UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2010

Commission File Number: 000-20900

COMPUWARE CORPORATION

(Exact name of registrant as specified in its charter)

Michigan		38-2007430
(State or other jurisdiction of incorporation or organization)		(I.R.S. 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

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, par value $.01 per share		Nasdaq Global Select Market
Preferred Stock Purchase Rights		Nasdaq Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes o No þ

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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 definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter, was $1,290,470,770, based upon the closing sales price of the common stock on that date of $7.33 as reported on The NASDAQ Global Select Market. For purposes of this computation, all executive officers, directors and 10% beneficial owners of the registrant are assumed to be affiliates. Such determination should not be deemed an admission that such officers, directors and beneficial owners are, in fact, affiliates of the registrant.

There were 225,026,430 shares of $.01 par value common stock outstanding as of May 14, 2010.

Portions of the definitive Proxy Statement for the Registrant’s 2010 Annual Meeting of Shareholders (the “Proxy Statement”) filed pursuant to Regulation 14A are incorporated by reference in Part III.

 

 

COMPUWARE CORPORATION AND SUBSIDIARIES
FORM 10-K
Table of Contents

Item
Number		Page
PART I
1. Business			3
1A. Risk Factors			18
1B. Unresolved Staff Comments			24
2. Properties			24
3. Legal Proceedings			24
PART II
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			25
6. Selected Financial Data			28
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
7A. Quantitative and Qualitative Disclosure about Market Risk			50
8. Financial Statements and Supplementary Data			52
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			92
9A. Controls and Procedures			92
9B. Other Information			94
PART III
10. Directors, Executive Officers and Corporate Governance			95
11. Executive Compensation			95
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			95
13. Certain Relationships and Related Transactions, and Director Independence			96
14. Principal Accountant Fees and Services			96
PART IV
15. Exhibits and Financial Statement Schedules			97
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32

PART I

ITEM 1. BUSINESS

We deliver value to businesses worldwide by providing software and web performance solutions, professional services and application services that improve the performance of information technology (“IT”) organizations. Originally founded in 1973 as a professional services company, we began to offer mainframe productivity tools for fault diagnosis, file and data management, and application debugging in the late 1970’s.

In the 1990’s and 2000’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.

•

Measure, manage and communicate IT service delivery in business terms, and maintain consistent, high levels of service delivery.

•

Optimize the performance, availability and quality of web and mobile applications.

•

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.

We operate in four business segments in the software and technology services industries: products, web performance services, professional services and application services (see Note 13 of the notes to consolidated financial statements, included in Item 8 of this report).

For a discussion of developments in our business during fiscal 2010, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We were incorporated in Michigan in 1973. Our executive offices are located at One Campus Martius, Detroit, Michigan 48226-5099, and our telephone number is (313) 227-7300. Our Internet address is www.compuware.com. We make available in the investor relations section of our external web site, our Codes of Conduct and our Board committee charters, as well as copies of reports we file with the Securities and Exchange Commission as soon as reasonably practicable after we electronically file such reports. The information contained on our web site should not be considered part of this report.

This report 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, including, without limitation, those discussed in Item 1A. Risk Factors and elsewhere in this report, 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. 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.

OUR BUSINESS STRATEGY

Our business strategy is to focus on providing software products, web application performance management services, professional services and application services that deliver value to the largest users of information technology in the world. Our enterprise IT solutions are focused on providing a real return on investment for our customers by increasing the performance of the entire IT organization and enabling IT management to deliver maximum business impact in support of the organization’s strategic objectives.

During fiscal 2009, we launched our Compuware 2.0 initiative with the main objective of delivering superior end-to-end application performance, called Business Service Delivery (“BSD”), to meet the growing and ever-more critical demand from enterprises that application systems deliver value to their business. Compuware’s BSD approach enables IT to move from a reactive and operations-oriented approach to one that is proactive and business-driven across distributed, mainframe and web-based environments.

During fiscal 2010, we advanced the Compuware 2.0 initiative by divesting our Quality and DevPartner software products which were non-core to our BSD approach and expanded our BSD product offerings by acquiring Gomez Inc. (“Gomez”) which offers web application performance management services (“web performance services”) delivered through an on-demand software-as-a-service platform. Gomez’s web performance services combined with our Vantage family of IT service management products offers an application performance management solution that provides organizations with broad visibility and deep-dive resolution across their entire application delivery chain, spanning both the enterprise and the Internet.

Furthermore, we continue to execute on our strategy to deliver a broad range of IT services in our Professional Services business. The objective is to focus on engagements where we can provide value that allows us to achieve our contribution margin targets.

In addition, we continue to advance our Application Services business (“Covisint”) strategy with an increased focus on the healthcare market while maintaining customer satisfaction in the automotive industry. Hospitals, physicians and the United States government continue to move towards establishing electronic patient health and medical records which will require secure computerized databases and environments for storing and sharing of information. Our healthcare portal and messaging solutions are designed to meet this demand and will be a factor in our future growth of the application services segment.

SOFTWARE PRODUCTS

The following table sets forth, for the periods indicated, a breakdown of total products segment revenue (license and maintenance fees) by product line and the percentage of total revenues for each line (dollars in thousands):

		Year Ended March 31,												Percentage of Total Revenues
Products Segment Revenue		2010				2009				2008				2010				2009				2008
Mainframe Products
File-AID		$	140,490			$	148,134			$	157,207				15.7	%			13.6	%			12.8	%
Xpediter			84,102				88,863				98,507				9.4				8.1				8.0
Hiperstation			15,309				17,147				18,787				1.7				1.6				1.5
Abend-AID			118,317				118,309				125,942				13.3				10.9				10.3
Strobe			77,262				77,948				86,244				8.7				7.1				7.0
Total Mainframe Products Revenue			435,480				450,401				486,687				48.8				41.3				39.6
Distributed Products
Vantage			119,342				114,568				130,064				13.4				10.5				10.6
Changepoint			22,642				24,982				28,479				2.5				2.3				2.3
Uniface			39,281				44,730				48,493				4.4				4.1				3.9
File-AID/EX			3,687				4,191				5,536				0.4				0.4				0.4
Total Distributed Products Revenue			184,952				188,471				212,572				20.7				17.3				17.2
Divested Products Revenue *			13,563				60,242				74,621				1.6				5.5				6.1
Total Products Segment Revenue		$	633,995			$	699,114			$	773,880				71.1	%			64.1	%			62.9	%

COMPUWARE SOFTWARE PRODUCTS

Our software products consist of four major product lines: Mainframe, Vantage, Changepoint and Uniface – all of which are primarily intended for use by IT organizations and IT service providers. These solutions enhance the effectiveness of key disciplines throughout the IT organization and support all major enterprise computing platforms.

In May 2009, we sold our Quality and DevPartner distributed product lines, other than File-AID/EX, to Micro Focus International PLC. See Note 3 of the Notes to Consolidated Financial Statements, included in Item 8 of this report.

MAINFRAME MARKET

The market for mainframe products is well-defined and the drive to extend legacy applications into distributed environments continues to underscore the need for reliable, high-volume business application processing.

We intend to remain focused on developing, marketing and supporting high-quality software products, both to support traditional uses of the mainframe and to enable IT organizations to rationalize, modernize and extend their legacy application portfolios. In addition, we have enhanced product integration and built new graphical user interfaces to increase the value that our customers obtain from the use of our products, to enhance the synergy among the functional groups working on key business applications and to make IT processes more streamlined, automated and repeatable.

Mainframe Solutions

Our mainframe software products (“mainframe products”) focus on improving the productivity of development, maintenance and support teams in application analysis, testing, defect detection and remediation, fault management, file and data management, data compliance and application service management in the IBM z/OS environment. We believe these products are and will continue to be among the industry’s leading solutions for this platform.

Our mainframe products are functionally rich, are focused on customer needs and are easy to install, with minimal user training. We strive to ensure a common look and feel across our products and emphasize ease of use in all aspects of product design and functionality. Most products can be used immediately without modification of customer development practices and standards. These products can be quickly integrated into day-to-day development, testing, debugging and maintenance activities.

Our mainframe products are grouped into five product families: File-AID, Xpediter, Hiperstation, Abend-AID and Strobe.

File-AID

File-AID products provide a consistent, familiar and secure method for IT professionals to access, analyze, edit, compare, move and transform data across all strategic environments. File-AID products are used to quickly resolve production data problems and manage ongoing changes to data and databases at any stage of the application life cycle, including building test data environments to provide the right data in the shortest time. The File-AID product family can also be used to address data privacy compliance requirements in pre-production test environments.

Xpediter

Xpediter interactive debugging products help developers integrate enterprise applications, build new applications and modernize and extend their legacy applications, satisfying corporate scalability, reliability and security requirements. Xpediter products deliver powerful analysis and testing capabilities across multiple environments, helping developers test more accurately and reliably, in less time.

Hiperstation

Hiperstation products deliver complete pre-production testing functionality for automating test creation and execution, test results analysis and documentation. Hiperstation also provides application auditing capabilities to address regulatory compliance and other business requirements. The products simulate the on-line systems environment, allowing programmers to test applications under production conditions without requiring actual users at terminals. The products’ powerful functions and features enhance unit, concurrency, integration, migration, capacity, regression and stress testing. When deployed in production, Hiperstation products allow scalable logging of application transactions and provide audit reporting to aid in problem resolution and to support other uses of the captured transaction information such as analysis of security breaches.

Abend-AID

Abend-AID products enable IT professionals to quickly diagnose and resolve application and system failures. The products automatically collect program and environmental information, analyze the information and present diagnostic and supporting data in a way that can be easily understood by all levels of IT staff. Automated failure notification helps speed problem resolution and reduce downtime.

Strobe

Strobe products work together to help customers locate and eliminate sources of performance issues and excessive resource demands during every phase of an application’s life cycle. Strobe products measure the activity of z/OS-based online and batch applications, providing reports on where and how time is spent during execution. Strobe products support an extensive array of subsystems, databases and languages. These products can be applied via a systematic program to reduce the consumption of mainframe resources and reduce associated costs and/or make resources available for additional business workloads.

DISTRIBUTED MARKET

In contrast to the mainframe market, the distributed market is characterized by multiple hardware, software and network configurations. Combined with the push to provide enhanced versatility through service-oriented architectures, IT organizations are challenged to combine agility, cost effectiveness and control in developing and delivering reliable, scalable and high quality enterprise applications that meet business needs, while facing an exponential increase in environment complexity. We believe our distributed products address these challenges and that we are emerging as a premier provider of application performance management solutions to enterprise IT organizations.

Distributed Software Products

Our distributed software products (“distributed products”) focus on maximizing the performance of the entire IT organization, including applications and operations organizations, as well as enabling top-level IT management decision-making. These products support service delivery through comprehensive service management capabilities encompassing business service management, end-user experience monitoring and application performance management. These products also support business-centric IT management through comprehensive IT portfolio management; enabling investment prioritization driven by business strategy, portfolio-driven management decision making, effective visibility and control over IT supply and demand, and value transparency back to line-of-business management.

Our strategy for distributed products is to focus on IT software solutions in the following three areas: (1) Application Performance Management (Vantage); (2) Business Portfolio Management (Changepoint); and (3) Enterprise Application Development (Uniface). Compuware’s distributed products enable IT to move from a reactive and operations-oriented approach to one that is proactive and business-driven. Compuware distributed products ensure that applications are available, performing, and meet the needs of end users; that problems are proactively detected and resolved; that application investments are aligned with business priorities; and that IT is able to define and understand a view of service that matter most to the business.

Application Performance Management

The Vantage family of IT service management products provides an end-to-end approach for managing application performance by combining: (1) End User Experience Monitoring; (2) Business Service Management; and (3) Vantage Application Performance Management.

End User Experience Monitoring (“EUEM”) provides visibility into application service from the end user perspective. This enables proactive IT service management by allowing IT organizations to continuously monitor all applications. EUEM also puts application performance in context of key business entities: applications, users and locations. With this perspective, EUEM helps IT organizations assess the scope of a performance problem and isolate it to the client, network, server or application tier, making it more efficient to resolve the performance problem.

Business Service Management (“BSM”) provides real-time views of IT service delivery so that Chief Information Officers (“CIOs”), IT managers and line-of-business counterparts can understand the

impact that IT services have on business operations. As a result, BSM helps the customer communicate service delivery more effectively, meet service level agreements, improve operational efficiency, reduce costs and increase satisfaction with the IT organization. BSM also enhances collaboration both within the IT organization as well as between the IT organization and the business by centralizing and correlating technical and key business performance indicators.

Vantage Application Performance Management (“VAPM”) provides detailed application insight that identifies and helps correct the causes of poor application performance within client workstations, the network, a server, and Java and .NET environments, reducing time-consuming guesswork. In addition, VAPM helps ensure successful application rollouts and provides crucial information for establishing and meeting service requirements.

Our Vantage products, complemented with our Gomez web performance services, which are used by enterprises to test and monitor the performance, availability and quality of their web applications, and our Strobe product, which measures application performance and inefficiencies within the mainframe environment, provide IT organizations with a comprehensive set of solutions that provide visibility and deep-dive resolution across the entire application delivery chain, spanning both the enterprise and the Internet. We believe these solutions will be significant contributors to the future growth of our revenues.

Business Portfolio Management

Compuware Changepoint is a governance and management solution addressing the needs of executives at the helm of technology companies, enterprise IT and professional services organizations. Our business portfolio offering is the first integrated solution to enable the management of the IT, product and service portfolio, providing visibility into the health of key business deliverables from a financial, project and customer perspective.

Changepoint helps to maximize business value by improving an organization’s ability to manage key processes, provide visibility and govern decision-making. Changepoint does this by automating core business processes in and across IT, product delivery and services functions to reduce costs and increase the efficiency and quality of deliverables while allowing companies to do more with their scarce resources.

Changepoint for Technology Companies allows technology companies to maximize professional services profitability while maintaining a focus on effective product decisions and delivery. Changepoint’s integrated solution combines professional services automation (“PSA”) with project portfolio management to provide total operational visibility allowing product-centric technology companies to drive services growth with strong margins, deliver a competitive product and services mix for high return on investment, and maintain top-line revenues and bottom-line profitability.

