<PAGE>


                                  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, 2006

                                       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 000-20900

                              COMPUWARE CORPORATION
                              ---------------------
             (Exact name of registrant as specified in its charter)

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


                   ONE CAMPUS MARTIUS, DETROIT, MI 48226-5099
           (Address of principal executive offices including zip code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check
one):
   Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]


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

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

As of July 31, 2006, there were outstanding 372,520,796 shares of Common Stock,
par value $.01, of the registrant.


                               Page 1 of 32 pages


<PAGE>


<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
PART I.  FINANCIAL INFORMATION


Item 1.  Financial Statements

         Condensed Consolidated Balance Sheets as of
         June 30, 2006 and March 31, 2006                                      3

         Condensed Consolidated Statements of Operations
         for the three months ended June 30, 2006 and 2005                     4

         Condensed Consolidated Statements of Cash Flows
         for the three months ended June 30, 2006 and 2005                     5

         Notes to Condensed Consolidated Financial
         Statements                                                            6

         Report of Independent Registered Public Accounting Firm              18

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                        19

Item 3.  Quantitative and Qualitative Disclosures about Market Risk           29

Item 4.  Controls and Procedures                                              29


PART II. OTHER INFORMATION

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds          30

Item 6.  Exhibits                                                             31

SIGNATURES                                                                    32
</TABLE>


                                       2
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (IN THOUSANDS)


<Table>
<Caption>
                                                        JUNE 30,      MARCH 31,
                                ASSETS                    2006          2006
                                                       ----------     ---------
                                                       (UNAUDITED)
<S>                                                    <C>            <C>
CURRENT ASSETS:
  Cash and cash equivalents                            $  610,890     $  612,062
  Investments                                             285,699        265,131
  Accounts receivable, net                                391,016        418,745
  Deferred tax asset, net                                  30,709         32,015
  Income taxes refundable, net                             72,923         77,956
  Prepaid expenses and other current assets                27,606         24,455
  Building - held for sale                                 13,000         14,816
                                                       ----------     ----------
    Total current assets                                1,431,843      1,445,180
                                                       ----------     ----------

INVESTMENTS                                                23,141         32,149
                                                       ----------     ----------

PROPERTY AND EQUIPMENT, LESS ACCUMULATED
  DEPRECIATION AND AMORTIZATION                           391,730        395,653
                                                       ----------     ----------

CAPITALIZED SOFTWARE, LESS ACCUMULATED
  AMORTIZATION                                             66,983         61,918
                                                       ----------     ----------

OTHER:
  Accounts receivable                                     194,268        206,964
  Deferred tax asset, net                                  13,781         13,983
  Goodwill                                                334,594        320,082
  Other                                                    35,933         35,039
                                                       ----------     ----------
    Total other assets                                    578,576        576,068
                                                       ----------     ----------

TOTAL ASSETS                                           $2,492,273     $2,510,968
                                                       ==========     ==========

                LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                     $   20,724     $   24,468
  Accrued expenses                                        148,223        170,590
  Deferred revenue                                        374,930        350,349
                                                       ----------     ----------
    Total current liabilities                             543,877        545,407

DEFERRED REVENUE                                          319,612        343,246

ACCRUED EXPENSES                                           14,593         17,244

DEFERRED TAX LIABILITY, NET                                28,380         25,572
                                                       ----------     ----------
    Total liabilities                                     906,462        931,469
                                                       ----------     ----------

SHAREHOLDERS' EQUITY:
  Common stock                                              3,737          3,779
  Additional paid-in capital                              759,962        763,420
  Retained earnings                                       811,504        805,781
  Accumulated other comprehensive income                   10,608          6,519
                                                       ----------     ----------
    Total shareholders' equity                          1,585,811      1,579,499
                                                       ----------     ----------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY             $2,492,273     $2,510,968
                                                       ==========     ==========
</TABLE>

See notes to condensed consolidated financial statements.


                                       3
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
                                   (UNAUDITED)


<Table>
<Caption>
                                          THREE MONTHS ENDED
                                               JUNE 30,
                                         ---------------------
                                           2006         2005
                                         --------     --------
<S>                                      <C>          <C>
REVENUES:
  Software license fees                  $ 67,465     $ 68,022
  Maintenance fees                        110,317      107,374
  Professional services fees              118,536      121,932
                                         --------     --------

    Total revenues                        296,318      297,328
                                         --------     --------

OPERATING EXPENSES:
  Cost of software license fees             6,585        5,687
  Cost of professional services           107,615      106,245
  Technology development and support       37,240       35,653
  Sales and marketing                      65,768       72,037
  Administrative and general               46,228       48,229
                                         --------     --------

    Total operating expenses              263,436      267,851
                                         --------     --------

INCOME FROM OPERATIONS                     32,882       29,477

OTHER INCOME, NET                          10,881        6,733
                                         --------     --------

INCOME BEFORE INCOME TAXES                 43,763       36,210

INCOME TAX PROVISION                       14,442       11,587
                                         --------     --------

NET INCOME                               $ 29,321     $ 24,623
                                         ========     ========

Basic earnings per share                 $   0.08     $   0.06
                                         ========     ========

Diluted earnings per share               $   0.08     $   0.06
                                         ========     ========
</TABLE>

See notes to condensed consolidated financial statements.


                                       4
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)


<Table>
<Caption>
                                                                  THREE MONTHS ENDED
                                                                       JUNE 30,
                                                               ------------------------
                                                                 2006           2005
                                                               ---------      ---------
<S>                                                            <C>            <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
  Net income                                                   $  29,321      $  24,623
  Adjustments to reconcile net income to net cash provided
    by operations:
    Depreciation and amortization                                 13,393         12,842
    Acquisition tax benefits                                       1,309          1,751
    Stock option compensation                                      2,797
    Deferred income taxes                                          4,700          7,280
    Other                                                           (136)         4,469
    Net change in assets and liabilities, net of
        effects from acquisitions:
        Accounts receivable                                       56,772         38,350
        Prepaid expenses and other current assets                 (2,565)        (2,705)
        Other assets                                                 667           (680)
        Accounts payable and accrued expenses                    (32,393)       (40,784)
        Deferred revenue                                         (14,614)         6,461
        Income taxes                                               4,626         (2,974)
                                                               ---------      ---------
          Net cash provided by operating activities               63,877         48,633
                                                               ---------      ---------

CASH FLOWS USED IN INVESTING ACTIVITIES:
  Purchase of:
      Businesses, net of cash acquired                           (20,484)       (30,917)
      Property and equipment                                      (2,663)        (3,120)
      Capitalized software                                        (5,486)        (5,324)
  Proceeds from sale of property                                   2,016
  Investments:
      Proceeds                                                   125,816        100,904
      Purchases                                                 (137,304)       (79,077)
                                                               ---------      ---------
          Net cash used in investing activities                  (38,105)       (17,534)
                                                               ---------      ---------

CASH FLOWS USED IN FINANCING ACTIVITIES:
  Net proceeds from exercise of stock options                        597          1,774
  Contribution to stock purchase plans                             1,504          2,405
  Repurchase of common stock                                     (32,839)       (10,770)
                                                               ---------      ---------
          Net cash used in financing activities                  (30,738)        (6,591)
                                                               ---------      ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                            3,794         (4,912)
                                                               ---------      ---------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS              (1,172)        19,596

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                 612,062        497,687
                                                               ---------      ---------

CASH AND CASH EQUIVALENTS AT END OF PERIOD                     $ 610,890      $ 517,283
                                                               =========      =========
</TABLE>

See notes to condensed consolidated financial statements.


