Edgar Filing: COMPUWARE CORP

form10k.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2013

Commission File Number: 000-20900

COMPUWARE CORPORATION

(Exact name of registrant as specified in its charter)

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

One Campus Martius, Detroit, MI 48226-5099

(Address of principal executive offices including zip code)

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

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

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

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

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

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

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 T No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer T 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 No T

The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 30, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, was $1,812,523,714 based upon the closing sales price of the common stock on that date of $9.89 as reported on The NASDAQ Global Select Market. For purposes of this computation, all executive officers, directors and 10% beneficial owners of the registrant are assumed to be affiliates. Such determination should not be deemed an admission that such officers, directors and beneficial owners are, in fact, affiliates of the registrant.

There were 213,430,384 shares of $.01 par value common stock outstanding as of May 27, 2013.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive Proxy Statement for the Registrant's 2013 Annual Meeting of Shareholders (the “Proxy Statement”) filed pursuant to Regulation 14A are incorporated by reference in Part III.

COMPUWARE CORPORATION AND SUBSIDIARIES

FORM 10-K

Table of Contents

Item
Number		Page

PART I

1.	Business	3

1A.	Risk Factors	16

1B.	Unresolved Staff Comments	24

2.	Properties	24

3.	Legal Proceedings	24

4.	Mine Safety Disclosures	24

PART II

5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24

6.	Selected Financial Data	27

7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29

7A.	Quantitative and Qualitative Disclosure about Market Risk	59

8.	Financial Statements and Supplementary Data	62

9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	102

9A.	Controls and Procedures	102

9B.	Other Information	106

PART III

10.	Directors, Executive Officers and Corporate Governance	107

11.	Executive Compensation	107

12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	107

13.	Certain Relationships and Related Transactions, and Director Independence	108

14.	Principal Accountant Fees and Services	108

PART IV

15.	Exhibits and Financial Statement Schedules	109

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ITEM 1.

BUSINESS

We deliver services, software and best practices that enable our customers’ most important technologies to perform at their peak. Originally founded in 1973 as a professional services company, we began to offer mainframe productivity tools that information technology organizations (“IT”) used for fault diagnosis, file and data management, and application debugging in the late 1970's.

In the 1990's and 2000’s, our customers moved toward distributed and web-based platforms and more recently hosted services via the Internet (“cloud computing”). Our solutions portfolio grew in response, and we now market a focused portfolio of solutions across the full range of enterprise computing platforms that help:

·	Optimize the user experience, performance, availability and quality of web, non-web, mobile and cloud-based applications.

·	Securely share and integrate vital information and processes across users, business partners, customers, vendors and suppliers.

·	Maximize the profitability and efficiency of professional services engagements.

·	Provide executive visibility, decision support and process automation to align IT resources with business priorities.

·	Develop and deliver high-quality, high-performance enterprise applications in a timely and cost-effective manner.

·	Increase productivity and reduce operational costs on the mainframe platform.

We deliver these solutions through software that is installed and run on our customers’ owned hardware and applications (“on-premises”) and through a Software-as-a-Service (“SaaS”) model accessed via our hosted networks (see Technology and Network Operations section). We also continue to offer professional technical services in areas such as mobile application development, performance engineering and legacy system modernization.

We have six business segments: Application Performance Management (“APM”), Mainframe, Changepoint, Uniface, Professional Services and Covisint Application Services (“Covisint”). These segments are described in detail in note 1 to the consolidated financial statements.

We collectively refer to the solutions offered within our APM, Mainframe, Changepoint and Uniface segments as “software solutions”. To provide a supplementary view of this business, aggregated financial data for our software solutions is presented herein.

For a discussion of developments in our business during fiscal 2013, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We were incorporated in Michigan in 1973. Our executive offices are located at One Campus Martius, Detroit, Michigan 48226-5099, and our telephone number is 313.227.7300. Our Internet address is www.compuware.com. Our Codes of Conduct and our Board committee charters, as well as copies of reports we file with the Securities and Exchange Commission are available in the investor relations section of our external web site as soon as reasonably practicable after we electronically file such reports. The information contained on our web site should not be considered part of this report.

This report contains certain forward-looking statements within the meaning of the federal securities laws. When we use words such as “may”, “might”, “will”, “should”, “believe”, “expect”, “anticipate”, “estimate”, “continue”, “predict”, “forecast”, “projected”, “intend” or similar expressions, or make statements regarding our future plans, objectives or expectations, we are making forward-looking statements. Numerous important factors, risks and uncertainties affect our operating results, including, without limitation, those discussed in Item 1A. Risk Factors and elsewhere in this report, and could cause actual results to differ materially from the results implied by these or any other forward-looking statements made by us, or on our behalf. There can be no assurance that future results will meet expectations. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by applicable law, we do not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

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OUR BUSINESS STRATEGY

Our business strategy is to enable our customers’ most important technologies to perform at their peak by delivering best-in-class on-premises software, software-as-a-service (“SaaS”) and professional technical services. Our solutions empower customers to drive revenue, brand equity and customer satisfaction by harnessing disruptive technologies like cloud computing, virtualization and mobile computing.

Early in fiscal 2012, Compuware announced a new organizational model featuring a business unit structure for our APM, Changepoint, Mainframe, Uniface, Covisint and Professional Services lines of business. We believe this structure will maximize our market agility and responsiveness, enabling us to capitalize on market conditions and competitive advantages for maximum growth and profitability.

Our APM solutions offer a complete view of the performance of applications – as well as deep-dive problem resolution – across the enterprise and through the Internet for every end user, all from a single dashboard. With the addition of dynaTrace, our APM solutions now provide visibility into the performance of every transaction, enabling optimal management of key applications throughout the application lifecycle.

Our secure collaboration solution, Covisint application services, gives users the ability to easily and securely share key communications, applications and information with employees, customers and partners. Covisint is growing through a targeted focus on industries such as healthcare, automotive and energy that require the secure sharing of complex and distributed data and applications.

Changepoint provides a single, automated offering to help professional services organizations forecast and plan, as well as manage resources, projects and client engagements. In addition, for project-centric organizations, Changepoint provides a cohesive and consolidated view of projects, investments, resources and applications to help manage the entire business portfolio.

Uniface is a rapid application development environment for building, renewing and integrating the latest complex enterprise applications. Our strategy with the Uniface solution is to enhance the product with additional features most in demand for developing enterprise applications, with a recent focus on Rich Internet and mobile applications.

Our mainframe solutions optimize developer productivity, reduce costs and improve service quality throughout the application lifecycle. Specifically, we help customers: understand code, optimize test data, test and debug, pinpoint problems, validate quality, and tune applications and performance. To maximize productivity and better enable the next generation of mainframe developers, our solutions work in both a traditional “green screen” environment and a “point and click” environment. During November 2012, we released a new mainframe solution, PurePath for z/OS, which combines Strobe and dynaTrace technology on the mainframe. By combining dynaTrace's patented PurePath Technology® with Strobe's mainframe application management expertise, distributed system and mainframe teams can resolve performance problems faster, reduce MIPS costs, postpone hardware upgrades and accelerate time-to-market for new applications. We expect PurePath for z/OS to positively contribute to our mainframe revenues in 2014.

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Our professional services solutions offer a broad range of IT services for mainframe, distributed and mobile environments. We believe that the market for professional services will continue to be driven by our customers’ need to grow revenue, support business expansion, adopt the latest technology to meet business demands, manage IT services, and for increased technical staffing for ongoing maintenance. Our business approach to professional services delivery emphasizes hiring highly skilled and experienced staff, ongoing training, high staff utilization and immediate, productive deployment of new personnel at client locations.

BUSINESS SEGMENTS

The following table sets forth, for the periods indicated, a breakdown of total revenue by business segment and the percentage of total revenues for each segment (dollars in thousands):

	Year Ended March 31,						Percentage of Total Revenues
Business Segment Revenue	2013		2012		2011		2013			2012			2011

APM	$	300,533	$	270,443	$	231,999		31.8	%		26.8	%		25.0	%
Mainframe		332,677		419,317		413,332		35.2			41.6			44.5
Changepoint		39,775		47,867		39,423		4.2			4.7			4.2
Uniface		46,156		46,908		46,307		4.9			4.6			5.0
Total software solutions revenue		719,141		784,535		731,061		76.1			77.7			78.7
Professional services		134,714		151,506		142,844		14.3			15.0			15.4
Application services		90,694		73,731		55,025		9.6			7.3			5.9
Total revenue	$	944,549	$	1,009,772	$	928,930		100.0	%		100.0	%		100.0	%

SOFTWARE SOLUTIONS

Our software solutions are comprised of the following business segments: (1) Application Performance Management; (2) Mainframe; (3) Changepoint; and (4) Uniface. Revenue associated with our software solutions consists of software license fees, maintenance fees, subscription fees and professional services fees (software related services). Users of our products include executive management, line of business leadership, IT leadership and staff, IT service providers and professional services organizations. Our solutions support these users in achieving key business and technology goals across all major platforms.

Application Performance Management

Compuware Application Performance Management (“Compuware APM”) consists of our solutions for optimizing the performance of web, non-web, mobile, streaming and cloud applications. Compuware APM is built to manage the complexity of today’s most challenging modern applications including mobile, cloud, Big Data and service-oriented architecture. Compuware APM helps optimize by monitoring tens of thousands of applications for customers, large and small, around the globe. Through the lens of end-user experience, smarter analytics, advanced APM automation and a unique performance lifecycle foundation, our customers are informed about their applications to provide faster performance, proactive problem resolution, accelerated time-to-market and reduced application management costs.

Compuware APM User Experience Management

Compuware APM User Experience Management (“UEM”) provides IT teams and application owners with a complete view of application performance and its business impact for all users, geographies, browsers and devices. Compuware’s APM UEM combines real user, synthetic and third party cloud services monitoring in a single powerful platform for managing performance, availability and service level agreements across web, mobile, cloud and enterprise applications. UEM is supported by Gomez SaaS, dynaTrace and Data Center Real-User Monitoring solutions.

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Compuware APM Application Monitoring

Compuware APM Application Monitoring combines deep transaction management and smart analytics with an end-user perspective to help clients deliver faster applications, rapidly find and fix problems and accelerate time to market. Our application monitoring solution provides smart application monitoring for today’s modern web, mobile, cloud and Big Data environments. Application Monitoring is supported by dynaTrace solutions.

Compuware APM Application-Aware Network Monitoring

Compuware APM Application-Aware Network Monitoring enables network and infrastructure operators to quickly isolate faults that impact application performance and end-user experience across web, middleware, database and network tiers. Our solution passively collects network traffic and delivers application-layer insight across business critical application environments including SAP, Oracle, Citrix, LDAP, HTTP, and Cerner, among others. Application-Aware Network Monitoring is supported by Data Center Real-User Monitoring solutions.

Compuware APM Lifecycle Performance Management

Compuware APM Lifecycle Performance Management fosters collaboration between production, application support, test and development teams, resulting in faster time to market, problem resolution and application performance. dynaTrace PurePath Technology® provides a unified, recorded data set for every transaction, capturing granular code-level detail, infrastructure parameters and payload information. Lifecycle Performance Management is supported by the Compuware APM solution.

Software related services

We offer a full range of software related services designed to accelerate the results of customers’ web, non-web and mobile application initiatives which include implementation services, consulting services, web load testing services and managed services. We combine product knowledge with extensive hands-on experience to help clients improve application performance and business results. Compuware APM services provide the education, advice and hands-on support needed to maximize the benefits of the Compuware APM platform.

For fiscal 2013, 2012 and 2011, APM business segment revenue represented approximately 31.8%, 26.8% and 25.0%, respectively, of our total revenues.

Mainframe Software Products and Solutions

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

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

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

Our mainframe products consist of the following:

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

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

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

Hiperstation products deliver complete pre-production testing functionality for automating test creation and execution, test results analysis and documentation. Hiperstation also provides application auditing capabilities to address regulatory compliance, security breach analysis and other business requirements. The products simulate the online systems environment, allowing programmers to test applications under production conditions without requiring actual users at terminals. The products’ powerful functions and features enhance unit, concurrency, integration, migration, capacity, regression and stress testing.

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

Compuware APM for Mainframe combines dynaTrace PurePath for z/OS and Strobe enabling 24/7 transaction management across distributed and mainframe applications. Users can proactively monitor interconnected system applications, including mobile transactions that interact with mainframe CICS or Java applications, providing visibility into how distributed applications are impacting mainframe workloads. When a poorly performing transaction is identified, users can easily drill down into source code for root cause analysis as well as determine ways to increase the performance of DB2 SQL statements, reduce wait states and eliminate resource overuse.

The Compuware Workbench is an open source, interactive developer environment that leverages Eclipse. It provides a common framework and single launch-point from which to initiate our mainframe products, as well as the capability to launch other products from one platform. The graphical user interface is familiar to users who are accustomed to developing in a modern development environment, making common mainframe tasks faster and simpler to perform for both experienced developers and those who are new to the mainframe.

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Software Related Services

We offer a range of services to help organizations ensure high-quality, high-performing mainframe applications, including implementation, consulting, training and managed services. These offerings are designed for maximum value realization. In the future, we expect most mainframe software related services to be delivered by our professional services segment.

For fiscal 2013, 2012 and 2011, mainframe business segment revenue represented approximately 35.2%, 41.6% and 44.5%, respectively, of our total revenues.

Business Portfolio Management and Professional Services Automation (Changepoint)

Changepoint combines professional services automation with project portfolio management capabilities to give customers complete visibility into projects, investments and resources for informed business planning and financial control.

Changepoint helps businesses gain competitive advantage and increase profitability through portfolio visibility, planning insight, process automation and improved resource utilization throughout a customer’s lifecycle. Changepoint’s business portfolio management services, comprised of professional services automation and project portfolio management, help businesses maximize return on investment.

Changepoint SaaS

Changepoint’s SaaS solution has been built with enterprise organizations in mind and is used by professional services organizations and IT departments worldwide. Our solution provides a high degree of security, as well as flexibility and control, while reducing costs. We do all of this while ensuring that the resulting solution adheres to the customer’s business model. We manage the installation, administration and maintenance of the solution, and our consultants oversee the process to ensure successful implementation and adoption.

Software Related Services

We provide a wide range of services to help organizations effectively align and manage project, application and infrastructure portfolios, including implementation, consulting, training and managed services. These offerings are designed for maximum value realization and are delivered by world-class services professionals.

For fiscal 2013, 2012 and 2011, Changepoint business segment revenue represented approximately 4.2%, 4.7% and 4.2%, respectively, of our total revenues.

Enterprise Application Development (Uniface)

Uniface is Compuware's Rapid Application Development environment for building, renewing and integrating some of the largest and most complex enterprise applications. Uniface helps IT organizations reduce the cost of ownership for business-critical applications and increase the return on investment for the IT budget.

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Uniface enables enterprises to meet increasing demand for productively developing complex, secure, global Web 2.0 applications, deployable on any platform including the cloud.

Uniface also offers full technology independence over a wide range of operating systems, databases and third-party technologies. Customers can migrate from one environment to another without changing the Uniface applications.

Uniface manages upward compatibility so customers can migrate their Uniface applications to higher levels of technology without major investments in re-development.

Software Related Services

We offer a wide range of services to help organizations obtain the most value from their investments in our Uniface products. Our solutions include consulting services for both business and technical issues, additional training on the use of our Uniface products, development process optimization and application modernization.

For fiscal 2013, 2012 and 2011, Uniface business segment revenue represented approximately 4.9%, 4.6% and 5.0%, respectively, of our total revenues.

PROFESSIONAL SERVICES

Over the past few years, we have transformed our professional services organization to be more profitable by better aligning our solutions with the pressing needs of our customers. We focused on improving the financial results of the professional service segment, which included exiting low-margin engagements and focusing our resources on more profitable engagements. This improved the segment’s contribution margin but resulted in a significant revenue decline through fiscal 2011. During fiscal 2012, we experienced year-over-year revenue growth while maintaining higher margins than our historical professional services business. However, during fiscal 2013, we experienced weakened demand for our services resulting in an 11.1% decline in revenue and a 21.6% decline in contribution margin. The decline in revenue and margin contributed to the impairment of goodwill related to the professional services segment (see note 7 to the consolidated financial statements included in Item 8).

For fiscal 2013, 2012 and 2011, Professional Services segment revenue represented approximately 14.3%, 15.0% and 15.4%, respectively, of our total revenues.

APPLICATION SERVICES

Our Covisint application services provide a cloud engagement platform for enabling organizations to securely connect, engage and collaborate with large, distributed communities of customers, business partners and suppliers. Our platform allows global organizations with complex external business relationships to create, streamline and automate external mission-critical business processes that involve the secure exchange of and access to critical information from multiple sources. Our customers deploy our platform to deliver on current and new business initiatives, enhance competitiveness, create new revenue opportunities, increase customer retention and reduce operating costs.

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Our cloud engagement platform is offered as a service, commonly referred to as a Platform-as-a-Service (PaaS), and combines robust, cloud-based identity management, portal, data exchange, integration and application development capabilities. Our platform integrates with on-premises and hosted enterprise systems, as well as other cloud-based data sources, and can be deployed quickly, scaled to millions of users, and configured to address our customers’ specific organizational requirements, including workflows, content and branding.

We deliver our platform through industry-specific solutions that address external mission-critical business processes common to companies across our target industries. To date, we have focused our solutions on the global automotive, healthcare and energy industries, in which the secure sharing of complex and distributed data is of particular importance. We are actively working to expand our platform to a wide range of industries which we believe have a significant opportunity to leverage our platform to enable mission-critical business processes and to improve collaboration with external parties such as customers, business partners and suppliers.

For fiscal 2013, 2012 and 2011, Covisint application services segment fees represented approximately 9.6%, 7.3% and 5.9%, respectively, of our total revenue.

SEASONALITY

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

SOFTWARE LICENSING, PRODUCT MAINTENANCE AND CUSTOMER SUPPORT

We license software to customers using two types of software licenses, perpetual and time-based. Generally, perpetual software licenses allow customers a perpetual right to run our software up to a licensed capacity, including aggregate MIPS (Millions of Instructions Per Second), users, servers, operating system instances (“OSIs”) or monitoring activities. Time-based licenses allow customers a right to run our software for a limited period of time up to their licensed capacity. We also offer perpetual or time-based licenses that allow our customers a right to run our mainframe software with an unlimited MIPS capacity.

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

Licensees have the option of renewing their maintenance agreements on an annual or multi-year basis for an annual fee based on the price of the licensed product. We also enter into agreements with our customers that allow them to license software and purchase multiple years of maintenance in a single transaction (“multi-year transactions”). In support of these multi-year transactions, we allow extended payment terms to qualifying customers.

We believe that effective support of our customers and products for the maintenance term is a substantial factor in product satisfaction and incremental product sales. We believe our installed base is a significant asset and intend to continue to provide customer support and product enhancements to ensure a continuing high level of customer satisfaction. Throughout our history, we have experienced high customer maintenance renewal rates.

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For fiscal 2013, 2012 and 2011, software license fees represented approximately 18.9%, 21.9% and 21.0%, respectively, and maintenance fees represented approximately 43.2%, 42.3% and 45.1%, respectively, of our total revenues.

BACKLOG

We consider backlog orders for our software solutions segments to be contractually committed arrangements with a customer for which the associated revenue has not been recognized. For these segments, we record the unrecognized amount of each contractually committed arrangement as deferred revenue in our consolidated balance sheet; therefore the deferred revenue balances are equal to the segment’s backlog balance. We tend to experience a higher volume of product transactions including maintenance renewals in our third and fourth fiscal quarters. For our software solutions segments, the deferred revenue or backlog balance was $693.1 million and $778.4 million as of March 31, 2013 and 2012, respectively. The amount of the March 31, 2013 backlog not expected to be recognized in fiscal 2014 is $292.3 million which is recorded as non-current deferred revenue in our consolidated balance sheet.

For our professional services segment, the majority of our services contracts are terminable by the client. Therefore, there is substantially no backlog for these arrangements.

For our Covisint application services segment, we consider the backlog balance to be future years of contractually committed arrangements, of which only the billed amounts are included in deferred revenue. As of March 31, 2013 and 2012, the backlog balance associated with our Covisint application services segment was $116.6 million and $106.0 million, respectively, of which $35.2 million and $42.0 million, respectively, was billed and included in deferred revenue. The amount of the March 31, 2013 backlog not expected to be recognized in fiscal 2014 is $50.4 million.

CUSTOMERS

Our products and services are used by the IT departments and lines of business of a wide variety of commercial and government organizations.

We did not have a single customer that accounted for greater than 10% of total revenue during fiscal 2013, 2012 or 2011, or greater than 10% of accounts receivable at March 31, 2013 and 2012.

RESEARCH AND DEVELOPMENT

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

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

As of March 31, 2013, development and support activities associated with our software solutions and application services are performed primarily at our headquarters in Detroit, Michigan (Mainframe, APM and Covisint) and at our development labs in Amsterdam, The Netherlands (Uniface); Gdansk, Poland (APM); Linz, Austria (APM); Toronto, Canada (Changepoint); Lexington, Massachusetts (APM); and Beijing, China (APM).

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Total research and development (“R&D”) cost was $102.7 million, $87.2 million and $69.2 million, respectively, during fiscal 2013, 2012 and 2011, of which $31.8 million, $23.2 million and $15.5 million, respectively, was capitalized for internally developed software technology. The R&D costs relating to our software solutions are reported as “technology development and support” in the consolidated statements of comprehensive income, and the portion related to our application services is reported as “cost of application services”.

TECHNOLOGY AND NETWORK OPERATIONS

Hosted Software Network

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

Our hosted software enables a customer to test and monitor the web experience from outside its firewall using the hosted software network, which encompasses the following:

over 160 backbone nodes located in more than 33 countries, and 32 mobile carriers in 10 countries.

our central data warehouse and five other third-party data center facilities.

our portal to our customer data warehouse.

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

In order to establish our last mile measurement points, we engage individuals, or peers, located in more than 120 countries to provide bandwidth and computing resources on personal computers connected via local Internet service providers.

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

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

Covisint Application Services Network

Our Covisint platform is highly-scalable and designed to process millions of transactions, manage terabytes of data and provide access for millions of users every day. The platform is enterprise-grade, continuously available across the globe and addresses our customers’ most demanding uptime requirements. We secure customer data in physical, virtual and cloud computing environments with our industry leading role-based identity management, data encryption and database management services.

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The core platform is written in Java and is optimized for usability and performance. We also leverage Web 2.0 technologies like AJAX, HTML and HTML5, and security standards like OAuth and SAML. To expand the value of our platform, our software development kit includes a broad set of application programming interfaces that enable our channel partners and customers to use our AppCloud® service to develop custom applications and integrations. Our solutions often combine proprietary and open source technologies. Open source technology reduces the overall cost to our customers and allows us to bring innovations and enhancements to market in a more expedient and efficient manner.

We operate both multi-instance and multi-tenant architectures depending on our customers’ need for dedicated applications and databases. Most Covisint solutions are hosted on a shared infrastructure although some enterprises and healthcare organizations request dedicated servers. Our platform is provided as a public cloud, private cloud or a hybrid approach. Customers and third parties can customize the platform to meet their specific branding and user experience requirements through our proprietary or integrated technologies.

Savvis, Inc. (“Savvis”) hosts our enterprise-class hardware. We currently utilize facilities located in Chicago, Detroit, Tokyo, Frankfurt and Shanghai. This allows us to ensure reliability, redundancy and performance for all our customer solutions. In addition to our Savvis relationship and international facilities, we maintain and operate a disaster recovery facility in our Detroit, Michigan headquarters.

SALES AND MARKETING

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

COMPETITION

The markets for our software solutions are highly competitive and characterized by continual change and improvement in technology. We consider several of these competitors to be directly competitive with one or more of our products. The principal competitors for our software solutions include BMC Software Inc., CA, Inc., International Business Machines (“IBM”), Hewlett-Packard Company and Keynote Systems, Inc. We also compete with Progress Software Corporation and other smaller, privately held companies on a product specific basis. Some of these competitors have substantially greater financial, marketing, recruiting and training resources than we do. The principal competitive factors affecting the market for our software solutions include: responsiveness to customer needs; functionality, performance and reliability of our software products in a customer’s environment; ease of use; quality of customer support; our ability to bring products to market that meet ever-changing customer requirements; vendor reputation; distribution channels; and price.

The market for professional services is highly competitive, fragmented and characterized by low barriers to entry. Our principal competitors include Accenture, Computer Sciences Corporation, HP Enterprise Services (a Hewlett-Packard Company), Analysts International Corporation, Infosys Technologies and numerous other regional and local firms in the markets in which we have professional services offices. Several of these competitors have substantially greater financial, marketing, recruiting and training resources than we do. The principal competitive factors affecting the market for our professional services include: responsiveness to customer needs; breadth and depth of technical skills offered; availability and productivity of personnel; the ability to demonstrate achievement of results; and price.

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The market for application services is highly competitive and characterized by rapid technological change, shifting customer needs and frequent introductions of new solutions and services. We currently provide application services primarily in the automotive, healthcare and energy vertical markets (“verticals”). Our principal competitors include system integrators, such as IBM, HP Enterprise Services, and Dell, cloud-based platform vendors, such as Salesforce.com and Microsoft Azure, and business-to-business integration and data exchange vendors, such as GXS and Sterling Commerce, a division of IBM, other regional and local firms in the markets in which we have customers or potential customers and our customers’ internal IT groups. The principal competitive factors affecting the market for our application services include: security; scalability; speed of implementation; ability to enable users to maintain regulatory compliance; features and functionality; ability to meet customer service level requirements; and price.

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

PROPRIETARY RIGHTS

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

In addition to trade secret protection, we seek to protect our software technology, documentation and other written materials under copyright law, which affords only limited protection. We also assert registered trademark rights in our product names. As of March 31, 2013, we have been granted 61 patents issued primarily in the United States and have 23 patent applications pending primarily with the United States Patent and Trademark Office for certain product technology and have plans to seek additional patents in the future. Once granted, we expect the duration of each patent will be up to 20 years from the effective date of filing of an application. In addition, we are a party to a patent cross license agreement with IBM under which each party is granted a perpetual, irrevocable, nonexclusive license to certain of each other's patents issued or pending prior to March 21, 2009.

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

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

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EMPLOYEES

As of March 31, 2013, we employed 4,491 people worldwide, with 1,007 in software solution sales, sales support and marketing; 1,196 in technology development and support, maintenance and network operations; 1,223 in professional services (including 277 personnel dedicated to software related services), 560 in Covisint application services and 505 in other general and administrative functions. Only a small number of our international employees are represented by labor unions. We have experienced no work stoppages and believe that our relations with our employees are good. Our success will depend in part on our continued ability to attract and retain highly qualified, experienced and talented personnel.

