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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, 1996
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)
444 N. Michigan Avenue, Chicago, Illinois 60611
(Address of principal executive offices and zip code)
Registrant's telephone number including area code: (312)329-2400
Securities registered pursuant to Section
12(b) of the Act: None
Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (based upon the per share closing sale price of
$26.75 on March 17, 1997, and for the purpose of this calculation only, the
assumption that all registrant's directors and executive officers are
affiliates) was approximately $175 million.
The number of shares outstanding of the registrant's Common Stock, par
value $.01, as of March 17, 1997, was 7,729,864.
SPSS Inc.
TABLE OF CONTENTS
PART I
Item 1. Business....................................................................... 3
Item 2. Properties..................................................................... 18
Item 3. Legal Proceedings.............................................................. 18
Item 4. Submission of Matters to a Vote of Security Holders............................ 18
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 19
Item 6. Selected Consolidated Financial Data........................................... 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................... 21
Item 8. Financial Statements and Supplementary Data.................................... 26
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.......................................... 46
PART III
Item 10. Executive Officers and Directors............................................... 46
Item 11. Executive Compensation......................................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................................... 53
Item 13. Certain Relationships and Related Transactions ................................ 54
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports
on Form 8-K.................................................................. 55
SPSS INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
Part I
Item 1. Business
General
SPSS Inc. ("the Company") was incorporated in Illinois in 1975 under the
name "SPSS, Inc." and was reincorporated in Delaware in May 1993 under the name
"SPSS Inc." Unless the context otherwise requires, the terms "SPSS" and the
"Company" refer to SPSS Inc., a Delaware corporation, its Illinois predecessor
and its subsidiaries. The Company develops, markets and supports an integrated
line of statistical software products that enable users to effectively bring
marketplace and enterprise data to bear on decision-making. The primary users of
the Company's software are managers and data analysts in corporate settings,
government agencies and academic institutions. In addition to its widespread use
in survey analysis, SPSS software also performs other types of market research,
as well as quality improvement analyses, scientific and engineering applications
and data reporting. The current generation of SPSS Desktop products (as defined
herein) features a windows-based point-and-click graphical user interface,
sophisticated statistical procedures, data access and management capabilities,
report writing and integrated graphics. The Company's products provide extensive
analytical capabilities not found in spreadsheets, database management systems
or graphics packages.
In its 21 years of operation, SPSS has become a widely recognized name in
statistical software. The Company plans to leverage its current position to take
advantage of the increased demand for software applications that not only
provide ready access to the data that organizations collect and store, but also
enable users to systematically analyze, interpret and present such information
for use in decision-making. Management believes the ease-of-use of the Company's
current generation products, combined with the greater processing speed and
storage capacity of the latest desktop computers, has substantially expanded the
market for SPSS statistical software.
In summer 1993, the Company completed an initial public offering (the
"IPO") of common stock, $.01 par value (the "Common Stock"). The Common Stock is
listed on the Nasdaq National Market under the symbol "SPSS". In early 1995, the
Company and certain selling stockholders (the "Selling Stockholders") sold
1,865,203 shares of Common Stock in a public offering.
Safe Harbor
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: With the exception of historical information, the matters discussed in
this Form 10-K are forward-looking statements that involve risks and
uncertainties including, but not limited to, market conditions, competition and
other risks indicated in this document, including Exhibit 99.0, and the
Company's other filings with the Securities and Exchange Commission that could
cause actual results to vary materially from the future results indicated in
such forward-looking statements. No assurance can be given that the future
results covered by the forward-looking statements will be achieved. Other
factors could also cause actual results to vary materially from the future
results indicated in such forward-looking statements.
Recent Developments
On September 26, 1996, SPSS acquired Clear Software, Inc., a
Massachusetts corporation ("Clear Software"), for SPSS Common Stock valued at
approximately $4.5 million in a merger accounted for as a pooling of interests.
Clear Software is a developer and marketer of process management, analysis and
documentation software products, including allCLEAR, a software package used
primarily for describing complex business processes using flowcharts and other
types of diagrams. Clear Software has more than 120,000 users, and its 1996
revenues were approximately $3.2 million. SPSS will continue to operate the
Clear Software business from Clear Software offices in Newton, Massachusetts.
SPSS believes that the acquisition of Clear Software brings important
technology to the SPSS family of products, because unlike most flowcharting
packages, which are primarily drawing programs, allCLEAR is built on a database
that enables users to develop an initial diagram faster, make changes quickly
and easily and try different views with a touch of a button. Process diagrams
are often important precursors to statistical analysis as well as useful
presentation tools for business process re-engineering, quality improvement
analysis, process documentation and scientific research. Among the diagrams that
can be produced in allCLEAR are presentation-quality flowcharts, process flow
diagrams, organizational charts, network diagrams and fishbone diagrams.
SPSS has been selling Clear Software's software products since
September 1995, when it became a value-added reseller of Clear Software's
flagship product, allCLEAR III for Windows. The two companies extended that
agreement in January 1996 to include CLEAR Process, a process management
software tool that gives users the ability to easily work with data, such as
cost information, as they explore process re-engineering alternatives. The
Company believes that the acquisition of Clear Software will enable SPSS to
expand the reach of Clear Software's products with its greater resources and
established distribution channels.
On November 20, 1996, SPSS acquired the outstanding shares of capital
stock of Jandel Corporation, a California corporation ("Jandel"), for SPSS
Common Stock valued at approximately $9.0 million, in a merger accounted for as
a pooling of interests. Jandel is a dominant player in the market for graphical
and statistical software products used mainly in scientific applications. Jandel
has more than 25,000 users and its 1996 revenues were approximately $7.5
million. SPSS will continue to operate the Jandel business from the Jandel
offices in San Rafael, California.
The Company's acquisition of SYSTAT, Inc., ("SYSTAT") in September 1994
and BMDP Statistical Software, Inc. ("BMDP") in December 1995 was part of its
strategy to establish a separate line of software products for scientific
research. This strategy enables the Company to direct its SPSS product line
towards the growing market for data mining applications and its QI Analyst
product line towards real-time quality improvement applications. The Company's
acquisition of Jandel is a continuation of this strategy of product
differentiation.
Jandel develops, markets and supports microcomputer software for the
analysis and presentation of scientific data. Jandel's products are designed
specifically to meet the needs of research scientists and engineers. Jandel's
products enable scientists and engineers to collect, analyze and present
scientific data. Among the tasks performed by Jandel's products are running
statistical tests on research data, automatically taking measurements from
photographs, maps and other visual images and analyzing and manipulating that
data, determining the mathematical formula that most closely matches graphed
data curves, and creating publication-quality graphs and charts for scientific
journal articles.
SPSS believes that the merger with Jandel will offer a number of
benefits including, expansion of the SPSS scientific products business to a
critical mass; a position of leadership in the market for scientific data
analysis products, as Jandel is a leading vendor in this area; a comprehensive
set of software offerings to more effectively address a wider range of
scientific research applications; and an opportunity to further leverage the
Company's worldwide sales channels.
In January 1997, the Company entered into the Banta Global Turnkey
Software Distribution Agreement (the "Banta Agreement"), under which Banta
Global Turnkey ("Banta") manufactures, packages, and distributes the Company's
software products to the Company's domestic and international customers and
certain international subsidiaries. The Banta Agreement has a three-year term
and automatically renews thereafter for successive periods of one year. Either
party may terminate the Banta Agreement with 180 days' written notice; however,
if Banta terminates for convenience or for any other reason (other than for
cause), then during the 180-day notice period Banta will assist the Company in
finding a new vendor. Either party may terminate the Banta Agreement for cause
by written notice only if the other materially breaches its obligations. Such a
termination notice for cause must specifically identify the breach (or breaches)
upon which it is based and will be effective 180 days after the notice is
received by the other party, unless the breach(es) is (are) corrected during the
180 days.
Industry Background
Statistical analysis is a means of drawing reliable conclusions from
numerical information about a given subject. Such systematic analysis of numbers
goes back to the seventeenth century, when statistics were used in determining
insurance and annuity rates, as well as by political leaders in developing more
effective economic policies. The fundamental purposes and power of statistical
analysis remains the same today: to help decision makers understand and resolve
problems by uncovering the causes underlying events and conditions. The Company
believes that demand for statistical and other data analysis capabilities will
continue to grow as decision-making becomes more complex and the consequences of
decisions more significant. To meet this demand, colleges and universities are
training increasing numbers of people in the use of statistics. In addition,
more powerful desktop computers have made the means of applying statistics to
solve problems more available, usable and affordable.
The market for statistical software is part of a much larger market for
data management, analysis and presentation software. The largest segment of this
market is comprised of persons examining data with spreadsheets, graphics
packages and the reporting programs provided by database management systems. The
widespread use of these tools is due to their effectiveness in answering the
what questions of data, such as what is the largest market for a product, or
what was the default rate on loans, or what defects occurred in a manufacturing
process and at what frequency.
Another smaller yet sizable and growing segment of this market uses
statistical software in addition to these other data analysis tools to answer
the why questions of data. These questions most often deal with issues of
causality and prediction, such as when a corporation wants to understand their
success in a market, or a bank needs to distinguish good and bad credit risks
prior to making loans, or a manufacturer seeks to reduce the number of defects
in production by identifying the causes proactively. Spreadsheet, graphics and
database packages lack the necessary range and depth of analytical functionality
to adequately address these types of questions.
The Company believes that the worldwide demand for statistical software
will grow for the following reasons:
o Organizations are demanding more useful information from the
increasing amount of data being collected, organized and stored;
o Certain industries, such as manufacturing and healthcare, have a
particularly critical and growing need for statistical analysis with
their increased focus on quality improvement;
o The number of people with a working knowledge of statistics continues
to grow significantly; and
o The improved price and performance characteristics of desktop
computers, together with the greater ease-of-use of graphical user
interfaces, have eliminated many historical barriers to the use of
statistical software.
Markets
SPSS customers come from various industries requiring a wide range of
statistical applications. The Company focuses, however, on the following market
areas:
Market and Sales Analysis. Almost all of the top marketing research firms
in North America are SPSS customers, and corporations worldwide use SPSS
products to help target advertising and direct mail campaigns, test-market new
products, identify changing customer characteristics, measure customer
satisfaction and assess sales force productivity.
Government. SPSS software is used in almost every country of the world, at
all levels of government and in civilian as well as defense agencies. The
Company's products, for example, are used as part of the efforts of the Internal
Revenue Service of the United States to modernize their tracking systems, are
used by many municipal public safety agencies, have become the standard
marketing tools in the recruitment programs of the United States Armed Forces
and are employed as a statistical system for many national census programs.
Scientific Research and Education. SPSS software is used at virtually every
major college and university in the world, as well as a large number of
government and commercial research centers. In addition, academic administrators
use SPSS products to monitor aspects of their operations, such as attrition
rates, changes in demographic profile of student populations and the success of
fund-raising activities.
Manufacturing. Driven by rising costs, government regulation and
increasingly competitive global markets, more and more manufacturing companies
are implementing systems for statistical quality control and improvement. SPSS
software is currently used in a variety of manufacturing quality control
applications, both in laboratories and on the shop floor.
Statistical Software Products
SPSS provides an integrated set of software products that enable
end-users to perform statistical analysis, including the generation of graphs
and reports, on a wide variety of computing platforms. The product line is:
o comprehensive in function across computing platforms;
o modular, allowing users to purchase only the functionality they need;
o tailored to desktop operating environments, where adherence to
platform standards directly translates into greater usability of
products; and
o localized for use in France, Germany, Italy, Japan, Taiwan and
Spanish-speaking countries.
While there are some variations according to version and computing
platform, the typical SPSS configuration is a Base System and add-on products.
This Base System includes the user interface, data connectivity, data editing
and statistical procedures, as well as graphing and reporting. Add-on products
provide additional functionality specific to a particular type of data analysis,
such as facilitating certain types of data entry, providing a wide variety of
specialized statistical capabilities and offering additional presentation
capabilities. These add-on products are either developed by SPSS or by third
parties. See "Business - Reliance on Third Parties."
The following tables summarize the Company's software products:
SPSS Product Line Key Functions and Features
================================================================================
SPSS Base Statistics: Comprehensive range of descriptive statistics;
(Release 7.5) frequency counts and percentages; cross tabulations (with
tests of significance, chi-square residuals, and measures
of association); multiple response tabulations; exploratory
data analysis (EDA); analysis of variance; t-tests,
correlations; regression; curve fitting; nonparametric
tests; statistical distribution functions.
Presentation and Graphics: Drag-and-drop pivot tables,
Report writer; business charts (pie, bar, line, etc.),
statistical charts (histograms, scatterplot, box plots,
time series plots, etc.), quality improvement charts
(control, Pareto, etc.).
Data Management: Spreadsheet data entry and editing;
data transformation and management routines; data
connectivity (including database links); reads files of
any size (except under DOS). Includes context-sensitive
Help and on-line statistical glossary.
- --------------------------------------------------------------------------------
SPSS Professional Cluster analysis, factor analysis, discriminant
Statistics analysis, reliability analysis; multidimensional scaling,
(Release 7.5) weighted and two-stage least squares.
- --------------------------------------------------------------------------------
SPSS Advanced Logistic and nonlinear regression, probit analysis,
Statistics general linear models, loglinear models, survival/life
(Release 7.5) tables analysis, repeated measures analysis of variance,
multivariate analysis of variance, matrix language and
library.
- --------------------------------------------------------------------------------
SPSS Categories Conjoint analysis, optimal scaling procedures,
correspondence analysis, perceptual mapping.
- --------------------------------------------------------------------------------
SPSS Trends Time series forecasting routines, including ARIMA with Box-
Jenkins models, efficient smoothing and seasonality
adjustments.
- --------------------------------------------------------------------------------
AMOS Comprehensive linear structural models, with fit causal
paths.
- --------------------------------------------------------------------------------
SPSS Tables High-quality, complex stub-and-banner tables. Easily
handles multiple response items.
- --------------------------------------------------------------------------------
DBMS/COPY Plus Transparently converts data for use between databases,
spreadsheets and statistics packages.
- --------------------------------------------------------------------------------
SPSS Data Entry II Customized forms enabling the entry and labeling of data
for use with SPSS software. Available only on DOS.
- --------------------------------------------------------------------------------
SPSS Exact Tests Gives correct p-values, regardless of data structure.
- --------------------------------------------------------------------------------
SPSS Missing Searches for relationships between the missing values in
Value Analysis data and other variables, estimates what the values would
be, estimates the mean, covariance matrix and correlation
matrix via regression.
===============================================================================
SPSS Release 7.5 currently operates only in the Windows 95 and Windows NT
3.51 environments. SPSS Release 6.1 is currently available for Macintosh and
selected UNIX and all character-based DOS platforms.
Scientific Product Line Key Functions and Features
================================================================================
SYSTAT Base Statistics: Comprehensive range of descriptive statistics;
(Release 6.0) cross tabulations; Multivariate general linear models;
analysis of variance and covariance; discriminant analysis;
canonical correlation; factor analysis; multi-dimensional
scaling; cluster analysis, time series analysis; non-linear
estimation
Presentation and Graphics: Business charts (pie, bar,
line, etc.), comprehensive set of statistical charts
(histograms, scatterplot, box plots, math function
plots, fourier plots, contour plots 3-D data and
function plots, etc.), maps and geographic projections;
overlaid and multiple plots per page.
Data Management: Spreadsheet data entry and editing;
data transformation and management routines; data import
and export of certain file types; macro-processor and
programming language. Includes comprehensive on-line
Help system.
- --------------------------------------------------------------------------------
SYSTAT Testat Summary statistics, reliability coefficients, standard
errors of measures for selected score intervals, and item
analysis statistics for examining results from achievement
tests, psychological tests, etc.
