SPSS Spss Inc. (MM)

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2009

Commission File Number: 001-34103

SPSS Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		36-2815480 (IRS Employer 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

     Indicate by check mark whether the registrant: (1) has filed all reports required 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 such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

     The number of shares outstanding of the registrant’s Common Stock, par value $0.01, as of July 30, 2009, was 18,444,071.

 

 

SPSS INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 2009

INDEX

		PAGE
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND JUNE 30, 2009		3
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2009		4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2009		5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTH PERIODS ENDED JUNE 30, 2008 AND 2009		6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		7
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		22
ITEM 4. CONTROLS AND PROCEDURES		23
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		24
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		24
ITEM 6. EXHIBITS		25
EX-31.1
EX-31.2
EX-32.1
EX-32.2

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Unaudited)

		December 31,				June 30,
		2008				2009
ASSETS
Current assets:
Cash and cash equivalents		$	305,917			$	337,882
Accounts receivable, net			43,172				39,870
Inventories, net			433				651
Deferred income taxes, net			4,142				3,945
Prepaid income taxes			5,738				9,032
Other current assets			4,693				5,459
Total current assets			364,095				396,839
Property, equipment and leasehold improvements, net			14,323				13,892
Capitalized software development costs, net			37,470				39,069
Goodwill			41,845				41,886
Intangibles, net			2,091				1,898
Deferred income taxes			20,728				16,435
Other noncurrent assets			3,673				2,583
Total assets		$	484,225			$	512,602
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	6,391			$	7,729
Income taxes and value added taxes payable			10,877				12,764
Deferred revenues			83,638				79,992
Other accrued liabilities			22,146				21,605
Total current liabilities			123,052				122,090
Long-term debt (see Note 9)			128,106				128,173
Noncurrent deferred income taxes, net			8,509				7,384
Other noncurrent liabilities			1,937				1,578
Stockholders’ equity:
Common Stock, $.01 par value; 50,000,000 shares authorized; 18,172,910 and 18,349,931 issued at December 31, 2008 and June 30, 2009, respectively			182				184
Additional paid-in capital (see Note 9)			164,373				170,202
Accumulated other comprehensive loss			(16,197	)			(6,817	)
Retained earnings (see Note 9)			74,263				89,808
Total stockholders’ equity			222,621				253,377
Total liabilities and stockholders’ equity		$	484,225			$	512,602

See accompanying notes to consolidated financial statements.

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2009				2008				2009
Net revenues:
License		$	34,823			$	30,296			$	73,240			$	64,066
Maintenance			33,184				33,561				65,331				66,056
Services			7,694				5,888				15,371				11,704
Net revenues			75,701				69,745				153,942				141,826
Operating expenses:
Cost of license and maintenance revenues			5,221				4,753				10,520				9,365
Sales, marketing and services			38,767				33,223				77,927				64,360
Research and development			11,305				9,686				22,686				20,663
General and administrative			9,495				10,772				18,031				18,903
Operating expenses			64,788				58,434				129,164				113,291
Operating income			10,913				11,311				24,778				28,535
Other income (expense):
Interest expense (see Note 9)			(2,479	)			(2,504	)			(4,919	)			(5,027	)
Interest income			2,339				681				5,316				1,498
Gain on convertible debt retirement			—				—				—				356
Other			(468	)			(816	)			(168	)			(2,056	)
Other income (expense)			(608	)			(2,639	)			229				(5,229	)
Income before income taxes			10,305				8,672				25,007				23,306
Income tax expense			3,279				2,492				8,943				7,761
Net income		$	7,026			$	6,180			$	16,064			$	15,545
Basic net income per share		$	0.39			$	0.34			$	0.90			$	0.85
Diluted net income per share		$	0.37			$	0.32			$	0.84			$	0.80
Share data:
Shares used in computing basic net income per share			17,936				18,327				17,926				18,280
Shares used in computing diluted net income per share			19,072				19,568				19,154				19,486

See accompanying notes to consolidated financial statements

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2009				2008				2009
Net income		$	7,026			$	6,180			$	16,064			$	15,545
Other comprehensive income:
Foreign currency translation adjustment			397				11,689				2,358				9,380
Comprehensive income		$	7,423			$	17,869			$	18,422			$	24,925

See accompanying notes to consolidated financial statements.

