<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----- ------
COMMISSION FILE NUMBER 0-20900
COMPUWARE CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2007430
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
31440 NORTHWESTERN HIGHWAY
FARMINGTON HILLS, MI 48334-2564
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (248)737-7300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
As of August 6, 1997, there were outstanding 86,685,910 shares of Common Stock,
par value $.01, of the registrant.
Page 1 of 12 pages
<PAGE> 2
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations
for the three months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
<PAGE> 3
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
ASSETS 1997 1997
--------- ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $113,476 $107,341
Investments 27,789 26,604
Accounts receivable, net 263,572 290,922
Deferred tax asset 8,483 9,747
Refundable income taxes 6,760 9,593
Prepaid expenses and other current assets 13,510 7,605
-------- --------
Total current assets 433,590 451,812
-------- --------
INVESTMENTS 59,005 44,465
-------- --------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 75,548 70,578
-------- --------
CAPITALIZED SOFTWARE, LESS ACCUMULATED
AMORTIZATION 51,904 53,355
-------- --------
OTHER:
Accounts receivable 63,003 54,637
Deferred tax asset 10,045 11,084
Excess of cost over fair value of net assets acquired,
less accumulated amortization 59,882 55,700
Other assets 13,557 13,776
-------- --------
Total other assets 146,487 135,197
-------- --------
TOTAL ASSETS $766,534 $755,407
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 14,259 $ 24,275
Accrued expenses 68,545 83,662
Deferred revenue 154,705 164,367
-------- --------
Total current liabilities 237,509 272,304
DEFERRED REVENUE 36,709 31,399
LONG TERM DEBT 10,711 6,068
-------- --------
Total liabilities 284,929 309,771
-------- --------
SHAREHOLDERS' EQUITY:
Common stock 864 429
Additional paid-in capital 220,947 213,422
Retained earnings 260,902 232,630
Foreign currency translation adjustment and other (1,108) (845)
-------- --------
Total shareholders' equity 481,605 445,636
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $766,534 $755,407
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
-------------------
1997 1996
-------- --------
REVENUES:
Software license fees $ 76,261 $ 49,871
Maintenance fees 56,317 50,623
Professional services fees 91,900 61,844
-------- --------
Total revenues 224,478 162,338
-------- --------
OPERATING EXPENSES:
Cost of software license fees 4,814 4,852
Cost of maintenance 7,113 6,463
Cost of professional services 80,821 55,285
Software product development 13,562 11,664
Sales and marketing 66,235 53,955
Administrative and general 11,935 9,798
Purchased research and development 16,670
-------- --------
Total operating expenses 184,480 158,687
-------- --------
INCOME FROM OPERATIONS 39,998 3,651
OTHER INCOME 2,389 1,232
-------- --------
INCOME BEFORE INCOME TAXES 42,387 4,883
INCOME TAX PROVISION 14,115 1,626
-------- --------
NET INCOME $ 28,272 $ 3,257
======== ========
Net income per common share $ 0.31 $ 0.04
======== ========
Weighted average number of common and
common equivalent shares outstanding (Note 2) 92,480 88,222
======== ========
See notes to consolidated financial statements.
4
<PAGE> 5
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,272 $ 3,257
Adjustments to reconcile net income to cash provided by
operations:
Purchased research and development 16,670
Depreciation and amortization 8,804 8,432
Tax benefit from exercise of stock options 4,111 244
Other (243) (479)
Net change in assets and liabilities, net of effects from
acquisitions:
Accounts receivable 19,927 27,371
Prepaid expenses and other current assets (5,757) (803)
Other assets (104) 755
Accounts payable and accrued expenses (25,799) (10,181)
Deferred revenue (4,352) (8,081)
Refundable income taxes 2,622 (4,891)
Deferred income taxes 2,303 732
-------- --------
Net cash provided by operating activities 29,784 33,026
-------- --------
CASH USED IN INVESTING ACTIVITIES:
Purchase of:
Businesses (709) (53,506)
Property and equipment (8,178) (6,613)
Capitalized software (2,609) (2,515)
Investments:
Proceeds from maturity 19,343 20,953
Purchases (35,345) (17,098)
Other (90)
-------- --------
Net cash used in investing activities (27,498) (58,869)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options 3,849 1,242
-------- --------
Net cash provided by financing activities 3,849 1,242
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,135 (24,601)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 107,341 77,771
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $113,476 $ 53,170
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1997
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Compuware Corporation and its wholly owned subsidiaries
(collectively, the "Company"). All intercompany balances and transactions have
been eliminated in consolidation.
