SPSS INC - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004

COMMISSION FILE NUMBER: 33-64732

SPSS INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2815480
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

233 S. WACKER DRIVE, CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (312) 651-3000

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO
BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES NO X

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). YES X NO

AS OF JULY 1, 2004, THERE WERE 17,571,517 SHARES OF COMMON STOCK
OUTSTANDING, PAR VALUE $.01, OF THE REGISTRANT.

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SPSS INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2004

INDEX

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SPSS INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS)

December 31, March 31,
2003 2004
----------- ----------
ASSETS (unaudited)

Current assets
Cash and cash equivalents $ 36,101 $ 41,531
Accounts receivable, net 49,317 41,521
Inventories 1,444 1,078
Deferred income taxes 14,023 11,608
Prepaid income taxes 3,996 8,873
Other current assets 7,931 7,621
--------- ---------
Total current assets 112,812 112,232
Property, equipment and leasehold improvements, net 27,771 26,241
Restricted cash 190 190
Capitalized software development costs, net 26,826 27,494
Goodwill 44,020 44,020
Intangibles, net of accumulated amortization 3,380 3,224
Noncurrent deferred income taxes 11,375 12,013
Other noncurrent assets 2,633 2,393
--------- ---------
Total assets $ 229,007 $ 227,807
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 2,500 $ 2,500
Accounts payable 7,169 7,258
Income taxes payable 2,863 2,060
Deferred revenues 59,379 57,707
Other current liabilities 24,600 21,898
--------- ---------
Total current liabilities 96,511 91,423
Noncurrent notes payable 5,951 5,300
Noncurrent deferred income taxes 632 632
Other noncurrent liabilities 853 798
Common stock subject to repurchase 5,421 5,421

Stockholders' equity
Common Stock, $.01 par value; 50,000,000 shares authorized;
17,257,871 and 17,823,917 shares issued and outstanding
in 2003 and 2004, respectively 173 178
Additional paid-in capital 148,202 150,050
Deferred Compensation (385) (325)
Accumulated other comprehensive loss (6,576) (5,999)
Accumulated deficit (21,775) (19,671)
--------- ---------
Total stockholders' equity 119,639 124,233
--------- ---------
Total liabilities and stockholders' equity $ 229,007 $ 227,807
========= =========

SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)

See accompanying notes to consolidated financial statements.

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SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements reflect
all adjustments which, in the opinion of the Company's management, are necessary
for a fair presentation of the results of the interim periods shown. All such
adjustments are of a normal recurring nature. These consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements of SPSS and notes thereto for the year ended December 31, 2003,
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.

NOTE 2 - RECLASSIFICATIONS

Certain revenues, expenses and balances of prior periods have been
reclassified to conform to the current presentation.

NOTE 3 - STOCK OPTION PLANS

The Company maintains one stock incentive plan that is flexible and allows
various forms of equity incentives to be issued under it. The Company accounts
for this plan using the intrinsic value method under the recognition and
measurement principles of Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. 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 stock incentive plan
had an exercise price equal to the market value of the underlying common stock
on the date of grant. The following table illustrates the effects on net income
(loss) and income (loss) per share if the Company had applied the fair value
recognition provisions of Financial Accounting Standards Board (FASB) Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," to stock-based compensation.

NOTE 4 - DOMESTIC AND FOREIGN OPERATIONS

Net revenues per geographic region are summarized as follows:

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NOTE 5 - EARNINGS PER COMMON SHARE

Earnings per common share (EPS) are computed by dividing net income by the
weighted average number of shares of common stock (basic) plus common stock
equivalents outstanding (diluted) during the period. Common stock equivalents
consist of contingently issuable shares and stock options, which have been
included in the calculation of weighted average shares outstanding using the
treasury stock method. Basic weighted average shares reconciles to diluted
weighted average shares as follows:

In 2003, potentially dilutive securities excluded from the earnings
per share calculation due to the Company's net loss position consisted of stock
options. Such options totaled 144,000 for the three months ended March 31, 2003.

NOTE 6 - SUBSEQUENT EVENTS

Under the terms of the November 4, 2003 Stock Purchase Agreement with
Data Distilleries, the Company was obligated to file a Registration Statement on
Form S-3 to register the potential resale of the 281,830 shares issued to Data
Distilleries shareholders in April 2004. Because the Company's 2003 10-K was not
timely filed, SPSS became ineligible to use Form S-3 and was not able to
register the shares by the required April 2004 filing date. The Company
fulfilled its obligation under the Stock Purchase Agreement by repurchasing from
each former Data Distilleries shareholder the number of shares of SPSS common
stock received by such shareholder in connection with this transaction. During
April 2004, SPSS notified the former shareholders of the Company's inability to
properly register these shares and through June 30, 2004, the Company has
repurchased 281,830 shares at a cost of $5.4 million.

On April 1, 2004, SPSS received a Nasdaq Staff Determination relating to
the Company's failure to file its Annual Report on Form 10-K for fiscal year
2003 with the SEC on or before the March 30, 2004 filing deadline. On June 7,
2004, SPSS received an additional notice from the Nasdaq indicating its failure
to file its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2004 with the SEC on or before the May 10, 2004 filing deadline. These notices
informed the Company that it had failed to comply with the filing requirements
for continued listing set forth in Marketplace Rule 4310(c)(14), and that its
common stock is, therefore, subject to delisting from the Nasdaq National
Market. Since the date of these notices, the Company has received correspondence
from the Nasdaq granting SPSS extensions of time to file its periodic reports.
On July 28, 2004, the Company was informed by Nasdaq that its securities will be
delisted effective at the open of business on August 2, 2004. Because SPSS has
filed its required financial statements prior to that date, SPSS has asked
Nasdaq to reconsider and rescind the order directing the delisting of the
Company's common stock.