SPSS INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

		Six Months Ended June 30,
		2008				2009
Cash flows from operating activities:
Net income		$	16,064			$	15,545
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			9,509				9,256
Convertible debt amortization			2,939				3,081
Deferred income taxes			1,413				3,459
Excess tax benefit from share-based compensation			(1,241	)			74
Amortization of share-based compensation			4,538				4,648
Gain on convertible debt retirement			—				(356	)
Changes in assets and liabilities:
Accounts receivable			11,391				3,784
Inventories			(18	)			(201	)
Prepaid and other assets			(2,053	)			(734	)
Accounts payable			466				1,320
Accrued expenses			(6,288	)			(511	)
Income taxes			(3,085	)			(1,372	)
Deferred revenue			(1,504	)			(5,510	)
Other, net			(3,348	)			186
Net cash provided by operating activities			28,783				32,669
Cash flows from investing activities:
Capital expenditures			(2,816	)			(2,677	)
Capitalized software development costs			(6,802	)			(6,887	)
Purchase of business and intangible assets			(1,245	)			—
Net cash used in investing activities			(10,863	)			(9,564	)
Cash flows from financing activities:
Proceeds from stock option exercises and employee stock purchase plan			4,204				2,434
Tax benefit from stock option exercises			1,241				—
Retirement of convertible debt			—				(3,084	)
Purchases of common stock			(27,870	)			—
Net cash used in financing activities			(22,425	)			(650	)
Effect of exchange rates on cash			3,571				9,510
Net change in cash and cash equivalents			(934	)			31,965
Cash and cash equivalents at beginning of period			306,930				305,917
Cash and cash equivalents at end of period		$	305,996			$	337,882
Supplemental disclosures of cash flow information:
Interest paid		$	1,896			$	1,878
Income taxes paid			9,432				7,582
Cash received from income tax refunds			22				152

See accompanying notes to consolidated financial statements.

SPSS INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — Basis of Presentation

     The accompanying consolidated financial statements of SPSS Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to United States Securities and Exchange Commission Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. It is presumed that the reader has already read the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

     In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included in these consolidated financial statements. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the fiscal year. For further information, refer to the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Where appropriate, some items relating to prior years have been reclassified to conform to the presentation in the current year.

NOTE 2 — Share-Based Compensation

     Share-based compensation expense, including expense related to restricted share units, deferred share units and stock options under the provision of SFAS No. 123(R) was comprised as follows (in thousands) :

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2009				2008				2009
Sales, Marketing and Services		$	401			$	292			$	810			$	587
Research and Development			275				206				555				412
General and Administrative			1,793				2,179				3,173				3,649
Total share-based compensation expense		$	2,469			$	2,677			$	4,538			$	4,648

NOTE 3 — Domestic and Foreign Operations

     Net revenues per geographic region are summarized as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2009				2008				2009
Americas		$	30,297			$	31,186			$	61,206			$	59,688
United Kingdom			9,924				6,679				19,562				13,577
The Netherlands			11,099				8,942				21,545				17,442
Other			14,200				12,477				27,076				24,215
Total Europe			35,223				28,098				68,183				55,234
Japan			5,187				6,012				15,326				18,594
Other			4,994				4,449				9,227				8,310
Total Pacific Rim			10,181				10,461				24,553				26,904
Total International			45,404				38,559				92,736				82,138
Total revenues		$	75,701			$	69,745			$	153,942			$	141,826

NOTE 4 — Earnings Per Common Share

     Earnings per common share (EPS) are computed by dividing net income 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, stock options and common shares issuable on conversion of the Company’s convertible notes. The Company computes the diluted weighted average shares outstanding using the treasury stock method. Basic weighted average common shares outstanding reconciles to diluted weighted average common shares outstanding as follows (in thousands):

		Three Months Ended June 30,								Six Months Ended June 30,
		2008				2009				2008				2009
Basic weighted average common shares outstanding			17,936				18,327				17,926				18,280
Dilutive effect of stock options and other equity			1,136				1,241				1,228				1,206
Diluted weighted average common shares outstanding			19,072				19,568				19,154				19,486

     Anti-dilutive shares not included in the diluted EPS calculation for the three and six month periods ended June 30, 2008 and June 30, 2009 were as follows (in thousands):

Three Months Ended June 30,						Six Months Ended June 30,
2008		2009				2008				2009
22			101				12				136

NOTE 5 — Cost Management Programs

     During 2007, the Company incurred expenses totaling $4.6 million related to a management reorganization and a planned consolidation of certain research and development facilities. These costs principally included employee severance costs, lease exit costs and the write-off of leasehold improvements. These costs are primarily recorded as a component of Research and Development expense in the Consolidated Statements of Income. As of June 30, 2009, the Company has remaining approximately $0.8 million in other accrued liabilities related to these expenses and expects the liabilities to be paid in 2009.

     During 2008, the Company incurred expenses totaling $4.8 million related to a cost management program involving staff reorganization and reduction. These costs primarily included employee severance costs and are primarily recorded as a component of Sales, Marketing and Services expense in the Consolidated Statements of Income. As of June 30, 2009, all liabilities related to this program have been paid.

