SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    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, 1997


                        Commission file Number: 33-64732

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


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

                 444 N. Michigan Avenue, Chicago, Illinois 60611
              (Address of principal executive offices and zip code)
        Registrant's telephone number including area code: (312)329-2400
               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. ( )

         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
$22.625 on March 20, 1998,  and for the purpose of this  calculation  only,  the
assumption  that  all   registrant's   directors  and  executive   officers  are
affiliates) was approximately $166 million.

         The number of shares outstanding of the registrant's  Common Stock, par
value $.01, as of March 20, 1998, was 8,902,513.





<PAGE>


                                    SPSS Inc.

                                TABLE OF CONTENTS


PART I

Item 1.   Business.......................................................... 3

Item 2.   Properties........................................................17

Item 3.   Legal Proceedings.................................................17

Item 4.   Submission of Matters to a Vote of Security Holders...............17


PART II

Item 5.   Market for Registrant's Common Equity and
          Related Stockholder Matters.......................................18

Item 6.   Selected Consolidated Financial Data..............................19

Item 7.   Management's Discussion and Analysis of Financial Condition
            and Results of Operations.......................................20

Item 7A.  Quantitative and Qualitative Disclosures About Market Risks.......24

Item 8.   Financial Statements and Supplementary Data.......................25

Item 9.   Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.............................44


PART III

Item 10.  Directors and Executive Officers of the Registrant................45

Item 11.  Executive Compensation............................................48

Item 12.  Security Ownership of Certain Beneficial Owners and
            Management......................................................52

Item 13.  Certain Relationships and Related Transactions....................53


PART IV

Item 14.  Exhibits, Financial Statement Schedule, and Reports
            on Form 8-K.....................................................55


<PAGE>


                                    SPSS INC.
                             FORM 10-K ANNUAL REPORT
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

                                     Part I

Item 1.   Business

General

          SPSS Inc. ("the  Company") was  incorporated in Illinois in 1975 under
the name "SPSS,  Inc." and was  reincorporated in Delaware in May 1993 under the
name "SPSS Inc." Unless the context otherwise requires, the terms "SPSS" and the
"Company" refer to SPSS Inc., a Delaware  corporation,  its Illinois predecessor
and its subsidiaries.  SPSS is a multinational  company that delivers reporting,
analysis and modeling software products, and whose primary markets are marketing
research,   business  analysis/data  mining,  scientific  research  and  quality
improvement analysis.  The Company develops,  markets and supports an integrated
line of statistical software and other products that enable users to effectively
bring marketplace and enterprise data to bear on decision-making.  The Company's
major products include SPSS for business and general applications,  the Quantime
and In2itive  family of products  for market  research,  NewView for  analytical
reporting,  SigmaPlot and SYSTAT for scientific research, QI Analyst for quality
improvement  and  statistical   process   control,   and  allCLEAR  for  process
documentation  and management.  The primary users of the Company's  software are
managers  and data  analysts in  corporate  settings,  government  agencies  and
academic  institutions.  In addition to its widespread  use in survey  analysis,
SPSS software also performs other types of market  research,  as well as quality
improvement   analyses,   scientific  and  engineering   applications  and  data
reporting.   The  current   generation  of  SPSS  Desktop  products  features  a
windows-based   point-and-click   graphical   user   interface,    sophisticated
statistical procedures, data access and management capabilities,  report writing
and integrated  graphics.  The Company's  products provide extensive  analytical
capabilities not found in spreadsheets,  database management systems or graphics
packages.

          In its 22 years as a corporation,  SPSS has become a widely recognized
name in statistical software. The Company plans to leverage its current position
to take  advantage of the increased  demand for software  applications  that not
only provide ready access to the data that organizations  collect and store, but
also  enable  users  to  systematically  analyze,  interpret  and  present  such
information for use in  decision-making.  Management believes the ease-of-use of
the Company's current generation products,  combined with the greater processing
speed and storage capacity of the latest desktop  computers,  has  substantially
expanded the market for SPSS statistical software.

          In summer 1993, the Company  completed an initial public offering (the
"IPO") of common stock, $.01 par value (the "Common Stock"). The Common Stock is
listed on the Nasdaq National Market under the symbol "SPSS". In early 1995, the
Company and certain  selling  stockholders  (the  "Selling  Stockholders")  sold
1,865,203 shares of Common Stock in a public offering.

Safe Harbor

          "Safe Harbor" Statement under the Private Securities Litigation Reform
Act of 1995:  With the  exception of  historical  information,  certain  matters
discussed in this Form 10-K are forward-looking  statements,  within the meaning
of Section 21E of the  Securities  Exchange Act, as amended,  that involve risks
and uncertainties including, but not limited to, market conditions,  competition
and other risks  indicated in this  document,  including  Exhibit 99.0,  and the
Company's  other filings with the Securities and Exchange  Commission that could
cause actual results to vary  materially  from the future  results  indicated in
such  forward-looking  statements.  No  assurance  can be given  that the future
results  covered  by the  forward-looking  statements  will be  achieved.  Other
factors  could also cause  actual  results  to vary  materially  from the future
results indicated in such forward-looking statements.


<PAGE>



Recent Developments

          The Company's  acquisitions of SYSTAT,  Inc.,  ("SYSTAT") in September
1994,  BMDP  Statistical  Software,  Inc.  ("BMDP") in December  1995 and Jandel
Corporation ("Jandel") in November 1996 were part of its strategy to establish a
separate  line of software  products  for  scientific  research.  This  strategy
enables the Company to direct its SPSS product  line towards the growing  market
for  business  analysis  applications  and its QI Analyst  product  line towards
real-time quality improvement applications.  The Company's acquisition of Jandel
is a continuation of this strategy of product differentiation.

          The  Company's  acquisition  of Clear  Software,  Inc.  ("Clear"),  in
September of 1996, a developer and marketer of process management,  analysis and
documentation software products, including allCLEAR, brings important technology
to the SPSS family of products.  Unlike most flowcharting packages,  allCLEAR is
built on a database  that enables  users to develop an initial  diagram  faster,
make  changes  quickly  and  easily  and try  different  views with a touch of a
button.

          In April 1997, the Company  entered into a 15 year sublease  agreement
to  sublease  approximately  100,000  square feet of space in the Sears Tower in
Chicago,  Illinois.  By the end of 1998, this space will be the principal office
space of the Company.

          Effective May 1, 1997, SPSS acquired the DeltaGraph  software  program
from DeltaPoint,  Inc., a California  corporation,  for approximately  $910,000.
DeltaGraph  is a  computer  graphics  software  product  which was  acquired  to
complement SPSS' data visualization and statistical products.  DeltaGraph offers
a broad range of scientific, business and technical charts.

          The Company  appointed  Michael  Blair as a director on July 24, 1997,
filling a vacancy on the Board of Directors of the Company.

          In September 1997, SPSS acquired  approximately 97% of the outstanding
shares  of  capital  stock  of  Quantime  Limited  ("Quantime"),  a  corporation
organized  under the laws of England in exchange  for  863,049  shares of Common
Stock. As a result of this transaction, Edward Sherman Ross, formerly a director
of Quantime,  beneficially  acquired 441,635 shares of Common Stock. In November
1997,  SPSS  acquired  the  remaining  shares of capital  stock of  Quantime  in
exchange for 28,175 shares of Common Stock. The acquisition was accounted for as
a pooling of  interests  Quantime is a  developer  of market  research  software
products.  SPSS will continue to operate the Quantime business  principally from
the Quantime offices in London, England.

          In November  1997,  SPSS  acquired the  outstanding  shares of capital
stock of In2itive  Technologies A/S ("In2itive"),  a corporation organized under
the laws of Denmark in exchange  for 140,727  shares of Common Stock in a merger
accounted for as a pooling of interests. In2itive is a computer software company
specializing  in market  research  software.  SPSS will  continue to operate the
In2itive  business  principally  from the In2itive  headquarters  in Copenhagen,
Denmark.

Industry Background

          Statistical  analysis is a means of drawing reliable  conclusions from
numerical information about a given subject. Such systematic analysis of numbers
goes back to the seventeenth  century,  when statistics were used in determining
insurance and annuity rates, as well as by political  leaders in developing more
effective economic policies.  The fundamental  purposes and power of statistical
analysis remains the same today: to help decision makers  understand and resolve
problems by uncovering the causes underlying events and conditions.  The Company
believes that demand for statistical and other data analysis  capabilities  will
continue to grow as decision-making becomes more complex and the consequences of
decisions more significant.  To meet this demand,  colleges and universities are
training  increasing  numbers of people in the use of  statistics.  In addition,
more powerful  desktop  computers have made the means of applying  statistics to
solve problems more available, usable and affordable.

<PAGE>

          The market for  statistical  software is part of a much larger  market
for data management,  analysis and presentation software. The largest segment of
this market is comprised of persons examining data with  spreadsheets,  graphics
packages and the reporting programs provided by database management systems. The
widespread  use of these tools is due to their  effectiveness  in answering  the
what  questions of data,  such as what is the largest  market for a product,  or
what was the default rate on loans, or what defects  occurred in a manufacturing
process and at what frequency.

          Another  smaller yet  sizable and growing  segment of this market uses
statistical  software in addition to these other data  analysis  tools to answer
the why  questions  of data.  These  questions  most often  deal with  issues of
causality and prediction,  such as when a corporation  wants to understand their
success in a market,  or a bank needs to  distinguish  good and bad credit risks
prior to making loans,  or a manufacturer  seeks to reduce the number of defects
in production by identifying the causes proactively.  Spreadsheet,  graphics and
database packages lack the necessary range and depth of analytical functionality
to adequately address these types of questions.

          The  Company  believes  that  the  worldwide  demand  for  statistical
software will grow for the following reasons:

     o    Organizations   are  demanding  more  useful   information   from  the
          increasing amount of data being collected, organized and stored;

     o    Certain  industries,  such as  manufacturing  and  healthcare,  have a
          particularly  critical and growing need for statistical  analysis with
          their increased focus on quality improvement;

     o    The number of people with a working knowledge of statistics  continues
          to grow significantly; and

     o    The  improved  price  and  performance   characteristics   of  desktop
          computers,  together with the greater  ease-of-use  of graphical  user
          interfaces,  have eliminated  many  historical  barriers to the use of
          statistical software.

Markets

          SPSS customers come from various industries  requiring a wide range of
statistical applications.  The Company focuses, however, on the following market
areas:

          Business  Analysis,  Especially  Market Research and a Variety of Data
Mining  Applications.  Almost all of the top marketing  research  firms in North
America are SPSS  customers,  and  corporations  worldwide  use SPSS products to
collect  data,  analyze  data in  databases  and data  warehouses,  help  target
advertising  and direct  mail  campaigns,  test-market  new  products,  identify
changing  customer  characteristics,  measure  customer  satisfaction and assess
sales force productivity.

          Government.  SPSS  software  is used in almost  every  country  of the
world, at all levels of government and in civilian as well as defense  agencies.
The  Company's  products,  for  example,  are used as part of the efforts of the
Internal  Revenue  Service  of the United  States to  modernize  their  tracking
systems,  are used by many  municipal  public safety  agencies,  have become the
standard marketing tools in the recruitment  programs of the United States Armed
Forces  and are  employed  as a  statistical  system  for many  national  census
programs.

          Education.  SPSS software is used at virtually every major college and
university.  In addition, to its use in teaching statistics at the undergraduate
and  graduate  levels,  SPSS is in  academic  research  of all  types.  Academic
administrators  also use SPSS products to monitor  aspects of their  operations,
such as attrition rates,  changes in demographic  profile of student populations
and the success of fund-raising activities.

<PAGE>

          Scientific  Research.  SPSS products are used in many  government  and
commercial research organizations to set up and conduct experiments and clinical
trials in all  disciplines  and to present  results of studies in  journals  and
other public documents.

          Quality  in   Manufacturing.   Driven  by  rising  costs,   government
regulation,  customer mandates and increasingly competitive global markets, more
and more  manufacturing  companies  are  implementing  systems  for  statistical
quality control and improvement. SPSS software is currently used in a variety of
manufacturing quality control applications, both on the shop floor, and off.

Statistical Software Products

          SPSS  provides a set of software  products  that enable  end-users  to
perform statistical analysis, including the generation of graphs and reports, on
a wide variety of computing platforms. Many of the software products can be used
either stand-alone or as part of an integrated system. The product line is:

     o    comprehensive in function across computing platforms;

     o    modular, allowing users to purchase only the functionality they need;

     o    tailored  to  desktop  operating  environments,   where  adherence  to
          platform  standards  directly  translates  into  greater  usability of
          products; and

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

          While there are some  variations  according  to version and  computing
platform,  the typical SPSS  configuration is a Base System and add-on products.
The SPSS Base  System  includes  the user  interface,  data  connectivity,  data
editing and statistical  procedures,  as well as graphing and reporting.  Add-on
products provide additional  functionality specific to a particular type of data
analysis,  such as  facilitating  certain types of data entry,  providing a wide
variety  of  specialized   statistical   capabilities  and  offering  additional
presentation capabilities. These add-on products are either developed by SPSS or
by third parties. See "Business - Reliance on Third Parties."



<PAGE>



          The following tables summarize the Company's software products:

SPSS Product Line                   Key Functions and Features
--------------------========================================================
SPSS Base           Statistics: Comprehensive range of descriptive  statistics;
(Release 8.0)       frequency counts and percentages; cross  tabulations  (with
                    tests of significance, chi-square residuals, and measures of
                    association);  multiple  response  tabulations;  exploratory
                    data  analysis   (EDA);   analysis  of  variance;   t-tests,
                    correlations;   regression;  curve  fitting;   nonparametric
                    tests; statistical distribution functions; cluster analysis;
                    factor  analysis;  discriminant  analysis.

                    Presentation  and  Graphics:   Drag-and-drop  pivot  tables,
                    Report  writer;  interactive  and  production  use  business
                    charts  (pie,   bar,   line,   etc.),   statistical   charts
                    (histograms,  scatterplot,  box plots,  time  series  plots,
                    etc.), quality improvement charts (control, Pareto, etc.).

                    Data Management:  Spreadsheet  data entry and editing;  data
                    transformation  and management  routines;  data connectivity
                    (including database links);  reads files of any size (except
                    under DOS).  Help includes an on-line  tutorial;  Statistics
                    Coach(TM); Chart Advisor; Results Coach(TM); "What's This?";
                    "Ask me";  context-sensitive  Help and  on-line  statistical
                    glossary.

================================================================================
SPSS                Reliability analysis;  multidimensional  scaling,  weighted
Professional        and two-stage least squares; non-linear  regression;  probit
 Statistics         analysis and LOGIT.


================================================================================

SPSS  Advanced      General  linear  models,   variance  component  estimation,
Statistics          generalized loglinear models, hierarchical loglinear models,
                    survival/life tables analysis, repeated measures analysis of
                    variance, multivariate analysis of variance, matrix language
                    and library.

================================================================================
SPSS                Optimal  scaling  procedures,   correspondence  analysis,
Categories          perceptual mapping.

================================================================================
================================================================================
SPSS  Trends        Time  series  forecasting  routines,  including  ARIMA  with
                    Box-Jenkins  models,   efficient  smoothing  and seasonality
                    adjustments.
================================================================================
================================================================================
SPSS Tables         High-quality, complex stub-and-banner tables. Easily handles
                    multiple response  items.
================================================================================
================================================================================
DBMS/COPY           Transparently  converts  data for use  between  databases,
Plus                spreadsheets and statistics packages.
================================================================================
================================================================================
SPSS Exact          Gives  correct  p-values,  regardless  of data  structure.
Tests
================================================================================
================================================================================
SPSS Missing        Searches for relationships  between the missing values in
Value               data and other variables, estimates what the values would be
Analysis            estimates the mean, covariance matrix and correlation matrix
                    via regression.
================================================================================
================================================================================
AMOS                Comprehensive  linear  structural  models,  with fit  causal
                    paths.
================================================================================
================================================================================
SPSS Data           Products  for survey  design,  data  collection,  and data
Entry Builder       cleaning.  SPSS  Data Entry Station is a more  economical
and SPSS            product which does not include the survey design
Data Entry          capabilities.
Station
================================================================================
================================================================================

Sample Power        Used to determine the size of a sample by allowing the user
                    to  strike a balance  among  confidence  level,  statistical
                    power, effect size and sample size.

================================================================================
================================================================================
allCLEAR            Flowcharting  business diagramming program: creates diagrams
                    for  causes  and   effects,   process   flow,   network  and
                    deployment; builds decision trees, organizational charts and
                    procedural charts.

================================================================================
================================================================================

CLEAR Process       Process  management tool for graphing and analyzing business
                    and manufacturing  process.  Creates  flowcharts,  simulates
                    process  flows,   identifies  critical  and  optimal  paths,
                    performs   what-if   analysis,   and  creates   presentation
                    graphics.

================================================================================
================================================================================

 CLEAR OrgCharts    Creates organizational charts from text automatically. Also
                    creates tournament grids, family trees and other tree
                    diagrams.


================================================================================
================================================================================

 TextSmart      Used for  analysis of responses  to open-end survey questions.

================================================================================
================================================================================

 SmartViewer    Used to distribute electronic reports (text, tables,  graphics
                and multimedia) produced  by  SPSS Base or NewView.

================================================================================
================================================================================

NewView        Used for analytical  reporting.  Includes the  functionality of
               the SPSS  Base, except certain statistical procedures.

================================================================================
================================================================================
StatXact       Similar to SPSS Exact Tests, but offering more  comprehensive
               list of methods.
================================================================================
================================================================================
LogXact        Used for exact results with small-sample  logistic  regression.
================================================================================
================================================================================
SPSS Conjoint  Used to  perform conjoint analysis.
================================================================================
================================================================================
AnswerTree     Used with  databases  to uncover  profiles,  groups and trends.
               Contains   four   methods:    CHAID,    Exhaustive    CHAID,
               Classification    and   Regression    Trees,    and   Quest.

================================================================================
================================================================================
 DeltaGraph    All-purpose  (business, technical, quality) charting software.

================================================================================
================================================================================

 Neural        Neural network-based product with features for prediction,
 Connection    classification, time series analyst and data  segmentation.

================================================================================
================================================================================

 SPSS Diamond   Explores complex  relationships in multivariate data; animated
                3-D scatter plots; Parametric Snake plots; quadwise plot for
                viewing  relationships  between  four  variables;  Ice,  for
                simultaneously displaying up to nine dimensions of data.

 ===============================================================================
 ===============================================================================

 MapInfo        Display data  geographically,  from world to street levels.

 ===============================================================================
 ===============================================================================
 Teleform       Automated forms creation,  distribution,  and data entry  using
                fax or  scanner.  Available  only on  Windows.
 ===============================================================================
 ===============================================================================
 Remark  Office  Automated  forms  data  collection  using  a scanner  or fax
 OMR             modem.  Works  with  forms  created  in any software package.
                 Available on  Windows.
 ===============================================================================

<PAGE>

          QI Analyst and Trial Run are also marketed as part of the SPSS product
line. SPSS Release 8.0 currently  operates only in the Windows 95 and Windows NT
4.0  environments.  SPSS  Release 6.1 is  currently  available  for Windows 3.1,
Windows 95, Windows NT 3.1,  Macintosh and selected UNIX platforms.  SPSS PC+ is
available for character-based DOS platforms. SPSS Professional Statistics,  SPSS
Advanced Statistics,  SPSS Categories,  SPSS Conjoint, SPSS Trends, SPSS Tables,
SPSS  Exact  Tests and SPSS  Missing  Value  Analysis  require  the SPSS Base to
operate. All other products operate stand-alone.


