UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

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

Commission file number 000-20900

COMPUWARE CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ 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 a “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

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

As of October 30, 2009, there were outstanding 230,471,473 shares of Common Stock, par value $.01, of the registrant.

 

 

		Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 2009 and March 31, 2009			3
Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2009 and 2008			4
Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2009 and 2008			5
Notes to Condensed Consolidated Financial Statements			6
Report of Independent Registered Public Accounting Firm			22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41
PART II. OTHER INFORMATION
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 4. Submission of Matters to a Vote of Security Holders			43
Item 6. Exhibits			44
SIGNATURES			45
EX-15
EX-31.1
EX-31.2
EX-32

COMPUWARE CORPORATION AND SUBSIDIARIES

		September 30,				March 31,
		2009				2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	332,975			$	278,112
Accounts receivable, net			407,645				472,011
Deferred tax asset, net			40,408				37,359
Income taxes refundable			3,357				2,578
Prepaid expenses and other current assets			24,855				41,350
Assets held for sale							27,354
Total current assets			809,240				858,764
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION			345,158				353,182
CAPITALIZED SOFTWARE, LESS ACCUMULATED AMORTIZATION			34,250				35,763
OTHER:
Accounts receivable			229,078				224,681
Deferred tax asset, net			34,275				30,851
Goodwill			341,502				339,134
Other			33,522				32,475
Total other assets			638,377				627,141
TOTAL ASSETS		$	1,827,025			$	1,874,850
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable		$	23,142			$	13,796
Accrued expenses			84,106				87,205
Income taxes payable			32,227				24,646
Deferred revenue			396,351				409,410
Liabilities held for sale							26,470
Total current liabilities			535,826				561,527
DEFERRED REVENUE			345,534				378,094
ACCRUED EXPENSES			30,222				30,111
DEFERRED TAX LIABILITY, NET			29,845				24,470
Total liabilities			941,427				994,202
SHAREHOLDERS’ EQUITY:
Common stock			2,306				2,418
Additional paid-in capital			611,469				628,955
Retained earnings			273,799				249,897
Accumulated other comprehensive loss			(1,976	)			(622	)
Total shareholders’ equity			885,598				880,648
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	1,827,025			$	1,874,850

See notes to condensed consolidated financial statements.

COMPUWARE CORPORATION AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
REVENUES:
Software license fees		$	50,110			$	42,251			$	90,656			$	103,693
Maintenance fees			109,734				124,717				220,861				251,244
Professional services fees			58,085				102,877				120,800				213,496
Total revenues			217,929				269,845				432,317				568,433
OPERATING EXPENSES:
Cost of software license fees			3,874				6,253				7,823				12,343
Cost of maintenance fees			8,368				11,332				17,324				23,326
Cost of professional services			51,770				98,973				110,671				202,795
Technology development and support			21,633				22,938				43,115				45,508
Sales and marketing			50,756				58,353				103,904				119,680
Administrative and general			38,767				42,474				78,897				83,618
Restructuring costs			1,328				2,231				3,818				2,913
Gain on divestiture of product lines											(52,351	)
Total operating expenses			176,496				242,554				313,201				490,183
INCOME FROM OPERATIONS			41,433				27,291				119,116				78,250
OTHER INCOME, NET			1,333				3,046				2,753				6,267
INCOME BEFORE INCOME TAXES			42,766				30,337				121,869				84,517
INCOME TAX PROVISION			14,780				8,755				42,836				28,203
NET INCOME		$	27,986			$	21,582			$	79,033			$	56,314
Basic earnings per share		$	0.12			$	0.09			$	0.33			$	0.22
Diluted earnings per share		$	0.12			$	0.08			$	0.33			$	0.22

See notes to condensed consolidated financial statements.

