measured and
allocated to the separate units of accounting in the arrangement. The Company is
currently reviewing the impact that EITF 00-21 will have on future results of
operations.

In December 2002, the FASB issued SFAS No. 148, Accounting for Stock-based
Compensation -- Transition and Disclosure, an Amendment to FASB Statement No.
123. This Statement amends FASB Statement No. 123, Accounting for Stock-based
Compensation, to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosure in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to
these financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51 ("The
Interpretation"). Variable interest entities have been commonly referred to as
special-purpose entities ("SPEs") or off-balance sheet structures, but the
Interpretation applies to a wider group of entities. In general, a variable
interest entity is a corporation, partnership, trust, or other legal structure
used for business purposes that: (a) either does not have equity investors with
voting rights or (b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. A variable
interest entity often holds financial assets, including loans and receivables,
real estate or other property. A variable interest entity may be passive or it
may engage in research and development or other activities.

This Interpretation addresses the consolidation by business enterprises of
variable interest entities as defined in the Interpretation. The Interpretation
applies immediately to variable interests in variable interest entities created
after January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For public companies with a variable interest
in a variable interest entity created before February 1, 2003, the
Interpretation applies to that enterprise no later than the beginning of the
first interim and annual reporting period beginning after June 15, 2003. The
application of this Interpretation is not expected to have a material effect on
the Company's financial statements. The Interpretation requires certain
disclosures in financial statements issued after January 31, 2003 if it is
reasonably possible that the Company will consolidate or disclose information
about variable interest entities when the Interpretation becomes effective.

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 $252,000 for the year ended December 31, 2000. SPSS incurred no
royalty expense related to these partnerships in 2001 and 2002 and there are no
future payments or other obligations.

49

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(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, 2000, 2001 and 2002 included in the
consolidated financial statements are summarized as follows:

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

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

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

Long-lived assets, excluding restricted cash, per geographic region are
summarized as follows:

50

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE

Activity in capitalized software is summarized as follows:

The components of net capitalized software are summarized as follows:

Total software development expenditures, including amounts expensed as
incurred, amounted to approximately $40,498,000, $52,275,000, and $52,870,000
for the years ended December 31, 2000, 2001 and 2002, respectively.

Included in acquired software technology at December 31, 2001 and 2002 is
$892,000 and $446,000, 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.

Included in acquired software technology at December 31, 2001 and 2002 is
$5,141,000 and $1,916,000, respectively, of technology, net of accumulated
amortization resulting from the merger with NetGenesis Corp. and the acquisition
of AOL/DMS technology (see Note 6) and the investment in Illumitek (see Note 7).
The AOL/DMS and Illumitek technologies, net of accumulated amortization, were
written off in 2002. The amounts written off were $1,600,000 and $784,000,
respectively. The technology acquired in the AOL transaction was written off as
it was replaced with SPSS software. Also included in acquired software
technology at December 31, 2002 is $864,000 of technology resulting from the
purchase of LexiQuest and netExs, both of which occurred in 2002 (see Note 6).

(4) GOODWILL AND INTANGIBLE ASSETS

On January 1, 2002, the Company implemented SFAS No. 142, Goodwill and
Other Intangible Assets. Under the provisions of SFAS No. 142, goodwill is no
longer subject to amortization over its estimated useful life, but instead is
subject to at least annual assessments for impairment by applying a fair-value
based test. SFAS No. 142 also requires that an acquired intangible asset be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the asset can be sold, transferred,
licensed, rented or exchanged, regardless of the acquirer's intent to do so.
Based on an analysis of economic characteristics and how the Company operates
its business, the Company concluded it has a single reporting unit. The Company
determined that no transitional impairment loss was required at January 1, 2002.
The

51

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company's policy is to conduct an impairment test under SFAS No. 142 at December
31 of each year or when other impairment indicators are present. As of December
31, 2002, the Company determined that no impairment loss was required.

Intangible asset data are as follows (in thousands):

The following tables present the changes in the carrying amount of goodwill
and other intangibles as of December 31, 2002 and December 31, 2001:

52

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table presents pro forma net income and net income (loss) per
share in all periods presented excluding goodwill amortization expense:

(5) INTANGIBLE ASSETS

Intangible assets consist of the following at December 31:

On January 1, 2002, workforce of $469,000 and customer relationships of
$1,052,000 (intangible asset balance of $2,380,000 less accumulated amortization
of $859,000) was included in goodwill in accordance with SFAS No. 142.

(6) ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

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

53

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.
The second installment, calculated to be 291,828 shares, was issued in October
2002. 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:

In 2002, SPSS recognized revenues related to its strategic alliance with
AOL of approximately $6,200,000. The Company realized expenses related to this
alliance of approximately $7,750,000, including $3,132,000 and $300,000 in
amortization costs for the purchased sample and software, respectively, as well
as computing expenses of approximately $850,000, personnel costs of
approximately $2,680,000, and facilities and other operating expenses of
approximately $788,000. SPSS management believes that, prior to the alliance,
AOL, through its DMS subsidiary, generated approximately $6,000,000 in annual
revenues related to its distribution of survey sample data drawn from AOL
members and users of AOL's other interactive properties.

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 integrated NetGenesis into the Company's predictive
analytic application offerings. The purchase price was

54

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

allocated to the estimated fair value of the assets received and liabilities
assumed based upon a third party valuation and are summarized as follows:

Merger costs of approximately $3,802,000 were recorded as a result of
fourth quarter 2001 acquisitions. These costs include employee severance,
consulting and finder fee expenses and various other expenses (See Note 13).

On January 31, 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 Bank
One NA (as successor by merger to American National Bank and Trust Company of
Chicago) as escrow agent. The parties entered into the separate escrow agreement
to establish an escrow fund of $2,500,000 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. On January
31, 2003, SPSS made a claim in the amount of $1,735,534 against the escrow fund.
SPSS and the LexiQuest shareholder representative are currently in the process
of negotiating this claim. If they are unable to resolve this claim, it will be
resolved pursuant to the dispute resolution procedures set forth in the Stock
Purchase Agreement.