NOTE 6 — Recent Accounting Pronouncements

     In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. This statement is effective for fiscal years beginning after November 15, 2007. On February 14, 2008 the FASB issued FSP FAS No. 157-1 “Application of FASB Statement No. 157 to FASB Statement 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease Classification or Measurement Under Statement 13” that amends SFAS No. 157 to exclude its application for purposes of lease classification or measurement under SFAS13. On February 12, 2008, the FASB issued Staff Position Financial Accounting Standard (FSP FAS) No. 157-2 “Effective Date of FASB Statement No. 157” that amends SFAS No. 157 to delay the effective date for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis to fiscal years beginning after November 15, 2008. The Company adopted the required provisions of SFAS No. 157-1 effective January 1, 2008 for financial assets and liabilities and there was no material effect on its consolidated financial statements. On January 1, 2009, the Company adopted FSP 157-2 and it did not have a material impact on its consolidated financial statements. On January 1, 2009, the Company adopted SFAS No. 157 for non-financial assets and liabilities. In October 2008, the FASB issued FSP 157-3, “Determining the Fair Value of a Financial Asset in a Market That Is Not Active.” The FSP was effective upon issuance, including periods for which financial statements have not been issued. The FSP clarified the application of SFAS 157 in an inactive market and provided an illustrative example to demonstrate how the fair value of a financial asset is determined when the market for that financial asset is inactive. The adoption of this FSP FAS 157-3 did not have a material impact on the Company’s consolidated financial statements.

     In April 2008, the FASB issued FASB Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP No. FAS 142-3”). FSP No. FAS 142-3 requires companies estimating the useful life of a recognized intangible asset to consider their historical experience in renewing or extending similar arrangements or, in the absence of historical experience, to consider assumptions that market participants would use about renewal or extension as adjusted for SFAS No. 142’s, Goodwill and Other Intangible Assets, entity-specific factors. FSP No. FAS 142-3 is effective for fiscal years beginning after December 15, 2008. The Company adopted FSP No. FAS 142-3 on January 1, 2009. The adoption of FSP No. FAS 142-3 did not have a material effect on its consolidated financial statements.

     In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles. SFAS No. 162 becomes effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” The Company does not expect that the adoption of SFAS No. 162 to have a material effect on its consolidated financial statements.

     On January 1, 2009, the Company adopted FASB No. 141 (Revised 2007), “Business Combinations” (“FAS No. 141(R)”). FAS No. 141(R) significantly changed the accounting for business combinations. Under FAS No. 141(R), an acquiring entity is required to recognize all the assets acquired and all the liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. Transaction costs are no longer included in the measurement of the business acquired. Instead, these costs are expensed as they are incurred. FAS No. 141(R) also includes a substantial number of new disclosure requirements. FAS No. 141(R) applies to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of FAS No. 141(R) did not have a material impact on the Company’s consolidated financial statements.

     In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“FAS 165”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. FAS 165 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. FAS 165 is effective for interim and annual periods ending after June 15, 2009. Since FAS 165 at most requires additional disclosures, the Company does not expect the adoption to have a material impact on its consolidated financial statements.

     In June 2009, the FASB approved the “FASB Accounting Standards Codification” (the “Codification”) as the single source of authoritative nongovernmental U.S. GAAP to be launched on July 1, 2009. The Codification does not change current U.S. GAAP, but is intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All existing accounting standard documents will be superseded and all other accounting literature not included in the Codification will be considered nonauthoritative. The Codification is effective for interim and annual periods ending after September 15, 2009. The Codification is effective for the Company in the interim period ending September 30, 2009 and it does not expect the adoption to have a material impact on its consolidated financial statements.

NOTE 7 — Contingencies

      Basu Litigation

     SPSS Inc. 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 December 31, 2001, 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.

      Trademark Litigation

     On January 3, 2008, the Company filed a complaint for declaratory judgment in the U.S. District Court for the Northern District of Illinois against Norman H. Nie and C. Hadlai Hull. The filing of the complaint was in response to recent assertions by Dr. Nie that the Company’s use of the SPSS trademark was subject to a License Agreement (the “Agreement”) dated September 30, 1976 between a predecessor of the Company, as licensee, and Norman H. Nie and C. Hadlai Hull, as licensors. Dr. Nie stated his desire to enforce his alleged rights under the Agreement, which he claimed included the right to inspect and approve products sold under the SPSS trademark and to obtain other information regarding those products. The complaint seeks a declaratory judgment that Dr. Nie and Mr. Hull are estopped from enforcing any rights under the Agreement and that the Company shall be deemed to have an irrevocable, assignable and exclusive license to use the SPSS trademark.