COMPUWARE CORPORATION AND SUBSIDIARIES

		Six Months Ended
		September 30,
		2009				2008
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income		$	79,033			$	56,314
Adjustments to reconcile net income to net cash provided by operations:
Gain on divestiture of product lines			(52,351	)
Depreciation and amortization			20,884				27,072
Property and equipment impairment							662
Acquisition tax benefits			880				2,622
Stock award compensation			9,478				7,900
Deferred income taxes			3,536				2,597
Other			12				410
Net change in assets and liabilities, net of effects from the divestiture and currency fluctuations:
Accounts receivable			91,059				54,314
Prepaid expenses and other current assets			17,004				18,214
Other assets			(2,616	)			(3,992	)
Accounts payable and accrued expenses			(15,794	)			(35,600	)
Deferred revenue			(87,772	)			(61,346	)
Income taxes			6,646				(2,701	)
Net cash provided by operating activities			69,999				66,466
CASH FLOWS PROVIDED BY INVESTING ACTIVITIES:
Purchase of:
Property and equipment			(3,674	)			(4,922	)
Capitalized software			(5,780	)			(6,090	)
Net proceeds from divestiture of product lines			64,992
Investment proceeds							59,402
Net cash provided by investing activities			55,538				48,390
CASH FLOWS USED IN FINANCING ACTIVITIES:
Net proceeds from exercise of stock options including excess tax benefits			1,702				11,163
Contribution to stock purchase plans			1,075				1,674
Repurchase of common stock			(85,806	)			(174,186	)
Net cash used in financing activities			(83,029	)			(161,349	)
EFFECT OF EXCHANGE RATE CHANGES ON CASH			12,355				(8,127	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			54,863				(54,620	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			278,112				215,943
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	332,975			$	161,323

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”). All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, contingencies and results of operations. While management has based their assumptions and estimates on the facts and circumstances existing at September 30, 2009, final amounts may differ from these estimates.

In the opinion of management of the Company, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods presented. These financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and notes thereto for the year ended March 31, 2009 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”). The Condensed Consolidated Balance Sheet at March 31, 2009 has been derived from the audited financial statements at that date but does not include all information and footnotes required by U.S. GAAP for complete financial statements. The results of operations for interim periods are not necessarily indicative of actual results achieved for full fiscal years.

For purposes of this interim financial information, November 9, 2009 is the date through which subsequent events have been evaluated and represents the date the financial statements were issued.

Revenue Recognition — The Company earns revenue from licensing software products, providing maintenance and support for those products and rendering professional services. The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605 “Revenue Recognition” and Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) No. 104. Accordingly, in order to be eligible for revenue recognition, the following criteria must be met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable and collectibility is reasonably assured.

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

Perpetual license fee revenue is recognized using the residual method, under which the fair value, based on vendor specific objective evidence (“VSOE”), of all undelivered elements of the agreement (i.e., maintenance and professional 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 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 licenses as the Company does not sell maintenance for term licenses separately and therefore cannot establish VSOE for the undelivered elements in these arrangements. These arrangements do not qualify for separate recognition of the software license fees, maintenance fees and as applicable, professional services fees under ASC 605 “Revenue Recognition”. However, to comply with SEC Regulation S-X, Rule 5-03(b), which requires product, services and other categories of revenue to be displayed separately on the income statement, the Company separates the license fee, maintenance fee and professional services fee revenue 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 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.

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

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

Professional services fees — 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 remaining term of maintenance agreements in effect at those dates. Deferred license fees and services fees are also included in deferred revenue for those arrangements that are being recognized on a ratable basis. Commission costs associated with deferred revenue are also deferred and recorded as current or non-current other assets, as applicable, in the Condensed Consolidated Balance Sheet.

Capitalized Software — Capitalized software includes the costs of purchased and internally developed software products and is stated at the lower of unamortized cost or net realizable value.

For development costs related to the Company’s mainframe and distributed products, the Company follows the guidance of ASC 985-20 “Costs of Software to be Sold, Leased, or Marketed”. As such, capitalization of internally developed software products begins when technological feasibility of the product is established. Technology development and support includes primarily the costs of programming personnel associated with product development and support, net of amounts capitalized.

The Company also capitalizes development costs associated with its software-as-a-service platform (application services).

The amortization for both internally developed and purchased software products is computed on a product-by-product basis. The annual amortization is the greater of the amount computed using (a) the ratio of current gross revenues compared with the total of current and anticipated future revenues for that product or (b) the straight-line method over the remaining estimated economic life of the product, including the period being reported on. Amortization begins when the product is generally available to customers. The amortization period for capitalized software is generally five years.

Capitalized software is reviewed for impairment each balance sheet date or when events and circumstances indicate such asset may be impaired. Asset impairment charges are recorded when estimated future undiscounted cash flows are not sufficient to recover the carrying value of the capitalized software. The impairment charge is the amount by which the present value of future cash flows is less than the carrying value of these assets.

Goodwill and Other Intangibles — Goodwill for each business segment and those intangible assets with indefinite lives are tested for impairment annually and when events or circumstances indicate their fair value may have been reduced below carrying value. The Company evaluated its goodwill and indefinite lived intangibles as of March 31, 2009 and determined there was no impairment.

