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, 1996


                        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
$26.75 on March 17,  1997,  and for the purpose of this  calculation  only,  the
assumption  that  all   registrant's   directors  and  executive   officers  are
affiliates) was approximately $175 million.

         The number of shares outstanding of the registrant's  Common Stock, par
value $.01, as of March 17, 1997, was 7,729,864.





<PAGE>



                                                             SPSS Inc.

                                                         TABLE OF CONTENTS

<TABLE>
<CAPTION>

PART I

<S>                                                                                                       <C>
Item 1.           Business.......................................................................          3

Item 2.           Properties.....................................................................         18

Item 3.           Legal Proceedings..............................................................         18

Item 4.           Submission of Matters to a Vote of Security Holders............................         18


PART II

Item 5.           Market for Registrant's Common Equity and Related Stockholder Matters                   19

Item 6.           Selected Consolidated Financial Data...........................................         20

Item 7.           Management's Discussion and Analysis of Financial Condition
                    and Results of Operations....................................................         21

Item 8.           Financial Statements and Supplementary Data....................................         26

Item 9.           Changes in and Disagreements with Accountants on
                    Accounting and Financial Disclosure..........................................         46


PART III

Item 10.          Executive Officers and Directors...............................................         46

Item 11.          Executive Compensation.........................................................         49

Item 12.          Security Ownership of Certain Beneficial Owners and
                    Management...................................................................         53

Item 13.          Certain Relationships and Related Transactions ................................         54


PART IV

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

</TABLE>

<PAGE>




                                    SPSS INC.
                             FORM 10-K ANNUAL REPORT
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

                                     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.  The Company develops,  markets and supports an integrated
line of statistical  software  products that enable users to  effectively  bring
marketplace and enterprise data to bear on decision-making. 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 (as defined
herein)  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 21 years of operation,  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,  the matters discussed in
this  Form  10-K  are   forward-looking   statements   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

         On  September  26,  1996,  SPSS  acquired  Clear   Software,   Inc.,  a
Massachusetts  corporation ("Clear  Software"),  for SPSS Common Stock valued at
approximately  $4.5 million in a merger accounted for as a pooling of interests.
Clear Software is a developer and marketer of process  management,  analysis and
documentation  software products,  including  allCLEAR,  a software package used
primarily for describing  complex business  processes using flowcharts and other
types of diagrams.  Clear  Software has more than  120,000  users,  and its 1996
revenues  were  approximately  $3.2  million.  SPSS will continue to operate the
Clear Software business from Clear Software offices in Newton, Massachusetts.

         SPSS believes that the acquisition of Clear Software  brings  important
technology  to the SPSS family of  products,  because  unlike most  flowcharting
packages, which are primarily drawing programs,  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.  Process  diagrams
are  often  important  precursors  to  statistical  analysis  as well as  useful
presentation  tools for business  process  re-engineering,  quality  improvement
analysis, process documentation and scientific research. Among the diagrams that
can be produced in allCLEAR are  presentation-quality  flowcharts,  process flow
diagrams, organizational charts, network diagrams and fishbone diagrams.

         SPSS  has  been  selling  Clear  Software's   software  products  since
September  1995,  when it  became a  value-added  reseller  of Clear  Software's
flagship  product,  allCLEAR III for Windows.  The two  companies  extended that
agreement  in  January  1996 to  include  CLEAR  Process,  a process  management
software  tool that gives users the  ability to easily  work with data,  such as
cost  information,  as they explore  process  re-engineering  alternatives.  The
Company  believes  that the  acquisition  of Clear  Software will enable SPSS to
expand the reach of Clear  Software's  products  with its greater  resources and
established distribution channels.

         On November 20, 1996, SPSS acquired the  outstanding  shares of capital
stock of Jandel  Corporation,  a  California  corporation  ("Jandel"),  for SPSS
Common Stock valued at approximately $9.0 million,  in a merger accounted for as
a pooling of interests.  Jandel is a dominant player in the market for graphical
and statistical software products used mainly in scientific applications. Jandel
has more  than  25,000  users  and its 1996  revenues  were  approximately  $7.5
million.  SPSS will  continue  to operate  the Jandel  business  from the Jandel
offices in San Rafael, California.

         The Company's acquisition of SYSTAT, Inc., ("SYSTAT") in September 1994
and BMDP Statistical  Software,  Inc.  ("BMDP") in December 1995 was 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 data  mining  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.

         Jandel develops,  markets and supports  microcomputer  software for the
analysis and  presentation of scientific  data.  Jandel's  products are designed
specifically  to meet the needs of research  scientists and engineers.  Jandel's
products  enable  scientists  and  engineers  to  collect,  analyze  and present
scientific  data.  Among the tasks  performed  by Jandel's  products are running
statistical  tests on research  data,  automatically  taking  measurements  from
photographs,  maps and other visual images and analyzing and  manipulating  that
data,  determining  the  mathematical  formula that most closely matches graphed
data curves, and creating  publication-quality  graphs and charts for scientific
journal articles.


<PAGE>

         SPSS  believes  that the  merger  with  Jandel  will  offer a number of
benefits  including,  expansion of the SPSS  scientific  products  business to a
critical  mass;  a position  of  leadership  in the market for  scientific  data
analysis  products,  as Jandel is a leading vendor in this area; a comprehensive
set of  software  offerings  to  more  effectively  address  a  wider  range  of
scientific  research  applications;  and an opportunity to further  leverage the
Company's worldwide sales channels.

         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.

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.

         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:

<PAGE>

     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:

     Market and Sales Analysis.  Almost all of the top marketing  research firms
in North  America  are  SPSS  customers,  and  corporations  worldwide  use SPSS
products to 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.

     Scientific Research and Education. SPSS software is used at virtually every
major  college  and  university  in the  world,  as well as a  large  number  of
government and commercial research centers. In addition, academic administrators
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.

     Manufacturing.   Driven  by  rising  costs,   government   regulation   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 in laboratories and on the shop floor.

Statistical Software Products

         SPSS  provides  an  integrated  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. The product line is:

     o   comprehensive in function across computing platforms;

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

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

     o    localized  for  use in  France,  Germany,  Italy,  Japan,  Taiwan  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.
This 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."

         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 7.5)        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.
                     Presentation and Graphics:  Drag-and-drop  pivot tables,
                     Report writer;  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).  Includes   context-sensitive
                     Help  and  on-line statistical glossary.
--------------------------------------------------------------------------------
 SPSS  Professional  Cluster  analysis,   factor  analysis,   discriminant
 Statistics          analysis, reliability  analysis; multidimensional  scaling,
(Release 7.5)        weighted  and two-stage least squares.
--------------------------------------------------------------------------------
SPSS Advanced        Logistic  and nonlinear  regression,  probit  analysis,
 Statistics          general linear models, loglinear models, survival/life
(Release 7.5)        tables analysis, repeated measures  analysis  of  variance,
                     multivariate  analysis  of  variance,  matrix language and
                     library.
--------------------------------------------------------------------------------
SPSS Categories      Conjoint analysis,  optimal scaling  procedures,
                     correspondence analysis, perceptual mapping.
--------------------------------------------------------------------------------
SPSS Trends          Time series forecasting routines, including ARIMA with Box-
                     Jenkins models, efficient smoothing and seasonality
                     adjustments.
--------------------------------------------------------------------------------
AMOS                 Comprehensive linear structural models, with fit causal
                     paths.
--------------------------------------------------------------------------------
SPSS  Tables         High-quality,   complex  stub-and-banner  tables.  Easily
                     handles multiple response items.
--------------------------------------------------------------------------------
DBMS/COPY  Plus      Transparently  converts data  for  use  between  databases,
                     spreadsheets and statistics packages.
--------------------------------------------------------------------------------
SPSS Data Entry II   Customized  forms enabling the entry and labeling of data
                     for use with SPSS software. Available only on DOS.
--------------------------------------------------------------------------------
SPSS Exact Tests     Gives correct p-values, regardless of data structure.
--------------------------------------------------------------------------------
SPSS Missing         Searches for relationships between the missing values in
  Value Analysis     data and other variables, estimates what the values would
                     be, estimates the mean, covariance matrix and correlation
                     matrix via regression.
===============================================================================

     SPSS Release 7.5  currently  operates only in the Windows 95 and Windows NT
3.51  environments.  SPSS Release 6.1 is currently  available  for Macintosh and
selected UNIX and all character-based DOS platforms.



<PAGE>




 Scientific 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.
--------------------------------------------------------------------------------
Sigma Plot           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.
================================================================================

 Quality Process
   Management
  Product Line                  Key Functions and Features
================================================================================
QI Analyst           Comprehensive set of SPC statistics, 21 quality
Version 3.0          improvement charts and reporting.  Available only on
                     Windows.
--------------------------------------------------------------------------------
Gage R&R             Implementation and systematic testing of measurement
                     instruments.  Available only on Windows.
--------------------------------------------------------------------------------
allCLEAR             Flowcharting 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.
================================================================================




<PAGE>



 Other Products              Key Functions and Features
================================================================================
Neural  Connection   Neural  network-based  product with features for
                     prediction, 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.
--------------------------------------------------------------------------------
SPSS CHAID           Segmentation analysis, highly efficient analysis of
                     tabulations.  Available only on Windows and DOS.
--------------------------------------------------------------------------------
Teleform             Automated forms creation, distribution, and data entry
                     using fax or scanner.  Available only on Windows.
--------------------------------------------------------------------------------
Remark Office OMR    Automated forms data collection using a scanner or fax
                     modem. Works with forms created in any software package.
                     Available on Windows.
================================================================================

         The Company's  statistical  software  products  have received  numerous
favorable  reviews from trade and other  publications.  SPSS and SYSTAT software
fares well in comparative assessments against competitors' products. SPSS offers
its flagship product,  SPSS for Windows,  in eight languages:  English,  German,
French, Italian, Spanish, Japanese, Catalan and Traditional Chinese. In December
1996,  the  Company  introduced  SPSS  for  Windows  7.5  offering   significant
enhancements  in  usability  and the display of results.  The SYSTAT  update was
released in the third quarter of 1996.

         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  $695 for the SPSS Base System and
range from $295 to $1,495 for each add-on product.  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.

         The CLEAR  products  have also  received  many  favorable  reviews  and
industry awards.  Clear Software's  licensing and pricing  alternatives  vary by
product and quantity  sold.  allCLEAR  accounts  for most of the CLEAR  products
revenue,  followed by CLEAR Process and CLEAR  OrgCharts.  allCLEAR has a single
user  license  with a list price of $299 with  discounts  for volume  purchases.
Network  licenses are  available for 5 to 50 users for a one-time fee of $995 to
$7,549.  For all licenses,  there are discounts for resellers and for government
and academic  purchasers.  CLEAR Process has a single user license price of $495
and network  licenses range from $1,975 to $13,529 with discounts for resellers,
distribution,  government,  academic,  and volume purchases.  CLEAR OrgCharts is
sold primarily through retail and OEM channels.  The suggested list price is $99
for a single user  version;  there is no network  license  available.  The Clear
Software  products are sold  through  distribution  companies,  Ingram Micro and
Micro Central.  Distribution companies buy at a significant discount for sale to
bona  fide  resellers.  Approximately  40% of Clear  Software's  business  comes
through  distribution  companies,   corporate  resellers,   catalog  and  retail
channels.  Clear Software  offered,  for an additional  fee,  technical  support
beyond the initial 60 days of free support and upgrades.

