As filed with the Securities and Exchange Commission on February 14, 1997.
Filed pursuant to 424(b)(2)
Registration No. 333-21025
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SPSS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 7372
(State or other jurisdiction of (Primary Standard Industrial
Incorporation or organization) Classification Code Number)
36-2815480
(I.R.S. Employer
Identification Number)
444 North Michigan Avenue, Chicago, Illinois 60611
(312) 329-2400
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Edward Hamburg
Senior Vice President, Corporate Operations
Chief Financial Officer, and Secretary
SPSS Inc.
444 North Michigan Avenue
Chicago, Illinois 60611
(312) 329-2400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
T. Stephen Dyer, Esq.
Ross & Hardies
150 N. Michigan Avenue
Chicago, Illinois 60601
(312) 558-1000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
<PAGE>
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each of Price Offering Registration
Securities to be Registered Per Share(1) Price(1) Fee
Common Stock, $.01 par value $31.00 $5,698,823 $1,966
(1) Solely for the purpose of calculating the registration fee, the
offering price per share, the aggregate offering price and the amount
of the registration fee have been computed in accordance with Rule
457(c) under the Securities Act of 1933, as amended. Accordingly, the
price per share of Common Stock has been calculated to be equal to the
average of the high and low prices for a share of Common Stock as
reported by the Nasdaq National Market on January 29, 1997, which is a
specified date within five business days prior to the original date of
filing of this Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- 1 -
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
183,833 Shares
SPSS INC.
Common Stock
($.01 Par Value)
This Prospectus relates to the offer and sale of up to 183,833 shares
of the common stock, $.01 par value (the "Common Shares" or "Common Stock"), of
SPSS Inc. (the "Company"). The Common Shares may be offered by particular
stockholders of the Company (the "Selling Stockholders") from time to time in
transactions on the Nasdaq National Market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Selling Stockholders may
effect such transactions by the sale of the Common Shares to or through
broker-dealers, and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders and/or the
purchasers of the Common Shares for whom such broker-dealers may act as agent or
to whom they may sell as principal, or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). The Selling
Stockholders and any broker-dealer who acts in connection with the sale of
Common Shares hereunder may be deemed to be "underwriters" as that term is
defined in the Securities Act of 1933, as amended (the "Securities Act"), and
any commission received by them and profit on any resale of the Common Shares as
principal might be deemed to be underwriting discounts and commissions under the
Securities Act. See "Selling Stockholders" elsewhere in this Prospectus. The
Company will not receive any of the proceeds from the sale of the Common Shares
by the Selling Stockholders.
The Company's Common Stock is traded and quoted on the Nasdaq National
Market under the symbol "SPSS." On January 29, 1997, the last sale price of the
Common Stock, as reported on the Nasdaq National Market, was $31.00 per share.
The Company will bear all expenses (other than underwriting discounts
and selling commissions, and fees and expenses of counsel or other advisors to
the Selling Stockholders) in connection with the registration of the shares of
Common Stock being offered hereby, which expenses are estimated to be
approximately $81,966.
See "Selling Stockholders" elsewhere in this Prospectus.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK.
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<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------------
The date of this Prospectus is February 14, 1997
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<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company, and the Registration
Statement of which this Prospectus forms a part, the exhibits and schedules
thereto and amendments thereof, may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Judiciary Plaza, Washington, D.C. 20549, and at the regional offices
of the Commission located at 7 World Trade Center, 13th Floor, New York, New
York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can also be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549 at prescribed rates. The Company's Common Stock is
quoted on the Nasdaq National Market, and therefore such reports, proxy
statements and other information can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W., 3rd
Floor, Washington, D.C. 20006.
Additional information regarding the Company and the shares offered
hereby is contained in the Registration Statement on Form S-3 and the exhibits
thereto (collectively, the "Registration Statement") filed with the Commission
under the Securities Act of 1933, as amended (the "Securities Act"). As
permitted by the rules and regulations of the Commission, this Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, to which reference is hereby made. Statements made in this
Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is hereby made to the exhibit for a more complete description of the
matter involved, and each such statement will be deemed qualified in its
entirety by such reference. For further information with respect to the Company
and the shares of Common Stock offered hereby, reference is hereby made to the
Registration Statement, and the exhibits thereto.
SPSS(R), Categories(R), SYSTAT(R), Jandel Scientific, SigmaPlot,
SigmaStat, SigmaScan and SigmaGel are registered trademarks of the Company.
SPSS/PC + SPSS Real Stats. Real Easy.(TM), BMDP(TM), Jandel and CLEAR are
unregistered trademarks of the Company, and the trademark QI Analyst(TM) is
subject to a pending application for registration. This Prospectus also includes
trade names and marks of companies other than SPSS Inc.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates by reference the following documents
previously filed with the Commission:
(a) The Company's Quarterly Report on Form 10-Q, filed May
15, 1996 for the fiscal quarter ended March 31, 1996.
(b) The Company's Quarterly Report on Form 10-Q filed August
14, 1996 for the fiscal quarter ended June 30, 1996.
(c) The Company's Quarterly Report on Form 10-Q filed November
13, 1996 for the fiscal quarter ended September 30, 1996.
(d) The Company's Current Report on Form 8-K and amendments
thereto filed with the Commission on October 11, 1996 (acquisition of
Clear Software).
- 4 -
<PAGE>
(e) The Company's Current Report on Form 8-K and amendments
thereto filed with the Commission on December 4, 1996 (acquisition of
Jandel Corporation).
(f) The description of the Company's Common Stock, $.01 par value
(the "Common Stock"), contained in the Company's Registration
Statement on Form 8-A filed with Commission on August 4, 1993,
pursuant to Section 12 of the Exchange Act.
(g) The Company's Proxy Statement, filed with the Commission on
May 16, 1996, for its annual meeting of stockholders held on June 19,
1996, except for the report of the Compensation Committee contained
therein.
(h) The Company's Registration Statement on Form S-4 and
Amendment Number One to Form S-4 and attachments thereto filed with
the Commission on November 1, 1996 and November 7, 1996 respectively
(acquisition of Jandel Corporation).
All reports and other documents filed by the Company pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, subsequent to the date
of this Prospectus and prior to the filing of a post-effective amendment to the
Registration Statement, shall be deemed to be incorporated by reference in the
Registration Statement and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person (including any
beneficial owner) to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any and all of the information that has been
incorporated by reference in this Prospectus (not including exhibits to such
information unless such exhibits are specifically incorporated by reference into
such information). Such requests should be directed to: Edward Hamburg, Senior
Vice President, Corporate Operations, Chief Financial Officer and Secretary, at
the Company's principal executive offices at 444 North Michigan Avenue, Chicago,
Illinois 60611, telephone (312) 329-2400.
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<PAGE>
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN THIS PROSPECTUS TO "SPSS"
AND THE "COMPANY" SHALL MEAN SPSS INC. A DELAWARE CORPORATION, ITS ILLINOIS
PREDECESSOR AND ITS SUBSIDIARIES, COLLECTIVELY; AND REFERENCES TO THE "COMMON
STOCK" SHALL MEAN SPSS INC.'S COMMON STOCK, PAR VALUE $ .01 PER SHARE.
THE COMPANY
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." 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 that 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 sold 1,865,203 shares of Common Stock
in a public offering.
The Company is a Delaware corporation. The Company's principal
executive offices are located at 444 N. Michigan Avenue, Chicago, Illinois
60611, and its telephone number at its principal executive offices is (312)
329-2400.
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 Prospectus are forward-looking statements that involve risks and
uncertainties including, but not limited to, market conditions, competition and
other risks indicated in the Registration Statement of which this Prospectus
forms a part, and the Company's other filings with the Securities and Exchange
Commission.
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 1995
- 6 -
<PAGE>
revenues were approximately $2.8 million. SPSS will continue to operate the
Clear Software business from the Clear Software offices in Newton,
Massachusetts.
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 developer and marketer of graphical and
statistical software products used mainly in scientific applications. SPSS will
continue to operate the Jandel business from the Jandel offices in San Rafael,
California.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The following table sets forth supplemental financial information (see the
supplemental consolidated financial statements included elsewhere herein) about
foreign and domestic operations. Such information may not necessarily be
indicative of trends for future periods.
<TABLE>
<CAPTION>
Year Ended December 31,
Sales to unaffiliated customers 1993 1994 1995
customers:
<S> <C> <C> <C>
United States $30,936,000 $34,201,000 $36,851,000
Europe & India 18,358,000 21,124,000 26,158,000
Pacific Rim 2,880,000 7,269,000 10,785,000
----------- ----------- -----------
Total $52,174,000 $62,594,000 $73,794,000
=========== =========== ===========
Sales or transfers between geographic areas:
United States $ 9,060,000 $12,080,000 $15,003,000
Europe & India (7,899,000) (9,082,000) (10,931,000)
Pacific Rim (1,161,000) (2,998,000) (4,072,000)
----------- ----------- ------------
Total $ - $ - $ -
=========== =========== ============
Operating income (loss):
United States $ 6,039,000 $ 6,072,000 $ 4,687,000
Europe & India 1,153,000 380,000 604,000
Pacific Rim (43,000) 53,000 1,245,000
----------- ----------- -----------
Total $ 7,149,000 $ 6,505,000 $ 6,536,000
=========== ============ ============
Identifiable assets:
United States $18,024,000 $24,225,000 $33,471,000
Europe & India 5,476,000 7,010,000 8,083,000
Pacific Rim 496,000 3,082,000 2,463,000
----------- ----------- -----------
Total $23,996,000 $ 34,317,000 $44,017,000
=========== ============ ===========
</TABLE>
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<PAGE>
Results of Operations
The following table sets forth certain supplemental statement of operations
data (see the supplemental consolidated financial statements included elsewhere
herein) as a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
================================================================================
Nine months ended
Year ended December 31, September 30,
--------------------------------------------------------------------------------
1993 1994 1995 1995 1996
Net revenues:
<S> <C> <C> <C> <C> <C>
Desktop products 68.1% 73.4% 77.1% 76.1% 78.4%
Large System products 22.6% 17.3% 14.5% 14.9% 13.4%
Other products and services 9.3% 9.3% 8.4% 9.0% 8.2%
--------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 12.8% 11.6% 10.4% 10.4% 10.3%
--------------------------------------------------------------------------------
Gross profit 87.2% 88.4% 89.6% 89.6% 89.7%
--------------------------------------------------------------------------------
Operating expenses:
Sales and marketing 47.4% 51.3% 52.7% 54.4% 50.3%
Product development 16.0% 14.7% 14.7% 15.5% 16.2%
General and administrative 10.1% 8.9% 8.5% 8.7% 8.7%
Nonrecurring items - - 3.4% - -
Acquisition-related charges - 3.1% 1.4% - -
--------------------------------------------------------------------------------
Operating expenses 73.5% 78.0% 80.7% 78.6% 75.2%
--------------------------------------------------------------------------------
Operating income 13.7% 10.4% 8.9% 11.0% 14.5%
--------------------------------------------------------------------------------
Net interest income (expense) (3.2%) (0.4%) 0.2% 0.2% 0.5%
Merger costs - - - - (1.6%)
Other income (expense) (0.8%) (0.2%) 0.2% 0.3% (0.3%)
--------------------------------------------------------------------------------
Income before income taxes 9.7% 9.8% 9.3% 11.5% 13.1%
Provision for income taxes 2.6% 3.5% 4.0% 4.2% 4.5%
--------------------------------------------------------------------------------
Net income 7.1% 6.3% 5.3% 7.3% 8.6%
================================================================================
</TABLE>
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<PAGE>
SPSS INC.
