Annual Reports

 
Quarterly Reports

  • 10-Q (Feb 7, 2014)
  • 10-Q (Nov 5, 2013)
  • 10-Q (Aug 6, 2013)
  • 10-Q (Feb 6, 2013)
  • 10-Q (Nov 6, 2012)
  • 10-Q (Aug 6, 2012)

 
8-K

 
Other

Compuware 10-Q 2010

Documents found in this filing:

  1. 10-Q
  2. Ex-15
  3. Ex-31.1
  4. Ex-31.2
  5. Ex-32
  6. Ex-32
form10-q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2010

OR

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

For the transition period from                            to                                                                                                                       .


Commission file number 000-20900

COMPUWARE CORPORATION
(Exact name of registrant as specified in its charter)

Michigan
 
38-2007430
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)


One Campus Martius, Detroit, MI 48226-5099
(Address of principal executive offices including zip code)

Registrant's telephone number, including area code:  (313) 227-7300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes T 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 No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):          Large accelerated filer  o Accelerated filer o Non-accelerated filer o  (Do not check if a smaller reporting company)  Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer's class of common stock, as of the latest practicable date:

As of November 1, 2010, there were outstanding 219,028,754 shares of Common Stock, par value $.01, of the registrant.
 


 
 

 

 
FINANCIAL INFORMATION
 
Page
         
Item 1.
 
Financial Statements
   
         
     
3
         
     
4
         
     
5
         
     
6
         
     
22
         
Item 2.
   
23
         
Item 3.
   
41
         
Item 4.
   
41
         
         
         
PART II.
 
OTHER INFORMATION
   
         
Item 1A.
   
42
         
Item 2.
   
42
         
Item 6.
   
43
         
SIGNATURES
 
44

 
COMPUWARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In Thousands)
(Unaudited)
 
   
September 30,
   
March 31,
 
ASSETS
 
2010
   
2010
 
             
CURRENT ASSETS:
           
Cash and cash equivalents
  $ 77,268     $ 149,897  
Accounts receivable, net
    433,373       456,504  
Deferred tax asset, net
    51,535       46,286  
Income taxes refundable
    4,252       6,160  
Prepaid expenses and other current assets
    28,979       46,434  
Total current assets
    595,407       705,281  
                 
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION
    335,614       341,696  
                 
CAPITALIZED SOFTWARE AND OTHER INTANGIBLE ASSETS, NET
    87,704       84,755  
                 
ACCOUNTS RECEIVABLE
    201,759       222,344  
                 
DEFERRED TAX ASSET, NET
    35,350       38,969  
                 
GOODWILL
    606,326       591,870  
                 
OTHER ASSETS
    30,648       28,410  
                 
TOTAL ASSETS
  $ 1,892,808     $ 2,013,325  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY
               
                 
CURRENT LIABILITIES:
               
Accounts payable
  $ 15,789     $ 15,713  
Accrued expenses
    85,362       110,732  
Income taxes payable
    20,768       16,314  
Deferred revenue
    429,328       469,834  
Total current liabilities
    551,247       612,593  
                 
DEFERRED REVENUE
    344,334       398,515  
                 
ACCRUED EXPENSES
    33,897       33,193  
                 
DEFERRED TAX LIABILITY, NET
    54,029       55,211  
Total liabilities
    983,507       1,099,512  
                 
SHAREHOLDERS' EQUITY:
               
Common stock
    2,183       2,250  
Additional paid-in capital
    599,468       606,484  
Retained earnings
    305,585       305,441  
Accumulated other comprehensive income (loss)
    2,065       (362 )
Total shareholders' equity
    909,301       913,813  
                 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
  $ 1,892,808     $ 2,013,325  

See notes to condensed consolidated financial statements.

 
COMPUWARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(In Thousands, Except Per Share Data)
(Unaudited)
 
 
Three Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
REVENUES:
                       
Software license fees
  $ 45,613     $ 50,110     $ 78,943     $ 90,656  
Maintenance and subscription fees
    122,007       109,734       238,766       220,861  
Professional services fees
    58,249       58,085       114,645       120,800  
                                 
Total revenues
    225,869       217,929       432,354       432,317  
                                 
OPERATING EXPENSES:
                               
Cost of software license fees
    3,267       3,874       6,683       7,823  
Cost of maintenance and subscription fees
    13,265       8,368       26,552       17,324  
Cost of professional services
    51,296       51,770       102,009       110,671  
Technology development and support
    21,893       21,633       43,434       43,115  
Sales and marketing
    56,507       50,756       114,211       103,904  
Administrative and general
    38,780       38,767       76,217       78,897  
Restructuring costs
            1,328               3,818  
Gain on divestiture of product lines
                            (52,351 )
                                 
Total operating expenses
    185,008       176,496       369,106       313,201  
                                 
INCOME FROM OPERATIONS
    40,861       41,433       63,248       119,116  
                                 
OTHER INCOME, NET
    862       1,333       1,727       2,753  
                                 
INCOME BEFORE INCOME TAXES
    41,723       42,766       64,975       121,869  
                                 
INCOME TAX PROVISION
    15,731       14,780       26,338       42,836  
                                 
NET INCOME
  $ 25,992     $ 27,986     $ 38,637     $ 79,033  
                                 
Basic earnings per share
  $ 0.12     $ 0.12     $ 0.17     $ 0.33  
                                 
Diluted earnings per share
  $ 0.12     $ 0.12     $ 0.17     $ 0.33  

See notes to condensed consolidated financial statements.

