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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
COMMISSION FILE NUMBER: 33-64732
SPSS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-2815480
(STATE OR OTHER JURISDICTION (IRS EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
233 S. WACKER DRIVE, CHICAGO, ILLINOIS 60606
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (312) 651-3000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS TO
BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO FILING REQUIREMENTS
FOR THE PAST 90 DAYS. YES X NO
----- -----
AS OF AUGUST 10, 1999, THERE WERE 9,056,206 SHARES OF COMMON STOCK
OUTSTANDING, PAR VALUE $.01, OF THE REGISTRANT.
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SPSS INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REVIEW REPORT 3
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND
JUNE 30, 1999 (UNAUDITED) 4
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED) AND 1999 (UNAUDITED) 5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1998 (UNAUDITED) AND 1999 (UNAUDITED) 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED) AND 1999 (UNAUDITED) 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
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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 June 30, 1999 and the related consolidated statements of income and
comprehensive income for the three and six-month periods ended June 30, 1998 and
1999 and the related consolidated statements of cash flows for the six-months
ended June 30, 1998 and 1999. These consolidated financial statements are the
responsibility of SPSS Inc. management.
We conducted our reviews 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 reviews, 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.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of SPSS Inc. and subsidiaries as of
December 31, 1998, and the related consolidated statements of income,
comprehensive income, stockholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated February 17, 1999, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion the information set forth in the accompanying consolidated balance
sheet as of December 31, 1998, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG LLP
Chicago, Illinois
July 30, 1999
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SPSS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER JUNE 30,
1998 1999
----------- -----------
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 14,912 $ 12,969
Accounts receivable, net of allowances 33,825 34,031
Inventories 2,871 2,660
Deferred income tax assets, net 2,183 2,183
Prepaid expenses and other current assets 2,304 2,541
----------- -----------
Total current assets 56,095 54,384
----------- -----------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
Land and building 1,721 1,631
Furniture, fixtures, and office equipment 7,252 7,199
Computer equipment and software 23,068 24,816
Leasehold improvements 6,434 7,441
----------- -----------
38,475 41,087
Less accumulated depreciation and amortization 22,783 24,441
----------- -----------
Net equipment and leasehold improvements 15,692 16,646
----------- -----------
Capitalized software development costs, net
of accumulated amortization 10,658 11,696
Goodwill, net of accumulated amortization 5,110 4,864
Other assets 3,734 3,401
----------- -----------
$ 91,289 $ 90,991
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 9,000 $ 8,000
Accounts payable 6,146 5,169
Accrued royalties 571 446
Accrued rent 847 954
Other accrued liabilities 10,431 9,082
Income taxes and value added taxes payable 5,822 4,827
Customer advances 579 785
Deferred revenues 10,310 8,307
----------- -----------
Total current liabilities 43,706 37,570
----------- -----------
Deferred income taxes 2,638 2,640
Other non-current liabilities 1,222 1,105
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value; 50,000,000 shares
authorized; 9,029,326 and 9,051,581 shares
issued and outstanding in 1998 and
1999, respectively 90 91
Additional paid-in capital 47,054 47,381
Accumulated other comprehensive income (877) (1,886)
Retained earnings (accumulated deficit) (2,544) 4,090
----------- -----------
Total stockholders' equity 43,723 49,676
----------- -----------
$ 91,289 $ 90,991
=========== ===========
See accompanying notes to consolidated financial statements.
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SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Desktop products $ 21,544 $ 25,166 $ 42,159 $ 49,201
Large System products 3,692 4,268 7,992 8,583
Other products and services 3,922 3,879 7,507 8,077
------------ ----------- ----------- -----------
Net revenues 29,158 33,313 57,658 65,861
Cost of revenues 2,574 3,126 5,009 5,809
------------ ----------- ----------- -----------
Gross profit 26,584 30,187 52,649 60,052
----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing 15,259 16,157 29,540 32,914
Product development 4,787 6,101 9,741 11,740
General and administrative 2,221 2,503 4,005 4,715
----------- ----------- ----------- -----------
Operating expenses 22,267 24,761 43,286 49,369
----------- ----------- ----------- -----------
Operating income 4,317 5,426 9,363 10,683
----------- ----------- ----------- -----------
Other income (expense):
Net interest income (expense) 59 (94) 86 (169)
Other expense (37) (250) (199) (417)
----------- ----------- ----------- -----------
Other income (expense) 22 (344) (113) (586)
------------ ----------- ----------- -----------
Income before income taxes 4,339 5,082 9,250 10,097
Income tax expense 1,488 1,743 3,173 3,463
----------- ----------- ----------- -----------
Net income $ 2,851 $ 3,339 $ 6,077 $ 6,634
=========== =========== =========== ===========
Basic net earnings per share $ 0.32 $ 0.37 $ 0.68 $ 0.73
=========== =========== =========== ===========
Shares used in computing basic
net earnings per share 8,978,576 9,050,091 8,911,628 9,042,530
=========== =========== =========== ===========
Diluted net earnings per share $ 0.30 $ 0.35 $ 0.64 $ 0.69
=========== =========== =========== ===========
Shares used in computing diluted
net earnings per share 9,582,100 9,598,597 9,552,675 9,578,642
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
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SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
Net income $ 2,851 $ 3,339 $ 6,077 $ 6,634
Other comprehensive loss:
Foreign currency
translation adjustment (217) (727) (1) (1,009)
----------- ----------- ----------- ----------
Comprehensive income $ 2,634 $ 2,612 $ 6,076 $ 5,625
=========== =========== =========== ==========
See accompanying notes to consolidated financial statements.