In the opinion of management of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, that are necessary for a fair presentation of the
results for the interim periods presented. These financial statements should
be read in conjunction with the Company's audited consolidated financial
statements and notes thereto for the year ended March 31, 1997 included in the
Company's Annual Report to Shareholders and the Company's Form 10-K filed with
the Securities and Exchange Commission.
NOTE 2 - NET INCOME PER COMMON SHARE
Net income per common share is calculated based upon the weighted average
number of common shares outstanding and the dilutive effect of stock options.
Fully diluted earnings per common share is not materially different from
primary earnings per common share and, accordingly, is not presented.
Shares used in computing net income per common share were calculated as follows
(in thousands):
Three Months Ended
June 30,
--------------------
1997 1996
--------- ---------
Weighted average common
shares outstanding 86,193 84,684
Dilutive effect of stock options 6,287 3,538
------ ------
Weighted average number of common and
common equivalent shares outstanding 92,480 88,222
====== ======
NOTE 3 - RESTRUCTURING AND MERGER-RELATED ACCRUAL
In fiscal 1996, the Company recognized $10,688,000 of special charges related
to the reorganization of the Company's operating units and the decentralization
of certain corporate office functions. The components of the restructuring
reserve, as ultimately executed, included $5,806,000 for severance related
costs for employees made redundant by the reorganization, and $4,882,000 for
estimated future leasing costs of abandoned offices in the United States and
Europe. At June 30, 1997, the remaining costs accrued of approximately
$3,800,000 are for future lease expenses. These costs are expected to be paid
over a period not to exceed the remaining lease terms, which extend through
April 2002.
6
<PAGE> 7
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED JUNE 30, 1997
(CONTINUED)
NOTE 4 - ACQUISITION
Vine Systems Company Ltd - In April 1997, the Company acquired Vine Systems
Company Ltd., a professional services firm, for approximately 3,100,000 pounds
sterling (approximately $5,022,000 U.S. dollars). Of the total purchase price,
approximately $566,000 was paid in cash. The Company issued notes for the
remaining $4,456,000. The acquisition has been accounted for as a purchase,
and accordingly, assets and liabilities acquired have been recorded at fair
value as of the date of acquisition. The amount by which the acquisition cost
exceeded the fair value of the net assets acquired was approximately $4,841,000
and is being amortized over a fifteen-year period on a straight-line basis.
NOTE 5 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128 "Earnings Per Share" in February 1997.
The Company is required to adopt this Statement with its interim period ending
December 31, 1997. The adoption of this new standard is not expected to have
a material impact on the Company's financial statements.
7
<PAGE> 8
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operational
data from the Company's consolidated statements of operations as a percentage
of total revenues and the percentage change in such items compared to the prior
period:
<TABLE>
<CAPTION>
Percentage of Period-
Total Revenues to-Period
-------------------- Change
Three Months Ended ---------
June 30, 1996
-------------------- to
1997 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues:
Software license fees 34.0% 30.7% 52.9%
Maintenance fees 25.1 31.2 11.2
Professional services fees 40.9 38.1 48.6
----- -----
Total revenues 100.0 100.0 38.3
----- -----
Operating expenses:
Cost of software license fees 2.2 3.0 (0.8)
Cost of maintenance 3.2 4.0 10.1
Cost of professional services 36.0 34.1 46.2
Software product development 6.0 7.2 16.3
Sales and marketing 29.5 33.2 22.8
Administrative and general 5.3 6.0 21.8
Purchased research and development 10.3 (100.0)
----- -----
Total operating expenses 82.2 97.8 16.3
----- -----
Income from operations 17.8 2.2 995.5
Interest and investment income, net 1.1 .8 93.9
----- -----
Income before income taxes 18.9 3.0 768.1
----- -----
Income tax provision 6.3 1.0 768.1
----- -----
Net income 12.6% 2.0% 768.0%
===== =====
</TABLE>
8
<PAGE> 9
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The following table sets forth, for the periods indicated, certain operational
data as a percentage of total revenues and the percentage change in such items
compared to prior periods after excluding special charges from the calculations
for the first three months of fiscal 1997.