                                       5
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements include
the accounts of Compuware Corporation and its wholly owned subsidiaries
(collectively, the "Company"). All intercompany balances and transactions have
been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by GAAP for complete
financial statements. Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, contingencies and results of operations. While management
has based their assumptions and estimates on the facts and circumstances
existing at June 30, 2006, final amounts may differ from these estimates.

In the opinion of management of the Company, the accompanying unaudited
condensed consolidated financial statements reflect all adjustments, consisting
only of normal recurring adjustments, 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, 2006 included in the
Company's Annual Report to Shareholders on Form 10-K filed with the Securities
and Exchange Commission ("SEC"). The condensed consolidated balance sheet at
March 31, 2006 has been derived from the audited financial statements at that
date but does not include all information and footnotes required by GAAP for
complete financial statements. The results of operations for interim periods are
not necessarily indicative of actual results achieved for full fiscal years.

Revenue Recognition - The Company earns revenue from licensing software
products, providing maintenance and support for those products and rendering
professional services. The Company's revenue recognition policies are consistent
with GAAP including Statements of Position 97-2 "Software Revenue Recognition"
and 98-9 "Modification of SOP 97-2, 'Software Revenue Recognition,' With Respect
to Certain Transactions", Securities and Exchange Commission Staff Accounting
Bulletin 104 and Emerging Issues Task Force Issue 00-21 "Revenue Arrangements
with Multiple Deliverables". Accordingly, the Company recognizes revenue when
all of the following criteria are met: persuasive evidence of an arrangement
exists, delivery has occurred or services have been rendered, the fee is fixed
or determinable, and collectibility is reasonably assured.

Software license fees - The Company's software license agreements provide its
customers with a right to use its software perpetually (perpetual licenses) or
during a defined term (term licenses). Perpetual license fee revenue is
recognized using the residual method, under which the fair value, based on
vendor specific objective evidence ("VSOE") of all undelivered elements of the
agreement (e.g., maintenance and professional services) is deferred. VSOE is
based on rates charged for maintenance and professional services when sold
separately. The remaining portion of the fee, net of discretionary discounts
(the residual), is recognized as license fee revenue upon delivery of the
products, provided that no significant obligations remain and collection of the
related receivable is deemed probable. For term licenses and for agreements in
which the fair value of the undelivered elements cannot be determined using
VSOE, the Company recognizes the license fee revenue on a ratable basis over the
term of the license agreement or when all elements have been delivered depending
on the nature of the undelivered elements.

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


                                       6
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


include one year of maintenance to large multi-year (generally two to five
years), multi-product contracts. The Company allows deferred payment terms on
multi-year contracts, with installments collectible over the term of the
contract. Based on the Company's successful collection history for deferred
payments, the license fee portion of the receivable is discounted to its net
present value and recognized as discussed above. The discount is recognized as
interest income over the term of the receivable.

Maintenance fees - The Company's maintenance agreements provide for technical
support and advice, including problem resolution services and assistance in
product installation, error corrections and any product enhancements released
during the maintenance period. Maintenance is included with all license
agreements for up to one year. Maintenance is renewable thereafter for an annual
fee. Maintenance fees are deferred and recognized as revenue on a ratable basis
over the maintenance period.

Professional services fees - Professional services fees are generally based on
hourly or daily rates; therefore, revenues from professional services are
recognized in the period the services are performed, provided that collection of
the related receivable is deemed probable. However, for development services
rendered under fixed-price contracts, revenue is recognized using the percentage
of completion method. Certain professional services contracts include a project
and on-going support for the project. Revenue associated with these contracts is
recognized over the support period as the customer derives value from the
services, consistent with the proportional performance method.

Capitalized Software - Capitalized software includes the costs of purchased and
internally developed software products and is stated at the lower of unamortized
cost or net realizable value in accordance with Statement of Financial
Accounting Standards No. 86, "Accounting for the Costs of Computer Software to
be Sold, Leased, or Otherwise Marketed". Capitalization of internally developed
software products begins when technological feasibility of the product is
established. Technology development and support includes primarily the costs of
programming personnel associated with product development and support net of
amounts capitalized.

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


                                       7
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


Goodwill and Other Intangibles - Goodwill that is allocated to each operating
segment and those intangible assets with indefinite lives are tested for
impairment annually and/or when events or circumstances indicate that their fair
value may have been reduced below carrying value. The Company evaluated its
goodwill as of March 31, 2006 and determined there was no impairment.

Income Taxes - The Company accounts for income taxes 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.

Stock-Based Compensation - Effective April 1, 2006, the Company adopted the
fair value recognition provisions of Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)") using the modified
prospective transition method and therefore has not restated results for prior
periods. Under this transition method, stock-based compensation expense for the
first quarter of fiscal 2007 includes compensation expense for all stock-based
compensation awards ("awards") granted prior to, but not yet vested as of April
1, 2006, based on the grant date fair value estimated in accordance with the
original provision of SFAS No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). Stock-based compensation expense for all awards granted after
April 1, 2006 is based on the grant-date fair value estimated in accordance with
the provisions of SFAS 123(R). The Company recognizes these compensation costs
net of an estimated forfeiture rate on a straight-line basis over the requisite
service period of the award, which is generally the vesting term of five years.
In March 2005, the Securities and Exchange Commission (the "SEC") issued Staff
Accounting Bulletin No. 107 ("SAB 107") regarding the SEC's interpretation of
SFAS 123(R) and the valuation of share-based payments for public companies. The
Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).
See Note 5 to the condensed consolidated financial statements for a further
discussion on stock-based compensation including the impact on net income during
the period.

Prior to the adoption of SFAS No. 123(R), the Company measured compensation
expense for its stock-based compensation plans using the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB No. 25"). Awards were granted at current market
prices at the date of grant. Therefore, no compensation cost was recognized for
the Company's fixed stock option plans or its stock purchase plans. The Company
applied the disclosure provisions of SFAS No. 123, as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure", as if
the fair-value-based method had been applied in measuring compensation expense.

Recently Issued Accounting Pronouncements - In July 2006, the Financial
Accounting Standards Board (FASB) issued FASB Interpretation No. 48, "Accounting
for Uncertainty in Income Taxes--an interpretation of FASB Statement No. 109",
which clarifies the accounting for uncertainty in tax positions. This
Interpretation requires that the Company recognize in its financial statements,
the impact of a tax position, if that position is more likely than not of being
sustained on audit, based on the technical merits of the position. This
Interpretation is effective for fiscal years beginning after December 15, 2006,
with the cumulative effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. Management is currently considering the
impact this Interpretation will have on the Company's financial statements.