     Clear Software had 20  distributors  in markets  outside the United States.
These distributors accounted for only about 5% of Clear Software's revenue. They
purchased  products from Clear  Software at a discount off the U.S.  price list.
Two local  language  versions of allCLEAR  are  currently  available,  Czech and
Japanese.  Several  other local  language  versions are under  development.  See
"Recent Developments."

<PAGE>

         The Jandel products have been added to the other SPSS Science Products,
SYSTAT  and  BMDP,  to form a  comprehensive  scientific  line.  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  for 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.

         Jandel's principal customers are research scientists and engineers from
nearly all disciplines.  Accordingly,  Jandel markets directly to scientists and
engineers,   principally  through  advertising  in  scientific  and  engineering
journals and by direct mail to Jandel's own database of research  scientists and
engineers and to lists of  prospective  customers  obtained from third  parties.
Jandel also  distributes  its  products  through a limited  number of  specialty
distributors and software  retailers.  Jandel distributes its products in Europe
through  its  wholly-owned  subsidiary,  Jandel  Scientific  GmbH.  At  present,
approximately  66% of the Company's  sales are in North America,  29% in Europe,
and 5% in the Asia-Pacific area. See "Recent Developments."

     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.

Publications and Student Software

         SPSS  authors  and  regularly  updates  a number of  publications  that
include user manuals and instructional  texts. The Company also develops 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, most 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 in 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

<PAGE>

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.  The SPSS  international  sales operation consists of
eleven 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.

         SPSS  publications  and SPSS 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  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  improvement,  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  such  as  Autodesk  Software
(graphics technology),  XVT Software (interface  technology),  and WIPRO Systems
(India).

         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  evaluate new algorithms and statistical  techniques
for inclusion in the Company's products. SPSS also employs

<PAGE>

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 1997  development  plan includes  updates to SPSS for
Windows,  updates to its SYSTAT, QI Analyst,  SigmaPlot, and allCLEAR new add-on
products, and new products for data mining and survey research applications.

         In the past, the Company has experienced  delays in the introduction of
new  products  and product  enhancements,  primarily  due to  difficulties  with
particular  operating  environments and problems with software 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 117
professionals   organized   into  groups  for   software   design,   statistical
development,   software  engineering,   documentation,   quality  assurance  and
computing  services.  In 1994,  1995 and 1996,  the Company's  expenditures  for
product development,  including capitalized software,  were approximately $10.8,
$12.5 and $14.1 million, respectively.

         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
augment its development capacity 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.   Since  April  1993,  all  diskette  and  CD-ROM
duplication,  documentation printing,  packaging,  warehousing,  fulfillment and
shipping of SPSS products in the Western  Hemisphere  has been performed for the
Company by IBM.  The  Company is in the  process of  expanding  the use of these
services  worldwide.  SPSS believes that, because of the sizable capacity of the
IBM 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.  In January
1997,  the IBM  Software  Distribution  Agreement  was  replaced  with a similar
agreement  with Banta  Global  Turnkey.  The  Company  believes  that Banta will
provide the same level of performance as IBM provided.

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

<PAGE>

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.

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.

<PAGE>

         The Company uses a variety of trademarks with its products.  Management
believes there are currently fifteen 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) BMDP;  (ix) Jandel  Scientific;  (x)  SigmaPlot;  (xi)  SigmaStat;  (xii)
SigmaScan;  (xiii) SigmaGel;  (xiv) Jandel; and (xv) CLEAR. 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  a
registered 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 the subject of a pending
application  for   registration  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.  BMDP is a  trademark  used in  connection  with the
Company's  BMDP  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.  SigmaScan is a registered  trademark used in
connection  with  the  Company's   recently  acquired  Jandel  products  on  all
platforms.  SigmaGel  is a  registered  trademark  used in  connection  with the
Company' s recently acquired Jandel Corporation products on all platforms. CLEAR
is a  registered  trademark  used in  connection  with  the  Company's  recently
acquired CLEAR 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,  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.

         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

<PAGE>

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 product 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.

IBM Software Distribution Agreement

         In  February   1993,   the  Company   entered  into  the  IBM  Software
Distribution  Agreement (the "IBM Agreement"),  under which IBM manufactures and
packages the Company's  software products and distributes the Company's software
products to the  Company's  domestic  and  international  customers  and certain
international  subsidiaries.  The IBM  Agreement has a five-year  term,  and the
Company may terminate it upon 90 days' written notice. IBM may terminate the IBM
Agreement only for cause, also upon 90 days' written notice. If IBM discontinues
its software  manufacturing and distribution business during the term of the IBM
Agreement,  IBM may, at its option,  find a suitable  replacement vendor for the
Company,  or pay the Company liquidated  damages. If IBM materially breaches the
IBM  Agreement,  it is required  to  reimburse  the Company for certain  amounts
reasonably incurred by the Company to cure customer satisfaction problems caused
by the breach and to  re-establish  the  Company's  software  manufacturing  and
distribution  capabilities.  In  January  1997,  the  Company  replaced  the IBM
Agreement  with a similar  agreement  with Banta  Global  Turnkey.  See  "Recent
Developments" for further discussion of the new agreement.

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 renew for an  additional  five years  under  certain
conditions.

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

<PAGE>

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 to CSDC royalties of  approximately  $260,000,
$274,000  and  $255,000 in 1994,  1995 and 1996,  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 41% in 1994,
41% in 1995,  and 39% in  1996.  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  reduced.  Generally,  if revenues do not meet the
Company's expectations in any given quarter, operating results will be adversely
affected. Although the Company has been profitable in each of the eight quarters
up to and including the quarter ending June 30, 1994, the Company  experienced a
net loss of $331,000 in the third quarter of 1994 due to a one-time write-off of
$1,928,000 for acquired and in-process technology and other  acquisition-related
charges  recorded  in  connection  with the  Company's  acquisition  of  SYSTAT.
However,  the Company has been  profitable in the nine quarters  ending December
31, 1994 through December 31, 1996. 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  535  employees   (approximately   344
domestically and approximately 191 internationally), including approximately 324
in  sales  and  marketing,   approximately   117  in  product   development  and
approximately  94 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,
                                                -----------------------------------------------------------
                                                      1994                 1995                 1996
                                                -----------------   ------------------   ------------------
          Sales to unaffiliated customers:
<S>                                            <C>                  <C>                  <C>
              United States                    $      34,201,000    $      36,851,000    $      41,574,000
              Europe & India                          21,124,000           26,158,000           28,720,000
              Pacific Rim                              7,269,000           10,785,000           13,695,000
                                                -----------------   ------------------   ------------------
                  Total                        $      62,594,000    $      73,794,000    $      83,989,000
                                                =================   ==================   ==================

          Sales or transfers between geographic areas:
              United States                    $      12,080,000    $      15,003,000    $      16,914,000
              Europe & India                         (9,082,000)         (10,931,000)         (11,772,000)
              Pacific Rim                            (2,998,000)          (4,072,000)          (5,142,000)
                                                -----------------   ------------------   ------------------
                  Total                        $        --          $       --           $       --
                                                =================   ==================   ==================

          Operating income
              United States                    $       6,072,000    $       4,687,000    $       6,409,000
              Europe & India                             380,000              604,000            1,642,000
              Pacific Rim                                 53,000            1,245,000            2,460,000
                                                -----------------   ------------------   ------------------
                  Total                        $       6,505,000    $       6,536,000    $      10,511,000
                                                =================   ==================   ==================



                                                                           As of December 31,
                                                      1994                 1995                 1996
                                                -----------------   ------------------   ------------------
          Identifiable assets:
              United States                    $      24,225,000    $      33,471,000    $      36,214,000
              Europe & India                           7,010,000            8,083,000           11,018,000
              Pacific Rim                              3,082,000            2,463,000            4,803,000
                                                -----------------   ------------------   ------------------
                  Total                        $      34,317,000    $      44,017,000    $      52,035,000
                                                =================   ==================   ==================
</TABLE>



         The  Company's  revenues  from  operations  outside  of  North  America
accounted for approximately  45%, 50% and 50% of the Company's revenues in 1994,
1995  and  1996,   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.

     In  addition,   the  Company  leases  sales  office  space  in  California,
Massachusetts,  Virginia, The Netherlands,  The United Kingdom, Germany, Sweden,
France, Singapore,  Australia, Japan, and India. During 1996, the United Kingdom
offices were moved to larger facilities within the United Kingdom.

     Apart from its offices in  Australia,  France and Japan,  which the Company
plans to move to larger  facilities in 1997,  SPSS believes its  facilities  are
adequate for its present needs.


Item 3.   Legal Proceedings

         Currently there are no material pending legal  proceedings to which the
Company or any of its  subsidiaries is a party or to which any of their property
is the 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
--------------------------------------------

 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  (through March 17, 1997)       32  7/8             25




As of March 17, 1997,  there were 283 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

         On September 26, 1996,  SPSS acquired Clear  Software,  a Massachusetts
corporation,  for SPSS Common  Stock valued at  approximately  $4.5 million in a
merger  accounted  for as a pooling of  interests.  Pursuant to an Agreement and
Plan of Merger,  dated  September 23, 1996,  among SPSS,  Clear Software and the
shareholders  of Clear  Software,  a wholly owned  subsidiary of SPSS was merged
into Clear Software, with Clear Software as the surviving corporation.  The sale
of stock  to the  Clear  Software  shareholders  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 February 17, 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, 1996
are derived from the  Consolidated  Financial  Statements of the Company,  which
Consolidated  Financial  Statements  have been audited by KPMG Peat Marwick LLP,
independent certified public accountants.  The Consolidated Financial Statements
as of December  31, 1995 and 1996,  and for each of the years in the  three-year
period ended December 31, 1996, and the report thereon of KPMG Peat Marwick LLP,
are included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>

                                               --------------------------------------------------------------------------------
                                                      1992           1993           1994             1995            1996
                                                  -------------  ------------  ---------------  --------------- ---------------
                                                           (in thousands, except net earnings(loss) per share data)