Income Taxes — The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period that includes the enactment date.

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

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

Derivatives and Fair Value Measurement — The Company is exposed to foreign exchange rate risks associated with foreign currency transactions. The Company enters into derivative contracts to sell or buy currencies with the intent of mitigating foreign exchange rate risks related to current balances due to or from the Company’s foreign subsidiaries. The Company does not use foreign exchange contracts to hedge anticipated transactions.

During the first six months of fiscal 2010 and 2009, the Company did not designate its foreign exchange derivatives as hedges under ASC 815 “Derivatives and Hedging”. Accordingly, all foreign exchange derivatives are recognized on the Condensed Consolidated Balance Sheets at fair value.

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2009 and March 31, 2009 consistent with the fair value hierarchy provisions of ASC 820 “Fair Value Measurements and Disclosures” (in thousands):

Estimated

Quoted Prices in

Fair Value

Active Markets for

Significant Other

as of

Identical Assets

Observable Inputs

September 30, 2009

(Level 1)

(Level 2)

Assets:

Money market funds (1)

$

260,662

$

260,662

Liabilities:

Foreign exchange derivatives (2)

$

38

$

38

Estimated

Quoted Prices in

Fair Value

Active Markets for

Significant Other

as of

Identical Assets

Observable Inputs

March 31, 2009

(Level 1)

(Level 2)

Assets:

Money market funds (1)

$

201,952

$

201,952

Liabilities:

Foreign exchange derivatives (2)

$

30

$

30

Hedging transaction loss recognized from foreign exchange derivative contracts is recorded to “Administrative and general” in the Condensed Consolidated Statements of Operations and totaled $140,000 and $5.5 million, respectively for the three months ended September 30, 2009 and 2008 and $699,000 and $4.9 million, respectively, for the six months ended September 30, 2009 and 2008.

Recently Issued Accounting Pronouncements — In June 2009, the FASB issued Accounting Standards Update No. 2009-1 “Topic 105 — Generally Accepted Accounting Principles” (formerly Statement of Financial Accounting Standards No. 168 “FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162”). This Standard identified the FASB Accounting Standards Codification (Codification) as the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Effective July 1, 2009, the Codification supersedes all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification has become non-authoritative. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this statement resulted in a revision to our references to U.S. GAAP in our filings but did not otherwise have a material effect on our financial statements.

In May 2009, the FASB issued ASC 855 — “Subsequent Events” (formerly SFAS No. 165 “Subsequent Events”) which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In particular, this Statement sets forth: (1) the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (2) the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements; and (3) the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. This statement is to be applied prospectively and was effective for interim and annual periods ended after June 15, 2009.

Note 2 — Divestiture of Product Lines

In May 2009, the Company sold its Quality and DevPartner distributed product lines to Micro Focus International PLC (“Micro Focus”) for $80 million, less certain adjustments relating to cash collected or invoiced for future maintenance and professional services obligations assumed by Micro Focus as discussed below.

The sale included the following assets: (1) all rights to the proprietary software products and other technologies associated with the Quality and DevPartner distributed product lines (other than File-AID/CS), including trade names, trade secrets, copyrights, patents, related client relationships and contracts, software and documentation; (2) the right to offer employment to approximately 290 personnel related to the sales, sales support, development, maintenance and delivery of the Quality and DevPartner product lines and (3) personal property associated with the job requirements of the Company’s personnel that were hired by Micro Focus and other assets primarily used in connection with the products sold.

Effective upon the closing date of the sale, Micro Focus assumed the obligation to perform future maintenance and professional services related to the Quality and DevPartner product lines.

The Company recorded a gain on divestiture of $52.4 million to operating expenses during the first quarter of fiscal 2010 (in thousands):

Sales price		$	80,000
Credit issued to Micro Focus (1)			(15,008	)
Net proceeds from divestiture of product lines			64,992
Assets and liabilities:
Capitalized software			(17,589	)
Goodwill (2)			(9,733	)
Accounts receivable (1)			(9,098	)
Deferred revenue (1)			25,458
Other			(1,679	)
Gain on divestiture of product lines		$	52,351

The Quality and DevPartner product lines represent a portion of the products segment. The Company’s products segment does not account for operating expenses on a product-by-product basis, as such, operating expenses cannot be directly associated with specific product lines. Therefore, the Quality and DevPartner product lines were not reported as a discontinued operation in the Consolidated Financial Statements.