                                       8
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


NOTE 2 - ACQUISITION

In April 2006, the Company acquired SteelTrace Limited, a privately held
provider of requirements management products that align application delivery to
business needs through a structured, visual approach to the management of
enterprise application requirements, for approximately $20.0 million in cash.
The acquisition has been accounted for using the purchase method in accordance
with SFAS No. 141, "Business Combinations" and, accordingly, the assets and
liabilities acquired have been recorded at preliminary fair value as of the
acquisition date. The purchase price exceeded the fair value of the acquired
assets and liabilities by $14.2 million and was recorded to goodwill. Intangible
assets subject to amortization totaled $6.5 million of which $4.7 million and
$1.5 million related to purchased software and customer relationships with a
useful life of five and three years, respectively. The remaining intangible
assets subject to amortization have a useful life of one year.


NOTE 3 - COMPUTATION OF EARNINGS PER COMMON SHARE

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

<Table>
<Caption>
                                                            Three Months Ended
                                                                  June 30,
                                                           ---------------------
                                                             2006         2005
                                                           --------     --------
<S>                                                        <C>          <C>
BASIC EARNINGS PER SHARE:
Numerator: Net income                                      $ 29,321     $ 24,623
                                                           --------     --------
Denominator:
   Weighted-average common shares outstanding               376,759      388,243
                                                           --------     --------
Basic earnings per share                                   $   0.08     $   0.06
                                                           ========     ========
DILUTED EARNINGS PER SHARE:
Numerator: Net income                                      $ 29,321     $ 24,623
                                                           --------     --------
Denominator:
   Weighted-average common shares outstanding               376,759      388,243
   Dilutive effect of stock options                             768        1,680
                                                           --------     --------
   Total shares                                             377,527      389,923
                                                           --------     --------
Diluted earnings per share
                                                           $   0.08     $   0.06
                                                           ========     ========
</TABLE>


During the three months ended June 30, 2006 and 2005, stock options to purchase
a total of approximately 50,112,000 and 58,121,000 shares, respectively, were
excluded from the diluted earnings per share calculation because they were
anti-dilutive.


                                       9
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


NOTE 4 - COMPREHENSIVE INCOME

Other comprehensive income includes unrealized gains and losses on marketable
securities and foreign currency translation gains and losses that have been
excluded from net income and reflected in equity. Total comprehensive income is
summarized as follows (in thousands):

<Table>
<Caption>
                                   Three Months Ended
                                         June 30,
                                  ---------------------
                                    2006         2005
                                  --------     --------
<S>                               <C>          <C>
Net income                        $ 29,321     $ 24,623
Unrealized gain on marketable
 securities, net of tax                 58
Foreign currency translation
 adjustment, net of tax              4,031       (2,216)
                                  --------     --------
Total comprehensive income        $ 33,410     $ 22,407
                                  ========     ========
</Table>


NOTE 5 - STOCK BENEFIT PLANS AND STOCK-BASED COMPENSATION

Employee Stock Purchase Plan - During fiscal 2002, the shareholders approved
international and domestic employee stock purchase plans under which the Company
was authorized to issue up to 15 million shares of common stock to eligible
employees. Effective April 1, 2005, the offering periods were based on a three
month period. Under the terms of the plan, employees can elect to have up to ten
percent of their compensation withheld to purchase Company stock at the close of
the offering period. The value of the stock purchased in any calendar year
cannot exceed $25,000 per employee. Effective April 1, 2006, the purchase price
is 95% of the last day's average high and low price for each offering period
consistent with the non-compensatory requirements of SFAS 123(R).

Employee Stock Option Plans - The Company adopted five employee stock option
plans dating back to 1991. These plans provide for grants of options to purchase
up to 91,000,000 shares of the Company's common stock to employees and directors
of the Company. Under the terms of the plans, the Company may grant nonqualified
options at the fair market value of the stock on the date of grant. Fifty
percent of the option shares granted under these plans become exercisable on the
third year anniversary of the date of grant, and 25 percent of the option shares
vest 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.

In March 2001, the Company adopted the 2001 Broad Based Stock Option Plan. The
plan was approved by the Board of Directors, but was not submitted to the
shareholders for approval, as shareholder approval was not required at the time.
The plan provides for grants of options to purchase up to 50,000,000 shares of
the Company's common stock to employees or directors of the Company. Under the
terms of the plan, the Company may grant nonqualified stock options at the fair
market value of the stock on the date of grant. Option shares granted under the
Broad Based Stock Option Plan either vest every six months over a four year
period or fifty percent of the option shares become exercisable on the third
year anniversary of the date of grant, and 25 percent of the option shares vest
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.

Non-Employee Director Stock Option Plan - In July 1992, the Company adopted the
Stock Option Plan for Non-Employee Directors. Under this plan, 2,400,000 shares
of common stock are reserved for issuance to non-employee directors of the
Company who have not been employees of the Company, any subsidiary of the
Company or any entity which controls more than 10% of the total combined voting
power of the Company's capital stock for at least one year prior to becoming a
director.


                                       10
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


During fiscal 1999, the Company implemented a Replacement Stock Option Award
program. The program allows selected participants to pay the option exercise
price with shares of currently owned Company stock. The Company grants a new
stock option award to replace the shares exchanged in the transaction.

The following is a summary of the status of fixed stock option grants under
Compuware's stock-based compensation plans as of June 30, 2006 and changes
during the three months ended June 30, 2006 (intrinsic values and shares in
thousands):


<Table>
<Caption>
                                                                   Three Months Ended
                                                                     June 30, 2006
                                                 -----------------------------------------------------
                                                                              Weighted
                                                                Weighted       Average
                                                                Average       Remaining      Aggregate
                                                 Number of      Exercise     Contractual     Intrinsic
                                                  Options         Price         Term         Value (1)
                                                 ---------      --------     -----------     ---------
<S>                                              <C>            <C>          <C>             <C>
Options outstanding as of April 1, 2006             55,710      $  11.66
  Granted                                              611          7.58
  Exercised                                           (134)         3.68                     $     514
  Forfeited                                           (346)         6.67
  Cancelled/expired                                 (1,529)        10.78
                                                 ---------      --------
Options outstanding as of June 30, 2006             54,312      $  11.69
                                                 =========      ========

Options vested and expected to vest, net of
  estimated forfeitures, as of June 30, 2006        52,957      $  11.80            3.79     $   3,128

Options exercisable as of June 30, 2006             46,853      $  12.41            3.25     $   1,497
</Table>

(1)  For options exercised during the three months ended June 30, 2006, the
     aggregate intrinsic value represents the difference between the Company's
     closing stock price on the date the option was exercised and the exercise
     price, multiplied by the number of options exercised. For options vested
     and expected to vest, net of estimated forfeitures and options exercisable
     as of June 30, 2006, the aggregate intrinsic value represents the
     difference between the Company's closing stock price on the last trading
     day of the first quarter of fiscal 2007 and the exercise price, multiplied
     by the number of in-the-money options that would have been received by the
     option holders had the vested options been exercised on June 30, 2006. This
     amount changes based upon changes in the fair market value of the Company's
     stock.

SFAS No. 123(R) requires the use of a valuation model to calculate the fair
value of stock option awards. The Company has elected to use the Black-Scholes
option pricing model, which incorporates various assumptions including
volatility, expected term, and risk free interest rates. The volatility is based
on historical volatility of the Company's common stock over the most recent
period commensurate with the estimated expected term of the stock option
granted. The Company uses historical volatility because management believes such
volatility is representative of prospective trends. The expected term of an
award is based on the "short-cut" method as described in SAB 107. The risk-free
interest rate assumption is based upon observed interest rates appropriate for
the expected term of our awards. The dividend yield assumption is based on the
Company's history and expectation of dividend payouts.