 
COMPUWARE CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)

 
   
Six Months Ended
 
   
September 30,
 
   
2010
   
2009
 
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
           
Net income
  $ 38,637     $ 79,033  
Adjustments to reconcile net income to net cash provided by operations:
               
Gain on divestiture of product lines
            (52,351 )
Depreciation and amortization
    24,505       20,884  
Stock award compensation
    9,195       9,478  
Deferred income taxes
    (627 )     3,536  
Other
    416       892  
Net change in assets and liabilities, net of effects from the acquisition, divestiture and currency fluctuations:
               
Accounts receivable
    49,767       91,059  
Prepaid expenses and other current assets
    16,822       17,004  
Other assets
    745       (2,616 )
Accounts payable and accrued expenses
    (28,040 )     (15,794 )
Deferred revenue
    (104,230 )     (87,772 )
Income taxes
    6,171       6,646  
Net cash provided by operating activities
    13,361       69,999  
                 
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
               
Purchase of:
               
Business, net of cash acquired
    (15,715 )        
Property and equipment
    (7,528 )     (3,674 )
Capitalized software
    (9,826 )     (5,780 )
Net proceeds from divestiture of product lines
            64,992  
Net cash provided by (used in) investing activities
    (33,069 )     55,538  
                 
CASH FLOWS USED IN FINANCING ACTIVITIES:
               
Net proceeds from exercise of stock options including excess tax benefits
    3,241       1,702  
Contribution to stock purchase plans
    1,232       1,075  
Repurchase of common stock
    (59,015 )     (85,806 )
Net cash used in financing activities
    (54,542 )     (83,029 )
                 
EFFECT OF EXCHANGE RATE CHANGES ON CASH
    1,621       12,355  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    (72,629 )     54,863  
                 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
    149,897       278,112  
                 
CASH AND CASH EQUIVALENTS AT END OF PERIOD
  $ 77,268     $ 332,975  
 
See notes to condensed consolidated financial statements.


Note 1 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Compuware Corporation and its wholly owned subsidiaries (collectively, the "Company", “Compuware”, “we”, “our” and “us”). All inter-company balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, contingencies and results of operations. While management has based their assumptions and estimates on the facts and circumstances existing at September 30, 2010, final amounts may differ from these estimates.

In the opinion of management of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. These financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto for the year ended March 31, 2010 included in the Company's annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The condensed consolidated balance sheet at March 31, 2010 has been derived from the audited financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of actual results achieved for full fiscal years.

Basis for Revenue Recognition

The Company derives its revenue from licensing software products, providing maintenance and support for those products and rendering professional, application and web performance services. Revenue recognition begins once the following criteria have been 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.

When our web performance services are sold with our software products, an arrangement containing both a software element (i.e., software license, maintenance and product related services) and a non-software element (i.e., web performance and related services) is created and referred to as a multiple-deliverable arrangement. The revenue associated with the arrangement is allocated to the software and non-software elements using VSOE of fair value, if available; third party evidence is used if VSOE of fair value is not available; and estimated selling price is used if neither VSOE of fair value nor third party evidence is available. Once the revenue is allocated to the software element and the non-software element, revenue recognition occurs as described herein.

Software license fees

The Company's software license agreements provide its customers with a right to use its software perpetually (perpetual licenses) or during a defined term (term licenses).

Perpetual license fee revenue is recognized using the residual method, under which the fair value, based on vendor specific objective evidence (“VSOE”), of all undelivered elements of the agreement (i.e., maintenance and product related services) is deferred. VSOE is based on rates charged for maintenance and professional services when sold separately. The remaining portion of the fee is recognized as license fee revenue upon delivery of the products, provided that no significant obligations remain and collection of the related receivable is reasonably assured.


For revenue arrangements where there is a lack of VSOE of fair value for any undelivered elements, license fee revenue is deferred and recognized upon delivery of those elements or when VSOE of fair value can be established. When maintenance or product related services are the only undelivered elements, the license fee revenue is recognized on a ratable basis over the longer of the maintenance term or the period in which the product related services are expected to be performed. Such transactions include term licenses as the Company does not sell maintenance for term licenses separately and therefore cannot establish VSOE of fair value for the undelivered elements in these arrangements. In order to comply with SEC Regulation S-X, Rule 5-03(b), which requires product, services and other categories of revenue to be displayed separately on the income statement, the Company separates the license fee, maintenance fee and product related services fee (which is included in professional services fees) associated with term licenses based on its determination of fair value. The Company applies its VSOE of fair value for maintenance related to perpetual license transactions and stand alone product related services arrangements as a reasonable and consistent approximation of fair value to separate license fee, maintenance fee and product related services fee revenue for income statement classification purposes.