55

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 pro forma impact of this acquisition is not material to the results of
operations during the twelve months ended December 31, 2002. Including this loss
with the Company's results of operations for the year ended December 31, 2001,
would have resulted in pro forma net loss and loss per share of $39,043,000, and
$2.80, respectively.

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: (a) 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; (b) identified tangible personal property
of netExs; (c) identified accounts and accounts receivable; and (d) 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
Microsoft's 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.

The following summary presents information concerning the purchase price
allocation for the netExs acquisition accounted for under the purchase price
method.

The pro forma impact of this acquisition is not material to the results of
operations during the twelve months ended December 31, 2001 and 2002.

56

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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.

(7) INVESTMENT IN CONSOLIDATED SUBSIDIARY

On March 30, 2001, SPSS purchased 50% of the then-issued and outstanding
shares of common stock of Illumitek Inc. for $2,000,000. Subsequent to its
initial investment, SPSS issued Illumitek a note receivable of $3,250,000 due on
December 31, 2004. In the fourth quarter of 2001, SPSS began advancing Illumitek
funds to meet ongoing obligations. Jack Noonan, President and Chief Executive
Officer of SPSS, and Mark Battaglia, the former President, SPSS Business
Intelligence, served as directors of Illumitek until September 30, 2002, the
date on which they resigned as Illumitek directors. Mr. Noonan also served as a
member of the Compensation Committee of the Board of Directors of Illumitek
until September 30, 2002. Following their resignation, Illumitek's shareholders
agreed to terminate the company's operations, wind up its affairs and liquidate.
This decision was finalized by October 28, 2002. As part of the liquidation,
Illumitek agreed to transfer to SPSS Illumitek's nViZn platform, in which SPSS
had been granted a security interest. nViZn is a development platform for
creating or embedding interactive, visual analysis applications that combine the
power of predictive analytics, data visualization, and user interactivity. In
exchange for the assignment of this asset, SPSS released Illumitek of its
obligations under the note receivable, pursuant to an Assignment and Release
Agreement dated October 31, 2002. SPSS acquired the nViZn platform, but did not
record an asset, as its recoverability was uncertain.

In addition, SPSS wrote off the value of its equity investment in Illumitek
over a one and a half year period. Under the equity method of accounting,
followed until September 30, 2001, SPSS recorded a reduction in the value of its
investment to reflect its portion of Illumitek's net loss. Subsequent to
September 30, 2001, the results and accounts of Illumitek were consolidated with
those of SPSS until its liquidation.

(8) 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, 2002:

Rent expense related to operating leases was approximately $8,500,000,
$9,081,000 and $12,821,000 during the years ended December 31, 2000, 2001 and
2002, respectively.

57

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

HYPERION SOLUTIONS

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

The exclusive Essbase/400 distribution rights of SPSS are conditioned upon
payment of minimum royalties of $2,500,000 in 2002 with an increase of twenty
percent each year thereafter. Hyperion Solutions also has the right to buy-back
the distribution rights so long as it gives SPSS twelve 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.

LITIGATION

SPSS Inc. has been named as a defendant in a lawsuit filed on December 6,
2002 in the United States District Court for the Southern District of New York,
under the caption Basu v. SPSS Inc., et al., Case No. 02CV9694. The complaint
alleges that, in connection with the issuance and initial public offering
("IPO") of shares of common stock of NetGenesis Corp., the registration
statement and prospectus filed with the Securities and Exchange Commission in
connection with the IPO contained material misrepresentations and/or omissions.
The alleged violations of the federal securities laws took place prior to the
effective date of the merger in which SPSS's acquisition subsidiary merged with
and into NetGenesis Corp. NetGenesis Corp. is now a wholly owned subsidiary of
SPSS. Other defendants to this action include the former officers and directors
of NetGenesis Corp. and the investment banking firms that acted as underwriters
in connection with the IPO. The plaintiff is seeking unspecified compensatory
damages, prejudgment and post-judgment interest, reasonable attorney fees,
experts' witness fees and other costs and any other relief deemed proper by the
Court. The Company intends to vigorously defend itself against the claims set
forth in the complaint.

SPSS may become a party to various claims and legal actions arising in the
ordinary course of business.

(9) MARKETABLE SECURITIES

The Company invests its excess cash primarily in short and long-term
investments that are classified as available-for-sale marketable securities.

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

In calculating realized gains and losses, cost is determined using specific
identification. SPSS recorded no realized gains in 2000, 2001 or 2002.
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, 2001, unrealized gains, net of tax, on short-term
investments and marketable securities were $165,000. There were no marketable
securities as of December 31, 2002.

58

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) OTHER ASSETS

Other assets consist of the following at December 31,:

Future receipts, reflecting principal and interest under the note
receivable at December 31, 2002, are as follows: $193,000 in 2003; $193,000 in
2004; $193,000 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, which was 3.14% at
December 31, 2002.

A deposit supporting a letter of credit of $1,680,000 was restricted as of
December 31, 2001 and $1,760,000 was restricted as of December 31, 2002 in
connection with the Company's leased facilities in Cambridge, MA. This
restricted investment is classified as a long-term other asset.

(11) OTHER NON-CURRENT LIABILITIES

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%, 18-year
mortgage expiring in January 2010. The annual principal and interest payments
total British Pounds Sterling (GBP) 109,692 (approximately $177,000). The
current portion of this debt is GBP 41,827 (approximately $61,000) and GBP
47,015 (approximately $76,000) and is included in "Other Accrued Liabilities" as
of December 31, 2001 and 2002, respectively. The non-current balance in "Other
non-current liabilities" on the Consolidated Balance Sheets as of December 31,
2001 and 2002 is GBP 509,165 (approximately $728,000) and GBP 484,970
(approximately $781,000).

(12) FINANCING ARRANGEMENTS

In May 2000, SPSS revised its loan agreement with Bank One, NA (as
successor by merger to American National Bank and Trust Company of Chicago).
Under this loan agreement, SPSS had an available $20,000,000 unsecured line of
credit with Bank One, under which borrowings bear interest at either the prime
interest rate or the Eurodollar Rate, depending on the circumstances. The
Company's agreement with Bank One required SPSS to comply with certain specified
financial ratios and tests, and, among other things, restricted 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.