As of June 30, 2006, $17.4 million of total unrecognized compensation cost, net
of estimated forfeitures, related to stock options is expected to be recognized
over a weighted-average period of approximately 1.97 years.


                                       11
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


The weighted-average fair value of stock options granted during the three months
ending June 30, 2006 was determined utilizing the following assumptions:


<Table>
<Caption>
                                                       Three Months Ended
                                                          June 30, 2006
                                                       ------------------
<S>                                                    <C>
Expected volatility                                                 69.77%
Risk-free interest rate                                              5.16%
Expected lives at date of grant (in years)                            6.9
Weighted-average fair value of the options granted     $             5.28
</Table>

For the three months ending June 30, 2006 stock-based compensation expense was
allocated as follows (in thousands):


<Table>
<Caption>
                                                     Three Months Ended
                                                       June 30, 2006
                                                     ------------------
<S>                                                  <C>
Stock-based compensation classified as:

  Cost of professional services                      $              419
  Technology development and support                                251
  Sales and marketing                                             1,378
  Administrative and general                                        749
                                                     ------------------
Total stock-based compensation expense
  before income taxes                                             2,797

Income tax benefit                                                 (923)
                                                     ------------------

Total stock-based compensation expense
  after income taxes                                 $            1,874
                                                     ==================
</Table>


                                       12
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


Prior to the adoption of SFAS 123(R), the Company accounted for stock-based
awards using the intrinsic value method in accordance with APB 25. Under the
intrinsic value method, no stock based compensation expense had been recognized
in the results of operations for stock-based awards because the exercise price
of the stock options granted equaled the fair market value of the underlying
stock at the date of grant. By electing the modified prospective transition
method allowed under SFAS 123(R), the Company's Consolidated Statements of
Operations prior to fiscal 2007 have not been restated to reflect, and do not
include, the impact of SFAS 123(R).

If compensation cost for the Company's stock-based compensation plans had been
determined based on the fair value at the grant dates for the three months ended
June 30, 2005 consistent with the method prescribed by SFAS No. 123(R), the
Company's net income and earnings per share would have been adjusted to the pro
forma amounts indicated below (in thousands, except earnings per share data):


<Table>
<Caption>
                                    Three Months Ended
                                       June 30, 2005
                                    ------------------
<S>                                 <C>
Net income:
  As reported                       $           24,623
  Compensation cost, net of tax                 (2,494)
                                    ------------------
  Pro forma                         $           22,129
                                    ==================

Earnings per share:
  As reported:
     Basic earnings per share       $             0.06
     Diluted earnings per share                   0.06
  Pro forma:
     Basic earnings per share                     0.06
     Diluted earnings per share                   0.06
</Table>

The fair value of each option granted during the three months ended June 30,
2005 was estimated on the date of grant using the Black-Scholes option-pricing
model with the following weighted-average assumptions:


<Table>
<Caption>
                                                       Three Months Ended
                                                         June 30, 2005
                                                       ------------------
<S>                                                    <C>
Expected volatility                                                 74.27%
Risk-free interest rate                                              3.61%
Expected lives at date of grant (in years)                            5.0
Weighted average fair value of the options granted     $             4.32
</Table>


Dividend yields were not a factor as the Company has never issued cash dividends
and does not anticipate issuing cash dividends in the future.


                                       13
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


NOTE 6 -- GOODWILL AND INTANGIBLE ASSETS

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

<Table>
<Caption>
                                                      June 30, 2006
                                    -------------------------------------------------
                                    Gross Carrying      Accumulated      Net Carrying
                                        Amount         Amortization         Amount
                                    --------------     ------------      ------------
<S>                                 <C>                <C>               <C>
Unamortized intangible assets:
   Trademarks (1)                   $        5,853                       $      5,853
                                    ==============     ============      ============

Amortized intangible assets:
   Capitalized software (2)         $      306,545     $   (239,562)     $     66,983
   Customer relationship
     agreements (3)                          9,799           (2,810)            6,989
   Non-compete agreements (3)                2,280           (1,422)              858
   Other (4)                                 7,747           (6,167)            1,580
                                    --------------     ------------      ------------
Total amortized intangible assets   $      326,371     $   (249,961)     $     76,410
                                    ==============     ============      ============
</TABLE>


<TABLE>
<CAPTION>
                                                      March 31, 2006
                                    -------------------------------------------------
                                    Gross Carrying      Accumulated      Net Carrying
                                        Amount         Amortization         Amount
                                    --------------     ------------      ------------
<S>                                 <C>                <C>               <C>
Unamortized intangible assets:
   Trademarks (1)                   $        5,853                       $      5,853
                                    ==============     ============      ============

Amortized intangible assets:
   Capitalized software (2)         $      295,996     $   (234,078)     $     61,918
   Customer relationship
     agreements (3)                          8,250           (2,251)            5,999
   Non-compete agreements (3)                2,057           (1,164)              893
   Other (4)                                 7,366           (5,775)            1,591
                                    --------------     ------------      ------------
Total amortized intangible assets   $      313,669     $   (243,268)     $     70,401
                                    ==============     ============      ============
</Table>

(1)  Certain trademarks were acquired as part of the Covisint, LLC ("Covisint")
     and Changepoint Corporation ("Changepoint") acquisitions in fiscal 2004 and
     2005. These trademarks are deemed to have an indefinite life and therefore
     are not being amortized.

(2)  Amortization of capitalized software is primarily included in "cost of
     software license fees" in the consolidated statements of operations.
     Capitalized software is generally amortized over five years.

(3)  Customer relationship agreements and non-compete agreements were acquired
     as part of recent acquisitions. The customer relationship agreements are
     being amortized over periods up to five years. The non-compete agreements
     are being amortized over periods up to three years.

(4)  Other amortized intangible assets include trademarks associated with
     product acquisitions and Covisint customer contracts. The trademarks are
     being amortized over periods up to ten years. The Covisint customer
     contracts are being amortized over three years.


                                       14
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


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


<Table>
<Caption>
Goodwill                                       Products       Services       Total
                                              ---------      ---------     ---------
<S>                                           <C>            <C>           <C>
   Balance at March 31, 2006, net             $ 178,910      $ 141,172     $ 320,082
   Acquisition                                   14,175                       14,175
   Adjustments to previously recorded
     purchase price                                   2                            2
   Effect of foreign currency translation           (57)           392           335
                                              ---------      ---------     ---------

   Balance at June 30, 2006, net              $ 193,030      $ 141,564     $ 334,594
                                              =========      =========     =========
</Table>


NOTE 7 -- PROPERTY AND EQUIPMENT

During fiscal 2006, the Company implemented a plan to market and sell the former
distribution center located in West Bloomfield, Michigan. The building was
classified in current assets as held for sale with a carrying value of $1.8
million at March 31, 2006. This building was sold during the first quarter of
fiscal 2007 for approximately $2.0 million.