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SPSS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
-------------------------
1998 1999
----------- -----------
Cash flows from operating activities:
Net income $ 6,077 $ 6,634
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,101 4,263
Deferred income taxes -- 2
Changes in assets and liabilities:
Accounts receivable (1,578) (206)
Inventories (454) 211
Accounts payable 1,446 (977)
Accrued royalties (40) (125)
Accrued expenses (1,436) (1,242)
Accrued income taxes 737 (995)
Deferred revenues (350) (2,003)
Other (55) (1,261)
----------- -----------
Net cash provided by operating activities 7,448 4,301
----------- -----------
Cash flows from investing activities:
Capital expenditures, net (4,935) (3,204)
Capitalized software development costs (1,920) (2,368)
Net payments for acquisitions (48) --
----------- -----------
Net cash used in investing activities (6,903) (5,572)
----------- -----------
Cash flows from financing activities:
Net repayments on notes payable (71) (1,000)
Net proceeds from issuance of common stock 1,235 328
Income tax benefit from stock option exercises 222 --
----------- -----------
Net cash provided by (used in) financing activities 1,386 (672)
----------- -----------
Net change in cash and cash equivalents 1,931 (1,943)
Cash and cash equivalents at beginning of period 8,079 14,912
----------- -----------
Cash and cash equivalents at end of period $ 10,010 $ 12,969
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 91 $ 334
Income taxes paid 3,122 3,774
=========== ===========
See accompanying notes to consolidated financial statements.
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SPSS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements reflect all
adjustments which, in the opinion of 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 consolidated financial statements should be read in conjunction with SPSS'
audited consolidated financial statements and notes thereto for the year ended
December 31, 1998, included in SPSS' Annual Report on Form 10-K filed with the
Securities and Exchange Commission.
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 Income bear to net revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF NET REVENUES PERCENTAGE OF NET REVENUES
------------------------- -------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
1998 1999 1998 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Statement of Income Data:
Net revenues:
Desktop products 74% 75% 73% 75%
Large System products 13% 13% 14% 13%
Other products and services 13% 12% 13% 12%
----------- ----------- ----------- -----------
Net revenues 100% 100% 100% 100%
Cost of revenues 9% 9% 9% 9%
----------- ----------- ----------- -----------
Gross profit 91% 91% 91% 91%
Operating expenses:
Sales and marketing 52% 49% 51% 50%
Product development 16% 18% 17% 18%
General and administrative 8% 8% 7% 7%
----------- ----------- ----------- -----------
Operating expenses 76% 75% 75% 75%
----------- ----------- ----------- -----------
Operating income 15% 16% 16% 16%
Other income (expense):
Net interest income -- -- -- --
Other income (expense) -- (1%) -- (1%)
----------- ----------- ----------- -----------
Other income (expense) -- (1%) -- (1%)
----------- ----------- ----------- -----------
Income before income taxes 15% 15% 16% 15%
Income tax expense 5% 5% 5% 5%
----------- ----------- ----------- -----------
Net income 10% 10% 11% 10%
=========== =========== =========== ===========
</TABLE>
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COMPARISON OF THREE MONTHS ENDED JUNE 30, 1998 TO THREE MONTHS ENDED JUNE 30,
1999.
Net Revenues. Net Revenues were $29,158,000 in the three months ended June 30,
1998 and $33,313,000 in the three months ended June 30, 1999, an increase of
14%. Revenues from products designed for desktop computers increased $3,622,000
(17%) over the corresponding period in 1998. In addition, revenues from annual
license renewals of desktop products increased by $1,226,000, reflecting a
$1,199,000 increase in annual license renewals for SPSS for Windows. Revenues
from products designed for mainframes, minicomputers, and UNIX workstations
("Large System products") increased $576,000 (16%) compared to the corresponding
period in 1998. Other products and services revenues decreased 1% due to a
reduction in consulting and publication revenues. Revenues for the second
quarter of 1999 were adversely effected 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 $2,574,000 in the three months ended June 30, 1998 and
$3,126,000 in the three months ended June 30, 1999, an increase of 21%. Such
costs increased due to higher cost of goods sold resulting from increased sales,
increased amortization of capitalized software and increased royalty expense. As
a percentage of net revenues, cost of revenues remained constant at 9%.
Sales and Marketing. Sales and marketing expenses were $15,259,000 in the three
months ended June 30, 1998 and $16,157,000 in the three months ended June 30,
1999, an increase of 6%. This increase was due to the addition of the former
Integral Solutions Limited ("ISL") and Surveycraft Pty Ltd. (Surveycraft) sales,
marketing and services personnel, expansion of the domestic and international
sales organizations, higher cost of new, more senior sales personnel and
increased consulting expenses. These costs were partially offset by a reduction
in advertising and printing expenses. As a percentage of net revenues, such
expenses decreased from 52% to 49%.
Product Development. Product development expenses were $4,787,000 in the three
months ended June 30, 1998 and $6,101,000 (net of capitalized software
development costs of $511,000 and $607,000) in the three months ended June 30,
1999, an increase of 27%. In the corresponding periods in 1998 and 1999, SPSS'
expense for amortization of capitalized software and product translations,
included in cost of revenues, was $518,000 and $681,000, respectively. The
increase in product development expenses was primarily due to addition of the
ISL development group, other additions to the product development staff and
increases in staff compensation. As a percentage of net revenues, product
development expenses increased from 16% to 18%.