- --------------------------------------------------------------------------------
SYSTAT Logit Binary, multinomial, and conditional logistic regression
with maximum likelihood estimation.
- --------------------------------------------------------------------------------
SYSTAT Survival Extensive set of methods for survival, reliability, and
life table analysis.
- --------------------------------------------------------------------------------
SYSTAT Design Estimates sample sizes required to obtain desired
statistical confidence levels.
- --------------------------------------------------------------------------------
Sigma Plot SigmaPlot automatically produces publication-quality plots
and graphs from numerical data. It is used to produce
charts and graphs for publication, poster session
charts, overhead transparencies and distribution materials.
SigmaPlot is very flexible and customizable and includes
many features designed to meet the particular needs of
research scientists and engineers. In addition, SigmaPlot
can test the fit of an equation to a graph of research data
- an important tool of data analysis.
- --------------------------------------------------------------------------------
SigmaScan Pro SigmaScan Pro is among the most highly integrated image
analysis programs available. It offers all the features
of SigmaScan, plus automated image processing, analysis
and advanced counting features. It will analyze color
and gray scale images from video, disk or scanned images.
Image enhancement with gray filters, image splicing, image
math, binary filters and other image processing
techniques are provided.
- --------------------------------------------------------------------------------
SigmaStat SigmaStat provides automated guidance for statistical
analysis of research data. SigmaStat recommends the
best statistical test to use, checks to see if the
assumptions required for a particular test have been
met, runs the appropriate test and prepares an
explanation of the results.
- --------------------------------------------------------------------------------
TableCurve 2D The purpose of charts and graphs is to illustrate the
and TableCurve relationship of two or more variables. If a mathematical
3D formula containing the variable describes the same curve
as the curve produced by graphing the experimental
data, then the formula expresses the relationship
of the variables. TableCurve 2D automatically fits
and ranks over 3,600 equations to a curve, enabling the
scientist to quickly determine which equation best fits
the data. TableCurve 3D fits three dimensional curved
surfaces, evaluating the surface against over 450
million equations.
- --------------------------------------------------------------------------------
PeakFit Spectroscopy, chromatography and electrophoresis are
based upon finding and evaluation the pattern of peaks
in test results. Separate peaks may be hidden because
data from two or more peaks may be superimposed on each
other. PeakFit uses sophisticated nonlinear curve
fitting techniques to detect, quantify and analyze
hidden peaks in research results.
- --------------------------------------------------------------------------------
SigmaGel Using SigmaGel the scientist can perform quantitative
electrophoretic gel analysis in the lane, spot or
molecular weight measurement modes. Data is collected
and stored in the SigmaGel spreadsheet.
================================================================================
Quality Process
Management
Product Line Key Functions and Features
================================================================================
QI Analyst Comprehensive set of SPC statistics, 21 quality
Version 3.0 improvement charts and reporting. Available only on
Windows.
- --------------------------------------------------------------------------------
Gage R&R Implementation and systematic testing of measurement
instruments. Available only on Windows.
- --------------------------------------------------------------------------------
allCLEAR Flowcharting program: creates diagrams for causes and
effects, process flow, network and deployment; builds
decision trees, organizational charts and procedural
charts.
- --------------------------------------------------------------------------------
CLEAR Process Process management tool for graphing and analyzing
business and manufacturing process. Creates flowcharts,
simulates process flows, identifies critical and optimal
paths, performs what-if analysis, and creates
presentation graphics.
- --------------------------------------------------------------------------------
CLEAR OrgCharts Creates organizational charts from text automatically.
Also creates tournament grids, family trees and other
tree diagrams.
================================================================================
Other Products Key Functions and Features
================================================================================
Neural Connection Neural network-based product with features for
prediction, classification, time series analyst and data
segmentation.
- --------------------------------------------------------------------------------
SPSS Diamond Explores complex relationships in multivariate data;
animated 3-D scatter plots; Parametric Snake plots;
quadwise plot for viewing relationships between four
variables; Ice, for simultaneously displaying up to nine
dimensions of data.
- --------------------------------------------------------------------------------
MapInfo Display data geographically, from world to street
levels.
- --------------------------------------------------------------------------------
SPSS CHAID Segmentation analysis, highly efficient analysis of
tabulations. Available only on Windows and DOS.
- --------------------------------------------------------------------------------
Teleform Automated forms creation, distribution, and data entry
using fax or scanner. Available only on Windows.
- --------------------------------------------------------------------------------
Remark Office OMR Automated forms data collection using a scanner or fax
modem. Works with forms created in any software package.
Available on Windows.
================================================================================
The Company's statistical software products have received numerous
favorable reviews from trade and other publications. SPSS and SYSTAT software
fares well in comparative assessments against competitors' products. SPSS offers
its flagship product, SPSS for Windows, in eight languages: English, German,
French, Italian, Spanish, Japanese, Catalan and Traditional Chinese. In December
1996, the Company introduced SPSS for Windows 7.5 offering significant
enhancements in usability and the display of results. The SYSTAT update was
released in the third quarter of 1996.
The Company's licensing and pricing alternatives vary widely depending
upon the product, platform and quantities licensed. List prices for perpetual
single-user licenses of products designed for desktop computers ("Desktop
products") in North America are approximately $695 for the SPSS Base System and
range from $295 to $1,495 for each add-on product. Multi-user network and site
licenses typically require annual payments. List prices of annual licenses
designed for mainframes, minicomputers, and UNIX workstations ("Large System
products") range from $4,500 to $15,000, while perpetual licenses for Large
Systems products run from $9,000 to over $30,000. Pricing of SPSS licenses
outside of North America is typically higher than domestic prices, and licenses
outside of North America are more often annual licenses. In addition to standard
maintenance contracts for Large Systems products, for an annual fee SPSS offers
an optional service plan to users of Desktop products that includes a toll-free
number, free upgrades and discounts on certain products and services.
The CLEAR products have also received many favorable reviews and
industry awards. Clear Software's licensing and pricing alternatives vary by
product and quantity sold. allCLEAR accounts for most of the CLEAR products
revenue, followed by CLEAR Process and CLEAR OrgCharts. allCLEAR has a single
user license with a list price of $299 with discounts for volume purchases.
Network licenses are available for 5 to 50 users for a one-time fee of $995 to
$7,549. For all licenses, there are discounts for resellers and for government
and academic purchasers. CLEAR Process has a single user license price of $495
and network licenses range from $1,975 to $13,529 with discounts for resellers,
distribution, government, academic, and volume purchases. CLEAR OrgCharts is
sold primarily through retail and OEM channels. The suggested list price is $99
for a single user version; there is no network license available. The Clear
Software products are sold through distribution companies, Ingram Micro and
Micro Central. Distribution companies buy at a significant discount for sale to
bona fide resellers. Approximately 40% of Clear Software's business comes
through distribution companies, corporate resellers, catalog and retail
channels. Clear Software offered, for an additional fee, technical support
beyond the initial 60 days of free support and upgrades.
Clear Software had 20 distributors in markets outside the United States.
These distributors accounted for only about 5% of Clear Software's revenue. They
purchased products from Clear Software at a discount off the U.S. price list.
Two local language versions of allCLEAR are currently available, Czech and
Japanese. Several other local language versions are under development. See
"Recent Developments."
The Jandel products have been added to the other SPSS Science Products,
SYSTAT and BMDP, to form a comprehensive scientific line. The scientific
software's licensing and pricing alternatives vary by product and quantity sold.
SigmaPlot, SigmaStat, TableCurve, PeakFit, and SigmaGel have a single user
license with a list price of $495, with discounts for volume purchases. Network
licenses are available for 2 to 100 users for a one-time fee of $892-$28,700.
For all licenses, there are discounts for resellers and for governmental and
academic purchasers. SigmaScan has a single user price of $995 and network
licenses range from $1,792 to $57,700 with discounts for resellers,
distribution, government, academic, and volume purchases. Pricing of these
products outside of North America is typically higher than domestic prices. All
these products are Windows platform.
Jandel's principal customers are research scientists and engineers from
nearly all disciplines. Accordingly, Jandel markets directly to scientists and
engineers, principally through advertising in scientific and engineering
journals and by direct mail to Jandel's own database of research scientists and
engineers and to lists of prospective customers obtained from third parties.
Jandel also distributes its products through a limited number of specialty
distributors and software retailers. Jandel distributes its products in Europe
through its wholly-owned subsidiary, Jandel Scientific GmbH. At present,
approximately 66% of the Company's sales are in North America, 29% in Europe,
and 5% in the Asia-Pacific area. See "Recent Developments."
Desktop products licensed for use by SPSS in certain countries outside of
North America are secured with an external hardware device that is required for
operation. The Company's Large Systems products, as well as multi-user versions
on UNIX platforms, have for many years been secured with internal codes that
enable product operation when annual licenses are renewed and license fee
payments have been received.
Publications and Student Software
SPSS authors and regularly updates a number of publications that
include user manuals and instructional texts. The Company also develops student
versions of its Windows and Macintosh products which are subsets of the SPSS
Base System and SYSTAT products, designed for classroom use with SPSS textbooks
or with other statistics instructional materials. Since February 1993, most SPSS
publications and student software have been distributed by the College Division
of Prentice Hall under the terms of an exclusive, worldwide agreement. See
"Business- Prentice Hall Agreement."
Training and Consulting
The Company offers a comprehensive training program with courses
covering product operations, statistical concepts and particular statistical
applications. These courses are regularly scheduled in cities around the world.
Organizations may also contract for on-site SPSS training tailored to their
specific requirements. SPSS offers consulting and customization services, where
an engagement may range from assisting a client in generating a single report to
performing a complex data analysis project to tailoring SPSS software for a
particular application.
Sales and Marketing
SPSS sells its products primarily through a well-developed, worldwide
telesales and direct response organization. Advertising, direct mail and
customer references have proven the most effective method of generating new
sales and sales leads. The Company's order-taking group processes orders or
directs leads to sales representatives. Sales representatives work closely with
technical sales personnel
throughout the sales process. Although varying widely, sales of SPSS Desktop
products are typically completed within 30 days and average about $1,400.
The Company's database of existing customers provides an effective
means of selling add-on products, upgrades, and training or consulting services.
Customers regularly receive direct mail from the Company on products and
services. For large sales opportunities, SPSS sales representatives and
technical sales personnel personally visit prospects to make presentations, to
give product demonstrations and to provide pre-sales consulting. The Company
also maintains an office in the Washington, D.C. area focused on sales to the
United States Government. The SPSS international sales operation consists of
eleven sales offices, in Europe and the Pacific Rim, as well as over 60 licensed
distributors. Overall, the Company is represented in over 50 countries.
Transactions are customarily made in local currencies.
SPSS publications and SPSS student versions are published by Prentice
Hall and sold by more than 300 Prentice Hall sales representatives working
directly with faculty on college campuses worldwide. The arrangement also
permits Prentice Hall to bundle its various textbooks on statistics, market
research and quality improvement with SPSS student versions.
Current users of the Company's products comprise a significant source
of new sales leads. Also important are the expert reviews of SPSS software in
trade and market-specific publications. The Company's marketing communications
program includes exhibiting at trade shows, participating in professional
association meetings, sponsoring seminars for prospects and customers,
publishing its customer magazine and conducting user group meetings.
Customer Service and Technical Support
The Company provides extensive customer service and technical support
by telephone, fax, mail and the world wide web, each of which promote customer
satisfaction and obtain feedback on new products and beta releases. Technical
support services provided to all licensees include assistance in product
installation and product operation, as well as limited consulting in the
selection of statistical methods and interpretation of results. Additional
technical support services are available on a fee basis.
Product Development
The Company plans to continue expanding its product offerings through
internal development of new software products and enhancements, acquiring
products, technologies and businesses complementary to the Company's existing
product line, and forming partnerships with value-added resellers or other third
parties serving selected markets.
The Company's team of specialists in user interface design, software
engineering, quality improvement, product documentation and statistics is
responsible for maintaining and enhancing the quality, usability and statistical
accuracy of all SPSS software. The product development organization is also
responsible for authoring and updating all user documentation and other
publications. In addition, the Company maintains ongoing relationships with
third-party software developers and publishers such as Autodesk Software
(graphics technology), XVT Software (interface technology), and WIPRO Systems
(India).
Most statistical algorithms used by the Company in its products are
published for the convenience of its customers. SPSS employs full-time
statisticians who regularly evaluate new algorithms and statistical techniques
for inclusion in the Company's products. SPSS also employs
statistically-trained professionals in its documentation, quality assurance,
software design and software engineering groups.
The Company intends to continue to invest in product development. In
particular, the Company's 1997 development plan includes updates to SPSS for
Windows, updates to its SYSTAT, QI Analyst, SigmaPlot, and allCLEAR new add-on
products, and new products for data mining and survey research applications.
In the past, the Company has experienced delays in the introduction of
new products and product enhancements, primarily due to difficulties with
particular operating environments and problems with software 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 the
Company discovers "bugs" in its products which are resolved through maintenance
releases or periodic updates depending on the seriousness of the defect.
The SPSS product development staff currently includes approximately 117
professionals organized into groups for software design, statistical
development, software engineering, documentation, quality assurance and
computing services. In 1994, 1995 and 1996, the Company's expenditures for
product development, including capitalized software, were approximately $10.8,
$12.5 and $14.1 million, respectively.
The Company also uses independent contractors in its product
development efforts. Sometimes the Company uses such contractors to obtain
technical knowledge and capability that it lacks internally. For example,
contractors are engaged to perform conversions of SPSS products to computing
platforms with which the Company is unfamiliar or which are too costly to
acquire for development purposes. SPSS has also outsourced maintenance,
conversion and new programming for certain products to enable its internal
development staff to focus exclusively on products which are of greater
strategic significance. The Company sometimes uses independent contractors to
augment its development capacity at a lower cost.
Manufacturing and Order Fulfillment
To assure speed and efficiency in the manufacturing, order fulfillment
and delivery of its products, SPSS entered into the IBM Software Distribution
Agreement in February 1993. Since April 1993, all diskette and CD-ROM
duplication, documentation printing, packaging, warehousing, fulfillment and
shipping of SPSS products in the Western Hemisphere has been performed for the
Company by IBM. The Company is in the process of expanding the use of these
services worldwide. SPSS believes that, because of the sizable capacity of the
IBM distribution centers and their around-the-clock operation, the Company can
easily adapt to peak period demand, quickly manufacture new products for
distribution and effectively respond to anticipated sales volumes. In January
1997, the IBM Software Distribution Agreement was replaced with a similar
agreement with Banta Global Turnkey. The Company believes that Banta will
provide the same level of performance as IBM provided.
Competition
The market for statistical software is both highly competitive and
fragmented. SPSS is among the largest companies in the statistical software
market, and, based upon sales and comparative assessments in trade publications,
the Company believes that it competes effectively against its competitors,
particularly on desktop computing platforms. The Company considers its primary
worldwide competitor to be the larger and better-financed SAS Institute ("SAS"),
although the Company believes that SAS's revenues are derived principally from
products for purposes other than statistical analysis and operate on large
systems platforms. StatSoft Inc., developers of the Statistica product
("Statistica"), Manugistics Group, Inc., distributors of the Statgraphics Plus
product ("Statgraphics"), and Minitab, Inc. ("Minitab") are also competitors,
although their annual revenues from these statistical products are believed to
be considerably less than the revenues of SPSS. In addition to competition from
other statistical software companies, SPSS also faces competition from providers
of software for specific statistical applications.
The Company competes primarily on the basis of the usability,
functionality, performance, reliability and connectivity of its software
products. The significance of each of these factors varies depending upon the
anticipated use of the software and the statistical training and expertise of
the customer. To a lesser extent, the Company competes on the basis of price.