Changepoint for IT Portfolio Management is a business-centric IT management solution that enables IT executives to take a comprehensive approach to managing supply and demand, unlocking the potential of an IT organization to effectively meet the needs of the business. Using Changepoint, CIOs can deliver maximum business value through enhanced IT performance, improved collaboration between IT and business leadership, closer alignment of resources and activities with the business strategy, increased responsiveness to changing business needs and more effective life cycle management of the entire IT portfolio.

Changepoint PSA provides a single business management solution designed specifically to automate and integrate the processes of services organizations at every stage of an engagement. With Changepoint PSA, professional services organizations can support key service delivery processes, easily pinpoint areas for improvement and track critical service performance metrics, paving the way to greater resource utilization, financial control and analysis and customer satisfaction.

Enterprise Application Development

Uniface is our service oriented architecture-based Application Platform Suite. With Uniface, developers can develop, integrate, maintain and deploy complex business-critical applications. Uniface combines the following three development techniques into one integrated tool:

	•		Component-based development, to develop individual components that will eventually become uniquely designated business services. This is mostly done in web-based environments.
	•		Process-driven design and development to create, orchestrate, monitor and tune the business flows needed to activate and execute the services.
	•		Legacy integration facilities to preserve as many legacy assets as possible, maximizing the return on investment and eliminating redevelopment risks.

Uniface is available on a wide variety of deployment platforms including Windows, Unix, Web, Mainframe and Mobile computers.

Divested Products

Our Quality and DevPartner products, except for File-AID/EX, were divested in May 2009 as discussed in Note 3 of the notes to consolidated financial statements, included in Item 8 of this report. The Quality family of products delivered a full spectrum of automated testing capabilities designed to validate applications running across various distributed environments, isolate and correct problems and ensure that applications would meet performance requirements before they were deployed in production. The DevPartner Studio family of products provided analysis, automation and metrics to help application delivery teams build reliable, high-performance applications and components for Microsoft.NET. These products provided code, memory and performance analysis and measured testing code coverage.

SEASONALITY

We tend to experience a higher volume of product transactions and associated license revenue in the quarter ended December 31, which is our third fiscal quarter, and the quarter ended March 31, which is our fourth fiscal quarter, as a result of customer spending patterns.

SOFTWARE LICENSING, PRODUCT MAINTENANCE AND CUSTOMER SUPPORT

We license software to customers using two types of software licenses, perpetual and term. Generally, perpetual software licenses allow customers a perpetual right to run our software on hardware up to a licensed aggregate MIPS (Millions of Instructions Per Second) capacity or to run our distributed software for a specified number of users or servers. Term licenses allow customers a right to run our software for a limited period of time on hardware up to a licensed aggregate MIPS capacity or for a specific number of users or servers. We also offer perpetual or term license rights that allow our customers a right to run our mainframe software on hardware with an unlimited MIPS capacity.

Our customers also purchase maintenance and support services that provide technical support and advice, including problem resolution services and assistance in product installation, error corrections and any product enhancements released during the maintenance period. Maintenance and support services are provided online, through our FrontLine technical support web site, by telephone access to technical personnel located in our development labs and by support personnel in the offices of our foreign subsidiaries and distributors.

Licensees have the option of renewing their maintenance agreements on an annual or multi-year basis for an annual fee based on the license price of the product. We also enter into agreements with our

customers that allow them to license software and purchase multiple years of maintenance in a single transaction (multi-year transactions). In support of these multi-year transactions, we allow extended payment terms to qualifying customers.

We believe that effective support of our customers and products during both the trial period and for the maintenance term is a substantial factor in product satisfaction and subsequent new product sales. We believe our installed base is a significant asset and intend to continue to provide customer support and product enhancements to ensure a continuing high level of customer satisfaction. In fiscal 2010, 2009 and 2008, we experienced high customer maintenance renewal rates.

For fiscal 2010, 2009 and 2008, software license fees represented approximately 21.8%, 20.1% and 24.2%, respectively, and maintenance fees represented approximately 49.3%, 44.0% and 38.7%, respectively, of our total revenues.

WEB PERFORMANCE SERVICES

Through the acquisition of Gomez in fiscal 2010, we expanded our solutions to include web performance services, which are used by enterprises to test and monitor the performance, availability and quality of their web applications while in development and after deployment. The web environment is becoming increasingly fragmented and complex, and a user’s experience with a company’s web application often comes together for the first time at the user’s browser, outside the view and control of the company. In order to deliver a web experience of consistently high quality in the increasingly complex web environment, companies require a web application delivery management solution capable of testing new applications accurately before deployment and testing and monitoring the quality of web application after deployment. The Gomez software-as-a-service platform enables organizations to test and monitor web applications from outside their firewall using our web performance services network (“Gomez Performance Network”). Gomez’s web performance services are delivered entirely through an on-demand, hosted model built on a multi-tenant architecture in which a single instance of the software serves all customers. This service is provided on a subscription basis, principally through tiered usage plans that contain committed testing measurement levels based on the number of web page measurements performed. Gomez customers are organizations that use the Internet to conduct commerce, convey and receive content, and communicate with customers, partners, employees and vendors.

Customers access Gomez’s web performance services through a self-service portal that provides access to services in four basic functional areas: (1) Web Cross-Browser Testing, (2) Web Load and Performance Testing, (3) Web Performance Management and (4) Web Performance Business Analysis.

Web Cross-Browser Testing — Helps ensure that an organization’s web application renders and functions optimally across numerous combinations of browsers, operating systems and access devices, including mobile devices using our Reality View XF and Reality Check XF services.

Web Load and Performance Testing — Measures web application performance, availability and quality, at normal and peak loads generated by the Gomez Performance Network, across geographic locations using our Reality Load XF service.

Web Performance Management — Monitors a web application’s performance availability and quality to provide diagnostic detail and actionable data that a customer can use to address user problems and improve response times using our Active Network XF, Active Last Mile XF, Active Data Center XF, Active Mobile XF, Active Experience XF, Private Network XF and Private Location XF services.

Web Performance Business Analysis — Provides analytics, benchmarks and dashboards that help a customer understand and manage the impact of user web experiences on the customer’s business using our Industry Benchmarks services.

For fiscal 2010, web performance services segment fees (subscription fees) represented 1.9% of our total revenues.

PROFESSIONAL SERVICES

We offer a broad range of IT services for distributed and mainframe environments, including IT portfolio management services, application delivery management services, application outsourcing services and enterprise legacy modernization services. Our service offerings are focused on six key practice areas: (1) Governance; (2) Requirements Management; (3) Quality Management; (4) Business Intelligence and Data Management; (5) Architecture and Development; and (6) Operations Management. In addition, our Solution Delivery Group offers implementation, consulting and training services in tandem with the Company’s product solutions offerings, which are referred to as product related services.

We believe that the demand for professional services will continue to be driven by our customers’ need to control costs, the significant level of resources necessary to support complex and rapidly changing hardware, software and communication technologies and our customers’ need for a larger technical staff for ongoing maintenance. Our business approach to professional services delivery emphasizes hiring experienced staff, ongoing training, high staff utilization and immediate, productive deployment of new personnel at client locations.

Our objective in the professional services division is to create long-term relationships with customers in which our professional staff join with the customer’s IT organization to plan, design, program, implement and maintain technology-based solutions that achieve customer business goals. Typically, the professional services staff is integrated with the customer’s development team on a specific application or project. Professional services staff work primarily at customer sites or at our professional services offices located throughout the world. In addition, we offer a development center that serves customers looking for flexible, cost-effective and high-quality services delivered remotely from our facility in Montreal, Canada.

For fiscal 2010, 2009, and 2008, professional services segment fees represented approximately 22.5%, 32.7%, and 34.1%, respectively, of our total revenue. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, included in Item 7 of this report, for information on how our business strategy has impacted our professional services segment fees.

APPLICATION SERVICES

Our application services, which are marketed under the brand name “Covisint”, provide a software-as-a-service platform, referred to as the Covisint ExchangeLink, which offers industry-specific solutions for organizations in automotive, healthcare, public sector, and financial services industries, and offers support services in seven languages in emerging markets.

Covisint streamlines and automates business processes, globally connecting business communities, organizations and systems. Companies of all sizes, locations, and technical capacities rely on Covisint to enable the secure sharing of vital business information, applications and business processes across their internal and extended enterprise to deliver innovative approaches in solving their business problems.

Covisint uses an industry-centric approach that leverages deep expertise and state-of-the-art technology to address industry specific needs. With this approach, Covisint bridges the gap created by dissimilar business systems, and allows businesses to work with the myriad of processes and technologies used by its partners.

Covisint ExchangeLink is a platform that includes services for identity management, community collaboration, and electronic messaging. Underlying these core service offerings are Covisint Support Services including security, availability, response times and global customer support.

The Covisint ExchangeLink platform allows us to provide four types of services: (1) Collaboration Portal Services; (2) Identity Services; (3) Data Exchange Services; and (4) AppCloud:

Collaboration Portal Services (“CPS”) — is based on a highly scalable, reliable, and secure service-oriented architecture solution that is deployed using a software-as-a-service model to provide a secure, modular framework that supports sharing information and applications with entities outside the organization.

Identity Services – allows companies and governments to securely share information and provide access to applications inside the organization. Identity Services provides a broad range of identity management features that can be utilized to implement custom identity management solutions.

Data Exchange Services (“DES”) — supports mission critical processes for companies worldwide. Our DES offers industry compliant electronic data interchange (“EDI”) solutions for companies of any size or complexity. Supporting a broad range of system interfaces, document types and protocols, DES provides the flexibility and power for a global EDI solution.

AppCloud — Provides a self-service environment that allows a single point of integration for application providers who want to share their applications and/or data with members of Covisint user communities. It also provides sponsoring organizations with a single location to obtain business relevant third-party applications for their users.

For fiscal 2010, 2009 and 2008, application services segment fees represented approximately 4.5%, 3.2% and 3.0%, respectively, of our total revenue.

CUSTOMERS

Our products, web performance services, professional services and application services are used by the IT departments of a wide variety of commercial and government organizations.

We did not have a single customer that accounted for greater than 10% of total revenue during fiscal 2010, 2009 or 2008, or greater than 10% of accounts receivable at March 31, 2010 and 2009.

RESEARCH AND DEVELOPMENT

We have been successful in developing acquired products and technologies into marketable software. Our research and development organization is primarily focused on enhancing and strengthening the capabilities of our current software products, web performance services network and application services network; along with designing and developing new web performance services and application services.

We believe that our future growth lies in part in continuing to identify promising technologies from all potential sources, including independent software developers, customers, other companies and internal research and development.

As of March 31, 2010, development activities associated with our software product, web performance services network and application services network are performed primarily at our headquarters in Detroit, Michigan; and at our development labs in Amsterdam, The Netherlands; Gdansk, Poland; Toronto, Canada; Lexington, Massachusetts; and Beijing, China.

Research and development (“R&D”) costs were $65.8 million, $64.3 million and $76.2 million, respectively, during fiscal 2010, 2009 and 2008 of which $9.8 million, $15.1 million and $14.4 million, respectively, were capitalized for internally developed software technology. R&D costs related to our software products and web performance services network are reported as “Technology development and support” in the consolidated statements of operations and for our application services network, the costs are reported as “Cost of professional services”.

TECHNOLOGY AND NETWORKS OPERATIONS

Web Performance Services Network

We designed our web performance services as multi-tenant networked computing applications and deliver those services entirely through an on-demand, hosted model. As such, we provide customer provisioning, application installation, application configuration, server maintenance, server co-location, data center maintenance, short-term data backup and data security.

Our web performance services enable a company to test and monitor the web experience from outside its firewall using the Gomez Performance Network, which encompasses the following:

	•		over 150 backbone nodes located in more than 30 countries, and 11 mobile carriers in 3 countries;
	•		over 100,000 last mile measurement points located in more than 160 countries;
	•		our central data warehouse and three other third-party data center facilities; and
	•		our portal into our customer data warehouse.

Our backbone nodes are measurement computers, or sets of multiple computers, co-located at the data center facilities of major telecommunication providers. In addition, backbone nodes can be configured for use exclusively by a single customer as part of our Private Network XF service.

In order to establish our last mile measurement points, we engage individuals, or peers, located in more than 160 countries to provide bandwidth and computing resources on personal computers connected via local Internet service providers.

Our backbone nodes and last mile measurement points emulate a user accessing a web application from a web browser. As the software accesses the web application and executes transactions as a user would, it performs timing and availability measurements for the objects that comprise the web pages it traverses. When a customer measures the web experience using our backbone nodes or last mile measurement points, the test results and other measurement data are collected and stored in near-real-time at our data warehouses. Customers can access our Gomez portal in order to reach the measurement data that have been captured in our data warehouses.

We service customers from four third-party data center facilities, including our central data warehouse. Two of these facilities are located in Massachusetts, one in Texas and one in Virginia. Our data centers are designed to be scalable and to support control and data replication for large numbers of measurement nodes. Each of the facilities has multiple high bandwidth interconnects to the Internet.

Application Services Network

Our application services are delivered through an on-demand, hosted model providing access across the globe referred to as the Covisint ExchangeLink Network. The network’s primary data center is hosted by a Savvis Communications Generation 5 facility located in Elk Grove, Illinois and is connected globally through a federated network that interconnects to Network Access Points (“NAP”) located in Shanghai, China; Frankfurt, Germany; and Tokyo, Japan. These NAPs are used to support local network protocols and reduce network latency and are hosted by a major telecommunications provider. The network connections between our primary data center and the NAPs are fully redundant, high speed Internet connections using content caching to reduce network latency. Covisint’s disaster recovery center is located in our headquarters building in Detroit, Michigan.

SALES AND MARKETING

We market software products, web performance services and product related professional services primarily through a direct sales force in the United States, Canada, Europe, Japan, Asia-Pacific, Brazil, Mexico and South Africa; an inside sales force in Lexington, Massachusetts for our web performance services; and through independent distributors, giving us a presence in approximately 60 countries. We market our professional and application services primarily through account managers located in offices throughout North America. This marketing structure enables us to keep abreast of, and respond quickly to; the changing needs of our customers and to call on the actual users of our products and services on a regular basis.