     On January 28, 2008, Dr. Nie and Mr. Hull filed a counterclaim against the Company. The counterclaim asserts that the Company has repudiated the Agreement and that the Company’s use of the SPSS trademark is unauthorized and constitutes an infringement on their rights as owners of the trademark. The counterclaim seeks an injunction prohibiting the Company from continuing to use the SPSS trademark and an award of damages, costs and attorneys fees.

     On February 15, 2008, the Company filed its answer to the counterclaim. In its answer, the Company denies liability for trademark infringement and asserts that Dr. Nie and Mr. Hull are barred from asserting the counterclaim on several grounds, including but not limited to the doctrines of estoppel, laches and waiver.

     In May 2008, Dr. Nie filed an amended counterclaim to reflect that Mr. Hull had subsequently assigned his claims to Dr. Nie. Motions for summary judgment filed by each of the Company and Dr. Nie were denied by the Court on April 2, 2009. The Court has set October 5, 2009 as the trial date.

     On April 27, 2009, Dr. Nie filed a complaint against the Company in the Court of Chancery of the State of Delaware seeking the advancement of legal fees and expenses incurred by Dr. Nie in connection with the action described above. The complaint seeks a declaration that SPSS must pay all such legal fees and expenses (both fees incurred to date and any fees to be incurred in the future), the payment of interest on all legal fees and expenses incurred by Dr. Nie to date and all legal fees and expenses incurred in connection with this action in Delaware.

NOTE 8 — Cash and Cash Equivalents

     The Company’s cash balance at December 31, 2008 and June 30, 2009 was comprised entirely of checking, demand deposits or money market allowing on demand withdrawal and are valued in accordance with Statement of Financial Accounting Standards 157 (“SFAS 157”) “Fair Value Measurements.” SFAS 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s cash and cash equivalent balances are all valued using Level 1 inputs. Accordingly, the Company’s carrying value of its cash balances equals their fair value. The specific composition of the Company’s cash balance at December 31, 2008 and June 30, 2009 was as follows ($ in thousands):

				December 31, 2008								June 30, 2009
				Carrying				Estimated Fair				Carrying				Estimated Fair
Instrument		Original Maturity		Value				Value				Value				Value
Checking or time deposits		On Demand		$	133,157			$	133,157			$	164,368			$	164,368
Money market		On Demand			172,760				172,760				173,514				173,514
Total cash and cash equivalents				$	305,917			$	305,917			$	337,882			$	337,882

NOTE 9 — Implementation of FASB Staff Position No. APB 14-1

     The Company adopted the provisions of FASB Staff Position No. APB 14-1 (“FSP” or “FSP No. APB 14-1”), “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” on January 1, 2009. FSP No. APB 14-1 requires that issuers of convertible debt instruments that may be settled in cash upon conversion separately

account for the liability and equity components in a manner that will reflect the entity’s nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods.

     The FSP requires retrospective application related to the Company’s convertible debt that was outstanding during the periods presented in the financial statements. As the Company issued its convertible bonds on March 19, 2007, the Company applied FSP No. APB 14-1 retrospectively to 2008 including the following effects on the Company’s income statement captions for the three and six month periods ended June 30, 2008:

		Three Months Ended June 30, 2008
		(In thousands, except per share data)
						Effect of Change
		As originally				in Accounting
		reported				Principle				As adjusted
Interest expense		$	1,173			$	1,306			$	2,479
Net income		$	7,832			$	(806	)		$	7,026
Diluted earnings per share		$	0.41			$	(0.04	)		$	0.37

		Six Months Ended June 30, 2008
		(In thousands, except per share data)
						Effect of Change
		As originally				in Accounting
		reported				Principle				As adjusted
Interest expense		$	2,330			$	2,589			$	4,919
Net income		$	17,662			$	(1,598	)		$	16,064
Diluted earnings per share		$	0.92			$	(0.08	)		$	0.84

     The FSP also requires recognition of the cumulative effect of this accounting change to be recognized as of the beginning of the first period presented. This cumulative effect of adopting FSP No. APB 14-1 resulted in the following changes to the Company’s December 31, 2008 balance sheet:

	•		decrease to convertible debt of $21.9 million;
	•		increase to additional paid-in capital of $17.3 million;
	•		increase to non-current deferred tax liability of $7.5 million;
	•		decrease to other assets of $2.8 million; and
	•		decrease of $5.7 million to retained earnings for the cumulative net income effect of adopting the FSP.