Note 3 — Computation of Earnings per Common Share

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

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
BASIC EARNINGS PER SHARE:
Numerator: Net income		$	27,986			$	21,582			$	79,033			$	56,314
Denominator:
Weighted-average common shares outstanding			234,290				252,394				237,519				256,024
Basic earnings per share		$	0.12			$	0.09			$	0.33			$	0.22
DILUTED EARNINGS PER SHARE:
Numerator: Net income		$	27,986			$	21,582			$	79,033			$	56,314
Denominator:
Weighted-average common shares outstanding			234,290				252,394				237,519				256,024
Dilutive effect of stock awards			1,825				5,221				1,784				4,428
Total shares			236,115				257,615				239,303				260,452
Diluted earnings per share		$	0.12			$	0.08			$	0.33			$	0.22

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. During the three and six months ended September 30, 2008, stock options to purchase a total of approximately 6.0 million and 6.2 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive.

Note 4 — Comprehensive Income

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

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Net income		$	27,986			$	21,582			$	79,033			$	56,314
Foreign currency translation adjustment, net of tax			(1,351	)			(9,323	)			(1,354	)			(8,399	)
Total comprehensive income		$	26,635			$	12,259			$	77,679			$	47,915

Note 5 — Stock Benefit Plans and Stock-Based Compensation

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

Stock Options

A summary of option activity under the Company’s stock-based compensation plans as of September 30, 2009, and changes during the six months then ended is presented below (shares and intrinsic value in thousands):

		Six Months Ended
		September 30, 2009
										Weighted
						Weighted				Average
						Average				Remaining				Aggregate
		Number of				Exercise				Contractual				Intrinsic
		Options				Price				Term in Years				Value
Options outstanding as of March 31, 2009			34,245			$	9.59
Granted			250				7.22
Exercised			(257	)			6.55							$	219
Forfeited			(315	)			8.83
Cancelled/expired			(4,687	)			16.94
Options outstanding as of September 30, 2009			29,236			$	8.43				4.52			$	3,497
Options vested and expected to vest, net of estimated forfeitures, as of September 30, 2009			28,072			$	8.44				4.35			$	3,409
Options exercisable as of September 30, 2009			20,269			$	8.62				2.86			$	2,827

The Company calculates the fair value of stock option awards using the Black-Scholes option pricing model, which incorporates various assumptions including volatility, expected term, risk-free interest rates and dividend yields. The expected volatility assumption is based on historical volatility of the Company’s common stock over the most recent period commensurate with the expected life of the stock option granted. The Company uses historical volatility because management believes such volatility is representative of prospective trends. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected life of the stock option awarded. The expected life of the stock option is based on either historical exercise data if available or the simplified method as described in SAB Topic 14, “Share-Based Payment”. Dividend yields were not a factor in determining fair value of stock options granted as the Company has never issued cash dividends and does not anticipate issuing cash dividends in the future.

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,
		2009				2008
Expected volatility			45.98	%			54.39	%
Risk-free interest rate			2.27	%			3.25	%
Expected lives at date of grant (in years)			6.1				6.4
Weighted-average fair value of the options granted		$	3.37			$	4.30

The fair value of equity awards vested during the six months ending September 30, 2009 was $4.35 per share.

Restricted Stock Units

The Company’s nonvested restricted stock units as of September 30, 2009, and the activity during the year then ended is summarized as follows (shares in thousands):

		Six Months Ended
		September 30, 2009
						Weighted
						Average
						Grant-Date
		Shares				Fair Value
Nonvested restricted stock units as of March 31, 2009			950			$	6.58
Granted			1,220				7.22
Vested			—				—
Forfeited			—				—
Nonvested restricted stock units as of September 30, 2009			2,170			$	7.03

Covisint Corporation 2009 Long-Term Incentive Plan

In August 2009, Covisint Corporation (“Covisint”), a subsidiary of the Company, established a 2009 Long-Term Incentive Plan (“2009 LTIP”) allowing the Board of Directors of Covisint the ability to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or restricted stock unit awards and annual cash incentive awards to employees and directors of Covisint. The 2009 LTIP reserves 150,000 shares of Covisint for issuances under this plan.

On August 25, 2009, Covisint granted 88,500 stock options to certain employees of Covisint that expire on August 25, 2019. These options will vest if Covisint completes an initial public offering (“IPO”) or if there is a change of control of Covisint prior to August 26, 2015.

