This "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") is intended to provide an understanding of our financial condition, changes in financial condition, cash flow, liquidity and results of operations. The MD&A should be read in conjunction with the unaudited condensed consolidated financial statements and notes included elsewhere in this report and our annual report on Form 10-K for the fiscal year ended March 31, 2012, particularly "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations". References to years are to fiscal years ended March 31.

In this section, we first discuss our results of operations on a business unit or segment basis. We evaluate segment performance based primarily on operating profit before certain charges such as internal information system support, finance, human resources, legal, administration and other corporate charges. Following the segment discussion, we then provide a separate discussion of the material period-to-period changes in our operating expenses, other income and income taxes as reflected on our statements of comprehensive income.

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.

Forward-Looking Statements

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

The material risks and uncertainties that we believe affect us are summarized below. These risks and uncertainties are not the only ones we face. Additional risks and uncertainties discussed elsewhere in this report and the other reports we file with the Securities and Exchange Commission (see for example Item 1A Risk Factors in our 2012 Form 10-K), as well as other risks and uncertainties that we are not aware of or focused on or that we currently deem immaterial, may also impair business operations. This report is qualified in its entirety by these risk factors and those listed below. If any of the following risks actually occur, our financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could decline significantly, and shareholders could lose all or part of their investment.

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

Summary of Risk Factors

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

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

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

· Maintenance revenue could decline.

· Our primary source of profitability is from our mainframe segment. If revenues in this segment decline before we significantly increase margins in other operating segments, our profitability may decline.

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

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

· The success of our combined dynaTrace Enterprise and Gomez SaaS solutions is dependent on customer acceptance of these offerings.

· The market for application services is in its early stages of development with emerging competitors. As the market matures, competition may increase and could have a material negative impact on our results of operations.

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

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

· 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.

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

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

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

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

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

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

· We must develop or acquire product enhancements and new products to maintain our success.

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

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

· Current laws may not adequately protect our proprietary rights.

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

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

· 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.

· 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.

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

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 experienced lower volumes of software license transactions for our mainframe solutions in recent years and during the first nine months of 2013 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 through research and development investments with the goal of meeting customer needs and maintaining a maintenance renewal rate of approximately 90%. The cash flow generated from our mainframe business supports our growth segments.

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 are marketed under the brand names "Gomez" and "dynaTrace". These solutions provide our customers with on-premises software ("dynaTrace Enterprise" which includes our former Vantage products) and SaaS platform based web application performance services ("Gomez SaaS"). 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 web performance services 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 dynaTrace Enterprise 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 basis to customers primarily in the automotive and U.S. healthcare industries, create an environment that simplifies and secures this collaboration atmosphere. The need for these services is growing across all business segments. 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 achieving modest revenue growth and improved margins by 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 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.

Quarterly Update

The following occurred during the third quarter of 2013:

· Achieved an increase in total revenue of $4.8 million during the third quarter of 2013 as compared to the third quarter of 2012 due to a $7.7 million increase in software license fees, a $5.3 million increase in application services fees and an $862,000 increase in subscription fees partially offset by a $4.5 million decline in maintenance fees and a $4.5 million decline in professional services fees.

· Acheived an increase in operating margin to 15.4% during the third quarter of 2013 as compared to 12.9% during the third quarter of 2012 due primarily to the increase in APM contribution margin (see "Business Segment Analysis" for additional information).

· Software solutions revenue increased $2.0 million or 1.0% for the third quarter of 2013 as compared to the third quarter of 2012 due primarily to an increase in APM revenue partially offset by a decline in mainframe revenue. Software solutions contribution margin improved to 41.4% during the third quarter of 2013 from 37.9% during the third quarter of 2012 due primarily to the increase in APM contribution margin.