59

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

SPSS was not in compliance with certain covenants in the loan agreement at
the end of each 2002 fiscal quarter and received a waiver from Bank One as of
the end of each quarter, and as of December 31, 2002. In connection with these
waivers, SPSS agreed to amend the terms of the Bank One borrowing arrangement to
renew the revolving credit facility for an amount not to exceed $8,500,000. In
addition, SPSS agreed to secure its bank borrowings with both its domestic
accounts receivable and general intangibles and the assets of SPSS U.S. Inc., a
wholly owned subsidiary of SPSS.

As of December 31, 2002, SPSS had $8,500,000 outstanding under its line of
credit with Bank One. On December 31, 2001, SPSS had $1,175,000 in borrowings
under the line of credit.

On March 31, 2003, SPSS entered into a new four (4) year, $25 million
credit facility with Foothill Capital Corporation. The Foothill facility
includes a four (4) year term loan in the amount of $10,000,000 and a revolving
line of credit. The maximum amount SPSS may borrow under the revolving line of
credit portion of the facility will depend upon the value of SPSS's eligible
accounts receivable generated within the United States. On April 1, 2003, SPSS
paid all of its outstanding obligations to Bank One and terminated the Bank One
line of credit. Additionally, the Company has immediate availability of
$2,500,000 under the revolving line of credit.

The terms and conditions of the Foothill credit facility are specified in a
Loan and Security Agreement, dated as of March 31, 2003, by and between Foothill
and SPSS. The term loan portion of the facility bears interest at a rate of 2.5%
above prime, with potential future reductions of up to 0.5% in the interest rate
based upon SPSS's achievement of specified EBITDA targets. One component of the
revolving line of credit will bear interest at a rate of prime plus 3.0%. On the
remainder of the revolving line of credit, SPSS may select interest rates of
either prime plus 0.25% or LIBOR plus 2.5% with respect to each advance made by
Foothill. The term loan of $10,000,000 will be paid down evenly over the four
(4) year period (i.e., $2,500,000 per year over the next four (4) years). As a
result of the refinancing, $6,000,000 of the Company's line of credit borrowings
of $8,500,000 that existed as of December 31, 2002 have been classified as
long-term.

The Foothill facility requires SPSS to meet certain financial covenants
including minimum EBITDA targets and includes additional requirements
concerning, among other things, the Company's ability to incur additional
indebtedness, create liens on assets, make investments, engage in mergers,
acquisitions or consolidations where SPSS is not the surviving entity, sell
assets, engage in certain transactions with affiliates, and amend its
organizational documents or make changes in capital structure.

The facility is secured by all of SPSS's assets located in the United
States.

Showcase Corporation, a Minnesota corporation and wholly owned subsidiary
of SPSS, and NetGenesis Corp., a Delaware corporation and wholly owned
subsidiary of SPSS, have guaranteed the obligations of SPSS under the Loan and
Security Agreement. This guaranty is secured by all of the assets of Showcase
and NetGenesis.

SPSS intends to fund its future capital needs through operating cash flows
and borrowings on our new credit facility. SPSS anticipates that amounts
available from cash and cash equivalents on hand, under its line of credit, and
cash flows generated from operations, will be sufficient to fund the Company's
operations and capital requirements 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.

60

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Other income (expense) consists of the following:

Special general and administrative charges were $14,739,000 in 2001 and
$9,037,000 in 2002, or 8% and 4% of net revenues in 2001 and 2002, respectively.
Special general and administrative charges in 2001 included $4,200,000 of
charges relating to the write-down of internal use software, $3,500,000 related
to reductions in workforce, $2,000,000 for obsolete software write-offs, and
other costs that did not meet the definition of "merger-related" costs under
established guidelines. Special general and administrative charges in 2002
include costs related to the restructuring of the Company's field operations
implemented in August 2002 and costs related to the NetGenesis, LexiQuest and
netExs transactions, such as severance payments, retention and other bonuses,
related travel expenses, and other costs. Special general and administrative
charges in 2002 included $3,400,000 related to integration costs, $3,300,000
related to reductions in workforce, and $1,300,000 related to costs of vacated
facilities.

SPSS incurred merger-related costs of $10,139,000 in 2001 and $2,260,000 in
2002. Merger-related expenses relate to the Company's acquisitions made during
2001 and 2002 (see Note 6). Expenses in 2001 included $2,500,000 paid for
investment banking and other professional fees, $2,700,000 of
transaction-related bonuses paid to employees, severance costs and costs of
closing excess office facilities and $1,700,000 related to write-offs of
redundant software. Expenses in 2002 included professional fees of $900,000,
severance of $200,000 and other costs of $1,100,000. These expenses were
incurred subsequent to the consummation of the transactions. Certain other costs
incurred prior to the consummation of the transactions were capitalized as part
of the purchases.

(14) INCOME TAXES

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

61

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense (benefit) consists of the following:

For the years ended December 31, 2000, 2001 and 2002, the reconciliation of
the statutory Federal income tax rate of 34% to the Company's effective tax rate
is as follows:

62

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, 2001 and
2002, are presented below:

The valuation allowance increased by $3,366,000 in 2001 and decreased by
$1,693,000 in 2002. 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, 2002, SPSS had a U.S. net operating loss carryforward of
approximately $27,015,000, the majority of which begin to expire in 2021.

As of December 31, 2002, SPSS A/S, a Danish subsidiary, had a net operating
loss carryforward of approximately $876,000, which began to expire in 2001.

63

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2002, SPSS had a Federal research and experimentation
credit carryforward and a foreign tax credit carryforward of approximately
$2,324,000 and $2,577,000, respectively, which begin to expire in 2002 and 2004,
respectively.

(15) 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. SPSS makes a matching contribution of $500 for
employees in the plan the entire year. In 1999, the plan year was changed to
begin on December 31 of each year and end on December 30. SPSS made
contributions of $221,000, $312,000, and $329,000 for 2000, 2001, and 2002,
respectively. These matching contributions were recorded as compensation
expense.