These same employees were also granted 419,000 performance-based restricted stock units (“PRSUs”) from the Company’s 2007 LTIP. The PRSUs will vest if Covisint does not complete an IPO or a change of control transaction by August 25, 2015 and Covisint meets a pre-defined revenue target for four consecutive calendar quarters ending prior to August 26, 2015.

As of September 30, 2009, the Company has not recorded compensation expense for the Covisint stock options or the PRSUs and these awards are not included in the Company’s diluted shares outstanding. Compensation expense will be accounted for in the period it becomes probable that the underlying conditions of the Covisint stock options or PRSUs will be met and will be included in the diluted shares outstanding balance in the period the underlying performance conditions are met.

Stock Award Compensation

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

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Stock-based compensation classified as:
Cost of maintenance fees		$	114			$	121			$	219			$	187
Cost of professional services			142				1,598				420				1,984
Technology development and support			297				244				548				366
Sales and marketing			1,223				1,527				3,169				2,245
Administrative and general			2,065				1,178				5,122				2,212
Restructuring costs							906								906
Total stock-based compensation expense before income taxes			3,841				5,574				9,478				7,900
Income tax benefit			(1,243	)			(2,018	)			(3,255	)			(2,867	)
Total stock-based compensation expense after income taxes		$	2,598			$	3,556			$	6,223			$	5,033

As of September 30, 2009, $27.2 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 2.68 years.

Note 6 — Intangible Assets and Goodwill

The components of the Company’s intangible assets were as follows (in thousands):

		September 30, 2009
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
Unamortized intangible assets:
Trademarks (1)		$	5,940							$	5,940
Amortized intangible assets:
Capitalized software (2)		$	297,171			$	(262,921	)		$	34,250
Customer relationship agreements (3)			12,041				(10,103	)			1,938
Non-compete agreements (3)			2,373				(2,355	)			18
Other (4)			6,502				(6,502	)
Total amortized intangible assets		$	318,087			$	(281,881	)		$	36,206

		March 31, 2009
		Gross Carrying				Accumulated				Net Carrying
		Amount				Amortization				Amount
Unamortized intangible assets:
Trademarks (1)		$	5,784							$	5,784
Amortized intangible assets:
Capitalized software (2)		$	317,569			$	(281,806	)		$	35,763
Customer relationship agreements (3)			13,218				(10,751	)			2,467
Non-compete agreements (3)			2,561				(2,516	)			45
Other (4)			6,849				(6,684	)			165
Total amortized intangible assets		$	340,197			$	(301,757	)		$	38,440

Changes in the carrying amounts of goodwill are summarized as follows (in thousands):

						Professional				Application
Goodwill		Products				Services				Services				Total
Balance at March 31, 2009, net		$	187,166			$	140,436			$	11,532			$	339,134
Effect of foreign currency translation			1,439				929								2,368
Balance at September 30, 2009, net		$	188,605			$	141,365			$	11,532			$	341,502

The Company evaluated its goodwill and other intangible assets for all reporting segments as of March 31, 2009 and determined there was no impairment. The Company determined the fair value of each segment using a discounted cash flow analysis supported by market multiples of revenue.

In the second half of fiscal 2009, the Company initiated a plan to restructure its professional services segment. For the first six months of fiscal 2010, the professional services segment expense reductions were consistent with management’s internal plan. If the professional services segment’s profitability assumptions used in the March 31, 2009 goodwill impairment analysis are not attained and sustained, an impairment of some or all of the $141.4 million of goodwill related to the professional services segment at September 30, 2009 could be recorded in the future as a non-cash charge to earnings.

The portion of capitalized software and goodwill related to the Quality and DevPartner product lines was reclassified to “Assets held for sale” in the Condensed Consolidated Balance Sheets as of March 31, 2009 due to the then-pending sale of these product lines to Micro Focus which occurred in May 2009 (see Note 2 for more details).

Note 7 — Segment Information

The Company operates in three business segments in the technology industry: products, professional services and application services. The Company provides software products, professional services and application services to information technology (“IT”) organizations that help IT professionals efficiently develop, implement and support the applications that run their businesses.