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The Company has been named as a defendant in a lawsuit filed on or about May
14, 2004 in the United States District Court for the Northern District of
Illinois, under the caption Fred Davis, Individually and On Behalf of All Others
Similarly Situated v. SPSS Inc., Jack Noonan and Edward Hamburg, Case No.
04C3427. The complaint alleges that the defendants violated Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder. The complaint alleges that the defendants failed to disclose and
misrepresented a series of material adverse facts regarding the Company's
revenues. The complaint seeks to recover unspecified compensatory damages,
reasonable attorney fees, experts' witness fees and other costs and any other
relief deemed proper by the court on behalf of all purchasers of the Company's
securities between May 2, 2001 and March 30, 2004, although no court has
determined that such persons constitute a proper class. Neither SPSS nor the
individual defendants have responded to the complaint as of the date of this
filing. SPSS and the other defendants believe that the suit is without merit and
intend to defend vigorously against the allegations contained in the complaint.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES EXCHANGE ACT OF 1933 AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, INCLUDING WITHOUT LIMITATION,
STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS, BELIEFS, INTENTIONS OR FUTURE
STRATEGIES THAT ARE SIGNIFIED BY THE WORDS "EXPECTS," "ANTICIPATES," "INTENDS,"
"BELIEVES," "ESTIMATES" OR SIMILAR LANGUAGE. ALL FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS DOCUMENT ARE BASED ON INFORMATION AVAILABLE TO SPSS ON THE DATE
HEREOF. SPSS CAUTIONS INVESTORS THAT ITS BUSINESS AND FINANCIAL PERFORMANCE AND
THE MATTERS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
SUBSTANTIAL RISKS AND UNCERTAINTIES. BECAUSE OF THESE RIGHTS AND UNCERTAINTIES,
SOME OF WHICH MAY NOT BE CURRENTLY ASCERTAINABLE AND MANY OF WHICH ARE BEYOND
THE COMPANY'S CONTROL, ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS. DEVIATIONS BETWEEN ACTUAL AND
FUTURE EVENTS AND THE COMPANY'S ESTIMATES AND ASSUMPTIONS COULD LEAD TO RESULTS
THAT ARE MATERIALLY DIFFERENT FROM THOSE EXPRESSED IN OR IMPLIED BY THE
FORWARD-LOOKING STATEMENTS. SPSS DOES NOT INTEND TO UPDATE THESE FORWARD-LOOKING
STATEMENTS TO REFLECT ACTUAL FUTURE EVENTS.

THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES, WHICH APPEAR ELSEWHERE IN THIS
QUARTERLY REPORT ON FORM 10-Q.

COMPARISON OF THREE MONTHS ENDED MARCH 31, 2003 TO THREE MONTHS ENDED MARCH 31,
2004.

The Company has restated its financial statements for fiscal years 2001 and
2002, including the corresponding interim periods for 2001 and 2002, and the
interim periods ended March, June and September 2003. Please refer to the
Company's annual report on Form 10-K for the year ended December 31, 2003 for
additional information. The results for the three months ended March 31, 2003
set forth in this section reflect the restated numbers.

TOTAL NET REVENUES.

Total net revenues increased by $9.0 million from the first quarter of
2003 primarily due to increases in new license fees, maintenance revenues, and
changes in currency exchange rates. This increase was partially offset by the
divestiture of the Company's Sigma-series products in December 2003 and a drop
in revenues from consulting services. Noticeable increases in revenues occurred
in the United Kingdom and Japan at the end of their governmental fiscal years,
as well as in France and Germany. In the United States, new sales to agencies of
the federal government were up considerably while revenues from academic
customers were flat and sales to state and local government organizations were
down compared to the same period in 2003. Total net revenues were positively
affected by revenues with acquisitions and changes in currency exchange rates of
approximately $1.6 million and $5.0 million, respectively, and negatively
affected by the divestiture and changes in deferred revenues of approximately
$1.6 million and $1.1 million, respectively.

LICENSE FEES.

License fee revenues increased $3.4 million from the first three months of
2003. This increase was driven by sales of SPSS data mining and desktop
statistical analysis tools, new revenues from licenses of SPSS applications for
market research, sales of predictive analytic applications from the Company's
Data Distilleries acquisition and

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changes in currency exchange rates. New license fees from the applications
acquired with Data Distilleries were approximately $0.3 million in the first
quarter of 2004.

MAINTENANCE REVENUES.

Maintenance revenues increased $5.5 million from the first quarter of 2003
primarily due to steady renewal rates for the Company's major offerings,
maintenance from Data Distilleries applications and changes in currency exchange
rates. Maintenance revenues from the applications acquired with Data
Distilleries were approximately $1.0 million in the first quarter of 2004.

SERVICES REVENUES.

Services revenues remained unchanged from last year. Favorably contributing
to 2004 performance was consulting related to implementations of Data
Distilleries applications, higher enrollments in SPSS training classes and
changes in currency exchange rates. Services revenues from implementing
applications acquired with Data Distilleries were approximately $0.3 million in
the first quarter of 2004. This increase was offset by fewer data mining and
market research consulting projects.

COST OF LICENSE AND MAINTENANCE REVENUES.

Cost of license and maintenance revenues consists of costs of goods sold,
amortization of capitalized software development costs, and royalties paid to
third parties. These costs increased almost $1.0 million from the 2003 first
quarter primarily due to higher costs associated with the increase in license
revenues and higher amortization of capitalized and acquired technology assets
with the release of new products and from the acquisition of Data Distilleries.
Cost of license and maintenance revenues should remain relatively constant as a
percentage of total revenues in the remaining quarters of the 2004 fiscal year.