     Additional details related to the Company’s adoption of FSP No. APB 14-1 include the following:

		Three Months Ended June 30,
		2008				2009
		(In thousands, except percentage data)
Interest expense — Contractual interest coupon		$	938			$	910
Interest expense — Debt discount amortization			1,306				1,370
Interest expense — Debt issuance cost amortization			217				212
Total interest expense		$	2,461			$	2,492
Effective interest rate on the liability component			7.2	%			7.2	%

		Six Months Ended June 30,
		2008				2009
		(In thousands, except percentage data)
Interest expense — Contractual interest coupon		$	1,875			$	1,848
Interest expense — Debt discount amortization			2,589				2,736
Interest expense — Debt issuance cost amortization			434				427
Total interest expense		$	4,898			$	5,011
Effective interest rate on the liability component			7.2	%			7.2	%

		As of June 30, 2009
		($ in thousands)
Net carrying amount of liability component		$	128,173
Unamortized transaction costs with third parties allocated to liability			1,814
Unamortized discount of liability component			16,513
Principal amount of the liability component		$	146,500
Net carrying amount of equity component		$	17,118
Remaining amortization period of discount of liability component		2.71 years

     The 2.50% Convertible Subordinated Notes due 2012 (the “Convertible Notes”) will be convertible into cash and, if applicable, shares of the Company’s common stock, par value $0.01 per share (the “Common Stock”) based on an initial conversion rate of 21.3105 shares of Common Stock per $1,000 principal amount of Convertible Notes (which is equal to an initial conversion price of approximately $46.93 per share) upon the occurrence of certain events.

NOTE 10 — Convertible Notes Repurchase

     On March 11, 2009, the Company announced that its Board of Directors had authorized the Company to repurchase up to a maximum of $40 million of its issued and outstanding 2.50% Convertible Subordinated Notes due 2012 (the “Convertible Notes”). These repurchases are not mandatory and will be made from time to time based on the availability of alternative investment opportunities and market conditions. This authorization expires on December 31, 2009. On March 20, 2009, the Company repurchased $3.5 million principal amount of the Convertible Notes at a cost of $3.1 million. The Company recognized a gain of $0.4 million related to this Convertible Note repurchase reflected in the line caption “Gain on convertible debt retirement” in the consolidated statements of income. Following this repurchase, $36.9 million remains available under the authorization and $146.5 million principal amount of the Convertible Notes remain outstanding.

NOTE 11 — Subsequent Events

     On July 27, 2009, the Company entered into a definitive Agreement and Plan of Merger (the “Merger Agreement”) with International Business Machines Corporation, a New York corporation (“IBM”), and Pipestone Acquisition Corp., a Delaware corporation and wholly owned subsidiary of IBM (“Merger Sub”), pursuant to which Merger Sub will merge with and into the Company (“the Merger”). The Board of Directors of the Company has unanimously approved the Merger Agreement and the Merger, upon the terms and conditions set forth in the Merger Agreement.

     Pursuant to the terms of the Merger Agreement and subject to the conditions thereof, stockholders of the Company will be entitled to receive $50.00 in cash for each share of the Company’s common stock. Also, each outstanding Company stock option will fully vest and be converted into an amount in cash equal to the product of (i) the excess, if any, of $50.00 over the per share exercise price of the stock option multiplied by (ii) the total number of shares of Company common stock subject to the stock option. In addition, each outstanding restricted share unit and deferred share unit will fully vest and be converted into the right to receive $50.00 per unit in cash. All of the foregoing amounts are without interest and prior to the deduction of applicable withholding taxes. Upon the closing of the Merger, the Company’s outstanding 2.50% Convertible Subordinated Notes due 2012 (the “Convertible Notes”) will become convertible, at the option of the holder, into the right to receive $50.00 multiplied by the applicable conversion rate for each $1,000 principal amount of Convertible Notes submitted for conversion. As a result of the Merger, the applicable conversion rate will be increased by a “make-whole premium”, calculated in accordance with the terms of the indenture governing the Convertible Notes, for any conversions effected during the period specified in the indenture.

     As a result of entering into the Merger Agreement with IBM, the Company is not permitted to incur any borrowings under its $50 million Credit Facility with the Bank of America.

     It is anticipated that the total consideration that will be payable to stockholders, to holders of stock options, restricted share units and deferred share units, and to holders of the Convertible Notes, will be approximately $1.17 billion.

     The Merger Agreement may be terminated under certain circumstances, including, subject to the terms of the Merger Agreement, by IBM if the Company’s Board of Directors determines to withdraw its recommendation of the Merger as a result of an unsolicited superior proposal, provided that IBM has first been given notice and the opportunity to propose modifications to the Merger Agreement that result in the unsolicited proposal no longer being a superior proposal. The Merger Agreement provides that if the Merger Agreement is terminated under certain circumstances, the Company will be required to pay IBM a termination fee of $23.5 million.

