UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1997
Commission file Number: 33-64732
SPSS Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-2815480
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
444 N. Michigan Avenue, Chicago, Illinois 60611
(Address of principal executive offices and zip code)
Registrant's telephone number including area code: (312)329-2400
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes X No
As of November 1, 1997, there were 8,615,326 shares of common stock
outstanding, par value $.01, of the registrant.
<PAGE>
SPSS Inc.
Form 10-Q
Quarter Ended September 30, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Independent Auditors' Review Report 3
Consolidated Balance Sheets
as of December 31, 1996 (unaudited) and
September 30, 1997 (unaudited) 4
Consolidated Statements of Operations
for the three and nine months ended September 30,
1996 (unaudited) and 1997 (unaudited) 5
Consolidated Statements of Cash Flows
for the nine months ended September 30, 1996
(unaudited) and 1997 (unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
Item 1. FINANCIAL STATEMENTS
Independent Auditors' Review Report
The Board of Directors
SPSS Inc.:
We have reviewed the consolidated balance sheet of SPSS Inc. and subsidiaries as
of September 30, 1997, and the related consolidated statements of operations for
the three-month and nine-month periods ended September 30, 1996 and 1997 and
consolidated statements of cash flows for the nine-month periods ended September
30, 1996 and 1997. These consolidated financial statements are the
responsibility of SPSS Inc.'s management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above, for them to
be in conformity with generally accepted accounting principles.
/s/KPMG PEAT MARWICK LLP
Chicago, Illinois
October 29, 1997
<PAGE>
SPSS Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except for share data)
(unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1996* 1997
----------------- -----------------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 13,380 $ 7,038
Accounts receivable, net of allowances 21,491 24,456
Inventories 2,088 2,332
Prepaid income taxes - 1,772
Prepaid expenses and other current assets 2,187 2,205
----------------- -----------------
39,146 37,803
----------------- -----------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Land and building 3,933 1,668
Furniture, fixtures and office equipment 5,084 5,656
Computer equipment and software 15,363 17,441
Leasehold improvements 2,071 2,575
----------------- -----------------
26,451 27,340
Less: Accumulated depreciation and amortization 15,608 18,063
----------------- -----------------
Net equipment and leasehold improvements 10,843 9,277
----------------- -----------------
Capitalized software development costs, net of
accumulated amortization 7,036 6,060
Goodwill, net of accumulated amortization 2,173 1,103
Deferred income taxes 1,268 1,374
Other assets 2,277 1,797
----------------- -----------------
$ 62,743 $ 57,414
================= =================
CURRENT LIABILITIES:
Accounts payable $ 4,409 $ 3,983
Accrued royalties 520 386
Accrued rent 651 467
Other accrued liabilities 11,359 11,183
Income taxes and value added taxes 3,931 380
Customer advances 121 306
Deferred revenues 8,884 7,594
----------------- -----------------
29,875 24,299
----------------- -----------------
Deferred income taxes 2,245 2,245
Other non-current liabilities 1,305 1,120
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 50,000,000 shares
authorized; 8,563,789 and 8,611,547 shares issued and
outstanding in 1996 and 1997, respectively 153 149
Additional paid-in-capital 41,374 42,015
Cumulative foreign currency translation adjustments (612) (1,602)
Accumulated deficit (11,597) (10,812)
----------------- -----------------
29,318 29,750
----------------- -----------------
$ 62,743 $ 57,414
================= =================
</TABLE>
* The consolidated balance sheet as of December 31, 1996 has been
restated to give retroactive effect to the Company's acquisition of
Quantime Limited, which was accounted for under the
pooling-of-interests method.
See accompanying notes to consolidated financial statements and independent
auditors' review report.