The Company offers flexibility to customers purchasing licenses for its products and related maintenance. Terms of these transactions range from standard perpetual license sales that include one year of maintenance to large multi-year (generally two to five years), multi-product contracts. The Company allows deferred payment terms on contracts, with installments collectible over the term of the contract. Based on the Company’s successful collection history for deferred payments, license fees (net of any finance fees) are generally recognized as revenue as discussed above. In certain transactions where it cannot be concluded that the fee is fixed or determinable due to the nature of the deferred payment terms, the Company recognizes revenue as payments become due.

Maintenance and subscription fees

The Company’s maintenance agreements provide for technical support and advice, including problem resolution services and assistance in product installation, error corrections and any product enhancements released during the maintenance period. The first year of maintenance is included with all license agreements. Maintenance fees are recognized ratably over the term of the maintenance arrangements, which may range from one to five years.

The Company’s 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 our software at any time and we do not make it feasible for the customer to run the software on its own hardware. Subscription fees are deferred upon contract execution and are recognized ratably over the term of the subscription.

Professional services fees

The Company provides the following professional services solutions: (1) IT portfolio management services; (2) application delivery management services; (3) application outsourcing services; and (4) enterprise legacy modernization services. The Company also offers implementation, consulting and training services in tandem with the Company’s product solutions offerings, which are referred to as product related services.

In addition, revenue associated with the Company’s application services segment is recorded as professional services fees and consists of fees for customers accessing its application services network and other services.


Professional services fees are generally based on hourly or daily rates. Revenues from professional services are recognized in the period the services are performed provided that collection of the related receivable is reasonably assured. For development services rendered under fixed-price contracts, revenues are recognized using the percentage of completion method and if determined that costs will exceed revenue, the expected loss is recorded at the time the loss becomes apparent. Certain professional services contracts include a project and on-going operations for the project. Revenue associated with these contracts is recognized over the expected service period as the customer derives value from the services, consistent with the proportional performance method.

Deferred revenue

Deferred revenue consists primarily of billed and unbilled maintenance fees related to the future service period of maintenance agreements in effect at the reporting date. Deferred license, subscription and professional service fees are also included in deferred revenue for those arrangements that are being recognized on a ratable basis. Sales commission costs that directly relate to revenue transactions that are deferred are recorded as “Current” or “Non-current other assets”, as applicable, in the condensed consolidated balance sheets and recognized as “Sales and marketing” expenses in the condensed consolidated statements of operations over the revenue recognition period of the related customer contracts.

Research and development

Research and development (“R&D”) costs for the three months ended September 30, 2010 and 2009 were $18.1 million and $14.4 million, respectively, and for the six months ended September 30, 2010 and 2009 were $35.4 million and $31.0 million, respectively. R&D costs related to our software products and web performance services network are reported as “Technology development and support” in the condensed consolidated statements of operations and for our application services network, the costs are reported as “Cost of professional services”.

Income Taxes

The Company estimates its income taxes in each jurisdiction in which it operates. Deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. These deferred tax assets are subject to periodic assessments as to recoverability and if it is determined that it is more likely than not that the benefits will not be realized, valuation allowances are recorded which would increase the provision for income taxes. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations.

Interest and penalties related to uncertain tax positions are included in the income tax provision.

Recently Issued Accounting Pronouncements

In July 2010, the FASB issued Accounting Standard Update (“ASU”) No. 2010-20, “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses”. The ASU requires enhanced disclosures about the credit quality of financing receivables and the allowance for credit losses; including disclosures regarding credit quality indicators, past due information, and modifications of original terms. We will be adopting the disclosure requirements of ASU No. 2010-20 starting with our interim reporting period ending December 31, 2010.


In December 2009, the FASB issued ASU No. 2009-17, “Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amends the guidance for consolidation of VIEs primarily related to the determination of the primary beneficiary of the VIE. This ASU became effective for us on April 1, 2010 and did not have an impact on our condensed consolidated financial statements.


Note 2 - Acquisition

Effective September 17, 2010, the Company acquired certain assets and liabilities of DocSite, LLC (“DocSite”), a provider of web-based solutions that give physicians and healthcare organizations the ability to accurately and timely manage, analyze and report healthcare performance and quality, for $15.9 million in cash. The assets and liabilities acquired have been recorded at their estimated fair values as of the purchase date using the acquisition method. The purchase price exceeded the estimated fair value of the acquired assets and liabilities by $13.9 million, which was recorded to goodwill. The estimated fair value of intangible assets subject to amortization totaled $4.0 million, of which $1.9 million, $1.8 million and $260,000 related to developed technology, customer relationships and trademarks with a useful life of five, six and three years, respectively.

