SPSS INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

COMMISSION FILE NUMBER: 33-64732

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SPSS INC.
(Exact name of registrant as specified in its charter)

DELAWARE 36-2815480
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE

(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing requirements
for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No [ ]

The aggregate market value of the registrant's voting stock held by
non-affiliates of the registrant (based upon the per share closing sale price of
$17.97 on June 30, 2004) was approximately $315.8 million.

The number of shares outstanding of the registrant's Common Stock, par
value $0.01, as of March 1, 2005, was 17,783,279.
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SPSS INC.

TABLE OF CONTENTS

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SPSS INC.

FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

PART I

FORWARD-LOOKING STATEMENTS

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

ITEM 1. BUSINESS

SPSS Inc., a Delaware corporation ("SPSS" or the "Company"), was
incorporated in Illinois in 1975 under the name SPSS, Inc. and was
reincorporated in Delaware in May 1993 under the name "SPSS Inc." SPSS is a
global provider of predictive analytics technology and services.

The Company's offerings use predictive analytics to connect data to
effective action by drawing reliable conclusions about current conditions and
future events. Predictive analytics leverages an organization's business
knowledge by applying sophisticated analytic techniques to enterprise data. The
insights gained through the use of these techniques can lead to improved
business processes that increase revenues, reduce costs, and prevent fraudulent
activities.

Many organizations focus on developing and retaining relationships with
people, particularly in their roles as customers, employees, patients, students,
or citizens. To accomplish these goals, organizations collect and analyze data
related to people's characteristics, opinions, and behavior. Since its
inception, SPSS has specialized in the analysis of such information about
people, developing technology and services that incorporate decades of related
"best practice" predictive analytic processes and techniques.

SPSS provides two classes of software and service offerings to two distinct
audiences. For researchers proficient in the use of analytic methods, the
Company offers statistical and data mining software tools to examine and predict
from a broad range of enterprise data. For business users acquainted with but
not proficient in data analysis techniques, SPSS delivers easy to use
applications that bring the power of predictive analytics to address particular
business problems.

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SPSS sells its lower-priced offerings through telesales and higher-priced
offerings through field sales organizations configured geographically and by
vertical industries. The Company's primary targeted vertical industries include
financial services, telecommunications, market research, government, and
education.

Approximately two-thirds of the Company's revenues come from commercial
firms, many of which use SPSS technology to improve the profitability and
effectiveness of their organization by:

- Attracting new customers more efficiently;

- Increasing the value of existing customers by improving cross-selling and
retention; and

- Detecting and preventing fraud.

Among its government customers SPSS offerings are primarily used to improve
interactions between public sector agencies and their constituents or detect
forms of non-compliance. At colleges and universities SPSS statistical and data
mining tools are often standards for academic research and the teaching of data
analysis techniques.

In August 1993, SPSS completed an initial public offering (IPO) of common
stock at $0.01 par value. The common stock is listed on the NASDAQ National
Market under the symbol "SPSS." In early 1995, SPSS and some stockholders sold
1,865,203 shares of common stock in a secondary public offering.

In addition to the information contained in this report, further
information regarding SPSS can be found on the Company's website at
www.spss.com. The Company's Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and all amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act
of 1934 are made available, free of charge, on the Company's website,
www.spss.com, as soon as reasonably practical after the reports have been filed
with or furnished to the Securities and Exchange Commission. SPSS will furnish a
copy of these reports to any person, without charge, upon written request
directed to the Secretary of the Company at the Company's principal executive
offices at 233 South Wacker Drive, 11th Floor, Chicago, Illinois 60606. The
documents that SPSS files with or furnishes to the SEC are also available on the
SEC website at www.sec.gov. The information on the Company's website is not
incorporated into this annual report.

INDUSTRY BACKGROUND

The predictive analytics market developed as a growing number of
commercial, government and academic organizations discovered and experienced the
benefits of using applied analytics. This market then emerged from the
convergence of three different segments of the software industry: statistical
tools, data mining, and business intelligence; and now also incorporates recent
technology innovations enabling the real-time integration of analytic results
into decision processes.

In the 1970's, demand for statistical software increased as tools created
by academics were used to examine general business data. These early tools
evolved to provide access to data with extensive file and data management
facilities, build predictive models using techniques such as correlation and
regression, and display analytic results through reports and graphs. Because of
the widespread adoption of its products by survey analysts and market
researchers, particularly during the 1980's among those working on desktop
computers, SPSS became a leading provider of statistical software tools. This
segment remains an integral and profitable part of the Company's overall
business.

In the 1990's, demand for data mining software developed as neural network
and other artificial intelligence techniques built in university research labs
were applied to general business data. Data mining tools extended predictive
analytics by introducing an array of algorithms that could, under certain
conditions, predict outcomes more effectively than traditional statistical
techniques. Since its 1998 acquisition of Integral Solutions Limited, providers
of the innovative Clementine data mining workbench, SPSS has emerged as a
leading provider of data mining tools and sees this segment as a long-term
growth opportunity for the Company.

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Also during the 1990's, extensive demand developed for business
intelligence products. Yet unlike the academic roots from which the statistics
and data mining sectors grew, business intelligence stemmed from the widespread
adoption of database technology by commercial firms. Facilities to extract,
transform, and load (ETL) data were created, as were techniques for data
warehousing that organized transaction data into forms more suitable for
analysis. As organizations better understood the value inherent in the vast
amounts of data at their disposal, new reporting approaches also emerged to
measure results. These new techniques included software tools for on-line
analytical processing (OLAP) that offered intuitive ways for business users to
explore data. Business intelligence products effectively broadened the use of
analytic decision-making in many organizations. This increased usage in turn led
to a greater appreciation for the additional benefits provided by more
sophisticated predictive analytic techniques in maintaining the pace of
innovation, growth, and competitive differentiation.

Predictive analytics is a set of procedures and related technologies that
apply sophisticated analytic techniques to enterprise data. When combined with
an organization's business knowledge, predictive analytics can lead to actions
that demonstrably improve critical business processes, including those that
directly affect how people act as customers, employees, patients, students, and
citizens.

The use of predictive analytics begins by exploring how an organization's
business problems can be addressed by examining data pertaining to its various
internal processes or describing characteristics, attitudes, and behavior of the
people with whom it interacts. These numeric and text data sets, which originate
from both internal systems and third-party providers, are cleaned, transformed,
and evaluated using statistical, mathematical, and other algorithmic techniques.
These techniques, often in conjunction with advanced visualization capabilities,
generate models for classification, segmentation, forecasting, and propensity
scoring as well as the detection of patterns and anomalies. The results of these
models can be used to determine which actions drive optimal outcomes, and then
delivered as recommendations to the people and front-line systems that can take
effective action. Such actions include identifying new revenue opportunities,
measurable cost savings, and repeatable process improvements.

Predictive analytics carries strategic and tactical ramifications for
organizations that recognize the inherent value locked within their existing
enterprise data. Strategically, predictive analytics provides a quantitative
foundation for rapidly identifying, objectively evaluating, and confidently
pursuing new market opportunities. Tactically, predictive analytics identifies
precisely whom to target, how to reach them, when to make contact, and what
messages should be communicated.

Combining predictive analytic models with organizational business knowledge
provides insight into such critical issues as customer acquisition and
retention, up-selling and cross-selling, fraud detection, and outcome
improvement. By measuring uncertainty surrounding these issues, predictive
analytics enables proactive risk management, refining key decision-making
processes through controlled, iterative testing of potential actions and their
likely intended -- and unintended -- consequences.

STRATEGY

The following principles are at the foundation of the Company's strategy:

- Drive greater awareness of the value of predictive analytics, especially
among information technology (IT) professionals. Although many
organizations have experienced the benefits of predictive analytics, the
market for such technology and services is at an early developmental
stage. Many organizations are still unaware of the considerable return on
investment that can and has been achieved from implementations of
predictive analytic technology. As a leading vendor in this emergent
market, SPSS benefits from activities that heighten awareness of the
value of predictive analytics, particularly when targeted to IT
professionals, who at most organizations are responsible for evaluating
and implementing new software technology. The Company will continue
playing an instrumental role in these activities, as it believes that
thought leadership is critical to sustaining market leadership.

- Deliver the right analytical functionality to the right professionals
throughout an organization. SPSS provides two classes of software and
service offerings to two distinct audiences. For researchers

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proficient in the use of analytical methods, the Company offers
statistical and data mining software tools to examine a broad range of
enterprise data. For general business users acquainted with but not
expert in data analysis techniques, SPSS delivers easy to use
applications that bring the power of predictive analytics to address
particular business issues. Essential to these efforts is the Company's
ability to support enterprise environments with technology that is highly
scalable and adaptable to multiple platforms, as well as its ability to
develop plug-and-play components for building future applications.

- Leverage the Company's expertise in analyzing information about
people. SPSS software was first used in the examination of survey data
and expanded over time to the analysis of other forms of information
about people's characteristics, attitudes, and behavior. SPSS began as
the "Statistical Package for the Social Sciences"; this legacy of
providing technology and services to organizations examining people
remains at the core of the Company's expertise and further differentiates
SPSS from other players in the predictive analytics market. For example,
SPSS is further developing capabilities that integrate data about
people's attitudes with information about their behavior to build more
powerful predictive models.

- Focus on primary vertical industries. While SPSS software and services
are marketed across a wide range of industries and organizations, the
Company primarily targets the worldwide commercial industries for
financial services, telecommunications, and market research, as well as
the worldwide markets for government and education. This vertical
orientation is most important in its delivery of predictive analytic
applications that address particular business problems.

- Accelerate growth through partnership and acquisition. Since 1994,
approximately half of the Company's revenue growth has come through the
acquisition of other software firms. These acquisitions have expanded the
technology and expertise of SPSS into new areas of predictive analytics,
most recently into the delivery of predictive analytic applications. The
Company is also working to expand its partnership network to facilitate
sales of its software and participate in related services engagements. In
addition to independent software vendors with complementary offerings,
this expanded network will include other systems integrators and
vertically oriented consulting firms.

MARKETS

SPSS targets the following markets defined by International Data
Corporation (IDC) in its research reports entitled Worldwide Business
Intelligence Forecast and Analysis, 2004-2008 and Worldwide Customer
Relationship Management Analytic Applications Software Forecast and Analysis,
2004-2008:

- The global market for statistical and technical analysis software, which
was approximately $492 million in size in 2003 and in which SPSS held a
market share of approximately 19%. IDC estimates that this market will
increase by approximately 2.9% a year and reach approximately $568
million in size by 2008.

- The global market for data mining tools, which was approximately $515
million in size in 2003 and in which SPSS held a market share of
approximately 6%. IDC estimates that this market will increase by
approximately 6.1% a year and reach approximately $692 million in size by
2008.

- The global market for analytical customer relationship management (aCRM)
applications, which was approximately $909 million in size in 2003 and in
which SPSS held a market share of approximately 4%. IDC estimates that
this market will increase by approximately 10.9% a year and reach
approximately $1.5 billion in size by 2008.

These target markets combined to total approximately $1.9 billion in
revenues in 2003 with SPSS holding a share of approximately 8%. IDC estimates
that these SPSS target markets will combine to total approximately $2.8 billion
in revenues by 2008. To more effectively increase its overall market share, SPSS
plans to leverage its strong position in the statistical and technical analysis
software market to increase its presence in the related larger and higher-growth
market sectors.

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OFFERINGS

SPSS provides its predictive analytic technology as tools for research
analysts and applications for business users.

TOOLS

SPSS software tools enable customers to access and prepare data for
analysis, develop and deploy predictive models, and generate reports and graphs
to present the results. In general, the Company's software tools are:

- Comprehensive in function, spanning the entire process of data analysis;

- Modular, allowing customers to purchase only the functionality they need;

- Integrated, enabling the use of various parts of the SPSS technology in
combination to tackle particularly complex problems;

- Tailored to desktop operating environments for greater ease-of-use,
including browser-based environments for the delivery of results;

- Available on most popular computing platforms; and

- For some products, translated and localized for use in France, Germany,
Italy, Poland, Japan, Taiwan, Korea, China, and Spanish-speaking
countries.

Statistics Family. The Company's primary statistical tools are part of its
flagship SPSS product line. These tools are modular in nature and designed for
use by research analysts working in a wide variety of commercial, governmental,
and academic organizations. While varying by version and computing platform, a
typical purchase from the SPSS product line includes an SPSS Base product and
related optional add-on modules. The SPSS Base includes the user interface, data
connectivity, data editing, reporting, graphing, and general statistical
capabilities. Add-on modules require the SPSS Base to operate and become
seamlessly integrated with SPSS Base upon installation. These optional offerings
usually provide additional statistical functionality specific to particular
types of analysis.

Data Mining Family. The Data Mining Family consists of the Clementine data
mining workbench, LexiQuest analysis tools for text mining, and AnswerTree for
decision tree analysis. These products are differentiated from the Statistics
Family primarily by their process-oriented visual user interfaces and their
inclusion of artificial intelligence-based algorithms.

The Clementine product line offers advanced analytical capabilities for a
variety of data mining applications in desktop and distributed computing
environments. The user interface of Clementine provides a visual view of the
entire analysis process, enabling the user to easily incorporate their business
knowledge with data to develop predictive models and capture all of the steps in
one picture. This picture can then be used as a template to build specific
business applications (Clementine Application Template) and predictive models to
apply to operational systems with the Clementine Solution Publisher. The SPSS
and Clementine product lines can be used together to gain additional data
transformation and statistical functionality.

The LexiQuest product line is designed to organize and mine unstructured
text data. The LexiQuest product line consists of LexiQuest Categorize and
LexiQuest Mine. LexiQuest Categorize automates the process of organizing
documents into logical categories and is currently used to quickly organize
information delivered through web portals. LexiQuest Mine is a linguistics-based
text mining tool that creates new insights by rapidly identifying key concepts
and the relationships between them across thousands of sources, such as
documents, news feeds, and the Internet. The LexiQuest Mine technology is now
integrated with the Clementine product line to provide the combination of data
and text mining capabilities.

The AnswerTree product line reveals distinctive segments in data using
decision tree algorithms. AnswerTree is available in both a single-user desktop
version as well as the highly scalable client-server implementation.

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Business Intelligence Family. The Business Intelligence Family consists of
the Strategy product line and OLAP Hub offering. Strategy products support
information access, data warehousing, data management, on-line analytical
processing (OLAP), and other analytical applications for the IBM eServer iSeries
(AS/400) computer market. OLAP Hub is a zero-client on-line analytical
processing (OLAP) product technology for viewing data stored in the Microsoft
Analysis Services within the SQL Server database.

APPLICATIONS

Analytical applications provide pre-defined access to the data required for
particular business problems and interfaces that guide users through the related
analysis processes. SPSS analytical applications include:

PredictiveMarketing, PredictiveCallCenter, and PredictiveClaims which
seamlessly integrate with operational software from other vendors to provide
predictive capability to business users in their management of marketing
campaigns, programs to improve call center effectiveness, or efforts to identify
fraudulent activity. These offerings have pre-packaged but modifiable data
mining models designed for specific tasks, such as customer acquisition or
retention, and enable calculated predictive scores to be inserted into data
warehouses. The Company's DataDistilleries application software is at the core
of these Predictive-Series offerings, providing their real-time scoring and
prediction capabilities.

NetGenesis is an analytic application that describes visitor behavior on
Web sites. By processing on-line information through its rule-based importer to
create a customer behavioral data mart, NetGenesis identifies content that
brings visitors the most value and measures site overall effectiveness. This
application has also been integrated with Clementine to create the SPSS
Predictive Web Analytics offering.

Dimensions is a robust technology platform that supports the complete
end-to-end survey process for firms in the market research industry. Dimensions
provides seamless and efficient work processes around surveys, easier analysis
of data, and more dynamic means of delivering results to clients. Dimensions
combines the strengths of the Quantime, In2itive, and Surveycraft product lines
and will gradually replace these offerings.

SALES AND MARKETING

The Company has a long-established worldwide telesales organization that
primarily sells SPSS tools to research analysts. Sales made by the telesales
organization are typically driven by direct mail campaigns and customer
references, completed within thirty days, and average about $2,500 per
transaction. The database of existing SPSS customers provides an efficient
source for selling add-on products, upgrades and training. The Company also has
an e-commerce infrastructure through which it sells its lower-priced products
and maintains a network of over forty distributors around the world to increase
its penetration into smaller international markets.

The SPSS field sales force sells its tools and applications to enterprise
customers. This field sales force is organized by the Company's primary targeted
vertical industries, including financial services, telecommunications, market
research, government, and education. SPSS field sales personnel engage with
line-of-business executives and information technology professionals to identify
organizational problems that SPSS offerings can address. In many situations,
SPSS professional services personnel are also involved to complete procurements
and plan implementations. The field sales force has partner relationships with
other leading companies to participate in mutually beneficial joint sales
opportunities or provide additional application implementation capabilities.
Transactions completed by SPSS field sales personnel typically take from nine to
twelve months and range in value from $50,000 to $500,000 per transaction.

SPSS maintains a worldwide infrastructure to support these sales
organizations. In addition to its headquarters in Chicago, the Company has
offices in the United States in the following metropolitan areas: New York City,
Boston, Washington D.C., Cincinnati, Dallas, San Francisco and Rochester (MN).
The SPSS international sales operation consists of fourteen offices in Europe
and the Pacific Rim. Transactions are customarily made in local currencies.

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The SPSS field marketing organization is charged with generating qualified
leads for the Company's tools and applications through direct mail, e-mail,
prospect seminars, advertising in trade and market-specific publications,
exhibiting at trade shows, and conducting user group meetings. This organization
also continually analyzes the SPSS customer database to identify likely
prospects for the Company's new offerings.

The SPSS product management organization consists of three business
centers, one devoted to tools and components, another to predictive analytic
applications, and a third to survey and market research. Each business center is
charged with understanding the current and future needs of customers,
translating these needs into clear directives for specific product development
projects, and working with the research and development organization to develop
"roadmaps" that chart the future direction of each tool and application
offering.

SPSS also has a corporate marketing group responsible for the broad
visibility of the Company. This group works with the trade and financial press,
industry analysts and financial analysts to establish the identity and presence
of the Company as an industry leader. SPSS corporate marketing also supports
other important areas of company visibility, including corporate Web properties,
the development of expert reviews of SPSS tools and applications which appear in
trade and market-specific publications, and participation in professional
association meetings.

SERVICES

To support its analytical applications, SPSS offers consulting and
customization services to assist in new implementations or configure existing
applications to vertical industry and customer requirements. SPSS consultants
also help organizations to develop plans that align analytical efforts with
organizational goals, assist with the collection and structuring of data for
analysis, and facilitate the building of predictive analytic models.

To support its statistical and data mining tools, SPSS offers a
comprehensive training program with courses covering product operations, general
data analytical concepts and processes, as well as how statistical and data
mining techniques can be applied to address particular business problems. These
courses are regularly scheduled in cities around the world or organizations can
contract with the Company for on-site training tailored to their specific
requirements. Courseware will also be made available to SPSS Partners and
integrators, which will increase potential capacity for delivering customer
solutions.

SPSS has a worldwide customer service and technical support infrastructure
that engages with customers on-site or by telephone, fax, mail, e-mail and the
Web. Technical support is provided to all licensees and includes assistance in
software installation and operations as well as limited guidance in the
selection of analytical methods and the interpretation of results. Additional
technical support services are available on a time-and-materials basis.

RESEARCH AND DEVELOPMENT

SPSS plans to develop new software technologies and products, enhance
existing software technologies and products, acquire complementary technologies,
and form partnerships with third parties providing particular software
functionality or with domain expertise essential to serving selected vertical
industries. SPSS research and development initiatives are Company sponsored
initiatives that will primarily focus on:

- Extending the capabilities of its primary statistical and data mining
tools;

- Enhancing existing and developing new predictive analytic applications;

- Improving the interoperability of various SPSS tools and applications;

- Continuing to build reusable components for use in developing new
analytical tools;

- Establishing directions concerning future platforms and deployment,
including J2EE and .NET, data visualization, in-database modeling and
scoring, and the adoption of emergent standards; and

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- Demonstrating industry leadership through active participation in
standards organizations for predictive analytics, such as XML/A, PMML and
CRISP DM.

SPSS specialists in user interface design, software engineering,
performance engineering, quality assurance, product documentation, and the
development of analytic algorithms are responsible for maintaining and enhancing
the quality, usability, and statistical accuracy of all SPSS software. The
research and development organization is also responsible for authoring and
updating all user documentation and other publications. In addition, SPSS
maintains ongoing relationships with third-party software developers for the
development of specialized software products and the acquisition of technology
that can be embedded in SPSS software.

Most of the statistical algorithms used by SPSS in its software are
published for the convenience of its customers. SPSS employs full-time
statisticians who regularly research and evaluate new algorithms and statistical
techniques for inclusion in its software. SPSS also employs professionals
trained in the use of predictive analytics in its documentation, quality
assurance, software design and software engineering groups.

In the past, SPSS has experienced delays in the introduction and
enhancement of products and technologies primarily due to difficulties with
particular operating environments and problems with technology provided by third
parties. These delays have varied depending upon the size and scope of the
project and the nature of the problems encountered. From time to time, SPSS
discovers defects in its products, which are resolved through maintenance
releases or periodic updates, depending on the seriousness of the defect.

The SPSS research and development staff currently includes 278
professionals organized into groups for software design, algorithm development,
software engineering, documentation, quality assurance, and product
localization. SPSS also uses independent contractors in its research and
development efforts. On occasion, SPSS uses these contractors to obtain
technical knowledge and capability that it lacks internally. SPSS has also
outsourced maintenance, conversion, and new programming for some products to
enable its internal development staff to focus on products that are of greater
strategic significance. Expenditures by SPSS for research and development,
including capitalized software, were approximately $52.7 million in 2002, $53.8
million in 2003, and $57.0 million in 2004.

COMPETITION

In selling its predictive analytic tools or applications, SPSS competes
primarily on the basis of the usability, functionality, performance,
reliability, and connectivity of its software. The significance of each of these
factors varies depending upon the anticipated use of the software and the
analytical training and expertise of the customer. To a lesser extent, SPSS
competes on the basis of price and thus maintains pricing policies to meet
market demand. The Company also offers flexible licensing arrangements to
satisfy customer requirements.

Historically, the Company's success has been driven by highly usable
interfaces, comprehensive analytical capabilities, efficient performance
characteristics, local language versions, consistent quality, connectivity
capabilities, worldwide distribution, and widely recognized brand names. SPSS
considers its primary worldwide competitor in each of its targeted markets to be
the larger and better-financed SAS Institute, although SPSS believes that
approximately 75 percent of the revenue of SAS is derived from offerings in
areas other than predictive analytics.

In the market for statistical tools, the Company also competes with
StatSoft Inc., Minitab, Inc., Insightful and Stata, although their annual
revenues from statistical products are believed to be considerably less than the
revenues of SPSS. SPSS also faces competition from providers of software for
specific statistical applications.

In the market for data mining tools, the Company also competes with
offerings from Oracle, NCR, Fair Isaac, Angoss, and Quadstone.

In the market for predictive analytic applications, SPSS also faces
competition from well-financed companies such as Siebel Systems, PeopleSoft,
Fair Isaac, and E.piphany.

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With the exception of SAS, none of the Company's competitors are believed
to currently offer the range of predictive analytic capability provided by SPSS.

SPSS holds a strong position in the market for analytic applications to the
market research industry. SPSS believes no competitors in this market are larger
and better financed. The annual revenues of competitors such as Pulse Train
Technology, The Firm, Sawtooth Software, and Computers for Marketing Corporation
are thought to be considerably less than the market research revenues of SPSS.

In the future, SPSS may face competition from other new entrants into its
markets. SPSS could also experience competition from companies in other sectors
of the broader market for business intelligence software, such as providers of
OLAP and analytical application software, as well as from companies in other
sectors of the broader market for enterprise applications, which could add
enhanced analytical functionality to their existing products. Some of these
potential competitors have significant capital resources, marketing experience,
and research and development capabilities. New competitive offerings by these
companies or other companies could have a material adverse effect on SPSS.

INTELLECTUAL PROPERTY

SPSS attempts to protect its proprietary software with trade secret laws
and internal nondisclosure safeguards, as well as copyrights and contractual
restrictions on copying, disclosure and transferability that are incorporated
into its software license agreements. SPSS licenses its software only in the
form of executable code, with contractual restrictions on copying, disclosures
and transferability. Except for licenses of its products to users of large
system products and annual licenses of its desktop products, SPSS licenses its
products to end-users by use of a "shrink-wrap" license, as is customary in the
industry. It is uncertain whether these license agreements are legally
enforceable. The source code for all SPSS products is protected as a trade
secret. In addition, SPSS has common law copyright protection for its source
code and has filed for copyright protection under federal law with respect to
certain source code. SPSS has also entered into confidentiality and
nondisclosure agreements with its key employees. Despite these restrictions, the
possibility exists for competitors or users to copy aspects of SPSS products or
to obtain information which SPSS regards as a trade secret. Although SPSS holds
four patents and has one patent in registration, judicial enforcement of
copyright laws and trade secrets may be uncertain, particularly outside of North
America. Preventing unauthorized use of computer software is difficult, and
software piracy is expected to be a persistent problem for the packaged software
industry. These problems may be particularly acute in international markets.

SPSS uses a variety of trademarks with its products. Management believes
the following are material to its business:

- SPSS is a trademark used in connection with virtually all of the
technology, solutions, and products of the Company;

- Clementine is a registered trademark and is used in connection with the
product line that SPSS acquired from Integral Solutions Limited;

- PredictiveMarketing, PredictiveCallCenter, and PredictiveClaims are
trademarks, pending registration, used in connection with the SPSS
analytical applications for customer relationship management;

- NetGenesis is a registered trademark used in connection with the SPSS Web
analysis application;

- AnswerTree is a registered trademark and is an add-on product to the SPSS
product family;

- Dimensions is an unregistered trademark used in connection with the
Company's market research products on all platforms;

- Quantime is an unregistered trademark used in connection with the
Company's market research products on all platforms;

- LexiQuest is a trademark used in connection with the Company's text
mining tools; and,

9

- ShowCase is an unregistered trademark used with products licensed by SPSS
in its Business Intelligence family of products;

Some of these trademarks comprise portions of other SPSS trademarks. SPSS
has registered some of its trademarks in the United States and some of its
trademarks in a number of other countries, including the Benelux countries,
France, Germany, the United Kingdom, Japan, Singapore and Spain.

Due to the rapid pace of technological change in the software industry,
SPSS believes that patent, trade secret, and copyright protection are less
significant to its competitive position than factors such as the knowledge,
ability, and experience of the Company's personnel, new research and
development, frequent technology and product enhancements, name recognition and
ongoing reliable technology maintenance and support.

SPSS believes that its solutions, products, and trademarks and other
proprietary rights do not infringe the proprietary rights of third parties.
There can be no assurance, however, that third parties will not assert
infringement claims in the future or that the claim will not have a material
adverse affect on SPSS if it is decided adversely to SPSS.

RELIANCE ON THIRD PARTIES

SPSS licenses various software programs from third-party developers and
incorporates them into SPSS products. Many of these are exclusive worldwide
licenses that terminate on various dates. SPSS believes that it will be able to
renew non-perpetual licenses or obtain substitute products if needed.

DATA DIRECT

To provide data connectivity between SPSS products and various databases,
SPSS has an agreement expiring in May of 2006 with Data Direct. This agreement
enables SPSS to embed and distribute, as an integral part of its offerings, an
unlimited number of copies of the Data Direct products for a fixed annual
license and maintenance fee.

