COVANSYS REPORTS SOLID FOURTH QUARTER AND FULL YEAR 2004 RESULTS

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FARMINGTON HILLS, MI, March 15, 2005 – Covansys Corporation (NASDAQ: CVNS), a global consulting and technology services company, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2004. 

Covansys reported revenue of $99.2 million in the fourth quarter compared with $91.5 million in the fourth quarter of 2003 and $96.2 million in the prior quarter. For the full fiscal year of 2004, revenue was $374.4 million compared with revenue of $378.6 in fiscal year 2003.

The Company generated net income of $9.2 million for the quarter ended December 31, 2004, up from $6.6 million (restated) in the prior quarter and up from the net income of $5.9 million (restated) in the fourth quarter of 2003. For the full year 2004, net income was $17.5 million compared to $10.1 million (restated) in 2003.

Net income available to common shareholders in the fourth quarter of 2004 was $0.24 per share (on a diluted basis) as compared to $0.13 per share (restated) in the same period last year. In the third quarter of 2004, Covansys’ net income available to common shareholders was a loss of $0.81 per share (on a diluted basis) which includes the effect of the recapitalization completed in the third quarter of 2004. For the full year of 2004, net income available to common shareholders was a loss of $0.48 per share compared to income of $0.16 per share (restated) in 2003.

Raj Vattikuti, Covansys founder, president, and chief executive officer, said, “Covansys’ strong fourth quarter performance clearly demonstrates our continued success in executing on our business plan. The financial and operational changes we have made are now generating encouraging results, as are the measures we have put into place to better manage our fixed price contracts in the public sector. We believe we are well positioned to capitalize on the opportunities that lie ahead in 2005.”

Covansys’ fourth quarter 2004 business and operational highlights include:

-         Continued strong revenue growth in India and Asia Pacific;

-     Added 475 billable consultants, bringing Covansys’ total billable headcount in India to more than 3,800 consultants, a 14% increase over third quarter and a 45% increase over fourth quarter 2003;

-         Initiated new statements of work on behalf of Fidelity Information Systems, which is now utilizing more than 300 billable consultants; and

-         Continued strategic focus on financial services, healthcare and public sector projects.

Additional Financial Results

Domestic utilization was 78.9% in the fourth quarter of 2004, down from 80.0% in the fourth quarter of 2003, and a decline over the last quarter, when domestic utilization was 85.2%. Utilization in India was 75.1% for the fourth quarter, down from 76.2% in the third quarter 2004, and down from 76.0% in the fourth quarter of 2003.

Covansys’ effective tax rate was 4.9% for the fourth quarter of 2004 and 20.4% for the full year. During the fourth quarter, the Company reversed $2.2 million of tax valuation reserves related to federal net operating losses that are no longer required based on management’s estimates of future profitability of the Company.

The Company’s combination of cash and short-term investments at the end of the fourth quarter 2004 was $71.2 million. Cash from operations for the fourth quarter 2004 was $14.1 million. Cash from operations for 2004 was $39.4 million.

During the fourth quarter of 2004, Covansys continued to perform services for one of its significant customers after it had reached the authorized spending limit on a time and material contract. In accordance with the Company's revenue recognition policies, Covansys recognized the costs of providing the services, but did not recognize any revenue for these services in 2004. As a result, gross profit in the Commercial sector was negatively impacted in the fourth quarter by approximately $3.5 million. In 2005, the Company entered into a new contract with that customer which covered these services that had already been rendered. As a result, Covansys will recognize the revenue in the first quarter of 2005.

Restatement of 2003 and 2002 Consolidated Financial Statements

As part of its 2004 year-end closing process, Covansys identified errors that resulted in a restatement of prior period financial statements. Management concluded that step-rent charges for the company's headquarters had been incorrectly accrued and that lease expense for prior periods was incorrect. As a result, the Company restated its operating results for the years ended December 31, 2003 and 2002, the effect of which was to reduce income from operations before income taxes by $.1 million in each period. The impact of this matter on our Consolidated Financial Statements for the periods prior to December 31, 2001, is reflected in the Company’s Consolidated Statement of Shareholders’ Equity as an adjustment retained earnings of $1.5 million as of December 31, 2001.

