Letter to Shareholders My Fellow Shareholders: Peter Karmanos, Jr. Chairman and CEO Compuware Corporation What a year it has been. Stock valuations across industries and markets are uniformly down. Macroeconomic conditions have had a significant impact on the technology business. Many unprofitable dot-coms and their shaky business models have dried up and blown away. Yet some companies, Compuware among them, remain profitable in this environment, because we offer compelling economic and technological value to our customers. At Compuware, this is a tribute to the loyal, talented and committed employees who dedicate themselves to our company, believe in our strategy and help make it a reality. I would also like to thank our shareholders for their continued support of this company. Since our Initial Public Offering (IPO) in 1992, Compuware's market capitalization has increased approximately 400 percent. If you have held Compuware shares since our IPO, you have earned a return of more than 227 percent, based on April 24, 2001 data. You have also witnessed numerous other periods of spectacular growth, including a three-year period when our stock delivered an 872.8 percent total return. I recognize this year has been an awful one for our shareholders and our business, but I believe Compuware has emerged stronger for it. Our company is more focused, more competitive and more responsive than we were when I last wrote you. We are aggressively monitoring our administrative costs and processes to ensure that our product developers and professional services staff are able to do what they do best: help our clients get more value from their computer systems. We will continue to use our administration and management teams to support our technical staff, allowing them the freedom to be innovative and successful. Despite changing technologies and newly emerging challenges, the roots of our business philosophy remain simple: We help people do things with computers. Compuware upholds these principles because they work, proven by the success we've experienced through nearly 29 years in the technology business. The Compuware philosophy doesn't prevent us from pursuing opportunities that involve new technologies. Rather, our processes, our people and our software continue to help our customers wring the most value out of all of their technology. This means that Compuware is not dependent on the technology of the moment, because we deliver value that transcends technological trends. Compuware's roots are described in our mission statement and business objectives, and I refer to them often, because I know they are the reason for our past achievements and the basis of our future success. "...Compuware is not dependent on the technology of the moment, because we deliver value that transcends technological trends." Peter Karmanos, Jr. Chairman and CEO Compuware Corporation Compuware's mission is to be the best worldwide provider of quality software products and professional services that increase productivity. We strive to meet the needs of our customers and exceed what they expect of us. Our continued success in accomplishing this mission enables us to reward our employees and shareholders. Our mission isn't complicated, but it's valuable. In times when everyone is watching the bottom line, few things are more valued than a trusted partner like Compuware, with our ability to help businesses save time and money. We use our business objectives as a map to accomplish our mission. These objectives are based on healthy growth and controlled costs. Our objectives are also centered on meeting the needs of our customers and surpassing their expectations for service. In the coming year, we will continue to work hard to meet all of our business objectives so we can fulfill our mission and, ultimately, increase the size and value of our company. The entire executive leadership team at Compuware is committed to achieving our mission and moving the company forward in a steady, sustainable manner that will help Compuware grow while giving you our investors, a solid return. The remainder of our 2001 Annual Report is focused on three topics: how we got to where we are today, how we plan to grow Compuware and why we expect to be successful. Before we examine these topics, let's review our plans and goals from last year. In our fiscal 2000 Annual Report, we described five objectives in our "Looking Ahead" section. Here are last year's goals and how we achieved them: 1 To transition our Professional Services Division (PSD) to a business model that emphasizes sales as well as delivery. We have spent the past year retooling our services division, Margins have improved significantly, from negative 8.4 percent at the close of the fiscal 2000 fourth quarter to positive 4.7 percent at the end of the fiscal 2001 fourth quarter. Our services organization, which is more focused and more competitive than it was a year ago, is now under the guidance of Senior Vice President Alan Cantrell. We have implemented organizational changes in the services business, allowing our sales force to work more directly with our clients. These organizational changes have not only improved our client relationships, they have given our customers more opportunities to directly communicate their business needs to our services team. Unfortunately, services results throughout the year were hampered by our continuing integration of DPRC into Compuware and, to a lesser extent, the economic climate. We are addressing these problems and we expect to increase profits and head count in the coming year. 2 Integrate product and professional services offerings more closely. Our PointForward solution is an example of our successful efforts in this area. Recently cited by industry analysts as a "visionary" offering, PointForward combines the technical strength of our software with the experience of our services staff. PointForward is delivered to our clients over the Internet, giving them a rapid and flexible solution for monitoring the performance of web-based applications. We plan to make further strides integrating our products and services, and we will continue to use our integrated solutions to differentiate ourselves from our competition. 3 "We are poised to achieve our goals, because our organization rests on a base of strong fundamentals and talented individuals." Peter Karmanos, Jr. Chairman and CEO Compuware Corporation Maintain our competitive edge in the mainframe market. We continue to develop and improve upon our industry-leading mainframe products. These products have helped thousands of organizations across the world save time and money. Our mainframe products provide powerful analysis and testing functionality across multiple platforms and help mainframe programmers test more accurately and reliably and recover from errors more quickly. The strength of our mainframe product line is its compelling value proposition, and I believe this segment of our business will continue to demonstrate solid growth. 4 Leverage our competitive strengths in the distributed systems market. Compuware has more than 25,000 customers who use our software or services. These clients know and trust Compuware, giving us a competitive advantage in sales of new distributed products. We will continue to put that advantage to full use. Compuware will also continue to capitalize on our position as one of the most profitable, financially stable companies in the distributed software market. Our profitability and financial stability allow us to invest significant resources in improving and integrating our distributed product family. We have continually enhanced our distributed products over the past year, and these efforts are beginning to pay off. In the fourth quarter of fiscal 2001, our new license revenue from distributed products showed a 27.2 percent rate of sequential growth. If this growth rate continues, we wouid see Compuware's distributed products revenue increase more than 150 percent over the next fiscal year. 5 Align the organization to better support customers and facilitate teamwork. A number of organizational changes took place in fiscal 2001 that will help us continue to meet this goal. Our executive team has been restructured, and I'm confident that we have chosen the right people for the challenges facing Compuware. We have also changed the structure of our products organization, from an organization based on individual product lines to an organization based on product functions. This new structure helps speed the integration of products with related functions and also helps get software to market more quickly. As I previously mentioned, we have also made significant changes to the structure of our services organization, allowing us to more efficiently and effectively serve our clients. Our successful work toward these goals has provided Compuware with a solid foundation from which to grow in fiscal 2002. During the upcoming fiscal year, we expect to increase our earnings per share in the 40-to-50 percent range, fueled by an increasingly profitable professional services business and improved software sales. I am energized and optimistic about fiscal year 2002. We are poised to achieve our goals, because our organization rests on a base of strong fundamentals and talented individuals. We are committed to delivering long-term value to our shareholders, our customers and our employees. We believe our strategy for the upcoming year will help us honor these commitments. Thank you for your investment in our company. Sincerely, Peter Karmanos, Jr. Chairman and CEO Compuware Corporation