December 12, 2006
Mr. Craig Wilson
Senior Assistant Chief Accountant
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: Compuware Corporation
Form 10-K for the fiscal year ended March 31, 2006
File No. 000-20900
Dear Mr. Wilson:
On behalf of Compuware Corporation, a Michigan corporation (the "Company" or
"Compuware"), I am responding to the Staff's comment letter dated December 1,
2006 with respect to Compuware's Form 10-K for the fiscal year ended March 31,
2006. I have set forth below each question contained in the Staff's comment
letter, followed by our response thereto.
FORM 10-K FOR THE FISCAL YEAR ENDED MARCH 31, 2006
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
CORPORATE AND OTHER EXPENSES, PAGE 30
1. WE NOTE YOUR RESPONSE TO PRIOR COMMENT NUMBER 1 AND IT REMAINS UNCLEAR TO
US WHY YOU BELIEVE THAT THE PRESENTATION OF A NON-GAAP EFFECTIVE TAX RATE
IS USEFUL. IN THIS REGARD, WE DO NOT BELIEVE THAT DISCLOSING THE MEASURE
BECAUSE IT "ALLOWS [INVESTORS] TO QUICKLY UNDERSTAND THE IMPACT ON OUR
EFFECTIVE TAX RATE OF THE RESOLUTION OF THE TAX MATTERS DISCUSSED IN THE
FORM 10-K WITHOUT HAVING TO DO THE CALCULATION THEMSELVES" IS A SUBSTANTIVE
REASON FOR DISCLOSING THE NON-GAAP
1
MEASURE. PLEASE EXPLAIN TO US, IN REASONABLE DETAIL, WHY YOU BELIEVE THAT
THE PRESENTATION OF THE NON-GAAP MEASURE PROVIDES USEFUL INFORMATION TO
INVESTORS. ALSO, PLEASE EXPLAIN HOW YOU INTEND TO COMPLY WITH ITEM
10(E)(1)(C) OF REGULATION S-K IN FUTURE FILINGS.
We consider the information useful because investors have typically
requested similar information from us in the past as an additional data
point for comparison to prior periods. While the information needed to
calculate the non-GAAP effective tax rate was available in the Form 10-K,
our purpose was to make the non-GAAP information generally available to all
investors in anticipation of questions from investors. In view of the
Staff's concerns, in future 10-Q and 10-K filings, we intend to provide
disclosure only on the effective tax rate calculated pursuant to GAAP and
not to provide the non-GAAP calculation. Period to period changes in the
reported effective tax rates and changes from the statutory tax rate will
be disclosed if material or necessary to provide the reader with a better
understanding of our financial statements.
CONSOLIDATED STATEMENT OF OPERATIONS, PAGE 41
2. WE HAVE READ YOUR RESPONSE TO PRIOR COMMENT NUMBER 2 AND WE BELIEVE THAT
THE COSTS TO PROVIDE MAINTENANCE AND SUPPORT SERVICE REVENUES SHOULD BE
CLASSIFIED AS COST OF SALES. IF THE INDIVIDUALS THAT PROVIDE THESE SERVICES
PLAY A DUAL ROLE IN YOUR OPERATIONS, THEN AN ALLOCATION OF THEIR COSTS
SHOULD BE CONSIDERED IN YOUR INCOME STATEMENT CLASSIFICATION. WHILE
ESTIMATES AND ASSUMPTIONS MAY BE NECESSARY TO ALLOCATE CERTAIN COSTS, IT
DOES NOT APPEAR THAT THE NEED TO MAKE SUCH ESTIMATES ALTERS THE
REQUIREMENTS TO PROVIDE THE REQUESTED DISCLOSURE. REFER TO 5-03(B)(2) OF
REGULATION S-X. AS PREVIOUSLY REQUESTED, PLEASE QUANTIFY THE COSTS THAT
REPRESENT THE COST OF PROVIDING MAINTENANCE AND SUPPORT REVENUES THAT ARE
CURRENTLY INCLUDED IN "TECHNOLOGY AND SUPPORT". ADDITIONALLY, PLEASE REVISE
YOUR FINANCIAL STATEMENTS TO PRESENT COST OF MAINTENANCE AND SUPPORT OR
ADVISE WHY SUCH REVISION IS NOT NECESSARY.
We estimate cost of maintenance as $41.7 million, $42.1 million and $41.9
million, for the years ended March 31, 2006, 2005 and 2004, respectively.
This is approximately 3.5%, 3.4% and 3.3% of total revenue and 3.9%, 3.7%
and 3.4% of operating expenses for the years ended March 31, 2006, 2005 and
2004, respectively.
Disclosing the cost of maintenance separately in the statement of
operations would have had no impact on net income, income from operations
or total operating expenses. However, as requested, we will disclose the
cost of maintenance as a separate line item in the statement of operations
in future filings for all periods presented beginning with the Form 10-Q
for the quarter ending December 31, 2006.
2
NOTE 16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED), PAGE 68
3. WE HAVE READ YOUR RESPONSE TO PRIOR COMMENT NUMBER 4 AND IT REMAINS UNCLEAR
TO US WHY YOU BELIEVE THAT YOU HAVE COMPLIED WITH ITEM 302(A)(1) OF
REGULATION S-K. IN THIS REGARD, YOU MUST PRESENT GROSS MARGIN AS REQUIRED
BY THIS ITEM OR PRESENT COST OF SALES AS ALLOWED BY QUESTION 3 OF SAB TOPIC
6.G. PLEASE NOTE THAT YOUR PRESENTATION OF COST OF SALES SHOULD BE IN
ACCORDANCE WITH 5-03(B)(2) OF REGULATION S-X AS NOTED IN COMMENT NUMBER 2
ABOVE. PLEASE REVISE YOUR PRESENTATION OR ADVISE WHY SUCH REVISION IS NOT
NECESSARY.
As discussed in our response to comment number 2, we will include cost of
maintenance on the face of the statement of operations in all future
filings. The disclosure of this amount will allow a calculation of gross
margin to be included in this footnote. As a result, we will include this
disclosure in all applicable future filings beginning with the Form 10-K to
be filed for the year ending March 31, 2007.
We acknowledge that we are responsible for the adequacy and accuracy of the
disclosure in all Company filings. We understand that neither the staff's
comments nor changes we make to our disclosure in response to staff comments
foreclose the Commission from taking any action with respect to our filings and
that the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities laws of
the United States.
Please feel free to call me at (313) 227-7372 or Jean Rauchholz at (313)
227-7559 with any questions or if we can be of any assistance.
Very truly yours,
Laura Fournier
Senior Vice President, Treasurer and
Chief Financial Officer
3