         Net revenues:
<S>                                                    <C>           <C>              <C>              <C>             <C>
           Desktop products (1)                        $28,071       $35,536          $45,942          $56,866         $66,267
           Large System products (1)                    13,911        11,785           10,835           10,694          10,739
           Other products and services (1)               4,224         4,853            5,817            6,234           6,983
                                                  -------------  ------------  ---------------  --------------- ---------------
               Net revenues                             46,206        52,174           62,594           73,794          83,989
         Cost of revenues                                7,077         6,663            7,243            7,709           8,455
                                                  -------------  ------------  ---------------  --------------- ---------------
         Gross profit                                   39,129        45,511           55,351           66,085          75,534
                                                  -------------  ------------  ---------------  --------------- ---------------
         Operating expenses:
           Sales and marketing                          22,393        24,743           32,109           38,892          41,345
           Product development                           7,916         8,330            9,215           10,863          13,066
           General and administrative                    5,441         5,289            5,594            6,277           6,976
           Write-off of purchased software (2)           3,071             -                -                -               -
           Nonrecurring items (3)                            -             -                -            2,466               -
           Acquisition-related charges (4)                   -             -            1,928            1,051           3,636
                                                  -------------  ------------  ---------------  --------------- ---------------
               Operating expenses                       38,821        38,362           48,846           59,549          65,023
                                                  -------------  ------------  ---------------  --------------- ---------------
         Operating income                                  308         7,149            6,505            6,536          10,511
         Net interest income (expense)                 (2,566)       (1,682)            (229)              176             409
         Other income (expense) (5)                    (1,647)         (390)            (128)              132           (134)
                                                  -------------  ------------  ---------------  --------------- ---------------
         Income (loss) before income taxes             (3,905)         5,077            6,148            6,844          10,786
         Provision for income taxes                        217         1,357            2,192            2,969           3,604
                                                  -------------  ------------  ---------------  --------------- ---------------
         Net income (loss)                            ($4,122)        $3,720           $3,956           $3,875          $7,182
                                                  =============  ============  ===============  =============== ===============
         Net earnings (loss) per share                 ($0.96)         $0.70            $0.56            $0.48           $0.85
                                                  =============  ============  ===============  =============== ===============
         Shares used in per share calculation            4,307         5,306            7,035            8,085           8,402
                                                  =============  ============  ===============  =============== ===============
</TABLE>


<TABLE>
<CAPTION>


                                               --------------------------------------------------------------------------------
                                                      1992           1993           1994             1995            1996
                                                  -------------  ------------  ---------------  --------------- ---------------
                                                                                (in thousands)
         Balance Sheet Data:
<S>                                                  <C>            <C>              <C>                <C>            <C>
           Working capital (deficit)                 ($13,983)      ($9,396)         ($8,676)           $4,995         $10,538
           Total assets                                 17,324        23,996           34,317           44,017          52,035
           Long-term obligations,
             less current portion                       13,890         1,814            2,851            2,334           2,279
           Total stockholders' equity (deficit)       (19,804)            32            5,430           18,488          26,527

</TABLE>

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

(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,  in  1993,  1994 and  1995,  advance
     royalties from Prentice Hall.


<PAGE>

(2)  Write-off  in  June  1992  of  software  purchased  as  part  of  the  1990
     recapitalization   of  the  Company  (the   "Recapitalization"),   totaling
     $3,071,000.

(3)  Write-off  principally of certain software assets capitalized more than two
     years ago totaling $2,466,000 in 1995.

(4)  Write-off in September  1994 and December  1995 of acquired and  in-process
     technology and other  acquisition-related  charges totaling  $1,928,000 and
     $1,051,000,   respectively;   and  in  September   and  December  of  1996,
     acquisition-related charges totaling $3,636,000.

(5)  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
four  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.  The  SPSS  sales  and
marketing  force now numbers more than 320  professionals  in 15 Company offices
worldwide.

         In recent years SPSS has experienced a significant shift in the sources
of its  revenues.  Between  1992 and  1996,  Desktop  product  license  revenues
increased  from  approximately  61% to 79% of total net  revenues,  while  Large
Systems software license revenues declined from  approximately 30% to 13%. 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
42% to 50% between 1992 and 1996. Management expects these trends to continue in
1996.  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>

                                         ------------------------------------------------------------------------
                                                 1992          1993          1994          1995          1996
                                             ------------  ------------  ----------------------------------------

          Net revenues:
<S>                                               <C>           <C>           <C>           <C>           <C>
            Desktop products                       60.8%         68.1%         73.4%         77.1%         78.9%
            Large System products                  30.1%         22.6%         17.3%         14.5%         12.8%
            Other products and services             9.1%          9.3%          9.3%          8.4%          8.3%
                                             ------------  ------------  ------------  ------------  ------------
                Net revenues                      100.0%        100.0%        100.0%        100.0%        100.0%
          Cost of revenues                         15.3%         12.8%         11.6%         10.4%         10.1%
                                             ------------  ------------  ------------  ------------  ------------
          Gross profit                             84.7%         87.2%         88.4%         89.6%         89.9%
                                             ------------  ------------  ------------  ------------  ------------
          Operating expenses:
            Sales and marketing                    48.5%         47.4%         51.3%         52.7%         49.2%
            Product development                    17.1%         16.0%         14.7%         14.7%         15.6%
            General and administrative             11.8%         10.1%          8.9%          8.5%          8.3%
            Write-off of purchased software         6.6%             -             -             -             -
            Nonrecurring items                         -             -             -          3.4%             -
            Acquisition-related charges                -             -          3.1%          1.4%          4.3%
                                             ------------  ------------  ------------  ------------  ------------
                Operating expenses                 84.0%         73.5%         78.0%         80.7%         77.4%
                                             ------------  ------------  ------------  ------------  ------------
          Operating income                          0.7%         13.7%         10.4%          8.9%         12.5%
          Net interest income (expense)            (5.5%)        (3.2%)        (0.4%)          0.2%          0.5%
          Other income (expense)                   (3.6%)        (0.8%)        (0.2%)          0.2%        (0.2%)
                                             ------------  ------------  ------------  ------------  ------------
          Income (loss) before income taxes        (8.4%)          9.7%          9.8%          9.3%         12.8%
          Provision for income taxes                0.5%           2.6%          3.5%          4.0%          4.3%
                                             ------------  ------------  ------------  ------------  ------------

          Net income (loss)                       (8.9%)          7.1%          6.3%          5.3%          8.5%
                                             ============  ============  ============  ============  ============


</TABLE>

Comparison of Twelve Months Ended December 31, 1994, 1995 and 1996.

Net Revenues.  Net revenues increased from $62,594,000 in 1994 to $73,794,000 in
1995 and to $83,989,000 in 1996, increases of 18% and 14%,  respectively.  These
increases were  primarily due to an increase in Desktop  revenues of 24% in 1995
and 17% in 1996. Large System revenues decreased 1% in 1995 and remained flat in
1996.  The  increase  in  Desktop  revenues  reflected  $31,438,000  in 1995 and
$38,000,000 in 1996 of new revenues from licenses of SPSS for Windows;  revenues
from Jandel products were flat between 1995 and 1996. In addition, revenues from
annual license renewals of Desktop products  increased by $3,223,000 in 1995 and
$3,451,000 in 1996, primarily reflecting a $3,203,000 and $4,178,000 increase in
annual license revenues for SPSS for Windows in 1995 and 1996, respectively. The
decline in Large Systems revenues in 1995 was primarily due to the nonrenewal of
product  licenses on  mainframe  platforms.  Revenues  from other  products  and
services  increased  by 7% in 1995 due to an increase  of 30% in  revenues  from
training and consulting services, partially offset by a 49% 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.  Revenues were aided by changes in foreign currency exchange rates in
1995 but adversely affected by foreign currency exchange rates in 1996. In 1996,
revenues from other products and services increased by 12% due to an increase of
21% in revenues from training and consulting services, partially offset by a 49%
decrease in revenues from  publications  and student  products due to the end of
the payment of guaranteed  royalties  from the Prentice  Hall  Agreement in July
1995.

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  $7,243,000 in

<PAGE>

1994 to $7,709,000 in 1995,  to $8,455,000 in 1996.  Such costs  increased 6% in
1995 and 10% in 1996 due to higher  sales  levels and higher  royalties  paid to
third parties. As a percentage of net revenues,  cost of revenues decreased from
12% in 1994 to 10% in 1995 and 1996.

Sales and Marketing.  Sales and marketing expenses increased from $32,109,000 in
1994 to  $38,892,000  in 1995 and to  $41,345,000 in 1996, an increase of 21% in
1995 and 6% in 1996.  These  increases were due to expansion of the domestic and
international sales organizations,  and salary and commission increases,  and in
1995 the negative  effects of changes in foreign  currency  exchange rates. As a
percentage of net revenues,  sales and marketing  expenses increased from 51% in
1994 to 53% in 1995 but decreased to 49% in 1996.

Product  Development.  Product development expenses increased from $9,215,000 in
1994 to  $10,863,000  in 1995 and to  $13,066,000  in 1996 (net of the effect of
capitalized software development costs of $1,639,000, $1,630,000 and $1,082,000,
respectively)  an increase of 18% in 1995 and an increase of 20% in 1996. In the
same periods, the Company's expense for amortization of capitalized software and
product translations,  included in cost of revenues, was $1,239,000,  $1,592,000
and $1,561,000, respectively. The increases in product development expenses were
primarily  due to salary  and  recruiting  fee  increases,  higher  depreciation
expense related to the purchase of capital equipment used in product development
and other  additions to the product  development  staff.  As a percentage of net
revenues,  product  development  expenses  remained  constant at 15% in 1994 and
1995, but increased to 16% in 1996.

General and Administrative.  General and administrative  expenses increased from
$5,594,000  in 1994 to $6,277,000 in 1995 and to $6,976,000 in 1996, an increase
of 12% in 1995 and 11% in 1996.  These increases were primarily  attributable to
increases in bad debt expense,  employment taxes, employee insurance,  temporary
employment  and rent  expense.  Such expense  decreased  as a percentage  of net
revenues from 9% in 1994 and 1995 to 8% in 1996.

Nonrecurring  Items.  A  nonrecurring  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.

Acquisition-related  Charges.  Charges  related to the  acquisition of SYSTAT in
1994 and BMDP in 1995  totaled  $1,928,000  and  $1,051,000,  respectively,  and
represented one-time write-offs of acquired and in-process  technology and other
acquisition-related  charges.  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.

Net Interest Income  (Expense).  Net interest income (expense) was ($229,000) in
1994 due to interest expense related to the Company's line of credit,  which was
repaid  through the use of net  proceeds  from the  Company's  follow-on  public
offering of stock in February 1995. Net interest income was $176,000 in 1995 and
$409,000 in 1996 due to interest earned on short-term investments.

