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EX-32 - EX-32 - COMPUWARE CORPk48841exv32.htm
EX-15 - EX-15 - COMPUWARE CORPk48841exv15.htm
EX-31.2 - EX-31.2 - COMPUWARE CORPk48841exv31w2.htm
EX-31.1 - EX-31.1 - COMPUWARE CORPk48841exv31w1.htm
EX-10.126 - EX-10.126 - COMPUWARE CORPk48841exv10w126.htm
EX-10.129 - EX-10.129 - COMPUWARE CORPk48841exv10w129.htm
EX-10.127 - EX-10.127 - COMPUWARE CORPk48841exv10w127.htm
EX-10.125 - EX-10.125 - COMPUWARE CORPk48841exv10w125.htm
EX-10.128 - EX-10.128 - COMPUWARE CORPk48841exv10w128.htm
EX-10.124 - EX-10.124 - COMPUWARE CORPk48841exv10w124.htm
Table of Contents

 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
     
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2009
OR
     
o   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number 000-20900
COMPUWARE CORPORATION
(Exact name of registrant as specified in its charter)
     
Michigan
(State or other jurisdiction of
incorporation or organization)
  38-2007430
(IRS Employer
Identification No.)
One Campus Martius, Detroit, MI 48226-5099
(Address of principal executive offices including zip code)
Registrant’s telephone number, including area code: (313) 227-7300
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
             
Large accelerated filer þ   Accelerated filer o   Non-accelerated filer o   Smaller reporting company o
        (Do not check if a smaller reporting company)    
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date:
As of February 1, 2010, there were outstanding 227,409,306 shares of Common Stock, par value $.01, of the registrant.
 
 

 


 

         
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COMPUWARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
                 
    December 31,     March 31,  
    2009     2009  
ASSETS
               
CURRENT ASSETS:
               
Cash and cash equivalents
  $ 87,862     $ 278,112  
Accounts receivable, net
    509,339       472,011  
Deferred tax asset, net
    46,642       37,359  
Income taxes refundable
    4,237       2,578  
Prepaid expenses and other current assets
    26,198       41,350  
Assets held for sale
            27,354  
 
           
Total current assets
    674,278       858,764  
 
           
 
               
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION
    346,270       353,182  
 
           
 
               
CAPITALIZED SOFTWARE, LESS ACCUMULATED AMORTIZATION
    43,674       35,763  
 
           
 
               
OTHER:
               
Accounts receivable
    234,428       224,681  
Deferred tax asset, net
    34,823       30,851  
Goodwill
    592,948       339,134  
Other
    72,809       32,475  
 
           
Total other assets
    935,008       627,141  
 
           
 
               
TOTAL ASSETS
  $ 1,999,230     $ 1,874,850  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
 
               
CURRENT LIABILITIES:
               
Accounts payable
  $ 17,723     $ 13,796  
Accrued expenses
    111,895       87,205  
Income taxes payable
    23,207       24,646  
Deferred revenue
    459,580       409,410  
Liabilities held for sale
            26,470  
 
           
Total current liabilities
    612,405       561,527  
 
               
LONG TERM DEBT
    35,000          
 
               
DEFERRED REVENUE
    383,274       378,094  
 
               
ACCRUED EXPENSES
    34,364       30,111  
 
               
DEFERRED TAX LIABILITY, NET
    46,704       24,470  
 
           
Total liabilities
    1,111,747       994,202  
 
           
 
               
SHAREHOLDERS’ EQUITY:
               
Common stock
    2,274       2,418  
Additional paid-in capital
    607,035       628,955  
Retained earnings
    282,133       249,897  
Accumulated other comprehensive loss
    (3,959 )     (622 )
 
           
Total shareholders’ equity
    887,483       880,648  
 
           
 
               
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 1,999,230     $ 1,874,850  
 
           
See notes to condensed consolidated financial statements.

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COMPUWARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
REVENUES:
                               
Software license fees
  $ 52,023     $ 60,513     $ 142,679     $ 164,206  
Maintenance and subscription fees
    117,583       116,614       338,444       367,858  
Professional services fees
    60,258       91,540       181,058       305,036  
 
                       
 
                               
Total revenues
    229,864       268,667       662,181       837,100  
 
                       
 
                               
OPERATING EXPENSES:
                               
Cost of software license fees
    4,072       6,117       11,895       18,460  
Cost of maintenance and subscription fees
    10,968       9,488       28,292       32,814  
Cost of professional services
    53,378       86,887       164,049       289,682  
Technology development and support
    22,562       22,395       65,677       67,903  
Sales and marketing
    58,969       55,042       162,873       174,722  
Administrative and general
    42,761       35,520       121,658       119,138  
Restructuring costs
    1,024       4,009       4,842       6,922  
Gain on divestiture of product lines
                    (52,351 )        
 
                       
 
                               
Total operating expenses
    193,734       219,458       506,935       709,641  
 
                       
 
                               
INCOME FROM OPERATIONS
    36,130       49,209       155,246       127,459  
 
                               
OTHER INCOME, NET
    1,076       2,291       3,829       8,558  
 
                       
 
                               
INCOME BEFORE INCOME TAXES
    37,206       51,500       159,075       136,017  
 
                               
INCOME TAX PROVISION
    12,794       16,548       55,630       44,751  
 
                       
 
                               
NET INCOME
  $ 24,412     $ 34,952     $ 103,445     $ 91,266  
 
                       
 
                               
Basic earnings per share
  $ 0.11     $ 0.14     $ 0.44     $ 0.36  
 
                       
 
                               
Diluted earnings per share
  $ 0.11     $ 0.14     $ 0.44     $ 0.36  
 
                       
See notes to condensed consolidated financial statements.

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COMPUWARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
                 
    Nine Months Ended  
    December 31,  
    2009     2008  
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
               
Net income
  $ 103,445     $ 91,266  
Adjustments to reconcile net income to net cash provided by operations:
               
Gain on divestiture of product lines
    (52,351 )        
Depreciation and amortization
    32,476       40,302  
Property and equipment impairment
            662  
Acquisition tax benefits
    880       3,933  
Stock award compensation
    12,649       12,933  
Deferred income taxes
    7,578       5,943  
Other
    181       419  
Net change in assets and liabilities, net of effects from acquisition, divestiture and currency fluctuations:
               
Accounts receivable
    9,262       (30,433 )
Prepaid expenses and other current assets
    16,338       19,064  
Other assets
    (5,626 )     (1,549 )
Accounts payable and accrued expenses
    (57 )     (30,704 )
Deferred revenue
    (17,994 )     (36,099 )
Income taxes
    (3,415 )     3,070  
 
           
Net cash provided by operating activities
    103,366       78,807  
 
           
 
               
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
               
Purchase of:
               
Business, net of cash acquired
    (284,393 )        
Property and equipment
    (7,070 )     (15,257 )
Capitalized software
    (7,427 )     (9,456 )
Net proceeds from divestiture of product lines
    64,992          
Investment proceeds
            70,212  
 
           
Net cash provided by (used in) investing activities
    (233,898 )     45,499  
 
           
 
               
CASH FLOWS USED IN FINANCING ACTIVITIES:
               
Proceeds from borrowings on credit facility
    42,000          
Payments on credit facility
    (7,000 )        
Net proceeds from exercise of stock options including excess tax benefits
    2,857       11,207  
Contribution to stock purchase plans
    1,647       2,349  
Repurchase of common stock
    (111,156 )     (177,195 )
 
           
Net cash used in financing activities
    (71,652 )     (163,639 )
 
           
 
               
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    11,934       (12,894 )
 
           
 
               
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (190,250 )     (52,227 )
 
               
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    278,112       215,943  
 
           
 
               
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 87,862     $ 163,716  
 
           
See notes to condensed consolidated financial statements.

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Note 1 — Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of Compuware Corporation and its wholly owned subsidiaries (collectively, the “Company”). All intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, contingencies and results of operations. While management has based their assumptions and estimates on the facts and circumstances existing at December 31, 2009, final amounts may differ from these estimates.
In the opinion of management of the Company, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. These financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto for the year ended March 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The Condensed Consolidated Balance Sheet at March 31, 2009 has been derived from the audited financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of actual results achieved for full fiscal years.
For purposes of this interim financial information, February 8, 2010 is the date through which subsequent events have been evaluated and represents the date the financial statements were issued.
Revenue Recognition – The Company derives its revenue from: (1) licensing software products and providing maintenance and support for those products; (2) subscription agreements for web application performance management services and (3) rendering professional services. The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605 “Revenue Recognition” and Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104. Accordingly, in order to be eligible for revenue recognition, the following criteria must be met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable and collectibility is reasonably assured.
Software license fees - The Company’s software license agreements provide its customers with a right to use its software perpetually (perpetual licenses) or during a defined term (term licenses).
Perpetual license fee revenue is recognized using the residual method, under which the fair value, based on vendor specific objective evidence (“VSOE”), of all undelivered elements of the agreement (i.e., maintenance and product related services) is deferred. VSOE is based on rates charged for maintenance and professional services when sold separately. The remaining portion of the fee is recognized as license fee revenue upon delivery of the products, provided that no significant obligations remain and collection of the related receivable is reasonably assured.
For revenue arrangements where there is a lack of VSOE of fair value for any undelivered elements, license fee revenue is deferred and recognized upon delivery of those elements or when VSOE of fair value can be established. When maintenance or product related services are

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the only undelivered elements, the license fee revenue is recognized on a ratable basis over the longer of the maintenance term or the period in which the product related services are expected to be performed. Such transactions include term licenses as the Company does not sell maintenance for term licenses separately and therefore cannot establish VSOE for the undelivered elements in these arrangements. These arrangements do not qualify for separate recognition of the software license fees, maintenance fees and as applicable, product related services fees under ASC 605 “Revenue Recognition”. However, to comply with SEC Regulation S-X, Rule 5-03(b), which requires product, services and other categories of revenue to be displayed separately on the income statement, the Company separates the license fee, maintenance fee and product related services fee (which is included in professional services fees) based on its determination of fair value. The Company applies its VSOE of fair value for maintenance related to perpetual license transactions and stand alone product related services arrangements as a reasonable and consistent approximation of fair value to separate license fee, maintenance fee and product related services fee revenue for income statement classification purposes.
The Company offers flexibility to customers purchasing licenses for its products and related maintenance. Terms of these transactions range from standard perpetual license sales that include one year of maintenance to large multi-year (generally two to five years), multi-product contracts. The Company allows deferred payment terms on contracts, with installments collectible over the term of the contract. Based on the Company’s successful collection history for deferred payments, license fees (net of any finance fees) are generally recognized as revenue as discussed above. In certain transactions where it cannot be concluded that the fee is fixed or determinable due to the nature of the deferred payment terms, the Company recognizes revenue as payments become due. Financing fees are recognized as interest income over the term of the receivable.
Maintenance and subscription fees - The Company’s maintenance agreements provide for technical support and advice, including problem resolution services and assistance in product installation, error corrections and any product enhancements released during the maintenance period. The first year of maintenance is included with all license agreements. Maintenance revenue is recognized ratably over the term of the maintenance arrangements, which generally range from one to five years.
The Company’s subscription arrangements permit customers to access and utilize our web application performance management services. The subscription arrangements do not provide customers the right to take possession of the software at any time, nor do the arrangements contain rights of return. Subscription fees are deferred upon contract execution and are recognized ratably over the term of the subscription. The subscription term commences once we have enabled the service for a customer, provided all other elements have been delivered.
Professional services fees – The Company provides the following professional services solutions: (1) IT portfolio management services, (2) application delivery management services, (3) application outsourcing services and (4) enterprise legacy modernization services. The Company also offers implementation, consulting and training services in tandem with the Company’s product solutions offerings referred to as product related services.
In addition, revenue associated with the Company’s application services segment is recorded as professional services fees and primarily consists of fees for on-demand software and other services.
Professional services fees are generally based on hourly or daily rates. Revenues from professional services are recognized in the period the services are performed provided that collection of the related receivable is reasonably assured. For development services rendered under fixed-price contracts, revenues are recognized using the percentage of completion method and if determined that costs will exceed revenue, the expected loss is recorded at the