The arrangement included a contingent consideration component that increases the DocSite purchase price if pre-determined revenue targets for a specific product line are achieved by March 31, 2011. The contingent consideration arrangement could result in future payments of up to an additional $1.0 million. The estimated fair value of the contingent consideration arrangement of $750,000 was determined by applying the income approach. That measure is based on significant inputs that are not observable in the market, which are referred to as Level 3 inputs (see Note 4 for additional information regarding level of inputs). Key assumptions include the probability of attaining certain levels of revenue ranging from less than $3.5 million to greater than $4.5 million.

The fair value valuation for intangible assets and deferred tax asset and liabilities was incomplete at the time of filing and may result in an adjustment to the recorded fair value.

Factors that contribute to a purchase price that resulted in goodwill include, but are not limited to, the retention of research and development personnel with the skills to develop future web-based quality care and performance management technologies that will enhance our application service offerings, support personnel to provide maintenance services related to the technology acquired and a trained sales force capable of selling current and future acquired solutions. The goodwill resulting from the transaction will be reported within the application services segment and is expected to be deductible for tax purposes.

DocSite’s financial results will be reported within our application services segment. This acquisition was considered immaterial for disclosure of supplemental pro forma information and revenues and earnings of the acquiree since the acquisition date.


Note 3 - Foreign Currency Transactions and Derivatives

The Company is exposed to foreign exchange rate risks related to transactions that are denominated in non-local currency (“anticipated transactions”) and current inter-company balances due to and from the Company’s foreign subsidiaries (“inter-company balances”).

The Company enters into derivative contracts to sell or buy currencies with the intent of mitigating foreign exchange rate risks related to inter-company balances. The Company does not use foreign exchange contracts to hedge anticipated transactions and does not designate its foreign exchange derivatives as hedges. Accordingly, all foreign exchange derivatives are recognized on the condensed consolidated balance sheets at fair value (see Note 4 of the condensed consolidated financial statements).

The foreign currency net loss resulting from anticipated transactions and inter-company balances for the three months ended September 30, 2010 and 2009 was $1.2 million and $163,000, respectively, and for the six months ended September 30, 2010 and 2009 was $666,000 and $596,000, respectively. The hedging transaction net gain (loss) from foreign exchange derivative contracts for the three months ended September 30, 2010 and 2009 was $106,000 and $(140,000), respectively, and for the six months ended September 30, 2010 and 2009 was $19,000 and $(699,000), respectively. These net gain (loss) amounts were recorded to “Administrative and general” in the condensed consolidated statements of operations.

At September 30, 2010, the Company had derivative contracts maturing through October 2010 to sell $3.9 million and purchase $5.9 million in foreign currencies and had derivative contracts maturing through April 2010 to sell $830,000 and purchase $4.1 million in foreign currencies at March 31, 2010.


Note 4 - Fair Value of Assets and Liabilities

The Company reports its money market funds, foreign exchange derivatives and the DocSite contingent consideration liability (see Note 2 for additional information) at fair value on a recurring basis using the following fair value hierarchy: level 1 - quoted prices in active markets for identical assets or liabilities; level 2 – inputs other than level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis (in thousands):

   
As of September 30, 2010
 
   
Estimated
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                       
                         
Cash equivalents - money market funds
  $ 11,901     $ 11,901                  
                                 
Liabilities:
                               
                                 
Foreign exchange derivatives
  $ 37             $ 37          
                                 
Contingent consideration (1)
  $ 750                     $ 750  

   
As of March 31, 2010
 
   
Estimated
Fair Value
   
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
   
Significant
Other Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Assets:
                       
                         
Cash equivalents - money market funds
  $ 68,691     $ 68,691                  
                                 
Foreign exchange derivatives
  $ 1             $ 1          

 
(1)
See Note 2 for information regarding the types of inputs used to determine the fair value of the DocSite contingent consideration liability.

Non-financial assets such as goodwill and intangible assets are also subject to nonrecurring fair value measurements if they are deemed to be impaired. See Note 8 of the condensed consolidated financial statements for further information.


Note 5 - Computation of Earnings per Common Share

Earnings per common share data were computed as follows (in thousands, except per share amounts):

   
Three Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
BASIC EARNINGS PER SHARE:
                       
                         
Numerator: Net income
  $ 25,992     $ 27,986     $ 38,637     $ 79,033  
                                 
Denominator:
                               
Weighted-average common shares outstanding
    221,280       234,290       222,900       237,519  
                                 
Basic earnings per share
  $ 0.12     $ 0.12     $ 0.17     $ 0.33  
                                 
DILUTED EARNINGS PER SHARE:
                               
                                 
Numerator: Net income
  $ 25,992     $ 27,986     $ 38,637     $ 79,033  
                                 
Denominator:
                               
Weighted-average common shares outstanding
    221,280       234,290       222,900       237,519  
Dilutive effect of stock awards
    3,114       1,825       3,071       1,784  
                                 
Total shares
    224,394       236,115       225,971       239,303  
                                 
Diluted earnings per share
  $ 0.12     $ 0.12     $ 0.17     $ 0.33  

During the three and six months ended September 30, 2010, stock awards to purchase a total of approximately 19.6 million and 19.9 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive. During the three and six months ended September 30, 2009, stock awards to purchase a total of approximately 25.7 million and 26.2 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.