· Professional services segment revenue declined $2.4 million or 6.8% during the third quarter of 2013 as compared to the third quarter of 2012 due to a decline in application development services for customers within the financial services industry. Contribution margin increased to 14.9% in the third quarter of 2013 from 10.8% during the third quarter of 2012 due primarily to a $2.5 million revenue reserve related to a government project during the third quarter of 2012 (see "Professional Services" for additional information).

· Covisint revenue increased $5.3 million or 28.3% from the third quarter of 2012. Contribution margin improved to 9.2% in the third quarter of 2013 from 7.1% during the third quarter of 2012 due to the increase in revenue.

· Released PurePath for zOS, which combines Strobe and dynaTrace technology on the mainframe, during November 2012. It is showing strong potential with some deals already completed. We expect PurePath for zOS to meaningfully contribute to our mainframe earnings in 2014.

· Instituted a stock repurchase plan under Rule 10b5-1 of the Securities Exchange Act of 1934 pursuant to which we repurchase shares pursuant to a predetermined formula during our quarterly trading black-out periods.

· Repurchased 3.3 million shares of our common stock at an average price of $9.24 per share.

In December 2012, Covisint Corporation, currently a wholly owned subsidiary of Compuware, submitted a registration statement on a confidential basis to the U.S. Securities and Exchange Commission for a possible initial public offering of approximately 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 within three to six months 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.

Subsequent to the close of the quarter, 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 considering alternatives to eliminate approximately $60 million of administrative and general and non-core operational costs over the next three years with approximately $20 million in cost savings anticipated in fiscal 2014, and we announced plans for a $0.50 per share annual dividend to be paid quarterly starting in fiscal 2014. In approving the action plan, the Board rejected an unsolicited conditional offer from Elliott Management Corporation to acquire all of the outstanding shares of the Company for $11.00 per share (the "Elliott proposal"). The Board concluded that the Elliott proposal undervalues the Company and is not in the best interest of shareholders. While we are focused on executing and delivering on our plan, the Board will carefully review and evaluate any credible offer it receives that delivers full value to our shareholders.

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 dividend in 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".

                     COMPUWARE CORPORATION AND SUBSIDIARIES

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 contribution margin which is operating profit before certain
charges such as internal information system support, finance, human resources,
legal, administration and other corporate charges ("unallocated expenses").
Comparisons are to the comparable period of the prior year. Financial
information for our business segments was as follows (in thousands):

                                            Software Solutions                                                           Unallocated
Three Months
Ended:                 APM            MF            CP             UF           Total          PS            AS           Expenses          Total

December 31, 2012

Total revenues      $  85,061      $  92,464     $  10,623      $  12,664     $ 200,812     $  33,202     $  23,852     $           -     $ 257,866

Operating
expenses               76,773         24,727        10,951          5,254       117,705        28,264        21,664            50,584       218,217

Contribution /
operating margin    $   8,288      $  67,737     $    (328 )    $   7,410     $  83,107     $   4,938     $   2,188     $     (50,584 )   $  39,649

Margin %                  9.7 %         73.3 %        (3.1 %)        58.5 %        41.4 %        14.9 %         9.2 %             N/A          15.4 %

December 31, 2011

Total revenues      $  72,073      $ 103,060     $  12,477      $  11,234     $ 198,844     $  35,626     $  18,587     $           -     $ 253,057

Operating
expenses               82,118         24,721        11,683          5,044       123,566        31,794        17,265            47,839       220,464

Contribution /
operating margin    $ (10,045 )    $  78,339     $     794      $   6,190     $  75,278     $   3,832     $   1,322     $     (47,839 )   $  32,593

Margin %                (13.9 %)        76.0 %         6.4 %         55.1 %        37.9 %        10.8 %         7.1 %             N/A          12.9 %




                                            Software Solutions                                                            Unallocated
Nine Months
Ended:                 APM            MF            CP             UF           Total          PS            AS            Expenses          Total

December 31, 2012

Total revenues      $ 223,310      $ 251,178     $  29,741      $  33,485     $ 537,714     $ 101,930     $  64,981      $           -     $ 704,625