During fiscal 2005, the Company implemented a plan to market and sell the former
headquarters building located in Farmington Hills, Michigan. The Company has
been unable to reach an agreement with a buyer to dispose of the building.
Nothing has come to the Company's attention that would warrant an adjustment to
the carrying value at this time. The building is classified in current assets as
held for sale with a carrying value of $13.0 million at June 30, 2006.


                                       15
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


NOTE 8 - SEGMENTS

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

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


<Table>
<Caption>
                                    Three Months Ended
                                          June 30,
                                  ------------------------
                                    2006           2005
                                  ---------      ---------
<S>                               <C>            <C>
Revenues:
   Products:
     Mainframe                    $ 119,741      $ 123,376
     Distributed systems             58,041         52,020
                                  ---------      ---------
       Total product revenue        177,782        175,396
   Professional services            118,536        121,932
                                  ---------      ---------
Total revenues                    $ 296,318      $ 297,328
                                  =========      =========
Operating expenses:
   Products                       $ 109,593      $ 113,377
   Professional services            107,615        106,245
   Corporate expenses                46,228         48,229
                                  ---------      ---------
Total operating expenses          $ 263,436      $ 267,851
                                  =========      =========
Income (loss) from operations
 before other income:
   Products                       $  68,189      $  62,019
   Professional services             10,921         15,687
   Corporate expenses               (46,228)       (48,229)
                                  ---------      ---------
Income from operations
 before other income                 32,882         29,477
   Other income                      10,881          6,733
                                  ---------      ---------
Income before income taxes        $  43,763      $  36,210
                                  =========      =========
</Table>


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


<Table>
<Caption>
                                        Three Months Ended
                                              June 30,
                                      -----------------------
                                        2006          2005
                                      ---------     ---------
<S>                                   <C>           <C>
Revenues:
   United States                      $ 202,632     $ 199,481
   Europe and Africa                     67,472        75,483
   Other international operations        26,214        22,364
                                      ---------     ---------
Total revenues                        $ 296,318     $ 297,328
                                      =========     =========
</Table>


                                       16
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                        THREE MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)


NOTE 9 - RESTRUCTURING ACCRUAL

In the fourth quarter of fiscal 2002, the Company adopted a restructuring plan
to reorganize its operating divisions, primarily the professional services
segment. These changes were designed to increase profitability by better
aligning cost structures with current market conditions.

The restructuring plan included a reduction of professional services staff at
certain locations, the closing of entire professional services offices and a
reduction of sales support personnel, lab technicians and related administrative
and financial staff. Approximately 1,600 employees worldwide were terminated as
a result of the reorganization.

The following table summarizes the restructuring accrual as of March 31, 2006,
and charges against the accrual during the first three months of fiscal 2007 (in
thousands):


<Table>
<Caption>
                                                         Charges and
                                                     adjustments against
                                      Balance at     the accrual during      Balance at
                                       March 31,      the quarter ended       June 30,
                                         2006           June 30, 2006          2006
                                      ----------     -------------------     ----------
<S>                                   <C>            <C>                     <C>
Facilities costs (primarily lease
  abandonments)                       $    5,950     $               378     $    5,572
</Table>


NOTE 10 - DEBT

The Company has no long term debt.

As of June 30, 2006, the Company held a $100 million revolving credit facility
maturing on July 27, 2006. If at any time the combined unencumbered liquid
assets of the Company (as defined in the credit facility) are less than $200
million, the credit facility will be reduced to $50 million. Interest is payable
at 1% over the Eurodollar rate or at the prime rate (8.25% at June 30, 2006), at
the Company's option. The terms of the credit facility contain, among other
provisions, a covenant to maintain a minimum $1 billion consolidated net worth,
and specific limitations on additional indebtedness, liens and merger activity.
No borrowings have occurred or are planned under this facility.

On July 27, 2006, the Company amended the credit agreement extending the
maturity to July 26, 2007. The amended credit agreement eliminated the liquidity
and net worth covenants and no longer restricts merger and acquisition activity
when the Company is the continuing or surviving entity. Interest is payable at
1% over the Eurodollar rate or at the prime rate.


                                       17


<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Shareholders of
Compuware Corporation
Detroit, Michigan


We have reviewed the accompanying condensed consolidated balance sheet of
Compuware Corporation and subsidiaries (the "Company"), as of June 30, 2006, and
the related condensed consolidated statements of operations and cash flows for
the three-month periods ended June 30, 2006 and 2005. These interim financial
statements are the responsibility of the Company's management.

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

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

As discussed in Note 1 to the condensed consolidated financial statements,
effective April 1, 2006, the Company changed its method of accounting for stock
based compensation to conform to Statement of Financial Accounting Standards No.
123R, Share-Based Payment.

We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet of Compuware Corporation and subsidiaries as of March 31, 2006, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended (not presented herein); and in our report dated
May 15, 2006, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of March 31, 2006 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.


DELOITTE & TOUCHE LLP


Detroit, Michigan
August 2, 2006


                                       18
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)

FORWARD-LOOKING STATEMENTS

This discussion contains certain forward-looking statements within the meaning
of the federal securities laws which are identified by the use of the words
"believes," "expects," "anticipates," "will," "contemplates," "would" and
similar expressions that contemplate future events. 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. A summary of the
material risks and uncertainties that we believe affect us are highlighted below
and have not materially changed since the end of fiscal 2006 (see Item 1A Risk
Factors in our 2006 10-K for a more detailed explanation of each risk). These
risks and uncertainties are not the only ones we face. Additional risks and
uncertainties that we are not aware of or focused on or 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.

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

-    The majority of our software products revenue is dependent on our
     customers' continued use of International Business Machines Corp. ("IBM")
     and IBM-compatible products, and on the acceptance of our pricing structure
     for software licenses and maintenance.

-    Our software and technology may infringe the proprietary rights of others.

-    Our results could be adversely affected if our operating margins decline.

-    Our results could be adversely affected by increased competition, pricing
     pressures and technological changes.

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

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

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

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

-    A further decline in the U.S. domestic automotive manufacturing business
     could adversely affect our professional services business.

-    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.


                                       19
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


-    Our quarterly financial results vary and may be adversely affected by a
     number of unpredictable factors.

-    Maintenance revenue could decline.

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

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

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


OVERVIEW

In this section, we discuss our results of operations on a segment basis for
each of our financial reporting segments. We operate in two business segments in
the technology industry: products and professional services. We evaluate segment
performance based primarily on segment contribution before corporate expenses.
References to years are to fiscal years ended March 31. This discussion and
analysis should be read in conjunction with the unaudited 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, 2006, particularly "Item 7 --
Management's Discussion and Analysis of Financial Condition and Results of
Operations".

We deliver value to businesses worldwide by providing software products and
professional services that increase the efficiency and effectiveness of the
entire IT organization. Originally founded in 1973 as a professional services
company, in the late 1970's we began to offer mainframe productivity tools for
fault management and diagnosis, file and database management, and application
debugging.

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

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

-    Measure and manage application service using business-relevant metrics, and
     maintain consistent, high levels of service delivery.

-    Provide executive visibility, decision support and process automation
     across the entire IT organization to enable all available resources to be
     harnessed in alignment with business priorities.

Additionally, to be competitive in today's global economy, enterprises must
securely share applications, information and business processes. We address this
market need through our Covisint offerings, which help manage the supply chain
through the integration of vital business information and processes between
partners, customers and suppliers.