Note 6 - Comprehensive Income

Other comprehensive income (loss) relates to foreign currency translation adjustments that have been excluded from net income and reflected in equity. Total comprehensive income is summarized as follows (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net income
  $ 25,992     $ 27,986     $ 38,637     $ 79,033  
                                 
Foreign currency translation adjustment, net of tax
    (1,263 )     (1,351 )     2,427       (1,354 )
                                 
Total comprehensive income
  $ 24,729     $ 26,635     $ 41,064     $ 77,679  


Note 7 – Stock Benefit Plans and Stock-Based Compensation

The Company has the following stock benefit plans: (1) the 2007 Long Term Incentive Plan (“2007 LTIP”) allows the Company’s Compensation Committee to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or restricted stock unit awards and annual cash incentive awards to employees and directors of the Company; (2) the Employee Stock Purchase Plan allows participating U.S. and Canadian employees the right to have up to 10% of their compensation withheld to purchase Company common stock at a 5% discount; and (3) the Employee Stock Ownership Plan (“ESOP”) and Trust allows the Company to make contributions to the ESOP for the benefit of substantially all U.S. employees.

Covisint Corporation (“Covisint”), a subsidiary of the Company, maintains a stock benefit plan referred to as the 2009 Long-Term Incentive Plan (“2009 Covisint LTIP”) allowing the Board of Directors of Covisint the ability to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or restricted stock unit awards and annual cash incentive awards to employees and directors of Covisint.

Stock award compensation expense was allocated as follows (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Stock-based compensation classified as:
                       
                         
Cost of maintenance and subscription fees
  $ 99     $ 114     $ 159     $ 219  
Cost of professional services
    255       142       492       420  
Technology development and support
    348       297       515       548  
Sales and marketing
    1,152       1,223       2,930       3,169  
Administrative and general
    2,037       2,065       5,099       5,122  
                                 
Total stock-based compensation expense before income taxes
    3,891       3,841       9,195       9,478  
                                 
Income tax benefit
    (1,402 )     (1,243 )     (3,317 )     (3,255 )
                                 
Total stock-based compensation expense after income taxes
  $ 2,489     $ 2,598     $ 5,878     $ 6,223  

As of September 30, 2010, $23.2 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested equity awards is expected to be recognized over a weighted-average period of approximately 2.76 years.


A summary of the Company’s option activity during the six months ended September 30, 2010 is presented below (shares and intrinsic value in thousands):

   
Six Months Ended
 
   
September 30, 2010
 
               
Weighted
       
         
Weighted
   
Average
       
         
Average
   
Remaining
   
Aggregate
 
   
Number of
   
Exercise
   
Contractual
   
Intrinsic
 
   
Options
   
Price
   
Term in Yrs.
   
Value
 
Options outstanding as of March 31, 2010
    29,128     $ 8.37              
Granted
    1,362       8.30              
Exercised
    (446 )     7.03           $ 591  
Forfeited
    (884 )     7.82                
Cancelled/expired
    (1,328 )     9.57                
Options outstanding as of September 30, 2010
    27,832     $ 8.35       4.24     $ 20,017  
                                 
Options vested and expected to vest, net of estimated forfeitures, as of September 30, 2010
    26,788     $ 8.36       4.08     $ 19,070  
                                 
Options exercisable as of September 30, 2010
    19,903     $ 8.44       2.71     $ 13,360  

The weighted average fair value of stock options granted during the periods and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

   
Six Months Ended
 
   
September 30,
 
   
2010
   
2009
 
             
Expected volatility
    42.56 %     45.98 %
Risk-free interest rate
    2.75 %     2.27 %
Expected lives at date of grant (in years)
    6.0       6.1  
Weighted-average fair value of the options granted
  $ 3.71     $ 3.37  

The fair value of stock options vested during the six months ending September 30, 2010 was $4.42 per share.

A summary of the Company’s non-vested restricted stock units and performance-based restricted stock unit awards (collectively “Non-vested RSU”) activity during the six months ended September 30, 2010 is summarized as follows (shares and intrinsic value in thousands):

   
Six Months Ended
 
   
September 30, 2010
 
         
Weighted
       
         
Average
   
Aggregate
 
         
Grant-Date
   
Intrinsic
 
   
Shares
   
Fair Value
   
Value
 
Non-vested RSU outstanding as of March 31, 2010
    3,127              
Granted
    913     $ 8.57        
Released
    (150 )           $ 1,179  
Forfeited
    -                  
Non-vested RSU outstanding as of September 30, 2010
    3,890                  


As of September 30, 2010, there were 134,000 stock options outstanding from the 2009 Covisint LTIP. These options will vest only if, prior to August 26, 2015, Covisint completes an initial public offering (“IPO”) or if there is a change of control of Covisint.