COMPETITION

The markets for our software products are highly competitive and characterized by continual change and improvement in technology. We consider more than 40 firms to be directly competitive with one or more of our products. These competitors include BMC Software, Inc., CA, Inc., International Business Machines Corporation (“IBM”) and Hewlett-Packard Company. Some of these competitors have substantially greater financial, marketing, recruiting and training resources than we do. The principal competitive factors affecting the market for our software products include: responsiveness to customer needs; functionality, performance and reliability of our software products; ease of use; quality of customer support; vendor reputation; distribution channels; and price.

The distributed software market in which we operate has many more competitors than our traditional mainframe market. Our ability to compete effectively and our growth prospects depend upon many factors, including the success of our existing distributed products, the timely introduction and success of future software products, the ability of our products to interoperate and perform well with existing and future leading databases and other platforms supported by our products and our ability to bring products to market that meet ever-changing customer requirements.

The market for our web performance services is competitive and rapidly changing. Our competitors currently include Keynote Systems, Hewlett-Packard, Neustar and a number of smaller, privately held companies. The principal competitive factors affecting the market for our web performance services include real-time availability of data and reporting; the proven performance, security, scalability, flexibility and reliability of services offered; the usability of services offered, including ease of implementation and use; and pricing.

The market for professional services is highly competitive, fragmented and characterized by low barriers to entry. Our principal competitors include Accenture Ltd., Computer Sciences Corporation, HP Enterprise Services (a Hewlett-Packard Company), IBM Global Services, Analysts International Corporation, Keane, Inc., Infosys Technologies, Sun Microsystems (an Oracle Corporation Company) and numerous other regional and local firms in the markets in which we have professional services offices. Several of these competitors have substantially greater financial, marketing, recruiting and

training resources than we do. The principal competitive factors affecting the market for our professional services include responsiveness to customer needs, breadth and depth of technical skills offered, availability and productivity of personnel, the ability to demonstrate achievement of results, and price.

The market for application services includes communication and collaboration services, user identity and access management services and system to system communications provided in a software-as-a service model. We provide application services primarily in the automotive and healthcare vertical markets (“verticals”). The application services market is competitive in some verticals and highly competitive related to system to system communications. Our principal competitors within the automotive and healthcare verticals include HP Enterprise Services (a Hewlett-Packard Company), IBM Global Services, GXS Strategies, General Electric Company and other regional and local firms in the markets in which we have customers or potential customers. In the other verticals served, since the market is not yet fully developed, the competition is not as entrenched but other traditional software companies are beginning to provide offerings in a software-as-a-service model. Some key competitive factors are speed of implementation, reduced capital investment, reduced risk related to regulatory compliance and implementation problems, inclusion of state of the art technology features, solution performance, ability to meet customer service level requirements and price.

A variety of external and internal events and circumstances could adversely affect our competitive capacity. Our ability to remain competitive will depend, to a great extent, upon our performance in product development and customer support, effective sales execution and our ability to acquire and integrate new technologies. To be successful in the future, we must respond promptly and effectively to the challenges of technological change and our competitors’ innovations by continually enhancing our own software products, web performance services, professional services and application services.

PROPRIETARY RIGHTS

We regard our intellectual property and technology as proprietary trade secrets and confidential information. We rely largely upon a combination of trade secret, copyright and trademark laws together with our license and service agreements with customers and our internal security systems, confidentiality procedures and employee agreements to maintain the trade secrecy of our intellectual property and technology. We typically provide our products to users under nonexclusive, nontransferable, perpetual licenses. We protect our proprietary rights under license agreements which define how our customers use our products. Under certain limited circumstances, we may be required to make source code for our products available to our customers under an escrow agreement, which restricts access to and use of the source code. Although we take steps to protect our trade secrets, there can be no assurance that misappropriation will not occur. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States.

In addition to trade secret protection, we seek to protect our software technology, documentation and other written materials under copyright law, which affords only limited protection. We also assert registered trademark rights in our product names. As of March 31, 2010, we have been granted 35 patents issued primarily in the United States and have 26 patent applications pending primarily with the United States Patent and Trademark Office for certain product technology and have plans to seek additional patents in the future. Once granted, we expect the duration of each patent will be up to 20 years from the effective date of filing of the applications. Our earliest issued patent filing date is fiscal 1992. In addition, we are a party to a patent cross license agreement with IBM under which each party is granted a perpetual, irrevocable, nonexclusive license to certain of each other’s patents issued or pending prior to March 21, 2009.

Because the industry is characterized by rapid technological change, we believe that factors such as the technological and creative skills of our personnel, new technology developments, frequent software enhancements, name recognition and reliable product maintenance are more important to establishing and maintaining a technology leadership position than legal protection of our technology.

There can be no assurance that third parties will not assert infringement claims against us with respect to current and future products and technology or that any such assertion will not require us to enter into royalty arrangements which could require a payment to the third party upon sale of the product, or result in costly litigation.

EMPLOYEES

As of March 31, 2010, we employed 4,336 people worldwide, with 977 in product and web performance sales, sales support and marketing; 1,143 in technology development and support; 1,290 in professional services, 305 in application services and 621 in other general and administrative functions. Only a small number of our international employees are represented by labor unions. We have experienced no work stoppages and believe that our relations with our employees are good. Our success will depend in part on our continued ability to attract and retain highly qualified, experienced and talented personnel.

Executive Officers of the Registrant

Our current executive officers, which serve at the discretion of our Board of Directors, are listed below:

Name		Age				Position
Peter Karmanos, Jr.			67			Chairman of the Board and Chief Executive Officer
Robert C. Paul			47			President, Chief Operating Officer and member of the Board of Directors
Laura L. Fournier			57			Executive Vice President and Chief Financial Officer
Paul A. Czarnik			54			Chief Technology Officer
Denise A. Knobblock Starr			55			Executive Vice President and Chief Administrative Officer
Daniel S. Follis, Jr.			44			Vice President, General Counsel and Secretary

Peter Karmanos, Jr., is a founder of the Company and has served as Chairman of the Board since November 1978, as Chief Executive Officer since July 1987 and as President from January 1992 through October 1994 and October 2003 through March 2008.

Robert C. Paul has served as President and Chief Operating Officer of Compuware since April 2008 and was appointed a member of the Board of Directors in March 2010. Prior to that time, Mr. Paul was President and Chief Operating Officer of Compuware Covisint since its acquisition by Compuware in March 2004. Mr. Paul had spent nearly three years at Covisint prior to the acquisition.

Laura L. Fournier has served as Executive Vice President since April 2008 and as Chief Financial Officer since April 1998. Ms. Fournier was Corporate Controller from June 1995 through March 1998. From February 1990 through May 1995, Ms. Fournier was Director of Internal Audit.

Paul A. Czarnik has served as Chief Technology Officer since December 2008. Prior to that time, Mr. Czarnik held numerous management positions in the Technology Department, including Senior Vice President of Technology from April 2008 through December 2008 and Vice President of Product Architecture from April 2002 through March 2008. Mr. Czarnik joined Compuware in 1981 as a Professional Services Consultant.

Denise A. Knobblock Starr has served as Executive Vice President of Administration since April 2002 and as Chief Administrative Officer since April 2007. Ms. Knobblock Starr was Executive Vice President of Human Resources and Administration from April 1998 through March 2002. From April 1995 through March 1998, she was Senior Vice President of Purchasing, Facilities, Administration and Travel. Ms. Knobblock Starr served as the Director of Administration and Facilities from April 1991 to March 1995. She joined Compuware in January 1989 as Manager of Administration and Facilities.

Daniel S. Follis, Jr. has served as Vice President, General Counsel and Secretary since March 2008. From January 2006 through February 2008, he served as Vice President, Associate General Counsel. Mr. Follis joined Compuware in March 1998 as Senior Counsel.

SEGMENT INFORMATION, PAYMENT TERMS AND FOREIGN REVENUES

For a description of revenues and operating profit by segment and for financial information regarding geographic operations for each of the last three fiscal years, see Note 13 of the notes to consolidated financial statements, included in Item 8 of this report. For a description of extended payment terms offered to some customers, see Note 1 of the notes to consolidated financial statements, included in Item 8 of this report. The Company’s foreign operations are subject to risks related to foreign exchange rates and other risks. For a discussion of risks associated with our foreign operations, see Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosure about Market Risk.

ITEM 1A. RISK FACTORS

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that we believe affect us are described below. The risks and uncertainties described below are not the only ones we face. Additional 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. 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.

The majority of our products segment revenue is dependent on our customers’ continued use of International Business Machines Corporation and IBM-compatible products.
The majority of our revenue from software products is generated from products designed for use with IBM and IBM-compatible mainframe operating systems. As a result, the majority of our revenue from software products is dependent on our customers’ continued use of these systems. In addition, because our products operate in conjunction with IBM operating systems software, changes to IBM’s mainframe operating systems may require us to adapt our products to these changes. IBM also provides competing products designed for use with their mainframe operating systems. A decline in our customer’s use of IBM and IBM-compatible mainframe operating systems, delays or the inability to keep our products current with changes to IBM’s mainframe operating systems, or the loss of market share to IBM’s competing products could have a material adverse effect on our results of operations and cash flow.

Our product revenue is dependent on the acceptance of our pricing structure for software licenses, maintenance services and web performance services.
The pricing of our software licenses, maintenance services and web performance services is under constant pressure from customers and competitive vendors that can negatively impact our product revenue. These competitive pressures could have a material adverse effect on our results of operations and cash flow.

Maintenance revenue could continue to decline.
Our maintenance revenue has been negatively affected by reduced pricing for mainframe maintenance renewals and the decline in new mainframe maintenance arrangements. If we are unable to increase new product sales and maintenance contract renewals to outpace the combined impact of maintenance cancellations, reduced pricing for maintenance renewals and currency fluctuations, our maintenance revenues will continue to decline, which could have a material adverse effect on our results of operations and cash flow.

The markets for web performance services are at an early stage of development with emerging competitors. If these markets do not develop or develop more slowly than we expect, or if there is an increase in competition, our revenue may decline or fail to grow.
We derive revenue from providing on-demand web performance services. While web applications have become increasingly significant for a growing number of companies, the market for web performance 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 organizations to increase their use of web performance 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. This market is also competitive and rapidly changing, and several of our competitors have greater financial and marketing resources than we do. As a result, our competitors may be more efficient and effective at achieving the following principal competitive factors affecting the market for web performance services: real-time availability of data and reporting, the proven performance, security, scalability, flexibility and reliability of services offered; the usability of services offered, including ease of implementation and use; and pricing. If we are less successful at achieving one or more of these factors than our competitors or the

demand for web performance services declines or does not grow, we may lose market share which could have a material adverse effect on our business, financial condition and operating results.

The market for application services is in its early stages of development with emerging competitors. As the market matures, competition may increase and could have a material negative impact on our results of operations.
Several of our competitors in the application services market have substantially greater financial, marketing, recruiting and training resources than we do. As a result, our competitors may be more efficient and effective at achieving the following principal competitive factors affecting the market for application services: speed of implementation, reduced risk related to regulatory compliance and implementation problems, inclusion of state of the art technology features, solution performance, ability to meet customer service level requirements and price. If we are less successful at achieving one or more of these factors than our competitors, we may lose market share which could have a material adverse effect on our business, financial condition and operating results.

If we are not successful in implementing our professional services strategy, our operating margins may decline materially.
Our business strategy for the professional services segment is to improve the segment’s operating margin by requiring certain margin thresholds for all new business and managing the segment operating expenses accordingly. If our customers will not accept the higher billing rates necessary to achieve these minimum thresholds, our revenues and operating margins may be negatively impacted which could have a material adverse effect on our results of operations and cash flow.

We may fail to achieve our forecasted financial results due to inaccurate sales forecasts or other unpredictable factors. If we fail to meet the expectations of analysts or investors, our stock price could decline substantially.
Our revenues, particularly our software license revenues, are difficult to forecast. Software license revenues in any quarter are substantially dependent on orders booked in the quarter. Our sales personnel monitor the status of all proposals and estimate when a customer will make a purchase decision and the dollar amount of the sale. These estimates are aggregated periodically to generate the sales forecast. Our sales forecast estimates could prove to be unreliable both in a particular quarter and over a longer period of time as a significant amount of our transactions are completed during the final weeks and days of the quarter. Therefore, we generally do not know whether revenues or earnings will have met expectations until after the end of the quarter. Also, the manner in which our customers license our products can cause revenues to be deferred or recognized ratably over time and changes in the mix of customer agreements could adversely affect our revenues. As a result, our actual financial results can vary substantially from our forecasted results.

In addition, investors should not rely on the results of prior periods or on historical seasonality in license revenue as an indication of our future performance. Our operating expense levels are relatively fixed in the short-term and are based, in part, on our expectations of future revenue. If we have unanticipated lower sales in any given quarter, we will not be able to reduce our operating expenses for that quarter proportionately in response. Therefore, net income may be disproportionately affected by a fluctuation in revenue.

Any significant shortfall in revenues or earnings; or lowered expectations could cause our common stock price to decline.

Future changes in the United States and global economies may reduce demand for our products and services, which may have a material adverse effect on our revenues and operating results.
Our revenues and profitability depend on the overall demand for our software products, web performance services, professional services and application services. Regional and global economic change and uncertainty have resulted in companies reassessing their spending for technology projects. If the economies within the United States and/or other geographic regions in which we operate experience a slowdown or recession, it could have a material adverse effect on our results of operations and cash flow.

Defects or disruptions in our web performance services or application services networks 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 performance services or application services networks 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. 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. Our customers might use our web performance services in ways that cause a service disruption for other customers. These defects or 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 have a material adverse effect on our results of operations and cash flow.

Future changes in the U.S. domestic automotive manufacturing business could reduce demand for our professional services and application services, which may have a material negative effect on our revenues and operating results.
A substantial portion of our worldwide professional services revenue, which includes the professional services segment and the application services segment, has been generated from customers in the automotive industry, with General Motors Company currently being our largest customer.

Many of our customers in the domestic automotive industry are engaged in restructuring and other efforts to cut costs, including IT expenditures. Further negative developments in this industry, including additional bankruptcies, could reduce the demand for our services and increase the collection risk of accounts receivables from these customers, which could have a material adverse effect on our professional and application services results of operations and operating margin in this business.