Executive Officers of the Registrant

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

Name	Age	Position

Peter Karmanos, Jr.	70	Executive Chairman of the Board (retired March 31, 2013)

Robert C. Paul	50	Chief Executive Officer and member of the Board of Directors

Joseph R. Angileri	55	President and Chief Operating Officer

Laura L. Fournier	60	Executive Vice President and Chief Financial Officer

Denise A. Knobblock Starr	57	Executive Vice President and Chief Administrative Officer

Daniel S. Follis, Jr.	47	Senior Vice President, General Counsel and Secretary

Peter Karmanos, Jr., is a founder of the Company and served as Executive Chairman of the Board of Directors through March 2013. Mr. Karmanos served as Chairman of the Board from November 1978 until June 2011, as Chief Executive Officer from July 1987 until June 2011 and as President from January 1992 through October 1994 and October 2003 through March 2008.

Robert C. Paul was appointed as Chief Executive Officer in June 2011. Mr. Paul served as President and Chief Operating Officer of Compuware from April 2008 until June 2011 and was appointed a member of the Board of Directors in March 2010. Prior to that time, Mr. Paul was President and Chief Operating Officer of Covisint since its acquisition by Compuware in March 2004.

Joseph R. Angileri joined Compuware in June 2011 as President and Chief Operating Officer. Prior to joining Compuware, Mr. Angileri had more than 26 years of professional experience with Deloitte LLP, including more than 20 years as a partner there, most recently as Managing Partner of the Michigan region.

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

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

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

SEGMENT INFORMATION, PAYMENT TERMS AND FOREIGN REVENUES

For a description of revenues and operating profit by segment and for a description of extended payment terms offered to some customers, see note 1 of the consolidated financial statements included in this report. For financial information regarding geographic operations for each of the last three fiscal years, see note 14 to the consolidated financial statements included in this report. Customer revenue is allocated to geographic operations based on the country in which the products were sold or the services were performed. The Company’s foreign operations are subject to risks related to foreign exchange rates and other risks. For a discussion of risks associated with our foreign operations, see Item 1A. Risk Factors and Item 7A. Quantitative and Qualitative Disclosure about Market Risk.

ITEM 1A.

RISK FACTORS

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that we believe may affect us are described below. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial may also impair business operations. This report is qualified in its entirety by these risk factors. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and shareholders could lose all or part of their investment.

A substantial portion of our mainframe segment revenue is dependent on our customers’ continued use of International Business Machines Corporation and IBM-compatible products.

A substantial portion of our revenue from software solutions is generated from products designed for use with IBM and IBM-compatible mainframe operating systems. As a result, much of our revenue from software solutions is dependent on our customers’ continued use of these systems. In addition, because our products operate in conjunction with IBM operating systems software, changes to IBM’s mainframe operating systems may require us to adapt our products to these changes. IBM also provides competing products designed for use with their mainframe operating systems. A decline in our customers’ use of IBM and IBM-compatible mainframe operating systems, our inability to keep our products current with changes to IBM’s mainframe operating systems on a timely basis, or the loss of market share to IBM’s competing products could have a material adverse effect on our license and maintenance revenue in this segment, negatively impacting our results of operations and cash flow.

Our product revenue is dependent on the acceptance of our pricing structure for our software solutions.

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

Maintenance revenue could continue to decline.

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

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Our primary source of profitability is from our mainframe segment. As revenues in this segment decline, our profitability will decline unless we are able to significantly increase margins in other operating segments.

Our mainframe segment generates significantly higher contribution margins than our other segments some of which are currently generating losses. We expect our future revenue growth to come primarily from our APM and application services segments. Declines in mainframe revenue, which could be exacerbated by lower than expected sales of our PurePath for z/OS offering, prior to these segments obtaining significant improvements in their respective contribution margins, will have a further negative impact on our results of operations and cash flow.

If we are not able to grow our APM revenue, we may fail to achieve our forecasted financial results and we may fail to meet the expectations of analysts or investors which could cause our stock price to decline.

The success of our APM business unit is dependent on continued revenue growth of our on-premise software solutions (dynaTrace and DCRum) and on our ability to return our hosted software (Gomez Saas) revenue growth rates to historical levels. We may be unable to grow our APM revenue due to a decline in market demand or an inability to deliver solutions desired by customers and potential customers. The APM market is currently growing as companies continue to invest in applications to take advantage of the proliferation of mobile devices, cloud computing and the large amounts of data being collected by applications (“Big Data”). Our APM revenue has grown as a result of this spending. If customer investment in applications and supporting application performance management solutions does not continue to grow or declines, the demand for our APM solutions may decline, and we may not be able to grow revenue or revenue may decline as a result. If this occurs it could have a material impact on our results of operations.

Additionally, we continue to invest in new derivative offerings of our on-premise and Gomez Saas offerings and it is difficult to estimate customer acceptance of these new offerings and how these new offerings will affect sales of our existing offerings. If these new offerings are not in demand by our customers or cause a reduction in the demand for our existing offerings, our results of operations could be negatively impacted. Also, we have competitors with substantially greater financial and marketing resources than we have. As a result, these competitors may be more effective in developing offerings that customers purchase. If we are less successful than our competitors in creating and evolving offerings that customers purchase, our results of operations could be negatively affected.

Changes in the financial services industry could have a negative impact on our revenue and margins.

Approximately 20% of our mainframe revenue and 10% to 15% of our professional services revenue is generated from customers in the financial services industry. Future changes in the financial services industry, including mergers, restructurings or failures, could have a material adverse effect on our mainframe license and maintenance revenue and on our professional services revenue, negatively impacting our results of operations and cash flow.

We may fail to achieve our forecasted financial results due to inaccurate sales forecasts or other unpredictable factors. If we fail to meet the expectations of analysts or investors, our stock price could decline substantially.

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

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

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

Our business could be negatively affected as a result of actions of shareholders or others.

In January 2013, we announced that our Board of Directors had rejected an unsolicited proposal by Elliott Management Corporation to acquire all of our outstanding shares of common stock. Elliott Management Corporation is being given an opportunity to perform due diligence on Compuware subject to a non-disclosure agreement and the Board has indicated its willingness to carefully review and evaluate any credible offer it receives that delivers full value to Compuware shareholders. There can be no assurance that Elliott Management Corporation or another third party will not make an unsolicited takeover proposal in the future or take other action to acquire control of Compuware. Considering and responding to a future proposal is likely to result in significant additional costs to Compuware, and future acquisition proposals, other shareholder actions to acquire control and the litigation that often accompanies them, if any, are likely to be costly and time-consuming and may disrupt our operations and divert the attention of management and our employees from executing our strategic plan. Additionally, perceived uncertainties as to our future direction as a result of shareholder activism or potential changes to the composition of the Board of Directors may lead to the perception of a change in the direction of the business or other instability which may be exploited by our competitors, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel. If customers choose to delay, defer or reduce transactions with us or do business with our competitors instead of us because of any such issues, then our revenue, earnings and operating cash flows could be materially and adversely affected. Moreover, we believe that the future trading price of our common stock may be volatile and subject to wide price fluctuations based on various factors, including uncertainty associated with potential offers to acquire Compuware.

If we fail to achieve the results we expect from our expense reduction program, our results of operations and financial condition may be adversely affected.

In fiscal 2013, we announced and began to implement plans to reduce expenses, which included a reduction in our workforce, the elimination or reduction in size of certain office facilities and the early termination of certain operating leases. There can be no assurance that our restructuring plan to reduce expenses will produce the cost savings we anticipate.

The market for application services is highly competitive with emerging competitors. As the market matures, competition may increase and could have a material negative impact on our results of operations.

Several of our competitors in the application services market have substantially greater financial, marketing, recruiting and training resources than we do. As a result, our competitors may be more efficient and effective at achieving the following principal competitive factors affecting the market for application services: security; scalability; speed of implementation; ability to enable users to maintain regulatory compliance; features and functionality; ability to meet customer service level requirements; and price. If we are less successful at achieving one or more of these factors than our competitors, we may lose market share which could have a material adverse effect on our business, financial condition and operating results.

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If we are not successful in maintaining our professional services strategy, our revenue and margins may further decline.

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

Economic uncertainties or slowdowns may reduce demand for our products and services, which may have a material adverse effect on our revenues and operating results.

Our revenues and profitability depend on the overall demand for our software products, hosted software, professional services and application services. Economic uncertainties over the last few years have resulted in companies reassessing their spending for technology projects. If the economies within the United States, Europe and/or other geographic regions in which we operate experience a slowdown or recession, it could have a material adverse effect on our results of operations and cash flow.

Defects or disruptions in our hosted software or application services networks or interruptions or delays in service would impair the delivery of our on-demand service and could diminish demand for our services and subject us to substantial liability.

Defects in our hosted software or application services networks could result in service disruptions for our customers. Our network performance and service levels could be disrupted by numerous events, including natural disasters and power losses. We might inadvertently operate or misuse the system in ways that could cause a service disruption for some or all of our customers. We might have insufficient redundancy or server capacity to address any such disruption, which could result in interruptions in our services or degradations of our service levels. Our customers might use our hosted software in ways that cause a service disruption for other customers. These defects or disruptions could undermine confidence in our services and cause us to lose customers or make it more difficult to attract new ones, either of which could have a material adverse effect on our results of operations and cash flow.

Future changes in the U.S. domestic automotive manufacturing business could reduce demand for our professional services and Covisint application services, which may have a material negative effect on our revenues and operating results.

A substantial portion of our worldwide professional services revenue and Covisint application services revenue has been generated from customers in the automotive industry, with General Motors Company currently our largest customer. General Motors announced in July 2012 that it intends to significantly reduce its use of outsourced information technology services over the next three to five years. If General Motors were to terminate or significantly curtail its relationship with us, we could experience a rapid decline in professional services and application services revenue and contribution margin over a relatively short period of time.

In addition, negative developments in the automotive manufacturing industry generally, including restructuring, cost reduction efforts and bankruptcies, could reduce the demand for our services and increase the collection risk of accounts receivable from these customers, which could have a material adverse effect on our professional services and application services results of operations and margins in these business segments.

If the fair value of our long-lived assets deteriorated below the carrying value of these assets, recognition of an impairment loss would be required, which could materially and adversely affect our financial results.

We evaluate our long-lived assets, including property and equipment, goodwill, acquired product rights and other intangible assets, whenever events or circumstances occur that may indicate these assets are impaired or, periodically, as required by generally accepted accounting principles. In our annual evaluation as of March 31, 2013, we determined the goodwill associated with our professional services reporting unit was impaired and wrote down the associated goodwill by $71.8 million to $42.8 million in the fourth quarter of 2013. In the continuing process of evaluating the recoverability of the carrying amount of our long-lived assets in this segment as well as the goodwill and other long-lived assets associated with our other operating segments, there is the possibility that we could identify other substantial impairments in the future, any of which could have a material adverse effect on our results of operations.

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Our software technology may infringe the proprietary rights of others.

Our software technology is developed or enhanced internally or acquired through acquisitions.

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

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

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

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

The markets for our software products are highly competitive. Several of our competitors have greater financial and marketing resources than we do. The principal competitive factors affecting the market for our software products include: responsiveness to customer needs; functionality, performance and reliability of our software products in a customer’s environment; ease of use; quality of customer support; our ability to bring products to market that meet ever-changing customer requirements; vendor reputation; distribution channels; and price. A variety of external and internal events and circumstances could adversely affect our competitive capacity. Our ability to remain competitive will depend, to a great extent, upon our performance in sales, product development and customer support. To be successful in the future, we must respond promptly and effectively to our customers’ purchasing methodologies, challenges of technological change and our competitors' innovations by continually enhancing our product offerings.

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

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

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

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

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

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

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

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

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

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

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We are exposed to exchange rate risks on foreign currencies and to other international risks that may adversely affect our business and results of operations.

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

Current laws may not adequately protect our proprietary rights.

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

The loss of certain key employees and technical personnel or our inability to hire additional qualified personnel could have a material adverse effect on our business.

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

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

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

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

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

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

We have repurchased shares of our common stock in the market during the past several years and currently repurchase shares from time to time under an arrangement pursuant to which management is permitted to determine the amount and timing of repurchases in its discretion subject to an overall limit, as well as under a time-limited arrangement pursuant to which repurchases occur according to a formula without further discretion that is also subject to the overall limit and can be terminated at any time. Our ability and willingness to repurchase shares is subject to, among other things, the availability of cash resources and credit at rates and upon terms we believe are prudent. Stock market conditions, the market value of our common stock and other factors may also make it imprudent for us from time to time to engage in repurchase activity. There can be no assurance that we will continue to repurchase shares at historic levels or at all. If our repurchase program is curtailed, our stock price may be negatively affected.

In January 2013, we announced our intention to begin paying cash dividends on our common stock in fiscal 2014 and to distribute our shares of our Covisint subsidiary to our shareholders within 12 months after completion of Covisint’s initial public offering. The amount and size of any future cash dividend payments will be subject to the discretion of our Board of Directors and will depend on our current and expected results of operations, financial condition and available cash resources, the terms of the documentation relating to any indebtedness we have at the time, applicable state law and other factors our Board of Directors deems relevant. Similarly, any distribution of some or all of our shares of Covisint will be subject to the discretion of our Board of Directors and will depend on our current and expected results of operations and financial condition, the terms of the documentation relating to any indebtedness we have at the time, applicable state law, applicable regulatory approval and other factors our Board of Directors deems relevant. Completion of the Covisint stock distribution is also subject to the consent of the lenders under our current revolving credit agreement, which may be withheld at the discretion of the lenders. As a result, there can be no assurance that we will declare and pay any cash dividends or that we will distribute our Covisint shares as we intend. If we do not pay cash dividends, discontinue paying cash dividends or determine not to distribute Covisint shares, our stock price may be negatively affected.

Acts of terrorism, acts of war and other unforeseen events may cause damage or disruption to us or our customers, which could materially and adversely affect our business, financial condition and operating results.

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

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

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

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ITEM 1B.

UNRESOLVED STAFF COMMENTS

None

ITEM 2.

PROPERTIES

Our executive offices, our mainframe and some of our APM research and development labs, principal marketing department, primary professional and application services office, customer service and support teams for mainframe and APM are located in our corporate headquarters building in Detroit, Michigan. We own the facility, which is approximately 1.1 million square feet, including approximately 291,000 square feet designated for lease to third parties for office, retail and related amenities. In addition, we lease approximately 217,000 square feet of land on which the facility resides.

We lease approximately 78 sales offices (all supporting software solutions) and professional services offices in 29 countries, including 6 remote product research and development facilities (see “Research and Development” section in Item 1 of this report for additional information).

ITEM 3.

LEGAL PROCEEDINGS

We are subject to various legal proceedings and claims that arise in the ordinary course of business. We do not believe that the outcome of any of these legal matters will have a material effect on our consolidated financial position, results of operations or cash flows.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5.

MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on The NASDAQ Global Select Market (“NASDAQ”) under the symbol CPWR. As of May 27, 2013, there were 3,505 shareholders of record of our common stock. We have not paid any cash dividends on our common stock since fiscal 1986. However, in January 2013, our Board of Directors announced its intention to begin paying cash dividends totaling $0.50 per share annually, to be paid quarterly beginning in the first quarter of fiscal 2014. The amount and size of any future cash dividend payments will be subject to the discretion of our Board of Directors and will depend on our current and expected results of operations, financial condition and available cash resources, the terms of any indebtedness we have at the time, applicable state law and other factors our Board of Directors deems relevant. The following table sets forth the range of high and low sale prices for our common stock for the periods indicated, all as reported by NASDAQ.

Fiscal Year Ended March 31, 2013	High		Low
Fourth quarter	$	12.74	$	10.69
Third quarter		11.16		7.97
Second quarter		10.25		8.32
First quarter		9.38		8.08

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Fiscal Year Ended March 31, 2012	High		Low
Fourth quarter	$	9.60	$	7.35
Third quarter		9.01		6.97
Second quarter		10.32		7.43
First quarter		11.71		9.05

Our revolving credit agreement contains a restriction requiring us to maintain at least a 0.25 to 1.0 cushion below our consolidated total leverage ratio maximum of 2.5 to 1.0 (at March 31, 2013, our ratio was 0.13 to 1.0) on a pro forma basis in the case of any stock repurchases, acquisitions or dividends in excess of $50 million in any fiscal year. See note 9 of the consolidated financial statements included in this report for more details regarding our credit agreement.

Common Share Repurchases

The following table sets forth the repurchases of common stock for the quarter ended March 31, 2013:

Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans		Approximate dollar value of shares that may yet be purchased under the plan or program (1)

For the month ended January 31, 2013		327,400	$	10.94		327,400	$	144,126,000

For the month ended February 28, 2013		-		-		-		144,126,000

For the month ended March 31, 2013		89,555		12.32		89,555		143,023,000

Total		416,955		11.24		416,955

(1)

The total dollar value of shares that may yet be purchased under the plans or programs applies to purchases made under both the Discretionary Plan and the Rule 10b5-1 Plan.

Our purchases of common stock may occur on the open market or in negotiated or block transactions based upon market and business conditions. These repurchases are being made pursuant to the Board’s February 7, 2008 authorization of the repurchase of up to $750.0 million of our common stock under our discretionary share repurchase program. Unless terminated earlier by resolution of our Board of Directors, the discretionary share repurchase plan will expire when we have repurchased all shares authorized for repurchase thereunder. The maximum amount of repurchase activity under the repurchase plan continues to be limited on a daily basis to 25% of the average trading volume of our common stock for the previous four week period. In addition, no purchases are made during our self-imposed trading black-out periods in which the Company and our insiders are prohibited from trading in our common shares. Our standard quarterly black-out period commences 10 business days prior to the end of each quarter and terminates one full market day following the public release of our operating results for the period. We reserve the right to change the timing and volume of our repurchases at any time without notice. For further details regarding the Discretionary Plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

In December 2012, the Board of Directors adopted a plan under Rule 10b5-1 of the Securities Exchange Act of 1934 (“10b5-1 Plan”) to repurchase our common stock. A broker selected by us had the authority under the terms and limitations specified in the plan to repurchase shares on our behalf in accordance with the terms of the plan without further direction from us. This repurchase program allowed us to repurchase shares pursuant to a predetermined formula without regard to the quarterly black-out periods. This plan utilized funds under the previous authorization described above and expired in May 2013.

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Comparison of Cumulative Five Year Total Return

The following line graph compares the yearly percentage change in the cumulative total shareholder return on our common shares with the cumulative total return of each of the following indices: the S&P 500 Index, the NASDAQ Market Index and the NASDAQ Computer and Data Processing Index for the period from April 1, 2008 through March 31, 2013. The graph includes a comparison to the S&P 500 Index in accordance with SEC rules, as the Company's common stock is part of such index. The graph assumes the investment of $100 in our common shares, the S&P 500 Index and each of the two NASDAQ indices on March 31, 2008 and the reinvestment of all dividends.

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

Total Return To Shareholders

(Includes reinvestment of dividends)

	Base		Indexed Returns
	Period		Fiscal Years Ending
	March 31,		March 31,
Company / Index	2008		2009		2010		2011		2012		2013
Compuware Corporation	$	100		89.78		114.44		157.36		125.20		170.16
S&P 500 Index		100		61.91		92.72		107.23		116.39		132.64
NASDAQ Market Index		100		67.15		105.94		124.71		139.71		150.83
NASDAQ Computer & Data Processing Index		100		72.40		112.48		128.69		139.45		145.22

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

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ITEM 6.

SELECTED FINANCIAL DATA

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

	Year Ended March 31,
	2013			2012		2011		2010			2009
	(In thousands, except earnings per share data)
Statement of Comprehensive Income (Loss) Data:
Revenues:
Software license fees	$	178,922		$	220,885	$	194,745	$	194,504		$	219,634
Maintenance fees		407,480			427,534		419,240		439,491			479,480
Subscription fees		82,442			78,438		67,718		16,852
Professional services fees		185,011			209,184		192,202		200,865			356,111
Application services fees		90,694			73,731		55,025		40,467			35,230
Total revenues		944,549			1,009,772		928,930		892,179			1,090,455
Operating expenses:
Cost of software license fees		20,165			17,572		14,216		15,430			24,491
Cost of maintenance fees		35,084			38,670		32,975		33,266			41,877
Cost of subscription fees		31,127			29,669		24,974		9,289
Cost of professional services		163,713			182,625		165,939		178,938			331,001
Cost of application services		83,298			72,384		51,011		37,923			37,029
Technology development and support		105,800			104,968		90,330		91,245			86,453
Sales and marketing		251,925			273,520		243,771		222,447			226,408
Administrative and general		162,810			163,723		155,400		164,633			148,019
Goodwill impairment (1)		71,840
Restructuring costs (2)		16,573							7,960			10,037
Gain on divestiture of product lines (3)									(52,351	)
Total operating expenses		942,335			883,131		778,616		708,780			905,315
Income from operations		2,214			126,641		150,314		183,399			185,140
Other income (expense), net		(1,170	)		1,633		4,462		25,721			27,581
Income before income tax provision		1,044			128,274		154,776		209,120			212,721
Income tax provision		18,295			39,903		47,335		68,314			73,074
Net income (loss)	$	(17,251	)	$	88,371	$	107,441	$	140,806		$	139,647

Basic earnings (loss) per share (4)	$	(0.08	)	$	0.40	$	0.49	$	0.61		$	0.56
Diluted earnings (loss) per share (4)		(0.08	)		0.40		0.48		0.60			0.55

Shares used in computing net income (loss) per share:
Basic earnings computation		214,627			218,344		220,616		232,634			250,916
Diluted earnings computation		214,627			222,378		226,095		234,565			252,402

Balance Sheet Data (at period end):
Working capital	$	38,159		$	54,386	$	143,905	$	92,688		$	297,237
Total assets		1,973,282			2,167,538		2,038,377		2,013,325			1,874,850
Long term debt (5)		18,000			45,000
Total shareholders' equity (6)		998,226			1,049,937		952,612		913,813			880,648

(1)

During the fourth quarter of fiscal 2013, it was determined through the Company’s annual goodwill impairment analysis that the carrying value of the goodwill associated with our professional services reporting unit exceeded the implied fair value by approximately $71.8 million, resulting in an impairment charge for this amount. See note 7 of the consolidated financial statements included in this report for additional information on goodwill.

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(2)

During fiscal 2013, the Company approved the initial phase of a plan designed to reduce administrative and general and non-core operational costs. The activities associated with this plan resulted in a restructuring charge of $16.6 million for fiscal 2013. See note 8 of the consolidated financial statements included in this report for additional information regarding our restructuring plan.

During fiscal 2010 and 2009, the Company undertook various restructuring activities to improve the effectiveness and efficiency of a number of the Company’s critical business processes, primarily within the products and professional services segments. These activities resulted in a restructuring charge of $8.0 million and $10.0 million for fiscal 2010 and 2009, respectively.

(3)	In May 2009, we exited the Quality and Testing business by selling our Quality and DevPartner distributed product lines to Micro Focus International PLC, resulting in a gain on divestiture of product lines of $52.4 million.

(4)	See note 12 of the consolidated financial statements included in this report for the basis of computing earnings (loss) per share.

(5)	See note 9 of the consolidated financial statements included in this report for additional information on debt.

(6)	No dividends were paid or declared during the periods presented.

See note 2 of the consolidated financial statements for additional information on acquisition activity.

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ITEM 7.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this section, we discuss our results of operations on a segment basis. We have six business segments: APM, Mainframe (“MF”), Changepoint (“CP”), Uniface (“UF”), Professional Services (“PS”) and Covisint Application Services (“AS” or “Covisint”). These segments are described in detail in note 1 to the consolidated financial statements.

This business unit structure is intended to provide visibility and control over the operations of our business and to increase our market agility, enabling us to more effectively capitalize on market conditions and competitive advantages to maximize revenue growth and profitability.

We collectively refer to the solutions offered within our APM, Mainframe, Changepoint and Uniface segments as “software solutions”. In order to provide a supplementary view of this business, aggregated financial data for our software solutions is presented herein.

We evaluate the performance of our segments based primarily on revenue growth and contribution margin which represents operating profit before certain charges such as internal information system support, finance, human resources, legal, administration and other corporate charges. References to years are to fiscal years ended March 31 unless otherwise specified. This discussion and analysis should be read in conjunction with the audited consolidated financial statements and notes included in Item 8 of this report.

FORWARD-LOOKING STATEMENTS

The following discussion contains certain forward-looking statements within the meaning of the federal securities laws. When we use words such as “may”, “might”, “will”, “should”, “believe”, “expect”, “anticipate”, “estimate”, “continue”, “predict”, “forecast”, “projected”, “intend” or similar expressions, or make statements regarding our future plans, objectives or expectations, we are making forward-looking statements. Numerous important factors, risks and uncertainties affect our operating results, including, without limitation, those discussed in Item 1A. Risk Factors and elsewhere in this report, could cause actual results to differ materially from the results implied by these or any other forward-looking statements made by us, or on our behalf. There can be no assurance that future results will meet expectations. While we believe that our forward-looking statements are reasonable, you should not place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by applicable law, we do not undertake any obligation to publicly release any revisions which may be made to any forward-looking statements to reflect events or circumstances occurring after the date of this report.

OVERVIEW

We deliver value to businesses by providing software solutions (both on-premises and SaaS models), professional services and application services that improve the performance of information technology organizations.

Our primary source of profitability and cash flow is the sale of our mainframe productivity tools (“mainframe”) that are used within our customers’ mainframe computing environments for fault diagnosis, file and data management, application performance monitoring and application debugging. We have generally experienced lower volumes of software license transactions for our mainframe solutions in recent years causing an overall downward trend in our mainframe product revenues which we expect to continue. Changes in our current customer IT computing environments and spending habits have impacted their need for additional mainframe computing capacity. In addition, increased competition and pricing pressures have had a negative impact on our revenues. Customers utilize our products to reduce operating costs, increase programmer productivity and create a smooth transition to the next generation of mainframe environment programmers. We will continue to make strategic enhancements to our mainframe solutions (such as our PurePath for z/OS which was released in fiscal 2013) through research and development investments with the goal of meeting customer needs and maintaining a high maintenance renewal rate. The cash flow generated from our mainframe business supports our growth segments.

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We have identified the APM market as a key source of future revenue growth. Web, mobile and cloud applications and the complex distributed applications delivery chain supporting them have become increasingly critical to a company’s brand awareness, revenue growth and overall market share. Because of this, the market for APM solutions is significant and growing rapidly. Our APM solutions provide our customers with on-premises software and SaaS platform based hosted software. These solutions ensure the optimal performance of each customer’s enterprise, web, streaming, mobile and cloud applications. We are investing in our APM solutions with the goal of providing solutions that are best-in-class within the APM market. Specifically, our investments include: (1) enhancements to our global hosted software network with specific focus on ease of use, time-to-value and data analytics in mobile and cloud application performance capabilities and in video streaming performance; (2) enhancements to our solutions that are focused on optimizing application performance and accelerating time to market; and (3) enhancements which combine our on-premises software and SaaS solution into a single platform that provides performance metrics for web, non-web, mobile, streaming and cloud applications in a single solution.