SELECTED SUPPLEMENTAL AND HISTORICAL FINANCIAL DATA
The following selected supplemental financial data of SPSS have been
derived from the supplemental consolidated financial statements and should be
read in conjunction with the supplemental consolidated financial statements and
notes thereto included elsewhere herein. The selected historical financial data
of SPSS have been derived from the consolidated financial statements and should
be read in conjunction with the consolidated financial statements and notes
thereto incorporated herein by reference. The selected historical financial data
of Jandel have been derived from the consolidated financial statements and
should be read in conjunction with the consolidated financial statements and
notes thereto incorporated herein by reference.
The SPSS and Jandel statement of operations data for the nine months ended
September 30, 1995 and 1996, and the balance sheet data as of September 30, 1996
are unaudited but have been prepared on the same basis as the audited financial
statements and, in the opinion of management of the respective companies,
contain all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the respective companies' financial
position and results of operations as of and for such periods.
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<PAGE>
SPSS INC.
SELECTED SUPPLEMENTAL FINANCIAL DATA (1)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
--------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
STATEMENT OF OPERATIONS (unaudited)
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $41,737 $46,206 $52,174 $62,594 $73,794 $52,914 $60,833
Operating income 970 308 (2) 7,149 6,505(3) 6,536(4) 5,838 8,821
Net income (loss) (1,583) (4,122) (2) 3,720 3,956(3) 3,875(4) 3,857 5,258
Net income (loss) per share ($0.37) ($0.96) (2) $0.70 $0.56(3) $0.48(4) 0.48 0.63
Shares used in per share calculation 4,302,343 4,307,156 5,306,152 7,034,586 8,085,459 8,013,414 8,350,701
December 31, September 30,
------------------------------------------------------------------- -------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
BALANCE SHEET DATA: (unaudited)
Working capital ($11,406) ($13,983) ($9,396) ($8,676) $4,995 $9,439
Total assets 21,524 17,324 23,996 34,317 44,017 47,964
Total stockholders' equity (deficit) (14,838) (19,804) 32 5,430 18,488 23,667
</TABLE>
(1) The selected supplemental consolidated financial data gives retroactive
effect to the acquisition of Jandel Corporation and Subsidiary as of
November 20, 1996, which has been accounted for as a pooling of interests
for financial reporting purposes, and as a result, the financial position
and results of operations are presented as if the combining company had
been consolidated for all periods presented. The financial data as of and
for the years ended December 31, 1991 and 1992 as well as the balance sheet
data as of December 31, 1993, are derived from unaudited supplemental
consolidated financial statements and include in the opinion of management,
all adjustments (consisting only of normal recurring adjustments) necessary
to present fairly the data for the periods. The selected supplemental
consolidated financial data should be read in conjunction with the other
financial information included or incorporated by reference in this
Prospectus.
(2) Includes pre-tax write-off of software purchased as part of the 1990
recapitalization of the Company amounting to $3,071.
(3) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,928.
(4) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,051 and write-off principally
of certain software assets capitalized more than two years ago amounting
to $2,466.
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<PAGE>
SPSS INC.
SELECTED HISTORICAL FINANCIAL DATA (1)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
--------------------------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
---- ---- ---- ---- ---- ---- ----
STATEMENT OF (unaudited)
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $36,143 $39,557 $44,591 $54,498 $65,784 $47,421 $54,874
Operating income 1,235 619 (2) 6,608 6,145 (3) 7,047 (4) 6,490 8,993
Net income (loss) (1,492) (3,488) (2) 3,210 3,596 (3) 4,382 (4) 4,504 5,428
Net income (loss)
per share ($0.37) ($0.87) (2) $0.65 $0.54(3) $0.56 (4) $0.59 $0.68
Shares used in per share
calculation 4,013,325 4,013,325 4,958,089 6,696,604 7,768,740 7,697,217 8,031,684
December 31, September 30,
------------------------------------------------------------------------ -------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
(unaudited)
BALANCE SHEET DATA:
Working capital ($11,647) ($14,104) ($10,083) ($9,502) $4,702 $9,254
Total assets 19,654 15,573 21,855 31,794 41,843 46,191
Total stockholders' equity
(deficit) (15,666) (20,166) (892) 4,122 17,692 22,983
</TABLE>
(1) The selected historical consolidated financial data gives retroactive
effect to the acquisition of Clear Software, as of September 26, 1996,
which has been accounted for as a pooling of interests for financial
reporting purposes, and as a result, the financial position and results of
operations are presented as if the combining company had been consolidated
for all periods presented. The financial data as of and for the years ended
December 31, 1991 and 1992, as well as the balance sheet data as of
December 31, 1993 are derived from unaudited historical consolidated
financial statements and include in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for the periods. The selected historical
consolidated financial data should be read in conjunction with the other
financial information included or incorporated by reference in this
Prospectus.
(2) Includes pre-tax write-off of software purchased as part of the 1990
recapitalization of the Company amounting to $3,071.
(3) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,928.
(4) Includes pre-tax write-off of acquired in-process technology and other
acquisition-related charges amounting to $1,051 and write-off principally
of certain software assets capitalized more than two years ago amounting
to $2,466.
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<PAGE>
JANDEL CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
------------------------------------------------------------------------- ---------------------
1991 (1) 1992 (1) 1993 (1) 1994 1995 1995 1996
-------- -------- -------- ---- ---- ---- ----
STATEMENT OF (unaudited)
OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues $5,594 $6,649 $7,583 $8,096 $8,010 $5,493 $5,959
Operating income (265) (311) 541 360 (511) (652) (172)
Net income (loss) (91) (634) 510 360 (507) (647) (170)
Net income (loss)
per share ($0.29) ($1.98) $1.35 $0.98 ($1.47) (1.88) (0.49)
Shares used in per share
calculation 314,842 319,882 378,922 367,948 344,800 344,231 347,301
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
------------------------------------------------------------------------- -------------
1991 (1) 1992 (1) 1993 (1) 1994 1995 1996
-------- -------- -------- ---- ---- ----
(unaudited)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C> <C>
Working capital $241 $121 $687 $826 $293 $185
Total assets 1,870 1,751 2,141 2,523 2,174 1,773
Total stockholders' equity 828 362 924 1,308 796 684
</TABLE>
(1) The financial data presented as of and for the years ended December 31,
1991, 1992 and 1993 has been derived from unaudited financial statements.
- 12 -
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully by potential purchasers in
evaluating an investment in the Common Stock offered hereby.
Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results can be subject to fluctuation 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 non-recurring charges, the percentage
of the Company's operating income realized in the fourth quarter was 40% in
1993, 41% in 1994 and 41% in 1995. 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 affected. Generally, if revenues do not meet the
Company's expectations in any given quarter, operating results will be adversely
affected. Although the Company had been profitable in each of the seven quarters
up to and including the quarter ending June 30, 1994, the Company experienced a
net loss of $137,000 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, Inc.
("SYSTAT"). The Company has been profitable in the eight quarters ending
December 31, 1994 through September 30, 1996. However, there can be no assurance
that profitability on a quarterly or annual basis can be achieved or sustained
in the future.
Dependence on a Single Product Category; Declining Sales of Certain
Products. The Company derives substantially all of its product revenues from
licenses of statistical software. Accordingly, any decline in revenues from
licenses of the Company's statistical software, or reduction in demand for
statistical software generally, could have a material adverse effect on the
Company.
In recent years SPSS has experienced a significant shift in the sources of
its revenues. Historically, the Company derived a large portion of its revenues
from licenses of its mainframe and minicomputer ("Large Systems") products. As a
result of the general shift by computer users from Large Systems to desktop
computers, the Company has experienced an ongoing decline in revenues from Large
Systems products in the last several years, although this decline has generally
lessened in recent quarters. Revenues from Large Systems licenses declined from
approximately $15.6 million in 1991 to $10.7 million in 1995, while sales of
desktop products increased from $21.8 million in 1991 to $56.9 million in 1995,
although revenues from Large Systems licenses only declined from $10.8 million
to $10.7 million from 1994 to 1995. Management is unable to predict the
continuing rate of decline on Large Systems licenses, if any. Revenues from the
Company's products for desktop computers ("Desktop products") now account for
nearly three-quarters of the Company's revenues and this percentage may continue
to increase.
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<PAGE>
Rapid Technological Change. The computer software industry is
characterized by rapid technological advances, changes in customer requirements,
frequent product enhancements and new product introductions. The Company's
future success will depend upon its ability to enhance its existing products and
introduce new products that keep pace with technological developments, respond
to evolving customer requirements and achieve market acceptance. In particular,
the Company believes it must continue to respond quickly to users' needs for
greater functionality, improved usability and support for new hardware and
operating systems. Any failure by the Company to respond adequately to
technological developments and customer requirements, or any significant delays
in product development or introduction, could result in loss of revenues. In the
past, the Company has, on occasion, 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. The extent of these delays has varied depending upon the size and scope
of the project and the nature of the problems encountered. Such delays have most
often resulted from "bugs" encountered in working with new and/or beta-stage
versions of operating systems and other third party software, and bugs or
unexpected difficulties in existing third party software which complicate
integration with the Company's software. From time to time, the Company has
discovered bugs in its products which are resolved through maintenance releases
or through periodic updates depending upon the seriousness of the defect. There
can be no assurance that the Company will be successful in developing and
marketing new products or product enhancements on a timely basis or that the
Company will not experience significant delays or defects in its products in the
future, which could have a material adverse effect on the Company. In addition,
there can be no assurance that new products or product enhancements developed by
the Company will achieve market acceptance or that developments by others will
not render the Company's products or technologies obsolete or noncompetitive.