If the fair value of our long-lived assets deteriorated below the carrying value of these assets, recognition of an impairment loss would be required, which could materially and adversely affect our financial results.
We evaluate our long-lived assets, including property and equipment, goodwill, acquired product rights and other intangible assets, whenever events or circumstances occur that may indicate these assets are impaired or periodically as required by generally accepted accounting principles. In the continuing process of evaluating the recoverability of the carrying amount of our long-lived assets, there is the possibility that we could identify a substantial impairment, which could have a material adverse effect on our results of operations.

Our software technology may infringe the proprietary rights of others.
Our software technology is developed or enhanced internally or acquired through acquisitions.

All employees sign an agreement that states the employee was hired for his or her talent and skill rather than for any trade secrets or proprietary information of others of which he or she may have knowledge. Further, our employees execute an agreement stating that work developed for us or our clients belongs to us or our clients, respectively.

During the due diligence stage of any software technology acquisition, we research and investigate the title to the software technology we will be acquiring from the seller. This investigation generally includes without limitation, litigation searches, copyright and trademark searches, review of development documents and interviews with key employees of the seller regarding development, title and ownership of the software technology being acquired. The acquisition document itself generally contains representations, warranties and covenants concerning the title and ownership of the software technology as well as indemnification and remedy provisions in the event the representations, warranties and covenants are breached by the seller.

Although we use all reasonable efforts to ensure we do not infringe on third party intellectual property rights, there can be no assurance that third parties will not assert infringement claims against us with respect to our current and future software technology or that any such assertion will not require us to enter into royalty arrangements or result in costly litigation.

Our results could be adversely affected by increased competition, pricing pressures and technological changes within the software products market.
The markets for our software products are highly competitive. We consider over 40 firms to be directly competitive with one or more of our products and several of these have greater financial and marketing resources than we do. The principal competitive factors affecting the market for our software products include: responsiveness to customer needs, functionality, performance, reliability, ease of use, quality of customer support, sales channels, vendor reputation and price. A variety of external and internal events and circumstances could adversely affect our competitive capacity. Our ability to remain competitive will depend, to a great extent, upon our performance in sales, product development and customer support. To be successful in the future, we must respond promptly and effectively to our customers’ purchasing methodologies, challenges of technological change and our competitors’ innovations by continually enhancing our product offerings.

We operate in an industry characterized by rapid technological change, evolving industry standards, changes in customer requirements and frequent new product introductions and enhancements. If we fail to keep pace with technological change in our industry, such failure would have an adverse effect on our revenues. During the past several years, many new technological advancements and competing products entered the marketplace. To the extent that our current product portfolio does not meet such changing requirements, our revenues will suffer. Delays in new product introductions or less-than-anticipated market acceptance of these new products are possible and could have a material adverse effect on our revenues.

Developers of third party products, including operating systems, databases, systems software, applications, networks, servers and computer hardware, frequently introduce new or modified products. These new or modified third party products could incorporate features which perform functions currently performed by our products or could require substantial modification of our products to maintain compatibility with these companies’ hardware or software. While we have generally been able to adapt our products and our business to changes introduced by new or modified third party product offerings, there can be no assurance that we will be able to do so in the future. Failure to adapt our products in a timely manner to such changes or customer decisions to forego the use of our products in favor of those with comparable functionality contained either in the hardware or other software could have a material adverse effect on our results of operations and cash flow.

The market for professional services is highly competitive, fragmented and characterized by low barriers to entry.
We have numerous competitors in the professional services markets in which we operate. Several of these competitors have substantially greater financial, marketing, recruiting and training resources than we do. The principal competitive factors affecting the market for our professional services include responsiveness to customer needs, breadth and depth of technical skills offered, availability and productivity of personnel, ability to demonstrate achievement of results and price. There is no assurance that we will be able to compete successfully in the future.

We must develop or acquire product enhancements and new products to succeed.
Our success depends in part on our ability to develop product enhancements and new products that keep pace with continuing changes in technology and customer preferences. The majority of our products have been developed from acquired technology and products. We believe that our future growth lies, in part, in continuing to identify, acquire and then develop promising technologies and products. While we are continually searching for acquisition opportunities, there can be no assurance that we will continue to be successful in identifying, acquiring and developing products and technology. If any potential acquisition opportunities are identified, there can be no assurance that we will consummate and successfully integrate any such acquisitions and there can be no assurance as to the timing or effect on our business of any such acquisitions. Our failure to develop technological improvements or to adapt our products to technological change may, over time, have a material adverse effect on our business.

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.
As part of our overall strategy, we have acquired or invested in, and plan to continue to acquire or invest in, complementary companies, products, and technologies and may enter into joint ventures and strategic alliances with other companies. Risks commonly encountered in such transactions include: the difficulty of assimilating the operations and personnel of the combined companies; the risk that we may not be able to integrate the acquired technologies or products with our current products and technologies; the potential disruption of our ongoing business; the inability to retain key technical, sales and managerial personnel; the inability of management to maximize our financial and strategic position through the successful integration of acquired businesses; the risk that revenues from acquired companies, products and technologies do not meet our expectations; and decreases in reported earnings as a result of charges for in-process research and development and amortization of acquired intangible assets.

For us to maximize the return on some of our investments in acquired companies, the products of these entities must be integrated with our existing products. These integrations can be difficult and unpredictable, especially given the complexity of software and that acquired technology is typically developed independently and designed with no regard to integration. The difficulties are compounded when the products involved are well-established because compatibility with the existing base of installed products must be preserved. Successful integration also requires coordination of different development and engineering teams. This too can be difficult and unpredictable because of possible cultural conflicts and different opinions on technical decisions and product roadmaps. There can be no assurance that we will be successful in our product integration efforts or that we will realize the expected benefits.

With each of our acquisitions, we have initiated efforts to integrate the disparate cultures, employees, systems and products of these companies. Retention of key employees is critical to ensure the continued development, support, sales and marketing efforts pertaining to the acquired products. We have implemented retention programs to keep many of the key technical and sales employees of acquired companies. Nonetheless, we have lost some key employees and may lose others in the future.

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.
Over one-third of our total revenues are derived from foreign operations and we expect that foreign operations will continue to generate a significant percentage of our total revenues. Products and services are generally priced in the currency of the country in which they are sold. Changes in the exchange rates of foreign currencies or exchange controls may adversely affect our results of operations. The international business is also subject to other risks, including the need to comply with foreign and U.S. laws and the greater difficulty of managing business overseas. In addition, our foreign operations are affected by general economic conditions in the international markets in which we do business. A worsening of economic conditions in these markets could cause customers to delay or

forego decisions to license new products or to reduce their requirements for professional and application services.

Current laws may not adequately protect our proprietary rights.
We regard our software as proprietary and attempt to protect it with copyrights, trademarks, trade secret laws and/or restrictions on disclosure, copying and transferring title. Despite these precautions, it may be possible for unauthorized third parties to copy certain portions of our products or to obtain and use information that we regard as proprietary. We have many patents and many patent applications pending. However, existing patent and copyright laws afford only limited practical protection. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States. Any claims against those who infringe on our proprietary rights can be time consuming and expensive to prosecute, and there can be no assurance that we would be successful in protecting our rights despite significant expenditures.

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.
Our success depends in part upon the continued service of our key senior management and technical personnel. Such personnel are employed at-will and may leave Compuware at any time. Our success also depends on our continuing ability to attract and retain highly qualified technical, managerial and sales personnel. The market for professional services and software products personnel has historically been, and we expect that it will continue to be, intensely competitive. There can be no assurance that we will continue to be successful in attracting or retaining such personnel. The loss of certain key employees or our inability to attract and retain other qualified employees could have a material adverse effect on our business.

Unanticipated changes in our operating results or effective tax rates, or exposure to additional income tax liabilities, could affect our profitability.
We are subject to income taxes in both the United States and numerous foreign jurisdictions. Significant judgment is required in determining our worldwide provision for income taxes. One of the components that need to be evaluated is the realization of our deferred tax assets. We must assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. Changes in estimates of projected future operating results or in assumptions regarding our ability to generate future taxable income could result in significant increases to our valuation allowance and tax expense that would reduce net income.

In addition, we recognize reserves for uncertain tax positions through tax expense for estimated exposures related to our current tax positions. We evaluate the need for reserves for uncertain tax positions on a quarterly basis and any change in the amount will be recorded in our results of operations, as appropriate. It could take several years to resolve certain of these reserves for uncertain tax positions.

We are also subject to routine corporate income tax audits in the jurisdictions in which we operate. Our provision for income taxes includes amounts intended to satisfy income tax assessments that are likely to result from the examination of our corporate tax returns that have been filed in these jurisdictions. The amounts ultimately paid upon resolution of these examinations could be materially different from the amounts included in the provision for income taxes and result in increases to tax expense.

Our stock repurchase plan may be suspended or terminated at any time, which may result in a decrease in our stock price.
We have repurchased shares of our common stock in the market during the past several years and currently repurchase shares under an arrangement pursuant to which management is permitted to determine the amount and timing of repurchases in its discretion subject to an overall limit. Our ability and willingness to repurchase shares is subject to, among other things, the availability of cash resources and credit at rates and upon terms we believe are prudent. Stock market conditions, the market value of our common stock and other factors may also make it imprudent for us from time to

time to engage in repurchase activity. There can be no assurance that we will continue to repurchase shares at historic levels or at all. If our repurchase program is curtailed, our stock price may be negatively affected.

Acts of terrorism, acts of war and other unforeseen events may cause damage or disruption to us or our customers, which could materially and adversely affect our business, financial condition and operating results.
Natural disasters, acts of war, terrorist attacks and the escalation of military activity in response to such attacks or otherwise may have negative and significant effects, such as imposition of increased security measures, changes in applicable laws, market disruptions and job losses. Such events may have an adverse effect on the economy in general. Moreover, the potential for future terrorist attacks and the national and international responses to such threats could affect the business in ways that cannot be predicted. The effect of any of these events or threats could have a material adverse effect on our business, financial condition and results of operations.

Our articles of incorporation, bylaws and rights agreement as well as certain provisions of Michigan law may have an anti-takeover effect.
Provisions of our articles of incorporation and bylaws, Michigan law and the Rights Agreement, dated October 25, 2000, as amended, between Compuware Corporation and Equiserve Trust Company, N.A. (now known as Computershare Trust Company N.A.), as rights agent, could make it more difficult for a third party to acquire Compuware, even if doing so would be perceived to be beneficial to shareholders. The combination of these provisions inhibits a non-negotiated acquisition, merger or other business combination involving Compuware, which, in turn, could adversely affect the market price of our common stock.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None

ITEM 2. PROPERTIES

Our executive offices, primary research and development lab, principal marketing department, primary professional and application services office, customer service and support teams are located in our corporate headquarters building in Detroit, Michigan. We own the facility, which is approximately 1.1 million square feet, including approximately 304,000 square feet designated for lease to third parties for office, retail and related amenities and approximately 4,244 square feet donated for use by local not-for-profit organizations. In addition, we lease approximately 217,000 square feet of land on which the facility resides.

We lease approximately 82 sales and professional services offices in 29 countries, including 5 remote product research and development facilities.

ITEM 3. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows. See Note 14 of the notes to consolidated financial statements, included in Item 8 of this report, for additional information.

PART II

ITEM 5.		MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The NASDAQ Global Select Market (“NASDAQ”) under the symbol CPWR. As of May 14, 2010, there were 4,062 shareholders of record of our common stock. We have not paid any cash dividends on our common stock since fiscal 1986 and have no current intention to pay dividends. The following table sets forth the range of high and low sale prices for our common stock for the periods indicated, all as reported by NASDAQ.

Fiscal Year Ended March 31, 2010		High				Low
Fourth quarter		$	8.80			$	7.00
Third quarter			8.95				6.79
Second quarter			7.82				6.30
First quarter			8.18				6.49

Fiscal Year Ended March 31, 2009		High				Low
Fourth quarter		$	7.35			$	5.18
Third quarter			9.69				5.08
Second quarter			11.91				9.08
First quarter			10.42				6.97

Common Share Repurchases

The following table sets forth, the repurchases of common stock for the quarter ended March 31, 2010:

														Approximate dollar
														value of shares
										Total number of				that may yet be
						Average				shares purchased				purchased under
		Total number of				price paid				as part of publicly				the plan or
Period		shares purchased				per share				announced plans				program (1)
For the month ended January 31, 2010			—			$	—							$	425,705,000
For the month ended February 28, 2010			1,869,900				7.27				1,869,900				412,113,000
For the month ended March 31, 2010			1,004,059				8.16				1,004,059				403,920,000
Total			2,873,959				7.58				2,873,959

Issuance Of Unregistered Shares

As disclosed in the Company’s annual meeting proxy statement, Peter Karmanos, Jr., the Company’s Chief Executive Officer, purchases shares from the Company on the same terms and subject to the same conditions and limitations as provided in the Company’s Employee Stock Purchase Plan (“ESPP”) with respect to all other employees of the Company, although he does not participate in the ESPP directly and is not entitled to the favorable tax treatment afforded to participants in the ESPP due to his beneficial ownership of more than 5% of the Company’s outstanding shares. The description of the ESPP included in Note 15 of the Notes to Consolidated Financial Statements, included in Item 8 of this report, is incorporated herein by reference. The Company has treated for administrative purposes the shares purchased by Mr. Karmanos as purchases pursuant to the ESPP. However, we have determined based on advice from counsel that since he is not allowed to participate in the ESPP, the issuance of shares may be considered unregistered. On February 26, 2010, 3,602 shares were issued to Mr. Karmanos for $7.07 per share under this arrangement. Mr. Karmanos continues to hold all shares purchased under this arrangement. The sales of these securities to Mr. Karmanos were exempt from the registration requirements of the Securities Act of 1933 in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. There were no underwriters involved in connection with the sale of the above securities.

Comparison of Cumulative Five Year Total Return

The following line graph compares the yearly percentage change in the cumulative total shareholder return on our common shares with the cumulative total return of each of the following indices: the S&P 500 Index, the NASDAQ Market Index and the NASDAQ Computer and Data Processing Index for the period from April 1, 2005 through March 31, 2010. The graph includes a comparison to the S&P 500 Index in accordance with SEC rules, as the Company’s common stock is part of such index. The graph assumes the investment of $100 in our common shares, the S&P 500 Index and each of the two NASDAQ indices on March 31, 2005 and the reinvestment of all dividends.