Other  Income  (Expense).  Other  income  (expense)  consists  mainly of foreign
exchange  transactions and expenses related to the stock appraisal action.  Such
other items were  ($128,000) in 1994,  $132,000 in 1995 and  ($134,000) in 1996.
The 1994 net  amount  consisted  of  expenses  of  $248,000  related  to foreign

<PAGE>

exchange transactions,  offset by $186,000 in proceeds from a Japanese insurance
claim settlement.  The 1995 and 1996 net amounts were primarily foreign currency
transaction gains (losses).

Provision  for Income  Taxes.  The  provision  for  income  taxes  consisted  of
$2,192,000 in 1994,  $2,969,000 in 1995 and $3,604,000 in 1996. During 1994, the
provision  for income taxes was the result of pretax  income of  $6,148,000  and
represented a tax rate of approximately  36% of pretax income.  During 1995, the
provision  for  income  taxes was the result of  pre-tax  income of  $6,844,000,
reflecting a tax rate of  approximately  38% of pre-tax  income,  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 was the result of
pre-tax income of $10,786,000 and represented a tax rate of  approximately  39%,
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.

Liquidity and Capital Resources

         The Company  had no  long-term  debt as of  December  31, 1996 and held
approximately $12,621,000 of cash and short term investments.  Funds in 1995 and
1996  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 (8.25% per annum as of March 17, 1997).
As of  December  31,  1996,  the  Company  had no  borrowings  under the  Credit
Agreement.  The Company  used the net  proceeds  from the  February  1995 public
offering of Common Stock to repay its borrowings  under the Credit Agreement and
$5 million  of unused  credit is  available  thereunder.  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   $3,300,000   in  1996  and  are   projected  to  total
approximately $3,500,000 and $3,500,000 in 1997 and 1998, respectively.  Capital
expenditures during 1996, included, among other things, new computer systems for
use in  internal  product  development.  Capital  expenditures  during 1997 will
include, among other things, new computers primarily for use in internal product
development,   replacement  of  the  customer   information   system   software,
furnishings and other equipment related to the move of the Company's  facilities
in  Australia,  France  and  Japan.  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 1992 to 1996.  Revenues from  international  operations  comprised
approximately  42%  of  total  net  revenues  in  1992,  whereas  revenues  from
international operations contributed 50% of total net revenues in 1996.

         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.



<PAGE>



Item` 8.   Financial Statements and Supplementary Data


                           SPSS Inc. and Subsidiaries


                                      INDEX


                                                                          Page

Independent Auditors' Report...........................................    27

Consolidated Balance Sheets as of December 31, 1995 and 1996...........    28

Consolidated Statements of Income for the years ended
    December 31, 1994, 1995 and 1996...................................    29

Consolidated Statements of Stockholders' Equity for the years ended
    December 31, 1994, 1995 and 1996...................................    30

Consolidated Statements of Cash Flows for the years ended
    December 31, 1994, 1995 and 1996...................................    31

Notes to Consolidated Financial Statements.............................    32

Financial Statement Schedule:

Schedule II    Valuation and qualifying accounts.......................    45


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,  1995  and  1996,  and the  results  of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1996,  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 19, 1997



<PAGE>








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

                                                                                              December 31,
                                                                                      -----------------------------
                                                                                          1995            1996
                                                                                      -------------  --------------
                                      ASSETS
CURRENT ASSETS:
<S>                                                                                  <C>            <C>
     Cash and cash equivalents                                                       $      11,175  $       12,621
     Accounts receivable, net of allowances of  $911 in 1995 and $1,691 in 1996             13,694          17,746
     Inventories                                                                             1,763           1,900
     Prepaid expenses and other current assets                                               1,558           1,500
                                                                                      -------------  --------------
          Total current assets                                                              28,190          33,767
                                                                                      -------------  --------------

EQUIPMENT AND LEASEHOLD IMPROVEMENTS, at cost:
     Furniture, fixtures, and office equipment                                               3,785           3,979
     Computer equipment and software                                                         9,870          12,228
     Leasehold improvements                                                                  1,413           1,593
                                                                                      -------------  --------------
                                                                                            15,068          17,800
     Less accumulated depreciation and amortization                                         10,335          12,261
                                                                                      -------------  --------------
Net equipment and leasehold improvements                                                     4,733           5,539
                                                                                      -------------  --------------
Capitalized software development costs, net of accumulated amortization                      6,839           7,036
Goodwill, net of accumulated amortization                                                    2,213           2,173
Deferred income tax assets                                                                      --           1,245
Other assets                                                                                 2,042           2,275
                                                                                      -------------  --------------
                                                                                     $      44,017  $       52,035
                                                                                      =============  ==============


                       LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Notes payable                                                                   $          75  $           --
     Accounts payable                                                                        3,277           3,783
     Accrued royalties                                                                         496             520
     Accrued rent                                                                              921             651
     Other accrued liabilities                                                               9,255           7,989
     Income taxes and value added taxes payable                                              2,262           3,401
     Customer advances                                                                         295             121
     Deferred revenues                                                                       6,614           6,764
                                                                                      -------------  --------------

          Total current liabilities                                                         23,195          23,229
                                                                                      -------------  --------------

Deferred income taxes                                                                        2,015           2,245
Other non-current liabilities                                                                  319              34
STOCKHOLDERS'  EQUITY:
     Common Stock, $.01 par value;  50,000,000 shares authorized;  7,633,131 and
       7,726,597 shares issued and outstanding at December 31, 1995 and
       December 31, 1996, respectively                                                          76              77
     Additional paid-in capital                                                             40,352          41,374
     Cumulative foreign currency translation adjustments                                     (699)           (612)
     Accumulated deficit                                                                  (21,241)        (14,312)
                                                                                      -------------  --------------

          Total stockholders'  equity                                                       18,488          26,527
Commitments (note 6)
                                                                                      -------------  --------------

                                                                                     $      44,017  $       52,035
                                                                                      =============  ==============
</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,
                                                            --------------------------------------------------
                                                                    1994            1995             1996
                                                               --------------  --------------   --------------

         Net revenues:
<S>                                                           <C>             <C>              <C>
            Desktop products                                  $       45,942  $       56,866   $       66,267
            Large System products                                     10,835          10,694           10,739
            Other products and services                                5,817           6,234            6,983
                                                               --------------  --------------   --------------
         Net revenues                                                 62,594          73,794           83,989
         Cost of revenues                                              7,243           7,709            8,455
                                                               --------------  --------------   --------------
         Gross profit                                                 55,351          66,085           75,534
                                                               --------------  --------------   --------------

         Operating expenses:
            Sales and marketing                                       32,109          38,892           41,345
            Product development                                        9,215          10,863           13,066
            General and administrative                                 5,594           6,277            6,976
            Nonrecurring items                                          --             2,466             --
            Acquisition-related charges                                1,928           1,051            3,636
                                                               --------------  --------------   --------------
         Operating expenses                                           48,846          59,549           65,023
                                                               --------------  --------------   --------------

         Operating income                                              6,505           6,536           10,511
                                                               --------------  --------------   --------------
         Other income (expense):
            Interest income                                              132             305              462
            Interest expense                                           (361)           (129)             (53)
            Other                                                      (128)             132            (134)
                                                               --------------  --------------   --------------
         Other income (expense)                                        (357)             308              275
                                                               --------------  --------------   --------------

         Income  before income taxes                                   6,148           6,844           10,786
         Income tax expense                                            2,192           2,969            3,604
                                                               --------------  --------------   --------------

         Net income                                           $        3,956  $        3,875   $        7,182
                                                               ==============  ==============   ==============

         Net earnings  per share                              $         0.56  $         0.48   $         0.85
                                                               ==============  ==============   ==============

         Weighted average common stock  and common
            stock equivalent shares outstanding                    7,034,586       8,085,459        8,402,426
                                                               ==============  ==============   ==============
</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,
                                                                        --------------------------------------------------
                                                                                1994            1995             1996
                                                                           --------------- ---------------  --------------


Common stock, $.01 par value:
<S>                                                                      <C>              <C>             <C>
   Balance at beginning of period                                        $             65 $            67 $            76
   Issuance of 150,000  and 2,334 shares of common stock in 1994
      and 1995, respectively                                                            2         --              --
   Public offering of 908,287 shares of common stock                              --                    9         --
   Exercise of stock options                                                      --              --                    1
                                                                           --------------- ---------------  --------------
   Balance at end of period                                              $             67$             76 $            77
                                                                           --------------- ---------------  --------------

Additional paid in capital:
   Balance at beginning of period                                        $         29,322$         30,929 $        40,352
   Issuance of 150,000 and 2,334 shares of common stock in
     1994 and 1995, respectively                                                    1,226               6         --
   Public offering of 908,287 shares of  common stock                             --                9,118         --
   Sale of common stock to the Employee Stock Purchase and
     and 401(k) Plans                                                                 265             141             184
   Exercise of  stock options and other                                                36              40             326
   Income tax benefit related to stock options and Employee
     Stock Purchase Plan                                                               44             117             358
   Undistributed earnings related to business combination                              36               1             154
                                                                           --------------- ---------------  --------------
   Balance at end of period                                              $         30,929$         40,352 $        41,374
                                                                           --------------- ---------------  --------------

Foreign currency translation adjustment:
   Balance at beginning of period                                        $          (332)$          (463) $         (699)
   Translation adjustment                                                           (131)           (236)              87
                                                                           --------------- ---------------  --------------
   Balance at end of period                                              $          (463)$          (699) $         (612)
                                                                           --------------- ---------------  --------------

Accumulated deficit:
   Balance at beginning of period                                        $       (29,023)$       (25,103) $      (21,241)
   Net income                                                                       3,956           3,875           7,182
   Undistributed earnings related to business combination                            (36)             (1)           (154)
   Dividends declared                                                                 --             (12)            (99)
                                                                           --------------- ---------------  --------------
   Balance at end of period                                              $       (25,103)$       (21,241) $      (14,312)
                                                                           --------------- ---------------  --------------

Total stockholders' equity                                               $          5,430$         18,488 $        26,527
                                                                           =============== ===============  ==============
</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,
                                                                       ----------------------------------------------------
                                                                               1994             1995             1996
                                                                          ---------------  ---------------  ---------------

          Cash flows from operating activities:
<S>                                                                      <C>              <C>              <C>
              Net income                                                 $         3,956  $         3,875  $         7,182
              Adjustments to reconcile net income to net cash
                provided by operating activities:
                    Depreciation and amortization                                  3,469            4,675            4,929
                    Stock option compensation expenses                           --                    21          --
                    Deferred income taxes                                            612            (176)          (1,015)
                    Write-off of software development costs and
                       other assets                                              --                 2,281          --
                    Write-off of acquired and in-process technology                1,741              851          --
                    Changes  in  assets  and  liabilities,  net  of  effects  of
                       acquisitions:
                       Accounts receivable                                       (3,122)          (1,578)          (4,052)
                       Inventories                                                   181            (134)            (137)
                       Accounts payable                                          (1,529)          (1,780)              506
                       Accrued royalties                                             (5)             (23)               24
                       Accrued expenses                                            (992)            (487)          (1,118)
                       Other                                                       (113)               21            (121)
                                                                          ---------------  ---------------  ---------------

