Covansys (CVNS) 10-Q 2001 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2001

OR

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from                        to                        

Commission file number: 0-22141

COVANSYS CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Michigan
(State or Other Jurisdiction of
Incorporation or Organization) 38-2606945
(IRS Employer
Identification No.)

32605 West Twelve Mile Road

Suite 250

Farmington Hills, Michigan 48334

(Address of Principal Executive Offices and Zip Code)

Registrant’s telephone number, including area code:(248) 488-2088

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.     Yesx      Noo

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

No Par Value
(Class of Common Stock) 28,589,323
(Outstanding as of August 3, 2001)

TABLE OF CONTENTS

Employement Contract

Computation of Per Share Earnings

COVANSYS CORPORATION

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements		3
	Condensed Consolidated Balance Sheets		3
	Condensed Consolidated Statements of Operations		4
	Condensed Consolidated Statements of Cash Flows		5
	Notes to Condensed Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9
PART II. OTHER INFORMATION
Item 4.	Submission of Matters to a Vote of Security Holders		12
Item 6.	Exhibits		12
SIGNATURES			13

2

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

COVANSYS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

			June 30,			December 31,
			2001			2000
			(Dollars in thousands)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	103,324		$	140,123
	Accounts receivable, net			81,660			82,203
	Revenue earned in excess of billings, net			29,909			22,347
	Deferred and refundable income taxes			17,258			13,158
	Prepaid expenses and other			4,964			4,143
		Total current assets		237,115			261,974
Property and equipment, net				33,965			34,169
Computer software, net				2,891			3,409
Goodwill, net				11,070			11,398
Other assets, net				13,286			19,951
		Total assets	$	298,327		$	330,901
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	10,662		$	13,715
	Accrued payroll and related costs			28,315			27,581
	Other accrued liabilities			10,044			11,991
	Deferred revenue			269			1,787
		Total current liabilities		49,290			55,074
Deferred taxes				639			2,969
Other liabilities				—			92
Commitments and contingencies
Convertible redeemable preferred stock, no par value, 200,000 shares issued and outstanding as of June 30, 2001 and December 31, 2000, respectively				157,777			155,660
Shareholders’ equity:
	Preferred stock, no par value, 1,000,000 shares authorized, 200,000 issued as convertible redeemable preferred stock			—			—
	Common stock, no par value, 200,000,000 shares authorized, 28,573,073 and 29,577,428 shares issued and outstanding as of June 30, 2001 and December 31, 2000, respectively			—			—
	Additional paid-in capital			111,370			122,139
	Retained earnings (deficit)			(12,783	)		2,553
	Stock subscriptions receivable			(2,899	)		(3,176	)
	Other comprehensive loss			(5,067	)		(4,410	)
		Total shareholders’ equity		90,621			117,106
		Total liabilities and shareholders’ equity	$	298,327		$	330,901

The accompanying notes are an integral part of these condensed consolidated balance sheets.