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

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues:
Products:
Mainframe		$	117,288			$	108,801			$	216,866			$	231,290
Distributed systems			42,556				58,167				94,651				123,647
Total product revenue			159,844				166,968				311,517				354,937
Professional services			48,532				94,314				101,577				196,146
Application services			9,553				8,563				19,223				17,350
Total revenues		$	217,929			$	269,845			$	432,317			$	568,433
Income from operations:
Products (1)		$	75,213			$	68,092			$	191,702			$	154,080
Professional services			5,654				4,854				8,584				13,176
Application services			661				(950	)			1,545				(2,475	)
Subtotal			81,528				71,996				201,831				164,781
Corporate expenses			(38,767	)			(42,474	)			(78,897	)			(83,618	)
Restructuring costs			(1,328	)			(2,231	)			(3,818	)			(2,913	)
Income from operations			41,433				27,291				119,116				78,250
Other income, net			1,333				3,046				2,753				6,267
Income before income taxes		$	42,766			$	30,337			$	121,869			$	84,517

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

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenues:
United States		$	137,167			$	168,192			$	270,870			$	357,394
Europe and Africa			55,245				73,498				111,283				152,794
Other international operations			25,517				28,155				50,164				58,245
Total revenues		$	217,929			$	269,845			$	432,317			$	568,433

Note 8 — Restructuring Accrual

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

In the first six months of fiscal 2010, the Company incurred $3.8 million in restructuring charges of which $3.7 million related to employee termination benefits. The Company terminated 245 employees within the professional services segment to align operating expenses with revenues as the Company continued to exit engagements considered low-margin during the first six months of fiscal 2010. The Company also continued evaluating business processes for efficiencies resulting in the termination of 33 employees from the products segment, primarily sales and marketing personnel, and 29 employees within administrative and general functions.

Management continues to review the Company’s costs and will, based on future results of operations, determine if additional restructuring actions are needed. The total amount of any potential future charges for such actions will depend upon the nature, timing and extent of those actions.

The following table summarizes the restructuring accrual as of March 31, 2009, and changes to the accrual during the first six months of fiscal 2010 (in thousands):

						Expensed				Paid
		Accrual				During the Six				During the Six				Accrual
		Balance at				Months Ended				Months Ended				Balance at
		March 31,				September 30,				September 30,				September 30,
		2009				2009				2009				2009
Employee termination benefits		$	1,274			$	3,678			$	(4,250	)		$	702
Facilities costs (primarily lease abandonments)			2,271				46				(610	)			1,707
Other			13				94				(88	)			19
Total		$	3,558			$	3,818			$	(4,948	)		$	2,428

As of September 30, 2009, $1.5 million of the restructuring accrual is recorded in current “accrued expenses”. The remaining balance of $900,000 is recorded to long-term “accrued expenses” in the Condensed Consolidated Balance Sheets and primarily relates to facility costs.

The accruals for employee termination benefits at September 30, 2009 primarily represent cash payments to be made to employees that have been terminated as a result of initiatives described above.

The accruals for facilities costs at September 30, 2009 represent the remaining fair value of lease obligations for exited and demised locations, as determined at the cease-use dates of those facilities, net of estimated sublease income that could be reasonably obtained in the future, and will be paid out over the remaining lease terms, the last of which ends in fiscal 2014. Projected sublease income is based on management’s estimates, which are subject to change.

Note 9 — Debt

The Company has no long term debt.

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 is in compliance with the covenants under the credit facility.

Any borrowings under the credit facility bear interest at the prime rate or the Eurodollar rate plus the applicable margin (based on the level of maximum total debt to EBITDA ratio), at the Company’s option. The Company pays a quarterly facility fee on the credit facility based on the applicable margin grid. The Company has never used the credit facility as of September 30, 2009. See Note 10 regarding borrowings related to our November 2009 acquisition.

Note 10 — Subsequent Event

On November 9, 2009, the Company acquired all of the outstanding capital stock of Gomez, Inc. (“Gomez”) for $295 million in cash, plus approximately $1.5 million of direct acquisition costs. Gomez is a privately-held company which provides web application experience management through a software-as-a-service model. We believe this acquisition will expand our offerings for application performance management, allowing us to provide solutions for both enterprise and internet based environments, improving the results of operations for our products segment.

The initial accounting for the assets, liabilities, items of consideration and pro forma combined historical results related to this acquisition is incomplete due to the short period of time between the purchase date and filing date of this report.

The purchase price was funded with the Company’s existing cash resources and borrowings of $15 million under its credit facility described in Note 9 to complete the transaction.