We have also identified the secure collaboration services market, served by our Covisint application services, as a key source of revenue growth. Technology has allowed business communities, organizations and systems to globally connect and share vital information, applications and processes across their internal and extended enterprises. Our Covisint services, which are provided on a platform-as-a-service (“PaaS”) basis to customers primarily in the automotive and U.S. healthcare industries, create an environment that simplifies and secures this collaboration atmosphere. Our focus in the manufacturing industry is on enabling automakers to connect, engage and collaborate on mission critical business processes with their suppliers, customers and business partners. Our focus in the healthcare industry is on enabling hospitals, physicians and government entities to share electronic patient health and medical records.

We also continue to enhance our Changepoint and Uniface solutions primarily through research and development expenditures.

Our Changepoint solution provides a single automated solution for professional services organizations to forecast and plan, as well as manage resources, projects and client engagements. In addition, for project-centric organizations, Changepoint provides a cohesive and consolidated view of projects, investments, resources and applications to help manage the entire business portfolio.

Our Uniface solution is mature with over 25 years on the market. Uniface is a rapid application development environment for building, renewing and integrating the latest complex enterprise applications. Our strategy with the Uniface solution is to enhance the product with additional features making it more effective for enterprise applications and to expand the capabilities of the product to other technology applications.

The professional services reporting segment is focused on delivering high quality solutions and resources to our customers that meet their needs from application development through project management. Our goal is to provide the expertise, best practices and agility needed to meet our customers’ critical technology challenges. Areas of growth that we have identified are cloud, machine to machine and mobile application development services. Enhancing our competencies in these areas will provide an opportunity to continue growing the segment’s revenue and contribution margin.

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Annual Update

The following occurred during fiscal 2013:

Experienced a decline in total revenue of $65.2 million during 2013 as compared to 2012 due to a $42.0 million decrease in software license fees, a $20.1 million decrease in maintenance fees and a $24.2 million decrease in professional services fees, partially offset by a $17.0 million increase in application services fees and a $4.0 million increase in subscription fees.

Experienced a decline in operating margin to 0.2% during 2013 as compared to 12.5% during 2012 due primarily to a $71.8 million goodwill impairment charge and $16.6 million in restructuring expenses recorded during 2013 as well as the overall decline in revenue (see the “Business Segment Analysis,” “Restructuring Charge” and “Goodwill Impairment Charge” sections below for additional information).

On a non-GAAP basis, excluding restructuring charges, goodwill impairment and certain advisory fees, the operating margin declined from 12.5% in 2012 to 9.9% in 2013. See the “GAAP to non-GAAP Reconciliation” section below for a complete reconciliation of operating income.

Software solutions revenue declined $65.4 million or 8.3% for 2013 as compared to 2012 due primarily to a decline in mainframe revenue, partially offset by an increase in APM revenue. Software solutions contribution margin declined to 36.1% during 2013 from 38.3% during 2012 due to the decline in mainframe revenue, which generates higher margins than other segments.

Professional services segment revenue declined $16.8 million or 11.1% during 2013 as compared to 2012 due primarily to a decline in application development services for customers within the financial services industry. On a GAAP basis, the professional services margin was negative 39.2% which included an impairment charge that was 53.3% of professional services segment revenue. Excluding the goodwill impairment, the contribution margin declined to 14.2% on a non-GAAP basis from 16.1% in 2012. (See “Professional Services” and “GAAP to non-GAAP Reconciliation” for additional information and a complete reconciliation).

Covisint revenue increased $17.0 million or 23.0% during 2013 as compared to 2012 due to growth from both recurring and services fees across automotive and healthcare customers as well as customers in other industries. Contribution margin improved to 5.1% during 2013 from 1.4% during 2012 due to the increase in revenue.

Released PurePath for z/OS, which combines Strobe and dynaTrace technology on the mainframe, during November 2012. We expect PurePath for z/OS to positively contribute to our mainframe revenues in 2014.

Repurchased approximately 8.6 million shares of our common stock at an average price of $9.37 per share through our stock repurchase plans.

In May 2013, Covisint Corporation, currently a wholly owned subsidiary of Compuware, filed a registration statement with the U.S. Securities and Exchange Commission for a possible initial public offering of up to 20% of its common stock ("Proposed IPO"). The Proposed IPO is intended, among other things, to give Covisint greater flexibility to pursue strategic opportunities and to increase its visibility in the marketplace. The Proposed IPO is expected to commence during fiscal 2014 as market conditions permit and is also subject to completion of the SEC's review process. Our current plan is to distribute any remaining Covisint shares owned by Compuware directly to Compuware shareholders within 12 months of completing the IPO, subject to approval by our Board of Directors, receipt of consent from the lenders under our revolving credit agreement and applicable regulatory approvals.

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In January 2013, our Board of Directors approved an action plan to increase shareholder value. In addition to the planned spin-off of the Covisint business, we are implementing plans to significantly reduce costs over the next two years, and our Board of Directors announced its intention to begin paying cash dividends totaling $0.50 per share annually to be paid quarterly starting in fiscal 2014. While we are focused on executing and delivering on our plan, the Board is committed to carefully review and evaluate any credible offer it receives that delivers full value to our shareholders.

See note 8 of the consolidated financial statements included in this report for more details regarding our restructuring plan.

In May 2013, the Board of Directors declared the first quarterly cash dividend of $0.125 per share to be paid June 19, 2013 to shareholders of record at the close of business on June 5, 2013. The payment of future dividends is subject to the availability of funds after taking into account our operational funding requirements, the terms of any indebtedness and applicable state law. The revolving credit agreement to which we are a party contains financial covenants that could limit our ability to pay dividends, as well as a covenant that would prohibit us from paying dividends if we are in default or if payment of the dividend would result in a default. We anticipate being able to pay the planned dividends during fiscal 2014.

Our ability to execute our strategies and achieve our objectives is subject to a number of risks and uncertainties. See "Forward-Looking Statements".

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RESULTS OF OPERATIONS

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

	Percentage of									Period-to-Period
	Total Revenues									Change
	Fiscal Year Ended									2012			2011
	March 31,									to			to
	2013			2012			2011			2013			2012
REVENUE:
Software license fees		18.9	%		21.9	%		21.0	%		(19.0	) %		13.4	%
Maintenance fees		43.2			42.3			45.1			(4.7	)		2.0
Subscription fees		8.7			7.8			7.3			5.1			15.8
Professional services fees		19.6			20.7			20.7			(11.6	)		8.8
Application services fees		9.6			7.3			5.9			23.0			34.0
Total revenues		100.0			100.0			100.0			(6.5	)		8.7

OPERATING EXPENSES:
Cost of software license fees		2.1			1.8			1.5			14.8			23.6
Cost of maintenance fees		3.7			3.8			3.5			(9.3	)		17.3
Cost of subscription fees		3.3			2.9			2.7			4.9			18.8
Cost of professional services		17.3			18.1			17.9			(10.4	)		10.1
Cost of application services		8.8			7.2			5.5			15.1			41.9
Technology development and support		11.2			10.4			9.8			0.8			16.2
Sales and marketing		26.7			27.1			26.2			(7.9	)		12.2
Administrative and general		17.3			16.2			16.7			(0.6	)		5.4
Goodwill impairment		7.6									n/a
Restructuring costs		1.8									n/a
Total operating expenses		99.8			87.5			83.8			6.7			13.4
Income from operations		0.2			12.5			16.2			(98.3	)		(15.7	)
Other income (expense), net		(0.1	)		0.2			0.5			(171.6	)		(63.4	)

Income before income tax provision		0.1			12.7			16.7			(99.2	)		(17.1	)
Income tax provision		1.9			3.9			5.1			(54.2	)		(15.7	)
Net income (loss)		(1.8	) %		8.8	%		11.6	%		(119.5	) %		(17.7	) %

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BUSINESS SEGMENT ANALYSIS

The following table sets forth, for the periods indicated, certain business segment operational data. We evaluate the performance of our segments based primarily on revenue growth and contribution margin which is operating profit before certain charges such as restructuring, internal information system support, finance, human resources, legal, administration and other corporate charges (“unallocated expenses”). The allocation of income taxes is not evaluated at the segment level. Comparisons are to the comparable period of the prior year. Financial information for our business segments was as follows (in thousands):

	Software Solutions																					Unallocated
Year Ended:	APM			MF			CP			UF			Total			PS (1)			AS			Expenses (2)			Total

March 31, 2013

Total revenues	$	300,533		$	332,677		$	39,775		$	46,156		$	719,141		$	134,714		$	90,694		$	-		$	944,549

Operating expenses		304,835			91,325			41,226			21,831			459,217			187,472			86,084			209,562			942,335

Contribution /operating margin	$	(4,302	)	$	241,352		$	(1,451	)	$	24,325		$	259,924		$	(52,758	)	$	4,610		$	(209,562	)	$	2,214

Operating margin %		(1.4	%)		72.5	%		(3.6	%)		52.7	%		36.1	%		(39.2	%)		5.1	%		N/A			0.2	%

March 31, 2012

Total revenues	$	270,443		$	419,317		$	47,867		$	46,908		$	784,535		$	151,506		$	73,731		$	-		$	1,009,772

Operating expenses		317,621			99,310			45,027			21,740			483,698			127,178			72,717			199,538			883,131

Contribution / operating margin	$	(47,178	)	$	320,007		$	2,840		$	25,168		$	300,837		$	24,328		$	1,014		$	(199,538	)	$	126,641

Operating margin %		(17.4	%)		76.3	%		5.9	%		53.7	%		38.3	%		16.1	%		1.4	%		N/A			12.5	%

March 31, 2011

Total revenues	$	231,999		$	413,332		$	39,423		$	46,307		$	731,061		$	142,844		$	55,025		$	-		$	928,930

Operating expenses		246,212			99,659			47,514			20,149		$	413,534			118,937			51,011			195,134			778,616

Contribution / operating margin	$	(14,213	)	$	313,673		$	(8,091	)	$	26,158		$	317,527		$	23,907		$	4,014		$	(195,134	)	$	150,314

Operating margin %		(6.1	%)		75.9	%		(20.5	%)		56.5	%		43.4	%		16.7	%		7.3	%		N/A			16.2	%

(1)

Professional services business unit operating expenses for fiscal 2013 include a $71.8 million goodwill impairment charge. See note 7 of the consolidated financial statements included in this report for additional information.

(2)

Unallocated expenses for fiscal 2013 include $16.6 million in restructuring expenses. See note 8 of the consolidated financial statements included in this report for additional information.

GAAP TO NON-GAAP RECONCILIATION

In an effort to provide investors with additional information regarding the Company's results as determined by U.S. generally accepted accounting principles (GAAP), the Company has provided the following non-GAAP information: (a) non-GAAP professional services margin, (b) non-GAAP operating income, (c) non-GAAP net income and (d) non-GAAP diluted earnings per share. Each of these financial measures excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. These non-GAAP financial measures exclude a goodwill impairment charge; restructuring charges; advisory fees associated with certain shareholder actions; and the related tax impacts of these items. Each of the non-GAAP adjustments is described in more detail below. The table below provides a reconciliation of each of these non-GAAP measures to its most comparable GAAP financial measure.

We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our operating results because they exclude amounts that management and the board of directors do not consider part of core operating results when assessing the performance of the organization. We believe that inclusion of these non-GAAP financial measures provides consistency and comparability with past reports of financial results. Accordingly, we believe these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management.

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While we believe that these non-GAAP financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, are not audited, and do not reflect a comprehensive system of accounting and may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. Items such as a goodwill impairment charge; restructuring charges; advisory fees associated with certain shareholder actions; and the related tax impacts of these items that are excluded from our non-GAAP financial measures can have a material impact on net income. As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, net income or loss, cash flow from operations or other measures of performance prepared in accordance with GAAP. We compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reconciling the non-GAAP financial measures to their most comparable GAAP financial measure. We have procedures in place to ensure that these measures are calculated using the appropriate GAAP components in their entirety and to ensure that our performance is properly reflected to facilitate consistent period-to-period comparisons.

The following discusses the reconciling items from our non-GAAP financial measures to the most comparable GAAP financial measures:

Goodwill impairment charge. Our non-GAAP financial measures exclude an impairment charge associated with a decline in the estimated fair value of our professional services business unit. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding goodwill impairment to provide comparability and consistency with historical operating results.

Restructuring charges. Our non-GAAP financial measures exclude restructuring charges, and any subsequent changes in estimates, as they relate to our corporate restructuring and exit activities, including asset impairments resulting from a fourth quarter fiscal 2013 operational review. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding restructuring charges, in order to provide comparability and consistency with historical operating results.

Advisory fees associated with certain shareholder actions. During the third quarter of fiscal 2013, the Company received an unsolicited, nonbinding offer to purchase the outstanding shares of the Company from a shareholder. The Company has incurred costs of approximately $3 million for unplanned consultant fees to review the offer, analyze the business and review additional requests for information from other interested parties. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding such costs, in order to provide comparability and consistency with historical operating results.

Provision for income taxes on above pre-tax non-GAAP adjustments. Our non-GAAP financial measures exclude the tax impact of the above pre-tax non-GAAP adjustments. This amount is calculated using the tax rates of each country to which these pre-tax non-GAAP adjustments relate. Management excludes the non-GAAP adjustments on a net-of-tax basis in evaluating our performance. Therefore, we exclude the tax impact of these charges when presenting non-GAAP financial measures.

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Our reconciliation of GAAP to non-GAAP financial information is presented below (in thousands, except for per share data):

	Year Ended March 31,
	2013			2012		2011

Income from operations	$	2,214		$	126,641	$	150,314

Restructuring expenses		16,573			-		-
Goodwill impairment		71,840			-		-
Advisory fees		2,797			-		-

Income from operations before restructuring, impairment and advisory fees	$	93,424		$	126,641	$	150,314



Net income (loss)	$	(17,251	)	$	88,371	$	107,441

Restructuring expenses		16,573			-		-
Goodwill impairment		71,840			-		-
Advisory fees		2,797			-		-

Total adjustments		91,210			-		-
Income tax effect of adjustments		(16,661	)		-		-

Net income before restructuring, impairment and advisory fees	$	57,298		$	88,371	$	107,441



Diluted earnings per share - GAAP	$	(0.08	)	$	0.40	$	0.48

Recalculated using dilutive shares	$	(0.08	)	$	0.40	$	0.48

Restructuring expenses		0.08			-		-
Goodwill impairment		0.33			-		-
Advisory fees		0.01			-		-

Total adjustments		0.42			-		-
Income tax effect of adjustments		(0.08	)		-		-

Diluted earnings per share before restructuring, impairment and advisory fees	$	0.26		$	0.40	$	0.48

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SOFTWARE SOLUTIONS AS A GROUP

Our software solutions are comprised of the following business segments: (1) Application Performance Management; (2) Mainframe; (3) Changepoint; and (4) Uniface.

Revenue associated with our software solutions consists of software license fees, maintenance fees, subscription fees and professional services fees (software related services). Software solutions revenues are presented in the table below (in thousands):

							Period-to-Period Change
	Year Ended March 31,						2012 to			2011 to
	2013		2012		2011		2013			2012
Software license fees	$	178,922	$	220,885	$	194,745		(19.0	) %		13.4	%
Maintenance fees		407,480		427,534		419,240		(4.7	)		2.0
Subscription fees		82,442		78,438		67,718		5.1			15.8
Professional services fees		50,297		57,678		49,358		(12.8	)		16.9
Total software solutions revenue	$	719,141	$	784,535	$	731,061		(8.3	) %		7.3	%

Software license fees (“license fees”) decreased $42.0 million during 2013, which included a negative impact from foreign currency fluctuations of $4.1 million, and increased $26.1 million during 2012, which included a positive impact from foreign currency fluctuations of $4.3 million. Excluding the impact from foreign currency fluctuations, license fees decreased $37.9 million for 2013 and increased $21.8 million for 2012. The decrease for 2013 was due to the decline in mainframe license fees, partially offset by an increase in APM license fees. The increase for fiscal 2012 was due largely to an increase in mainframe license fees and, to a lesser extent, increases in APM and Changepoint license fees (see the discussion within “Software Solutions by Business Segment” for more details).

During 2013, 2012 and 2011, for software license transactions that were required to be recognized ratably, we deferred $25.6 million, $15.8 million and $29.9 million, respectively, of license fees relating to such transactions that closed during the period. We recognized as license fees $30.3 million, $48.5 million and $61.2 million of previously deferred license revenue during 2013, 2012 and 2011, respectively, relating to such transactions that closed and had been deferred prior to the beginning of the period.

Maintenance fees decreased $20.1 million during 2013, which included a negative impact from foreign currency fluctuations of $11.1 million, and increased $8.3 million during 2012, which included a positive impact from foreign currency fluctuations of $9.9 million. Excluding the impact from foreign currency fluctuations, maintenance fees declined $9.0 million for 2013 and declined $1.6 million for 2012. Approximately $8 million of the decline was due to a single mainframe customer cancellation. The remaining decline was due to smaller customer cancellations and lower renewal values for maintenance fees associated with our mainframe product lines. Although we continue to experience high maintenance renewal rates with our current mainframe customers, new or growth customers are not entirely replacing the maintenance revenue loss from the non-renewed or reduced capacity mainframe maintenance arrangements. The declines in both 2013 and 2012 were partially offset by an increase in APM maintenance fees due primarily to sales growth in our APM product line including additional maintenance related to the dynaTrace acquisition.

Subscription fees increased $4.0 million during 2013, which included a negative impact from foreign currencies of $817,000, and increased $10.7 million during 2012, which included a positive impact from foreign currency fluctuations of $549,000. Excluding the impact from foreign currency fluctuations, subscription fees increased $4.8 million for 2013 and increased $10.2 million for 2012 primarily as a result of new SaaS solution sales exceeding customer cancellations.

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Professional services fees within our software solutions business segments decreased $7.4 million during 2013 and increased $8.3 million during 2012. The decline in profesional services fees during 2013 primarily occurred within our mainframe and Changepoint segments due to a decline in our test data privacy services and a decline in new software license sales, respectively. The improvement in professional services fees during fiscal 2012 primarily occurred within our APM business unit due to increased implementation fees associated with new APM solution sales and increases in demand for our managed service offerings.

Software solutions revenue by geographic location is presented in the table below (in thousands):

	Year Ended March 31,
	2013		2012 (1)		2011 (1)
United States	$	375,871	$	401,198	$	373,644
Europe and Africa		205,870		234,909		222,538
Other international operations		137,400		148,428		134,879
Total software solutions revenue	$	719,141	$	784,535	$	731,061

(1)	March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

SOFTWARE SOLUTIONS BY BUSINESS SEGMENT

Application Performance Management

The financial results of operations for our APM segment were as follows (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012
Revenue
Software license fees	$	100,565		$	85,462		$	77,823			17.7	%		9.8
Maintenance fees		89,535			77,329			64,283			15.8			20.3
Subscription fees		79,862			76,246			67,718			4.7			12.6
Professional services fees		30,571			31,406			22,175			(2.7	)		41.6
Total revenue		300,533			270,443			231,999			11.1			16.6

Operating expenses		304,835			317,621			246,212			(4.0	)		29.0

Contribution margin	$	(4,302	)	$	(47,178	)	$	(14,213	)		90.9	%		(231.9	)

Contribution margin %		(1.4	%)		(17.4	%)		(6.1	%)

APM segment revenue increased $30.1 million during 2013 due primarily to increased license and maintenance fees related to the acquisition of dynaTrace during the second quarter of 2012. Additionally, subscription fees increased $3.6 million due to new SaaS solution sales during the previous year. While our revenue from subscription fees increased during 2013, our current deferred revenue for subscription fees has declined approximately five percent from the March 2012 balance. The decline is due to customer cancellations and delays in renewals. We are focused on maintaining customer satisfaction and increasing demand for our SaaS offerings through dedicated resources focused on customer renewals and through continued enhancement to our offerings.

APM segment revenue increased $38.4 million during 2012. The increase in software license fees during 2012 can be attributed to additional revenue related to the acquisition of dynaTrace (see note 2 of the consolidated financial statements included in this report for additional information), partially offset by the effects of integrating our on-premises and SaaS sales force and related changes in the sales strategy during 2012, which had a negative impact on license sales.

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Operating expenses decreased $12.8 million during 2013 due to reductions in headcount and marketing expenses. Revenue growth and cost reductions for 2013 had a positive impact on our contribution margin as compared to the prior year.

Operating expenses increased $71.4 million for 2012, primarily due to investments in our APM solutions including hiring developers and sales personnel, increasing the capacity of our web application services network and the acquisition of dynaTrace. The costs associated with these investments exceeded revenue growth during 2012, which had a negative impact on our contribution margin.

Application performance management revenue by geographic location is presented in the table below (in thousands):

	Year Ended March 31,
	2013		2012 (1)		2011 (1)
United States	$	160,212	$	139,030	$	122,311
Europe and Africa		84,590		85,720		68,554
Other international operations		55,731		45,693		41,134
Total APM segment revenue	$	300,533	$	270,443	$	231,999

(1)	March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

Mainframe

The financial results of operations for our Mainframe segment were as follows (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012
Revenue
Software license fees	$	58,528		$	110,289		$	95,820			(46.9	)%		15.1
Maintenance fees		271,824			303,639			310,965			(10.5	)		(2.4	)
Professional services fees		2,325			5,389			6,547			(56.9	)		(17.7	)
Total revenue		332,677			419,317			413,332			(20.7	)		1.4

Operating expenses		91,325			99,310			99,659			(8.0	)		(0.4	)

Contribution margin	$	241,352		$	320,007		$	313,673			(24.6	)%		2.0

Contribution margin %		72.5	%		76.3	%		75.9	%

Mainframe segment revenue decreased $86.6 million during 2013 primarily due to a $23.6 million decline in significant software license transactions (license fees over $2 million) and due to pricing pressures on and cancellations of maintenance contracts. Furthermore, the reduction in revenue is consistent with the general downward trend in our mainframe product revenues we have experienced throughout the past several years. Changes in our current customers’ IT computing environments and spending habits have reduced their demand for additional mainframe computing capacity. In addition, increased pricing pressures, competition and the effects of foreign exchange rate changes have had a negative impact on our revenues. We intend to continue to make strategic enhancements to our mainframe solutions through research and development investments, including the PurePath for z/OS product we released during the third quarter of 2013 which combines dynaTrace and Strobe technology to provide application performance management for the mainframe. We expect PurePath for z/OS to positively contribute to our mainframe revenues in 2014.

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Mainframe segment revenue increased $6.0 million during 2012 primarily due to a $14.5 million increase in software license fees partially offset by a $7.3 million decline in maintenance fees. Six significant license transactions that resulted in the recognition of $36.0 million of license fees were completed during 2012, some of which we had anticipated closing in the fourth quarter of 2011. Significant license transactions during fiscal 2011 resulted in the recognition of approximately $19.1 million in license fees.

Although mainframe costs declined from 2012 to 2013, many of our costs are relatively fixed and the significant decline in mainframe revenue during 2013 resulted in a decline in contribution margin as compared to the prior year. Contribution margin and expenses for 2012 were essentially unchanged from 2011.

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

	2013		2012 (1)		2011 (1)
United States	$	190,542	$	232,350	$	228,762
Europe and Africa		81,244		104,048		108,966
Other international operations		60,891		82,919		75,604
Total Mainframe segment revenue	$	332,677	$	419,317	$	413,332

(1)	March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

Changepoint

The financial results of operations for our Changepoint segment were as follows (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012
Revenue
Software license fees	$	8,468		$	13,815		$	9,226			(38.7	)%		49.7
Maintenance fees		16,305			15,551			14,547			4.8			6.9
Subscription fees		2,580			2,192						17.7			N/A
Professional services fees		12,422			16,309			15,650			(23.8	)		4.2
Total revenue		39,775			47,867			39,423			(16.9	)		21.4

Operating expenses		41,226			45,027			47,514			(8.4	)		(5.2	)

Contribution margin	$	(1,451	)	$	2,840		$	(8,091	)		(151.1	)%		135.1

Contribution margin %		(3.6	%)		5.9	%		(20.5	%)

Changepoint segment revenue decreased $8.1 million during 2013 and increased $8.4 million during 2012, primarily due to a significant transaction that closed during the fourth quarter of 2012, resulting in the recognition of $4.4 million in license fees. The remaining decrease for 2013 was related to a decline in professional services fees resulting from the decline in new software license sales. The remaining increase for 2012 was primarily related to the increase in subscription fees. As SaaS applications become more accepted in the market, we have increased our Changepoint SaaS offerings. Prior to fiscal 2012, these amounts were immaterial and were not tracked separately.

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Operating expenses for 2013 decreased from the prior year due to the decline in revenue. However, the proportionately higher decrease in revenue caused the contribution margin to decline for 2013 as compared to 2012. The improvement in contribution margin for 2012 relates primarily to the increase in revenue.

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

	Year Ended March 31,
	2013		2012 (1)		2011 (1)
United States	$	18,172	$	23,864	$	17,331
Europe and Africa		9,324		11,709		10,797
Other international operations		12,279		12,294		11,295
Total Changepoint segment revenue	$	39,775	$	47,867	$	39,423

(1)	March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

Uniface

The financial results of operations for our Uniface segment were as follows (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012
Revenue
Software license fees	$	11,361		$	11,319		$	11,876			0.4	%		(4.7	)
Maintenance fees		29,816			31,015			29,445			(3.9	)		5.3
Professional services fees		4,979			4,574			4,986			8.9			(8.3	)
Total revenue		46,156			46,908			46,307			(1.6	)		1.3

Operating expenses		21,831			21,740			20,149			0.4			7.9

Contribution margin	$	24,325		$	25,168		$	26,158			(3.3	)%		(3.8	)

Contribution margin %		52.7	%		53.7	%		56.5	%

Uniface segment revenue decreased $752,000 during 2013 primarily due to the negative impact of foreign currency on maintenance fees. Uniface segment revenue increased $601,000 during 2012 due primarily to a positive foreign currency impact on revenue and higher maintenance billings throughout the previous year.

Operating expenses for 2013 remained consistent with operating expenses for 2012, but contribution margin declined due to the reduction in revenue. Operating expenses for 2012 increased $1.6 million as compared to 2011 primarily due to a negative foreign currency impact.

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

	Year Ended March 31,
	2013		2012 (1)		2011 (1)
United States	$	6,945	$	5,954	$	5,240
Europe and Africa		30,712		33,432		34,221
Other international operations		8,499		7,522		6,846
Total Uniface segment revenue	$	46,156	$	46,908	$	46,307

(1)	March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

PROFESSIONAL SERVICES

The financial results of operations for our professional services segment were as follows (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Professional services fees	$	134,714		$	151,506		$	142,844			(11.1	) %		6.1	%

Operating expenses excluding goodwill impairment		115,632			127,178			118,937			(9.1	) %		6.9	%

Non-GAAP operating income		19,082			24,328			23,907			(21.6	) %		1.8	%

Non-GAAP contribution margin %		14.2	%		16.1	%		16.7	%

Goodwill impairment		71,840			-			-			N/A	%		N/A	%

Total operating expenses		187,472			127,178			118,937			47.4			6.9

Contribution margin	$	(52,758	)	$	24,328		$	23,907			(316.9	) %		1.8	%

Contribution margin %		(39.2	%)		16.1	%		16.7	%

Professional services segment fees decreased $16.8 million during 2013 due primarily to a decline in application development services for customers within the financial services industry. Several large projects for these customers were completed during 2012 and were not replaced, resulting in the decline in revenue for 2013.