     Consummation of the Merger is subject to various conditions, including (i) adoption of the Merger Agreement by the Company’s stockholders, (ii) expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) receipt of all required approvals, or termination or expiration of any applicable waiting periods, under any antitrust laws applicable to the Merger in certain other jurisdictions and (iv) other customary closing conditions. The transaction is expected to close later in the second half of 2009.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

In addition to historical information, this quarterly report on form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities 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 the Company on the date hereof. The Company cautions investors that its business and financial performance and the matters described in these forward-looking statements are subject to substantial risks and uncertainties. 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 expressed in or implied by the forward-looking statements. The potential risks and uncertainties that could cause results to differ materially include, but are not limited to: the Company’s ability to predict revenue, the Company’s ability to respond to rapid technological changes, a potential loss of relationships with third parties from whom the Company licenses certain software, fluctuations in currency exchange rates, the impact of new accounting pronouncements, increased competition and risks associated with product performance and market acceptance of new products. A detailed discussion of these and other risk factors that affect the Company’s business is contained in the Company’s annual reports on Form 10-K, particularly under the heading “Risk Factors.” The Company does not intend to update these forward-looking statements to reflect actual future events.

The following discussion should be read in conjunction with the Company’s financial statements and accompanying notes, which appear elsewhere in this Quarterly Report on Form 10-Q.

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2008 TO THREE MONTHS ENDED JUNE 30, 2009, AND COMPARISON OF SIX MONTHS ENDED JUNE 30, 2008 TO SIX MONTHS ENDED JUNE 30, 2009 .

NET REVENUES

		Three Months Ended
		June 30,				June 30,				Amount				Percentage				Percent of Total Revenues
		2008				2009				Change				Change				2008				2009
		(In thousands)
License		$	34,823			$	30,296			$	(4,527	)			(13	)%			46	%			43	%
Maintenance			33,184				33,561				377				1	%			44	%			48	%
Services			7,694				5,888				(1,806	)			(23	)%			10	%			9	%
Net revenues		$	75,701			$	69,745			$	(5,956	)			(8	)%			100	%			100	%

		Six Months Ended
		June 30,				June 30,				Amount				Percentage				Percent of Total Revenues
		2008				2009				Change				Change				2008				2009
		(In thousands)
License		$	73,240			$	64,066			$	(9,174	)			(13	)%			48	%			45	%
Maintenance			65,331				66,056				725				1	%			42	%			47	%
Services			15,371				11,704				(3,667	)			(24	)%			10	%			8	%
Net revenues		$	153,942			$	141,826			$	(12,116	)			(8	)%			100	%			100	%

     The impact of foreign currency exchange rates decreased net revenues by $6.1 and $11.4 million, respectively, from the three and six month periods ended June 30, 2008 to the three month and six month periods ended June 30, 2009. Excluding the impact of foreign currency exchange rates, revenues increased $0.1 million and decreased $0.7 million, from the three and six month periods ended June 30, 2008 to the three month and six month periods ended June 30, 2009 resulting from lower license revenue and service revenue essentially offset by higher maintenance revenue as further explained in the related revenue captions below.

License revenue

		Three Months Ended																				Percentage Change
		June 30,				June 30,				Amount				Percentage								Excluding
		2008				2009				Change				Change				Currency				Currency
		(In thousands)
United States		$	15,935			$	15,697			$	(238	)			(1	)%		$	—				(1	)%
Europe			13,575				9,062				(4,513	)			(33	)%			(2,073	)			(18	)%
Pacific Rim			5,313				5,537				224				4	%			(291	)			10	%
License revenues		$	34,823			$	30,296			$	(4,527	)			(13	)%		$	(2,364	)			(6	)%

		Six Months Ended																				Percentage Change
		June 30,				June 30,				Amount				Percentage								Excluding
		2008				2009				Change				Change				Currency				Currency
		(In thousands)
United States		$	32,506			$	28,787			$	(3,719	)			(11	)%		$	—				(11	)%
Europe			25,681				18,217				(7,464	)			(29	)%			(4,126	)			(13	)%
Pacific Rim			15,053				17,062				2,009				13	%			339				11	%
License revenues		$	73,240			$	64,066			$	(9,174	)			(13	)%		$	(3,787	)			(7	)%

     The overall decrease in license revenues from the three and six month periods ended June 30, 2008 to the three and six month periods ended June 30, 2009 was primarily due to the following:

	•		the impact of foreign currency exchange rates, which decreased license revenues by $2.4 million and $3.8 million in the three and six month periods ended June 30, 2009 from the comparable periods in 2008;
	•		lower sales volume of desktop statistical and analytic tools of $0.8 million and $1.5 million in the three and six month periods ended June 30, 2009 compared to the similar periods in 2008;
	•		lower market research product revenue of $1.4 million and $2.5 million in the three and six month periods ended June 30, 2009 compared to the similar periods in 2008; partially offset by
	•		higher data mining product revenue of $1.0 million and $0.7 million in the three and six month periods ended June 30, 2009 compared to the similar periods in 2008

     The decrease in revenue in the United States was primarily due to lower demand for market research and statistical tool products due to sales staff turnover and a more challenging economic environment in 2009.

     The decrease in license revenue in Europe during the three and six months ended June 30, 2009 compared to the similar periods in 2008 was generally due to lower sales volume for deals individually exceeding $100,000 and the impact of foreign currency. For the three month period ended June 30, 2008, the Company closed 23 deals in Europe individually exceeding $100,000 and totaling $5.9 million compared with 18 deals individually exceeding $100,000 and totaling $3.4 million for the three month period ended June 30, 2009. For the six month period ended June 30, 2008, the Company closed 55 deals in Europe individually exceeding $100,000 and totaling $12.0 million compared with 38 deals individually exceeding $100,000 and totaling $7.4 million for the six months ended June 30, 2009. The decrease in significant deals for the three and six month periods ended June 30, 2009 compared with the similar periods in 2008 generally reflected sales staff turnover and a more challenging economic environment in 2009.

     The revenue decreases in Europe and the United States were partially offset by higher revenue in the Pacific Rim. Revenues increased $0.2 million and $2.0 million in the Pacific Rim from the three and six month periods ended June 30, 2008 to the three and six month periods ended June 30, 2009. These increases are principally due to higher revenues in Japan due to foreign currency of $0.1 million and $1.0 million and higher sales volume of desktop statistical tools of $0.6 million and $1.5 million for the three and six month periods ended June 30, 2009.

      Maintenance revenue

		Three Months Ended																				Percentage Change
		June 30,				June 30,				Amount				Percentage								Excluding
		2008				2009				Change				Change				Currency				Currency
		(In thousands)
United States		$	11,264			$	13,028			$	1,764				16	%		$	—				16	%
Europe			17,859				16,495				(1,364	)			(8	)%			(2,830	)			8	%
Pacific Rim			4,061				4,038				(23	)			(1	)%			(200	)			4	%
Maintenance revenues		$	33,184			$	33,561			$	377				1	%		$	(3,030	)			10	%

		Six Months Ended																				Percentage Change
		June 30,				June 30,				Amount				Percentage								Excluding
		2008				2009				Change				Change				Currency				Currency
		(In thousands)
United States		$	22,377			$	25,999			$	3,622				16	%		$	—				16	%
Europe			34,977				32,014				(2,963	)			(8	)%			(5,886	)			8	%
Pacific Rim			7,977				8,043				66				1	%			(355	)			5	%
Maintenance revenues		$	65,331			$	66,056			$	725				1	%		$	(6,241	)			11	%

     The overall increase in maintenance revenues was primarily due to continued strong demand for the Company’s maintenance support and product upgrades as well as higher renewal rates by the Company’s customer base across all major geographic regions, most notable in the desktop statistical tools and data mining product categories. From the three month period ended June 30, 2008 to the three month period ended June 30, 2009 these strong renewal rates were offset by changes in foreign currency exchange rates which decreased maintenance revenue by $3.0 million, including $2.8 million in Europe. From the six month period ended June 30, 2008 to the six month period ended June 30, 2009, foreign currency decreased maintenance revenue by $6.2 million including $5.9 million in Europe. Excluding the impact of foreign currency exchange rates, maintenance revenues increased 10% and 11%, respectively, from the three and six month periods ended June 30, 2008 to the three and six month periods ended June 30, 2009.