The individuals who received stock options from the 2009 Covisint LTIP were also awarded performance-based restricted stock unit awards (“PSAs”) from the Company’s 2007 LTIP. There were 1.5 million PSAs outstanding as of September 30, 2010. These PSAs will vest only if Covisint does not complete an IPO or a change of control transaction by August 25, 2015 and the Covisint business meets a pre-defined revenue target for four consecutive calendar quarters ending prior to August 26, 2015.

As of September 30, 2010, the Company has not recorded compensation expense for the Covisint stock options or the PSAs and these awards are not included in the Company’s diluted shares outstanding. Compensation expense will be accounted for in the period it becomes probable that the underlying conditions of the Covisint stock options or PSAs will be met and will be included in the diluted shares outstanding balance in the period the underlying performance conditions are met.


Note 8 – Goodwill, Capitalized Software and Other Intangible Assets

The change in the carrying amount of goodwill by reportable segment during the six months ended September 30, 2010 is summarized as follows (in thousands):

         
Web
                   
         
Performance
   
Professional
   
Application
       
   
Products
   
Services
   
Services
   
Services
   
Total
 
                               
Goodwill as of March 31, 2010
  $ 220,389     $ 218,523     $ 141,426     $ 11,532     $ 591,870  
                                         
Acquisition (1)
                            13,853       13,853  
                                         
Effect of foreign currency translation
    552               51               603  
                                         
Goodwill as of September 30, 2010
  $ 220,941     $ 218,523     $ 141,477     $ 25,385     $ 606,326  

 
(1)
The Company acquired DocSite on September 17, 2010. See Note 2 for information related to the purchase accounting that resulted in the recording of goodwill.

The components of the Company’s capitalized software and other intangible assets are as follows (in thousands):

   
As of September 30, 2010
 
   
Gross Carrying Amount
   
Accumulated Amortization
   
Net Carrying Amount
 
Unamortized intangible assets:
                 
Trademarks
  $ 4,419           $ 4,419  
                       
Amortized intangible assets:
                     
Capitalized software
                     
Internally developed
  $ 189,051     $ (155,864 )   $ 33,187  
Purchased (1)
    135,348       (122,602 )     12,746  
Customer relationship (1)
    48,692       (14,318 )     34,374  
Other (1)
    11,160       (8,182 )     2,978  
Total amortized intangible assets
  $ 384,251     $ (300,966 )   $ 83,285  
                         
                         
   
As of March 31, 2010
 
   
Gross Carrying Amount
   
Accumulated Amortization
   
Net Carrying Amount
 
Unamortized intangible assets:
                       
Trademarks
  $ 4,429             $ 4,429  
                         
Amortized intangible assets:
                       
Capitalized software
                       
Internally developed
  $ 179,215     $ (150,419 )   $ 28,796  
Purchased
    133,294       (120,138 )     13,156  
Customer relationship
    46,772       (12,051 )     34,721  
Other
    10,896       (7,243 )     3,653  
Total amortized intangible assets
  $ 370,177     $ (289,851 )   $ 80,326  

 
(1)
The Company acquired certain intangible assets through its acquisition of DocSite on September 17, 2010.  See Note 2 for additional information.


Capitalized software includes the costs of internally developed software technology and software technology purchased through acquisitions. Internally developed capitalized costs and capitalized purchased software technology are amortized over periods up to five years.

Customer relationship agreements were acquired as part of recent acquisitions and are being amortized over periods up to ten years.

Other amortized intangible assets include amortizable trademarks and patents associated with recent acquisitions and are being amortized over periods up to three years.

Unamortized trademarks were acquired as part of the Covisint and Changepoint acquisitions in fiscal 2004 and fiscal 2005. These trademarks are deemed to have an indefinite life.

Amortization of intangible assets

Amortization expense of capitalized software, customer relationship and other intangible assets were reported as follows (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Amortized intangible assets:
                       
Capitalized software (1)
                       
Internally developed
  $ 2,706     $ 2,832     $ 5,444     $ 5,491  
Purchased
    1,119       710       2,335       1,557  
Customer relationship (2)
    1,089       294       2,219       667  
Other
    469       96       935       192  
                                 
Total amortization expense
  $ 5,383     $ 3,932     $ 10,933     $ 7,907  

 
(1)
Capitalized software amortization related to our product segment is reported as “Cost of software license fees”, web performance services segment is reported as “Cost of maintenance and subscription” and application services segment is reported as “Cost of professional services” in the condensed consolidated statements of operations.

 
(2)
Customer relationship amortization related to our product segment and web performance services segment is reported as “Sales and marketing” and application services segment is reported as “Cost of professional services” in the condensed consolidated statements of operations.

Based on the capitalized software, customer relationship and other intangible assets recorded through September 30, 2010, the annual amortization expense over the next five fiscal years is expected to be as follows (in thousands):

   
Fiscal Year Ended March 31,
 
   
2011
   
2012
   
2013
   
2014
   
2015
   
Thereafter
 
Amortized intangible assets:
                                   
Capitalized software
  $ 15,887     $ 14,500     $ 11,152     $ 7,662     $ 3,302     $ 1,155  
Customer relationship
    4,507       4,192       3,835       3,788       3,788       16,461  
Other
    1,913       1,473       487       40                  
                                                 
Total amortization expense
  $ 22,307     $ 20,165     $ 15,474     $ 11,490     $ 7,090     $ 17,616  


Impairment evaluations

Capitalized software is reviewed for impairment each balance sheet date or when events and changes in circumstances indicate that the carrying value may not be recoverable.