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, 2009, and the related condensed consolidated statements of operations for the three-month and six-month periods ended September 30, 2009 and 2008, and cash flows for the six-month periods ended September 30, 2009 and 2008. These interim financial statements are the responsibility of the Company’s management.

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

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

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Compuware Corporation and subsidiaries as of March 31, 2009, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated May 27, 2009, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of March 31, 2009 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

November 9, 2009

COMPUWARE CORPORATION AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

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

The material risks and uncertainties that we believe affect us are summarized below (see Item 1A Risk Factors in our 2009 Form 10-K). These risks and uncertainties are not the only ones we face. Additional risks and uncertainties discussed elsewhere in the reports we file with the Securities and Exchange Commission, as well as other risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial, may also impair business operations. This report is qualified in its entirety by these risk factors and those listed below. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and shareholders could lose all or part of their investment.

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

	•		The majority of our software products revenue is dependent on our customers’ continued use of International Business Machines Corp. (“IBM”) and IBM-compatible products.
	•		Our software product revenue is dependent on the acceptance of our pricing structure for software licenses and maintenance.
	•		Our strategy of packaging distributed products and services as a single offering may not be accepted by our customers, negatively impacting our revenue.
	•		We may fail to achieve our forecasted financial results due to inaccurate sales forecasts or other factors. If we fail to meet the expectations of analysts or investors, our stock price could decline substantially.
	•		Our quarterly financial results vary and may be adversely affected by a number of unpredictable factors.
	•		Future changes in the United States and global economies may reduce demand for our software products, professional services and application services, which may negatively affect our revenues and operating results.
	•		If we are not successful in implementing our professional services strategy, our operating margins may decline.
	•		The continuation of the decline in the U.S. domestic automotive manufacturing business could adversely affect our professional services and application services businesses.

COMPUWARE CORPORATION AND SUBSIDIARIES

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

COMPUWARE CORPORATION AND SUBSIDIARIES

OVERVIEW

In this section, we discuss our results of operations on a segment basis for each of our three business segments in the technology industry: products, professional services and application services. We evaluate segment performance based primarily on segment contribution before corporate expenses. References to years are to fiscal years ended March 31. This discussion and analysis should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and notes included elsewhere in this report and our annual report on Form 10-K for the fiscal year ended March 31, 2009, particularly “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

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

In the 1990’s, IT moved toward distributed and web-based platforms. Our solutions portfolio grew in response, and we now market a comprehensive portfolio of IT solutions across the full range of enterprise computing platforms that help:

	•		Develop and deliver high quality, high performance enterprise business applications in a timely and cost-effective manner.
	•		Measure, manage and communicate application service in business terms, and maintain consistent, high levels of service delivery.
	•		Provide executive visibility, decision support and process automation across the entire IT organization to enable all available resources to be harnessed in alignment with business priorities.

Additionally, to be competitive in today’s global economy, enterprises must securely share applications, information and business processes. We address this market need through our application services, which are marketed under the brand name “Covisint”. Our application services offerings provide a software-as-a-service platform that enables industries and business communities to securely integrate vital information and processes across users, business partners, customers, vendors and suppliers.

COMPUWARE CORPORATION AND SUBSIDIARIES

Quarterly Update

The following occurred during the second quarter of 2010:

	•		Achieved an increase in product contribution margin to 47.1% in the second quarter of 2010 from 40.8% in the second quarter of 2009.
	•		Achieved an increase in professional services segment contribution margin to 11.7% in the second quarter of 2010 from 5.1% in the second quarter of 2009.
	•		Achieved an increase in application services segment contribution margin to 6.9% in the second quarter of 2010 from a negative contribution margin of 11.1% in the second quarter of 2009.
	•		Achieved an increase in mainframe product revenue of 7.8% compared to the second quarter of 2009.
	•		Incurred a charge of $1.3 million from restructuring actions to improve operating efficiencies.
	•		Released 8 mainframe product updates designed to increase the productivity of the IT departments of our customers.

Our ability to achieve our strategies and objectives is subject to a number of risks and uncertainties, some of which we may not be able to control. See “Forward-Looking Statements”.