We focus on growing revenue and profit margins by enhancing and promoting our
current product lines, expanding our product and service offerings through key
acquisitions, developing strategic partnerships in order to provide clients with
our product solutions and managing our costs.


                                       20
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


The following occurred during the first quarter of 2007:

-    Acquired SteelTrace Limited ("SteelTrace"), a privately held provider of
     requirements management products.

-    Announced authorization by the Board of Directors to repurchase an
     additional $125 million of common stock of which approximately 4.5 million
     shares of our common stock was repurchased at an average price of $7.24 per
     share.

-    Improved the products contribution margin to 38.4% in the first quarter of
     2007 from 35.4% in the first quarter of 2006 due to continued distributed
     product revenue growth and reductions in sales and marketing expenditures.

-    Achieved an 11.6% increase in distributed product revenue compared to the
     first quarter of 2006. The increase was a reflection of our continued focus
     on promoting our distributed products and an expanding maintenance base for
     those products.

-    Incurred a 2.9% decrease in mainframe product revenue compared to the first
     quarter of 2006 primarily related to a decline in license revenue.

-    Released 3 mainframe and 12 distributed product updates designed to
     increase the productivity of the IT departments of our customers.

-    Hosted the Compuware Partner Summit, 2006, which highlighted collaboration
     between Compuware, its partners and their joint customers, focusing on
     innovations that drive business growth.

-    Experienced a decrease in professional services contribution margin to 9.2%
     in the first quarter of 2007 from 12.9% in the first quarter of 2006. The
     change is primarily due to reductions in professional services revenue and
     higher subcontract costs.

Our ability to achieve our strategies and objectives is subject to a number of
factors some of which we may not be able to control. See "Forward-Looking
Statements".


                                       21
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain operational
data from the 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
                                              Total Revenues
                                            ------------------
                                            Three Months Ended
                                                 June 30,           Period-
                                            ------------------     to-Period
                                             2006        2005       Change
                                            ------      ------     ---------
<S>                                         <C>         <C>        <C>
REVENUE:
   Software license fees                      22.8%       22.9%       (0.8)%
   Maintenance fees                           37.2        36.1         2.7
   Professional services fees                 40.0        41.0        (2.8)
                                            ------      ------
     Total revenues                          100.0       100.0        (0.3)
                                            ------      ------

OPERATING EXPENSES:
   Cost of software license fees               2.2         1.9        15.8
   Cost of professional services              36.3        35.8         1.3
   Technology development and support         12.6        12.0         4.5
   Sales and marketing                        22.2        24.2        (8.7)
   Administrative and general                 15.6        16.2        (4.1)
                                            ------      ------
     Total operating expenses                 88.9        90.1        (1.6)
                                            ------      ------
Income from operations                        11.1         9.9        11.6
Other income                                   3.7         2.3        61.6
                                            ------      ------
Income before income taxes                    14.8        12.2        20.9
   Income tax provision                        4.9         3.9        24.6
                                            ------      ------
Net income                                     9.9%        8.3%       19.1%
                                            ======      ======
</Table>


SOFTWARE PRODUCTS

REVENUE

Our products are designed to enhance the effectiveness of key disciplines
throughout the IT organization from application development and delivery to
service management and IT portfolio management supporting all major enterprise
computing platforms. Product revenue, which consists of software license fees
and maintenance fees, comprised 60.0% and 59.0% of total revenue during the
first quarter of 2007 and 2006, respectively.

Distributed software product revenue increased $6.0 million or 11.6% during the
first quarter of 2007 to $58.0 million from $52.0 million during the first
quarter of 2006. The increase was primarily due to license revenue growth
related to our Vantage product line resulting from increased customer demand for
performance-related software and the enhancement of Vantage to include agentless
monitoring through software acquired in the fiscal 2006 acquisition of Adlex,
Incorporated.

Mainframe software product revenue decreased $3.6 million or 2.9% during the
first quarter of 2007 to $119.8 million from $123.4 million during the first
quarter of 2006. The decline was primarily reflected in lower license revenue
due to decreased demand for capacity in our European operations.


                                       22
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


License revenue decreased $500,000 or 0.8% during the first quarter of 2007 to
$67.5 million from $68.0 million during the first quarter of 2006. The decline
was due to the reduction of $4.4 million in mainframe license revenue offset by
the increase in distributed license revenue.

Maintenance fees increased $2.9 million or 2.7% to $110.3 million during the
first quarter of 2007 from $107.4 million during the first quarter of 2006. The
increase was primarily due to an increase in distributed maintenance revenue
related to our Vantage and QACenter product lines.

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


<Table>
<Caption>
                                    Three Months Ended
                                         June 30,
                                   ---------------------
                                     2006         2005
                                   --------     --------
<S>                                <C>          <C>
United States                      $100,426     $ 94,866
Europe and Africa                    52,672       59,278
Other international operations       24,684       21,252
                                   --------     --------
Total product revenue              $177,782     $175,396
                                   ========     ========
</Table>


PRODUCT CONTRIBUTION AND EXPENSES

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


<Table>
<Caption>
                                    Three Months Ended
                                         June 30,
                                   ---------------------
                                     2006         2005
                                   --------     --------
<S>                                <C>          <C>
Revenue                            $177,782     $175,396
Expenses                            109,593      113,377
                                   --------     --------
Product contribution               $ 68,189     $ 62,019
                                   ========     ========
</Table>


The product segment generated contribution margins of 38.4% and 35.4% during the
first quarter of 2007 and 2006, respectively. Product expenses include cost of
software license fees, technology development and support costs and sales and
marketing expenses. These expenses are discussed below.

Cost of software license fees includes amortization of capitalized software, the
cost of duplicating and disseminating products to customers including associated
hardware costs and the cost of author royalties. For the first quarter of 2007,
cost of software license fees increased $900,000 or 15.8% to $6.6 million from
$5.7 million in the first quarter of 2006. The change in cost of software
license fees was primarily due to an increase in amortization expense related to
internally developed software products and amortization expense associated with
capitalized software purchased in recent acquisitions. As a percentage of
software license fees, costs of software license fees were 9.8% and 8.4% in the
first quarter of 2007 and 2006, respectively.


                                       23
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Technology development and support includes, primarily, the costs of programming
personnel associated with product development and support less the amount of
software development costs capitalized during the period. Also included here are
personnel costs associated with developing and maintaining internal systems and
hardware/software costs required to support technology initiatives. As a
percentage of product revenue, costs of technology development and support were
20.9% and 20.3% in the first quarter of 2007 and 2006, respectively.

Capitalization of internally developed software products begins when
technological feasibility of the product is established. Total technology
development and support costs incurred internally and capitalized in the first
quarter of 2007 and 2006 were as follows (in thousands):


<Table>
<Caption>
                                                           Three Months Ended
                                                                June 30,
                                                         ----------------------
                                                           2006          2005
                                                         --------      --------
<S>                                                      <C>           <C>
Technology development and support costs incurred        $ 42,722      $ 40,499
Capitalized technology development and support costs       (5,482)       (4,846)
                                                         --------      --------
Technology development and support costs reported        $ 37,240      $ 35,653
                                                         ========      ========
</Table>


Before the capitalization of internally developed software products, total
technology development and support expenditures for the first quarter of 2007
increased $2.2 million or 5.5%, to $42.7 million from $40.5 million in the first
quarter of 2006. The change in expense is primarily due to higher compensation
and benefit costs resulting from increased employee headcount, primarily
programming personnel, in order to meet new product initiatives.