<TABLE>
<CAPTION>
Percentage of
Total Revenues Period-to-Period
-------------------- Change
Three Months Ended ----------------
June 30, 1996
-------------------- to
1997 1996 1997
--------- --------- ----------------
<S> <C> <C> <C>
Income from operations 17.8% 12.5% 96.8%
Interest and investment income, net 1.1 0.8 93.9%
----- -----
Income before income taxes 18.9 13.3 96.7%
Income tax provision 6.3 4.4 96.7%
----- -----
Net income 12.6% 8.9% 96.7%
===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THE THREE MONTHS ENDED JUNE 30,
1996
Total revenues for the first quarter of fiscal 1998 were $224.5 million, an
increase of $62.1 million, or 38.3%, as compared to $162.3 million for the
first quarter of fiscal 1997. The Company experienced an increase in license
fees, maintenance fees, and professional services fees during the three months
ended June 30, 1997.
Software license fees increased $26.4 million, or 52.9%, to $76.3 million in
the first quarter of fiscal 1998 from $49.9 million in the first quarter of
fiscal 1997. The majority of the Company's product families experienced growth
in license fees, with the largest percentage increase in its client/server
testing and implementation and client/server systems management products.
Maintenance fee revenues increased $5.7 million, or 11.2%, to $56.3 million in
the first quarter of fiscal 1998 from $50.6 million in the first quarter of
fiscal 1997. The Company continues to experience growth in maintenance fees
for all of its product families due to the growth in the number of installed
copies of its products.
Revenues from professional services increased $30.1 million, or 48.6%, to $91.9
million in the first quarter of fiscal 1998 from $61.8 million in the first
quarter of fiscal 1997. All of the Company's professional services offices
experienced growth in revenues. The overall increase was due primarily to
increased business at new and existing clients at the Company's Farmington
Hills, Michigan, Columbus, Ohio, and Minneapolis, Minnesota, branches of $5.9
million, $2.9 million and $2.9 million, respectively. The acquisitions of MC
Squared and Vine Systems Company Ltd in the first quarter of fiscal 1998
contributed approximately $3.2 million in growth in services revenue. In
addition, revenues from client server/systems increased $3.5 million and
training and implementation services in Europe accounted for $3.0 million of
the increase.
Cost of software license fees remained constant in the first quarter of fiscal
1998 as compared to the first quarter of fiscal 1997. As a percentage of
software license fees, these costs decreased to 6.3% in the first quarter of
fiscal 1998 from 9.7% for the same period in fiscal 1997.
Cost of maintenance increased $650,000, or 10.1%, to $7.1 million in the first
quarter of fiscal 1998 from $6.5 million in the first quarter of fiscal 1997.
As a percentage of maintenance fees, these costs decreased to 12.6% in the
first quarter of fiscal 1998 from 12.8% for the first quarter of fiscal 1997.
Cost of professional services increased $25.5 million, or 46.2%, to $80.8
million in the first quarter of fiscal 1998 from $55.3 million in the first
quarter of fiscal 1997. The increase in these expenses was due primarily to
the growth in the professional staff by 1,141 to 3,802 people at the end of the
first
9
<PAGE> 10
COMPUWARE CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
quarter of fiscal 1998 from 2,661 at the end of the same period in fiscal 1997.
As a percentage of professional services fees, these costs decreased to 87.9%
in the first quarter of fiscal 1998 from 89.4% in the first quarter of fiscal
1997.
Software product development costs increased $1.9 million or 16.3%, to $13.6
million in the first quarter of fiscal 1998 from $11.7 million in the first
quarter of fiscal 1997. Before the capitalization of internally developed
software products, total research and development expenditures increased $2.0
million to $16.0 million, or 13.8%, in the first quarter of fiscal 1998 from
$14.0 million in the first quarter of fiscal 1997. Capitalized research and
development expenditures as a percentage of total software product development
costs decreased to 15.2% in the first quarter of fiscal 1998 from 16.9% in the
first quarter of fiscal 1997.