SPSS maintains pricing and licensing policies to meet market demand. The Company
believes it is able to compete successfully, especially with its Desktop
products, as a result of the graphical user interface, comprehensive analytical
capabilities, efficient performance characteristics, local language versions,
consistent quality and connectivity features of its software products, as well
as its worldwide distribution capabilities and widely recognized name.
In the future, SPSS may face competition from new entrants into the
statistical software market. The Company could also experience competition from
companies in other sectors of the broader market for data management, analysis
and presentation software, such as providers of spreadsheets, database
management systems, report writers and executive information systems, who could
add enhanced statistical functionality to their existing products. Some of these
potential competitors have significantly more capital resources, marketing
experience and research and development capabilities than SPSS. Competitive
pressures from the introduction of new products by these companies or other
companies could have a material adverse effect on the Company.
Intellectual Property
The Company 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. The Company 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, the
Company licenses its products to end-users by use of a "shrink-wrap" license, as
is customary in the industry. It is uncertain whether such license agreements
are legally enforceable. The source code for all of the Company's products is
protected as a trade secret and as unpublished copyrighted work. In addition,
the Company has entered into confidentiality and nondisclosure agreements with
its key employees. Despite these restrictions, it may be possible for
competitors or users to copy aspects of the Company's products or to obtain
information which the Company regards as a trade secret. The Company has no
patents, and judicial enforcement of copyright laws and trade secrets may be
uncertain, particularly outside of North America. Registrations of selected
Jandel trademarks in Germany have been withdrawn based on an opposition by a
company with registration for "Sigma" for electronic registers. The Company
believes it will be able to use its "Sigma" trademarks on products in Germany.
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.
The Company uses a variety of trademarks with its products. Management
believes there are currently fifteen trademarks in use which are material to the
Company's business: (i) SPSS; (ii) SPSS/PC+; (iii) Categories; (iv) Neural
Connection; (v) QI Analyst; (vi) SPSS Real Stats. Real Easy.; (vii) SYSTAT;
(viii) BMDP; (ix) Jandel Scientific; (x) SigmaPlot; (xi) SigmaStat; (xii)
SigmaScan; (xiii) SigmaGel; (xiv) Jandel; and (xv) CLEAR. SPSS is a registered
trademark used in connection with virtually all of the Company's products, other
than DOS-based products. SPSS/PC+ is an unregistered trademark used in
connection with the Company's DOS-based products. SPSS Categories is a
registered trademark used with the Company's correspondence analysis products on
all platforms. Neural Connection is a registered trademark being used with the
Company's neural network-based product. QI Analyst is the subject of a pending
application for registration and is being used with the Company's new
statistical process control software for Windows. SPSS Real Stats. Real Easy. is
an unregistered trademark used in connection with SPSS products generally.
SYSTAT is a registered trademark used in connection with the Company's SYSTAT
products on all platforms. BMDP is a trademark used in connection with the
Company's BMDP products on all platforms. Jandel Scientific is a registered
trademark used in connection with the Company's recently acquired Jandel
products on all platforms. Jandel is an unregistered trademark used in
connection with the Company's recently acquired Jandel products on all
platforms. SigmaPlot is a registered trademark used in connection with the
Company's recently acquired Jandel products on all platforms. SigmaStat is a
registered trademark used in connection with the Company's recently acquired
Jandel products on all platforms. SigmaScan is a registered trademark used in
connection with the Company's recently acquired Jandel products on all
platforms. SigmaGel is a registered trademark used in connection with the
Company' s recently acquired Jandel Corporation products on all platforms. CLEAR
is a registered trademark used in connection with the Company's recently
acquired CLEAR products on all platforms. Many of the Company's other trademarks
include one of the trademarks described herein. The Company has registered
certain of its trademarks in the United States and certain of its trademarks in
a number of other countries, including the Benelux countries, France, Germany,
the United Kingdom, Japan, Singapore and Spain. Registration of a trademark
confers a number of advantages over reliance on common law rights. Registration
of a trademark generally constitutes prima facie evidence of the validity of the
mark and the registrant's ownership of and exclusive right to use the mark and,
in some jurisdictions, constitutes constructive notice of ownership sufficient
to eliminate any defense of good faith adoption or use after the date of
registration.
Due to the rapid pace of technological change in the software industry,
the Company 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 product development,
frequent product enhancements, name recognition and ongoing reliable product
maintenance and support.
The Company believes that its products and trademarks and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future.
Reliance on Third Parties
The Company has entered into a perpetual nonexclusive license agreement
(the "HOOPS Agreement") with Autodesk Inc. ("Autodesk") that permits the Company
to incorporate a graphics software program known as the HOOPS Graphics System
into the Company's products. Under the terms of the HOOPS Agreement, the Company
is currently required to pay royalties to Autodesk based on the amount of
revenues received by the Company from products which incorporate the HOOPS
Graphics
System. The Company may terminate the HOOPS Agreement at any time. Autodesk may
terminate the HOOPS Agreement on the occurrence of a material, uncured breach of
the HOOPS Agreement by SPSS.
The Company also licenses certain other software programs from
third-party developers and incorporates them into the Company's products. Many
of these are exclusive worldwide licenses which terminate upon varying dates.
The Company believes that it will be able to renew non-perpetual licenses or
that it will be able to obtain substitute products if needed.
The Company currently has contracts with companies based in India and
other foreign countries, which provide software development and engineering
services. These companies are providing such services for the development of new
components of the graphical user interface used in the Company's products and
for porting the Company's product to certain UNIX/Motif platforms. The Company
may increase the amount of software development and engineering work performed
by third-party contractors in India, or elsewhere, in the future.
IBM Software Distribution Agreement
In February 1993, the Company entered into the IBM Software
Distribution Agreement (the "IBM Agreement"), under which IBM manufactures and
packages the Company's software products and distributes the Company's software
products to the Company's domestic and international customers and certain
international subsidiaries. The IBM Agreement has a five-year term, and the
Company may terminate it upon 90 days' written notice. IBM may terminate the IBM
Agreement only for cause, also upon 90 days' written notice. If IBM discontinues
its software manufacturing and distribution business during the term of the IBM
Agreement, IBM may, at its option, find a suitable replacement vendor for the
Company, or pay the Company liquidated damages. If IBM materially breaches the
IBM Agreement, it is required to reimburse the Company for certain amounts
reasonably incurred by the Company to cure customer satisfaction problems caused
by the breach and to re-establish the Company's software manufacturing and
distribution capabilities. In January 1997, the Company replaced the IBM
Agreement with a similar agreement with Banta Global Turnkey. See "Recent
Developments" for further discussion of the new agreement.
Prentice Hall Agreement
The Company entered into the Prentice Hall Agreement (the "Agreement")
in February 1993. Under this Agreement, the Company granted to Prentice Hall the
exclusive, worldwide right to publish and distribute all SPSS publications,
including student versions of SPSS for DOS and Windows. The Company received
advance royalty payments in the amount of $4 million, payable as follows: (i)
$1.6 million was paid upon execution of the Agreement, (ii) $1.6 million was
paid in January 1994, and (iii) $800,000 was paid in February 1995. The
Agreement also provides for reductions in advance royalties if operational
versions of the student software are not delivered to Prentice Hall by specified
dates, and for additional advance royalties for new types of student software
developed by the Company. The Agreement has an initial five-year term which ends
in 1998, with an option to renew for an additional five years under certain
conditions.
Computer Software Development Company
In 1981, the Company entered into a software development agreement with
the Computer Software Development Company ("CSDC") to obtain funding of
approximately $2 million for development of software including two Large Systems
products, SPSS Graphics and SPSS Tables, and one Desktop product, SPSS/PC+
Tables. The Company entered into two software purchase agreements
with CSDC, under which the Company is required to pay CSDC royalties through the
year 2001 based on a percentage of "net revenues" (as defined in the agreements)
from Large Systems software products developed with CSDC funds. Under these
agreements, the Company incurred to CSDC royalties of approximately $260,000,
$274,000 and $255,000 in 1994, 1995 and 1996, respectively. Norman Nie, the
Chairman of the Board of the Company, is a limited partner of CSDC.
Seasonality
The Company's 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, purchasing
schedules of its customers, changes in foreign currency exchange rates, product
and market development expenditures, the timing of product shipments, changes in
product mix, timing and cost of acquisitions and general economic conditions.
Because the Company's expense levels are to a large extent based on its
forecasts of future revenues, operating results may be adversely affected if
such revenues fall below expectations. Accordingly, the Company 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.
The Company 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 shipped and licenses renewed in that
quarter. The Company has experienced a seasonal pattern in its operating results
with the fourth quarter typically having the highest operating income. For
example, excluding acquisition and other nonrecurring charges, the percentage of
the Company's operating income realized in the fourth quarter was 41% in 1994,
41% in 1995, and 39% in 1996. In addition, the timing and amount of the
Company's revenues are subject to a number of factors that make estimation of
operating results prior to the end of a quarter uncertain. A significant portion
of the Company's operating expenses are relatively fixed, and planned
expenditures are based primarily on revenue forecasts. More specifically, in the
fourth quarter, the variable profit margins on modest increases in sales volume
at the end of the quarter are significant. Should the Company fail to achieve
such fourth quarter revenue increases, net income for the fourth quarter and the
full year could be materially reduced. Generally, if revenues do not meet the
Company's expectations in any given quarter, operating results will be adversely
affected. Although the Company has been profitable in each of the eight quarters
up to and including the quarter ending June 30, 1994, the Company experienced a
net loss of $331,000 in the third quarter of 1994 due to a one-time write-off of
$1,928,000 for acquired and in-process technology and other acquisition-related
charges recorded in connection with the Company's acquisition of SYSTAT.
However, the Company has been profitable in the nine quarters ending December
31, 1994 through December 31, 1996. There can be no assurance that profitability
on a quarterly or annual basis can be achieved or sustained in the future.
Employees
The Company has approximately 535 employees (approximately 344
domestically and approximately 191 internationally), including approximately 324
in sales and marketing, approximately 117 in product development and
approximately 94 in general and administrative. The Company believes it has
generally good relationships with its employees. None of its employees are
members of labor unions.
Financial Information About Foreign and Domestic Operations and Export Sales
The following table sets forth financial information about foreign and
domestic operations. Such information may not necessarily be indicative of
trends for future periods.
Year ended December 31,
-----------------------------------------------------------
1994 1995 1996
----------------- ------------------ ------------------
Sales to unaffiliated customers:
United States $ 34,201,000 $ 36,851,000 $ 41,574,000
Europe & India 21,124,000 26,158,000 28,720,000
Pacific Rim 7,269,000 10,785,000 13,695,000
----------------- ------------------ ------------------
Total $ 62,594,000 $ 73,794,000 $ 83,989,000
================= ================== ==================
Sales or transfers between geographic areas:
United States $ 12,080,000 $ 15,003,000 $ 16,914,000
Europe & India (9,082,000) (10,931,000) (11,772,000)
Pacific Rim (2,998,000) (4,072,000) (5,142,000)
----------------- ------------------ ------------------
Total $ -- $ -- $ --
================= ================== ==================
Operating income
United States $ 6,072,000 $ 4,687,000 $ 6,409,000
Europe & India 380,000 604,000 1,642,000
Pacific Rim 53,000 1,245,000 2,460,000
----------------- ------------------ ------------------
Total $ 6,505,000 $ 6,536,000 $ 10,511,000
================= ================== ==================
As of December 31,
1994 1995 1996
----------------- ------------------ ------------------
Identifiable assets:
United States $ 24,225,000 $ 33,471,000 $ 36,214,000
Europe & India 7,010,000 8,083,000 11,018,000
Pacific Rim 3,082,000 2,463,000 4,803,000
----------------- ------------------ ------------------
Total $ 34,317,000 $ 44,017,000 $ 52,035,000
================= ================== ==================
The Company's revenues from operations outside of North America
accounted for approximately 45%, 50% and 50% of the Company's revenues in 1994,
1995 and 1996, respectively. The Company 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. International operations are subject to various risks,
including 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. The Company 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 the Company
expands its international operations, the risks described above could increase
and, in any event, could have a material adverse effect on the Company. See
"Business - Sales and Marketing," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and Note 2, International
Subsidiaries, of the "Notes to Consolidated Financial Statements."
Item 2. Properties
The Company's principal administrative, marketing, training and product
development and support facilities are located in Chicago, Illinois and consist
of an aggregate of approximately 64,000 square feet, subject to leases
terminating in October 1998. The aggregate annual gross rental payments on these
leases were approximately $1,789,000.
In addition, the Company leases sales office space in California,
Massachusetts, Virginia, The Netherlands, The United Kingdom, Germany, Sweden,
France, Singapore, Australia, Japan, and India. During 1996, the United Kingdom
offices were moved to larger facilities within the United Kingdom.
Apart from its offices in Australia, France and Japan, which the Company
plans to move to larger facilities in 1997, SPSS believes its facilities are
adequate for its present needs.
Item 3. Legal Proceedings
Currently there are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or to which any of their property
is the subject.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders.
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
sets forth, for the periods indicated, the high and low closing sale prices
for the Company's Common Stock.
Year ended December 31, 1995
- --------------------------------------------
First Quarter 13 1/2 11 3/8
Second Quarter 15 3/4 12 1/4
Third Quarter 17 1/4 14 5/8
Fourth Quarter 19 5/8 16 5/8
Year ended December 31, 1996
- --------------------------------------------
First Quarter 19 14
Second Quarter 26 1/8 18 1/4
Third Quarter 28 5/8 17 5/8
Fourth Quarter 31 1/8 26 1/4
Year ended December 31, 1997
- --------------------------------------------
First Quarter (through March 17, 1997) 32 7/8 25
As of March 17, 1997, there were 283 holders of record of the Company's Common
Stock.
SPSS has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain its earnings to fund future
ongoing operations and future capital requirements of its businesses and
therefore, does not anticipate paying any cash dividends in the foreseeable
future. See "Management's Discussion and Analysis of Financial Conditions and
Results of Operations-Liquidity and Capital Resources."
Recent Sales of Unregistered Securities
On September 26, 1996, SPSS acquired Clear Software, a Massachusetts
corporation, for SPSS Common Stock valued at approximately $4.5 million in a
merger accounted for as a pooling of interests. Pursuant to an Agreement and
Plan of Merger, dated September 23, 1996, among SPSS, Clear Software and the
shareholders of Clear Software, a wholly owned subsidiary of SPSS was merged
into Clear Software, with Clear Software as the surviving corporation. The sale
of stock to the Clear Software shareholders was exempt from registration
pursuant to Section 4(2) of the Securities Act because the sale did not involve
a public offering of stock. A Registration Statement on Form S-3 was
subsequently filed and became effective on February 17, 1997.
Item 6. Selected Consolidated Financial Data
The selected consolidated financial data presented below for, and as of
the end of, each of the years in the five-year period ended December 31, 1996
are derived from the Consolidated Financial Statements of the Company, which
Consolidated Financial Statements have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The Consolidated Financial Statements
as of December 31, 1995 and 1996, and for each of the years in the three-year
period ended December 31, 1996, and the report thereon of KPMG Peat Marwick LLP,
are included elsewhere in this Form 10-K.