Quantime & In2itive
 Product Line                                  Key Functions and Features
================================================================================
QUANCEPT              A  series  of  products  for  data   collection  via  CATI
                      (computer-aided     telephone     interviewing),      CAPI
                      (computer-aided    personal   interviewing),    and   CAWI
                      (computer-aided web interviewing) methods.
================================================================================
================================================================================
QUANTUM               Produces high-quality tables for a production-oriented
                      market research setting. Is capable of producing extremely
                      complex tables.
================================================================================
================================================================================
QUANVERT             Produces certain commonly used types of tables intuitively.
================================================================================
================================================================================
In2Form               Assists users in the creation of forms and scripts for the
                      other products via an easy-to-use graphical user
                      interface.
================================================================================
================================================================================
Other                 Other products in the Quantime and In2itive line are used
Products              for various data collection and tabulation  tasks in the
                      survey research process.  Some of the products have
                      functionality  that  overlaps  with  the  products  listed
                      above.
================================================================================

 Scientific Research
 Product Line                             Key Functions and Features
================================================================================
SYSTAT Base         Statistics: Comprehensive range of descriptive statistics;
(Release 6.0)       cross tabulations; Multivariate general linear models;
                    analysis of variance and covariance;  discriminant analysis;
                    canonical  correlation;  factor analysis;  multi-dimensional
                    scaling; cluster analysis, time series analysis;  non-linear
                    estimation

                    Presentation and Graphics:  Business charts (pie, bar, line,
                    etc.),  comprehensive set of statistical charts (histograms,
                    scatterplot,  box plots, math function plots, fourier plots,
                    contour plots 3-D data and function plots,  etc.),  maps and
                    geographic  projections;  overlaid  and  multiple  plots per
                    page.

                    Data Management:  Spreadsheet  data entry and editing;  data
                    transformation  and  management  routines;  data  import and
                    export  of   certain   file   types;   macro-processor   and
                    programming  language.  Includes  comprehensive on-line Help
                    system.

================================================================================
================================================================================

SYSTAT Testat       Summary  statistics,  reliability  coefficients,  standard
                    errors of measures for selected  score  intervals,  and item
                    analysis  statistics for examining  results from achievement
                    tests, psychological tests, etc.

================================================================================
================================================================================

SYSTAT Logit        Binary,  multinomial,  and  conditional  logistic regression
                    with maximum likelihood estimation.

================================================================================
================================================================================

SYSTAT  Survival    Extensive set of methods for survival, reliability, and life
                    table analysis.

================================================================================
================================================================================

SYSTAT Design       Estimates sample sizes required to obtain desired
                    statistical confidence levels.

================================================================================
================================================================================
SigmaPlot           SigmaPlot automatically  produces  publication-quality plots
                    and graphs from numerical data. It is used to produce charts
                    and graphs for publication,  poster session charts, overhead
                    transparencies and distribution materials. SigmaPlot is very
                    flexible  and   customizable   and  includes  many  features
                    designed to meet the particular needs of research scientists
                    and engineers. In addition, SigmaPlot can test the fit of an
                    equation to a graph of research data - an important  tool of
                    data analysis.

================================================================================
================================================================================

SigmaScan Pro       SigmaScan  Pro  is  among the most highly  integrated  image
                    analysis programs  available.  It offers all the features of
                    SigmaScan,  plus automated  image  processing,  analysis and
                    advanced counting  features.  It will analyze color and gray
                    scale  images  from  video,  disk or scanned  images.  Image
                    enhancement with gray filters,  image splicing,  image math,
                    binary  filters and other image  processing  techniques  are
                    provided.

===============================================================================
===============================================================================

SigmaStat           SigmaStat   provides   automated   guidance  for statistical
                    analysis of research  data.  SigmaStat  recommends  the best
                    statistical  test to use,  checks to see if the  assumptions
                    required  for a  particular  test have  been  met,  runs the
                    appropriate test and prepares an explanation of the results.

==============================================================================
==============================================================================
TableCurve  2D      The  purpose  of  charts  and  graphs  is  to illustrate the
and TableCurve      relationship of two or more  variables.  If  a  mathematical
3D                  formula containing the variable describes  the same curve as
                    the curve produced by graphing the  experimental  data, then
                    the formula  expresses the  relationship  of the  variables.
                    TableCurve  2D  automatically  fits  and  ranks  over  3,600
                    equations  to a curve,  enabling  the  scientist  to quickly
                    determine  which equation best fits the data.  TableCurve 3D
                    fits  three  dimensional  curved  surfaces,  evaluating  the
                    surface     against    over    450    million     equations.

================================================================================
================================================================================

PeakFit             Spectroscopy,  chromatography and electrophoresis are based
                    upon  finding  and  evaluation  the pattern of peaks in test
                    results.  Separate peaks may be hidden because data from two
                    or more peaks may be  superimposed  on each  other.  PeakFit
                    uses  sophisticated  nonlinear  curve fitting  techniques to
                    detect,  quantify  and  analyze  hidden  peaks  in  research
                    results.

================================================================================
================================================================================

SigmaGel            Using SigmaGel the scientist can perform  quantitative
                    electrophoretic  gel analysis in the lane, spot or molecular
                    weight  measurement  modes.  Data is collected and stored in

                    the SigmaGel spreadsheet.
<PAGE>

          Sample Power, allCLEAR,  DeltaGraph,  StatXact,  LogXact,  AnswerTree,
Neural  Connection,  Trial Run and SPSS Diamond are also marketed as part of the
science product line.


 Quality in Manufacturing
  Product Line                 Key Functions and Features
================================================================================
QI Analyst              Comprehensive set of SPC data entry/access features, SPC
(Version 3.5)           statistics, 27 quality improvement chart types and
                        reporting. Available only on Windows.
================================================================================
================================================================================

QI Analyst DB           A version of QI Analyst designed for use in a computing
(Version 3.5)           environment with a centralized database.

================================================================================
================================================================================
Gage R&R               Implementation and systematic testing of measurement
                       instruments.  Available only on Windows.
================================================================================
================================================================================

Trial Run              For design of experiments, including analysis.

================================================================================

          SPSS quality in  manufacturing  products are available on Windows 3.1,
Windows 95 and Windows  NT.  Sample  Power,  allCLEAR,  DeltaGraph,  AnswerTree,
SYSTAT,  and the SPSS Base and certain  products which require the SPSS Base are
also marketed as part of the quality product line.

          Many of the  Company's  statistical  software  products  have received
numerous  favorable reviews from trade and other  publications.  SPSS offers its
flagship product, SPSS for Windows, in eight languages: English, German, French,
Italian, Spanish,  Japanese,  Catalan and Traditional Chinese. In December 1997,
the Company introduced SPSS 8.0 for Windows offering significant enhancements in
usability  and the display of  results.  The SYSTAT  update was  released in the
first quarter of 1997.

          The Company's licensing and pricing alternatives vary widely depending
upon the product,  platform and quantities  licensed.  List prices for perpetual
single-user  licenses  of products  designed  for  desktop  computers  ("Desktop
products") in North America are approximately  $795 for the SPSS Base System and
range  from  $195 to $1,995  for other  products.  Multi-user  network  and site
licenses  typically  require  annual  payments.  List prices of annual  licenses
designed for mainframes,  minicomputers,  and UNIX  workstations  ("Large System
products")  range from $4,500 to $15,000,  while  perpetual  licenses  for Large
Systems  products  run from  $9,000 to over  $30,000.  Pricing of SPSS  licenses
outside of North America is typically higher than domestic prices,  and licenses
outside of North America are more often annual licenses. In addition to standard
maintenance contracts for Large Systems products,  for an annual fee SPSS offers
an optional  service plan to users of Desktop products that includes a toll-free
number, free upgrades and discounts on certain products and services.

          Certain desktop products licensed for use by SPSS in certain countries
outside of North  America are secured with an external  hardware  device that is
required  for  operation.  The  Company's  Large  Systems  products,  as well as
multi-user  versions on UNIX  platforms,  have for many years been  secured with
internal  codes that enable product  operation when annual  licenses are renewed
and license fee payments have been  received.  Network  versions of SPSS desktop
products are now also secured with  internal  codes that govern the timeframe of
the license and the number of users.

          The  Jandel  products  have been  added to  SYSTAT  and BMDP to form a
comprehensive  scientific  line  ("SPSS  Science").  The  scientific  software's
licensing and pricing alternatives vary by product and quantity sold. SigmaPlot,
SigmaStat,  TableCurve,  PeakFit, and SigmaGel have a single user license with a
list price of $495, with discounts for volume  purchases.  Network  licenses are
available  to 2 to 100  users  for a  one-time  fee  of  $892-$28,700.  For  all
licenses,  there are discounts for resellers and for  governmental  and academic
purchasers. SigmaScan has a single user price of $995 and network licenses range
from $1,792 to $57,700 with discounts for resellers,  distribution,  government,
academic,  and  volume  purchases.  Pricing of these  products  outside of North
America is typically higher than domestic prices. All these products are Windows
platform.

          SPSS  Science's   principal  customers  are  research  scientists  and
engineers  from  nearly  all  disciplines.  Accordingly,  SPSS  Science  markets
directly  to  scientists  and  engineers,  principally  through  advertising  in
scientific  and  engineering  journals and by direct mail to SPSS  Science's own
databases  of research  scientists  and  engineers  and to lists of  prospective
customers  obtained  from third  parties.  SPSS  Science  also  distributes  its
products  through  a limited  number  of  specialty  distributors  and  software
retailers.  At present,  approximately  75%


<PAGE>

of SPSS  Science's  sales are in North  America,  21% in  Europe,  and 4% in the
Asia-Pacific area. See "Recent Developments."

     The Quantime and In2itive product lines are used by market  researchers for
data  collection and  tabulation.  In general,  the Quantime  products have more
extensive  feature  sets  and  the  In2itive  products  have  more  modern  user
interfaces.  SPSS plans to combine  the  strengths  of the  product  lines,  and
improve the ability for these  products  to  communicate  with the SPSS  product
line, through a series of development projects, some of which are expected to be
completed in 1998 and others which, while not yet fully defined, are expected to
be completed in the next two to three years.

          The  Quantime and In2itive  products are  currently  licensed to large
market research  organizations on an annual recurring basis, where the amount of
the annual  fee  depends on the number of modules in all and the number of users
of each module.  Annual  license fees from  customers  range from  approximately
$1,000  to  over  $1  million.  The  rate  of  renewal  of  these  licenses  has
historically been very high (in excess of 90%).

Publications and Student Software

          SPSS  authors  and  regularly  updates a number of  publications  that
include  user manuals and  instructional  texts.  The Company has  traditionally
developed  student  versions of its Windows and  Macintosh  products,  which are
subsets of the SPSS Base System and SYSTAT products,  designed for classroom use
with SPSS  textbooks or with other  statistics  instructional  materials.  Since
February  1993,  certain  SPSS  publications  and  student  software  have  been
distributed  by the  College  Division  of  Prentice  Hall under the terms of an
exclusive, worldwide agreement. See "Business- Prentice Hall Agreement."

Training and Consulting

          The Company  offers a  comprehensive  training  program  with  courses
covering product  operations,  statistical  concepts and particular  statistical
applications.  These courses are regularly  scheduled at Company  offices and in
other cities around the world.  Organizations may also contract for on-site SPSS
training  tailored to their specific  requirements.  SPSS offers  consulting and
customization services, where an engagement may range from assisting a client in
generating a single  report to  performing a complex  data  analysis  project to
tailoring SPSS software for a particular application.

Sales and Marketing

          SPSS sells its products primarily through a well-developed,  worldwide
telesales  and  direct  response  organization.  Advertising,  direct  mail  and
customer  references  have proven the most  effective  method of generating  new
sales and sales leads.  The Company's  order-taking  group  processes  orders or
directs leads to sales representatives.  Sales representatives work closely with
technical sales personnel throughout the sales process. Although varying widely,
sales of SPSS  Desktop  products  are  typically  completed  within  30 days and
average about $1,400.

          The  Company's  database of existing  customers  provides an effective
means of selling add-on products, upgrades, and training or consulting services.
Customers  regularly  receive  direct  mail from the  Company  on  products  and
services.  For  large  sales  opportunities,   SPSS  sales  representatives  and
technical sales personnel  personally visit prospects to make presentations,  to
give product  demonstrations  and to provide pre-sales  consulting.  The Company
also  maintains an office in the  Washington,  D.C. area focused on sales to the
United  States  Government,  as well as offices in New York,  San  Francisco and
Cincinnati.  The SPSS  international  sales operation consists of thirteen sales
offices,   in  Europe  and  the  Pacific  Rim,  as  well  as  over  60  licensed
distributors.  Overall,  the  Company  is  represented  in  over  50  countries.
Transactions are customarily made in local currencies.


<PAGE>



          Student  versions are published by Prentice Hall and sold by more than
300 Prentice Hall sales representatives working directly with faculty on college
campuses  worldwide.  The arrangement  also permits  Prentice Hall to bundle its
various  textbooks on statistics,  market research and quality  improvement with
SPSS student versions.

          Current users of the Company's  products comprise a significant source
of new sales leads.  Also  important are the expert  reviews of SPSS software in
trade and market-specific  publications.  The Company's marketing communications
program  includes   advertising  in  trade  and  market-specific   publications,
advertising  on the world wide web,  direct  mail,  exhibiting  at trade  shows,
participating  in professional  association  meetings,  sponsoring  seminars for
prospects and customers,  publishing its customer  magazine and conducting  user
group meetings.

Customer Service and Technical Support

          The Company provides  extensive customer service and technical support
by telephone,  fax, mail and the world wide web, each of which promote  customer
satisfaction  and obtain  feedback on new products and beta releases.  Technical
support  services  provided  to all  licensees  include  assistance  in  product
installation  and  product  operation,  as well  as  limited  consulting  in the
selection  of  statistical  methods and  interpretation  of results.  Additional
technical support services are available on a fee basis.

Product Development

          The Company plans to continue  expanding its product offerings through
internal  development  of new  software  products  and  enhancements,  acquiring
products,  technologies and businesses  complementary to the Company's  existing
product line, and forming partnerships with value-added resellers or other third
parties serving selected markets.

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

          Most  statistical  algorithms  used by the Company in its products 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  the  Company's   products.   SPSS  also  employs
statistically-trained  professionals in its  documentation,  quality  assurance,
software design and software engineering groups.

          The Company intends to continue to invest in product  development.  In
particular,  the Company's 1998  development  plan includes  updates to SPSS for
Windows, SYSTAT, QI Analyst, SigmaPlot, Quantime, In2itive, DeltaGraph, allCLEAR
and other  products,  and new  products  for  business  intelligence  and survey
research applications.

          In the past, the Company has experienced delays in the introduction of
new  products  and  product  enhancements,  due in  part  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 the
Company discovers "bugs" in its products which are resolved through  maintenance
releases or periodic updates depending on the seriousness of the defect.

          The SPSS product  development staff currently  includes  approximately
212  professionals  organized  into  groups  for  software  design,  statistical
development,  software engineering,  documentation,  quality assurance,  product
localization  and  computing  services.  In 1995,  1996 and 1997,  the Company's
expenditures  for product  development,  including  capitalized  software,  were
approximately $14.6, $17.1 and $19.4 million, respectively.

<PAGE>

          The  Company  also  uses   independent   contractors  in  its  product
development  efforts.  Sometimes  the Company  uses such  contractors  to obtain
technical  knowledge  and  capability  that it lacks  internally.  For  example,
contractors  are engaged to perform  conversions  of SPSS  products to computing
platforms  with  which the  Company  is  unfamiliar  or which are too  costly to
acquire  for  development  purposes.   SPSS  has  also  outsourced  maintenance,
conversion  and new  programming  for certain  products  to enable its  internal
development  staff  to  focus  exclusively  on  products  which  are of  greater
strategic  significance.  The Company sometimes uses independent  contractors to
flexibly augment its development capacity, often at a lower cost.

Manufacturing and Order Fulfillment

          To assure speed and efficiency in the manufacturing, order fulfillment
and delivery of its  products,  SPSS entered into the IBM Software  Distribution
Agreement in February  1993.  From April 1993 to December 1996, all diskette and
CD-ROM duplication,  documentation printing, packaging, warehousing, fulfillment
and shipping of SPSS products in the Western  Hemisphere  had been performed for
the Company by IBM. In January 1997, the IBM Software Distribution Agreement was
replaced with a similar agreement with Banta Global Turnkey. These services have
recently been expanded  worldwide.  SPSS believes  that,  because of the sizable
capacity of these third party  distribution  centers and their  around-the-clock
operation,  the  Company  can  easily  adapt  to  peak  period  demand,  quickly
manufacture new products for distribution and effectively respond to anticipated
sales volumes.

Competition

          The market for  statistical  software is both highly  competitive  and
fragmented.  SPSS is among the largest  companies  in the  statistical  software
market, and, based upon sales and comparative assessments in trade publications,
the Company  believes  that it  competes  effectively  against its  competitors,
particularly on desktop computing  platforms.  The Company considers its primary
worldwide competitor to be the larger and better-financed SAS Institute ("SAS"),
although the Company  believes that SAS's revenues are derived  principally from
products  for  purposes  other than  statistical  analysis  and operate on large
systems  platforms.   StatSoft  Inc.,   developers  of  the  Statistica  product
("Statistica"),  Manugistics Group, Inc.,  distributors of the Statgraphics Plus
product  ("Statgraphics"),  and Minitab,  Inc. ("Minitab") are also competitors,
although their annual revenues from these  statistical  products are believed to
be considerably  less than the revenues of SPSS. In addition to competition from
other statistical software companies, SPSS also faces competition from providers
of software for specific statistical applications.

          The  Company  competes  primarily  on  the  basis  of  the  usability,
functionality,   performance,  reliability  and  connectivity  of  its  software
products.  The  significance of each of these factors varies  depending upon the
anticipated  use of the software and the  statistical  training and expertise of
the customer.  To a lesser extent,  the Company  competes on the basis of price.
SPSS maintains pricing and licensing policies to meet market demand. The Company
believes  it is  able to  compete  successfully,  especially  with  its  Desktop
products, as a result of the graphical user interface,  comprehensive analytical
capabilities,  efficient performance  characteristics,  local language versions,
consistent quality and connectivity  features of its software products,  as well
as its worldwide distribution capabilities and widely recognized name.

          In the future,  SPSS may face  competition  from new entrants into the
statistical software market. The Company could also experience  competition from
companies in other sectors of the broader market for data  management,  analysis
and  presentation  software,   such  as  providers  of  spreadsheets,   database
management systems,  report writers and executive information systems, who could
add enhanced statistical functionality to their existing products. Some of these
potential  competitors  have  significantly  more capital  resources,  marketing
experience  and research and  development  capabilities  than SPSS.  Competitive
pressures  from the  introduction  of new  products by these  companies or other
companies could have a material adverse effect on the Company.


<PAGE>



Intellectual Property

          The Company  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.  The Company  licenses its
software only in the form of executable code, with  contractual  restrictions on
copying, disclosures and transferability. Except for licenses of its products to
users of Large System products and annual licenses of its Desktop products,  the
Company licenses its products to end-users by use of a "shrink-wrap" license, as
is customary in the industry.  It is uncertain  whether such license  agreements
are legally  enforceable.  The source code for all of the Company's  products is
protected as a trade secret and as  unpublished  copyrighted  work. In addition,
the Company has entered into  confidentiality and nondisclosure  agreements with
its  key  employees.  Despite  these  restrictions,   it  may  be  possible  for
competitors  or users to copy  aspects of the  Company's  products  or to obtain
information  which the  Company  regards as a trade  secret.  The Company has no
patents,  and judicial  enforcement  of copyright  laws and trade secrets may be
uncertain,  particularly  outside of North  America.  Registrations  of selected
Jandel  trademarks  in Germany have been  withdrawn  based on an opposition by a
company with  registration  for "Sigma" for  electronic  registers.  The Company
believes it will be able to use its "Sigma"  trademarks  on products in Germany.
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.