BANTA GLOBAL TURNKEY SOFTWARE DISTRIBUTION AGREEMENT

To assure speed and efficiency in the manufacturing, order fulfillment, and
delivery of its products, SPSS entered into an agreement with Banta Global
Turnkey in January 1997. Under this agreement, Banta performs all diskette and
CD-ROM duplication, documentation printing, packaging, warehousing, fulfillment,
and shipping of SPSS products worldwide. SPSS believes that, because of the
capacity of these third-party distribution centers and their around-the-clock
operation, SPSS can easily adapt to peak period demand, quickly manufacture new
products for distribution, and effectively respond to anticipated sales volumes.
The Banta agreement automatically renews thereafter on an annual basis unless
either party terminates the agreement with 180 days written notice. If Banta
terminates the agreement for convenience or for any reason other than for cause,
then during the 180-day notice period Banta will assist SPSS in finding a new
vendor. If either party materially breaches its obligations, the other party may
terminate the Banta agreement for cause by written notice. This termination
notice for cause must specifically identify the breach or breaches, upon which
the termination is based and will be effective 180 days after the notice is
received by the other party, unless the breach(es) is (are) corrected during the
180-day period.

PRENTICE HALL AGREEMENT

SPSS authors and regularly updates a number of publications that include
user manuals and instructional texts. SPSS also develops student versions of its
SPSS Base product, which is designed for classroom use with SPSS textbooks or
other instructional materials. To facilitate more efficient printing and
distribution of these publications, SPSS entered into a five-year agreement with
Prentice Hall in February 1993. SPSS then entered into a new five-year contract
with Prentice Hall in April 1998. The 1998 contract limits Prentice Hall to
publishing and distributing SPSS publications to specific geographic territories
and enables SPSS to, within specified guidelines, license other publishers to
bundle versions of the SPSS Student Version with their

10

textbooks. In April 2003, SPSS and Prentice Hall entered into an amendment to
extend the April 1998 contract through 2007.

IBM

Prior to its merger with SPSS in February 2001, ShowCase had a strategic
relationship with IBM that enabled ShowCase customers to quickly leverage new
capabilities developed for the IBM iSeries (AS/400) computer system. This
relationship helped to make ShowCase products a standard business intelligence
technology on iSeries systems. ShowCase entered into an expanded agreement with
IBM in December 1998, which was amended in February 2000, under which certain
products are marketed and sold as OEM products by IBM. ShowCase agreed to
produce certain enhancements to the Essbase/400 software, and SPSS delivered
several versions of these enhancements and continues to provide updates on an
ongoing basis.

HYPERION SOLUTIONS

In 2004, SPSS renewed its strategic relationship with Hyperion Solutions.
Under the terms of this new agreement, SPSS is granted the non-exclusive right
to convert, maintain, support, and distribute the Essbase/400 software from
Hyperion Solutions. Essbase/400 enables SPSS to reach a broader customer base,
including users of multi-dimensional analyses, and offers the Company new
partnering opportunities.

SEASONALITY

SPSS quarterly operating results fluctuate due to several factors,
including:

- The seasonal nature of the core business, where the first quarter of the
year tends to have the lowest revenue with a gradual increase through the
year to the fourth quarter, which tends to have the largest revenue;

- The number and timing of product updates and new product introductions;

- Delays in product development and introduction of new technologies;

- Purchasing schedules of its customers;

- Changes in foreign currency exchange rates;

- Research and development as well as market development expenditures;

- The timing of product shipments and solution implementations;

- Changes in mix of product and solutions revenues; and

- Timing and cost of acquisitions and general economic conditions.

If forecasts of future revenues fall below expectations, operating results
may be adversely affected because the Company's expense levels are to a large
extent based on these forecasts. Accordingly, SPSS believes that
quarter-to-quarter comparisons of its results of operations may not be
meaningful and should not be relied upon as an indication of future performance.
SPSS has historically operated with very little backlog because its products are
generally shipped as orders are received. As a result, revenues in any quarter
are dependent on orders received and licenses renewed in that quarter. In
addition, the timing and amount of the Company's revenues are affected by a
number of factors that make estimation of operating results before the end of a
quarter uncertain. A significant portion of the Company's operating expenses is
relatively fixed, and planned expenditures are based primarily on revenue
forecasts. If SPSS fails to achieve these revenue forecasts, then a material
reduction in net income for the given quarter and fiscal year could result. SPSS
cannot provide assurance that profitability will be achieved on a quarterly or
annual basis in the future.

EMPLOYEES

As of March 1, 2005, SPSS had 1,165 full-time employees, 646 domestically
and 519 internationally. Of the 1,165 employees, there were 677 in sales,
marketing and professional services, 278 in research and

11

development, and 210 in general and administrative. SPSS believes it has
generally good relationships with its employees. None of the Company's employees
are members of labor unions. The Company also had 84 part-time employees as of
March 1, 2005.

FINANCIAL INFORMATION ABOUT THE COMPANY'S FOREIGN AND DOMESTIC OPERATIONS AND
EXPORT SALES

The following table sets forth financial information about foreign and
domestic operations. This information may not necessarily be indicative of
trends for future periods.

SPSS revenues from operations outside of United States accounted for
approximately 49% in 2002, 51% in 2003 and 55% in 2004. Net revenues per
geographic region are attributed to countries based upon point of sale. SPSS
expects that revenues from international operations will continue to represent a
large percentage of its net revenues and that this percentage may increase,
particularly as the Company further localizes its offerings by translating them
into additional languages. Various risks impact international operations. Those
risks include greater difficulties in accounts receivable collection, longer
payment cycles, exposure to currency fluctuations, political and economic
instability and the burdens of complying with a wide variety of foreign laws and
regulatory requirements. SPSS also believes that it is exposed to greater levels
of software piracy in international markets because of the weaker protection
afforded intellectual property in some foreign jurisdictions. As SPSS expands
its international operations, the risks described above could increase and could
have a material adverse effect on SPSS. See Item 1 "Business -- Sales and
Marketing," Item 7 "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and Note 2, "Domestic and Foreign Operations," of
the Notes to Consolidated Financial Statements.

12

RECENT DEVELOPMENTS AND BUSINESS COMBINATIONS

On September 28, 2001, Siebel Systems, Inc. made a $5.0 million equity
investment in SPSS under the terms of a Stock Purchase Agreement, dated as of
September 28, 2001, by and between the parties. Before Siebel's investment in
SPSS, SPSS joined the Siebel Alliance Program as a Strategic Software Partner in
July 2001. SPSS ended its participation in this partnership program in October
2003.

On October 22, 2001, SPSS entered into a strategic alliance with America
Online, Inc. (AOL) through its Digital Marketing Services (DMS) subsidiary. In
connection with this strategic alliance, SPSS and AOL entered into a stock
purchase agreement and a strategic online research services agreement. Pursuant
to these agreements, SPSS acquired certain operating assets and exclusive rights
to distribute survey sample data drawn from AOL members and users of AOL's other
interactive properties. The terms of the agreements between SPSS and AOL called
for SPSS to pay AOL up to $42.0 million in consideration over four years and to
assume primary responsibility for servicing the former group of AOL market
research partners. The consideration was comprised of cash in the amount of
$30.0 million and SPSS common stock with a fair market value of $12.0 million.
Through DMS, AOL provides SPSS with on-line survey respondents who have been
provided incentives to participate in on-line studies. In addition, SPSS
received software and other assets essential to operating the business.

Effective October 1, 2003, SPSS entered into an amended and restated stock
purchase agreement and an amended and restated strategic online research
services agreement with AOL. Under the amended research services agreement, SPSS
retained the exclusive right to provide researchers with survey respondents
drawn from Opinionplace.com visitors throughout AOL's interactive properties.
The primary amendments reduced the remaining term of the original agreements
from two years to one year and made the following adjustments to the
consideration to be paid to AOL:

Other provisions specify conditions for subsequent extensions of the
research services agreement, enable stronger joint management oversight,
strengthen SPSS marketing efforts, and improve the experience of survey
participants. For information on the Company's accounting treatment for the
original and amended AOL transactions, see "Restatement of Financial Statements"
below and Note 7 and Note 21 of the Notes to Consolidated Financial Statements.

On October 26, 2001, SPSS and Red Sox Acquisition Corp., each Delaware
corporations, and NetGenesis Corp., a Delaware corporation, entered into an
Agreement and Plan of Merger under which NetGenesis shareholders would receive
0.097 shares of SPSS common stock for each share of NetGenesis common stock upon
the closing of the merger. This share exchange ratio for the merger was
established through negotiations between SPSS and NetGenesis. The closing of the
merger occurred on December 21, 2001 with SPSS issuing approximately 2,294,065
shares of common stock for substantially all the outstanding shares of
NetGenesis. The merger was accounted for as a purchase. Prior to the merger with
SPSS, NetGenesis was the leading provider of E-Metrics solutions for Global 2000
companies. SPSS and NetGenesis technologies and expertise combine on-line and
off-line data analysis capabilities in one comprehensive offering from one
organization. SPSS is furthering developing this technology as part of a
platform for predictive analytic applications.

On January 31, 2002, SPSS acquired all of the outstanding shares of
LexiQuest, S.A., a corporation organized under the laws of France, for a
guaranteed purchase price of $2.5 million under the terms of a Stock Purchase
Agreement between SPSS, LexiQuest and the shareholders of LexiQuest. Although
the Stock Purchase Agreement provided for potential contingent payments, SPSS
was not required to make any contingent payments to the former owners of
LexiQuest because the contribution generated by the LexiQuest

13

assets did not meet the targeted levels during 2002 or 2003. LexiQuest was a
developer of technology for the categorization and mining of unstructured text
data. SPSS is further developing the LexiQuest technology, integrating it into
the Company's Clementine data mining workbench, and incorporating the technology
into certain analytical applications.

On June 20, 2002, SPSS acquired all of the assets of netExs, LLC, a
Wisconsin limited liability company, for a guaranteed purchase price of $1.0
million under the terms of an Asset Purchase Agreement between SPSS, netExs and
the members of netExs. Under the terms of the Asset Purchase Agreement,
contingent payments, if any, were capped at a total of $1.45 million if fully
earned during fiscal years 2003, 2004 and 2005. In June 2004, SPSS and netExs
agreed that SPSS would pay to netExs the sum of $400,000 in full satisfaction of
all obligations under the Asset Purchase Agreement, including without
limitations, the contingent payment, and in full settlement of certain claims
asserted by netExs. netExs was a developer of technology for viewing data stored
in the Microsoft Analysis Services within its SQL Server database. SPSS is
further developing the netExs technology for continued distribution under the
name SPSS OLAP Hub, integrating it into the Company's analytical applications
and solutions, and using the technology internally for budgeting and management
reporting.

Beginning in August 2002, the Company reorganized its field operations to
achieve greater productivity and cost effectiveness. Three corporate divisions
were merged and realigned into a telesales force focused on selling lower-priced
software tools and field sales organizations selling higher-priced tools,
applications, and components. In addition, the Company closed its offices in
Miami, Florida, reduced its facilities in Chicago; London; Cambridge;
Massachusetts; and Point Richmond, California, and terminated its investment in
Illumitek Corporation. The Company recorded a restructuring charge of $4.7
million in the third quarter of 2002 and $1.18 million in the fourth quarter of
2002 for expenses related to this reorganization.

On October 14, 2003, the Company entered into an Amended and Restated Stock
Purchase Agreement and an Amended and Restated Strategic Online Research
Services Agreement with AOL as described above.

On November 4, 2003, SPSS, through SPSS International B.V., its wholly
owned subsidiary, acquired Data Distilleries B.V., a Netherlands-based developer
of analytic applications. The terms and conditions of the acquisition are
specified in a Stock Purchase Agreement, dated as of November 4, 2003, by and
among SPSS, SPSS International B.V. and the owners of all of the issued and
outstanding shares of the capital stock of Data Distilleries. The aggregate
purchase price for all of the issued and outstanding capital stock of Data
Distilleries consisted of guaranteed and contingent payments. The guaranteed
portion of the purchase price was paid at closing and consisted of $1.0 million
in cash and 281,830 shares of SPSS common stock valued at $5.31 million. The
contingent portion of the purchase price is required to be paid, if at all, at
the end of the first and second years following the closing. The Company's
obligation to make the contingent payments depends on the achievement of certain
growth targets for license and maintenance revenues from the Data Distilleries
applications. SPSS was not required to make any contingent payments to the
former owners of Data Distilleries during 2004 because these growth targets were
not met in 2004. If these growth targets are met at the end of the second year
following the closing, SPSS may be obligated to make a contingent payment in the
amount of up to $1.99 million at current estimated exchange rates. Under the
terms of the Stock Purchase Agreement, SPSS was obligated to file a Registration
Statement on Form S-3 to register the potential resale of the 281,830 shares
issued in this transaction. Because SPSS did not file its Annual Report on Form
10-K for fiscal year 2003 in a timely manner and therefore, SPSS was not
eligible to use Form S-3, SPSS fulfilled its obligations under the Stock
Purchase Agreement by repurchasing from each former Data Distilleries
shareholder that number of shares of SPSS common stock received by such
shareholder in connection with this transaction. During April 2004, SPSS
notified the former shareholders of its inability to properly register these
shares and through June 30, 2004 has repurchased all 281,830 shares at a cost of
$5.4 million. During the second quarter of 2004, the Company recorded the $5.4
million cash payout of these shares as a reduction of common stock subject to
repurchase, which was recorded as temporary shareholders' equity in the
Company's consolidated balance sheet at December 31, 2003. SPSS subsequently
withdrew the registration statement on Form S-3.

14

On December 29, 2003, the Company received its first payment in a
transaction with Systat Software, Inc., a subsidiary of Cranes Software
International Ltd. ("Systat"), pursuant to which Systat acquired from SPSS an
exclusive worldwide license to distribute the Sigma-series line of products for
a three-year period and purchased certain related assets. Pursuant to the
agreement, Systat assumed all responsibilities for the marketing and sales of
the products as well as their ongoing development and technical support. SPSS
also transferred to Systat all rights and obligations with respect to customers
and personnel and all fixed assets related to the Sigma-series products (the
"Related Assets"). In exchange for the exclusive worldwide license and Related
Assets, Systat was obligated to make cash payments to SPSS in the aggregate
amount of $13.0 million. During 2004, SPSS received payments totaling $3.0
million in connection with this transaction. The agreement between SPSS and
Systat also grants to Systat an option to purchase the licensed property. Systat
may exercise this purchase option for $1.0 million within 180 days prior to the
end of the three-year license period.

Restatement of Financial Statements. On March 15, 2004, SPSS announced
that in connection with its October 2003 amended agreement with America Online,
Inc. (AOL), the Company changed the accounting for its original October 2001
transaction with AOL by expensing substantially all AOL payments as incurred.
The original transaction considered substantially all AOL payments to be
consideration in a purchase business combination. As a result, the Company
restated its financial results for fiscal years 2001, 2002 and the first three
quarters of 2003.

On March 30, 2004, SPSS announced that while completing the AOL restatement
it discovered errors in its deferred revenue accounts in the 2001 and 2002
fiscal years. The Company subsequently identified other errors in its deferred
revenue accounts in the fourth quarter of 2000 and the first three quarters of
2003. In addition, SPSS announced that it would record income tax expense
associated with deemed dividend income relating to certain cash transfers from
its international subsidiaries during the fourth quarter of 2002.

SPSS went on to conduct additional examinations that resulted in various
adjustments between 1999 and 2003 including, among other items, adjustments to
the Company's income tax provisions and a change in the recognition of license
fee revenues from transactions completed by the Company's distribution partners
to account for its implied post contract support (PCS) obligations in such
transactions.

In accordance with its management oversight functions, the Audit Committee
of the SPSS Board of Directors assumed a supervisory role with respect to the
Company's review of its deferred revenue accounts. The Audit Committee also
conducted an independent review of the Company's deferred revenue accounts as
well as certain internal controls and related matters. The Audit Committee
retained independent counsel for this review, and the independent counsel
retained a forensic accounting firm to assist in the effort. The independent
review included the performance of a number of forensic accounting procedures, a
review of internal documents and communications, as well as interviews with both
current and former employees and consultants.

The Audit Committee, with the assistance of its counsel and forensic
accounting firm, completed its independent review of the Company's deferred
revenue accounts, internal controls and related matters on or about June 1,
2004. On June 15, 2004, the Audit Committee received a report from its counsel
and forensic accounting firm that they did not find any evidence of intentional
misconduct, concealment or fraud relating to the errors made in the calculation
of the deferred revenue accounts. Following the completion of the Audit
Committee's investigation and report, KPMG requested that additional search
terms be used to review the Company's email correspondence. Following KPMG's
request, the Audit Committee directed its investigation team to conduct the
additional email review. Following the Audit Committee's investigation team's
completion of its review, the investigation team found (i) no reason to change
its original conclusion that its investigation did not reveal any evidence of
fraud, intentional misconduct or concealment in connection with the errors
involving deferred revenue accounts and (ii) no evidence that SPSS intentionally
withheld information from KPMG during the audit process.

On July 29, 2004, SPSS filed its Annual Report on Form 10-K for fiscal year
2003, which included its restated audited financial statements for fiscal years
2001 and 2002, its restated unaudited interim financial statements for each of
the quarterly periods in fiscal years 2001 and 2002, its restated unaudited
interim
15

financial statements for the quarters ended March 31, 2003, June 30, 2003 and
September 30, 2003, and its audited financial results for fiscal year 2003. The
filing also included revised financial data for fiscal years 1999 and 2000 on an
unaudited basis.

On April 1, 2004, SPSS received a Nasdaq Staff Determination relating to
the Company's failure to file its Annual Report on Form 10-K for fiscal year
2003 with the SEC on or before the March 30, 2004 filing deadline. On June 7,
2004, SPSS received an additional notice from the Nasdaq indicating its failure
to file its Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
2004 with the SEC on or before the May 10, 2004 filing deadline. These notices
informed the Company that it had failed to comply with the filing requirements
for continued listing set forth in Marketplace Rule 4310(c)(14), and that its
common stock was, therefore, subject to delisting from the Nasdaq National
Market. SPSS received a series of extensions of time to file its periodic
reports. On July 29, 2004, SPSS filed its Annual Report on Form 10-K for fiscal
year 2003 and its Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2004. Following the filing of these periodic reports, the Nasdaq
notified SPSS that its stock would continue to be listed on the Nasdaq National
Market.

ITEM 2. PROPERTIES

The Company's principal administrative, marketing, training and product
development and support facilities are located at 233 South Wacker Drive, the
Sears Tower, Chicago, Illinois. In April 1997, SPSS entered into a 15-year
sublease agreement to sublease approximately 100,000 square feet of office space
in the Sears Tower in Chicago, Illinois. This space became the principal Chicago
offices of SPSS in 1998. In April 2000, SPSS entered into a 6-year sublease for
an additional 41,577 square feet of office space in the Sears Tower in Chicago,
Illinois. The aggregate annual gross rental payments on these leases were
approximately $3.3 million for the year 2004. SPSS believes that these office
spaces are adequate to fulfill the Company's needs for the foreseeable future.

In addition, SPSS leases office space in California, Virginia, New York,
Ohio, Massachusetts, Florida, Texas, Wisconsin, and Minnesota in the United
States, and internationally in Holland, the United Kingdom, Germany, Sweden,
France, Singapore, Australia, Japan, Malaysia, Denmark, China, Belgium and
Spain. The aggregate annual gross rental payments on these leases were
approximately $11.1 million for the year 2004.

SPSS plans to expand its facilities on an as-needed basis. The Company does
not expect this expansion to materially affect its real estate holdings. Other
than this expansion, SPSS believes its facilities are suitable and adequate for
its present needs.

ITEM 3. LEGAL PROCEEDINGS

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

SPSS has been named as a defendant in a lawsuit filed on or about May 14,
2004, and amended on September 30, 2004, in the United States District Court for
the Northern District of Illinois, under the caption
16

Fred Davis, Individually and On Behalf of All Others Similarly Situated v. SPSS
Inc., Jack Noonan, Edward Hamburg and KPMG LLP, Case No. 04C3427. The complaint
alleges that the defendants violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The complaint
alleges that the defendants failed to disclose and misrepresented a series of
material adverse facts regarding the Company's revenues. The complaint seeks to
recover unspecified compensatory damages, reasonable attorney fees, experts'
witness fees and other costs and any other relief deemed proper by the court on
behalf of all purchasers of the Company's securities between May 2, 2001 and
March 30, 2004, although no court has determined that such persons constitute a
proper class. On December 15, 2004, SPSS, Mr. Noonan and Dr. Hamburg filed a
motion to dismiss the amended complaint. On January 28, 2005, the Lead Plaintiff
filed a memorandum in opposition to the motion to dismiss the amended complaint
filed by SPSS, Mr. Noonan and Dr. Hamburg. On February 18, 2005, SPSS, Mr.
Noonan and Dr. Hamburg filed a reply memorandum in support of their motion to
dismiss. SPSS, Mr. Noonan and Dr. Hamburg believe that the suit is without merit
and intend to defend vigorously against the allegations contained in the
complaint.

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

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's 2004 Annual Meeting of Stockholders was held on October 28,
2004. 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:

In addition, Norman Nie, Jack Noonan, Michael Blair, Promod Haque, Charles
R. Whitchurch and William Binch remained as directors of SPSS after the meeting.

The Company's stockholders also approved the amendment and restatement of
the Company's 2002 Equity Incentive Plan (the "Plan"). This amendment and
restatement modified the Plan to: (i) revise certain definitions to ensure that
they are in compliance with the amended listing standards of the Nasdaq National
Market; (ii) clarify the fact that the SPSS Board of Directors is not authorized
to reprice any rights issued under the amended and restated Plan without the
approval of a majority of the SPSS stockholders; (iii) authorize a total of
500,000 additional shares of common stock to be issued or transferred either
upon the exercise of rights that qualify as nonqualified stock options or
appreciation rights, or as restricted shares and released from substantial risks
of forfeiture thereof; (iv) amend the terms pursuant to which appreciation
rights may be granted; and (v) modify the manner in which the amended and
restated Plan may be amended, to preclude the Board of Directors from making any
material amendments to the amended and restated Plan without first obtaining
approval of such material amendment from a majority of SPSS stockholders. This
proposal received the following votes:

Finally, the SPSS stockholders ratified the selection of KPMG LLP to serve
as the Company's independent auditor for fiscal year 2004 by the following
votes:

17

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the over-the-counter market on the
Nasdaq National Market under the symbol "SPSS."

The following table shows, for the periods indicated, the high and low
closing sale price of the Company's common stock:

As of March 1, 2005, there were 688 holders of record of the Company's
common stock. This number includes all holders of record by the SPSS transfer
agent, Computershare Investor Services, LLP, and does not include an estimate of
the number of stockholders whose shares are held in the name of brokerage firms
or other financial institutions.

SPSS has never declared a cash dividend or paid any cash dividends on its
capital stock. SPSS does not anticipate paying any cash dividends on SPSS common
stock in the foreseeable future because SPSS expects to retain future earnings
for use in the operation and expansion of its business. See Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

18

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

SPSS has one equity based compensation plan, the SPSS Inc. Amended and
Restated 2002 Equity Incentive Plan (the "Amended and Restated Plan"). The
following table sets forth information as of December 31, 2004 concerning the
Amended and Restated Plan, which initially was approved at the 2002 Annual
Meeting of Stockholders, was subsequently amended at the 2003 Annual Meeting of
Stockholders and was amended and restated at the 2004 Annual Meeting of
Stockholders. SPSS does not have any equity compensation plans under which
shares of its common stock are authorized for issuance that were not approved by
stockholders.

- ---------------

(1) As of December 31, 2004, all of the outstanding awards were stock options.

RECENT SALES OF UNREGISTERED SECURITIES

On October 22, 2001, SPSS entered into a Strategic Online Research Services
Agreement with AOL (see Item 1, "Business -- Recent Developments and Business
Combinations"). As part of the consideration to be paid by SPSS to AOL in
exchange for the Company's acquisition of certain operating assets and exclusive
rights to distribute survey sample data drawn from AOL members under the
research services agreement, SPSS issued to AOL 173,724 shares of SPSS common
stock in October 2001 (the "First Issuance") and 291,828 shares of SPSS common
stock in October 2002 (the "Second Issuance"). Both the First Issuance and the
Second Issuance were made pursuant to a Stock Purchase Agreement between SPSS
and AOL, dated October 22, 2001. Both purchases and sales of shares of SPSS
common stock were exempt from securities registration under Rule 506 of
Regulation D as promulgated by the SEC under the Securities Act of 1933. As
required by the original Stock Purchase Agreement, SPSS filed a registration
statement on Form S-3 to register AOL's potential resale of 158,228 shares
issued pursuant to the First Issuance (the "Registration Statement"). Under the
terms of the original Stock Purchase Agreement, the number of shares of SPSS
common stock included in the First Issuance was reduced from 173,724 to 158,228
to account for the then current market price of SPSS common stock at the time of
the effectiveness of the Registration Statement. Following the amendments made
to the strategic alliance between SPSS and AOL in October 2003, SPSS was no
longer required to register AOL's resale of the SPSS common stock included in
the Second Issuance, SPSS and AOL agreed that SPSS should withdraw the
Registration Statement for the First Issuance, and SPSS was no longer obligated
to make future payments to AOL in the form of SPSS common stock. SPSS remains
obligated to assist AOL in selling the SPSS common stock pursuant to Rule 144.

On November 4, 2003, SPSS, through SPSS International B.V., its
wholly-owned subsidiary, issued 281,830 shares of SPSS common stock to the
former shareholders of Data Distilleries B.V., a company organized under the
laws of the Netherlands, pursuant to a Stock Purchase Agreement, dated as of
November 4, 2003, by and among SPSS, SPSS International B.V. and the owners of
all of the issued and outstanding shares of Data Distilleries capital stock. In
consideration of the 281,830 shares of its common stock, plus $1.0 million in
cash, SPSS acquired all of the issued and outstanding shares of Data
Distilleries capital stock. The purchase and sale of shares of SPSS common stock
was exempt from securities registration

19

under Section 4(2) of the Securities Act of 1933. Under the terms of the Stock
Purchase Agreement, SPSS had an obligation to register the former Data
Distilleries shareholders' potential resale of the shares of SPSS common stock
issued to them in a Registration Statement on Form S-3. Because the SPSS Annual
Report on Form 10-K for fiscal year 2003 was not timely filed and, therefore,
SPSS was not eligible to use Form S-3, SPSS fulfilled its obligations under the
Stock Purchase Agreement by repurchasing from each former Data Distilleries
shareholder that number of shares of SPSS common stock received in connection
with this transaction. During the second fiscal quarter of 2004, SPSS
repurchased all of the shares previously issued in this transaction at a total
cost of approximately $5.4 million. SPSS subsequently withdrew the registration
statement on Form S-3.

10B5-1 STOCK TRADING PLANS

As of December 31, 2004, Kenneth Holec, a member of the SPSS Board of
Directors, maintained a 10b5-1 Stock Trading Plan that he entered into in
September 2004. This trading plan was adopted pursuant to Rule 10b5-1
promulgated under the Securities Exchange Act of 1934. In accordance with Rule
10b5-1, Mr. Holec entered into this plan prior to becoming aware of any material
nonpublic information about SPSS. An authorized independent broker will execute
periodic sales of a pre-determined number of shares of SPSS common stock on
behalf of Mr. Holec solely in accordance with the terms of his trading plan.

20

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for each of the
years in the five-year period ended December 31, 2004 are derived from and
should be read in conjunction with the Consolidated Financial Statements of SPSS
and the footnotes thereto which have been audited. The Consolidated Financial
Statements as of December 31, 2003 and 2004, and for each of the years in the
three-year period ended December 31, 2004, are included elsewhere in this Form
10-K. All data has been restated to include the financial position and results
of operations of ShowCase as a result of the consummation of the pooling-of-
interest business combination with SPSS in 2001.

- ---------------

(1) License revenues include sales of the Company's tools, applications, and
components on a perpetual, annual, or ASP (applications service provider)
basis.

21

(2) Maintenance revenues include recurring revenues recognized by the Company
from renewals of maintenance agreements associated with perpetual licenses
or renewals of annual licenses.

(3) Services include revenues recognized from professional services engagements,
training and other activities such as publication sales and providing
respondents to online surveys.

(4) Beginning in the quarter ended December 31, 2000, results reflect the
effects of deferring revenues in accordance with the American Institute of
Certified Public Accountants ("AICPA") Technical Practice Aids regarding
software revenue recognition. This application resulted in adjustment in
certain revenue categories, and a corresponding adjustment in deferred
revenues.

(5) Includes provision for doubtful accounts.