International Operations. The Company's revenues from operations outside of
North America accounted for approximately 40%, 45% and 50% of the Company's net
revenues in 1993, 1994 and 1995, 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 revenues are subject to a number of
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 to intellectual property in some foreign jurisdictions. As
the Company expands its international operations, the risks described above
could increase and, could have a material adverse effect on the Company.
Potential Volatility of Stock Price. There has been significant volatility
in the market prices of securities of technology companies and in some
instances, such volatility has been unrelated to the operating performance of
such companies. Market fluctuations may adversely affect the price of the Common
Stock. The Company also believes factors such as announcements of new products
by the Company or its competitors, quarterly variations in financial results,
recommendations and reports of analysts and other factors beyond the Company's
control could cause the market price of the Common Stock to fluctuate
substantially.
Reliance on Relationships with Third Parties. The Company licenses certain
software from third parties. Some of this licensed software is embedded in the
Company's products, and some is offered as add-on products. If such licenses are
discontinued, or become invalid or unenforceable, there can be no assurance that
the Company will be able to develop substitutes for this software independently
or to obtain alternative sources in a timely manner. Any delays in obtaining or
developing substitutes for licensed software could have a material adverse
effect on the Company.
In February 1993, the Company entered into an exclusive, worldwide
agreement (the "Prentice Hall Agreement") with Prentice Hall, Inc. ("Prentice
Hall") under which Prentice Hall publishes and distributes the student version
of the Company's software and all of the Company's publications. As a result,
the Company is
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<PAGE>
dependent on Prentice Hall for the development and support of the markets for
student software and its publications. The failure of Prentice Hall to perform
its obligations under the Prentice Hall Agreement adequately could have a
material adverse effect on the Company.
In February 1993, the Company entered into a Software Distribution
Agreement (the "IBM Software Distribution Agreement") with International
Business Machines Corporation ("IBM") under which IBM is responsible for
manufacturing and packaging the Company's products and distributing them to the
Company's domestic and European customers. If IBM fails to adequately perform
its obligations under this agreement, or if the agreement is terminated, the
Company's operating results could be materially adversely effected.
Changes in Public Expenditures and Overall Economic Activity Levels. A
significant portion of the Company's revenues comes from licenses of its
products directly to foreign and domestic government entities. In addition,
significant amounts of the Company's revenues come from licenses to academic
institutions, healthcare organizations and private businesses which contract
with or are funded by government entities. Government appropriations processes
are often slow, unpredictable and subject to factors outside the Company's
control. In addition, proposals are currently being made in certain countries to
reduce government spending. Reductions in government expenditures and
termination or renegotiation of government-funded programs or contracts could
have a material adverse effect on the Company. In addition, declines in overall
levels of economic activity could also have a material adverse impact on the
Company.
Competition. The market for the statistical software is both highly
competitive and fragmented. The Company primarily competes with one general
statistical software provider which is larger and has greater resources than the
Company, as well as with numerous other companies offering statistical
applications software, many of which offer products focused on specific
statistical applications. 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 that are used
for purposes other than statistics 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 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. These
companies have added, or in the future may add, statistical analysis
capabilities to their products. Many of these companies have significant name
recognition, as well as substantially greater capital resources, marketing
experience and research and development capabilities than the Company. There can
be no assurance that the Company will have sufficient resources to make the
necessary investment in research and development and sales and marketing, or
that the Company will otherwise be able to make the technological advances
necessary to maintain or enhance its competitive position. The Company's future
success will also depend significantly upon its ability to continue to sell its
Desktop products, to attract new customers looking for more sophisticated or
powerful software and to introduce additional add-on products to existing
customers. There can be no assurance that the Company will be able to compete
successfully in the future.
Dependence on Key Personnel. The Company is dependent on the efforts of
certain executives and key employees, including its President and Chief
Executive Officer, Jack Noonan. The Company's continued success will depend in
part on its ability to attract and retain highly qualified technical,
managerial, sales, marketing and other personnel. Competition for such personnel
is intense. There can be no assurance that the Company will be able to continue
to attract or retain such highly qualified personnel. No life insurance policies
are maintained on the Company's key personnel.
- 15 -
<PAGE>
Intellectual Property; Proprietary Rights. The statistical algorithms
incorporated in the Company's software are not proprietary. The Company believes
that the proprietary technology constituting a portion of the Company's software
determines the speed and quality of displaying the results of computations, the
connectivity of the Company's products with third party software and the ease of
use of its products. The Company's success will depend, in part, on its ability
to protect the proprietary aspects of its products. The Company attempts to
protect its proprietary software with trade secret laws and internal
nondisclosure safeguards, as well as copyright and trademark laws 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
that is not signed by licensees, 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 may be uncertain, particularly outside of North America.
Preventing unauthorized use of computer software is difficult, and software
piracy is expected to be a persistent problem for the packaged software
industry. These problems may be particularly acute in international markets. In
addition, the laws of certain countries in which the Company's products are or
may be licensed do not protect the Company's products and intellectual property
rights to the same extent as the laws of the United States. Despite the
precautions taken by the Company, it may be possible for unauthorized third
parties to reverse engineer or copy the Company's products or obtain and use
information that the Company regards as proprietary. There can be no assurance
that the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology.
Although the Company's products have never been the subject of an
infringement claim, there can be no assurance that third parties will not assert
infringement claims against the Company in the future or that any such assertion
will not result in costly litigation or require the Company to obtain a license
to use the intellectual property of third parties. There can be no assurance
that such licenses will be available on reasonable terms, or at all. There can
also be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies.
Control by Existing Stockholders; Antitakeover Effects. As of December 31,
1996, the Company's executive officers and directors owned beneficially
approximately 22.2% of the outstanding shares of Common Stock. The Norman H. Nie
Revocable Trust Dated March 15, 1991 (the "Nie Trust") and affiliates of the Nie
Trust, are entitled to nominate a director for inclusion in the management slate
for election to the Board so long as the Nie Trust continues to own no less than
12.5% of the outstanding shares of Common Stock. As of December 31, 1996, the
Nie Trust and affiliates of the Nie Trust beneficially owned approximately 15.9%
of the outstanding shares of Common Stock. The Company's Certificate of
Incorporation and Bylaws contain a number of provisions, including provisions
requiring an 80% super majority stockholder approval of certain actions and
provisions for a classified Board of Directors, which would make the acquisition
of the Company, by means of an unsolicited tender offer, a proxy contest or
otherwise, more difficult or impossible.
Shares Eligible for Future Sale. As of December 31, 1996, there were
vested options outstanding held by management to purchase approximately an
additional 536,573 shares of SPSS Common Stock and unvested options to purchase
approximately an additional 140,370 shares of SPSS Common Stock, with an average
exercise price of $5.81 per share. The Company has also established a stock
purchase plan available to employees of the Company, which permits employees to
acquire shares of SPSS Common Stock at the end of each quarter at 85% of the
market price of SPSS Common Stock as of such date.
- 16 -
<PAGE>
In addition to the Company's currently outstanding shares and those
issuable to employees as described above, the Company has issued approximately
339,000 shares of SPSS Common Stock to Jandel's shareholders. Such shares of
SPSS Common Stock will generally be available for resale.
No prediction can be made as to the effect, if any, that future sales, or
the availability of shares of Common Stock for future sales, will have on the
market price prevailing from time to time. Sales of substantial amounts of SPSS
Common Stock by the Company or by shareholders, or the perception that such
sales may occur, could adversely affect prevailing market prices for SPSS Common
Stock.
Accumulated Deficit. The Company had an accumulated deficit of $16,235,000
as of September 30, 1996.
- 17 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
SPSS' FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis has been prepared on
the basis of the Supplemental Consolidated Financial Statements included
elsewhere herein.
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 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 280 professionals in 10 Company offices
worldwide.
In recent years SPSS has experienced a significant shift in the sources of
its revenues. Between 1991 and 1995, Desktop product license revenues increased
from approximately 50% to 77% of total net revenues, while Large Systems
software license revenues declined from approximately 39% to 15%. 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 40%
to 50% between 1993 and 1995. This trend continued in 1996. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF SPSS 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 periods indicated.
<TABLE>
<CAPTION>
================================================================================
Nine months ended
Year ended December 31, September 30,
--------------------------------------------------------------------------------
1993 1994 1995 1995 1996
Net revenues:
<S> <C> <C> <C> <C> <C>
Desktop products 68.1% 73.4% 77.1% 76.1% 78.4%
Large System products 22.6% 17.3% 14.5% 14.9% 13.4%
Other products and services 9.3% 9.3% 8.4% 9.0% 8.2%
--------------------------------------------------------------------------------
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues 12.8% 11.6% 10.4% 10.4% 10.3%
--------------------------------------------------------------------------------
Gross profit 87.2% 88.4% 89.6% 89.6% 89.7%
</TABLE>
- 18 -
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Operating expenses:
<S> <C> <C> <C> <C> <C>
Sales and marketing 47.4% 51.3% 52.7% 54.4% 50.3%
Product development 16.0% 14.7% 14.7% 15.5% 16.2%
General and administrative 10.1% 8.9% 8.5% 8.7% 8.7%
Nonrecurring items - - 3.4% - -
Acquisition-related charges - 3.1% 1.4% - -
--------------------------------------------------------------------------------
Operating expenses 73.5% 78.0% 80.7% 78.6% 75.2%
--------------------------------------------------------------------------------
Operating income 13.7% 10.4% 8.9% 11.0% 14.5%
--------------------------------------------------------------------------------
Net interest income (expense) (3.2%) (0.4%) 0.2% 0.2% 0.5%
Merger costs - - - - (1.6%)
Other income (expense) (0.8%) (0.2%) 0.2% 0.3% (0.3%)
--------------------------------------------------------------------------------
Income before income taxes 9.7% 9.8% 9.3% 11.5% 13.1%
Provision for income taxes 2.6% 3.5% 4.0% 4.2% 4.5%
--------------------------------------------------------------------------------
Net income 7.1% 6.3% 5.3% 7.3% 8.6%
================================================================================
</TABLE>
Comparison of Twelve Months Ended December 31, 1993, 1994 and 1995.