The comparisons in the graph are required by applicable SEC rules. You should be careful about drawing any conclusions from the data contained in the graph, because past results do not necessarily indicate future performance. The information contained in this graph shall not be deemed to be “soliciting material” or “filed” with the SEC or subject to the liabilities of Section 18 of the Exchange Act, except to the extent that we specifically incorporate it by reference into a document filed under the Securities Act or the Exchange Act.

Total Return To Shareholders
(Includes reinvestment of dividends)

		Base				Indexed Returns
		Period				Years Ending
		March 31,				March 31,
Company / Index		2005				2006				2007				2008				2009				2010
COMPUWARE CORP		$	100				108.75				131.81				101.94				91.53				116.67
S&P 500 INDEX			100				111.73				124.94				118.60				73.43				109.97
NASDAQ MARKET INDEX			100				119.97				134.27				118.46				85.30				142.80
NASDAQ COMPUTER & DATA PROCESSING INDEX			100				115.84				127.08				122.78				88.71				139.53

The additional information required in this section is contained in Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this report and is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The selected statement of operations and balance sheet data presented below are derived from our audited consolidated financial statements and should be read in conjunction with our audited consolidated financial statements and notes thereto and Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this report.

		Year Ended March 31,
		2010				2009				2008				2007				2006
		(In thousands, except earnings per share data)
Statement of Operations Data:
Revenues:
Software license fees		$	194,504			$	219,634			$	297,506			$	283,412			$	296,650
Maintenance and subscription fees			456,343				479,480				476,374				457,594				433,596
Professional services fees			241,332				391,341				455,731				471,996				475,115
Total revenues			892,179				1,090,455				1,229,611				1,213,002				1,205,361
Operating expenses:
Cost of software license fees			15,430				24,491				30,475				28,581				23,262
Cost of maintenance and subscription fees			42,555				41,877				46,300				41,533				41,687
Cost of professional services			216,861				368,030				413,921				420,729				417,485
Technology development and support			91,245				86,453				101,132				114,071				96,858
Sales and marketing			222,447				226,408				267,800				281,730				288,162
Administrative and general			164,633				148,019				182,488				193,578				190,538
Restructuring costs (1)			7,960				10,037				42,645
Gain on divestiture of product lines			(52,351	)
Total operating expenses			708,780				905,315				1,084,761				1,080,222				1,057,992
Income from operations			183,399				185,140				144,850				132,780				147,369
Other income, net			25,721				27,581				35,542				60,277				44,091
Income before income taxes			209,120				212,721				180,392				193,057				191,460
Income tax provision			68,314				73,074				45,998				34,965				48,500
Net income		$	140,806			$	139,647			$	134,394			$	158,092			$	142,960
Basic earnings per share (2)		$	0.61			$	0.56			$	0.47			$	0.45			$	0.37
Diluted earnings per share (2)			0.60				0.55				0.47				0.45				0.37
Shares used in computing net income per share:
Basic earnings computation			232,634				250,916				286,402				350,213				385,147
Diluted earnings computation			234,565				252,402				287,628				350,967				387,569
Balance Sheet Data (at period end):
Working capital		$	92,688			$	297,237			$	274,036			$	391,823			$	899,773
Total assets			2,013,325				1,874,850				2,018,557				2,029,412				2,510,968
Long term debt			—				—				—				—				—
Total shareholders’ equity (3)			913,813				880,648				927,031				1,132,148				1,579,499

ITEM 7.		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, including, without limitation, those discussed in Item 1A. Risk Factors and elsewhere in this report, 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. 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.

OVERVIEW

In this section, we discuss our results of operations on a segment basis. We operate in four business segments in the technology industry: products, web performance services, 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 audited consolidated financial statements and notes included in Item 8 of this report.

We deliver value to businesses by providing software and web performance solutions; professional services; and application services that improve the performance of information technology (“IT”) organizations. Originally founded in 1973 as a professional services company, we began to offer mainframe productivity tools for fault diagnosis, file and data management, and application debugging in the late 1970’s and distributed and web-based platforms in the 1990’s and 2000’s.

The Company’s products and services are offered worldwide to the largest IT organizations across a broad spectrum of technologies, including mainframe, distributed and Internet platforms and provide the following capabilities:

	•		Our products and web performance services are designed to enhance the effectiveness of key disciplines throughout IT organizations including application development and delivery, service management and IT portfolio management and the availability and quality of web applications.
	•		Our application services use business-to-business applications to integrate vital business information and processes between partners, customers and suppliers.
	•		Our IT professional services include IT portfolio management services, application delivery management services, application outsourcing services and enterprise legacy modernization services. Our professional services segment also provides implementation, consulting and training services in tandem with the Company’s product offerings which are referred to as product related services.

Annual Update

The following occurred during fiscal 2010:

	•		Achieved an increase in product software contribution margin to 50.9% in fiscal 2010 from 45.8% in fiscal 2009 as a result of the $52.4 million gain on divestiture during fiscal 2010.
	•		Experienced an increase in professional services segment contribution margin to 10.9% in fiscal 2010 from 7.1% in fiscal 2009.
	•		Repurchased approximately 17.9 million shares of our common stock during fiscal 2010 at an average price of $7.41 per share.
	•		Released 14 mainframe and 15 distributed product enhancements.

We also continued to advance our Compuware 2.0 initiative in fiscal 2010 as follows:

	•		Acquired Gomez, a leading provider of web application performance services, for $295 million in cash (see Note 2 of the notes to consolidated financial statements, included in Item 8 of this report).
	•		Sold our Quality and DevPartner product lines (“Product Divestiture”) to Micro Focus International PLC (“Micro Focus”) realizing a gain of $52.4 million to operating income (see Note 3 of the notes to consolidated financial statements, included in Item 8 of this report).
	•		Executed our plan to have a smaller, more profitable professional services segment focused on engagements that allow us to achieve specified contribution margin targets.
	•		Advanced our application services segment business strategy with a focus on the healthcare market while maintaining customer satisfaction in the automotive industry.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain operational data from the consolidated statements of operations as a percentage of total revenues and the percentage change in such items compared to the prior period:

		Percentage of												Period-to-Period
		Total Revenues												Change
		Fiscal Year Ended												2009				2008
		March 31,												to				to
		2010				2009				2008				2010				2009
REVENUE:
Software license fees			21.8	%			20.1	%			24.2	%			(11.4	)%			(26.2	)%
Maintenance and subscription fees *			51.2				44.0				38.7				(4.8	)			0.7
Professional services segment revenue **			22.5				32.7				34.1				(43.6	)			(14.9	)
Application services segment revenue **			4.5				3.2				3.0				14.9				(5.2	)
Total revenues			100.0				100.0				100.0				(18.2	)			(11.3	)
OPERATING EXPENSES:
Cost of software license fees			1.7				2.2				2.5				(37.0	)			(19.6	)
Cost of maintenance and subscription fees *			4.8				3.8				3.7				1.6				(9.6	)
Professional services segment expenses **			20.1				30.4				30.5				(45.9	)			(11.6	)
Application services segment expenses **			4.3				3.4				3.2				2.4				(5.8	)
Technology development and support			10.2				7.9				8.2				5.5				(14.5	)
Sales and marketing			24.9				20.8				21.8				(1.7	)			(15.5	)
Administrative and general			18.4				13.6				14.8				11.2				(18.9	)
Restructuring costs			0.9				0.9				3.5				(20.7	)			(76.5	)
Gain on sale of assets			(5.9	)			0.0				0.0
Total operating expenses			79.4				83.0				88.2				(21.7	)			(16.5	)
Income from operations			20.6				17.0				11.8				(0.9	)			27.8
Other income, net			2.9				2.5				2.9				(6.7	)			(22.4	)
Income before income taxes			23.5				19.5				14.7				(1.7	)			17.9
Income tax provision			7.7				6.7				3.8				(6.5	)			58.9
Net income			15.8	%			12.8	%			10.9	%			0.8				3.9

PRODUCT SOFTWARE

In November 2009, we acquired Gomez, a leading provider of web performance services that organizations use to test and monitor the performance, availability and quality of their web applications, while in development and after deployment. We report the web performance services business as a separate segment referred to as the “web performance services segment”.

Gomez’s web performance services complement our enterprise application management products, specifically Vantage, and allow us to offer IT organizations comprehensive solutions that effectively monitor the performance of their enterprise and Internet application systems. Because of this relationship, the products segment and web performance services segment are referred together as “product software”.

The revenue for the web performance services segment is referred to as subscription fees and reported with maintenance in the consolidated statement of operations. The research and development costs and sales and marketing costs for our products segment and web performance services segment are combined and reported as “Technology development and support” and “Sales and marketing”, respectively, in the consolidated statements of operations. As a result, “Technology development and support”, “Sales and marketing” and contribution margins for the products and web performance services segments will be analyzed on a combined, product software basis within this section.

Financial information for the product software business was as follows (in thousands):

		Year Ended March 31,
		2010				2009				2008
Revenue		$	650,847			$	699,114			$	773,880
Expense			319,326				379,229				445,707
Product software contribution		$	331,521			$	319,885			$	328,173

The product software business generated a contribution margin of 50.9%, as reported, or 42.9% excluding the gain on divestiture of $52.4 million related to the Product Divestiture, during fiscal 2010 compared to 45.8% and 42.4% during fiscal 2009 and fiscal 2008, respectively.

The decrease in the contribution margin excluding the gain on divestiture in fiscal 2010 as compared to fiscal 2009 was primarily due to the decline in mainframe product revenue.

The improvement in the contribution margin in fiscal 2009 as compared to fiscal 2008 was due to product expenses decreasing at a faster rate than product revenue. Expenses decreased primarily due to the cost reduction initiatives implemented as part of the fiscal 2008 and fiscal 2009 restructuring programs that impacted the technology and sales divisions.

Product Software Revenue

Revenue for the products and web performance services segments was as follows (in thousands):

														Period-to-Period Change
		Year Ended March 31,												2009 to				2008 to
		2010				2009				2008				2010				2009
Products segment
Software license fees
Mainframe		$	108,216			$	113,014			$	151,278				(4.2	)%			(25.3	)%
Distributed excluding divested products			77,564				80,422				109,498				(3.6	)			(26.6	)
Total software license fees excluding divested products			185,780				193,436				260,776				(4.0	)			(25.8	)
Software license fees — divested products *			8,724				26,198				36,730				(66.7	)			(28.7	)
Total software license fees			194,504				219,634				297,506				(11.4	)			(26.2	)
Maintenance fees
Mainframe			327,264				337,387				335,409				(3.0	)			0.6
Distributed excluding divested products			107,388				108,049				103,074				(0.6	)			4.8
Total maintenance fees excluding divested products			434,652				445,436				438,483				(2.4	)			1.6
Maintenance fees — divested products *			4,839				34,044				37,891				(85.8	)			(10.2	)
Total maintenance fees			439,491				479,480				476,374				(8.3	)			0.7
Total products segment revenue
Mainframe			435,480				450,401				486,687				(3.3	)			(7.5	)
Distributed			198,515				248,713				287,193				(20.2	)			(13.4	)
Total products segment revenue		$	633,995			$	699,114			$	773,880				(9.3	)			(9.7	)
Web performance services segment
Subscription fees		$	16,852												n/a				n/a
Total product software revenue		$	650,847			$	699,114			$	773,880				(6.9	)			(9.7	)

Product software revenue by geographic location is presented in the table below (in thousands):

		Year Ended March 31,
		2010				2009				2008
United States		$	348,882			$	361,354			$	395,029
Europe and Africa			209,697				233,938				258,467
Other international operations			92,268				103,822				120,384
Total product software revenue		$	650,847			$	699,114			$	773,880

Product software revenue, which consists of software license fees, maintenance fees and subscription fees, comprised 73.0%, 64.1% and 62.9% of total revenue during fiscal 2010, 2009 and 2008, respectively.

Software license fees

Software license fees (“license fees”) decreased $25.1 million or 11.4% during fiscal 2010, which included a positive impact from foreign currency fluctuations of $3.1 million, and decreased $77.9 million or 26.2% during fiscal 2009, which included a negative impact from foreign currency fluctuations of $10.6 million.

Excluding the $17.4 million impact from divested products, license fees decreased $7.7 million or 4.0% during fiscal 2010 as compared to fiscal 2009. Mainframe products accounted for $4.8 million of the decrease and our distributed products accounted for $2.9 million of the decrease. Our distributed product decline was primarily due to a $6.2 million decline in Uniface and Changepoint license fees, offset by a $3.4 million increase in Vantage license fees. The license fee decline occurred during our first quarter of fiscal 2010 as the global economic slowdown that began during the second quarter of fiscal 2009 continued to affect the closure of license transactions for all our product lines. The decline was partially offset by license fees growth during the remainder of fiscal 2010 as economic conditions began to improve causing customers to increase technology spending.

The decline in software license fees in fiscal 2009 as compared to fiscal 2008 was a result of the global economic slowdown that began at the end of the second quarter of fiscal 2009 affecting the closure of license transaction deals across all product lines with Vantage, Quality and mainframe products having the greatest effect on the decline.

During fiscal 2010 and fiscal 2009, for software license transactions that are required to be recognized ratably, we deferred $55.6 million and $80.0 million, respectively, of license revenue relating to such transactions that closed during the period. We recognized as license fees $80.2 million and $84.7 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 fiscal 2010.

Maintenance fees

Maintenance fees decreased $40.0 million or 8.3% during fiscal 2010, which included a positive impact from foreign currency fluctuations of $450,000, and increased $3.1 million or 0.7% during fiscal 2009, which included a negative impact from foreign currency fluctuations of $8.0 million.

Excluding the $29.2 million impact from divested products, maintenance fees decreased $10.8 million or 2.4% during fiscal 2010 as compared to fiscal 2009. The decrease was primarily the result of reductions in our mainframe product lines. The global economic slowdown that began during the second quarter of fiscal 2009 also impacted maintenance contracts for new mainframe arrangements and the pricing of existing arrangements being renewed.

The increase in maintenance fees in fiscal 2009 as compared to fiscal 2008 was due to growth in our mainframe products, primarily Strobe, of $2.0 million and Vantage of $1.1 million.

Subscription fees

In November 2009, through the acquisition of Gomez, we began to offer, on a subscription basis, web performance services that are used to test and monitor web and mobile applications.