Sales and marketing costs increased $12.3 million, or 22.8%, to $66.2 million
in the first quarter of fiscal 1998 from $54.0 million in the first quarter of
fiscal 1997. The increase in sales and marketing costs was due primarily to
the expansion of the worldwide sales and marketing organizations and higher
sales commissions associated with increased product sales.
Administrative and general costs increased $2.1 million, or 21.8%, to $11.9
million in the first quarter of fiscal 1998 from $9.8 million in the first
quarter of fiscal 1997. The increase in these costs was due primarily to the
increase in the costs of administration, corporate communications and employee
development programs in order to support the Company's growth. As a percentage
of total revenue, these costs decreased to 5.3% in the first quarter of fiscal
1998 from 6.0% in the first quarter of fiscal 1997.
During the first quarter of fiscal 1997, the Company recognized $16.7 million
of expense for purchased research and development costs associated with the
acquisition of Direct Technology Limited in May 1996.
Income from operations for the first quarter of fiscal 1998 was $40.0 million,
as compared to income from operations of $3.7 million in the first quarter of
fiscal 1997. Excluding the purchased research and development expense of $16.7
million described above, income from operations increased $19.7 million, or
96.8%, to $40.0 million in the first quarter of fiscal 1998 from $20.3 million
in the first quarter of fiscal 1997. As a percentage of revenues, income from
operations before special charges increased to 17.8% in the first quarter of
fiscal 1998 from 12.5% in the same period of fiscal 1997.
Net interest and investment income for the first quarter of fiscal 1998 was
$2.4 million as compared to $1.2 million in the first quarter of fiscal 1997.
This increase in income was due primarily to higher average cash balances in
the fiscal 1998 period as compared to the fiscal 1997 period.
In the first quarter of fiscal 1998, the Company had an income tax provision of
$14.1 million, as compared to an income tax of $1.6 million, in the first
quarter of fiscal 1997. The effective tax rate remains constant at 33.3%.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company held $200.3 million in cash and investments.
The Company has no debt other than the $10.7 million of notes issued as part of
the Direct Technology Limited and Vine Systems Co. Limited acquisitions.
The Company continues to evaluate business acquisition opportunities that fit
the Company's strategic plans.
The Company believes that its available cash resources, together with cash flow
from operations will be sufficient to meet its cash needs for the foreseeable
future.
10
<PAGE> 11
COMPUWARE CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The following exhibits are filed herewith.
Exhibit
Number Description of Document
------- -----------------------------------------
12.0 First Amendment to 1992 Stock Option Plan
12.1 First Amendment to 1993 Stock Option Plan
12.2 First Amendment to 1996 Stock Option Plan
27.0 Financial Data Schedule
(b) Reports on Form 8-K.
None
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMPUWARE CORPORATION
Date: August 13, 1997 By: /s/ Joseph A. Nathan
---------------------------
Joseph A. Nathan
President
Chief Operating Officer
Date: August 13, 1997 By: /s/ Ralph A. Caponigro
---------------------------
Ralph A. Caponigro
Senior Vice President
Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
12.0 First Amendment to 1992 Stock Option Plan
12.1 First Amendment to 1993 Stock Option Plan
12.2 First Amendment to 1996 Stock Option Plan
27.0 Financial Data Schedule
<PAGE> 1
EXHIBIT 12.0
COMPUWARE CORPORATION
FIRST AMENDMENT TO
1992 STOCK OPTION PLAN
COMPUWARE CORPORATION, a Michigan corporation, hereby adopts the following
amendment to the 1992 Stock Option Plan, in accordance with Paragraph 23
thereof, by replacing Paragraph 14 thereof with the following:
14. TRANSFERABILITY OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: Except
as otherwise provided in this Paragraph 14 or to the extent determined by the
Committee in its sole discretion (either by resolution or by a provision in, or
amendment to, the option), (a) no option granted under the Plan to a
Participant shall be transferable by such Participant otherwise than (1) by
will, or (2) by the laws of descent and distribution or, (3) pursuant to a
qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and (b) such
option shall be exercisable, during the lifetime of the Participant, only by
the Participant.