General and Administrative. General and administrative expenses were $2,221,000
in the three months ended June 30, 1998 and $2,503,000 in the three months ended
June 30, 1999, an increase of 13%. Such expenses increased primarily due to the
addition of amortization expense
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related to ISL and Surveycraft intangibles and an increased administrative
staff. As a percentage of net revenues, general and administrative expenses
remained constant at 8%.
Net Interest Income (Expense). Net interest income (expense) was $59,000 in the
three months ended June 30, 1998 and ($94,000) in the three months ended June
30, 1999. This unfavorable variance was primarily due to the interest expense on
the line-of-credit borrowing during the three months ended June 30, 1999
compared to no borrowing on the line-of-credit during the comparable period of
1998.
Other Expense. Other expense was $37,000 in the three months ended June 30, 1998
and $250,000 in the three months ended June 30, 1999. Such transactions consist
of foreign currency transactions.
Provision for Income Taxes. Provision for income taxes was $1,488,000 in the
three months ended June 30, 1998 and $1,743,000 in the three months ended June
30, 1999. During 1998 and 1999, the provision for income taxes represented an
effective tax rate of approximately 34.3%.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1998 TO SIX MONTHS ENDED JUNE 30, 1999.
Net Revenues. Net Revenues were $57,658,000 in the six months ended June 30,
1998 and $65,861,000 in the six months ended June 30, 1999, an increase of 14%.
Revenues from products designed for desktop computers increased $7,042,000 (17%)
over the corresponding period in 1998. In addition, revenues from annual license
renewals of desktop products increased by $1,828,000, reflecting a $1,933,000
increase in annual license renewals for SPSS for Windows. Revenues from products
designed for mainframes, minicomputers, and UNIX workstations increased $591,000
(7%) compared to the corresponding period in 1998. Other products and services
revenues increased 8% due to growth in training and consulting revenues
partially offset by a reduction in publication revenues. Revenues for the six
months of 1999 were adversely effected 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 $5,009,000 in the six months ended June 30, 1998 and
$5,809,000 in the six months ended June 30, 1999, an increase of 16%. Such costs
increased due to higher cost of goods sold resulting from increased sales,
increased amortization of capitalized software and increased royalty expense .
As a percentage of net revenues, cost of revenues remained constant at 9%.
Sales and Marketing. Sales and marketing expenses were $29,540,000 in the six
months ended June 30, 1998 and $32,914,000 in the six months ended June 30,
1999, an increase of 11%. This increase was due to the addition of ISL and
Surveycraft sales, marketing and services personnel, expansion of the domestic
and international sales organizations, higher cost of new, more senior sales
personnel and increased consulting expenses. These expenses were partially
offset by reductions in advertising and printing expenses. As a percentage of
net revenues, such expenses decreased from 51% to 50%.
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Product Development. Product development expenses were $9,741,000 in the six
months ended June 30, 1998 and $11,740,000 (net of capitalized software
development costs of $1,027,000 and $920,000) in the six months ended June 30,
1999, an increase of 21%. SPSS' expense for amortization of capitalized software
and product translations, included in cost of revenues, was $969,000 in the six
months ended June 30, 1998 and $1,331,000 in the six months ended June 30, 1999.
The increase in product development expenses was primarily due to the addition
of the ISL development group, other additions to the product development staff
and increases in staff compensation. As a percentage of net revenues, product
development expenses increased from 17% to 18%.
General and Administrative. General and administrative expenses were $4,005,000
in the six months ended June 30, 1998 and $4,715,000 in the six months ended
June 30, 1999, an increase of 18%. Such expenses increased primarily due to the
addition of amortization expense related to ISL and Surveycraft intangibles and
an increased administrative staff. As a percentage of net revenues, general and
administrative expenses remained constant at 7%.
Net Interest Income (Expense). Net interest income (expense) was $86,000 in the
six months ended June 30, 1998 and ($169,000) in the six months ended June 30,
1999. This unfavorable variance was primarily due to the interest expense on the
line-of-credit borrowing during the six months ended June 30, 1999 compared to
no borrowing on the line-of-credit during the comparable period of 1998.
Other Expense. Other expense was $199,000 in the six months ended June 30, 1998
and $417,000 in the six months ended June 30, 1999. Such transactions consist of
foreign currency transactions.
Provision for Income Taxes. Provision for income taxes was $3,173,000 in the six
months ended June 30, 1998 and $3,463,000 in the six months ended June 30, 1999.
During 1998 and 1999, the provision for income taxes represented an effective
tax rate of approximately 34.3%.
LIQUIDITY AND CAPITAL RESOURCES
SPSS' long-term debt as of June 30, 1999 is a mortgage on property in the United
Kingdom. As of June 30, 1999, SPSS held approximately $12,969,000 of cash and
short-term investments.
Funds in the first six months of 1999 were provided by operations and offset by
payments for acquisition related charges from SPSS' acquisitions of Quantime
Limited, In2itive Technologies A/S, Surveycraft and ISL. Capital expenditures
included, among other things, new computer systems for use in internal product
development and sales.