          The Company uses a variety of trademarks with its products. Management
believes there are currently twenty-one  trademarks in use which are material to
the Company's business: (i) SPSS; (ii) SPSS/PC+;  (iii) Categories;  (iv) Neural
Connection;  (v) QI Analyst;  (vi) SPSS Real Stats.  Real Easy.;  (vii)  SYSTAT;
(viii) Jandel  Scientific;  (ix) SigmaPlot;  (x) SigmaStat;  (xi) Jandel;  (xii)
CLEAR; (xiii) allCLEAR; (xiv) AnswerTree;  (xv) TextSmart; (xvi) NewView; (xvii)
SmartViewer;  (xviii) Quantime;(xix)  Quancept; (xx) In2itive Technologies;  and
(xxi) In2Quest. SPSS is a registered trademark used in connection with virtually
all of the Company's  products,  other than DOS-based  products.  SPSS/PC+ is an
unregistered trademark used in connection with the Company's DOS-based products.
SPSS   Categories  is  an   unregistered   trademark  used  with  the  Company's
correspondence  analysis  products  on all  platforms.  Neural  Connection  is a
registered trademark being used with the Company's neural network-based product.
QI Analyst is an unregistered trademark and is being used with the Company's new
statistical process control software for Windows. SPSS Real Stats. Real Easy. is
an  unregistered  trademark  used in connection  with SPSS  products  generally.
SYSTAT is a registered  trademark used in connection  with the Company's  SYSTAT
products on all platforms.  Jandel Scientific is a registered  trademark used in
connection  with  the  Company's   recently  acquired  Jandel  products  on  all
platforms.  Jandel is an  unregistered  trademark  used in  connection  with the
Company's  recently  acquired Jandel  products on all platforms.  SigmaPlot is a
registered  trademark used in connection  with the Company's  recently  acquired
Jandel  products on all platforms.  SigmaStat is a registered  trademark used in
connection  with  the  Company's   recently  acquired  Jandel  products  on  all
platforms. CLEAR is a registered trademark used in connection with the Company's
recently acquired CLEAR products on all platforms.  allCLEAR is the subject of a
pending  application for  registration  and is being used in connection with the
Company's Clear products.  AnswerTree,  Text Smart,  SmartViewer and NewView are
the subject of pending  applications for registration and are add on products to
the  SPSS  product  family.  Quantime  is  an  unregistered  trademark  used  in
connection  with  the  Company's  recently  acquired  Quantime  products  on all
platforms.  Quancept  is a  registered  trademark  used in  connection  with the
Company's  recently  acquired  Quantime  products  on  all  platforms.  In2itive
Technologies  and In2Quest are registered  trademarks in Denmark and are used in
connection  with  the  Company's  recently  acquired  In2itive  products  on all
platforms.  Many of the Company's other trademarks include one of the trademarks
described  herein.  The Company has registered  certain of its trademarks in the
United  States and  certain of its  trademarks  in a number of other  countries,
including the Benelux countries,  Denmark,  France, Germany, the United Kingdom,
Japan,  Singapore  and Spain.  Registration  of a trademark  confers a number of
advantages  over  reliance  on common law  rights.  Registration  of a trademark
generally  constitutes  prima facie evidence of the validity of the mark and the
registrant's  ownership  of and  exclusive  right to use the mark  and,  in some
jurisdictions,  constitutes  constructive  notice  of  ownership  sufficient  to
eliminate  any  defense  of  good  faith  adoption  or use  after  the  date  of
registration.

<PAGE>

          Due to  the  rapid  pace  of  technological  change  in  the  software
industry,   the  Company  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 product
development,   frequent  product  enhancements,  name  recognition  and  ongoing
reliable product maintenance and support.

          The  Company  believes  that its  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.

Reliance on Third Parties

          The  Company  has  entered  into  a  perpetual   nonexclusive  license
agreement (the "HOOPS  Agreement") with Autodesk Inc.  ("Autodesk") that permits
the  Company to  incorporate  a  graphics  software  program  known as the HOOPS
Graphics  System  into the  Company's  products.  Under  the  terms of the HOOPS
Agreement,  the Company is currently required to pay royalties to Autodesk based
on  the  amount  of  revenues  received  by  the  Company  from  products  which
incorporate  the HOOPS  Graphics  System.  The Company may  terminate  the HOOPS
Agreement  at any  time.  Autodesk  may  terminate  the HOOPS  Agreement  on the
occurrence of a material, uncured breach of the HOOPS Agreement by SPSS.

          The  Company  also  licenses  certain  other  software  programs  from
third-party  developers and incorporates them into the Company's products.  Many
of these are exclusive  worldwide  licenses which  terminate upon varying dates.
The Company  believes  that it will be able to renew  non-perpetual  licenses or
that it will be able to obtain substitute products if needed.

          The Company  currently has contracts with companies based in India and
other foreign  countries,  which provide  software  development  and engineering
services. These companies are providing such services for the development of new
components of the graphical user  interface  used in the Company's  products and
for porting the Company's products to certain UNIX/Motif platforms.  The Company
may increase the amount of software  development and engineering  work performed
by third-party contractors in India, or elsewhere, in the future.

Banta Global Turnkey Distribution Agreement

          In January  1997,  the Company  entered into the Banta Global  Turnkey
Software  Distribution  Agreement  (the  "Banta  Agreement"),  under which Banta
Global Turnkey ("Banta")  manufactures,  packages, and distributes the Company's
software  products to the  Company's  domestic and  international  customers and
certain international  subsidiaries.  The Banta Agreement has a three-year term,
and automatically  renews thereafter for successive  periods of one year. Either
party may terminate the Banta Agreement with 180 days' written notice;  however,
if Banta  terminates  for  convenience  or for any other reason  (other than for
cause),  then during the 180-day  notice period Banta will assist the Company in
finding a new vendor.  Either party may terminate the Banta  Agreement for cause
by written notice only if the other materially breaches its obligations.  Such a
termination notice for cause must specifically identify the breach (or breaches)
upon  which it 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 days.

Prentice Hall Agreement

          The Company entered into the Prentice Hall Agreement (the "Agreement")
in February 1993. Under this Agreement, the Company granted to Prentice Hall the
exclusive,  worldwide  right to publish and  distribute  all SPSS  publications,
including  student  versions of SPSS for DOS and Windows.  The Company  received
advance royalty  payments in the amount of $4 million,  payable as follows:  (i)
$1.6  million was paid upon  execution of the  Agreement,  (ii) $1.6 million was
paid in  January  1994,  and  (iii)  $800,000  was paid in  February  1995.  The
Agreement  also  provides for  reductions  in advance  royalties if  operational
versions of the student software are not delivered to Prentice Hall by specified
dates,  and for additional  advance  royalties for new types of student software
developed by the Company. The Agreement has an initial five-year term which ends
in 1998,  with an option to

<PAGE>

renew for an additional  five years under  certain  conditions.  Currently  this
Agreement is still in force and negotiations  regarding  renewing this Agreement
are taking place.

Computer Software Development Company

          In 1981,  the Company  entered into a software  development  agreement
with the Computer  Software  Development  Company  ("CSDC") to obtain funding of
approximately $2 million for development of software including two Large Systems
products,  SPSS  Graphics and SPSS  Tables,  and one Desktop  product,  SPSS/PC+
Tables.  The Company  entered into two software  purchase  agreements with CSDC,
under which the Company is required to pay CSDC royalties  through the year 2001
based on a percentage  of "net  revenues"  (as defined in the  agreements)  from
Large  Systems  software  products   developed  with  CSDC  funds.  Under  these
agreements,  the Company incurred royalties of approximately $274,000,  $255,000
and $249,000 in 1995, 1996 and 1997,  respectively.  Norman Nie, the Chairman of
the Board of the Company, is a limited partner of CSDC.

Seasonality

          The Company's  quarterly  operating  results  fluctuate due to several
factors,  including  the number and timing of product  updates  and new  product
introductions,  delays  in  product  development  and  introduction,  purchasing
schedules of its customers,  changes in foreign currency exchange rates, product
and market development expenditures, the timing of product shipments, changes in
product mix, timing and cost of acquisitions  and general  economic  conditions.
Because  the  Company's  expense  levels  are to a  large  extent  based  on its
forecasts of future  revenues,  operating  results may be adversely  affected if
such revenues fall below  expectations.  Accordingly,  the Company believes that
quarter-to-quarter   comparisons  of  its  results  of  operations  may  not  be
meaningful and should not be relied upon as an indication of future performance.
The Company has  historically  operated  with very  little  backlog  because its
products are generally shipped as orders are received. As a result,  revenues in
any  quarter  are  dependent  on orders  shipped  and  licenses  renewed in that
quarter. The Company has experienced a seasonal pattern in its operating results
with the fourth  quarter  typically  having the highest  operating  income.  For
example, excluding acquisition and other nonrecurring charges, the percentage of
the Company's  operating  income realized in the fourth quarter was 33% in 1995,
32% in 1996 and 35% in 1997. In addition, the timing and amount of the Company's
revenues  are subject to a number of factors that make  estimation  of operating
results prior to the end of a quarter  uncertain.  A significant  portion of the
Company's operating expenses are relatively fixed, and planned  expenditures are
based primarily on revenue forecasts. More specifically,  in the fourth quarter,
the variable  profit  margins on modest  increases in sales volume at the end of
the quarter are  significant.  Should the  Company  fail to achieve  such fourth
quarter revenue  increases,  net income for the fourth quarter and the full year
could be materially affected.  Generally,  if revenues do not meet the Company's
expectations in any given quarter, operating results will be adversely affected.
There can be no assurance that  profitability on a quarterly or annual basis can
be achieved or sustained in the future.

Employees

          The  Company  has  approximately  781  employees   (approximately  486
domestically and approximately 295 internationally), including approximately 435
in  sales  and  marketing,   approximately   212  in  product   development  and
approximately  134 in general and  administrative.  The Company  believes it has
generally  good  relationships  with its  employees.  None of its  employees are
members of labor unions.


<PAGE>



Financial Information About Foreign and Domestic Operations and Export Sales

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

<TABLE>
<CAPTION>


                                                        Year ended December 31,
                                       --------------------------------------------------------
                                            1995                1996                1997
                                       ----------------    ----------------    ----------------
Sales to unaffiliated customers:
<S>                                  <C>                 <C>                 <C>
    United States                    $      41,962,000   $      47,128,000   $      55,552,000
    Europe & India                          34,656,000          38,798,000          41,680,000
    Pacific Rim                             10,785,000          13,695,000          13,412,000
                                       ----------------    ----------------    ----------------
        Total                        $      87,403,000   $      99,621,000   $     110,644,000
                                       ================    ================    ================

Sales or transfers between geographic areas:
    United States                    $      15,003,000   $      16,914,000   $      18,261,000
    Europe & India                        (10,931,000)        (11,772,000)        (12,613,000)
    Pacific Rim                            (4,072,000)         (5,142,000)         (5,648,000)
                                       ----------------    ----------------    ----------------
        Total                        $        --         $        --         $        --
                                       ================    ================    ================

Operating income:
    United States                    $       5,141,000   $       6,842,000   $       5,950,000
    Europe & India                              10,000             615,000           (232,000)
    Pacific Rim                              1,245,000           2,460,000           1,268,000
                                       ----------------    ----------------    ----------------
        Total                        $       6,396,000   $       9,917,000   $       6,986,000
                                       ================    ================    ================


                                       --------------------------------------------------------
                                            1995                1996                1997
                                       ----------------    ----------------    ----------------
Identifiable assets:
    United States                    $      36,124,000   $      39,131,000   $      41,610,000
    Europe & India                          14,509,000          19,118,000          16,227,000
    Pacific Rim                              2,463,000           4,803,000           4,908,000
                                       ----------------    ----------------    ----------------
        Total                        $      53,096,000   $      63,052,000   $      62,745,000
                                       ================    ================    ================

</TABLE>


          The  Company's  revenues  from  operations  outside  of North  America
accounted for approximately  52%, 53% and 50% of the Company's revenues in 1995,
1996  and  1997,   respectively.   The  Company   expects  that   revenues  from
international  operations  will continue to represent a large  percentage of its
net revenues and that this percentage may increase,  particularly as the Company
further  "localizes"  the SPSS product  line by  translating  its products  into
additional  languages.  International  operations  are subject to various risks,
including greater difficulties in accounts receivable collection, longer payment
cycles,  exposure to currency  fluctuations,  political and economic instability
and the burdens of complying  with a wide variety of foreign laws and regulatory
requirements.  The Company also believes that it is exposed to greater levels of
software  piracy in  international  markets  because  of the  weaker  protection
afforded  intellectual  property in some foreign  jurisdictions.  As the Company
expands its international  operations,  the risks described above could increase
and, in any event,  could have a material  adverse  effect on the  Company.  See
"Business  - Sales and  Marketing,"  "Management's  Discussion  and  Analysis of
Financial  Condition  and  Results  of  Operations,"  and Note 2,  International
Subsidiaries, of the "Notes to Consolidated Financial Statements."


<PAGE>



Item 2.   Properties

          The  Company's  principal  administrative,   marketing,  training  and
product development and support facilities are located in Chicago,  Illinois and
consist of an aggregate of approximately  64,000 square feet,  subject to leases
terminating in October 1998. The aggregate annual gross rental payments on these
leases were approximately $1,789,000. During 1997, the Company entered into a 15
year sublease agreement to sublease  approximately 100,000 square feet of office
space in the Sears Tower.  This space will replace the principal Chicago offices
by the end of 1998.

          In addition,  the Company  leases  sales  office space in  California,
Ohio,  Massachusetts,  New York, Virginia, The Netherlands,  The United Kingdom,
Germany, Sweden, France, Singapore,  Australia, Japan, Denmark and India. During
1997,  the Japan and Australia  offices were moved to larger  facilities  within
Japan and Australia, respectively.

          Apart from its offices in Chicago  and  France,  for which the Company
plans to move its sales offices to larger  facilities in 1998, SPSS believes its
facilities are adequate for its present needs.


Item 3.   Legal Proceedings

          Currently,  there is no material pending legal proceeding to which the
Company or any of its  subsidiaries is a party or to which any of their property
is subject.


Item 4.   Submission of Matters to a Vote of Security Holders

          No matters were submitted to a vote of security holders.


<PAGE>



                                     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 sets
forth, for the periods  indicated,  the high and low closing sale prices for the
Company's Common Stock.


Year ended December 31, 1995                          High               Low
--------------------------------------------       -----------        ----------
First Quarter                                    $    13  1/2       $    11  3/8
Second Quarter                                        15  3/4            12  1/4
Third Quarter                                         17  1/4            14  5/8
Fourth Quarter                                        19  5/8            16  5/8
Year ended December 31, 1996
--------------------------------------------
First Quarter                                              19                 14
Second Quarter                                        26  1/8            18  1/4
Third Quarter                                         28  5/8            17  5/8
Fourth Quarter                                        31  1/8            26  1/4
Year ended December 31, 1997
--------------------------------------------
First Quarter                                         32  7/8            24  3/8
Second Quarter                                        32  3/4            24  5/8
Third Quarter                                         34  1/4            27  1/4
Fourth Quarter                                        28  5/8            17  1/2
Year ending December 31, 1998
--------------------------------------------
First Quarter  (through March 20, 1998)               19  1/4            23  1/2


As of March 20, 1998,  there were 450 holders of record of the Company's  Common
Stock.

          SPSS has never  declared  or paid any cash  dividends  on its  capital
stock.  The  Company  currently  intends to retain its  earnings  to fund future
ongoing  operations  and  future  capital  requirements  of its  businesses  and
therefore,  does not  anticipate  paying any cash  dividends in the  foreseeable
future.  See "Management's  Discussion and Analysis of Financial  Conditions and
Results of Operations-Liquidity and Capital Resources."


Recent Sales of Unregistered Securities

          In September 1997, SPSS acquired  approximately 97% of the outstanding
shares of Quantime in exchange for 863,049  shares of Common Stock.  In November
1997,  SPSS  acquired the  remaining  capital  stock of Quantime in exchange for
28,175  shares of Common Stock.  The sale of stock was exempt from  registration
pursuant to Section 4(2) of the  Securities Act because the sale did not involve
a  public  offering  of  stock.  A  registration   statement  on  Form  S-3  was
subsequently filed and became effective on December 15, 1997.

          In November  1997,  SPSS  acquired the  outstanding  shares of capital
stock of In2itive in exchange for 140,727  shares of Common  Stock.  The sale of
stock was exempt from  registration  pursuant to Section 4(2) of the  Securities
Act because the sale did not involve a public  offering of stock. A registration
statement on Form S-3 was  subsequently  filed and became  effective on December
15, 1997.


<PAGE>



Item 6.   Selected Consolidated Financial Data

          The selected  consolidated  financial data presented below for, and as
of the end of, each of the years in the five-year period ended December 31, 1997
are derived from the  Consolidated  Financial  Statements  of the  Company.  The
Consolidated Financial Statements as of December 31, 1996 and 1997, and for each
of the years in the  three-year  period ended  December 31, 1997, and the report
thereon of KPMG Peat Marwick LLP, are included elsewhere in this Form 10-K.

<TABLE>
<CAPTION>



                                               -----------------------------------------------------------------------
                                                 1993         1994           1995            1996           1997
                                               ----------   ----------   -------------   -------------  --------------
                                                       (in thousands, except net earnings per share data)

 Net revenues:
<S>                                              <C>          <C>             <C>             <C>             <C>
   Desktop products (1)                          $38,193      $49,337         $61,255         $72,185         $81,340
   Large System products (1)                      14,994       14,825          15,256          15,951          15,687
   Other products and services (1)                 8,639       10,508          10,892          11,485          13,617
                                               ----------   ----------   -------------   -------------  --------------
       Net revenues                               61,826       74,670          87,403          99,621         110,644
 Cost of revenues                                  7,567        8,031           8,789           9,738           9,835
                                               ----------   ----------   -------------   -------------  --------------
 Gross profit                                     54,259       66,639          78,614          89,883         100,809
                                               ----------   ----------   -------------   -------------  --------------
 Operating expenses:
   Sales and marketing                            29,702       37,972          44,730          48,532          54,086
   Product development                             9,434       10,860          12,985          15,972          17,816
   General and administrative                      7,090        8,711          10,768          11,826          11,578
   Nonrecurring charges (2)                            -            -           2,466               -           2,413
   Acquisition-related charges (3)                     -        1,928           1,269           3,636           7,930
                                               ----------   ----------   -------------   -------------  --------------
       Operating expenses                         46,226       59,471          72,218          79,966          93,823
                                               ----------   ----------   -------------   -------------  --------------
 Operating income                                  8,033        7,168           6,396           9,917           6,986
 Net interest income (expense)                   (1,803)        (378)              53             302             326
 Other income (expense) (4)                        (390)        (128)             132           (134)           (488)
                                               ----------   ----------   -------------   -------------  --------------
 Income before income taxes                        5,840        6,662           6,581          10,085           6,824
 Provision for income taxes                        1,683        2,466           3,401           3,848           3,242
                                               ----------   ----------   -------------   -------------  --------------
 Net income                                       $4,157       $4,196          $3,180          $6,237          $3,582
                                               ==========   ==========   =============   =============  ==============
 Basic net earnings per share                      $0.70        $0.56           $0.38           $0.72           $0.41
                                               ==========   ==========   =============   =============  ==============
 Shares used in basic per share                    5,939        7,460           8,441           8,680           8,787
 calculation
                                               ==========   ==========   =============   =============  ==============
 Diluted net earnings per share                    $0.67        $0.53           $0.35           $0.66           $0.37
                                               ==========   ==========   =============   =============  ==============
 Shares used in diluted per share                  6,197        7,926           9,027           9,382           9,626
 calculation
                                               ==========   ==========   =============   =============  ==============


</TABLE>


<TABLE>
<CAPTION>




                                               -----------------------------------------------------------------------
                                                 1993         1994           1995            1996           1997
                                               ----------   ----------   -------------   -------------  --------------
                                                                         (in thousands)
 Balance Sheet Data:
<S>                                             <C>          <C>               <C>             <C>            <C>
   Working capital (deficit)                    ($9,351)     ($9,766)          $3,513          $8,391         $14,154
   Total assets                                   30,347       41,840          53,096          63,052          62,745
   Long-term obligations,
     less current portion                          3,008        4,079           3,535           3,632           3,155
   Total stockholders' equity                      1,320        7,018          20,582          28,449          32,462

</TABLE>

<PAGE>



(1)  Desktop  products  include those operating on Windows,  DOS,  Macintosh and
     OS/2 operating environments. Large Systems products include those operating
     on mainframes and minicomputers  under proprietary  operating  systems,  as
     well as UNIX  platforms.  Other  products  and services  include  training,
     consulting, publications sales and related royalties.