Professional services segment fees increased $8.7 million during 2012 due primarily to an increase in application development services for customers within the financial services industry. Professional services fees were negatively impacted $2.5 million during 2012 by a revenue reserve taken on a government contract due to collectability concerns.

On a GAAP basis, operating expenses increased $60.3 million in 2013 due to a $71.8 million goodwill impairment charge taken during the fourth quarter of 2013 partially offset by the decline in subcontractor and salary expenses. At March 31, 2013, our professional services reporting unit failed Step 1 of our goodwill impairment analysis. After performing Step 2 of the goodwill impairment test, we determined that it was necessary to record a $71.8 million reduction to the goodwill associated with our professional services division to reduce the goodwill balance to the calculated estimated fair value. See “Management’s Discussion of Critical Accounting Policies” for additional information about the goodwill impairment test. The increase in operating expenses was partially offset by a decline in subcontractor costs associated with the large financial services projects noted above as well as headcount reductions and a decline in bonus expense due to lower company-wide bonus attainment. The reduction in contribution margin for 2013 was due primarily to the increase in operating expenses resulting from the goodwill impairment charge.

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The non-GAAP operating expenses declined $11.5 million primarily due to a decline in subcontractor expenses associated with specific customer engagements during 2011 and 2012 as well as a decline in salaries due to a reduction in headcount. The reduction in contribution margin for 2013 on a non-GAAP basis was due primarily to the decrease in revenues which was partially offset by a decrease in costs.

Operating expenses increased $8.2 million for 2012 primarily due to increased staffing levels and increases in subcontractor costs to manage the growth of the business. The decrease in contribution margin for 2012 was caused by the revenue reserve discussed above, partially offset by increases in average billing rates.

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

	Year Ended March 31,
	2013		2012 (1)		2011 (1)
United States	$	134,164	$	149,680	$	139,021
Europe and Africa		22		1,311		2,985
Other international operations		528		515		838
Total professional services segment revenue	$	134,714	$	151,506	$	142,844

(1)	March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

APPLICATION SERVICES

The financial results of operations for our Covisint application services segment were as follows (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Application services fees	$	90,694		$	73,731		$	55,025			23.0	%		34.0

Operating expenses		86,084			72,717			51,011			18.4			42.6

Contribution margin	$	4,610		$	1,014		$	4,014			354.6	%		(74.7	)

Contribution margin %		5.1	%		1.4	%		7.3	%

Application services segment fees increased $17.0 million during 2013 due to growth from both recurring and services fees across automotive and healthcare customers as well as customers in other industries. Services fees increased, in part, due to the establishment of stand alone value for certain professional services during 2012, which allowed us to recognize the related revenue as the services were delivered rather than over the expected period during which the customer would receive benefit. We continue to recognize the deferred services revenue and related expenses recorded prior to establishment of stand alone value over the expected period of benefit to the customer. We expect the professional services portion of application services revenue to grow at a slower rate as the amount of revenue recognized from deferred services declines over the next three to five years.

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Application services segment fees increased $18.7 million during 2012 primarily due to growth from automotive customers and due to continued expansion into the healthcare industry. The establishment of stand alone value for certain professional services allowed us to recognize the related revenue as the services were delivered rather than over the expected customer life. Additionally, 2012 revenue increased over 2011 due to the acquisition of DocSite during the second quarter of 2011. DocSite is a provider of web-based solutions that allow physicians and healthcare organizations to accurately and timely manage, analyze and report healthcare performance and quality (see note 2 to the consolidated financial statements included in this report for additional information).

Our application services segment generated 56%, 58% and 49% of its revenue from the automotive industry during 2013, 2012 and 2011, respectively.

Operating expenses increased $13.4 million during 2013 and increased $21.7 million during 2012 due to continued investment in our Covisint business. In anticipation of capitalizing on the growth of the secured collaboration services market, we hired additional developers, customer support and sales personnel, and we increased the capacity of our global application services network during 2012. Additionally, costs associated with professional services with stand alone value were recognized in 2013 and 2012 consistent with the associated revenue recognition. These additional investments were partially offset by increases in capitalized software and development costs during both 2013 and 2012.

During 2013, our revenue growth exceeded the ongoing additional costs from these investments, resulting in the increase in contribution margin over the prior year. During 2012, our spending on the investments proportionally exceeded revenue growth, causing the decline in our contribution margin from 2011.

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

	Year Ended March 31,
	2013		2012 (1)		2011 (1)
United States	$	77,944	$	64,555	$	47,770
Europe and Africa		4,859		3,827		3,589
Other international operations		7,891		5,349		3,666
Total application services segment revenue	$	90,694	$	73,731	$	55,025

(1)	March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

UNALLOCATED EXPENSES

Unallocated expenses include costs associated with internal technology and the corporate executive, finance, human resources, administrative, legal, communications and investor relations departments. In addition, unallocated expenses include all facility-related costs, such as rent, building depreciation, maintenance and utilities associated with our worldwide offices. Significant changes in these areas are discussed in “Operating Expenses” under “Technology Development and Support” and “Administrative and General”.

Fiscal 2013 unallocated expenses also included $16.6 million in restructuring expenses. These expenses are discussed in the “Restructuring Charge” section below.

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OPERATING EXPENSES

Our operating expenses include cost of software license fees; cost of maintenance fees; cost of subscription fees; cost of professional services; cost of application services; technology development and support costs; sales and marketing expenses; administrative and general expenses; goodwill impairment; and restructuring. These expenses are described below without regard to the relevant segment(s) to which they are allocated.

Cost of Software License Fees

Cost of software license fees includes amortization of capitalized software related to our licensed software products, the cost of duplicating and disseminating products to customers, including associated hardware costs, and the cost of author royalties.

Cost of software license fees is presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Cost of software license fees	$	20,165		$	17,572		$	14,216			14.8	%		23.6	%

Percentage of software license fees		11.3	%		8.0	%		7.3	%

Cost of software license fees increased $2.6 million during 2013 and increased $3.4 million during 2012 due primarily to additional amortization expense on intangible assets acquired as part of the dynaTrace acquisition during the second quarter of 2012. The increase in amortization expense also resulted in the increase in cost as a percentage of software license fees. As dynaTrace was acquired during the second quarter of 2012, only a partial year of amortization was recognized during 2012 as compared to a full year of amortization for 2013.

Cost of Maintenance Fees

Cost of maintenance fees consists of the direct costs allocated to maintenance and product support such as helpdesk and technical support.

Cost of maintenance fees is presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2010 to			2011 to
	2013			2012			2011			2013			2012

Cost of maintenance fees	$	35,084		$	38,670		$	32,975			(9.3	) %		17.3	%

Percentage of maintenance fees		8.6	%		9.0	%		7.9	%

Cost of maintenance fees declined $3.6 million during 2013 and increased $5.7 million during 2012. The decrease for 2013 primarily resulted from a reduction in maintenance costs related to our APM and mainframe products. As maintenance revenues also declined, cost as a percentage of maintenance fees for 2013 remained consistent with 2012.

The increase in 2012 primarily resulted from additional maintenance costs for our mainframe products and higher customer support costs due to the hiring of additional employees to support the growth of the APM business segment. The increase in cost as a percentage of maintenance fees in fiscal 2012 was primarily due to incremental customer support and maintenance for our licensed software products exceeding the increase in maintenance fees.

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Cost of Subscription Fees

Cost of subscription fees consists of the amortization of capitalized software related to our hosted software offerings, depreciation and maintenance expense associated with our hosted software network related computer equipment; data center costs; and payments to individuals for tests conducted from their Internet-connected personal computers (“peer”).

Cost of subscription fees is presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Cost of subscription fees	$	31,127		$	29,669		$	24,974			4.9	%		18.8	%

Percentage of subscription fees		37.8	%		37.8	%		36.9	%

Cost of subscription fees increased $1.5 million during 2013, primarily due to additional amortization of capitalized research and development costs. We continued to invest in research and development throughout 2012 and 2013 which increased the amortizable base. To a lesser extent, increased compensation and benefits costs from hiring additional employees to support future business growth also contributed to the increase in cost of subscription fees for 2013.

Cost of subscription fees increased $4.7 million during 2012, primarily due to increases in data center and peer costs related to our SaaS global network. To a lesser extent, increases in amortization of research and development costs and depreciation of computer equipment also contributed to the increased costs. As a percentage of subscription fees, cost of subscription fees for 2012 increased due to incremental data center and peer costs proportionally exceeding the increase in subscription fees.

Cost of Professional Services

Cost of professional services consists primarily of personnel-related costs of providing professional services, including billable and technical staff, subcontractors and sales personnel both for our professional services segment and our software related services.

Cost of professional services is presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Cost of professional services	$	163,713		$	182,625		$	165,939			(10.4	) %		10.1	%

Percentage of professional services fees		88.5	%		87.3	%		86.3	%

Cost of professional services decreased $18.9 million during 2013 and increased $16.7 million during 2012. The decrease during 2013 was primarily a result of the decline in revenue which reduced our use of subcontractors in our professional services segment and a decline in compensation and benefits expense due to headcount reductions also made as a result of the decline in revenue (see “Professional Services” discussion above for additional information). These declines were partially offset by a bad debt reserve recorded for one of our municipal customers. The increase during 2012 was primarily due to higher compensation, employee benefit and travel costs related to the hiring of billable staff and additional subcontractor costs to support the activity in our professional services segment.

The increase in cost as a percentage of professional services fees for 2013 was largely due to the decline in professional services fees primarily related to a reduction in application development services for customers within the financial services industry. Many of the costs associated with our professional services fees, specifically salary and benefits expenses, do not fluctuate with changes in revenue. The increase in cost as a percentage of professional services fees for 2012 was primarily due to increased compensation and benefits costs proportionally exceeding the increase in revenues, which were negatively impacted by the $2.5 million revenue reserve discussed in the “Professional Services” segment discussion above.

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Cost of Application Services - Covisint

Cost of application services consists primarily of personnel-related costs of providing application services, including billable and technical staff, subcontractors and sales personnel net of the amounts capitalized for development of internal use software.

Cost of application services incurred and capitalized are presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Cost of application services incurred	$	95,619		$	80,250		$	53,922			19.2	%		48.8	%

Capitalized internal software costs		(12,321	)		(7,866	)		(2,911	)		(56.6	)		(170.2	)

Cost of application services expensed	$	83,298		$	72,384		$	51,011			15.1	%		41.9	%

Percentage of application services fees		91.8	%		98.2	%		92.7	%

Cost of application services increased $15.4 million before capitalized internal software costs during 2013 primarily due to increased salary and benefits expense from hiring additional developers, customer support and sales personnel to support the growth of the application services business segment. The decrease in cost as a percentage of application services fees was due to the increase in capitalized internal software costs and the increase in application services fees.

Cost of application services increased $26.3 million before capitalized internal software costs during 2012 primarily due to an increase in compensation and benefits costs related to the hiring of additional developers, sales and customer support personnel to support the growth of the application services business segment as well as increased amortization expense on capitalized projects. Additionally, we incurred additional subcontractor and outside services costs to support the activity of the application services segment. The increase in cost as a percentage of application services fees for 2012 was primarily due to increased compensation and benefits costs for application services proportionally exceeding the increase in application services fees.

Capitalization of internally developed software costs increased $4.4 million and $5.0 million during 2013 and 2012, respectively, as we continued to invest in enhancements and additional functionality for the platform. We expect our capitalized costs to decrease in 2014 due to a recent change to the agile delivery methodology for platform enhancements which is expected to result in significantly shorter development cycles. Additionally, we expect our 2014 research and development efforts to increase overall resulting in a net increase to expense.

Technology Development and Support

Technology development and support includes, primarily, the costs of programming personnel associated with software technology development and support of our products and our hosted software network less the amount of capitalized internal software costs during the reporting period. Also included are personnel costs associated with developing and maintaining internal systems and hardware/software costs required to support all technology initiatives.

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Technology development and support costs incurred and capitalized are presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Technology development and support costs incurred	$	125,276		$	120,351		$	102,949			4.1	%		16.9	%

Capitalized internal software costs		(19,476	)		(15,383	)		(12,619	)		(26.6	)		(21.9	)

Technology development and support costs expensed	$	105,800		$	104,968		$	90,330			0.8	%		16.2	%

Technology development and support costs expensed as a percentage of software solutions revenue		14.7	%		13.4	%		12.4	%

Technology development and support increased $4.9 million before capitalized internal software costs during 2013 due primarily to higher compensation and benefits costs related to the hiring of developers and customer support personnel to support the growth of the APM segment, including those hired through the dynaTrace acquisition in the second quarter of 2012. To a lesser extent, higher software maintenance costs also contributed to the increase in technology development and support costs. The increase in costs was partially offset by a reduction in bonus expense resulting from lower company-wide bonus attainment.

Technology development and support increased $17.4 million before capitalized internal software costs during 2012 due primarily to higher compensation and benefits costs related to the hiring of developers and customer support personnel to support the growth of the APM business segment and, to a lesser extent, annual wage increases and a negative impact from currency fluctuations as the U.S. dollar weakened against non-U.S. currencies during 2012.

Technology development and support as a percentage of software solutions revenues increased for both 2013 and 2012 as the additional investment in our products and technology proportionally exceeded the increase in software solutions revenue.

The fluctuations in capitalized internal software costs during 2013 and 2012 relate primarily to the timing of projects that are in the technological feasibility phase of development. The $4.1 million increase in capitalized software costs during 2013 was primarily related to additional capitalization of costs for APM SaaS and mainframe projects during 2013. The $2.8 million increase in capitalized internal software costs during 2012 was primarily related to additional capitalization of costs for APM SaaS and dynaTrace projects during 2012.

Sales and Marketing

Sales and marketing costs consist primarily of personnel related costs associated with product sales, sales support and marketing for our product offerings.

Sales and marketing costs are presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Sales and marketing costs	$	251,925		$	273,520		$	243,771			(7.9	)%		12.2	%

Percentage of software solutions revenue		35.0	%		34.9	%		33.3	%

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Sales and marketing costs decreased $21.6 million during 2013 due to decreased compensation and travel expense related to lower bonus and commissions associated with the declines in revenue and earnings as well as headcount reductions, primarily in Europe. Additionally, advertising expense declined from the prior year due to lower costs related to a significant marketing agreement. Sales and marketing costs as a percentage of software solutions revenue remained consistent with the prior year due to the proportional decline in software solutions revenue.

Sales and marketing costs increased $29.7 million during 2012 due primarily to higher salary and benefits expenses related to additional sales employees, salary increases and a negative impact from currency fluctuations as the U.S. Dollar weakened against non-U.S. currencies during 2012 and additional commission and bonus expense due to higher company-wide bonus attainment. Higher travel expense associated with increased sales and headcount, including dynaTrace personnel, and severance charges for certain employee terminations within our European operations during 2012 also contributed to the increase in sales and marketing costs. These additional costs proportionately exceeded the increase in software solutions revenue from the prior year, resulting in the increase in sales and marketing costs as a percentage of software solutions revenue.

Administrative and General

Administrative and general expenses consist primarily of costs associated with the corporate executive, finance, human resources, administrative, legal, communications and investor relations departments. In addition, administrative and general expenses include all facility-related costs, such as rent, building depreciation, maintenance and utilities, associated with our worldwide offices.

Administrative and general expenses are presented in the table below (in thousands):

							Period-to-Period Change
	Year Ended March 31,						2012 to			2011 to
	2013		2012		2011		2013			2012

Administrative and general expenses	$	162,810	$	163,723	$	155,400		(0.6	)%		5.4	%

Administrative and general costs decreased $913,000 during 2013 due primarily to a decline in bonus expense resulting from lower company-wide bonus attainment. The decline was partially offset by increased salary and benefits expense related to a post-retirement consulting agreement executed during 2013, asset impairment charges and advisory fees related to certain shareholder activities.

Administrative and general costs increased $8.3 million during 2012 due primarily to increased compensation and benefits expense and increased bonus expense related to higher company-wide bonus attainment. These cost increases were partially offset by a reduction in operating tax expense.

RESTRUCTURING CHARGE

As part of our announced plan to increase shareholder value, we are implementing significant cost reduction actions with the intention to eliminate approximately $80 million to $100 million of administrative and general and non-core operational costs over the next two years. In February 2013, we approved the initial phase of a restructuring plan designed to achieve a portion of these savings, which involves reductions in our global workforce of approximately 190 employees (less than 5% of our total workforce), including employees across all operating and administrative divisions, the early abandonment of certain operating leases and the closing or reduction in size of 16 office facilities worldwide.

The Company recorded a charge of approximately $16.6 million during the fourth quarter of 2013 for the costs associated with these reductions. Of the total amount, approximately $10.9 million was related to severance costs for 111 terminated employees, $2.7 million was related to lease abandonment costs and $2.9 million was related to other restructuring charges, primarily asset write-downs. The Company anticipates that approximately $4.3 million in additional employee termination charges and $4.1 million in lease abandonment costs will be taken during fiscal 2014 for the initial phase of the restructuring plan, and it is expected that the activities in the initial phase will be completed before December 2013.

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There were no restructuring actions taken during 2012 or 2011. See note 8 of the consolidated financial statements included in this report for more details regarding our restructuring plan.

OTHER INCOME (EXPENSE)

Other income (expense), net consists primarily of interest income realized from our cash and cash equivalents, interest earned on our financing receivables, our share of the income or loss from our investments in partially owned companies and interest expense primarily associated with our long-term debt.

Other income (expense) is presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Interest income	$	2,010		$	3,684		$	4,456			(45.4	)%		(17.3	)%
Interest expense		(1,856	)		(3,161	)		(1,402	)		41.3			(125.5	)
Other		(1,324	)		1,110			1,408			(219.3	)		(21.2	)
Other income (expense)	$	(1,170	)	$	1,633		$	4,462			(171.6	)%		(63.4	)%

The decline in interest income for 2013 is primarily due to the reduction in cash and cash equivalents resulting from cash used to purchase dynaTrace in 2012, repayments on our outstanding debt, our share repurchases and, to a lesser extent, a decline in interest income related to our installment receivables.

The decrease in interest expense for 2013 is related to interest on borrowings under the line of credit. Borrowings were incurred primarily to fund a portion of the dynaTrace acquisition during the second quarter of 2012 and to continue the share repurchase program. The average outstanding debt balance during 2013 was approximately $50 million as compared to approximately $84 million during 2012.

The decline in other for 2013 is primarily related to a $1.7 million loss recognized on our investments in start-up companies (see note 6 of the of the consolidated financial statements included in this report for additional information).

Other income (expense) declined $2.8 million during 2012. The decline in interest income was primarily due to the decline in cash and cash equivalents related to cash paid for the dynaTrace acquisition and to a lesser extent a decline in interest income related to our installment receivables. The increase in interest expense is related to interest on borrowings under the line of credit. Borrowings were incurred primarily to fund a portion of the dynaTrace acquisition during 2012.

INCOME TAXES

Income taxes are accounted for using the asset and liability approach. Deferred income taxes are provided for the differences between the tax bases of assets or liabilities and their reported amounts in the financial statements and net operating loss and credit carryforwards.

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The income tax provision and effective tax rate are presented in the table below (in thousands):

										Period-to-Period Change
	Year Ended March 31,									2012 to			2011 to
	2013			2012			2011			2013			2012

Income tax provision	$	18,295		$	39,903		$	47,335			(54.2	)%		(15.7	)%

Effective tax rate		1752.4	%		31.1	%		30.6	%

The Company’s effective tax rate was 1752.4%, 31.1% and 30.6% for fiscal 2013, fiscal 2012 and fiscal 2011, respectively.

The effective tax rate for fiscal 2013 was impacted primarily by the minimal income before income tax provision base of approximately $1.0 million, coupled with the non-deductibility of the majority of the goodwill impairment charge. See note 7 for information regarding the impairment evaluation on goodwill and other intangible assets at March 31, 2013.

The effective tax rate for fiscal 2012 was impacted primarily by the following favorable items: (1) New legislation was enacted that amended Michigan’s Income Tax Act to implement a comprehensive set of tax changes. One part of the legislation contains provisions that replaced the Michigan Business Tax (“MBT”) with a new corporate income tax. Certain credits allowed under the MBT, including the Brownfield Redevelopment tax credit, will continue to be effective, which allowed us to reduce our future tax liability for the duration of the carryforward period. Therefore, the valuation allowance associated with this deferred tax asset was reversed in fiscal 2012. (2) All remaining issues related to the fiscal 2005 through fiscal 2009 tax periods were effectively settled with the Internal Revenue Service.

See note 13 of the consolidated financial statements included in this report for additional information regarding the difference between our effective tax rate and the statutory rate for fiscal 2013, 2012 and 2011.

MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Note 1 of the consolidated financial statements included in this report contains a summary of our significant accounting policies.

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Assumptions and estimates were based on facts and circumstances existing at March 31, 2013. However, future events rarely develop exactly as forecast, and the best estimates routinely require adjustment. The accounting policies discussed below are considered by management to be the most important to an understanding of our financial statements, because their application places the most significant demands on management’s judgment and estimates about the effect of matters that are inherently uncertain.

Revenue Recognition – We generate revenue from licensing software products; providing maintenance and support services for those products; permitting customers to access our hosted software delivered on a SaaS basis; and rendering professional and application services. Our software solutions are comprised of license fees, maintenance fees, subscription fees and software related professional services fees.

We sometimes enter into arrangements that include both software related deliverables (licensed software products, maintenance services or software related professional services) and non-software deliverables (hosted software, professional services unrelated to our software products or application services). Our hosted software and application services do not qualify as software deliverables because our license grant does not allow the customer the right or capability to take possession of the software. For arrangements that contain both software and non-software deliverables, in accordance with ASC 605 “Revenue Recognition,” we allocate the arrangement consideration to the non-software deliverables as a group, and to the software deliverables as a group (the “Deliverable Groups”). We determine the selling price to allocate the arrangement consideration to the Deliverable Groups based on the following hierarchy of evidence: vendor specific objective evidence of selling price (“VSOE,” meaning price when sold separately) if available; third-party evidence of selling price if VSOE is not available; or best estimated selling price if neither VSOE nor third-party evidence is available. We currently are unable to establish VSOE or third-party evidence of selling price for either our software related deliverables or our non-software deliverables as a group. Therefore, the best estimate of selling price for each Deliverable Group is determined primarily by considering various factors, including, but not limited to stated renewal rates in a contract, if any, the historical selling price of these deliverables in similar stand-alone transactions and pricing practices. Total arrangement consideration is then allocated on the basis of the Deliverable Group’s relative selling price.

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Once we have allocated the arrangement consideration between the Deliverable Groups, we recognize revenue as described below in the respective Product Revenue Recognition, Subscription Fees and Professional and Application Services Fees sections.

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

Product Revenue Recognition – We license software products using both perpetual and term (time-based) licenses and provide maintenance services and software related professional services. Our software related professional services do not require significant production, modification or customization of the licensed software product.

Assuming all revenue recognition criteria are met, perpetual license fee revenue is recognized using the residual method, under which the fair value, based on VSOE, of all undelivered elements of the agreement (i.e., maintenance and software related 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. Based on market conditions, we periodically change pricing methodologies for license, maintenance and software related services. Changes in rates charged for stand-alone maintenance and software related services could have an impact on how bundled revenue agreements are characterized as license, maintenance or software related services or have an effect on the timing of revenue recognition in the future. Pricing modifications, if any, made during the years covered by this report have not had a significant impact on the timing or characterization of revenue recognized.

For revenue arrangements where there is a lack of VSOE for any undelivered elements, license fee revenue is deferred and recognized upon delivery of those elements or when VSOE can be established. However, when maintenance or software related professional 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 the software related professional services are expected to be performed. Such transactions include time-based licenses and certain unlimited capacity licenses, as we have not established VSOE 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, we separate the license fee, maintenance fee and software related professional services fee (which is included in professional services fees) associated with these types of arrangements based on its determination of fair value. We apply VSOE for maintenance related to perpetual license transactions and standalone software related professional services arrangements as a reasonable and consistent approximation of fair value to separate license fee, maintenance fee and software related professional services fee revenue for income statement classification purposes.

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We allow customers to have installment payment terms in our arrangements and generally, revenues from these transactions are recognized in the same manner as those requiring current payment. This is because we have an established business practice of offering installment payment terms to customers and have a history of successfully enforcing original payment terms without making concessions. However, because a significant portion of our license fee revenue is earned in connection with installment sales, changes in our customer collection experience, future economic conditions or technological developments could adversely affect our ability to immediately record license fees for these types of transactions and/or limit our ability to collect these receivables. When the license portion is paid over a number of years, the license portion of the payment stream is discounted to its net present value. Interest income is recognized over the payment term. The maintenance revenue associated with all sales is deferred and is recognized over the applicable maintenance period.

Subscription Fees - Our subscription fees relate to arrangements that permit our customers to access and utilize our hosted software and are delivered on a SaaS basis. The subscription arrangements do not provide customers the right to take possession of the software at any time, nor do the arrangements contain rights of return. Subscription fees are deferred upon contract execution and are recognized ratably over the term of the subscription.

Professional Services Fees – Our 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 proportional performance method and if it is determined that costs will exceed revenue, the expected loss is recorded at the time the loss becomes apparent.

Application Services Fees – Our application services fees consist of revenue related to our Covisint on-demand software including associated services. The arrangements do not provide customers the right to take possession of the software at any time, nor do the arrangements contain rights of return. Many of our application services fee contracts include a services project fee and a recurring fee for ongoing platform-as-a-service (“PaaS”) operations. Certain services related to these projects have stand-alone value (e.g., other vendors provide similar services) and qualify as a separate unit of accounting. Services that have stand-alone value are recognized as delivered. For those services that do not have stand-alone value, the revenue is deferred and recognized over the longer of the committed term of the subscription agreement (generally one to five years) or the expected period over which the customer will receive benefit (generally five years). The recurring fees are recognized ratably over the applicable service period.

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

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

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

The performance test involves a two-step process. Step 1 of the impairment test involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. We measure the fair value of reporting units and other intangible assets using an estimate of the related discounted cash flow and market comparable valuations, where appropriate. The discounted cash flow model uses significant assumptions, including projected future cash flows, the discount rate reflecting the risk inherent in future cash flows, and a terminal growth rate. The key assumptions in the market comparable value analysis are peer group selection and application of this peer group to the respective reporting unit. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, we perform Step 2 of the goodwill impairment test to determine the amount of impairment loss by comparing the implied fair value of the respective reporting unit’s goodwill with the carrying amount of that goodwill. Under such evaluation, if the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of the goodwill, the impairment loss is recognized as an operating expense in an amount equal to that excess. There is a high degree of judgment regarding management’s forecast for the reporting units as market developments for both customers and competitors can affect actual results. There can also be uncertainty regarding management’s selection of peer companies as an exact match of peer companies is unlikely to exist.