In May 1998, SPSS entered into a new loan agreement (the "Agreement") with
American National Bank and Trust Company of Chicago ("American National") to
replace its existing agreement with Bank of America, N.T.S.A. Under the
Agreement, SPSS has an available
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$10,000,000 unsecured line of credit with American National, under which
borrowings bear interest at either the prime interest rate or the Eurodollar
Rate, depending on the circumstances. As of June 30, 1999, SPSS had $8,000,000
outstanding under this line of credit. SPSS' Agreement with American National
requires SPSS to comply with certain specified financial ratios and tests, and,
among other things, restricts SPSS' ability to:
- incur additional indebtedness;
- create liens on assets;
- make investments;
- engage in mergers, acquisitions or consolidations where SPSS is
not the surviving entity;
- sell assets;
- engage in certain transactions with affiliates; and
- amend its organizational documents or make changes in capital
structure.
SPSS anticipates that amounts available under its line of credit, existing
sources of liquidity and cash flows generated from operations will be sufficient
to fund SPSS' operations and capital requirements for the foreseeable future.
However, no assurance can be given that changing business circumstances will not
require additional capital for reasons that are not currently anticipated or
that the necessary additional capital will then be available to SPSS on
favorable terms, or at all.
INTERNATIONAL OPERATIONS
Revenues from international operations were 52% of total net revenues in the
three months ended June 30, 1999 compared to 47% in the three months ended June
30, 1998. For the first six months, revenues from international operations were
54% in 1999 compared to 50% in 1998. The portion of revenues attributable to
international operations were negatively affected by changes in foreign currency
exchange rates. Net corporate revenues increased 14% in the three and six month
periods ended June 30, 1999 when compared to the three and six month periods
ended June 30, 1998. Net of the effects of changes in foreign currency rates,
the increase would have been approximately 15% and 14% for the three and six
months ended June 30, 1999 when compared to the three and six months ended June
30, 1998, respectively.
SAFE HARBOR
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: Certain statements in this report constitute "forward-looking statements"
within the meaning of Section 21E of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"). Such statements involve known and unknown risks
and uncertainties which may cause SPSS' actual results, performance or
achievements, or industry results, to be materially different than any future
results, performance or achievements expressed or implied in or by such
forward-looking statements. By way of example and not limitation, known risks
and uncertainties include SPSS' ability to successfully integrate or improve the
performance of acquired businesses, changes in
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market conditions or product demand, competition and currency fluctuations,
changes in product release schedules and product acceptance. In light of these
and other risks and uncertainties, the inclusion of forward-looking statements
in this report should not be regarded as a representation by SPSS that any
future results, performance or achievements will be attained.
YEAR 2000
Many computer systems and applications currently use two digits to define the
applicable year. As a result, date-sensitive systems may recognize the year 2000
as 1900 or not at all, which could cause miscalculations or system failures.
SPSS uses software and other related technologies throughout its business and
also sells computer software that will be affected by the date change in the
year 2000. The four areas where year 2000 issues may affect SPSS include:
- SPSS' information technology (IT) systems;
- SPSS' non-IT systems;
- the computer software SPSS sells; and
- third parties with material relationships with SPSS, such as
vendors and suppliers.
To address the year 2000 issue, SPSS assembled a committee of representatives
from all divisions and operating areas in early 1998. An inventory of the
readiness of all major IT and non-IT systems has been completed and SPSS is in
the process of testing and replacing non-compliant systems. This process is
expected to be completed by September 1999. Likewise, SPSS has been testing the
software it sells to third parties. The year 2000 compliance of SPSS products is
detailed at SPSS' Web Site at www.spss.com. Finally, SPSS has sent compliance
questionnaires to all its major suppliers. Virtually all have responded and most
of those responding signed the standard compliance letter, as SPSS requested.
Those responding suppliers that did not sign the SPSS standard compliance letter
instead provided their own year 2000 compliance materials. These materials have
been forwarded to the appropriate members of SPSS' year 2000 committee for
evaluation. Thus far, the SPSS year 2000 committee has not encountered any
material issues. The SPSS year 2000 committee will be developing contingency
plans in the event of year 2000 non-compliance and expects to have this
completed by September 1999.
While SPSS' year 2000 readiness plans are underway, the consequences of
non-compliance by SPSS, its major service providers, vendors or suppliers could
have a material adverse effect on SPSS' operations. Although SPSS does not
anticipate any major non-compliance issues, there can be no assurance that there
will not be a delay in, or increased costs associated with, the implementation
of SPSS' year 2000 readiness plan.
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SPSS currently believes that the greatest risk of disruption in its business
exists in the event of non-compliance by its material third parties. Some of the
possible consequences of non-compliance by SPSS or its material third party
suppliers include:
- inability to efficiently contact customers to obtain orders:
- inability to get orders to fulfillment houses;
- inability to send product to customers; and
- invoice and collection errors.
Given these risks, SPSS is developing contingency plans intended to mitigate the
possible disruption in business operations that may result from year 2000
non-compliance. It is currently estimated that the aggregate cost of SPSS' year
2000 efforts will be approximately $1.25 million to $1.5 million, of which
$1,000,000 has been incurred to date. These costs do not include any costs
associated with the implementation of contingency plans, which are in the
process of being developed.
SPSS' year 2000 readiness plan is an ongoing process and the estimates of costs
and completion dates for various components of the program as described above
are subject to change.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
SPSS' market risk disclosures pursuant to item 3 are not material and
are therefore not required.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Currently there are no material pending legal proceedings to which
SPSS or any of its subsidiaries is a party or to which any of their
property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 16,
1999. The following persons were nominated and elected to serve as
Directors of the Company for a term of three years or until their
successors have been duly elected and qualified:
Nominee For Withheld
------- --- --------
Norman Nie 8,004,054 49,028
Bernard Goldstein 8,033,981 49,101
In addition, Merritt Lutz, Jack Noonan and Michael Blair remained as
Directors of the Company after the meeting.