          Net cash provided by operating activities                                4,198            7,546            6,198
                                                                          ---------------  ---------------  ---------------

          Cash flows from investing activities:
               Capital expenditures, net                                         (2,436)          (2,838)          (3,271)
               Capitalized software development costs                            (3,219)          (2,504)          (1,758)
               Net (payments) receipts related to acquisitions                     (149)               46            (418)
               Net (increase) decrease in other assets                              (31)               14          --
                                                                          ---------------  ---------------  ---------------

          Net cash used in investing activities                                  (5,835)          (5,282)          (5,447)
                                                                          ---------------  ---------------  ---------------

          Cash flows from financing activities:
               Net borrowings under line-of-credit agreements                      1,467          (2,890)             (75)
               Proceeds from issuance of common stock                                301           10,512             511
               Costs of issuance of common stock                                      --          (1,205)              --
               Income tax benefit from stock option exercises                         44              117             358
               Principal repayment under capital lease obligations                   (3)               --              --
               Repayment of notes payable to related parties                        (38)               --              --
               Repurchase of common stock                                            --              (14)              --
               Other                                                                 --              (19)             (99)
                                                                          ---------------  ---------------  ---------------

          Net cash  provided by financing activities                               1,771            6,501             695
                                                                          ---------------  ---------------  ---------------

          Net change in cash and cash equivalents                                    134            8,765           1,446
          Cash and cash equivalents at beginning of period                         2,276            2,410          11,175
                                                                          ---------------  ---------------  ---------------
          Cash and cash equivalents at end of period                     $         2,410  $        11,175  $       12,621
                                                                          ===============  ===============  ===============

          Supplemental disclosures of cash flow information:
               Interest paid                                             $           237  $           142              29
               Income taxes paid                                                     750            3,459  $        3,112
                                                                          ===============  ===============  ===============

          Supplemental disclosures of non-cash activity:
               Issuance of common stock for the purchase of
                 SYSTAT, Inc.                                                        (2)          --               --
                                                                          ===============  ===============  ===============

</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)  Computation of Net Earnings per Share

         The net earnings per common and common  equivalent  share for the years
ended  December 31,  1994,  1995 and 1996 has been  computed  using the weighted
average number of common and dilutive common equivalent  shares  outstanding for
each year  (7,034,586,  8,085,459 and 8,402,426  shares,  respectively).  Common
equivalent  shares consist of the shares issuable upon exercise of stock options
(using the treasury stock method).

         (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  remaining  terms  of  the  respective  leases.
Capitalized software costs are amortized on a straight-line method over three to
five years based upon the expected life of each product.  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.

         (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 also allows entities to continue to apply the
provisions  of APB No.  25 and  provide  pro forma net  income  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 disclosure provisions 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.



<PAGE>



         (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.  Accumulated  amortization  was $363,000 and $683,000 as of December
     31, 1995 and 1996, 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
statement 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. The Company has determined that as
of December 31, 1996, there has been no impairment in the carrying values of the
long-lived assets.

         (p)  Reclassifications

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

(2)       International Subsidiaries

     The net assets, net revenues and net earnings of international subsidiaries
as of and for the years ended  December 31,  1994,  1995 and 1996 ncluded in the
consolidated financial statements are summarized as follows:




<TABLE>
<CAPTION>


                                                                               December
                                                                               31,
                                                      --------------------------------------------------------------
                                                             1994                  1995                  1996
                                                      ------------------    ------------------     -----------------
<S>                                                  <C>                    <C>                   <C>
          Working capital (deficit)                  $        (5,541,000)   $       (3,407,000)   $        (404,000)
                                                      ==================    ==================     =================
          Excess of noncurrent assets over
            noncurrent liabilities                   $         2,694,000    $        2,512,000    $        3,168,000
                                                      ==================    ==================     =================
          Net revenues                               $        28,393,000     $      36,943,000     $      42,415,000
                                                      ==================    ==================     =================
          Net earnings                               $           270,000     $         841,000     $       2,846,000
                                                      ==================    ==================     =================
</TABLE>

         Geographic information is disclosed elsewhere in this document.

<PAGE>

(3)       Software Development Costs and Purchased Software

         Activity in capitalized software is summarized as follows:

<TABLE>
<CAPTION>
                                                                                    December 31,
                                                           --------------------------------------------------------------
                                                                 1994                   1995                  1996
                                                           -----------------     ------------------    ------------------

<S>                                                             <C>                    <C>                   <C>
              Balance, net - beginning of year                   $4,768,000             $7,207,000            $6,839,000
              Additions                                           2,704,000              2,613,000             1,587,000
              Product translations                                  516,000                508,000               203,000
              Acquired Japan product translations                   458,000                 --                    --
              Write-down to net realizable value                   --                   (1,897,000)              (32,000)
              Amortization expense charged to
                 cost of revenues                                (1,239,000)           (1,592,000)           (1,561,000)
                                                           -----------------     ------------------    ------------------
              Balance, net - end of year                         $7,207,000             $6,839,000            $7,036,000
                                                           =================     ==================    ==================


</TABLE>



         The components of net capitalized software are summarized as follows:
<TABLE>
<CAPTION>

                                                                            December 31,
                                                              ----------------------------------------
                                                                     1995                  1996
                                                              ------------------    ------------------

<S>                                                          <C>                   <C>
              Product translations                           $         1,096,000   $         1,052,000
              Acquired software technology                             2,300,000             2,274,000
              Capitalized software development costs                   3,443,000             3,710,000
                                                              ------------------    ------------------
              Balance, net -- end of year                    $         6,839,000   $         7,036,000
                                                              ==================    ==================

</TABLE>



         Total  software  development  costs,   including  amounts  expensed  as
incurred,  amounted to approximately  $12,435,000,  $13,367,000 and $14,856,000,
for the years ended December 31, 1994, 1995 and 1996, respectively.

     Included in acquired software technology at December 31, 1994 is $1,000,000
related to the purchase of CHAID for Windows.  The future guaranteed  obligation
related to this  purchase,  reflected in the  consolidated  balance  sheet as of
December 31, 1995 and 1996, amounted to $550,000 and $284,000, respectively, and
is due through 1998.

         Included in acquired software  technology at December 31, 1995 and 1996
is  $618,000  and  $494,000,  respectively,  of  technology  resulting  from the
acquisition of BMDP Statistical Software, Inc. (See Note 5).

(4)       Investment in Joint Venture

         In October  1988,  the Company  entered into a joint venture with Japan
Systems  Engineering  Corporation  ("JSE") and formed SPSS  Japan,  Inc.,  owned
equally by JSE and the Company.  An executive of JSE, the joint venture partner,
was also a  shareholder  in SPSS Inc.  The joint  venture  was  created  for the
purposes of adapting,  marketing,  selling,  licensing and  providing  technical
support and  assistance in Japan for the Company's  products.  The investment in
SPSS Japan,  Inc. was being accounted

<PAGE>

for using the equity method.  As of January 1, 1994,  SPSS Japan,  Inc. became a
wholly-owned subsidiary of SPSS Inc. (See Note 5.)

(5)      Acquisitions

     During the first  quarter  of 1994,  the  Company  acquired  the  remaining
capital stock of SPSS Japan,  Inc. from its joint venture partner,  JSE. Results
of SPSS Japan, Inc. are consolidated in the Company's  statements of income from
January 1, 1994.  The  purchase  price for SPSS Japan,  Inc.  was  approximately
$50,000 and  approximately  $1,600,000 in accrued  royalties,  cash advances and
interest was to be paid by SPSS Japan, Inc. to JSE over the next four years.

     This  acquisition  was accounted for as a purchase  and,  accordingly,  the
acquired  assets and  liabilities  have been  recorded at their  estimated  fair
values.  The $961,000 excess of the purchase price over the fair market value of
the net assets acquired was recorded as goodwill.

     During the third quarter of 1994, the Company acquired  specific assets and
liabilities  of SYSTAT,  Inc.  ("SYSTAT").  SYSTAT is engaged in the business of
statistical software. Results of SYSTAT are included in the Company's statements
of income from September 1, 1994. The purchase price for SYSTAT was  $1,828,000,
consisting of $600,000 in cash and 150,000 shares of Common Stock of the Company
valued at  $1,228,000.  In addition,  the Company  granted  options at $9.00 per
share to purchase  150,000  shares of Common  Stock to the  principal  owners of
SYSTAT.

     The SYSTAT  acquisition  was accounted for as a purchase and,  accordingly,
the acquired assets and  liabilities  have been recorded at their estimated fair
values.  The $1,403,000  excess of the purchase price over the fair market value
of the net assets acquired was recorded as goodwill in 1994. During 1995 certain
assumed liabilities were revalued,  and consequently SYSTAT goodwill was reduced
to $1,203,000.

     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.  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  BMDP
acquisition  was  accounted  for as a purchase  and,  accordingly,  the acquired
assets and liabilities  have been recorded at their  estimated fair values.  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.

         The pro  forma  impact  of  these  acquisitions  on the  1994  and 1995
consolidated statements of income is not material.

     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  financial  statements  have been
restated  as if the  Company  and  Clear  had  been  combined  for  all  periods
presented.

<PAGE>

         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  financial  statements  have been  restated as if the Company and Jandel had
been combined for all periods presented.

     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 three years ended December 31, 1994, 1995 and 1996.
The 1996 results  presented for Clear  represent the nine months ended September
30, 1996.  The 1996 results for Jandel are for the eleven months ended  November
30, 1996.
<TABLE>
<CAPTION>

                                               1994                     1995                    1996
                                       --------------------     --------------------     -------------------

            Net revenues:
<S>                                    <C>                      <C>                      <C>
              SPSS (1)                 $        51,757,000      $        63,029,000      $       74,604,000
              Clear                              2,741,000                2,755,000               2,338,000
              Jandel                             8,096,000                8,010,000               7,047,000
                                       --------------------     --------------------     -------------------
                Total                  $        62,594,000      $        73,794,000      $       83,989,000
                                       ====================     ====================     ===================

            Net income (loss):
              SPSS (1)                 $          3,560,000     $          4,369,000     $         7,266,000
              Clear                                  36,000                   13,000                252,000
              Jandel                                360,000                (507,000)               (336,000)
                                       --------------------     --------------------     -------------------
                 Total                 $          3,956,000     $          3,875,000     $         7,182,000
                                       ====================     ====================     ===================
</TABLE>


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

(6)       Lease Commitments

         The Company leases its office  facilities,  storage space,  and certain
data processing equipment under lease agreements expiring through the year 2000.
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, 1996:

              Year ending December 31,                         Amount
             ----------------------------------          ------------------
              1997                                         $     3,930,000
              1998                                               3,407,000
              1999                                               1,188,000
              2000                                                 262,000
              2001                                                  --
              Thereafter                                            --
                                                         ------------------
                                                           $     8,787,000
                                                         ==================


         Rent expense related to operating leases was approximately  $3,244,000,
$3,618,000  and $3,591,000  during the years ended December 31, 1994,  1995, and
1996, respectively.