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time the loss becomes apparent. Certain professional services contracts include a project and on-going operations for the project. Revenue associated with these contracts is recognized over the expected service period as the customer derives value from the services, consistent with the proportional performance method.
Deferred revenue - Deferred revenue consists primarily of billed and unbilled maintenance and subscription fees related to the remaining term of maintenance and subscription agreements in effect at those dates. Deferred license fees and services fees are also included in deferred revenue for those arrangements that are being recognized on a ratable basis. Commission costs associated with deferred revenue are also deferred and recorded as current or non-current other assets, as applicable, in the Condensed Consolidated Balance Sheet.
Capitalized Software – Capitalized software includes the costs of purchased and internally developed software technology and is stated at the lower of unamortized cost or net realizable value.
For development costs related to the Company’s mainframe and distributed licensed products, the Company follows the guidance of ASC 985-20 “Costs of Software to be Sold, Leased, or Marketed”. As such, capitalization of internally developed software products begins when technological feasibility of the product is established. Technology development and support includes primarily the costs of programming personnel associated with product development and support, net of amounts capitalized.
The Company also follows the guidance set forth in ASC 350-40 “Internal Use Software” in accounting for the development of our subscription software and software-as-a-service platform (application services).
The amortization for both internally developed and purchased software products is computed on a product-by-product basis. The annual amortization is the greater of the amount computed using (a) the ratio of current gross revenues compared with the total of current and anticipated future revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product, including the period being reported on. The amortization period for capitalized software is generally three to five years.
Capitalized software is reviewed for impairment each balance sheet date or when events and circumstances indicate such asset may be impaired. Asset impairment charges are recorded when estimated future undiscounted cash flows are not sufficient to recover the carrying value of the capitalized software. The impairment charge is the amount by which the present value of future cash flows is less than the carrying value of these assets.
Goodwill and Other Intangibles — Goodwill for each business segment and those intangible assets with indefinite lives are tested for impairment annually and when events or circumstances indicate their fair value may have been reduced below carrying value. The Company evaluated its goodwill and indefinite lived intangibles as of March 31, 2009 and determined there was no impairment.
Income Taxes – The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to

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recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which would increase the provision for income taxes. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.
Interest and penalties related to uncertain tax positions are included in the income tax provision.
Derivatives and Fair Value Measurement — The Company is exposed to foreign exchange rate risks associated with foreign currency transactions. The Company enters into derivative contracts to sell or buy currencies with the intent of mitigating foreign exchange rate risks related to current balances due to or from the Company’s foreign subsidiaries. The Company does not use foreign exchange contracts to hedge anticipated transactions.
During the first nine months of fiscal 2010 and 2009, the Company did not designate its foreign exchange derivatives as hedges under ASC 815 “Derivatives and Hedging”. Accordingly, all foreign exchange derivatives are recognized on the Condensed Consolidated Balance Sheets at fair value.
The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2009 and March 31, 2009 consistent with the fair value hierarchy provisions of ASC 820 “Fair Value Measurements and Disclosures” (in thousands):
                         
    Estimated     Quoted Prices in        
    Fair Value     Active Markets for     Significant Other  
    as of     Identical Assets     Observable Inputs  
    December 31, 2009     (Level 1)     (Level 2)  
Assets:
                       
Money market funds (1)
  $ 27,249     $ 27,249          
 
                       
Liabilities:
                       
Foreign exchange derivatives (2)
  $ 7             $ 7  
                         
    Estimated     Quoted Prices in        
    Fair Value     Active Markets for     Significant Other  
    as of     Identical Assets     Observable Inputs  
    March 31, 2009     (Level 1)     (Level 2)  
Assets:
                       
Money market funds (1)
  $ 201,952     $ 201,952          
 
                       
Liabilities:
                       
Foreign exchange derivatives (2)
  $ 30             $ 30  
 
(1)   Money market funds are classified as “Cash and cash equivalents” in the Condensed Consolidated Balance Sheets.
 
(2)   Foreign exchange derivatives are classified as current “Accrued expenses” in the Condensed Consolidated Balance Sheets. As of December 31, 2009, the forward sales derivatives had a cost basis and fair value basis of $4.3 million and the forward purchases derivatives had a cost basis and fair value basis of $4.6 million.
Hedging transaction gains and losses from foreign exchange derivative contracts are recorded to “Administrative and general” in the Condensed Consolidated Statements of Operations. For the three months ending December 31, 2009 and 2008, the Company recognized a hedging transaction gain of $141,000 and a hedging transaction loss of $6.0 million, respectively. For the

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nine months ended December 31, 2009 and 2008, the Company recognized hedging transaction losses of $558,000 and $11.0 million, respectively.
Recently Issued Accounting Pronouncements — In June 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-1 “Topic 105 – Generally Accepted Accounting Principles” (formerly Statement of Financial Accounting Standards No. 168 “FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162”). This Standard identified the FASB Accounting Standards Codification (Codification) as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Effective July 1, 2009, the Codification supersedes all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this statement resulted in a revision to references to U.S. GAAP in our filings but did not otherwise have a material effect on our financial statements.
In December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amends the guidance for consolidation of VIEs primarily related to the determination of the primary beneficiary of the VIE. This ASU will become effective for us on April 1, 2010. The Company is currently evaluating the impact of this standard on our consolidated financial statements.
In October 2009, the FASB issued ASU No. 2009-13, “Multiple-Deliverable Revenue Arrangements,” which amends Accounting Standards Codification (ASC) Topic 605, “Revenue Recognition.” ASU 2009-13 amends the ASC to eliminate the residual method of allocation for multiple-deliverable revenue arrangements, and requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative selling price method. The ASU also establishes a selling price hierarchy for determining the selling price of a deliverable, which includes: (1) vendor-specific objective evidence if available, (2) third-party evidence if vendor-specific objective evidence is not available, and (3) estimated selling price if neither vendor-specific nor third-party evidence is available. Additionally, ASU 2009-13 expands the disclosure requirements related to a vendor’s multiple-deliverable revenue arrangements. The Company early adopted ASU 2009-13 during the quarter ended December 31, 2009 and retrospectively applied the guidance as of April 1, 2009 which did not result in adjustments to previously presented periods.
In May 2009, the FASB issued ASC 855 – “Subsequent Events” (formerly SFAS No. 165 “Subsequent Events”) which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This statement is to be applied prospectively and was effective for interim and annual periods ended after June 15, 2009.

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Note 2 – Acquisition and Divestiture
Acquisition
On November 6, 2009, the Company acquired all of the outstanding capital stock of Gomez, Inc. (“Gomez”), through a merger of Gomez with a wholly owned subsidiary of the Company, for $295 million in cash, plus approximately $1.6 million of direct acquisition costs recorded to “Administrative and general” expense. Gomez is a provider of web application performance management services, which companies use to test and monitor the performance, availability and quality of their web applications. We believe this acquisition will expand our offerings for application performance management, allowing us to provide solutions for both enterprise and internet based environments, improving our results of operations.
Assets acquired and liabilities assumed are recorded in the Condensed Consolidated Balance Sheet at their fair values as of November 6, 2009. An allocation of the purchase price at the date of acquisition is as follows (in thousands):
         
Cash
  $ 10,543  
Accounts receivable
    19,132  
Other current assets
    7,712  
Property, plant and equipment
    4,565  
Long-term accounts receivable
    9,101  
Goodwill
    251,176  
Intangible assets
    50,800  
Other assets
    218  
 
     
 
       
Total assets acquired
    353,247  
 
     
 
       
Deferred revenue — current
    24,370  
Other current liabilities
    9,726  
Deferred revenue — non-current
    9,275  
Deferred tax liabilities
    12,636  
Other non-current liabilities
    2,304  
 
     
 
       
Total liabilities acquired
    58,311  
 
     
 
       
Purchase price
  $ 294,936  
 
     
Factors that contribute to a purchase price that resulted in goodwill include, but are not limited to, the retention of research and development personnel with the skills to develop future web application experience management technology, support personnel to provide maintenance services related to the technology acquired and a trained sales force capable of selling current and future acquired services and the opportunity to cross-sell our products to Gomez existing customers. The goodwill resulting from the transaction is not expected to be deductible for tax purposes.

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A summary of the identifiable intangible assets acquired, useful life and amortization method is as follows (in thousands):
                         
            Useful        
            Life     Amortization
            (in Years)     Method
Developed technology
  $ 11,600       4     Straight Line
Customer relationships
    34,800       10     Straight Line
Patents
    2,400       2     Straight Line
Trademarks
    2,000       3     Straight Line
 
                     
 
                       
Total intangible assets acquired
  $ 50,800                  
 
                     
The following unaudited pro forma financial information presents the combined results of operations of Compuware and Gomez as if the acquisition had occurred as of the beginning of each of the fiscal periods presented and includes relevant pro forma adjustments, including amortization charges for the acquired intangible assets. The pro forma financial information is presented for informational purposes and is not indicative of the results of operations that would have been achieved if the acquisition and related borrowings had taken place at the beginning of each of the fiscal periods presented (in thousands, except per share data):
                                 
    Three Months Ended   Nine Months Ended
    December 31,   December 31,
    2009   2008   2009   2008
Pro forma revenue
  $ 235,578     $ 281,742     $ 694,837     $ 874,023  
Pro forma net income
    23,987       35,346       102,985       90,419  
Pro forma basic earnings per share
    0.10       0.14       0.44       0.36  
Pro forma diluted earnings per share
    0.10       0.14       0.44       0.36  
From the date of acquisition to December 31, 2009, the Company recognized $5.8 million of subscription fees and a net loss of $1.2 million related to Gomez. For this period, $2.7 million less in subscription fees revenue was recognized due to reflecting Gomez’s deferred revenue at fair value on the date of acquisition.
The purchase price was funded with the Company’s existing cash resources and borrowings of $15 million under its credit facility.
Divestiture of Product Lines
In May 2009, the Company sold its Quality and DevPartner distributed product lines to Micro Focus International PLC (“Micro Focus”) for $80 million, less certain adjustments relating to cash collected or invoiced for future maintenance and professional services obligations assumed by Micro Focus as discussed below.
The sale included the following assets: (1) all rights to the proprietary software products and other technologies associated with the Quality and DevPartner distributed product lines (other than File-AID/CS), including trade names, trade secrets, copyrights, patents, related client relationships and contracts, software and documentation; (2) the right to offer employment to approximately 290 personnel related to the sales, sales support, development, maintenance and delivery of the Quality and DevPartner product lines; and (3) personal property associated with the job requirements of the Company’s personnel that were hired by Micro Focus and other assets primarily used in connection with the products sold.