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------- ------------ --------------- --------------- ---------------
(in thousands, except net earnings(loss) per share data)
Net revenues:
Desktop products (1) $28,071 $35,536 $45,942 $56,866 $66,267
Large System products (1) 13,911 11,785 10,835 10,694 10,739
Other products and services (1) 4,224 4,853 5,817 6,234 6,983
------------- ------------ --------------- --------------- ---------------
Net revenues 46,206 52,174 62,594 73,794 83,989
Cost of revenues 7,077 6,663 7,243 7,709 8,455
------------- ------------ --------------- --------------- ---------------
Gross profit 39,129 45,511 55,351 66,085 75,534
------------- ------------ --------------- --------------- ---------------
Operating expenses:
Sales and marketing 22,393 24,743 32,109 38,892 41,345
Product development 7,916 8,330 9,215 10,863 13,066
General and administrative 5,441 5,289 5,594 6,277 6,976
Write-off of purchased software (2) 3,071 - - - -
Nonrecurring items (3) - - - 2,466 -
Acquisition-related charges (4) - - 1,928 1,051 3,636
------------- ------------ --------------- --------------- ---------------
Operating expenses 38,821 38,362 48,846 59,549 65,023
------------- ------------ --------------- --------------- ---------------
Operating income 308 7,149 6,505 6,536 10,511
Net interest income (expense) (2,566) (1,682) (229) 176 409
Other income (expense) (5) (1,647) (390) (128) 132 (134)
------------- ------------ --------------- --------------- ---------------
Income (loss) before income taxes (3,905) 5,077 6,148 6,844 10,786
Provision for income taxes 217 1,357 2,192 2,969 3,604
------------- ------------ --------------- --------------- ---------------
Net income (loss) ($4,122) $3,720 $3,956 $3,875 $7,182
============= ============ =============== =============== ===============
Net earnings (loss) per share ($0.96) $0.70 $0.56 $0.48 $0.85
============= ============ =============== =============== ===============
Shares used in per share calculation 4,307 5,306 7,035 8,085 8,402
============= ============ =============== =============== ===============
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------- ------------ --------------- --------------- ---------------
(in thousands)
Balance Sheet Data:
Working capital (deficit) ($13,983) ($9,396) ($8,676) $4,995 $10,538
Total assets 17,324 23,996 34,317 44,017 52,035
Long-term obligations,
less current portion 13,890 1,814 2,851 2,334 2,279
Total stockholders' equity (deficit) (19,804) 32 5,430 18,488 26,527
- -----------------------------------
(1) Desktop products include those operating on Windows, DOS, Macintosh and
OS/2 operating environments. Large Systems products include those operating
on mainframes and minicomputers under proprietary operating systems, as
well as UNIX platforms. Other products and services include training,
consulting, publications sales and, in 1993, 1994 and 1995, advance
royalties from Prentice Hall.
(2) Write-off in June 1992 of software purchased as part of the 1990
recapitalization of the Company (the "Recapitalization"), totaling
$3,071,000.
(3) Write-off principally of certain software assets capitalized more than two
years ago totaling $2,466,000 in 1995.
(4) Write-off in September 1994 and December 1995 of acquired and in-process
technology and other acquisition-related charges totaling $1,928,000 and
$1,051,000, respectively; and in September and December of 1996,
acquisition-related charges totaling $3,636,000.
(5) Includes certain nonrecurring charges relating mainly to the amortization
of fees incurred in connection with the Recapitalization and the stock
appraisal action, as well as certain gains and losses on currency
transactions.
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 the Company was incorporated in 1975. The first SPSS products were
almost exclusively used by academic researchers working on mainframe systems.
The Company has 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, acquired
four corporate entities and product offerings, and adapted its products to
changing hardware and software technologies. SPSS software was adapted to
minicomputers in the late 1970s and to desktop platforms, including high-end
workstations and personal computers, in the mid-1980s. In June 1992, the Company
introduced its first windows-based graphical user interface product, SPSS for
Windows, which it has since updated three times, and released versions for
Macintosh computers and major UNIX/Motif platforms. Approximately 52% of the
current SPSS customer base works in corporate settings, with another 31% in
academic institutions and 17% in government agencies. The SPSS sales and
marketing force now numbers more than 320 professionals in 15 Company offices
worldwide.
In recent years SPSS has experienced a significant shift in the sources
of its revenues. Between 1992 and 1996, Desktop product license revenues
increased from approximately 61% to 79% of total net revenues, while Large
Systems software license revenues declined from approximately 30% to 13%. Gross
margins associated with the Company's Desktop products are slightly lower than
those associated with its Large Systems products. Shifts in the product mix may,
as a result, cause fluctuations in gross margins. In addition, the portion of
the Company's net revenues derived from international operations increased from
42% to 50% between 1992 and 1996. Management expects these trends to continue in
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- International Operations."
Results of Operations
The following table sets forth certain statement of operations data as
a percentage of net revenues for the years indicated.
------------------------------------------------------------------------
1992 1993 1994 1995 1996
------------ ------------ ----------------------------------------
Net revenues:
Desktop products 60.8% 68.1% 73.4% 77.1% 78.9%
Large System products 30.1% 22.6% 17.3% 14.5% 12.8%
Other products and services 9.1% 9.3% 9.3% 8.4% 8.3%
------------ ------------ ------------ ------------ ------------
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 15.3% 12.8% 11.6% 10.4% 10.1%
------------ ------------ ------------ ------------ ------------
Gross profit 84.7% 87.2% 88.4% 89.6% 89.9%
------------ ------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 48.5% 47.4% 51.3% 52.7% 49.2%
Product development 17.1% 16.0% 14.7% 14.7% 15.6%
General and administrative 11.8% 10.1% 8.9% 8.5% 8.3%
Write-off of purchased software 6.6% - - - -
Nonrecurring items - - - 3.4% -
Acquisition-related charges - - 3.1% 1.4% 4.3%
------------ ------------ ------------ ------------ ------------
Operating expenses 84.0% 73.5% 78.0% 80.7% 77.4%
------------ ------------ ------------ ------------ ------------
Operating income 0.7% 13.7% 10.4% 8.9% 12.5%
Net interest income (expense) (5.5%) (3.2%) (0.4%) 0.2% 0.5%
Other income (expense) (3.6%) (0.8%) (0.2%) 0.2% (0.2%)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes (8.4%) 9.7% 9.8% 9.3% 12.8%
Provision for income taxes 0.5% 2.6% 3.5% 4.0% 4.3%
------------ ------------ ------------ ------------ ------------
Net income (loss) (8.9%) 7.1% 6.3% 5.3% 8.5%
============ ============ ============ ============ ============
Comparison of Twelve Months Ended December 31, 1994, 1995 and 1996.
Net Revenues. Net revenues increased from $62,594,000 in 1994 to $73,794,000 in
1995 and to $83,989,000 in 1996, increases of 18% and 14%, respectively. These
increases were primarily due to an increase in Desktop revenues of 24% in 1995
and 17% in 1996. Large System revenues decreased 1% in 1995 and remained flat in
1996. The increase in Desktop revenues reflected $31,438,000 in 1995 and
$38,000,000 in 1996 of new revenues from licenses of SPSS for Windows; revenues
from Jandel products were flat between 1995 and 1996. In addition, revenues from
annual license renewals of Desktop products increased by $3,223,000 in 1995 and
$3,451,000 in 1996, primarily reflecting a $3,203,000 and $4,178,000 increase in
annual license revenues for SPSS for Windows in 1995 and 1996, respectively. The
decline in Large Systems revenues in 1995 was primarily due to the nonrenewal of
product licenses on mainframe platforms. Revenues from other products and
services increased by 7% in 1995 due to an increase of 30% in revenues from
training and consulting services, partially offset by a 49% decrease in revenues
from publications and student products due to the end of the payment of
guaranteed royalties from the Prentice Hall Agreement. The Company is no longer
entitled to such guaranteed royalties under the Agreement between the Company
and Prentice Hall and now only receives actual royalties under the Prentice Hall
Agreement. Revenues were aided by changes in foreign currency exchange rates in
1995 but adversely affected by foreign currency exchange rates in 1996. In 1996,
revenues from other products and services increased by 12% due to an increase of
21% in revenues from training and consulting services, partially offset by a 49%
decrease in revenues from publications and student products due to the end of
the payment of guaranteed royalties from the Prentice Hall Agreement in July
1995.
Cost of Revenues. Cost of revenues consists of costs of goods sold, amortization
of capitalized software development costs, and royalties paid to third parties.
Cost of revenues increased from $7,243,000 in
1994 to $7,709,000 in 1995, to $8,455,000 in 1996. Such costs increased 6% in
1995 and 10% in 1996 due to higher sales levels and higher royalties paid to
third parties. As a percentage of net revenues, cost of revenues decreased from
12% in 1994 to 10% in 1995 and 1996.
Sales and Marketing. Sales and marketing expenses increased from $32,109,000 in
1994 to $38,892,000 in 1995 and to $41,345,000 in 1996, an increase of 21% in
1995 and 6% in 1996. These increases were due to expansion of the domestic and
international sales organizations, and salary and commission increases, and in
1995 the negative effects of changes in foreign currency exchange rates. As a
percentage of net revenues, sales and marketing expenses increased from 51% in
1994 to 53% in 1995 but decreased to 49% in 1996.
Product Development. Product development expenses increased from $9,215,000 in
1994 to $10,863,000 in 1995 and to $13,066,000 in 1996 (net of the effect of
capitalized software development costs of $1,639,000, $1,630,000 and $1,082,000,
respectively) an increase of 18% in 1995 and an increase of 20% in 1996. In the
same periods, the Company's expense for amortization of capitalized software and
product translations, included in cost of revenues, was $1,239,000, $1,592,000
and $1,561,000, respectively. The increases in product development expenses were
primarily due to salary and recruiting fee increases, higher depreciation
expense related to the purchase of capital equipment used in product development
and other additions to the product development staff. As a percentage of net
revenues, product development expenses remained constant at 15% in 1994 and
1995, but increased to 16% in 1996.
General and Administrative. General and administrative expenses increased from
$5,594,000 in 1994 to $6,277,000 in 1995 and to $6,976,000 in 1996, an increase
of 12% in 1995 and 11% in 1996. These increases were primarily attributable to
increases in bad debt expense, employment taxes, employee insurance, temporary
employment and rent expense. Such expense decreased as a percentage of net
revenues from 9% in 1994 and 1995 to 8% in 1996.
Nonrecurring Items. A nonrecurring charge of $2,466,000 was recorded in 1995
primarily related to the revaluation of certain assets capitalized prior to the
Company's IPO in August 1993. Approximately $1,343,000 of this charge related to
the development of UNIX products, approximately $178,000 to the initial
development of QI Analyst, and approximately $347,000 related to the Japanese
translation of SPSS for DOS. In addition, approximately $200,000 of the charge
related to out-dated software purchased for the Company's customer information
system. The remainder related primarily to shut down and moving costs at
subsidiary locations.
Acquisition-related Charges. Charges related to the acquisition of SYSTAT in
1994 and BMDP in 1995 totaled $1,928,000 and $1,051,000, respectively, and
represented one-time write-offs of acquired and in-process technology and other
acquisition-related charges. Charges of $3,636,000 in 1996 related to the
acquisition of CLEAR and Jandel totaling $1,471,000 and $2,165,000,
respectively, and represented severance, restructuring and professional fee
charges.
Net Interest Income (Expense). Net interest income (expense) was ($229,000) in
1994 due to interest expense related to the Company's line of credit, which was
repaid through the use of net proceeds from the Company's follow-on public
offering of stock in February 1995. Net interest income was $176,000 in 1995 and
$409,000 in 1996 due to interest earned on short-term investments.
Other Income (Expense). Other income (expense) consists mainly of foreign
exchange transactions and expenses related to the stock appraisal action. Such
other items were ($128,000) in 1994, $132,000 in 1995 and ($134,000) in 1996.
The 1994 net amount consisted of expenses of $248,000 related to foreign
exchange transactions, offset by $186,000 in proceeds from a Japanese insurance
claim settlement. The 1995 and 1996 net amounts were primarily foreign currency
transaction gains (losses).
Provision for Income Taxes. The provision for income taxes consisted of
$2,192,000 in 1994, $2,969,000 in 1995 and $3,604,000 in 1996. During 1994, the
provision for income taxes was the result of pretax income of $6,148,000 and
represented a tax rate of approximately 36% of pretax income. During 1995, the
provision for income taxes was the result of pre-tax income of $6,844,000,
reflecting a tax rate of approximately 38% of pre-tax income, excluding the
effect of Japanese withholding taxes of $336,000 on monies transferred out of
Japan in 1995. During 1996, the provision for income taxes was the result of
pre-tax income of $10,786,000 and represented a tax rate of approximately 39%,
excluding the effect of Japanese withholding taxes of $372,000 on monies
transferred out of Japan in 1996 and the revaluation in allowances for deferred
tax assets.
Liquidity and Capital Resources
The Company had no long-term debt as of December 31, 1996 and held
approximately $12,621,000 of cash and short term investments. Funds in 1995 and
1996 were used in operations, for acquisitions and to finance capital
expenditures incurred in connection with staff additions, which required
additional office space, furniture and computers. Capital expenditures were also
made for additional computer hardware and software associated with software
development.
The Company currently has a $5,000,000 unsecured line of credit under a
Credit Agreement with Bank of America N.T.S.A. ("B of A") under which borrowings
bear interest at B of A's reference rate (8.25% per annum as of March 17, 1997).
As of December 31, 1996, the Company had no borrowings under the Credit
Agreement. The Company used the net proceeds from the February 1995 public
offering of Common Stock to repay its borrowings under the Credit Agreement and
$5 million of unused credit is available thereunder. The Credit Agreement
requires the Company to comply with certain specified financial ratios and
tests, and restricts the Company's ability to, among other things: (i) pay
dividends or make distributions, (ii) incur additional indebtedness, (iii)
create liens on assets, (iv) make investments, (v) engage in mergers,
acquisitions or consolidations, (vi) sell assets, and (vii) engage in certain
transactions with affiliates.
The Company anticipates the amounts available from cash and short term
investments 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 the Company on favorable terms or at all.
The Company's capital expenditures, primarily for computer equipment,
totaled approximately $3,300,000 in 1996 and are projected to total
approximately $3,500,000 and $3,500,000 in 1997 and 1998, respectively. Capital
expenditures during 1996, included, among other things, new computer systems for
use in internal product development. Capital expenditures during 1997 will
include, among other things, new computers primarily for use in internal product
development, replacement of the customer information system software,
furnishings and other equipment related to the move of the Company's facilities
in Australia, France and Japan. The Company does not believe that the
implementation of its business strategy will require substantial additional
capital expenditures in comparison with historical levels of product development
costs and other expenses.
International Operations
Significant growth in the Company's international operations also
occurred from 1992 to 1996. Revenues from international operations comprised
approximately 42% of total net revenues in 1992, whereas revenues from
international operations contributed 50% of total net revenues in 1996.
Following the reorganization of its international operations in 1990,
the Company has maintained substantially the same telesales and direct response
organization worldwide. The international sales organization uses more
independent distributors than the domestic sales organization, primarily in
countries without an SPSS sales office. Management believes the profit margins
associated with SPSS's domestic and international operations are essentially the
same.
As international revenues increase, the Company may experience
additional foreign currency exchange risk.
Item` 8. Financial Statements and Supplementary Data
SPSS Inc. and Subsidiaries
INDEX
Page
Independent Auditors' Report........................................... 27
Consolidated Balance Sheets as of December 31, 1995 and 1996........... 28
Consolidated Statements of Income for the years ended
December 31, 1994, 1995 and 1996................................... 29
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996................................... 30
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996................................... 31
Notes to Consolidated Financial Statements............................. 32
Financial Statement Schedule:
Schedule II Valuation and qualifying accounts....................... 45
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
financial statements or related notes.
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 financial statement schedule as listed in the accompanying index. These
consolidated financial statements and the 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 financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles. Also in our opinion, the related 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.