Application of the goodwill and other intangibles impairment test requires judgment, including the assignment of assets and liabilities to reporting units and determination of the fair value of each reporting unit. The fair value of each reporting unit is estimated using a discounted cash flow model in combination with a market approach. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, estimation of market interest rates, determination of our weighted average cost of capital and selection and application of peer groups.

The estimates used to calculate the fair value of a reporting unit change from year to year based on operating results, market conditions and estimated future cash flows. While we believe that the assumptions and estimates used to determine the estimated fair values of each of our reporting units are reasonable, a change in assumptions underlying these estimates could materially affect the determination of fair value and goodwill impairment for each reporting unit.

At March 31, 2013, our professional services reporting unit failed Step 1 of our goodwill impairment analysis. After performing Step 2 of the goodwill impairment test, we determined that it was necessary to record a $71.8 million impairment to the goodwill associated with our professional services division, reducing the goodwill balance to the calculated implied fair value.

The fair value of the professional services reporting unit was estimated at the balance sheet date primarily using a discounted cash flow model. Assumptions used in the model that have the most significant effect are our estimated growth rates for revenue and margins and estimated weighted average cost of capital. The decrease in fair value of the professional services reporting unit was driven by a decline in our anticipated future results for the reporting unit which led to a lower fair value.

We will continue to monitor the risk of additional goodwill impairment for the professional services reporting unit, which has a goodwill balance of $42.8 million at March 31, 2013. We believe we can maintain or grow our professional services revenue and margin. However, if our professional services revenues or margin continue to decline, we could be required to further reduce the value of goodwill associated with the professional services reporting unit.

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The events and circumstances that could affect our key assumptions for the professional services reporting unit and the analysis of fair value in the future include the following:

Our ability to achieve sales productivity at a level to achieve the profitability in the forecast period.

Failure of our billable staff to meet their utilization or rate targets.

Our ability to hire and retain sales, technology and management personnel.

Future negative changes in the U.S. economy.

Increased competition and pricing pressures within the professional services market.

The fair value of each of our other reporting units was substantially in excess of each unit’s respective carrying value as of March 31, 2013.

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

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

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

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

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

Stock-Based Compensation - We measure compensation expense for stock awards in accordance with ASC 718-10 “Share-Based Payment.” Stock award compensation costs, net of an estimated forfeiture rate, are recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three to five years. For stock awards which vest more quickly than a straight-line basis, additional expense is taken in the early year(s) to ensure the expense is commensurate with the vest schedule. During fiscal 2013, the weighted-average forfeiture rate for options and awards granted was 9.0%.

The fair value of stock options was estimated at the grant date using a Black-Scholes option pricing model with the following average assumptions for fiscal 2013: risk-free interest rate – 0.96%, volatility factor – 40.97% and expected option life – 6.3 years. Although we have never issued a dividend in the past, in January 2013, our Board of Directors announced its intention to begin paying cash dividends totaling $0.50 per share annually, to be paid quarterly beginning in the first quarter of fiscal 2014. For options granted after that date, we included a dividend yield assumption in our fair value calculation to consider the payment of a dividend in the future. The weighted average grant date fair value of option shares granted in fiscal 2013 was $4.08 per option share. For more information related to these assumptions, see notes 1 and 17 to the consolidated financial statements included in this report.

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In addition to the assumptions above, we estimate the expected pre-vesting award forfeiture rate and asses the probability that performance conditions that affect the vesting of certain awards will be achieved and take expense only for the awards expected to vest. If future events impact either the assumptions included in the Black-Scholes option pricing model or our pre-vesting forfeiture rate, future stock-based compensation expense could be materially different from the expense we have recorded in the current period.

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

Liquidity and Capital Resources

As of March 31, 2013, 2012 and 2011, cash and cash equivalents and investments totaled approximately $89.9 million, $99.2 million and $180.2 million, respectively.

Fiscal 2013 compared to Fiscal 2012

Net cash provided by operating activities

Net cash provided by operating activities during 2013 was $132.4 million, a decrease of $47.2 million from 2012. The decrease was primarily due to an $80.9 million decline in cash collected from customers consistent with the decline in revenue as compared to the prior year and was partially offset by a decline in cash paid for income taxes of $20.9 million, a decline in cash paid to employees of $9.3 million resulting from headcount reduction and a decline in cash paid to suppliers of $5.2 million primarily related to fewer subcontractors.

The consolidated statements of cash flows included in this report compute net cash from operating activities using the indirect cash flow method. Therefore, non-cash adjustments and net changes in assets and liabilities (net of effects from acquisitions and currency fluctuations) are adjusted from net income to derive net cash from operating activities.

The most significant change in our reconciliation of net income to derive net cash from operating activities during 2013 as compared to 2012 was a $105.6 million decline in net income, which was partially offset by a noncash goodwill impairment charge of $71.8 million.

Additionally, the impact of the net decrease in accounts receivable as compared to the prior year was $31.3 million and primarily related to the reduction in revenue from large software license deals and the timing of billings from multi-year product arrangements for 2013 as compared to 2012. The impact of the net decrease in deferred revenue was $47.3 million and primarily related to the decline in deferred multi-year mainframe maintenance as well as a decline in mainframe maintenance renewals during 2013 as compared to 2012. The impact of the net decrease in accounts payable and accrued expenses as compared to the prior year was $24.2 million and primarily related to the reduction in the bonus accrual due to lower revenue and earnings attainment for 2013 as compared to 2012.

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We believe our existing cash resources, including our line of credit and cash flow from operations, will be sufficient to meet our short-term and long-term liquidity requirements, including the additional liquidity needed to fund the anticipated quarterly dividends.

Net cash used in investing activities

Net cash used in investing activities during 2013 was $55.3 million, which represents a decrease in cash used of $241.7 million from 2012. The decrease is due primarily to $249.3 million in cash that was used to acquire dynaTrace during the second quarter of 2012 partially offset by increases in purchases of property and equipment and capitalized software of $9.4 million.

We will continue to evaluate business acquisition opportunities that fit our strategic plans. If the cash consideration for a future acquisition or combination of acquisitions were to exceed our operating cash balance resources, we would likely utilize our credit facility again and may need to seek additional financing.

Net cash used in financing activities

Net cash used in financing activities during 2013 was $83.2 million, which represents a decrease of $121.7 million from the $38.4 million of cash provided by financing activities in 2012.

The change was primarily due to a $61.2 million increase in purchases of common stock, a $37.4 million reduction in proceeds from borrowings and a $34.6 million increase in payments on borrowings partially offset by a $12.3 million increase in net proceeds from exercise of stock awards during 2013. The proceeds from borrowings during 2012 were used to fund the dynaTrace acquisition. The proceeds from borrowings during 2013 were used to fund our repurchases of common stock.

Since May 2003, the Board of Directors has authorized the Company to repurchase a total of $1.7 billion of our common stock under a discretionary stock repurchase plan (“Discretionary Plan”). Purchases of common stock under the Discretionary Plan may occur on the open market, or through negotiated or block transactions based upon market and business conditions, subject to applicable legal limitations.

During 2013, the Board of Directors authorized Rule 10b5-1 repurchase programs through which we repurchased shares pursuant to a predetermined formula during our quarterly trading black-out periods. During the year, we repurchased approximately 8.6 million shares of our common stock at an average price of $9.37 per share for a total cost of $80.7 million under the 10b5-1 programs and at our discretion. All of these repurchases utilized funds under the previous Discretionary Plan authorization described above. The most recent Rule 10b5-1 program expired in May 2013. Share repurchases are funded primarily through our operating cash flow and, if needed, funds from our credit facility. As of March 31, 2013, approximately $143.0 million remains authorized for future purchases.

The Company has an unsecured revolving credit agreement (the “credit facility”) with Comerica Bank and other lenders to provide leverage for the Company if needed. Refer to note 9 of the consolidated financial statements included in this report for additional information related to the credit facility. The balance as of March 31, 2013 was repaid in May 2013.

Fiscal 2012 compared to Fiscal 2011

Net cash provided by operating activities

Net cash provided by operating activities during 2012 was $179.6 million, an increase of $19.6 million from 2011. The increase was primarily due to $66.9 million in additional cash collections from customers resulting from the $80.8 million increase in revenue from 2011. The increase in cash received was partially offset by an increase in cash paid to employees of $49.2 million resulting from increased headcount to support the additional revenue and investments in our growth areas.

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The consolidated statements of cash flows included in this report compute net cash from operating activities using the indirect cash flow method. Therefore, non-cash adjustments and net changes in assets and liabilities (net of effects from acquisitions, the divestiture and currency fluctuations) are adjusted from net income to derive net cash from operating activities.

The most significant changes in our reconciliation of net income to derive net cash from operating activities during 2012 were as follows: (1) net income declined $19.1 million; (2) the impact of the net change in accounts payable and accrued expenses was $28.0 million; and (3) the depreciation and amortization adjustment to net income increased $10.2 million. The decline in net income is due to a larger increase in operating expenses than the increase in revenues for 2012 as compared to 2011, primarily related to additional investments in our APM and Covisint business segments (see Results of Operations discussion above for the changes in revenue and operating expense by business segment). The increase from the net change in accounts payable and accrued expenses was due predominantly to bonus payments made during 2011 in excess of the payments made during 2012. The increase in depreciation and amortization was primarily due to the $6.6 million in amortization expense recognized during 2012 on the intangible assets obtained from the dynaTrace acquisition (refer to note 2 to the consolidated financial statements included in this report for additional information). Additionally, depreciation on our property, plant and equipment increased $2.2 million and amortization on our capitalized research and development projects increased $2.1 million during 2012.

Net cash used in investing activities

Net cash used in investing activities during 2012 was $296.9 million, which represents an increase of $244.2 million from 2011, and is due primarily to the acquisition of dynaTrace (see note 2 of the consolidated financial statements included in this report). This transaction resulted in a $249.3 million use of cash during the second quarter of 2012. The increase was partially offset by the acquisition of DocSite during the second quarter of 2011 for $15.7 million in cash and the acquisition of BEZ Systems, Inc. during the third quarter of 2011 for $2.5 million in cash. The remaining change was due to the purchase of $4.2 million of capitalized software during the second quarter of 2012 and $7.7 million in additional research and development costs capitalized during 2012 related primarily to our APM and application services segments. Capital expenditures were funded with cash flows from operations.

Net cash provided by financing activities

Net cash provided by financing activities during 2012 was $38.4 million, which represents an increase of $120.1 million from 2011.

The increase was primarily due to the following: (1) during the second and third quarters of 2012, we borrowed a total of $180.2 million under our revolving credit facility primarily related to financing for the dynaTrace acquisition, of which $135.2 million has been repaid; (2) we repurchased $20.6 million in stock during 2012, as compared to $164.5 million during 2011; and (3) there was a $69.2 million reduction in cash received from employees exercising stock options during 2012 as compared to 2011.

Recently Issued Accounting Pronouncements

See note 1 of the consolidated financial statements included in this report for recently issued accounting pronouncements that could affect the Company.

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Contractual Obligations

The following table summarizes our payments under contractual obligations as of March 31, 2013 (in thousands):

	Payment Due by Period as of March 31,
													2019 and
	Total		2014		2015		2016		2017		2018		Thereafter
Contractual obligations:
Operating leases	$	239,468	$	17,881	$	12,774	$	9,146	$	5,948	$	4,377	$	189,342
Long-term debt		18,000								18,000
Other		9,726		6,207		3,269		250
Total	$	267,194	$	24,088	$	16,043	$	9,396	$	23,948	$	4,377	$	189,342

”Other” includes commitments under various advertising and charitable contribution agreements totaling approximately $9.5 million and $200,000, respectively, at March 31, 2013. For additional information related to the outstanding debt under the credit agreement, see note 9 of the consolidated financial statements included in this report. There are no long term capital lease obligations or purchase obligations.

We anticipate tax settlements of $17.8 million with certain taxing authorities, none of which is expected to be settled in the upcoming twelve months (as discussed in note 13 of the consolidated financial statements included in this report). We are not able to reasonably estimate in which future periods the $17.8 million will ultimately be settled. These settlements are not included in the Contractual Obligations table above.

Off-Balance Sheet Arrangements

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

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

Interest Rate Risk

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

Our investment portfolio consists of cash investments that have a cost basis and fair value totaling $89.9 million as of March 31, 2013. The average interest rate and average tax equivalent interest rate were 0.37% as of March 31, 2013. None of our current investments mature beyond three months.

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We offer financing arrangements with installment payment terms in connection with our multi-year software sales. Installment accounts are generally receivable over a two to five year period. As of March 31, 2013, non-current accounts receivable amounted to $174.9 million, of which approximately $112.6 million, $44.4 million, $15.9 million, $1.5 million and $471,000 are due in fiscal 2015 through fiscal 2019, respectively. The fair value of non-current accounts receivable is estimated by discounting the future cash flows using the current rate at which the Company would finance a similar transaction. At March 31, 2013, the fair value of such receivables is approximately $175.6 million. Each 100 basis point increase in interest rates would have an associated $547,000 negative impact on the fair value of non-current accounts receivable based on the balance of such receivables at March 31, 2013. Each 100 basis point decrease in interest rates would have an associated $558,000 positive impact on the fair value of non-current accounts receivable based on the balance of such receivables at March 31, 2013. At March 31, 2012, the fair value of such receivables was approximately $206.4 million. Each 100 basis point increase in interest rates would have had an associated $485,000 negative impact on the fair value of non-current accounts receivable based on the balance of such receivables at March 31, 2012. Each 100 basis point decrease in interest rates would have an associated $495,000 positive impact on the fair value of non-current accounts receivable based on the balance of such receivables at March 31, 2012. A change in interest rates will have no impact on cash flows or net income associated with non-current accounts receivable.

Foreign Currency Risk

We are exposed to foreign exchange rate risks related to assets and liabilities that are denominated in non-local currency and current inter-company balances due to and from our foreign subsidiaries. We enter into foreign exchange forward contracts to sell or buy currencies with the intent of mitigating foreign exchange rate risks related to these balances. We do not currently hedge currency risk related to anticipated revenue or expenses denominated in foreign currency. All foreign exchange derivatives are recognized on the consolidated balance sheets at fair value (see note 3 of the consolidated financial statements included in this report). Gains and losses on foreign exchange forward contracts are recognized in income, offsetting foreign exchange gains or losses on the foreign balances being hedged.

At March 31, 2013, we performed a sensitivity analysis to assess the potential loss that a 10% positive or negative change in foreign currency exchange rates would have on our income from operations. Based upon the analysis performed, we believe such a change would not materially affect our consolidated financial position, results of operations or cash flows.

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The table below provides information about our foreign exchange forward contracts at March 31, 2013. The table presents the value of the contracts in U.S. dollars at the contract maturity date and the fair value of the contracts at March 31, 2013 (dollars in thousands):

					Forward		Fair
	Contract	Maturity	Contract		Position in		Value at
	date	date	Rate		U.S. Dollars		March 31, 2013
Forward Sales
Mexico Peso	March 28, 2013	April 30, 2013		12.3885	$	1,802	$	1,814
					$	1,802	$	1,814

Forward Purchases
Canadian Dollar	March 28, 2013	April 30, 2013		1.0172	$	1,131	$	1,130
Euro Dollar	March 28, 2013	April 30, 2013		0.7820		6,398		6,435
Hong Kong Dollar	March 28, 2013	April 30, 2013		7.7616		1,327		1,327
Poland Zloty	March 28, 2013	April 30, 2013		3.2550		2,063		2,055
Pound Sterling	March 28, 2013	April 30, 2013		0.6616		3,304		3,344
Singapore Dollar	March 28, 2013	April 30, 2013		1.2351		1,218		1,209
					$	15,441	$	15,500

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Compuware Corporation

Detroit, Michigan

We have audited the accompanying consolidated balance sheets of Compuware Corporation and subsidiaries (the “Company”) as of March 31, 2013 and 2012, and the related consolidated statements of comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2013. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Compuware Corporation and subsidiaries as of March 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2013, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of March 31, 2013, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 29, 2013, expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan

May 29, 2013

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COMPUWARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

AS OF MARCH 31, 2013 AND 2012

(In Thousands, Except Share Data)

ASSETS	Notes	2013			2012

CURRENT ASSETS:
Cash and cash equivalents		$	89,873		$	99,180
Accounts receivable, net			424,587			455,427
Deferred tax asset, net	13		37,618			37,665
Income taxes refundable			4,951			14,807
Prepaid expenses and other current assets			36,210			34,279
Total current assets			593,239			641,358

PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND AMORTIZATION	2,5		302,492			321,991

CAPITALIZED SOFTWARE AND OTHER INTANGIBLE ASSETS, NET	2,7		116,663			118,973

OTHER:
Accounts receivable			174,891			205,869
Goodwill	2,7		722,042			801,889
Deferred tax asset, net	13		31,754			40,672
Other assets	6		32,201			36,786
Total other assets			960,888			1,085,216

TOTAL ASSETS		$	1,973,282		$	2,167,538

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable		$	18,717		$	16,169
Accrued expenses			74,343			69,844
Accrued bonuses and commissions			29,651			49,990
Income taxes payable			14,507			3,919
Deferred revenue			417,862			447,050
Total current liabilities			555,080			586,972

LONG TERM DEBT	9		18,000			45,000

DEFERRED REVENUE			310,453			373,359

ACCRUED EXPENSES			27,873			30,109

DEFERRED TAX LIABILITY, NET	13		63,650			82,161
Total liabilities			975,056			1,117,601

COMMITMENTS AND CONTINGENCIES	16

SHAREHOLDERS' EQUITY:
Preferred stock, no par value - authorized 5,000,000 shares, none issued and outstanding in 2013 and 2012	10
Common stock, $.01 par value - authorized 1,600,000,000 shares; issued and outstanding 213,218,048 and 217,506,319 shares in 2013 and 2012, respectively	10,17		2,132			2,175
Additional paid-in capital			713,580			685,904
Retained earnings			301,298			372,408
Accumulated other comprehensive loss			(18,784	)		(10,550	)
Total shareholders' equity			998,226			1,049,937

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY		$	1,973,282		$	2,167,538

See notes to consolidated financial statements.

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COMPUWARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

YEARS ENDED MARCH 31, 2013, 2012 and 2011

(In Thousands, Except Per Share Data)

	Notes	2013			2012			2011
REVENUES:
Software license fees		$	178,922		$	220,885		$	194,745
Maintenance fees			407,480			427,534			419,240
Subscription fees			82,442			78,438			67,718
Professional services fees			185,011			209,184			192,202
Application services fees			90,694			73,731			55,025

Total revenues			944,549			1,009,772			928,930

OPERATING EXPENSES:
Cost of software license fees			20,165			17,572			14,216
Cost of maintenance fees			35,084			38,670			32,975
Cost of subscription fees			31,127			29,669			24,974
Cost of professional services			163,713			182,625			165,939
Cost of application services			83,298			72,384			51,011
Technology development and support			105,800			104,968			90,330
Sales and marketing			251,925			273,520			243,771
Administrative and general			162,810			163,723			155,400
Goodwill impairment	7		71,840
Restructuring costs	8		16,573

Total operating expenses			942,335			883,131			778,616

INCOME FROM OPERATIONS			2,214			126,641			150,314

OTHER INCOME (EXPENSE)
Interest expense			(1,856	)		(3,161	)		(1,402	)
Interest income			2,010			3,684			4,456
Other, net	6		(1,324	)		1,110			1,408

Other income (expense), net			(1,170	)		1,633			4,462

INCOME BEFORE INCOME TAX PROVISION			1,044			128,274			154,776

INCOME TAX PROVISION	13		18,295			39,903			47,335

NET INCOME (LOSS)		$	(17,251	)	$	88,371		$	107,441

Basic earnings (loss) per share	12	$	(0.08	)	$	0.40		$	0.49

Diluted earnings (loss) per share	12	$	(0.08	)	$	0.40		$	0.48

OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX
Foreign currency translation adjustments		$	(10,473	)	$	(19,231	)	$	1,815

TAX ATTRIBUTES OF ITEMS IN OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments			(2,239	)		(9,422	)		2,194

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX			(8,234	)		(9,809	)		(379	)

COMPREHENSIVE INCOME (LOSS)		$	(25,485	)	$	78,562		$	107,062

See notes to consolidated financial statements.

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COMPUWARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

YEARS ENDED MARCH 31, 2013, 2012 and 2011

(In Thousands, Except Share Data)

													Accumulated
							Additional						Other			Total
	Common Stock						Paid-In			Retained			Comprehensive			Shareholders’
	Shares			Amount			Capital			Earnings			Loss			Equity
BALANCE AT APRIL 1, 2010		224,982,171		$	2,250		$	606,484		$	305,441		$	(362	)	$	913,813
Net income											107,441						107,441
Foreign currency translation, net of tax														(379	)		(379	)
Issuance of common stock and related tax benefit		291,800			3			2,504									2,507
Repurchase of common stock		(17,243,502	)		(173	)		(48,527	)		(115,815	)					(164,515	)
Exercise/release of employee stock awards and related tax benefit (Note 17)		9,690,070			97			74,880									74,977
Stock awards compensation								18,768									18,768
BALANCE AT MARCH 31, 2011		217,720,539			2,177			654,109			297,067			(741	)		952,612
Net income											88,371						88,371
Foreign currency translation, net of tax														(9,809	)		(9,809	)
Issuance of common stock		351,496			4			2,807									2,811
Repurchase of common stock		(2,407,655	)		(24	)		(7,500	)		(13,030	)					(20,554	)
Exercise/release of employee stock awards and related tax benefit (Note 17)		1,841,939			18			11,764									11,782
Stock awards compensation								24,724									24,724
BALANCE AT MARCH 31, 2012		217,506,319			2,175			685,904			372,408			(10,550	)		1,049,937
Net income (loss)											(17,251	)					(17,251	)
Foreign currency translation, net of tax														(8,234	)		(8,234	)
Issuance of common stock		295,478			3			2,768									2,771
Repurchase of common stock		(8,760,412	)		(88	)		(28,169	)		(53,859	)					(82,116	)
Exercise/release of employee stock awards and related tax benefit (Note 17)		4,176,663			42			21,400									21,442
Stock awards compensation								31,677									31,677
BALANCE AT MARCH 31, 2013		213,218,048		$	2,132		$	713,580		$	301,298		$	(18,784	)	$	998,226

See notes to consolidated financial statements.

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COMPUWARE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED MARCH 31, 2013, 2012 and 2011

(In Thousands)

	2013			2012			2011
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income (loss)	$	(17,251	)	$	88,371		$	107,441
Adjustments to reconcile net income (loss) to cash provided by operations:
Depreciation and amortization		65,919			60,551			50,332
Goodwill impairment		71,840
Stock award compensation		31,677			24,724			18,768
Deferred income taxes		(8,724	)		25,531			22,874
Other		3,520			323			610
Net change in assets and liabilities, net of effects from acquisitions and currency fluctuations:
Accounts receivable		50,131			18,852			16,119
Prepaid expenses and other assets		8,359			(3,831	)		7,936
Accounts payable and accrued expenses		(12,611	)		11,566			(16,409	)
Deferred revenue		(78,869	)		(31,619	)		(36,569	)
Income taxes		18,421			(14,827	)		(11,066	)
Net cash provided by operating activities		132,412			179,641			160,036

CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of:
Businesses, net of cash acquired					(249,337	)		(18,165	)
Property and equipment		(24,274	)		(19,266	)		(19,073	)
Capitalized software		(31,797	)		(27,436	)		(15,531	)
Other		812			(900	)
Net cash used in investing activities		(55,259	)		(296,939	)		(52,769	)

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from borrowings on credit facility		142,800			180,200
Payments on credit facility		(169,800	)		(135,200	)
Net proceeds from exercise of stock awards including excess tax benefits		23,419			11,151			80,366
Employee contribution to common stock purchase plans		2,804			2,824			2,504
Repurchase of common stock		(81,741	)		(20,554	)		(164,515	)
Other		(714	)
Net cash provided by (used in) financing activities		(83,232	)		38,421			(81,645	)

EFFECT OF EXCHANGE RATE CHANGES ON CASH		(3,228	)		(2,187	)		4,725

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(9,307	)		(81,064	)		30,347

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		99,180			180,244			149,897

CASH AND CASH EQUIVALENTS AT END OF YEAR	$	89,873		$	99,180		$	180,244

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING ACTIVITIES:
Cashless exercise of stock options	$	1,177		$	4,802		$	31,130

See notes to consolidated financial statements.

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COMPUWARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 2013, 2012 and 2011

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Business

Compuware Corporation (the “Company”, “Compuware”, “we”, “our” and “us”) delivers services, software and best practices that enable organizations’ most important technologies to perform at their peak. The Company’s software solutions consist of four major families: Application Performance Management (APM), Mainframe, Changepoint and Uniface; all of which are primarily intended for use by IT organizations and IT service providers. Along with these solutions, some of which are delivered through software-as-a-service (“SaaS”) models, the Company offers implementation, consulting and training services. In addition, the Company offers a broad range of 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, Internet and mobile platforms and provide the following capabilities:

APM includes both software licensed for use on the customer’s premises and hosted software delivered through a SaaS model. The SaaS solutions are designed to test and monitor the performance, availability and quality of companies’ web and mobile applications. Services are delivered to customers entirely through on-demand, hosted technology in which a single instance of the software serves multiple customers. The on-premises licensed solutions provide detailed application insight that identifies and helps correct the causes of poor application performance within client workstations, network, server, Java and .NET environments and enable continuous tracking of transactions and provide exact identification of performance problems.

Mainframe solutions are designed to improve the productivity of development, maintenance and support teams in application analysis, testing, defect detection and remediation, fault management, file and data management, data compliance and application performance management specifically within IBM mainframe environments.

Changepoint is a business portfolio management and professional services automation solution that addresses the needs of executives within technology companies, enterprise IT and professional services organizations, allowing for management of the entire customer lifecycle, as well as for improved process efficiency, planning and visibility across program, project and product portfolios.

Uniface is a rapid application development environment for building, renewing and integrating the largest and most complex enterprise applications. Uniface enables enterprises to meet increasing demand for developing complex, secure and global Web 2.0 applications, deployable on any platform including the cloud.

Professional services include a broad range of IT services for mainframe, distributed and mobile environments, including mobile computing application development and integration, package software customization, cloud computing consulting, and development and integration of legacy systems.

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The Company’s Covisint application services (“Covisint”) use business-to-business applications to integrate vital business information and processes between partners, customers and suppliers. Application services are delivered through a platform-as-a-service (“PaaS”) model referred to as the application services network, which delivers services to customers entirely through on-demand, hosted technology in which a single instance of the platform serves multiple customers.