(6) Includes costs associated with acquisitions, as well as costs associated
with severance and the write-down of obsolete internal use software.

(7) Includes costs directly related to acquisitions, such as investment banking
and other professional fees, employee severance, merger-related bonuses, and
costs associated with closing excess office space and write-off of redundant
assets.

(8) Includes costs related to acquired in-process technology in conjunction with
business combinations accounted for as purchases.

(9) During 2003, the Company entered into an agreement to license the
distribution of its Sigma-series line of products and sell certain related
assets. During 2004, SPSS recorded a favorable adjustment to reduce certain
professional fee accruals associated with this transaction. This transaction
was accounted for as a divestiture of a business.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

REFERENCES TO "NOTES" WITHIN THIS ITEM 7 REFER TO THE FOOTNOTES TO THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS IN ITEM 8.

RESTATEMENT OF FINANCIAL STATEMENTS

During 2004, SPSS restated its audited financial statements for fiscal
years 2001 and 2002, its unaudited interim financial statements for each of the
quarterly periods in fiscal years 2001 and 2002 and its unaudited interim
financial statements for the quarters ended March 31, 2003, June 30, 2003 and
September 30, 2003. SPSS also revised financial data for fiscal years 1999 and
2000 on an unaudited basis. These restated results, as well as the Company's
audited financial results for fiscal year 2003, appear in the Company's Annual
Report on Form 10-K for fiscal year 2003, filed with the SEC on July 29, 2004.
For further information regarding this restatement, see Item 1,
"Business -- Recent Developments and Business Combinations." This Management's
Discussion and Analysis of Financial Condition and Results of Operations
reflects these restated numbers.

OVERVIEW

SPSS is a global provider of predictive analytics technology and services.
The Company's offerings use predictive analytics to connect data to effective
action by drawing reliable conclusions about current conditions and future
events. Predictive analytics leverages an organization's business knowledge by
applying sophisticated analytic techniques to enterprise data. The insights
gained through the use of these techniques can lead to improved business
processes that increase revenues, reduce costs, and prevent fraudulent
activities.

SPSS has evolved through a combination of internal reorganization and
acquisitions (see Item 1 "Business -- Recent Developments and Business
Combinations" for a description of each of the Company's recent acquisitions).
Approximately 65% of 2004 revenues came from sales to customers in corporate
settings, with another 17% in academic institutions, 12% in government agencies
and 6% from nonprofit and healthcare organizations.

22

Beginning in the quarter ended December 31, 2000, results reflect the
effects of deferring revenues in accordance with the American Institute of
Certified Public Accountants ("AICPA") Technical Practice Aids regarding
software revenue recognition. This application resulted in adjustments to
certain revenue categories and a corresponding adjustment in deferred revenues.
Also as a result of this application, SPSS reported a significant shift in the
sources of its revenues as more license revenue was required to be deferred.
Between 2000 and 2004, revenues from its license revenue decreased from 53% to
43% of total net revenues, maintenance revenues increased from 32% to 44% of
total net revenues, and service revenue decreased from 15% to 13% of net
revenues.

The following information should be read in conjunction with the
consolidated historical financial information and the notes thereto included
elsewhere in this document.

2004 FINANCIAL HIGHLIGHTS

Some of our key 2004 financial highlights were as follows:

- Revenues were the highest in the Company's history, totaling $224.1
million and were 8% higher than 2003.

- License revenues were $95.8 million, 5% higher than 2003.

- Operating income was $6.6 million and operating margins improved 300
basis points from 2003.

- Net income of $5.5 million declined $3.8 million from 2003. 2003 results
included an after tax gain of $5.2 million on divestiture of the
Sigma-series product line (30 cents per share).

- Diluted EPS was $0.31, or 22 cents below 2003.

- Cash was $37.1 million at December 31, 2004, up $1.0 million from
December 31, 2003.

- Operating cash flow was $12.3 million in 2004.

23

RESULTS OF OPERATIONS

The following table shows select statements of operations data as a
percentage of net revenues for the years indicated.

COMPARISON OF THE YEARS ENDED DECEMBER 31, 2002, 2003, AND 2004

NET REVENUES.

The increase in net revenues from 2003 to 2004 was primarily due to
increases in new sales of SPSS data mining and statistical tools, increases in
maintenance revenues of $14.2 million, and $9.6 million due to

24

changes in currency rates. These increases were partially offset by the
divestiture of the Company's Sigma-series products in December 2003 and a $2.8
million decrease in revenues from consulting services from 2003 to 2004.

The increase in license fees from 2003 to 2004 was primarily driven by
higher sales of SPSS data mining and desktop statistical analysis tools, sales
of predictive analytic applications from the Company's Data Distilleries
acquisition and $4.1 million due to changes in currency rates. These increases
were offset by the effects of the divestiture of the Company's Sigma-series
products in December 2003 which represented $4.6 million of license revenue for
2003.

Maintenance revenues increased $14.2 million in 2004 primarily due to
higher renewal rates for the Company's major offerings and $4.0 million due to
changes in currency exchange rates. Additionally, maintenance revenues from Data
Distilleries applications were $1.8 million in 2004.

Service revenues decreased $2.8 million from 2003 to 2004 primarily due to
fewer ShowCase-related consulting projects. This decrease was partially offset
by consulting revenues related to implementations of Data Distilleries
applications and $1.5 million due to changes in currency exchange rates. For the
2004 fiscal year, service revenues decreased by 8% from 2003 and decreased to
13% of net revenues.

The decrease in revenues from 2002 to 2003 was primarily due to lower
revenues from new licenses for SPSS market research applications and ShowCase
business intelligence tools, primarily due to a decrease in seven-figure
transactions compared to 2002. These decreases were partially offset by growth
in maintenance revenue of 3%, reflecting steady renewal rates for the Company's
major offerings, and changes in currency exchange rates. Also contributing were
higher new sales of SPSS data mining and desktop statistical analysis tools as
well as new sales of predictive analytic applications from the Data Distilleries
acquisition. For the 2003 fiscal year, service revenues decreased by 2% from
2002 and were constant at 16% of net revenues.

COST OF LICENSE AND MAINTENANCE REVENUES.

Cost of license and maintenance revenues consists of costs of goods sold,
amortization of capitalized software development costs, and license fees paid to
third parties. The increase from 2003 to 2004 was primarily due to higher costs
associated with the increase in license revenues and higher amortization of
capitalized acquired technology assets in connection with the release of new
products and the acquisition of Data Distilleries. The decrease from 2002 to
2003 was primarily due to lower Hyperion Solutions license fees and amortization
of acquired technology assets. As a percentage of net revenues, cost of license
and maintenance revenues were 9% in 2002, 7% in 2003, and 7% in 2004.

COST OF LICENSE AND MAINTENANCE REVENUES -- SOFTWARE WRITE-OFFS.

In 2004, the Company did not incur any write-offs of capitalized software.
In 2003, these write-offs included $1,961,000 for obsolete and redundant
technology resulting from the Data Distilleries acquisition. In 2002, these
write-offs included $4,328,000 for the write-down of the Illumitek technology as
part of the related shutdown of the entity (see Note 8) and a $1,600,000
write-off of technology acquired in the AOL transaction due to its replacement
with SPSS technology. As a percentage of net revenues, cost of license and
maintenance revenues -- software write-offs was 3% in 2002, 1% in 2003 and 0% in
2004.

25

SALES, MARKETING AND SERVICES.

The increase from 2003 to 2004 was primarily due compensation increases,
severance costs of $1.3 million associated with personnel changes in the
Company's sales and professional services organization, staff additions and
changes, the addition of employees from the Data Distilleries acquisition, and
changes in currency rates. Such increases were partially offset by lower AOL
service costs which were $4.7 million lower in 2004 compared with 2003. The
decrease from 2002 to 2003 was primarily due to the reduction in the number of
sales and professional services personnel as a result of the field
reorganization implemented in August 2002 and lower AOL service costs as a
result of the amended agreement with AOL effective October 2003. These decreases
were partially offset by increases from changes in currency exchange rates and
staff additions related to the Data Distilleries acquisition. As a percentage of
net revenues, sales, marketing and services expenses were 63% in 2002, 59% in
2003, and 58% in 2004.

RESEARCH AND DEVELOPMENT.

The increase from 2003 to 2004 was primarily due annual compensation
increases, addition of employees with the Data Distilleries acquisition and $0.6
million from the effects of fluctuations in currency exchange rates. The
increase from 2002 to 2003 was primarily due to annual compensation increases,
the addition of employees with the Data Distilleries acquisition and the effects
of currency exchange rates. As a percentage of net revenues, research and
development expenses were 20% in 2002, 21% in 2003 and 21% in 2004.

GENERAL AND ADMINISTRATIVE.

The increase from 2003 to 2004 was primarily due to the addition of
accounting professionals, costs associated with complying with the
Sarbanes-Oxley Act of 2002, $2.7 million in accounting and legal costs due to
the restatement, higher insurance, and $0.4 million from the effects of
fluctuations in currency exchange rates. The increase from 2002 to 2003 was
primarily due to the addition of accounting professionals, additional costs as a
result of the Data Distilleries acquisition, higher insurance and payroll
related expenses, and the effects of currency exchange rates. Expenses in this
category as a percentage of net revenues increased from 8% in 2002 to 9% in 2003
and 11% in 2004.

PROVISION FOR DOUBTFUL ACCOUNTS.

The decreases in 2003 and 2004 from the previous years represent the
improvements in receivable collection due to increased customer follow up.

26

SPECIAL GENERAL AND ADMINISTRATIVE CHARGES.

During 2002 and 2003, SPSS incurred certain unusual expenses including
asset write-offs, restructuring charges, and costs that did not meet the
Company's definition of "merger-related" expenses as described below. Such costs
have been separately reported as "Special general and administrative charges."
Special general and administrative charges were $9,037,000 in 2002 and
$6,104,000 in 2003, or 4% and 3% of net revenues in 2002 and 2003, respectively.
Special general and administrative charges in 2003 included a write-off of
$4,447,000 due to the termination of the Company's Siebel CRM software
implementation (See Note 3) and $1,657,000 of severance, bonus and travel costs
primarily related to the Data Distilleries acquisition. Special general and
administrative charges in 2002 included costs related to the restructuring of
the Company's field operations implemented in August 2002 and costs related to
the NetGenesis, LexiQuest and netExs transactions, such as severance and
retention payments of $4,030,000, lease cancellation payments of $615,000,
professional service fees of $2,300,000, and other costs.

MERGER-RELATED.

SPSS incurred certain merger-related expenses subsequent to the
consummation of the acquisitions that were charged to current period expenses.
Certain other costs incurred prior to the consummation of the transactions were
capitalized as part of the purchases. These merger-related expenses relate to
the Company's acquisitions made during 2002 (see Note 7). SPSS incurred
merger-related costs of $2,260,000 in 2002. Expenses in 2002 included
professional fees of approximately $600,000, severance of $1,460,000 and other
costs of $200,000.

ILLUMITEK SHUT-DOWN CHARGES.

In 2002, SPSS incurred shut-down costs of $518,000 related to the
termination of its investment in Illumitek.

ACQUIRED IN-PROCESS TECHNOLOGY.

Acquired in-process technology costs were $150,000 in 2002 related to the
LexiQuest transaction. These costs, along with capitalized acquired technology,
were determined from independent third party valuations.

On February 6, 2002, SPSS acquired all of the issued and outstanding shares
of capital stock of LexiQuest, S.A., a corporation organized under the laws of
France. Approximately $150,000 of the purchase price was attributable to
acquired in-process technology that had not reached technological feasibility
and was believed to have no alternative future use.

27

NET INTEREST AND INVESTMENT EXPENSE.

The increase from 2003 to 2004 was caused by net interest income in the
nine months ended September 30, 2003 which was earned on line-of-credit deposits
that did not repeat in 2004. The change in net interest and investment expense
from 2002 to 2003 was primarily due to the decrease in net debt levels.

GAIN ON DIVESTITURE OF SIGMA-SERIES PRODUCT LINE.

In December 2003, SPSS entered into a distribution license and sale of
assets agreement related to its Sigma-series product line with Systat Software,
a subsidiary of Cranes Software International Ltd. This transaction was
completed in December 2003. Under the terms of the agreement, Systat was
required to make payments to SPSS in the aggregate amount of $13,000,000,
including $9,000,000 remitted in December 2003. Systat Software also has the
option to purchase all related intellectual property, including brand names and
trademarks, after three years for an additional $1,000,000 (See Note 7). The
gain represents the excess of the purchase price over the book value of the
assets sold and expenses directly related to the sale. The 2004 amount
represents the reversal of accruals taken for expected costs related to the
sale.

OTHER INCOME.

Other income in 2004 was primarily due to gains on foreign currency
transactions due to the continue weakening of the dollar against other major
currencies as well as a $1.0 million European research and development incentive
credit received from the French Government in the second quarter of 2004
relating to expenditures accumulated through 1999. Other income in 2002 and 2003
was due to gains from foreign currency transactions of $752,000 and $1,770,000,
respectively, reflecting the weakening of the dollar against other major
currencies.

PROVISION FOR INCOME TAXES.

The provision for income taxes was $878,000 in 2002, $1,147,000 in 2003 and
$2,513,000 in 2004. During 2004, the provision for income taxes represented a
tax rate of approximately 31%. During 2003, the provision for income taxes
represented a tax rate of approximately 11%. The Company's tax rate in 2003 was
lower than the statutory rate primarily as a result of the use of foreign tax
credits, which were previously reduced by a valuation allowance because their
use was uncertain. The tax provision in 2002 was impacted by obligations
associated with dividend income caused by certain cash transfers from its
international subsidiaries during the fourth quarter of 2002 and by the write
off of net operating loss carry forwards and by a nondeductible capital loss
arising from the Illumitek investment. Generally, the Company expects its
effective tax rate to be approximately 33-35%.

28

LIQUIDITY AND CAPITAL RESOURCES

SPSS used $642,000 in cash from operations in 2002, generated cash of
$22,209,000 in operations in 2003, and generated cash of $12,334,000 from
operations in 2004. The decrease in cash from operations from 2003 to 2004 was
mainly due to higher tax payments and investments in working capital partially
offset by higher operating income. The improvement in cash provided from
operations from 2002 to 2003 principally resulted from higher income in 2002.
Cash flow from receivables was positive during each of the three years ended
2002, 2003 and 2004 due to continued improvements in accounts receivable
collections. Average days sales outstanding were 78 for the year ended December
31, 2003, compared to 67 for the year ended December 31, 2004.

Investing activities resulted in cash used of $17,138,000 in 2002,
$4,183,000 in 2003 and $14,286,000 in 2004. During 2004, SPSS received scheduled
payments totaling $3.0 million on the sale of its Sigma-series product line
consummated in December 2003, repurchased common stock related to its
acquisition of Data Distilleries of $5,421,000, and received $2,633,000 of
proceeds from disposal of a property in the United Kingdom. Additionally in
2004, the Company incurred capital expenditures and software development costs
of $5,477,000 and $9,208,000, respectively. Management believes that SPSS has
ample capacity in its plant and equipment to meet expected needs for future
growth in the intermediate term. During 2003, cash was primarily used for the
$1,000,000 cash portion of the consideration paid in connection with the Data
Distilleries acquisition, capital expenditures of $2,573,000, and $9,610,000 for
capitalized software development costs. Partially offsetting these investing
outflows in 2003 were cash proceeds of $9,000,000 from the divestiture of the
Sigma-series product line. In 2002, cash was primarily used for capital
expenditures of $12,859,000 and capitalized software development costs of
$11,069,000. SPSS also paid $2,500,000 to acquire LexiQuest and $1,000,000 to
acquire netExs. Partially offsetting these investing outflows in 2002 were
proceeds of $9,792,000 from the maturities and sales of marketable securities.

Cash provided by financing activities in 2002, 2003 and 2004 was
$8,520,000, $2,158,000 and $1,575,000, respectively. In 2004, net repayments
under line-of-credit agreements totaled $2,570,000 and proceeds from the
issuance of common stock were $4,145,000, primarily through the exercise of
stock options and employee purchases through the employee stock purchase plan.
In 2003, net repayments under line-of-credit agreements totaled $49,000 and
proceeds from the issuance of common stock were $2,207,000, primarily through
the exercise of stock options and employee purchases through the employee stock
purchase plan. In 2002, net borrowings under line-of-credit agreements totaled
$7,325,000 and proceeds from the issuance of common stock were $1,195,000,
primarily through the exercise of stock options and employee purchases through
the employee stock purchase plan.

On March 31, 2003, SPSS entered into a four (4) year, $25 million credit
facility with Wells Fargo Foothill, Inc. (f/k/a Foothill Capital Corporation).
The Wells Fargo Foothill facility includes a four (4) year term loan in the
amount of $10,000,000, two revolving lines of credit and a letters of credit
facility not to exceed $3,000,000. The maximum amount SPSS may borrow under
Revolver A will depend upon the value of the Company's eligible accounts
receivable generated within the United States. Revolver B provides for a credit
facility of up to $3,500,000 provided that no event of default exists. As of
December 31, 2004, the Company has availability of $6,000,000 under the
revolving lines of credit.

The terms and conditions of the Wells Fargo Foothill credit facility are
specified in a Loan and Security Agreement, dated as of March 31, 2003, by and
between Wells Fargo Foothill and SPSS. The term loan portion of the facility
bears interest at a rate of 2.5% above prime, with potential future reductions
of up to 0.5% in the interest rate based upon the Company's achievement of
specified EBITDA targets. One component of the revolving line of credit will
bear interest at a rate of prime plus 3.0%. On the remainder of the revolving
line of credit, SPSS may select interest rates of either prime plus 0.25% or
LIBOR plus 2.5% with respect to each advance made by Wells Fargo Foothill. The
credit fee rate for letters of credit is 2.0% per annum times the daily balance
of the undrawn amount of all outstanding letters of credit. In May 2003, the
Company began paying down evenly the term loan of $10,000,000 over the four (4)
year period (i.e., $2,500,000 per year over four years). At December 31, 2004,
SPSS had $5,881,000 outstanding under its line of credit with Wells Fargo
Foothill, including $2,500,000 classified as current notes payable and the face

29

amount of letters of credit issued and outstanding under the existing credit
facility totaled approximately $893,000.

The Wells Fargo Foothill facility requires SPSS to meet certain financial
covenants including minimum EBITDA targets and includes additional requirements
concerning, among other things, the Company's ability to incur additional
indebtedness, create liens on assets, make investments, engage in mergers,
acquisitions or consolidations where SPSS is not the surviving entity, sell
assets, engage in certain transactions with affiliates, and amend its
organizational documents or make changes in capital structure. Due to the
restatement of the Company's Consolidated Financial Statements, during 2004, the
Company was not in compliance with certain covenants related to timely delivery
of financial statements. In addition, the restatement may have rendered some
representations and warranties inaccurate and may have caused the Company to
fail to satisfy certain covenants. Moreover, the Company was not in compliance
with its EBITDA covenant as of December 31, 2004. SPSS has obtained all
appropriate waivers from Wells Fargo Foothill. See Note 11 of the "Notes to
Consolidated Financial Statements" for additional information on the Wells Fargo
Foothill financing arrangement.

The Wells Fargo Foothill facility is secured by all of the Company's assets
located in the United States. ShowCase Corporation, a Minnesota corporation and
wholly owned subsidiary of SPSS, and NetGenesis Corp., a Delaware corporation
and wholly owned subsidiary of SPSS, have guaranteed the obligations of SPSS
under the Loan and Security Agreement. This guaranty is secured by all of the
assets of ShowCase and NetGenesis.

In connection with the Company's acquisition of Data Distilleries, the
Company was obligated to make a guaranteed cash payment of $1.0 million, and to
issue SPSS common stock to the former owners of Data Distilleries which SPSS
later repurchased at a total cost of approximately $5.4 million. In addition,
SPSS may be obligated to make future contingent purchase price payments in the
amount of up to $2.0 million at current estimated exchange rates (See Note 7).

SPSS intends to fund its future capital needs through operating cash flows
and borrowings on our new credit facility. SPSS anticipates that amounts
available from cash and cash equivalents on hand, under its line of credit, and
cash flows generated from operations, will be sufficient to fund the Company's
operations and capital requirements 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.

SUMMARY DISCLOSURES ABOUT CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table reflects a summary of the Company's contractual
obligations to make cash payments in future years measured as of December 31,
2004 (in thousands):

INTERNATIONAL OPERATIONS

Revenues from international operations increased from 49% to 51% of total
net revenues between 2002 and 2003, and were approximately 55% of total net
revenues in 2004. The increase in the international contribution in 2004
principally resulted from an overall increase in international revenue of 17% in
2004

30

compared with 2003 while declining 1% in domestic operations in 2004 compared
with 2003. The increases in international operations included increases in all
significant markets including the Netherlands, United Kingdom, Japan, Germany
and France principally reflecting volume increases, foreign currency of $9.6
million and contributions from the recent DataDistilleries acquisition. The
modest decline in the domestic operations resulted from the effects of the
divestiture of the Company's Sigma-series products in December 2003 and fewer
ShowCase related consulting projects partially offset by higher license sales of
SPSS data mining and desktop statistical analysis tools.

As international revenues increase, SPSS may experience additional foreign
currency exchange risk. To mitigate these effects, SPSS from time-to-time hedges
its transaction exposure (i.e., the effect on earnings and cash flows of changes
in foreign exchange rates on receivables and payables denominated in foreign
currencies) through the use of foreign currency options. SPSS does not hedge its
foreign currency exposure in a manner that would entirely eliminate the effects
of changes in foreign exchange rates on the Company's consolidated net income.
Accordingly, the Company's reported revenues and net income have been, and in
the future may be affected by, the changes in foreign exchange rates. On
December 31, 2004, SPSS did not have any option contracts outstanding.

During 2004, SPSS generated operating income, on a consolidated basis of
$6,576,000. Operating income of $16,529,000 was generated outside of the United
States. Of the non-U.S. income, an operating loss of $2,809,000 was generated in
EURO nations and an operating gain of $10,823,000 was generated in GBP nations.
The average exchange rate for the currencies of EURO and GBP nations increased
in value to the dollar from 2002 to 2003 by 19.6% and 10.4%, and from 2003 to
2004 by 10.4% and 10.9%, respectively. These increases in average exchange rates
positively affected the Company's operating income on a year-to-year rate
comparison by approximately $278,000 for EURO nations and $1,288,000 for GBP
nations.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The consolidated financial statements of SPSS have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period.

On an on-going basis, management evaluates its estimates and judgments,
including those related to revenue recognition, capitalized software development
costs, and the valuation of accounts receivable, long-lived assets and deferred
income taxes. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities. Actual results may differ
from these estimates under different assumptions or conditions. Management
believes the following critical accounting policies, among others, affect its
more significant judgments and estimates used in the preparation of its
consolidated financial statements.

REVENUE RECOGNITION

SPSS makes significant judgments related to revenue recognition. For each
arrangement, the Company makes significant judgments regarding the fair value of
multiple elements contained in its arrangements, if its fees are fixed or
determinable, and whether or not the collection of payment is probable. SPSS
also makes significant judgments when accounting for concurrent transactions
with customers and in its accounting for potential product returns. These
judgments and their possible effects on revenue recognition are discussed below.

SPSS primarily recognizes revenue from the following:

- Product licenses. SPSS offers (a) annual licenses with maintenance
renewable annually, (b) perpetual licenses with both annual and
multi-year maintenance, and (c) multi-year licenses with multi-year
maintenance;

31

- Postcontract customer support ("PCS" or "maintenance") agreements which
consist primarily of fees for providing when-and-if-available unspecified
software upgrades and technical support over a specified term;

- Fixed-price service-related arrangements which are primarily comprised of
consulting, implementation services and training;

- Various combinations of the above elements.

- Distribution partners. The Company licenses third-parties to distribute
SPSS products in certain territories internationally or as value-added
resellers worldwide. SPSS records license fees from transactions made by
such distribution partners when these transactions are reported, and the
partners are responsible for providing related maintenance services,
including end-user support and software updates. However, SPSS has post
contract support (PCS) obligations to the customers of its distribution
partners that are implied by its responsibility to provide these partners
with updates of SPSS products when and if developed. Because the Company
cannot establish vendor specific objective evidence (VSOE) of fair value
of these implied maintenance arrangements, the Company recognizes the
related license fees ratably over the terms of the arrangements beginning
when transactions are reported to the Company by its distribution
partners and when all revenue recognition criteria are met. Specific
revenue recognition on distributor partner contracts will be defined by
the terms of the contract as follows:

- Where SPSS defines the price for renewal of maintenance and support in
the contract, such amount represents vendor specific objective
evidence (VSOE) of fair value of maintenance and such amount will be
deferred and recognized ratably over the life of the support contract.

- When SPSS provides direct maintenance and support to the end-user,
SPSS will defer the estimated fair value of the maintenance and
support consistent with direct sales to its customers.

- When neither of the above conditions exist and SPSS must provide free
updates or second tier support to the partner, the revenue from the
contract will be deferred and recognized ratably over the life of the
contract.

- Where no maintenance or support of any kind are required by the
contract, no revenue will be deferred.

- When a reseller has a right to return product stock for updated
product stock (stock swap), SPSS will account this as a right of
return in accordance with SFAS No. 48, Revenue Recognition When Right
of Return Exists, and establish a reserve for the estimated amount of
the returns.

MULTIPLE ELEMENT ARRANGEMENTS

SPSS typically enters into arrangements with customers that include
perpetual software licenses, maintenance, and technical support. Some
arrangements may also include consulting and training services. Software
licenses are sold as site licenses or on a per copy basis. Site licenses give
customers the right to copy licensed software on either a limited or unlimited
basis during a specified term. Per copy licenses give customers the right to use
a single copy of licensed software. The Company makes judgments regarding the
fair value of each element in the arrangement and generally accounts for each
element separately.

THE FEE IS FIXED OR DETERMINABLE

SPSS makes judgments at the beginning of an arrangement regarding whether
or not the fees are fixed or determinable. The Company's customary payment terms
are generally within 30 days after invoice date. Arrangements with payment terms
extending beyond one year after invoice date are not considered fixed or
determinable, in which case revenue is recognized as the fees become due and
payable.

32

COLLECTION IS PROBABLE

The Company makes judgments at the beginning of an arrangement regarding
whether or not collection is probable. Probability of collection is assessed on
a case-by-case basis. SPSS typically sells to customer with whom it has a
history of successful collections. New customers may be subject to a credit
review process to assess their financial position and ability to pay. If it is
determined that collection is not probable, then revenue is recognized upon
receipt of payment.

PRODUCT RETURNS

SPSS estimates potential future product returns based on the analysis of
historical return rates and reduces current period revenue accordingly. Actual
returns may vary from estimates if a change from historical sales and returns
patterns occur or if there are unanticipated changes in competitive or economic
conditions that affect actual returns.

DELIVERY OF SOFTWARE PRODUCTS

Delivery of the Company's products is a prerequisite to the recognition of
software license revenue. SPSS considers such delivery complete when the
software products have been shipped, the customer has access to license keys,
and shipment is confirmed by a third-party shipping agent. If arrangements
include an acceptance provision, then revenue is recognized upon the earlier of
the receipt of written customer acceptance or, if applicable, the expiration of
the acceptance period.

The Company applies AICPA Statement of Position ("SOP") 97-2 (SOP 97-2),
Software Revenue Recognition, and related interpretations and amendments which
specifies the criteria that must be met prior to SPSS recognizing revenues from
software sales.

SPSS reviews revenue recognition based upon the contract type or
combination of contract types and assesses individual events and changes in
circumstances that could modify recognition of revenue in accordance with SOP
97-2 and related interpretations and amendments. The Company's customary terms
are FOB shipping point. SPSS estimates and records provisions for revenue
returns and allowances in the period the related products are sold based upon
historical experience. To the extent actual results differ from the estimated
amounts, results could be adversely affected. See Note 1 for additional
information regarding Revenue Recognition.

CAPITALIZATION OF CERTAIN SOFTWARE DEVELOPMENT COSTS

Software development costs incurred by SPSS in connection with the
Company's long-term development projects are capitalized in accordance with SFAS
No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed. SPSS has not capitalized software development costs relating
to development projects where the net realizable value is of short duration, as
the effect would be immaterial. SPSS reviews capitalized software development
costs each period and, if necessary, reduces the carrying value of each product
to its net realizable value.