The Committee may, in its sole discretion, authorize all or a portion of the
options granted to an optionee to be transferred by such optionee to, and to be
exercised by, (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) such other persons or entities as
determined by the Committee, in its sole discretion, on such terms and
conditions as the Committee, in its sole discretion, may determine; provided
that (y) the stock option agreement pursuant to which such options are granted
must be approved by the Committee and must expressly provide for
transferability in a manner consistent with this Paragraph 14, and (z)
subsequent transfers of transferred options shall be prohibited except for
transfers the original optionee would be permitted to make (if he or she were
still the owner of the option) in accordance with this Paragraph 14.
Following transfer, any such options shall continue to be subject to the same
terms and conditions as were applicable immediately before transfer, provided
that for purposes of Paragraphs 11, 13, 19, and 23, the term "Participant"
shall be deemed to refer to the transferee. The events of termination of
employment of Paragraph 17 shall continue to be applied with respect to the
original optionee, following which the options shall be exercisable by the
transferee only to the extent, and for the periods, specified in Paragraph 17.
The original optionee shall remain subject to withholding taxes and related
requirements upon exercise provided in Paragraph 21. The Company shall have no
obligation to provide any notice to any transferee, including, without
limitation, notice of any termination of the option as a result of termination
of the original optionee's employment with, or other service to, the Company.
<PAGE> 2
No stock appreciation right granted under the Plan to a Participant shall be
transferable by such Participant otherwise than by will or by the laws of
descent and distribution, and such option shall be exercisable, during the
lifetime of the Participant, only by the Participant. Further, no stock
appreciation right granted under the Plan to a Participant shall be pledged,
hypothecated or otherwise encumbered by the Participant or used by the
Participant as security for an obligation of the Participant or other person or
entity.
IN WITNESS WHEREOF, the undersigned has executed this First Amendment to 1992
Stock Option Plan as of July 16, 1997.
COMPUWARE CORPORATION
By: /s/ Thomas Costello Jr.
---------------------------
Its: V.P. - Secretary
--------------------------
<PAGE> 1
EXHIBIT 12.1
COMPUWARE CORPORATION
FIRST AMENDMENT TO
FISCAL 1993 STOCK OPTION PLAN
COMPUWARE CORPORATION, a Michigan corporation, hereby adopts the following
amendment to the Fiscal 1993 Stock Option Plan, in accordance with Paragraph 23
thereof, by replacing Paragraph 14 thereof with the following:
14. TRANSFERABILITY OF STOCK OPTIONS AND STOCK APPRECIATION RIGHTS: Except
as otherwise provided in this Paragraph 14 or to the extent determined by the
Committee in its sole discretion (either by resolution or by a provision in, or
amendment to, the option), (a) no option granted under the Plan to a
Participant shall be transferable by such Participant otherwise than (1) by
will, or (2) by the laws of descent and distribution or, (3) pursuant to a
qualified domestic relations order as defined in the Code or Title I of the
Employee Retirement Income Security Act, or the rules thereunder, and (b) such
option shall be exercisable, during the lifetime of the Participant, only by
the Participant.
The Committee may, in its sole discretion, authorize all or a portion of the
options granted to an optionee to be transferred by such optionee to, and to be
exercised by, (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) such other persons or entities as
determined by the Committee, in its sole discretion, on such terms and
conditions as the Committee, in its sole discretion, may determine; provided
that (y) the stock option agreement pursuant to which such options are granted
must be approved by the Committee and must expressly provide for
transferability in a manner consistent with this Paragraph 14, and (z)
subsequent transfers of transferred options shall be prohibited except for
transfers the original optionee would be permitted to make (if he or she were
still the owner of the option) in accordance with this Paragraph 14.
Following transfer, any such options shall continue to be subject to the same
terms and conditions as were applicable immediately before transfer, provided
that for purposes of Paragraphs 11, 13, 19, and 23, the term "Participant"
shall be deemed to refer to the transferee. The events of termination of
employment of Paragraph 17 shall continue to be applied with respect to the
original optionee, following which the options shall be exercisable by the
transferee only to the extent, and for the periods, specified in Paragraph 17.