Revenue recognized from these services is referred to as subscription fees and totaled $16.9 million during fiscal 2010. See Note 2 of the notes to consolidated financial statements, included in Item 8 of this report, for additional information regarding historical pro forma financial results of Compuware and Gomez.

Product Software 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 Product Divestiture. As part of the Product 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.

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 $9.1 million or 37.0% during fiscal 2010 to $15.4 million from $24.5 million in fiscal 2009 and decreased $6.0 million or 19.6% during fiscal 2009 from $30.5 million in fiscal 2008.

The decrease in expense for fiscal 2010 as compared to fiscal 2009 was primarily a result of lower capitalized software amortization due to the following: (1) capitalized internal software costs associated with the products involved in the Product Divestiture were classified as held for sale at March 31, 2009, and subsequently sold, eliminating the need for future amortization; and (2) certain purchased software costs acquired in prior year acquisitions became fully amortized by the beginning of fiscal 2010.

The decrease in cost for fiscal 2009 as compared to fiscal 2008 was due to a $3.9 million capitalized software impairment charge recorded during the first quarter of fiscal 2008 associated with our restructuring initiatives. The remaining decline was primarily due to a decline in costs associated with hardware sold with our Vantage product line.

As a percentage of software license fees, cost of software license fees was 7.9%, 11.2% and 10.2% in fiscal 2010, 2009 and 2008, respectively. The decline in the percentage for fiscal 2010 as compared to fiscal 2009 was primarily due to the decrease in capitalized software amortization as identified above, partially offset by the decline in license fees in fiscal 2010. The increase in the percentage for fiscal 2009 as compared to fiscal 2008 was primarily due to the decline in license fees, partially offset by the decline in cost of license fees as previously described.

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 web performance services network related computer equipment; data center costs; and payments to individuals for tests conducted from their Internet-connected personal computers. Cost of maintenance and subscription fees increased $700,000 or 1.6% during fiscal 2010 to $42.6 million from $41.9 million in fiscal 2009 and decreased $4.4 million or 9.6% during fiscal 2009 from $46.3 million in fiscal 2008.

The increase in expense during fiscal 2010 as compared to fiscal 2009 was primarily due to $9.3 million costs associated with Gomez’s web performance services, partially offset by lower compensation and employee benefit costs resulting from the transfer of employees to Micro Focus, as discussed above, and headcount reductions resulting from our restructuring actions.

The decrease in expense for fiscal 2009 as compared to fiscal 2008 was primarily due to lower compensation and benefit costs resulting from employee headcount reductions as part of the restructuring actions taken during fiscal 2008 and fiscal 2009.

As a percentage of maintenance and subscription fees, cost of maintenance and subscription fees were 9.3%, 8.7% and 9.7% in fiscal 2010, 2009 and 2008, respectively.

Technology development and support includes, primarily, the costs of programming personnel associated with development and support of our products and the Gomez web performance services network 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.

Total technology development and support costs incurred internally and capitalized during fiscal 2010, 2009 and 2008 were as follows (in thousands):

		Year Ended March 31,
		2010				2009				2008
Technology development and support costs incurred		$	97,726			$	98,829			$	113,693
Capitalized internal software costs *			(6,481	)			(12,376	)			(12,561	)
Technology development and support costs expensed		$	91,245			$	86,453			$	101,132

Before capitalized internal software costs, total technology development and support expenditures decreased $1.1 million or 1.1%, to $97.7 million during fiscal 2010 from $98.8 million in fiscal 2009 and deceased $14.9 million or 13.1% during fiscal 2009 from $113.7 million in fiscal 2008.

The decreases in costs for fiscal 2010 and fiscal 2009 as compared to the previous periods were primarily due to lower compensation and employee benefit costs resulting from headcount reductions that occurred from restructuring actions. The headcount reduction in fiscal 2010 was further impacted by the transfer of employees to Micro Focus, as discussed above, partially offset by an increase in headcount related to the Gomez acquisition.

As a percentage of product software revenue, costs of technology development and support were 14.0%, 12.4% and 13.1% in fiscal 2010, 2009 and 2008 respectively. The percentage increase for fiscal 2010 as compared to fiscal 2009 was primarily due to the decline in product software revenue from the Product Divestiture, partially offset by the declines in compensation and employee benefit costs associated with the headcount reductions discussed below. The decline in the percentage from fiscal 2009 as compared to fiscal 2008 was due to the decline in compensation and employee benefit costs, partially offset by the decline in product software revenue.

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 decreased $4.0 million or 1.7% during fiscal 2010 to $222.4 million from $226.4 million in fiscal 2009 and decreased $41.4 million or 15.5% during fiscal 2009 from $267.8 million in fiscal 2008.

The decrease in costs for fiscal 2010 as compared to fiscal 2009 was primarily due to lower compensation, employee benefit and travel costs of $8.2 million resulting from reductions in headcount related to our restructuring actions and the transfer of employees to Micro Focus. The headcount reduction was partially offset by the addition of headcount related to the Gomez acquisition. The cost savings associated with the headcount reduction were partially offset by an increase in advertising costs primarily associated with our Compuware 2.0 marketing campaign.

The decrease in costs for fiscal 2009 as compared to fiscal 2008 was a result of lower compensation and benefit costs of $21.7 million resulting primarily from employee headcount reductions as part of the restructuring actions taken during fiscal 2008 and fiscal 2009 and decreases in bonus and commission costs of $25.4 million due to the decline in software license sales in fiscal 2009. These decreases in costs were partially offset by an increase in advertising costs primarily associated with our Compuware 2.0 marketing campaign.

As a percentage of product software revenue, sales and marketing costs were 34.2%, 32.4% and 34.6% in fiscal 2010, 2009 and 2008, respectively.

Gain on divestiture of product lines relates to the Product Divestiture that occurred in May 2009 and resulted in a gain of $52.4 million that was recognized during the first quarter of fiscal 2010. See Note 3 of the notes to consolidated financial statements, included in Item 8 of this report, for additional information on the divestiture.

PROFESSIONAL SERVICES SEGMENT

Financial information for the professional services segment is as follows (in thousands):

		Year Ended March 31, *
		2010				2009				2008
Revenue		$	200,865			$	356,111			$	418,559
Expenses			178,938				331,001				374,626
Professional services segment contribution		$	21,927			$	25,110			$	43,933

Professional services segment revenue by geographic location is presented in the table below (in thousands):

		Year Ended March 31,
		2010				2009				2008
United States		$	164,765			$	288,439			$	342,519
Europe and Africa			24,895				58,419				68,170
Other international operations			11,205				9,253				7,870
Total professional services segment revenue		$	200,865			$	356,111			$	418,559

During fiscal 2010, the professional services segment generated a contribution margin of 10.9%, compared to 7.1% and 10.5% during fiscal 2009 and fiscal 2008, respectively.

The increase in contribution margin during fiscal 2010 as compared to fiscal 2009 was due to our initiatives to exit low-margin engagements and the restructuring actions taken to date as discussed in the “Fiscal 2009 and Fiscal 2010 Restructuring” section.

The decrease in contribution margin for fiscal 2009 as compared to fiscal 2008 was due to higher costs in fiscal 2009 associated with the investment in personnel for our Solutions Delivery Group, which focuses on providing professional services associated with our product solutions, and to a lesser extent, the completion and transitioning of certain higher-margin contracts during fiscal 2008 and fiscal 2009 (see the “Professional Services Segment Revenue” section for more details).

Fiscal 2009 and Fiscal 2010 Restructuring

During fiscal 2009 and fiscal 2010, management improved the professional services segments contribution margins by initiating a plan to exit engagements that were considered low-margin and implementing restructuring actions focused on reducing headcount and operating costs. See Note 7 of the notes to consolidated financial statements, included in Item 8 of this report, for additional details related to this restructuring initiative.

Professional Services Segment Revenue

Revenue from professional services decreased $155.2 million or 43.6%, which included a positive impact from foreign currency fluctuations of $184,000, during fiscal 2010 to $200.9 million from $356.1 million in fiscal 2009 and decreased $62.4 million or 14.9%, which included a negative impact from foreign currency fluctuations of $6.1 million, during fiscal 2009 from $418.5 million in fiscal 2008.

The decrease in revenue during fiscal 2010 as compared to fiscal 2009 was primarily a result of the actions taken during fiscal 2009 and fiscal 2010 to exit low-margin engagements, with a customer in the automotive industry representing $52.0 million of the decline.

The decrease in revenue during fiscal 2009 as compared to fiscal 2008 was primarily due to an agreement to transition the employment of 170 of our professional services staff to a customer during the first quarter of fiscal 2009 resulting in a $17.0 million decline in revenues for the segment. The remaining decline was a result of two government contracts expiring that were not renewed that impacted revenue by $11.9 million, reductions in spending from a client within the automotive industry that impacted revenue by $7.2 million, our election not to renew low margin contracts in certain locations and the general slowdown in the economy that has resulted in companies not renewing or delaying IT projects.

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 expense decreased $152.1 million or 45.9% during fiscal 2010 to $178.9 million from $331.0 million in fiscal 2009 and decreased $43.6 million or 11.6% during fiscal 2009 from $374.6 million in fiscal 2008.

The decreases in costs for fiscal 2010 and fiscal 2009 as compared to the previous periods were primarily attributable to lower compensation, employee benefit and travel costs due to reductions in employee headcount and reductions in subcontractor costs resulting from our restructuring programs implemented to align operating costs with the decline in revenue (see “Fiscal 2009 and Fiscal 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):

		Year Ended March 31, *
		2010				2009				2008
Revenue		$	40,467			$	35,230			$	37,172
Expenses			37,923				37,029				39,295
Application services segment income contribution (loss)		$	2,544			$	(1,799	)		$	(2,123	)

Application services segment revenue by geographic location is presented in the table below (in thousands):

		Year Ended March 31,
		2010				2009				2008
United States		$	34,916			$	29,580			$	32,447
Europe and Africa			3,000				3,264				2,833
Other international operations			2,551				2,386				1,892
Total application services segment revenue		$	40,467			$	35,230			$	37,172

During fiscal 2010, the application services segment generated a contribution margin of 6.3% compared to a negative contribution margin of 5.1% and 5.7% during fiscal 2009 and fiscal 2008, respectively.

The improvement in the contribution margin for fiscal 2010 was due to growth in revenue, primarily from the healthcare industry, exceeding the growth in expenses which were relatively flat compared to fiscal 2009 as discussed below.

Application Services Segment Revenue

Revenue from application services increased $5.3 million or 14.9% during fiscal 2010 to $40.5 million from $35.2 million in fiscal 2009 and decreased $2.0 million or 5.2% during fiscal 2009 from $37.2 million in fiscal 2008.

The increase in revenue during fiscal 2010 as compared to fiscal 2009 was primarily due to our continued expansion into the healthcare industry and, to a lesser extent, increased spending within the manufacturing industry. We anticipate demand in the healthcare industry will continue to grow as hospitals, physicians and the United States government move towards establishing electronic patient health and medical records which will require secure computerized databases and environments for storing and sharing of information. Our healthcare portal and messaging solutions are designed to meet this demand and will be a factor in our future growth of the application services segment.

The decrease in revenue during fiscal 2009 as compared to fiscal 2008 was primarily due to the decrease in spending by our automotive clients associated with the general economic problems within the sector, offset by revenue growth within the healthcare industry.

Our application services segment generated 65% and 72%, respectively, of its revenue from the automotive industry during fiscal 2010 and fiscal 2009.

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 $900,000 or 2.4% during fiscal 2010 to $37.9 million from $37.0 million in fiscal 2009 and decreased $2.3 million or 5.8% during fiscal 2009 from $39.3 million in fiscal 2008.

The increase in expenses for fiscal 2010 as compared to fiscal 2009 was primarily due to a $3.7 million increase in compensation and employee benefits as the segment continues to increase employee staffing levels to support the growth in revenue, partially offset by an increase in incremental cost deferrals associated with customer implementations for which corresponding revenue and expenses will be recognized in the future.

The decrease in expenses during fiscal 2009 as compared to fiscal 2008 was primarily due to a decline in bonus and commission costs associated with the decline in revenue.

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 all our worldwide offices. Administrative and general expenses increased $16.6 million or 11.2% during fiscal 2010 to $164.6 million from $148.0 million in fiscal 2009 and decreased $34.5 million or 18.9% during fiscal 2009 from $182.5 million in fiscal 2008.

The increase in expenses for fiscal 2010 as compared to fiscal 2009 was primarily due to the following: (1) increase in annual bonuses of $10.3 million; (2) increase in expense of $8.6 million as foreign currency and hedging transactions resulted in a net loss of $2.2 million during fiscal 2010 compared to a net gain of $6.4 million in fiscal 2009; and (3) fiscal 2009 reflected a gain of $5.6 million that was recorded during the first quarter associated with a transaction that transitioned the employment of 170 of our professional services staff to a customer.

The increase in expenses for fiscal 2010 was partially offset by reductions in compensation, employee benefits, travel and facility costs of $9.3 million primarily due to the headcount reductions and facility closures that took place as part of recent restructuring actions.

The decrease in cost for fiscal 2009 as compared to fiscal 2008 was primarily due to the following: (1) decrease in expense of $11.4 million as foreign currency and hedging transactions resulted in a net gain of $6.4 million during fiscal 2009 compared to a net loss of $5.0 million in fiscal 2008; (2) lower bonus expense of $9.7 million as annual bonus targets were not met in fiscal 2009; (3) a gain of $5.6 million was recorded during the first quarter of fiscal 2009 associated with a transaction that transitioned the employment of 170 of our professional services staff to a customer (see Note 3 of the notes to consolidated financial statements, included in Item 8 of this report and “Professional Services Segment Revenue” within this section for more details) and (4) lower facility costs of $7.1 million primarily due to the facility closures that took place as part of the fiscal 2008 and fiscal 2009 restructuring programs.

Other income, net (“other income”) consists primarily of interest income realized from investments, interest earned on certain license fee transactions that are financed, the portion of the IBM settlement commitment not utilized through sale of products (“IBM settlement gain”) and income generated from our investments in partially owned companies. Other income decreased $1.9 million or 6.7% during fiscal 2010 to $25.7 million from $27.6 million in fiscal 2009 and decreased $7.9 million or 22.4% during fiscal 2009 from $35.5 million in fiscal 2008.