SALES, MARKETING AND SERVICES.

Sales, marketing and services expenses increased $1.7 million from the first
three months of 2003 primarily due to compensation increases, staff additions
and changes, the addition of employees with the acquisition of Data
Distilleries, and changes in currency exchange rates. Such expenses should
increase in subsequent quarters consistent with expected increases in license
fees and services revenue as well as one-time costs associated personnel changes
in the Company's sales and professional services organizations.

RESEARCH AND DEVELOPMENT.

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Research and development costs increased $1.1 million from the 2003 first
quarter primarily due to the addition of Data Distilleries development personnel
and changes in currency exchange rates. Such costs are expected to remain
relatively flat in the remaining quarters of 2004.

GENERAL AND ADMINISTRATIVE.

General and administrative expenses increased $0.8 million from the first
three months of 2003 primarily due to higher legal and accounting expenses
related to the review and restatement of financial results, additions to the
corporate accounting staff, higher insurance costs, expenses related to
compliance with the Sarbanes-Oxley Act of 2002, and the effects of currency
exchange rates. Upon completion of the review and restatements, legal and
accounting expenses are expected to total approximately $1.8 million, of which
$0.4 million was accrued in the three months ended March 31, 2004.

NET INTEREST AND INVESTMENT INCOME (EXPENSE).

Net interest and investment income in the three months ended March 31, 2003,
was due to income of $332,000 from interest earned on line-of-credit deposits,
partially offset by the interest expense related to the Company's financing
arrangement with Bank One N.A. Net expense in the three months ended March 31,
2004, was from line-of-credit borrowings related to the Company's financing
arrangement with Wells Fargo Foothill, Inc.

OTHER INCOME (EXPENSE).

Other income in the three months ended March 31, 2003 was primarily due to
gains from foreign currency transactions from the weakening of the U.S. dollar
against other major currencies, partially offset by the decline in value of U.S.
dollar-denominated receivables held overseas. Conversely in the first fiscal
quarter of 2004, the strengthening of the dollar led to losses from currency
transactions due to the decline in value of U.S. dollar-denominated receivables
held overseas. Additionally the first fiscal quarter of 2004 included a charge
of $231,000 due to the write-off the Company's 2001 investment in e-intelligence
Corporation.

INCOME TAX EXPENSE (BENEFIT).

The income tax provision increased in the three months ended March 31, 2004
compared to the three months ended March 31, 2003 due primarily to higher
earnings. The Company's effective tax rate should remain at or near 35 percent
for the remainder of the 2004 fiscal year.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31 2004, working capital was $20.8 million with a current ratio
of 1.2 to 1. Excluding current deferred revenue, working capital was $78.5
million with a current ratio of 3.3 to 1. Cash flows from operating

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activities were $5.2 million in the three months ended March 31, 2004 compared
with $10.6 in the three months ended March 31, 2003. The decrease in cash from
operations in 2004 was mainly due to higher tax payments and lower receivable
collections partially offset by improved operating results discussed above. In
the first three months of 2004, cash from operations came primarily from
operating income and receivable collections partially offset by income tax
payments, decreases to accrued expenses and reduction to deferred revenues.
Average days sales outstanding were 75 days at March 31, 2004, compared with 78
days at December 31, 2003 and 77 days at March 31, 2003.

Cash flows from operating activities were more than adequate to fund capital
expenditures and software development costs of $3.6 million and $3.1 million in
2003 and 2004, respectively. Capital spending was generally for software
development to enhance future business system technology. Management believes
that SPSS has ample capacity in its plant and equipment to meet expected needs
for future growth in the intermediate term.

In February 2004, SPSS received scheduled payments totaling $2.0 million on
the sale of its Sigma-series product line consummated in December 2003.

Cash provided by financing activities was $1.2 million in the three months
ended March 31, 2004 and $0.3 million in the three months ended March 31, 2003.
This increase principally resulted from higher proceeds from the issuance of
common stock, primarily through the exercise of stock options and employee stock
purchases. In the three months ended March 31, 2004, financing activities
provided cash proceeds of $1.9 million from the issuance of common stock,
primarily through the exercise of stock options and employee stock purchases
through the employee stock purchase plan. These proceeds were partially
decreased by net repayments of $0.7 million under line of credit agreements.

On March 31, 2003, SPSS entered into a four (4) year, $25 million credit
facility with Wells Fargo Foothill, Inc. (f/k/a Foothill Capital Corporation).
The Wells Fargo Foothill facility includes a four (4) year term loan in the
amount of $10.0 million and a revolving line of credit. The maximum amount SPSS
may borrow under the revolving line of credit portion of the facility will
depend upon the value of the Company's eligible accounts receivable generated
within the United States. Additionally, the Company has immediate availability
of $2.5 million under the revolving line of credit.

The terms and conditions of the Wells Fargo Foothill credit facility are
specified in a Loan and Security Agreement, dated as of March 31, 2003, by and
between Wells Fargo Foothill and SPSS. The term loan portion of the facility
bears interest at a rate of 2.5% above prime, with potential future reductions
of up to 0.5% in the interest rate based upon achievement of specified EBITDA
targets. One component of the revolving line of credit will bear interest at a
rate of prime plus 3.0%. On the remainder of the revolving line of credit, SPSS
may select interest rates of either prime plus 0.25% or LIBOR plus 2.5% with
respect to each advance made by Wells Fargo Foothill. The term loan of $10
million will be paid down evenly over the four (4) year period (i.e., $2.5
million per year over the next four years).