SPSS applies SOP 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use. This standard requires that certain
costs related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software. SOP
98-1 also requires that costs related to the preliminary project stage and
post-implementation/operations stage of an internal-use computer software
development project be expensed as incurred. During 2002, 2003 and 2004, SPSS
capitalized $5,541,000, $1,109,000 and $792,000, respectively, and amortized
$461,000, $607,000 and $1,414,000, respectively, of internal-use computer
software.

ACCOUNTS RECEIVABLE

The management of SPSS must make estimates of accounts receivable that will
not be collected. SPSS performs ongoing credit evaluations of its customers and
adjusts credit limits based upon payment history and the customer's credit
worthiness, as determined by the Company's review of their current credit
information.
33

SPSS continuously monitors collections and payments from its customers and
maintains a provision for estimated credit losses based upon historical
experience and any specific customer collection issues that it has identified.
While such credit losses have historically been within management's expectations
and the provisions established, SPSS cannot guarantee that it will continue to
experience the same credit loss rates as in the past. If the financial condition
of SPSS customers were to deteriorate, resulting in an impairment of their
ability to make payments, additional allowances may be required.

IMPAIRMENT OF LONG-LIVED ASSETS

SPSS assesses the impairment of identifiable intangibles, long-lived assets
and goodwill whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. In addition, goodwill must be assessed on
at least an annual basis. Factors SPSS considers important which could trigger
an impairment review include significant underperformance relative to expected
historical or projected future operating results, significant changes in the
manner of use of the acquired assets or the strategy for the Company's overall
business and significant negative industry or economic trends.

When SPSS determines that the carrying value of amortizable intangibles and
long-lived assets may not be recoverable based upon the existence of one or more
of the above indicators of impairment, SPSS would use an estimate of
undiscounted future cash flows that the asset is expected to generate to measure
whether the asset is recoverable over its estimated useful life. If estimated
undiscounted future cash flows are less than the carrying amount of the asset,
the asset is considered impaired and an expense is recorded in an amount
required to reduce the carrying amount of the asset to its then fair value. To
the extent actual business values or cash flows differ from those estimated
amounts, the recoverability of those long-lived assets could be affected.

INCOME TAXES

SPSS recognizes deferred tax assets and liabilities based on the
differences between the financial statement carrying amounts and the tax bases
of assets and liabilities. The Company regularly reviews its deferred tax assets
for recoverability and establishes a valuation allowance based on historical
taxable income, projected future taxable income, and the expected timing of the
reversals of existing temporary differences to reduce its deferred tax assets to
the amount that it believes is more likely than not to be realized. SPSS has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance. The Company has
not provided a valuation allowance on the amount of deferred tax assets that it
estimates will be utilized as a result of the execution of these strategies. If
the future taxable income is less than the amount that has been assumed in
assessing the recoverability of the deferred tax assets, then an increase in the
valuation allowance will be required, with a corresponding increase to income
tax expense. Likewise, should SPSS ascertain in the future that it is more
likely than not that deferred tax assets will be realized in excess of the net
deferred tax assets, all or a portion of the $11,277,000 valuation allowance as
of December 31, 2004 would be reversed as a benefit to the provision for income
taxes in the period such determination was made.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS No. 150
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. SFAS
No. 150 applies specifically to a number of financial instruments that companies
have historically presented within their financial statements either as equity
or between the liabilities section and the equity section, rather than as
liabilities. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective as of January 1, 2004,
except for mandatorily redeemable financial instruments. For certain mandatorily
redeemable financial instruments, SFAS 150 will be effective on January 1, 2005.
The effective date has been deferred indefinitely for certain other types of
mandatorily redeemable financial instruments. The implementation of SFAS No. 150
on July 1, 2003 resulted in the Company reclassifying

34

certain common stock subject to repurchase as permanent equity and certain
liabilities related to put obligations for the common stock to liabilities.

In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment. This
statement is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values. The provisions of this statement are effective for
interim or annual periods beginning after June 15, 2005. The Company is
currently evaluating the provisions of this revision to determine the impact on
its consolidated financial statements. It is, however, expected to have a
negative effect on consolidated net income.

In December 2004, the FASB decided to defer the issuance of their final
standard on earnings per share (EPS) entitled Earnings per Share -- an Amendment
to FAS 128. The final standard will be effective in 2005 and will require
retroactive application for all prior periods presented. The significant
proposed changes to the EPS computation are changes to the treasury stock method
and contingent share guidance for computing year-to-date diluted EPS, removal of
the ability to overcome the presumption of share settlement when computing
diluted EPS when there is a choice of share or cash settlement and inclusion of
mandatorily convertible securities in basic EPS. The Company is currently
evaluating the proposed provisions of this amendment to determine the impact on
its consolidated financial statements.

In December 2004, the FASB issued FSP FAS 109-1, Application of FASB No.
109, Accounting for Income Tax, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. FSP FAS No. 109-1
clarifies SFAS No. 109's guidance that applies to the new tax deduction for
qualified domestic production activities. FSP No. 109-1 became effective upon
issuance and we believe that this pronouncement will have an insignificant
impact on our effective tax rate in 2005.

In December 2004, the FASB issued FSP FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Repatriation Provision within the American Jobs
Creation Act of 2004. FSP FAS 109-2 provides implementation guidance related to
the repatriation provision of the American Jobs Creation Act of 2004. The
Company has completed an assessment of earnings of foreign subsidiaries that
might be repatriated. At this time, the Company does not expect to repatriate
the earnings of our foreign subsidiaries as dividends to take advantage of this
tax deduction. The Company has started an evaluation of the effects of the
repatriation provision. The Company expects to complete our evaluation on the
effects of the repatriation provision within the first three fiscal quarters of
2005.

FACTORS THAT MAY AFFECT FUTURE RESULTS

SPSS has been named as a defendant in a lawsuit filed on or about May 14,
2004, and amended on September 30, 2004, in the United States District Court for
the Northern District of Illinois, under the caption Fred Davis, Individually
and On Behalf of All Others Similarly Situated v. SPSS Inc., Jack Noonan, Edward
Hamburg and KPMG LLP, Case No. 04C3427. The complaint alleges that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10b-5 promulgated thereunder. The complaint alleges that the
defendants failed to disclose and misrepresented a series of material adverse
facts regarding the Company's revenues. The complaint seeks to recover
unspecified compensatory damages, reasonable attorney fees, experts' witness
fees and other costs and any other relief deemed proper by the court on behalf
of all purchasers of the Company's securities between May 2, 2001 and March 30,
2004, although no court has determined that such persons constitute a proper
class. On December 15, 2004, SPSS, Mr. Noonan and Dr. Hamburg filed a motion to
dismiss the amended complaint. On January 28, 2005, the Lead Plaintiff filed a
memorandum in opposition to the motion to dismiss the amended complaint filed by
SPSS, Mr. Noonan and Dr. Hamburg. On February 18, 2005, SPSS, Mr. Noonan and Dr.
Hamburg filed a reply memorandum in support of their motion to dismiss. SPSS,
Mr. Noonan and Dr. Hamburg believe that the suit is without merit and intend to
defend vigorously against the allegations contained in the complaint.

35

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from fluctuations in interest rates
on borrowings under its borrowing arrangement that bears interest at either the
prime rate or the Eurodollar rate. As of December 31, 2004, the Company had
$5,881,000 outstanding under this borrowing arrangement. A 100 basis point
increase in interest rates would result in an additional $59,000 of annual
interest expense, assuming the same level of borrowing.

The Company is exposed to market risk from fluctuations in foreign currency
exchange rates. Since a substantial portion of the Company's operations and
revenue occur outside the United States, and in currencies other than the U.S.
dollar, the Company's results can be significantly affected by changes in
foreign currency exchange rates. To manage its exposure to fluctuations to
currency exchange rates, the Company may enter into various financial
instruments, such as options. These instruments generally mature within 12
months. Gains and losses on these instruments are recognized in other income or
expense. Were the foreign currency exchange rates to depreciate immediately and
uniformly against the dollar by 10 percent from levels at December 31, 2004, the
reported cash balance would decrease $3.1 million, or 8.3 percent. The effect on
revenues would also be expected to have a material adverse effect on the
Company's financial results. On December 31, 2004, the Company did not have any
option contracts outstanding.

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

36

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

SPSS INC. AND SUBSIDIARIES

INDEX

Schedules not filed:

All schedules other than Schedule II have been omitted as the required
information is inapplicable or the information is presented in the consolidated
financial statements or related notes.

37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders
of SPSS Inc.:

We have audited the accompanying consolidated balance sheets of SPSS Inc.
and subsidiaries (SPSS or the Company) as of December 31, 2003 and 2004, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2004. In connection with our audits of the
consolidated financial statements, we also have audited the consolidated
financial statement schedule of valuation and qualifying accounts. These
consolidated financial statements and the consolidated financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and the
consolidated financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 2003 and 2004, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2004, in conformity with U.S. generally accepted accounting principles. Also, in
our opinion, the related consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.

As discussed in Note 1 to the consolidated financial statements, effective
July 1, 2003, the Company adopted SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."

/s/ KPMG LLP

Chicago, Illinois
March 16, 2005

38

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

The accompanying notes are an integral part of these consolidated financial
statements.

39

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The accompanying notes are an integral part of these consolidated financial
statements.

40

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
41

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

The accompanying notes are an integral part of these consolidated financial
statements.
42

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

The accompanying notes are an integral part of these consolidated financial
statements.
43

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BUSINESS

SPSS Inc., a Delaware corporation ("SPSS" or the "Company"), was
incorporated in Illinois in 1975 under the name SPSS, Inc. and was
reincorporated in Delaware in May 1993 under the name "SPSS Inc." SPSS is a
global provider of predictive analytics technology and services.

The Company's offerings use predictive analytics to connect data to
effective action by drawing reliable conclusions about current conditions and
future events. Predictive analytics leverages an organization's business
knowledge by applying sophisticated analytic techniques to enterprise data. The
insights gained through the use of these techniques can lead to improved
business processes that increase revenues, reduce costs, and prevent fraudulent
activities.

SPSS reports revenues in three categories used by most enterprise software
companies:

- License fees, representing new sales of the Company's tools,
applications, and components on a perpetual, annual, or ASP (applications
services provider) basis;

- Maintenance, representing recurring revenues recognized by the Company
from renewals of maintenance agreements associated with perpetual
licenses or renewals of annual licenses; and

- Services, representing revenues recognized from professional services
engagements, training, and other activities such as publication sales and
providing respondents to online surveys.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of SPSS Inc. and
its wholly owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated. In addition, the consolidated financial
statements include the operating results of Illumitek, Inc., a 50% owned joint
venture, from October 1, 2001 through date of liquidation (see Note 8).

The translation of the applicable foreign currencies into U.S. dollars is
performed for balance sheet accounts using current exchange rates in effect at
the balance sheet date and for revenue and expense accounts using the weighted
average exchange rates during the period. The gains or losses resulting from
such translation are included in stockholders' equity. Gains or losses resulting
from foreign currency transactions are included in "other income and expense" in
the consolidated statements of operations.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and judgments that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The principal areas of estimation in
the financial statements include revenue recognition, capitalization of software
development costs, impairment of long-lived assets, credit losses on accounts
receivable, income taxes, contingencies and litigation.

REVENUE RECOGNITION

The Company applies AICPA Statement of Position ("SOP") 97-2, Software
Revenue Recognition, and related Amendments which establishes the criteria that
must be met prior to SPSS recognizing revenues from software sales.

44

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's policy is to record revenue only when these criteria are met:

(1) Persuasive evidence of an arrangement exists -- SPSS and the
customer have executed a written agreement, contract or other evidence of
an arrangement.

(2) Delivery has occurred -- Product has been shipped or delivered to
customer, depending on the applicable terms. The Company's standard
contract does not contain acceptance clauses. In the event that SPSS
modifies the terms of its standard contract to provide that final delivery
is contingent upon the customer accepting the applicable product, SPSS does
not recognize revenue for that product until the customer has accepted the
product.

(3) The vendor's fee is fixed or determinable -- The arrangement
indicates the price of the license and the number of users, and the related
payment terms are within one year of delivery of the software.

(4) Collectibility is probable -- SPSS sells to customers it deems
creditworthy. Standard terms for payment are 30 days. SPSS periodically
extends payment terms to three to six months, but does not extend payment
terms past one year. Any terms beyond standard are generally still
collectible and are generally offered in larger transactions with more
creditworthy customers.

SPSS primarily recognizes revenue from product licenses, net of an
allowance for estimated returns and cancellations, at the time the software is
shipped. Revenue from certain product license agreements is recognized upon
contract execution, product delivery, and customer acceptance.

The Company's customary terms are FOB shipping point. SPSS estimates and
records provisions for revenue returns and allowances in the period the related
products are sold, based upon historical experience.

Revenue from postcontract customer support ("PCS" or "maintenance")
agreements, including PCS bundled with product licenses, is recognized ratably
over the term of the related PCS agreements. Maintenance revenues consist
primarily of fees for providing when-and-if-available unspecified software
upgrades and technical support over a specified term. Maintenance revenues are
recognized on a straight-line basis over the term of the contract. Some product
licenses include commitments for insignificant obligations, such as technical
and other support, for which an accrual is provided.

Distribution partners: The Company licenses third-parties to distribute
SPSS products in certain territories internationally or as value-added resellers
worldwide. SPSS records license fees from transactions made by such distribution
partners when these transactions are reported, and the partners are responsible
for providing related maintenance services, including end-user support and
software updates. However, SPSS has post contract support (PCS) obligations to
the customers of its distribution partners that are implied by its
responsibility to provide these partners with updates of SPSS products when and
if developed. Because the Company cannot establish vendor specific objective
evidence (VSOE) of fair value of these implied maintenance arrangements, the
Company recognizes the related license fees ratably over the terms of the
arrangements beginning when transactions are reported to the Company by its
distribution partners and when all revenue recognition criteria are met.
Specific revenue recognition on distributor partner contracts will be defined by
the terms of the contract as follows:

- Where SPSS defines the price for renewal of maintenance and support in
the contract, such amount represents vendor specific objective evidence
(VSOE) of fair value of maintenance and such amount will be deferred and
recognized ratably over the life of the support contract.

- When SPSS provides direct maintenance and support to the end-user, SPSS
will defer the estimated fair value of the maintenance and support
consistent with direct sales to its customers.

- When neither of the above conditions exist and SPSS must provide free
updates or second tier support to the partner, the revenue from the
contract will be deferred and recognized ratably over the life of the
contract.

45

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- Where no maintenance or support of any kind are required by the contract,
no revenue will be deferred.

- When a reseller has a right to return product stock for updated product
stock (stock swap), SPSS accounts for this as a right of return in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
48, Revenue Recognition when Right of Return Exists, and establishes a
reserve for the estimated amount of the returns.

Revenues from fixed-price contracts are recognized using the
percentage-of-completion method, under SOP 81-1, Accounting for Performance of
Construction-Type and Certain Production-Type Contracts, of contract accounting
as services are performed to develop, customize and install the Company's
software products. The percentage completed is measured by the percentage of
labor hours incurred to date in relation to estimated total labor hours for each
contract. Management considers labor hours to be the best available measure of
progress on these contracts.

SPSS enters into arrangements which may consist of the sale of: (a)
licenses of the Company's software, (b) professional services and maintenance or
(c) various combinations of each element. Revenues are recognized based on the
residual method under SOP 98-9, Modification of SOP 97-2 Software Revenue
Recognition, when an agreement has been signed by both parties, delivery of the
product has occurred, the fees are fixed or determinable, collection of the fees
is probable and no other significant obligations remain. Historically, the
Company has not experienced significant returns or offered exchanges of its
products.

For multiple element arrangements, each element of the arrangement is
analyzed and SPSS allocates a portion of the total fee under the arrangement to
the undelivered elements, such as professional services, training and
maintenance based on vendor-specific objective evidence of fair value. Revenues
allocated to the undelivered elements are deferred using vendor-specific
objective evidence of fair value of the elements and the remaining portion of
the fee is allocated to the delivered elements (generally the software license),
under the residual method. Vendor-specific objective evidence of fair value is
based on the price the customer is required to pay when the element is sold
separately (i.e., hourly time and material rates charged for consulting services
when sold separately from a software license and the optional renewal rates
charged by the Company for maintenance arrangements).

If an element of the license agreement has not been delivered, revenue for
the element is deferred based on its vendor-specific objective evidence of fair
value. If vendor-specific objective evidence of fair value does not exist, all
revenue is deferred until sufficient objective evidence exists or all elements
have been delivered. If the fee due from the customer is not fixed or
determinable, revenue is recognized as payments become due. If collectibility is
not considered probable, revenue is recognized when the fee is collected.

Amounts allocated to license revenues under the residual method are
recognized at the time of delivery of the software when vendor-specific
objective evidence of fair value exists for the undelivered elements, if any,
and all the other revenue recognition criteria discussed above have been met.

Revenues from professional services are comprised of consulting,
implementation services and training. Consulting services are generally sold on
a time-and-materials basis and include services to assist in new implementations
or configure existing applications to vertical industry and customer
requirements. SPSS consultants also help organizations to develop plans that
align analytical efforts with organizational goals, assist with the collection
and structuring of data for analysis, and facilitate the building of predictive
analytical models. Services are generally separable from the other elements
under the arrangement since the performance of the services is not essential to
the functionality (i.e., the services do not involve significant production,
modification or customization of the software or building complex interfaces) of
any other element of the transaction. Revenues for professional services and
training are recognized when the services are performed.

SPSS offers: (a) annual licenses with maintenance renewable annually, (b)
perpetual licenses with both annual and multi-year maintenance, and (c)
multi-year licenses with multi-year maintenance. Vendor-

46

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

specific objective evidence of fair value of maintenance does not exist for
annual licenses with one year of maintenance. For perpetual license arrangements
with one year of maintenance, vendor-specific objective evidence of fair value
is established based on the stated renewal rate of maintenance (which is a set
percentage of the total contract price, in accordance with AICPA Technical
Practice Aid (TPA) 5100.55, Fair Value of PCS with a Consistent Renewal
Percentage, But Varying Dollar Amounts, and Software Revenue Recognition).
Vendor-specific objective evidence of fair value of maintenance is not
determinable for perpetual and multi-year arrangements with multi-year
maintenance in certain countries where SPSS operates. The entire fee is deferred
and recognized ratably over the term of the arrangement.

SPSS licenses software, primarily to end users, on a perpetual basis and on
an annual and multi-year basis. Under a perpetual license, the customer is
granted an indefinite right to use the software. SPSS has a 60-day return policy
for these types of licenses and the Company calculates its return allowance
using a 12-month rolling average based on actual returns during the prior 12
months. Under an annual license, the customer is granted the right to use the
software for one year and may not return or cancel during the first year.

For each type of license, postcontract customer support (maintenance) is
offered. Under perpetual licenses, it is the customer's option to renew
maintenance each year. Under an annual license, the customer must renew the
license and maintenance to continue to use the software. In both cases, SPSS
contacts the customer two months before the scheduled renewal date to determine
the customer's renewal intentions. If the customer indicates that it intends to
renew the license, the Company will issue a new invoice. In some cases,
customers ultimately cancel a license even though they initially indicated a
willingness to renew. These cancellations are tracked in a 12-month rolling
average to determine the cancellation percentage that SPSS will accrue as its
cancellation allowance.

In 2002, SPSS concurrently sold software to and purchased software from one
customer. The Company recorded revenues of $42 in 2002 related to this sale and
the purchased software was to be sold in the ordinary course of business and was
recorded at its carryover basis. SPSS did not enter into any concurrent
purchases of software licenses in 2003 and 2004.

ADVERTISING EXPENSES

Advertising expenses are charged to operations during the year in which
they are incurred. The total amount of advertising expenses charged to
operations was $2,605, $2,575 and $2,178 for the years ended December 31, 2002,
2003 and 2004, respectively.

EARNINGS PER SHARE

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

Had SPSS recorded net income during 2002, 37 stock options and contingently
issuable shares would have been included in the calculation of diluted
weighted-average common shares outstanding, respectively.

47

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Anti-dilutive shares not included in the diluted EPS calculation for 2002, 2003
and 2004 were 1,751, 1,411, and 1,128, respectively.

DEPRECIATION AND AMORTIZATION

Depreciation is recorded using the straight-line method. The estimated
useful lives used in the computation of depreciation of tangible assets are as
follows:

Buildings........................................... 30 years
Furniture and office equipment...................... 3-8 years
Computer equipment and software..................... 3-7 years
Leasehold improvements.............................. 3-15 years or lease term if shorter

Capitalized software costs are amortized on a straight-line method over
three to five years based upon the expected life of each product. The
straight-line method is utilized as it results in amortization expense of at
least the amount that would be provided by the ratio of annual product revenue
to total product revenue over the remaining useful life of the products.
Identifiable intangible assets are amortized over their estimated useful lives
using the straight-line method.

SOFTWARE DEVELOPMENT COSTS

Software development costs incurred by SPSS in connection with the
Company's long-term development projects are capitalized in accordance with SFAS
No. 86, Accounting for the Costs of Computer Software to Be Sold, Leased, or
Otherwise Marketed. SPSS has not capitalized software development costs relating
to development projects where the net realizable value is of short duration, as
the effect would be immaterial. Product enhancement costs are capitalized when
technological feasibility has been established. SPSS reviews capitalized
software development costs each period and, if necessary, reduces the carrying
value of each product to its net realizable value. See additional discussion at
Note 4.

SPSS applies Statement of Position ("SOP") 98-1, Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use. This standard
requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. SOP 98-1 also requires that costs related to the
preliminary project stage and post-implementation/operations stage of an
internal-use computer software development project be expensed as incurred.

STOCK OPTION PLANS

The Company maintains one active stock incentive plan that is flexible and
allows various forms of equity incentives to be issued under it. See Note 16 for
additional information regarding this plan. The Company accounts for this plan
under the recognition and measurement principles of Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related
interpretations. In prior years, the Company has recognized compensation cost
for restricted stock issued to employees. No compensation is recognized for
stock option grants to employees. All options granted under the Company plan had
an exercise price equal to the market value of the underlying common stock on
the date of grant. The following table illustrates the effects on net income
(loss) and income (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, Accounting for Stock-Based Compensation,
to

48

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

stock-based compensation. The following table also provides the amount of
stock-based compensation cost included in net income (loss) as reported.

Under the stock option plan, the exercise price of each option equals the
market value of the Company's stock on the date of grant. For purposes of
calculating the compensation costs consistent with SFAS No. 123 for option
grants, the fair value of each grant or purchase right is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in fiscal 2002, 2003 and 2004: no
expected dividend yield; expected volatility of 37 percent in 2002, 39 percent
in 2003 and 38 percent in 2004; risk-free interest rates ranging from
3.72%-5.20% in 2002, 3.53%-4.49% in 2003 and 4.09%-4.71% in 2004, and expected
lives of 4-8 years for all years.

For purposes of calculating the compensation costs consistent with SFAS No.
123 for employee stock purchase plan purchase rights, the fair value of each
purchase right is estimated on the date the purchase right is issued using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for purchase rights in fiscal 2002, 2003 and 2004: no expected
dividend yield; expected volatility ranging from 37%-38% in 2002, from 38%-39%
in 2003 and from 37%-38% in 2004; risk-free interest rates ranging from
1.57%-1.79% in 2002, 0.89%-1.14% in 2003 and 0.95%-1.71% in 2004, and an
expected life of 3 months for all years.

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of the purchase price of net tangible and
identifiable intangible assets acquired in business combinations over their
estimated fair value. Other intangibles mainly represent customer relationships
and trademarks acquired in business combinations. On January 1, 2002, the
Company adopted SFAS No. 142, Goodwill and Other Intangible Assets, which
required that goodwill and intangible assets with indefinite useful lives no
longer be amortized but instead tested for impairment at least annually in
accordance with the provisions of SFAS No. 142. As result, the Company no longer
amortizes goodwill but will test it for impairment annually or whenever events
or changes in circumstances suggest that the carrying amount may not be
recoverable. Identifiable intangibles are amortized over a seven to ten year
period using the straight-line method. See additional discussion at Note 5 and
Note 7.

49

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CASH AND CASH EQUIVALENTS

Cash and cash equivalents are comprised of highly liquid investments with
original maturity dates of three months or less. As of December 31, 2004, the
Company had $8.1 million invested in an overnight investment in the form of
commercial paper.

INVENTORIES

Inventories, consisting of finished goods, are stated at the lower of cost
or market. Cost is determined using the first-in, first-out method.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements are stated at cost.

RESTRICTED CASH

Restricted cash consists of deposits held at major financial institutions
as collateral for letters of credit that secure the Company's office leases and
leases of certain of the Company's fixed assets.

IMPAIRMENT OF GOODWILL

SPSS reviews its goodwill and intangible assets with indefinite useful
lives for impairment at least annually in accordance with the provisions of SFAS
No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires the Company
the perform the goodwill impairment test annually or when a change in facts and
circumstances indicate that the fair value of an asset may be below its carrying
amount. SPSS performed an impairment test in the fourth quarter of 2003 and 2004
and no loss was required to be recognized upon completion of these tests.

LONG-LIVED ASSETS

Long-lived assets to be held and used are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount should be
evaluated. Factors leading to impairment include a combination of significant
underperformance relative to expected historical or projected future operating
results, significant changes in the manner of use of the acquired assets or the
strategy for the Company's overall business and significant negative industry or
economic trends. The assessment of recoverability is based on management's
estimate. Impairment is measured by comparing the carrying value to the
estimated and undiscounted future cash flows expected to result from the use of
the assets and their eventual disposition.

RECLASSIFICATIONS

Where appropriate, some items relating to the prior years have been
reclassified to conform to the presentation in the current year.

INCOME TAXES

SPSS applies the asset and liability method of accounting for income taxes
in which deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

50

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. The Company
adopted this effective July 1, 2003. SFAS No. 150 establishes standards for how
an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 applies
specifically to a number of financial instruments that companies have
historically presented within their financial statements either as equity or
between the liabilities section and the equity section, rather than as
liabilities. SFAS 150 is effective for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective as of January 1, 2004,
except for mandatorily redeemable financial instruments. For certain mandatorily
redeemable financial instruments, SFAS 150 will be effective on January 1, 2005.
The effective date has been deferred indefinitely for certain other types of
mandatorily redeemable financial instruments. The implementation of SFAS No. 150
applies to the Company's October 22, 2001 agreement with America Online, Inc.,
and its November 4, 2003 agreement with Data Distilleries B.V. Both agreements
included clauses relating to puttable share options that have resulted in the
presentation of this "Common Stock Subject to Repurchase" as temporary
shareholders' equity on the consolidated balance sheet. See Note 7.

In December, 2004, the FASB issued SFAS No. 123R, "Share-Based Payment".
This statement is a revision of SFAS No. 123, Accounting for Stock-Based
Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. SFAS 123R requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values. The provisions of this statement are effective for
interim or annual periods beginning after June 15, 2005. The Company is
currently evaluating the provisions of this revision to determine the impact on
its consolidated financial statements. It is, however, expected to have a
negative effect on consolidated net income.

In December 2004, the FASB decided to defer the issuance of their final
standard on earnings per share (EPS) entitled "Earnings per Share -- an
Amendment to FAS 128". The final standard will be effective in 2005 and will
require retroactive application for all prior periods presented. The significant
proposed changes to the EPS computation are changes to the treasury stock method
and contingent share guidance for computing year-to-date diluted EPS, removal of
the ability to overcome the presumption of share settlement when computing
diluted EPS when there is a choice of share or cash settlement and inclusion of
mandatorily convertible securities in basic EPS. The Company is currently
evaluating the proposed provisions of this amendment to determine the impact on
its consolidated financial statements.

In December 2004, the FASB issued FSP FAS 109-1, Application of FASB No.
109, Accounting for Income Tax, to the Tax Deduction on Qualified Production
Activities Provided by the American Jobs Creation Act of 2004. FSP FAS No. 109-1
clarifies SFAS No. 109's guidance that applies to the new tax deduction for
qualified domestic production activities. FSP No. 109-1 became effective upon
issuance and we believe that this pronouncement will have an insignificant
impact on our effective tax rate in 2005.