      Service revenue

		Three Months Ended																				Percentage Change
		June 30,				June 30,				Amount				Percentage								Excluding
		2008				2009				Change				Change				Currency				Currency
		(In thousands)
United States		$	3,098			$	2,461			$	(637	)			(21	)%		$	—				(21	)%
Europe			3,789				2,541				(1,248	)			(33	)%			(624	)			(16	)%
Pacific Rim			807				886				79				10	%			(43	)			15	%
Service revenues		$	7,694			$	5,888			$	(1,806	)			(23	)%		$	(667	)			(15	)%

		Six Months Ended																				Percentage Change
		June 30,				June 30,				Amount				Percentage								Excluding
		2008				2009				Change				Change				Currency				Currency
		(In thousands)
United States		$	6,323			$	4,902			$	(1,421	)			(22	)%		$	—				(22	)%
Europe			7,525				5,003				(2,522	)			(34	)%			(1,348	)			(16	)%
Pacific Rim			1,523				1,799				276				18	%			(15	)			19	%
Service revenues		$	15,371			$	11,704			$	(3,667	)			(24	)%		$	(1,363	)			(15	)%

     Service revenues decreased from the three and six month periods ended June 30, 2008 to the three and six month periods ended June 30, 2009 primarily due to a decline in consulting projects as a result of lower license revenue. Additionally, changes in foreign currency rates decreased service revenues in Europe by $0.6 million and $1.3 million, including $0.3 million and $0.8 million in the United Kingdom for the three and six month periods ended June 30, 2009, respectively.

     Net revenues per geographic region, percent changes and percent of total revenues for the three and six month periods ended June 30, 2007 and June 30, 2008 were as follows:

		Three Months Ended
		June 30,				June 30,				Amount				Percentage				Percent of Total Revenues
		2008				2009				Change				Change				2008				2009
		(In thousands)
Americas		$	30,297			$	31,186			$	889				3	%			40	%			45	%
United Kingdom			9,924				6,679				(3,245	)			(33	)%			13	%			10	%
The Netherlands			11,099				8,942				(2,157	)			(19	)%			15	%			13	%
Other			14,200				12,477				(1,723	)			(12	)%			19	%			17	%
Total Europe			35,223				28,098				(7,125	)			(20	)%			47	%			40	%
Japan			5,187				6,012				825				16	%			7	%			9	%
Other			4,994				4,449				(545	)			(11	)%			6	%			6	%
Total Pacific Rim			10,181				10,461				280				3	%			13	%			15	%
Total International			45,404				38,559				(6,845	)			(15	)%			60	%			55	%
Net revenues		$	75,701			$	69,745			$	(5,956	)			(8	)%			100	%			100	%

		Six Months Ended
		June 30,				June 30,				Amount				Percentage				Percent of Total Revenues
		2008				2009				Change				Change				2008				2009
		(In thousands)
Americas		$	61,206			$	59,688			$	(1,518	)			(2	)%			40	%			42	%
United Kingdom			19,562				13,577				(5,985	)			(31	)%			13	%			10	%
The Netherlands			21,545				17,442				(4,103	)			(19	)%			14	%			12	%
Other			27,076				24,215				(2,861	)			(11	)%			17	%			17	%
Total Europe			68,183				55,234				(12,949	)			(19	)%			44	%			39	%
Japan			15,326				18,594				3,268				21	%			10	%			13	%
Other			9,227				8,310				(917	)			(10	)%			6	%			6	%
Total Pacific Rim			24,553				26,904				2,351				10	%			16	%			19	%
Total International			92,736				82,138				(10,598	)			(11	)%			60	%			58	%
Net revenues		$	153,942			$	141,826			$	(12,116	)			(8	)%			100	%			100	%

     Net revenues derived internationally decreased 15% and 11% from the three and six month periods ended June 30, 2008 to the three and six month periods ended June 30, 2009. These decreases resulted from a revenue decline in almost all significant international markets throughout Europe including the United Kingdom, the Netherlands, France and Germany partially offset by increases in Japan. The decreases in Europe reflected the impact of foreign currency as well as declining demand for the Company’s statistical and analytic tools and market research products. The increases in Japan were primarily due to the impact of foreign currency as well as an increase in demand for the Company’s statistical and analytic tools.

     Net revenues from the Americas increased 3% and decreased 3% from the three and six month periods ended June 30, 2008 to the three and six month periods ended June 30, 2009. The increase in the Americas in the three month period ended June 30, 2009 was primarily due to strong demand for the Company’s data mining products. For the six month period ended June 30, 2009, net revenues decreased due to lower service revenues and lower demand for the Company’s data mining products during the first quarter of 2009.

     Changes in foreign currency were a significant factor impacting international revenue from the three and six months ended June 30, 2008 to the three and six months ended June 30, 2009. The following table indicates the changes in revenue attributable to foreign currency exchange rates for the specified periods:

		Three Months				Six Months
		Ended June 30,				Ended June 30,
		2009				2009
Country (Currency)		(In thousands)				(In thousands)
Netherlands (Euro)		$	1,425			$	2,769
Other Euro-denominated countries			1,536				2,873
British Pound (GBP)			2,137				4,770
Japan (Yen)			(242	)			(1,529	)
Australia (Australian dollar)			647				1,315
Other currencies			558				1,193
Total		$	6,061			$	11,391