Also as part of its year-end closing process, Covansys performed a calculation of the cumulative temporary difference for property and equipment and capitalized software development costs and concluded that the net deferred tax liability required to be recorded for those difference had been misclassified in its financial statements as contingent tax reserves. The Company also reevaluated its accounting for contingent tax reserves from December 31, 2001 to 2004. To correct errors discovered by this analysis, the Company restated its operating results for the year ended December 31, 2003, the effect of which was to increase net income by $.3 million. There was no impact on net income for the year ended December 31, 2002 due to these matters. The impact of this matter on our Consolidated Financial Statements for the periods prior to December 31, 2001, is reflected in the Company’s Consolidated Statement of Shareholders’ Equity as an adjustment to retained earnings of $1.6 million as of December 31, 2001.

The total effect of impact of the restatement was an increase in net income for the year ended December 31, 2003 of $.2 million, a decrease in net income for the year ended December 31, 2002 of $.1 million and a reduction of net income for all periods prior to 2002 of $3.1 million.

As a consequence of the restatement, the Company's consolidated financial statements for each of the three years in the period ended December 31, 2003 that are included in its 2003 Form 10-K, and its Form 10-Qs for each of the quarterly periods in 2004 should no longer be relied upon. Restated financial statements for the years ended December 31, 2003 and 2002 are included in the Company's 2004 Form 10-K which was filed today. Restated financial statements for each of the quarterly periods ended March 31, 2004, June 30, 2004 and September 30, 2004 (with corresponding prior year financial statements) are expected to be filed on Form 10-Q/As as soon as practicable.

Management’s Report on Internal Control over Financial Reporting

Outlook

Jim Trouba, Covansys’ Chief Financial Officer, noted, “We take the internal controls over financial reporting of this Company and the material weaknesses identified in management’s report on internal control over financial reporting very seriously and are dedicated to continuing to strengthen our processes in 2005. As our fourth quarter results indicate, we continue to add billable headcount so that as business conditions continue to improve we can seize opportunities as they arise. Going forward, we expect that we will continue to add billable headcount in the U.S., India and Asia Pacific.”

Mr. Vatikutti concluded, “In 2004, we took the steps necessary to position Covansys for its next phase of growth. As we continue to pursue compelling opportunities in the areas of legacy modernization and outsourcing, we look forward to delivering a solid performance in 2005.”

Conference Call

A replay of the call will be available beginning at approximately 1:00 p.m. on March 16th through midnight on March 30, 2005 877-660-6853 or 201-612-7415 and referencing account number 286 and conference ID 143462. The replay will also be available on the company's website, www.covansys.com, for 90 days.

About Covansys

Headquartered in Michigan, Covansys Corporation (Nasdaq: CVNS) is a global consulting and technology services company specializing in industry-specific solutions, strategic outsourcing and integration services. Clients gain competitive advantage by leveraging our unique on-site, offsite, offshore delivery capability to achieve rapid deployment, world-class quality and reduced costs. A leader in the public sector market, Covansys is also known for application maintenance and development outsourcing in the healthcare, financial services, retail and distribution, manufacturing, telecommunications and high-tech industries. Founded in 1985, with nearly 6000 employees worldwide, Covansys was one of the first U.S.-based IT services companies to establish offshore facilities in India, and is a pioneer in seamlessly integrating offshore capabilities into its offerings. Two of the company's three wholly owned development centers in India are assessed at Level 5 in SEI CMM®. All three are ISO 9001:2000 certified and assessed at Level 5 in PCMM®. Covansys was named one of the leading IT companies for state and local governments in 2002 and 2003 by Washington Technology magazine, and one of the top 500 solution providers in 2002 and 2003 by VARBusiness magazine. Visit our web site: www.covansys.com.

Safe Harbor Statement

With the exception of statements regarding historical matters and statements concerning our current status, certain matters discussed herein 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 internal control weaknesses, impact of changes in estimates on fixed price projects, variability of operating results, failure to recruit, trans and retain skilled IT professionals, exposure to regulatory, political and general economic conditions in India and Asia, short term nature and termination provisions of contracts, competition in the IT services industry, economic conditions unique to clients in specific industries, decline in profitability of European operations, public sector budget constraints, limited protection of intellectual property rights, and risks related to merger, acquisition and strategic investment strategy.

AT THE COMPANY:

Investors:
James Trouba
(248) 848-2267
jtrouba@covansys.com             

Media:
Michelle Jones
(248) 848-2269
mjones@covansys.com