/s/KPMG Peat Marwick LLP
Chicago, Illinois
February 19, 1997
SPSS Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
-----------------------------
1995 1996
------------- --------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 11,175 $ 12,621
Accounts receivable, net of allowances of $911 in 1995 and $1,691 in 1996 13,694 17,746
Inventories 1,763 1,900
Prepaid expenses and other current assets 1,558 1,500
------------- --------------
Total current assets 28,190 33,767
------------- --------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Furniture, fixtures, and office equipment 3,785 3,979
Computer equipment and software 9,870 12,228
Leasehold improvements 1,413 1,593
------------- --------------
15,068 17,800
Less accumulated depreciation and amortization 10,335 12,261
------------- --------------
Net equipment and leasehold improvements 4,733 5,539
------------- --------------
Capitalized software development costs, net of accumulated amortization 6,839 7,036
Goodwill, net of accumulated amortization 2,213 2,173
Deferred income tax assets -- 1,245
Other assets 2,042 2,275
------------- --------------
$ 44,017 $ 52,035
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 75 $ --
Accounts payable 3,277 3,783
Accrued royalties 496 520
Accrued rent 921 651
Other accrued liabilities 9,255 7,989
Income taxes and value added taxes payable 2,262 3,401
Customer advances 295 121
Deferred revenues 6,614 6,764
------------- --------------
Total current liabilities 23,195 23,229
------------- --------------
Deferred income taxes 2,015 2,245
Other non-current liabilities 319 34
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 50,000,000 shares authorized; 7,633,131 and
7,726,597 shares issued and outstanding at December 31, 1995 and
December 31, 1996, respectively 76 77
Additional paid-in capital 40,352 41,374
Cumulative foreign currency translation adjustments (699) (612)
Accumulated deficit (21,241) (14,312)
------------- --------------
Total stockholders' equity 18,488 26,527
Commitments (note 6)
------------- --------------
$ 44,017 $ 52,035
============= ==============
The accompanying notes are an integral part of these consolidated
financial statements.
SPSS Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
Year ended December 31,
--------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
Net revenues:
Desktop products $ 45,942 $ 56,866 $ 66,267
Large System products 10,835 10,694 10,739
Other products and services 5,817 6,234 6,983
-------------- -------------- --------------
Net revenues 62,594 73,794 83,989
Cost of revenues 7,243 7,709 8,455
-------------- -------------- --------------
Gross profit 55,351 66,085 75,534
-------------- -------------- --------------
Operating expenses:
Sales and marketing 32,109 38,892 41,345
Product development 9,215 10,863 13,066
General and administrative 5,594 6,277 6,976
Nonrecurring items -- 2,466 --
Acquisition-related charges 1,928 1,051 3,636
-------------- -------------- --------------
Operating expenses 48,846 59,549 65,023
-------------- -------------- --------------
Operating income 6,505 6,536 10,511
-------------- -------------- --------------
Other income (expense):
Interest income 132 305 462
Interest expense (361) (129) (53)
Other (128) 132 (134)
-------------- -------------- --------------
Other income (expense) (357) 308 275
-------------- -------------- --------------
Income before income taxes 6,148 6,844 10,786
Income tax expense 2,192 2,969 3,604
-------------- -------------- --------------
Net income $ 3,956 $ 3,875 $ 7,182
============== ============== ==============
Net earnings per share $ 0.56 $ 0.48 $ 0.85
============== ============== ==============
Weighted average common stock and common
stock equivalent shares outstanding 7,034,586 8,085,459 8,402,426
============== ============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
SPSS Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
Year ended December 31,
--------------------------------------------------
1994 1995 1996
--------------- --------------- --------------
Common stock, $.01 par value:
Balance at beginning of period $ 65 $ 67 $ 76
Issuance of 150,000 and 2,334 shares of common stock in 1994
and 1995, respectively 2 -- --
Public offering of 908,287 shares of common stock -- 9 --
Exercise of stock options -- -- 1
--------------- --------------- --------------
Balance at end of period $ 67$ 76 $ 77
--------------- --------------- --------------
Additional paid in capital:
Balance at beginning of period $ 29,322$ 30,929 $ 40,352
Issuance of 150,000 and 2,334 shares of common stock in
1994 and 1995, respectively 1,226 6 --
Public offering of 908,287 shares of common stock -- 9,118 --
Sale of common stock to the Employee Stock Purchase and
and 401(k) Plans 265 141 184
Exercise of stock options and other 36 40 326
Income tax benefit related to stock options and Employee
Stock Purchase Plan 44 117 358
Undistributed earnings related to business combination 36 1 154
--------------- --------------- --------------
Balance at end of period $ 30,929$ 40,352 $ 41,374
--------------- --------------- --------------
Foreign currency translation adjustment:
Balance at beginning of period $ (332)$ (463) $ (699)
Translation adjustment (131) (236) 87
--------------- --------------- --------------
Balance at end of period $ (463)$ (699) $ (612)
--------------- --------------- --------------
Accumulated deficit:
Balance at beginning of period $ (29,023)$ (25,103) $ (21,241)
Net income 3,956 3,875 7,182
Undistributed earnings related to business combination (36) (1) (154)
Dividends declared -- (12) (99)
--------------- --------------- --------------
Balance at end of period $ (25,103)$ (21,241) $ (14,312)
--------------- --------------- --------------
Total stockholders' equity $ 5,430$ 18,488 $ 26,527
=============== =============== ==============
The accompanying notes are an integral part of these
consolidated financial statements.
SPSS Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended December 31,
----------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
Cash flows from operating activities:
Net income $ 3,956 $ 3,875 $ 7,182
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,469 4,675 4,929
Stock option compensation expenses -- 21 --
Deferred income taxes 612 (176) (1,015)
Write-off of software development costs and
other assets -- 2,281 --
Write-off of acquired and in-process technology 1,741 851 --
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable (3,122) (1,578) (4,052)
Inventories 181 (134) (137)
Accounts payable (1,529) (1,780) 506
Accrued royalties (5) (23) 24
Accrued expenses (992) (487) (1,118)
Other (113) 21 (121)
--------------- --------------- ---------------
Net cash provided by operating activities 4,198 7,546 6,198
--------------- --------------- ---------------
Cash flows from investing activities:
Capital expenditures, net (2,436) (2,838) (3,271)
Capitalized software development costs (3,219) (2,504) (1,758)
Net (payments) receipts related to acquisitions (149) 46 (418)
Net (increase) decrease in other assets (31) 14 --
--------------- --------------- ---------------
Net cash used in investing activities (5,835) (5,282) (5,447)
--------------- --------------- ---------------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements 1,467 (2,890) (75)
Proceeds from issuance of common stock 301 10,512 511
Costs of issuance of common stock -- (1,205) --
Income tax benefit from stock option exercises 44 117 358
Principal repayment under capital lease obligations (3) -- --
Repayment of notes payable to related parties (38) -- --
Repurchase of common stock -- (14) --
Other -- (19) (99)
--------------- --------------- ---------------
Net cash provided by financing activities 1,771 6,501 695
--------------- --------------- ---------------
Net change in cash and cash equivalents 134 8,765 1,446
Cash and cash equivalents at beginning of period 2,276 2,410 11,175
--------------- --------------- ---------------
Cash and cash equivalents at end of period $ 2,410 $ 11,175 $ 12,621
=============== =============== ===============
Supplemental disclosures of cash flow information:
Interest paid $ 237 $ 142 29
Income taxes paid 750 3,459 $ 3,112
=============== =============== ===============
Supplemental disclosures of non-cash activity:
Issuance of common stock for the purchase of
SYSTAT, Inc. (2) -- --
=============== =============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
SPSS Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) Description of Business
SPSS Inc. (the "Company") develops, markets, and supports statistical
software products and services that enable the effective use of marketplace and
enterprise data in decision making. The primary users of the Company's software
are managers and data analysts in corporate settings, governmental and academic
institutions. The Company markets its products and services worldwide.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of SPSS Inc. and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
(c) Use of Estimates
Management of the Company 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 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 recognizes revenue from Desktop product licenses, net of an
allowance for estimated returns and cancellations, at the time the software is
delivered. Revenue from Large System 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 Desktop product and Large System product
licenses, is recognized ratably over the term of the related PCS agreements.
Certain Desktop product licenses include commitments for insignificant
obligations, such as technical and other support, for which an accrual is
provided.
Revenue from consulting, publications, and other items included in
other revenue is recognized as the related products or services are delivered or
rendered.
(e) Software Development Costs
Software development costs incurred by the Company in connection with
the Company's long-term development projects are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86. The Company 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. The Company reviews capitalized software development costs each
period and, if necessary, reduces the carrying value of each product to its net
realizable value.
(f) Computation of Net Earnings per Share
The net earnings per common and common equivalent share for the years
ended December 31, 1994, 1995 and 1996 has been computed using the weighted
average number of common and dilutive common equivalent shares outstanding for
each year (7,034,586, 8,085,459 and 8,402,426 shares, respectively). Common
equivalent shares consist of the shares issuable upon exercise of stock options
(using the treasury stock method).
(g) Depreciation and Amortization
Depreciation of furniture and equipment is provided 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
The Company follows SFAS No. 109, Accounting for Income Taxes. SFAS No.
109 requires 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. Under SFAS No. 109, 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
Prior to January 1, 1996, the Company accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded on the date of
grant only if the current market price of the underlying shares exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123 Accounting
for Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB No. 25 and provide pro forma net income disclosures for
employee stock option grants made in 1995 and future years as if the fair-value
based method defined in SFAS No. 123 had been applied. The Company has elected
to continue to apply the provisions of APB Opinion No. 25 and provide the pro
forma disclosure provisions of SFAS No. 123.
(j) Inventories
Inventories, consisting of finished goods, are stated at the lower of
cost or market. Cost is determined using the first-in, first-out method.
(k) Goodwill
The excess of the cost over the fair value of net assets acquired is
recorded as goodwill and amortized on a straight-line basis over 10 to 15
years. Accumulated amortization was $363,000 and $683,000 as of December
31, 1995 and 1996, respectively.
(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 included in stockholders' equity. Gains or losses resulting from
foreign currency transactions are included in "other income and expense" in the
statement of income.
(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 less than three months.
(o) 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. 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. The Company has determined that as
of December 31, 1996, there has been no impairment in the carrying values of the
long-lived assets.
(p) Reclassifications
Where appropriate, certain items relating to the prior years have been
reclassified to conform to the presentation in the current year.
(2) International Subsidiaries
The net assets, net revenues and net earnings of international subsidiaries
as of and for the years ended December 31, 1994, 1995 and 1996 ncluded in the
consolidated financial statements are summarized as follows:
December
31,
--------------------------------------------------------------
1994 1995 1996
------------------ ------------------ -----------------
Working capital (deficit) $ (5,541,000) $ (3,407,000) $ (404,000)
================== ================== =================
Excess of noncurrent assets over
noncurrent liabilities $ 2,694,000 $ 2,512,000 $ 3,168,000
================== ================== =================
Net revenues $ 28,393,000 $ 36,943,000 $ 42,415,000
================== ================== =================
Net earnings $ 270,000 $ 841,000 $ 2,846,000
================== ================== =================
Geographic information is disclosed elsewhere in this document.
(3) Software Development Costs and Purchased Software
Activity in capitalized software is summarized as follows:
December 31,
--------------------------------------------------------------
1994 1995 1996
----------------- ------------------ ------------------
Balance, net - beginning of year $4,768,000 $7,207,000 $6,839,000
Additions 2,704,000 2,613,000 1,587,000
Product translations 516,000 508,000 203,000
Acquired Japan product translations 458,000 -- --
Write-down to net realizable value -- (1,897,000) (32,000)
Amortization expense charged to
cost of revenues (1,239,000) (1,592,000) (1,561,000)
----------------- ------------------ ------------------
Balance, net - end of year $7,207,000 $6,839,000 $7,036,000
================= ================== ==================
The components of net capitalized software are summarized as follows:
December 31,
----------------------------------------
1995 1996
------------------ ------------------
Product translations $ 1,096,000 $ 1,052,000
Acquired software technology 2,300,000 2,274,000
Capitalized software development costs 3,443,000 3,710,000
------------------ ------------------
Balance, net -- end of year $ 6,839,000 $ 7,036,000
================== ==================
Total software development costs, including amounts expensed as
incurred, amounted to approximately $12,435,000, $13,367,000 and $14,856,000,
for the years ended December 31, 1994, 1995 and 1996, respectively.
Included in acquired software technology at December 31, 1994 is $1,000,000
related to the purchase of CHAID for Windows. The future guaranteed obligation
related to this purchase, reflected in the consolidated balance sheet as of
December 31, 1995 and 1996, amounted to $550,000 and $284,000, respectively, and
is due through 1998.
Included in acquired software technology at December 31, 1995 and 1996
is $618,000 and $494,000, respectively, of technology resulting from the
acquisition of BMDP Statistical Software, Inc. (See Note 5).
(4) Investment in Joint Venture
In October 1988, the Company entered into a joint venture with Japan
Systems Engineering Corporation ("JSE") and formed SPSS Japan, Inc., owned
equally by JSE and the Company. An executive of JSE, the joint venture partner,
was also a shareholder in SPSS Inc. The joint venture was created for the
purposes of adapting, marketing, selling, licensing and providing technical
support and assistance in Japan for the Company's products. The investment in
SPSS Japan, Inc. was being accounted
for using the equity method. As of January 1, 1994, SPSS Japan, Inc. became a
wholly-owned subsidiary of SPSS Inc. (See Note 5.)
(5) Acquisitions
During the first quarter of 1994, the Company acquired the remaining
capital stock of SPSS Japan, Inc. from its joint venture partner, JSE. Results
of SPSS Japan, Inc. are consolidated in the Company's statements of income from
January 1, 1994. The purchase price for SPSS Japan, Inc. was approximately
$50,000 and approximately $1,600,000 in accrued royalties, cash advances and
interest was to be paid by SPSS Japan, Inc. to JSE over the next four years.
This acquisition was accounted for as a purchase and, accordingly, the
acquired assets and liabilities have been recorded at their estimated fair
values. The $961,000 excess of the purchase price over the fair market value of
the net assets acquired was recorded as goodwill.
During the third quarter of 1994, the Company acquired specific assets and
liabilities of SYSTAT, Inc. ("SYSTAT"). SYSTAT is engaged in the business of
statistical software. Results of SYSTAT are included in the Company's statements
of income from September 1, 1994. The purchase price for SYSTAT was $1,828,000,
consisting of $600,000 in cash and 150,000 shares of Common Stock of the Company
valued at $1,228,000. In addition, the Company granted options at $9.00 per
share to purchase 150,000 shares of Common Stock to the principal owners of
SYSTAT.
The SYSTAT acquisition was accounted for as a purchase and, accordingly,
the acquired assets and liabilities have been recorded at their estimated fair
values. The $1,403,000 excess of the purchase price over the fair market value
of the net assets acquired was recorded as goodwill in 1994. During 1995 certain
assumed liabilities were revalued, and consequently SYSTAT goodwill was reduced
to $1,203,000.
As of December 29, 1995, the Company acquired substantially all of the
assets of one of its competitors, BMDP Statistical Software, Inc. ("BMDP"), for
$850,000 in cash to BMDP and non-competition payments to the principal
shareholder of BMDP. In addition, the Company agreed to assume approximately
$1,400,000 of BMDP's liabilities, consisting of telephone equipment and office
machine lease obligations, accounts payable and advertising fees, accrued
employment-related expenses, professional fees, and bank loan and line of credit
facilities. In the fourth quarter of 1995, the Company recorded charges of
approximately $1,051,000 representing a one-time write-off of acquired and
in-process technology and other acquisition-related charges. The BMDP
acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities have been recorded at their estimated fair values. The
$301,000 excess of the purchase price over the fair market value of the net
assets acquired was recorded as goodwill. During 1996 certain assumed
liabilities were revalued, and consequently BMDP goodwill was increased to
$542,000.
The pro forma impact of these acquisitions on the 1994 and 1995
consolidated statements of income is not material.