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COVANSYS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2001			2000			2001			2000
			(In thousands, except per share data)
			(Unaudited)
Revenues			$	104,412		$	105,831		$	209,083		$	207,552
Cost of revenues:
	Salaries, wages and employee benefits			59,927			65,010			124,993			124,548
	Contractual services			10,056			7,422			17,739			12,743
	Project travel and relocation			4,108			4,631			7,823			9,317
	Depreciation and amortization			704			1,269			1,385			2,527
		Total cost of revenues		74,795			78,332			151,940			149,135
		Gross profit		29,617			27,499			57,143			58,417
Selling, general and administrative expenses				29,354			24,799			58,422			48,124
Restructuring and other				16,101			5,498			19,317			5,498
		Income (loss) from continuing operations		(15,838	)		(2,798	)		(20,596	)		4,795
Other expense (income)				(1,579	)		(1,264	)		(3,223	)		(2,130	)
		Income (loss) from continuing operations before provision (benefit) for income taxes		(14,259	)		(1,534	)		(17,373	)		6,925
Provision (benefit) for income taxes				(2,990	)		(35	)		(4,154	)		2,889
		Net income (loss) from continuing operations		(11,269	)		(1,499	)		(13,219	)		4,036
Loss from discontinued operations, net of income taxes				—			(541	)		—			(1,065	)
		Net income (loss)		(11,269	)		(2,040	)		(13,219	)		2,971
Beneficial conversion feature				—			23,651			—			23,651
Convertible redeemable preferred stock dividends				1,061			534			2,114			534
		Net loss available for common shareholders	$	(12,330	)	$	(26,225	)	$	(15,333	)	$	(21,214	)
Basic earnings (loss) per share — Weighted average shares outstanding				28,587			36,423			28,909			37,379
Basic earnings (loss) per share from continuing operations			$	(0.39	)	$	(0.04	)	$	(0.46	)	$	0.11
Basic loss per share from discontinued operations				—			(0.02	)		—			(0.03	)
Basic loss per share from preferred stock dividends				(0.04	)		(0.66	)		(0.07	)		(0.65	)
Basic loss per share			$	(0.43	)	$	(0.72	)	$	(0.53	)	$	(0.57	)
Diluted earnings (loss) per share — Weighted average shares outstanding				28,587			36,423			28,909			37,379
	Dilutive effect of stock options			—			—			—			—
	Diluted weighted average shares outstanding			28,587			36,423			28,909			37,379
Diluted earnings (loss) per share from continuing operations			$	(0.39	)	$	(0.04	)	$	(0.46	)	$	0.11
Diluted loss per share from discontinued operations				—			(0.02	)		—			(0.03	)
Diluted loss per share from preferred stock dividends				(0.04	)		(0.66	)		(0.07	)		(0.65	)
Diluted loss per share			$	(0.43	)	$	(0.72	)	$	(0.53	)	$	(0.57	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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COVANSYS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

				Six Months Ended
				June 30,
				2001			2000
				(Dollars in thousands)
				(Unaudited)
Cash flows from continuing operating activities:
	Net income (loss)			$	(13,219	)	$	2,971
	Adjustments to reconcile net income (loss) to net cash used in operating activities from continuing operations:
		Depreciation and amortization			5,658			6,052
		Provision for doubtful accounts			570			585
		Write-down of investment and receivable from affiliate			18,858			—
		Benefit for deferred income taxes			(6,430	)		—
		Loss from discontinued operations			—			1,065
		Change in assets and liabilities —
		Accounts receivable and revenue earned in excess of billings			(7,589	)		(22,078	)
		Prepaid expenses and other assets			365			(5,919	)
		Accounts payable, accrued payroll and related costs and other liabilities			(4,266	)		1,947
		Deferred revenue			(1,610	)		(270	)
			Net cash used in operating activities of continuing operations		(7,663	)		(15,647	)
Cash flows from investing activities:
	Investment in property, equipment and other				(4,608	)		(5,854	)
	Payment of loan guarantee for affiliate				(13,608	)		—
	Investment in computer software				—			(1,488	)
	Investments in affiliates and other				—			(7,807	)
	Business acquisitions and investments, net of cash acquired				—			(1,320	)
			Net cash used in investing activities of continuing operations		(18,216	)		(16,469	)
Cash flows from financing activities:
	Net proceeds from issuance of common stock				473			600
	Net proceeds from exercise of stock options and other, net				138			5,257
	Repurchases of common stock				(11,531	)		(52,157	)
	Net proceeds from issuance of convertible redeemable preferred stock and warrants				—			87,990
			Net cash provided (used) by financing activities of continuing operations		(10,920	)		41,690
Cash used in discontinued operations					—			(3,159	)
Increase (decrease) in cash and cash equivalents					(36,799	)		6,415
Cash and cash equivalents at beginning of period					140,123			91,236
Cash and cash equivalents at end of period				$	103,324		$	97,651
Supplemental disclosures of cash flow information:
	Cash paid during the period for:
		Income taxes		$	41		$	3,935

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

COVANSYS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except share and per share data)

(Unaudited)

1. Organization and Basis of Presentation

      Complete Business Solutions, Inc. was founded in 1985. In June 2001, Complete Business Solutions, Inc. changed its name to Covansys Corporation. Covansys Corporation and its subsidiaries (the Company) provide information technology (IT) services worldwide to large and mid-size organizations. The Company offers its clients a focused range of IT services specializing in Web-to-Enterprise Integration (WEI^sm), industry-solutions and strategic outsourcing. The Company’s range of experience runs from advising clients on IT business strategy and strategic technology plans to developing and implementing appropriate IT applications solutions.