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Effective upon the closing date of the sale, Micro Focus assumed the obligation to perform future maintenance and professional services related to the Quality and DevPartner product lines.
The Company recorded a gain on divestiture of $52.4 million to operating expenses during the first quarter of fiscal 2010 (in thousands):
         
Sales price
  $ 80,000  
Credit issued to Micro Focus (1)
    (15,008 )
 
     
 
       
Net proceeds from divestiture of product lines
    64,992  
 
       
Assets and liabilities:
       
Capitalized software
    (17,589 )
Goodwill (2)
    (9,733 )
Accounts receivable (1)
    (9,098 )
Deferred revenue (1)
    25,458  
Other
    (1,679 )
 
     
 
       
Gain on divestiture of product lines
  $ 52,351  
 
     
 
(1)   As of the transaction date, deferred revenue associated with Quality and DevPartner products was $25.5 million and related to future maintenance and professional services that became the obligation of Micro Focus. The Company issued a $15.0 million credit (net of an administrative fee) to Micro Focus for the previously collected or invoiced portion of deferred revenue at the date of close. The remaining $9.1 million in unbilled accounts receivable will be either collected by the Company and remitted to Micro Focus, net of an administrative fee, or assigned to Micro Focus. A liability for this $9.1 million was recorded to accounts payable upon the closing date of the sale. As of December 31, 2009, the uncollected accounts receivable and accounts payable balance was $2.8 million.
 
(2)   The goodwill adjustment of $9.7 million represents the fair value of the Quality and DevPartner product lines in relation to the fair value of the product segment.
The Quality and DevPartner product lines represent a portion of the products segment. The Company’s products segment does not account for operating expenses on a product-by-product basis, as such, operating expenses cannot be directly associated with specific product lines. Therefore, the Quality and DevPartner product lines were not reported as a discontinued operation in the Consolidated Financial Statements.

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Note 3 — Computation of Earnings per Common Share
Earnings per common share data were computed as follows (in thousands, except per share amounts):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
BASIC EARNINGS PER SHARE:
                               
Numerator: Net income
  $ 24,412     $ 34,952     $ 103,445     $ 91,266  
 
                       
Denominator:
                               
Weighted-average common shares outstanding
    229,105       246,537       234,704       252,850  
 
                       
Basic earnings per share
  $ 0.11     $ 0.14     $ 0.44     $ 0.36  
 
                       
 
                               
DILUTED EARNINGS PER SHARE:
                               
Numerator: Net income
  $ 24,412     $ 34,952     $ 103,445     $ 91,266  
 
                       
Denominator:
                               
Weighted-average common shares outstanding
    229,105       246,537       234,704       252,850  
Dilutive effect of stock awards
    1,985       262       1,847       1,385  
 
                       
Total shares
    231,090       246,799       236,551       254,235  
 
                       
Diluted earnings per share
  $ 0.11     $ 0.14     $ 0.44     $ 0.36  
 
                       
During the three and nine months ended December 31, 2009, stock awards to purchase a total of approximately 26.1 million shares for both periods were excluded from the diluted earnings per share calculation because they were anti-dilutive. During the three and nine months ended December 31, 2008, stock options to purchase a total of approximately 34.6 million and 19.3 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.
Note 4 — Comprehensive Income
Other comprehensive income includes foreign currency translation adjustments that have been excluded from net income and reflected in equity. Total comprehensive income is summarized as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
Net income
  $ 24,412     $ 34,952     $ 103,445     $ 91,266  
Foreign currency translation adjustment, net of tax
    (1,983 )     (6,759 )     (3,337 )     (15,158 )
 
                       
Total comprehensive income
  $ 22,429     $ 28,193     $ 100,108     $ 76,108  
 
                       

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Note 5 — Stock Benefit Plans and Stock-Based Compensation
The Company has the following stock benefit plans: (1) the 2007 Long Term Incentive Plan (“2007 LTIP”) allows the Company’s Compensation Committee the ability to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or restricted stock unit awards and annual cash incentive awards to employees and directors of the Company; (2) the Employee Stock Purchase Plan allows participating U.S. and Canadian employees the right to have up to 10% of their compensation withheld to purchase Company common stock at a 5% discount; and (3) the Employee Stock Ownership Plan (“ESOP”) and Trust allows the Company to make contributions to the ESOP for the benefit of substantially all U.S. employees.
Stock Options
A summary of option activity under the Company’s stock-based compensation plans as of December 31, 2009, and changes during the nine months then ended is presented below (shares and intrinsic value in thousands):
                                 
    Nine Months Ended  
    December 31, 2009  
                    Weighted        
            Weighted     Average        
            Average     Remaining     Aggregate  
    Number of     Exercise     Contractual     Intrinsic  
    Options     Price     Term in Years     Value  
Options outstanding as of March 31, 2009
    34,245     $ 9.59                  
Granted
    750       7.30                  
Exercised
    (421 )     6.72             $ 258  
Forfeited
    (319 )     8.80                  
Cancelled/expired
    (5,422 )     15.99                  
 
                           
Options outstanding as of December 31, 2009
    28,833     $ 8.38       4.49     $ 2,659  
 
                           
 
                               
Options vested and expected to vest, net of estimated forfeitures, as of December 31, 2009
    27,704     $ 8.39       4.33     $ 2,632  
 
                               
Options exercisable as of December 31, 2009
    19,370     $ 8.59       2.72     $ 2,354  
The Company calculates the fair value of stock option awards using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected term, risk-free interest rates and dividend yields. The expected volatility assumption is based on historical volatility of the Company’s common stock over the most recent period commensurate with the expected life of the stock option granted. The Company uses historical volatility because management believes such volatility is representative of prospective trends. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the stock option awarded. The expected life of the stock option is based on either historical exercise data if available or the simplified method as described in SAB Topic 14, “Share-Based Payment”. Dividend yields were not a factor in determining fair value of stock options granted as the Company has never issued cash dividends and does not anticipate issuing cash dividends in the future.

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The weighted average fair value of stock options granted during the periods and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:
                 
    Nine Months Ended
    December 31,
    2009   2008
Expected volatility
    44.87 %     54.39 %
Risk-free interest rate
    2.60 %     3.25 %
Expected lives at date of grant (in years)
    6.4       6.4  
Weighted-average fair value of the options granted
  $ 3.47     $ 4.31  
The fair value of equity awards vested during the nine months ending December 31, 2009 was $4.35 per share.
Restricted Stock and Performance-Based Restricted Stock Units
The Company’s nonvested restricted stock and performance-based restricted stock units as of December 31, 2009, and the activity during the nine months then ended is summarized as follows (shares in thousands):
                 
    Nine Months Ended  
    December 31, 2009  
            Weighted  
            Average  
            Grant-Date  
    Shares     Fair Value  
Nonvested restricted stock and performance restricted stock units as of March 31, 2009
    950     $ 6.58  
Granted (1)
    2,177       7.29  
Vested
           
Forfeited
           
 
           
Nonvested restricted stock and performance restricted stock units as of December 31, 2009
    3,127     $ 7.07  
 
           
 
(1)   The Company granted 1.4 million performance restricted stock units during fiscal 2010. See the “Covisint Corporation 2009 Long-Term Incentive Plan” section within this footnote for more details.
Covisint Corporation 2009 Long-Term Incentive Plan
In August 2009, Covisint Corporation (“Covisint”), a subsidiary of the Company, established a 2009 Long-Term Incentive Plan (“2009 Covisint LTIP”) allowing the Board of Directors of Covisint the ability to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or restricted stock unit awards and annual cash incentive awards to employees and directors of Covisint. The 2009 Covisint LTIP reserves 150,000 shares of Covisint for issuances under this plan.
Since the 2009 Covisint LTIP’s inception, Covisint has granted 109,000 stock options that expire on August 25, 2019. These options will vest if Covisint completes an initial public offering (“IPO”) or if there is a change of control of Covisint prior to August 26, 2015.
The Company granted 1.4 million performance-based restricted stock units (“PRSUs”) from the Company’s 2007 LTIP. The PRSUs will vest if Covisint does not complete an IPO or a change of control transaction by August 25, 2015 and Covisint meets a pre-defined revenue target for four consecutive calendar quarters ending prior to August 26, 2015.

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As of December 31, 2009, the Company has not recorded compensation expense for the Covisint stock options or the PRSUs and these awards are not included in the Company’s diluted shares outstanding. Compensation expense will be accounted for in the period it becomes probable that the underlying conditions of the Covisint stock options or PRSUs will be met and will be included in the diluted shares outstanding balance in the period the underlying performance conditions are met.
Stock Award Compensation
Stock award compensation expense was allocated as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
Stock-based compensation classified as:
                               
 
                               
Cost of maintenance and subscription fees
  $ 84     $ 519     $ 303     $ 706  
Cost of professional services
    292       459       712       2,443  
Technology development and support
    231       1,224       779       1,590  
Sales and marketing
    1,302       1,529       4,471       3,774  
Administrative and general
    1,262       1,232       6,384       3,444  
Restructuring costs
            70               976  
         
 
                               
Total stock-based compensation expense before income taxes
    3,171       5,033       12,649       12,933  
 
                               
Income tax benefit
    (1,114 )     (1,798 )     (4,317 )     (4,665 )
         
 
                               
Total stock-based compensation expense after income taxes
  $ 2,057     $ 3,235     $ 8,332     $ 8,268  
         
As of December 31, 2009, $25.4 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested equity awards is expected to be recognized over a weighted-average period of approximately 2.73 years.

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Note 6 — Intangible Assets and Goodwill
The components of the Company’s intangible assets were as follows (in thousands):
                         
    December 31, 2009  
    Gross Carrying     Accumulated     Net Carrying  
    Amount     Amortization     Amount  
Unamortized intangible assets:
                       
Trademarks (1)
  $ 5,959             $ 5,959  
 
                   
 
                       
Amortized intangible assets:
                       
Capitalized software (2)
  $ 310,478     $ (266,804 )   $ 43,674  
Customer relationship agreements (3)
    46,889       (10,929 )     35,960  
Other (4)
    13,278       (9,148 )     4,130  
 
                 
Total amortized intangible assets
  $ 370,645     $ (286,881 )   $ 83,764  
 
                 
                         
    March 31, 2009  
    Gross Carrying     Accumulated     Net Carrying  
    Amount     Amortization     Amount  
Unamortized intangible assets:
                       
Trademarks (1)
  $ 5,784             $ 5,784  
 
                   
 
                       
Amortized intangible assets:
                       
Capitalized software (2)
  $ 317,569     $ (281,806 )   $ 35,763  
Customer relationship agreements (3)
    13,218       (10,751 )     2,467  
Other (4)
    9,410       (9,200 )     210  
 
                 
Total amortized intangible assets
  $ 340,197     $ (301,757 )   $ 38,440  
 
                 
 
(1)   Certain trademarks were acquired as part of the Covisint, LLC and Changepoint Corporation acquisitions in fiscal 2004 and 2005. These trademarks are deemed to have an indefinite life and therefore are not being amortized.
 