On September 26, 1996, the Company acquired all of the outstanding capital
stock of Clear Software, Inc. ("Clear"), a developer and marketer of process
management, analysis and documentation software products, in exchange for
183,833 shares of Common Stock. The merger with Clear was accounted for as a
pooling of interests and, accordingly, the financial statements have been
restated as if the Company and Clear had been combined for all periods
presented.
On November 20, 1996, the Company acquired all of the outstanding
capital stock of Jandel Corporation and Subsidiary ("Jandel"), a developer and
marketer of graphical and statistical software products used mainly in
scientific applications, in exchange for 339,427 shares of Common Stock. The
merger with Jandel was accounted for as a pooling of interests and, accordingly,
the financial statements have been restated as if the Company and Jandel had
been combined for all periods presented.
The following information reconciles net revenues and net income of SPSS as
previously reported with the amounts presented in the accompanying consolidated
statements of income for the three years ended December 31, 1994, 1995 and 1996.
The 1996 results presented for Clear represent the nine months ended September
30, 1996. The 1996 results for Jandel are for the eleven months ended November
30, 1996.
1994 1995 1996
-------------------- -------------------- -------------------
Net revenues:
SPSS (1) $ 51,757,000 $ 63,029,000 $ 74,604,000
Clear 2,741,000 2,755,000 2,338,000
Jandel 8,096,000 8,010,000 7,047,000
-------------------- -------------------- -------------------
Total $ 62,594,000 $ 73,794,000 $ 83,989,000
==================== ==================== ===================
Net income (loss):
SPSS (1) $ 3,560,000 $ 4,369,000 $ 7,266,000
Clear 36,000 13,000 252,000
Jandel 360,000 (507,000) (336,000)
-------------------- -------------------- -------------------
Total $ 3,956,000 $ 3,875,000 $ 7,182,000
==================== ==================== ===================
(1) Represents the historical results of SPSS without considering the
effect of the Clear and Jandel pooling of interests transactions.
(6) Lease Commitments
The Company leases its office facilities, storage space, and certain
data processing equipment under lease agreements expiring through the year 2000.
Minimum lease payments indicated below do not include costs such as property
taxes, maintenance, and insurance.
The following is a schedule of future noncancelable minimum lease
payments required under operating leases as of December 31, 1996:
Year ending December 31, Amount
---------------------------------- ------------------
1997 $ 3,930,000
1998 3,407,000
1999 1,188,000
2000 262,000
2001 --
Thereafter --
------------------
$ 8,787,000
==================
Rent expense related to operating leases was approximately $3,244,000,
$3,618,000 and $3,591,000 during the years ended December 31, 1994, 1995, and
1996, respectively.
(7) Financing Arrangements
At December 31, 1995, the Company had available a bank line of credit
that provided for borrowings up to $300,000, bearing interest at the bank's
prime rate plus 1.25% per annum (9.75% and 9.50% as of December 31, 1995 and
1996, respectively), expiring January 15, 1997. The credit line was
collateralized by the Company's accounts receivable, inventory, and other assets
and also required the maintenance of certain specified ratios and a minimum net
worth, with which the Company was in compliance as of December 31, 1995. Amounts
outstanding under this line of credit were $75,000 as of December 31, 1995.
Effective March 15, 1996, the Company established a $5,000,000 unsecured
364-day revolving credit facility available for advances pursuant to a
definitive credit agreement. The Company pays a facility fee of 0.375% on the
unused portion of the facility. If the Company does borrow against the facility,
interest will be charged at the Bank of America reference rate (8.25% at
December 31, 1996). At December 31, 1996, the entire $5,000,000 of the line of
credit was unused.
(8) Other Income (Expense)
Other income (expense) consists of the following:
Year ended December 31,
--------------------------------------------------------------
1994 1995 1996
------------------ ------------------ ------------------
Interest income $ 132,000 $ 305,000 $ 462,000
Interest expense (315,000) (129,000) (53,000)
Exchange gain (loss) on foreign currency
transactions (248,000) 212,000 (66,000)
Stock appraisal action (46,000) (105,000) --
Japan insurance proceeds 186,000 -- --
Payments to related parties (66,000) (45,000) --
Other -- 70,000 (68,000)
------------------ ------------------ ------------------
Total other income (expense) $ (357,000) $ 308,000 $ 275,000
================== ================== ==================
(9) Income Taxes
Income before income tax consists of the following:
Year ended December 31,
--------------------------------------------------------------
1994 1995 1996
------------------ ------------------ ------------------
Domestic $ 5,573,000 $ 4,997,000 $ 6,628,000
Foreign 575,000 1,847,000 4,158,000
------------------ ------------------ ------------------
$ 6,148,000 $ 6,844,000 $ 10,786,000
================== ================== ==================
Income tax expense consists of the following:
Current Deferred Total
------------------ ----------------- ------------------
Year ended December 31, 1994:
U.S. Federal $ 944,000 $ 500,000 $ 1,444,000
State 332,000 112,000 444,000
Foreign 304,000 -- 304,000
------------------ ----------------- ------------------
$ 1,580,000 $ 612,000 $ 2,192,000
================== ================= ==================
Year ended December 31, 1995
U.S. Federal $ 1,616,000 $ (144,000) $ 1,472,000
State 187,000 (32,000) 155,000
Foreign 1,342,000 -- 1,342,000
------------------ ----------------- ------------------
$ 3,145,000 $ (176,000) $ 2,969,000
================== ================= ==================
Year ended December 31, 1996
U.S. Federal $ 2,143,000 $ (837,000) $ 1,306,000
State 792,000 (178,000) 614,000
Foreign 1,684,000 -- 1,684,000
------------------ ----------------- ------------------
$ 4,619,000 $ (1,015,000) $ 3,604,000
================== ================= ==================
For the years ended December 31, 1994, 1995 and 1996, the
reconciliation of statutory to effective income taxes is as follows:
Year ended December 31,
--------------------------------------------------------------
1994 1995 1996
------------------ ------------------ ------------------
Income taxes using the Federal
statutory rate of 34% $ 2,077,000 $ 2,323,000 $ 3,667,000
State income taxes, net of Federal tax
benefit 293,000 103,000 404,000
Change in valuation allowance and credit
and net operating loss utilization, net (394,000) 40,000 (886,000)
Foreign taxes at net rates different
from U.S. Federal rates 96,000 722,000 269,000
Foreign tax credit - (336,000) (372,000)
Acquisition costs - - 440,000
Other, net 120,000 117,000 82,000
------------------ ------------------ ------------------
$ 2,192,000 $ 2,969,000 $ 3,604,000
================== ================== ==================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1996, are presented below:
1995 1996
--------------- ---------------
Deferred tax assets:
Accounts receivable principally due to allowance for doubtful accounts $ 123,000 $ 369,000
Inventories, principally due to additional costs inventoried for tax purposes
pursuant to the Tax Reform Act of 1986 47,000 114,000
Compensated absences, principally due to accrual for financial reporting purposes 111,000 158,000
Accruals and reserves 203,000 --
Research and experimentation credit carryforwards 610,000 523,000
Deferred rent 299,000 214,000
Plant and equipment, principally due to differences in depreciation and
capitalized interest 175,000 227,000
Deferred revenues 1,657,000 1,684,000
Foreign currency loss 59,000 113,000
Acquisition-related items 287,000 521,000
State deferred tax asset 629,000 884,000
U.S. net operating loss carryforwards 165,000 431,000
Non-U.S. net operating loss carryforwards 435,000 87,000
Other 28,000 95,000
--------------- ---------------
Total gross deferred tax assets 4,828,000 5,420,000
Less valuation allowance (4,828,000) (4,175,000)
--------------- ---------------
Net deferred tax assets -- 1,245,000
Deferred tax liabilities:
Capitalized software costs 1,496,000 1,670,000
State deferred tax liability 370,000 464,000
Other 149,000 111,000
--------------- ---------------
Net deferred tax liability $ 2,015,000 $ 1,000,000
=============== ===============
The valuation allowance decreased $846,000, $821,000 and $653,000 in 1994,
1995 and 1996, respectively.
As of December 31, 1996, Jandel had net operating loss carryforwards of
approximately $1,356,000 and $606,000 for Federal and state purposes
respectively, expiring in years 2000 through 2010. As of December 31, 1996,
Jandel also had net operating loss carryforwards for Jandel Scientific GmbH
totaling approximately $60,000.
Jandel has available as of December 31, 1996, Federal and state research
and experimentation tax credit carryforwards of approximately $523,000 and
$271,000, respectively, which expire in the years 2004 through 2010.
Due to the merger with SPSS, Jandel's ability to utilize net operating loss
and credit carryforwards may be affected.
(10) Capital Stock
Subsequent to the August 1993 initial public offering, three former
holders of Class B Common Stock of the Company exercised their statutory rights
to dissent from the value at which their stock was redeemed. During 1993, the
court issued an order valuing the dissenting shareholders' stock at $20.70 per
share (or $520,025 for the total stock value, before adjustment for the above
one-for-three stock split), plus interest at the rate of 9% per annum from
October 10, 1990 until payment, and awarded attorneys fees and costs incurred by
the former shareholders. The Company filed an appeal related to this matter to
challenge the trial procedure, the court's valuation of the stock and the award
of attorneys' fees and costs. The Company had posted a bond of $1,184,000 during
the pendency of the appeal. On February 3, 1995, the Company's Petition for
Leave to Appeal was denied by the Illinois Supreme Court. Subsequently, the
Company paid the judgment and settled all remaining claims, and on April 16,
1995, the court entered an Agreed Order of Dismissal with Prejudice of all
pending claims, defenses and counterclaims.
In February 1995, the Company and certain Selling Stockholders
completed an offering of Common Stock in which the Company sold 700,000 shares
of Common Stock and the Selling Stockholders sold 921,916 shares of Common
Stock, at a public offering price of $11.375 per share, and each sold an
additional 208,287 and 35,000 shares, respectively, when the underwriters
exercised their overallotment option in March 1995. After the underwriters'
discounts and other offering expenses, the Company received approximately
$9,127,000 in net proceeds from its sale of 908,287 shares of Common Stock in
the offering.
(11) Research and Development Limited Partnerships
The Company 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 the Company and under these agreements, the Company incurred royalty
expense to the partnerships of $349,000, $361,000 and $349,000, for the years
ended December 31, 1994, 1995 and 1996.
(12) Stock Options
On January 16, 1992, the Company adopted a Stock Option Plan for
certain key employees. Options vest either immediately or over a four year
period. In September 1994, the Company granted options to purchase 150,000
shares of Common Stock to the principal owners of SYSTAT. In addition, in June
1995, the stockholders of the Company adopted the 1995 Equity Incentive Plan
which authorizes the Board of Directors, under certain conditions, to grant
stock options and shares of restricted stock to directors, officers, other key
executives, employees and independent contractors.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plans. All options under the plans have been granted at
exercise prices not less than the market value at the date of the grant.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans. Had compensation cost for the Company's stock option plans been
determined consistent with SFAS No. 123, the Company's net income available to
stockholders would have been decreased to the pro forma amounts indicated below:
1995 1996
------------------ ------------------
Net income available to common stockholders
As reported $ 3,875,000 $ 7,182,000
Pro forma 3,662,000 6,492,000
Earnings per common and common equivalent share
As reported 0.48 0.85
Pro forma 0.45 0.77
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 No. 123, the fair value
of each grant is estimated on the date of grant using the Black-Sholes
option-pricing model with the following weighted-average assumptions used for
grants in fiscal 1995 and 1996, respectively; no expected dividend yield;
expected volatility of 25 percent; risk free interest rates of 6.53% and 6.53%
and expected lives of 8 years. Additional information regarding options is as
follows:
1994 1995 1996
--------------------------------- -------------------------------- --------------------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Options price Options price Options price
---------------- -------------- --------------- -------------- --------------- --------------
Outstanding at beginning
of year 624,054 $ 3.12 833,117 $ 4.73 1,106,869 $ 7.02
Granted 231,450 9.07 305,373 12.86 406,621 21.04
Forfeited (7,961) 9.26 (10,095) 11.37 (14,702) 11.88
Exercised (14,426) 2.38 (21,526) 1.81 (119,712) 8.23
---------------- -------------- --------------- -------------- --------------- --------------
Outstanding at end of year 833,117 4.73 1,106,869 7.02 1,379,076 10.39
Options exercisable at
year end 438,980 2.67 605,808 3.77 722,029 5.23
The following table summarizes information about stock options
outstanding at December 31, 1996:
Weighted
average Weighted Weighted
remaining average average
Options contractual exercise Options exercise
Range of exercise prices outstanding life price exercisable price
------------------------------- --------------- --------------- --------------- ---------------- ---------------
$ 1.05 406,326 4.70 $ 1.05 398,049 $ 1.05
8.00-9.125 302,370 7.19 8.72 206,378 8.66
12.875-14.75 472,880 8.63 13.99 117,602 13.37
18.875-25.125 197,500 9.46 23.54 -- --
--------------- --------------- --------------- ---------------- ---------------
1,379,076 7.27 $ 10.39 722,029 $ 5.23
(13) Subsequent Events (unaudited)
Effective March 14, 1997, the Company amended a $5,000,000 unsecured,
364-day revolving credit facility available for advances pursuant to a
definitive credit agreement. The Company pays a facility fee of 0.25% on the
unused portion of the facility. If the Company does borrow against the facility,
interest will be charged at the Bank of America reference rate (8.25% at March
15, 1997).
(14) Unaudited Quarterly Financial Information
The following is a summary of the unaudited interim results of operations for
each of the quarters ended in 1995 and 1996.
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Net revenues:
Desktop products $13,031 $13,264 $13,982 $16,589 $15,962 $15,440 $16,287 $18,578
Large System products 2,560 2,550 2,782 2,802 2,855 2,612 2,674 2,598
Other products and services 1,855 1,703 1,187 1,489 1,302 1,828 1,873 1,980
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Net revenues 17,446 17,517 17,951 20,880 20,119 19,880 20,834 23,156
Cost of revenues 1,681 1,818 2,012 2,198 2,007 2,066 2,165 2,217
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Gross profit 15,765 15,699 15,939 18,682 18,112 17,814 18,669 20,939
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Operating expenses:
Sales and marketing 9,345 9,790 9,612 10,145 10,593 10,138 9,865 10,749
Product development 2,503 2,718 2,994 2,648 3,033 3,277 3,531 3,225
General and administrative 1,467 1,600 1,536 1,674 1,691 1,744 1,902 1,639
Nonrecurring items (a) - - - 2,466 - - - -
Acquisition-related charges (b) - - - 1,051 - - 980 2,656
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Operating expenses 13,315 14,108 14,142 17,984 15,317 15,159 16,278 18,269
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Operating income 2,450 1,591 1,797 698 2,795 2,655 2,391 2,670
Net interest income (expense) (2) 18 69 91 122 104 84 99
Other income (expenses) 67 75 (1) (9) (50) (56) (84) 56
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Income before income taxes 2,515 1,684 1,865 780 2,867 2,703 2,391 2,825
Income tax expense 756 663 788 762 1,000 930 773 901
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Net income $1,759 $1,021 $1,077 $18 $1,867 $1,773 $1,618 $1,924
============= ========== ============ ========== ========== ============ ============ ============
Net earnings per share $0.24 $0.13 $0.13 $0.00 $0.23 $0.21 $0.19 $0.23
============= ========== ============ ========== ========== ============ ============ ============
Shares used in per share calculation 7,481 8,001 8,228 8,296 8,250 8,361 8,397 8,493
============= ========== ============ ========== ========== ============ ============ ============
---------------------------------------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30, Dec. 31,
1995 1995 1995 1995 1996 1996 1996 1996
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Net revenues:
Desktop products 75% 76% 78% 80% 79% 78% 78% 80%
Large System products 15% 14% 15% 13% 14% 13% 13% 11%
Other products and services 11% 10% 7% 7% 6% 9% 9% 9%
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Net revenues 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues 10% 10% 11% 11% 10% 10% 10% 10%
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Gross profit 90% 90% 89% 89% 90% 90% 90% 90%
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Operating expenses:
Sales and marketing 54% 56% 53% 49% 53% 51% 47% 46%
Product development 14% 16% 17% 12% 15% 17% 17% 14%
General and administrative 8% 9% 9% 8% 8% 9% 9% 7%
Nonrecurring items (a) - - - 12% - - 5% -
Acquisition-related charges (b) - - - 5% - - - 12%
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Operating expenses 76% 81% 79% 86% 76% 77% 78% 79%
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Operating income 14% 9% 10% 3% 14% 13% 12% 11%
Net interest income (expense) - - - 1% - 1% - 1%
Other income (expense) - 1% - - - - - -
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Income before income taxes 14% 10% 10% 4% 14% 14% 12% 12%
Income tax expense 4% 4% 4% 4% 5% 5% 4% 4%
------------- ---------- ------------ ---------- ---------- ------------ ------------ ------------
Net income 10% 6% 6% - 9% 9% 8% 8%
============= ========== ============ ========== ========== ============ ============ ============
(a) Write-off in December 1995, principally of certain software assets
capitalized more than two years ago.