      The accompanying condensed consolidated financial statements have been prepared by management, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial position of Covansys Corporation and subsidiaries as of June 30, 2001, the results of its operations for the three and six month periods ended June 30, 2001 and 2000, and cash flows for the six month periods ended June 30, 2001 and 2000. These financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s 2000 Form 10-K.

      The results of operations for the three and six month periods ended June 30, 2001 are not necessarily indicative of the results to be expected in future quarters or for the full fiscal year ending December 31, 2001.

2. Income Taxes

      The Company has provided (benefited) federal and state income taxes in the condensed consolidated statements of operations based on the anticipated effective tax rate for fiscal years 2001 and 2000.

3. Common Stock Repurchase Program

      The Company’s board of directors has authorized the repurchase of up to 12,000,000 shares of the Company’s Common Stock.

      Through December 31, 2000, the Company repurchased 8,017,600 shares of its Common Stock, for cash, at a total cost of $117,033. During the six month period ended June 30, 2001, the Company repurchased 1,076,600 shares of its Common Stock at a total cost of $11,531.

4. Convertible Redeemable Preferred Stock

      On March 17, 2000, the Company entered into an agreement with a fund managed by Clayton, Dubilier & Rice, Inc. (CDR) whereby CDR purchased, in two transactions, from the Company 200,000 shares of convertible redeemable preferred stock (Preferred Stock) for $200,000 and was issued warrants to purchase 5,300,000 shares of the Company’s Common Stock.

      The Preferred Stock is convertible at any time subsequent to issuance at a price of $23 per share, subject to certain adjustments, and may be redeemed, at CDR’s option, if not converted within ten years of the date of issuance. The warrants consist of seven-year warrants to purchase 3,500,000 shares at $25 per share and ten-year warrants to purchase 1,800,000 shares at $31 per share. All of the warrants become exercisable upon the earlier of the third anniversary of the date of issuance or the Company’s stock price exceeding a predetermined price for twenty consecutive trading days.

6

      Upon closing of the transactions, the proceeds were allocated to the convertible Preferred Stock and the warrants based on their relative fair values, with the convertible Preferred Stock classified outside of stockholders’ equity and the warrants as additional paid-in capital on the consolidated balance sheet. The difference between the fair value allocated to the convertible redeemable Preferred Stock and the fair value of the Company’s Common Stock was considered a beneficial conversion feature. The beneficial conversion feature, which does not affect net income was accounted for as a dividend on the convertible Preferred Stock in the period it was issued and as a reduction of income available to common shareholders in the computation of basic and fully diluted earnings per share.

      The Preferred Stock is redeemable at the option of the holder seven years from issuance. Due to the redeemable nature of the Preferred Stock, the difference between the proceeds allocated to the Preferred Stock and the amount of the redemption ($200,000) is being accreted to Preferred Stock over the redemption period as a dividend on Preferred Stock. The Preferred Stock ranks senior to common stock in the event of liquidation, has voting rights equal to the number of common shares into which it is convertible and is entitled to the same dividend as common stock if a dividend is declared.

      The Company also entered into an agreement with CDR whereby CDR will provide the Company financial and management advisory services.

5.  Discontinued Operations

      In June 2000, the Company’s board of directors adopted a plan to sell the operations of its contract programming services subsidiary, Synova. Accordingly, the accompanying condensed consolidated financial statements for the three and six month periods ended June 30, 2000 have been reclassified to reflect Synova as a discontinued operation. The net operating results of Synova have been reported, net of income taxes, as “loss from discontinued operations” in the accompanying condensed consolidated statements of operations. The net cash flows of Synova have been included in “cash used in discontinued operations” in the accompanying condensed consolidated statements of cash flows.

      Summarized financial information for the discontinued operations of Synova are as follows:

	Three Months			Six Months
	Ended			Ended
	June 30, 2000			June 30, 2000
Revenues	$	12,521		$	23,046
Loss from operations		(541	)		(1,065	)

      On September 28, 2000, the Company sold Synova to a related party in exchange for 750,000 shares of the Company’s Common Stock, determined to be the fair market value. As a result of this exchange the Company recorded a gain on the sale of a discontinued operation of $6,072, net of income taxes.