(2)   In November 2009, the Company acquired developed technology valued at $11.6 million as part of the Gomez acquisition. Amortization is included in “Cost of maintenance and subscription fees” and is being amortized over four years (see Note 2 for additional information).
 
    The amortization and impairments of the remaining capitalized software is primarily included in “Cost of software license fees” and is generally amortized over five years.
 
(3)   In November 2009, the Company acquired customer relationship agreements valued at $34.8 million as part of the Gomez acquisition (see Note 2 for additional information). Amortization of customer relationship agreements are primarily included in “Sales and marketing” and are being amortized over periods up to ten years.
 
(4)   In November 2009, the Company acquired patents and trademarks valued at $2.4 million and $2.0 million, respectively, as part of the Gomez acquisition. Amortization of the patents is included in “Cost of maintenance and subscription fees” and being amortized over two years. Amortization of the trademarks is included in “Administrative and general” and being amortized over three years (see Note 2 for additional information).

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Changes in the carrying amounts of goodwill are summarized as follows (in thousands):
                                         
            Professional     Application              
Goodwill   Products     Services     Services     Unallocated     Total  
Balance at March 31, 2009, net
  $ 187,166     $ 140,436     $ 11,532             $ 339,134  
Acquisitions (1)
                          $ 251,176       251,176  
Effect of foreign currency translation
    1,599       1,039                       2,638  
 
                             
Balance at December 31, 2009, net
  $ 188,765     $ 141,475     $ 11,532     $ 251,176     $ 592,948  
 
                             
 
(1)   In November 2009, the Company acquired Gomez resulting in a goodwill balance of $251.2 million (see Note 2 for additional information on the acquisition). Because the acquisition occurred during this reporting period, the Company has not completed its analysis on allocating the goodwill to its reportable segments.
The Company evaluated its goodwill and other intangible assets for all reporting segments as of March 31, 2009 and determined there was no impairment. The Company determined the fair value of each segment using a discounted cash flow analysis supported by market multiples of revenue.
Since fiscal 2009, the Company has been in the process of restructuring its professional services segment. For the first nine months of fiscal 2010, the professional services segment expense reductions were consistent with management’s internal plan. If the professional services segment’s profitability assumptions used in the March 31, 2009 goodwill impairment analysis are not attained and sustained, an impairment of some or all of the $141.5 million of goodwill related to the professional services segment at December 31, 2009 could be recorded in the future as a non-cash charge to earnings.
The portion of capitalized software and goodwill related to the Quality and DevPartner product lines was reclassified to “Assets held for sale” in the Condensed Consolidated Balance Sheets as of March 31, 2009 due to the then-pending sale of these product lines to Micro Focus which occurred in May 2009 (see Note 2 for additional information).

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Note 7 — Segment Information
The Company operates in three business segments in the technology industry: products, professional services and application services. The Company provides software products, professional services and application services to information technology (“IT”) organizations that help IT professionals efficiently develop, implement and support the applications that run their businesses.
Financial information for the Company’s business segments is as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
Revenues:
                               
Products:
                               
Mainframe
  $ 109,782     $ 109,296     $ 326,648     $ 340,577  
Distributed
    54,059       67,831       148,710       191,487  
Subscription
    5,765               5,765          
 
                       
Total product revenue
    169,606       177,127       481,123       532,064  
Professional services
    49,430       82,705       151,007       278,851  
Application services
    10,828       8,835       30,051       26,185  
 
                       
Total revenues
  $ 229,864     $ 268,667     $ 662,181     $ 837,100  
 
                       
 
                               
Income from operations:
                               
Products (1)
  $ 73,035     $ 84,085     $ 264,737     $ 238,165  
Professional services
    6,005       4,601       14,589       17,777  
Application services
    875       52       2,420       (2,423 )
 
                       
Subtotal
    79,915       88,738       281,746       253,519  
Corporate expenses
    (42,761 )     (35,520 )     (121,658 )     (119,138 )
Restructuring costs
    (1,024 )     (4,009 )     (4,842 )     (6,922 )
 
                       
Income from operations
    36,130       49,209       155,246       127,459  
Other income, net
    1,076       2,291       3,829       8,558  
 
                       
Income before income taxes
  $ 37,206     $ 51,500     $ 159,075     $ 136,017  
 
                       
 
(1)   - For the nine months ended December 31, 2009, income from the products segment includes a $52.4 million gain on divestiture of the Quality and DevPartner product lines (see Note 2 for additional information).
Financial information regarding geographic operations is presented in the table below (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
Revenues:
                               
United States
  $ 137,895     $ 164,626     $ 408,760     $ 522,023  
Europe and Africa
    63,814       74,332       175,093       227,125  
Other international operations
    28,155       29,709       78,328       87,952  
 
                       
Total revenues
  $ 229,864     $ 268,667     $ 662,181     $ 837,100  
 
                       

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Note 8 — Restructuring Accrual
In recent years, the Company has incurred restructuring charges associated with the following initiatives: (1) aligning the professional services segment headcount and operating expenses after initiating a plan during the second half of fiscal 2009 to exit low-margin engagements and (2) management’s evaluation of the products segment and administrative and general business processes to identify operating efficiencies with the goal of reducing operating expenses.
In the first nine months of fiscal 2010, the Company incurred $4.8 million in restructuring charges primarily due to employee termination benefits. The Company terminated 250 employees within the professional services segment to align operating expenses with revenues as the Company continued to exit engagements considered low-margin during the first nine months of fiscal 2010. The Company also continued evaluating business processes for efficiencies resulting in the termination of 37 employees from the products segment, primarily sales and marketing personnel, and 35 employees within administrative and general functions.
Management continues to review the Company’s costs and will, based on future results of operations, determine if additional restructuring actions are needed. The total amount of any potential future charges for such actions will depend upon the nature, timing and extent of those actions.
The following table summarizes the restructuring accrual as of March 31, 2009, and changes to the accrual during the first nine months of fiscal 2010 (in thousands):
                                 
            Expensed     Paid        
    Accrual     During the Nine     During the Nine     Accrual  
    Balance at     Months Ended     Months Ended     Balance at  
    March 31,     December 31,     December 31,     December 31,  
    2009     2009     2009     2009  
Employee termination benefits
  $ 1,274     $ 4,655     $ (5,263 )   $ 666  
Facilities costs (primarily lease abandonments)
    2,271       46       (1,198 )     1,119  
Other
    13       141       (137 )     17  
 
                       
 
                               
Total
  $ 3,558     $ 4,842     $ (6,598 )   $ 1,802  
 
                       
As of December 31, 2009, $1.1 million of the restructuring accrual is recorded in current “accrued expenses”. The remaining balance of $700,000 is recorded to long-term “accrued expenses” in the Condensed Consolidated Balance Sheets and primarily relates to facility costs.
The accruals for employee termination benefits at December 31, 2009 primarily represent cash payments to be made to employees that have been terminated as a result of initiatives described above.
The accruals for facilities costs at December 31, 2009 represent the remaining fair value of lease obligations for exited and demised locations, as determined at the cease-use dates of those facilities, net of estimated sublease income that could be reasonably obtained in the future, and will be paid out over the remaining lease terms, the last of which ends in fiscal 2014. Projected sublease income is based on management’s estimates, which are subject to change.

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Note 9 — Debt
As of December 31, 2009, the Company’s long-term debt was $35.0 million under its unsecured revolving credit agreement (the “credit facility”) at a weighted average interest rate of 1%.
The credit facility provides for a revolving line of credit from Comerica Bank and other lenders in the amount of $150 million and expires on November 1, 2012. The credit facility also permits the Company to increase the revolving line of credit by up to an additional $150 million subject to receiving further commitments from lenders and certain other conditions.
The credit facility contains various covenant requirements, including limitations on liens; indebtedness; mergers, consolidations and acquisitions; asset sales; dividends; investments, loans and advances from the Company; transactions with affiliates and limits additional borrowing outside of the facility to $250 million. The credit facility is also subject to maximum total debt to EBITDA and minimum fixed charge coverage financial covenants. The Company is in compliance with the covenants under the credit facility.
Any borrowings under the credit facility bear interest at the prime rate or the Eurodollar rate plus the applicable margin (based on the level of maximum total debt to EBITDA ratio), at the Company’s option. The Company pays a quarterly facility fee on the credit facility based on the applicable margin grid.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Compuware Corporation
Detroit, Michigan
We have reviewed the accompanying condensed consolidated balance sheet of Compuware Corporation and subsidiaries (the “Company”) as of December 31, 2009, and the related condensed consolidated statements of operations for the three-month and nine-month periods ended December 31, 2009 and 2008, and cash flows for the nine-month periods ended December 31, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.
We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Compuware Corporation and subsidiaries as of March 31, 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 27, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Detroit, Michigan
February 8, 2010

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COMPUWARE CORPORATION AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
The following discussion contains certain forward-looking statements within the meaning of the federal securities laws. When we use words such as “may”, “might”, “will”, “should”, “believe”, “expect”, “anticipate”, “estimate”, “continue”, “predict”, “forecast”, “projected”, “intend” or similar expressions, or make statements regarding our future plans, objectives or expectations, we are making forward-looking statements. Numerous important factors, risks and uncertainties affect our operating results and could cause actual results to differ materially from the results implied by these or any other forward-looking statements made by us, or on our behalf.
The material risks and uncertainties that we believe affect us are summarized below (see Item 1A Risk Factors in our 2009 Form 10-K). These risks and uncertainties are not the only ones we face. Additional risks and uncertainties discussed elsewhere in the reports we file with the Securities and Exchange Commission, as well as other risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial, may also impair business operations. This report is qualified in its entirety by these risk factors and those listed below. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and shareholders could lose all or part of their investment.
There can be no assurance that future results will meet expectations. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by applicable law, we do not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report.
    The majority of our software products revenue is dependent on our customers’ continued use of International Business Machines Corp. (“IBM”) and IBM-compatible products.
 
    Our software product revenue is dependent on the acceptance of our pricing structure for software licenses, maintenance and subscriptions.
 
    Our strategy of packaging distributed products and services as a single offering may not be accepted by our customers, negatively impacting our revenue.
 
    The market for web application performance management services is at an early stage of development. If this market does not develop or develops more slowly than we expect, our revenue may decline or fail to grow and we may incur operating losses.
 
    We may fail to achieve our forecasted financial results due to inaccurate sales forecasts or other factors. If we fail to meet the expectations of analysts or investors, our stock price could decline substantially.
 
    Our quarterly financial results vary and may be adversely affected by a number of unpredictable factors.
 
    Future changes in the United States and global economies may reduce demand for our software products, professional services and application services, which may negatively affect our revenues and operating results.
 
    Defects or disruptions in our web application performance network or interruptions or delays in service would impair the delivery of our on-demand service and could diminish demand for our services and subject us to substantial liability.

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    If we are not successful in implementing our professional services strategy, our operating margins may decline.
 
    The continuation of the decline in the U.S. domestic automotive manufacturing business could adversely affect our professional services and application services businesses.
 