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 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. During 2002, 33,818 shares were issued under the purchase plan
at market prices ranging from $11.57 to $17.54.

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 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 6 employees'
voluntary contributions, or made additional contributions. Employer
contributions to the plan were $216,000 for the year ended December 31, 2000.

(16) 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 $252,000 for the year ended December 31, 2000. SPSS incurred no
royalty expense related to these partnerships in 2001 and 2002 and there are no
future payments or other obligations.

(17) 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

64

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 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.

In 2002, SPSS terminated each of its existing equity incentive plans and
the stockholders of SPSS adopted the 2002 Equity Incentive Plan. This plan
authorizes the Board of Directors to award stock options and variety of other
equity incentives to directors, executive officers, other key executives,
employees and independent contractors of SPSS and any of its subsidiaries. Under
this plan, there are 500,000 shares reserved for issuance upon the exercise of
option rights that qualify as incentive stock options and 1,000,000 shares
reserved for issuance upon the exercise of option rights that qualify as
nonqualified stock options, appreciation rights or as restricted shares and
released from substantial forfeiture thereof.

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. The Company recognized expense of
approximately $88,000, $338,000 and $0 for the fiscal years ended December 31,
2000, 2001 and 2002, respectively, related to stock option grants to
non-employees and restricted stock and restricted stock unit grants to
employees.

Additional information regarding options is as follows:

65

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes information about stock options outstanding
at December 31, 2002:

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.

(18) 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 6, SPSS purchased LexiQuest in January 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, served as a
director of Broadview International, LLC during fiscal year 2002. In 2002, SPSS
paid Broadview a total of $50,000 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 December
2001 merger of SPSS and NetGenesis. This $1,000,000 payment was made on January
18, 2002. As of December 31, 2002, Mr. Goldstein is no longer a director of
Broadview.

On June 20, 2002, SPSS acquired all of the assets of netExs LLC, a
Wisconsin limited liability company. Jonathan Otterstatter, the Executive Vice
President and Chief Technology Officer of SPSS, was a member of the Board of
Managers of netExs. The aggregate purchase price of the netExs assets 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 $1,000,000. The contingent payments, if any, are
capped at a total of $1,450,000 if fully earned. Mr. Otterstatter did not
receive and will not receive any remuneration in connection with the
transaction.

66

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(19) ADDITIONAL FINANCIAL INFORMATION

(20) RESTRUCTURING

During the quarter ended September 30, 2002, the Company implemented a
restructuring plan to reduce the Company's cost structure. The restructuring
resulted in the Company recording $3,700,000 consisting primarily of the layoff
of approximately 145 employees in the sales, marketing and administrative
functions, and approximately $600,000 of lease terminations and other costs
incurred in closing the Miami office. As of December 31, 2002, $227,000 of the
restructuring charge remains in accrued liabilities.

(21) UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following is a summary of the unaudited interim results of operations
for each of the quarters ended in 2001 and 2002.

67

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

68

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 write-down 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.

(e) Includes provision for uncollectibles.

69

SCHEDULE II

SPSS INC.

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

See accompanying independent auditors' report.
70

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 2002.

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 14, 2003 with respect to
each person who is an executive officer or director of SPSS.

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

(1) Member of the Compensation Committee

(2) Member of the Audit Committee

(3) Member of the Nominating 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 in
Political Science at the Graduate School of Business 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. 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.,
Repository Technologies, Inc. and Fortel Inc. Mr. Noonan is a member of the
advisory committee to Geneva Technology Partners, Inc.

71

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 and 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 and 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.

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, Vice President and Chief of Staff, Field Operations, joined
SPSS in 1980. Ms. Phelan previously headed the Company's North American sales
and services organization, in 1998 became Executive Vice President for worldwide
sales of SPSS analytical solutions, and in 2001 was appointed President of the
SPSS CustomerCentric Solutions Division. She assumed her current position in
June 2002. Ms. Phelan received her MBA from the University of Illinois at
Chicago.

Patrick Dauga, Vice President, Field Operations of SPSS, joined SPSS
following the merger with ShowCase Corporation in February 2001. Mr. Dauga
assumed his current position in August 2002, prior to which he served as SPSS's
President, ShowCase Division. 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.

Bernard Goldstein has been a Director of SPSS since 1987. 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 Technology Foundation. Mr. Goldstein was a Director of Apple
Computer Inc. until August 1997, and is currently a Director of Sungard Data
Systems, Inc., Allscripts Healthcare Solutions 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 an
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. (NASDAQ: LINK) and
two privately held software companies: Algorithmics and Business Engine
Software. He is a former Director of Information Technology Association

72

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

William Binch has been a director of SPSS since the merger with ShowCase
Corporation in February 2001. Mr. Binch was a director of ShowCase from 1999
until the merger with SPSS. Currently, Mr. Binch is the chairman and chief
executive officer of SeeCommerce. 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 in February 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, Cysive, a
provider of multi-channel software and services, and two other private
companies.

The SPSS Board of Directors is divided into three classes serving staggered
three-year terms. 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. Mr.
Goldstein, Mr. Binch and Dr. Nie are each serving a three-year term expiring at
the 2005 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.

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 ten percent 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 2002, that its directors, executive officers and
ten percent stockholders complied with all Section 16(a) filing requirements,
with the following exceptions: (i) a late report on Form 3 filed by Brian Zanghi
regarding his initial beneficial ownership of SPSS common stock upon being
elected as an executive officer of SPSS and (ii) a report on Form 4 filed by
Kenneth Holec regarding three sales of shares of SPSS common stock by Mr. Holec
on January 4, 2002, January 8, 2002 and January 9, 2002, respectively, was filed
with the Commission via overnight mail in a timely manner on February 1, 2002;
however, the Form 4 was not stamped "received" by the Commission until February
19, 2002. In making this statement, SPSS has relied
73

upon examination of the copies of Forms 3, 4 and 5 provided to SPSS and the
written representations of its directors, officers and ten percent 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, 2002 (the "named
executive officers") for services rendered to SPSS in all capacities during
2000, 2001 and 2002, (b) information relating to option grants made to the named
executive officers in 2002 and (c) certain information relating to options held
by the named executive officers. SPSS made no grants of freestanding stock
appreciation rights ("SARs") in 2000, 2001 or 2002, nor did SPSS make any awards
in 2000, 2001 or 2002 under any long-term incentive plan.