In December 2004, the FASB issued FSP FAS 109-2, Accounting and Disclosure
Guidance for the Foreign Repatriation Provision within the American Jobs
Creation Act of 2004. FSP FAS 109-2 provides implementation guidance related to
the repatriation provision of the American Jobs Creation Act of 2004. The
Company has completed an assessment of earnings of foreign subsidiaries that
might be repatriated. At this time, the Company does not expect to repatriate
the earnings of our foreign subsidiaries as dividends to take advantage of this
tax deduction. The Company has started an evaluation of the effects of the
repatriation provision. The Company expects to complete our evaluation on the
effects of the repatriation provision within the first three fiscal quarters of
2005.

51

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(2) DOMESTIC AND FOREIGN OPERATIONS

The net assets, net revenues and net income of international subsidiaries
as of and for the years ended December 31, 2002, 2003 and 2004 included in the
consolidated financial statements are summarized as follows:

Net revenues per geographic region, attributed to countries based upon
point of sale, are summarized as follows:

Long-lived assets, excluding restricted cash and long-term deferred tax
assets, per geographic region are summarized as follows:

52

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(3) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements consist of the following at
December 31:

During 2002, 2003 and 2004, SPSS capitalized $5,541, $1,109 and $792,
respectively, and amortized $461, $607 and $1,414, respectively, of internal-use
computer software.

SPSS purchased Siebel technology in June 2001 as part of its effort to
replace current systems for sales force automation and technical support. An
important consideration in this purchase was the designation by Siebel of SPSS
as a Strategic Software Partner in the Siebel Alliance Program. During 2003,
SPSS terminated its Siebel CRM implementation due to difficulties with the
architecture of the Siebel technology, its high projected costs of
implementation and ownership, and the termination in October 2003 of the
strategic partnership. As a result, in December 2003, the Company wrote off
approximately $4,447 of internal use computer software related to the
termination of its Siebel CRM implementation. SPSS is currently implementing
sales force automation software provided by Salesforce.com. During 2004, the
Company determined that approximately $1,505 of computer equipment and software
no longer had continuing value, and was written off in the consolidated
financial statements. Additionally, in 2004, the Company sold property that
previously held the SPSS Limited Quantime offices in London, England. The
property was sold total proceeds of $2,633 and the Company recognized a gain on
the sale of $771.

(4) SOFTWARE DEVELOPMENT COSTS AND PURCHASED SOFTWARE

Activity in capitalized software is summarized as follows:

53

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of net capitalized software are summarized as follows:

Total software development expenditures, including amounts expensed as
incurred, amounted to approximately $52,693, $53,777, and $56,973 for the years
ended December 31, 2002, 2003 and 2004, respectively.

Included in acquired software technology at December 31, 2003 and 2004 is
$1,368 and $1,117, respectively, of technology, net of accumulated amortization,
resulting from the merger with NetGenesis Corp. Also included in acquired
software technology at December 31, 2003 and 2004 is $661 and $459,
respectively, of technology resulting from the purchase of LexiQuest and netExs,
both of which occurred in 2002 (see Note 7).

During 2003, the Company reduced the carrying value of $1,965 of net
capitalized software technology to net realizable value. Additionally, the
Company wrote off $589 of net capitalized software technology made redundant
with the acquisition of Data Distilleries, B.V.

(5) GOODWILL AND INTANGIBLE ASSETS

Goodwill is subject to at least annual assessments for impairment by
applying a fair-value based test. An acquired intangible asset is required to be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the asset can be sold, transferred,
licensed, rented or exchanged, regardless of the acquirer's intent to do so.
Based on an analysis of economic characteristics and how it is operated, SPSS
concluded it has a single reporting unit. The Company's policy is to conduct an
impairment test for goodwill at December 31 of each year or when other
impairment indicators are present. As of December 31, 2003 and 2004, SPSS
determined that no impairment loss was required.

54

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Intangible asset data are as follows:

The aggregate amortization expense for the years ended December 31, 2002,
2003 and 2004 was $40, $73, and $238, respectively.

The following tables present the changes in the carrying amount of goodwill
and other intangibles as of December 31, 2003 and December 31, 2004:

55

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) INTANGIBLE ASSETS

Intangible assets consist of the following at December 31:

(7) ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

America Online Digital Marketing Services

On October 22, 2001, SPSS entered into a strategic alliance with America
Online, Inc. (AOL) through its Digital Marketing Services (DMS) subsidiary, in
which SPSS acquired certain operating assets and the exclusive rights to
distribute survey sample data drawn from AOL members and users of AOL's other
interactive properties. The agreement provided SPSS additional opportunities to
market its products to market research partners and provide revenues from
services provided to current and future customers. Under this agreement, SPSS
was to pay AOL $42,000 in consideration over four years and assume primary
responsibility for servicing the current group of AOL market research partners.
Consideration due to AOL was in the form of $12,000 of SPSS common stock and
$30,000 in cash.

The non-contingent purchase price, consisting of common stock of $3,000 and
$1,000 in cash, was allocated to the estimated fair value of the assets received
based upon a third party valuation and is summarized as follows:

Payments made by SPSS for services received from AOL subsequent to the
acquisition are recorded as expense when the services are rendered. Payments
made by the Company included cash and common stock. The Stock Purchase Agreement
included provisions that required SPSS to purchase the stock back from AOL if
the Company was unable to maintain the effectiveness of a registration statement
for AOL to sell the stock. Accordingly, the common stock is classified as
temporary equity in the consolidated balance sheet as "Common Stock Subject to
Repurchase." Upon the adoption SFAS No. 150, the common stock was reclassified
to permanent equity. Also on July 1, 2003, the estimated fair value of the put
obligation of $150 was reclassified as a liability from permanent equity.

On October 14, 2003, the Company entered into an amended and restated Stock
Purchase Agreement and an amended and restated Strategic Online Research
Services Agreement with AOL, effective as of October 1, 2003. The amended and
restated agreements replaced the original agreements entered into between the
parties on October 22, 2001. Under these amended and restated agreements, SPSS
retained the exclusive right to provide researchers with survey respondents
drawn from the millions of Opinionplace.com visitors throughout AOL's
interactive properties. The primary amendments reduce the remaining term of the
original

56

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

agreement from two years to one year and make the following adjustments to the
financial obligations of SPSS to AOL:

Other provisions specify conditions for subsequent extensions of the
Research Services Agreement, enable stronger joint management oversight,
strengthen SPSS marketing efforts, and improve the experience of survey
participants.

LexiQuest, S.A.

On January 31, 2002, SPSS acquired all of the issued and outstanding shares
of capital stock of LexiQuest, S.A., a corporation organized under the laws of
France. The terms and conditions of the acquisition are specified in a Stock
Purchase Agreement, dated as of January 31, 2002 and amended as of March 16,
2002, by and among SPSS, LexiQuest and the owners of all of the issued and
outstanding shares of capital stock of LexiQuest. Under French law, LexiQuest
employees retained options to purchase shares of LexiQuest capital stock, which
could be exercised in the future to acquire a de minimis percentage of
LexiQuest's issued and outstanding shares of capital stock.

The aggregate purchase price for all of the issued and outstanding shares
of capital stock of LexiQuest was determined by the parties in arms-length
negotiations and consisted of guaranteed and contingent components. The
guaranteed portion of the purchase price consisted of a payment of $2,500. SPSS
was not required to make any contingent payments to the former owners of
LexiQuest because the contribution generated by the LexiQuest assets did not
meet the targeted levels during 2002 and 2003.

Under the terms of the stock purchase agreement and a separate escrow
agreement, the guaranteed portion of the purchase price was deposited with Bank
One NA (f/k/a American National Bank and Trust Company of Chicago) as escrow
agent. The parties entered into the separate escrow agreement to establish an
escrow fund of $2,500 to compensate SPSS for any losses it might incur by reason
of any breach of: (a) the representations and warranties of LexiQuest or (b) any
covenant or obligation of LexiQuest or the former shareholders of LexiQuest,
identified in the stock purchase agreement. The guaranteed portion of the
purchase price was required to remain in escrow for a one-year period, or until
all of the conditions for its release were satisfied under the terms of the
stock purchase agreement and the escrow agreement. On January 31, 2003, SPSS
made a claim against the escrow fund. SPSS and the LexiQuest shareholder
representative settled this claim in the second fiscal quarter of 2004 and SPSS
received approximately $670 which resulted in an adjustment to decrease goodwill
by $434.

The purchase price was allocated to the estimated fair value of the assets
received and liabilities assumed based upon a third party valuation which are
summarized as follows:

netExs LLC

On June 20, 2002, SPSS acquired the assets described below which
constituted a business from netExs LLC, a Wisconsin limited liability company.
The terms and conditions of the asset purchase are specified in

57

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

an Asset Purchase Agreement, dated June 20, 2002, by and among SPSS, netExs and
the members of netExs listed as signatories thereto.

The assets purchased by SPSS include: (a) all ownership rights in netExs
software and related documentation, copyrights, trademarks, service marks, brand
names, trade names, trade dress, commercial symbols and other indications of
origin, patents and applications for patents, proprietary information and trade
secrets and other proprietary rights; (b) identified tangible personal property
of netExs; (c) identified accounts and accounts receivable; and (d) identified
contracts.

The technology acquired from netExs consists of zero-client Web-enabled
user interface technology for query and reporting functions that are tightly
integrated with Microsoft SQL Server 2000 Analysis Services. SPSS considers the
acquired technology important to serving the analytical reporting needs of the
sizeable number of its customers and prospects that it believes are adopting
Microsoft's platform.

The aggregate purchase price for the netExs assets was determined by the
parties in arms-length negotiations and consisted of guaranteed and contingent
payments. The guaranteed portion of the purchase price in the amount of $1,000
was delivered by SPSS to netExs.

Under the terms of the Asset Purchase Agreement, the contingent portion of
the purchase price, which was capped at a total of $1,450 if fully earned during
fiscal years 2003, 2004 and 2005, would be paid to netExs if the net revenues
generated by the assets acquired during the annual periods (as defined in the
Asset Purchase Agreement) equaled or exceeded certain targeted projections. In
June 2004, pursuant to an agreement between SPSS and netExs, SPSS paid to netExs
the sum of $400 in full satisfaction of all obligations under the Asset Purchase
Agreement, including without limitation, the contingent payments, and in full
settlement of certain claims asserted by netExs.

The following summary presents information concerning the purchase price
allocation for the netExs acquisition accounted for under the purchase price
method.

Data Distilleries B.V.

On November 4, 2003, SPSS, through SPSS International B.V., its wholly
owned subsidiary, acquired Data Distilleries B.V., a Netherlands-based developer
of analytic applications. The terms and conditions of the acquisition are
specified in a Stock Purchase Agreement, by and among SPSS, SPSS International
B.V. and the owners of all of the issued and outstanding shares of the capital
stock of Data Distilleries. The aggregate purchase price for all of the issued
and outstanding capital stock of Data Distilleries consists of guaranteed and
contingent payments. The guaranteed portion of the purchase price was paid at
closing and consisted of a payment of $1,000 in cash and 282 shares of SPSS
common stock valued at $5,311 for purposes of this transaction. The contingent
portion of the purchase price is required to be paid, if at all, at the end of
the first and second years following the closing. The Company's obligation to
make the contingent payments depends on the achievement of certain growth
targets for license and maintenance revenues from the Data Distilleries
applications. SPSS was not required to make any contingent payments to the
former owners of Data Distilleries during 2004 because these growth targets were
not met in 2004. If these growth targets are met at the end of the second year
following the closing, SPSS may be obligated to make a contingent payment in the
amount of up to $1,989 at current estimated exchange rates.

In connection with the Data Distilleries transaction, SPSS incurred an
estimated $1,800 in transaction fees, including legal, valuation and accounting
fees. The purchase price of $6,311 has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis of
their estimated fair

58

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

values on the acquisition date. The results of operations of Data Distilleries
are included in the Consolidated Statements of Operations from the date of the
acquisition.

The shares issued in the acquisition of Data Distilleries have been valued
in accordance with EITF Issue No. 99-12, "Determination of the Measurement Date
for the Market Price of Acquirer Securities Issued in a Purchase Business
Combination." In accordance with EITF No. 99-12, the Company has established
that the first date on which the number of our shares and the amount of other
consideration became fixed was November 4, 2003. Accordingly, the Company valued
the shares issued in the transaction at $18.84 per share utilizing the average
closing price for a few days before and after November 4, 2003.

The acquisition of Data Distilleries was accounted for under SFAS No. 141
and certain specified provisions of SFAS No. 142. The following table summarizes
the estimated fair values of the tangible assets acquired and the liabilities
assumed at the date of acquisition:

Under the terms of the November 4, 2003 Stock Purchase Agreement with Data
Distilleries, the Company was obligated to file a Registration Statement on Form
S-3 to register the potential resale of the 282 shares issued to Data
Distilleries shareholders in the transaction. This contingent obligation
required the Company to classify the common stock as temporary equity labeled
"Common Stock Subject to Repurchase" at December 31, 2003. Because the Company's
Annual Report on Form 10-K for fiscal year 2003 was not timely filed, SPSS
became ineligible to use Form S-3 and was not able to register the shares by the
required April 2004 filing date. The Company fulfilled its obligation under the
Stock Purchase Agreement by repurchasing from each former Data Distilleries
shareholder the number of shares of SPSS common stock received by such
shareholder in connection with this transaction. During April 2004, SPSS
notified the former shareholders of the Company's inability to properly register
these shares and through June 30, 2004, the Company repurchased all 282 shares
at a cost of $5,400. The Company has reflected the $5,400 cash payout of these
shares as a reduction of common stock subject to repurchase, which was recorded
as temporary shareholders' equity in the consolidated balance sheet at December
31, 2003.

DIVESTITURES

On December 29, 2003, the Company received its first payment in a
transaction with Systat Software, Inc., a subsidiary of Cranes Software
International Ltd. ("Systat"), pursuant to which Systat acquired from SPSS an
exclusive worldwide license to distribute the Sigma-series line of products for
a three-year period and purchased certain related assets. Pursuant to the
agreement, Systat assumed all responsibilities for the marketing and sales of
the products as well as their ongoing development and technical support. SPSS
also transferred to Systat all rights and obligations with respect to customers
and personnel and all fixed assets related to the Sigma-series products (the
"Related Assets"). In exchange for the exclusive worldwide license and Related
Assets, Systat was obligated to make cash payments to SPSS in the aggregate
amount of $13,000. The agreement between SPSS and Systat also grants to Systat
an option to purchase the licensed property. Systat may exercise this purchase
option for $1,000 within 180 days prior to the end of the three-year license
period.

The $9,000 payment made by Systat to SPSS on December 29, 2003 includes the
initial $6,000 license fee and $3,000 in consideration of the related assets.
Systat was obligated to make additional license payments in the aggregate amount
of $3,000 in 2004, which is included in other current assets in the accompanying
Consolidated Balance Sheet at December 31, 2003, and a final license payment of
$1,000 in 2005. SPSS has received all of the license payments due in 2004 as of
December 31, 2004.

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SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The distribution license and sale of the Related Assets of the Sigma-series
product line was accounted for as a divestiture of a business. The sale resulted
in a gain of $8,577 during 2003. In addition to the net book value of the assets
sold, goodwill was reduced by $1,000 to reflect the estimated goodwill allocated
to this business. During 2004, SPSS recorded an $82 adjustment to reduce certain
professional fee accruals associated with this transaction.

(8) INVESTMENT IN CONSOLIDATED SUBSIDIARY

On March 30, 2001, SPSS purchased 50% of the then-issued and outstanding
shares of common stock of Illumitek Inc. for $2,000. Subsequent to its initial
investment, SPSS issued Illumitek a note receivable of $3,250 due on December
31, 2004. In the fourth quarter of 2001, SPSS began advancing Illumitek funds to
meet ongoing obligations. Jack Noonan, President and Chief Executive Officer of
SPSS, and Mark Battaglia, the former President, SPSS Business Intelligence,
served as directors of Illumitek until September 30, 2002, the date on which
they resigned as Illumitek directors. Mr. Noonan also served as a member of the
Compensation Committee of the Board of Directors of Illumitek until September
30, 2002. Following their resignation, Illumitek's shareholders agreed to
terminate the company's operations, wind up its affairs and liquidate. This
decision was finalized by October 28, 2002. As part of the liquidation,
Illumitek agreed to transfer to SPSS, Illumitek's nViZn platform, in which SPSS
had been granted a security interest. nViZn is a development platform for
creating or embedding interactive, visual analysis applications that combine the
power of predictive analytics, data visualization, and user interactivity. In
exchange for the assignment of this asset, SPSS released Illumitek of its
obligations under the note receivable, pursuant to an Assignment and Release
Agreement dated October 31, 2002. SPSS acquired the nViZn platform, but did not
record an asset, as its recoverability was uncertain.

Under the equity method of accounting, followed until September 30, 2001,
SPSS recorded a reduction in the value of its investment to reflect its portion
of Illumitek's net loss. Subsequent to September 30, 2001, the results and
accounts of Illumitek were consolidated with those of SPSS until its liquidation
in October 2002, at which time SPSS recorded a loss of $518.

(9) COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

SPSS leases its office facilities, storage space, and some data processing
equipment under lease agreements expiring through the year 2012. Minimum lease
payments indicated below do not include costs such as property taxes,
maintenance, and insurance.

The following is a schedule of future noncancellable minimum lease payments
required under operating leases as of December 31, 2004:

Rent expense related to operating leases was approximately $12,821, $13,392
and $14,409 during the years ended December 31, 2002, 2003 and 2004,
respectively.

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SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

HYPERION SOLUTIONS

Through its strategic relationship with Hyperion Solutions, SPSS has rights
to distribute the Essbase/400 software while Hyperion Solutions maintains
limited distribution rights. Essbase/400 enables SPSS to reach a broader
customer base, including users of multidimensional analyses, and offers the
Company new partnering opportunities.

LITIGATION

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

SPSS has been named as a defendant in a lawsuit filed on or about May 14,
2004, and amended on September 30, 2004, in the United States District Court for
the Northern District of Illinois, under the caption Fred Davis, Individually
and On Behalf of All Others Similarly Situated v. SPSS Inc., Jack Noonan, Edward
Hamburg and KPMG LLP, Case No. 04C3427. The complaint alleges that the
defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of
1934, and Rule 10b-5 promulgated thereunder. The complaint alleges that the
defendants failed to disclose and misrepresented a series of material adverse
facts regarding the Company's revenues. The complaint seeks to recover
unspecified compensatory damages, reasonable attorney fees, experts' witness
fees and other costs and any other relief deemed proper by the court on behalf
of all purchasers of the Company's securities between May 2, 2001 and March 30,
2004, although no court has determined that such persons constitute a proper
class. On December 15, 2004, SPSS, Mr. Noonan and Dr. Hamburg filed a motion to
dismiss the amended complaint. On January 28, 2005, the Lead Plaintiff filed a
memorandum in opposition to the motion to dismiss the amended complaint filed by
SPSS, Mr. Noonan and Dr. Hamburg. On February 18, 2005, SPSS, Mr. Noonan and Dr.
Hamburg filed a reply memorandum in support of their motion to dismiss. SPSS,
Mr. Noonan and Dr. Hamburg believe that the suit is without merit and intend to
defend vigorously against the allegations contained in the complaint.

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

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SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) OTHER NONCURRENT ASSETS

Other noncurrent assets consist of the following at December 31:

(11) FINANCING ARRANGEMENTS

On March 31, 2003, SPSS entered into a four (4) year, $25 million credit
facility with Wells Fargo Foothill, Inc. (f/k/a Foothill Capital Corporation).
The Wells Fargo Foothill facility includes a four (4) year term loan in the
amount of $10,000, two revolving lines of credit and a letters of credit
facility not to exceed $3,000. The maximum amount SPSS may borrow under Revolver
A will depend upon the value of the Company's eligible accounts receivable
generated within the United States. Revolver B provides for a credit facility of
up to $3,500 provided that no event of default exists. As of December 31, 2004,
the Company had availability of $6,000 under the revolving lines of credit.

The terms and conditions of the Wells Fargo Foothill credit facility are
specified in a Loan and Security Agreement, dated as of March 31, 2003, by and
between Foothill and SPSS. The term loan portion of the facility bears interest
at a rate of 2.5% above prime, with potential future interest rate reductions of
up to 0.5% in the interest rate based upon the Company's achievement of
specified EBITDA targets. One component of the revolving line of credit will
bear interest at a rate of prime plus 3.0%. On the remainder of the revolving
line of credit, SPSS may select interest rates of either prime plus 0.25% or
LIBOR plus 2.5% with respect to each advance made by Foothill. The credit fee
rate for letters of credit is 2.0% per annum times the daily balance of the
undrawn amount of all outstanding letters of credit. In May 2003, the Company
began paying down evenly the term loan of $10,000 over the four (4) year period
(i.e., $2,500 per year over four (4) years). As a result of the refinancing,
$6,000 of the Company's line of credit borrowings of $8,500 that existed as of
December 31, 2002 was classified as long-term. At December 31, 2004, SPSS had
$5,881 outstanding under its line of credit with Foothill, including $2,500
classified as current notes payable and the face amount of letters of credit
issued and outstanding under the existing credit facility totaled approximately
$893.

The Wells Fargo Foothill facility requires SPSS to meet certain financial
covenants including minimum EBITDA targets and includes additional requirements
concerning, among other things, the Company's ability to incur additional
indebtedness, create liens on assets, make investments, engage in mergers,
acquisitions or consolidations where SPSS is not the surviving entity, sell
assets, engage in certain transactions with affiliates, and amend its
organizational documents or make changes in capital structure. Due to the
restatement of the Company's Consolidated Financial Statements, during 2004, the
Company was not in compliance with certain covenants related to timely delivery
of financial statements. In addition, the restatement may have rendered some
representations and warranties inaccurate and may have caused the Company to
fail to satisfy certain covenants. Moreover, the Company was not in compliance
with its EBITDA covenant as of December 31, 2004. SPSS has obtained all
appropriate waivers from Wells Fargo Foothill.

The Wells Fargo Foothill facility is secured by all of the Company's assets
located in the United States. ShowCase Corporation, a Minnesota corporation and
wholly owned subsidiary of SPSS, and NetGenesis Corp., a Delaware corporation
and wholly owned subsidiary of SPSS, have guaranteed the obligations of SPSS
under the Loan and Security Agreement. This guaranty is secured by all of the
assets of ShowCase and NetGenesis.

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SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(12) OTHER INCOME

Other income consists of the following:

As noted above, the Company recognized a gain of $8,577 on the divestiture
of the Sigma-series product line during the year ended December 31, 2003. During
2004, SPSS recorded an adjustment to reduce certain professional fee accruals
associated with this transaction. See additional discussion in Note 7.

(13) SPECIAL GENERAL AND ADMINISTRATIVE CHARGES, AND MERGER-RELATED COSTS

Special general and administrative charges were $9,037 in 2002 and $6,104
in 2003, or 4% and 3%, of net revenues in 2002 and 2003, respectively. Special
general and administrative charges in 2002 included costs related to the
restructuring of the Company's field operations implemented in August 2002 and
costs related to the NetGenesis, LexiQuest and netExs transactions, such as
severance and retention payments of $4,030, lease cancellation payments of $615,
professional service fees of $2,300, and other costs. Special general and
administrative charges in 2003 include a write-off of $4,447 due to the
termination of the Company's Siebel CRM software implementation (see Note 3) and
$1,657 of severance, bonus and travel costs primarily related to the Data
Distilleries acquisition.

SPSS incurred merger-related costs of $2,260 in 2002. Merger-related
expenses relate to the Company's acquisitions made during 2002 (see Note 7).
Expenses in 2002 included professional fees of $600, severance of $1,460 and
other costs of $200. These expenses were incurred subsequent to the consummation
of the transactions. Certain other costs incurred prior to the consummation of
the transactions were capitalized as part of the purchases.

As of December 31, 2004, the Company has approximately $27 in liabilities
remaining related to these charges and expects to pay them during the year ended
December 31, 2005.

(14) INCOME TAXES

Income (loss) before income taxes and minority interest consists of the
following:

63

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income tax expense (benefit) consists of the following:

For the years ended December 31, 2002, 2003 and 2004, the reconciliation of
the statutory Federal income tax rate of 34% to the Company's effective tax rate
is as follows:

64

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets/(liabilities) at December 31, 2003 and 2004,
are presented below:

During 2004, the deferred tax assets increased and prepaid income taxes
decreased by approximately $7,700 as a result of filing amended 2001 and 2002
tax returns and reconciling the 2003 tax return amounts to 2003 provision
amounts reflecting financial statement restatements in the tax returns and net
operating loss carryforwards.

In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversals of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Management
believes it is more likely than not that the Company will realize the benefits
of these deductible differences, net of the existing valuation allowance at
December 31, 2004. The Company has not provided a valuation allowance on the
amount of deferred tax assets that it estimates will be utilized as a result of
the execution of these strategies. If the future taxable income is less than the
amount that has been assumed in assessing the recoverability of the deferred tax
assets, then an increase in the valuation allowance will be required, with a
corresponding increase to income tax expense.

As of December 31, 2004, SPSS had a U.S. net operating loss carryforward of
approximately $48,922, the majority of which begins to expire in 2021. The
Company has provided a valuation on $1,091 of the U.S. net operating loss
carryforwards. This valuation allowance relates to net operating loss
carryforwards of U.S. subsidiaries related to foreign subsidiaries which
management believes are not likely to be realized based on information available
as of December 31, 2004. In addition, as of December 31, 2004, the Company has
foreign net operating loss carryforwards of approximately $25,576 against which
the Company has provided a valuation allowance of $7,352.
65

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

As of December 31, 2004, SPSS had a Federal research and experimentation
credit carryforward and a foreign tax credit carryforward of approximately
$3,265 and $6,690, respectively, which both begin to expire in 2010. The Company
has provided a valuation allowance of $936 and $1,898, respectively for these
items at December 31, 2004.

Federal income and foreign withholding taxes have not been provided on
$83,983 of undistributed earnings of international subsidiaries of which $12,697
has been taxed in the United States. The Company has not recognized a deferred
tax liability for the undistributed earnings of its foreign operations that
arose in 2004 and prior years because the Company currently does not expect to
remit those earnings in the foreseeable future. Determination of the amount of
unrecognized deferred tax liability related to undistributed earnings of foreign
subsidiaries is not practicable.

On October 22, 2004, the American Jobs Creation Act of 2004 (AJCA) was
signed into law. The AJCA introduced a limited time 85% dividends received
deduction on the repatriation of certain foreign earnings. The deduction would
result in an approximate 5.25% federal tax rate on the repatriated earnings. To
qualify for the deduction, the earnings must be reinvested in the United States
pursuant to a domestic reinvestment plan established by a company's chief
executive officer and approved by the company's board of directors.
Additionally, certain other criteria, as outlined in the AJCA, must also be met.

The Company may elect to apply this provision to qualifying earnings
repatriations in fiscal 2005. The Company has started an evaluation of the
effects of the repatriation provision. However, the Company does not expect to
be able to complete this evaluation until after congress or the Treasury
Department provides additional clarifying language on key elements of the
provision. In January 2005, the Treasury Department began to issue the first of
a series of clarifying guidance documents related to this provision. The Company
expects to complete the evaluation on the effects of the repatriation provision
within the first three fiscal quarters of 2005.

The range of possible amounts that the Company is considering for
repatriation under this provision is between zero and $25 million. While the
Company estimates that the related potential range of additional income tax is
between zero and $2.5 million, this estimation is subject to change following
technical correction legislation that we believe is forthcoming from Congress.

(15) EMPLOYEE BENEFIT PLANS

Qualified employees may participate in the 401(k) savings plan by
contributing up to the lesser of 15% of eligible compensation or limits imposed
by the U.S. Internal Revenue Code in a calendar year. SPSS makes a matching
contribution of $0.5 for employees in the plan the entire year. SPSS made
contributions of $329, $372, and $292 for 2002, 2003, and 2004, respectively.
These matching contributions were recorded as compensation expense.