Net Revenues. Net revenues increased from $52,174,000 in 1993 to $62,594,000 in
1994 and to $73,794,000 in 1995, increases of 20% and 18%, respectively. These
increases were primarily due to an increase in Desktop revenues of 29% in 1994
and 24% in 1995, partially offset by a decline in Large System revenues of 8%
and 1%, respectively. In addition, in 1994 and 1995, the increase in net
revenues was due in part to the acquisition by the Company of the remaining 50%
portion of SPSS Japan, its Japanese joint venture, which was effective in the
first quarter of 1994, and the September 1994 acquisition of SYSTAT. When
compared to 1993, the SPSS Japan acquisition accounted for approximately
$3,758,000 of the Company's increase in sales in 1994 and $6,898,000 in 1995.
The Company's acquisition of SYSTAT accounted for approximately $668,000 of the
Company's increase in sales in the fourth quarter of 1994 and $1,704,000 in 1995
when compared to 1993. The increase in Desktop revenues reflected $24,032,000 in
1994 and $31,438,000 in 1995 of new revenues from licenses of SPSS for Windows.
In addition, revenues from annual license renewals of Desktop products reflected
a $1,692,000 and $3,203,000 increase in annual license revenues for SPSS for
Windows in 1994 and 1995, respectively. The decline in Large Systems revenues
was primarily due to the nonrenewal of product licenses on mainframe platforms,
as well as the deferral into future periods of revenues from renewal licenses,
which exceeded the amount recognized from prior periods. Revenues from other
products and services increased by 20% in 1994 due to an increase of 60% in
revenues from training and consulting services, partially offset by a 34%
decrease in revenues from publications and student products due to the shift of
the sales of SPSS publications and student products under the Prentice Hall
Agreement. In 1995, revenues from other products and services increased by 7%
due to an increase of 30% in revenues from training and consulting services,
partially offset by a 49% decrease in revenues previously received from
publications and student products due to the end of the payment of guaranteed
royalties from the Prentice Hall
- 19 -
<PAGE>
Agreement in July 1995. 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 1994 and 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 $6,663,000 in 1993 to $7,243,000 in 1994, to
$7,709,000 in 1995. Such costs increased 9% in 1994 and 6% in 1995 due to higher
sales levels, higher amounts of capitalized software amortized and, in 1994,
higher royalties paid to third parties. As a percentage of net revenues, cost of
revenues decreased from 13% in 1993 to 12% in 1994 and to 10% in 1995.
Sales and Marketing. Sales and marketing expenses increased from $24,743,000 in
1993 to $32,109,000 in 1994 and to $38,892,000 in 1995, an increase of 30% in
1994 and 21% in 1995. These increases were due to expansion of the domestic and
international sales organizations, salary and commission increases, increased
marketing expenses associated with SPSS for Windows, in 1994 the inclusion of
all the sales and marketing expenses of SPSS Japan, in the fourth quarter of
1994 and 1995 the incorporation of the SYSTAT sales organization into the
Company, 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 47% in 1993 to 51% in 1994 and to 53% in 1995.
Product Development. Product development expenses increased from $8,330,000 in
1993 to $9,215,000 in 1994 and to $10,863,000 in 1995 (net of capitalized
software development costs of $1,341,000, $1,639,000 and $1,630,000,
respectively) an increase of 11% in 1994 and an increase of 18% in 1995. In the
same periods, the Company's expense for amortization of capitalized software and
product translations, included in cost of revenues, was $1,006,000, $1,239,000
and $1,592,000, respectively. The increases in product development expenses were
primarily due to salary increases, the addition of technical personnel from the
SYSTAT acquisition into the Company, and higher depreciation expense related to
the purchase of capital equipment used in product development. As a percentage
of net revenues, product development expenses declined from 16% in 1993 to 15%
in 1994 and 1995 primarily as a result of the increase in net revenues.
General and Administrative. General and administrative expenses increased from
$5,289,000 in 1993 to $5,594,000 in 1994 and to $6,277,000 in 1995, an increase
of 6% in 1994 and 12% in 1995. These increases were primarily attributable to
increases in general insurance as a result of being a publicly-held company,
higher professional fees and the amortization of goodwill associated with the
1994 acquisitions of SPSS Japan and SYSTAT, and in 1995 higher professional fees
and charges for bad debts. Such expense decreased as a percentage of net
revenues from 10% in 1993 to 9% in 1994 and 1995.
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 and DOS. In addition, approximately $200,000 of the charge
related to the out-dated software purchased for the Company's customer
information system. The remainder primarily related 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.
Net Interest Income (Expense). Net interest income (expense) was ($1,682,000) in
1993 and ($229,000) in 1994, reflecting a decrease of 86% due to the elimination
of interest expense related to the Company's long-term debt, which the Company
prepaid through the use of net proceeds from the Company's initial public
offering of stock in August 1993. Net interest income was $176,000 in 1995 due
to interest earned on short-term investments as well
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<PAGE>
as the elimination of interest expense related to the Company's line of credit,
which the Company repaid with the net proceeds from the Company's February 1995
public offering of stock.
Other Income (Expense). Other income (expense) consists mainly of the
amortization of fees incurred in connection with the Recapitalization, expenses
related to the stock appraisal action, and foreign exchange transactions. Such
other items were ($390,000) in 1993, ($128,000) in 1994 and $132,000 in 1995.
The 1993 decrease was due to decreased legal expenses resulting from the
completion of the trial of the stock appraisal action in December 1992,
partially offset by the write-off of the unamortized balance of fees incurred in
connection with the Recapitalization due to the elimination of the Company's
long-term debt which had been incurred in connection with the Recapitalization.
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 net amount was primarily foreign currency transaction
gains.
Provision for Income Taxes. The provision for income taxes consisted of
$1,357,000 in 1993, $2,192,000 in 1994 and $2,969,000 in 1995. During 1993, the
provision for income taxes was the result of pretax income of $5,077,000, which
includes both domestic and international operations, reduced by a one-time tax
credit of $511,000 due to the recognition of a fully reserved (but previously
unrealized) deferred tax asset realized upon the payment of accrued but
previously unpaid ownership payments to the Company's founders. These payments
were made in 1993 through the use of a portion of the net proceeds from the
Company's August 1993 initial public offering. 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.
Comparison of Nine Months Ended September 30, 1995 to Nine Months Ended
September 30, 1996.
Net Revenues. Net revenues were $52,914,000 and $60,833,000 in the nine months
ended September 30, 1995 and 1996, respectively, an increase of 15%. This
increase in revenue was influenced, in part, by the acquisition of BMDP,
effective December 29, 1995. Net of BMDP revenue of approximately $1,055,000,
the Company's increase in sales was 13%. Revenues from Desktop products
increased 18% over the corresponding period in 1995 and revenues from Large
System products increased 3%. The increase in revenues from Desktop products
reflected $4,491,000 in new revenues from SPSS for Windows. In addition,
revenues from annual license renewals of Desktop products resulted in a net
increase of $2,390,000, reflecting a $2,945,000 increase in annual license
renewals of SPSS for Windows. The increase in revenues from Large System
products was primarily due to an increase in revenues from new UNIX licenses as
a result of the BMDP acquisition. Other products and services revenues increased
5% primarily due to the increase in training and consulting revenues. This
increase was partially offset by the decrease in revenues previously received
from publications and student products due to the end of the payment of
guaranteed royalty payments related to the Prentice Hall Agreement in July 1995.
Revenues for the first nine months of 1996 were adversely affected by changes in
foreign currency exchange rates.
Cost of Revenues. Cost of revenues were $5,511,000 and $6,238,000 for the nine
months ended September 30, 1995 and 1996, respectively, an increase of 13%. Such
costs increased due to higher sales levels and higher royalty expense paid to
third parties. As a percentage of net revenues, such expenses remained constant
at 10%.
Sales and Marketing. Sales and marketing expenses were $28,746,000 and
$30,596,000 in the nine months ended September 30, 1995 and 1996, respectively,
an increase of 6%. This increase was due to expansion of the domestic and
international sales organizations, and salary and commission increases. As a
percentage of net revenues, such expenses decreased from 54% to 50%.
Product Developments. Product development expenses were $8,215,000 and
$9,841,000 (net of capitalized software development costs of $1,218,000 and
$716,000) for the nine months ended September 30, 1995 and 1996,
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<PAGE>
respectively, an increase of 20%. In the corresponding periods in 1995 and 1996,
the Company's expense for amortization of capitalized software and product
translations, included in cost of revenues, was $1,194,000 and $1,067,000,
respectively. The increase in product development expenses was primarily due to
salary and recruiting fee increases, depreciation expense, and other additions
to the product development staff. As a percentage of net revenues, such expenses
remained constant at 16%.
General and Administrative. General and administrative expenses were $4,604,000
and $5,337,000 in the nine months ended September 30, 1995 and 1996,
respectively, an increase of 16%. Such expenses increased primarily due to
increases in bad debt expense, employment taxes, employee insurance, and
temporary employment and rent expenses. As a percentage of net revenues, general
and administrative expenses remained constant at 9%.
Net Interest Income. Net interest income was $85,000 and $310,000 for the nine
months ended September 30, 1995 and 1996, respectively. This favorable variance
can be attributed to the elimination of interest expense related to the line of
credit, which was repaid with the net proceeds from the Company's follow-on
public offering of common stock, in February 1995.
Other Income (Expense). Other income (expense) was $141,000 and $(190,000) for
the nine months ended September 30, 1995 and 1996, respectively. These amounts
are comprised primarily of foreign currency gains (losses) in the corresponding
nine month periods.
Merger Costs. Charges related to the merger of CLEAR totaled $980,000 and
represented professional fees, severance pay, and other related costs.
Provision for Income Taxes. The provision for income taxes was $2,207,000 and
$2,703,000 in the nine months ended September 30, 1995 and 1996, respectively,
reflecting an approximate effective tax rate of 36% and 34%, respectively.