<PAGE>




 (7)      Financing Arrangements

         At December 31, 1995,  the Company had  available a bank line of credit
that  provided for  borrowings  up to $300,000,  bearing  interest at the bank's
prime rate plus 1.25% per annum  (9.75% and 9.50% as of  December  31,  1995 and
1996,   respectively),   expiring   January  15,  1997.   The  credit  line  was
collateralized by the Company's accounts receivable, inventory, and other assets
and also required the maintenance of certain  specified ratios and a minimum net
worth, with which the Company was in compliance as of December 31, 1995. Amounts
outstanding under this line of credit were $75,000 as of December 31, 1995.

     Effective  March 15, 1996, the Company  established a $5,000,000  unsecured
364-day  revolving  credit  facility   available  for  advances  pursuant  to  a
definitive  credit  agreement.  The Company pays a facility fee of 0.375% 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  (8.25%  at
December 31, 1996).  At December 31, 1996, the entire  $5,000,000 of the line of
credit was unused.

(8)        Other Income (Expense)

         Other income (expense) consists of the following:

<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                         --------------------------------------------------------------
                                                                1994                  1995                  1996
                                                         ------------------    ------------------    ------------------

<S>                                                     <C>                   <C>                    <C>
              Interest income                           $          132,000    $          305,000     $         462,000
              Interest expense                                    (315,000)             (129,000)              (53,000)
              Exchange gain (loss) on foreign currency
                 transactions                                     (248,000)              212,000               (66,000)
              Stock appraisal action                               (46,000)             (105,000)                 --
              Japan insurance proceeds                             186,000                   --                   --
              Payments to related parties                          (66,000)              (45,000)                 --
              Other                                                  --                   70,000               (68,000)
                                                         ------------------    ------------------    ------------------
              Total other income (expense)              $         (357,000)    $          308,000     $         275,000
                                                         ==================    ==================    ==================

</TABLE>


(9)        Income Taxes

         Income before income tax consists of the following:
<TABLE>
<CAPTION>

                                                                            Year ended December 31,
                                                         --------------------------------------------------------------
                                                                1994                  1995                  1996
                                                         ------------------    ------------------    ------------------

<S>                                                     <C>                   <C>                    <C>
              Domestic                                  $        5,573,000    $        4,997,000     $       6,628,000
              Foreign                                              575,000             1,847,000             4,158,000
                                                         ------------------    ------------------    ------------------
                                                        $        6,148,000    $        6,844,000     $      10,786,000
                                                         ==================    ==================    ==================

</TABLE>





<PAGE>



         Income tax expense consists of the following:

<TABLE>
<CAPTION>

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

            Year ended December 31, 1994:
<S>                                                     <C>                   <C>                   <C>
                 U.S. Federal                           $         944,000     $         500,000     $        1,444,000
                 State                                            332,000               112,000                444,000
                 Foreign                                          304,000              --                      304,000
                                                        ------------------     -----------------     ------------------

                                                        $       1,580,000     $         612,000     $        2,192,000
                                                        ==================     =================     ==================


            Year ended December 31, 1995
                 U.S. Federal                           $       1,616,000     $       (144,000)     $        1,472,000
                 State                                            187,000              (32,000)                155,000
                 Foreign                                        1,342,000              --                    1,342,000
                                                        ------------------     -----------------     ------------------

                                                        $       3,145,000     $       (176,000)     $        2,969,000
                                                        ==================     =================     ==================

            Year ended December 31, 1996
                 U.S. Federal                           $       2,143,000     $       (837,000)     $        1,306,000
                 State                                            792,000             (178,000)                614,000
                 Foreign                                        1,684,000              --                    1,684,000
                                                        ------------------     -----------------     ------------------

                                                        $       4,619,000     $     (1,015,000)     $        3,604,000
                                                        ==================     =================     ==================
</TABLE>



         For  the  years  ended   December   31,  1994,   1995  and  1996,   the
reconciliation of statutory to effective income taxes is as follows:
<TABLE>
<CAPTION>

                                                                        Year ended December 31,
                                                     --------------------------------------------------------------
                                                            1994                  1995                  1996
                                                     ------------------    ------------------    ------------------
<S>                                                 <C>                   <C>                    <C>
      Income taxes using the Federal
        statutory rate of 34%                       $         2,077,000   $         2,323,000    $        3,667,000
      State income taxes, net of Federal tax
        benefit                                                 293,000               103,000               404,000
      Change in valuation allowance and credit
        and net operating loss utilization, net                (394,000)               40,000              (886,000)
      Foreign taxes at net rates different
        from U.S. Federal rates                                  96,000               722,000               269,000
      Foreign tax credit                                           -                 (336,000)             (372,000)
      Acquisition costs                                            -                     -                  440,000
      Other, net                                                120,000               117,000                82,000
                                                     ------------------    ------------------    ------------------
                                                    $         2,192,000   $         2,969,000    $        3,604,000
                                                     ==================    ==================    ==================
</TABLE>






<PAGE>




         The tax effects of temporary  differences that give rise to significant
portions of the  deferred  tax assets and  liabilities  at December 31, 1995 and
1996, are presented below:
<TABLE>
<CAPTION>

                                                                                                    1995            1996
                                                                                               --------------- ---------------
      Deferred tax assets:
<S>                                                                                           <C>              <C>
           Accounts receivable principally due to allowance for doubtful accounts             $       123,000  $      369,000
           Inventories, principally due to additional costs inventoried for tax purposes
               pursuant to the Tax Reform Act of 1986                                                  47,000         114,000
           Compensated absences, principally due to accrual for financial reporting  purposes         111,000         158,000
           Accruals and reserves                                                                      203,000             --
           Research and experimentation credit carryforwards                                          610,000         523,000
           Deferred rent                                                                              299,000         214,000
           Plant and equipment, principally due to differences in depreciation and
              capitalized interest                                                                    175,000         227,000
           Deferred revenues                                                                        1,657,000       1,684,000
           Foreign currency loss                                                                       59,000         113,000
           Acquisition-related items                                                                  287,000         521,000
           State deferred tax asset                                                                   629,000         884,000
           U.S. net operating loss carryforwards                                                      165,000         431,000
           Non-U.S. net operating loss carryforwards                                                  435,000          87,000
           Other                                                                                       28,000          95,000
                                                                                               --------------- ---------------

      Total gross deferred tax assets                                                              4,828,000       5,420,000
      Less valuation allowance                                                                    (4,828,000)     (4,175,000)
                                                                                               --------------- ---------------

      Net deferred tax assets                                                                           --         1,245,000


      Deferred tax liabilities:
           Capitalized software costs                                                               1,496,000       1,670,000
           State deferred tax liability                                                               370,000         464,000
           Other                                                                                      149,000         111,000
                                                                                               --------------- ---------------

      Net deferred tax liability                                                              $     2,015,000  $    1,000,000
                                                                                               =============== ===============
</TABLE>



     The valuation allowance decreased $846,000,  $821,000 and $653,000 in 1994,
1995 and 1996, respectively.

     As of December 31, 1996,  Jandel had net operating  loss  carryforwards  of
approximately   $1,356,000   and  $606,000   for  Federal  and  state   purposes
respectively,  expiring in years 2000  through  2010.  As of December  31, 1996,
Jandel also had net operating  loss  carryforwards  for Jandel  Scientific  GmbH
totaling approximately $60,000.

     Jandel has  available as of December 31, 1996,  Federal and state  research
and  experimentation  tax credit  carryforwards  of  approximately  $523,000 and
$271,000, respectively, which expire in the years 2004 through 2010.

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



<PAGE>




(10)       Capital Stock

         Subsequent  to the August 1993 initial  public  offering,  three former
holders of Class B Common Stock of the Company  exercised their statutory rights
to dissent from the value at which their stock was  redeemed.  During 1993,  the
court issued an order valuing the dissenting  shareholders'  stock at $20.70 per
share (or $520,025 for the total stock value,  before  adjustment  for the above
one-for-three  stock  split),  plus  interest  at the rate of 9% per annum  from
October 10, 1990 until payment, and awarded attorneys fees and costs incurred by
the former  shareholders.  The Company filed an appeal related to this matter to
challenge the trial procedure,  the court's valuation of the stock and the award
of attorneys' fees and costs. The Company had posted a bond of $1,184,000 during
the  pendency of the appeal.  On February 3, 1995,  the  Company's  Petition for
Leave to Appeal was denied by the  Illinois  Supreme  Court.  Subsequently,  the
Company  paid the judgment and settled all  remaining  claims,  and on April 16,
1995,  the court  entered an Agreed  Order of  Dismissal  with  Prejudice of all
pending claims, defenses and counterclaims.

         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.

(11)       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 $349,000,  $361,000 and $349,000,  for the years
ended December 31, 1994, 1995 and 1996.

(12)       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.



<PAGE>




         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  available to
stockholders would have been decreased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>

                                                                                 1995                   1996
                                                                          ------------------     ------------------

         Net income available to common stockholders
<S>                                                                      <C>                    <C>
             As reported                                                 $        3,875,000     $        7,182,000
             Pro forma                                                            3,662,000              6,492,000
         Earnings per common and common equivalent share
             As reported                                                               0.48                   0.85
             Pro forma                                                                 0.45                   0.77

</TABLE>


         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-Sholes
option-pricing  model with the following  weighted-average  assumptions used for
grants in fiscal  1995 and  1996,  respectively;  no  expected  dividend  yield;
expected  volatility of 25 percent;  risk free interest rates of 6.53% and 6.53%
and expected lives of 8 years.  Additional  information  regarding options is as
follows:

<TABLE>
<CAPTION>
                                        1994                                  1995                              1996

                            ---------------------------------  --------------------------------   --------------------------------
                                                  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                          624,054  $          3.12          833,117   $         4.73         1,106,869   $         7.02
     Granted                        231,450             9.07          305,373            12.86           406,621            21.04
     Forfeited                       (7,961)            9.26          (10,095)           11.37           (14,702)           11.88
     Exercised                      (14,426)            2.38          (21,526)            1.81          (119,712)            8.23
                            ----------------   --------------  ---------------   --------------   ---------------   --------------

Outstanding at end of year          833,117             4.73        1,106,869             7.02         1,379,076            10.39

Options exercisable at
   year end                         438,980             2.67          605,808             3.77           722,029             5.23




</TABLE>


<PAGE>




         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 1996:
<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                        406,326              4.70   $          1.05            398,049    $          1.05
                8.00-9.125                     302,370              7.19              8.72            206,378               8.66
               12.875-14.75                    472,880              8.63             13.99            117,602              13.37
               18.875-25.125                   197,500              9.46             23.54              --                  --
                                        ---------------   ---------------   ---------------   ----------------    ---------------
                                             1,379,076              7.27   $         10.39            722,029    $          5.23

</TABLE>


(13)       Subsequent Events (unaudited)

     Effective  March 14,  1997,  the Company  amended a  $5,000,000  unsecured,
364-day  revolving  credit  facility   available  for  advances  pursuant  to  a
definitive  credit  agreement.  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 (8.25% at March
15, 1997).