6.  Restructuring and Other Costs

      The Company had an equity investment in a management consulting firm and also provided a guarantee of the consulting firm’s bank debt. During the three month period ended June 30, 2001, the Company determined that this equity investment did not fit the strategic direction of the Company. In connection with that determination, the Company also decided to terminate its guarantee of the consulting firm’s bank debt. This decision resulted in the Company being required to pay the bank debt in the amount of $13,600. In return, the Company had a note receivable from the consulting firm in such amount.

      On July 31, 2001, the Company entered into an agreement with the consulting firm to terminate its current ownership interest, eliminate any required future equity investments and to reduce the $13,600 note receivable to $1,400. The Company also continues to guarantee a property lease for office space of the consulting firm and assumed $250 of liabilities of the consulting firm. Simultaneously with the closing of this agreement, the consulting firm paid $500 of the $1,400 note receivable. Accordingly, during the three month period ended June 30, 2001, the Company recorded a charge of $16,100 related primarily to the impairment of the equity investment and the note receivable and related transaction fees.

7

      During the three month period ended March 31, 2001, the Company incurred approximately $1,516 in costs for severance and certain non-recurring employee costs related to the Company’s organizational restructuring. The charge related to approximately 150 employees in the Company’s U.S. operations and management. In addition, the Company incurred approximately $1,700 in legal and advisory fees related to discontinued acquisition discussions. The majority of these costs have been paid by June 30, 2001.

8

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

     The following section should be read in conjunction with our Consolidated Financial Statements and related Notes appearing in this Form 10-Q. With the exception of statements regarding historical matters and statements concerning our current status, certain matters discussed in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements that involve substantial risks and uncertainties. Such forward-looking statements may be identified by the words “anticipate,” “believe,” “estimate,” “expect” or “intend” and similar expressions. Our actual results, performance or achievements could differ materially from these forward-looking statements. Factors that could cause or contribute to such material differences include our failure to recruit and retain IT professionals, risks related to our merger, acquisition and strategic investment strategy, variability of our quarterly operating results, government regulation of immigration, potential cost overruns on fixed-price projects, increasing significance of non-U.S. operations, exposure to regulatory, political and economic conditions in India, competition in the IT services industry, short-term and termination provisions of contracts, failure to properly manage growth, economic conditions unique to clients in specific industries, possible write-off of computer software costs, limited protection of intellectual property rights, and potential liability to clients, each of which are discussed in our 2000 Form 10-K.

Overview

      We provide IT services worldwide, offering clients flexible global delivery capabilities. Our strategy is to establish long-term client relationships and to secure additional engagements with existing clients by providing quality services and by being responsive to client needs. For each of the past five years, over 80% of our revenues were generated from existing clients from the previous fiscal year.

      We offer our clients a focused range of IT services specializing in Web-to-Enterprise Integration (WEI^sm), industry-solutions and strategic outsourcing. Our range of experience runs from advising clients on IT business strategic plans to developing and implementing appropriate IT applications solutions.

      We generally assume responsibility for project management and may bill the client on either a time-and-materials or fixed-price basis, although such projects are generally billed on a time-and-materials basis. We recognize revenues on time-and-materials engagements as the services are performed. On fixed-price engagements, we recognize revenues under the percentage of completion method.

      Our most significant cost is project personnel cost, which consists primarily of salaries, wages and benefits for our IT professionals. We strive to maintain our gross profit margin by controlling project costs and offsetting increases in salaries and benefits with increases in billing rates. We use a human resource allocation team to ensure that IT professionals are quickly placed on assignments to minimize nonbillable time and are placed on assignments that use their technical skills and allow for maximum billing rates.

Results of Operations

     Revenues. Revenues decreased slightly to $104.4 million for the three month period ended June 30, 2001 from $105.8 million for the same period in 2000. After adjusting the three month period ended June 30, 2000 for the impact of divisions that were sold or abandoned during the fourth quarter of 2000, proforma revenues for this period would have been $104.3 million. Revenues increased to $209.1 million for the six month period ended June 30, 2001 from $207.6 for the same six month period in 2000. After adjusting the six month period ended June 30, 2000 for the impact of divisions that were sold or abandoned during the fourth quarter of 2000, proforma revenues for this six month period would have been $204.5 million. The revenue increase for the six month period June 30, 2001 over proforma revenue for the same period in 2000 of 2% was primarily due to an increase in domestic average bill rates.