Liquidity and Capital Resources
The Company had no long-term debt as of September 30, 1996 and held
approximately $12,528,000 of cash and short term investments. Funds in 1994 and
1995 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 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.
- 22 -
<PAGE>
The Company's capital expenditures, primarily for computer equipment,
totaled approximately $2,600,000 in 1995 and are projected to total
approximately $3,200,000 and $3,500,000 in 1996 and 1997, respectively. Capital
expenditures during 1995, included, among other things, new computer systems for
use in internal product development. Capital expenditures during 1996 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 facility in
the United Kingdom. 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 1993 to 1995. Revenues from international operations comprised
approximately 40% of total net revenues in 1993, whereas revenues from
international operations contributed 50% of total net revenues in 1995.
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.
Recently Issued Accounting Standards
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
Long-Lived Assets and for Long-Lived Assets to Be Disposed of," was issued in
1995. Implementation of SFAS No. 121 is required in fiscal year 1996. SFAS No.
121 established accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill relating to those assets to be
held and used for long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 is not expected to have a significant impact on the
Company's consolidated financial statements.
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued in
1995. Implementations is required in fiscal year 1996. SFAS No. 123 established
financial accounting and reporting standards for stock based employee
compensation plans. The Company is currently evaluating the impact this
statement will have on the Company's consolidated financial statements, and
intends to provide pro forma disclosures of net income as if the fair
value-based method prescribed by SFAS No. 123 had been applied in measuring
compensation expense.
- 23 -
<PAGE>
SELLING STOCKHOLDERS
The following table sets forth the number of shares of Common Stock
beneficially owned by each Selling Stockholder as of December 31, 1996, the
number of shares of Common Stock that may be offered for the Selling
Stockholder's account and based on the number of shares of Common Stock
beneficially owned as of December 31, 1996, the percentage of the shares of
Common Stock to be beneficially owned by such Selling Stockholder if they elect
to sell all of their Shares of Common Stock that are available for sale.
<TABLE>
<CAPTION>
Maximum Shares of Common
Number Stock To Be
Shares of of Shares Beneficially Owned
Common Stock Available Assuming Sale of All
Beneficially To Be Sold Shares Available For
Name and Address of Owned As of Pursuant Sale Hereunder
Selling Stockholder December 31, 1996 Hereto Number Percent
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ella Kroll 75,419 75,419 0 0%*
Marina Goldberg 39,279 39,279 0 0%*
Vadim Yasinovsky 42,424 42,424 0 0%*
Adam Green 8,327 8,327 0 0%*
Sandow Ruby 943 943 0 0%*
Dan Bricklin 943 943 0 0%*
Simon Pogrebinsky 3,928 3,928 0 0%*
Eugene Palagashvili 6,285 6,285 0 0%*
Colleen Terry 6,285 6,285 0 0%*
</TABLE>
* The percentage of shares beneficially owned does not exceed 1% of the
class.
The Company has agreed to register the shares of Common Stock of the
Selling Stockholders offered hereby under the Securities Act. In this
connection, the selling stockholders are required to pay the underwriting
discounts and commissions and transfer taxes, if any, associated with the sale
of their shares of Common Stock, and the Company will pay substantially all of
the expenses directly associated with the registration of such shares of Common
Stock hereunder.
USE OF PROCEEDS
The Company will not receive any proceeds from the registration or
sale of the shares of Common Stock offered hereby.
DIVIDEND POLICY AND RESTRICTIONS
The Company has never declared any cash dividends or distributions on
its capital stock and does not anticipate paying cash dividends in the
foreseeable future. The Company currently intends to retain its future earnings
to fund ongoing operations and future capital requirements of its business.
PLAN OF DISTRIBUTION
The Common Stock may be offered by the Selling Stockholders from time
to time in transactions on the Nasdaq National Market, in negotiated
transactions, or a combination of such methods of sale, at fixed prices that may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. The Selling
Stockholders may effect such transactions by the sale of the Common Stock
- 24 -
<PAGE>
to or through broker-dealers, and such broker-dealers may receive compensation
in the form of discounts, concessions or commissions from the selling
Stockholders and/or the purchasers of the Common Stock for whom such
broker-dealers may act as agent or to whom they may sell as principal, or both
(which compensation to a particular broker-dealer might be in excess of
customary commissions). The Selling Stockholders and any broker-dealer who acts
in connection with the sale of Common Stock hereunder may be deemed to be
"underwriters" as that term is defined in the Securities Act, and any commission
received by them and profit on any resale of the Common Stock as principal might
be deemed to be underwriting discounts and commissions under the Securities Act.
No prediction can be made as to the effect, if any, that future sales,
or the availability of shares of Common Stock for future sales, will have on the
market price prevailing from time to time. See "RISK FACTORS -- Shares Eligible
for Future Sale" elsewhere in this Prospectus.
LEGAL MATTERS
The validity of the shares of Common Stock is being passed upon for
the Company by Ross & Hardies, Chicago, Illinois.
EXPERTS
The supplemental consolidated financial statements of SPSS Inc. and
subsidiaries as of December 31, 1995 and 1994 and for each of the three years in
the period ended December 31, 1995, have been included herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of SPSS Inc. and subsidiaries as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995, have been incorporated by reference herein in reliance upon
the report of KPMG Peat Marwick LLP, independent certified public accountants,
incorporated by reference herein, and upon the authority of said firm in
accounting and auditing.
With respect to SPSS Inc.'s unaudited interim financial information as of
March 31, 1996, June 30, 1996 and September 30, 1996 and for the three months
ended March 31, 1995 and 1996, the six months ended June 30, 1995 and 1996 and
the nine months ended September 30, 1995 and 1996, incorporated by reference
herein, the independent certified public accountants have reported that they
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports included in the
Company's quarterly reports on Form 10-Q for the quarters ended March 31, 1996,
June 30, 1996 and September 30, 1996, and incorporated by reference herein,
state that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
such information should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to the liability
provisions of section 11 of the Securities Act of 1933 for their reports on the
unaudited interim financial information because these reports are not a "report"
or a "part" of the registration statement prepared or certified by the
accountants within the meaning of sections 7 and 11 of the Act.
The financial statements of Clear Software, Inc. as of December 31, 1995
and for the year then ended, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Jandel Corporation and Subsidiary
as of December 31, 1995 and 1994 and for each of the years then ended, have been
incorporated by reference herein in reliance upon the report of KPMG Peat
- 25 -
<PAGE>
Marwick LLP, independent certified public accountants, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
- 26 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SPSS INC. AND SUBSIDIARIES
<S> <C>
Independent Auditors' Report....................................................................................29
Supplemental Consolidated Balance Sheets as of December 31, 1994 and 1995.......................................30
Supplemental Consolidated Statements of Income for the years ended December 31, 1993, 1994, and 1995............31
Supplemental Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993, 1994 and 1995......................................................................32
Supplemental Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994, and 1995.....................................................................33
Notes to 1995 Supplemental Consolidated Financial Statements....................................................34
Supplemental Consolidated Balance Sheet as of September 30, 1996 (unaudited)....................................47
Supplemental Consolidated Statements of Income for the nine months ended
September 30, 1995 (unaudited) and 1996 (unaudited)...................................................48
Supplemental Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 (unaudited) and 1996 (unaudited)...................................................49
Notes to Supplemental Consolidated Financial Statements (unaudited).............................................50
JANDEL CORPORATION AND SUBSIDIARY
Balance Sheet as of September 30, 1996 (unaudited)..............................................................51
Consolidated Statements of Operations Earnings for the nine months ended
September 30, 1995 (unaudited) and 1996 (unaudited)...................................................52
Consolidated Statements of Cash Flows for the nine months ended
September 30, 1995 (unaudited) and 1996 (unaudited)...................................................53
Notes to the Unaudited Financial Statements.....................................................................54
</TABLE>
- 27 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
- 28 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
SPSS Inc.:
We have audited the accompanying supplemental consolidated balance sheets of
SPSS Inc. and subsidiaries as of December 31, 1994 and 1995 and the related
supplemental consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995.
These supplemental consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
supplemental consolidated financial statements 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.
The supplemental consolidated financial statements give retroactive effect to
the merger of SPSS Inc. and Jandel Corporation and Subsidiaries on November 20,
1996, which has been accounted for as a pooling of interests as described in
note 6 to the supplemental consolidated financial statements. Generally accepted
accounting principles proscribe giving effect to a consummated business
combination accounted for by the pooling-of-interests method in financial
statements that do not include the date of consummation. These financial
statements do not extend through the date of consummation. However, they will
become the historical consolidated financial statements of SPSS Inc. and
subsidiaries after financial statements covering the date of consummation of the
business combination are issued.
In our opinion, the supplemental consolidated financial statements referred to
above present fairly, in all material respects, the financial position of SPSS
Inc. and subsidiaries as of December 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles applicable after financial statements are issued for a period which
includes the date of consummation of the business combination.