Basis of Presentation

The consolidated financial statements include the accounts of Compuware and its wholly owned subsidiaries after elimination of all intercompany balances and transactions. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, shareholders’ equity and the disclosure of contingencies at March 31, 2013 and 2012 and the results of operations for the years ended March 31, 2013, 2012 and 2011. While management has based their assumptions and estimates on the facts and circumstances existing at March 31, 2013, final amounts may differ from estimates.

Revenue Recognition

The Company derives its revenue from licensing software products; providing maintenance and support services for those products; providing hosted software; and rendering professional and application services. Our software solutions are comprised of license fees, maintenance fees, subscription fees for hosted software and software related professional services fees.

Once we have allocated the arrangement consideration between the Deliverable Groups, we recognize revenue as described in the respective software license fees, maintenance fees, subscription fees, professional services fees and application services fees sections below.

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Software license fees

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

For revenue arrangements where there is a lack of VSOE for any undelivered elements, license fee revenue is deferred and recognized upon delivery of those elements or when VSOE can be established. However, when maintenance or software related professional 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 the software related professional services are expected to be performed. Such transactions include time-based licenses and certain unlimited capacity licenses, as the Company has not established VSOE 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 software related professional services fee (which is included in professional services fees) associated with these types of arrangements based on its determination of fair value. The Company applies VSOE for maintenance related to perpetual license transactions and standalone software related professional services arrangements as a reasonable and consistent approximation of fair value to separate license fee, maintenance fee and software related 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 with installments collectable over the term of the contract. Based on the Company’s successful collection history for deferred payments, license fees (net of any financing 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 related receivable.

Maintenance fees

The Company’s maintenance arrangements allow customers to receive 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 generally included with all license agreements. Maintenance fees are recognized ratably over the term of the maintenance arrangements, which generally range from one to five years.

Subscription fees

Subscription fees relate to arrangements that permit our customers to access and utilize our hosted software delivered on a SaaS basis. Subscription fees are deferred upon contract execution and are recognized ratably over the term of the subscription.

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Professional services fees

The Company provides a broad range of IT services for mainframe, distributed, web and mobile environments, including mobile computing application development and integration, package software customization, cloud computing consulting, development and integration of legacy systems, IT portfolio management services, enterprise legacy modernization services and application performance management. The Company also offers implementation, consulting and training services in tandem with the Company’s software solutions offerings, which are referred to as software related professional 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 proportional performance method and if it is determined that costs will exceed revenue, the expected loss is recorded at the time the loss becomes apparent.

Application services fees

Our application services fees consist of fees related to our Covisint on-demand software including associated services. The arrangements do not provide customers the right to take possession of the software at any time, nor do the arrangements contain rights of return. Many of our application services contracts include a services project fee and a recurring fee for ongoing PaaS operations. Certain services related to these projects have stand-alone value (e.g., other vendors provide similar services) and qualify as a separate unit of accounting. Services that have stand-alone value are recognized as delivered. For those services that do not have stand-alone value, the revenue is deferred and recognized over the longer of the committed term of the subscription agreement (generally one to five years) or the expected period over which the customer will receive benefit (generally five years). The recurring fees are recognized ratably over the applicable service period.

Deferred revenue

Deferred revenue consists primarily of billed and unbilled maintenance and subscription fees related to the future service period of maintenance and subscription agreements in effect at the reporting date. Deferred license, software related services and application services fees are also included in deferred revenue for those arrangements that are being recognized over time. Sales commission costs that directly relate to revenue transactions that are deferred are recorded as “prepaid expenses and other current assets” or non-current “other assets”, as applicable, in the consolidated balance sheets and recognized as "cost of application services" or “sales and marketing” expenses, as applicable, in the consolidated statements of comprehensive income (loss) over the revenue recognition period of the related customer contracts. Long term deferred revenue at March 31, 2013 amounted to $310.5 million, of which approximately $172.6 million, $86.9 million, $37.4 million, $11.1 million and $2.5 million are expected to be recognized during fiscal 2015 through fiscal 2019, respectively.

Collection and remittance of taxes

The Company records the collection of taxes from customers and the remittance of these taxes to governmental authorities on a net basis in its consolidated statements of comprehensive income (loss).

Cash and Cash Equivalents

The Company considers all investments with an original maturity of three months or less to be cash equivalents.

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Concentration of Credit Risk

The Company’s financial instruments that are potentially subject to concentrations of credit risk consist primarily of cash and trade receivables. The Company has cash investment policies which, among other things, limit investments to investment-grade securities. The Company performs ongoing credit evaluations of its customers, and the risk with respect to trade receivables is further mitigated by the diversity, both by geography and by industry, of the customer base.

The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of customers to make required payments. We use an internal risk rating system to determine a customer's credit risk. This process considers the payment status of the receivable, collection and loss experience associated with other outstanding and previously paid account receivable balances, discussions with the customer, the risk environment of our geographic operations and review of public financial information if available. A receivable is designated a pass rating if no issues are identified during the process, otherwise a watch rating is designated. The allowance is reviewed and adjusted based on the Company’s best estimates.

Changes in the allowance for doubtful accounts balance for the years ended March 31, 2013, 2012 and 2011 were as follows (in thousands):


Balance at April 1, 2010	$	5,998

Increase in allowance primarily from acquisition		717

Accounts charged against the allowance (1)		(937	)

Balance at March 31, 2011		5,778

Decrease in allowance recorded to income		(715	)

Accounts charged against the allowance (1)		(774	)

Balance at March 31, 2012		4,289

Increase in allowance recorded to expense		1,065

Accounts charged against the allowance (1)		(259	)

Balance at March 31, 2013	$	5,095

(1)

Write-offs related primarily to accounts deemed uncollectible and maintenance and subscription cancellations.

Property and Equipment

The Company states property and equipment at the lower of cost or fair value for impaired assets. Depreciation is recorded using the straight-line method over the estimated useful lives of the related assets, which are generally estimated to be forty years for buildings and three to ten years for furniture and fixtures, computer equipment and software. Leasehold improvements are amortized over the term of the lease, or the estimated life of the improvement, whichever period is less.

Capitalized Software

The Company’s capitalized software includes the costs of internally developed software technology and software technology purchased through acquisitions and is stated at the lower of unamortized cost or net realizable value.

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Our internally developed software technology consists of development costs associated with software products to be sold (“software products”) and internal use software associated with our hosted software and application services.

We begin capitalizing development costs associated with our software products when technological feasibility of the product is established. For our internal use software, capitalization begins during the application development stage.

The amortization of capitalized software technology is computed on a project-by-project 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 the software technology or (b) the straight-line method over the remaining estimated economic life of the software technology, including the period being reported on. Amortization begins when the software technology is available for general release to customers. The amortization period for capitalized software is generally three to five years. Amortization of capitalized software technology is recorded as follows in the consolidated statement of comprehensive income (loss): (1) amortization of software products licensed to customers for on-premises use is recorded as “cost of license fees”; (2) amortization of hosted software that is not licensed to customers for on-premises use is recorded as “cost of subscription fees”; and (3) amortization of application services software is recorded as “cost of application services”.

Capitalized software is reviewed for impairment each balance sheet date or when events and circumstances indicate an impairment. 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.

Research and Development

Research and development (“R&D”) costs include primarily the cost of programming personnel and amounted to $102.7 million, $87.2 million and $69.2 million during fiscal 2013, 2012 and 2011, respectively, of which $31.8 million, $23.2 million and $15.5 million, respectively, was capitalized for internally developed software technology. R&D costs related to our software solutions are reported as “technology development and support” and for our application services network, the costs are reported as “cost of application services” in the consolidated statements of comprehensive income (loss).

Goodwill and Other Intangible Assets

Goodwill and intangible assets with indefinite lives are tested for impairment annually at March 31 or more frequently if management believes indicators of impairment exist. With respect to goodwill, carrying values are compared with fair values, and when the carrying value exceeds the fair value, the carrying value of the impaired goodwill is reduced to fair value. The impairment test involves a two-step process with Step 1 comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, the Company performs Step 2 of the goodwill impairment test to determine the amount of impairment loss by comparing the implied fair value of the respective reporting unit’s goodwill with the carrying amount of that goodwill.

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 and net operating loss and credit carryforwards 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 does not permanently reinvest any earnings in its foreign subsidiaries and recognizes all deferred tax liabilities that arise from outside basis differences in its investment in subsidiaries.

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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.

Foreign Currency Translation

The Company's foreign subsidiaries use their respective local currency as their functional currency. Accordingly, assets and liabilities in the consolidated balance sheets have been translated at the rate of exchange at the respective balance sheet dates, and revenues and expenses have been translated at average exchange rates prevailing during the period the transactions occurred. Translation adjustments have been excluded from the results of operations and are reported as accumulated other comprehensive income (loss) within our consolidated statements of shareholders’ equity.

Stock-Based Compensation

Stock award compensation expense is recognized, net of an estimated forfeiture rate, on a straight-line basis over the requisite service period of the award, which is the vesting term. For stock awards which vest more quickly than a straight-line basis, additional expense is taken in the early year(s) to ensure the expense is commensurate with the vest schedule.

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. Historically, the Company has used the simplified method to determine the expected life of stock options granted as described in SAB Topic 14, “Share-Based Payment” and during fiscal 2013 , it was determined that the exercise history of Compuware’s stock option participants is comparable to the expected life estimated using the simplified method. Dividend yields have not been a factor in past years for determining fair value of stock options granted as the Company has never issued cash dividends. However, in January 2013, our Board of Directors announced its intention to begin paying cash dividends totaling $0.50 per share annually, to be paid quarterly beginning in the first quarter of fiscal 2014. For options granted after that date, an average dividend yield assumption of 4.14% was included in the fair value calculation to consider the future dividend payment.

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The following is the average fair value per share estimated on the date of grant and the average assumptions used for each option granted during fiscal 2013, 2012 and 2011:

	Year Ended March 31,
	2013 (1)			2012			2011
Expected volatility		40.97	%		39.96	%		42.08	%
Risk-free interest rate		0.96	%		1.65	%		2.43	%
Expected lives at date of grant (in years)		6.3			5.8			6.1
Weighted average fair value of the options granted	$	4.08		$	3.96		$	4.16

(1) Although a dividend assumption was included for options granted subsequent to January 2013, the average dividend assumption had a minimal impact on the weighted average fair value, as the majority of options were granted prior to the announcement of the intended dividend.

The Company measures the grant date fair value of restricted stock units using the Company’s closing common stock price on the trading date immediately preceding the grant date.

See note 17 for additional information regarding our stock-based compensation including the impact on net income during the reported periods.

Recently Issued Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”. This ASU requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. The amendments in this Update supersede and replace the presentation requirements for reclassifications out of accumulated other comprehensive income in ASUs 2011-05 (issued in June 2011) and 2011-12 (issued in December 2011) for all public and private organizations. For public entities, the amendments of this ASU are effective prospectively for reporting periods beginning after December 15, 2012. The requirements of this ASU were adopted during our quarter ended March 31, 2013 and did not have a significant impact on our disclosures.

In July 2012, the FASB issued ASU No. 2012-02, “Intangibles – Goodwill and Other (Topic 350).” The amendments in this ASU allow an entity to first assess qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that an indefinite-lived intangible asset is impaired. If an entity concludes that it is not more likely than not that the indefinite-lived intangible asset is impaired, then the entity is not required to take further action. However, if an entity concludes otherwise, then it is required to determine the fair value of the indefinite-lived intangible asset and perform the quantitative impairment test by comparing the fair value with the carrying amount in accordance with Subtopic 350-30. This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The requirements of this ASU were adopted during our quarter ended September 30, 2012 and did not have a significant impact on our disclosures.

In December 2011, the FASB issued ASU No. 2011-11, “Balance Sheet (Topic 210)”. The amendments in this ASU require improved disclosure information about financial instruments and derivative instruments that are either offset or subject to an enforceable master netting arrangement or similar agreement. Subsequently in January 2013, the FASB issued ASU 2013-01, “Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities”, which clarifies the types of instruments and transactions that are subject to the offsetting disclosure requirements established by ASU 2011-11. These ASUs should be applied retrospectively for all comparative periods presented for annual periods beginning on or after January 1, 2013 and interim periods within those annual periods. We plan to adopt these ASUs in fiscal 2014 and do not expect them to have a significant impact on our disclosures.

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In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350)”. The amendments in this ASU allow an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount before performing the first step of the two-step impairment test. If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the entity must perform additional impairment testing. Otherwise, performing the two-step impairment test is not necessary. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The requirements of this ASU were adopted during our quarter ended June 30, 2012 and did not have a significant impact on our disclosures.

2. ACQUISITIONS

Acquisitions are accounted for using the acquisition method in accordance with ASC No. 805, “Business Combinations” and, accordingly, the assets and liabilities acquired are recorded at fair value as of the acquisition date.

dynaTrace software, Inc.

On July 1, 2011, the Company acquired all of the outstanding capital stock of dynaTrace software, Inc. (“dynaTrace”), through a merger of dynaTrace with a wholly owned subsidiary of the Company, for $255.8 million in cash, plus approximately $300,000 of direct acquisition costs recorded to “administrative and general” expense. dynaTrace was a privately-held company whose technology enables continuous tracking of transactions and provides exact identification of performance problems, enhancing our APM software solutions. The assets and liabilities acquired have been recorded at their estimated fair values as of the purchase date. The purchase price exceeded the estimated fair value of the acquired assets and liabilities by $210.9 million, which was recorded to goodwill. The purchase price was funded with the Company’s existing cash resources and borrowings of $129.5 million under its credit facility described in note 9.

A summary of the identifiable intangible assets acquired, useful life and amortization method is as follows (in thousands):

	Purchase		Useful
	Price		Life		Amortization
	Allocation		(in Years)		Method

Developed technology	$	28,500		5	Straight Line
Trade names		9,800		3	Straight Line
Customer relationships		3,700		10	Straight Line

Total intangible assets acquired	$	42,000

The remaining acquired assets and liabilities were considered immaterial for additional disclosure.

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The operations of dynaTrace are part of our APM business unit. Therefore, financial activity and goodwill are included in the APM segment and reporting unit, respectively.

The acquisition was considered immaterial for disclosure of supplemental pro forma information of the acquiree since the acquisition date.

BEZ Systems, Inc.

On December 21, 2010, the Company acquired certain assets and liabilities of BEZ Systems, Inc. (“BEZ”) for $2.5 million in cash. The purchase price was funded with the Company’s existing cash resources. BEZ is a provider of predictive analytic solutions for IT departments that collect data continuously from the large number of systems the solutions monitor and then automatically aggregates the data to generate advice on how to allocate resources, tune applications and databases, and manage workloads to satisfy service level objectives for the most critical activities. BEZ solutions has been integrated into our APM business unit increasing our capabilities to provide predictive monitoring and business analytics to our customers. The assets and liabilities acquired have been recorded at their fair values as of the purchase date using the acquisition method. The purchase price exceeded the fair value of the acquired assets and liabilities by $1.9 million, which was recorded to goodwill within the APM segment. The fair value of intangible assets subject to amortization related to developed technology totaled $1.0 million with a useful life of five years.

The acquisition was considered immaterial for disclosure of supplemental pro forma information of the acquiree since the acquisition date.

DocSite, LLC

On 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 purchase price was funded with the Company’s existing cash resources. The assets and liabilities acquired have been recorded at their fair values as of the purchase date using the acquisition method. The purchase price exceeded the fair value of the acquired assets and liabilities by $13.9 million, which was recorded to goodwill within the application services segment.

A summary of the identifiable intangible assets acquired, useful life and amortization method is as follows (in thousands):

	Purchase		Useful
	Price		Life		Amortization
	Allocation		(in Years)		Method

Developed technology	$	1,900		5	Straight Line
Customer relationships		1,800		6	Straight Line
Trademarks		260		3	Straight Line

Total intangible assets acquired	$	3,960

The arrangement included a contingent consideration component that would increase the DocSite purchase price up to an additional $1.0 million if pre-determined revenue targets for a specific product line were achieved by March 31, 2011. The fair value of the contingent consideration arrangement at the time of acquisition was $750,000 and was determined by applying the income approach which included significant inputs that are not observable in the market referred to as level 3 inputs (see note 3 for additional information regarding level of inputs). The key assumptions used in the fair value measurement include the probability of attaining certain levels of revenue ranging from less than $3.5 million to greater than $4.5 million. The minimum revenue target required for payment was not achieved and the full amount of the liability was reversed in fiscal 2011 and reflected as a reduction to “cost of application services” within the consolidated statement of comprehensive income (loss).

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The acquisition was considered immaterial for disclosure of supplemental pro forma information of the acquiree since the acquisition date.

The combined pre-acquisition results of operations and the combined post-acquisition revenues and earnings of dynaTrace, BEZ and DocSite are considered immaterial for disclosure of supplemental pro forma information.

Goodwill

The significant factors that contributed to the Company recording goodwill associated with all three acquisitions include, but are not limited to, (1) the retention of research and development personnel with the skills to develop future enhancements to the three offerings; (2) support personnel to provide maintenance services related to the technology acquired; (3) trained sales personnel capable of selling current and future acquired solutions; and (4) in the case of the dynaTrace acquisition, the opportunity to sell our enterprise application management solutions to existing customers of dynaTrace.

The goodwill resulting from the BEZ and DocSite transactions is deductible for tax purposes, but is not deductible for the dynaTrace transaction.

3. FAIR VALUE OF ASSETS AND LIABILITIES

The carrying value of cash equivalents, current accounts receivable and accounts payable approximate their fair value due to the short-term maturities of these instruments.

At March 31, 2013, the fair value and carrying amount of non-current receivables were $175.6 million and $174.9 million, respectively, and as of March 31, 2012 were $206.4 million and $205.9 million, respectively. Fair value is estimated by discounting the future cash flows using the current rate at which the Company would finance a similar transaction. Rates are based on level 2 inputs as described below. As of March 31, 2013, non-current accounts receivable amounted to $174.9 million, of which approximately $112.6 million, $44.4 million, $15.9 million, $1.5 million and $471,000 are due in fiscal 2015 through fiscal 2019, respectively.

The Company reports money market funds and foreign exchange derivatives at fair value on a recurring basis using the following fair value hierarchy: (1) Level 1 - quoted prices in active markets for identical assets or liabilities; (2) 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 (3) 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.

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

As of March 31, 2013

Quoted Prices in

Significant

Active Markets for

Other Observable

Unobservable

Estimated

Identical Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash equivalents - money market funds

11,525

Foreign exchange derivatives

As of March 31, 2012

Quoted Prices in

Significant

Active Markets for

Other Observable

Unobservable

Estimated

Identical Assets

Inputs

Fair Value

(Level 1)

(Level 2)

(Level 3)

Assets:

Cash equivalents - money market funds

25,391

Liabilities:

Foreign exchange derivatives

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 7).

4. FINANCING RECEIVABLES

In accordance with ASU No. 2010-20 “Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses,” the Company allows deferred payment terms that exceed one year for customers purchasing licenses (perpetual or time-based) for our software products and the related maintenance services (“multi-year deferred payment arrangements”). A financing receivable exists when the license transfers to the customer or the related maintenance service has been provided (i.e., revenue recognition has occurred) prior to the due date of the related receivable. Our products financing receivables primarily consist of the perpetual license portion of outstanding multi-year deferred payment arrangements.

As of March 31, 2013, our loans receivable balance consisted of a note due from ForeSee Results, Inc. The terms of the note require quarterly payments of principal and interest through March 31, 2015 at an annual interest rate of 7.0%.

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The following is an aged analysis of our products and loans financing receivables based on invoice dates as of March 31, 2013 and March 31, 2012 (in thousands):

	As of March 31, 2013
					Greater than
	0-29 days		30-90 days		90 days				Total
	past		past		past				financing
	invoice date		invoice date		invoice date		Unbilled		receivables
Pass rating
Software products	$	3,311	$	679	$	1,324	$	42,659	$	47,973
Loans								3,771		3,771
Total		3,311		679		1,324		46,430		51,744

Watch rating
Software products						179				179

Total financing receivables	$	3,311	$	679	$	1,503	$	46,430	$	51,923

	As of March 31, 2012
					Greater than
	0-29 days		30-90 days		90 days				Total
	past		past		past				financing
	invoice date		invoice date		invoice date		Unbilled		receivables
Pass rating
Software products	$	4,997	$	1,165	$	68	$	36,202	$	42,432
Loans								5,467		5,467
Total		4,997		1,165		68		41,669		47,899

Watch rating
Software products								179		179

Total financing receivables	$	4,997	$	1,165	$	68	$	41,848	$	48,078

The Company performs a credit review of its financing receivables each reporting period to determine if an allowance for credit loss is required. As of March 31, 2013 and 2012, the allowance for credit losses on our financing receivables was $179,000. See the “concentration of credit risk” section within note 1 for additional information on our credit risk evaluation process and changes to the total accounts receivable allowance for doubtful accounts balance.

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5. PROPERTY AND EQUIPMENT

Property and equipment, summarized by major classification, was as follows (in thousands):

	March 31,
	2013		2012

Buildings and improvements	$	376,998	$	375,218
Leasehold improvements		17,055		17,387
Furniture and fixtures		57,609		68,093
Computer equipment and software		76,989		71,725

		528,651		532,423

Less accumulated depreciation and amortization		226,159		210,432

Net property and equipment	$	302,492	$	321,991

Depreciation and amortization of property and equipment totaled $33.0 million, $30.1 million and $27.9 million for the years ended March 31, 2013, 2012 and 2011, respectively.

6. INVESTMENT IN PARTIALLY OWNED COMPANIES

The Company holds a 33.3% interest in CareTech Solutions, Inc. (“CareTech”), which provides information technology outsourcing for healthcare organizations including data, voice, applications and data center operations. This investment is accounted for under the equity method.

At March 31, 2013 and 2012, the Company’s carrying value of its investments in and advances to CareTech was $9.4 million and $9.2 million, respectively. Included in the net investment in CareTech were accounts receivable due from CareTech of $4.3 million and $4.9 million at March 31, 2013 and March 31, 2012 respectively.

The Company reviewed CareTech’s financial condition at March 31, 2013 and 2012 and concluded that no impairment charge or valuation allowance related to its investment in CareTech was warranted. For the years ended March 31, 2013, 2012 and 2011, the Company recognized income of $811,000, $864,000 and $685,000, respectively, from its investment in CareTech.

Revenue for the years ended March 31, 2013, 2012 and 2011 included $21.5 million, $23.7 million and $24.7 million, respectively, from services provided for CareTech customers on a subcontractor basis and from software licenses and maintenance.

The Company also has non-controlling interests in five start-up companies in the Detroit area that provide various technology services, and these investments are accounted for under the equity method. At March 31, 2013 and 2012, the Company’s carrying value of its investments in and advances to these companies was $1.4 million and $1.1 million, respectively, which included $205,000 and $281,000 of accounts receivable as of March 31, 2013 and March 31, 2012, respectively. During fiscal 2013 and 2012, the Company recognized losses of $1.7 million and $159,000, respectively, related to these investments. The Company recognized $464,000 and $400,000 in revenue for professional services performed for these companies during fiscal 2013 and 2012, respectively.

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As of March 31, 2013, the Company has committed to invest an additional $792,000 in cash and services in these start-up companies. These commitments are dependent on the respective company’s achievement of certain development milestones.

7. GOODWILL, CAPITALIZED SOFTWARE AND OTHER INTANGIBLE ASSETS

Goodwill

The changes in the carrying amount of goodwill by reporting unit for the years ended March 31, 2013 and 2012 are summarized as follows (in thousands):

	APM			MF			CP			UF			PS			AS		Total

Goodwill at April 1, 2011	$	282,815		$	141,020		$	22,151		$	21,350		$	115,044		$	25,385	$	607,765

dynaTrace acquisition (see note 2)		210,908																	210,908

Effect of foreign currency translation and other		(16,091	)		(429	)		(67	)		(65	)		(132	)				(16,784	)

Goodwill at March 31, 2012		477,632			140,591			22,084			21,285			114,912			25,385		801,889

Impairment charge														(71,840	)				(71,840	)

Effect of foreign currency translation and other		(7,685	)		(34	)		(5	)		(5	)		(278	)				(8,007	)

Goodwill at March 31, 2013	$	469,947		$	140,557		$	22,079		$	21,280		$	42,794		$	25,385	$	722,042

Accumulated impairment charges at April 1, 2011	$	-		$	-		$	-		$	-		$	-		$	-	$	-

Accumulated impairment charges at March 31, 2012	$	-		$	-		$	-		$	-		$	-		$	-	$	-

Accumulated impairment charges at March 31, 2013	$	-		$	-		$	-		$	-		$	(71,840	)	$	-	$	(71,840	)

Impairment evaluation

The Company evaluated its goodwill and other intangible assets of all reporting units for impairment as of March 31, 2013 and 2012. When performing the goodwill impairment evaluation, the Company determined the fair value of each reporting unit using both a discounted cash flow analysis and a market approach (derived from multiples of revenue from comparable companies). The inputs to the valuation include use of market data for comparable companies (level 2), as well as data that is not observable in the market (level 3). See note 3 for additional information regarding level of inputs. As of March 31, 2013, it was determined that the carrying value of the goodwill associated with the professional services division was impaired by approximately $71.8 million. The decrease in fair value of the professional services reporting unit was driven by a decline in revenue and margin for the reporting unit, which led to a lower value from the discounted cash flow analysis and market approach.

As of March 31, 2013 the fair value of each of the other reporting units exceeded its respective carrying value. No reporting units were impaired at March 31, 2012.

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Capitalized software and other intangible assets

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

	As of March 31, 2013

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unamortized intangible assets:
Trademarks	$	4,428				$	4,428

Amortized intangible assets:
Capitalized software
Internally developed		243,872	$	(184,732	)		59,140
Purchased		165,117		(142,453	)		22,664
Customer relationship		52,036		(25,281	)		26,755
Other		19,884		(16,208	)		3,676
Total amortized intangible assets	$	480,909	$	(368,674	)	$	112,235

	As of March 31, 2012

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Unamortized intangible assets:
Trademarks	$	4,443				$	4,443

Amortized intangible assets:
Capitalized software
Internally developed		218,049	$	(175,018	)		43,031
Purchased		167,041		(133,925	)		33,116
Customer relationship		52,196		(21,153	)		31,043
Other		20,247		(12,907	)		7,340
Total amortized intangible assets	$	457,533	$	(343,003	)	$	114,530

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

Customer relationship agreements are related to acquisition activity and are being amortized over periods up to ten years.

Other amortized intangible assets include amortizable trademarks and patents relating to acquisition activity and are being amortized over periods up to three years.