The original optionee shall remain subject to withholding taxes and related
requirements upon exercise provided in Paragraph 21. The Company shall have no
obligation to provide any notice to any transferee, including, without
limitation, notice of any termination of the option as a result of termination
of the original optionee's employment with, or other service to, the Company.
<PAGE> 2
No stock appreciation right granted under the Plan to a Participant shall be
transferable by such Participant otherwise than by will or by the laws of
descent and distribution, and such option shall be exercisable, during the
lifetime of the Participant, only by the Participant. Further, no stock
appreciation right granted under the Plan to a Participant shall be pledged,
hypothecated or otherwise encumbered by the Participant or used by the
Participant as security for an obligation of the Participant or other person or
entity.
IN WITNESS WHEREOF, the undersigned has executed this First Amendment to
Fiscal 1993 Stock Option Plan as of July 16, 1997.
COMPUWARE CORPORATION
By: /s/ Thomas Costello Jr.
---------------------------
Its: V.P. - Secretary
--------------------------
<PAGE> 1
EXHIBIT 12.2
COMPUWARE CORPORATION
FIRST AMENDMENT TO
FISCAL 1996 STOCK OPTION PLAN
COMPUWARE CORPORATION, a Michigan corporation, hereby adopts the following
amendment to the Fiscal 1996 Stock Option Plan, in accordance with Paragraph 22
thereof, by replacing Paragraph 13 thereof with the following:
13. TRANSFERABILITY OF STOCK OPTIONS: Except as otherwise provided in this
Paragraph 13 or to the extent determined by the Committee in its sole
discretion (either by resolution or by a provision in, or amendment to, the
option), (a) no option granted under the Plan to a Participant shall be
transferable by such Participant otherwise than (1) by will, or (2) by the laws
of descent and distribution or, (3) pursuant to a qualified domestic relations
order as defined in the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and (b) such option shall be
exercisable, during the lifetime of the Participant, only by the Participant.
The Committee may, in its sole discretion, authorize all or a portion of the
options granted to an optionee to be transferred by such optionee to, and to be
exercised by, (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) such other persons or entities as
determined by the Committee, in its sole discretion, on such terms and
conditions as the Committee, in its sole discretion, may determine; provided
that (y) the stock option agreement pursuant to which such options are granted
must be approved by the Committee and must expressly provide for
transferability in a manner consistent with this Paragraph 13, and (z)
subsequent transfers of transferred options shall be prohibited except for
transfers the original optionee would be permitted to make (if he or she were
still the owner of the option) in accordance with this Paragraph 13.
Following transfer, any such options shall continue to be subject to the same
terms and conditions as were applicable immediately before transfer, provided
that for purposes of Paragraphs 11, 12, 17, 18 and 22 the term "Participant"
shall be deemed to refer to the transferee. The events of termination of
employment of Paragraph 16 shall continue to be applied with respect to the
original optionee, following which the options shall be exercisable by the
transferee only to the extent, and for the periods, specified in Paragraph 16.
The original optionee shall remain subject to withholding taxes and related
requirements upon exercise provided in Paragraph 20. The Company shall have no
obligation to provide any notice to any transferee, including, without
limitation, notice of any termination of the option as a result of termination
of the original optionee's employment with, or other service to, the Company.
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has executed this First Amendment to
Fiscal 1996 Stock Option Plan as of July 16, 1997.
COMPUWARE CORPORATION
By: /s/ Thomas Costello Jr.
---------------------------
Its: V.P. - Secretary
--------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 113,476
<SECURITIES> 0
<RECEIVABLES> 270,132
<ALLOWANCES> 6,560
<INVENTORY> 0
<CURRENT-ASSETS> 433,590
<PP&E> 117,545
<DEPRECIATION> 41,997
<TOTAL-ASSETS> 766,534
<CURRENT-LIABILITIES> 237,509
<BONDS> 10,711
0
0
<COMMON> 864
<OTHER-SE> 481,849
<TOTAL-LIABILITY-AND-EQUITY> 766,534
<SALES> 224,478
<TOTAL-REVENUES> 224,478
<CGS> 184,480
<TOTAL-COSTS> 184,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> 42,387
<INCOME-TAX> 14,115
<INCOME-CONTINUING> 28,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,272
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