The Wells Fargo Foothill facility requires SPSS to meet certain financial
covenants including minimum EBITDA targets and includes additional requirements
concerning, among other things, the Company's ability to incur additional
indebtedness, create liens on assets, make investments, engage in mergers,
acquisitions or consolidations where SPSS is not the surviving entity, sell
assets, engage in certain transactions with affiliates, and amend its
organizational documents or make changes in capital structure. Due to the
restatement, the Company is not in compliance with certain covenants related to
timely delivery of financial statements. In addition, the restatement may have
rendered some representations and warranties inaccurate and may have caused the
Company to fail to satisfy certain covenants. SPSS has obtained all appropriate
waivers from Wells Fargo Foothill.

The Wells Fargo Foothill facility is secured by all of the Company's assets
located in the United States.

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

On November 4, 2003, SPSS, through SPSS International B.V., its wholly owned
subsidiary, acquired Data Distilleries B.V., a Netherlands-based developer of
analytic applications. The terms and conditions of the acquisition

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are specified in a Stock Purchase Agreement, dated as of November 4, 2003, by
and among SPSS, SPSS International B.V. and the owners of all of the issued and
outstanding shares of the capital stock of Data Distilleries. The aggregate
purchase price for all of the issued and outstanding capital stock of Data
Distilleries consists of guaranteed and contingent payments. The guaranteed
portion of the purchase price was paid at closing and consisted of $1.0 million
in cash and 281,830 shares of SPSS common stock valued at $5.31 million for
purposes of this transaction. The contingent portion of the purchase price will
be paid, if at all, at the end of the first and second years following the
closing and may total up to $4.4 million at current approximate exchange rates.
The Company's obligation to make the contingent payments will depend on the
achievement of certain growth targets for license and maintenance revenues from
the Data Distilleries applications. Under the terms of the Stock Purchase
Agreement, SPSS was obligated to file a Registration Statement on Form S-3 to
register the potential resale of the 281,830 shares issued in this transaction.
Because its Form 10-K for fiscal year 2003 was not timely filed and, therefore,
SPSS was not eligible to use Form S-3, SPSS has fulfilled its obligations under
the Stock Purchase Agreement by repurchasing from each former Data Distilleries
shareholder that number of shares of SPSS common stock received by such
shareholder in connection with this transaction. SPSS repurchased all of the
shares previously issued in this transaction at a total cost of $5.4 million.

SPSS intends to fund its future capital needs through operating cash flows
and borrowings on our credit facility. SPSS anticipates that amounts available
from cash and cash equivalents on hand, under its line of credit, and cash flows
generated from operations, will be sufficient to fund the Company's operations
and capital requirements at the current level of operations. However, no
assurance can be given that changing business circumstances will not require
additional capital for reasons that are not currently anticipated or that the
necessary additional capital will then be available to SPSS on favorable terms
or at all.

CRITICAL ACCOUNTING POLICIES

The Company's consolidated financial statements are prepared in
accordance with accounting principles generally accepted in the United States of
America. As such, SPSS makes certain estimates, judgments and assumptions that
it believes are reasonable based upon the information available. These estimates
and assumptions affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the periods presented. The Company's critical accounting
policies include revenue recognition, capitalization of software development
costs, impairment of long-lived assets, the estimation of credit losses on
accounts receivable and the valuation of deferred tax assets. For a discussion
of these critical accounting policies, see "Critical Accounting Policies and
Estimates" in the SPSS Annual Report on Form 10-K for the year ended December
31, 2003, filed with the Securities and Exchange Commission.

INTERNATIONAL OPERATIONS

Revenues from international operations were 56% and 59% of total net
revenues in the three months ended March 31, 2003 and March 31, 2004,
respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the FASB issued Interpretation 46R (FIN 46R), a revision
to Interpretation 46 (FIN 46), Consolidation of Variable Interest Entities. FIN
46R clarifies some of the provisions of FIN 46 and exempts certain entities from
its requirements. FIN 46R is effective at the end of the first interim period
ending after March 15, 2004. Entities that have adopted FIN 46 prior to this
effective date can continue to apply the provisions of FIN 46 until the
effective date of FIN 46R. SPSS adopted FIN 46 on July 1, 2003 and FIN 46R on
January 1, 2004 and these pronouncements did not have a material impact on the
Company's financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

SPSS is exposed to market risk from fluctuations in interest rates on
borrowings under its borrowing arrangement that bear interest at either the
prime rate or the Eurodollar rate. As of March 31, 2004, the Company had
$7,800,000 outstanding under this line of credit. A 100 basis point increase in
interest rates would result in an additional $78,000 of annual interest expense,
assuming the same level of borrowing.

SPSS is exposed to market risk from fluctuations in foreign currency
exchange rates. Since a substantial portion of its operations and revenue occur
outside the United States and in currencies other than the U.S. dollar, the
Company's results can be significantly affected by changes in foreign currency
exchange rates. To manage this

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exposure to fluctuations to currency exchange rates, SPSS may enter into various
financial instruments, such as options, which generally mature within 12 months.
Gains and losses on these instruments are recognized in other income or expense.
Were the foreign currency exchange rates to depreciate immediately and uniformly
against the U.S. dollar by 10 percent from levels at March 31, 2004, management
expects this would have a materially adverse effect on the Company's financial
results.

At March 31, 2004, SPSS did not have any option contracts outstanding.

Historically, the Company's derivative instruments did not qualify for
hedge accounting treatment under SFAS No. 133. Accordingly, gains and losses
related to changes in the fair value of these instruments were recognized in
income in each accounting period.

ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES. SPSS maintains disclosure controls
and procedures that have been designed to ensure that information related to the
Company is recorded, processed, summarized and reported on a timely basis. SPSS
has reviewed its internal control structure and these disclosure controls and
procedures. In connection with this review, SPSS has established a compliance
committee that is responsible for accumulating potentially material information
regarding its activities and considering the materiality of this information.
The compliance committee (or a subcommittee) is also responsible for making
recommendations regarding disclosure and communicating this information to the
Company's chief executive officer and chief financial officer to allow timely
decisions regarding required disclosure. The SPSS compliance committee is
comprised of the Company's senior legal official, principal accounting officer,
chief investor relations officer, principal risk management officer, and certain
other members of the SPSS senior management.

The Company's disclosure controls and procedures are not capable of
preventing all instances of error or fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system will be attained. The Company's
disclosure controls and procedures can be circumvented by the individual acts of
some persons, by collusion or two or more people or by management override of
the control. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected on a
timely basis.

CEO AND CFO CERTIFICATIONS. Attached as Exhibit 31.1 and 31.2 to this
Quarterly Report on Form 10-Q are certifications by the Company's CEO and CFO.
These certificates are required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002 (the "Section 302 Certifications"). This portion of
the Company's Quarterly Report on Form 10-Q describes the results of the
Company's controls evaluation referred to in the Section 302 Certifications.

EVALUATION OF THE COMPANY'S DISCLOSURE CONTROLS AND PROCEDURES. SPSS
Chief Executive Officer, Jack Noonan, and Chief Financial Officer, Edward
Hamburg, with the participation of the compliance committee, evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of the end of the period covered by this Quarterly Report on
Form 10-Q, as required by Rule 13a-15 of the Securities Exchange Act of 1934.
This evaluation included a review of findings and advice from KPMG arising in
conjunction with their audits recently completed that included the restatement
of previously issued financial information, and an independent investigation
initiated by the Company's Audit Committee, each of which is described below.

In connection with its audits of the Company's financial statements for
2003, 2002 and 2001. KPMG assessed the internal controls of the Company and its
subsidiaries and advised the Company's Audit Committee that certain identified
deficiencies collectively constituted a material control weakness (as defined by
standards established by the Public Company Accounting Oversight Board (United
States)). In its communications with the SPSS Audit Committee, KPMG stated that
these deficiencies were related to:

o Certain account reconciliation and review procedures;

o Specific procedures in accounting for capitalized software
development costs;

o Revenue recognition policies and certain processes;

o Certain processes in and documentation of accounting for income taxes;

o The complex consolidation process and reconciliation of intercompany
accounts;

o Accounting and finance resources at two subsidiaries;

o Segregation of duties in certain cash application tasks;

o Timely completion of statutory filings in two foreign countries;

o Document retention policies and procedures; and

o Timely approval of stock option grants.

The Company's management and Audit Committee have assumed a leadership
role in assessing the underlying issues giving rise to the restatement and in
ensuring that proper steps have been and are being taken to improve the
Company's control environment. The Company's management and Audit Committee took
these actions in consultation with KPMG. Independent legal counsel to the Audit
Committee and a forensic accounting firm performed an independent investigation
into accounting issues with regard to accounting for deferred revenue that arose
in connection with the restatement. That investigation found and concluded that
the Company's finance and accounting personnel had made a number of accounting
and arithmetic errors, and that there was no evidence of any fraud, intentional
misconduct or concealment on the part of SPSS, its officers or its employees.
That investigation also concluded that several of the accounting issues that
arose in connection with the restatement were exacerbated by a difficult,
three-year conversion of the Company's accounting and reporting software
(including the Company's legacy general ledger system) to an Oracle Financials
system, and several acquisition transactions accounted for using the purchase
method of accounting, that taxed the Company's finance and accounting resources
and personnel. The Audit Committee, however, also concluded that the Company's
accounting, financial reporting and internal control functions needed
improvement, including the Company's system of documenting transactions. The
Audit Committee found that the Company's management has proactively identified a
number of these issues during the past two years and has already addressed or is
appropriately taking steps to address them.

ACTIONS TAKEN IN RESPONSE TO THE EVALUATION. As a result of the
findings described above, in 2003 and 2004 the Company began implementing and is
implementing the following actions to address the issues it identified in its
evaluation of controls and procedures.

o SPSS has sought to thoroughly understand the nature of the issues
through discussions with KPMG and the independent counsel and forensic
accountants engaged by the SPSS Audit Committee;

o The Company's Audit Committee has exercised increased oversight over
management's assessment of internal controls and response to control
weaknesses in the above assessments;

o SPSS has recruited and is recruiting new personnel to the finance
organization who have expertise in financial controls, financial
reporting and income tax to improve the quality and level of
experience of the Company's finance organization;

o SPSS is continuing to assess the adequacy of the accounting and
financial reporting competence and leadership capabilities of
personnel who have accounting and finance managerial responsibilities;

o SPSS has hired a tax manager with U.S. and international tax
experience, including eight years of service on the tax staff of a
Big-Four accounting firm, to strengthen the Company's accounting and
documentation for income taxes;

o SPSS has adopted and is implementing formal standard financial
policies and procedures and education and training of employees on
policies and procedures in an effort to constantly improve internal
controls and the control environment;

o SPSS is formalizing all review and reconciliation processes by having
reviewers timely sign their work as well as aggregate and file all
reconciliations in a central file repository;

o SPSS has established a committee to improve the Company's policies and
procedures related to the documentation of criteria to support the
technological feasibility of products.

o SPSS began monitoring net realizable value calculations of capitalized
software development costs on a quarterly basis (such monitoring had
previously been done on an annual basis) through reviews by a person
with knowledge of the Company's products and opportunities of product
sales, including secondary products, to evaluate the appropriateness
of capitalized software balances.

o SPSS is in the process of improving and standardizing policies and
procedures for revenue recognition across all Company locations.