SUMMARY COMPENSATION TABLE

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

(1) 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.

(2) On December 31, 2002, Mr. Noonan held 3,000 shares of restricted common
stock having a market value, based on the closing price of the common stock
on that date, of $41,970. The restriction on these shares of common stock
lapsed on January 1, 2003.

(3) Securities Underlying Options/SARs for Mr. Noonan in fiscal year 2001
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) On December 31, 2002, Dr. Hamburg held 3,000 shares of restricted common
stock having a market value, based on the closing price of the common stock
on that date, of $41,970. The restriction on these shares of common stock
lapsed on January 1, 2003.

74

(5) On December 31, 2001, Dr. 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 $397,258, which were granted to replace 30,700 of stock
options granted in 1991 and expired in 2001.

(6) During 2002, SPSS forgave Mr. Zanghi's obligation to make interest payments
in the aggregate amount of $7,000 owed with respect to Mr. Zanghi's
indebtedness to NetGenesis Corp. and assumed by SPSS following the merger
of the two Companies. See Item 12 under the section entitled "Transactions
with Brian Zanghi." Mr. Zanghi received a $65,000 sign-on bonus.

(7) Salary and Bonus Compensation for Mr. Zanghi in fiscal year 2001 reflect
amounts paid to Mr. Zanghi by NetGenesis Corp. before the effective date of
the merger of SPSS and NetGenesis in December 2001.

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

(9) 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.

(10) Salary Compensation for Mr. Otterstatter in fiscal year 2001 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.

(11) Base Compensation and Bonus Compensation for Mr. Dauga in fiscal year 2002
was earned pursuant to the Service Agreement between SPSS and Mr. Dauga, as
more particularly described under the section entitled "Service Agreement
with Patrick Dauga."

(12) During 2002, Mr. Dauga received compensation in the amount of $150,000 for
personal relocation expenses in connection with move from France to the
United States. This payment was made pursuant to the Service Agreement
between SPSS and Mr. Dauga. In addition, additional funds were paid to Mr.
Dauga for deposit into his individual retirement account. This $25,000 sum
is not provided in the Service Agreement between SPSS and Mr. Dauga, but is
deemed by SPSS as compensation to Mr. Dauga.

(13) Salary Compensation for Mr. Dauga in fiscal year 2001, earned pursuant to
the Service Agreement between SPSS and Mr. Dauga, reflects $216,000 in base
salary received from SPSS after the merger of SPSS and ShowCase in February
2001.

(14) Bonus Compensation for Mr. Dauga in fiscal year 2001 was earned pursuant to
the Service Agreement between SPSS and Mr. Dauga.

(15) During 2001, funds were paid to Mr. Dauga for deposit into his individual
retirement account. This $25,000 is not provided in the Service Agreement
between SPSS and Mr. Dauga, but is deemed by SPSS as compensation to Mr.
Dauga.

75

The following table shows the number of options to purchase common stock
granted to each of the named executive officers during 2002.

2002 OPTION/STOCK APPRECIATION RIGHTS GRANTS(1)

- ---------------
(1) Except as specified in the immediately following sentence, the options that
expire on January 1, 2012 were granted as of January 2, 2002, and had a
four-year vesting schedule. The grant of an option to purchase 25,000 shares
of common stock of SPSS to Brian Zanghi that expires on January 1, 2012 was
granted as of January 2, 2002, and had a seven-year cliff-vesting provision.
The grant of an option to purchase 20,000 shares of common stock of SPSS to
Patrick Dauga that expires on December 17, 2012 was granted as of December
18, 2002, and had a four-year vesting schedule. 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.

76

AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN 2002 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 $13.99, the closing price of the common
stock on the Nasdaq National Market on December 31, 2002, and the exercise
price for that option.

(3) 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.

COMPENSATION OF DIRECTORS

For the year ended December 31, 2002, non-employee directors of SPSS were
entitled to receive 17,500 options. Each director was also reimbursed by SPSS
for reasonable expenses incurred in connection with services provided as a
director.

During 2002, three of the non-employee directors of SPSS received
additional compensation as follows: Norman Nie received compensation in the
amount of $80,800 for consultant work on a part-time basis. William Binch
received a monthly consulting fee of $3,000 for consulting work on a part-time
basis. Kenneth Holec was entitled to receive the following fees for consulting
work on a part-time basis: (a) $2,000 per month from January 2002 to June 2002
for consulting work with respect to the ShowCase business unit and (b) $1,000
from July 2002 to December 2002 as a retainer for related consulting work.

EMPLOYMENT AGREEMENT WITH JACK NOONAN

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, $310,000 in 2001 and $345,000 in 2002. If SPSS
terminates Mr. Noonan's employment without cause, SPSS must pay Mr. Noonan an
amount equal to fifty percent of Mr. Noonan's annual base salary in effect at
the time of termination. This amount is payable in twelve 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, Mr. Dauga, through a service agreement described in "Service Agreement
with Patrick Dauga" below, and Mr. Durrell, through a management services
agreement described in "Management Services Agreement with Valletta Investments
Limited" below, are employed

77

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.

SERVICE AGREEMENT WITH PATRICK DAUGA

In connection with the merger of SPSS and ShowCase Corporation in February
2001, SPSS assumed the service agreement entered into by ShowCase and Patrick
Dauga on March 17, 1998. On June 1, 2002, SPSS entered into an amendment and
modification agreement with Mr. Dauga to amend the terms of the service
agreement, effective as of January 1, 2002. The service agreement provides Mr.
Dauga with a base salary of $18,000 per month with similar benefits provided to
other employees of SPSS. In addition, Mr. Dauga is entitled to receive a
commission and bonus upon meeting various targets established annually by SPSS.
The commission and bonus plan for 2002 allowed Mr. Dauga to earn an additional
$150,000 with revenue and expense targets to be agreed upon separately. SPSS may
terminate the service agreement at any time, with an obligation to make
severance payments (including base salary, targeted commissions and bonus and
fringe benefits) to Mr. Dauga for nine to twelve months thereafter. SPSS must
provide Mr. Dauga with twelve months written notice that it is terminating this
agreement as a result of the sale of SPSS or the termination of Mr. Dauga's
position with the Company. If Mr. Dauga is not offered a substantially similar
position with the acquiring company or a substantially equivalent position by
SPSS, SPSS will be obligated to make severance payments to Mr. Dauga for twelve
months. The employment agreement requires Mr. Dauga to refrain from disclosing
confidential information of SPSS and to abstain from competing with SPSS during
his employment.