(2)  Write-off  principally of certain software assets capitalized more than two
     years prior to 1995 totaling  $2,466,000 in 1995; and charges of $2,413,000
     principally  from the  revaluation  of certain assets  associated  with the
     Company's Macintosh and BMDP product lines in 1997.

(3)  Write-off in 1994 and 1995 of acquired and in-process  technology and other
     acquisition-related    charges   totaling    $1,928,000   and   $1,269,000,
     respectively;  and in September  and December of 1996,  acquisition-related
     charges  totaling  $3,636,000;  and in  September  and  November  of  1997,
     acquisition-related charges totaling $7,930,000.

(4)  Includes certain  nonrecurring  charges relating mainly to the amortization
     of fees  incurred in  connection  with the  Recapitalization  and the stock
     appraisal  action,  as  well  as  certain  gains  and  losses  on  currency
     transactions.


Item 7.   Management's Discussion and Analysis of Financial Condition and
          Results of Operations

Overview

          The  original   Statistical   Package  for  the  Social  Sciences  was
introduced in 1969,  and the Company was  incorporated  in 1975.  The first SPSS
products  were  almost  exclusively  used by  academic  researchers  working  on
mainframe  systems.  The Company has  subsequently  transformed and enhanced its
core product  technology,  broadened  its customer  base into the  corporate and
government sectors, significantly expanded its sales and marketing capabilities,
acquired  seven  corporate  entities  and  product  offerings,  and  adapted its
products to changing  hardware  and  software  technologies.  SPSS  software was
adapted to minicomputers in the late 1970s and to desktop  platforms,  including
high-end  workstations and personal computers,  in the mid-1980s.  In June 1992,
the Company introduced its first windows-based graphical user interface product,
SPSS for Windows,  which it has since updated three times, and released versions
for Macintosh computers and major UNIX/Motif platforms. Approximately 52% of the
current  SPSS  customer  base works in corporate  settings,  with another 31% in
academic institutions and 17% in government agencies.

          In  recent  years  SPSS has  experienced  a  significant  shift in the
sources of its revenues. Between 1993 and 1997, Desktop product license revenues
increased  from  approximately  62% to 74% of total net  revenues,  while  Large
Systems software license revenues declined from  approximately 24% to 14%. Gross
margins  associated with the Company's  Desktop products are slightly lower than
those associated with its Large Systems products. Shifts in the product mix may,
as a result,  cause fluctuations in gross margins.  In addition,  the portion of
the Company's net revenues derived from international  operations increased from
45% to 50% between 1993 and 1997. Management expects these trends to continue in
1998.  See  "Management's  Discussion  and Analysis of Financial  Condition  and
Results of Operations -- International Operations."



<PAGE>



Results of Operations

          The following table sets forth certain statement of operations data as
a percentage of net revenues for the years indicated.

<TABLE>
<CAPTION>



                                    ---------------------------------------------------------------
                                      1993         1994         1995         1996          1997
                                    ----------   ----------   -------------------------------------

Net revenues:
<S>                                     <C>          <C>          <C>          <C>           <C>
  Desktop products                      61.8%        66.1%        70.1%        72.5%         73.5%
  Large System products                 24.2%        19.8%        17.4%        16.0%         14.2%
  Other products and services           14.0%        14.1%        12.5%        11.5%         12.3%
                                    ----------   ----------   ----------   ----------   -----------
      Net revenues                     100.0%       100.0%       100.0%       100.0%        100.0%
Cost of revenues                        12.2%        10.8%        10.1%         9.8%          8.9%
                                    ----------   ----------   ----------   ----------   -----------
Gross profit                            87.8%        89.2%        89.9%        90.2%         91.1%
                                    ----------   ----------   ----------   ----------   -----------
Operating expenses:
  Sales and marketing                   48.0%        50.8%        51.2%        48.7%         48.9%
  Product development                   15.3%        14.5%        14.9%        16.0%         16.1%
  General and administrative            11.5%        11.7%        12.3%        11.9%         10.4%
  Nonrecurring charges                      -            -         2.8%            -          2.2%
  Acquisition-related charges               -         2.6%         1.4%         3.6%          7.2%
                                    ----------   ----------   ----------   ----------   -----------
      Operating expenses                74.8%        79.6%        82.6%        80.2%         84.8%
                                    ----------   ----------   ----------   ----------   -----------
Operating income                        13.0%         9.6%         7.3%        10.0%          6.3%
Net interest income (expense)          (2.9%)       (0.5%)         0.1%         0.3%          0.3%
Other income (expense)                 (0.7%)       (0.2%)         0.1%       (0.1%)        (0.4%)
                                    ----------   ----------   ----------   ----------   -----------
Income before income taxes               9.4%         8.9%         7.5%        10.2%          6.2%
Provision for income taxes               2.7%         3.3%         3.9%         3.9%          2.9%
                                    ----------   ----------   ----------   ----------   -----------

Net income                               6.7%         5.6%         3.6%         6.3%          3.3%
                                    ==========   ==========   ==========   ==========   ===========

</TABLE>


Comparison of Twelve Months Ended December 31, 1995, 1996 and 1997.

Net Revenues.  Net revenues increased from $87,403,000 in 1995 to $99,621,000 in
1996 and to $110,644,000 in 1997, increases of 14% and 11%, respectively.  These
increases were  primarily due to an increase in Desktop  revenues of 18% in 1996
and 13% in 1997. Large System revenues  increased 5% in 1996 and decreased 2% in
1997.  The  increase  in  Desktop  revenues  reflected  $38,000,000  in 1996 and
$47,721,000  in 1997 of new  revenues  from  licenses  of SPSS for  Windows.  In
addition, revenues from annual license renewals of Desktop products increased by
$3,451,000 in 1996 and $3,027,000 in 1997, primarily reflecting a $4,178,000 and
$3,283,000  increase in annual license revenues for SPSS for Windows in 1996 and
1997, respectively. The increase in Large Systems revenues in 1996 was primarily
due to the  December  1995  acquisition  of  BMDP  Statistical  Software,  Inc.,
resulting in increased product licenses on UNIX platforms. The decrease in Large
System  Revenues  in 1997  was  primarily  due to a  decrease  in  international
licenses  and  renewals  and a decrease  in BMDP  revenue.  Revenues  from other
products and services increased by 5% in 1996 due primarily to an increase of 7%
in  revenues  from  training  and  consulting  services,  partially  offset by a
decrease in revenues from  publications  and student  products due to the end of
the payment of  guaranteed  royalties  from the  Prentice  Hall  Agreement.  The
Company is no longer entitled to such  guaranteed  royalties under the Agreement
between the Company and Prentice  Hall and now only  receives  actual  royalties
under the Prentice Hall  Agreement.  In 1997,  revenues from other  products and
services  increased  by 19% due to an  increase in revenues  from  training  and
consulting  services  and an 117%  increase in revenues  from  publications  and
student  products.  Revenues were aided by changes in foreign currency  exchange
rates in 1995 but adversely  affected by foreign currency exchange rates in 1996
and 1997.

<PAGE>


Cost of Revenues. Cost of revenues consists of costs of goods sold, amortization
of capitalized  software development costs, and royalties paid to third parties.
Cost of revenues  increased  from  $8,789,000  in 1995 to $9,738,000 in 1996, to
$9,835,000  in  1997.  Such  costs  increased  11% in 1996 and 1% in 1997 due to
higher sales levels and higher royalties paid to third parties.  As a percentage
of net revenues,  cost of revenues remained constant at 10% in 1995 and 1996 and
decreased to 9% in 1997.

Sales and Marketing.  Sales and marketing expenses increased from $44,730,000 in
1995 to  $48,532,000  in 1996 and to  $54,086,000  in 1997, an increase of 8% in
1996 and 11% in 1997.  These increases were due to expansion of the domestic and
international sales and marketing  organizations,  increased costs for the Clear
and  Sigma-series  (Jandel) product lines,  salary and commission  increases and
increased media placement and promotional  costs.  Sales and marketing  expenses
were  partially  offset by the effects of changes in foreign  currency  exchange
rates in 1996 and 1997.  As a percentage  of net  revenues,  sales and marketing
expenses decreased from 51% in 1995 to 49% in 1996 and 1997.

Product Development.  Product development expenses increased from $12,985,000 in
1995 to  $15,972,000  in 1996 and to  $17,816,000  in 1997 (net of the effect of
capitalized software development costs of $1,630,000, $1,082,000 and $1,564,000,
respectively)  an increase of 23% in 1996 and an increase of 12% in 1997. In the
same periods, the Company's expense for amortization of capitalized software and
product translations,  included in cost of revenues, was $1,592,000,  $1,561,000
and $1,703,000, respectively. The increases in product development expenses were
primarily due to staff increases,  salary increases,  network  services,  higher
depreciation  expense  related  to the  purchase  of capital  equipment  used in
product development, purchased software and consulting expenses. As a percentage
of net revenues,  product development expenses increased from 15% in 1995 to 16%
in 1996 and 1997.

General and Administrative.  General and administrative  expenses increased from
$10,768,000  in 1995 to  $11,826,000  in 1996 and to  $11,578,000  in  1997,  an
increase of 10% in 1996 and a decrease of 2% in 1997.  The  increase in 1996 was
primarily  attributable  to increases  in bad debt  expense,  employment  taxes,
employee  insurance  and  rent  expense.  The  decrease  in 1997  was  primarily
attributable to reductions in costs and personnel in the acquired Clear,  Jandel
and Quantime  entities.  Such expense  decreased as a percentage of net revenues
from 12% in 1995 and 1996 to 10% in 1997.

Non-recurring Charges. A non-recurring charge of $2,466,000 was recorded in 1995
primarily related to the revaluation of certain assets  capitalized prior to the
Company's IPO in August 1993. Approximately $1,343,000 of this charge related to
the  development  of  UNIX  products,  approximately  $178,000  to  the  initial
development of QI Analyst,  and  approximately  $347,000 related to the Japanese
translation of SPSS for DOS. In addition,  approximately  $200,000 of the charge
related to out-dated software  purchased for the Company's customer  information
system.  The  remainder  related  primarily  to shut  down and  moving  costs at
subsidiary locations.  Non-recurring charges of $2,413,000 in 1997 resulted from
the revaluation of certain assets  associated  with the Company's  Macintosh and
BMDP product lines.

Acquisition-related  Charges. Charges related to the acquisition of BMDP in 1995
totaled  $1,051,000  and  represented   one-time   write-offs  of  acquired  and
in-process  technology  and  other  acquisition-related  charges;  also in 1995,
charges of $218,000  related to acquisition  activities of In2itive.  Charges of
$3,636,000  in 1996  related to the  acquisition  of Clear and  Jandel  totaling
$1,471,000   and   $2,165,000,    respectively,   and   represented   severance,
restructuring  and  professional  fee  charges.  Acquisition-related  charges of
$7,930,000 in 1997 related primarily to the acquisition of Quantime ($5,985,000)
and represented the write-off of duplicate software products,  professional fees
and  various  other  integration  expenses,  as well as  charges  related to the
acquisition  of  DeltaGraph  software  from  DeltaPoint,  Inc.,  representing  a
one-time  write-off  of  in-process  technology  and other  acquisition  related
charges;  and the acquisition of In2itive,  representing  professional  fees and
various other integration expenses.

Net Interest  Income.  Net  interest  income was $53,000 in 1995 due to interest
income  following the repayment of the Company's  line of credit through the use
of net  proceeds  from  the  Company's  follow-on  public  offering  of

<PAGE>


stock in February 1995.  Net interest  income was $302,000 in 1996 due to higher
cash  balances  and  $326,000  in 1997 due to higher  interest  rates  earned on
short-term investments.

Other  Income  (Expense).  Other  income  (expense)  consists  mainly of foreign
exchange  transactions.  Such other items were  $132,000 in 1995,  ($134,000) in
1996 and ($488,000) in 1997.



Provision  for Income  Taxes.  The  provision  for  income  taxes  consisted  of
$3,401,000 in 1995,  $3,848,000 in 1996 and $3,242,000 in 1997. During 1995, the
provision for income taxes reflected a tax rate of 47% of pretax income for SPSS
on a stand-alone  basis,  excluding the effect of Japanese  withholding taxes of
$336,000 on monies  transferred out of Japan in 1995. During 1996, the provision
for income taxes  represented  a tax rate of  approximately  34%,  excluding the
effect of Japanese  withholding  taxes of $372,000 on monies  transferred out of
Japan in 1996 and the revaluation in allowances for deferred tax assets.  During
1997,  the provision for income taxes  represented a tax rate of 44%,  excluding
the effect of Japanese  withholding taxes of $273,000 on monies  transferred out
of Japan in 1997, and the non-deductibility of certain Quantime expenses.

Liquidity and Capital Resources

          The Company  had no  long-term  debt as of December  31, 1997 and held
approximately  $8,079,000 of cash and short term investments.  Funds in 1996 and
1997  were  used  in  operations,   for  acquisitions  and  to  finance  capital
expenditures  incurred  in  connection  with  staff  additions,  which  required
additional office space, furniture and computers. Capital expenditures were also
made for  additional  computer  hardware and software  associated  with software
development.

          The Company currently has a $5,000,000  unsecured line of credit under
a  Credit  Agreement  with  Bank of  America  N.T.S.A.  ("B of A")  under  which
borrowings  bear interest at B of A's reference rate (8.5% per annum as of March
20,  1998).  As of December 31, 1997,  the Company had no  borrowings  under the
Credit  Agreement.  The Credit  Agreement  requires  the  Company to comply with
certain  specified  financial  ratios and tests,  and  restricts  the  Company's
ability to, among other things:  (i) pay dividends or make  distributions,  (ii)
incur  additional  indebtedness,   (iii)  create  liens  on  assets,  (iv)  make
investments,  (v) engage in mergers,  acquisitions or consolidations,  (vi) sell
assets, and (vii) engage in certain transactions with affiliates.

          The Company anticipates the amounts available from cash and short term
investments  on hand,  under its line of credit,  and cash flows  generated from
operations,  will be  sufficient to fund the  Company's  operations  and capital
requirements for the foreseeable future. However, no assurance can be given that
changing business  circumstances will not require additional capital for reasons
that are not currently anticipated or that the necessary additional capital will
then be available to the Company on favorable terms or at all.

          The Company's capital expenditures,  primarily for computer equipment,
totaled   approximately   $5,200,000   in  1997  and  are   projected  to  total
approximately $5,200,000 and $4,000,000 in 1998 and 1999, respectively.  Capital
expenditures during 1997, included, among other things, new computer systems for
use in internal product development,  leasehold improvements and furnishings for
the Company's new office space in Sears Tower and expenditures  made relating to
office  moves in  Australia  and Japan.  Capital  expenditures  during 1998 will
include, among other things, new computers primarily for use in internal product
development,  furnishings  and  other  equipment  related  to  the  move  of the
Company's  facilities  in Chicago and France.  The Company does not believe that
the implementation of its business strategy will require substantial  additional
capital expenditures in comparison with historical levels of product development
costs and other expenses.


<PAGE>



International Operations

          Significant  growth in the  Company's  international  operations  also
occurred from 1993 to 1997.  Revenues from  international  operations  comprised
approximately  45%  of  total  net  revenues  in  1993,  whereas  revenues  from
international operations contributed 50% of total net revenues in 1997.

          Following the reorganization of its international  operations in 1990,
the Company has maintained  substantially the same telesales and direct response
organization   worldwide.   The  international   sales  organization  uses  more
independent  distributors  than the domestic  sales  organization,  primarily in
countries without an SPSS sales office.  Management  believes the profit margins
associated with SPSS's domestic and international operations are essentially the
same.

          As  international   revenues  increase,  the  Company  may  experience
additional foreign currency exchange risk.

Item 7A.  Quantitative and Qualitative Disclosure About Market Risk

          Inapplicable.

<PAGE>


Item` 8.   Financial Statements and Supplementary Data







                           SPSS Inc. and Subsidiaries


                                      INDEX


                                                                           Page

Independent Auditors' Report................................................26

Consolidated Balance Sheets as of December 31, 1996 and 1997................27

Consolidated Statements of Income for the years ended
    December 31, 1995, 1996 and 1997........................................28

Consolidated Statements of Stockholders' Equity for the years ended
    December 31, 1995, 1996 and 1997........................................29

Consolidated Statements of Cash Flows for the years ended
    December 31, 1995, 1996 and 1997........................................30

Notes to Consolidated Financial Statements..................................31

Financial Statement Schedule:

Schedule II    Valuation and qualifying accounts............................43


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
financial statements or related notes.



<PAGE>



                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholders
SPSS Inc.:

We  have  audited  the  consolidated  financial  statements  of  SPSS  Inc.  and
subsidiaries  (the Company) as listed in the  accompanying  index. In connection
with our audits of the consolidated  financial statements,  we also have audited
the financial  statement  schedule as listed in the  accompanying  index.  These
consolidated  financial  statements and the 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 financial statement
schedule based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all  material  respects,  the  financial  position of SPSS Inc.  and
subsidiaries  as of  December  31,  1996  and  1997,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1997,  in  conformity  with  generally  accepted  accounting
principles.  Also in our opinion, the related 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.

                                                       /s/KPMG Peat Marwick LLP



Chicago, Illinois
February 18, 1998


<PAGE>



                                            SPSS Inc. and Subsidiaries
                                            CONSOLIDATED BALANCE SHEETS
                                         (in thousands, except share data)

<TABLE>
<CAPTION>


                                                                                                          December 31,
                                                                                                  -----------------------------
                                                                                                        1996           1997
                                                                                                  -------------   -------------
                                        ASSETS
CURRENT ASSETS:
<S>                                                                                             <C>               <C>
     Cash and cash equivalents                                                                  $       13,491    $      8,079
     Accounts receivable, net of allowances of  $1,706 in 1996 and $1,714 in 1997                       21,596          27,872
     Inventories                                                                                         2,088           2,520
     Prepaid expenses and other current assets                                                           2,187           2,811
                                                                                                  -------------   -------------
          Total current assets                                                                          39,362          41,282
                                                                                                  -------------   -------------

EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
     Land and building                                                                                   3,933           1,700
     Furniture, fixtures, and office equipment                                                           5,182           6,044
     Computer equipment and software                                                                    15,363          18,032
     Leasehold improvements                                                                              2,071           2,627
                                                                                                  -------------   -------------
                                                                                                        26,549          28,403
     Less accumulated depreciation and amortization                                                     15,660          18,974
                                                                                                  -------------   -------------
Net equipment and leasehold improvements                                                                10,889           9,429
                                                                                                  -------------   -------------
Capitalized software development costs, net of accumulated amortization                                  7,036           6,703
Goodwill, net of accumulated amortization                                                                2,173           1,062
Deferred income taxes                                                                                    1,268           2,588
Other assets                                                                                             2,324           1,681
                                                                                                  -------------   -------------
                                                                                                $       63,052 $        62,745
                                                                                                  =============   =============


                         LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Notes payable and current portion of long-term debt                                        $           -- $            71
     Accounts payable                                                                                    4,472           5,013
     Accrued royalties                                                                                     520             482
     Accrued rent                                                                                          651             428
     Other accrued liabilities                                                                          11,456           9,912
     Income taxes and value added taxes payable                                                          3,931           1,299
     Customer advances                                                                                     121             208
     Deferred revenues                                                                                   9,820           9,715
                                                                                                  -------------   -------------

          Total current liabilities                                                                     30,971          27,128
                                                                                                  -------------   -------------

Deferred income taxes                                                                                    2,245           1,936
Other non-current liabilities                                                                            1,387           1,219
STOCKHOLDERS'  EQUITY:
     Common Stock, $.01 par value;  50,000,000 shares authorized;  8,732,502 and
       8,811,644 shares issued and outstanding at December 31, 1996 and
       December 31, 1997, respectively                                                                      87              88
     Additional paid-in capital                                                                         43,196          44,313
     Cumulative foreign currency translation adjustments                                                 (378)         (1,065)
     Accumulated deficit                                                                              (14,456)        (10,874)
                                                                                                  -------------   -------------

          Total stockholders'  equity                                                                   28,449          32,462

                                                                                                  -------------   -------------
                                                                                                $       63,052 $        62,745
                                                                                                  =============   =============
</TABLE>