    If the fair value of our long-lived assets deteriorates below its carrying value, recognition of an impairment loss would be required, which would adversely affect our financial results.
 
    Our software and technology may infringe the proprietary rights of others.
 
    Our results could be adversely affected if our operating margin or operating margin percentage decline.
 
    Our results could be adversely affected by increased competition, pricing pressures and technological changes.
 
    The market for professional services is highly competitive, fragmented and characterized by low barriers to entry.
 
    The market for application services is in its early stages with emerging competitors. As the market matures, competition may increase and could have a negative impact on our results of operations.
 
    We must develop or acquire product enhancements and new products to succeed.
 
    Acquisitions may be difficult to integrate, disrupt our business or divert the attention of our management and may result in financial results that are different than expected.
 
    The divestiture of our Quality and DevPartner product lines may cause a reduction in customer satisfaction, which could adversely affect our revenues and results of operations.
 
    We are exposed to exchange rate risks on foreign currencies and to other international risks that may adversely affect our business and results of operations.
 
    Current laws may not adequately protect our proprietary rights.
 
    The loss of certain key employees and technical personnel or our inability to hire additional qualified personnel could have a material adverse effect on our business.
 
    Maintenance revenue could decline.
 
    Unanticipated changes in our operating results or effective tax rates, or exposure to additional income tax liabilities, could affect our profitability.
 
    Our stock repurchase plan may be suspended or terminated at any time, which may result in a decrease in our stock price.
 
    Acts of terrorism, acts of war and other unforeseen events may cause damage or disruption to us or our customers, which could adversely affect our business, financial condition and operating results.
 
    Our articles of incorporation, bylaws and rights agreement as well as certain provisions of Michigan law may have an anti-takeover effect.

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COMPUWARE CORPORATION AND SUBSIDIARIES
OVERVIEW
In this section, we discuss our results of operations on a segment basis for each of our three business segments in the technology industry: products, professional services and application services. We evaluate segment performance based primarily on segment contribution before corporate expenses. References to years are to fiscal years ended March 31. This discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes included elsewhere in this report and our annual report on Form 10-K for the fiscal year ended March 31, 2009, particularly “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
We deliver value to businesses worldwide by providing software products, professional services and application services that improve the performance of IT organizations. Originally founded in 1973 as a professional services company, in the late 1970’s we began to offer mainframe productivity tools for fault diagnosis, file and data management, and application debugging.
In the 1990’s, IT moved toward distributed and web-based platforms. Our solutions portfolio grew in response, and we now market a comprehensive portfolio of IT solutions across the full range of enterprise computing platforms that help:
    Develop and deliver high quality, high performance enterprise business applications in a timely and cost-effective manner.
 
    Optimize the performance, availability, and quality of web and mobile applications.
 
    Measure, manage and communicate application service in business terms, and maintain consistent, high levels of service delivery.
 
    Provide executive visibility, decision support and process automation across the entire IT organization to enable all available resources to be harnessed in alignment with business priorities.
Additionally, to be competitive in today’s global economy, enterprises must securely share applications, information and business processes. We address this market need through our application services, which are marketed under the brand name “Covisint”. Our application services offerings provide a software-as-a-service platform that enables industries and business communities to securely integrate vital information and processes across users, business partners, customers, vendors and suppliers.
In November 2009, we acquired Gomez, a leading provider of web application performance management services, which companies use to test and monitor the performance, availability and quality of their web applications, while in development and after deployment. The Gomez self-service, on-demand platform enables a company to test and monitor its web applications from outside its firewall using the Gomez Performance Network. Gomez services are delivered entirely through an on-demand, hosted model built on a multi-tenant architecture in which a single instance of their software serves all customers. The service is provided on an annual subscription basis, principally through tiered usage plans that contain committed testing measurement levels based on the number of web page measurements performed.

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Quarterly Update
The following occurred during the third quarter of 2010:
    Acquired Gomez for $295 million in cash.
 
    Repurchased approximately 3.5 million shares of our common stock at an average price of $7.30 per share.
 
    Realized a decrease in product segment contribution margin to 43.1% in the third quarter of 2010 from 47.5% in the third quarter of 2009.
 
    Experienced an increase in professional services segment contribution margin to 12.1% in the third quarter of 2010 from 5.6% in the third quarter of 2009.
 
    Experienced an increase in application services segment contribution margin to 8.1% in the third quarter of 2010 from 0.6% in the third quarter of 2009.
 
    Released 7 distributed and 1 mainframe product updates designed to increase the productivity of the IT departments of our customers.
Our ability to achieve our strategies and objectives is subject to a number of risks and uncertainties, some of which we may not be able to control. See “Forward-Looking Statements”.

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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operational data from the Condensed Consolidated Statements of Operations as a percentage of total revenues and the percentage change in such items compared to the prior period:
                                                 
    Percentage of             Percentage of        
    Total Revenues             Total Revenues        
    Three Months Ended     Period-     Nine Months Ended     Period-  
    December 31, *     to-Period     December 31, *     to-Period  
    2009     2008     Change     2009     2008     Change  
REVENUE:
                                               
Software license fees
    22.6 %     22.5 %     (14.0 )%     21.6 %     19.6 %     (13.1 )%
Maintenance and subscription fees
    51.2       43.4       0.8       51.1       44.0       (8.0 )
Professional services segment revenue
    21.5       30.8       (40.2 )     22.8       33.3       (45.8 )
Application services segment revenue
    4.7       3.3       22.6       4.5       3.1       14.8  
 
                                       
Total revenues
    100.0       100.0       (14.4 )     100.0       100.0       (20.9 )
 
                                       
 
                                               
OPERATING EXPENSES:
                                               
Cost of software license fees
    1.8       2.3       (33.4 )     1.8       2.2       (35.6 )
Cost of maintenance and subscription fees
    4.8       3.5       15.6       4.3       3.9       (13.8 )
Professional services segment expenses
    18.9       29.1       (44.4 )     20.6       31.2       (47.7 )
Application services segment expenses
    4.3       3.3       13.3       4.2       3.4       (3.4 )
Technology development and support
    9.8       8.3       0.7       9.9       8.1       (3.3 )
Sales and marketing
    25.7       20.5       7.1       24.6       20.9       (6.8 )
Administrative and general
    18.6       13.2       20.4       18.4       14.3       2.1  
Restructuring cost
    0.4       1.5       (74.5 )     0.7       0.8       30.0  
Gain on divestiture of product lines
                            (7.9 )             n/a  
 
                                       
Total operating expenses
    84.3       81.7       (11.7 )     76.6       84.8       (28.6 )
 
                                       
Income from operations
    15.7       18.3       (26.6 )     23.4       15.2       21.8  
Other income, net
    0.5       0.9       (53.0 )     0.6       1.0       (55.3 )
 
                                       
Income before income taxes
    16.2       19.2       (27.8 )     24.0       16.2       17.0  
Income tax provision
    5.6       6.2       (22.7 )     8.4       5.3       24.3  
 
                                       
Net income
    10.6 %     13.0 %     (30.2 )%     15.6 %     10.9 %     13.3 %
 
                                       
 
*   The professional services segment and the application services segment are combined and reported as professional services in the Condensed Consolidated Statement of Operations included within this report.
PRODUCTS SEGMENT
Financial information for the products segment is as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
Revenue
  $ 169,606     $ 177,127     $ 481,123     $ 532,064  
Expenses
    96,571       93,042       216,386       293,899  
 
                       
Product contribution
  $ 73,035     $ 84,085     $ 264,737     $ 238,165  
 
                       
The products segment generated contribution margins of 43.1% and 47.5% during the third quarter of 2010 and 2009, respectively, and 55.0% and 44.8% for the first nine months of 2010

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and 2009, respectively. The decrease in margin for the three months ended December 31, 2009 compared to the prior year was primarily due to declining product revenue and increasing sales and marketing costs as discussed below. The increase in margin for the first nine months of 2010 was due to the $52.4 million gain on divestiture of our Quality and DevPartner product lines recorded during the first quarter of 2010 (see Note 2 of the Condensed Consolidated Financial Statements included in this report for more details).
Products Segment Revenue
Revenue for the products segment is as follows (in thousands):
                                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     % Chg     2009     2008     % Chg  
Software license fees
                                               
Mainframe
  $ 25,957     $ 27,594       (5.9 )   $ 79,379     $ 82,963       (4.3 )
Distributed excluding divested products
    26,066       25,470       2.3       54,576       60,126       (9.2 )
 
                                       
Total software license fees excluding divested products
    52,023       53,064       (2.0 )     133,955       143,089       (6.4 )
License fees — divested products (a)
            7,449               8,724       21,117          
 
                                       
Total software license fees
    52,023       60,513       (14.0 )     142,679       164,206       (13.1 )
 
                                               
Maintenance fees
                                               
Mainframe
    83,825       81,702       2.6       247,269       257,623       (4.0 )
Distributed excluding divested products
    27,993       26,789       4.5       80,571       83,812       (3.9 )
 
                                       
Total maintenance fees excluding divested products
    111,818       108,491       3.1       327,840       341,435       (4.0 )
Maintenance fees — divested products (a)
            8,123               4,839       26,423          
 
                                       
Total maintenance fees
    111,818       116,614       (4.1 )     332,679       367,858       (9.6 )
 
                                               
Subscription fees (b)
    5,765             n/a       5,765             n/a  
 
                                               
Products revenue
                                               
Mainframe
    109,782       109,296       0.4       326,648       340,586       (4.1 )
Distributed excluding divested products
    54,059       52,259       3.4       135,147       143,938       (6.1 )
Subscription (b)
    5,765             n/a       5,765             n/a  
 
                                       
Total products revenue excluding divested products
    169,606       161,555       5.0       467,560       484,524       (3.5 )
Products revenue — divested products (a)
            15,572               13,563       47,540          
 
                                       
Total products revenue
  $ 169,606     $ 177,127       (4.2 )   $ 481,123     $ 532,064       (9.6 )
 
                                       
 
(a)   Divested products license fees and divested products maintenance fees relate to our Quality and DevPartner product lines that were sold during first quarter of 2010 (see Note 2 of the Condensed Consolidated Financial Statements included in this report for more details). Disclosing software license fees and maintenance fees excluding divested products allows for better comparability between the periods presented.
 
(b)   See Note 2 of the Condensed Consolidated Financial Statements for details regarding the November 2009 acquisition of Gomez.