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

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Amortization of intangible assets

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

	Year ended March 31,
	2013		2012		2011
Amortized intangible assets:
Capitalized software
Internally developed	$	15,688	$	13,340	$	11,249
Purchased		9,604		8,877		4,766
Customer relationship		4,167		4,472		4,512
Other		3,414		3,769		1,920

Total amortization expense	$	32,873	$	30,458	$	22,447

Capitalized software amortization related to our on-premises software is reported as “cost of software license fees”, amortization related to our hosted software is reported as “cost of subscription fees” and amortization related to our application services is reported as “cost of application services” in the consolidated statements of comprehensive income (loss).

Customer relationship amortization related to our software solutions segments is reported as “sales and marketing” and amortization related to our application services segment is reported as “cost of application services” in the consolidated statements of comprehensive income (loss).

Amortization expense associated with trademarks and trade names related to our software solutions segments is reported as “cost of license fees” and amortization related to our application services segment is reported as “cost of application services” in the consolidated statements of comprehensive income (loss).

Based on the capitalized software, customer relationship and other intangible assets recorded through March 31, 2013, the annual amortization expense over the next five fiscal years and thereafter is expected to be as follows (in thousands):

	Year Ended March 31,
	2014		2015		2016		2017		2018		Thereafter

Capitalized software	$	27,217	$	22,204	$	18,593	$	9,793	$	3,810	$	187
Customer relationships		4,118		4,118		4,118		3,953		3,809		6,639
Other intangibles		2,949		727

Total	$	34,284	$	27,049	$	22,711	$	13,746	$	7,619	$	6,826

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8. RESTRUCTURING CHARGES

The following table summarizes the restructuring activity during fiscal 2013, 2012 and 2011 (in thousands):

	Employee Termination Benefits			Lease Abandonment Costs			Other			Total Restructuring Activity
Accrual at April 1, 2010	$	1,810		$	978		$	22		$	2,810

Payments		(1,810	)		(505	)		(22	)		(2,337	)

Accrual at March 31, 2011		-			473			-			473

Payments		-			(345	)		-			(345	)

Accrual at March 31, 2012		-			128			-			128

Restructuring charge		10,940			2,712			2,921			16,573

Payments		(1,698	)		(128	)		-			(1,826	)

Non-cash charges		(4,572	)		5			(2,841	)		(7,408	)

Accrual at March 31, 2013	$	4,670		$	2,717		$	80		$	7,467

Fiscal 2013 restructuring actions

In February 2013, the Company approved the initial phase of a restructuring plan designed to achieve cost savings, which involves reductions in our global workforce of approximately 190 employees (less than 5% of our total workforce), including employees across all operating and administrative divisions, and the early termination of certain operating leases and the closing or reduction in size of 16 office facilities worldwide.

The Company evaluates its business segments prior to restructuring charges. Lease abandonment and other restructuring charges were not related to any specific segment. Employee termination benefits related to employees across most business units as follows (in thousands):

	Year Ended
	March 31, 2013
											Unallocated
	APM		MF		CP		UF		PS		Expenses		Total

Employee termination benefits	$	2,657	$	5,647	$	367	$	40	$	415	$	1,814	$	10,940

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Fiscal 2011 and fiscal 2012 restructuring payments

The payments made during fiscal 2012 and 2011 were related to restructuring charges taken during fiscal 2010 associated with the following initiatives: (1) aligning the professional services segment headcount and operating expenses after initiating a plan to exit low-margin engagements and (2) increasing the operating efficiency of our products segment and administrative and general business processes with the goal of reducing operating expenses.

Restructuring accrual

As of March 31, 2013, $6.1 million of the restructuring accrual was recorded in current “accrued expenses” with the remaining balance of $1.4 million recorded in long-term “accrued expenses” in the consolidated balance sheets.

The accruals for employee termination benefits at March 31, 2013 primarily represent the amounts to be paid to employees that have been terminated as a result of initiatives described above.

The accruals for lease abandonment costs at March 31, 2013 represent the expected payments related to leases that have been terminated before the end of the contractual term. For terminated operating leases, the accrual includes 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 2015. Projected sublease income is based on management’s estimates, which are subject to change.

9. DEBT

The Company has an unsecured revolving credit agreement (the “credit facility”) with Comerica Bank and other lenders. The credit facility, as amended, provides for a revolving line of credit in the amount of $300 million and expires on March 21, 2017. The credit facility also permits the Company to increase the revolving line of credit by an additional $200 million subject to receiving further commitments from lenders and certain other conditions.

As of March 31, 2013 and March 31, 2012, the Company’s debt balance under its credit facility was $18.0 million and $45.0 million, respectively, and was classified as long term.

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. Additionally, the Company is required to maintain at least a 0.25 to 1.0 cushion below its consolidated total leverage ratio maximum of 2.5 to 1.0 on a pro forma basis in the case of any stock repurchases acquisitions or dividends in excess of $50 million in any fiscal year. The Company was in compliance with the covenants under the credit facility at March 31, 2013.

Borrowings under the credit facility bear interest at the base rate (the greatest of the prime rate, the federal funds effective rate plus one percent, or the daily LIBOR rate plus one percent) or the Eurodollar rate, at the Company’s option, plus the applicable margin (which is based on the level of maximum total debt to EBITDA ratio). For the year ended March 31, 2013, interest rates on borrowings were at a weighted average rate of 1.83%. The Company pays a quarterly fee on the credit facility based on the applicable margin grid. Interest and fees related to the credit facility were $1.7 million, $1.9 million and $190,000 during the years ended March 31, 2013, 2012 and 2011, respectively.

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Cash paid for interest totaled approximately $1.8 million, $3.1 million and $1.4 million during the years ended March 31, 2013, 2012 and 2011, respectively.

10. CAPITAL STOCK

Preferred Stock Purchase Rights

The Company entered into a Rights Agreement with Computershare Trust Company, N.A., as Rights Agent, in October 2000 (as subsequently amended, the “rights plan”). The rights plan was adopted to discourage abusive, undervalued and other undesirable attempts to acquire control of the Company by making acquisitions of control, that are not approved by the Company's Board of Directors, economically undesirable for the acquirer. Pursuant to the rights plan, each share of the Company’s common stock has attached to it one right, which initially represents the right to purchase one two-thousandth of a share of Series A Junior Participating Preferred Stock (a right) for $40. The rights are not exercisable until (1) the first public announcement that a person or group has acquired, or obtained the right to acquire, except under limited circumstances, beneficial ownership of 20% or more of the outstanding common stock; or (2) the close of business on the tenth business day (or such later date as the Company’s Board of Directors may determine) after the commencement of a tender or exchange offer the consummation of which would result in a person or group becoming the beneficial owner of 20% or more of the outstanding common stock. If a person or group becomes a beneficial owner of 20% or more of the outstanding common stock, each right converts into a right to purchase multiple shares of common stock of the Company, or in certain circumstances securities of the acquirer, at a 50% discount from the then current market value. In connection with the rights plan, the Company has designated 800,000 shares of its 5,000,000 shares of authorized but unissued Preferred Stock as “Series A Junior Participating Preferred Stock.” The rights are redeemable for a specified period at a price of $0.001 per right and expire on May 9, 2015, unless extended or earlier redeemed by the Board of Directors.

Stock Repurchase Plans

In fiscal 2008, the Board of Directors approved a plan allowing the repurchase of up to $750.0 million of Company common stock. Management has been authorized to regularly evaluate market conditions for an opportunity to repurchase common stock at its discretion within the parameters established by the Board (“Discretionary Plan”). During fiscal 2013, 2012 and 2011, the Company repurchased 8.6 million, 2.3 million and 16.9 million common shares, respectively, under the Discretionary Plan. As of March 31, 2013, the remaining balance for future purchases is $143.0 million. In addition, the Company repurchased 155,880, 156,155 and 302,402 shares withheld for taxes upon the exercise of certain stock options and releases of certain restricted stock awards in fiscal 2013, 2012 and 2011, respectively.

11. FOREIGN CURRENCY TRANSACTIONS AND DERIVATIVES

The Company is exposed to foreign exchange rate risks related to assets and liabilities that are denominated in non-local currency and current inter-company balances due to and from the Company’s foreign subsidiaries. The Company enters into foreign currency forward contracts to sell or buy currencies with the intent of mitigating foreign exchange rate risks related to these balances. The Company does not hedge currency risk related to anticipated revenue or expenses denominated in foreign currency. All foreign exchange derivatives are recognized on the consolidated balance sheets at fair value (see note 3).

The foreign currency net gains or (losses) for the years ended March 31, 2013, 2012 and 2011 were $(11,000), $193,000 and $(1.9) million, respectively. The hedging transaction net losses from foreign exchange derivative contracts were $497,000, $525,000 and $169,000, respectively. These amounts were recorded to “administrative and general” in the consolidated statements of comprehensive income (loss).

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The Company had derivative contracts maturing through April 2013 to sell $1.8 million and purchase $15.4 million in foreign currencies at March 31, 2013 and had derivative contracts maturing through April 2012 to sell $5.5 million and purchase $9.6 million in foreign currencies at March 31, 2012.

12. EARNINGS PER COMMON SHARE

Basic EPS is computed by dividing earnings available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS assumes the issuance of common stock for all potentially dilutive equivalent shares outstanding using the treasury method.

Earnings per common share (“EPS”) data were computed as follows (in thousands, except for per share data):

	Year Ended March 31,
	2013			2012		2011
Basic earnings per share:
Numerator: Net income (loss)	$	(17,251	)	$	88,371	$	107,441
Denominator:
Weighted-average common shares outstanding		214,627			218,344		220,616
Basic earnings (loss) per share	$	(0.08	)	$	0.40	$	0.49

Diluted earnings per share:
Numerator: Net income (loss)	$	(17,251	)	$	88,371	$	107,441
Denominator:
Weighted-average common shares outstanding		214,627			218,344		220,616
Dilutive effect of stock awards		-			4,034		5,479
Total shares		214,627			222,378		226,095
Diluted earnings (loss) per share	$	(0.08	)	$	0.40	$	0.48

During the years ended March 31, 2013, 2012 and 2011, stock awards to purchase 23.9 million, 12.7 million and 6.1 million shares, respectively, were excluded from the diluted earnings per share calculation because they were anti-dilutive and stock awards to purchase 3.4 million, 1.5 million and 1.5 million shares, respectively, were excluded from the calculation because the performance conditions for vesting had not yet been met. See note 17 for a discussion of options with performance conditions and performance based stock awards.

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13. INCOME TAXES

Income tax provision

Income before income tax provision and the income tax provision include the following (in thousands):

	Year Ended March 31,
	2013			2012			2011
Income before income tax provision:
U.S.	$	(40,907	)	$	103,750		$	133,239
Foreign		41,951			24,524			21,537
Total income before income tax provision	$	1,044		$	128,274		$	154,776

Income tax provision
Current:
U.S. Federal	$	24,939		$	16,357		$	22,734
Foreign		10,520			6,247			10,193
U.S. State		(3,741	)		(267	)		1,096
Total current tax provision		31,718			22,337			34,023
Deferred:
U.S. Federal		(26,351	)		17,404			12,184
Foreign		7,212			3,076			(527	)
U.S. State		5,716			(2,914	)		1,655
Total deferred tax provision (benefit)		(13,423	)		17,566			13,312
Total income tax provision	$	18,295		$	39,903		$	47,335

The Company's income tax expense differed from the amount computed on pre-tax income at the U.S. federal income tax rate of 35% for the following reasons (in thousands):

	Year Ended March 31,
	2013			2012			2011
Federal income tax at statutory rates	$	365		$	44,896		$	54,172
Increase (decrease) in taxes:
State income taxes, net		708			3,848			1,690
Foreign tax rate differential		(3,625	)		(1,661	)		(1,225	)
Taxes relating to foreign operations		4,637			3,745			2,685
Settlement of prior year tax matters		(565	)		(2,416	)		(2,463	)
Tax credits (1)		(3,672	)		(2,127	)		(4,569	)
Revaluation of deferred taxes		2,029
Non-deductible intangible amortization		2,090			1,975			408
Valuation allowance (2)		2,591			(7,174	)		(1,483	)
Goodwill impairment (3)		17,202
Non-deductible expenses		3,206			3,510			2,420
Domestic production deduction		(2,404	)		(2,301	)		(2,619	)
Other, net		(4,267	)		(2,392	)		(1,681	)
Provision for income taxes	$	18,295		$	39,903		$	47,335

(1)

During fiscal 2013, our tax credits primarily related to the U.S. Research and Experimentation tax credit ("R&D credit") including the impact of retroactively reinstating the credit to January 1, 2012. During fiscal 2011, our tax credits primarily related to (1) the R&D credit including the impact of retroactively reinstating the credit to January 1, 2010; and (2) settlement of R&D credits related to fiscal 2007 through fiscal 2009 tax periods with the Internal Revenue Service.

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(2)

During fiscal 2012, as a result of the State of Michigan amending the Income Tax Act, the Company released a valuation allowance of $4.8 million related to Brownfield Redevelopment tax credit carryforward deferred tax assets ("Brownfield tax credit carryforward asset"). The Company adjusted the carrying value of the Brownfield tax credit carryforward asset to its more likely than not realizable value.

(3)	The majority of the goodwill impairment was non-deductible. See note 7 for information regarding the impairment evaluation for goodwill and other intangible assets at March 31, 2013.

Deferred tax assets and liabilities

Temporary differences and carryforwards that give rise to a significant portion of deferred tax assets and liabilities were as follows (in thousands):

	March 31,

	2013			2012
Deferred tax assets:
Deferred revenue	$	31,892		$	29,375
Amortization of intangible assets		10,218			13,039
Accrued expenses		37,024			34,177
Net operating loss carryforwards		16,097			23,150
Other tax carryforwards		54,014			45,705
Other		6,572			9,159
Total deferred tax assets before valuation allowance		155,817			154,605
Less: Valuation allowance		35,581			32,990
Net deferred tax assets		120,236			121,615

Deferred tax liabilities:
Amortization of intangible assets		59,742			68,956
Capitalized research and development costs		24,988			20,501
Depreciation		25,380			30,727
Other		4,404			5,255
Total deferred tax liabilities		114,514			125,439

Net deferred tax assets (liabilities)	$	5,722		$	(3,824	)

Current deferred tax assets	$	37,618		$	37,665
Long-term deferred tax assets		31,754			40,672
Long-term deferred tax liabilities		(63,650	)		(82,161	)
Net deferred tax assets (liabilities)	$	5,722		$	(3,824	)

The Company does not permanently reinvest any earnings in its foreign subsidiaries and recognizes all deferred tax liabilities that arise from outside basis differences in its investments in subsidiaries.

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At March 31, 2013, the Company had net operating losses, capital losses and tax credit carryforwards for income tax purposes of $70.1 million that expire in the tax years as follows (in thousands):

	March 31,
	2013		Expiration
U.S. federal and state net operating losses	$	7,050		2020 - 2033
Non-U.S. net operating losses		8,547	Indefinite
Non-U.S. net operating losses		507		2020
Non-U.S. capital loss carryforwards		28,952	Indefinite
U.S. federal and state tax credit carryforwards		25,064		2014 - 2028
	$	70,120

Uncertain tax positions

The amount of gross unrecognized tax benefits was $17.8 million, $20.7 million, and $21.1 million as of March 31, 2013, 2012 and 2011, respectively, of which $14.7 million, $15.8 million, and $16.1 million, respectively, net of federal benefit, would favorably affect the Company’s effective tax rate if recognized in future periods.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits for the years ended March 31, 2013, 2012 and 2011 (in thousands):

	Year Ended March 31,
	2013			2012			2011
Gross unrecognized tax benefit at April 1,	$	20,663		$	21,114		$	22,057
Gross increases to tax positions for prior periods		2,441			1,859			5,045
Gross decreases to tax positions for prior periods		(3,864	)		(1,515	)		(6,441	)
Gross increases to tax positions for current period		1,609			2,623			3,365
Foreign tax rate differential for prior period		(3	)		64			10
Settlements		(790	)		(2,416	)		(1,896	)
Lapse of statute of limitations		(2,271	)		(1,066	)		(1,026	)
Gross unrecognized tax benefit at March 31,	$	17,785		$	20,663		$	21,114

As of March 31, 2013 and 2012, the Company had a net interest payable associated with uncertain tax positions that were unfavorable to the Company of $1.6 million and $1.8 million, respectively. As of March 31, 2011, the Company had a net interest receivable that was favorable to the Company of $245,000. The Company recognized $157,000 of net interest income during fiscal 2013; $1.4 million of net interest expense during fiscal 2012; and $1.3 million of net interest income during fiscal 2011.

The Company has open years from tax periods 1996 and forward with various taxing jurisdictions, including the U.S. and Brazil. These open years contain matters that could be subject to differing interpretations of applicable tax laws and regulations due to the amount, timing or inclusion of revenue and expenses or the sustainability of income tax credits for a given audit cycle. The Company expects the settlement of these outstanding income tax examinations to extend beyond fiscal 2014.

Cash paid for income taxes

Cash paid for income taxes was $12.9 million, $33.8 million and $38.1 million during fiscal 2013, 2012 and 2011, respectively.

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14. SEGMENT INFORMATION

The Company operates in six business segments: APM, Mainframe, Changepoint, Uniface, Professional Services and Covisint Application Services.

This business unit structure provides the Company with visibility and control over the operations of the business and increases its market agility, enabling it to more effectively capitalize on market conditions and competitive advantages to maximize revenue growth and profitability.

The Company evaluates the performance of its segments based primarily on revenue growth and contribution margin which is operating profit before certain charges such as restructuring, internal information system support, finance, human resources, legal, administration and other corporate charges (“unallocated expenses”). The allocation of income taxes is not evaluated at the segment level. Financial information for the Company’s business segments was as follows (in thousands):

	Year Ended
	March 31, 2013
																Unallocated
	APM			MF		CP			UF		PS (1)			AS		Expenses (2)	Total

Software license fees	$	100,565		$	58,528	$	8,468		$	11,361							$	178,922

Maintenance fees		89,535			271,824		16,305			29,816								407,480

Subscription fees		79,862					2,580											82,442

Professional services fees		30,571			2,325		12,422			4,979	$	134,714						185,011

Application services fees														$	90,694			90,694

Total revenues		300,533			332,677		39,775			46,156		134,714			90,694			944,549

Operating expenses		304,835			91,325		41,226			21,831		187,472			86,084	209,562		942,335

Contribution / operating margin	$	(4,302	)	$	241,352	$	(1,451	)	$	24,325	$	(52,758	)	$	4,610	$ (209,562)	$	2,214

(1)

Professional services business unit operating expenses include a $71.8 million goodwill impairment charge. See note 7 for additional information.

(2)

Unallocated operating expenses include $16.6 million in restructuring expenses. See note 8 for additional information.

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	Year Ended
	March 31, 2012
														Unallocated
	APM			MF		CP		UF		PS		AS		Expenses	Total

Software license fees	$	85,462		$	110,289	$	13,815	$	11,319						$	220,885

Maintenance fees		77,329			303,639		15,551		31,015							427,534

Subscription fees		76,246					2,192									78,438

Professional services fees		31,406			5,389		16,309		4,574	$	151,506					209,184

Application services fees												$	73,731			73,731

Total revenues		270,443			419,317		47,867		46,908		151,506		73,731			1,009,772

Operating expenses		317,621			99,310		45,027		21,740		127,178		72,717	$ 199,538		883,131

Contribution / operating margin	$	(47,178	)	$	320,007	$	2,840	$	25,168	$	24,328	$	1,014	$ (199,538)	$	126,641

	Year Ended
	March 31, 2011
															Unallocated
	APM			MF		CP			UF		PS		AS		Expenses	Total

Software license fees	$	77,823		$	95,820	$	9,226		$	11,876						$	194,745

Maintenance fees		64,283			310,965		14,547			29,445							419,240

Subscription fees		67,718															67,718

Professional services fees		22,175			6,547		15,650			4,986	$	142,844					192,202

Application services fees													$	55,025			55,025

Total revenues		231,999			413,332		39,423			46,307		142,844		55,025			928,930

Operating expenses		246,212			99,659		47,514			20,149		118,937		51,011	$195,134		778,616

Contribution / operating margin	$	(14,213	)	$	313,673	$	(8,091	)	$	26,158	$	23,907	$	4,014	$(195,134)	$	150,314

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No single customer accounted for greater than 10% of total revenue during the years ended March 31, 2013, 2012 or 2011, or greater than 10% of accounts receivable at March 31, 2013 or 2012.

The Company does not evaluate assets and capital expenditures on a segment basis, and accordingly such information is not provided.

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

	Year Ended March 31,
	2013		2012 (1)		2011 (1)
Revenues:
United States	$	587,979	$	615,433	$	560,435
Europe and Africa		210,751		240,047		229,112
Other international operations		145,819		154,292		139,383
Total revenues	$	944,549	$	1,009,772	$	928,930

(1)

March 31, 2012 and 2011 amounts between the United States and other international operations have been reclassified to conform to the current year presentation.

	March 31,
	2013		2012		2011
Long-lived assets:
United States	$	888,032	$	961,202	$	944,506
Austria		201,224		214,615		165
Other		17,082		24,210		40,710
Total long-lived assets	$	1,106,338	$	1,200,027	$	985,381

Long-lived assets are comprised of property, plant and equipment, goodwill and capitalized software. The long-lived assets in Austria are primarily comprised of goodwill associated with the dynaTrace acquisition (see note 2).

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15. RELATED PARTY TRANSACTIONS

The Company sells and purchases products and services to and from companies associated with certain officers or directors of the Company including the following:

Peter Karmanos, Jr. served as Executive Chairman of the Board through March 31, 2013 and is a shareholder of Compuware Sports Corporation (“CSC”). CSC operates an amateur hockey program in Southeastern Michigan. On September 8, 1992, the Company entered into a Promotion Agreement with CSC to promote the Company’s business. The promotion agreement automatically renews each year, unless terminated with 60 days prior notice by either party. Advertising costs related to this agreement were approximately $1.5 million, $1.3 million and $1.0 million for the years ended March 31, 2013, 2012 and 2011, respectively. These costs are included in “sales and marketing” in the consolidated statements of comprehensive income (loss).

Peter Karmanos, Jr. has a significant ownership interest in entities that own and/or manage various sports arenas. The Company entered into an advertising agreement with one arena to promote the Company’s business, including the right to name the arena “Compuware Arena”. The Company also rents suites and places advertising at the arenas. Total costs related to these agreements were approximately $465,000, $803,000 and $671,000 for the years ended March 31, 2013, 2012 and 2011, respectively. These costs are included in “sales and marketing” in the consolidated statements of comprehensive income (loss).

16. COMMITMENTS AND CONTINGENCIES

Contractual obligations

The Company’s contractual obligations primarily relate to various operating lease agreements for office space, equipment and land for various periods that extend through as late as fiscal 2100. Total rent payments under these agreements were approximately $20.5 million, $21.9 million and $24.3 million, respectively, for fiscal 2013, 2012 and 2011. Certain of these lease agreements contain provisions for renewal options and escalation clauses.

The Company also has commitments under various advertising and charitable contribution agreements totaling $9.5 million and $200,000, respectively, at March 31, 2013. Total expense related to these agreements was approximately $6.2 million, $7.3 million and $7.8 million for fiscal 2013, 2012 and 2011, respectively.

The following table summarizes our payments under contractual obligations as of March 31, 2013 (in thousands):

	Payment Due by Period as of March 31,
													2019 and
	Total		2014		2015		2016		2017		2018		Thereafter
Contractual obligations:
Operating leases	$	239,468	$	17,881	$	12,774	$	9,146	$	5,948	$	4,377	$	189,342
Long-term debt		18,000								18,000
Other		9,726		6,207		3,269		250
Total	$	267,194	$	24,088	$	16,043	$	9,396	$	23,948	$	4,377	$	189,342

The Company also leases space within the Company’s headquarters facility to business tenants. Cash receipts relating to these lease spaces totaled $4.9 million, $4.6 million and $2.2 million, respectively, for fiscal 2013, 2012 and 2011.

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The following is a schedule of future minimum lease rental income commitments (in thousands):

	Payment Due by Period as of March 31,
													2019 and
	Total		2014		2015		2016		2017		2018		Thereafter

Lease rental income commitments	$	18,701	$	5,205	$	5,482	$	4,377	$	700	$	603	$	2,334

Legal Matters

The Company is subject to legal proceedings, claims, investigations and proceedings in the ordinary course of business. In accordance with U.S. GAAP, the Company makes a provision for a liability when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to a particular case. Based on legal procedures outstanding, the Company does not believe these will have a material effect on the financial statements.

17. BENEFIT PLANS

Employee Stock Ownership Plan (ESOP/401(K))

In July 1986, the Company established an Employee Stock Ownership Plan (“ESOP”). Under the terms of the ESOP, the Company may elect to make annual contributions to the Plan for the benefit of substantially all U.S. employees. The contribution may be in the form of cash or Company common stock. The Board of Directors authorizes contributions between a maximum of 25% of eligible annual compensation and a minimum sufficient to cover current obligations of the Plan. This is a non-leveraged ESOP plan.

Effective April 1, 2012, the Company implemented a matching program for the 401(k) component of the ESOP/401(k). The Company provides cash matches of 33% of employees’ 401(k) contributions up to 2% of eligible earnings. Matching contributions by the Company vest 100% when an employee attains three years of service with the Company. During the year ended March 31, 2013, the Company expensed $4.3 million related to this program. There have been no other contributions to the ESOP/401(K) plan in the past three fiscal years.

Employee Stock Purchase Plan

During fiscal 2002, the shareholders approved international and domestic employee common stock purchase plans under which the Company was authorized to issue up to 15 million shares of common stock to eligible employees. Under the terms of the plan, employees can elect to have up to 10% of their compensation withheld to purchase Company common stock at the close of the offering period. The value of the common stock purchased in any calendar year cannot exceed $25,000 per employee. The purchase price is 95% of the closing market sales price on the market date immediately preceding the last day of the offering period. Effective December 1, 2007, the Company discontinued the plan for employees outside the U.S. and Canada. During fiscal 2013, 2012 and 2011, the Company sold approximately 295,000, 351,000 and 292,000 shares, respectively, to eligible employees under the plan.

Employee Equity Incentive Plans

In June 2007, the Company’s Board of Directors adopted the 2007 Long Term Incentive Plan (the “LTIP”) that was approved by the Company’s shareholders in August 2007. The Compensation Committee may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or stock awards and cash incentive awards under the LTIP. During the 2011 annual meeting of shareholders, shareholders approved an increase of 13.5 million in the number of common shares authorized for issuance under the 2007 LTIP, which increased the aggregate number of common shares reserved by the Company for issuance under the 2007 LTIP to 41.5 million as of March 31, 2013 (less shares previously issued).

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Prior to the LTIP, the Company had seven stock option plans (“Plans”) dating back to 1991. All but one of the Plans, the 2001 Broad Based Stock Option Plan (“BBSO”), were approved by the Company’s shareholders. The BBSO was approved by the Board of Directors in March 2001, but was not submitted to the shareholders for approval, as shareholder approval was not required at the time. These Plans have been terminated as to future grants.