(b) Write-off in December 1995, principally of acquired and in-process
technology in conjunction with the acquisition of BMDP Statistical
Software, Inc. Expenses in September and December, 1996, in conjunction
with mergers with Clear Software, Inc. and Jandel Corporation, accounted
for as pooling-of-interests.
Schedule II
SPSS Inc.
Valuation and qualifying accounts
Years ended December 31, 1994, 1995 and 1996
Additions
---------------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
- --------------------------------------------- --------------- ---------------- --------------- --------------- --------------
1994
Allowance for doubtful accounts,
product returns, and cancellations $ 543,000 $ 255,000 $ 1,915,000 $ 2,147,000 $ 566,000
Inventory obsolescence reserve 125,000 233,000 -- 112,000 246,000
1995
Allowance for doubtful accounts,
product returns, and cancellations $ 566,000 $ 336,000 $ 1,755,000 $ 1,746,000 $ 911,000
Inventory obsolescence reserve 246,000 153,000 -- 158,000 241,000
1996
Allowance for doubtful accounts,
product returns, and cancellations $ 911,000 $ 931,000 $ 1,900,000 $ 2,051,000 $ 1,691,000
Inventory obsolescence reserve 241,000 146,000 50,000 205,000 232,000
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 1996.
Part III
Item 10. Executive Officers and Directors
The following table sets forth certain information as of March 14, 1997
with respect to each person who is an executive officer or director of the
Company.
Name Age Position
Norman Nie................ 53 Chairman of the Board of Directors
Jack Noonan............... 49 Director, President and Chief Executive Officer
Edward Hamburg............ 45 Senior Vice President, Corporate Operations,
Chief Financial Officer and Secretary
Louise Rehling............ 53 Senior Vice President, Product Development
Mark Battaglia............ 37 Vice President, Corporate Marketing
Ian Durrell............... 54 Vice President, International
Susan Phelan.............. 40 Vice President, Domestic Sales and Services
Bernard Goldstein (1)(2).. 66 Director
Fredric Harman (1)(2)..... 36 Director
Merritt Lutz (1).......... 54 Director
- ---------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Norman Nie, Chairman of the Board and co-founder of the Company, designed
the Company's original statistical software beginning in 1967 and has been a
Director and Chairman of the Board since the Company's inception in 1975. He
served as Chief Executive Officer of the Company from 1975 to 1991. In addition
to his current responsibilities as Chairman of the Board, Dr. Nie is a professor
in, and has previously chaired the Political Science Department at the
University of Chicago, where his research specialties include public opinion,
voting behavior and citizen participation. He has received two national awards
for his books in these areas. Dr. Nie received his Ph.D. from Stanford
University.
Jack Noonan has served as Director and President and Chief Executive
Officer since joining the Company 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 holds an engineering degree from the
Rockford School of Business and Engineering in Rockford, Illinois.
Edward Hamburg, Senior 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 the Company 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
the Company in 1986. Dr. Hamburg received his Ph.D. from the University of
Chicago.
Louise Rehling, Senior Vice President, Product Development, oversees
management of all stages of product development and is responsible for corporate
computer networks. Ms. Rehling joined SPSS in 1982 as Vice President of
Development and Services and has served in her current position since 1987. Ms.
Rehling received her B.S. in Mathematics from the University of Illinois and her
M.S. in Information Sciences and her M.A. in Psychology from the University of
Chicago.
Mark Battaglia, Vice President, Corporate Marketing, joined SPSS in October
1988. Mr. Battaglia served as Vice President of Marketing at London House, a
publisher in the Maxwell Communications family, from June 1987 until joining the
Company. Mr. Battaglia received his M.B.A. in 1984 from the University of
Chicago.
Ian Durrell has served as Vice President, International, since February
1991. Prior to 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, Domestic Sales and Services, joined SPSS in
1980 as a sales representative. She assumed her current position in 1987. Ms.
Phelan received her M.B.A. from the University of Illinois at Chicago.
Bernard Goldstein has been a Director of the Company since 1987. He is
a Director of Broadview Associates, LLC ("Broadview"), which he joined in 1979.
He is a past President of the Information Technology Association of America
("ITAA"), the industry trade association of the computer service industry, and
past Chairman of the Information Technology Foundation. Mr. Goldstein is a
Director of Apple Computer Inc., Franklin Electronic Publishers, Inc., Sungard
Data Systems, Inc., Enterprise Systems 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.
Fredric Harman has been a Director of the Company since October 1990. Since
June 1994 he has been a General Partner of Oak Investment Partners, a venture
capital firm. He was formerly a General Partner of Morgan Stanley Venture
Partners L.P. ("MSVP"), the General Partner of Morgan Stanley Venture Capital
Fund L.P. ("MSVCF"). Mr. Harman joined Morgan Stanley in 1987 as an Associate of
Morgan Stanley Venture Capital Inc. ("MSVC") and was named a Vice President of
MSVC in 1992. He is also a Director of ILOG S.A. and several privately held
companies. He received his M.B.A. from the Harvard University Graduate School of
Business and his M.S. in Electrical Engineering from Stanford University.
Merritt Lutz has been a Director of the Company since 1988. He is
currently a Managing Director of Morgan Stanley & Co. Incorporated ("Morgan
Stanley"), managing the firm's internal strategic technology investments.
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 (Nasdaq) and Algorithmics, Inc., a privately held company. He also
is a member of technology advisory boards for
Nasdaq and the Chairman's Committee for the Computerworld Smithsonian Awards
organization. He holds a bachelors and masters degree from Michigan State
University.
Guy de Chazal was a Director of the Company from October 1990 through the
end of 1996. He is currently a Managing Director of Morgan Stanley. He joined
Morgan Stanley in 1986 as a Vice President of MSVC and was named President of
MSVC in 1991. Mr. de Chazal is a General Partner of MSVP, the General Partner of
MSVCF. Mr. de Chazal is a Director of PageMart Nationwide, Inc., Cytyc, Inc. and
several privately held companies. Mr. de Chazal received his M.B.A. from Harvard
Graduate School of Business.
The Company's Board of Directors is divided into three classes serving
staggered three-year terms. Mr. Noonan is serving a three-year term expiring at
the 1997 Annual Meeting. Messrs. Harman and Lutz are serving three-year terms
expiring at the 1998 Annual Meeting. Mr. Goldstein and Dr. Nie are serving
three-year terms expiring at the 1999 Annual Meeting. For a discussion of the
nomination rights granted to certain stockholders of the Company, see "Related
Transactions-Stockholders Agreement."
Key Employee
In addition to the executive officers and directors named above, Leland
Wilkinson is a key employee of the Company. Dr. Wilkinson joined SPSS in
September 1994 as part of the Company's acquisition of SYSTAT. Dr. Wilkinson was
the founder of SYSTAT and from its inception served as its President and Chief
Executive Officer. He is a recognized authority in statistical analysis
generally and the graphical display of data in particular. Dr. Wilkinson was a
member of the faculty of the University of Illinois at Chicago and currently
serves on the faculty of Northwestern University. He received his Ph.D. from
Yale University.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company believes that during 1996 its officers, directors and
owners of more than ten percent of its Common Stock complied with all filing
requirements under Section 16(a) of the Securities and Exchange Act of 1934
except as described below. Four reporting persons filed Form 5 reports to
disclose transactions subject to Form 4 requirements. Jack Noonan exercised
20,000 options and sold the underlying securities in the second quarter of 1996.
Norman H. Nie disposed of 65,000 shares of Common Stock held of record by the
Norman H. Nie Revocable Trust, dated March 15, 1991, in the third quarter of
1996. Louise Rehling disposed of 10,000 shares of Common Stock in the second
quarter of 1996 and 5,000 shares of Common Stock in the third quarter of 1996.
Merritt Lutz purchased 3,800 and 1,700 shares of Common Stock in the first
quarter of 1996.
Item 11. Executive Compensation
The following tables set forth (a) the compensation paid or accrued by
the Company to the Chief Executive Officer ("CEO"), and each of the five most
highly compensated officers of the Company, other than the CEO, serving on
December 31, 1996 (the "named executive officers") for services rendered to the
Company in all capacities during 1994, 1995, and 1996, (b) certain information
relating to option grants made to the named executive officers in 1996 and (c)
certain information relating to options held by the named executive officers.
The Company made no grants of freestanding stock appreciation rights ("SARs") in
1994, 1995, or 1996, nor did the Company make any awards in 1994, 1995 or 1996
under any long-term incentive plan.
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------------------------ ---------------------------------------
Awards Payouts
--------------------- -------
Name and Principal Position Year Salary Bonus Other Restricted Securities LTIP All
Compensation Annual Stock Underlying Payouts Others
($) ($) Compensation Awards Options/SARs
($) ($)((1) (#)(2) ($) ($)
- ---------------------------- ------ ----------- -------- ---------- -------- ----------- ------- ------
Jack Noonan,................ 1996 $235,000 $185,147 none none 70,000 none none
President and Chief 1995 $235,000 $167,973 none none 55,000 none none
Executive Officer 1994 $235,000 $ 73,920 none none 20,000 none none
Ian Durrell,................ 1996 $197,000 $ 51,401 none none 25,000 none none
Vice President, 1995 $197,000 $ 46,070 none none 25,000 none none
International(3) 1994 $197,000 $ 38,110 none none 10,000 none none
Edward Hamburg,............. 1996 $156,000 $ 90,578 none none 25,000 none none
Senior Vice President,1995 $156,000 $ 73,952 none none 25,000 none none
Corporate Operations 1994 $156,000 $ 36,420 none none 10,000 none none
and Chief Financial
Officer
Louise Rehling,............. 1996 $135,200 $ 64,808 none none 25,000 none none
Senior Vice President,1995 $135,200 $ 65,180 none none 25,000 none none
Product Development 1994 $135,200 $ 25,370 none none 10,000 none none
Mark Battaglia,............. 1996 $110,000 $ 88,432 none none 25,000 none none
Vice President, 1995 $100,000 $ 81,750 none none 25,000 none none
Corporate Marketing 1994 $100,000 $ 44,120 none none 10,000 none none
Susan Phelan,............... 1996 $100,000 $ 76,387 none none 25,000 none none
Vice President, 1995 $100,000 $ 78,024 none none 25,000 none none
Domestic Sales and 1994 $ 85,000 $ 39,160 none none 10,000 none none
Services
For the year ended December 31, 1996, non-employee directors of the Company
were entitled to receive 10,000 conditional options. Each director was also
reimbursed by the Company for reasonable expenses incurred in connection with
services provided as a director. During 1996, Dr. Nie received compensation of
$70,000 per year for product development work on a part-time basis.
- ------------------------------------------------
(1) On December 31, 1996, Dr. Hamburg, Ms. Rehling and Ms. Phelan held 10,000,
4,180 and 1,925 shares, respectively, of restricted Common Stock having a
market value, based on the closing price of the Common Stock on such date,
of $278,750, $116,518 and $53,659, respectively.
(2) Amounts reflected in this column are for grants of stock options for the
Common Stock of the Company. No SARs have been issued by the Company.
(3) Payments and options set forth in the table for Mr. Durrell reflect
payments and option grants to Valletta Investments Limited ("Valletta"), a
consulting company controlled by Mr. Durrell. Mr. Durrell does not receive
any personal benefits or perquisities, payments of salary and bonus, awards
of options or other compensation from the Company in his individual
capacity.
The following table sets forth the number of options to purchase Common
Stock granted to each of the named executive officers during 1996.
1996 OPTION/SAR GRANTS
Individual Grants
Name Number of Percent Exercise or Latest Possible Realizable
Securities Total Base Price Possible Value at Assumed
Underlying Options/SARs ($/Sh) Expiration Annual
Options/SARs Granted to Date Rates of Stock Price
Granted (#) Employees in Appreciattion For
1996 Option Term (1)
5%($) 10%($)
- --------------------------- -------------- -------------- ----------- ----------- ----------- -------------
Jack Noonan................ 70,000 20.26% $14.625 02/16/06 $687,853 $1,743,156
Ian Durrell(2)............. 25,000 7.24% $14.625 02/16/06 $245,662 $622,556
Edward Hamburg............. 25,000 7.24% $14.625 02/16/06 $245,662 $622,556
Louise Rehling............. 25,000 7.24% $14.625 02/16/06 $245,662 $622,556
Mark Battaglia............. 25,000 7.24% $14.625 02/16/06 $245,662 $622,556
Susan Phelan............... 25,000 7.24% $14.625 02/16/06 $245,662 $622,556
- ----------------------------------
(1) In satisfaction of applicable SEC regulations, the table sets forth the
potential realizable values of such options, upon their latest possible
expiration date, at arbitrarily assumed annualized rates of stock price
appreciation of five and ten percent over the term of the options. The potential
realizable value columns of the table illustrate values that might be realized
upon exercise of the options at the end of the ten-year period starting with
their vesting commencement dates, based on the assumptions set forth above.
Because actual gains will depend upon, among other things, the actual dates of
exercise of the options and the future performance of the Common Stock in the
market, the amounts reflected in this table may not reflect the values actually
realized. No gain to the named executive officers is possible without an
increase in stock price which will benefit all stockholders proportionately.
Actual gains, if any, on option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and general stock market
conditions. There can be no assurance that the potential realizable values shown
in this table will be achieved, or that the stock price will not be lower or
higher than projected at five and ten percent assumed annualized rates of
appreciation.
(2) Options reflected in the table for Mr. Durrell are options granted to
Valletta.
AGGREGATED OPTION/SAR EXERCISES IN 1996 AND
YEAR-END OPTION/SAR VALUES
Value of
Number of Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
Year-End Year-End
Shares (#)(1) ($)(1)(2)
-------------------- -----------------------
Acquired on Value Exercisable/ Exercisable/
Exercise Realized Unexercisable Unexercisable
Name (#) ($)(1)(4)
- -------- ---------------- ------------ -------------------- -----------------------
Jack Noonan.................... 20,000 $479,000 153,748/109,919 $4,285,726/$3,063,992
Ian Durrell (3)................ None N/A 45,707/43,626 $1,274,083/$1,216,075
Edward Hamburg................. None N/A 80,707/43,626 $2,249,708/$1,216,075
Louise Rehling................. None N/A 74,040/43,626 $2,063,865/$1,216,075
Mark Battaglia................. None N/A 60,707/43,626 $1,692,208/$1,216,075
Susan Phelan................... None N/A 59,010/43,657 $1,644,904/$1,216,939
- ----------------------------------
(1) All information provided is with respect to stock options. No SARs have
been issued by the Company.