In 1993, SPSS implemented an employee stock purchase plan. The SPSS
purchase plan provides that eligible employees may contribute up to 10% of their
base salary per quarter towards the quarterly purchase of SPSS common stock. The
employee's purchase price is 85% of the fair market value of the stock at the
close of the first business day after the quarterly offering period. The total
number of shares issuable under the purchase plan is 100. Effective October
2000, the plan was amended to calculate the share price as 85% of the lower of:
i) the closing market price of the stock on the first trading day of the
quarter, or ii) the closing market price for the stock on the last trading day
after the end of the quarter. Additionally, in October 2000, a non-qualified
plan was adopted by the Company's shareholders, but not utilized until 2004.
During 2002, 34 shares were issued under the qualified purchase plan at market
prices ranging from $11.57 to $17.54. During 2003, 31 shares were issued under
the qualified purchase plan at market prices ranging from $11.05 to $15.48.
During 2004, 6 shares were issued under the qualified purchase plan at a market
price of $17.88. Because no additional shares are available for issuance under
the qualified purchase plan, SPSS terminated

66

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the qualified purchase plan in the first quarter of 2005. During 2004, 17 shares
were issued under the non-qualified purchase plan at market prices ranging from
$13.33 - $18.40.

(16) STOCK OPTIONS AND EQUITY TRANSACTIONS

On January 16, 1992, SPSS adopted a Stock Option Plan for some key
employees. Options vest either immediately or over a four-year period. In June
1995, the stockholders of SPSS adopted the 1995 Equity Incentive Plan which
authorizes the Board of Directors, under some conditions, to grant stock options
and shares of restricted stock to directors, officers, other key executives,
employees and independent contractors.

At the 1996 meeting of SPSS shareholders, the shareholders ratified the
Second Amended and Restated 1995 Equity Incentive Plan, which was amended, among
other things, to increase the shares allowed to be granted under the Plan from
600 to 1,050. In May 1999, SPSS approved the Third Amended and Restated 1995
Equity Incentive Plan, which was amended to clarify the rules governing the
treatment of attestation of shares given to SPSS for the exercise price of
options.

In May 1999, SPSS adopted the 1999 Employee Equity Incentive Plan, which
authorizes the Board, under some conditions, to grant stock options and shares
of restricted stock to non-executive officer employees and independent
contractors of SPSS.

In February 2001, the stockholders of SPSS adopted the 2000 Equity
Incentive Plan which authorizes the Board of Directors, under some conditions,
to grant stock options and shares of restricted stock to directors, officers,
other key executives, employees and independent contractors. There are 500
shares reserved for issuance under this plan.

In 2002, SPSS terminated each of its existing equity incentive plans and
the stockholders of SPSS adopted the 2002 Equity Incentive Plan. This plan was
amended and restated in October 2004. The plan authorizes the Board of Directors
to award stock options and a variety of other equity incentives to directors,
executive officers, other key executives, employees and independent contractors
of SPSS and any of its subsidiaries. Under this plan, there are 80 shares
reserved for issuance upon the exercise of option rights that qualify as
incentive stock options and 2,420 shares reserved for issuance upon the exercise
of option rights that qualify as nonqualified stock options, appreciation rights
or as restricted shares.

The Company recognized expense of approximately $207, $240 and $240 for the
fiscal years ended December 31, 2002, 2003 and 2004, respectively, related to
stock option grants to non-employees and restricted stock and restricted stock
unit grants to employees.

67

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Additional information regarding options is as follows:

The weighted average fair value of options granted during 2002, 2003, and
2004 was $8.10, $7.67 and $8.52, respectively.

The following table summarizes information about stock options outstanding
at December 31, 2004:

(17) RELATED PARTY TRANSACTIONS

During 2004, Norman Nie, the Chairman of the Board of Directors of SPSS,
received $140 for consulting work on a part-time basis through the Company's
consulting agreements with Norman H. Nie Consulting L.L.C. ("Nie Consulting").

The Company amended and restated its consulting agreement with Nie
Consulting, effective as of January 1, 2005. The terms of the Amended and
Restated Consulting Agreement, dated as of January 1, 2005, between SPSS and Nie
Consulting (the "Amended Consulting Agreement") superseded and replaced the
terms of the Company's original consulting agreement with Nie Consulting.
Pursuant to the Amended Consulting Agreement, Nie Consulting will assist SPSS
with product management for the SPSS family of products and will assist the SPSS
technology group with the development of statements of work and prioritization
of new products and features in the areas of statistics, survey research and
text mining. The Amended Consulting Agreement provides that Nie Consulting is to
receive compensation for these consulting services in the amount of $15 per
month. In addition, with the advance approval of the Company's Chief

68

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Financial Officer, Nie Consulting shall be entitled to reimbursement for
reasonable out-of-pocket expenses incurred in performing the consulting
services. The Amended Consulting Agreement shall remain in effect from January
1, 2005 until either Nie Consulting or SPSS gives a written notice of
termination at least fifteen (15) days in advance of such termination.

In addition, Dr. Nie is the Co-Chairman of the Board of Directors of
Knowledge Networks, Inc. and owns approximately 2.1% of the outstanding stock of
Knowledge Networks. Knowledge Networks utilizes SPSS products in the ordinary
course of its business. During fiscal year 2004, Knowledge Networks paid to SPSS
a total of $78 as consideration for licenses of certain SPSS products. SPSS
licensed these products to Knowledge Networks on terms equivalent to those
offered to other SPSS customers. No single transaction with Knowledge Networks
was deemed to be material. Dr. Nie did not receive and will not receive any
direct remuneration in connection with the Company's transactions with Knowledge
Networks.

William Binch, a member of the Board of Directors of SPSS, is also a member
of the Board of Directors of Saama Technologies, Inc. The Company receives
various product technology and development services from Saama Technologies,
Inc. During 2003 and 2004, the Company paid $239 and $756 as consideration to
Saama Technologies, Inc. for these services. Mr. Binch did not receive and will
not receive any direct remuneration in connection with the Company's
transactions with Saama Technologies, Inc.

As described in Note 7, SPSS purchased LexiQuest in January 2002. Dr. Nie
was the Chairman of the Board of Directors of LexiQuest and owned less than 1%
of LexiQuest common stock at the date of the acquisition.

As described in Note 7, SPSS purchased netExs in June 2002. Jonathan
Otterstatter, the Executive Vice President and Chief Technology Officer of SPSS,
was a member of the Board of Managers of netExs. Mr. Otterstatter did not
receive and will not receive any remuneration in connection with the netExs
transaction.

(18) RESTRUCTURING

During the quarter ended September 30, 2002, the Company implemented a
restructuring plan to reduce the Company's cost structure. The restructuring
resulted in the Company recording $3,700 consisting primarily of the layoff of
approximately 145 employees in the sales, marketing and administrative
functions, and approximately $600 of lease terminations and other costs incurred
in closing the Miami office. As of December 31, 2003 and 2004, none of the
restructuring charges remained in accrued liabilities.

(19) SALES, MARKETING AND SERVICES

The Company makes payments to AOL for sample surveys and services pursuant
to agreement with AOL effective October 2001 and as amended October 2003 (See
Note 7). Included in "Sales, marketing and services" were payments to AOL for
survey and services of $9,500 in 2002, $7,847 in 2003 and $3,113 in 2004. The
decrease in 2004 from 2003 and 2002 reflected the terms of the amended agreement
with AOL effective October 2003. The terms of the amended agreement resulted in
the Company amortizing services expenses already paid to AOL as of the date of
the amendment as recoveries of expense over the remaining term of the agreement.
During 2004, these recoveries of expense aggregated to $1,125.

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SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(20) UNAUDITED QUARTERLY FINANCIAL INFORMATION

The following selected quarterly data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". This information has been derived from unaudited consolidated
financial statements of SPSS that, in our opinion, reflect all recurring
adjustments necessary to fairly present our financial information when read in
conjunction with our Consolidated Financial Statements and Notes. The results of
operations for any quarter are not necessarily indicative of the results to be
expected for any future period.

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SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(21) RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

On March 15, 2004, SPSS announced that in connection with its October 2003
amended agreement with America Online, Inc. (AOL), the Company changed the
accounting for its original October 2001 transaction with AOL by expensing
substantially all AOL payments as incurred. As a result, the original
transaction would be accounted for on a basis consistent with the amended AOL
agreement and the Company would restate its financial results for fiscal years
2001, 2002 and the first three quarters of 2003.

On March 30, 2004, SPSS announced that while completing the AOL restatement
it discovered errors in its deferred revenue accounts in the 2001 and 2002
fiscal years. The Company subsequently identified other errors in its deferred
revenue accounts in the fourth quarter of 2000 and the first three quarters of
2003. In addition, SPSS announced that it would record income tax expense
associated with deemed dividend income relating to certain cash transfers from
its international subsidiaries during the fourth quarter of 2002.

SPSS went on to conduct additional examinations that resulted in various
adjustments between 1999 and 2003 including, among other items, adjustments to
the Company's income tax provisions and a change in the recognition of license
fee revenues from transactions completed by the Company's distribution partners
to account for its implied post contract support (PCS) obligations in such
transactions. All consolidated financial statements presented for 2002 and the
first three quarters of 2003 reflect the restated financials as described in the
2003 Form 10-K filed on July 29, 2004.

71

SCHEDULE II

SPSS INC.

VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2003 AND 2004

See accompanying report of independent registered public accounting firm.
72

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no changes in or disagreements with accountants during fiscal
year 2004.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. SPSS maintains disclosure controls and
procedures that have been designed to ensure that information related to the
Company is recorded, processed, summarized and reported on a timely basis. SPSS
reviews these disclosure controls and procedures on a periodic basis. In
connection with this review, SPSS has established a compliance committee that is
responsible for accumulating potentially material information regarding its
activities and considering the materiality of this information. The compliance
committee (or a subcommittee) is also responsible for making recommendations
regarding disclosure and communicating this information to the Company's Chief
Executive Officer and Chief Financial Officer to allow timely decisions
regarding required disclosure. The SPSS compliance committee is comprised of the
Company's senior legal official, principal accounting officer, senior manager in
charge of investor relations, principal risk management officer, chief
information officer and certain other members of the SPSS senior management.

The Company's Chief Executive Officer and Chief Financial Officer, with the
participation of the compliance committee, evaluated the effectiveness of the
design and operation of the Company's disclosure controls and procedures as of
the end of the period covered by this Annual Report, as required by Rule 13a-15
of the Securities Exchange Act of 1934. This evaluation included a review of
findings and advice from our independent registered public accounting firm, KPMG
LLP, arising in conjunction with its audits of the Company's financial
statements for 2003, 2002 and 2001, including the restatement of previously
issued financial statements. In connection with these audits, KPMG assessed the
internal controls of the Company and its subsidiaries and advised the Company's
Audit Committee that certain identified deficiencies collectively constituted a
material weakness. The Company's Chief Executive Officer and Chief Financial
Officer considered this material weakness and the remedial actions taken by the
Company to address this material weakness. A discussion of this material
weakness and the Company's remedial actions are set forth in the Company's
Annual Report on Form 10-K for fiscal year 2003 filed with the SEC on July 29,
2004, the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 2004 filed with the SEC on July 29, 2004, the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2004 filed with the
SEC on August 9, 2004 and the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 2004 filed with the SEC on November 4, 2004.

Further, as discussed below under the section titled "Internal Control Over
Financial Reporting," as of this date and as part of our assessment of the
effectiveness of internal controls over financial reporting at December 31,
2004, which is still in process, a material weakness regarding the preparation
and review of the Company's accounting and disclosure for income taxes was
identified.

Based on this evaluation of the Company's disclosure controls and
procedures, because of the matters discussed above, the Company's Chief
Executive Officer and Chief Financial Officer believe that as of the end of the
period covered by this Annual Report, the Company's disclosure controls and
procedures were not effective in ensuring that the information required to be
disclosed by the Company in the reports it files or submits under the Securities
Exchange Act of 1934 is recorded, processed, summarized, and reported within the
time periods specified in the rules and forms of the SEC. However, the Company
believes that the accompanying financial statements fairly present the financial
condition and results of operation for the fiscal years presented in the Annual
Report on Form 10-K, and the Company has received an unqualified audit report
from KPMG on the consolidated financial statements.

Internal Control Over Financial Reporting. Management has a responsibility
to report on the effectiveness of its internal control over financial reporting.
We are in the process of completing our evaluation and testing of internal
control over financial reporting as required by Section 404 of the
Sarbanes-Oxley Act of 2002. Management's Annual Report on Internal Control Over
Financial Reporting (required by Item 308(a) of Regulation S-K) and the
Attestation Report of the Registered Public Accounting Firm (required by Item
308(b) of Regulation S-K) have not been filed with this Annual Report, and will
be added to this
73

Annual Report by means of an amendment on Form 10-K/A in accordance with the
SEC's Exemptive Order providing for a 45-day extension of the filing of these
reports. SPSS will utilize this 45-day extension and expects to file these
reports with its Form 10-K/A prior to the 45-day deadline.

As defined by PCAOB Standard No. 2, a material weakness is a significant
deficiency, or a combination of significant deficiencies, that results in there
being more than a remote likelihood that a material misstatement of the annual
or interim financial statements will not be prevented or detected on a timely
basis by management or employees in the normal course of performing their
assigned functions.

Based on the evaluation and testing completed to date, utilizing criteria
established in Internal Control -- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission, SPSS management has
identified significant deficiencies in the Company's system of internal controls
over financial reporting. As of the date of this filing, management's assessment
has identified a material weakness in the Company's accounting and disclosure
for income taxes. This material weakness relates to management's assessment of
the adequacy of the valuation allowance for deferred tax assets, the calculation
of the income tax provisions for certain non-U.S. tax jurisdictions and income
tax disclosures.

While, as of March 16, 2005, management is not aware of any other matters
that, individually or in the aggregate, will be deemed to constitute a material
weakness, in completing our assessment of the effectiveness of internal control
over financial reporting as of December 31, 2004, we may identify additional
internal control deficiencies, which may be considered material weaknesses. SPSS
management and KPMG are continuing their respective assessment and audit of our
internal control over financial reporting and expect to report on the
effectiveness of the Company's internal control over financial reporting during
the 45-day extension referenced above. Upon completion of its assessment and
audit of our internal control over financial reporting, we believe that KPMG
will issue an adverse opinion with respect to the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004. However, the
Company believes that the accompanying financial statements fairly present the
financial condition and results of operations for the fiscal years presented in
this Form 10-K.

Changes in Internal Control Over Financial Reporting. There have been no
changes in the Company's internal control over financial reporting identified in
the evaluation that occurred during the Company's fourth quarter of fiscal year
2004 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting. However, in
response to the material weakness discussed above, during the first quarter of
2005, the Company has hired additional tax personnel with appropriate
international tax expertise. Also during 2005, the Company will continue
evaluating additional controls and procedures to further remediate this material
weakness, as necessary. Such additional procedures may include enhanced
procedures related to the review and validation of information used to compute
income taxes, global tax reporting structure and staffing requirements. We
believe these actions will strengthen our internal control over financial
reporting and address the material weakness relating to income taxes.

Inherent Limitations on the Effectiveness of Controls. Our management,
including our Chief Executive Officer and Chief Financial Officer, does not
expect that our disclosure controls and procedures or our internal control over
financial reporting will prevent or detect all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that misstatements due to error or fraud
will not occur or that all control issues and instances of fraud, if any, within
the Company will be detected.

ITEM 9B. OTHER INFORMATION

None

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

BOARD OF DIRECTORS AND MANAGEMENT OF SPSS

OFFICES AND DIRECTORS

The following table shows information as of March 1, 2005 with respect to
each person who is an executive officer or director of SPSS.

- ---------------

(1) Member of the Compensation Committee

(2) Member of the Audit Committee

(3) Member of the Nominating Committee

Norman Nie, Chairman of the Board and co-founder of SPSS, designed the
original SPSS statistical software beginning in 1967 and has been a Director and
Chairman of the Board since the Company's inception in 1975. He served as Chief
Executive Officer of SPSS from 1975 to 1991. In addition to his current
responsibilities as Chairman of the Board, Dr. Nie is a research professor in
Political Science at the Graduate School of Business at Stanford University and
a professor emeritus in the Political Science Department at the University of
Chicago. His research specialties include public opinion, voting behavior and
citizen participation. He has received three national awards for his books in
these areas. Dr. Nie received his Ph.D. from Stanford University.

Jack Noonan has served as Director as well as President and Chief Executive
Officer since joining SPSS in January 1992. Mr. Noonan was President and Chief
Executive Officer of Microrim Corp., a developer of database software products,
from 1990 until December 1991. He served as Vice President of the Product Group
of Candle Corporation, a developer of IBM mainframe system software, from 1985
to 1990. Mr. Noonan is a Director of Morningstar, Inc., Repository Technologies,
Inc. and Global View. He is a member of the advisory committee to Geneva
Technology Partners, Inc.

Raymond H. Panza, Executive Vice President, Corporate Operations, Chief
Financial Officer, and Secretary, joined SPSS in August 2004. From 2001 to 2004,
Mr. Panza was the Vice President, Finance of Thomson, a leading provider of
technology and service solutions for integrated media and entertainment
companies. From 2000 to 2001, Mr. Panza was the Vice President, Chief Financial
Officer of Thomson's Digital and New Media Services business units. From 1997 to
1999, he was the Vice President, Investments and Alliances of Ameritech
Corporation, and from 1995 to 1997, he was the Vice President and Chief
Financial Officer of Ameritech's Custom Business Services. Mr. Panza served as
the Vice President, Controller and Principal Accounting Officer at DQE and its
subsidiary, Duquesne Light Company, from 1990

75

to 1995. Mr. Panza was the Assistant Controller at Squibb Corporation from 1989
to 1990, the Vice President -- Controller of RKO General, Inc. from 1985 to
1989, and held various positions at Gulf Oil Corporation from 1975 to 1985. He
is a Certified Public Accountant and holds M.S. and B.S. degrees in accounting
from The Pennsylvania State University.

Jonathan Otterstatter, Executive Vice President and Chief Technology
Officer, joined SPSS following the merger with ShowCase Corporation in February
2001. Mr. Otterstatter was with ShowCase from 1994 until 2001 and, from 1999 to
2001, served as Senior Vice President, Technology and Services and a member of
its executive committee. Mr. Otterstatter was with IBM from 1983 to 1994 where
in his last position he was responsible for the AS/400 software platform,
including the system software plan and the system design control group. He holds
an M.S. degree in management of technology from the Massachusetts Institute of
Technology and a B.S. degree in computer science from the University of
Wisconsin at LaCrosse.

Charles R. Whitchurch has been a director of SPSS Inc. since October 2003.
Since September 1991, Mr. Whitchurch has served as the Chief Financial Officer
and Treasurer of Zebra Technologies Corporation. From 1981 until September 1991,
he served as Vice President, Finance of Corcom, Inc., a technology company
specializing in the control of radio frequency interference. In addition, Mr.
Whitchurch previously held positions as Chief Financial Officer of Resinoid
Engineering Corporation and as a Corporate Services Officer with Harris Bank in
Chicago. He holds a bachelors degree in economics (Phi Beta Kappa) from Beloit
College and an MBA from Stanford University.

Merritt Lutz has been a Director of SPSS since 1988. He is currently an
Advisory Director of Morgan Stanley, managing its strategic technology
investments and partnerships. Previously, he was President of Candle
Corporation, a worldwide supplier of systems software from, 1989 to 1993. Mr.
Lutz is a Director of Interlink Electronics, Inc. (NASDAQ: LINK) and three
privately held software companies: SendMail, ThruPoint and Business Engine
Software. He is a former Director of Information Technology Association of
America and the NASD Industry Advisory Committee. Mr. Lutz holds a bachelors and
masters degree from Michigan State University.

Michael Blair has been a Director of SPSS since July 1997. On November 15,
2004, Mr. Blair retired as a payroll business co-leader at Hewitt Associates,
Inc., a global human resources outsourcing and consulting firm. He joined Hewitt
after Hewitt's 2003 acquisition of Cyborg Systems, Inc. Before assuming that
role, Mr. Blair served as the Chairman, Chief Executive, and founder of Cyborg
Systems, Inc., a human resource management software company that he founded in
1974. Mr. Blair currently is a director of Computer Corporation of America,
Repository Technologies, Inc., Showingtime.com and Delaware Place Bank. He is a
board member and past president of the Chicago Software Association and a board
member of the Hinsdale Hospital Foundation. Mr. Blair holds a bachelors degree
in mathematics with a minor in physics from the University of Missouri.

Promod Haque has been a Director of SPSS since the merger with ShowCase
Corporation in February 2001. Dr. Haque was a Director of ShowCase from March
1992 until the merger with SPSS. He joined Norwest Venture Partners, a venture
capital firm, in November 1990 and is currently Managing Partner of Norwest
Venture Partners VI, Norwest Venture Partners VII and Norwest Venture Partners
VIII, and General Partner of Norwest Venture Partners V and Norwest Equity
Partners IV. Dr. Haque is a Director of Extreme Networks, Inc., Primus Knowledge
Solutions and several privately held companies. He holds an M.S. and a Ph.D. in
electrical engineering from Northwestern University, an M.M. from Northwestern
University and a B.S. in electrical engineering from the University of New
Delhi, India.

William Binch has been a director of SPSS since the merger with ShowCase
Corporation in February 2001. Mr. Binch was a director of ShowCase from 1999
until the merger with SPSS. Mr. Binch is a professional independent director
with extensive experience in worldwide sales, enterprise applications and
analytics. He serves as a member of the Board of Directors of three other
companies: SeeCommerce (Executive Chairman), Medefinance, Inc. and Saama
Technologies, Inc. Previously, Mr. Binch was senior vice president at
Hyperion/Arbor from July 1997 to May 1999. He was a senior executive at Business
Objects and Prism, two business intelligence and data warehousing companies. Mr.
Binch served for five years at

76

Oracle, finally as vice president of strategic accounts. He has held executive
sales positions at IBM, Itel and Fortune Systems.

Kenneth Holec has been a director of SPSS since the merger with ShowCase
Corporation in February 2001. Mr. Holec was the president and chief executive
officer and a member of the board of directors of ShowCase from November 1993
until the merger with SPSS. From 1985 to 1993, he was President and Chief
Executive Officer of Lawson Software, a provider of high-end financial and human
resource management software solutions. Currently, Mr. Holec is a Managing
Partner at TripleTree, a boutique investment bank, a Director of Stellent, Inc.,
a maker of Web-based content management products, a Director of SwiftKnowledge
and a Director of Talent Networks.

The SPSS Board of Directors is divided into three classes serving staggered
three-year terms. Mr. Binch, Mr. Whitchurch and Dr. Nie are each serving a
three-year term expiring at the 2005 annual meeting. Mr. Noonan, Dr. Haque and
Mr. Blair are each serving a three-year term expiring at the 2006 annual
meeting. Mr. Lutz and Mr. Holec are each serving a three-year term expiring at
the 2007 annual meeting. The executive officers named herein have terms expiring
at the next annual meeting or when their successors are duly elected and
qualified.

AUDIT COMMITTEE

The SPSS Board of Directors has established an Audit Committee of the Board
for the purpose of overseeing the accounting and financial reporting process of
SPSS and the financial audits of SPSS. The functions of the Audit Committee
include (a) assisting the SPSS Board of Directors in its oversight of the
quality and integrity of the Company's internal controls over financial
reporting and internal audit function; (b) the appointment, replacement,
compensation and oversight of the Company's independent auditors; (c) approving
services provided by the Company's independent auditors before those services
are rendered and evaluating the possible effect the performance of such services
will have on the auditors' independence; (d) reviewing the Company's financial
disclosure documents and discussing these documents with both management and the
Company's independent auditors prior to public release; (e) establishing
procedures for the receipt, retention and treatment of complaints received by
the Company regarding accounting, internal accounting controls or auditing
matters; (f) discussing with management the Company's process for managing
business and financial risk; and (g) assisting the Company in complying with
significant applicable legal, ethical and regulatory requirements.

The three members of the Audit Committee are Charles R. Whitchurch, Michael
Blair and William Binch. The Board has determined that each of Mr. Whitchurch,
Mr. Blair and Mr. Binch has sufficient knowledge and literacy in financial and
accounting matters to serve on the Audit Committee. The Board has also
determined that Mr. Whitchurch, the chairman of the Audit Committee, qualifies
as an "audit committee financial expert." Each of Mr. Whitchurch, Mr. Blair and
Mr. Binch qualifies as an independent Board member under the applicable rules.
In connection with the passage of the Sarbanes-Oxley Act of 2002, the Securities
and Exchange Commission has amended the definition of audit committee
"independence" under the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder. Further, the Nasdaq National Market has
amended the definition of "independence" set forth in its listing standards. The
Board has determined that each of Mr. Whitchurch, Mr. Blair and Mr. Binch
satisfies the definition of independence under both the Exchange Act and the
Nasdaq listing standards. The Board made each of the above determinations based
on information that the Company requested from each member of the Audit
Committee regarding his experience with financial and accounting matters.

STOCKHOLDER NOMINATIONS

No changes have been made to the procedures by which SPSS stockholders may
recommend nominees to the SPSS Board of Directors. Suggestions for candidates
must be made in writing and mailed to the Nominating Committee, care of the
Secretary of the Company at the Company's principal executive offices.
Nominations must be submitted in a manner consistent with the Company's By-laws.
The Company will furnish a copy of the By-laws to any person, without charge,
upon written request directed to the Secretary of

77

the Company at the Company's principal executive offices. Each candidate
suggestion made by an SPSS stockholder must include the following:

- the candidate's name, contact information, detailed biographical
material, qualifications and an explanation of the reasons why the
stockholder believes that this candidate is qualified for service on the
SPSS Board of Directors;

- all information relating to the candidate that is required to be
disclosed in solicitations of proxies for elections of directors in an
election contest, or as otherwise required, under the securities laws;

- a written consent of the candidate to being named in a Company proxy
statement as a nominee and to serving as a director if elected; and

- a description of any arrangements or undertakings between the stockholder
and the candidate regarding the nomination.

The Nominating Committee will evaluate all stockholder-recommended
candidates on the same basis as any other candidate.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires the SPSS
directors, executive officers and holders of more than 10% of the Company's
common stock to file with the Securities and Exchange Commission reports
regarding their ownership and changes in ownership of the Company's equity
securities. SPSS believes, during fiscal year 2004, that its directors,
executive officers and 10% stockholders complied with all Section 16(a) filing
requirements. In making this statement, SPSS has relied upon examination of the
copies of Forms 3, 4 and 5 provided to the Company and the written
representations of its directors, officers and 10% stockholders.

CODE OF ETHICS

On June 18, 2003, SPSS adopted the SPSS Inc. Code of Business Conduct &
Ethics (the "Code of Ethics") which is applicable to all of the SPSS directors,
officers and employees, including the Company's Chief Executive Officer, Chief
Financial Officer, Controller and other senior financial officers performing
similar functions. The Code of Ethics satisfies, and in many respects exceeds,
all of the requirements of the Sarbanes-Oxley Act of 2002 and the rules and
regulations promulgated by the Securities and Exchange Commission pursuant to
the Sarbanes-Oxley Act. The Code of Ethics also satisfies, and in many respects
exceeds, the listing standards established by the Nasdaq National Market, the
exchange on which the Company's stock is listed. The Company has posted the Code
of Ethics on its website at http://www.spss.com. The Company will furnish a copy
of the Code of Ethics to any person, without charge, upon written request
directed to the Secretary of the Company at the Company's principal executive
offices.

SPSS intends to satisfy its obligation to disclose any amendment to or
waiver of a provision of the Code of Ethics that applies to the Company's Chief
Executive Officer, Chief Financial Officer, Controller and other senior
financial officers performing similar functions by (a) disclosing such
information on a Form 8-K filed within four (4) business days of the date of
such amendment or waiver and (b) posting such information on its website at
http://www.spss.com.