KPMG PEAT MARWICK LLP
Chicago, Illinois
November 20, 1996
- 29 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Balance Sheets
December 31, 1994 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
ASSETS 1994 1995
Current assets:
<S> <C> <C>
Cash and cash equivalents $2,410 11,175
Accounts receivable, net of allowances of $566 in 1994 and
$911 in 1995 11,732 13,694
Inventories 1,698 1,763
Prepaid expenses and other current assets 1,520 1,558
------ ------
Total current assets 17,360 28,190
------ ------
Equipment and leasehold improvements, at cost:
Furniture, fixtures, and office equipment 3,495 3,785
Computer equipment and software 8,170 9,870
Leasehold improvements 1,326 1,413
----- ------
12,991 15,068
Less accumulated depreciation and amortization 8,679 10,335
------ ------
Net equipment and leasehold improvements 4,312 4,733
------ ------
Capitalization software development costs,
net of accumulated amortization 7,207 6,839
Goodwill, net of accumulated amortization 2,331 2,213
Other assets 3,107 2,042
------ ------
$34,317 44,017
LIABILITIES AND STOCKHOLDERS' EQUITY ======= ======
Current liabilities:
Notes payable and current portion of long-term debt 2,921 75
Accounts payable 4,889 3,277
Accrued royalties 519 496
Accrued rent 1,202 921
Other accrued liabilities 7,020 9,255
Income taxes and value added taxes payable 2,599 2,262
Customer advances 504 295
Deferred revenues 6,382 6,614
----- -----
Total current liabilities 26,036 23,195
------ ------
Deferred income taxes 2,191 2,015
Long-term debt 51 -
Other non-current liabilities 609 319
Stockholders' equity:
Common Stock, $.01 par value; 50,000,000 shares authorized; 6,692,153 and
7,633,131 shares issued and outstanding at
December 31, 1994 and 1995, respectively 67 76
Additional paid-in capital 30,929 40,352
Cumulative foreign currency translation adjustments (463) (699)
Accumulated deficit (25,103) (21,241)
-------- --------
Total stockholders' equity 5,430 18,488
----- ------
Commitments (note 7) - -
$ 34,317 44,017
======== ======
</TABLE>
See accompanying notes to supplemental consolidated financial statements
- 30 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Income
Years ended December 31, 1993, 1994 and 1995
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
1993 1994 1995
Net revenues: ---- ---- ----
<S> <C> <C> <C>
Desktop products $ 35,536 45,942 56,866
Large System products 11,785 10,835 10,694
Other products and services 4,853 5,817 6,234
------ ------ ------
Net revenues 52,174 62,594 73,794
Cost of revenues 6,663 7,243 7,709
------ ------ ------
Gross profit 45,511 55,351 66,085
------ ------ ------
Operating expenses:
Sales and marketing 24,743 32,109 38,892
Product development 8,330 9,215 10,863
General and administrative 5,289 5,594 6,277
Nonrecurring items - - 2,466
Acquisition-related charges - 1,928 1,051
------ ------ ------
Operating expenses 38,362 48,846 59,549
------ ------ ------
Operating income 7,149 6,505 6,536
------ ------ ------
Other income (expense):
Interest income 44 132 305
Interest expense (1,726) (361) (129)
Other (390) (128) 132
------- ------ ------
Other income (expense) (2,072) (357) 308
-------- ------ ------
Income before income taxes 5,077 6,148 6,844
Income tax expense 1,357 2,192 2,969
------ ----- -----
Net income $ 3,720 3,956 3,875
===== ===== =====
Net earnings per share $ 0.70 0.56 0.48
===== ===== =====
Weighted average common stock and common
stock equivalent shares outstanding 5,306,152 7,034,586 8,085,459
========= ========= =========
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
- 31 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Stockholders'
Equity Years ended December 31, 1993, 1994
and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
1993 1994 1995
Preferred stock Series A convertible, $.01 par value: ---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 1 - -
Conversion of 52,650 shares of preferred stock
to common stock (1) - -
--------- -------- -------
Balance at end of period - - -
--------- -------- -------
Preferred stock Series B convertible, $.01 par value:
Balance at beginning of period 1 - -
Conversion of 60,000 shares of preferred stock
to common stock (1) - -
--------- -------- -------
Balance at end of period - - -
--------- -------- -------
Common stock, $.01 par value:
Balance at beginning of period 5 65 67
Conversion of 52,650 shares of Series A convertible
preferred stock to 1,755,000 shares of common stock 18 - -
Conversion of 60,000 shares of Series B convertible
preferred stock to 2,000,000 shares of common stock 20 - -
Initial public offering of 2,266,667 shares of common -
stock 22 -
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
--------- -------- -------
Balance at end of period 65 67 76
Additional paid-in capital:
Balance at beginning of period 13,736 29,322 30,929
Conversion of 52,650 shares of Series A convertible
preferred stock (17) - -
Conversion of 60,000 shares of Series B convertible
preferred stock (19) - -
Initial public offering of 2,266,667 shares of common
stock 15,569 - -
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 30,330 and 9,892 shares of common stock to
the Employee Stock Purchase and 401(k) Plans
in 1994 and 1995, respectively - 265 141
Exercise of stock options and other 52 36 40
Income tax benefit related to stock options and
Employee Stock Purchase Plan - 44 117
Undistributed earnings related to business combination 1 36 1
--------- ------ ------
Balance at end of period $ 29,322 30,929 40,352
--------- ------ ------
Foreign currency translation adjustment:
Balance at beginning of period $ (805) (332) (463)
Translation adjustment 473 (131) (236)
---------- ------- -------
Balance at end of period (332) (463) (699)
Accumulated deficit: ---------- ------- -------
Balance at beginning of period (32,742) (29,023) (25,103)
Net income 3,720 3,956 3,875
Undistributed earnings related to business combination (1) (36) (1)
Dividends declared - - (12)
---------- ------- -------
Balance at end of period (29,023) (25,103) (21,241)
---------- ------- -------
Total Stockholders' equity $ 32 5,430 18,488
========== ======= =======
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
- 32 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash
Flows Years ended December 31, 1993, 1994 and
1995
(In thousands)
<TABLE>
<CAPTION>
1993 1994 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $3,720 3,956 3,875
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,229 3,469 4,675
Stock option compensation expense - - 21
Deferred income taxes 62 612 (176)
Write-off of software development costs and
other assets - - 2,281
Write-off of acquired in-process technology - 1,741 851
Write-off of deferred loan costs 277 - -
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable (834) (3,122) (1,578)
Inventories (173) 181 (134)
Accounts payable 3,009 (1,529) (1,780)
Accrued royalties 75 (5) (23)
Accrued expenses (1,044) (992) (487)
Other (948) (113) 21
------- ------ ------
Net cash provided by operating activities 6,373 4,198 7,546
------- ------ ------
Cash flows from investing activities:
Capital expenditures, net (1,674) (2,436) (2,838)
Capitalized software development costs (2,116) (3,219) (2,504)
Shareholder lawsuit appeal bond (1,184) - -
Net (payments) receipts related to acquisitions - (149) 46
Net (increase) decrease in other assets (9) (31) 14
------- ------- -------
Net cash used in investing activities: (4,983) (5,835) (5,282)
------- ------- -------
Cash flows from financing activities:
Net borrowings under line-of-credit agreements (923) 1,467 (2,890)
Proceeds from issuance of common stock 16,919 301 10,512
Cost of issuance of common stock (1,272) - (1,205)
Retired subordinated debt (7,167) - -
Retired term loan (7,000) - -
Income tax benefit from stock option exercises - 44 117
Principal repayment under capital lease obligation (23) (3) -
Repayment of notes payable to related parties (100) (38) -
Repurchase of common stock (3) - (14)
Other - - (19)
------ ------ ------
Net cash provided by financing activities 431 1,771 6,501
------ ------ ------
Net change in cash and cash equivalents 1,821 134 8,765
Cash and cash equivalents at beginning of period 455 2,276 2,410
----- -----
Cash and cash equivalents at end of period 2,276 2,410 11,175
===== ===== ======
Supplemental disclosures of cash flow information:
Interest paid 3,119 237 142
Income taxes paid 58 750 3,459
Supplemental disclosures of non-cash activity: ===== ===== ======
Conversion of Series A convertible preferred stock (18) - -
Conversion of Series B convertible preferred stock (20) - -
Issuance of common stock for the purchase of SYSTAT, Inc. - (2) -
===== ====== ======
</TABLE>
See accompanying notes to supplemental consolidated financial statements.
- 33 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
December 31, 1993, 1994 and 1995
(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, government
agencies and academic institutions.
The Company markets its products and services worldwide.
(B) PRINCIPLES OF CONSOLIDATION
The supplemental 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
license, 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 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.
(Continued)
- 34 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(F) COMPUTATION OF NET EARNINGS PER SHARE
The net earnings per common and common equivalent share for the years ended
December 31, 1993, 1994 and 1995 have been computed using the weighted
average number of common and dilutive common equivalent shares outstanding
for each year (5,306,152, 7,034,586 and 8,085,459 shares, respectively).
Common equivalent shares consist of the shares issuable upon exercise of
stock options (using the treasury stock method).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, options for common stock granted during the 12 months immediately
preceding the Company's initial public offering date (using the treasury
stock method of the public offering price of $8.00 per share) have been
included in the calculation of common and common equivalent shares as if
they were outstanding for all periods presented prior to the initial public
offering. In addition, the calculation also includes preferred stock as if
converted to Common Stock on the original date of issuance for all periods
presented prior to the initial public offering (see note 2).
(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 on each product. This
method results in greater amortization that 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 Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes (Statement 109). Statement 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 asset and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax asset 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 Statement 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) 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.
(Continued)
- 35 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(J) 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 ten to
fifteen years. Accumulated amortization was $153,000 and $363,000 as of
December 31, 1994 and 1995, respectively.
(K) 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 rate 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.
(L) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments were not materially different from
their carrying values.
(M) CASH AND CASH EQUIVALENTS
Cash and cash equivalents are comprised of highly liquid investments with
initial maturity dates of less than three months.
(N) RECLASSIFICATIONS
Where appropriate, certain items relating to the prior years have been
reclassified to conform to the presentation in the current year.
(2) INITIAL PUBLIC OFFERING
In August 1993, the Company completed an initial public offering of Common
Stock. The primary purpose of the initial public offering was to repay the
note payable, term loan, subordinated debt, and related accrued interest.
Upon the effective date of the initial public offering, the Series A and
Series B convertible preferred shares were converted into shares of Common
Stock and a reverse one-for-three Common Stock split was effected. All
common share and per share amounts in the accompanying supplemental
consolidated financial statement have been adjusted retroactively to give
effect to the reverse stock split.
(Continued)
- 36 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(3) INTERNATIONAL SUBSIDIARIES
The net assets, net revenues and net earnings of international subsidiaries
as of and for the years ended December 31, 1993, 1994 and 1995 included in
the supplemental consolidated financial statements are summarized as
follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Working capital $(2,157,000) $(5,541,000) $(3,407,000)
Excess of noncurrent assets over noncurrent liabilities $ 1,238,000 $2,694,000 $2,512,000
Net revenues $21,069,000 $28,393,000 $36,943,000
Net earnings $ 586,000 $270,000 $841,000
</TABLE>
Geographic information is disclosed elsewhere in this document.