MANAGEMENT SERVICES AGREEMENT WITH VALLETTA INVESTMENTS LIMITED

SPSS has entered into a management services agreement with Valletta
Investments Limited, a consulting company controlled by Mr. Durrell, which
requires that Ian Durrell's services are provided to SPSS. Either Valletta or
SPSS may terminate the agreement at any time upon thirty days' written notice.
If SPSS terminates the agreement under the 30-day notice provision without
cause, Valletta is entitled to termination payments equal to fifty percent 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 2002, Valletta's
aggregate compensation, including bonus, was $307,000. 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.

CONSULTING AGREEMENTS

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.

SPSS has entered into a consulting arrangement with William Binch whereby
Mr. Binch receives a monthly consulting fee of $3,000 for consulting work
performed on a part-time basis.

78

SPSS has entered into a consulting arrangement with Kenneth Holec whereby
Mr. Holec receives fees for consulting work performed on a part-time basis.
During 2002, Mr. Holec was entitled to receive: (a) consulting fees in the
amount of $2,000 per month from January 2002 to June 2002 for consulting work
with respect to the ShowCase business unit and (b) consulting fees of $1,000
from July 2002 to December 2002 as a retainer for related consulting work.

CHANGE OF CONTROL AGREEMENTS

On November 27, 2000, SPSS entered into revised change of control
agreements with Jack Noonan, Edward Hamburg and Susan Phelan. 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.

As more fully described above under the section entitled "Employment
Agreement with Jack Noonan," if SPSS terminates Mr. Noonan's employment without
cause and Mr. Noonan does not find other employment at a comparable salary, SPSS
must pay Mr. Noonan an amount equal to fifty percent of Mr. Noonan's annual base
salary in effect at the time of termination. As more fully described above under
the section entitled "Service Agreement with Patrick Dauga," if SPSS does not
provide Mr. Dauga proper notice of termination of the service agreement as a
result of either the sale of SPSS or the assets pertaining to the ShowCase
division or the termination of Mr. Dauga's position with SPSS and Mr. Dauga is
not offered a substantially equivalent position with the acquiring company or
SPSS, SPSS must make severance payments to Mr. Dauga for twelve months.

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.
William Binch received a monthly consulting fee in the amount of $3,000 for
consulting work performed on a part-time basis, as more particularly described
under the section entitled "Certain Relationships and Related Transactions."

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 and other equity-based compensation as
well as other benefit programs. In 2002, 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 that places a substantial portion of each officer's
potential compensation at

79

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 that 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 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
80

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 that 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 2002, Mr. Noonan received approximately 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 70,000
shares of common stock at $19.09 per share effective January 2, 2002. These
options vested ratably over a four-year vesting schedule, beginning at the
conclusion of the first month following the grant date. These options were
granted with the same vesting schedule applied to options granted to other
senior executive officers who had been employed by SPSS for more than one year,
which vesting schedule was deemed appropriate by the Compensation Committee. 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

EQUITY INCENTIVE PLAN

Pursuant to the SPSS Inc. 2002 Equity Incentive Plan (the "2002 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 stockholders of SPSS
approved the 2002 Plan at SPSS's 2002 Annual Stockholders' Meeting. The Board is
authorized to delegate to the Compensation Committee the administration of the
2002 Plan. The purpose of the 2002 Plan 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's business success.

81

The maximum number of shares of SPSS common stock that may be issued or
transferred to such persons under the 2002 Plan may not exceed 1,500,000. Of
this total, (a) the number of shares of common stock that may be issued under
the 2002 Plan upon the exercise of option rights that qualify as incentive stock
options may not exceed a maximum of 500,000 and (b) the number of shares of
common stock that may be issued under the 2002 Plan upon the exercise of option
rights that qualify as nonqualified stock options, appreciation rights or as
restricted shares and released from substantial risks of forfeiture thereof, may
not exceed a maximum of 1,000,000. 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.

SPSS's Board of Directors may amend, change or modify the 2002 Plan as the
Board deems advisable, including an increase in the number of shares reserved
for issuance pursuant to the exercise of nonqualified stock options under the
2002 Plan. However, stockholder approval is required to increase the number of
shares reserved for issuance pursuant to the exercise of incentive stock options
under the 2002 Plan.

PERFORMANCE GRAPH

The following graph shows the changes in $100 invested since December 31,
1997, 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)

82

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table shows, as of March 14, 2003, the number and percentage
of shares of common stock beneficially owned by:

- each person known by SPSS to own beneficially more than five percent 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 one percent of
the Common Stock.

(1) Includes 67,098 shares through options exercisable within 60 days; 86,933
shares held of record by the Norman and Carol Nie Foundation, Inc.; and
823,644 shares held by the Nie Trust. Dr. Nie shares voting and investment
power over the 86,933 shares held by the Nie Foundation with Carol Nie.

(2) Brown Capital Management, Inc. is the beneficial owner of 2,237,425 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 11, 2003.

(3) T. Rowe Price Associates, Inc. is the beneficial owner of 1,772,012 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 10, 2003.

(4) Daruma Asset Management, Inc. is the beneficial owner of 1,413,700 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 February 14, 2003.

83

(5) Includes 475,886 shares through options exercisable within 60 days.

(6) Includes 57,098 shares through options exercisable within 60 days.

(7) Includes 195,007 shares through options exercisable within 60 days.

(8) Includes 50,215 shares through options exercisable within 60 days.

(9) Includes 207,989 shares through options exercisable within 60 days.