The decrease in income from fiscal 2010 as compared to fiscal 2009 was primarily attributable to a $5.0 million decline in investment interest income resulting from lower interest rates during fiscal 2010, partially offset by a $2.8 million increase in the IBM settlement gain. The IBM settlement agreement expired on March 31, 2010 (see Note 14 of the notes to consolidated financial statements, included in Item 8 of this report, for additional information).

The decrease in income from fiscal 2009 as compared to fiscal 2008 primarily resulted from a reduction in interest income of $9.1 million due to a declining average cash equivalent and investment balance during fiscal 2009 as we continued using available cash to repurchase our common stock. The decrease was partially offset by an increase of $1.8 million associated with the IBM settlement.

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 and net operating loss and credit carryforwards. The income tax provision was $68.3 million, $73.1 million and $46.0 million, respectively, in fiscal 2010, 2009 and 2008 representing an effective tax rate of 33%, 34% and 25%, respectively.

The decrease in the effective tax rate for fiscal 2010 as compared to fiscal 2009 was primarily due to the release of valuation allowances related to Brownfield Redevelopment tax credit carryforward deferred tax assets that resulted in a tax benefit of $4.1 million.

The increase in the effective tax rate for fiscal 2009 compared to fiscal 2008 resulted from an income tax benefit of $15 million recorded during fiscal 2008. This benefit related primarily to the recognition of a deferred tax asset for Brownfield Redevelopment credits available to offset Michigan Business Tax (“MBT”) liabilities through fiscal 2022.

For additional information regarding the difference between our effective tax rate and the statutory rate for fiscal 2010, 2009 and 2008, see Note 12 of the notes to consolidated financial statements, included in Item 8 of this report.

RESTRUCTURING CHARGE

Fiscal 2009 and Fiscal 2010 Restructuring Actions

During fiscal 2009 and fiscal 2010, the Company incurred restructuring charges of $10.0 million and $8.0 million, respectively, associated with the following initiatives: (1) aligning the professional services segment headcount and operating expenses after initiating a plan to exit low-margin engagements and (2) increasing the operating efficiency of our products segment and administrative and general business processes with the goal of reducing operating expenses.

During the second half of fiscal 2009, the professional services segment’s business model was realigned resulting in the Company exiting engagements considered low-margin or unprofitable. This change required the Company to undertake restructuring actions to reduce headcount and operating expenses resulting in restructuring charges of $6.3 million and $4.2 million, respectively, during fiscal 2009 and fiscal 2010. Employee termination costs were $5.4 million and $4.0 million, respectively, due to the Company eliminating 748 professional services personnel and management positions.

The second initiative, to increase the operating efficiency of the Company’s products segment and administrative and general business processes, resulted in the Company incurring restructuring charges of $3.7 million and $3.8 million, respectively, during fiscal 2009 and fiscal 2010. Employee termination costs accounted for $3.0 million and $3.6 million, respectively, of the charges due to the elimination of 194 positions within our products segment related to technology and sales and marketing personnel and 86 corporate administrative and general positions.

As part of these initiatives, full or partial closing of seven offices occurred during fiscal 2009, resulting in lease abandonment charges of $1.3 million. The remaining facilities charges for fiscal 2009 and fiscal 2010 primarily related to changes in sublease income assumptions associated with leased facilities that were abandoned in previous restructuring initiatives.

At this time, we do not have any initiatives that will require us to incur restructuring charges; however unanticipated future conditions or events may require us to reassess the need for further restructuring initiatives.

Fiscal 2008 Restructuring Actions

During fiscal 2008, the Company undertook various restructuring initiatives to improve the effectiveness and efficiency of certain critical business processes within the products segment resulting in a restructuring charge of $42.6 million. These initiatives included the realignment and centralization of certain product development activities leading to the full or partial closing of certain development labs and termination of approximately 325 employees, primarily programming personnel. The Company also terminated approximately 200 employees from various other functions of the organization, primarily within sales and marketing.

See Note 7 of the notes to consolidated financial statements, included in Item 8 of this report, for additional details related to the restructuring charges and changes in the restructuring accrual for fiscal 2008, 2009 and 2010.

MANAGEMENT’S DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1 of the notes to consolidated financial statements, included in Item 8 of this report, contains a summary of our significant accounting policies.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“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 facts and circumstances existing at March 31, 2010. However, future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. The accounting policies discussed below are considered by management to be the most important to an understanding of our 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.

Revenue Recognition – We generate revenue from licensing software products and providing maintenance services, web performance services, application services, and professional services including product implementation and consulting services.

We provide software deliverables that include licensed software product, maintenance and professional services related to our software. We also provide non-software deliverables such as professional services unrelated to our software and software-as-a-service (“SaaS”) offerings where we grant the customer a right to use the software but they do not have the right or capability to take possession of the software. SaaS offerings include web performance services and application services. In accordance with ASC 605 “Revenue Recognition”, we split arrangements that include software and non-software deliverables using either vendor specific objective evidence (“VSOE”) if available, third-party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third-party evidence is available.

Product Revenue Recognition – In order for a transaction to be eligible for revenue recognition, the following criteria must be met: persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. We evaluate collectibility based on past customer history, external credit ratings and payment terms within various customer agreements.

Perpetual license fee revenue is recognized using the residual method, under which the fair value, based on VSOE of all undelivered elements of the agreement (e.g., maintenance and professional services) is deferred. VSOE is based on rates charged for maintenance and professional services when sold separately. Based on market conditions, we periodically change pricing methodologies for license, maintenance and professional services. Changes in rates charged for stand alone maintenance and professional services could have an impact on how bundled revenue agreements are characterized as license, maintenance or professional services and therefore, on the timing of revenue recognition in the future. Pricing modifications made during the years covered by this report have not had a significant impact on the timing or characterization of revenue recognized.

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 services are the only undelivered elements, the license fee revenue is recognized on a ratable basis over the longer of the maintenance term or over the period in which the services are expected to be performed. Such transactions include term and unlimited capacity licenses as we do not sell maintenance licenses separately and therefore cannot establish VSOE for these undelivered elements in these arrangements. These arrangements do not qualify for separate recognition of the software license fees, maintenance fees and as applicable,

professional services fees under ASC 605. 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, we separate the license fee, maintenance fee and professional services fee revenue based on its determination of fair value. We apply our VSOE of fair value for maintenance related to perpetual license transactions and stand alone services arrangements as a reasonable and consistent approximation of fair value to separate license fee, maintenance fee and professional services fee revenue for income statement classification purposes.

Generally, revenues from license and maintenance transactions that include installment payment terms are recognized in the same manner as those requiring current payment. This is because we have an established business practice of offering installment payment terms to customers and have a history of successfully enforcing original payment terms without making concessions. However, because a significant portion of our license fee revenue is earned in connection with installment sales, changes in future economic conditions or technological developments could adversely affect our ability to immediately record license fees for these types of transactions and/or limit our ability to collect these receivables.

To recognize revenue for these multi-year transactions the contract price is allocated between maintenance revenue and license revenue using the residual method. License revenue associated with perpetual license agreements is recognized when the customer commits unconditionally to the transaction, the software products and quantities are fixed, the software has been delivered to the customer and collection is reasonably assured. License revenue associated with term transactions is deferred and recognized over the term of the agreement. When the license portion is paid over a number of years, the license portion of the payment stream is discounted to its net present value. Interest income is recognized over the payment term. The maintenance revenue associated with all sales is deferred and is recognized over the applicable maintenance period.

Web Performance Services Fees - Our subscription fees relate to arrangements that permit our customers to access and utilize our web performance 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.

Professional and Application Services Fees – Professional services fees are generally based on hourly or daily rates; therefore, revenues from professional services are recognized in the period the services are performed, provided that collection of the related receivable is deemed probable. For development services rendered under a fixed-price contract, revenue is recognized using the percentage of completion method and if determined that costs will exceed revenue, the expected loss is recorded at the time the loss becomes apparent.

Our application services fees are combined with professional services fees in our consolidated statement of operations and consist of fees for our on-demand software and other services. The arrangements do not provide customers the right to take possession of the software at any time, nor do the arrangements contain rights of return. We recognize revenue when all of the following criteria are 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. Certain engagements related to our application services business involve a project to setup the customer’s structure and provide on-going support for the project. Revenue associated with these projects is recognized over the service period as the customer derives value from the services, consistent with the proportional performance method.

Unforeseen events that result in additional time or costs being required to complete our fixed-price or customer’s structure setup projects could affect the timing of revenue recognition for the balance of the project as well as services margins going forward, and could have a negative effect on our results of operations.

Capitalized Software – We follow the guidance of ASC 985-20 “Costs of Software to be Sold, Leased, or Marketed” when capitalizing development costs associated with our software products and ASC 350-40 “Internal Use Software” when capitalizing development costs associated with our web performance services and application services networks. The cost of purchased and internally developed software technology is capitalized and stated at the lower of unamortized cost or expected net realizable value. We compute annual amortization using the straight-line method over the remaining estimated economic life of the software technology that is generally three to five years. Software is subject to rapid technological obsolescence and future revenue estimates supporting the capitalized software cost can be negatively affected based upon competitive products, services and pricing. Such adverse developments could reduce the estimated net realizable value of our capitalized software and could result in impairment or a shorter estimated life. Such events would require us to take a charge in the period in which the event occurs or to increase the amortization expense in future periods and would have a negative effect on our results of operations. At a minimum, we review for impairments each balance sheet date.

Impairment of Goodwill and Other Intangible Assets – We are required to assess the impairment of goodwill and other intangible assets annually, or more frequently if events or changes in circumstances indicate that the carrying value may exceed the fair value.

The performance test involves a two-step process. Step 1 of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We measure the fair value of goodwill and other intangible assets using an estimate of the related discounted cash flow and market comparable valuations, where appropriate. The discounted cash flow approach uses significant assumptions, including projected future cash flows, the discount rate reflecting the risk inherent in future cash flows, and a terminal growth rate. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs Step 2 of the goodwill impairment test to determine the amount of impairment loss by comparing the implied fair value of the respective reporting unit’s goodwill with the carrying amount of that goodwill. Under such evaluation, if the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, the impairment loss is recognized as an operating expense in an amount equal to that excess. Changes in any of these estimates and assumptions, and unknown future events or circumstances (e.g., economic conditions or technological developments), could have a significant impact on whether or not an impairment charge is recognized and the magnitude of any such charge.

Deferred Tax Assets Valuation Allowance and Tax Liabilities - Income tax expense, deferred tax assets and liabilities and reserves for uncertain tax positions reflect management’s best assessment of estimated future taxes to be paid. We are subject to income taxes in both the U.S. and numerous foreign jurisdictions. Significant judgments and estimates are required in determining the consolidated income tax expense.

Deferred income taxes arise from temporary differences between the tax and financial statement recognition of revenue and expense. In evaluating our ability to recover our deferred tax assets we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies and recent financial operations. In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying businesses.

For additional information regarding these matters see Note 12 of the notes to consolidated financial statements, included in Item 8 of this report. Changes in estimates of projected future operating results or in assumptions regarding our ability to generate future taxable income during the periods in which temporary differences are deductible could result in significant changes to these accruals and, therefore, to our net income.

The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations.

We recognize tax benefits from an uncertain tax position when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, based on the technical merits.

We recognize tax liabilities in accordance with ASC 740 “Income Taxes” and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined.

Stock-Based Compensation - We measure compensation expense for stock awards in accordance with ASC 718-10 “Share-Based Payment.” Stock award compensation costs net of an estimated forfeiture rate of 10% are recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of five years.

The fair value of stock options was estimated at the grant date using a Black-Scholes option pricing model with the following assumptions for fiscal 2010: risk-free interest rate – 2.85%, volatility factor – 43.94% and expected option life – 6.3 years (dividend yield is not a factor as we have never issued cash dividends and do not anticipate issuing cash dividends in the future). The weighted average grant date fair value of option shares granted in fiscal 2010 was $3.54 per option share.

If we increased the assumptions for the risk-free interest rate and the volatility factor by 50 percent, the fair value of stock options granted in fiscal 2010 would increase 36 percent. If the Company decreased its assumptions for the risk-free interest rate and the volatility factor by 50 percent, the fair value of stock options granted in fiscal 2010 would decrease 45 percent.

Other – Other accounting policies, although not generally subject to the same level of estimation as those discussed above, are nonetheless important to an understanding of the financial statements. Many assets, liabilities, revenue and expenses require some degree of estimation or judgment in determining the appropriate accounting.

Liquidity and Capital Resources

As of March 31, 2010, 2009 and 2008, cash and cash equivalents and investments totaled approximately $149.9 million, $278.1 million and $286.4 million, respectively.

Fiscal 2010 compared to Fiscal 2009

Net cash provided by operating activities

Net cash provided by operating activities during fiscal 2010 was $226.3 million, a decrease of $5.7 million from fiscal 2009. The cause of the decrease was primarily due to a reduction in customer collections of $131 million resulting from the decline in revenue, primarily professional services, and an increase in income taxes paid during fiscal 2010 compared to fiscal 2009 of $34 million. The decrease was partially offset by reductions in disbursements for employee payroll and benefits of $158 million primarily due to the cost savings achieved from our restructuring initiatives.

The consolidated statements of cash flows included in item 8 of this report computes 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 acquisitions, 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. The increase in the net change of accounts receivable of $46.6 million was primarily due to the impact of the decrease in professional services fees throughout fiscal 2010 on the accounts receivable balance. The increase in the net change of deferred revenue of $13.4 million from fiscal 2010 as compared to fiscal 2009 was primarily attributable to the increase in deferred revenue associated with our web performance services since the Gomez acquisition.

The other significant changes in our reconciliation of net income to derive net cash from operating activities during fiscal 2010 as compared to fiscal 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 $28.6 million primarily due to the changes in our bonus and commission accruals which increased from March 31, 2009 to March 31, 2010.

As of March 31, 2010, we had $2.8 million accrued for restructuring actions (see Note 7 of the notes to consolidated financial statements, included in Item 8 of this report). At this time, there are no initiatives that will require us to incur restructuring charges; however unanticipated future conditions of events may require the Company to reassess the need for further restructuring initiatives.

We believe our existing cash resources and cash flow from operations will be sufficient to meet operating cash needs for the foreseeable future.