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



<PAGE>



                                              SPSS Inc. and Subsidiaries
                                           CONSOLIDATED STATEMENTS OF INCOME
                                           (in thousands, except share data)



<TABLE>
<CAPTION>

                                                                           Year ended December 31,
                                                              -------------------------------------------------
                                                                    1995            1996             1997
                                                                --------------  -------------    --------------

         Net revenues:
<S>                                                           <C>             <C>              <C>
            Desktop products                                  $        61,255 $       72,185   $        81,340
            Large System products                                      15,256         15,951            15,687
            Other products and services                                10,892         11,485            13,617
                                                                --------------  -------------    --------------
         Net revenues                                                  87,403         99,621           110,644
         Cost of revenues                                               8,789          9,738             9,835
                                                                --------------  -------------    --------------
         Gross profit                                                  78,614         89,883           100,809
                                                                --------------  -------------    --------------

         Operating expenses:
            Sales and marketing                                        44,730         48,532            54,086
            Product development                                        12,985         15,972            17,816
            General and administrative                                 10,768         11,826            11,578
            Nonrecurring items                                          2,466         --                 2,413
            Acquisition-related charges                                 1,269          3,636             7,930
                                                                --------------  -------------    --------------
         Operating expenses                                            72,218         79,966            93,823
                                                                --------------  -------------    --------------

         Operating income                                               6,396          9,917             6,986
                                                                --------------  -------------    --------------
         Other income (expense):
            Interest income                                               334            498               530
            Interest expense                                            (281)          (196)             (204)
            Other                                                         132          (134)             (488)
                                                                --------------  -------------    --------------
         Other income (expense)                                           185            168             (162)
                                                                --------------  -------------    --------------

         Income  before income taxes                                    6,581         10,085             6,824
         Income tax expense                                             3,401          3,848             3,242
                                                                --------------  -------------    --------------

         Net income                                           $         3,180 $        6,237   $         3,582
                                                                ==============  =============    ==============

         Basic net earnings per share                         $          0.38 $         0.72   $          0.41
                                                                ==============  =============    ==============

         Shares used in computing basic net
            earnings per share                                      8,440,562      8,680,145         8,787,403
                                                                ==============  =============    ==============

         Diluted net earnings per share                       $          0.35 $         0.66   $          0.37
                                                                ==============  =============    ==============

         Shares used in computing diluted net
            earnings per share                                      9,027,018      9,381,984         9,626,114
                                                                ==============  =============    ==============

</TABLE>


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





<PAGE>



                                        SPSS Inc. and Subsidiaries
                             CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                    (in thousands, except share data)

<TABLE>
<CAPTION>


                                                                            Year ended December 31,
                                                                   ----------------------------------------
                                                                        1995          1996         1997
                                                                     -----------   -----------  -----------


Common stock, $.01 par value:
 <S>                                                                <C>          <C>           <C>
   Balance at beginning of period                                  $         76 $          86 $         87
   Public offering of 908,287 shares of common stock                          9         --           --
   Issuance of  67,439, 49,541 and 26,081 shares of common
    stock in 1995, 1996 and 1997, respectively                                1         --           --
   Exercise of stock options                                              --                1            1
                                                                     -----------   -----------  -----------
   Balance at end of period                                        $         86 $          87 $         88
                                                                     -----------   -----------  -----------

Additional paid in capital:
   Balance at beginning of period                                  $     31,011 $      41,627 $     43,196
   Public offering of 908,287 shares of  common stock                     9,118         --           --
   Issuance of  67,439, 49,541 and 26,081 shares of common
    stock in 1995, 1996 and 1997, respectively                            1,199           547          322
   Sale of 9,892, 8,319 and 11,256 shares of common stock
     to the Employee Stock Purchase Plan in 1995, 1996
     and 1997, respectively                                                 141           184          297
   Exercise of  stock options and other                                      40           326          148
   Income tax benefit related to stock options                              117           358          350
   Undistributed earnings related to business combination                     1           154        --
                                                                     -----------   -----------  -----------
   Balance at end of period                                        $     41,627 $      43,196 $     44,313
                                                                     -----------   -----------  -----------

Foreign currency translation adjustment:
   Balance at beginning of period                                  $      (463) $       (691) $      (378)
   Translation adjustment                                                 (228)           313        (687)
                                                                     -----------   -----------  -----------
   Balance at end of period                                        $      (691) $       (378) $    (1,065)
                                                                     -----------   -----------  -----------

Accumulated deficit:
   Balance at beginning of period                                  $   (23,607) $    (20,440) $   (14,456)
   Net income                                                             3,180         6,237        3,582
   Undistributed earnings related to business combination                   (1)         (154)        --
   Dividends declared                                                      (12)          (99)        --
                                                                     -----------   -----------  -----------
   Balance at end of period                                        $   (20,440) $    (14,456) $   (10,874)
                                                                     -----------   -----------  -----------

Total stockholders' equity                                         $     20,582 $      28,449 $     32,462
                                                                     ===========   ===========  ===========

</TABLE>


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




<PAGE>





                                             SPSS Inc. and Subsidiaries
                                       CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                   (in thousands)

<TABLE>
<CAPTION>

                                                                           Year ended December 31,
                                                                 -------------------------------------------
                                                                       1995          1996          1997
                                                                   -------------  ------------  ------------

         Cash flows from operating activities:
<S>                                                              <C>            <C>           <C>
             Net income                                          $        3,180 $       6,237 $       3,582
             Adjustments to reconcile net income to net cash
               provided by operating activities:
                   Depreciation and amortization                          5,259         5,465         6,731
                   Stock option compensation expense                         21           --            --
                   Deferred income taxes                                  (189)       (1,020)       (1,629)
                   Write-off of software development costs and
                      other assets                                        2,281           --          2,748
                   Write-off of acquired and in-process technology          851           --          1,535
                   Changes  in  assets  and  liabilities,
                      net  of  effects  of acquisitions:
                      Accounts receivable                               (2,237)       (4,276)       (6,276)
                      Inventories                                         (202)         (256)         (376)
                      Accounts payable                                  (1,379)           316           541
                      Accrued royalties                                    (23)            24          (38)
                      Accrued expenses                                    (153)           360       (1,671)
                      Accrued income taxes                                   80            94       (2,632)
                      Other                                                  83           698       (1,621)
                                                                   -------------  ------------  ------------

         Net cash provided by operating activities                        7,572         7,642           894
                                                                   -------------  ------------  ------------

         Cash flows from investing activities:
              Capital expenditures, net                                 (4,275)       (4,405)       (2,698)
              Capitalized software development costs                    (2,504)       (1,758)       (3,791)
              Net (payments) receipts related to acquisitions                46         (418)       (1,006)
              Net decrease in other assets                                    9           --            --
                                                                   -------------  ------------  ------------

         Net cash used in investing activities                          (6,724)       (6,581)       (7,495)
                                                                   -------------  ------------  ------------

         Cash flows from financing activities:
              Net (borrowings) repayments under line-of-credit          (2,877)          (75)            71
               agreements
              Proceeds from issuance of common stock                     11,705         1,058           768
              Costs of issuance of common stock                         (1,205)           --            --
              Income tax benefit from stock option exercises                117           358           350
              Repurchase of common stock                                   (14)           --            --
              Other                                                        (46)          (99)           --
                                                                   -------------  ------------  ------------

         Net cash  provided by financing activities                       7,680         1,242         1,189
                                                                   -------------  ------------  ------------

         Net change in cash and cash equivalents                          8,528         2,303       (5,412)
         Cash and cash equivalents at beginning of period                 2,660        11,188        13,491
                                                                   -------------  ------------  ------------
         Cash and cash equivalents at end of period              $       11,188 $      13,491 $       8,079
                                                                   =============  ============  ============

         Supplemental disclosures of cash flow information:
              Interest paid                                      $          273 $         189           209
              Income taxes paid                                           3,892         3,477 $       7,063
                                                                   =============  ============  ============

</TABLE>


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




<PAGE>



                           SPSS Inc. and Subsidiaries
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)        Summary of Significant Accounting Policies

          (a)  Description of Business

          SPSS Inc. (the "Company") develops,  markets, and supports statistical
software  products and services that enable the effective use of marketplace and
enterprise data in decision making.  The primary users of the Company's software
are managers and data analysts in corporate settings,  governmental and academic
institutions. The Company markets its products and services worldwide.

          (b)  Principles of Consolidation

          The  consolidated  financial  statements  include the accounts of SPSS
Inc.  and  its  wholly-owned   subsidiaries.   All  intercompany   accounts  and
transactions have been eliminated in consolidation.

        (c)  Use of Estimates

          Management  of  the  Company  has  made  a  number  of  estimates  and
assumptions  relating  to the  reporting  of  assets  and  liabilities  and  the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting periods. Actual results could differ from those estimates.

          (d)  Software Revenue Recognition

          The Company recognizes  revenue from Desktop product licenses,  net of
an allowance for estimated returns and  cancellations,  at the time the software
is delivered. Revenue from Large System product license agreements is recognized
upon contract execution, product delivery, and customer acceptance.

          Revenue  from  postcontract  customer  support  (PCS  or  maintenance)
agreements,  including PCS bundled with Desktop product and Large System product
licenses,  is  recognized  ratably over the term of the related PCS  agreements.
Certain  Desktop  product   licenses  include   commitments  for   insignificant
obligations,  such as  technical  and other  support,  for which an  accrual  is
provided.

          Revenue from  consulting,  publications,  and other items  included in
other revenue is recognized as the related products or services are delivered or
rendered.

          (e)  Software Development Costs

          Software  development costs incurred by the Company in connection with
the Company's long-term  development projects are capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86. The Company has not
capitalized  software  development costs relating to development  projects where
the  net  realizable  value  is of  short  duration,  as  the  effect  would  be
immaterial.  The Company reviews  capitalized  software  development  costs each
period and, if necessary,  reduces the carrying value of each product to its net
realizable value.


<PAGE>



          (f)  Earnings per Share

          In the fourth  quarter of 1997,  the  Company  adopted  SFAS No.  128,
"Earnings Per Share," which established new methods for computing and presenting
earnings  per share  ("EPS")  and  replaced  the  presentation  of  primary  and
fully-diluted  EPS with basic and diluted EPS. Basic earnings per share is based
on the weighted  average number of shares  outstanding and excludes the dilutive
effect of unexercised  common stock  equivalents.  Diluted earnings per share is
based on the  weighted  average  number of shares  outstanding  and includes the
dilutive effect of unexercised common stock equivalents.



<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                     -------------------------------------------------------
                                                                          1995               1996                1997
                                                                     -------------------------------------------------------
Basic EPS
<S>                                                                <C>                <C>                 <C>
Income Available to Common Shareholders                            $      3,180,000   $       6,237,000   $       3,582,000
Weighted-Average Number of Common Shares Outstanding                      8,440,562           8,680,145           8,787,403
Basic EPS                                                          $           0.38   $            0.72   $            0.41

Diluted EPS
Income Available to Common Shareholders                            $      3,180,000   $       6,237,000   $       3,582,000
Weighted-Average Number of Common Shares Outstanding                      8,440,562           8,680,145           8,787,403
Effect of dilutive stock options                                            586,456             701,839             838,711
                                                                            -------             -------             -------
Weighted-Average Number of Common Shares Outstanding
  and Dilutive Potential Common Shares                                    9,027,018           9,381,984           9,626,114
Diluted EPS                                                        $           0.35   $            0.66   $            0.37


</TABLE>


          (g)  Depreciation and Amortization

          Depreciation   of  furniture  and  equipment  is  provided  using  the
straight-line  method over the estimated useful lives of the assets, which range
from  three  to  eight  years.  Leasehold  improvements  are  amortized  on  the
straight-line method over the shorter of the lease term or the estimated life of
the asset.  This method  results in greater  amortization  than the method based
upon the ratio of current year gross product  revenue to current and anticipated
future gross product revenue.

          (h) Income Taxes

          The Company  follows SFAS No. 109,  Accounting for Income Taxes.  SFAS
No. 109 requires the asset and liability  method of accounting  for income taxes
in which deferred tax assets and  liabilities  are recognized for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing 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.  Under SFAS No. 109, the effect on deferred tax assets and
liabilities  of a change in tax rates is recognized in income in the period that
includes the enactment date.


<PAGE>



          (i)  Stock Option Plans

          Prior to January 1, 1996,  the Company  accounted for its stock option
plans in accordance with the provisions of Accounting  Principles  Board ("APB")
Opinion  No.  25,  Accounting  for  Stock  Issued  to  Employees,   and  related
interpretations.  As such, compensation expense would be recorded on the date of
grant only if the current  market price of the  underlying  shares  exceeded the
exercise price. On January 1, 1996, the Company adopted SFAS No. 123, Accounting
for  Stock-Based  Compensation,  which permits  entities to recognize as expense
over the vesting period the fair value of all stock-based  awards on the date of
grant.  Alternatively,  SFAS No. 123 allows  entities  to  continue to apply the
provisions  of APB Opinion No. 25 and provide pro forma net income and per share
disclosures for employee stock option grants made in 1995 and future years as if
the  fair-value  based  method  defined  in SFAS No. 123 had been  applied.  The
Company has elected to  continue to apply the  provisions  of APB Opinion No. 25
and provide the pro forma disclosures of SFAS No. 123.

          (j)  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.

          (k)  Goodwill

          The excess of the cost over the fair value of net assets  acquired  is
recorded as goodwill and amortized on a straight-line basis over 10 to 15 years.
During 1997,  certain  goodwill  assets were  revalued and a $905,000  write-off
resulted.  Accumulated amortization was $683,000 and $628,000 as of December 31,
1996 and 1997, respectively.

          (l)  Foreign Currency Translation

          The translation of the applicable foreign currencies into U.S. dollars
is performed for balance sheet accounts  using current  exchange rates in effect
at the balance sheet date and for revenue and expense accounts using the average
exchange  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
statements of income.

          (m)  Fair Value of Financial Instruments

          The fair values of financial instruments were not materially different
from their carrying values.

          (n)  Cash and Cash Equivalents

          Cash and cash  equivalents are comprised of highly liquid  investments
with original maturity dates of less than three months.

          (o)  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.  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.

          (p)  Reclassifications

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

<PAGE>

(2)        International Subsidiaries

          The net assets,  net revenues and net earnings (loss) of international
subsidiaries  as of and for the years ended  December  31,  1995,  1996 and 1997
included in the consolidated financial statements are summarized as follows:

<TABLE>
<CAPTION>


                                                                               December 31,
                                                        -----------------------------------------------------------
                                                             1995                  1996                 1997
                                                        ----------------     -----------------     ----------------
<S>                                                   <C>                    <C>                   <C>

          Working capital (deficit)                   $    (5,118,000)       $    (2,999,000)      $       (334,000)
                                                        ================     =================     ================
          Excess of noncurrent assets over
            noncurrent liabilities                    $      5,371,000       $      6,487,000      $      3,353,000
                                                        ================     =================     ================

                                                      $     45,441,000             52,493,000      $     55,092,000
          Net revenues                                  ================     =================     ================
                                                      $        (50,000)    $        1,626,000      $       (860,000)
          Net earnings (loss)                         ==================     =================     ================



</TABLE>


          Geographic information is disclosed elsewhere in this document.

(3)        Software Development Costs and Purchased Software

          Activity in capitalized software is summarized as follows:

<TABLE>
<CAPTION>
                                                                                      December 31,
                                                                  ----------------------------------------------------------------
                                                                          1995                  1996                     1997
                                                                  -----------------      ------------------      -----------------

<S>                                                                    <C>                     <C>                    <C>
              Balance, net -- beginning of year                         $7,207,000              $6,839,000             $7,036,000
              Additions                                                  2,613,000               1,587,000              3,191,000
              Product translations                                         508,000                 203,000              1,210,000
              Write-down to net realizable value                       (1,897,000)                (32,000)            (3,031,000)
              Amortization expense charged to
                 cost of revenues                                      (1,592,000)             (1,561,000)            (1,703,000)
                                                                  -----------------      ------------------      -----------------
              Balance, net -- end of year                               $6,839,000              $7,036,000             $6,703,000
                                                                  =================      ==================      =================

</TABLE>

          The components of net capitalized software are summarized as follows:


                                                      December 31,
                                         -------------------------------------
                                             1996                    1997
                                         ---------------      ----------------

Product translations                   $      1,052,000      $      1,687,000
Acquired software technology                  2,274,000             1,567,000
Capitalized software development costs        3,710,000             3,449,000
                                         ---------------      ----------------
Balance, net -- end of year            $      7,036,000     $       6,703,000
                                         ===============      ================

          Total  software  development  costs,  including  amounts  expensed  as
incurred,  amounted to approximately  $15,489,000,  $17,762,000 and $21,607,000,
for the years ended December 31, 1995, 1996 and 1997, respectively.

          Included in acquired software technology at December 31, 1996 and 1997
is $494,000 and none, respectively, of technology resulting from the acquisition
of BMDP Statistical  Software,  Inc. Included in acquired software technology at
December 31, 1997 is $164,000 of technology  resulting  from the purchase of the
DeltaGraph product. (See Note 4).


<PAGE>



(4)       Acquisitions

          As of December 29, 1995, the Company acquired substantially all of the
assets of one of its competitors,  BMDP Statistical Software, Inc. ("BMDP"), for
$850,000  in  cash  to  BMDP  and  non-competition  payments  to  the  principal
shareholder  of BMDP. In addition,  the Company  agreed to assume  approximately
$1,400,000 of BMDP's  liabilities,  consisting of telephone equipment and office
machine  lease  obligations,  accounts  payable and  advertising  fees,  accrued
employment-related expenses, professional fees, and bank loan and line of credit
facilities.   The  BMDP  acquisition  was  accounted  for  as  a  purchase  and,
accordingly,  the acquired  assets and  liabilities  have been recorded at their
estimated  fair  values.  In the fourth  quarter of 1995,  the Company  recorded
charges  of  approximately  $1,051,000  representing  a  one-time  write-off  of
acquired and in-process  technology and other  acquisition-related  charges. The
$301,000  excess of the  purchase  price over the fair  market  value of the net
assets   acquired  was  recorded  as  goodwill.   During  1996  certain  assumed
liabilities  were  revalued,  and  consequently  BMDP  goodwill was increased to
$542,000.  During 1997, the remaining  goodwill relating to BMDP was written off
since the value of the future  benefit from BMDP  products was  determined to be
minimal.

          On September  26, 1996,  the Company  acquired all of the  outstanding
capital stock of Clear  Software,  Inc.  ("Clear"),  a developer and marketer of
process management,  analysis and documentation  software products,  in exchange
for 183,833 shares of Common Stock. The merger with Clear was accounted for as a
pooling of interests and,  accordingly,  the consolidated  financial  statements
have been restated as if the Company and Clear had been combined for all periods
presented.

          On November 20,  1996,  the Company  acquired  all of the  outstanding
capital stock of Jandel Corporation and Subsidiary  ("Jandel"),  a developer and
marketer  of  graphical  and  statistical   software  products  used  mainly  in
scientific  applications,  in exchange for 339,427  shares of Common Stock.  The
merger with Jandel was accounted for as a pooling of interests and, accordingly,
the consolidated  financial  statements have been restated as if the Company and
Jandel had been combined for all periods presented.

          Effective May 1, 1997, the Company  purchased all of DeltaPoint Inc.'s
assets  primarily  relating  to  and  comprising  DeltaGraph  computer  software
products for $910,000.  The  transaction was accounted for as an asset purchase,
and,  accordingly  the acquired  assets were  recorded at their  estimated  fair
market  values.  The $8,000  excess of the  purchase  price over the fair market
values of the assets was recorded as goodwill.

          In September 1997, SPSS acquired  approximately 97% of the outstanding
shares  of  capital  stock  of  Quantime  Limited  ("Quantime"),  a  corporation
organized  under the laws of England,  in exchange for 863,049  shares of Common
Stock. In November 1997, SPSS acquired the remaining  shares of capital stock of
Quantime in exchange for 28,175  shares of Common  Stock.  The  acquisition  was
accounted  for as a pooling of  interests  and,  accordingly,  the  consolidated
financial  statements have been restated as if the Company and Quantime had been
combined for all periods  presented.  Quantime is a developer of market research
products.  SPSS will continue to operate the Quantime business  principally from
the Quantime offices in London, England.