(4) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE
Activity in capitalized software is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Balance, net - beginning of year $3,660,000 $4,768,000 $7,207,000
Additions 1,730,000 2,704,000 2,613,000
Product translations 384,000 516,000 508,000
Acquired Japan product translations - 458,000 -
Write-down to net realizable value - - (1,897,000)
Amortization expense charged to cost of revenues (1,006,000) (1,239,000) (1,592,000)
------------ ----------- -----------
Balance, net - end of year $ 4,768,000 $7,207,000 $6,839,000
============ =========== ===========
</TABLE>
(Continued)
- 37 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
The components of capitalized software are summarized as follows:
December 31,
-----------------------------
1994 1995
---- ----
Product translations $802,000 $ 1,096,000
Acquired Japan product translations 458,000 -
Acquired software technology 1,831,000 2,300,000
Capitalized software development costs 4,116,000 3,443,000
---------- -----------
Balance, net - end of period $7,207,000 $ 6,839,000
========== ===========
Total software development costs, including amounts expensed as incurred,
amounted to approximately $10,444,000, $12,435,000 and $13,367,000, for the
years ended December 31, 1993, 1994 and 1995, 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 supplemental
consolidated balance sheet as of December 31, 1995, amounting to $550,000
and is due through 1998.
Included in acquired software technology at December 31, 1995 is $618,000
of technology resulting from the acquisition of BMDP Statistical Software,
Inc. (see note 6).
(5) 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 adopting, 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 6).
During the year ended December 31, 1993, the Company recorded $169,000 of
royalty revenue from SPSS Japan, Inc.
(Continued)
- 38 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(6) 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.
The 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 noncompetition 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 of $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.
The pro forma impact of these acquisitions on the 1993, 1994 and 1995
supplemental 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.
(Continued)
- 39 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
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 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
supplemental consolidated statements of income for the three years ended
December 31, 1993, 1994, and 1995.
<TABLE>
<CAPTION>
1993 1994 1995
Net revenues: ---- ---- ----
<S> <C> <C> <C>
SPSS (1) $44,591,000 $54,498,000 $65,784,000
Jandel 7,583,000 8,096,000 8,010,000
----------- ----------- -----------
Total $52,174,000 $62,594,000 $73,794,000
=========== =========== ===========
Net income (loss):
SPSS (1) 3,210,000 3,596,000 4,382,000
Jandel 510,000 360,000 (507,000)
----------- ----------- ------------
Total $ 3,720,000 $ 3,956,000 $ 3,875,000
=========== =========== ===========
</TABLE>
(1) Represents the historical results of SPSS without considering the
effect of the Jandel pooling of interests transaction.
(7) 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.
(Continued)
- 40 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
The following is a schedule of future noncancelable minimum lease payments
required under operating leases as of December 31, 1995:
Year
ending
December 31, Amount
1996 $3,440,000
1997 3,085,000
1998 2,417,000
1999 752,000
2000 226,000
Thereafter -
----------
$9,920,000
Rent expense related to operating leases was approximately $2,983,000,
$3,244,000 and $3,618,000 during the years ended December 31, 1993, 1994
and 1995, respectively.
(8) FINANCING ARRANGEMENTS
At December 31, 1994, the Company had borrowings totaling $2,874,000 under
a line of credit bearing interest at prime (8.5% at December 31, 1994 and
1995). As of December 31, 1995, the Company owed no amounts under the line
of credit. The line of credit is collateralized by all of the Company's
assets and does not require a compensating balance, however, the Company
pays a facility fee of one-half of one percent on the unused amount of the
line of credit. At December 31, 1995, the entire $5,000,000 of the line of
credit was unused.
At December 31, 1994, the Company had borrowings totaling $7,000 under a
line of credit bearing interest at 2% above the Bank's lending rate (9% at
December 31, 1995). As of December 31, 1995, the Company owed no amounts
under the line of credit. The $100,000 line of credit agreement is secured
by the assets of the Company. At December 31, 1995, the entire $100,000 of
the line of credit was unused.
At December 31, 1994, the Company had borrowings under two term loans
aggregating $90,991 from a bank bearing interest at prime plus 1.75% (10.5%
as of December 31, 1994) and 9.5% per annum. On March 31, 1995, the Company
fully repaid this long-term debt.
At December 31, 1995, the Company has available a bank line of credit that
provides for borrowings up to $300,000, bearing interest at the bank's
prime rate plus 1.25% per annum (9.75% as of December 31, 1995), expiring
January 15, 1997. The credit line is collateralized by the Company's
accounts receivable, inventory, and other assets and also requires 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 March 15, 1996).
(Continued)
- 41 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(9) OTHER INCOME (EXPENSE)
Other income (expense) consists of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Interest income $ 44,000 $132,000 $305,000
Interest expense - subordinated debt to
related parties (676,000) - -
Other interest expense (1,050,000) (315,000) (129,000)
Amortization of deferred loan costs (409,000) - -
Exchange gain (loss) on foreign currency transactions (41,000) (248,000) 212,000
Stock appraisal action 60,000 (46,000) (105,000)
Japan insurance proceeds - 186,000 -
Payments to related parties - (66,000) (45,000)
Other - - 70,000
---------- --------- ---------
Total other income (expense) $(2,072,000) (357,000) 308,000
------------ --------- ---------
</TABLE>
(10) INCOME TAXES
Income before income taxes consists of the following:
Year ended December 31,
-----------------------------------------------
1993 1994 1995
---- ---- ----
Domestic $3,981,000 5,573,000 4,997,000
Foreign 1,096,000 575,000 1,847,000
---------- --------- ---------
$5,077,000 6,148,000 6,844,000
---------- --------- ---------
(Continued)
- 42 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
Income tax expense consists of the following:
Current Deferred Total
Year ended December 31, 1993:
U.S. Federal $ 700,000 $ 89,000 $ 789,000
State 46,000 12,000 58,000
Foreign 549,000 (39,000) 510,000
--------- ---------- ----------
$1,295,000 $ 62,000 $1,357,000
========== ========== ==========
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
========== ========== ==========
For the years ended December 31, 1993, 1994 and 1995, the reconciliation of
statutory to effective income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Income taxes using the Federal statutory rate of 34% $1,726,000 $2,077,000 $2,323,000
State income taxes, net of Federal tax benefit 39,000 293,000 103,000
Change in valuation allowance and credit and net
operating loss utilization, net (453,000) (394,000) 40,000
Alternative minimum tax 7,000 - -
Foreign taxes at net rates different from U.S.
Federal rates 157,000 96,000 722,000
Foreign tax credit - - (336,000)
Other, net (119,000) 120,000 117,000
---------- ---------- ----------
$1,357,000 $2,192,000 $2,969,000
---------- --------- ---------
</TABLE>
(Continued)
- 43 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities at December 31, 1994 and 1995 are
presented below:
<TABLE>
<CAPTION>
1994 1995
---------------- --------------
Deferred tax assets:
Accounts receivable principally due to allowance
<S> <C> <C>
for doubtful accounts $ 40,000 $123,000
Inventories, principally due to additional costs
inventoried for tax purposes pursuant to the
Tax Reform Act of 1986 59,000 47,000
Compensated absences, principally due to accrual
for financial reporting purposes 91,000 111,000
Accruals and reserves 201,000 203,000
Research and experimentation credit
carryforwards 742,000 610,000
Alternative minimum tax credit carryforwards 171,000 -
Deferred rent 390,000 299,000
Plant and equipment, principally due to
differences in depreciation and capitalized
interest 118,000 175,000
Deferred revenues 1,706,000 1,657,000
Write-off of purchased software asset 207,000 -
Foreign currency loss 104,000 59,000
Acquisition-related items 132,000 287,000
State deferred tax assets 653,000 629,000
U.S. net operating loss carryforwards 29,000 165,000
Non-U.S. net operating loss carryforwards 964,000 435,000
Other 42,000 28,000
---------------- --------------
Total gross deferred tax assets 5,649,000 4,828,000
Less valuation allowance (5,649,000) (4,828,000)
---------------- --------------
Net deferred tax assets - -
Deferred tax liabilities:
Capitalized software costs 1,641,000 1,496,000
State deferred tax liability 402,000 370,000
Other 148,000 149,000
---------------- --------------
Net deferred tax liability $2,191,000 $2,015,000
================ ==============
</TABLE>
During the year ended December 31, 1995, the Company's research and
experimentation carryforwards were utilized to reduce current income taxes. The
valuation allowance decreased $452,000, $846,000 and $821,000 in 1993, 1994 and
1995, respectively. (Continued)
- 44 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
As of December 31, 1995, Jandel had net operating loss carryforwards of
approximately $398,000 and $200,000 for Federal and state purposes respectively,
expiring in years 2000 through 2010. As of December 31, 1995, Jandel also had
net operating loss carryforwards for Jandel Scientific GmbH totalling
approximately $45,000.
Jandel has available as of December 31, 1995, Federal and state research and
experimentation tax credit carryforwards of approximately $480,000 and $198,000,
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.
(11) CAPITAL STOCK
In conjunction with the August 1993 initial public offering, the Company
converted 52,650 shares of Series A convertible preferred stock and 60,000
shares of Series B convertible preferred stock into Common Stock at a rate of
100 shares of Common Stock for each share of preferred stock and effected a
reverse one-for-three Common Stock split, resulting in 1,755,000 and 2,000,000
shares of Common Stock, respectively.
The Company issued 2,000,000 shares of Common Stock on the August 18, 1993
effective date of the initial public offering, with an additional 266,667 shares
subsequently issued to the underwriters to cover overallotments, at an initial
offering price of $8.00 per share. The Company used the net proceeds of
$15,592,000 and part of the new line of credit to retire: (i) term loan of
$7,000,000 and accrued interest of $378,000, (ii) subordinated notes of
$1,000,000 and accrued interest of $212,000, (iii) subordinated note of
$4,367,000 and subordinated obligation of $1,300,000 and accrued interest of
$1,188,000, and (iv) subordinated obligation of $375,000 and accrued interest of
$61,000, and replaced the existing revolving line of credit by repaying the
outstanding balance of $3,671,000.
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 courts' 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.
(Continued)
- 45 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(12) RESEARCH AND DEVELOPMENT LIMITED PARTNERSHIP
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 $342,000, $349,000 and $361,000 for the years
ended December 31, 1993, 1994 and 1995, respectively.
(13) 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
Shareholders 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. Options for 298,437, 438,980
and 605,808 common shares are vested and exercisable at December 31, 1993, 1994
and 1995, respectively.