COMPUWARE CORPORATION AND SUBSIDIARIES

RESULTS OF OPERATIONS

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

		Total Revenues												Total Revenues
		Three Months Ended								Period-				Six Months Ended								Period-
		September 30, *								to-Period				September 30, *								to-Period
		2009				2008				Change				2009				2008				Change
REVENUE:
Software license fees			23.0	%			15.7	%			18.6	%			21.0	%			18.2	%			(12.6	)%
Maintenance fees			50.3				46.2				(12.0	)			51.1				44.2				(12.1	)
Professional services segment revenue			22.3				34.9				(48.5	)			23.5				34.5				(48.2	)
Application services segment revenue			4.4				3.2				11.6				4.4				3.1				10.8
Total revenues			100.0				100.0				(19.2	)			100.0				100.0				(23.9	)
OPERATING EXPENSES:
Cost of software license fees			1.8				2.3				(38.0	)			1.8				2.2				(36.6	)
Cost of maintenance fees			3.8				4.2				(26.2	)			4.0				4.1				(25.7	)
Professional services segment expenses			19.7				33.2				(52.1	)			21.5				32.2				(49.2	)
Application services segment expenses			4.1				3.5				(6.5	)			4.1				3.5				(10.8	)
Technology development and support			9.9				8.5				(5.7	)			10.0				8.0				(5.3	)
Sales and marketing			23.3				21.6				(13.0	)			24.0				21.0				(13.2	)
Administrative and general			17.8				15.8				(8.7	)			18.2				14.7				(5.6	)
Restructuring cost			0.6				0.8				(40.5	)			0.9				0.5				31.1
Gain on divestiture of product lines															(12.1	)							n/a
Total operating expenses			81.0				89.9				(27.2	)			72.4				86.2				(36.1	)
Income from operations			19.0				10.1				51.8				27.6				13.8				52.2
Other income, net			0.6				1.1				(56.2	)			0.6				1.1				(56.1	)
Income before income taxes			19.6				11.2				41.0				28.2				14.9				44.2
Income tax provision			6.8				3.2				68.8				9.9				5.0				51.9
Net income			12.8	%			8.0	%			29.7	%			18.3	%			9.9	%			40.3	%

PRODUCTS SEGMENT

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

		Three Months Ended								Six Months Ended
		September 30,								September 30,
		2009				2008				2009				2008
Revenue		$	159,844			$	166,968			$	311,517			$	354,937
Expenses			84,631				98,876				119,815				200,857
Product contribution		$	75,213			$	68,092			$	191,702			$	154,080

The products segment generated contribution margins of 47.1% and 40.8% during the second quarter of 2010 and 2009, respectively, and 61.5% and 43.4% for the first six months of 2010 and 2009, respectively. The increases in margin were due to the decline in operating expenses,

COMPUWARE CORPORATION AND SUBSIDIARIES

primarily Sales and marketing and Cost of maintenance fees, exceeding the decline in product revenue. The increase in margin for the first six months of 2010 was further impacted by the $52.4 million gain on divestiture of our Quality and DevPartner product lines recorded during the first quarter of 2010 (see Note 2 of the Condensed Consolidated Financial Statements included in this report for more details).

Products Segment Revenue

Revenue for the products segment is as follows (in thousands):

		Three Months Ended												Six Months Ended
		September 30,												September 30,
		2009				2008				% Chg				2009				2008				% Chg
Software license fees
Mainframe		$	34,229			$	21,431				59.7			$	53,422			$	55,369				(3.5	)
Distributed excluding divested products			15,881				14,289				11.1				28,510				34,656				(17.7	)
Total software license fees excluding divested products			50,110				35,720				40.3				81,932				90,025				(9.0	)
License fees — divested products (a)							6,531								8,724				13,668
Total software license fees			50,110				42,251				18.6				90,656				103,693				(12.6	)
Maintenance fees
Mainframe			83,059				87,370				(4.9	)			163,444				175,921				(7.1	)
Distributed excluding divested products			26,675				28,399				(6.1	)			52,578				57,023				(7.8	)
Total maintenance fees excluding divested products			109,734				115,769				(5.2	)			216,022				232,944				(7.3	)
Maintenance fees — divested products (a)							8,948								4,839				18,300
Total maintenance fees			109,734				124,717				(12.0	)			220,861				251,244				(12.1	)
Products revenue
Mainframe			117,288				108,801				7.8				216,866				231,290				(6.2	)
Distributed excluding divested products			42,556				42,688				(0.3	)			81,088				91,679				(11.6	)
Total products revenue excluding divested products			159,844				151,489				5.5				297,954				322,969				(7.7	)
Products revenue — divested products (a)							15,479								13,563				31,968
Total products revenue			159,844				166,968				(4.3	)			311,517				354,937				(12.2	)