ITEM 11. EXECUTIVE COMPENSATION

The following tables show (a) the compensation paid or accrued by SPSS to
the Chief Executive Officer, and each of the executive officers of SPSS, other
than the CEO, serving on December 31, 2004 (the "named executive officers") for
services rendered to SPSS in all capacities during 2002, 2003 and 2004, (b)
information relating to option grants made to the named executive officers in
2004 and (c) certain information relating to options held by the named executive
officers. SPSS made no grants of freestanding

78

stock appreciation rights ("SARs") in 2002, 2003 or 2004, nor did SPSS make any
awards in 2002, 2003 or 2004 under any long-term incentive plan.

SUMMARY COMPENSATION TABLE

- ---------------

(1) Amounts reflected in this column are for grants of stock options for the
common stock of SPSS. No stock appreciation rights have been issued by
SPSS.

(2) $94,000 of the total bonus paid to Mr. Noonan during 2004 represents a
bonus earned in fiscal year 2003.

(3) $38,750 of the total bonus paid to Mr. Noonan during 2003 represents a
bonus earned in fiscal year 2002.

(4) Securities Underlying Options/SARs for Mr. Noonan in fiscal year 2003
include 3,144 "reload" options granted after he surrendered shares of SPSS
common stock to pay the exercise price of his options.

(5) On February 12, 2002, Mr. Noonan received a grant of 3,000 shares of
restricted common stock. The value of this restricted common stock was
determined by multiplying the closing price of SPSS common stock on the
date of grant ($18.60) by the number of shares of common stock underlying
the restricted stock award. As of December 31, 2002, the value of this
restricted common stock, based on the closing price of SPSS common stock on
that date ($13.99) was $41,970. The restriction on these shares of common
stock lapsed on January 1, 2003. Dividends on these shares will be paid in
accordance with the Company's regular dividend policy.

(6) Effective as of August 16, 2004, Mr. Panza was appointed by the SPSS Board
of Directors to serve as the Company's Executive Vice President, Corporate
Operations, Chief Financial Officer and Secretary.

(7) Mr. Panza's annual base salary is $335,000. However, for the period from
August 16, 2004 (the commencement date of Mr. Panza's employment with SPSS)
through December 31, 2004, the actual amount of compensation paid by SPSS
to Mr. Panza was $125,625.

(8) $25,000 of the bonus paid to Mr. Panza during fiscal year 2004 represents
the first installment of the $100,000 sign-on bonus granted to Mr. Panza in
connection with the commencement of his employment

79

with SPSS. The payment terms of this sign-on bonus are set forth in the Mr.
Panza's employment agreement described under the section titled "Employment
Agreements" below.

(9) Prior to the commencement of Mr. Panza's employment with SPSS, Mr. Panza
provided consulting services to SPSS and received $10,000 in consideration
of such services. The terms of the consulting arrangement between SPSS and
Mr. Panza are described under the section titled "Consulting Agreements"
below.

(10) Dr. Hamburg retired and resigned from his position as the Company's
Executive Vice President, Corporate Operations, Chief Financial Officer and
Secretary, effective as of August 16, 2004. Dr. Hamburg continued to serve
as an executive officer of SPSS until December 31, 2004. Since January 1,
2005, Dr. Hamburg has served as a non-executive employee of SPSS.

(11) $153,125 of the salary payments made to Dr. Hamburg during fiscal year 2004
represent payments made in consideration of Dr. Hamburg's service as the
Company's Executive Vice President, Corporate Operations, Chief Financial
Officer and Secretary from January 1, 2004 through August 16, 2004. $91,875
of the salary payments made to Dr. Hamburg during fiscal year 2004
represent payments made in consideration of Dr. Hamburg's service as an
Executive Vice President of SPSS from August 17, 2004 through December 31,
2004. The terms by which Dr. Hamburg received payments as an Executive Vice
President from August 17, 2004 through December 31, 2004 are set forth in
Dr. Hamburg's employment agreement described under the section titled
"Employment Agreements" below.

(12) $40,000 of the total bonus paid to Dr. Hamburg during 2004 represents a
bonus earned in fiscal year 2003.

(13) $14,000 of the bonus paid to Dr. Hamburg during 2003 represents a bonus
earned in fiscal year 2002.

(14) Securities Underlying Options/SARs for Dr. Hamburg in fiscal year 2003
include 979 "reload" options granted to him after he surrendered shares of
SPSS common stock to pay the exercise price of his options.

(15) On February 12, 2002, Dr. Hamburg received a grant of 3,000 shares of
restricted common stock. The value of this restricted common stock was
determined by multiplying the closing price of SPSS common stock on the
date of grant ($18.60) by the number of shares of common stock underlying
the restricted stock award. As of December 31, 2002, the value of this
restricted common stock, based on the closing price of SPSS common stock on
that date ($13.99) was $41,970. The restriction on these shares of common
stock lapsed on January 1, 2003. Dividends on these shares will be paid in
accordance with the Company's regular dividend policy.

(16) Mr. Zanghi resigned from his position as the Company's Executive Vice
President and Chief Operating Officer, effective as of July 1, 2004. Mr.
Zanghi continued to serve as an employee of SPSS until February 19, 2005.

(17) $140,000 of the salary payments made to Mr. Zanghi during fiscal year 2004
represent payments made in consideration of Mr. Zanghi's service as the
Company's Executive Vice President and Chief Operating Officer from January
1, 2004 through July 1, 2004. $140,000 of the salary payments made to Mr.
Zanghi during fiscal year 2004 represent payments made in consideration of
Mr. Zanghi's service in an executive staff position at SPSS from July 2,
2004 through December 31, 2004. The terms by which Mr. Zanghi received
payments for service in an executive staff position at SPSS are set forth
in Mr. Zanghi's Employment Separation Agreement and Release described under
the section titled "Separation Agreement with Brian Zanghi" below.

(18) $50,000 of the total bonus paid to Mr. Zanghi during 2004 represents a
bonus earned in fiscal year 2003.

(19) During 2004, SPSS forgave Mr. Zanghi's obligation to make interest payments
in the aggregate amount of $4,421 owed with respect to his indebtedness to
NetGenesis Corp. and assumed by SPSS following the merger of the two
companies. See Item 13 under the section titled "Transactions with Brian
Zanghi."

(20) $25,000 of the bonus paid to Mr. Zanghi during 2003 represents a bonus
earned in fiscal year 2002.

80

(21) During 2003, SPSS forgave Mr. Zanghi's obligation to make interest payments
in the aggregate amount of $6,190 owed with respect to his indebtedness to
NetGenesis Corp. and assumed by SPSS following the merger of the two
companies. See Item 13 under the section titled "Transactions with Brian
Zanghi."

(22) During 2002, SPSS forgave Mr. Zanghi's obligation to make interest payments
in the aggregate amount of $7,000 owed with respect to his indebtedness to
NetGenesis Corp. and assumed by SPSS following the merger of the two
companies. See Item 13 under the section entitled "Transactions with Brian
Zanghi." He received a $65,000 sign-on bonus.

(23) $40,000 of the total bonus paid to Mr. Otterstatter during 2004 represents
a bonus earned in fiscal year 2003.

(24) $13,125 of the bonus paid to Mr. Otterstatter during 2003 represents a
bonus earned in fiscal year 2002.

(25) Mr. Shap became an employee of SPSS on December 15, 2003. Mr. Shap's annual
base salary for 2003 was $240,000. However, for the period from December
15, 2003 (the commencement date of Mr. Shap's employment with SPSS) through
December 31, 2003, the actual amount of compensation paid by SPSS to Mr.
Shap was $11,000.

The following table shows the number of options to purchase common stock
granted to each of the named executive officers during 2004.

2004 OPTION/STOCK APPRECIATION RIGHTS GRANTS(1)

- ---------------

(1) Pursuant to authority granted under the Company's Amended and Restated 2002
Equity Incentive Plan, the SPSS Board of Directors may grant additional
options to certain option holders in the event that such option holders pay
the exercise price of their options or any applicable withholding taxes by
surrendering shares of SPSS common stock. In certain cases, the Board has
granted "reload" options at the then current market price in an amount equal
to the number of shares of SPSS common stock that the option holder
surrendered.

(2) This option grant was made on February 2, 2004 and has a four-year vesting
schedule pursuant to which 2.09% of the total option becomes exercisable on
March 2, 2004 and an additional 2.09% becomes exercisable at the conclusion
of each month thereafter throughout the first, second, third and fourth
years following the vesting commencement date.

(3) This option grant was made on December 21, 2004 and has a four-year vesting
schedule pursuant to which 2.09% of the total option becomes exercisable on
January 21, 2005 and an additional 2.09% becomes exercisable at the
conclusion of each month thereafter throughout the first, second, third and
fourth years following the vesting commencement date.

81

(4) This option grant was made on October 28, 2004 and has a vesting schedule
that provides that 25% of the total option will become exercisable on August
16, 2005, an additional 2.09% will become exercisable at the conclusion of
each month of the first, second and third calendar years following August
16, 2005 and an additional 1.85% will become exercisable at the conclusion
of the final month of the third year following August 16, 2005.

(5) This option grant was made on December 21, 2004 and has a seven-year cliff
vesting schedule pursuant to which the option shall vest in full on December
21, 2011, the seventh (7th) anniversary of the grant date. However, this
seven-year cliff vesting schedule is subject to acceleration on January 1,
2006 if the SPSS Board of Directors determines that certain performance
criteria were achieved for the year ended December 31, 2005. If vesting is
accelerated, the vesting schedule shall be as follows: 25% of the total
option will become exercisable on the first anniversary of the grant date,
an additional 2.09% of the number of shares originally covered by the option
on the first day following the conclusion of each month in the second, third
and fourth years following the grant date (other than the final month of the
fourth year following the grant date); and an additional 1.85% of the number
of shares originally covered by the option on the first day following the
conclusion of the final month of the fourth year following the grant date.

(6) In satisfaction of applicable SEC regulations, the table shows the potential
realizable values of these options, upon their latest possible expiration
date, at arbitrarily assumed annualized rates of stock price appreciation of
five and ten percent over the term of the options. The potential realizable
value columns of the table illustrate values that might be realized upon
exercise of the options at the end of the ten-year period starting with
their vesting commencement dates, based on the assumptions shown above.
Because actual gains will depend upon the actual dates of exercise of the
options and the future performance of the common stock in the market, the
amounts shown in this table may not reflect the values actually realized. No
gain to the named executive officers is possible without an increase in
stock price which will benefit all stockholders proportionately. Actual
gains, if any, on option exercises and common stock holdings are dependent
on the future performance of the common stock and general stock market
conditions. There can be no assurance that the potential realizable values
shown in this table will be achieved, or that the stock price will not be
lower or higher than projected at five and ten percent assumed annualized
rates of appreciation.

AGGREGATED OPTION/STOCK APPRECIATION RIGHT EXERCISES IN 2004 AND
YEAR-END OPTION/STOCK APPRECIATION RIGHT VALUES

- ---------------

(1) All information provided is with respect to stock options. No stock
appreciation rights have been issued by SPSS.

(2) These amounts have been determined by multiplying the aggregate number of
options by the difference between $15.64, the closing price of the common
stock on the Nasdaq National Market on December 31, 2004, and the exercise
price for that option.

82

(3) These amounts have been determined by multiplying the aggregate number of
options exercised by the difference between the closing price of the common
stock on the Nasdaq National Market on the date of exercise and the exercise
price for that option.

COMPENSATION OF DIRECTORS

During fiscal year 2004, the non-employee directors serving on the SPSS
Board of Directors were entitled to receive cash compensation pursuant to the
Company's standard Board compensation arrangement. Pursuant to this standard
arrangement, each director received compensation during fiscal year 2004 in the
amounts set forth below:

- The Chairman of the Board was entitled to receive $80,000 annually for
services rendered in this capacity. All non-employee directors serving on
the Board, including the Chairman, were each entitled to receive $30,000
annually for their Board service. Norman Nie received $110,000 for both
his service as Chairman of the Board and his additional Board service
during fiscal year 2004. Michael Blair, William Binch, Kenneth Holec,
Merritt Lutz, Charles R. Whitchurch and Promod Haque each received
$30,000 for Board service during fiscal year 2004.

- The Chairman of the Audit Committee was entitled to receive $40,000
annually for services rendered in this capacity, and the additional
members of the Audit Committee were each entitled to receive $20,000
annually for their service as Audit Committee members. Mr. Whitchurch
received $40,000 for his service as the Chairman of the Audit Committee
during fiscal year 2004. Mr. Blair and Mr. Binch each received $20,000
for their service as members of the Audit Committee during fiscal year
2004.

- The Chairman of the Compensation Committee was entitled to receive
$10,000 annually for services rendered in this capacity, and the
additional members of the Compensation Committee were each entitled to
receive $5,000 annually for their service as Compensation Committee
members. Mr. Binch received $10,000 for service as the Chairman of the
Compensation Committee during fiscal year 2004. Mr. Lutz and Mr. Blair
each received $5,000 for their service as members of the Compensation
Committee during fiscal year 2004.

- The members of the Nominating Committee were each entitled to receive
$5,000 annually for their service as Nominating Committee members. The
Chairman of the Nominating Committee was not entitled to receive any
additional compensation for services rendered in this capacity. Dr. Haque
and Mr. Lutz each received $5,000 for their service as members of the
Nominating Committee during fiscal year 2004.

In addition to the cash compensation set forth above, during fiscal year
2004, the non-employee directors serving on the SPSS Board of Directors in July
1, 2004 were entitled to receive an option to purchase 5,000 shares of SPSS
common stock as a formula grant under the Company's Amended and Restated 2002
Equity Incentive Plan.

Each director was also reimbursed by SPSS for all reasonable expenses
incurred in connection with services provided as a director.

During 2004, one of the non-employee directors received additional
compensation as follows: Norman Nie received compensation in the amount of
$140,000 for consulting work on a part-time basis. See the Section titled
"Consulting Agreements," below, for further information on compensation paid to
Dr. Nie for these services.

EMPLOYMENT AGREEMENTS

Employment Agreement with Jack Noonan. SPSS amended and restated its
employment agreement with Jack Noonan, the Company's President and Chief
Executive Officer, effective as of March 1, 2005. This employment agreement
provides the terms of Mr. Noonan's employment with SPSS in these capacities.
Unless otherwise terminated, this agreement automatically will renew on a yearly
basis. The agreement provides Mr. Noonan with an annual base salary of $345,000
and an annual incentive bonus target equal to

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$345,000. Mr. Noonan's salary and bonus will be reviewed by the Compensation
Committee of the SPSS Board of Directors on an annual basis. The employment
agreement provides participation in the SPSS equity incentive plan on the same
terms as other executive officers of SPSS. Mr. Noonan is also entitled to
reimbursement for all reasonable business expenses, five (5) weeks paid vacation
per year, ten (10) days of sick leave per year and participation in the SPSS
employee benefit plans on the same terms as other executive officers of SPSS. In
the event SPSS terminates Mr. Noonan's employment without cause or Mr. Noonan
terminates his employment for good reason, Mr. Noonan will receive: (i) full
salary and benefits during the notice period, (ii) all earned but unpaid salary
plus any earned and/or awarded but unpaid cash incentive, (iii) a prorated bonus
for the fiscal quarter in which Mr. Noonan's employment was terminated, (iv)
accrued vacation pay, (v) reimbursement of expenses, (vi) a lump sum payment
equal to eighteen (18) months of base salary and bonus payment, (vii) continued
benefits or the functional equivalent thereof for a period of 36 months
following his employment, (viii) professional outplacement services, (ix)
continued use of a company mobile telephone, company telephone number and voice
mail and company e-mail for a period of not less than ninety (90) days, (x)
acceptable employment references from SPSS and (xi) immediate accelerated
vesting with regard to all previously unvested stock options owned by Mr. Noonan
or equivalent compensation for such options. The employment agreement includes a
change of control provision which provides that, in the event SPSS is acquired
by a private company, Mr. Noonan will be entitled to immediate vesting of all of
his outstanding equity incentives and, in exchange for the underlying stock, a
cash payment by the surviving entity. In the event SPSS is acquired by a public
company, Mr. Noonan will be entitled to immediate vesting of all of his
outstanding equity incentives and, in exchange for the underlying stock, a
proportionate share of the transaction consideration to be paid by the surviving
entity in connection with the change of control. If Mr. Noonan's employment is
terminated without cause, Mr. Noonan resigns for good reason or a constructive
termination occurs prior to the one year anniversary of such change of control,
Mr. Noonan will be entitled to all amounts (described above) to which he
otherwise would be entitled if SPSS terminated his employment without cause. Mr.
Noonan has agreed to preserve as confidential all of the SPSS confidential
property and to abstain from competing with SPSS during his employment and for a
period of one (1) year after employment ceases. SPSS has agreed to provide Mr.
Noonan with directors' and officers' liability coverage both during and after
the termination of Mr. Noonan's employment with SPSS (unless Mr. Noonan is
terminated for cause).

Employment Agreement with Raymond H. Panza. Mr. Panza was appointed as the
Company's Executive Vice President, Corporate Operations, Chief Financial
Officer and Secretary effective as of August 16, 2004. SPSS and Mr. Panza
subsequently entered into an employment agreement, dated as of August 16, 2004,
that provides the terms of Mr. Panza's employment with SPSS in these capacities.
Unless otherwise terminated, this agreement automatically will renew on a yearly
basis. The agreement provides Mr. Panza with an annual base salary of $335,000
and an annual incentive bonus target equal to no less than 40% of his base
salary (with actual payout dependent on SPSS performance measured against
defined metrics). Mr. Panza's salary and bonus will be reviewed by the
Compensation Committee of the SPSS Board of Directors on an annual basis. The
employment agreement provides for an initial option grant for fiscal year 2004
and continued participation in the SPSS equity incentive plan in future years on
the same terms as other executive officers of SPSS. Mr. Panza is also entitled
to a one-time sign-on bonus of $100,000 payable in four (4) equal quarterly
installments, reimbursement for all reasonable business expenses, five (5) weeks
paid vacation per year, ten (10) days of sick leave per year and participation
in the SPSS employee benefit plans on the same terms as other executive officers
of SPSS. In the event SPSS terminates Mr. Panza's employment without cause or
Mr. Panza terminates his employment for good reason, Mr. Panza will receive: (i)
full salary and benefits during the notice period, (ii) all earned but unpaid
salary plus any earned and/or awarded but unpaid cash incentive, (iii) a
prorated bonus for the fiscal quarter in which Mr. Panza's employment was
terminated, (iv) accrued vacation pay, (v) reimbursement of expenses, (vi) a
lump sum payment equal to eighteen (18) months of base salary and bonus payment,
(vii) continued benefits or the functional equivalent thereof for a period of 36
months following his employment, (viii) professional outplacement services, (ix)
any unpaid sign-on bonus, (x) continued use of a company mobile telephone,
company telephone number and voice mail and company e-mail for a period of not
less than ninety (90) days, (xi) acceptable employment references from SPSS and
(xii) immediate accelerated vesting with regard to all previously unvested stock

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options owned by Mr. Panza or equivalent compensation for such options. The
employment agreement includes a change of control provision which provides that,
in the event SPSS is acquired by a private company, Mr. Panza will be entitled
to immediate vesting of all of his outstanding equity incentives and, in
exchange for the underlying stock, a cash payment by the surviving entity. In
the event SPSS is acquired by a public company, Mr. Panza will be entitled to
immediate vesting of all of his outstanding equity incentives and, in exchange
for the underlying stock, a proportionate share of the transaction consideration
to be paid by the surviving entity in connection with the change of control. If
Mr. Panza's employment is terminated without cause, Mr. Panza resigns for good
reason or a constructive termination occurs prior to the one year anniversary of
such change of control, Mr. Panza will be entitled to all amounts (described
above) to which he otherwise would be entitled if SPSS terminated his employment
without cause. Mr. Panza has agreed to preserve as confidential all of the SPSS
confidential property and to abstain from competing with SPSS during his
employment and for a period of one (1) year after employment ceases. SPSS has
agreed to provide Mr. Panza with directors' and officers' liability coverage
both during and after the termination of Mr. Panza's employment with SPSS
(unless Mr. Panza is terminated for cause).

Employment Agreement with Edward Hamburg. On August 16, 2004, Edward
Hamburg retired and resigned as the Company's Executive Vice President for
Corporate Operations, Chief Financial Officer and Corporate Secretary (the "CFO
Position"). From August 16, 2004 through December 31, 2004, Dr. Hamburg was
employed as an Executive Vice President of SPSS. Effective January 1, 2005
through January 31, 2007, SPSS will employ Dr. Hamburg as a non-executive
employee. SPSS and Dr. Hamburg have entered into an employment agreement, dated
as of August 16, 2004, setting forth the terms and conditions of his continued
employment with SPSS. Under the terms of the agreement, from August 16, 2004
through January 31, 2005, Dr. Hamburg received a monthly salary equal to the
monthly amount that he received when serving in the CFO Position. From February
1, 2005 through January 31, 2007, Dr. Hamburg is entitled to receive $17,625 per
month for his services. Pursuant to this employment agreement, Dr. Hamburg was
eligible to receive a bonus payment under the terms of the SPSS 2004 management
bonus plan for all periods ending on or before December 31, 2004. Dr. Hamburg
will continue to be eligible to participate in both the SPSS equity incentive
program and the SPSS employee benefit plans on the same terms as all other SPSS
employees while his employment with SPSS continues. Under the terms of the
agreement, Dr. Hamburg's employment with SPSS may be terminated by SPSS for
cause or by either SPSS or Dr. Hamburg without cause: (a) upon mutual written
agreement; or (b) if Dr. Hamburg accepts employment with another organization.
If either SPSS or Dr. Hamburg terminates the employment agreement without cause,
Dr. Hamburg will receive a severance payment equal to the sum of the salary
payments to which he otherwise would be entitled from the date of such
termination through January 31, 2007. The employment agreement includes a change
of control provision which provides that, if Dr. Hamburg's employment is
terminated by a surviving entity without cause prior to the one (1) year
anniversary of such change of control, he will be entitled to: (a) immediate
vesting of all outstanding equity incentives owned by him or, in the event SPSS
is acquired by a public company, he may choose between immediate vesting or
conversion into equity incentives of the surviving company; and (b) a severance
payment equal to the severance payment described above that Dr. Hamburg would
receive if SPSS terminated his employment without cause. If Dr. Hamburg's
employment is not terminated following a change of control, the employment
agreement will remain in full force and effect.

CONSULTING AGREEMENTS

SPSS entered into a consulting arrangement, dated August 2, 2004, with
Raymond H. Panza. Pursuant to this consulting arrangement, Mr. Panza provided
SPSS with general consulting services, including without limitation, reviewing
the Company's financial information, advising the Company's financial department
with regard to this financial information and assisting the Company with the
structure of its financial department. Mr. Panza received $10,000 from SPSS in
consideration of such services. This consulting agreement included the Company's
standard restrictions regarding the disclosure of confidential information. This
consulting arrangement terminated on August 13, 2004, prior to the commencement
of Mr. Panza's employment with SPSS.

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SPSS entered into a consulting agreement (the "Nie Consulting Agreement"),
dated as of June 1, 2003, with Norman H. Nie Consulting L.L.C., an Illinois
Limited Liability Company ("Nie Consulting"). Pursuant to the Nie Consulting
Agreement, Nie Consulting is to provide services to SPSS both to assist SPSS in
re-engineering certain of its business processes and to assist SPSS on various
matters relating to the Company's business. The Nie Consulting Agreement
provides that it shall continue in effect until either Nie Consulting or SPSS
gives a written notice of termination at least fifteen (15) days in advance of
such termination. The Nie Consulting Agreement also provides that Nie Consulting
is to receive monthly compensation in the amount of $10,000 per month, provided
that from September 2003 through and including January 2004, Nie Consulting is
to receive monthly compensation in the amount of $15,000 per month. In addition,
Nie Consulting shall be entitled to reimbursement of reasonable out-of-pocket
expenses incurred in performing the consulting services. The Nie Consulting
Agreement requires that Nie Consulting refrain from disclosing confidential
information about SPSS during the term of the Nie Consulting Agreement and for a
period of five (5) years after its expiration. In addition, the Nie Consulting
Agreement requires Nie Consulting to abstain from competing with SPSS during its
consultancy and for a period of one (1) year after the consultancy ceases.
During fiscal year 2004, SPSS paid to Nie Consulting compensation in the amount
of $140,000 pursuant to this consulting agreement for services rendered during
December 2003 and all of fiscal year 2004.

On December 22, 2004, SPSS amended its consulting agreement with Nie
Consulting, effective as of January 1, 2005. The terms of the Amended and
Restated Consulting Agreement, dated as of January 1, 2005, between SPSS and Nie
Consulting (the "Amended Consulting Agreement") superseded and replaced the
terms of the Nie Consulting Agreement. Pursuant to the Amended Consulting
Agreement, Nie Consulting will assist SPSS with product management for the SPSS
family of products and will assist the SPSS technology group with the
development of statements of work and prioritization of new products and
features in the areas of statistics, survey research and text mining. The
Amended Consulting Agreement provides that Nie Consulting is to receive
compensation for these consulting services in the amount of $15,000 per month.
In addition, with the advance approval of the Company's Chief Financial Officer,
Nie Consulting shall be entitled to reimbursement for reasonable out-of-pocket
expenses incurred in performing the consulting services. The Amended Consulting
Agreement shall remain in effect from January 1, 2005 until either Nie
Consulting or SPSS gives a written notice of termination at least fifteen (15)
days in advance of such termination. SPSS and Nie Consulting agree to discuss,
on a quarterly basis, whether the services being provided by Nie Consulting are
still needed by SPSS. The Amended Consulting Agreement requires that Nie
Consulting refrain from disclosing confidential information about SPSS during
the term of the Amended Consulting Agreement and for a period of five (5) years
after its expiration. In addition, the Amended Consulting Agreement requires Nie
Consulting to refrain from engaging in any business that is competitive with the
business of SPSS, engaging, in any manner, in the development, sale, marketing,
licensing and/or distribution of any software or related product which is
directly competitive with SPSS products or engaging with any customers or
clients of SPSS during its consultancy and for a period of one (1) year after
the consultancy ceases. Nie Consulting has agreed to assign to SPSS title and
interest in any inventions developed by Nie Consulting for SPSS or any invention
developed by Nie Consulting using SPSS confidential information.

CHANGE OF CONTROL AGREEMENTS

The Company's employment agreement with each of Jack Noonan, Raymond Panza
and Edward Hamburg provides for certain benefits that may be received by the
executive officer following a change of control of SPSS. See the section titled
"Employment Agreements," above, for a description of these benefits.

SPSS entered into a change of control agreement with Jonathan Otterstatter
on April 25, 2003 and a change of control agreement with John Shap effective as
of December 15, 2003. Each of these agreements provides certain benefits to the
relevant executive officer if the executive officer is terminated or
constructively terminated following a change of control. Each agreement provides
that, if the executive officer is terminated without cause or constructively
terminated within two years following a change of control, then the executive
officer may receive benefits including (a) a severance package equal to the
greater of (i) the aggregate cash compensation received in the immediately
preceding fiscal year, or (ii) the aggregate cash compensation

86

scheduled to be received during the current fiscal year; (b) the accelerated
vesting of all previously unvested options; and (c) participation in the same
health and welfare benefits he or she received at any time within 120 days of
the change of control for eighteen (18) months following that date of such
termination.