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Products segment revenue by geographic location is presented in the table below (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
United States
  $ 88,569     $ 89,360     $ 257,460     $ 274,135  
Europe and Africa
    56,656       60,558       155,245       178,763  
Other international operations
    24,381       27,209       68,418       79,166  
 
                       
Total products revenue
  $ 169,606     $ 177,127     $ 481,123     $ 532,064  
 
                       
Our software products are designed to enhance the effectiveness of key disciplines throughout the IT organization from application development and delivery, web and mobile performance management, service management and IT portfolio management supporting all major enterprise computing platforms. Products revenue, which consists of software license fees, maintenance fees and subscription fees, comprised 73.8% and 65.9% of total revenue during the third quarter of 2010 and 2009, respectively, and 72.7% and 63.6% of total revenue during the first nine months of 2010 and 2009, respectively.
Software license fees
Software license fees (“license fees”) decreased $8.5 million or 14%, which included a positive impact from foreign currency fluctuations of $3.5 million, during the third quarter of 2010 to $52.0 million and decreased $21.5 million or 13.1%, which included a negative impact from foreign currency fluctuations of $1.5 million, during the first nine months of 2010 to $142.7 million as compared to the same periods from the prior year.
Excluding the impact from divested products, license fees decreased $1.0 million or 2.0% during the third quarter of 2010 as compared to the third quarter of 2009. Mainframe license fees accounted for $1.6 million of the decrease offset by an increase in distributed license fees of $600,000, primarily due to the Vantage product line.
Excluding the impact from divested products, license fees decreased $9.1 million or 6.4% during the first nine months of 2010 as compared to the first nine months of 2009. Distributed license fees accounted for $5.5 million of the decrease, primarily within our Uniface and Changepoint product lines, and mainframe license fees decreased by $3.6 million. The economic slowdown experienced since the second quarter of 2009 affected the closure of license transactions during our first quarter of 2010.
During the third quarter and first nine months of 2010, for software license transactions that are required to be recognized ratably, we deferred $25.0 million and $47.9 million, respectively, of license revenue relating to such transactions that closed during the period. We recognized as revenue $19.2 million and $62.2 million, respectively, of previously deferred license revenue relating to such transactions that closed and had been deferred prior to the beginning of the period, including $7.2 million related to our divested products during the first quarter of 2010.

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Maintenance fees
Maintenance fees decreased $4.8 million or 4.1%, which included a positive impact from foreign currency fluctuations of $6.0 million, during the third quarter of 2010 to $111.8 million, and decreased $35.2 million or 9.6%, which included a negative impact from foreign currency fluctuations of $4.8 million, during the first nine months of 2010 to $332.7 million as compared to the same periods from the prior year.
Excluding the impact from divested products, maintenance fees increased $3.3 million or 3.1% during the third quarter of 2010 compared to the same period from the prior year. Each of our product lines experienced a slight increase in maintenance fees primarily due to the effects of foreign currency fluctuations.
Excluding the impact from divested products, maintenance fees decreased $13.6 million or 4.0% during the first nine months of 2010 as compared to the same periods from the previous year. The decrease was the result of reductions across all product lines, other than Vantage, and was primarily due to a slight decline in maintenance revenue experienced in our United States operations, and to a lesser extent, the effects of foreign currency fluctuations.
Subscription fees
In November 2009, through the acquisition of Gomez, we began to offer, on a subscription basis, product solutions that are used to test and monitor web and mobile applications.
Revenue recognized from these solutions is referred to as subscription fees and totaled $5.7 million during the third quarter of 2010. See Note 2 of the Condensed Consolidated Financial Statements included in this report for additional information regarding historical pro forma financial results of Compuware and Gomez.
Products Segment Expenses
Products segment expenses include cost of software license fees, cost of maintenance and subscription fees, technology development and support costs, sales and marketing expenses and the gain on divestiture of our Quality and DevPartner product lines to Micro Focus. As part of this divestiture, 273 personnel related to the sales, sales support, development, maintenance and delivery of the Quality and DevPartner product lines were transferred to Micro Focus as of June 1, 2009 which reduced the product segment’s compensation and employee benefit costs for the third quarter and first nine months of 2010 compared to 2009, partially offset by additional product operating costs as a result of acquiring Gomez in November 2009.
Cost of software license fees includes amortization of capitalized software, the cost of duplicating and disseminating products to customers, including associated hardware costs, and the cost of author royalties. Cost of software license fees decreased $2.0 million or 33.4% during the third quarter of 2010 to $4.1 million from $6.1 million in the third quarter of 2009 and decreased $6.6 million or 35.6% during the first nine months of 2010 to $11.9 million from $18.5 million in the first nine months of 2009.
The decrease in expense for the third quarter and first nine months of 2010 resulted from reductions in our capitalized software amortization of $2.1 million and $6.2 million, respectively, due to the following: (1) capitalized software with a book value of $17.6 million was transferred as part of the Quality and DevPartner divestiture and classified as held for sale at March 31, 2009, such that no amortization was recorded during the first nine months of 2010 (see Note 2

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of the Condensed Consolidated Financial Statements included in this report for more details), and (2) developed technologies purchased in prior acquisitions became fully amortized by the beginning of 2010.
As a percentage of software license fees, cost of software license fees was 7.8% and 10.1% in the third quarter of 2010 and 2009, respectively, and 8.3% and 11.2% in the first nine months of 2010 and 2009, respectively. The changes in the percentages for the third quarter and first nine months of 2010 were primarily due to the decrease in capitalized software amortization as identified above, partially offset by the decline in license fees in the current year periods.
Cost of maintenance and subscription fees consists of the direct costs allocated to maintenance and product support such as helpdesk and technical support, amortization of capitalized software, depreciation and maintenance expense associated with our performance network related computer equipment, data center costs and payments to individuals conducting tests from their internet-connected personal computers.
Cost of maintenance and subscription fees increased $1.5 million or 15.6% during the third quarter of 2010 to $11.0 million from $9.5 million in the third quarter of 2009 and decreased $4.5 million or 13.8% during the first nine months of 2010 to $28.3 million from $32.8 million in the first nine months of 2009.
The increase in expense during the third quarter of 2010 compared to 2009 was primarily due to $2.8 million of additional costs associated with Gomez which was acquired in November 2009, partially offset by lower compensation and employee benefit costs resulting from the transfer of employees to Micro Focus as discussed above and, to a lesser extent, headcount reductions as part of the restructuring actions taken during 2009.
The decrease in expense during the first nine months of 2010 compared to 2009 was primarily due to lower compensation and employee benefit costs resulting from the transfer of employees to Micro Focus as discussed above and, to a lesser extent, headcount reductions as part of the restructuring actions taken during 2009, partially offset by the $2.8 million increase in costs associated with Gomez which was acquired in November 2009.
As a percentage of maintenance and subscription fees, cost of maintenance and subscription fees were 9.3% and 8.1% in the third quarter of 2010 and 2009, respectively, and 8.4% and 8.9% in the first nine months of 2010 and 2009, respectively. The increase in the percentage for the third quarter of 2010 was primarily due to the impact of Gomez which was acquired in November 2009. Cost of subscription fees as a percentage of subscription revenue was 47.9% during the third quarter of 2010 primarily due to a $2.7 million reduction in subscription fees revenue to reflect Gomez’s deferred revenue at fair value on the date of acquisition. The decrease in the percentage for the first nine months of 2010 was primarily due to the cost savings associated with the employee headcount reductions identified above, partially offset by the effect of Gomez as previously identified.
Technology development and support includes, primarily, the costs of programming personnel associated with product development and support less the amount of software development costs capitalized during the period. Also included are personnel costs associated with developing and maintaining internal systems and hardware/software costs required to support all technology initiatives. As a percentage of product revenue, costs of technology development and support were 13.3% and 12.6% in the third quarter of 2010 and 2009, respectively, and 13.7% and 12.8% in the first nine months of 2010 and 2009, respectively. The percentage increases were primarily due to the declines in product revenue from the divestiture of the Quality and DevPartner product lines to Micro Focus exceeding the declines in compensation and employee benefit costs associated with the headcount reductions discussed below.

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We follow the policy in Note 1 of our Condensed Consolidated Financial Statements when capitalizing the cost of internally developed software technology. Total technology development and support costs incurred internally and capitalized in the third quarter and first nine months of 2010 and 2009 were as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
Technology development and support costs incurred
  $ 23,701     $ 24,882     $ 70,784     $ 75,591  
Capitalized technology development and support costs
    (1,139 )     (2,487 )     (5,107 )     (7,688 )
 
                       
 
Technology development and support costs expensed
  $ 22,562     $ 22,395     $ 65,677     $ 67,903  
 
                       
Before the capitalization of internally developed software products, total technology development and support costs decreased $1.2 million or 4.7% during the third quarter of 2010 to $23.7 million from $24.9 million in the third quarter of 2009 and for the first nine months of 2010 decreased $4.8 million or 6.4% to $70.8 million from $75.6 million in the first nine months of 2009.
The decreases in expenses were primarily due to lower compensation and employee benefit costs resulting from a decline in headcount from prior periods as employees were transferred to Micro Focus, as discussed above, and headcount reductions that occurred as part of the restructuring actions taken during 2009, partially offset by the addition of employees from the Gomez acquisition in November 2009.
Sales and marketing costs consist primarily of personnel related costs associated with product sales, sales support and marketing for our product offerings. Sales and marketing costs increased $4.0 million or 7.1% during the third quarter of 2010 to $59.0 million from $55.0 million in the third quarter of 2009 and for the first nine months of fiscal 2010 decreased $11.8 million or 6.8% to $162.9 million from $174.7 million in the first nine months of fiscal 2009.
The increase in expense for the third quarter of 2010 was primarily due to higher annual bonus costs in 2010 and a $1.6 million increase in marketing expense intended to drive demand for our growth objectives.
The decline in expense for the nine months of 2010 was primarily due to lower compensation, employee benefit and travel costs resulting from headcount reductions occurring from the restructuring actions taken during 2009 and 2010 and the transfer of employees to Micro Focus, as discussed above, offset by the addition of employees from the Gomez acquisition in November 2009. The decline was partially offset by $2.9 million increase in marketing expense intended to drive demand for our growth objectives.
As a percentage of product revenue, sales and marketing costs were 34.8% and 31.1% in the third quarter of 2010 and 2009, respectively, and 33.9% and 32.8% in the first nine months of 2010 and 2009, respectively. The increase in the percentage for the third quarter of 2010 was due to an increase in expenses in addition to the decline in product revenue as previously discussed. The increase in the percentage for the first nine months of 2010 relates to the decline in product revenue exceeding the decline in expenses previously discussed.

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Gain on divestiture of product lines relates to the sale of our Quality and DevPartner product lines to Micro Focus that occurred in May 2009. We recognized a gain of $52.4 million during the first quarter of 2010 relating to this transaction. See Note 2 of the Condensed Consolidated Financial Statements included in this report for more details.
PROFESSIONAL SERVICES SEGMENT
Financial information for the professional services segment is as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31, *     December 31, *  
    2009     2008     2009     2008  
Revenue
  $ 49,430     $ 82,705     $ 151,007     $ 278,851  
Expenses
    43,425       78,104       136,418       261,074  
 
                       
Professional services segment contribution
    6,005       4,601       14,589       17,777  
 
                       
 
*   The professional services segment and the application services segment are combined and reported as professional services in the Condensed Consolidated Statements of Operations included within this report.
Professional services segment revenue by geographic location is presented in the table below (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
United States
  $ 39,960     $ 67,841     $ 125,418     $ 226,053  
Europe and Africa
    6,391       12,972       17,593       45,872  
Other international operations
    3,079       1,892       7,996       6,926  
 
                       
Total professional services segment revenue
  $ 49,430     $ 82,705     $ 151,007     $ 278,851  
 
                       
During the third quarter of 2010, the professional services segment generated a contribution margin of 12.1%, compared to 5.6% during the third quarter of 2009 and 9.7% and 6.4% during the first nine months of 2010 and 2009, respectively. The increases in contribution margins were due to our initiatives to exit low-margin engagements and the restructuring actions taken to date within the segment as identified below.
2009 and 2010 Restructuring
During fiscal 2009 and the first nine months of 2010, management focused on improving the professional services segment’s margins by initiating a plan to exit engagements that were considered low-margin and by reducing headcount and operating costs resulting in restructuring charges.
If these actions do not sustain the improvement in the segment’s operating profit margin, an impairment of some or all of the $141.5 million of goodwill related to the professional services segment at December 31, 2009 may be recorded in the future as a non-cash charge to earnings in the period in which the carrying value exceeds fair value.