<PAGE>




(14)     Unaudited Quarterly Financial Information

The following is a summary of the unaudited  interim  results of operations  for
each of the quarters ended in 1995 and 1996.
<TABLE>
<CAPTION>

                                   Mar. 31,    June 30,    Sept. 30,   Dec. 31,    Mar. 31,     June 30,    Sept. 30,     Dec. 31,
                                     1995        1995         1995       1995        1996         1996         1996         1996
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------

Net revenues:
<S>                                   <C>        <C>          <C>        <C>         <C>          <C>          <C>           <C>
  Desktop products                    $13,031    $13,264      $13,982    $16,589     $15,962      $15,440      $16,287       $18,578
  Large System products                 2,560      2,550        2,782      2,802       2,855        2,612        2,674         2,598
  Other products and services           1,855      1,703        1,187      1,489       1,302        1,828        1,873         1,980
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
      Net revenues                     17,446     17,517       17,951     20,880      20,119       19,880       20,834        23,156
Cost of revenues                        1,681      1,818        2,012      2,198       2,007        2,066        2,165         2,217
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Gross profit                           15,765     15,699       15,939     18,682      18,112       17,814       18,669        20,939
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Operating expenses:
  Sales and marketing                   9,345      9,790        9,612     10,145      10,593       10,138        9,865        10,749
  Product development                   2,503      2,718        2,994      2,648       3,033        3,277        3,531         3,225
  General and administrative            1,467      1,600        1,536      1,674       1,691        1,744        1,902         1,639
  Nonrecurring items (a)                    -          -            -      2,466           -            -            -             -
  Acquisition-related charges (b)           -          -            -      1,051           -            -          980         2,656
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
      Operating expenses               13,315     14,108       14,142     17,984      15,317       15,159       16,278        18,269
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Operating income                        2,450      1,591        1,797        698       2,795        2,655        2,391         2,670
Net interest income (expense)             (2)         18           69         91         122          104           84            99
Other income (expenses)                    67         75          (1)        (9)        (50)         (56)         (84)            56
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Income before income taxes              2,515      1,684        1,865        780       2,867        2,703        2,391         2,825
Income tax expense                        756        663          788        762       1,000          930          773           901
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Net income                             $1,759     $1,021       $1,077        $18      $1,867       $1,773       $1,618        $1,924
                                 ============= ========== ============ ==========  ========== ============ ============ ============
Net earnings per share                  $0.24      $0.13        $0.13      $0.00       $0.23        $0.21        $0.19         $0.23
                                 ============= ========== ============ ==========  ========== ============ ============ ============
Shares used in per share calculation    7,481      8,001        8,228      8,296       8,250        8,361        8,397         8,493
                                 ============= ========== ============ ==========  ========== ============ ============ ============


                                 ---------------------------------------------------------------------------------------------------
                                   Mar. 31,    June 30,    Sept. 30,   Dec. 31,    Mar. 31,     June 30,    Sept. 30,     Dec. 31,
                                     1995        1995         1995       1995        1996         1996         1996         1996
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Net revenues:
  Desktop products                        75%        76%          78%        80%         79%          78%          78%           80%
  Large System products                   15%        14%          15%        13%         14%          13%          13%           11%
  Other products and services             11%        10%           7%         7%          6%           9%           9%            9%
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
      Net revenues                       100%       100%         100%       100%        100%         100%         100%          100%
Cost of revenues                          10%        10%          11%        11%         10%          10%          10%           10%
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Gross profit                              90%        90%          89%        89%         90%          90%          90%           90%
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Operating expenses:
  Sales and marketing                     54%        56%          53%        49%         53%          51%          47%           46%
  Product development                     14%        16%          17%        12%         15%          17%          17%           14%
  General and administrative               8%         9%           9%         8%          8%           9%           9%            7%
  Nonrecurring items (a)                    -          -            -        12%           -            -           5%             -
  Acquisition-related charges (b)           -          -            -         5%           -            -            -           12%
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
      Operating expenses                  76%        81%          79%        86%         76%          77%          78%           79%
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Operating income                          14%         9%          10%         3%         14%          13%          12%           11%
Net interest income (expense)               -          -            -         1%           -           1%            -            1%
Other income (expense)                      -         1%            -          -           -            -            -             -
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Income before income taxes                14%        10%          10%         4%         14%          14%          12%           12%
Income tax expense                         4%         4%           4%         4%          5%           5%           4%            4%
                                 ------------- ---------- ------------ ----------  ---------- ------------ ------------ ------------
Net income                                10%         6%           6%          -          9%           9%           8%            8%
                                 ============= ========== ============ ==========  ========== ============ ============ ============

</TABLE>

(a)  Write-off  in  December  1995,   principally  of  certain  software  assets
     capitalized more than two years ago.

(b)  Write-off  in  December  1995,   principally  of  acquired  and  in-process
     technology  in  conjunction   with  the  acquisition  of  BMDP  Statistical
     Software,  Inc.  Expenses in September and December,  1996, in  conjunction
     with mergers with Clear Software,  Inc. and Jandel  Corporation,  accounted
     for as pooling-of-interests.






<PAGE>





                                   Schedule II

                                    SPSS Inc.

                        Valuation and qualifying accounts

                  Years ended December 31, 1994, 1995 and 1996

<TABLE>
<CAPTION>


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

1994
Allowance for doubtful accounts,
<S>                                            <C>               <C>              <C>               <C>               <C>
  product returns, and cancellations           $        543,000  $    255,000     $   1,915,000     $   2,147,000     $     566,000
Inventory obsolescence reserve                          125,000       233,000             --             112,000            246,000

1995
Allowance for doubtful accounts,
  product returns, and cancellations           $        566,000  $    336,000     $   1,755,000     $   1,746,000     $      911,000
Inventory obsolescence reserve                          246,000       153,000             --             158,000             241,000

1996
Allowance for doubtful accounts,
  product returns, and cancellations           $        911,000  $    931,000     $   1,900,000     $   2,051,000     $    1,691,000
Inventory obsolescence reserve                          241,000       146,000            50,000           205,000            232,000

</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 1996.


                                    Part III

Item 10.  Executive Officers and Directors

         The following table sets forth certain information as of March 14, 1997
with  respect to each  person who is an  executive  officer or  director  of the
Company.


Name                      Age                            Position

Norman Nie................ 53    Chairman of the Board of Directors

Jack Noonan............... 49    Director, President and Chief Executive Officer

Edward Hamburg............ 45    Senior Vice President, Corporate Operations,
                                   Chief Financial Officer and Secretary

Louise Rehling............ 53    Senior Vice President, Product Development

Mark Battaglia............ 37    Vice President, Corporate Marketing

Ian Durrell............... 54    Vice President, International

Susan Phelan.............. 40    Vice President, Domestic Sales and Services

Bernard Goldstein (1)(2).. 66    Director

Fredric Harman (1)(2)..... 36    Director

Merritt Lutz (1).......... 54    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 two national awards
for his  books  in these  areas.  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 holds an  engineering  degree from the
Rockford School of Business and Engineering in Rockford, Illinois.

<PAGE>

     Edward  Hamburg,  Senior  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 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,  Senior  Vice  President,  Product  Development,  oversees
management of all stages of product development and is responsible for corporate
computer  networks.  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, 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 has served as Vice President, International, since 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, 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 is a
Director of Apple Computer Inc., Franklin Electronic  Publishers,  Inc., Sungard
Data  Systems,  Inc.,  Enterprise  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.  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 a Managing  Director  of Morgan  Stanley & Co.  Incorporated  ("Morgan
Stanley"),  managing  the  firm's  internal  strategic  technology  investments.
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  (Nasdaq) and Algorithmics,  Inc., a privately held company. He also
is a  member  of  technology  advisory  boards  for

<PAGE>

Nasdaq and the Chairman's  Committee for the  Computerworld  Smithsonian  Awards
organization.  He holds a bachelors  and  masters  degree  from  Michigan  State
University.

     Guy de Chazal was a Director of the Company  from  October 1990 through the
end of 1996. He is currently a Managing  Director of Morgan  Stanley.  He joined
Morgan  Stanley in 1986 as a Vice  President of MSVC and was named  President of
MSVC in 1991. Mr. de Chazal is a General Partner of MSVP, the General Partner of
MSVCF. Mr. de Chazal is a Director of PageMart Nationwide, Inc., Cytyc, Inc. and
several privately held companies. Mr. de Chazal received his M.B.A. from Harvard
Graduate School of Business.

     The  Company's  Board of Directors is divided  into three  classes  serving
staggered  three-year terms. Mr. Noonan is serving a three-year term expiring at
the 1997 Annual Meeting.  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.  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 1996 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.  Four  reporting  persons  filed  Form 5 reports to
disclose  transactions  subject to Form 4  requirements.  Jack Noonan  exercised
20,000 options and sold the underlying securities in the second quarter of 1996.
Norman H. Nie  disposed of 65,000  shares of Common  Stock held of record by the
Norman H. Nie  Revocable  Trust,  dated March 15, 1991,  in the third quarter of
1996.  Louise  Rehling  disposed of 10,000  shares of Common Stock in the second
quarter of 1996 and 5,000 shares of Common  Stock in the third  quarter of 1996.
Merritt  Lutz  purchased  3,800  and 1,700  shares of Common  Stock in the first
quarter of 1996.