Furthermore, the Company's appointment of KPMG LLP to serve as its
independent auditor for fiscal year 1999 was ratified, at the Meeting,
in accordance with the following votes:
For Against Abstain
--- ------- -------
8,031,210 5,615 16,257
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)
- ------ -----------------------
3.1 Certificate of Incorporation of SPSS * 3.2
3.2 By-Laws of SPSS * 3.4
15
<PAGE> 16
4.1 Loan Agreement between SPSS and + 4.1
American National Bank and Trust Company
Of Chicago
4.2 Rights Agreement, dated June 18, 1998 between ** Exhibit 1
SPSS Inc. and Harris Trust and Savings Bank
10.1 Third Amended and Restated 1995 Equity Incentive Plan
15.1 Acknowledgment of Independent Certified
Public Accountants Regarding Independent
Auditors' Review Report
27.1 Financial Data Schedule
- -------------------------------
* 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' Registration Statement on Form 8-A filed
on June 18, 1998
+ Previously filed with SPSS' 10-Q Quarterly Report for the quarterly
period ended June 30, 1998.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by SPSS during the fiscal
quarter ended June 30, 1999.
16
<PAGE> 17
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: AUGUST 13, 1999 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: AUGUST 13, 1999 BY: /s/ EDWARD HAMBURG
------------------------------------------
EDWARD HAMBURG
EXECUTIVE VICE-PRESIDENT, CORPORATE
OPERATIONS AND CHIEF FINANCIAL OFFICER
17
<PAGE> 18
EXHIBIT INDEX
-------------
Exhibit Page
Number Description of Document Number
- ------ ----------------------- ------
10.1 Third Amended and Restated 1995 Equity Incentive Plan
15.1 Acknowledgement of Independent Certified Public
Accountants Regarding Independent Auditors' Review
Report
27.1 Financial Data Schedule
18
<PAGE> 1
EXHIBIT 10.1
------------
THIRD AMENDED AND RESTATED 1995 EQUITY INCENTIVE PLAN
1. PURPOSE. The purpose of this Third Amended and Restated 1995 Equity
Incentive Plan (the "Plan") is to further the success of SPSS Inc., a Delaware
corporation (hereinafter called the "Company") by attracting and retaining
directors, officers, and other key executives, employees and independent
contractors of the Company and its subsidiaries and to provide to such persons
incentives and rewards relating to the Company's business plans.
2. DEFINITIONS. As used in this Plan, in addition to the terms defined
elsewhere herein, the following terms have the following meanings when used
herein with initial capital letters:
(a) "Board" means the Board of Directors of the Company or,
pursuant to any delegation by the Board to the Compensation Committee
pursuant to Section 10, the Compensation Committee.
(b) "Change in Control" shall have the meaning set forth by
the Board.
(c) "Code" means the Internal Revenue Code of 1986, as amended
from time to time.
(d) "Common Shares" means shares of Common Stock of the
Company or any security into which such Common Shares may be changed by
reason of any transaction or event of the type referred to in Section
7.
(e) "Compensation Committee" means a committee appointed by
the Board consisting of at least three Non-Employee Directors, each of
whom will be a disinterested person within the meaning of Rule 16b-3.
(f) "Date of Grant" means the date determined in accordance
with the Board's authorization on which a grant of Option Rights or a
grant of Restricted Shares, becomes effective.
(g) "Form of Option Right Grant" means the form adopted by the
Board for the granting of Option Rights pursuant to Section 4 hereof,
which form may be amended by the Board from time to time.
(h) "Form of Restricted Share Grant" means the form adopted by
the Board for the transfer or issuance of Restricted Shares pursuant to
Section 5 hereof, which form may be amended by the Board from time to
time.
(i) "Incentive Stock Options" means Option Rights that are
intended to qualify as "incentive stock options" under Section 422 of
the Code or any successor provision.
1
<PAGE> 2
(j) "Market Value per Share", as applied to any date, means
the price per share of the Common Shares in an amount equal to the
closing price of the last sale of the Common Shares as reported by the
Nasdaq National Market or the principal securities exchange or
automated quotation system on which Common Shares were sold on the date
when the Market Value per Share is to be determined or, if the date is
a date on which the Common Shares did not trade, the closing price on
the immediately preceding day on which the stock traded.
(k) "Non-Employee Director" means a Director of the Company
who is not a full-time employee of the Company or any Subsidiary.
(l) "Nonqualified Stock Option" means Option Rights other than
Incentive Stock Options.
(m) "Optionee" means the optionee named in an agreement with
the Company evidencing an outstanding Option Right.
(n) "Option Price" means the purchase price payable on
exercise of an Option Right.
(o) "Option Right" means the right to purchase Common Shares
upon exercise of an option granted pursuant to Section 4.
(p) "Participant" means a person who is approved by the Board
to receive benefits under this Plan and who is at the time an officer,
executive, director or other employee or independent contractor of the
Company or any one or more of its Subsidiaries, or who has agreed to
commence serving in any of such capacities.
(q) "Restricted Shares" means Common Shares issued pursuant to
Section 5 as to which neither the substantial risk of forfeiture nor
the prohibition on transfers referred to in Section 5 has expired.