     In November 1997, SPSS acquired the outstanding  shares of capital stock of
In2itive Technologies,  A/S ("In2itive"), a corporation organized under the laws
of Denmark, in exchange for 140,727 shares of Common Stock in a merger accounted
for as a pooling of  interests  and,  accordingly,  the  consolidated  financial
statements  have been  restated as if the Company and In2itive had been combined
for all periods presented.  In2itive is a computer software company specializing
in market research software. SPSS will continue to operate the In2itive business
principally from the In2itive headquarters in Copenhagen, Denmark.


<PAGE>



          The following  information  reconciles  net revenues and net income of
SPSS as  previously  reported  with the amounts  presented  in the  accompanying
consolidated  statements of income for the years ended  December 31, 1995,  1996
and  1997,  as well as the  results  of  operations  for 1997 for  Quantime  and
In2itive  during the periods  preceding  their  acquisitions.  The 1997  results
presented for Quantime  represent the nine months ended  September 30, 1997. The
1997 results for In2itive are for the eleven months ended November 30, 1997.

<TABLE>
<CAPTION>


                                  1995                     1996                    1997
                            ------------------      -------------------      ------------------

Net revenues:
<S>                       <C>                      <C>                     <C>
  SPSS (1)                $        73,794,000      $        83,989,000
  Quantime                         13,470,000               15,381,000     $        13,670,000
  In2itive                            139,000                  251,000                 520,000
                            ------------------      -------------------
    Total                 $        87,403,000      $        99,621,000
                            ==================      ===================

Net income (loss):
  SPSS (1)                $         3,875,000      $         7,182,000
  Quantime                            289,000                  122,000     $       (1,210,000)
  In2itive                          (984,000)              (1,067,000)             (1,155,000)
                            ------------------      -------------------
     Total                $         3,180,000      $         6,237,000
                            ==================      ===================

</TABLE>


 (1) Represents the historical results of SPSS without considering the effect of
the Quantime and In2itive pooling of interests transactions.

(5)       Commitments and Contingencies

          Operating Leases

          The Company leases its office  facilities,  storage space, and certain
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  noncancelable  minimum  lease
payments required under operating leases as of December 31, 1997:

Year ending December 31,                                  Amount
----------------------------------                   -----------------
1998                                                   $4,562,000
1999                                                    3,810,000
2000                                                    2,775,000
2001                                                    2,282,000
2002                                                    2,159,000
Thereafter                                              20,292,000
                                                     -------------
                                                    $   35,880,000
                                                    ==============


     Rent expense  related to  operating  leases was  approximately  $4,120,000,
$4,109,000  and $4,631,000  during the years ended December 31, 1995,  1996, and
1997, respectively.


<PAGE>



          Litigation

          The Company is subject to certain  legal  proceedings  and claims that
have arisen in the ordinary  course of business  and have not been  adjudicated.
Management  currently  believes the ultimate  outcome of these  matters will not
have a  material  adverse  effect on the  Company's  results  of  operations  or
financial position.

 (6)       Financing Arrangements

          Effective March 14, 1997, the Company amended its $5,000,000 unsecured
364-day  revolving  credit  facility   available  for  advances  pursuant  to  a
definitive credit agreement to end on April 30,1998. The Company pays a facility
fee of 0.25% on the unused  portion of the facility.  If the Company does borrow
against the facility,  interest will be charged at the Bank of America reference
rate (8.5% at December 31, 1997). At December 31, 1997, the entire $5,000,000 of
the line of credit was unused.

(7)         Other Income (Expense)

          Other income (expense) consists of the following:

<TABLE>
<CAPTION>


                                                              Year ended December 31,
                                                ---------------------------------------------------
                                                     1995              1996               1997
                                                -------------     -------------      --------------

<S>                                       <C>                   <C>                <C>
Interest income                           $          334,000    $      498,000     $       530,000
Interest expense                                   (281,000)         (196,000)           (204,000)
Exchange gain (loss) on foreign currency
   transactions                                      212,000          (66,000)           (488,000)
Stock appraisal action                             (105,000)                --                --

Payments to related parties                         (45,000)                --                --

Other                                                 70,000          (68,000)                --

                                                -------------     -------------      --------------
Total other income (expense)              $          185,000    $      168,000     $     (162,000)
                                                =============     =============      ==============

</TABLE>


 (8)        Income Taxes

          Income before income tax expense consists of the following:

                                     Year ended December 31,
                      ----------------------------------------------------------
                             1995               1996              1997
                      ---------------      ---------------     ---------------

Domestic            $      5,454,000     $      7,079,000    $      6,460,000
Foreign                    1,127,000            3,006,000             364,000
                      ---------------      ---------------     ---------------
                    $      6,581,000     $     10,085,000    $      6,824,000
                      ===============      ===============     ===============


<PAGE>



          Income tax expense consists of the following:
<TABLE>
<CAPTION>


                                                              Current            Deferred             Total
                                                         ---------------      ---------------      ---------------

           Year ended December 31, 1995
<S>                                               <C>                      <C>                  <C>
                U.S. Federal                           $      1,771,000    $       (144,000)    $       1,627,000
                State                                           187,000             (32,000)              155,000
                Foreign                                       1,619,000                  --             1,619,000
                                                         ---------------      ---------------      ---------------
                                                       $      3,577,000    $       (176,000)    $       3,401,000
                                                         ===============      ===============      ===============

           Year ended December 31, 1996
                U.S. Federal                           $      2,296,000    $       (837,000)    $       1,459,000
                State                                           792,000            (178,000)              614,000
                Foreign                                       1,798,000             (23,000)            1,775,000
                                                         ---------------      ---------------      ---------------
                                                       $      4,886,000    $     (1,038,000)    $       3,848,000
                                                         ===============      ===============      ===============

           Year ended December 31, 1997
                U.S. Federal                           $      2,041,000    $       (546,000)    $       1,495,000
                State                                           623,000             (74,000)              549,000
                Foreign                                       2,207,000          (1,009,000)            1,198,000
                                                         ---------------      ---------------      ---------------
                                                       $      4,871,000    $     (1,629,000)    $       3,242,000
                                                         ===============      ===============      ===============
</TABLE>


          For  the  years  ended   December  31,  1995,   1996  and  1997,   the
reconciliation of statutory to effective income taxes is as follows:

<TABLE>
<CAPTION>


                                                                            Year ended December 31,
                                                            -----------------------------------------------------------------
                                                                   1995                    1996                    1997
                                                            ------------------      ------------------     ------------------
      Income taxes using the Federal
<S>                                                      <C>                      <C>                    <C>
        statutory rate of 34%                            $          2,238,000     $         3,429,000    $         2,320,000
      State income taxes, net of Federal tax
        benefit                                                       103,000                 404,000                362,000
      Change in valuation allowance and credit
        and net operating loss utilization, net                       385,000               (513,000)            (1,256,000)
      Foreign taxes at net rates different
        from U.S. Federal rates                                       899,000                 379,000              1,096,000
      Foreign tax credit                                            (336,000)               (372,000)              (273,000)
      Acquisition costs                                                  -                    440,000                592,000
      Other, net                                                      112,000                  81,000                401,000

                                                            ------------------      ------------------     ------------------
                                                          $         3,401,000     $         3,848,000    $         3,242,000
                                                            ==================      ==================     ==================

</TABLE>


<PAGE>




          The tax effects of temporary differences that give rise to significant
portions of the  deferred  tax assets and  liabilities  at December 31, 1996 and
1997, are presented below:

<TABLE>
<CAPTION>


                                                                                                    1996             1997
                                                                                             ---------------  ----------------
 Deferred tax assets:
<S>                                                                                    <C>                  <C>
      Accounts receivable principally due to allowance for doubtful accounts           $            369,000 $         165,000
      Inventories, principally due to additional costs inventoried for tax purposes
          pursuant to the Tax Reform Act of 1986                                                    114,000            46,000
      Compensated absences, principally due to accrual for financial reporting purposes             158,000            79,000
      Research and experimentation credit carryforwards                                             523,000           523,000

      Deferred rent                                                                                 214,000           119,000
      Plant and equipment, principally due
         to differences in depreciation and
         capitalized interest                                                                       250,000           226,000
      Deferred revenues                                                                           1,684,000         1,166,000
      Foreign currency loss                                                                         113,000           171,000
      Acquisition-related items                                                                     521,000           785,000
      State deferred tax asset                                                                      884,000           838,000
      U.S. net operating loss carryforwards                                                         431,000           160,000
      Non-U.S. net operating loss carryforwards                                                     805,000         1,848,000
      Other                                                                                          95,000            99,000
                                                                                             ---------------  ----------------

 Total gross deferred tax assets                                                                  6,161,000         6,225,000
 Less valuation allowance                                                                       (4,893,000)       (3,637,000)
                                                                                             ---------------  ----------------

 Net deferred tax assets                                                                          1,268,000         2,588,000
                                                                                             ---------------  ----------------

 Deferred tax liabilities:
      Capitalized software costs                                                                  1,670,000         1,364,000
      State deferred tax liability                                                                  464,000           436,000
      Other                                                                                         111,000           136,000
                                                                                             ---------------  ----------------

 Net deferred tax asset (liability)                                                    $          (977,000) $         652,000
                                                                                             ===============  ================

</TABLE>


     The  valuation  allowance   increased  $385,000,   decreased  $513,000  and
decreased $1,256,000 in 1995, 1996 and 1997, respectively.

     As of December 31, 1997,  Jandel had net operating  loss  carryforwards  of
approximately $635,000 and $156,000 for Federal and state purposes respectively,
expiring in years 2000 through 2010.

     Due to the merger with SPSS, Jandel's ability to utilize net operating loss
carryforwards may be affected.

     As of December 31, 1997,  In2itive had a net operating loss carryforward of
approximately $3,301,000. This loss can be carried forward indefinitely.


<PAGE>



 (9)        Capital Stock

          In  February  1995,  the  Company  and  certain  Selling  Stockholders
completed an offering of Common  Stock in which the Company sold 700,000  shares
of Common  Stock and the  Selling  Stockholders  sold  921,916  shares of Common
Stock,  at a public  offering  price of  $11.375  per  share,  and each  sold an
additional  208,287  and  35,000  shares,  respectively,  when the  underwriters
exercised  their  overallotment  option in March 1995.  After the  underwriters'
discounts  and other  offering  expenses,  the  Company  received  approximately
$9,127,000  in net proceeds  from its sale of 908,287  shares of Common Stock in
the offering.

(10)        Research and Development Limited Partnerships

          The Company entered into agreements with limited partnerships in 1981,
1982 and 1985 to perform research and development for new and existing  computer
software.  Certain of the general and limited partners of these partnerships are
officers of the Company and under these agreements, the Company incurred royalty
expense to the  partnerships of $361,000,  $349,000 and $319,000,  for the years
ended December 31, 1995, 1996 and 1997.

(11)        Stock Options

          On January  16,  1992,  the  Company  adopted a Stock  Option Plan for
certain  key  employees.  Options  vest either  immediately  or over a four year
period.  In September  1994,  the Company  granted  options to purchase  150,000
shares of Common Stock to the principal owners of SYSTAT.  In addition,  in June
1995, the  stockholders  of the Company  adopted the 1995 Equity  Incentive Plan
which  authorizes  the Board of Directors,  under certain  conditions,  to grant
stock options and shares of restricted stock to directors,  officers,  other key
executives, employees and independent contractors.

          The Company applies APB Opinion No. 25 and related  interpretations in
accounting  for its plans.  All  options  under the plans  have been  granted at
exercise  prices  not less  than  the  market  value  at the date of the  grant.
Accordingly, no compensation cost has been recognized for its fixed stock option
plans.  Had  compensation  cost  for  the  Company's  stock  option  plans  been
determined  consistent  with SFAS No. 123, the  Company's  net income would have
been decreased to the pro forma amounts indicated below:

                                            1996                  1997
                                     -----------------     -----------------

 Net income:
     As reported                   $        6,237,000     $       3,582,000
     Pro forma                              5,547,000             2,616,000

 Net earnings per share:
     Basic, as reported                          0.72                  0.41
     Basic pro forma                             0.64                  0.30

     Diluted, as reported                        0.66                  0.37
     Diluted pro forma                           0.59                  0.27



<PAGE>



          Under the stock option plans, 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, the fair value
of each  grant  is  estimated  on the  date of  grant  using  the  Black-Scholes
option-pricing  model with the following  weighted-average  assumptions used for
grants in fiscal 1995, 1996 and 1997, respectively;  no expected dividend yield;
expected volatility of 25 percent;  risk free interest rates of 6.53%, 6.53% and
5.57% and expected lives of 8 years. Additional information regarding options is
as follows:
<TABLE>
<CAPTION>



                                 1995                                 1996                                 1997
                                 -------------------------------     --------------------------------     ----------------- --------
                                                     Weighted                             Weighted                          Weighted
                                                     average                               average                          average
                                                     exercise                              exercise                         exercise
                                Options               price             Options             price            Options         price
                                 ---------------  --------------     ---------------   --------------     ---------------   --------

Outstanding at beginning
<S>                              <C>      <C>                       <C>        <C>                       <C>       <C>
   of year                        833,117 $          4.73           1,106,869  $          7.02           1,379,076 $         10.39
     Granted                      305,373           12.86             406,621            21.04             392,500           28.15
     Forfeited                    (10,095)          11.37             (14,702)           11.88             (29,990)          21.28
     Exercised                    (21,526)           1.81            (119,712)            8.23             (42,480)           3.65

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

Outstanding at end of year      1,106,869            7.02           1,379,076            10.39           1,699,106           13.99

Options exercisable at
   year end                       605,808            3.77             722,029             5.23             984,115           12.58


</TABLE>

          The weighted average fair value of options granted during 1995, 1996
and 1997 was $13.59, $19.16 and $28.15, respectively.


          The  following  table  summarizes   information  about  stock  options
outstanding at December 31, 1997:

<TABLE>
<CAPTION>


                                                                Weighted
                                                                 average        Weighted                          Weighted
                                                                remaining        average                           average
                                               Options         contractual      exercise        Options           exercise
         Range of exercise prices            outstanding           life           price       exercisable           price
       ---------------------------------    ---------------  ---------------   ------------  ---------------      --------------

<S>  <C>                                      <C>                   <C>        <C>              <C>               <C>
     $             1.05                         371,445             3.72       $  1.05          371,445           $  1.05

                8.00-9.125                      299,402             6.27          8.72          272,294              8.70

               12.875-14.75                     464,362             7.63         13.97          273,096             13.81

               18.875-29.00                     563,897             9.07         25.33           67,280             23.34

                                            ---------------    --------------- -------         ------------      ---------
                                              1,699,106             7.01       $ 13.99          984,115           $ 12.58


</TABLE>


<PAGE>




(12)       Unaudited Quarterly Financial Information

         The  following  is a  summary  of  the  unaudited  interim  results  of
operations for each of the quarters ended in 1996 and 1997.
<TABLE>
<CAPTION>


                                 Mar. 31    June 30,     Sept. 30    Dec. 31,      Mar. 30       June 30,       Sept. 30,   Dec. 31,
                                  1996        1996         1996        1996         1997           1997           1997        1997
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Net revenues:
<S>                              <C>          <C>          <C>         <C>           <C>           <C>           <C>         <C>
  Desktop products               $17,549      $16,612      $18,429     $19,595       $19,851       $19,834       $19,836     $21,819
  Large System products            4,070        3,875        4,088       3,918         4,327         3,564         3,630       4,166
  Other products and               2,521        2,895        2,983       3,086         3,134         3,328         3,180       3,975
  services
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
      Net revenues                24,140       23,382       25,500      26,592         7,312        26,726        26,646      29,960
Cost of revenues                   2,151        2,421        2,490       2,676         2,589         2,426         2,252       2,568
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Gross profit                      21,989       20,961       23,010      23,923        24,723        24,300        24,394      27,392
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Operating expenses:
  Sales and marketing             12,456       11,796       11,753      12,527        12,682        13,613        13,040      14,751
  Product development              3,851        3,962        4,203       3,956         4,345         4,251         4,713       4,507
  General and administrative       2,531        3,033        3,194       3,068         3,266         3,203         3,078       2,031
  Nonrecurring items (a)               -            -            -           -             -         2,413                      -
  Acquisition-related                  -            -          980       2,656             -         1,065         6,053         812
  charges (b)
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
      Operating expenses          18,838       18,791       20,130      22,207        20,293        22,132        29,297      22,101
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Operating income                   3,151        2,170        2,880       1,716         4,430         2,168       (4,903)       5,291
Net interest income                   91           76           59          76           109           101            16         100
(expense)
Other income (expenses)             (50)         (56)         (84)          56           (22)            6         (100)       (372)
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Income before income taxes         3,192        2,190        2,855       1,848         4,517         2,275       (4,5,019
Income tax expense                 1,221          811        1,132         684         1,603           998         (965)       1,606
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Net income                        $1,971       $1,379       $1,723      $1,164        $2,914        $1,277      $(4,022)      $3,413
                               ==========   ==========  =========== ===========  ============   ===========   ===========  =========
Basic net earnings per share       $0.23        $0.16        $0.20       $0.13         $0.33         $0.15       ($0.46)       $0.39
                               ==========   ==========  =========== ===========  ============   ===========   ===========  =========
Shares used in basic per share     8,639        8,660        8,675       8,725         8,736         8,759         8,799       8,811
calculation
                               ==========   ==========  =========== ===========  ============   ===========   ===========  =========
Diluted net earnings per           $0.21        $0.15        $0.18       $0.12         $0.3          $0.13       $(0.46)       $0.36
share
                               ==========   ==========  =========== ===========  ============   ===========   ===========  =========
Shares used in diluted per         9,214        9,335        9,371       9,500         9,611         9,624         8,799       9,542
share calculation
                               ==========   ==========  =========== ===========  ============   ===========   ===========  =========


                               ---------------------------------------------------------------- ------------------------------------
                                Mar. 31      June 30,     Sept. 30    Dec. 31,        Mar. 30       June 30,    Sept. 30,   Dec. 31,
                                  1996         1996        1996         1996            1997          1997         1997        1997
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Net revenues:
  Desktop products                   73%          71%          72%         74%           73%           74%           74%         73%
  Large System products              17%          17%          16%         15%           16%           14%           14%         14%
  Other products and                 10%          12%          12%         11%           11%           12%           12%         13%
  services
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
      Net revenues                  100%         100%         100%        100%          100%          100%          100%        100%
Cost of revenues                      9%          11%          10%         10%            9%            9%            8%          9%
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Gross profit                         91%          89%          90%         90%           91%           91%           92%         91%
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Operating expenses:
  Sales and marketing                52%          50%          46%         47%           46%           51%           49%         49%
  Product development                16%          17%          16%         15%           16%           16%           18%         15%
  General and administrative         10%          13%          13%         11%           12%           12%           11%          7%
  Nonrecurring items (a)               -            -            -           -             -             -            9%           -
  Acquisition-related                  -            -           4%         10%             -            4%           23%          2%
  charges (b)
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
      Operating expenses             78%          80%          79%         83%           74%           83%          110%         73%
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Operating income                     13%           9%          11%          7%           17%            8%          -18%         18%
Net interest income                    -            -            -           -             -             -             -           -
(expense)
Other income (expense)                 -            -            -           -             -             -             -         -1%
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Income before income taxes           13%           9%          11%          7%           17%            8%          -18%        -17%
Income tax expense                    5%           3%           4%          3%            6%            3%           -3%          6%
                               ----------   ----------  ----------- -----------  ------------   -----------   -----------  ---------
Net income                            8%           6%           7%          4%           11%            5%          -15%         11%
                               ==========   ==========  =========== ===========  ============   ===========   ===========  =========

</TABLE>


(a)  Write-off in July 1997,  principally of certain software assets  associated
     with the Company's Macintosh and BMDP product lines.

(b)  Write-off in September and December,  1996 in conjunction with mergers with
     Clear  Software,  Inc. and Jandel  Corporation,  accounted  for as pooling-
     of-interests.