Stock option transactions are summarized below:
<TABLE>
<CAPTION>
Outstanding Options
----------------------------------------------
Number of Price per Aggregate
shares share price
------------------- -------------------- ------------------
<S> <C> <C> <C>
Balance, December 31, 1992 419,343 $1.05-11.94 887,935
Options granted 223,760 1.05-10.79 1,110,333
Options terminated (1,000) 1.05 (1,050)
Options exercised (18,049) 2.30-5.74 (50,185)
------------------- ------------------
Balance, December 31, 1993 624,054 1.05-11.94 1,947,033
Options granted 231,450 8.625-10.79 2,099,848
Options terminated (7,961) 1.05-8.27 (73,734)
Options exercised (14,426) 1.05-8.27 (34,290)
------------------- ------------------
Balance, December 31, 1994 833,117 1.05-11.94 3,938,857
Options granted 305,373 .314-14.75 3,925,591
Options terminated (10,095) 1.05-14.75 (114,766)
Options exercised (21,526) 1.05-8.625 (38,933)
------------------- ------------------
Balance, December 31, 1995 1,106,869 $.314-14.75 7,710,749
=================== =========== ==================
</TABLE>
- 46 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Balance Sheet
September 30, 1996
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 12,528
Accounts receivable, net of allowances 15,223
Inventories 1,574
Prepaid expenses and other current assets 2,275
------------------
Total current assets 31,600
------------------
Equipment and leasehold improvements, at cost:
Furniture, fixtures, and office equipment 4,080
Computer equipment and software 11,832
Leasehold improvements 1,562
------------------
17,474
Less accumulated depreciation and amortization 11,684
------------------
Net equipment and leasehold improvements 5,790
------------------
Capitalized software development costs, net of accumulated amortization 6,798
Goodwill, net of accumulated amortization 2,021
Other assets 1,755
------------------
$47,964
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 3,202
Accrued royalties 396
Accrued rent 731
Other accrued liabilities 7,937
Income taxes and value added taxes payable 3,499
Customer advances 164
Deferred revenues 6,232
------------------
Total current liabilities 22,161
------------------
Deferred income taxes 2,015
Other non-current liabilities 121
Stockholders' equity:
Common Stock, $.01 par value; 50,000,000 shares authorized;
7,684,995 shares issued and outstanding 77
Additional paid-in capital 40,943
Cumulative foreign currency translation adjustments (1,118)
Accumulated deficit (16,235)
Total stockholders' equity 23,667
------------------
Commitments --
$47,964
==================
</TABLE>
See accompanying notes to the unaudited supplemental consolidated financial
statements.
- 47 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Income
Nine months ended September 30, 1995 and 1996
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
------------------- -------------------
Net revenues:
<S> <C> <C>
Desktop products $ 40,277 $ 47,689
Large System products 7,892 8,141
Other products and services 4,745 5,003
------------------- -------------------
Net revenues 52,914 60,833
Cost of revenues 5,511 6,238
------------------- -------------------
Gross profit 47,403 54,595
------------------- -------------------
Operating expenses:
Sales and marketing 28,746 30,596
Product development 8,215 9,841
General and administrative 4,604 5,337
------------------- -------------------
Operating expenses 41,565 45,774
------------------- -------------------
Operating income 5,838 8,821
------------------- -------------------
Other income (expense):
Interest income, net 85 310
Merger costs -- (980)
Other 141 (190)
------------------- -------------------
Other income (expense) 226 (860)
------------------- -------------------
Income before income taxes 6,064 7,961
Income tax expense 2,207 2,703
------------------- -------------------
Net income $ 3,857 $ 5,258
=================== ===================
Net earnings per share $ 0.48 $ 0.63
=================== ===================
Weighted average common stock and common stock
equivalent shares outstanding 8,013,414 8,350,701
=================== ===================
</TABLE>
See accompanying notes to the unaudited supplemental consolidated financial
statements.
- 48 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Supplemental Consolidated Statements of Cash Flows
Nine months ended September 30, 1995
and 1996
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
Cash flows from operating activities:
<S> <C> <C>
Net income $3,857 $5,258
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 3,243 3,596
Stock option compensation expense - 25
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable 94 (1,530)
Inventories 269 189
Accounts payable (1,104) (76)
Accrued royalties (113) (100)
Accrued expenses (1,433) (1,264)
Other 173 (1,158)
---------------- -----------------
Net cash provided by operating activities 4,986 4,940
---------------- -----------------
Cash flows from investing activities:
Capital expenditures, net (1,945) (2,845)
Capitalized software development costs (1,799) (995)
Net payments related to acquisitions - (244)
Net decrease in other assets 11 6
---------------- -----------------
Net cash used in investing activities (3,733) (4,078)
---------------- -----------------
Cash flows from financing activities:
Net repayments under line-of-credit agreements (2,959) (75)
Proceeds from issuance of common stock 9,269 378
Income tax benefit from stock option exercises - 188
Repurchase of Common Stock (14) -
Other (19) -
---------------- -----------------
Net cash provided by financing activities 6,277 491
---------------- -----------------
Net change in cash and cash equivalents 7,530 1,353
Cash and cash equivalents at beginning of period 2,410 11,175
Cash and cash equivalents at end of period $9,940 $12,528
================ =================
Supplemental disclosures of cash flow information:
Interest paid $ 131 $ 20
Income taxes paid 2,083 1,281
================ =================
Supplemental disclosures of noncash activity:
Declaration of Clear dividend $ 99 $ -
================ =================
</TABLE>
See accompanying notes to the unaudited supplemental consolidated financial
statements.
- 49 -
<PAGE>
SPSS INC. AND SUBSIDIARIES
Notes to Supplemental Consolidated Financial Statements
(unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited interim supplemental consolidated financial
statements reflect all adjustments which, in the opinion of management, are
necessary for a fair presentation of the results of the interim periods
presented. All such adjustments are of a normal recurring nature.
These supplemental consolidated financial statements should be read in
conjunction with the Company's audited supplemental consolidated financial
statements and notes thereto for the year ended December 31, 1995 included
elsewhere herein.
(2) BUSINESS COMBINATION
The unaudited supplemental consolidated financial statements give
retroactive effect to the merger of SPSS Inc. and Jandel Corporation and
Subsidiary on November 20, 1996, which has been accounted for as a pooling of
interests. These financial statements do not extend through the date of
consummation. However, they will become the historical consolidated financial
statements of SPSS Inc. and subsidiaries after financial statements covering the
date of consummation of the business combination are issued.
- 50 -
<PAGE>
JANDEL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
1996
-------------------
Current assets:
<S> <C>
Cash and cash equivalents 270,218
Accounts receivable, net 697,470
Inventories 218,845
Prepaid expenses and other assets 64,682
-------------------
Total current assets 1,251,215
Property and equipment, net 392,264
Other assets 36,982
Goodwill, net 92,870
Total assets 1,773,331
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable 373,627
Accrued liabilities 440,324
Deferred revenue 252,249
-------------------
Total current liabilities 1,066,200
Other liabilities 23,362
-------------------
Total liabilities 1,089,562
===================
Shareholders' equity:
Common stock, no par value; 600,000 shares authorized;
351,034 shares issued and outstanding 3,096,204
Accumulated deficit (2,412,435)
-------------------
Total shareholders' equity 683,769
-------------------
Commitments -
Total liabilities and shareholders' equity 1,773,331
===================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 51 -
<PAGE>
JANDEL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Nine Months Ended September 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
--------------------- ---------------------
<S> <C> <C>
Net revenues $ 5,493,420 $ 5,958,971
Cost of sales 882,570 1,002,214
--------------------- ---------------------
Gross margin 4,610,650 4,956,757
Operating expenses:
Sales and marketing 2,721,439 2,776,060
Research and development 1,460,058 1,283,557
General and administrative 1,081,246 1,069,447
--------------------- ---------------------
Operating expenses 5,262,743 5,129,064
--------------------- ---------------------
Loss from operations (652,093) (172,307)
Interest income, net 6,016 3,120
--------------------- ---------------------
Loss before income taxes (646,077) (169,187)
Income taxes 800 800
--------------------- ---------------------
Net loss $ (646,877) $ (169,987)
===================== =====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 52 -
<PAGE>
JANDEL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
------------------ ------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $(646,877) $(169,987)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization 164,008 167,845
Compensation expense for issuance of common stock -- 24,500
Changes in operating assets and liabilities:
Accounts receivable 253,472 453,499
Inventories 17,004 (70,303)
Prepaid expenses and other assets (42,209) 24,347
Accounts payable 219,150 (301,736)
Accrued liabilities (166,178) (27,711)
Other liabilities (24,433) (8,254)
Deferred revenue 34,670 123,644
------------------ ------------------
Net cash provided by (used in) operating activities (191,393) 215,844
------------------ ------------------
Cash flows from investing activities:
Additions to property and equipment (141,158) (161,289)
Decrease in other assets 11,099 5,734
------------------ ------------------
Net cash used in investing activities (130,059) (155,555)
------------------ ------------------
Cash flows from financing activities:
Repayments on notes payable and long-term debt (90,991) (75,000)
Proceeds from issuance of common stock upon exercise
of options -- 33,490
Repurchase of common stock (13,701) --
------------------ ------------------
Net cash used in financing activities (104,692) (41,510)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents (426,144) 18,779
Cash and cash equivalents, beginning of year 630,056 251,439
------------------ ------------------
Cash and cash equivalents, end of year $203,912 $270,218
================== ==================
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest $3,325 $1,403
Income taxes $ 800 $ 800
================== ==================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 53 -
<PAGE>
JANDEL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited interim financial statements reflect all
adjustments which, in the opinion of management, are necessary for a fair
presentation of the results of the interim periods presented. All such
adjustments are of a normal recurring nature.
These financial statements should be read in conjunction with the
Company's audited financial statements and notes thereto for the year ended
December 31, 1995 incorporated herein by reference.
- 54 -
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING SUCH OFFER OR TABLE OF CONTENTS SOLICITATION IS NOT QUALIFIED TO
DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
Page
Available Information.............................................4
Incorporation of Certain Documents by Reference...................4
The Company.......................................................6
Risk Factors.....................................................13
Selling Stockholders.............................................24
Use of Proceeds..................................................24
Dividend Policy and Restrictions.................................24
Plan of Distribution.............................................24
Legal Matters....................................................25
Experts..........................................................25
183,833 Shares
SPSS INC.
COMMON STOCK
($.01 PAR VALUE)
Prospectus
Dated February 14, 1997
- 55 -