(10) Mr. Durrell is the beneficial owner of these shares, which consist solely
of 153,658 shares through options exercisable within 60 days held of record
by Valletta.

(11) Includes 83,168 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; 34,285 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 64,928 shares through options exercisable within 60 days.

(13) Includes 57,098 shares through options exercisable within 60 days.

(14) Includes 52,098 shares through options exercisable within 60 days.

(15) Includes 30,217 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 305,455 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. Dr. Haque disclaims beneficial ownership of the shares owned
by Norwest Equity Partners IV, L.P. and Norwest Equity Partners V, L.P.

(16) Includes 30,217 shares through options exercisable within 60 days.

(17) Includes 77,657 options exercisable within 60 days and 3,500 shares
registered in the name of each of Mr. Holec's three minor children.

(18) Includes 1,602,334 shares through options exercisable within 60 days.

(19) The business address of each of Dr. Nie, Mr. Noonan, Dr. Hamburg, Mr.
Zanghi, Ms. Phelan, Mr. Durrell, Mr. Otterstatter, Mr. Dauga, 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
Goldstein & Foley, 28-23 Steinway St., Long Island City, New York 11103.
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 Dr. 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 80 West
40th Street, 9th Floor, New York, New York 10018. The business address for
Brown Capital Management, Inc. is 1201 N. Calvert Street, Baltimore,
Maryland 21202.

84

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

SPSS has one equity based compensation plan, the SPSS Inc. 2002 Equity
Incentive Plan (the "2002 Plan"). The following table sets forth information as
of December 31, 2002 concerning the 2002 Plan, which was approved by the
stockholders at the 2002 Annual Meeting of Stockholders. SPSS does not have any
equity compensation plans under which shares of its common stock are authorized
for issuance that were not approved by stockholders.

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

(1) Pursuant to the terms of the 2002 Plan, SPSS's Board of Directors may amend
the 2002 Plan as the Board deems advisable, including an increase in the
number of shares reserved for issuance pursuant to the exercise of
nonqualified stock options under the 2002 Plan. On December 18, 2002, the
Board amended the 2002 Plan by increasing the number of shares of SPSS
common stock that may be issued under the 2002 Plan upon the exercise of
option rights that qualify as nonqualified stock options from 500,000 to
1,000,000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH NORMAN NIE

Norman Nie, the Chairman of the Board of Directors of SPSS, received
$80,800 for consulting work on a part-time basis through Nie Consulting.

TRANSACTIONS WITH WILLIAM BINCH

William Binch, a member of the Board of Directors of SPSS and a member of
the Audit Committee of the Board, received a monthly consulting fee of $3,000
for consulting work on a part-time basis.

TRANSACTIONS WITH KENNETH HOLEC

Kenneth Holec, a member of the Board of Directors of SPSS and a member of
the Audit Committee of the Board was entitled to receive the following
consulting fees for consulting work on a part-time basis: (a) consulting fees of
$2,000 per month from January 2002 to June 2002 for consulting work with respect
to the ShowCase business unit and (b) consulting fees of $1,000 from July 2002
to December 2002 as a retainer for related consulting work.

TRANSACTIONS WITH ILLUMITEK, INC.

On March 30, 2001, SPSS purchased fifty percent of the then issued and
outstanding shares of common stock of Illumitek Inc. for $2,000,000. Subsequent
to its initial investment, SPSS issued Illumitek a note receivable of $3,250,000
due on December 31, 2004. In the fourth quarter of 2001, SPSS began advancing
Illumitek funds to meet ongoing obligations. Jack Noonan, President and Chief
Executive Officer of SPSS, and Mark Battaglia, the former President, SPSS
Business Intelligence, served as directors of Illumitek until September 30,
2002, the date on which they resigned as Illumitek directors. Mr. Noonan also
served as a

85

member of the Compensation Committee of the Board of Directors of Illumitek
until September 30, 2002. Following their resignations, Illumitek's shareholders
agreed to terminate the company's operations and liquidate. This decision was
finalized on October 28, 2002. As part of the liquidation, Illumitek agreed to
transfer to SPSS the nViZn platform of Illumitek, in which SPSS had been granted
a security interest. nViZn is a development platform for creating or embedding
interactive, visual analysis applications that combine the power of predictive
analytics, data visualization, and user interactivity. In exchange for the
assignment of this asset, SPSS released Illumitek of its obligations under the
note receivable, pursuant to an Assignment and Release Agreement dated October
31, 2002. SPSS acquired the nViZn platform, but did not record an asset, as its
recoverability was uncertain.

In addition SPSS wrote off the value of its equity investment in Illumitek
over a one-and-a-half year period. Under the equity method of accounting,
followed until September 30, 2001, SPSS recorded a reduction in the value of its
investment to reflect its portion of Illumitek's net loss. Subsequent to
September 30, 2001, the results and accounts of Illumitek were consolidated with
those of SPSS until its liquidation.

TRANSACTIONS WITH LEXIQUEST, S.A.

On January 31, 2002, SPSS acquired all of the issued and outstanding shares
of stock of LexiQuest, S.A., a corporation organized under the laws of France,
pursuant to a Stock Purchase Agreement between SPSS, LexiQuest and the
shareholders of LexiQuest. Norman Nie, the Chairman of the board of directors of
SPSS, was both a shareholder of and the Chairman of the Board of Directors of
LexiQuest. 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 payments, if any, are capped at a total of
$1,500,000, if fully earned. In exchange for his shares of stock of LexiQuest,
Dr. Nie is entitled to receive a portion of the distribution, if any, to be made
from the escrow fund currently maintained pursuant to the Escrow Agreement
between SPSS, Oak Investment Partners and Bank One, N.A. (f/k/a American
National Bank and Trust Company of Chicago). This escrow fund will be
distributed, if at all, among the former LexiQuest shareholders, in accordance
with their former proportionate ownership of LexiQuest stock. No distributions
were made from the escrow fund during 2002 because the portion of the escrow
fund, if any, to which SPSS is entitled as an indemnification payment under the
Stock Purchase Agreement is currently in dispute. Of the undisputed portion of
the escrow fund, Mr. Nie is entitled to receive a distribution in the
approximate amount of $2,213. In addition, Mr. Nie may be entitled to receive a
distribution of approximately 0.534% of the disputed portion of the escrow fund.