(r) "Rule 16b-3" means rule 16b-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") (or any successor
rule substantially to the same effect), as in effect from time to time.
(s) "Spread" means the excess of the Market Value per Share of
the Common Shares on the date when Option Rights are surrendered in
payment of the Option Price of other Option Rights, over the Option
Price provided for in the related Option Right.
(t) "Subsidiary" means any corporation with respect to which
the Company directly or indirectly owns stock possessing 50% or more of
the voting power as described in Section 424(f) of the Code.
2
<PAGE> 3
3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided
in Section 7, the number of Common Shares that may be issued or transferred
under this Plan upon the exercise of Option Rights or as Restricted Shares and
released from substantial risks of forfeiture thereof, may not exceed a maximum
of 1,800,000. Of these Common Shares, a maximum of 1,600,000 are reserved for
grants to Participants who are officers, executives or other employees or
independent contractors, and a maximum of 200,000 are reserved for grants to
directors in lieu of the annual retainer to which directors are currently
entitled. Common Shares issued under this Plan may be shares of original
issuance or treasury shares or a combination of the foregoing.
4. OPTION RIGHTS. The Board may from time to time authorize the grant
to Participants of options to purchase Common Shares upon such terms and
conditions as it may determine in accordance with the following provisions:
(a) Each grant will specify the number of Common Shares to
which it pertains and the term during which the rights granted
thereunder will exist.
(b) Each grant will specify an Option Price per share, which
may not be less than the Market Value per Share as of the Date of
Grant.
(c) Each grant will specify whether the Option Price is
payable (i) in cash, (ii) by the actual or constructive transfer to the
Company of nonforfeitable, unrestricted Common Shares already owned by
the Optionees (or other consideration authorized pursuant to Section
4(d)) having an actual or constructive value as of the time of exercise
as determined by the Board or in accordance with the applicable
agreement referred to in Section 4(i), equal to the total Option Price,
(iii) by having the Company reduce the number of Common Shares
distributed to the Optionee by a number of Common Shares with a Market
Value per Share, as of the date of exercise, equal to the Option Price
of the Common Shares, (iv) by deferred payment of the full purchase
price of the Common Shares from the proceeds of a sale, through a bank
or broker, on the exercise date of some or all of the Common Shares
underlying the Option Right to which such exercise relates, or (v) by a
combination of such methods of payment. In connection with a
constructive transfer pursuant to Section 4(c)(ii) hereof, a
Participant may provide an attestation letter in form acceptable to the
Company requesting that the Company issue and transfer to the
Participant, in full satisfaction of such exercise, Common Shares
having a value net of the exercise price and any applicable withholding
taxes.
(d) The Board may determine, at or after the Date of Grant,
that payment of the Option Price of any option (other than an Incentive
Stock Option) may also be made in whole or in part in the form of
Restricted Shares or other Common Shares that are forfeitable or
subject to restrictions on transfer, or other Option Rights (based on
the Spread on the date of exercise). Unless otherwise determined by the
Board at or after the Date or Grant, whenever any Option Price is paid
in whole or in part by means of any of the forms of consideration
specified in this paragraph, the Common Shares received upon the
exercise of the Option Rights will be subject to such risks of
forfeiture or restrictions
3
<PAGE> 4
on transfer as may correspond to any that apply to the consideration
surrendered, but only to the extent of (i) the number of shares
surrendered in payment of the Option Price or (ii) the Spread of any
unexercisable portion of Option Rights surrendered in payment of the
Option Price.
(e) Any grant may provide for deferred payment of the Option
Price from the proceeds of sale through a bank or broker on the
exercise date of some or all of the shares to which such exercise
relates.
(f) Successive grants may be made to the same Participant
whether or not any Option Rights previously granted to such Participant
remain unexercised.
(g) Each grant will specify the period or periods of
continuous service by the Optionee with the Company or any Subsidiary
which is necessary before the Option Rights or installments thereof
will become exercisable and may provide for the earlier exercise of
such Option Rights in the event of a Change in Control or other event.
(h) Option Rights granted under this Plan may be (i) Incentive
Stock Options, (ii) Nonqualified Stock Options, or (iii) combinations
of the foregoing. An Incentive Stock Option may be granted only to a
Participant who, at the time the Incentive Stock Option is granted, is
approved by the Board to receive an Incentive Stock Option and, at the
time, is a key employee of the Company or of one or more of its
Subsidiaries. An Incentive Stock Option may be granted only as
permitted by the Code.
(i) Each grant of Option Rights will be evidenced by an
agreement executed on behalf of the Company by any officer, director,
or, if authorized by the Board, employee of the Company and delivered
to the Optionee and containing such terms and provisions as the Board
may approve, except that in no event will any such agreement include
any provision prohibited by the express terms of this Plan. The
agreement shall be consistent with the Form of Option Right Grant
adopted by the Board for the purpose of granting Option Rights.
5. RESTRICTED SHARES. The Board may also authorize the issuance or
transfer of Restricted Shares to Participants in accordance with the following
provisions. Each such grant will be in accordance with the following provisions:
(a) Each such issuance or transfer will constitute an
immediate transfer of the ownership of Common Shares to the Participant
in consideration of the performance of services, entitling such
Participant to voting, dividend, and other ownership rights, but
subject to the substantial risk of forfeiture and restrictions on
transfer provided below.
(b) Each such issuance or transfer may be made without
additional consideration.