<PAGE>
SPSS Inc.and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except for share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
Net revenues:
<S> <C> <C> <C> <C>
Desktop products $ 18,401 $ 19,813 $ 52,384 $ 59,001
Large System products 4,088 3,630 12,033 11,521
Other products and services 2,984 3,180 8,400 9,642
------------- ------------- ------------- -------------
Net 25,473 26,623 72,817 80,164
revenues
Cost of revenues 2,490 2,243 7,062 7,483
------------- ------------- ------------- -------------
Gross profit 22,983 24,380 65,755 72,681
Operating expenses:
Sales and marketing 11,608 12,893 35,732 38,968
Product development 4,105 4,480 11,778 12,820
General and administrative 3,051 2,908 8,390 9,063
Non-recurring charges - 2,413 - 2,413
Acquisition-related charges 980 5,985 980 7,050
------------- ------------- ------------- -------------
Operating expenses 19,744 28,679 56,880 70,314
------------- ------------- ------------- -------------
Operating income (loss) 3,239 (4,299) 8,875 2,367
Other income (expense):
Net interest income 57 33 221 233
Other income (expense) (84) (100) (190) (116)
------------- ------------- ------------- -------------
Other income (expense) (27) (67) 31 117
------------- ------------- ------------- -------------
Income (loss) before income taxes 3,212 (4,366) 8,906 2,484
Income tax expense (benefit) 1,132 (965) 3,164 1,636
------------- ------------- ------------- -------------
Net Income (loss) per share $ 2,080 $ (3,401) $ 5,742 $ 848
============= ============= ============= =============
Net income (loss) per share $ 0.23 $ (0.40) $ 0.62 $ 0.09
============= ============= ============= =============
Shares used in computing net income (loss) 9,234,221 8,604,305 9,187,893 9,463,627
per share
============= ============= ============= =============
</TABLE>
The consolidated results of operations for the three months and nine
months ended September 30, 1996 and 1997 have been restated to give
retroactive effect to the Company's acquisition of Quantime Limited, which
was accounted for under the pooling-of-interests method.
See accompanying notes to consolidated financial statements and independent
auditors review report.
<PAGE>
SPSS Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine
Months
Ended
September
30,
---------------------------
1996 1997
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 5,742 $ 848
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,266 5,266
Stock option compensation expenses 25 --
Write-off of software development costs and other -- 3,011
assets
Write-off of acquired and in-process technology -- 1,287
Changes in assets and liabilities, net of effects of
acquisitions:
Accounts receivable (902) (2,965)
Inventories 137 (244)
Prepaid income taxes -- (1,772)
Deferred income taxes (5) (106)
Accounts payable (420) (426)
Accrued royalties (100) (134)
Accrued expenses (466) (360)
Accrued income taxes 1,237 (3,551)
Other (2,699) (1,857)
------------ ------------
Net cash provided by (used in) operating activities 6,815 (1,003)
------------ ------------
Cash flows from investing activities:
Capital expenditures, net (3,878) (4,109)
Capitalized software development costs (995) (908)
Net payments for acquisitions (244) (958)
Net decrease in other assets 6 --
------------ ------------
Net cash provided by (used in) investing activities (5,111) (5,975)
------------ ------------
Cash flows from financing activities:
Net repayments on notes payable (75) --
Net proceeds from issuance of common stock 378 336
Income tax benefit from stock option exercises 188 300
------------ ------------
Net cash provided by financing activities 491 636
------------ ------------
Net change in cash 2,195 (6,342)
Cash and cash equivalents at beginning of period 11,071 13,380
------------ ------------
Cash and cash equivalents at end of period $ 13,266 $ 7,038
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 162 $ 209
Income taxes paid 1,540 6,503
============ ============
</TABLE>
The consolidated statements of cash flows for the nine months ended September
30, 1996 and 1997 have been restated to give retroactive effect to the Company's
acquisition of Quantime Limited, which is accounted for under the
pooling-of-interests method.
See accompanying notes to consolidated
financial statements and independent auditors' review report.
<PAGE>
SPSS Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying unaudited interim consolidated financial statements
reflect all adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of the interim periods presented. All such
adjustments are of a normal recurring nature. Because the Company's acquisition
of a majority interest in Quantime Limited ("Quantime"), a corporation
incorporated under the laws of England with Registered Number 1400578, is being
treated as a pooling of interests for accounting purposes, all consolidated
financial statements for the periods prior to the merger have been restated to
include the assets, liabilities and operating results of Quantime (See "Business
Combination" at Note 3).
These consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements and notes thereto
for the year ended December 31, 1996, included in the Company's Form 10-K filed
with the Securities and Exchange Commission.