TRANSACTIONS WITH NETEXS LLC

On June 20, 2002, SPSS acquired all of the assets of netExs LLC, a
Wisconsin limited liability company. Jonathan Otterstatter, the Executive Vice
President and Chief Technology Officer of SPSS, was a member of the Board of
Managers of netExs. The aggregate purchase price of the netExs assets 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 $1,000,000. The contingent payments, if any, are
capped at a total of $1,450,000 if fully earned. Mr. Otterstatter did not
receive and will not receive any remuneration in connection with the
transaction.

TRANSACTIONS WITH BRIAN ZANGHI

Brian Zanghi joined SPSS as its Executive Vice President and Chief
Operating Officer following the merger of SPSS and NetGenesis Corp. in December
2001. At the time of the merger, Mr. Zanghi had an outstanding indebtedness owed
to NetGenesis in the amount of $100,000 which had been previously approved by
the NetGenesis board of directors. SPSS became the payee with respect to this
$100,000 indebtedness in connection with the merger. SPSS agreed that this
principal amount would be paid to SPSS with an interest rate equal to the prime
rate on the first day of each fiscal year. SPSS also agreed (a) to forgive all
interest payments owed by Mr. Zanghi at the end of each year, (b) to require Mr.
Zanghi to pay all taxes owed on the
86

forgiveness of these interest payments at the end of each year and (c) to allow
Mr. Zanghi to repay the indebtedness through the allocation toward this debt of
35% of the net bonus payments made to Mr. Zanghi by SPSS. Although no amount of
the bonus compensation earned by Mr. Zanghi during 2002 was allocated toward the
repayment of the indebtedness, as of March 31, 2003, Mr. Zanghi has paid to SPSS
all amounts owed since the date of the merger. As of March 31, 2003, the
outstanding principal balance on the loan was $86,000. Neither this indebtedness
nor the method of repayment has been amended or modified since June 2002.

TRANSACTIONS WITH BROADVIEW INTERNATIONAL, LLC

Bernard Goldstein, a member of the Board of Directors of SPSS, served as a
director of Broadview International, LLC during fiscal year 2002. In 2002, SPSS
paid Broadview a total of $50,000 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 December 2001 merger of
SPSS and NetGenesis. This $1,000,000 payment was made on January 18, 2002. As of
December 31, 2002, Mr. Goldstein is no longer a director of Broadview.

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.

ITEM 14. CONTROLS AND PROCEDURES.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

SPSS maintains disclosure controls and procedures, which have been designed
to ensure that information related to SPSS is recorded, processed, summarized
and reported by SPSS on a timely basis. In response to recent legislation and
regulations, SPSS has reviewed its internal control structure and these
disclosure controls and procedures. Although SPSS believes that its pre-existing
disclosure controls and procedures were adequate to enable it to comply with its
disclosure obligations, as a result of this review, SPSS has implemented minor
changes. These changes include (a) the formalization and documentation of SPSS's
pre-existing disclosure controls and procedures and (b) the establishment of a
compliance committee.

87

The compliance committee is responsible for accumulating potentially
material information regarding SPSS and considering the materiality of this
information. The compliance committee (or a subcommittee) is also responsible
for making recommendations regarding disclosure and communicating this
information to the Company's chief executive officer and chief financial officer
to allow timely decisions regarding required disclosure. The SPSS compliance
committee is comprised of the Company's senior legal official, principal
accounting officer, chief investor relations officer, principal risk management
officer, and certain other members of the SPSS senior management.

After the formation of the compliance committee and within 90 days prior to
the filing of this report, SPSS's Chief Executive Officer, Jack Noonan, and
Chief Financial Officer, Edward Hamburg, with the participation of the
compliance committee, carried out an evaluation of the effectiveness of the
design and operation of SPSS's disclosure controls and procedures. Based upon
this evaluation, Mr. Noonan and Mr. Hamburg concluded that the disclosure
controls and procedures of SPSS are effective in causing material information to
be recorded, processed, summarized, and reported by management of SPSS on a
timely basis and ensuring that the quality and timeliness of public disclosures
by SPSS comply with its disclosure obligations under the Securities Exchange Act
of 1934.

CHANGES IN INTERNAL CONTROLS

There were no significant changes in the internal controls of SPSS or in
other factors that could significantly affect these internal controls after the
date of the most recent evaluation.

PART IV

ITEM 15. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K

(a)(1) Consolidated Financial statements commence on page 35:

Independent Auditors' Report

Consolidated Balance Sheets as of December 31, 2001 and 2002

Consolidated Statements of Operations for the years ended December 31,
2000, 2001 and 2002

Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 2000, 2001 and 2002

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2000, 2001 and 2002

Consolidated Statements of Cash Flows for the years ended December 31,
2000, 2001 and 2002

Notes to Consolidated Financial Statements

(2) Consolidated Financial Statement Schedule -- see page 70:

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.

88

(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)

91

(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 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)

(34) Previously filed with the Form S-8 Registration Statement of SPSS Inc.
filed on June 18, 2002. (File No. 333-90694)

(35) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended June 30, 2000. (File No. 000-22194)

(36) Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
quarterly period ended September 30, 2002. (File No. 000-22194).

(b) Reports on Form 8-K

SPSS did not file any reports on Form 8-K during the fourth quarter of
fiscal year 2002.

92

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 31, 2003.

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 31, 2003.

93

CERTIFICATION

I, Jack Noonan, certify that:

1. I have reviewed this annual report on Form 10-K of SPSS Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ JACK NOONAN
------------------------------------
Jack Noonan
President and Chief Executive
Officer

Date: March 31, 2003

94

CERTIFICATION

I, Edward Hamburg, certify that:

1. I have reviewed this annual report on Form 10-K of SPSS Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ EDWARD HAMBURG
------------------------------------
Edward Hamburg
Executive Vice-President, Corporate
Operations and Chief Financial
Officer

Date: March 31, 2003

95

EXHIBIT INDEX