     Write-off  in  May  1997,   principally   of  in-process   technology   and
     acquisition-related   charges  in  conjunction   with  the  acquisition  of
     DeltaGraph software.

     Write-off in September  and November  1997, in  conjunction  with the stock
     purchases of Quantime and In2itive accounted for as pooling-of-interests.


<PAGE>



                                   Schedule II

                                    SPSS Inc.

                        Valuation and qualifying accounts

                  Years ended December 31, 1995, 1996 and 1997



<TABLE>
<CAPTION>


                                                                           Additions
                                                                --------------------------------
                                                 Balance           Charged          Charged                           Balance at
                                                    at                to               to
                                                Beginning of       Costs and          Other                              End of
               Description                         Period          Expenses          Accounts        Deductions          Period
-------------------------------------------    --------------   ---------------   --------------    --------------   ---------------

1995
Allowance for doubtful accounts,
<S>                                          <C>                    <C>                <C>            <C>           <C>
  product returns, and cancellations         $       581,000        $     464,000      $1,755,000     $ 1,875,000   $    925,000
Inventory obsolescence reserve                       246,000              153,000           --            158,000        241,000


1996
Allowance for doubtful accounts,
  product returns, and cancellations         $       925,000        $   1,076,000    $ 1,900,000      $ 2,195,000   $  1,706,000
Inventory obsolescence reserve                       241,000              146,000         50,000          205,000        232,000


1997
Allowance for doubtful accounts,
  product returns, and cancellations         $     1,706,000  $     $    447,000    $  1,606,000      $ 2,045,000   $  1,714,000
Inventory obsolescence reserve                       232,000             100,000         (50,000)         215,000         67,000


</TABLE>


<PAGE>



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 1997.


<PAGE>



                                    Part III

Item 10. Directors and Executive Officers of the Registrant

     The  following  table sets forth certain  information  as of March 16, 1998
with  respect to each  person who is an  executive  officer or  director  of the
Company.


Name                        Age          Position

Norman Nie (2).............  54  Chairman of the Board of Directors

Jack Noonan................  50  Director, President and Chief Executive Officer

Edward Hamburg.............  46  Executive Vice President, Corporate Operations,
                                 Chief Financial Officer and Secretary

Louise Rehling.............  54  Executive Vice President, Product Development

Mark Battaglia.............  38  Executive Vice President, Corporate Marketing

Ian Durrell................  55  Executive Vice President, International

Susan Phelan...............  41  Executive Vice President, Domestic Sales and
                                 Services

Bernard Goldstein (1)(2)...  67  Director

Fredric Harman (1)(2)......  37  Director

Merritt Lutz  (1)            55  Director

Michael Blair..............  53  Director

---------------------------
(1)  Member of the Compensation Committee
(2)  Member of the Audit Committee


     Norman Nie,  Chairman of the Board and co-founder of the Company,  designed
the Company's  original  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 the Company from 1975 to 1991. In addition
to his current responsibilities as Chairman of the Board, Dr. Nie is a professor
in,  and  has  previously  chaired  the  Political  Science  Department  at  the
University of Chicago,  where his research  specialties  include public opinion,
voting behavior and citizen participation. He has received three national awards
for his books in these areas.  During the past year,  he has become a technology
partner in Oak  Investment  Partners.  Dr. Nie received his Ph.D.  from Stanford
University.

     Jack  Noonan has  served as  Director  and  President  and Chief  Executive
Officer since joining the Company 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. Mr. Noonan 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 ShowCase  Corporation,
Napersoft,  Inc.,  and  Repository  Technologies,   Inc.  Mr.  Noonan  holds  an
engineering  degree from the  Rockford  School of Business  and  Engineering  in
Rockford, Illinois.

     Edward  Hamburg,  Executive Vice  President,  Corporate  Operations,  Chief
Financial  Officer and Secretary,  was elected Senior Vice President,  Corporate
Operations in July 1992,  Chief Financial  Officer in June 1993 and Secretary in
June 1994.  Dr. Hamburg  previously  served as Senior Vice  President,  Business
Development, and was responsible for

<PAGE>


product and technology acquisitions as well as joint venture opportunities.  Dr.
Hamburg  first  joined the Company in 1978 and served in a variety of  marketing
and product  management  capacities.  He joined the faculty at the University of
Illinois at Chicago in 1982,  and returned to the Company in 1986.  Dr.  Hamburg
received his Ph.D. from the University of Chicago.

     Louise Rehling,  Executive Vice President,  Product  Development,  oversees
management of all stages of product development. Ms. Rehling joined SPSS in 1982
as Vice  President  of  Development  and  Services and has served in her current
position  since 1987.  Ms.  Rehling  received her B.S. in  Mathematics  from the
University  of Illinois  and her M.S. in  Information  Sciences  and her M.A. in
Psychology from the University of Chicago.

     Mark Battaglia,  Executive Vice President, Corporate Marketing, joined SPSS
in October 1988. Mr.  Battaglia  served as Vice President of Marketing at London
House, a publisher in the Maxwell  Communications  family,  from June 1987 until
joining  the  Company.  Mr.  Battaglia  received  his  M.B.A.  in 1984  from the
University of Chicago.

     Ian  Durrell,  Executive  Vice  President,  International,  joined  SPSS in
February 1991.  Prior to that time, he served as head of European  marketing for
Unify Corporation, a supplier of relational database management systems, and was
a partner of Partner Development International, a strategic partnering firm from
1987 to 1989. Mr. Durrell graduated from the Royal Military Academy,  Sandhurst,
in the United Kingdom.

     Susan Phelan, Executive Vice President, Domestic Sales and Services, joined
SPSS in 1980 as a sales  representative.  She assumed  her  current  position in
1987. Ms. Phelan received her M.B.A. from the University of Illinois at Chicago.

     Bernard  Goldstein  has been a Director of the Company  since 1987. He is a
Director of Broadview Associates, LLC ("Broadview"), which he joined in 1979. He
is a past  President  of  the  Information  Technology  Association  of  America
("ITAA"),  the industry trade association of the computer service industry,  and
past Chairman of the  Information  Technology  Foundation.  Mr.  Goldstein was a
Director of Apple  Computer Inc.  until August 1997, and is currently a Director
of Franklin Electronic Publishers, Inc., Sungard Data Systems, Inc., and several
privately  held  companies.  He is a graduate of both the Wharton  School of the
University  of  Pennsylvania  and the  Columbia  University  Graduate  School of
Business.

     Fredric Harman has been a Director of the Company since October 1990. Since
June 1994 he has been a General  Partner of Oak Investment  Partners,  a venture
capital  firm.  He was  formerly  a General  Partner of Morgan  Stanley  Venture
Partners L.P.  ("MSVP"),  the General  Partner of Morgan Stanley Venture Capital
Fund L.P. ("MSVCF"). Mr. Harman joined Morgan Stanley in 1987 as an Associate of
Morgan Stanley Venture  Capital Inc.  ("MSVC") and was named a Vice President of
MSVC in 1992.  He is also a Director of ILOG S.A.,  International  Manufacturing
Services,  Inc., and several  privately held  companies.  He received his M.B.A.
from the  Harvard  University  Graduate  School  of  Business  and his  M.S.  in
Electrical Engineering from Stanford University.

     Merritt Lutz has been a Director of the Company since 1988. He is currently
Senior Advisor of Morgan Stanley Dean Witter & Co. managing the Firm's strategic
technology investments and partnerships.  Previously, he was President of Candle
Corporation,  a  worldwide  supplier of systems  software  from 1989 to November
1993. Mr. Lutz is a Director of Interlink Electronics,  Inc. and three privately
held software  companies - Algorithmics,  Persistence  Software,  and MicroFrame
Technologies.  Mr.  Lutz  serves on the  prestigious  Board of  Managers  at the
University of  Rochester-Eastman  School of Music and Michigan State  University
College of Arts and Letters National Advisory  Council.  He is a former Director
of the  Information  Technology  Association  of American and the NASD  Industry
Advisory Committee.  He holds a bachelors and masters degree from Michigan State
University.


<PAGE>



     Michael D. Blair has been a Director of the Company since July 1997.  Since
April 1974, he has been Chairman, Chief Executive and founder of Cyborg Systems,
Inc., a human resource management  software company.  Mr. Blair is a Director of
Praxis   International,   Computer   Corporation   of  America  and   Repository
Technologies,  Inc.  He is a board  member  of ITAA,  President  of the  Chicago
Software Association,  a board member of the American Software Association and a
board member of Benefits &  Compensation  Magazine.  Mr. Blair holds a bachelors
degree in mathematics and physics from the University of Missouri.

     The  Company's  Board of Directors is divided  into three  classes  serving
staggered three-year terms. Messrs. Harman and Lutz are serving three-year terms
expiring  at the 1998  Annual  Meeting.  Mr.  Goldstein  and Dr. Nie are serving
three-year  terms expiring at the 1999 Annual Meeting.  Mr. Noonan and Mr. Blair
are  serving  three-year  terms  expiring  at the  2000  annual  meeting.  For a
discussion  of the  nomination  rights  granted to certain  stockholders  of the
Company, see "Related Transactions-Stockholders Agreement."

Key Employee

     In addition to the  executive  officers and directors  named above,  Leland
Wilkinson  is a key  employee  of the  Company.  Dr.  Wilkinson  joined  SPSS in
September 1994 as part of the Company's acquisition of SYSTAT. Dr. Wilkinson was
the founder of SYSTAT and from its  inception  served as its President and Chief
Executive  Officer.  He  is  a  recognized  authority  in  statistical  analysis
generally and the graphical  display of data in particular.  Dr. Wilkinson was a
member of the faculty of the  University  of  Illinois at Chicago and  currently
serves on the faculty of  Northwestern  University.  He received his Ph.D.  from
Yale University.

Section 16(a) Beneficial Ownership Reporting Compliance

                   The Company believes that during 1998 its officers, directors
and owners of more than ten percent of its Common Stock complied with all filing
requirements  under  Section  16(a) of the  Securities  and Exchange Act of 1934
except as  described  below.  Five  reporting  persons  filed either late Form 4
reports  or  Form  5  reports  to  disclose   transactions  subject  to  Form  4
requirements.  Merritt  Lutz  purchased  500 shares of Common  Stock in November
1997.  Norman H. Nie disposed of 60,000 shares of Common  Stock,  in a series of
transactions,  held of record by the Norman H. Nie Revocable Trust,  dated March
15, 1991, in January 1997.  Louise Rehling  exercised 7,000 options and sold the
underlying  securities in April 1997. Merritt Lutz,  Fredric Harman,  Norman Nie
and Bernard  Goldstein  reported  the grant of options  which were granted as of
January 2, 1996 and became exercisable on January 2, 1997.


<PAGE>



Item 11.  Executive Compensation

          The following tables set forth (a) the compensation paid or accrued by
the Company to the Chief Executive  Officer  ("CEO"),  and each of the five most
highly  compensated  officers  of the  Company,  other than the CEO,  serving on
December 31, 1997 (the "named executive  officers") for services rendered to the
Company in all capacities  during 1995, 1996, and 1997, (b) certain  information
relating to option grants made to the named  executive  officers in 1997 and (c)
certain  information  relating to options held by the named executive  officers.
The Company made no grants of freestanding stock appreciation rights ("SARs") in
1995,  1996, or 1997, nor did the Company make any awards in 1995,  1996 or 1997
under any long-term incentive plan.


<TABLE>
<CAPTION>


                                                  SUMMARY COMPENSATION TABLE
                                                       Annual Compensation                              Long Term Compensation
                                        -------------------------------------------   ----------------------------------------------
                                                                                                Awards           Payouts
                                                                                      ------------------------  ----------
Name and Principal                 Year        Salary         Bonus      Other        Restricted   Securities      LTIP       All
Position                                    Compensation       ($)      Annual           Stock     Underlying     Payouts    Other
                                                ($)                  Compensation      Award(s)   Options/SA        ($)       ($)
                                                                          ($)          ($)((1)       (#)(2)
--------------------------------- -------  ---------------  -------- --------------   -----------  -----------  ----------  --------

<S>                                 <C>      <C>            <C>           <C>             <C>        <C>            <C>       <C>
Jack Noonan,..................      1997     $235,000       $132,656      none            none       50,000         none      none
     President and Chief            1996     $235,000       $185,147      none            none       70,000         none      none
      Executive Officer             1995     $235,000       $167,973      none            none       55,000         none      none

Ian Durrell,..................      1997     $197,000       $ 30,933      none            none       25,000         none      none
     Executive Vice President,      1996     $197,000       $ 51,401      none            none       25,000         none      none
     International(3)               1995     $197,000       $ 46,070      none            none       25,000         none      none

Edward Hamburg,...............      1997     $156,000       $ 58,027      none            none       25,000         none      none
     Executive Vice President,      1996     $156,000       $ 90,578      none            none       25,000         none      none
     Corporate                      1995     $156,000       $ 73,952      none            none       25,000         none      none
     Operations and Chief
     Financial Officer

Louise Rehling,...............      1997     $135,200       $ 91,357      none            none       25,000         none      none
     Executive Vice President,      1996     $135,200       $ 64,808      none            none       25,000         none      none
     Product Development            1995     $135,200       $ 65,180      none            none       25,000         none      none


Mark Battaglia,...............      1997     $110,000       $ 54,342      none            none       25,000         none      none
     Executive Vice President,      1996     $110,000       $ 88,432      none            none       25,000         none      none
     Corporate Marketing            1995     $100,000       $ 81,750      none            none       25,000         none      none


Susan Phelan,.................      1997     $110,300       $ 57,743      none            none       25,000         none      none
     Executive Vice President,      1996     $100,000       $ 76,387      none            none       25,000         none      none
     Domestic Sales and Services    1995     $100,000       $ 78,024      none            none       25,000         none      none

</TABLE>



          For the year ended  December 31, 1997,  non-employee  directors of the
Company were entitled to receive 5,000  conditional  options.  However,  Michael
Blair  received  10,000 options when he joined the Company as a Director in July
1997. Each director was also  reimbursed by the Company for reasonable  expenses
incurred in connection with services provided as a director. During 1997, Dr.
Nie received compensation of $80,800 for consultant work on a part-time basis.
------------------------------------------------

(1) On December 31, 1997, Dr.  Hamburg,  Ms. Rehling and Ms. Phelan held 10,000,
3,865 and 1,986 shares, respectively, of restricted Common Stock having a market
value, based on the closing price of the Common Stock on such date, of $192,500,
$74,401 and $38,230, respectively.

(2) Amounts  reflected  in this  column are for grants of stock  options for the
Common Stock of the Company. No SARs have been issued by the Company.

(3) Payments and options set forth in the table for Mr. Durrell reflect payments
and option grants to Valletta  Investments  Limited  ("Valletta"),  a consulting
company  controlled by Mr.  Durrell.  Mr.  Durrell does not receive any personal
benefits  or  perquisites,  payments  of salary and bonus,  awards of options or
other compensation from the Company in his individual capacity.

<PAGE>


          The  following  table sets  forth the  number of  options to  purchase
Common Stock granted to each of the named executive officers during 1997.


                                                 1997 OPTION/SAR GRANTS

                                                               Individual Grants
<TABLE>
<CAPTION>



                Name                  Number of         Percent of        Exercise       Latest         Potential Realizable
                                      Securities           Total          or Base       Possible          Value at Assumed
                                      Underlying       Options/SARs        Price       Expiration              Annual
                                     Options/SARs       Granted to         ($/Sh)         Date          Rates of Stock Price
                                      Granted(#)       Employees in                                       Appreciation For
                                                           1997                                           Option Term (1)
                                                                                                          5% ($)         10% ($)
     --------------------------    -----------------  ----------------  ------------- -------------- -------------  -----------

<S>                                 <C>                     <C>            <C>          <C>             <C>           <C>
    Jack Noonan............         50,000                  13.79%         $27.375      01/01/07        $860,800      $2,181,435
    Ian Durrell(2).........         25,000                   6.90%         $27.375      01/01/07        $430,400      $1,090,717
    Edward Hamburg.........         25,000                   6.90%         $27.375      01/01/07        $430,400      $1,090,717
    Louise Rehling.........         25,000                   6.90%         $27.375      01/01/07        $430,400      $1,090,717
    Mark Battaglia.........         25,000                   6.90%         $27.375      01/01/07        $430,400      $1,090,717
    Susan Phelan...........         25,000                   6.90%         $27.375      01/01/07        $430,400      $1,090,717

</TABLE>


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

(1) In  satisfaction  of applicable  SEC  regulations,  the table sets forth the
potential  realizable  values  of  such  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  set forth above.
Because actual gains will depend upon,  among other things,  the actual dates of
exercise of the options and the future  performance  of the Common  Stock in the
market,  the amounts reflected 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.

(2)  Options  reflected  in the table for Mr.  Durrell  are  options  granted to
Valletta.


<PAGE>




                                     AGGREGATED OPTION/SAR EXERCISES IN 1997 AND
                                               YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>


                                                                                                                     Value of
                                                                                        Number of                 Unexercised
                                                                                      Unexercised                In-the-Money
                                                                                    Options/SARs at            Options/SARs at
                                                                                        Year-End                   Year-End
                                                                                   (#)(1)                   ($)(1)(2)
                                             Shares                           -------------------------  ---------------------------
                                           Acquired on            Value            Exercisable/               Exercisable/
                                            Exercise            Realized         Unexercisable               Unexercisable
Name                                           (#)             ($)(1)(4)
----------                             --------------------  ---------------  -------------------------  ---------------------------

<S>                                            <C>              <C>             <C>                     <C>
Jack Noonan......................              15,000           $467,375        195,616/103,051         $3,765,608/$1,983,732
Ian Durrell (3)..................               None              N/A            68,891/45,442          $1,326,152/$874,759
Edward Hamburg...................               None              N/A            103,891/45,442         $1,999,902/$874,759
Louise Rehling...................              10,000           $289,500         84,224/45,442          $1,679,062/$874,759
Mark Battaglia...................               None              N/A            83,891/45,442          $1,614,902/$874,759
Susan Phelan.....................               None              N/A            82,225/45,442          $1,582,831/$874,759

</TABLE>


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

(1)  All  information  provided is with respect to stock  options.  No SARs have
     been issued by the Company.

(2)  These amounts have been determined by multiplying  the aggregate  number of
     options by the difference between $19.250,  the closing price of the Common
     Stock on the Nasdaq  National Market on December 31, 1997, and the exercise
     price for that option.

(3)  Options  reflected  in the table for Mr.  Durrell  are  options  granted to
     Valletta.

(4)  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.


Employment Agreements

          The Company  entered into an employment  agreement with Jack Noonan on
January 14, 1992.  This employment  agreement  provides for a one-year term with
automatic  one-year  extensions unless Mr. Noonan or the Company gives a written
termination  notice at least 90 days prior to the expiration of the initial term
or any extension thereof.  It also provides for a base salary of $225,000 during
the initial term, together with the same benefits provided to other employees of
the Company.  Mr. Noonan's base  compensation is subject to annual review by the
Board of Directors and was increased to $235,000 for 1993,  1994, 1995, 1996 and
1997. If the Company  terminates Mr.  Noonan's  employment  without  cause,  the
Company must pay Mr. Noonan an amount equal to 50% of Mr.  Noonan's  annual base
salary in effect at the time of termination.  This amount is payable in 12 equal
monthly  installments,  and the obligation to make these payments  ceases if Mr.
Noonan finds other employment at a comparable salary.  The employment  agreement
requires Mr. Noonan to refrain from disclosing  confidential  information of the
Company and to abstain from competing with the Company during his employment and
for a period of one year thereafter.  Except for the employment  agreements with
Mr. Noonan and Dr. Wilkinson,  and a management services agreement with Valletta
described  below  (pursuant to which Ian Durrell has been engaged to act as Vice
President,  International  and to  head  the  Company's  non-Western  Hemisphere
operations),  none of the senior  management or key  technical  employees of the
Company are subject to  employment or similar  agreements,  although the Company
does have  confidentiality  and  work-for-hire  agreements  with many of its key
management and technical personnel.