Note 2 - Net Income (Loss) Per Share
Net income (loss) per common and common equivalent share has been
computed using the weighted average number of common and dilutive common
equivalent shares outstanding for each period (9,234,221 shares for the three
months ended September 30, 1996, 9,187,893 shares for the nine months ended
September 30, 1996, and 8,604,305 and 9,463,627 shares for the comparable
periods in 1997). Common equivalent shares consist of the shares issuable upon
exercise of stock options (using the treasury stock method).
Note 3 - Business Combination
On September 30, 1997, SPSS acquired approximately 97% of the capital
stock of Quantime from certain shareholders and holders of bearer warrants of
Quantime (the "Shareholders"), for SPSS common stock valued at approximately $30
million. The acquisition, accounted for as a pooling of interests, occurred
pursuant to two Stock Purchase Agreements, one between SPSS, certain insiders of
Quantime (the "Quantime Insiders") and certain Shareholders in the United
Kingdom and another between SPSS, Quantime Insiders and certain Shareholders
outside of the United Kingdom, each dated September 30, 1997. It is expected
that this transaction will qualify as a tax-free reorganization. The Company
expects to acquire the remaining shares of capital stock of Quantime shortly
under the same basic terms of the Stock Purchase Agreements.
<PAGE>
The Company incurred significant costs and expenses in connection with
this acquisition, including the write-off of duplicate software products, office
consolidation costs, professional fees and various other integration expenses.
These costs were expensed in the third quarter of 1997.
The following unaudited information reconciles total revenues and net
income of SPSS Inc. and subsidiaries as previously reported in the Company's
annual report on Form 10-K with the amounts presented in the accompanying
unaudited statements of operations for the three months and nine months ended
September 30, 1996, as well as the separate results of Quantime's operations for
the three months and nine months ended September 30, 1997.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, 1996 September 30, 1996
------------------------------------ -------------------------------------
Revenues Net Income Revenues Net Income
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
SPSS Inc.(1) $ 20,834 $ 1,618 $ 60,833 $ 5,258
Quantime 4,639 462 11,984 484
---------------- ---------------- ---------------- ----------------
$ 25,473 $ 2,080 $ 72,817 $ 5,742
================ ================ ================ ================
Three months ended Nine months ended
September 30, 1997 September 30, 1997
------------------------------------ -------------------------------------
Revenues Net Loss Revenues Net Loss
---------------- ---------------- ---------------- ----------------
Quantime $ 4,924 $ (1,272) $ 13,700 $ (1,210)
================ ================ ================ ================
</TABLE>
(1) Represents the historical results of SPSS Inc. and subsidiaries without
considering the effect of the pooling of interests with Quantime.
Note 4 - Recent Developments
On October 14, 1997, the Company announced an agreement in principle to
acquire In2itive Technologies A/S ("In2itive"), a Danish corporation, in a
transaction expected to be completed as a pooling of interests, in which SPSS
will issue slightly less than 145,000 shares of common stock in exchange for all
of the outstanding shares of In2itive.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following table sets forth the percentages that selected items in
the Consolidated Statements of Operations bear to net revenues:
SPSS Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Percentage of Net Revenues Percentage of Net Revenues
-------------------------------- ------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------- ------------------------------
1996 1997 1996 1997
------------- ------------- ------------- -------------
Statement of Income Data:
Net revenues:
<S> <C> <C> <C> <C>
Desktop products 72% 74% 72% 74%
Large System products 16% 14% 16% 14%
Other products and services 12% 12% 12% 12%
------------- ------------- ------------- -------------
Net revenues 100% 100% 100% 100%
Cost of revenues 10% 8% 10% 9%
------------- ------------- ------------- -------------
Gross profit 90% 92% 90% 91%
Operating expenses:
Sales and marketing 46% 48% 49% 49%
Product development 16% 17% 16% 16%
General and administrative 12% 11% 12% 11%
Non-recurring charges -- 9% -- 3%
Acquisition-related charges 4% 23% 1% 9%
------------- ------------- ------------- -------------
Operating expenses 78% 108% 78% 88%
------------- ------------- ------------- -------------
Operating income (loss) 12% (16%) 12% 3%
Other income (expense):
Net interest income -- -- -- --
Other income (expense) -- -- -- --
------------- ------------- ------------- -------------
Other income (expense) -- -- -- --
------------- ------------- ------------- -------------
Income (loss) before income taxes 12% (16%) 12% 3%
Income tax expense (benefit) 4% (3%) 4% 2%
------------- ------------- ------------- -------------
Net income (loss) 8% (13%) 8% 1%
============= ============= ============= =============
</TABLE>
<PAGE>
Comparison of Three Months Ended September 30, 1996 to Three Months Ended
September 30, 1997.