(2) These amounts have been determined by multiplying the aggregate number of
options by the difference between $27.875, the closing price of the Common
Stock on the Nasdaq National Market on December 31, 1996, and the exercise
price for that option.
(3) Options reflected in the table for Mr. Durrell are options granted to
Valletta.
(4) These amounts have been determined by multiplying the aggregate number of
options exercised by the difference between the closing price of the Common
Stock on the Nasdaq National Market on the date of exercise and the
exercise price for that option.
Employment Agreements
The Company entered into an employment agreement with Jack Noonan on
January 14, 1992. This employment agreement provides for a one-year term with
automatic one-year extensions unless Mr. Noonan or the Company gives a written
termination notice at least 90 days prior to the expiration of the initial term
or any extension thereof. It also provides for a base salary of $225,000 during
the initial term, together with the same benefits provided to other employees of
the Company. Mr. Noonan's base compensation is subject to annual review by the
Board of Directors and was increased to $235,000 for 1993, 1994, 1995 and 1996.
If the Company terminates Mr. Noonan's employment without cause, the Company
must pay Mr. Noonan an amount equal to 50% of Mr. Noonan's annual base salary in
effect at the time of termination. This amount is payable in 12 equal monthly
installments, and the obligation to make these payments ceases if Mr. Noonan
finds other employment at a comparable salary. The employment agreement requires
Mr. Noonan to refrain from disclosing confidential information of the Company
and to abstain from competing with the Company during his employment and for a
period of one year thereafter. Except for the employment agreements with Mr.
Noonan and Dr. Wilkinson, and a management services agreement with Valletta
described below (pursuant to which Ian Durrell has been engaged to act as Vice
President, International and
to head the Company's non-Western Hemisphere operations), none of the senior
management or key technical employees of the Company are subject to employment
or similar agreements, although the Company does have confidentiality and
work-for-hire agreements with many of its key management and technical
personnel.
The Company entered into an employment agreement with Leland Wilkinson
on September 23, 1994 to be employed by SPSS as Senior Vice President, SYSTAT
Products. The employment agreement continues through December 31, 1999 and
provides for a base annual salary of $135,000 plus a bonus and other fringe
benefits customarily received by other SPSS senior executives. In addition, he
was granted options to purchase an aggregate of 135,000 shares of Common Stock
at a price of $9.00 per share. The vesting of these options shall occur on the
same schedule as options granted under the Amended 1991 Stock Option Plan. Each
year Dr. Wilkinson shall be reviewed by the Board of Directors with regard to
salary and bonus and shall participate in the bonus plan to the same extent as
comparable SPSS executives. The employment agreement may be terminated prior to
its expiration by Dr. Wilkinson or the Company effective 45 days after written
notice by either party. If the employment agreement is terminated by Dr.
Wilkinson, he shall receive a pro-rata share of his salary and bonus earned
through the date of termination. In the event the employment agreement is
terminated by the Company without cause, Dr. Wilkinson is entitled to receive
his annual base salary and bonus until the expiration date of the employment
agreement. The employment agreement requires that Dr. Wilkinson refrain from
disclosing any confidential information of the Company and that he shall have no
right, title or interest in any of the confidential property, including
confidential property that Dr. Wilkinson has developed or develops during his
employment with SPSS. The employment agreement also requires that Dr. Wilkinson
abstain from competing with the Company during his employment and for a period
of six months thereafter.
Management Services Agreement
The Company has entered into a management services agreement with
Valletta, pursuant to which Ian Durrell's services are provided to the Company.
Either Valletta or the Company may terminate the agreement at any time upon 30
days' written notice; provided that, if the Company terminates the agreement
under the 30-day notice provision without cause, Valletta is entitled to
termination payments equal to 50% of its annual compensation then in effect in
six equal monthly installments. The Agreement provides that Valletta is to
receive annual compensation at a rate established by the Board of Directors plus
incentive compensation if specified performance standards are satisfied. For
1996, Valletta's aggregate compensation, including bonus, was $248,401. The
management services agreement requires Valletta to refrain from disclosing
confidential information about the Company and to abstain from competing with
the Company 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.
Compensation Committee Interlocks and Insider Participation
Messrs. Goldstein, Harman and Lutz are directors and members of the
Compensation Committee. None of the members of the Compensation Committee has
ever been an officer or employee of the Company or any of its subsidiaries.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 21, 1997, the number and
percentage of shares of Common Stock beneficially owned by (i) each person known
by the Company to own beneficially more than 5% of the outstanding shares of the
Common Stock, (ii) each director of the Company, (iii) each named executive
officer of the Company and (iv) all directors and executive officers of the
Company 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 business address for Mr. Lutz is the office of Morgan Stanley at
750 Seventh Avenue, 16th floor, New York, New York 10019. The business address
of Mr. Goldstein is the office of Broadview Associates, L.P., One Bridge Plaza,
Fort Lee, New Jersey 07024. The business address of Fredric Harman is the office
of Oak Investment Partners, 525 University Avenue, Suite 1300, Palo Alto,
California 94301. The business address of Kopp Investment Advisors, Inc. is 6600
France Avenue South, Suite 672, Edina, Minnesota 55435. The business address of
each other person listed below is 444 North Michigan Avenue, Chicago, Illinois
60611.
Shares
Beneficially Owned
Name Number Percent
Norman H. Nie, individually, as Trustee of the
Nie Trust and as a Director and President
of the Norman and Carol Nie Foundation(1).... 1,174,545 15.1%
Kopp Investment Advisors, Inc/LeRoy C. Kopp(2)... 456,900 5.9%
Jack Noonan(3)................................... 186,159 2.4%
Bernard Goldstein(4)............................. 33,641 *
Louise Rehling(5)................................ 88,517 1.1%
Edward Hamburg(6)................................ 100,804 1.3%
Mark Battaglia(7)................................ 71,187 *
Susan Phelan(8).................................. 71,063 *
Ian Durrell(9)................................... 55,804 *
Merritt M. Lutz(10).............................. 21,751 *
Fredric Harman(11)............................... 2,966 *
All directors and executive officers as
a group (11 persons)(12) 1,806,437 21.6%
- ----------------------------------
* The percentage of shares beneficially owned does not exceed 1% of the Common
Stock.
(1) Includes 72,912 shares which are subject to currently exercisable options;
110,433 shares held of record by the Norman and Carol Nie Foundation (the
"Nie Foundation"); and 991,200 shares held by the Nie Trust. Dr. Nie shares
voting and investment power over the 110,433 shares held by the Nie
Foundation with Carol Nie.
(2) Although Kopp Investment Advisors, Inc. ("KIA") exercises investment
discretion as to these shares, neither KIA nor LeRoy C. Kopp (100% owner of
KIA) vote the vast majority of these shares, and neither is the record
owner of them.
(3) Includes 179,740 shares subject to currently exercisable options.
(4) Includes 2,918 shares subject to currently exercisable options.
(5) Includes 200 shares held in the Stella S. Hechtman Trust (the "Trust"). Ms.
Rehling is the Trustee and has the voting and investment power over the 200
shares held in the Trust. She disclaims beneficial ownership of these
shares. Includes 84,137 shares subject to currently exercisable options.
(6) Includes 90,804 shares subject to currently exercisable options.
(7) Includes 70,804 shares subject to currently exercisable options.
(8) Includes 69,138 shares subject to currently exercisable options.
(9) Mr. Durrell is the beneficial owner of these shares, which consist solely
of 55,804 shares subject to currently exercisable options held of record by
Valletta.
(10) Includes 2,918 shares subject to currently exercisable options.
(11) Includes 2,918 shares subject to currently exercisable options.
(12) Includes 632,093 shares subject to currently exercisable options.
Item 13. Certain Relationships and Related Transactions
Transactions with Norman Nie
Dr. Nie received 10,000 conditional options for his services as Chairman of
the Board in 1996 and $70,000 for product development work on a part-time basis.
Dr. Nie is a limited partner in CSDC, a research and development limited
partnership to which the Company incurred royalty expense of $260,000 in 1994,
$274,000 in 1995 and $255,000 in 1996.
Stockholders Agreement
In connection with the Company's initial public offering, the Company
and the individuals and entities who were stockholders prior to the initial
public offering entered into an agreement (the "Stockholders Agreement")
containing certain registration rights with respect to outstanding capital stock
of the Company and granting to each of the Nie Trust and MSVCF, so long as they
own beneficially more than 12.5% of the capital stock of the Company, 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 such holder are to be
elected. Since the completion of the February 1995 offering, MSVCF owned less
than 12.5% and currently owns no capital stock of the Company.
Pursuant to the Stockholders Agreement, the holders of restricted
securities constituting more than seven percent of the outstanding shares at any
time may require the Company to register under the 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. The Company is not bound to honor the request
unless the proceeds from the registered sale can reasonably be expected to
exceed $5,000,000. The Company estimates that the cost of complying with demand
registration rights would be approximately $25,000 for a single registration.
All of the stockholders who acquired their shares prior to the initial
public offering have piggyback registration rights, which entitle them to seek
inclusion of their Common Stock in any registration by the Company, 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 the Company
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.
Part IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) (1) Financial statements commence on page 26:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1995 and 1996.
Consolidated Statements of Income for the years ended December
31, 1994, 1995 and 1996
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
(2) Financial Statement Schedule -- see page 45:
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 financial statements or
related notes.
(3) Exhibits required by Item 601 of Regulation S-K. (Note:
Management contracts and compensatory plans or arrangements are
underlined in the following list.)
Incorporation
Exhibit by Reference
Number Description of Document (if applicable)
2.1 Agreement and Plan of Merger among SPSS Inc., @2.1
SPSS ACSUB, Inc., Clear Software, Inc. and the
shareholders named therein, dated September 23, 1996.
2.2 Agreement and Plan of Merger among SPSS Inc., @@Annex A
SPSS Acquisition Inc. and Jandel Corporation,
dated October 30, 1996.
3.1 Certificate of Incorporation of the Company * 3.2
3.2 By-Laws of the Company * 3.4
4.1 Credit Agreement *** 4.1
4.2 First Amendment to Credit Agreement
10.1 Employment Agreement with Jack Noonan + 10.1
10.2 Agreement with Valletta ** 10.2
10.3 Agreement between the Company and ** 10.5
Prentice Hall
10.4 Software Distribution Agreement between ** 10.6
the Company and IBM
10.5 HOOPS Agreement ** 10.7
10.6 Stockholders Agreement * 10.8
10.7 Agreements with CSDC * 10.9
10.8 Amended 1991 Stock Option Plan * 10.10
10.9 SYSTAT Asset Purchase Agreement ++ 10.9
10.10 Employment Agreement with Leland Wilkinson ++10.10
10.11 1994 Bonus Compensation +++10.11
10.12 Lease for Chicago, Illinois Office +++10.12
10.13 Amendment to Lease for Chicago, Illinois Office +++10.13
10.14 1995 Equity Incentive Plan x 10.14
10.15 1995 Bonus Compensation xx 10.15
10.16 Lease for Chicago, Illinois Office xx 10.16
10.17 Amended and Restated 1995 Equity Incentive Plan xxx 10.17
10.18 1996 Bonus Compensation
10.19 Software Distribution Agreement between the
Company and Banta Global Turnkey
21.1 Subsidiaries of the Company
23.1 Consent of Independent Certified Public Accountants
27.1 Financial Data Schedule
99.0 Additional Exhibit
- -------------------------------
@ 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.
@@ Previously filed with Amendment No. 1 to Form S-4 Registration Statement of
SPSS Inc. filed on November 7, 1996.
* Previously filed with Amendment No. 2 to Form S-1 Registration Statement of
SPSS Inc. filed on August 4, 1993 (Registration No. 33-64732)
** Previously filed with Amendment No. 1 to Form S-1 Registration Statement of
SPSS Inc. filed on July 23, 1993 (Registration No. 33-64732)
*** Previously filed with Form 10-Q Quarterly Report of SPSS Inc. for the
Quarterly period ended September 30, 1993 (Registration No. 0-22194)
+ Previously filed with the Form S-1 Registration Statement of SPSS Inc.
filed on June 22, 1993 (Registration No. 33-64732)
++ Previously filed with the Form S-1 Registration Statement of SPSS Inc.
filed on December 5, 1994 (Registration No. 33-86858)
+++ Previously cited with the Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1994. (Registration No. 33-64732)
x Previously filed with the Company's 1995 Proxy Statement.
xx Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year
ended December 31, 1995 (Registration No. 33-64732).
xxx Previously filed with the Company's 1996 Proxy Statement.
(b) The Company filed the following reports on Form 8-K during the
fourth quarter of fiscal year 1996.
(i) Report on Form 8-K, dated September 26, 1996, filed October 11, 1996, as
amended on Report on Form 8-K/A-1, filed on November 1, 1996. The Report on
Form 8-K reported that on September 26, 1996, SPSS acquired Clear Software,
a Massachusetts corporation, for SPSS Common Stock valued at approximately
$4.5 million in a merger accounted for as a pooling of interests. Pursuant
to an Agreement and Plan of Merger, dated September 23, 1996, among SPSS,
Clear Software and Vadim Yasinovsky, Marina Goldberg, Ella Kroll and six
other minority shareholders of Clear Software, a wholly owned subsidiary of
SPSS was merged into Clear Software, with Clear Software as the surviving
corporation. The Report on Form 8-K and Form 8-K/A-1 was filed under Items
2 and 7 and included financial statements of Clear Software and certain pro
forma financial information for SPSS which give effect to the merger
applying the pooling of interests method of accounting.
(ii) Report on Form 8-K, dated November 20, 1996, filed on December 4, 1996. The
Report on Form 8-K reported that on November 20, 1996, SPSS acquired the
outstanding shares of capital stock of Jandel, a California corporation,
from the shareholders of Jandel (the "Shareholders"), for SPSS Common Stock
valued at approximately $9.0 million less the expenses of Jandel in respect
of the transaction in a merger accounted for as a pooling of interests.
Pursuant to an Agreement and Plan of Merger, dated October 30, 1996, among
SPSS, SPSS Acquisition, Inc., a wholly-owned subsidiary of SPSS
("Acquisition") and Jandel, Acquisition was merged into Jandel, with Jandel
as the surviving corporation. The Report on Form 8-K was filed under Item
2.
(iii)Report on Form 8-K, dated February 19, 1997, filed on March 10, 1997. The
Report on Form 8-K reported the Company's revenues and earnings for the
fourth quarter and year ended December 31, 1996. A news release and
financials were attached and incorporated by reference.
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 on March 31, 1997.
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 on March 31, 1997.
Signature Title(s)
/s/ Norman H. Nie Chairman of the Board of
Norman H. Nie Directors
/s/ Jack Noonan President, Chief Executive
Jack Noonan Officer and Director
/s/ Edward Hamburg Senior Vice President,
Edward Hamburg Corporate Operations,
Chief Financial Officer and
Secretary
/s/ Robert Brinkmann Director Corporate Finance
Robert Brinkmann and Controller
/s/ Bernard Goldstein Director
Bernard Goldstein
/s/ Fredric W. Harman Director
Fredric W. Harman
/s/ Merritt Lutz Director
Merritt Lutz
EXHIBIT INDEX
Exhibit Sequential
Number Document Description Page Number
4.2 First Amendment to Credit Agreement....... 65
10.18 1996 Bonus Compensation................... 70
10.19 Software Distribution Agreement between
the Company and Banta Global Turnkey...... 71
21.1 Subsidiaries of the Company............... 108
23.1 Consent of Independent Public Accountants 109
27.1 Financial Data Schedule................... 110
99.0 Additional Exhibits....................... 111