Operating
expenses              226,928         67,856        31,392         15,279       341,455        85,322        59,731            144,731       631,239

Contribution /
operating margin    $  (3,618 )    $ 183,322     $  (1,651 )    $  18,206     $ 196,259     $  16,608     $   5,250      $    (144,731 )   $  73,386

Margin %                 (1.6 %)        73.0 %        (5.6 %)        54.4 %        36.5 %        16.3 %         8.1 %              N/A          10.4 %

December 31, 2011

Total revenues      $ 190,430      $ 318,610     $  33,294      $  34,040     $ 576,374     $ 115,051     $  52,302      $           -     $ 743,727

Operating
expenses              231,489         72,926        33,989         15,595       353,999        95,045        53,934            150,379       653,357

Contribution /
operating margin    $ (41,059 )    $ 245,684     $    (695 )    $  18,445     $ 222,375     $  20,006     $  (1,632 )    $    (150,379 )   $  90,370

Margin %                (21.6 %)        77.1 %        (2.1 %)        54.2 %        38.6 %        17.4 %        (3.1 %)             N/A          12.2 %

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):

                          Three Months Ended                          Nine Months Ended
                             December 31,                               December 31,
                          2012          2011          % Change       2012          2011          % Change
Software license fees   $  64,831     $  57,121           13.5 %   $ 130,499     $ 152,958         (14.7 )%
Maintenance fees          102,341       106,843           (4.2 )     307,487       322,908          (4.8 )
Subscription fees          20,793        19,931            4.3        61,503        58,156           5.8
Professional services
fees                       12,847        14,949          (14.1 )      38,225        42,352          (9.7 )
Total software
solutions revenue       $ 200,812     $ 198,844            1.0 %   $ 537,714     $ 576,374          (6.7 )%

Software license fees ("license fees") increased $7.7 million during the third quarter of 2013 and declined $22.5 million during the first nine months of 2013, which included a negative impact from foreign currency fluctuations of $491,000 and $3.3 million for the third quarter and the first nine months of 2013, respectively. Excluding the impact from foreign currency fluctuations, license fees increased $8.2 million and declined $19.2 million for the third quarter and first nine months of 2013, respectively. The increase for the third quarter of 2013 can primarily be attributed to the increase in APM license revenue from the third quarter of 2012. For the first nine months of 2013, the increase in APM license revenue was more than offset by the decline in mainframe license revenue, resulting in the decline in license fees from the prior year (see the discussion within "Software Solutions by Business Segment" for more details).

During the third quarters of 2013 and 2012, for software license transactions that were required to be recognized ratably, we deferred $11.2 million and $6.4 million, respectively, of license fees relating to such transactions that closed during the period. We recognized as license fees $7.9 million and $12.0 million of previously deferred license revenue during the third quarters of 2013 and 2012, respectively, relating to such transactions that closed and had been deferred prior to the beginning of the period.

During the first nine months of 2013 and 2012, for software license transactions that were required to be recognized ratably, we deferred $20.1 million and $11.8 million, respectively, of license fees relating to such transactions that closed during the period. We recognized as license fees $23.1 million and $37.9 million of previously deferred license revenue during the first nine months of 2013 and 2012, respectively, relating to such transactions that closed and had been deferred prior to the beginning of the period.

Maintenance fees decreased $4.5 million during the third quarter of 2013 and $15.4 million during the first nine months of 2013, which included a negative impact from foreign currency fluctuations of $882,000 and $9.9 million for the third quarter and first nine months of 2013, respectively. Excluding the impact from foreign currency fluctuations, maintenance fees declined $3.6 million and $5.5 million for the third quarter and first nine months of 2013, respectively. Although we continue to experience a high maintenance renewal rate with our current mainframe customers, the decline in mainframe license transactions throughout the past several years is impacting mainframe maintenance revenue as 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 mainframe maintenance fees in both periods were partially offset by . . .