     Gross Profit. Gross profit consists of revenues less cost of revenues. Cost of revenues consists primarily of salaries (including nonbillable and training time), benefits, travel and relocation for IT professionals. In addition, cost of revenues includes depreciation and amortization, direct facility costs and contractual services. Gross profit increased approximately 7.7% to $29.6 million for the three month period ended June 30, 2001

9

from $27.5 million for the same period in 2000. Gross profit as a percentage of revenues increased to approximately 28.4% for the three month period ended June 30, 2001 from approximately 26.0% for the same period in 2000. These increases in gross profit and gross profit as a percentage of revenues is primarily attributable to increases in domestic utilization rates offset by reduced gross profit margins associated with an increased use of subcontractors. Gross profit decreased approximately 2.2% to $57.1 million for the six month period ended June 30, 2001 from $58.4 million for the same period in 2000. Gross profit as a percentage of revenues decreased to approximately 27.3% for the six month period ended June 30, 2001 from approximately 28.1% for the same period in 2000. These decreases in gross profit and gross profit as a percentage of revenues is primarily attributable to reductions in domestic and offshore utilization rates during the three month period ended March 31, 2001 compared to the same period in 2000.

     Selling, General and Administrative.  Selling, general and administrative expenses consist primarily of costs associated with our direct selling and marketing efforts, human resources and recruiting departments, administration and indirect facility costs. Selling, general and administrative expenses increased approximately 18.4% to $29.4 million for the three months ended June 30, 2001 compared to $24.8 million for the same period in 2000 and approximately 21.4% to $58.4 million for the six month period ended June 30, 2001 from $48.1 million for the same period in 2000. As a percentage of revenues, selling, general and administrative expenses increased from 28.1% for the three month period ended June 30, 2001 compared to 23.4% for the same period in 2000 and to 27.9% for the six month period ended June 30, 2001 from 23.2% for the same period in 2000. The increase is primarily due to the continued expansion of our selling and marketing organization, increased public relations and advertising costs associated with our new branding initiative and expansion of our vertically focused industry solutions groups.

     Other Expense (Income).  Other expense (income) represents interest earned on cash and cash equivalents. Other income for the three month period ended June 30, 2001 was $1.6 million, as compared to $1.3 million for the same period in 2000. The increase is primarily due to the interest earned from the investment of funds received in connection with the issuance of Convertible Redeemable Preferred Stock to Clayton, Dubilier & Rice, Inc. in mid 2000.

Restructuring and Other Costs

      The Company had an equity investment in a management consulting firm and also provided a guarantee of the consulting firm’s bank debt. During the three month period ended June 30, 2001, the Company determined that this equity investment did not fit the strategic direction of the Company. In connection with that determination, the Company also decided to terminate its guarantee of the consulting firm’s bank debt. This decision resulted in the Company being required to pay the bank debt in the amount of $13.6 million. In return, the Company had a note receivable from the consulting firm in such amount.

      On July 31, 2001, the Company entered into an agreement with the consulting firm to terminate its current ownership interest, eliminate any required future equity investments and to reduce the $13.6 million note receivable to $1.4 million. The Company also continues to guarantee a property lease for office space of the consulting firm and assumed $0.25 million of liabilities of the consulting firm. Simultaneously with the closing of this agreement, the consulting firm paid $0.5 million of the $1.4 million note receivable. Accordingly, during the three month period ended June 30, 2001, the Company recorded a charge of $16.1 million related primarily to the impairment of the equity investment and the note receivable and related transaction fees.

Liquidity and Capital Resources

      We generally fund our operations and working capital needs through internally generated funds, periodically supplemented by borrowings under our revolving credit facilities with a commercial bank. Our cash used in operations was $7.7 million for the six month period ended June 30, 2001 compared to $15.6 million for the same period in 2000. The decrease of cash used in operations is primarily due to reductions in accounts receivable days sales outstanding.

      The principal use of cash for investing activities during the six month period ended June 30, 2001 was the payment of the loan guarantee of an affiliate and for the purchase of property and equipment.

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      To facilitate future cash flow needs, we have an arrangement with a commercial bank where we may borrow an amount not to exceed $30.0 million with interest at the bank’s prime rate, or the LIBOR rate plus 1 1/4%. Borrowings under this facility are short-term payable on demand and are secured by our trade accounts receivable and equipment.