<PAGE>


          The Company entered into an employment agreement with Leland Wilkinson
on September  23, 1994 to be employed by SPSS as Senior Vice  President,  SYSTAT
Products.  The  employment  agreement  continues  through  December 31, 1999 and
provides  for a base  annual  salary of $135,000  plus a bonus and other  fringe
benefits customarily received by other SPSS senior executives.  In addition,  he
was granted  options to purchase an aggregate of 135,000  shares of Common Stock
at a price of $9.00 per share.  The vesting of these  options shall occur on the
same schedule as options  granted under the Amended 1991 Stock Option Plan. Each
year Dr.  Wilkinson  shall be reviewed by the Board of Directors  with regard to
salary and bonus and shall  participate  in the bonus plan to the same extent as
comparable SPSS executives.  The employment agreement may be terminated prior to
its expiration by Dr.  Wilkinson or the Company  effective 45 days after written
notice by  either  party.  If the  employment  agreement  is  terminated  by Dr.
Wilkinson,  he shall  receive a pro-rata  share of his  salary and bonus  earned
through  the date of  termination.  In the event  the  employment  agreement  is
terminated by the Company  without cause,  Dr.  Wilkinson is entitled to receive
his annual  base salary and bonus until the  expiration  date of the  employment
agreement.  The employment  agreement  requires that Dr. Wilkinson  refrain from
disclosing any confidential information of the Company and that he shall have no
right,  title  or  interest  in  any  of the  confidential  property,  including
confidential  property that Dr.  Wilkinson has developed or develops  during his
employment with SPSS. The employment  agreement also requires that Dr. Wilkinson
abstain from  competing  with the Company during his employment and for a period
of six months thereafter.

Management Services Agreement

          The Company has entered  into a  management  services  agreement  with
Valletta,  pursuant to which Ian Durrell's services are provided to the Company.
Either  Valletta or the Company may  terminate the agreement at any time upon 30
days' written  notice;  provided  that, if the Company  terminates the agreement
under the 30-day  notice  provision  without  cause,  Valletta  is  entitled  to
termination  payments equal to 50% of its annual  compensation then in effect in
six equal  monthly  installments.  The  Agreement  provides  that Valletta is to
receive annual compensation at a rate established by the Board of Directors plus
incentive  compensation if specified  performance  standards are satisfied.  For
1997,  Valletta's  aggregate  compensation,  including bonus, was $227,933.  The
management  services  agreement  requires  Valletta to refrain  from  disclosing
confidential  information  about the Company and to abstain from  competing with
the  Company  during the term of the  management  services  agreement  and for a
period of eighteen months thereafter.  Mr. Durrell has agreed to be bound by the
terms and conditions of the management services agreement.

Consulting Agreement

          The Company  has  entered  into a  consulting  agreement,  dated as of
January 1, 1997,  with Norman H. Nie  Consulting  L.L.C.,  an  Illinois  Limited
Liability Company (the "Consultant").  Pursuant to the consulting agreement, the
Consultant is to provide  thirty (30) hours per month of consulting  services on
various  matters  relating  to the  business  of the  Company.  This  consulting
agreement provides for a one-year term with automatic one-year extensions unless
the  Consultant or the Company gives a written  notice of at least 30 days prior
to the expiration of the initial term or any extension thereof.  The Company may
terminate this consulting  agreement for cause, in which event the Company shall
pay the  Consultant all accrued but unpaid  compensation.  It also provides that
the Consultant is to receive annual compensation of $80,800 and reimbursement of
reasonable  out of pocket  expenses  incurred in performing  services  under the
consulting  agreement.  The  consulting  agreement  requires that the Consultant
refrain from disclosing  confidential  information  about the Company during the
term of the  consulting  agreement  and for a period  of five  years  after  the
expiration  thereof.  In addition,  the consulting  agreement  requires that the
Consultant  abstain from competing with the Company during his  consultancy  and
for a period of one-year thereafter.

Compensation Committee Interlocks and Insider Participation

     Messrs.  Goldstein,  Harman  and  Lutz are  directors  and  members  of the
Compensation  Committee.  None of the members of the Compensation  Committee has
ever been an officer or employee of the Company or any of its subsidiaries.



<PAGE>



Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The  following  table  sets  forth,  as of March 16,  1998,  the number and
percentage of shares of Common Stock beneficially owned by (i) each person known
by the Company to own beneficially more than 5% of the outstanding shares of the
Common  Stock,  (ii) each  director of the Company,  (iii) each named  executive
officer of the  Company and (iv) all  directors  and  executive  officers of the
Company as a group.  Unless  otherwise  indicated  in a  footnote,  each  person
possesses sole voting and investment  power with respect to the shares indicated
as beneficially owned.

     The  business  address  for Mr. Lutz is the office of Morgan  Stanley  Dean
Witter & Co. at 750 Seventh Avenue,  16th floor,  New York, New York 10019.  The
business address of Mr. Goldstein is the office of Broadview  Associates,  L.P.,
One Bridge Plaza,  Fort Lee, New Jersey 07024.  The business  address of Fredric
Harman is the office of Oak Investment  Partners,  525 University Avenue,  Suite
1300, Palo Alto, California 94301. The business address for Michael Blair is the
office of Cyborg Systems,  Inc., Two North Riverside Plaza, 12th floor, Chicago,
Illinois 60606. The business  address of Fidelity  Management & Research Company
is 82 Devonshire Street,  Boston,  Massachusetts 02109. The business address for
the Edward Sherman Ross Trust is c/o Michael  Oestreicher,  Trustee,  312 Walnut
Street, Suite 1400,  Cincinnati,  Ohio 45202. The business address of each other
person listed below is 444 North Michigan Avenue, Chicago, Illinois 60611.

                                                              Shares
                                                        Beneficially Owned

Name                                                       Number       Percent
Norman H. Nie, individually, as Trustee of the
  Nie Trust and as a Director and President
    of the Norman and Carol Nie Foundation, Inc.(1)...  1,139,089         12.7%
Fidelity Management & Research Company(2).............    861,500          9.7%
Edward Sherman Ross Trust, dated June 30, 1997 (3)        445,443          5.0%
Jack Noonan(4)........................................    213,300          2.3%
Bernard Goldstein(5)..................................     42,956          *
Louise Rehling(6).....................................     95,059          1.1%
Edward Hamburg(7).....................................    125,741          1.4%
Mark Battaglia(8).....................................     98,024          1.1%
Susan Phelan(9).......................................     87,961          1.0%
Ian Durrell(10).......................................     43,308          *
Merritt M. Lutz(11)...................................     26,845          *
Fredric Harman(12)....................................      7,560          *
Michael D. Blair                                                0          *
All directors and executive officers as
  a group (11 persons)(13)............................  1,879,843        19.5%


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

*    The  percentage  of shares  beneficially  owned  does not  exceed 1% of the
     Common Stock.

(1)  Includes 77,456 shares which are subject to options  exercisable  within 60
     days; 110,433 shares held of record by the Norman and Carol Nie Foundation,
     Inc. (the "Nie Foundation");  and 951,200 shares held by the Nie Trust. Dr.
     Nie shares voting and investment  power over the 110,433 shares held by the
     Nie Foundation with Carol Nie.


<PAGE>



(2)  Fidelity  Management  &  Research  Company  ("Fidelity"),   a  wholly-owned
     subsidiary of FMR Corp. and an investment  adviser registered under Section
     203 of the  Investment  Advisers Act of 1940,  is the  beneficial  owner of
     861,500  shares of the  Common  Stock as a result  of acting as  investment
     adviser to several investment  companies  registered under Section 8 of the
     Investment  Company Act of 1940. The ownership of one  investment  company,
     Fidelity  Low-Priced  Stock Fund,  amounted to 861,500 shares of the Common
     Stock.  FMR Corp.  has the power to dispose of the shares of Common  Stock.
     The Board of  Trustees  directs  the voting of the shares of Common  Stock.
     This information was taken from FMR Corp.'s Schedule 13G, filed on February
     11, 1998.

(3)  Edward Sherman Ross has sole voting and investment power over these shares.
     3,803 of these shares are owned of record by Mr. Ross's minor children.

(4)  Includes  205,728  shares  subject to options exercisable within 60 days.

(5)  Includes 7,512 shares subject to options exercisable within 60 days.

(6)  Includes 200 shares held in the Stella S. Hechtman Trust (the "Trust"). Ms.
     Rehling is the Trustee and has the voting and investment power over the 200
     shares  held in the Trust.  She  disclaims  beneficial  ownership  of these
     shares.  Includes  90,974 shares subject to options  exercisable  within 60
     days.

(7)  Includes 115,741 shares subject to options exercisable within 60 days.

(8)  Includes 97,641 shares subject to options exercisable within 60 days.

(9)  Includes 85,975 shares subject to options exercisable within 60 days.

(10) Mr. Durrell is the beneficial  owner of these shares,  which consist solely
     of 43,308  shares  subject  to options  exercisable  within 60 days held of
     record by Valletta.

(11) Includes  7,512 shares subject to options  exercisable  within 60 days. Mr.
     Lutz shares  voting and  investment  power over 6,000 of these  shares with
     Mary C. Lutz.

(12) Includes 7,512 shares subject to options exercisable within 60 days.

(13) Includes 739,359 shares subject to options exercisable within 60 days.

Item 13.  Certain Relationships and Related Transactions

Transactions with Norman Nie

     Dr. Nie received 5,000 conditional  options for his services as Chairman of
the Board in 1997 and $80,800 for consulting work on a part-time  basis. Dr. Nie
is a limited partner in CSDC, a research and development  limited partnership to
which the Company incurred royalty expense of $274,000 in 1995, $255,000 in 1996
and $249,000 in 1997. See also "Business - Recent Developments."

Stockholders Agreement

          In connection with the Company's initial public offering,  the Company
and the  individuals  and  entities who were  stockholders  prior to the initial
public  offering  entered  into  an  agreement  (the  "Stockholders  Agreement")
containing certain registration rights with respect to outstanding capital stock
of the Company and granting to each of the Nie Trust and  affiliates  of the Nie
Trust and MSVCF, so long as they own beneficially more than 12.5% of the capital
stock  of the  Company,  the  right to  designate  one  nominee  (as part of the
management  slate) in each election of directors at which

<PAGE>

directors of the class  specified  for such holder are to be elected.  Since the
completion  of the  February  1995  offering,  MSVCF  owned  less than 12.5% and
currently owns no capital stock of the Company.

          Pursuant to the  Stockholders  Agreement,  the  holders of  restricted
securities constituting more than seven percent of the outstanding shares at any
time may require the Company to register under the Act all or any portion of the
restricted  securities held by the requesting  holder or holders for sale in the
manner  specified  in the notice.  The Company is not bound to honor the request
unless the  proceeds  from the  registered  sale can  reasonably  be expected to
exceed $5,000,000.  The Company estimates that the cost of complying with demand
registration rights would be approximately $50,000 for a single registration.

          All of the stockholders who acquired their shares prior to the initial
public offering have piggyback  registration  rights, which entitle them to seek
inclusion of their Common Stock in any registration by the Company,  whether for
its own account or for the  account of other  security  holders or both  (except
with respect to  registration  on Forms S-4 or S-8 or another form not available
for registering restricted securities for sale to the public). In the event of a
request to have shares included in a Registration Statement filed by the Company
for its own account, the Company's  underwriters may generally reduce, pro rata,
the amount of Common Stock to be sold by the  stockholders  if the  inclusion of
all such securities would be materially detrimental to the Company's offering.



<PAGE>



                                     Part IV


Item 14.   Exhibits, Financial Statement Schedule, and Reports on Form 8-K

(a) (1)   Financial statements commence on page 25:

          Independent Auditors' Report

          Consolidated Balance Sheets as of December 31, 1996 and 1997

          Consolidated Statements of Income for the years ended December 31,
          1995, 1996 and 1997

          Consolidated Statements of Stockholders' Equity for the years ended
          December 31, 1995, 1996 and 1997

          Consolidated Statements of Cash Flows for the years ended December 31,
          1995, 1996 and 1997

          Notes to Consolidated Financial Statements

    (2)   Financial Statement Schedule -- see page 43:

          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
                   financial statements or related notes.

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



<PAGE>


                                                                  Incorporation
Exhibit                                                           by Reference
Number             Description of Document                       (if applicable)


 2.1    Agreement and Plan of Merger among SPSS Inc.,                  @2.1
        SPSS ACSUB, Inc., Clear Software, Inc. and the
        shareholders named therein, dated September 23, 1996.

 2.2    Agreement and Plan of Merger among SPSS Inc.,                  @@Annex A
        SPSS Acquisition Inc. and Jandel Corporation,
        dated October 30, 1996.

 2.3    Asset Purchase Agreement by and between                        ##2.3
        SPSS Inc. and DeltaPoint, Inc., dated as
        of May 1, 1997

 2.4    Stock Purchase Agreement among the Registrant,                 @@@2.1
        Edward Ross, Richard Kottler, Norman Grunbaum,
        Louis Davidson and certain U.K.-Connected Shareholders
        or warrant holders  of Quantime Limited named therein,
        dated as of September 30, 1997, together with a list briefly
        identifying the contents of omitted schedules.

 2.5    Stock Purchase Agreement among the Registrant,                 @@@2.2
        Edward Ross, Richard Kottler, Norman Grunbaum,
        Louis Davidson and certain Non-U.K. Shareholders or warrant
        holders of  Quantime  Limited  named  therein,  dated as of
        September   30,   1997,   together   with  a  list  briefly
        identifying the contents of omitted schedules.

 2.6    Stock Purchase Agreement by and among SPSS Inc. and            @@@@2.1
        certain Shareholders of Quantime Limited listed on the
        signature pages thereto, dated November 21, 1997.

 2.7    Stock Purchase Agreement by and among Jens Nielsen,            @@@@2.2
        Henrik Rosendahl, Ole Stangegaard, Lars Thinggaard,
        Edward   O'Hara,   Bjorn   Haugland,   2M  Invest  and  the
        Shareholders  listed on Exhibit A thereto,  dated  November
        21, 1997.

 3.1    Certificate of Incorporation of the Company                   * 3.2

 3.2    By-Laws of the Company                                        * 3.4

 4.1    Credit Agreement                                            *** 4.1

 4.2    First Amendment to Credit Agreement                        xxxx 4.2

 4.3    Second Amendment to Credit Agreement

10.1    Employment Agreement with Jack Noonan                        + 10.1
        -------------------------------------

<PAGE>

10.2    Agreement with Valletta                                     ** 10.2
        -----------------------

10.3    Agreement between the Company and                           **  10.5
        Prentice Hall

10.4    Software Distribution Agreement between                     **  10.6
        the Company and IBM

10.5    HOOPS Agreement                                             **  10.7

10.6    Stockholders Agreement                                       *  10.8

10.7    Agreements with CSDC                                         *  10.9

10.8    Amended 1991 Stock Option Plan                               *  10.10
        ------------------------------

10.9    SYSTAT Asset Purchase Agreement                               ++10.9

10.10   Employment Agreement with Leland Wilkinson                    ++10.10

10.11   1994 Bonus Compensation                                      +++10.11
        -----------------------

10.12   Lease for Chicago, Illinois Office                           +++10.12

10.13   Amendment to Lease for Chicago, Illinois Office              +++10.13

10.14   1995 Equity Incentive Plan                                    x 10.14
        --------------------------

10.15   1995 Bonus Compensation                                      xx 10.15
        -----------------------

10.16   Lease for Chicago, Illinois Office                           xx 10.16

10.17   Amended and Restated 1995 Equity Incentive Plan             xxx 10.17
        -----------------------------------------------

10.18   1996 Bonus Compensation                                    xxxx 10.18
        -----------------------

10.19   Software Distribution Agreement between the                xxxx 10.19
        Company and Banta Global Turnkey

10.20   Lease for Chicago, Illinois in Sears Tower                    # 10.20

10.21   1997 Bonus Compensation
        -----------------------

10.22   Consulting Agreement

21.1    Subsidiaries of the Company

23.1    Consent of Independent Certified Public Accountants

27.1    Financial Data Schedule

27.1a   Financial Data Schedule

27.1b   Financial Data Schedule

99.0    Additional Exhibit

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

<PAGE>

@    Previously  filed with SPSS Inc.'s Report on Form 8-K, dated  September 26,
     1996, filed on October 11, 1996, as amended on Form 8-K/A-1, filed November
     1, 1996.

@@   Previously filed with Amendment No. 1 to Form S-4 Registration Statement of
     SPSS Inc. filed on November 7, 1996.

@@@  Previously  filed with SPSS Inc.'s Report on Form 8-K, dated  September 30,
     1997, filed on October 15, 1997

@@@@ Previously  filed  with the Form S-3  Registration  Statement  of SPSS Inc.
     filed on November 26, 1997.

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

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

***  Previously  filed  with Form  10-Q  Quarterly  Report of SPSS Inc.  for the
     Quarterly period ended September 30, 1993 (Registration No. 0-22194)

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

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

+++  Previously cited with the Form 10-K Annual Report of SPSS Inc. for the year
     ended December 31, 1994. (Registration No. 33-64732)

x    Previously filed with the Company's 1995 Proxy Statement.

xx   Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year
     ended December 31, 1995 (Registration No. 33-64732).

xxx  Previously filed with the Company's 1996 Proxy Statement.

xxxx Previously filed with the Form 10-K Annual Report of SPSS Inc. for the year
     ended December 31, 1996 (Registration No. 33-64732)

#    Previously  filed with the Form 10-Q Quarterly  Report of SPSS Inc. for the
     quarterly period ended March 31, 1997 (Registration No. 33-64732)

##   Previously  filed with the Form 10-Q Quarterly  Report of SPSS Inc. for the
     quarterly period ended June 30, 1997.

          (b)      The Company  filed the  following  reports on Form 8-K during
                   the fourth quarter of fiscal year 1997.


<PAGE>



(i)  Report on Form 8-K,  dated  September 30, 1997,  filed on October 15, 1997.
     The Report on Form 8-K  reported  that on  September  30,  1997,  SPSS Inc.
     acquired  approximately  97% of the outstanding  shares of capital stock of
     Quantime  from certain  shareholders  and warrant  holders of Quantime (the
     "Shareholders"),  for  863,084  shares  of SPSS  Common  Stock,  valued  at
     approximately  $25  million.  The  stock  acquisition,  accounted  for as a
     pooling of interests,  occurred pursuant to two Stock Purchase  Agreements,
     one between SPSS,  certain  insiders of Quantime (the "Quantime  Insiders")
     and certain  Shareholders  in the United Kingdom and another  between SPSS,
     the Quantime Insiders and certain  Shareholders  outside the United Kingdom
     (the   "Agreements"),   each  dated  September  30,  1997.  Quantime  is  a
     privately-held  developer of market research software  products.  SPSS will
     continue to operate the  Quantime  business  from the  Quantime  offices in
     London, England. The Report on Form 8-K was filed under Item 2.


<PAGE>



                                   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 on March 31, 1998.


                            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 on March 31, 1998.


Signature                               Title(s)



 /s/  Norman H. Nie                     Chairman of the Board of
Norman H. Nie                             Directors



 /s/  Jack Noonan                       President, Chief Executive
Jack Noonan                               Officer and Director



 /s/  Edward Hamburg                    Executive Vice President,
Edward Hamburg                             Corporate Operations,
                                           Chief Financial Officer and
                                           Secretary



 /s/  Robert Brinkmann                  Director Corporate Finance
 Robert Brinkmann                          and Controller

<PAGE>






 /s/  Bernard Goldstein                 Director
Bernard Goldstein



 /s/  Fredric W. Harman                 Director
Fredric W. Harman



 /s/  Merritt Lutz                      Director
Merritt Lutz



 /s/  Michael Blair                     Director
Michael Blair


<PAGE>


                                  EXHIBIT INDEX


 Exhibit                                                     Sequential
Number                      Document Description             Page Number

 4.3               Second Amendment to Credit Agreement......67

10.21              1997 Bonus Compensation...................70
                   -----------------------

10.22              Consulting Agreement......................71

21.1               Subsidiaries of the Company...............80

23.1               Consent of Independent Public Accountants.81

27.1               Financial Data Schedule...................82

27.1a              Financial Data Schedule ..................83

27.1b              Financial Data Schedule ..................84

99.0               Additional Exhibits.......................85