Net cash used in investing activities

Net cash used in investing activities during fiscal 2010 was $238.8 million, an increase of $276.0 million from fiscal 2009.

The increase in cash used was primarily due to the acquisition of Gomez in November 2009 for $284.4 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, which was subsequently repaid during fiscal 2010. Investing activities were further impacted by a decline in the amount of investments liquidated as $70.2 million of proceeds were received during fiscal 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 net proceeds of $65 million received from the sale of our Quality and DevPartner product lines during fiscal 2010.

During fiscal 2010 and fiscal 2009, capital expenditures for property and equipment and capitalized research and software development totaled $19.4 million and $33.0 million, respectively, and were funded with cash flows from operations. The decline in capital expenditures for fiscal 2010 as compared to fiscal 2009 was primarily due to a lower investment in equipment of $8.3 million and a decline in capitalized research and software development costs primarily associated with enhancements to our software products of $5.3 million.

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 fiscal 2010 was $125.3 million, a decrease of $66.6 million from fiscal 2009.

The decrease in cash used in financing activities was primarily due to a $73.1 million reduction in the amount of common stock repurchased as $132.9 million was repurchased during fiscal 2010 compared to $206.0 million repurchased in fiscal 2009.

The decrease in cash used in financing activities was partially offset by a reduction in cash received from employee exercises of stock options during fiscal 2010 compared to fiscal 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 Stock Repurchase Plan. Purchases of common stock under the Repurchase 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 fiscal 2010, we repurchased approximately 17.9 million shares of our common stock at an average price of $7.41 per share for a total cost of $132.9 million. As of March 31, 2010, approximately $403.9 million remains authorized for future purchases under the Discretionary Plan.

We intend to continue repurchasing shares under the Repurchase 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. The maximum amount of repurchase activity under the Repurchase 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.

We had no borrowings under the credit facility as of March 31, 2010. See Note 9 of the notes to the consolidated financial statements, included in Item 8 of this report, for further discussion of the credit facility.

Fiscal 2009 compared to Fiscal 2008

Net cash provided by operating activities

Net cash provided by operating activities during fiscal 2009 was $232.0 million, a decrease of $2.7 million from fiscal 2008. The decrease was due to the following: (1) reduction in customer collections of $118 million resulting from the decline in revenue, primarily professional services and license fees, and to a lesser extent timing of collections on trade receivables; (2) increase in income taxes paid during fiscal 2009 compared to fiscal 2008 of $20 million; (3) cash paid for hedge contract settlements during fiscal 2009 of $13 million; and (4) a decrease in interest income of $11 million primarily due to the lower cash and investment balance in fiscal 2009 as compared to fiscal 2008. These decreases were partially offset by the following: (1) reductions in disbursements for employee payroll and benefits of $126 million primarily resulting from the cost savings achieved through our fiscal 2008 and fiscal 2009 restructuring initiatives; (2) a reduction in vendor payments of $28 million related to cost-cutting initiatives implemented throughout the year to control our operating costs; and (3) a reduction of $5 million due to a litigation settlement in the first quarter of fiscal 2008.

The increase in the net change of accounts receivable of $81.9 million and the decrease in the net change of deferred revenue of $60.9 million from fiscal 2009 as compared to fiscal 2008 are primarily due to a decrease in the dollar value of multi-year products transactions.

The other significant change in our reconciliation of net income to derive net cash from operating activities during fiscal 2009 as compared to fiscal 2008 relates to the change in accounts payable and accrued expenses causing cash flows from operating activities to decrease by $28.8 million. This change was primarily due to a larger restructuring initiative in fiscal 2008 as compared to fiscal 2009 and higher commission and bonus expenses in fiscal 2008 as compared to fiscal 2009, causing the associated accruals to be higher at March 31, 2008 as compared to March 31, 2009.

As of March 31, 2009, $3.6 million was accrued related to restructuring actions (see Note 7 of the notes to consolidated financial statements, included in Item 8 of this report).

Net cash provided by investing activities:

Net cash provided by investing activities during fiscal 2009 was $37.2 million, a decrease of $40.0 million from fiscal 2008. The decrease was primarily due to a $36.5 million decline in the amount of investments liquidated in fiscal 2009 as compared to fiscal 2008. The cash generated from the sale of our investments in both periods was primarily used to fund the stock repurchase initiative.

During fiscal 2009 and fiscal 2008, capital expenditures for property and equipment and capitalized research and software development totaled $33.0 million and $24.9 million, respectively, and were funded with cash flow from operations.

There were no business acquisitions in fiscal 2009 and $4.7 million of business acquisitions in fiscal 2008.

Net cash used in financing activities:

Net cash used in financing activities during fiscal 2009 was $191.8 million, a decrease of $177.9 million from fiscal 2008.

The decrease of $234.9 million in cash used to repurchase common stock was offset by the $57.0 million decline in net proceeds received from the exercise of employee stock options and employee contributions to the employee stock purchase plan.

During fiscal 2009, we repurchased approximately 21.6 million shares of our common stock at an average price of $9.54 per share for a total cost of $206 million.

The Company did not borrow from its credit facility during fiscal 2009 or 2008.

Recently Issued Accounting Pronouncements

See Note 1 of the notes to the consolidated financial statements, included in Item 8 of this report for recently issued accounting pronouncements that could affect the Company.

Contractual Obligations

The following table summarizes our payments under contractual obligations and our other commercial commitments as of March 31, 2010 (in thousands):

		Payment Due by Period as of March 31,
																										2016 and
		Total				2011				2012				2013				2014				2015				Thereafter
Contractual obligations:
Operating leases		$	264,843			$	22,025			$	13,066			$	10,070			$	8,277			$	6,852			$	204,553
Other			16,183				6,433				6,250				2,550				450				250				250
Total		$	281,026			$	28,458			$	19,316			$	12,620			$	8,727			$	7,102			$	204,803

“Other” includes commitments under various advertising and charitable contribution agreements totaling $15.4 million and $800,000, respectively, at March 31, 2010. There are no long term debt obligations, capital lease obligations or purchase obligations.

We anticipate settlement of $17.0 million with certain taxing authorities of which $85,000 is expected to be settled in the upcoming twelve months (as discussed in Note 12 of the notes to consolidated financial statements, included in Item 8 of this report). We are not able to reasonably estimate in which future periods the remaining amount of $16.9 million will ultimately be settled. These settlements are not included in the Contractual Obligations table above.

Off-Balance Sheet Arrangements

We currently do not have any off balance sheet or non-consolidated special purpose entity arrangements as defined by the applicable SEC rules.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are exposed primarily to market risks associated with movements in interest rates and foreign currency exchange rates. We believe that we take the necessary steps to manage the potential impact of interest rate and foreign exchange exposures on our financial position and operating performance. We do not use derivative financial instruments or forward foreign exchange contracts for investment, speculative or trading purposes. Immediate changes in interest rates and foreign currency rates discussed in the following paragraphs are hypothetical rate scenarios used to calibrate risk and do not currently represent management’s view of future market developments. A discussion of our accounting policies for derivative instruments is included in Note 1 of the notes to consolidated financial statements, included in Item 8 of this report.

Interest Rate Risk

Exposure to market risk for changes in interest rates relates primarily to our cash investments and installment receivables. Derivative financial instruments are not a part of our investment strategy. Cash investments are placed with high quality issuers to preserve invested funds by limiting default and market risk.

Our investment portfolio consists of cash investments that have a cost basis and fair value totaling $149.9 million as of March 31, 2010. The average interest rate and average tax equivalent interest rate were 0.28% as of March 31, 2010. These investments will mature within the next three months.

We offer financing arrangements with installment payment terms in connection with our multi-year software sales. Installment accounts are generally receivable over a two to five year period. As of March 31, 2010, non-current accounts receivable amounted to $222.3 million, of which approximately $148.6 million, $50.7 million, $17.7 million, $4.9 million and $351,000 are due in fiscal 2012 through fiscal 2016, respectively. The fair value of non-current accounts receivable is estimated by discounting the future cash flows using the current rate at which the Company would finance a similar transaction. At March 31, 2010, the fair value of such receivables is approximately $222.8 million. Each 100 basis point increase in interest rates would have an associated $200,000 negative impact on the fair value of non-current accounts receivable based on the balance of such receivables at March 31, 2010. Each 100 basis point decrease in interest rates would have an associated $1.0 million positive impact on the fair value of non-current accounts receivable based on the balance of such receivables at March 31, 2010. A change in interest rates will have no impact on cash flows or net income associated with non-current accounts receivable.

Foreign Currency Risk

Approximately 39% of our revenue was derived from foreign sources in fiscal 2010. This exposes us to exchange rate risks on foreign currencies related to the fair value of foreign assets and liabilities, net income and cash flows.

We have entered into forward foreign exchange contracts primarily to hedge amounts due to or from select subsidiaries denominated in foreign currencies (mainly in Europe and Asia-Pacific) against fluctuations in exchange rates. Our accounting policies for these contracts are based on our designation of the contracts as hedging transactions. The criteria we use for designating a contract as a hedge include the contract’s effectiveness in risk reduction and one-to-one matching of derivative instruments to underlying transactions. Gains and losses on forward foreign exchange contracts are recognized in income, offsetting foreign exchange gains or losses on the foreign balances being hedged. If the underlying hedged transaction is terminated earlier than initially anticipated, the offsetting gain or loss on the related forward foreign exchange contract would be recognized in income in the same period.

We operate in certain countries in Latin America and Asia-Pacific where there are limited forward currency exchange markets. We also have non-U.S. subsidiaries with financial instruments that are not denominated in their reporting currency. At March 31, 2010, we performed a sensitivity analysis to assess the potential loss of a 10% positive or negative change in foreign currency exchange rates would have on our income from operations. Based upon the analysis performed, such a change would not materially affect our consolidated financial position, results of operations or cash flows.

The table below provides information about our foreign exchange forward contracts at March 31, 2010. The table presents the value of the contracts in U.S. dollars at the contract maturity date and the fair value of the contracts at March 31, 2010 (dollars in thousands):

		Contract		Maturity						Forward				Fair
		date in		date in		Contract				Position in				Value at
		2010		2010		Rate				U.S. Dollars				March 31, 2010
Forward Sales
Sweden		March 31		April 1			7.2303			$	830			$	831
Forward Purchases
Hong Kong Dollar		March 31		April 1			7.6150			$	1,482			$	1,481
Pounds Sterling		March 31		April 1			0.6578				1,140				1,138
Singapore Dollar		March 31		April 1			1.4019				1,498				1,501
										$	4,120			$	4,120

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Compuware Corporation
Detroit, Michigan

We have audited the accompanying consolidated balance sheets of Compuware Corporation and subsidiaries (the “Company”) as of March 31, 2010 and 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Compuware Corporation and subsidiaries as of March 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2010, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 27, 2010 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan
May 27, 2010

COMPUWARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2010 AND 2009
(In Thousands, Except Share Data)

		Notes		2010				2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents				$	149,897			$	278,112
Accounts receivable, net					456,504				472,011
Deferred tax asset, net		12			46,286				37,359
Income taxes refundable					6,160				2,578
Prepaid expenses and other current assets					46,434				41,350
Assets held for sale		3							27,354
Total current assets					705,281				858,764
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION		2,4			341,696				353,182
CAPITALIZED SOFTWARE, LESS ACCUMULATED AMORTIZATION		2,8			41,952				35,763
OTHER:
Accounts receivable					222,344				224,681
Goodwill		2,8			591,870				339,134
Deferred tax asset, net		12			38,969				30,851
Other assets		5,8			71,213				32,475
Total other assets					924,396				627,141
TOTAL ASSETS				$	2,013,325			$	1,874,850
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable				$	15,713			$	13,796
Accrued expenses		7			68,497				70,260
Accrued bonuses and commissions					42,235				16,945
Income taxes payable					16,314				24,646
Deferred revenue					469,834				409,410
Liabilities held for sale		3							26,470
Total current liabilities					612,593				561,527
DEFERRED REVENUE					398,515				378,094
ACCRUED EXPENSES		7			33,193				30,111
DEFERRED TAX LIABILITY, NET		12			55,211				24,470
Total liabilities					1,099,512				994,202
COMMITMENTS AND CONTINGENCIES		14
SHAREHOLDERS’ EQUITY:
Preferred stock, no par value — authorized 5,000,000 shares		10
Common stock, $.01 par value — authorized 1,600,000,000 shares; issued and outstanding 224,982,171 and 241,798,493 shares in 2010 and 2009, respectively		10,15			2,250				2,418
Additional paid-in capital					606,484				628,955
Retained earnings					305,441				249,897
Accumulated other comprehensive loss					(362	)			(622	)
Total shareholders’ equity					913,813				880,648
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY				$	2,013,325			$	1,874,850

See notes to consolidated financial statements.

53

COMPUWARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2010, 2009 and 2008
(In Thousands, Except Per Share Data)

		Notes		2010				2009				2008
REVENUES:
Software license fees				$	194,504			$	219,634			$	297,506
Maintenance and subscription fees					456,343				479,480				476,374
Professional services fees					241,332				391,341				455,731
Total revenues					892,179				1,090,455				1,229,611
OPERATING EXPENSES:
Cost of software license fees					15,430				24,491				30,475
Cost of maintenance and subscription fees					42,555				41,877				46,300
Cost of professional services					216,861				368,030				413,921
Technology development and support					91,245				86,453				101,132
Sales and marketing					222,447				226,408				267,800
Administrative and general					164,633				148,019				182,488
Restructuring costs		7			7,960				10,037				42,645
Gain on divestiture of product lines					(52,351	)
Total operating expenses					708,780				905,315				1,084,761
INCOME FROM OPERATIONS					183,399				185,140				144,850
OTHER INCOME (EXPENSE)
Interest income					4,970				10,776				19,910
Settlement		14			20,734				17,943				16,160
Other		5			17				(1,138	)			(528	)
Other income, net					25,721				27,581				35,542
INCOME BEFORE INCOME TAXES					209,120				212,721				180,392
INCOME TAX PROVISION		12			68,314				73,074				45,998
NET INCOME				$	140,806			$	139,647			$	134,394
Basic earnings per share		11		$	0.61			$	0.56			$	0.47
Diluted earnings per share		11		$	0.60			$	0.55			$	0.47