      Net cash used by financing activities of $10.9 million for the six month period ended June 30, 2001 was due primarily to the repurchase of 1,076,600 shares of our Common Stock, offset slightly by proceeds from stock option exercises and sales.

      Our offshore development centers’ operations accounted for approximately 9% of our total revenues during the six month period ended June 30, 2001. Most of our revenues are billed in U.S. dollars. We recognize transaction gains and losses in the period of occurrence. Foreign currency fluctuations during the six month period ended June 30, 2001 did not have a material impact on income from operations as currency fluctuations on revenue denominated in a foreign currency were offset by currency fluctuations on expenses denominated in a foreign currency. There were no material operating trends or effects on liquidity as a result of fluctuations in the functional currency. We do not generally use any types of derivatives to hedge against foreign currency fluctuations, nor do we speculate in foreign currency.

      Inflation did not have a material impact on our revenues or income from operations during the six month period ended June 30, 2001.

Recently Issued Financial Accounting Standards

      On June 30, 2001, the Financial Accounting Standards Board (FASB) issued Statement 141, Business Combinations, and Statement 142, Goodwill and Other Intangible Assets. Statement 141 requires all business combinations initiated after June 30, 2001 to be accounted for under the purchase method of accounting. Under Statement 142, goodwill and intangible assets that have indefinite useful lives will no longer be subject to amortization. Rather, goodwill and intangible assets will continue to be subject to at least an annual assessment for impairment. Under Statement 142, this is achieved by applying a fair-value based test. In addition, other intangible assets with finite useful lives will continue to be amortized over their estimated useful lives. The Company is required to adopt Statement 142 in the first quarter of 2002. Although management has not fully assessed the impact of these pronouncements, the Company will cease recognizing approximately $136,000 of quarterly goodwill amortization beginning in the first quarter of 2002.

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PART II.  OTHER INFORMATION

Item 4.  Submission of Matters to a Vote of Security Holders

      On June 5, 2001, the annual meeting of shareholders was held. The meeting was held for the following purposes:

1.	to consider and vote upon an amendment to the Articles of Incorporation changing the name of the company from Complete Business Solutions, Inc. to Covansys Corporation;
2.	to elect five directors to the Board of Directors; and
3.	to ratify the appointment of Arthur Andersen LLP as independent auditors for fiscal year 2001.

      The shareholders approved to amend the Articles of Incorporation changing the name of the company from Complete Business Solutions, Inc. to Covansys Corporation. The vote was 37,358,418 for, 35,323 against, and 10,333 abstain.

      The shareholders re-elected Mr. Michael W. Bealmear as director. The vote was 37,348,313 for and 55,761 withheld.

      The shareholders re-elected Mr. Doug S. Land as director. The vote was 36,684,578 for and 719,496 withheld.

      The shareholders re-elected Mr. Frank D. Stella as director. The vote was 37,351,061 for and 53,013 withheld.

      The shareholders re-elected Mr. Ronald K. Machtley as director. The vote was 37,252,730 for and 151,344 withheld.

      The shareholders re-elected Mr. David H. Wasserman as director. The vote was 37,254,370 for and 149,704 withheld.

      Mr. William C. Brooks, Mr. Kevin J. Conway and Mr. John Stanley continue as directors with terms expiring 2002. Mr. Rajendra B. Vattikuti and Mr. Ned C. Lautenbach continue as directors with terms expiring 2003.

      The shareholders approved the appointment of Arthur Andersen LLP as the independent auditors of Covansys Corporation for the year ending December 31, 2001. The vote was 36,850,231 for, 546,369 against and 7,474 abstain.

Item 6.  Exhibits

(a)  Exhibits

Number		Exhibit
	(10.1)	Employment contract between the Company and Michael W. Bealmear
	(11)	Computation of Earnings per share

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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.

COVANSYS CORPORATION

By:  /s/ MICHAEL W. BEALMEAR

Michael W. Bealmear

President, Chief Executive Officer

and Director

/s/ TIMOTHY S. MANNEY

Timothy S. Manney

Executive Vice President,

Chief Financial Officer and

Treasurer

(Principal Financial and

Accounting Officer)

Dated: August 13, 2001

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Exhibit Index

Exhibit No.		Description
	10.1	Employment contract between the Company and Michael W. Bealmear
	11	Computation of Earnings per Share