Goodwill and unamortized intangible assets are tested for impairment at least once a year or more frequently if management believes indicators of impairment exist. Impairment evaluations were performed on goodwill and unamortized intangible assets for all reporting segments as of March 31, 2010.

For all other intangible and long-lived assets, impairment evaluations are performed when events or changes in circumstances indicate that the carrying value may not be recoverable.

Reclassification

As of September 30, 2010, capitalized software, customer relationships, trademarks and other intangible assets are reported as "Capitalized software and other intangible assets, net" in the condensed consolidated balance sheets. In order to conform the March 31, 2010 balance sheet to the current presentation, the Company has reclassified certain intangible assets totaling $42.8 million (reported as non-current "Other assets" in the March 31, 2010 audited financial statements) to "Capitalized software and other intangible assets, net".


Note 9 – Segment Information

Compuware has four business segments in the technology industry: products, web performance services, professional services and application services. 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:

 
·
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.

 
·
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.

 
·
Application services use business-to-business applications to integrate vital business information and processes between partners, customers and suppliers.

Financial information for the Company’s business segments is as follows (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues:
                       
Products:
                       
Mainframe
  $ 99,935     $ 117,288     $ 191,816     $ 216,866  
Distributed
    50,029       42,556       94,965       94,651  
Total product revenue
    149,964       159,844       286,781       311,517  
Web performance services
    17,656               30,928          
Professional services
    46,087       48,532       91,244       101,577  
Application services
    12,162       9,553       23,401       19,223  
Total revenues
  $ 225,869     $ 217,929     $ 432,354     $ 432,317  
                                 
Income from operations:
                               
Products (1)
  $ 70,268     $ 75,213     $ 125,358     $ 191,702  
Web performance services
    2,420               1,471          
Professional services
    5,754       5,654       10,675       8,584  
Application services
    1,199       661       1,961       1,545  
Subtotal
    79,641       81,528       139,465       201,831  
Corporate expenses
    (38,780 )     (38,767 )     (76,217 )     (78,897 )
Restructuring costs
            (1,328 )             (3,818 )
Income from operations
    40,861       41,433       63,248       119,116  
Other income, net
    862       1,333       1,727       2,753  
Income before income taxes
  $ 41,723     $ 42,766     $ 64,975     $ 121,869  

(1)
For the six months ended September 30, 2009, income from the products segment includes a $52.4 million gain on divestiture of the Quality and DevPartner product lines.


Financial information regarding geographic operations is presented in the table below (in thousands):

   
Three Months Ended
   
Six Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues:
                       
United States
  $ 145,740     $ 137,167     $ 277,896     $ 270,870  
Europe and Africa
    53,073       55,245       101,411       111,283  
Other international operations
    27,056       25,517       53,047       50,164  
Total revenues
  $ 225,869     $ 217,929     $ 432,354     $ 432,317  


Note 10 - Restructuring Accrual

In recent years, the Company has incurred restructuring charges associated with the following initiatives: (1) aligning the professional services segment headcount and operating expenses after initiating a plan during the second half of fiscal 2009 to exit low-margin engagements and (2) management’s evaluation of the products segment and administrative and general business processes to identify operating efficiencies with the goal of reducing operating expenses.

The following table summarizes the restructuring accrual as of March 31, 2010, and changes to the accrual during the six months ended September 30, 2010 (in thousands):

   
Employee Termination Benefits
   
Facility Costs
   
Other
   
Total
 
Restructuring accrual as of March 31, 2010
  $ 1,810     $ 978     $ 22     $ 2,810  
                                 
Payments
    (1,761 )     (345 )     (11 )     (2,117 )
                                 
Restructuring accrual as of September 30, 2010
  $ 49     $ 633     $ 11     $ 693  

As of September 30, 2010, $497,000 of the restructuring accrual is recorded in current “accrued expenses”. The remaining balance of $196,000 is recorded to long-term “accrued expenses” in the condensed consolidated balance sheets and primarily relates to facility costs.

The accruals for facilities costs at September 30, 2010 represent the remaining fair value of lease obligations for exited and demised locations, as determined at the cease-use dates of those facilities, net of estimated sublease income that could be reasonably obtained in the future, and will be paid out over the remaining lease terms, the last of which ends in fiscal 2014. Projected sublease income is based on management’s estimates, which are subject to change.


Note 11 - Debt

The Company had no long term debt at September 30, 2010 and March 31, 2010.

The Company has an unsecured revolving credit agreement (the “credit facility”) with Comerica Bank and other lenders. 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 the Company to increase the revolving line of credit by up to an additional $150 million subject to receiving further commitments from lenders and certain other conditions.