Net Revenues. Net revenues were $25,473,000 and $26,623,000 for the three months
ended September 30, 1996 and 1997, respectively, an increase of 5%. This revenue
increase was influenced, in part by the acquisition of Deltagraph software
("Deltagraph"), a graphics product formerly marketed by Deltapoint, Inc.,
effective May 1, 1997. Net of Deltagraph revenue of approximately $168,000, the
company's increase in sales was 4%. Revenues from products designed for desktop
computers ("Desktop products") increased by 8% over the corresponding period in
1996, but there was an 11% decrease in revenues from products designed for
mainframes, minicomputers, and UNIX workstations ("Large System products"). The
increase in revenues from Desktop products reflected a $1,655,000 increase in
new revenues from SPSS for Windows. In addition, revenues from annual license
renewals of Desktop products resulted in a net increase of $799,000, reflecting
an $999,000 increase in annual license renewals of SPSS for Windows. The
decrease in revenues from Large System products was primarily due to
cancellations of mainframe and UNIX licenses. Other products and services
revenues increased by 7% due primarily to increases of $97,000 in revenues from
training and consulting services and $120,000 in publication sales. Revenues for
the third quarter of 1997 were adversely affected by changes in foreign currency
exchange rates.
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 was $2,490,000 and $2,243,000 in the three months ended
September 30, 1996 and 1997, respectively. Such costs decreased due primarily to
lower amortization of capitalized software development costs. As a percentage of
net revenues, cost of revenues decreased from 10% to 8%.
Sales and Marketing. Sales and marketing expenses were $11,608,000 and
$12,893,000 for the three months ended September 30, 1996 and 1997,
respectively, an increase of 11%. This increase was due to the expansion of the
domestic and international sales and marketing organizations, increased costs
for the Clear Software, Inc. ("Clear") and Sigma-series (Jandel Corporation
("Jandel")) product lines and salary and commission increases, increased media
placement and increased travel expense. These increases were partially offset by
changes in foreign currency exchange rates. As a percentage of net revenues,
such expenses increased from 46% to 48%.
Product Development. Product development expenses were $4,105,000 and $4,480,000
(net of capitalized software development costs of $257,000 and $431,000) in the
three months ended September 30, 1996 and 1997, respectively, an increase of 9%.
In the corresponding periods in 1996 and 1997, the Company's expense for
amortization of capitalized software and product translations, included in cost
of revenues, was $374,000 and $363,000, respectively. The increase in product
development expenses was primarily due to salary increases, consulting expense,
and other additions to the product development staff. As a percentage of net
revenues, product development expenses increased from 16% to 17%.
<PAGE>
General and Administrative. General and administrative expenses were $3,051,000
and $2,908,000 in the three months ended September 30, 1996 and 1997,
respectively, a decrease of 5%. Such expenses decreased primarily due to the
reduction of administrative costs of the acquired entities. As a percentage of
net revenues, general and administrative expenses decreased from 12% to 11%.
Non-recurring Charges. Non-recurring charges of $2,413,000 in 1997 resulted from
the revaluation of certain assets associated with the Company's Macintosh and
BMDP product lines.
Acquisition-related Charges. Charges related to the acquisition of Quantime
totaled $5,985,000 and represented the write-off of duplicate software products,
professional fees and various other integration expenses in the three months
ended September 30, 1997. Charges related to the acquisition of Clear totaled
$980,000 in the three months ended September 30, 1996, and represented
professional fees, severance pay, and other related costs. As a percentage of
net revenues, acquisition related charges increased from 4% to 23% .