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Professional Services Segment Revenue
We offer a broad range of IT services to help businesses make the most of their IT assets. Some of these services include outsourcing and co-sourcing, application management, product solutions, project management, enterprise resource planning and customer relationship management services.
Professional services segment revenue decreased $33.3 million or 40.2%, which included a positive impact from foreign currency fluctuations of $1.3 million, during the third quarter of 2010 to $49.4 million compared to $82.7 million in the third quarter of 2009 and decreased $127.9 million or 45.8%, which included a negative impact from foreign currency fluctuations of $1.0 million, during the first nine months of 2010 to $151.0 million from $278.9 million during the first nine months of 2009. The decreases in revenue were a result of the actions taken during 2009 and during first nine months of 2010 to exit low-margin engagements.
Professional Services Segment Expenses
Professional services segment expenses consist primarily of personnel-related costs of providing services, including billable staff, subcontractors and sales personnel. Professional services segment expenses decreased $34.7 million or 44.4% during the third quarter of 2010 to $43.4 million from $78.1 million in the third quarter of 2009 and decreased $124.7 million or 47.7% during the first nine months of 2010 to $136.4 million from $261.1 million during the first nine months of 2009. The decreases in expenses were primarily attributable to lower compensation, employee benefit and travel costs due to reductions in employee headcount and reductions in subcontractor costs resulting from the 2009 and 2010 restructuring program implemented to align operating costs with the decline in revenue (see “2009 and 2010 Restructuring” within this section).
APPLICATION SERVICES SEGMENT
Our application services, which are marketed under the brand name “Covisint”, provide a software-as-a-service platform that enables industries and business communities to securely integrate vital information and processes across users, business partners, customers, vendors and suppliers.
Financial information for the application services segment is as follows (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31, *     December 31, *  
    2009     2008     2009     2008  
Revenue
  $ 10,828     $ 8,835     $ 30,051     $ 26,185  
Expenses
    9,953       8,783       27,631       28,608  
 
                       
Application services segment contribution (loss)
  $ 875     $ 52     $ 2,420     $ (2,423 )
 
                       
 
*   The professional services segment and the application services segment are combined and reported as professional services in the Condensed Consolidated Statement of Operations included within this report.

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Application services segment revenue by geographic location is presented in the table below (in thousands):
                                 
    Three Months Ended     Nine Months Ended  
    December 31,     December 31,  
    2009     2008     2009     2008  
United States
  $ 9,367     $ 7,425     $ 25,882     $ 21,835  
Europe and Africa
    767       802       2,255       2,490  
Other international operations
    694       608       1,914       1,860  
 
                       
Total application services segment revenue
  $ 10,828     $ 8,835     $ 30,051     $ 26,185  
 
                       
During the third quarter of 2010, the application services segment generated a contribution margin of 8.1%, compared to a contribution margin of 0.6% during the third quarter of 2009 and a contribution margin of 8.1% for the nine months of 2010 compared to a negative contribution margin of 9.3% during the first nine months of 2009. The improvements in contribution margins were due to growth in revenue primarily from the healthcare industry during the first nine months of 2010 and, to a lesser extent, reductions in expenses resulting primarily from the increase in the deferral of software development costs, as described below.
Application Services Segment Revenue
Application services segment revenue increased $2.0 million or 22.6% during the third quarter of 2010 to $10.8 million from $8.8 million in the third quarter of 2009 and increased $3.9 million or 14.8% for the first nine months of 2010 to $30.1 million from $26.2 million in the first nine months of 2009. The increases in revenue during 2010 were primarily due to our continued expansion into the healthcare industry and, to a lesser extent, increased spending within the manufacturing industry.
Our application services segment generated 65% of its revenue from the automotive industry during the first nine months of 2010.
Application Services Segment Expenses
Application services segment expenses consist primarily of personnel-related costs of providing services, including technical staff, subcontractors and sales personnel. Application services segment expenses increased $1.2 million or 13.3% during the third quarter of 2010 to $10.0 million from $8.8 million in the third quarter of 2009 and decreased $1.0 million or 3.4% during the first nine months of 2010 to $27.6 million from $28.6 million during the first nine months of 2009.
The increase in expense for the third quarter of 2010 was primarily due to an $800,000 increase in compensation and employee benefits as the segment continues to increase employee staffing levels to support the business expansion as discussed in the “application services segment revenue” section and a $400,000 decline in the amount capitalized for internally used software costs during the third quarter of 2010 as compared to 2009.
The decrease in expense for the first nine months of 2010 was primarily due to a $1.4 million increase in incremental cost deferrals associated with customer implementations for which corresponding revenue and expenses will be recognized in the future and a reduction in purchased software amortization expense of $400,000, primarily due to Covisint’s acquired developed technology becoming fully amortized during the fourth quarter of 2009. The

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decreases in expense were partially offset by the increase in compensation and employee benefit costs as discussed above.
CORPORATE AND OTHER EXPENSES
Administrative and general expenses consist primarily of costs associated with the corporate executive, finance, human resources, administrative, legal, communications and investor relations departments. In addition, administrative and general expenses include all facility-related costs, such as rent, building depreciation, maintenance and utilities, associated with worldwide sales, professional services and software development offices. Administrative and general expenses increased $7.3 million or 20.4% during the third quarter of 2010 to $42.8 million from $35.5 million during the third quarter of 2009 and increased $2.6 million or 2.1% during the first nine months of 2010 to $121.7 million from $119.1 million in the first nine months of 2009.
The increase in expenses for the third quarter and the first nine months of 2010 were primarily due to the following: (1) increase in annual bonus accrual of $3.9 million and $4.0 million, respectively; (2) the mark-to-market adjustment to the director phantom stock liability, resulting in a $1.7 million gain during the third quarter of 2009 and a $300,000 loss for the first nine months of 2009; and (3) Gomez related acquisition costs of $1.6 million incurred during third quarter of 2010. Effective January 1, 2009, the Director Phantom Stock program was terminated and previously granted phantom shares were converted to restricted stock units, eliminating the need for liability accounting.
The first nine months of 2010 was further impacted by the following: (1) increase in expense of $4.2 million as foreign currency and hedging transactions resulted in a net loss of $1.7 million during 2010 compared to a net gain of $2.5 million in 2009; and (2) increase in expense as a gain of $5.6 million was recorded during the first quarter of 2009 associated with a transaction that transitioned the employment of 170 of our professional services staff to a customer.
The increase in expense for the first nine months of 2010 was partially offset by the following: (1) reductions in compensation, employee benefits, travel and facility costs of $9.6 million primarily due to the headcount reductions and facility closures that took place as part of the 2009 and 2010 restructuring programs and (2) a decrease of $2.4 million in certain employment related taxes incurred during the second quarter of 2009.
Other income, net (“other income”) consists primarily of interest income realized from cash equivalents and investments (“investments”); interest earned on deferred customer receivables; income generated from our investment in a partially owned company and interest expense associated with our credit facility. Other income decreased $1.2 million or 53.0% during the third quarter of 2010 to $1.1 million from $2.3 million in the third quarter of 2009 and decreased $4.8 million or 55.3% during the first nine months of 2010 to $3.8 million from $8.6 million during the first nine months of 2009. The decreases in other income were primarily attributable to a decline in investment interest income resulting from lower interest rates during the third quarter and first nine months of 2010 compared to the same periods in 2009. The decrease in investment interest income for the first nine months of 2010 was partially offset by a higher average investment balance during 2010 compared to 2009.
Income taxes are accounted for using the asset and liability approach. Deferred income taxes are provided for the differences between the tax bases of assets or liabilities and their reported amounts in the financial statements.

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The income tax provision was $12.8 million in the third quarter of 2010 compared to an income tax provision of $16.5 million in the third quarter of 2009 representing an effective tax rate of 34.4% and 32.1%, respectively. The income tax provision was $55.6 million for the first nine months of 2010 compared to $44.8 million for the first nine months of 2009, representing an effective tax rate of 35.0% and 32.9%, respectively.
The increase in the effective tax rates was primarily due to an income tax benefit of $1.9 million recorded during the third quarter of 2009 as Congress retroactively reinstated the U.S. Research and Development credit for 2009. The first nine months of 2010 was further impacted by an income tax benefit of $2.5 million recorded during the second quarter of 2009 as certain reserves for uncertain tax positions related to our 2005 and 2006 U.S. Research and Development credits were effectively settled with the Internal Revenue Service.
RESTRUCTURING COSTS AND ACCRUAL
We incurred charges of $1.0 million and $4.8 million during the third quarter and first nine months of 2010, respectively (see Note 8 to the Condensed Consolidated Financial Statements). We will continue to evaluate our business processes to identify opportunities to streamline operations and reduce costs, which may result in additional restructuring charges.
MANAGEMENT’S DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Assumptions and estimates were based on the facts and circumstances known at December 31, 2009. However, future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. The accounting policies discussed in Item 7 of our Annual Report on Form 10-K for the year ended March 31, 2009 are considered by management to be the most important to an understanding of the financial statements, because their application places the most significant demands on management’s judgment and estimates about the effect of matters that are inherently uncertain. These policies are also discussed in Note 1 of the Consolidated Financial Statements included in Item 8 of that report. There have been no material changes to that information since the end of fiscal 2009.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2009, cash and cash equivalents totaled approximately $87.9 million, compared to $278.1 million at March 31, 2009.
Net cash provided by operating activities:
Net cash provided by operating activities during the first nine months of 2010 was $103.4 million, an increase of $24.6 million from the first nine months of 2009. The increase was primarily due to the following: (1) reduction in disbursements for employee payroll and benefits of $118 million primarily resulting from savings achieved through our 2009 and 2010 restructuring initiatives; (2) reduction in bonus and commission payments of $19 million and (3) reduction in payments for