(c) Each such issuance or transfer will provide that the
Restricted Shares covered thereby will be subject, except (if the Board
so determines) in the event of a Change in
4
<PAGE> 5
Control or other event specified in the agreement referred to in
Section 5(e), for a period to be determined by the Board at the Date
of Grant, to a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code.
(d) Each such issuance or transfer will provide that during
the period for which such substantial risk of forfeiture is to
continue, the transferability of the Restricted Shares will be
prohibited or restricted in the manner and to the extent prescribed in
or pursuant to the agreement referred to in Section 5(e) (which
restrictions may include, without limitation, rights of repurchase or
first refusal or provisions subjecting the Restricted Shares to a
continuing substantial risk of forfeiture in the hands of any
transferee).
(e) Each issuance or transfer of Restricted Shares will be
evidenced by an agreement executed on behalf of the Company by any
officer, director, or, if authorized by the Board, employee of the
Company and delivered to and accepted by the Participant and containing
such terms and provisions as the Board may approve except that in no
event will any such agreement include any provision prohibited by the
express terms of the Plan. The agreement shall be consistent with the
Form of Restricted Share Grant adopted by the Board for the purpose of
issuing Restricted Shares. All certificates representing Restricted
Shares will be held in custody by the Company until all restrictions
thereon have lapsed, together with a stock power executed by the
Participant in whose name such certificates are registered, endorsed in
blank and covering such Restricted Shares, which may be executed by any
officer of the Company upon a determination by the Board that an event
causing the forfeiture of the Restricted Shares has occurred.
6. TRANSFERABILITY.
(a) No Option Right granted, issued, or transferred under this
Plan will be transferable by a Participant other than by will or the
laws of descent and distribution or pursuant to a qualified domestic
relations order, as that term is defined in the Code or the rules
thereunder or Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the rules thereunder, except (in the
case of a Participant who is not a Director or officer of the Company)
to a fully revocable trust of which the Optionee is treated as the
owner for federal income tax purposes. Option rights will be
exercisable during the Optionee's life only by him or by his guardian
or legal representative. The Board may impose additional restrictions
on transfer as well.
(b) The Board may specify at the Date of Grant that part or
all of the Common Shares that are (i) to be issued or transferred by
the Company upon the exercise of Option Rights or (ii) no longer
subject to the substantial risk of forfeiture and restrictions on
transfer referred to in Section 5, will be subject to further
restrictions on transfer.
7. ADJUSTMENTS. The Board may make or provide for such adjustments in
the numbers of Common Shares covered by outstanding Option Rights granted
hereunder, in the
5
<PAGE> 6
prices per share applicable to such Option Rights and in the kind of shares
covered thereby, as the Board may determine is equitably required to prevent
dilution or enlargement of the rights of Participants that otherwise would
result from (a) any stock dividend, stock split, combination of shares,
recapitalization, or other change in the capital structure of the Company, (b)
any merger, consolidation, spin-off, split-off, spin-out, split-up,
reorganization, partial or complete liquidation, or other distribution of assets
or issuance of rights or warrants to purchase securities, or (c) any other
corporate transaction or event having an effect similar to any of the foregoing;
provided, further, however, that any adjustment which by reason of this Section
7 is not required to be made currently will be carried forward and taken into
account in any subsequent adjustment. In the event of any such transaction or
event, the Board may provide in substitution for any or all outstanding awards
under this Plan such alternative consideration as it may determine to be
equitable in the circumstances and may require in connection therewith the
surrender of all awards so replaced. The Board may also make or provide for such
adjustments in the numbers of shares specified in Section 3 as the Board may
determine is appropriate to reflect any transaction or event described in this
Section 7.
8. FRACTIONAL SHARES. The Company will not be required to issue any
fractional Common Shares pursuant to this Plan. The Board may provide for the
elimination of fractions and for the settlement of fractions in cash.
9. WITHHOLDING TAXES. To the extent that the Company is required to
withhold federal, state, local, or foreign taxes in connection with any payment
made or benefit realized by a Participant or other person under this Plan, and
the amounts available to the Company for such withholding are insufficient, it
will be a condition to the receipt of such payment or the realization of such
benefit that the Participant or such other person make arrangements satisfactory
to the Company for payment of the balance of such taxes required to be withheld,
which arrangements may include relinquishment of a portion of such benefit.
10. ADMINISTRATION OF THE PLAN.
(a) This Plan will be administered by the Board, which may
from time to time delegate all or any part of its authority under this
Plan to the Compensation Committee. Option Rights may be granted only
by the Compensation Committee.
(b) The Board will take such actions as are required to be
taken by it hereunder, may take the actions permitted to be taken by it
hereunder, and will have the authority from time to time to interpret
this Plan and to adopt, amend, and rescind rules and regulations for
implementing and administering this Plan. All such actions will be in
the sole discretion of the Board, and when taken, will be final,
conclusive, and binding. Without limiting the generality or effect of
the foregoing, the interpretation and construction by the Board of any
provision of this Plan or of any agreement, notification, or document
evidencing the grant of Option Rights, or Restricted Shares, and any
determination by the Board in its sole discretion pursuant to any
provision of this Plan or of any such agreement, notification, or
document will be final and conclusive. Without
6
<PAGE> 7
limiting the generality or effect of any provision of the Certificate
of Incorporation of the Company, no member of the Board will be liable
for any such action or determination made in good faith.