Net Interest Income. Net interest income was $57,000 and $33,000 for the three
months ended September 30, 1996 and 1997, respectively. This negative variance
was primarily due to SPSS' investment of lower cash balances in 1997.
Other Income (Expense). Other income (expense) consists of foreign currency
transaction losses of ($84,000) and ($100,000) for the three months ended
September 30, 1996 and 1997, respectively.
Provision for Income Taxes. The provision for income taxes was $1,132,000 for
the three months ended September 30, 1996 reflecting an effective tax rate of
approximately 35%. The ($965,000) income tax benefit for the three months ended
September 30, 1997 reflects an effective tax rate of approximately 34% for SPSS
on a stand-alone basis, offset by an effective tax rate of approximately 132%
for Quantime, due to the nondeductibility of certain third quarter expenses.
Comparison of Nine Months Ended September 30, 1996 to Nine Months Ended
September 30, 1997.
Net Revenues. Net revenues were $72,817,000 and $80,164,000 in the nine months
ended September 30, 1996 and 1997, respectively, an increase of 10%. This
increase in revenue was influenced, in part, by the acquisition of DeltaGraph
software, a graphics product formerly marketed by DeltaPoint, Inc., effective
May 1, 1997. Net of DeltaGraph revenue of approximately $638,000, the Company's
increase in sales was 9%. Revenues from Desktop products increased 13% over the
corresponding period in 1996 but revenues from Large System products decreased
4%. The increase in revenues from Desktop products reflected $6,408,000 in new
revenues from SPSS for Windows. In addition, revenues from annual license
renewals of Desktop products resulted in a net increase of $1,920,000,
reflecting a $2,226,000 increase in
<PAGE>
annual license renewals of SPSS for Windows. The decrease in revenues from Large
System products was primarily due to cancellations in mainframe and UNIX
licenses. Other products and services revenues increased 15% primarily due to
the increase in training and consulting revenues. Revenues for the first nine
months of 1997 were adversely affected by changes in foreign currency exchange
rates.
Cost of Revenues. Cost of revenues were $7,062,000 and $7,483,000 for the nine
months ended September 30, 1996 and 1997, respectively, an increase of 6%. Such
costs increased due to higher sales levels and higher amortization amounts of
product translations. As a percentage of net revenues, such expenses decreased
from 10% to 9%.
Sales and Marketing. Sales and marketing expenses were $35,732,000 and
$38,968,000 in the nine months ended September 30, 1996 and 1997, respectively,
an increase of 9%. This increase was due to expansion of the domestic and
international sales and marketing organizations, increased costs for the Clear
and Sigma-series (Jandel) product lines, salary and commission increases and
increased media placement. These increases were partially offset by changes in
foreign currency exchange rates. As a percentage of net revenues, such expenses
remained constant at 49%.
Product Development. Product development expenses were $11,778,000 and
$12,820,000 (net of capitalized software development costs of $716,000 and
$1,154,000) for the nine months ended September 30, 1996 and 1997, respectively,
an increase of 9%. In the corresponding periods in 1996 and 1997, the Company's
expense for amortization of capitalized software and product translations,
included in cost of revenues, was $1,067,000 and $1,246,000, respectively. The
increase in product development expenses was primarily due to salary increases,
purchased software, consulting expenses, 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 $8,390,000
and $9,063,000 in the nine months ended September 30, 1996 and 1997,
respectively, an increase of 8%. Such expenses increased primarily due to
increases in salaries and salary related expenses, freight charges and increased
Quantime general and administrative expenses over the prior year. Partially
offsetting these unfavorable variances, were decreases in accrued bonuses,
professional fees and bad debt expense. As a percentage of net revenues, general
and administrative expenses decreased from 12% to 11%.
Non-recurring Charges. Non-recurring charges of $2,413,000 in 1997 resulted from
the revaluation of certain assets associated with the Company's Macintosh and
BMDP product lines.