o SPSS had enhanced internal control mechanisms related to accounting
for deferred revenue, which played a significant role in the discovery
of the errors related to the Company's accounting for deferred
revenue.

o SPSS has adopted a formal process consisting of an in-depth review of
the tax provision, including deferred tax accounts, on a quarterly
basis.

o SPSS has adopted a formal process to provide for a more controlled and
organized consolidation, including a review of adjustments to ensure
that prior period consolidating entries have been either properly
carried forward or eliminated in the consolidation for the current
period.

o SPSS has implemented intercompany reconciliation procedures and is
working to further validate, support and document the effects of
changes in foreign currency on intercompany balances.

o SPSS has transferred accounting responsibilities for the Company's
market research business in the United States from the Company's
Kilburn-United Kingdom office to its Chicago office to improve
controls and the efficiency of monthly closings.

o SPSS has implemented the SPSS Inc. Code of Business Conduct & Ethics
(the "Code of Ethics") which is applicable to all of the SPSS
directors, officers and employees, including the Company's Chief
Executive Officer, Chief Financial Officer, Controller and other
senior financial officers performing similar functions. The Code of
Ethics satisfies, and in many respects exceeds, all of the
requirements of the Sarbanes-Oxley Act of 2002 and the rules and
regulations promulgated by the Securities and Exchange Commission
pursuant to the Sarbanes-Oxley Act. The Code of Ethics also satisfies,
and in many respects exceeds, the listing standards established by the
NASDAQ National Market, the exchange on which the Company's stock is
listed. The Company has posted the Code of Ethics on its website at
http://www.spss.com.

o SPSS has made changes to the Company's organizational structure to
provide a clearer segregation of responsibilities in connection with
account reconciliations, manual journal entries, and the preparation
and review of documentation to support the Company's quarterly and
annual statements.

o SPSS is implementing an account reconciliation policy, which requires
the monthly reconciliation of all balance sheet accounts and the use
of standard methodology and templates for account reconciliations.

SPSS believes that its disclosure controls and procedures have improved
due to the scrutiny of such matters by its management and Audit Committee, its
external auditors, and other persons the Company has engaged to assist it in
assessing and improving its system of internal controls. SPSS believes that its
controls and procedures will continue to improve as it completes the
implementation of the actions described above.

Based in part upon these changes, Mr. Noonan and Dr. Hamburg believe
that as of the filing date of this Quarterly Report on Form 10-Q, the Company's
disclosure controls and procedures are reasonably designed to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized, and reported within the time periods specified in the rules and
forms of the SEC.

Other than as described above, there have been no changes in the
Company's internal control over financial reporting identified in the evaluation
that occurred during the Company's first quarter of fiscal 2004 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.

15

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

SPSS Inc. has been named as a defendant in a lawsuit filed on December 6,
2002 in the United States District Court for the Southern District of New York,
under the caption Basu v. SPSS Inc., et al., Case No. 02CV9694. The complaint
alleges that, in connection with the issuance and initial public offering of
shares of common stock of NetGenesis Corp., the registration statement and
prospectus filed with the Securities and Exchange Commission in connection with
the IPO contained material misrepresentations and/or omissions. The alleged
violations of the federal securities laws took place prior to the effective date
of the merger in which the Company's acquisition subsidiary merged with and into
NetGenesis Corp. NetGenesis Corp. is now a wholly owned subsidiary of SPSS.
Other defendants to this action include the former officers and directors of
NetGenesis Corp. and the investment banking firms that acted as underwriters in
connection with the IPO. The plaintiff is seeking unspecified compensatory
damages, prejudgment and post-judgment interest, reasonable attorney fees,
experts' witness fees and other costs and any other relief deemed proper by the
Court. The Company is aggressively defending itself, and plans to continue to
aggressively defend itself against the claims set forth in the complaint. The
Company and the named officers and directors filed an answer to the complaint on
July 14, 2003. At this time, the Company believes the lawsuit will be settled
with no material adverse effect on its results of operations, financial
condition, or cash flows.

The Company has been named as a defendant in a lawsuit filed on or about May
14, 2004 in the United States District Court for the Northern District of
Illinois, under the caption Fred Davis, Individually and On Behalf of All Others
Similarly Situated v. SPSS Inc., Jack Noonan and Edward Hamburg, Case No.
04C3427. The complaint alleges that the defendants violated Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder. The complaint alleges that the defendants failed to disclose and
misrepresented a series of material adverse facts regarding the Company's
revenues. The complaint seeks to recover unspecified compensatory damages,
reasonable attorney fees, experts' witness fees and other costs and any other
relief deemed proper by the court on behalf of all purchasers of the Company's
securities between May 2, 2001 and March 30, 2004, although no court has
determined that such persons constitute a proper class. Neither SPSS nor the
individual defendants have responded to the complaint as of the date of this
filing. SPSS and the other defendants believe that the suit is without merit and
intend to defend vigorously against the allegations contained in the complaint.

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

ITEM 5. OTHER INFORMATION

Audit Committee Pre Approval of Non-Audit Related Services

The audit committee of the Company's board of directors approved certain
non-audit related services provided to SPSS by KPMG LLP, the Company's auditors.
The audit committee pre-approved these non-audit related services

16

pursuant to the pre-approval procedure previously established by the audit
committee.

During the fiscal quarter ended March 31, 2004, the audit committee
pre-approved the following:

o $10,000 to be paid KPMG for the review of a registration
statement on Form S-3 related to the Company's transaction
with Data Distilleries B.V.

o $25,000 to be paid KPMG as compensation for tax services
related to the LexiQuest.

o $8,000 to be paid KPMG as compensation for tax services
associated with the transfer of the German subsidiary of Data
Distilleries B.V. to the Company's German subsidiary.

o $1,000 to be paid KPMG as compensation for services related to
the confirmation of the 2003 annual sales figures of SPSS A/S
(Denmark) with the Danish State.

o $16,000 to be paid KPMG as compensation for tax services
related to SPSS Japan

o $4,000 to be paid KPMG as compensation for tax services
related to the Company's entities located in the United
Kingdom.