Sales and marketing costs consists primarily of personnel related costs
associated with product sales and sales support and marketing for all our
offerings. For the first quarter of 2007, sales and marketing costs decreased
$6.2 million or 8.7% to $65.8 million from $72.0 million in the first quarter of
2006. The change in sales and marketing costs was primarily attributable to
higher severance expense being incurred during the first quarter of 2006 in our
European operations due to a worldwide sales realignment that occurred during
the quarter. There was no such initiative in the first quarter of 2007. In
addition, compensation and bonus costs were lower during the first quarter of
2007 due to the decrease in headcount that resulted from the realignment.

As a percentage of product revenue, sales and marketing costs were 37.0% and
41.1% in the first quarter of 2007 and 2006, respectively.


PROFESSIONAL SERVICES

REVENUE

We offer a broad range of IT services to help businesses make the most of their
IT assets. Some of these services include outsourcing and co-sourcing,
application management, product solutions, project management, enterprise
resource planning and customer relationship management services. Revenue from
professional services decreased $3.4 million or 2.8% during the first quarter of
2007 to $118.5 million compared to $121.9 million in the first quarter of


                                       24
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


2006. The decrease in revenue was primarily due to cost cutting initiatives
adopted by certain domestic customers within the automotive sector reducing the
spending on certain IT programs.

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


<Table>
<Caption>
                                         Three Months Ended
                                               June 30,
                                        ---------------------
                                          2006         2005
                                        --------     --------
<S>                                     <C>          <C>
United States                           $102,206     $104,615
Europe and Africa                         14,800       16,205
Other international operations             1,530        1,112
                                        --------     --------
Total professional services revenue     $118,536     $121,932
                                        ========     ========
</Table>


PROFESSIONAL SERVICES CONTRIBUTION AND EXPENSES

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


<Table>
<Caption>
                                         Three Months Ended
                                               June 30,
                                        ---------------------
                                          2006         2005
                                        --------     --------
<S>                                     <C>          <C>
Revenue                                 $118,536     $121,932
Expenses                                 107,615      106,245
                                        --------     --------
Professional services contribution      $ 10,921     $ 15,687
                                        ========     ========
</Table>


During the first quarter of 2007, the professional services segment generated a
contribution margin of 9.2%, compared to 12.9% during the first quarter of 2006.

Cost of professional services consists primarily of personnel-related costs of
providing services, including billable staff, subcontractors and sales
personnel. Cost of professional services increased $1.4 million or 1.3% during
the first quarter of 2007 to $107.6 million compared to $106.2 million in the
first quarter of 2006. The change was primarily attributable to higher
subcontractor costs to meet a European customer's increased demand for our
services.


CORPORATE AND OTHER EXPENSES

Administrative and general expenses primarily consist 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, utilities, etc., associated with worldwide sales and
professional services offices. Administrative and general expenses decreased
$2.0 million or 4.1% during the first quarter of 2007 to $46.2 million from
$48.2 million during the first quarter of 2006. The decrease in cost was
primarily attributable to an impairment charge of $3.9 million in the first
quarter of 2006 related to a purchased software application that management, at
that time, did not have plans to utilize. There was no significant impairment
charge incurred during the first quarter of 2007. This was offset by
approximately


                                       25
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


$2.2 million in foreign currency losses incurred in the first quarter of 2007
related to inter-company balances with our wholly owned subsidiaries.

Other income, net ("other income") consists primarily of interest income
realized from investments, interest earnings on deferred customer receivables
and income/losses generated from our investments in partially owned companies.
Other income increased $4.2 million or 61.6% during the first quarter of 2007 to
$10.9 million compared to $6.7 million in the first quarter of 2006. The change
in income was primarily attributable to an increase in investment interest
income due to higher interest rates earned on investments during the respective
periods of 2007 compared to 2006.

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. The income
tax provision was $14.4 million in the first quarter of 2007 and $11.6 million
for the first quarter of 2006, which represents an effective tax rate of 33% and
32%, respectively. The increase in the effective tax rate from 2006 to 2007 is
primarily due to expected increases in income before income taxes reducing the
effect of certain tax benefits compared to the prior year and in the
domestic/foreign composition of revenue.

RESTRUCTURING ACCRUAL

In the fourth quarter of 2002, we adopted a restructuring plan to reorganize our
operating divisions, primarily the professional services segment. These changes
were designed to increase profitability by better aligning cost structures with
current market conditions. See Note 9 to the Condensed Consolidated Financial
Statements for changes in the restructuring accrual for the first three months
of 2007.

MANAGEMENT'S DISCUSSION OF CRITICAL ACCOUNTING POLICIES

Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States. 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 the facts and circumstances known at June 30, 2006. However,
future events rarely develop exactly as forecast, and the best estimates
routinely require adjustment. The accounting policies discussed in Item 7 of our
Annual Report on Form 10-K for the year ended March 31, 2006 are considered by
management to be the most important to an understanding of the 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. These policies are also discussed in Note 1 of the Notes
to Consolidated Financial Statements included in Item 8 of that report. There
have been no material changes to that information since the end of fiscal 2006.


                                       26
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2006, cash and cash equivalents and investments totaled
approximately $919.7 million. During the first three months of 2007 and 2006,
cash flow from operations was $63.9 million and $48.6 million, respectively. The
increase was due to a decrease in cash paid to vendors, primarily legal
services, and to a decrease in cash paid for salaries and benefits due to lower
headcount, primarily within the professional services and sales and marketing
segments. During the first three months of 2007 and 2006, capital expenditures
including property and equipment and capitalized research and software
development totaled $8.1 million and $8.4 million, respectively.

We hold a $100 million revolving credit facility that would have matured on July
27, 2006 (see Note 9 to the Consolidated Financial Statements included in our
Annual Report on Form 10-K for the year ended March 31, 2006 for a description
of the facility). On July 27, 2006, we amended the credit agreement extending
the maturity to July 26, 2007 (see Note 10 to the Condensed Consolidated
Financial Statements for more details regarding amendments to the terms of the
facility). No borrowings have occurred under this facility since inception.

During fiscal 2005, we implemented a plan to market and sell the former
headquarters building located in Farmington Hills, Michigan. We have been unable
to reach an agreement with a buyer to dispose of the building. Nothing has come
to our attention that would warrant an adjustment to the carrying value at this
time. The building is classified in current assets as held for sale with a
carrying value of $13.0 million at June 30, 2006.

During fiscal 2006, we implemented a plan to market and sell the former
distribution center located in West Bloomfield, Michigan. This building was sold
during the first quarter of fiscal 2007 for approximately $2.0 million.

On April 13, 2006, we announced that the Board of Directors authorized the
repurchase of up to $125 million of our common stock. Our purchases of stock may
occur on the open market, through negotiated or block transactions based upon
market and business conditions. During the first three months of 2007, we
repurchased approximately 4.5 million shares of our common stock under this
program at an average price of $7.24 per share and a total cost of $32.8
million. Approximately $92.2 million remains for future purchases under this
program.