The credit facility contains various covenant requirements, including limitations on liens; indebtedness; mergers, consolidations and acquisitions; asset sales; dividends; investments, loans and advances from the Company; transactions with affiliates; and limits additional borrowing outside of the facility to $250 million. The credit facility is also subject to maximum total debt to EBITDA and minimum fixed charge coverage financial covenants. The Company was in compliance with the covenants under the credit facility at September 30, 2010.

Any borrowings under the credit facility bear interest at the prime rate or the Eurodollar rate plus the applicable margin (based on the level of maximum total debt to EBITDA ratio), at the Company’s option. The Company pays a quarterly facility fee on the credit facility based on the applicable margin grid.


Note 12 – Contingencies

The Company is subject to various legal actions and claims incidental to its business. Litigation is subject to many uncertainties and the outcome of individual litigated matters is not predictable with assurance. After discussion with counsel, it is the opinion of management that the outcome of such matters will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have reviewed the accompanying condensed consolidated balance sheet of Compuware Corporation and subsidiaries (the "Company") as of September 30, 2010, and the related condensed consolidated statements of operations for the three-month and six-month periods ended September 30, 2010 and 2009, and of cash flows for the six-month periods ended September 30, 2010 and 2009. These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Compuware Corporation and subsidiaries as of March 31, 2010 and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 27, 2010, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2010 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/  DELOITTE & TOUCHE LLP

Detroit, Michigan
November 4, 2010


COMPUWARE CORPORATION AND SUBSIDIARIES

Management’s Discussion and Analysis of Financial Condition and Results of Operations


FORWARD-LOOKING STATEMENTS

The following discussion contains certain forward-looking statements within the meaning of the federal securities laws. When we use words such as “may”, “might”, “will”, “should”, “believe”, “expect”, “anticipate”, “estimate”, “continue”, “predict”, “forecast”, “projected”, “intend” or similar expressions, or make statements regarding our future plans, objectives or expectations, we are making forward-looking statements. Numerous important factors, risks and uncertainties affect our operating results and could cause actual results to differ materially from the results implied by these or any other forward-looking statements made by us, or on our behalf.

The material risks and uncertainties that we believe affect us are summarized below. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties discussed elsewhere in the reports we file with the Securities and Exchange Commission (see Item 1A Risk Factors in our 2010 Form 10-K), as well as other risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial, may also impair business operations. This report is qualified in its entirety by these risk factors and those listed below. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and shareholders could lose all or part of their investment.

There can be no assurance that future results will meet expectations. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by applicable law, we do not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

 
·
The majority of our products segment revenue is dependent on our customers’ continued use of International Business Machines Corporation and IBM-compatible products.

 
·
Our product software revenue is dependent on the acceptance of our pricing structure for software licenses, maintenance services and web performance services.

 
·
Maintenance revenue could continue to decline.

 
·
The market for web performance services is at an early stage of development with emerging competitors. If this market does not develop or develops more slowly than we expect, or if there is an increase in competition, our revenue may decline or fail to grow.

 
·
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.

 
·
If we are not successful in implementing our professional services strategy, our operating margins may decline materially.

 
·
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.  


COMPUWARE CORPORATION AND SUBSIDIARIES

 
·
Future changes in the United States and global economies may reduce demand for our software products and services, which may have a material adverse effect on our revenues and operating results.

 
·
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.

 
·
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.

 
·
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.

 
·
Our software technology may infringe the proprietary rights of others.

 
·
Our results could be adversely affected by increased competition, pricing pressures and technological changes within the software products market.

 
·
The market for professional services is highly competitive, fragmented and characterized by low barriers to entry.

 
·
We must develop or acquire product enhancements and new products to succeed.

 
·
Acquisitions may be difficult to integrate, disrupt our business or divert the attention of our management and may result in financial results that are different than expected.

 
·
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.

 
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Current laws may not adequately protect our proprietary rights.

 
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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.

 
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Unanticipated changes in our operating results or effective tax rates, or exposure to additional income tax liabilities, could affect our profitability.

 
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Our stock repurchase plan may be suspended or terminated at any time, which may result in a decrease in our stock price.

 
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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.

 
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Our articles of incorporation, bylaws and rights agreement as well as certain provisions of Michigan law may have an anti-takeover effect.


COMPUWARE CORPORATION AND SUBSIDIARIES

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 unaudited condensed consolidated financial statements and notes included elsewhere in this report and our annual report on Form 10-K for the fiscal year ended March 31, 2010, particularly “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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. We began to offer productivity tools for the distributed platform during the 1990’s and web-based productivity tools during the 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:

 
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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.

 
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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.

 
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Our application services, marketed as Covisint, use business-to-business applications to integrate vital business information and processes between partners, customers and suppliers.


COMPUWARE CORPORATION AND SUBSIDIARIES

Quarterly Update

The following occurred during the second quarter of 2011:

 
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Acquired certain assets and liabilities of DocSite, LLC (“DocSite”), for $15.9 million in cash (see Note 2 of the condensed consolidated financial statements included in this report for additional information).
 
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