2004 Annual Meeting of Stockholders

The 2004 Annual Meeting of Stockholders of SPSS Inc. will be held at the
Company's headquarters located at 233 South Wacker Drive, 11th Floor, Chicago,
Illinois 60606 on Thursday, October 28, 2004 beginning at 1:00 p.m. local time.

Stockholder Proposals for 2004 Annual Meeting

If you want the Company to consider including a proposal in the Company's proxy
statement for its 2004 Annual Meeting of Stockholders, you must deliver a copy
of your proposal to the Company's headquarters located at 233 South Wacker
Drive, 11th Floor, Chicago, Illinois 60606, Attn: Corporate Secretary, no later
than August 27, 2004. If you intend to present a proposal at the 2004 Annual
Meeting of Stockholders, but you do not intend to have included in the Company's
proxy statement, you must deliver a written copy of your proposal to the SPSS
corporate secretary by August 27, 2004. For matters submitted at the 2004 Annual
Meeting of Stockholders that are not included in the Company's proxy statement,
the proxy holders will have discretionary authority to vote with regard to such
proposals. If SPSS does not receive your proposal within the specified time
frame, your will not be permitted to raise your proposal at the 2004 Annual
Meeting of Stockholders.

17

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits (Note: Management contracts and compensatory plans or
arrangements are identified with a "+" in the following list.)

18

10.8 Amended 1991 Stock Option Plan.+ (5), Ex. 10.10

10.9 SYSTAT Asset Purchase Agreement. (9), Ex. 10.9

10.10 1994 Bonus Compensation.+ (10), Ex. 10.11

10.11 Lease for Chicago, Illinois Office. (10), Ex. 10.12

10.12 Amendment to Lease for Chicago, Illinois Office. (10), Ex. 10.13

10.13 1995 Equity Incentive Plan.+ (11), Ex. 10.14

10.14 1995 Bonus Compensation.+ (12), Ex. 10.15

10.15 Amended and Restated 1995 Equity Incentive Plan.+ (13), Ex. 10.17

10.16 1996 Bonus Compensation.+ (14), Ex. 10.18

10.17 Software Distribution Agreement between the Company and Banta (14), Ex. 10.19
Global Turnkey.

10.18 Lease for Chicago, Illinois in Sears Tower. (15), Ex. 10.20

10.19 1997 Bonus Compensation.+ (17), Ex. 10.21

10.20 Intentionally omitted.

10.21 Second Amended and Restated 1995 Equity Incentive Plan.+ (19), Ex. A

10.22 1998 Bonus Compensation.+ (20), Ex. 10.23

10.23 Third Amended and Restated 1995 Equity Incentive Plan.+ (22), Ex. 10.1

10.24 Intentionally omitted.

10.25 Intentionally omitted.

10.26 1999 Bonus Compensation+ (24), Ex. 10.27

10.27 2000 Equity Incentive Plan.+ (26), Ex. 10.45

10.28 SPSS Qualified Employee Stock Purchase Plan.+ (26), Ex. 10.46

10.29 SPSS Nonqualified Employee Stock Purchase Plan.+ (26), Ex. 10.47

10.30 2000 Bonus Compensation.+ (27), Ex. 10.30

10.31 Stock Purchase Agreement by and between SPSS Inc. and Siebel (28), Ex. 10.31
Systems, Inc.

10.32 1999 Employee Equity Incentive Plan.+ (30), Ex. 4.1

10.33 Intentionally omitted.

10.34 Intentionally omitted.

10.35 SPSS Inc. 2002 Equity Incentive Plan+ (34), Ex. 4.1

10.36 Intentionally omitted.

10.37 Intentionally omitted.

10.38 Intentionally omitted.

10.39 Intentionally omitted.

10.40 Intentionally omitted.

10.41 Intentionally omitted.

10.42 Intentionally omitted.

10.43 Loan and Security Agreement, dated as of March 31, 2003, by and between SPSS (37), Ex. 10.41
Inc. and each of SPSS' subsidiaries that may become additional borrowers, as
Borrower, and Foothill Capital Corporation, as Lender.

10.44 Amendment to Stock Purchase Agreement, dated as of October 1, 2004, by and (38), Ex. 10.44
between SPSS Inc. and America Online, Inc.

10.45 Amended and Restated Strategic Online Research Services Agreement, dated as (38), Ex. 10.45
of October 1, 2003, by and between SPSS Inc. and America Online, Inc.

10.46 Consulting Agreement, dated as of June 1, 2003, by and between SPSS Inc. and (39), Ex. 10.46
Norman H. Nie Consulting, L.L.C.

14.1 SPSS Code of Business Conduct and Ethics (42), Ex. 14.1

31.1 Certification of the Chief Executive Officer and President pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of the Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.

32.1 Certification of the Chief Executive Officer and President pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

32.2 Certification of the Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

99.1 SPSS Inc. Charter of the Audit Committee of the Board of Directors. (42), Ex. 99.1

99.2 Supplement A to the SPSS Inc. Charter of the Audit Committee of the Board of (42), Ex. 99.2
Directors.

- ----------

19

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

20

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

(23) Intentionally omitted.

(24) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the
year ended December 31, 1999. (File No. 000-22194).

(25) Previously filed with the Report on Form 8-K of SPSS Inc., filed November
15, 2000. (File No. 000-22194).

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

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

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

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

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

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

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

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

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

(35) Intentionally omitted.