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

Stock Options Activity

Options that Vest Based on Service Conditions Only

A summary of activity for options that vest based on service conditions only under the Company’s stock-based compensation plans as of March 31, 2013, and changes during the year then ended is presented below (shares and intrinsic value in thousands):

	Twelve Months Ended
	March 31, 2013
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term in Years		Value
Options outstanding as of March 31, 2012		21,620		$	8.06
Granted		2,336			10.29
Exercised		(3,488	)		6.74			$	12,295
Forfeited		(1,193	)		10.03
Cancelled/expired		(199	)		10.10
Options outstanding as of March 31, 2013		19,076		$	8.44		6.53	$	77,311

Options vested and expected to vest, net of estimated forfeitures, as of March 31, 2013		18,296		$	8.40		6.44	$	74,840

Options exercisable as of March 31, 2013		10,871		$	8.17		5.36	$	46,955

During fiscal 2013, stock option holders of approximately 217,000 stock options elected to make a cashless stock option exercise and received approximately 66,000 shares of common stock net of shares retained for the purchase price and tax obligations. During fiscal 2012, stock option holders of approximately 690,000 stock options elected to make a cashless stock option exercise and received approximately 176,000 shares of common stock net of shares retained for the purchase price and tax obligations.

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The vesting schedule of options has varied over the years with the following vesting terms being the most common: (1) 50% of shares vest on the third anniversary date and 25% on the fourth and fifth anniversary dates; (2) 25% of shares vest on each annual anniversary date over four years; (3) 40% of shares vest on the first anniversary date and 30% vest on the second and third anniversary dates; (4) 30% of shares vest on the first and second anniversary dates and 40% vest on the third anniversary date; or (5) 20% of shares vest on each annual anniversary date over five years.

All options were granted with exercise prices at or above fair market value on the date of grant and expire ten years from the date of grant. Option expense is recognized on a straight-line basis over the vesting period unless the options vest more quickly than the expense would be recognized. In this case, additional expense is taken to ensure the expense is proportionate to the percent of options vested at any point in time.

The average fair value of option shares vested during fiscal 2013, 2012 and 2011 was $4.14, $4.69 and $4.55 per share, respectively, and the total intrinsic value of options exercised were $12.3 million, $4.3 million and $24.7 million, respectively.

Options that Vest Based on both Performance and Service Conditions (“Performance Options”)

During fiscal 2013, stock options that vest based on both service and performance conditions were granted to certain employees of the Company. The performance conditions are based on company-wide revenue and earnings targets and, as of March 31, 2013, it was not deemed probable that these targets will be achieved. If the revenue or earnings targets are achieved, substantially all of the earned stock options will vest in May 2015. As the performance conditions based on fiscal 2013 operating results were not met, approximately 781,000 of the performance options outstanding as of March 31, 2013 will cancel in May 2013. If the service and performance conditions for the remaining options are met, approximately $11.4 million in expense related to these options would be taken over the remaining vest period.

A summary of activity for options that vest based on the achievement of both service and performance conditions under the Company’s stock-based compensation plans as of March 31, 2013, and changes during the year then ended is presented below (shares and intrinsic value in thousands):

	Twelve Months Ended
	March 31, 2013
						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term in Years		Value
Options outstanding as of March 31, 2012		-		$	-
Granted		3,838			9.79
Forfeited		(190	)		9.73
Options outstanding as of March 31, 2013		3,648		$	9.79		9.49	$	9,854

Options vested and expected to vest, net of estimated forfeitures, as of March 31, 2013		-		$	-		-	$	-

Options exercisable as of March 31, 2013		-		$	-		-	$	-

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Restricted Stock Units and Performance-Based Stock Awards Activity

A summary of non-vested restricted stock units (“RSUs”) and performance-based stock awards (“PSAs” and collectively “Non-vested RSU”) activity under the Company’s LTIP as of March 31, 2013, and changes during the year then ended is presented below (shares and intrinsic value in thousands):

	Twelve Months Ended
	March 31, 2013
				Weighted
				Average		Aggregate
				Grant-Date		Intrinsic
	Shares			Fair Value		Value
Non-vested RSU outstanding at March 31, 2012		4,553
Granted		1,191		$	9.92
Released		(815	)			$	7,409
Forfeited		(79	)
Non-vested RSU outstanding at March 31, 2013		4,850

Approximately 42,000 PSAs were granted during fiscal 2013. The performance vesting conditions for these awards are based on company-wide revenue and earnings targets and it was not deemed probable that these targets will be achieved as of March 31, 2013. If the revenue or earnings targets are achieved, the earned PSAs will vest in May 2015. As the performance conditions based on fiscal 2013 operating results were not met, approximately 10,000 of the PSAs outstanding as of March 31, 2013 will cancel in May 2013.

RSUs have various vesting terms related to the purpose of the award. The following vesting terms are the most common: (1) 25% of shares vest on each annual anniversary date over four years; (2) 40% of shares vest on the first anniversary date and 30% vest on the second and third anniversary dates; or (3) 50% of shares vest on the first anniversary date and 50% vest on the second anniversary date.

The RSUs and PSAs are settled by the issuance of one common share for each unit upon vesting and vesting accelerates upon death, disability or a change in control.

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Stock Awards Compensation

For the years ended March 31, 2013, 2012 and 2011, stock awards compensation expense was allocated as follows (dollars in thousands):

	Year Ended March 31,
	2013		2012		2011
Stock awards compensation classified as:

Cost of license fees	$	1	$	4	$	1
Cost of maintenance fees		775		812		464
Cost of subscription fees		46		23		62
Cost of professional services		293		349		525
Cost of application services		1,629		1,623		2,269
Technology development and support		2,337		2,205		1,273
Sales and marketing		6,664		6,279		5,553
Administrative and general		15,360		13,429		8,621
Restructuring costs		4,572

Total stock awards compensation expense before income taxes	$	31,677	$	24,724	$	18,768

As of March 31, 2013, total unrecognized compensation cost of $29.0 million, net of estimated forfeitures, related to nonvested Compuware equity awards is expected to be recognized over a weighted-average period of approximately 1.84 years.

Covisint Corporation 2009 Long-Term Incentive Plan

As of March 31, 2013, there were 143,000 stock options outstanding from the 2009 Covisint LTIP. The majority of these options will vest only if, prior to August 26, 2015, Covisint completes an initial public offering (“IPO”) or if there is a change in control of the Covisint segment (“Covisint”). The Company has determined that options granted prior to December 31, 2012, may not satisfy certain requirements of Section 409A of the Internal Revenue Code (“Code”), and therefore offered recipients of these options an amendment which provides for fixed exercise dates for options that are so amended. The amendment is intended to cure any failure of the options to comply with Section 409A of the Code without incurring penalties thereunder. In December 2012, 110,100 of the outstanding options were amended. The compensation cost will be based on the fair value of the modified award. In connection with the modification of the options, the Company has also agreed to reimburse the option holders who have accepted the amendment for certain negative personal tax implications incurred as a result of any violation of Section 409A of the Code that may later be found to have occurred. Any such reimbursement would also include a tax gross-up, resulting in the net reimbursement equaling any penalties incurred based on Section 409A of the Code.

Most individuals who received stock options from the 2009 Covisint LTIP were also awarded PSAs from the Company’s 2007 LTIP. There were 1.4 million PSAs outstanding as of March 31, 2013. These PSAs will vest only if Covisint does not complete an IPO or a change in control transaction by August 25, 2015, and the Covisint business meets a pre-defined revenue target for any four consecutive calendar quarters ending prior to August 26, 2015.

During the fourth quarter of fiscal 2011, we determined that Covisint’s ability to meet the pre-defined revenue targets prior to August 26, 2015 was probable based on Covisint’s revenue and billing growth in fiscal 2011 and Covisint’s projected future revenue growth estimates. Previously, we considered the revenue targets improbable of being met. As a result, we recorded a charge of $1.9 million to “cost of application services” in the consolidated statement of comprehensive income (loss) during the fourth quarter of fiscal 2011. This charge represents the compensation cost that had accumulated from the grant date through March 31, 2011 based on the straight-line method.

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As of March 31, 2013, unrecognized compensation cost related to Covisint stock options totaled approximately $24.7 million. This expense will be recognized over the requisite service period including a cumulative catch-up related to service provided through the date an IPO or change in control of Covisint occurs. It is expected that approximately 70 percent of this expense will be incurred in the fiscal year an IPO or change in control of Covisint occurs. If an IPO or change in control occurs prior to August 26, 2015, the PSAs granted to employees with Covisint stock options will be cancelled. As a result, expense will be recognized for the Covisint stock options, but all prior expense taken for the PSAs for employees with Covisint stock options will be reversed.

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18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Quarterly financial information for the years ended March 31, 2013 and 2012 was as follows (in thousands, except for per share data):

	Fiscal 2013
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter			Year

Revenues	$	226,161	$	220,598	$	257,866	$	239,924		$	944,549
Gross profit		144,975		139,725		175,784		150,678			611,162
Operating income (loss)		16,563		17,174		39,649		(71,172	)		2,214
Pre-tax income (loss)		16,615		17,087		39,594		(72,252	)		1,044
Net income (loss)		10,468		10,594		25,340		(63,653	)		(17,251	)
Basic earnings (loss) per share		0.05		0.05		0.12		(0.30	)		(0.08	)
Diluted earnings (loss) per share		0.05		0.05		0.12		(0.30	)		(0.08	)

	Fiscal 2012
	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter		Year

Revenues	$	229,974	$	260,696	$	253,057	$	266,045	$	1,009,772
Gross profit		147,827		172,444		168,777		179,804		668,852
Operating income		19,617		38,160		32,593		36,271		126,641
Pre-tax income		20,615		38,152		32,824		36,683		128,274
Net income		16,985		22,679		21,588		27,119		88,371
Basic earnings per share		0.08		0.10		0.10		0.12		0.40
Diluted earnings per share		0.08		0.10		0.10		0.12		0.40

During the fourth quarter of 2013, the Company recorded a $71.8 million impairment charge to goodwill and $16.6 million in restructuring expenses. See notes 7 and 8 for additional information.

In July 2011, the Company acquired dynaTrace. Revenues and expenses associated with the acquisition have been included since that date. The acquisition was considered immaterial for disclosure of supplemental pro forma information of the acquiree since the acquisition date. See note 2 for additional information.

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure information required to be disclosed in the Company’s reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, with a company have been detected.

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective, at the reasonable assurance level, to cause information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act to be recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required financial disclosure.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is defined under applicable Securities and Exchange Commission rules as a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer and effected by the Company’s Board of Directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U. S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

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provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ineffective because of changes in conditions and that the degree of compliance with the policies or procedures may deteriorate.

As of March 31, 2013, management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control — Integrated Framework,” issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission. Based on the assessment, management determined that the Company’s internal control over financial reporting was effective, as of March 31, 2013, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

Deloitte & Touche LLP, the independent registered public accounting firm that audited the consolidated financial statements of the Company included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of March 31, 2013. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of March 31, 2013, is included in this Item under the heading “Report of Independent Registered Public Accounting Firm.”

Changes in Internal Control Over Financial Reporting

No changes in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of Compuware Corporation

Detroit, Michigan

We have audited the internal control over financial reporting of Compuware Corporation and subsidiaries (the “Company”) as of March 31, 2013, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2013, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended March 31, 2013, of the Company and our report dated May 29, 2013 expressed an unqualified opinion on those financial statements.

/s/ DELOITTE & TOUCHE LLP

Detroit, Michigan

May 29, 2013

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ITEM 9B.

OTHER INFORMATION

None

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PART III

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this Item is contained in the Proxy Statement under the captions “Corporate Governance” (excluding the Report of the Audit Committee), “Election of Directors” and “Other Matters – Section 16(a) Beneficial Ownership Reporting Compliance” and is incorporated herein by reference.

ITEM 11.

EXECUTIVE COMPENSATION

The information required by this Item is contained in the Proxy Statement under the caption “Compensation of Executive Officers” and “Corporate Governance” and is incorporated herein by reference.

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is contained in the Proxy Statement under the caption “Security Ownership of Management and Major Shareholders” and is incorporated herein by reference.

The Company’s Board of Directors adopted the 2007 Long Term Incentive Plan (“LTIP”) in June 2007 and the Company’s shareholders approved the LTIP in August 2007. In August 2011, shareholders approved an increase of 13.5 million in the number of common shares authorized for issuance under the 2007 LTIP, which increased the aggregate number of common shares reserved by the Company for issuance under the 2007 LTIP to 41.5 million as of March 31, 2013 (less shares previously issued). The Compensation Committee may grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance-based cash or stock awards and annual cash incentive awards under the LTIP. Prior to the LTIP, the Company had seven stock option plans (“Prior Plans”) dating back to 1991. All but one of the Prior Plans, the 2001 Broad Based Stock Option Plan (“BBSO”), were approved by the Company’s shareholders. The BBSO was approved by the Board of Directors in March 2001, but was not submitted to the shareholders for approval, as shareholder approval was not required at the time. Under the terms of the BBSO, the Company was authorized to grant nonqualified stock options with a maximum term of ten years to any employee or director of the Company at an exercise price and with vesting and other terms determined by the Compensation Committee of the Company’s Board. Options granted under the BBSO either vested every six months over a four year period or 50% of the option became vested on the third year anniversary of the date of grant, and 25% of the option vested on each of the fourth year and fifth year anniversaries of the date of grant. All options were granted at fair market value and expire ten years from the date of grant.

As a result of the LTIP adoption, the Prior Plans have been terminated as to future grants.

The Company also has an Employee Stock Ownership Plan (“ESOP”) and an Employee Stock Purchase Plan (“ESPP”). The information about our equity compensation plans in note 17 of the consolidated financial statements included in this report is incorporated herein by reference.

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The following table sets forth certain information with respect to our equity compensation plans at March 31, 2013 (shares in thousands):

Number of securities

to be issued

Weighted-average

remaining available

upon exercise of

exercise price of

for future issuance

outstanding options,

under equity

warrants and rights

warrants and rights (1)

compensation plans

Equity compensation plans approved by security holders

26,292

8.70

11,017

Equity compensation plans not approved by security holders

1,282

7.87

(1)

Restricted stock unit and performance-based stock award rights are excluded from the weighted-average exercise price as there is no exercise price due upon settlement of these awards.

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is contained in the Proxy Statement under the caption “Other Matters – Related Party Transactions,” “Corporate Governance” and “Compensation of Executive Officers – Compensation Committee Interlocks and Insider Participation” and is incorporated herein by reference.

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is contained in the Proxy Statement under the caption “Item No. 2 - Ratification of Appointment of the Independent Registered Public Accounting Firm” and is incorporated herein by reference.

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PART IV

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)

Documents filed as part of this report.

Consolidated Financial Statements

The following consolidated financial statements of the Company and its subsidiaries are filed herewith:

	Page

Report of Independent Registered Public Accounting Firm	62

Consolidated Balance Sheets as of March 31, 2013 and 2012	63

Consolidated Statements of Comprehensive Income (Loss) for each of the years ended March 31, 2013, 2012 and 2011	64

Consolidated Statements of Shareholders' Equity for each of the years ended March 31, 2013, 2012 and 2011	65

Consolidated Statements of Cash Flows for each of the years ended March 31, 2013, 2012 and 2011	66

Notes to Consolidated Financial Statements	67	-101

Financial Statement Schedules

All financial statement schedules are omitted as the required information is not applicable or the information is presented in the consolidated financial statements or related notes.

Exhibits

The exhibits filed in response to Item 601 of Regulation S-K are listed in the Exhibit Index attached to this report. The Exhibit Index is incorporated herein by reference.

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SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Detroit, State of Michigan on May 29, 2013.

	COMPUWARE CORPORATION

	By:	/S/ ROBERT C. PAUL
		Robert C. Paul
		Chief Executive Officer and Director
		(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature	Title	Date

/S/ ROBERT C. PAUL	Chief Executive Officer and Director	May 29, 2013
Robert C. Paul	(Principal Executive Officer)

/S/ LAURA L. FOURNIER	Executive Vice President, Chief Financial Officer	May 29, 2013
Laura L. Fournier	and Treasurer (Principal Financial Officer and Principal Accounting Officer)

/S/ GURMINDER S. BEDI	Chairman of the Board	May 29, 2013
Gurminder S. Bedi

/S/ DENNIS W. ARCHER	Director	May 29, 2013
Dennis W. Archer

/S/ DAVID G. FUBINI	Director	May 29, 2013
David G. Fubini

/S/ WILLIAM O. GRABE	Director	May 29, 2013
William O. Grabe

/S/ FREDERICK A. HENDERSON	Director	May 29, 2013
Frederick A. Henderson

/S/ FAYE A. NELSON	Director	May 29, 2013
Faye A. Nelson

/S/ GLENDA D. PRICE	Director	May 29, 2013
Glenda D. Price

/S/ LEE D. ROBERTS	Director	May 29, 2013
Lee D. Roberts

/S/ G. SCOTT ROMNEY	Director	May 29, 2013
G. Scott Romney

/S/ RALPH J. SZYGENDA	Director	May 29, 2013
Ralph J. Szygenda

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EXHIBITS

The following exhibits are filed herewith or incorporated by reference to the filing indicated with which it was previously filed. Each management contract or compensatory plan or arrangement filed as an exhibit to this report is identified below with an asterisk before the exhibit number. The Company’s SEC file number is 000-20900.

Exhibit

Number

Description of Document

2.10

Asset Purchase Agreement between Compuware Corporation and DocSite, LLC, dated as of September 17, 2010 (Company’s Form 8-K filed on September 22, 2010)

2.11

Agreement and Plan of Merger by and among Compuware Corporation, Compuware Acquisition Corp., dynaTrace software, Inc. and the Stockholder Representative dated as of July 1, 2011 (Company’s Form 8-K filed on July 8, 2011)

3.1

Restated Articles of Incorporation of Compuware Corporation, as amended, as of September 7, 2012 (Company’s Form 10-Q for the quarterly period ended September 30, 2012)

3.2

Amended and Restated Bylaws of Compuware Corporation effective as of November 6, 2008 (Company's Form 10-Q for the Quarterly Period ended December 31, 2008)

4.0

Rights Agreement dated as of October 25, 2000 between Compuware Corporation and Equiserve Trust Company, N.A., as Rights Agent (Company’s Registration Statement on Form 8-A filed October 26, 2000)

4.6

Amendment To Rights Agreement, dated as of October 29, 2001 (Company’s first Form 8-K filed on May 11, 2006)

4.7

Amendment No. 2 To Rights Agreement, dated as of May 9, 2006 (Company’s first Form 8-K filed on May 11, 2006)

4.10

Compuware Corporation Revolving Credit Agreement dated as of November 1, 2007 (Company’s Form 10-Q for the quarterly period ended on September 30, 2007)

4.11

Amendment No. 3 to Rights Agreement, dated as of February 2, 2009 (Company’s Form 8-K filed on February 3, 2009)

4.12

Consent and First Amendment to Credit Agreement dated June 30, 2011 (Company’s Form 8-K filed on July 11, 2011)

4.13

Amendment No. 4 to Rights Agreement, dated as of March 9, 2012 (Company’s Form 8-K filed on March 16, 2012)

4.14

Second Amendment to Credit Agreement dated as of March 21, 2012 (Company’s Form 8-K filed on March 26, 2012)

10.24

Promotion Agreement, dated September 8, 1992, between Compuware Sports Corporation and the Company (Company’s Registration Statement on Form S-1, as amended (Registration No. 33-53652))

*10.37

Fiscal 1998 Stock Option Plan (Company’s Registration Statement on Form S-8 (Registration Statement No. 333-37873))

10.52

Advertising Agreement, dated December 1, 1996, between Arena Management Company and the Company (Company’s Form 10-K for fiscal 2000)

*10.85

2001 Broad Based Stock Option Plan (Company’s Registration Statement on Form S-8 (Registration Statement No. 333-57984))

*10.91

Nonqualified Stock Option Agreement for Executive Officers (Company’s Form 10-Q for the quarterly period ended September 30, 2004)

*10.92

Nonqualified Stock Option Agreement for Outside Directors (Company’s Form 10-Q for the quarterly period ended September 30, 2004)

*10.98

2005 Non-Employee Directors' Deferred Compensation Plan (Company’s second Form 8-K filed on May 11, 2006)

*10.100

Parallel Nonqualified Stock Purchase Plan Arrangement (Company’s Form 10-K for fiscal 2006)

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*10.101

Fifth Amendment to the Compuware Corporation ESOP/401(k) Plan (Company’s Form 10-Q for the quarterly period ended June 30, 2006)

*10.102

Post-Retirement Consulting Agreement, dated March 1, 2007, between Compuware Corporation and Peter Karmanos, Jr. (Company’s Form 8-K filed on March 2, 2007)

*10.105

2007 Long Term Incentive Plan (Appendix A to Company’s definitive proxy statement for 2007 annual shareholders meeting filed on July 24, 2007)

*10.106

Form of Stock Option Agreement (5-Year Version) (Company’s Form 8-K filed on April 25, 2008)

*10.107

Form of Stock Option Agreement (3-Year Version) (Company’s Form 8-K filed on April 25, 2008)

*10.110

Employee Restricted Stock Unit Award Agreement (Company’s Form 10-Q for the quarterly period ended on September 30, 2008)

*10.111

Amendment to the Consulting/Employment Letter with Peter Karmanos, Jr. (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.112

W. James Prowse Consulting Agreement dated as of November 17, 2008 (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.113

Amendment No. 1 to the 2007 Long Term Incentive Plan (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.115

Amended and Restated 2005 Non-Employee Directors’ Deferred Compensation Plan (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.116

Form of 2002 Directors Phantom Stock Plan Forfeiture And Replacement Agreement (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.117

Form of Amended And Restated 2005 Non-Employee Directors Deferred Compensation Plan Forfeiture And Replacement Agreement (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.118

Form of Director Restricted Stock Unit Grant Agreement (Replacing Directors’ Phantom Stock Units) (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.119

Form of Director Restricted Stock Unit Grant Agreement (Replacing Deferred Compensation Units) (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.120

Form of Director Annual Restricted Stock Unit Award Agreement (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.121

Form of Director Restricted Stock Unit Agreement for Deferred Compensation (Company’s Form 10-Q for the quarterly period ended on December 31, 2008)

*10.122

Executive Incentive Plan – Corporate, as of June 10, 2009 (Company’s Form 8-K filed on June 12, 2009)

*10.123

Form of Restricted Stock Unit Award Agreement, as of June 10, 2009 (Company’s Form 8-K filed on June 12, 2009)

*10.124

Form of Performance Unit Award Agreement for Peter Karmanos and Laura Fournier (Revenue Condition) dated December 7, 2009 (Company’s Form 10-Q for the quarterly period ended on December 31, 2009)

*10.125

Performance Unit Award Agreement for Peter Karmanos (Revenue Condition, subject to Section 162(m)) dated December 7, 2009 (Company’s Form 10-Q for the quarterly period ended on December 31, 2009)

*10.126

Form of Performance Unit Award Agreement for Peter Karmanos and Laura Fournier (IPO Condition) dated December 7, 2009 (Company’s Form 10-Q for the quarterly period ended on December 31, 2009)

*10.127

Performance Unit Award Agreement for Robert Paul dated December 7, 2009 (Company’s Form 10-Q for the quarterly period ended on December 31, 2009)

*10.128

2009 Covisint Corporation Long Term Incentive Plan (Company’s Form 10-Q for the quarterly period ended on December 31, 2009)

*10.129

Form of Covisint Option Agreement (Company’s Form 10-Q for the quarterly period ended on December 31, 2009)

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*10.130

Compuware Executive Incentive Agreement – Corporate (Company’s Form 8-K filed on July 8, 2011)

*10.131

Form of Stock Option Agreement (Company’s Form 8-K filed on July 8, 2011)

*10.132

Stock Option Agreement dated June 20, 2011 granting an option to purchase 2,500,000 shares of Compuware common stock to Joseph R. Angileri (Company’s Form 10-Q for the quarterly period ended June 30, 2011)

*10.133

Stock Option Agreement dated June 20, 2011 granting an option to purchase 500,000 shares of Compuware common stock to Joseph R. Angileri (Company’s Form 10-Q for the quarterly period ended June 30, 2011)

*10.134

Restricted Stock Unit Award Agreement dated June 20, 2011 between Compuware Corporation and Joseph R. Angileri (Company’s Form 10-Q for the quarterly period ended June 30, 2011)

*10.135

Amended and Restated 2007 Long Term Incentive Plan (approved August 2011) (Attachment A to the Company’s proxy statement filed on July 14, 2011)

*10.136

Executive Employment Agreement between the Company and Peter Karmanos, dated as of July 1, 2011 (Company’s Form 10-Q for the quarterly period ended September 30, 2011)

*10.137

Compuware Corporation Claw-Back Policy, adopted June 30, 2012 (Company’s Form 8-K filed July 6, 2012)

*10.138

Form of Stock Option Agreement (as of April 2012) (Company’s Form 10-Q for the quarterly period ended June 30, 2012)

*10.139

Form of Restricted Stock Unit Award Agreement (as of April 2012) (Company’s Form 10-Q for the quarterly period ended June 30, 2012)

*10.140

Compuware Executive Incentive Agreement – Corporate (Company’s Form 8-K filed September 14, 2012)

*10.141

Form of Stock Option Award Agreement – Performance (Company’s Form 8-K filed September 14, 2012)

*10.142

Post-Retirement Consulting Agreement, dated October 25, 2012, between the Company and Peter Karmanos, Jr. (Company’s Form 8-K filed October 29, 2012)

*10.143

Amendment No. 2 to Amended and Restated 2007 Long Term Incentive Plan (Company’s Form 8-K filed January 30, 2013)

*10.144

Amendment No. 3 to 2007 Long Term Incentive Plan (Company’s Form 8-K filed January 30, 2013)

*10.145

Amendment No. 1 to Covisint Option Agreement (as of December 2012) (Company’s Form 10-Q for the quarterly period ended December 31, 2012)

*10.146

Amendment No. 1 to Amended and Restated 2007 Long Term Incentive Plan (as of July 2011) (Company’s Form 10-Q for the quarterly period ended December 31, 2012)

*10.147

Amendment No. 2 to 2007 Long Term Incentive Plan (as of July 2011) (Company’s Form 10-Q for the quarterly period ended December 31, 2012)

*10.148

Form of Stock Option Agreement – 3 Year Performance (as of May 2013)

*10.149

Form of Severance Agreement with Robert C. Paul, Joseph R. Angileri and Laura L. Fournier

21.1

Subsidiaries of the Registrant

23.1

Consent of Independent Registered Public Accounting Firm

31.1

Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document**

101.SCH

XBRL Taxonomy Extension Schema Document**

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document**

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document**

101.LAB

XBRL Taxonomy Extension Label Linkbase Document**

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101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document**

XBRL (Extensible Business Reporting Language) information is furnished and not filed herewith, is not a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.