SEPARATION AGREEMENT WITH BRIAN ZANGHI

Mr. Zanghi resigned from his position as the Executive Vice President and
Chief Operating Officer of SPSS effective July 1, 2004. In conjunction with this
resignation, SPSS and Mr. Zanghi entered into an Employment Separation Agreement
and Release, dated as of July 1, 2004. Pursuant to the terms of this agreement,
SPSS agreed to employ Mr. Zanghi in an executive staff position at SPSS from
July 2, 2004 through July 31, 2005. Under the terms of this agreement, from July
2, 2004 through September 30, 2004, Mr. Zanghi received a monthly salary equal
to the monthly base salary that he received when serving as the Company's
Executive Vice President and Chief Operating Officer. Under the terms of this
agreement, from October 1, 2004 through July 31, 2005, Mr. Zanghi was entitled
to receive $23,333.33 per month for his services. Pursuant to the separation
agreement, Mr. Zanghi was eligible to receive a bonus payment under the terms of
the SPSS management bonus plan for the fiscal quarter ended June 30, 2004.
During Mr. Zanghi employment with SPSS, he was eligible to participate in both
the SPSS equity incentive program and certain of the SPSS employee benefit
plans. Under the terms of the separation agreement, Mr. Zanghi's employment with
SPSS could be terminated by SPSS with or without cause or by Mr. Zanghi (a) upon
mutual written agreement with SPSS prior to January 1, 2005 or (b) upon ten (10)
days notice after January 1, 2005. If SPSS terminated the separation agreement
for cause, Mr. Zanghi would not be entitled to any further payments under the
agreement. If SPSS terminated the separation agreement without cause, Mr. Zanghi
would be entitled to receive both (a) a payment equal to all of the monthly
salary payments that would otherwise be payable to Mr. Zanghi from January 1,
2005 through July 31, 2005 and (b) a severance payment equal to $53,000 after
taxes. If Mr. Zanghi terminated the separation agreement, Mr. Zanghi would be
entitled to receive both (a) a payment equal to all of the monthly salary
payments that would otherwise be payable to Mr. Zanghi from January 1, 2005
through July 31, 2005 and (b) a severance payment equal to $53,000 after taxes.
If the separation agreement were to expire on July 31, 2005 according to its
terms, Mr. Zanghi would be entitled to receive a severance payment equal to
$53,000 after taxes. Under the terms of the separation agreement, within fifteen
(15) days following the termination of Mr. Zanghi's employment with SPSS, Mr.
Zanghi was required to pay SPSS the entire outstanding balance of the
indebtedness owed by Mr. Zanghi to SPSS. This indebtedness is more fully
described in Item 13 under the section titled "Transactions with Brian Zanghi."
Mr. Zanghi released SPSS from all claims that Mr. Zanghi had, has or may have
against SPSS.

As of February 2005, pursuant to the terms of this separation agreement,
SPSS gave Mr. Zanghi proper notice that SPSS was terminating his employment
without cause. SPSS paid to Mr. Zanghi all amounts owed under the separation
agreement. In addition, pursuant to the terms of the separation agreement,
effective as of February 19, 2005, Mr. Zanghi paid SPSS the entire outstanding
balance of the indebtedness owed by Mr. Zanghi to SPSS.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

William Binch, Michael Blair and Merritt Lutz were directors and members of
the Compensation Committee during fiscal year 2004. None of the members of the
Compensation Committee has ever been an officer or employee of SPSS or any of
its subsidiaries.

REPORT OF THE SPSS COMPENSATION COMMITTEE

To: The Board of Directors and Stockholders of SPSS Inc.:

During 2003, the Nasdaq National Market, on which our Common Stock trades,
amended its listing criteria to implement modified standards of independence for
its listed companies' Boards of Directors and Board committees. SPSS maintains a
Compensation Committee that satisfies these Nasdaq listing standards.

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The Company's Compensation Committee establishes and monitors the Company's
compensation philosophy and programs to enhance the link between pay and
performance.

COMPENSATION PHILOSOPHY

The general objective of the Company's executive compensation program is to
help SPSS attract and retain talented executives while at the same time
promoting the interests of the Company's stockholders. To meet this objective,
the Compensation Committee has endorsed compensation programs for executive
officers that place a substantial portion of each executive officer's potential
compensation at risk and dependent on a combination of performance criteria
which are generally considered to approximate increases in stockholder value
over the performance of SPSS. Within this philosophy, the Compensation
Committee's key objectives are to:

1. Offer a total compensation package to the Company's directors and
executive officers that is market competitive, taking into account
comparable positions at various companies within the Company's "peer
group."

2. Motivate the Company's executive officers to achieve the Company's
business objectives by providing annual incentive compensation awards that
take into account the Company's overall performance against corporate
objectives.

3. Provide meaningful equity-based, long-term incentives.

COMPENSATION PROCESS AND COMPONENTS

The components of the Company's compensation program include base salary,
cash bonuses and other incentive compensation, stock options and other
equity-based compensation as well as other benefit programs. In fiscal year
2004, the Compensation Committee reported to the Board its conclusions regarding
compensation for the executive officers, and the Board approved and concurred in
these conclusions in all respects. With respect to both Company officers other
than the executive officers and other Company employees, the Compensation
Committee has determined the framework within which compensation decisions will
be made and has delegated to the Company's Chief Executive Officer the authority
to make compensation decisions regarding these officers and employees, subject
to review and approval by the Compensation Committee.

Base Salary

Base salary is intended to provide a fixed level of compensation reflecting
the scope and nature of basic job responsibilities. The Compensation Committee
grants salary increases, if appropriate, after a review of individual
performance and an assessment of the relative competitiveness of the current
salary. In keeping with the goal of unifying the interests of the Company's
executive officers and its stockholders, base salary is designed to represent a
relatively small portion of the total compensation that the executives have the
potential to earn each year. However, depending upon (i) success in achieving
the performance goals which govern the executive officers' right to receive
bonuses, and (ii) the extent to which enhanced performance has increased the
value of equity-based compensation, base salary could represent a majority of
the compensation actually received by an executive officer in any given year.

Bonus Awards

Bonus awards recognize an executive officer's contribution to each year's
actual operating results as measured against specified performance objectives.
For executive officers other than the Chief Executive Officer, the performance
objectives for each executive officer frequently have two components: (a)
objectives relating specifically to the individual's job performance; and (b)
objectives relating to the Company's overall performance. The relative weight
given to each component may vary. When establishing performance objectives
relating to the Company's overall performance, the Compensation Committee
focuses primarily on financial performance, specifically operating and net
income. The amount of bonus compensation paid to the executive officers is
determined by comparing actual results to performance objectives established by
the

88

Compensation Committee based upon the operating budget approved by the Board of
Directors of SPSS for that year. The potential bonus is generally established as
a percentage of the executive officer's base salary. The actual percentage of
base salary which executives are entitled to receive as bonus compensation will
increase or decrease depending on the extent to which the performance objective
is achieved. In addition to regular annual bonuses the amount of which are
determined in whole or in part by the Company's financial performance, the
Compensation Committee from time to time makes special bonus awards to
individuals based upon exceptional performance. These special bonuses are not
intended to be recurring in nature, they were not taken into account in the
design of the Company's executive compensation plan and no specific percentage
of any employee's compensation has been allocated to this form of bonus.

Stock Option Plan

Stock options are considered an important component of the Company's
incentive compensation. Stock options provide the right to purchase, at fair
market value on the date of grant, a fixed number of shares of SPSS common stock
during the term of the option, which is typically ten years from the date of
grant. Options are also typically subject to vesting provisions which require
the recipients continued employment by SPSS for a period of three to five years
from the date of grant in order for the recipient to be entitled to the full
benefit of the option, although certain options granted to executives with
policy-making responsibility provide for accelerated vesting if the Company
significantly exceeds its budget projections. In determining the size of the
option grants, the Compensation Committee considers the impact of the grants on
existing stockholders' stock ownership positions and the prospective value of
the options as a performance incentive. The number of options previously awarded
to and held by executive officers is reviewed and is also considered as a factor
in determining the size of current option grants.

CHIEF EXECUTIVE OFFICER COMPENSATION

The Compensation Committee has established the CEO's base salary and bonus
employing largely the same principles described above, except that the amount of
the CEO's bonus is purely a function of the financial performance of SPSS
measured against the operating and net income goals established by the
Compensation Committee and approved by the Board of Directors at the beginning
of each year. The Compensation Committee believes that it has established a
total compensation package that compares favorably to industry standards. The
Compensation Committee considers the total salary and incentive compensation
provided to chief executives of companies in the SPSS "peer group," although it
does not target a specific percentile range within this group of similar
companies in determining the CEO's compensation.

Mr. Noonan's bonus is determined in the same manner as the other
policy-making senior executives, except that no portion of Mr. Noonan's bonus is
based on exceptional individual performance. It is the Compensation Committee's
view that the CEO's compensation should be based solely on the financial
performance of SPSS and that, for the CEO, exceptional individual performance is
so closely aligned with SPSS financial performance that the CEO's bonus should
be based solely on overall SPSS financial performance.

In 2004, Mr. Noonan received approximately twice the number of stock
options received by the other policy-making senior executives. The Compensation
Committee approved the following two stock option grants to Mr. Noonan: (i) a
grant of an option to purchase 70,000 shares at $21.10 per share effective
February 2, 2004 and (ii) a grant of an option to purchase 70,000 shares at
$15.98 per share on December 21, 2004. These options vested ratably over a
four-year vesting schedule, beginning at the conclusion of the first month
following the grant date. These options were granted with the same vesting
schedule applied to options granted to other named executive officers, which
vesting schedule was deemed appropriate by the Compensation Committee. The
Compensation Committee determined that the level of options granted to Mr.
Noonan was appropriate given the importance of his contributions to the Company.
In recommending these grants, the Compensation Committee also considered that
such grants would further the Company's policy of seeking to align the interests
of its senior executives with those of its stockholders.

89

TAX CONSIDERATIONS

To the extent readily determinable and as one of the factors in its
consideration of compensation matters, the Compensation Committee considers the
anticipated tax treatment to SPSS and to the executive officers of various
payments and benefits. Some types of compensation payments and their
deductibility (e.g., the spread on exercise of non-qualified options) depend
upon the timing of an executive officer's vesting or exercise of previously
granted rights. Interpretations of and changes in the tax laws and other factors
beyond the Compensation Committee's control also affect the deductibility of
compensation. For these and other reasons, SPSS will not necessarily and in all
circumstances limit executive compensation to the amount which is permitted to
be deductible as an expense of SPSS under Section 162(m) of the Internal Revenue
Code. The Compensation Committee will consider various alternatives to
preserving the deductibility of compensation payments and benefits to the extent
reasonably practicable and to the extent consistent with its other compensation
objectives.

COMPENSATION COMMITTEE OF SPSS INC.

William Binch
Michael Blair
Merritt Lutz

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PERFORMANCE GRAPH

The following graph shows the changes in $100 invested since December 31,
1999, in the Company's common stock, the NASDAQ 100 Stocks Index and S&P
Computer Software and Services Index, a specialized industry focus group,
assuming that all dividends were reinvested.

(PERFORMANCE GRAPH)

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The following table shows, as of March 1, 2005, the number and percentage
of shares of common stock beneficially owned by:

- each person known by SPSS to own beneficially more than five percent of
the outstanding shares of the common stock;

- each director of SPSS;

- each named executive officer of SPSS; and

- all directors and executive officers of SPSS as a group.

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Unless otherwise indicated in a footnote, each person possesses sole voting
and investment power with respect to the shares indicated as beneficially owned.

- ---------------

* The percentage of shares beneficially owned does not exceed one percent of the
Common Stock.

(1) Includes 70,000 shares through options exercisable within 60 days; 75,933
shares held of record by the Norman and Carol Nie Foundation, Inc.; and
659,353 shares held by the Norman H. Nie Revocable Trust, dated November
15, 1991. Dr. Nie shares voting and investment power over the 75,933 shares
held by the Nie Foundation with Carol Nie.

(2) Brown Capital Management, Inc. is the beneficial owner of 2,109,575 shares
of SPSS common stock and an investment advisor in accordance with Section
203 of the Investment Advisor Act. This information was taken from Brown's
Schedule 13G/A dated December 31, 2004 and filed with the SEC on February
9, 2005.

(3) T. Rowe Price Associates, Inc. is the beneficial owner of 2,050,703 shares
of SPSS common stock and an investment advisor registered under Section 203
of the Investment Advisors Act of 1940. This information was taken from T.
Rowe Price's Schedule 13G/A dated February 14, 2005 and filed with the SEC
on February 14, 2005.

(4) Daruma Asset Management, Inc. is the beneficial owner of 1,157,600 shares
of SPSS common stock and an investment advisor in accordance with Section
203 of the Investment Advisor Act. This information was taken from Daruma's
Schedule 13G/A dated August 31, 2004 and filed with the SEC on August 31,
2004.

(5) Includes 491,371 shares through options exercisable within 60 days.

(6) Includes 1,250 shares through options exercisable within 60 days.

(7) Includes 220,300 shares through options exercisable within 60 days.

(8) Includes 115,238 shares through options exercisable within 60 days.

(9) Includes 143,713 shares through options exercisable within 60 days and 333
shares registered in the name of each of Mr. Otterstatter's three minor
children.

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(10) Includes 28,356 shares through options exercisable within 60 days.

(11) Includes 70,000 shares through options exercisable within 60 days.

(12) Includes 65,000 shares through options exercisable within 60 days.

(13) Includes 45,000 shares through options exercisable within 60 days. Dr.
Haque's beneficial ownership also includes 631,044 shares held by Norwest
Equity Partners IV, L.P. and 305,455 shares held by Norwest Equity Partners
V, L.P. Dr. Haque, one of the Company's directors, is a general partner of
Norwest Equity Partners IV, L.P. and a general partner of Norwest Equity
Partners V, L.P. He shares voting and dispositive power shares held by the
Norwest funds with other general and managing partners of the Norwest
funds.

(14) Includes 45,000 shares through options exercisable within 60 days.

(15) Includes 91,000 options exercisable within 60 days and 3,500 shares
registered in the name of each of Mr. Holec's three children.

(16) Includes 9,999 shares through options exercisable within 60 days.

(17) Includes 1,060,689 shares through options exercisable within 60 days. This
calculation does not include the options exercisable by Dr. Hamburg or Mr.
Zanghi because, as of March 1, 2005, neither Dr. Hamburg nor Mr. Zanghi was
serving as an executive officer of SPSS.

(18) The business address of each of Dr. Nie, Mr. Noonan, Mr. Panza, Dr.
Hamburg, Mr. Zanghi, Mr. Otterstatter, Mr. Shap, Mr. Binch and Mr. Blair is
the office of SPSS at 233 South Wacker Drive, Chicago, Illinois 60606. The
business address for Mr. Lutz is the office of Morgan Stanley Dean Witter &
Co., 750 Seventh Avenue, 16th Floor, New York, New York 10019. The business
address for Dr. Haque is Norwest Venture Partners, 525 University Avenue,
Suite 800, Palo Alto, California 94301. The business address for Mr.
Whitchurch is the office of Zebra Technologies Corporation, 333 Corporate
Woods Parkway, Vernon Hills, Illinois 60061. The business address for Mr.
Holec is the office of TripleTree LLC, 7601 France Avenue South, Suite 150,
Edina, MN 55435. The business address for the T. Rowe Price Associates,
Inc. is 100 East Pratt Street, Baltimore, Maryland 21202. The business
address for Daruma Asset Management, Inc. is 80 West 40th Street, 9th
Floor, New York, New York 10018. The business address for Brown Capital
Management, Inc. is 1201 N. Calvert Street, Baltimore, Maryland 21202.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

SPSS has one equity based compensation plan, the SPSS Inc. Amended and
Restated 2002 Equity Incentive Plan (the "Amended and Restated Plan"). The
following table sets forth information as of December 31, 2004 concerning the
Amended and Restated Plan, which initially was approved at the 2002 Annual
Meeting of Stockholders, was subsequently amended at the 2003 Annual Meeting of
Stockholders and was amended and restated at the 2004 Annual Meeting of
Stockholders. SPSS does not have any equity compensation plans under which
shares of its common stock are authorized for issuance that were not approved by
stockholders.

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(1) As of December 31, 2004, all of the outstanding awards were stock options.

93

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

TRANSACTIONS WITH NORMAN NIE

Norman Nie, the Chairman of the Board of Directors of SPSS, received
$140,000 for consulting work on a part-time basis through Nie Consulting. In
addition, Dr. Nie is the Co-Chairman of the Board of Directors of Knowledge
Networks, Inc. and owns approximately 2.1% of the outstanding stock of Knowledge
Networks. Knowledge Networks utilizes SPSS products in the ordinary course of
its business. During fiscal year 2004, Knowledge Networks paid to SPSS a total
of $77,907 as consideration for licenses of certain SPSS products. SPSS licensed
these products to Knowledge Networks on terms equivalent to those offered to
other SPSS customers. No single transaction with Knowledge Networks was deemed
to be material. Dr. Nie did not receive and will not receive any direct
remuneration in connection with the Company's transactions with Knowledge
Networks.

TRANSACTIONS WITH LEXIQUEST, S.A.

On January 31, 2002, SPSS acquired all of the issued and outstanding shares
of stock of LexiQuest, S.A., a corporation organized under the laws of France,
pursuant to a Stock Purchase Agreement between SPSS, LexiQuest and the
shareholders of LexiQuest. Norman Nie, the Chairman of the Board of Directors of
SPSS, was both a shareholder of and the Chairman of the Board of Directors of
LexiQuest. The aggregate purchase price for all of the issued and outstanding
shares of capital stock of LexiQuest was determined by the parties in
arms-length negotiations and consisted of guaranteed and contingent components.
The guaranteed portion of the purchase price consisted of a payment of
$2,500,000. The contingent payments were capped at a total of $1,500,000, if
fully earned during fiscal years 2002 and 2003. No contingent payments were
earned for fiscal year 2002 or fiscal year 2003. The guaranteed portion of the
purchase price was placed into escrow with Bank One, N.A. (f/k/a American
National Bank and Trust Company of Chicago) pursuant to an Escrow Agreement
between SPSS, Oak Investment Partners (the LexiQuest shareholder representative)
and Bank One. That portion of the escrow fund not necessary to satisfy
indemnification claims was to be distributed among the former LexiQuest
shareholders, in accordance with their former proportionate ownership of
LexiQuest stock. In accordance with the Escrow Agreement, a portion of the
escrow funds were distributed to the former LexiQuest shareholders at the end of
the escrow period in 2003. The balance of the escrow funds were held in escrow
because SPSS made a claim against such funds for indemnification under the Stock
Purchase Agreement. In the second fiscal quarter of 2004, SPSS and Oak
determined that SPSS should receive $671,049 of the funds that remain in escrow.
The balance was distributed among the former LexiQuest shareholders. In exchange
for his shares of LexiQuest stock, Dr. Nie was entitled to receive less than 1%
of any distribution made from the escrow fund.

TRANSACTIONS WITH NETEXS LLC

On June 20, 2002, SPSS acquired all of the assets of netExs LLC, a
Wisconsin limited liability company. Jonathan Otterstatter, the Executive Vice
President and Chief Technology Officer of SPSS, was a member of the Board of
Managers of netExs. The aggregate purchase price of the netExs assets was
determined by the parties in arms-length negotiations and consisted of
guaranteed and contingent components. The guaranteed portion of the purchase
price consisted of a payment of $1,000,000. Under the terms of the Asset
Purchase Agreement, the contingent payments were capped at a total of $1,450,000
if fully earned during fiscal years 2003, 2004 and 2005. No contingent payments
were earned for fiscal year 2003. In June 2004, SPSS and netExs agreed that SPSS
would pay the sum of $400,000 in full satisfaction of all obligations under the
Asset Purchase Agreement, including without limitation, the contingent payments,
and in full settlement of certain claims asserted by netExs. Mr. Otterstatter
did not receive and will not receive any remuneration in connection with the
transaction.

TRANSACTIONS WITH SAAMA TECHNOLOGIES, INC.

William Binch, a member of the Board of Directors of SPSS, is also a member
of the Board of Directors of Saama Technologies, Inc. The Company receives
various product technology and development services

94

from Saama Technologies, Inc. During 2003 and 2004, the Company paid $239,000
and $756,000 as consideration to Saama Technologies, Inc. for these services.
Mr. Binch did not receive and will not receive any direct remuneration in
connection with the Company's transactions with Saama Technologies, Inc.

TRANSACTIONS WITH BRIAN ZANGHI

Brian Zanghi joined SPSS as its Executive Vice President and Chief
Operating Officer following the merger of SPSS and NetGenesis Corp. in December
2001. At the time of the merger, Mr. Zanghi was indebted to NetGenesis in the
amount of $100,000 which had been previously approved by the NetGenesis board of
directors. SPSS became the payee with respect to this $100,000 indebtedness as a
result of the merger. SPSS agreed that this principal amount would be paid to
SPSS with an interest rate equal to the prime rate on the first day of each
fiscal year. At the time of the merger, SPSS also agreed (a) to forgive all
interest payments owed by him at the end of each year, (b) to require him to pay
all taxes owed on the forgiveness of these interest payments at the end of each
year and (c) to allow him to repay the indebtedness through the allocation
toward this debt of 35% of the net bonus payments made to him by SPSS. Neither
this indebtedness nor the method of repayment has been amended or modified since
June 2002.

During 2004, Mr. Zanghi chose not to automatically allocate a portion of
his bonus compensation toward the repayment of the indebtedness, and, instead,
chose to repay the portion of the indebtedness owed for fiscal year 2004 as a
lump-sum payment to SPSS. Following this payment, the outstanding principal
balance on the loan was $52,629.82. As of February 19, 2005, pursuant to the
terms of the Employment Separation Agreement and Release between SPSS and Mr.
Zanghi, SPSS terminated Mr. Zanghi's employment with SPSS without cause.
Pursuant to the terms of this separation agreement, effective February 19, 2005,
Mr. Zanghi paid SPSS the entire outstanding balance of the indebtedness owed by
Mr. Zanghi to SPSS. This Employment Separation Agreement and Release is
described in Item 11 under the section titled "Separation Agreement with Brian
Zanghi."

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a) Audit Fees. The aggregate fees billed for each of the last two fiscal
years for services rendered by KPMG LLP, the Company's independent auditors, for
the audit of the Company's annual financial statements, the review of financial
statements included in the Company's Form 10-Q and other services normally
provided in connection with statutory and regulatory filings or engagements for
those fiscal years are as follows:

(b) Audit-Related Fees. The aggregate fees billed for each of the last two
fiscal years for assurance and related services by KPMG that are reasonably
related to the performance of the audit or review of the Company's financial
statements and are not reported in Item 14(a) above are as follows:

In fiscal year 2004, these fees related to services provided by KPMG in
connection with services related to SPSS Australia and the review of a
registration statement on Form S-8 for shares to be issued under the Company's
Amended and Restated 2002 Equity Incentive Plan. In fiscal year 2003, these fees
related to services provided by KPMG in connection with the review of revenue
classifications for prior filings, matters related to the filing of registration
statements on Form S-3, providing assistance to the Company in responding to
comment letters from the Securities and Exchange Commission and matters related
to the filing of registration statements on Form S-8.

95

(c) Tax Fees. The aggregate fees billed for each of the last two fiscal
years for professional services rendered by KPMG for tax compliance, tax advice
and tax planning are as follows:

These fees relate to services provided by KPMG in connection with
international tax advice on reorganizations, asset transfers and tax compliance
and planning.

(d) All Other Fees. The aggregate fees billed for each of the last two
fiscal years for products and services provided by KPMG other than the services
reported in Items 14(a-c) above are as follows:

(e) Audit Committee Administration of the Engagement -- Procedures for
Pre-Approval of Audit and Permissible Non-Audit Services of the Company's
Independent Auditor.

The Audit Committee of the Board of Directors of SPSS has the exclusive
authority and responsibility to engage, direct, pre-approve and oversee the
Company's independent auditors with respect to all audit or non-audit services
and has the exclusive authority and responsibility to either retain or terminate
the Company's independent auditors. The Audit Committee's exclusive authority
and responsibility with respect to these matters is set forth in the SPSS Inc.
Charter of the Audit Committee of the Board of Directors (the "Audit Committee
Charter"). The Audit Committee approved the engagement of KPMG to conduct the
audit of the Company on June 16, 2004. The Audit Committee reported to the Board
that it had retained KPMG to conduct the audit of the Company and the Board
accepted the Audit Committee's report on this matter.

The Audit Committee maintains a formal procedure for the approval of all
non-audit services provided by the Company's independent auditor. This procedure
is set forth in Supplement A to the Audit Committee Charter. Any request for the
Company's independent auditor to perform non-audit services must be made
pursuant to this procedure. In accordance with the procedure, when the Company
identifies a non-audit service that it wants its independent auditor to perform,
the Company must first submit a written request (the "Company Request") to its
independent auditor that includes (i) a detailed description of the type and
scope of the non-audit service that the Company requests (the "Requested
Non-Audit Services") and (ii) an explanation as to why the Company believes that
the Company's independent auditor will provide the most effective and efficient
service. Upon the receipt of the Company Request, the Company's independent
auditor will calculate the fees that would be charged by the independent auditor
in providing the Requested Non-Audit Services. The Company's independent auditor
will then provide the Audit Committee chairman with (i) a written description of
the Requested Non-Audit Services, (ii) a written description of the fees that
would be charged by the independent auditor in providing the Requested Non-Audit
Services (including the amount of such fees denominated in the applicable local
currency and the amount of such fees denominated in United States dollars (the
"Dollar Denominated Fee")) and (iii) a written request for Audit Committee
approval of the Requested Non-Audit Services in the amount of the Dollar
Denominated Fee plus ten percent (10%) of the Dollar Denominated Fee rounded to
the nearest $1,000. If the amount of the Dollar Denominated Fee exceeds $10,000,
the request will be in the form of a formal engagement letter. The Audit
Committee chairman will then review the materials provided by the independent
auditor. If the Audit Committee chairman determines that the Requested Non-Audit
Services are appropriate, the Audit Committee chairman will approve the
Requested Non-Audit Services. The Audit Committee chairman will then provide
written notice of this approval to both the Company's independent auditor and
the Company. If a formal engagement letter is required for the approved
Requested Non-Audit Services, the Audit Committee chairman will, instead,
execute the engagement letter and return an executed copy to the Company's
independent auditor. The Audit Committee chairman will collect all materials
relating to Requested Non-Audit Services, including the Audit Committee
chairman's authorization of such Requested Non-Audit Services, and will present
a copy of all such materials to the full Audit Committee for ratification at the
next

96

scheduled Audit Committee meeting. All written correspondence relating to
Requested Non-Audit Services will be included in the official records of the
Audit Committee.

The Company, KPMG and Audit Committee adhered to this pre-approval
procedure for all non-audit services that were performed by KPMG during fiscal
year 2004.

During fiscal year 2004, none of the fees described in this Item 14 were
expended without the approval of the Audit Committee pursuant to the de minimus
exception.

Less than 3% the hours expended on KPMG's engagement to audit SPSS
financial statements for 2004 were attributed to work performed by persons other
than the KPMG's full-time, permanent employees.

PART IV

ITEM 15. EXHIBITS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE

(a)(1)Consolidated Financial statements commence on page 39:

Consolidated Balance Sheets as of December 31, 2003 and 2004

Consolidated Statements of Operations for the years ended December
31, 2002, 2003 and 2004

Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 2002, 2003 and 2004

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 2002, 2003 and 2004

Consolidated Statements of Cash Flows for the years ended December
31, 2002, 2003 and 2004

Notes to Consolidated Financial Statements

(2) Consolidated Financial Statement Schedule -- see page 72:

Schedule II Valuation and qualifying accounts

Schedules not filed:

All schedules other than that indicated in the index have been
omitted as the required information is inapplicable or the
information is presented in the consolidated financial statements or
related notes.

(3) Exhibits required by Item 601 of Regulation S-K. (Note: Management
contracts and compensatory plans or arrangements are identified with a
"+" in the following list.)

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* Portions of this Exhibit are omitted and have been filed separately with
the Securities and Exchange Commission in connection with a pending request
for confidential treatment of certain portions of the Exhibit pursuant to
Rule 406 under the Securities Act of 1933.

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

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

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

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

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

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

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

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

100

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(30) Previously filed with the Report on Form 8-K of SPSS Inc., dated November
5, 2003, filed on November 18, 2003. (File No. 000-22194)

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

(32) Previously filed with the Registration Statement on Form 8-A12G/A of SPSS
Inc. filed on August 31, 2004. (File No. 000-22194)

(33) Previously filed with the Registration Statement on Form S-8 of SPSS Inc.
filed on October 29, 2004. (File No. 222-120066)
101

SIGNATURES

Pursuant to requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized as of March 16, 2005.

SPSS INC.

By: /s/ JACK NOONAN
------------------------------------
Jack Noonan
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities indicated as of March 16, 2005.

102

EXHIBIT INDEX