(36) Intentionally omitted.

(37) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the
year ended December 31, 2002. (File No. 000-22194)

(38) Previously filed with the Report on Form 8-K of SPSS Inc., dated October 1,
2003, filed on October 15, 2003. (File No. 000-22194)

(39) Previously filed with the Quarterly Report on Form 10-Q of SPSS Inc. for
the quarterly period ended September 30, 2003. (File No. 000-22194)

(40) Previously filed with the Report on Form 8-K of SPSS Inc., dated November
15, 2003, filed on November 18, 2003. (File No. 000-22194)

(41) Previously filed with the Form 8-A12G of SPSS Inc. filed on June 18, 1998
(File No. 000-22194)

(42) Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the
year ended December 31, 2003 (File No. 000-22194)

21

(b) SPSS filed the following reports on Form 8-K during the three months
ended March 31, 2003:

The current report of SPSS on Form 8-K, dated December 29, 2003, filed with
the SEC on January 6, 2004. The Form 8-K announced the consummation of an
agreement by SPSS to grant to Systat Software, Inc., a subsidiary of Cranes
Software International Ltd., an exclusive worldwide license to distribute the
Sigma-series line of products for a three-year period, to sell to Systat certain
related assets and to grant to Systat an option to purchase the licensed
property.

The current report of SPSS Inc. on Form 8-K/A (Amendment No. 1), dated
November 5, 2003, filed with the SEC on January 20, 2004. The Report on Form
8-K/A (Amendment No. 1) amended the Report on Form 8-K filed with the SEC on
November 18, 2004 (see above) announcing the acquisition of Data Distilleries,
B.V. The Report on Form 8-K contained the following financial information: (a)
Financial Statements of Business Acquired including (i) Data Distilleries B.V.
Audited Financial Statements for the years ended December 31, 2002 and 2001 and
(ii) Data Distilleries B.V. Unaudited Financial Statements for the Nine Months
Ended September 30, 2003 and 2002, and (b) Pro Forma Financial Information for
the combined businesses.

The current report of SPSS Inc. on Form 8-K, dated December 31, 2003, filed
with the SEC on January 20, 2004. The Form 8-K reported that Mr. Patrick Dauga
no longer serves as the Executive Vice President, Worldwide Sales of SPSS and
that SPSS has hired Mr. John Shap as its new Senior Vice President, Worldwide
Sales.

The current report of SPSS Inc. on Form 8-K, dated February 17, 2004, filed
with the SEC on February 18, 2004. The Form 8-K reported that SPSS had issued a
press release announcing its results for its fourth quarter and fiscal year
ended December 31, 2003 and attached a copy of the press release as an exhibit.
The report also described certain non-GAAP financial measures included in the
press release.

The current report of SPSS Inc. on Form 8-K, dated February 18, 2004, filed
with the SEC on February 20, 2004. The Form 8-K reported that SPSS had held its
Fourth Quarter 2003 Earnings Release Conference Call on February 18, 2004. The
Form 8-K report attached a transcript of the conference call as an exhibit.

The current report of SPSS Inc. on Form 8-K, dated March 30, 2004, filed
with the SEC on March 30, 2004. the Form 8-K reported the facts that have caused
SPSS to further delay the filing of its Annual Report on Form 10-K for fiscal
year 2003 with the SEC.

The current report of SPSS Inc. on Form 8-K, dated April 7, 2004, filed with
the SEC on April 8, 2004. The Form 8-K reported that SPSS had received a Nasdaq
staff determination, the impact of this determination and certain information
regarding the review being conducted by the Audit Committee.

The current report of SPSS Inc. on Form 8-K, dated May 4, 2004, filed with
the SEC on May 6, 2004. The Form 8-K reported that SPSS had issued a press
release announcing its preliminary results for its fiscal quarter ended March
31, 2004 and attached a copy of the press release as an exhibit. The report also
described certain non-GAAP financial measures included in the release.

The current report of SPSS Inc. on Form 8-K, dated May 5, 2004, filed with
the SEC on May 6, 2004. The Form 8-K reported that SPSS had held its First
Quarter 2004 Earnings Release Conference Call on May 5, 2004. The Form 8-K
attached a transcript of the conference call as an exhibit.

The current report of SPSS Inc. on Form 8-K, dated May 14, 2004, filed with
the SEC on May 20, 2004. The Form 8-K reported that a class action lawsuit has
been filed against SPSS, Jack Noonan and Edward Hamburg alleging certain
violations of the federal securities laws. The Form 8-K also reports that the
Company and the other defendants believe that the suit is without merit and
intend to defend vigorously against the allegations contained in the complaint.

The current report of SPSS Inc. on Form 8-K, dated June 10, 2004, filed with
the SEC on June 14, 2004. The Form 8-K reported that SPSS had received a Nasdaq
staff determination and the impact of this determination.

The current report of SPSS Inc. on Form 8-K, dated July 1, 2004, filed with
the SEC on July 2, 2004. The Form 8-K reported the resignation of Brian Zanghi
as Executive Vice President, Chief Operating Officer.

The current report of SPSS Inc. on Form 8-K, dated July 22, 2004, filed
with the SEC on July 23, 2004. The Form 8-K reported that SPSS had received a
Nasdaq staff determination and the impact of this determination.

22

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

SPSS Inc.

Date: July 29, 2004 By: /s/ Jack Noonan
----------------------------------------------
Jack Noonan
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the principal
financial officer of the Registrant.

Date: July 29, 2004 By: /s/ Edward Hamburg
----------------------------------------------
Edward Hamburg
Executive Vice-President, Corporate
Operations and Chief Financial Officer

23

SPSS INC.

EXHIBIT INDEX