Acquisition-related Charges. Acquisition related charges amounted to $980,000
and $7,050,000 for the nine months ended September 30, 1996 and 1997,
respectively. Charges related to the acquisition of Quantime totaled $5,985,000
and represented the write-off of duplicate software products, professional fees
and various other integration expenses. Additionally, charges related to the
acquisition of DeltaGraph software from DeltaPoint, Inc. totaled $1,065,000 and
represented one-time write-offs of in-process technology and other acquisition
related charges in
<PAGE>
the nine months ended September 30, 1997. Charges related to the acquisition of
Clear totaled $980,000 in the nine months ended September 30, 1996, and
represented professional fees, severance pay, and other related costs. As a
percentage of net revenues, acquisition related charges increased from 1% to 9%
.
Net Interest Income. Net interest income was $221,000 and $233,000 for the nine
months ended September 30, 1996 and 1997, respectively. This favorable variance
can be attributed to investment of funds at higher interest rates in 1997.
Other Income (Expense). Other income (expense) consists of foreign currency
transaction losses of ($190,000) and ($116,000) for the nine months ended
September 30, 1996 and 1997, respectively.
Provision for Income Taxes. Provision for income taxes was $3,164,000 for the
nine months ended September 30, 1996 reflecting an approximate effective tax
rate of 35%. Provision for income taxes was $1,636,000 for the nine months ended
September 30, 1997 reflecting an effective tax rate of approximately 33% for
SPSS on a stand-alone basis and 111% for Quantime, due to the nondeductibility
of certain third quarter expenses.
Liquidity and Capital Resources
The Company had no long-term debt as of September 30, 1997 and held
approximately $7,038,000 of cash and cash equivalents. Funds in the first nine
months of 1997 were used in operations and for payments related to the Company's
acquisition of Deltagraph software and Quantime. Capital expenditures were also
made for leasehold improvements to the Company's new office space and furniture,
computer equipment and leasehold improvements for newly hired employees and
product development.
The Company currently has an available $5,000,000 secured line of credit with
Bank of America N.T.S.A. ("B of A"), under which borrowings bear interest at the
reference rate (currently 8.5%). As of September 30, 1997, the Company had no
borrowings under this line of credit. The credit agreement with B of A 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 that amounts available under its line of credit,
existing sources of liquidity 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.
<PAGE>
International Operations
Moderate growth in the Company's international operations continued during the
third quarter of 1997. The portion of revenues attributable to international
operations was adversely affected by the relationship of the U.S. dollar when
compared to other foreign currencies. Consolidated net revenues increased 5% in
the three months ended September 30, 1997, when compared to the three months
ended September 30, 1996 and 10% for the nine months ended September 30, 1997
when compared to the same period of 1996. Net of the effects of changes in
foreign currency rates, the increases would have been approximately 19% and 18%,
respectively.
Safe Harbor
"Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995: With the exception of historical information, the matters discussed
in this form 10-Q include forward-looking statements that involve risks and
uncertainties described in this document, and the Company's other filings with
the Securities and Exchange Commission that could cause actual results to vary
materially from the future results indicated in such forward-looking statements.
No assurance can be given that the future results covered by the forward-looking
statements will be achieved. Other factors could also cause actual results to
vary materially from the future results indicated in such forward-looking
statements.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Currently there are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or to which any of their property is
subject.
Item 5. Other Information
On October 14, 1997, SPSS announced an agreement in principle to acquire
In2itive Technologies A/S in a transaction expected to be completed as a pooling
of interests, in which SPSS will issue slightly less than 145,000 shares of
common stock in exchange for all of the outstanding shares of In2itive. In2itive
is a privately held producer of software tools for market research.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits (Note: Management contracts and compensatory plans
or arrangements are underlined in the following list.)
Incorporation
Exhibit by Reference
Number Description of Document (if applicable)
2.1 Stock Purchase Agreement among SPSS Inc., Edward +2.1
Ross, Richard Kottler, Norman Grunbaum, Louis
Davidson and certain U.K.-Connected Shareholders
or warrant holders of Quantime Limited named therein,
dated as of September 30, 1997, together with a list
briefly identifying the contents of omitted schedules.
2.2 Stock Purchase Agreement among SPSS Inc., Edward +2.2
Ross, Richard Kottler, Norman Grunbaum, Louis
Davidson and certain Non-U.K. Shareholders
or warrant holders of Quantime Limited named therein,
dated as of September 30, 1997, together with a list
briefly identifying the contents of omitted schedules.