<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, 1996 (the "named executive  officers") for services rendered to the
Company in all capacities  during 1994, 1995, and 1996, (b) certain  information
relating to option grants made to the named  executive  officers in 1996 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
1994,  1995, or 1996, nor did the Company make any awards in 1994,  1995 or 1996
under any long-term incentive plan.
<TABLE>
<CAPTION>

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

<S>                            <C>     <C>         <C>           <C>         <C>       <C>          <C>      <C>
Jack Noonan,................   1996    $235,000    $185,147      none        none      70,000       none     none
         President and Chief   1995    $235,000    $167,973      none        none      55,000       none     none
         Executive Officer     1994    $235,000    $ 73,920      none        none      20,000       none     none

Ian Durrell,................   1996    $197,000    $ 51,401      none        none      25,000       none     none
         Vice President,       1995    $197,000    $ 46,070      none        none      25,000       none     none
         International(3)      1994    $197,000    $ 38,110      none        none      10,000       none     none

Edward Hamburg,.............   1996    $156,000    $ 90,578      none        none      25,000       none     none
         Senior Vice President,1995    $156,000    $ 73,952      none        none      25,000       none     none
         Corporate Operations  1994    $156,000    $ 36,420      none        none      10,000       none     none
         and Chief Financial
         Officer

Louise Rehling,.............   1996    $135,200    $ 64,808      none        none      25,000       none     none
         Senior Vice President,1995    $135,200    $ 65,180      none        none      25,000       none     none
         Product Development   1994    $135,200    $ 25,370      none        none      10,000       none     none

Mark Battaglia,.............   1996    $110,000    $ 88,432      none        none      25,000       none     none
         Vice President,       1995    $100,000    $ 81,750      none        none      25,000       none     none
         Corporate Marketing   1994    $100,000    $ 44,120      none        none      10,000       none     none

Susan Phelan,...............   1996    $100,000    $ 76,387      none        none      25,000       none     none
         Vice President,       1995    $100,000    $ 78,024      none        none      25,000       none     none
         Domestic Sales and    1994    $ 85,000    $ 39,160      none        none      10,000       none     none
         Services
</TABLE>


     For the year ended December 31, 1996, non-employee directors of the Company
were  entitled to receive  10,000  conditional  options.  Each director was also
reimbursed by the Company for reasonable  expenses  incurred in connection  with
services provided as a director.  During 1996, Dr. Nie received  compensation of
$70,000  per  year  for  product   development   work  on  a  part-time   basis.
------------------------------------------------

(1)  On December 31, 1996, Dr. Hamburg,  Ms. Rehling and Ms. Phelan held 10,000,
     4,180 and 1,925 shares,  respectively,  of restricted Common Stock having a
     market value,  based on the closing price of the Common Stock on such date,
     of $278,750, $116,518 and $53,659, 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 perquisities, 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 1996.

                                              1996 OPTION/SAR GRANTS

                                                   Individual Grants
<TABLE>
<CAPTION>

           Name                   Number of        Percent       Exercise or   Latest       Possible Realizable
                                 Securities         Total         Base Price  Possible       Value at Assumed
                                 Underlying      Options/SARs       ($/Sh)   Expiration            Annual
                                 Options/SARs     Granted to                    Date        Rates of Stock Price
                                 Granted (#)     Employees in                                 Appreciattion For
                                                     1996                                      Option Term (1)
                                                                                             5%($)        10%($)
---------------------------     --------------  --------------  -----------  -----------  -----------  -------------

<S>                                 <C>            <C>           <C>         <C>           <C>         <C>
Jack Noonan................         70,000         20.26%        $14.625      02/16/06     $687,853    $1,743,156
Ian Durrell(2).............         25,000          7.24%         $14.625     02/16/06     $245,662      $622,556
Edward Hamburg.............         25,000          7.24%         $14.625     02/16/06     $245,662      $622,556
Louise Rehling.............         25,000          7.24%         $14.625     02/16/06     $245,662      $622,556
Mark Battaglia.............         25,000          7.24%         $14.625     02/16/06     $245,662      $622,556
Susan Phelan...............         25,000          7.24%         $14.625     02/16/06     $245,662      $622,556

</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 1996 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
                                        Shares                              (#)(1)                 ($)(1)(2)
                                                                     --------------------   -----------------------
                                     Acquired on         Value           Exercisable/             Exercisable/
                                       Exercise         Realized         Unexercisable           Unexercisable
Name                                     (#)            ($)(1)(4)
--------                           ----------------   ------------   --------------------   -----------------------

<S>                                     <C>             <C>            <C>                   <C>
Jack Noonan....................         20,000          $479,000       153,748/109,919       $4,285,726/$3,063,992
Ian Durrell (3)................          None             N/A           45,707/43,626        $1,274,083/$1,216,075
Edward Hamburg.................          None             N/A           80,707/43,626        $2,249,708/$1,216,075
Louise Rehling.................          None             N/A           74,040/43,626        $2,063,865/$1,216,075
Mark Battaglia.................          None             N/A           60,707/43,626        $1,692,208/$1,216,075
Susan Phelan...................          None             N/A           59,010/43,657        $1,644,904/$1,216,939
</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 $27.875,  the closing price of the Common
     Stock on the Nasdaq  National Market on December 31, 1996, 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 and 1996.
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


<PAGE>

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.

         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
1996,  Valletta's  aggregate  compensation,  including bonus, was $248,401.  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.

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 21, 1997,  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 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 of Kopp Investment Advisors, Inc. is 6600
France Avenue South, Suite 672, Edina,  Minnesota 55435. 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(1).... 1,174,545          15.1%
Kopp Investment Advisors, Inc/LeRoy C. Kopp(2)...   456,900           5.9%
Jack Noonan(3)...................................   186,159           2.4%
Bernard Goldstein(4).............................    33,641            *
Louise Rehling(5)................................    88,517           1.1%
Edward Hamburg(6)................................   100,804           1.3%
Mark Battaglia(7)................................    71,187            *
Susan Phelan(8)..................................    71,063            *
Ian Durrell(9)...................................    55,804            *
Merritt M. Lutz(10)..............................    21,751            *
Fredric Harman(11)...............................     2,966            *
All directors and executive officers as
a group (11 persons)(12)                          1,806,437          21.6%


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

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

(1)  Includes 72,912 shares which are subject to currently  exercisable options;
     110,433 shares held of record by the Norman and Carol Nie  Foundation  (the
     "Nie Foundation"); and 991,200 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.

(2)  Although  Kopp  Investment  Advisors,  Inc.  ("KIA")  exercises  investment
     discretion as to these shares, neither KIA nor LeRoy C. Kopp (100% owner of
     KIA) vote the vast  majority  of these  shares,  and  neither is the record
     owner of them.

<PAGE>

(3)  Includes 179,740 shares subject to currently exercisable options.

(4)  Includes 2,918 shares subject to currently exercisable options.

(5)  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 84,137 shares subject to currently exercisable options.

(6)  Includes 90,804 shares subject to currently exercisable options.

(7)  Includes 70,804 shares subject to currently exercisable options.

(8)  Includes 69,138 shares subject to currently exercisable options.

(9)  Mr. Durrell is the beneficial  owner of these shares,  which consist solely
     of 55,804 shares subject to currently exercisable options held of record by
     Valletta.

(10) Includes 2,918 shares subject to currently exercisable options.

(11) Includes 2,918 shares subject to currently exercisable options.

(12) Includes 632,093 shares subject to currently exercisable options.

Item 13.  Certain Relationships and Related Transactions

Transactions with Norman Nie

     Dr. Nie received 10,000 conditional options for his services as Chairman of
the Board in 1996 and $70,000 for product development 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 $260,000 in 1994,
$274,000 in 1995 and $255,000 in 1996.

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 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  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 $25,000 for a single registration.



<PAGE>




         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.


                                     Part IV


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

(a)       (1) Financial statements commence on page 26:

                  Independent Auditors' Report

                  Consolidated Balance Sheets as of December 31, 1995 and 1996.

                  Consolidated Statements of Income for the years ended December
                  31, 1994, 1995 and 1996

                  Consolidated Statements of Stockholders' Equity for the years
                  ended December 31, 1994, 1995 and 1996

                  Consolidated Statements of Cash Flows for the years ended
                  December 31, 1994, 1995 and 1996

                  Notes to Consolidated Financial Statements

          (2)  Financial Statement Schedule -- see page 45:

                  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>


<TABLE>
<CAPTION>

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


<S>  <C>                                                                                <C>
     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.

     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

    10.1            Employment Agreement with Jack Noonan                                 + 10.1

    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

<PAGE>

    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

    10.19           Software Distribution Agreement between the
                    Company and Banta Global Turnkey

    21.1            Subsidiaries of the Company

    23.1            Consent of Independent Certified Public Accountants

    27.1            Financial Data Schedule

    99.0            Additional Exhibit


</TABLE>

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

@    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 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).

<PAGE>

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


         (b)      The Company filed the following reports on Form 8-K during the
                  fourth quarter of fiscal year 1996.

(i)  Report on Form 8-K,  dated  September 26, 1996,  filed October 11, 1996, as
     amended on Report on Form 8-K/A-1, filed on November 1, 1996. The Report on
     Form 8-K reported that on September 26, 1996, SPSS acquired Clear Software,
     a Massachusetts corporation,  for SPSS Common Stock valued at approximately
     $4.5 million in a merger accounted for as a pooling of interests.  Pursuant
     to an Agreement and Plan of Merger,  dated September 23, 1996,  among SPSS,
     Clear Software and Vadim  Yasinovsky,  Marina Goldberg,  Ella Kroll and six
     other minority shareholders of Clear Software, a wholly owned subsidiary of
     SPSS was merged into Clear  Software,  with Clear Software as the surviving
     corporation.  The Report on Form 8-K and Form 8-K/A-1 was filed under Items
     2 and 7 and included financial statements of Clear Software and certain pro
     forma  financial  information  for SPSS  which  give  effect to the  merger
     applying the pooling of interests method of accounting.

(ii) Report on Form 8-K, dated November 20, 1996, filed on December 4, 1996. The
     Report on Form 8-K reported  that on November 20, 1996,  SPSS  acquired the
     outstanding  shares of capital stock of Jandel,  a California  corporation,
     from the shareholders of Jandel (the "Shareholders"), for SPSS Common Stock
     valued at approximately $9.0 million less the expenses of Jandel in respect
     of the  transaction  in a merger  accounted  for as a pooling of interests.
     Pursuant to an Agreement and Plan of Merger,  dated October 30, 1996, among
     SPSS,   SPSS   Acquisition,   Inc.,  a  wholly-owned   subsidiary  of  SPSS
     ("Acquisition") and Jandel, Acquisition was merged into Jandel, with Jandel
     as the surviving  corporation.  The Report on Form 8-K was filed under Item
     2.

(iii)Report on Form 8-K, dated  February 19, 1997,  filed on March 10, 1997. The
     Report on Form 8-K  reported  the  Company's  revenues and earnings for the
     fourth  quarter  and year ended  December  31,  1996.  A news  release  and
     financials were attached and incorporated by reference.




<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, 1997.


                              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, 1997.


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                               Senior 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



<PAGE>



                                  EXHIBIT INDEX


 Exhibit                                                          Sequential
Number                              Document Description         Page Number

 4.2              First Amendment to Credit Agreement.......         65

10.18             1996 Bonus Compensation...................         70

10.19             Software Distribution Agreement between
                  the Company and Banta Global Turnkey......         71

21.1              Subsidiaries of the Company...............        108

23.1              Consent of Independent Public Accountants         109

27.1              Financial Data Schedule...................        110

99.0              Additional Exhibits.......................        111