In April 2006, we acquired SteelTrace Limited, a privately held provider of
requirements management products that align application delivery to business
needs through a structured, visual approach to the management of enterprise
application requirements, for approximately $20.0 million in cash. The
acquisition has been accounted for using the purchase method in accordance with
SFAS No. 141, "Business Combinations" and, accordingly, the assets and
liabilities acquired have been recorded at preliminary fair value as of the
acquisition date.

We continue to evaluate business acquisition opportunities that fit our
strategic plans.

We believe available cash resources, together with cash flow from operations,
will be sufficient to meet cash needs for the foreseeable future.


                                       27
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (CONTINUED)


Recently Issued Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109", which clarifies the accounting for
uncertainty in tax positions. This Interpretation requires that we recognize in
our financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position. This Interpretation is effective for fiscal years beginning after
December 15, 2006, with the cumulative effect of the change in accounting
principle recorded as an adjustment to opening retained earnings. Management is
currently considering the impact this Interpretation will have on the financial
statements.

CONTRACTUAL OBLIGATIONS

Our contractual obligations are described in "Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations" contained in our
Annual Report on Form 10-K for the year ended March 31, 2006. Except as
described elsewhere in this report on Form 10-Q, there have been no material
changes to those obligations or arrangements outside of the ordinary course of
business since the end of fiscal 2006.


                                       28
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

       ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed primarily to market risks associated with movements in interest
rates and foreign currency exchange rates. There have been no material changes
to our foreign exchange risk management strategy or our investment standards
subsequent to March 31, 2006, therefore the market risks remain substantially
unchanged since we filed the Annual Report on Form 10-K for the fiscal year
ending March 31, 2006.


                         ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure
material information required to be disclosed in our reports that we file or
submit 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 our
management, including our 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, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 (the
"Exchange Act"). Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective, at the reasonable assurance level, to cause the material
information required to be disclosed in the reports that we file or submit under
the Exchange Act to be recorded, processed, summarized and reported within the
time periods specified in the Commission's rules and forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No changes in our internal control over financial reporting occurred during the
quarter ended June 30, 2006 that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.


                                       29
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

                           PART II - OTHER INFORMATION


      ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table sets forth, the repurchases of common stock for the quarter
ended June 30, 2006:


<Table>
<Caption>
                                                                  Total number of
                                                                      shares            Approximate
                                                                   repurchased as     dollar value of
                                                                  part of publicly    shares that may
                                Total number of   Average price      announced       yet be purchased
                                     shares         paid per      repurchase plans   under the plan or
            Period              repurchased (a)     share (a)      or program (a)       program (a)
            ------              ---------------   -------------   ----------------   -----------------
<S>                             <C>               <C>             <C>                <C>
As of March 31, 2006                                                                 $     125,000,000

April 1, 2006 - April 30, 2006                                                             125,000,000

May 1, 2006 - May 31, 2006            1,326,141   $        7.38          1,326,141         115,210,000

June 1, 2006 - June 30, 2006          3,207,406            7.19          4,533,547          92,161,000
                                ---------------   -------------
Total                                 4,533,547   $        7.24
                                ===============   =============
</Table>


(a)  On April 13, 2006, we announced that the Board of Directors has authorized
     the repurchase of $125 million of the Company's common stock. Our purchases
     of stock may occur on the open market or in negotiated or block
     transactions based upon market and business conditions. Unless terminated
     earlier by resolution of our Board of Directors, the share repurchase
     program will expire when we have repurchased all shares authorized for
     repurchase thereunder.


                                       30
<PAGE>


                     COMPUWARE CORPORATION AND SUBSIDIARIES

                           PART II - OTHER INFORMATION


ITEM 6.   EXHIBITS


       Exhibit
       Number    Description of Document

        4.7      Amendment No. 2, dated as of May 9, 2006, To Rights Agreement,
                 dated as of October 25, 2000, between Compuware Corporation and
                 Equiserve Trust Company, N.A. (now known as Computershare Trust
                 Company, N.A.) (1)

        4.8      Amended and Restated Credit Agreement Dated May 2, 2003 as of
                 July 27, 2006 (4)

        10.98    2005 Non-Employee Directors' Deferred Compensation Plan (2)

        10.99    Executive Incentive Plan -- Corporate, as of May 31, 2006 (3)

        10.101   Fifth Amendment to the Compuware Corporation ESOP/401(k)
                 Plan (4)

        15       Independent Registered Public Accounting Firm's Awareness
                 Letter (4)

        31.1     Certification of Chief Executive Officer pursuant to Rule
                 13a-14(a) of the Securities Exchange Act. (4)

        31.2     Certification of Chief Financial Officer pursuant to Rule
                 13a-14(a) of the Securities Exchange Act. (4)

        32       Certification pursuant to 18 U.S.C. Section 1350 and Rule
                 13a-14(b) of the Securities Exchange Act. (4)


(1)  Incorporated by reference to the first Form 8-K filed by the Company on May
     11, 2006.

(2)  Incorporated by reference to the second Form 8-K filed by the Company on
     May 11, 2006.

(3)  Incorporated by reference to the Form 8-K filed by the Company on June 6,
     2006.

(4)  Filed herewith.


                                       31
<PAGE>


                                   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 2, 2006             By:  /s/ Peter Karmanos, Jr.
              ---------------                 -----------------------

                                                  Peter Karmanos, Jr.
                                                  Chief Executive Officer
                                                  (duly authorized officer)




Date:         August 2, 2006             By:  /s/ Laura L. Fournier
              ---------------                 -----------------------

                                                  Laura L. Fournier
                                                  Senior Vice President
                                                  Chief Financial Officer
                                                  Treasurer


                                       32
<PAGE>


                                 Exhibit Index


       Exhibit
       Number    Description of Document

        4.7      Amendment No. 2, dated as of May 9, 2006, To Rights Agreement,
                 dated as of October 25, 2000, between Compuware Corporation and
                 Equiserve Trust Company, N.A. (now know as Computershare Trust
                 Company, N.A.) (1)

        4.8      Amended and Restated Credit Agreement Dated May 2, 2003 as of
                 July 27, 2006 (4)

        10.98    2005 Non-Employee Directors' Deferred Compensation Plan (2)

        10.99    Executive Incentive Plan -- Corporate, as of May 31, 2006 (3)

        10.101   Fifth Amendment to the Compuware Corporation ESOP/401(k)
                 Plan (4)

        15       Independent Registered Public Accounting Firm's Awareness
                 Letter (4)

        31.1     Certification of Chief Executive Officer pursuant to Rule
                 13a-14(a) of the Securities Exchange Act. (4)

        31.2     Certification of Chief Financial Officer pursuant to Rule
                 13a-14(a) of the Securities Exchange Act. (4)

        32       Certification pursuant to 18 U.S.C. Section 1350 and Rule
                 13a-14(b) of the Securities Exchange Act. (4)


(1)  Incorporated by reference to the first Form 8-K filed by the Company on May
     11, 2006.

(2)  Incorporated by reference to the second Form 8-K filed by the Company on
     May 11, 2006.

(3)  Incorporated by reference to the Form 8-K filed by the Company on June 6,
     2006.

(4)  Filed herewith.