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subcontractors of $21 million primarily within the professional services segment resulting from our strategy to exit low-margin engagements. These increases were partially offset by the following: (1) a reduction in customer collections of $113 million due to our decline in revenue; (2) an increase in income taxes paid of $16 million; and (3) a decrease in investment interest received of $6 million.
The Condensed Consolidated Statements of Cash Flows included in this report compute net cash from operating activities using the indirect cash flow method. Therefore non-cash adjustments and net changes in assets and liabilities (net of the effects of the acquisition, divestiture and currency fluctuations) are adjusted from net income to derive net cash from operating activities. Changes in accounts receivable and deferred revenue have typically had the largest impact on the reconciliation of net income to compute cash flows from operating activities as we allow for deferred payment terms on multi-year products contracts.
Changes in accounts receivable balances increased the 2010 cash flow from operating activities by $39.7 million compared to 2009. The 2010 decline in the accounts receivable balances from March 31, 2009 to December 31, 2009 was primarily due to the decrease in professional services fees throughout 2010 (see “Professional Services Segment Revenue” section for more details), partially offset by the increase in Gomez accounts receivable balance from acquisition date to December 31, 2009. The increase in the accounts receivable balances from March 31, 2008 to December 31, 2008 was primarily due to a general slow down in customer payments during our third quarter of 2009 that was an effect from the global economic crisis experienced at that time and, to a lesser extent, timing of multi-year product contract renewals with installment terms that caused an increase in long-term accounts receivable at December 31, 2008 compared to March 31, 2008.
Changes in deferred revenue balances increased the 2010 cash flow from operating activities by $18.1 million compared to 2009 primarily due to an increase in the Gomez deferred revenue balance of $16.1 million from acquisition date to December 31, 2009.
The other significant changes in our reconciliation of net income to derive net cash from operating activities during the first nine months of 2010 as compared to the first nine months of 2009 were as follows: (1) the adjustment to net income of $52.4 million resulting from the gain on divestiture of our Quality and DevPartner product lines (the proceeds from the sale were recorded to investing activities) and (2) the change in accounts payable and accrued expense balances increasing cash flow from operating activities by $30.6 million primarily due to the changes in our bonus and commission accruals which increased from March 31, 2009 to December 31, 2009 as annual bonus targets are currently being achieved, compared to a decline from March 31, 2008 to December 31, 2008 as it became evident during our third quarter of 2009 that 2009 annual bonus targets would not be achieved.
As of December 31, 2009, we had an accrual for $1.8 million related to restructuring actions taken during 2009 and 2010 (see Note 8 of the Condensed Consolidated Financial Statements included in this report for more details). We continue to evaluate our business processes to identify ways to reduce costs. Any further actions will likely result in additional restructuring charges. The amount of such charges will depend upon the nature, timing and extent of those actions.
The completion of the Gomez acquisition and repurchases of our common shares under our discretionary share repurchase program described below (the “Discretionary Plan”) caused us to utilize our credit facility during the third quarter of 2010. We anticipate that our cash flow from operations will be sufficient to meet operating cash needs for the foreseeable future.

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Net cash used in investing activities:
Net cash used in investing activities during the first nine months of 2010 was $233.9 million, an increase of $279.4 million from the first nine months of 2009.
The increase in cash used was primarily due to the acquisition of Gomez in November 2009 for $284 million in cash (net of cash acquired). The purchase was funded from our existing cash resources and borrowings of $15 million under the credit facility. Investing activities were further impacted by a decline in the amount of investments liquidated as $70.2 million of proceeds were received during the first nine months of 2009 from the liquidation of investments. There have been no proceeds received from investment liquidations during 2010.
The increase in cash used in investing activities was partially offset by proceeds of $65 million received from the sale of our Quality and DevPartner product lines during the first quarter of 2010.
During the first nine months of 2010 and 2009, capital expenditures for property and equipment and capitalized research and software development totaled $14.5 million and $24.7 million, respectively, and were funded with cash flows from operations.
We will continue to evaluate business acquisition opportunities that fit our strategic plans.
Net cash used in financing activities:
Net cash used in financing activities during the first nine months of 2010 was $71.7 million, a decrease of $92.0 million from the first nine months of 2009.
The decrease in cash used in financing activities was primarily due to the following: (1) a $66 million reduction in the amount of common stock repurchased as $111.2 million was repurchased during the first nine months of 2010 compared to $177.2 million repurchased in 2009 and (2) a net increase in borrowings of $35 million from our credit facility during the first nine months of 2010 which were used to complete the Gomez acquisition and purchase our common stock.
The decrease in cash used in financing activities was partially offset by a reduction in cash received from employee exercises of stock options during the first nine months of 2010 compared to 2009.
Since May 2003, the Board of Directors has authorized the Company to repurchase a total of $1.7 billion of our common stock under a Discretionary Plan. Purchases of common stock under the Discretionary Plan may occur on the open market, or through negotiated or block transactions based upon market and business conditions, subject to applicable legal limitations.
During the first nine months of 2010, we repurchased approximately 15.1 million shares of our common stock at an average price of $7.38 per share for a total cost of $111.2 million. As of December 31, 2009, approximately $425.7 million remains authorized for future purchases under the Discretionary Plan.
We intend to continue repurchasing shares under the Discretionary Plan, funded primarily through our operating cash flow and, if needed, funds from our credit facility. Our long-term goal is to reduce our outstanding common share count to approximately 200 million shares. We reserve the right to change the timing and volume of our repurchases at any time without notice.

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The maximum amount of repurchase activity under the Discretionary Plan, excluding block purchases and negotiated transactions, continues to be limited on a daily basis to 25% of the average daily trading volume of our common stock during the previous four week period. In addition, no purchases are made during our self-imposed trading black-out periods in which the Company and our insiders are prohibited from trading in our common shares. Our standard quarterly black-out period commences 10 business days prior to the end of each quarter and terminates one full market day following the public release of our operating results for the period.
The Company has a credit facility with Comerica Bank and other lenders to provide leverage for the Company if needed. The credit facility provides for a revolving line of credit in the amount of $150 million and expires on November 1, 2012. The credit facility also permits us to increase the facility by an additional $150 million, subject to receiving further commitments from lenders and certain other conditions. The credit facility also limits borrowing outside of the facility to $250 million.
As of December 31, 2009, our outstanding balance under the credit facility was $35 million. See Note 9 to the Condensed Consolidated Financial Statements including in this report for further discussion of the credit facility.
Recently Issued Accounting Pronouncements
See Note 1 of the Condensed Consolidated Financial Statements included in this report for recently issued accounting pronouncements that could affect the Company.
CONTRACTUAL OBLIGATIONS
Our contractual obligations are described in “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended March 31, 2009. Except as described elsewhere in this report on Form 10-Q, there have been no material changes to those obligations or arrangements outside of the ordinary course of business since the end of fiscal 2009.

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COMPUWARE CORPORATION AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed primarily to market risks associated with movements in interest rates and foreign currency exchange rates. There have been no material changes to our foreign exchange risk management strategy or our investment standards subsequent to March 31, 2009, therefore the market risks remain substantially unchanged since we filed the Annual Report on Form 10-K for the fiscal year ending March 31, 2009.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure material information required to be disclosed in our reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been detected.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective, at the reasonable assurance level, to cause information required to be disclosed in the reports that we file or submit under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required financial disclosure.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the fiscal quarter ended December 31, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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COMPUWARE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1A.   Risk Factors
Other than the risk factors added below, there have been no material changes to the Risk Factors as previously disclosed in our Form 10-K for the fiscal year ended March 31, 2009.
The market for web application performance management services is at an early stage of development. If this market does not develop or develops more slowly than we expect, our revenue may decline or fail to grow and we may incur operating losses.
We derive revenue from providing on-demand web application performance management services. While web applications have become increasingly significant for a growing number of companies, the market for web application performance management services is in an early stage of development, and it is uncertain whether these services will achieve and sustain high levels of demand and market acceptance. Growth in revenue generated from these services will depend on the willingness of companies to increase their use of web application performance management services. Some businesses may be reluctant or unwilling to use these services for a number of reasons, including failure to perceive the need for improved testing and monitoring of web applications and lack of knowledge about the potential benefits these services may provide. Even if businesses recognize the need for better testing and monitoring of web applications, they may not select web application performance management services such as ours because they previously have made investments in hardware and software tools designed primarily for applications residing within the corporate firewall. If businesses do not perceive the benefits of web application performance management services, the market for our services might not continue do develop or might develop more slowly than we expect, either of which would adversely affect our revenue and profitability.
Defects or disruptions in our web application performance network or interruptions or delays in service would impair the delivery of our on-demand service and could diminish demand for our services and subject us to substantial liability.
Defects in our web application performance network could result in service disruptions for our customers. Our network performance and service level could be disrupted by numerous events, including natural disasters and power losses. Our customers might use our services in ways that cause a service disruption for other customers. We might inadvertently operate or misuse the system in ways that could cause a service disruption for some or all of our customers. We might have insufficient redundancy or server capacity to address any such disruption, which could result in interruptions in our services or degradations of our service levels. These defects of disruptions could undermine confidence in our services and cause us to lose customers or make it more difficult to attract new ones, either of which could harm our business and results of operations.

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COMPUWARE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth, the repurchases of common stock for the quarter ended December 31, 2009:
                                 
                    Total number        
                    of shares     Approximate  
                    purchased as     dollar value of  
                    part of     shares that may  
    Total number of     Average     publicly     yet be purchased  
    shares     price paid     announced     under the plan or  
Period   purchased     per share     plans     program (1)  
For the month ended October 31, 2009
    582,800     $ 7.41       582,800     $ 446,737,416  
 
                               
For the month ended November 30, 2009
    1,751,200       7.32       1,751,200       433,913,489  
 
                               
For the month ended December 31, 2009
    1,140,900       7.19       1,140,900       425,705,023  
 
                       
 
                               
Total
    3,474,900     $ 7.30       3,474,900          
 
                         
 
(1)   Our purchases of common stock may occur on the open market or in negotiated or block transactions based upon market and business conditions. Unless terminated earlier by resolution of our Board of Directors, the discretionary share repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder. The maximum amount of repurchase activity under the discretionary program continues to be limited on a daily basis to 25% of the average trading volume of our common stock for the previous four week period. In addition, no purchases are made during our self-imposed trading black-out periods in which the Company and our insiders are prohibited from trading in our common shares.

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COMPUWARE CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6.   Exhibits
     
Exhibit    
Number   Description of Document
2.9
  Agreement and Plan of Merger by and among the Company, Compuware Acquisition Corp., Gomez, Inc., and the Securityholder Committee named therein, dated October 6, 2009 (filed with the Company’s Form 8-K filed on October 8, 2009 and incorporated herein by reference)
 
   
10.124
  Form of Performance Unit Award Agreement for Peter Karmanos and Laura Fournier (Revenue Condition) dated December 7, 2009
 
   
10.125
  Performance Unit Award Agreement for Peter Karmanos (Revenue Condition, subject to Section 162(m)) dated December 7, 2009
 
   
10.126
  Form of Performance Unit Award Agreement for Peter Karmanos and Laura Fournier (IPO Condition) dated December 7, 2009
 
   
10.127
  Performance Unit Award Agreement for Robert Paul dated December 7, 2009
 
   
10.128
  2009 Covisint Corporation Long Term Incentive Plan
 
   
10.129
  Form of Covisint Option Agreement
 
   
15
  Independent Registered Public Accounting Firm’s Awareness Letter
 
   
31.1
  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.
 
   
31.2
  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act.
 
   
32
  Certification pursuant to 18 U.S.C. Section 1350 and Rule 13a-14(b) of the Securities Exchange Act.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  COMPUWARE CORPORATION
 
 
Date: February 8, 2010  By:   /s/ Peter Karmanos, Jr.    
    Peter Karmanos, Jr.   
    Chief Executive Officer
(duly authorized officer) 
 
 
     
Date: February 8, 2010  By:   /s/ Laura L. Fournier    
    Laura L. Fournier   
    Executive Vice President,
Chief Financial Officer and
Treasurer
(principal financial officer) 
 

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