3.1 Certificate of Incorporation of the Company * 3.2
3.2 By-Laws of the Company * 3.4
4.1 Credit Agreement ** 4.1
4.2 First Amendment to Credit Agreement *** 4.2
10.1 Employment Agreement with Jack Noonan + 10.1
15.1 Acknowledgment of Independent Certified
Public Accountants Regarding Independent
Auditors' Review Report
27.1 Financial Data Schedule
- -------------------------------
+ Previously filed with SPSS' Report on Form 8-K, dated September 30, 1997,
filed October 15, 1997.
<PAGE>
* Previously filed with Amendment No. 2 to Form S-1 Registration Statement of
SPSS Inc. filed on August 4, 1993 (Registration No. 33-64732)
** Previously filed with SPSS' Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 1996
*** Previously filed with the Annual Report on Form 10-K of SPSS Inc. for the
Year ended December 31, 1996 (Registration No. 33-64732).
(b) SPSS Inc. filed the following report on Form 8-K during the quarterly
period ended September 30, 1997:
(i) Report on Form 8-K, dated September 30, 1997, filed on
October 15, 1997. The Report on Form 8-K reported that on
September 30, 1997, SPSS acquired approximately 97% of the
outstanding shares of capital stock of Quantime, from certain
Shareholders, for shares of SPSS Common Stock. The stock
acquisition, accounted for as a pooling of interests, occurred
pursuant to two Stock Purchase Agreements, one between SPSS,
the Quantime Insiders and certain Shareholders in the United
Kingdom and another between SPSS, the Quantime Insiders and
certain Shareholders outside the United Kingdom, each dated
September 30, 1997. The Report on Form 8-K was filed under
Item 2.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPSS Inc.
Date: November 14, 1997 By: /s/ Jack Noonan
Jack Noonan
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the undersigned, in his capacity as the principal
financial officer of the Registrant.
Date: November 14, 1997 By: /s/ Edward Hamburg
Edward Hamburg
Executive Vice-President, Corporate
Operations and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Description of Document Number
15.1 Acknowledgment of Independent Certified 19
Public Accountants Regarding Independent
Auditors' Review Report
27.1 Financial Data Schedule 20
Exhibit 15. 1
Acknowledgment Of Independent
Certified Public Accountants
Regarding Independent Auditors' Review Report
The Board of Directors
SPSS Inc.:
With respect to the registration statements on Form S-3 and Form S-8 of SPSS
Inc., we acknowledge our awareness of the incorporation by reference therein of
our report dated October 29, 1997 related to our review of interim financial
information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the meaning
of sections 7 and 11 of the Act.
/s/KPMG PEAT MARWICK LLP
Chicago, Illinois
November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPSS INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1997 AND
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000869570
<NAME> SPSS INC.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-END> SEP-30-1997 DEC-31-1997
<CASH> 0 7,038
<SECURITIES> 0 0
<RECEIVABLES> 0 25,448
<ALLOWANCES> 0 992
<INVENTORY> 0 2,332
<CURRENT-ASSETS> 0 37,803
<PP&E> 0 27,340
<DEPRECIATION> 0 18,063
<TOTAL-ASSETS> 0 57,414
<CURRENT-LIABILITIES> 0 24,299
<BONDS> 0 0
0 0
0 0
<COMMON> 0 149
<OTHER-SE> 0 29,601
<TOTAL-LIABILITY-AND-EQUITY> 0 57,414
<SALES> 26,623 80,164
<TOTAL-REVENUES> 26,623 80,164
<CGS> 2,243 7,483
<TOTAL-COSTS> 2,243 7,483
<OTHER-EXPENSES> 28,679 70,314
<LOSS-PROVISION> 113 149
<INTEREST-EXPENSE> 50 137
<INCOME-PRETAX> (4,366) 2,484
<INCOME-TAX> (965) 1,636
<INCOME-CONTINUING> (3,401) 848
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,401) 848
<EPS-PRIMARY> (0.40) 0.09
<EPS-DILUTED> (0.40) 0.09
</TABLE>