(c) The provisions of Sections 4 and 5 will be interpreted as
authorizing the Board, in taking any action under or pursuant to this
Plan, to take any action it determines in its sole discretion to be
appropriate subject only to the express limitations therein contained
and no authorization in any such Section or other provision of this
Plan is intended or may be deemed to constitute a limitation on the
authority of the Board.
(d) The existence of this Plan or any right granted or other
action taken pursuant hereto will not affect the authority of the Board
or the Company to take any other action, including in respect of the
grant or award of any option, security, or other right or benefit,
whether or not authorized by this Plan, subject only to limitations
imposed by applicable law as from time to time applicable thereto.
11. AMENDMENTS, ETC.
(a) This Plan may be amended from time to time by the Board,
but without further approval by a majority of the stockholders of the
Company present in person or by proxy at a meeting of the Company's
stockholders and entitled to vote generally in the election of
directors, or as may be otherwise required by Rule 16b-3, no such
amendment will (i) increase the maximum numbers of Common Shares or
Restricted Shares pursuant to Section 3 (except that adjustments and
additions authorized by this Plan will not be limited by this
provision) or (ii) cause Rule 16b-3 to become inapplicable to this Plan
during any period in which the Company has any class of equity
securities registered pursuant to Section 13 or 15 of the Exchange Act.
The Board may amend the Plan to set maximum limits on the number of
shares with respect to which Option Rights may be granted during a
specified period to any employee.
(b) The Board may, with the concurrence of the affected
Optionee, cancel any agreement evidencing Option Rights or any other
award granted under this Plan. In the event of such cancellation, the
Board may authorize the granting of new Option Rights or other awards
hereunder (which may or may not cover the same number of Common Shares
which had been the subject of the prior award) in such manner, at such
option price, and subject to such other terms, conditions, and
discretions as would have been applicable under this Plan had the
canceled Option Rights or other award not been granted.
(c) In case of termination of employment by reason of death,
disability, or normal or early retirement, or in the case of hardship
or other special circumstances, of a Participant who holds an Option
Right not immediately exercisable in full, or any Restricted Shares as
to which the substantial risk of forfeiture or the prohibition or
restriction on transfer has not lapsed, or who holds Common Shares
subject to any transfer restriction imposed pursuant to Section 6(b),
the Board may take such action as it
7
<PAGE> 8
deems equitable in the circumstances or in the best interests of the
Company, including without limitation waiving or modifying any other
limitation or requirement under any such award.
(d) This Plan will not confer upon any Participant any right
with respect to continuance of employment or other service with the
Company or any Subsidiary, nor will it interfere in any way with any
right the Company or any Subsidiary would otherwise have to terminate
or modify the terms of such Participant's employment or other service
at any time.
(e) To the extent that any provision of this Plan would
prevent any Option Right that was intended to qualify as an Incentive
Stock Option from qualifying as such, that provision will be null and
void with respect to such Option Right, but will remain in effect for
other Option Rights and there will be no further effect on any
provision of this Plan.
(f) This Plan will be governed by and constructed in
accordance with the laws of the State of Delaware, without giving
effect to the principles of conflict of laws thereof. If any provision
of this Plan is held to be invalid or unenforceable, no other provision
of this Plan will be affected thereby.
(g) The Plan shall be effective upon adoption by the Board of
Directors, but the Plan shall be void unless it is approved by the
Company's stockholders within the earlier of the date of the Company's
next annual meeting of stockholders and twelve (12) months after the
date the Plan is adopted by the Board of Directors. Subject to the
foregoing condition, Option Rights and Restricted Shares may be granted
pursuant to the Plan from time to time within the period commencing
upon adoption of the Plan by the Board of Directors and ending ten (10)
years after the earlier of such adoption and the approval of the Plan
by the stockholders.
8
<PAGE> 1
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 of SPSS Inc. on Form S-8 (nos.
333-25869, 33-73130, 33-80799, 33-73120, 333-63167 and 33-74402), on Form S-3
(nos. 333-41207, 333-21025, 333-10423) and on Form S-4 (no. 333-15427), we
acknowledge our awareness of the use therein of our report dated July 30, 1999
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 LLP
Chicago, Illinois
August 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPPS INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET AT JUNE 30, 1999 AND CONSOLIDATED
STATEMENT OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 0 12,969
<SECURITIES> 0 0
<RECEIVABLES> 0 36,882
<ALLOWANCES> 0 1,823
<INVENTORY> 0 2,660
<CURRENT-ASSETS> 0 54,384
<PP&E> 0 41,087
<DEPRECIATION> 0 24,441
<TOTAL-ASSETS> 0 90,991
<CURRENT-LIABILITIES> 0 37,570
<BONDS> 0 0
0 0
0 0
<COMMON> 0 91
<OTHER-SE> 0 49,585
<TOTAL-LIABILITY-AND-EQUITY> 0 90,991
<SALES> 33,313 65,861
<TOTAL-REVENUES> 33,313 65,861
<CGS> 3,126 5,809
<TOTAL-COSTS> 3,126 5,809
<OTHER-EXPENSES> 24,761 49,369
<LOSS-PROVISION> 313 554
<INTEREST-EXPENSE> 180 332
<INCOME-PRETAX> 5,082 10,097
<INCOME-TAX> 1,743 3,463
<INCOME-CONTINUING> 3,339 6,634
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,339 6,634
<EPS-BASIC> 0.37 0.73
<EPS-DILUTED> 0.35 0.69
</TABLE>
